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Leidos Holdings, Inc. Reports Third Quarter Fiscal Year 2022 Results

• Revenues of $3.6 billion, up 4% year-over-year
• Net Income of $164 million; Adjusted EBITDA of $372 million
• Diluted Earnings per Share of $1.17, or $1.59 on a non-GAAP basis
• Record Cash Flows from Operations of $748 million and Free Cash Flow of $721 million
• Net Bookings of $4.1 billion (book-to-bill ratio of 1.1)
• Improved revenue outlook for 2022

RESTON, Va., November 1, 2022 - Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500® science and technology leader, today reported financial results for the third quarter of fiscal year 2022.

Roger Krone, Leidos Chairman and Chief Executive Officer, commented, "Our third quarter results demonstrate the momentum in our business as we continue to report revenue growth at the upper end of our guidance across our diversified portfolio. In addition, our dedicated team delivered earnings in excess of our forecast and generated the highest quarterly cash flow from operations in our history. These results position us well to deliver on our full-year financial targets as we make the world safer, healthier and more efficient."

Summary Operating Results

			Three Months Ended
(in millions, except margin and per share amounts)		September 30, 2022			October 1, 2021
Revenues	$	3,608	$	3,483
Net income	$	164	$	208
Net income margin		4.5 %			6.0 %
Diluted earnings per share (EPS)	$	1.17	$	1.43
Non-GAAP Measures*:
Adjusted EBITDA	$	372	$	403
Adjusted EBITDA margin		10.3 %			11.6 %
Non-GAAP diluted EPS	$	1.59	$	1.80

• Non-GAAPfinancial measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Management believes that these non-GAAP measures provide another measure of Leidos' results of operations and financial condition, including its ability to comply with financial covenants. See Non-GAAP Financial Measures at the end of this press release for more information and a reconciliation of our selected reported results to these non-GAAP measures.

Revenues for the quarter were $3.61 billion, up 4% compared to the third quarter of 2021; the largest contributors were continued growth of the Navy Next Generation Enterprise Network Recompete (NGEN-R) Service Management, Integration and Transport (SMIT) contract; ramp-up of the National Aeronautics and Space Administration (NASA) Advanced Enterprise Global Information Technology Solutions (AEGIS) contract; and increased deployments on the Defense Healthcare Management System Modernization (DHMSM) program.

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Net income was $164 million and diluted EPS was $1.17. Net income and diluted EPS were down 21% and 18% year-over-year, respectively. Net income and diluted EPS include a $16 million unrealized loss associated with the foreign currency forward contract entered into in order to hedge the preliminary purchase price for Cobham Aviation Services Australia ("Cobham") in Australian dollars. In addition, net interest expense increased to $50 million from $47 million in the third quarter of 2021. Weighted average diluted shares for the quarter were 138 million compared to 143 million in the prior year quarter, which benefited from the Accelerated Share Repurchase (ASR) agreement implemented in the first quarter of 2022.

Adjusted EBITDA was $372 million for the third quarter, down 8% year-over-year, and adjusted EBITDA margin decreased from 11.6% to 10.3% over the same period. Profitability in the year-ago quarter was elevated due to temporarily increased workload and decreased indirect expenses as a result of the COVID-19 pandemic as well as an elevated level of write-ups on certain contracts. Adjusted EBITDA and adjusted EBITDA margin increased $6 million and 10 basis points, respectively, compared to the second quarter of 2022. Non-GAAP net income was $221 million for the third quarter, down 15% year-over-year, and non-GAAP diluted EPS for the quarter was $1.59, down 12% year-over-year.

Cash Flow Summary

In the third quarter net cash provided by operating activities was $748 million, or 462% of net income attributable to Leidos shareholders. After adjusting for payments for property, equipment and software, free cash flow was $721 million, resulting in a free cash flow conversion ratio of 329%. In addition, Leidos used $26 million for investing activities and $217 million for financing activities.

Leidos returned $49 million to shareholders in the third quarter as part of its regular quarterly cash dividend program. As of September 30, 2022, Leidos had $807 million in cash and cash equivalents and $5.0 billion of debt.

On October 30, 2022, Leidos completed the acquisition of Cobham Special Mission, which provides airborne border surveillance and search and rescue services to the Australian Federal Government. Purchase consideration was $305 million Australian dollars, subject to working capital adjustments. At the signing of the definitive agreement, Leidos entered into a forward contract for $215 million to offset foreign currency fluctuations of the full purchase consideration. Based on the exchange rate at the close, the translated purchase price was $196 million. We realized a loss of $18 million associated with the foreign exchange forward contract.

On October 28, 2022, the Leidos Board of Directors declared a cash dividend of $0.36 per share to be paid on December 30, 2022, to stockholders of record at the close of business on December 15, 2022.

New Business Awards

Net bookings totaled $4.1 billion in the quarter, representing a book-to-bill ratio of 1.1. As a result, backlog at the end of the quarter was $35.0 billion, of which $7.4 billion was funded. Notable awards in the quarter include:

• Sentinel. Leidos was awarded a prime task order by the Department of Defense to enhance technological innovation with a focus on rapid insertion of technologies across the mission spectrum for multiple services, and integrating new technology with existing and legacy systems for increased effectiveness. Leidos will support the government with rapid technology insertion to enhance Command, Control, Computers, Communications, Cyber, Intelligence, Surveillance and Reconnaissance (C5ISR) missions at a global scale. This award enables Leidos to expand its extensive C5ISR portfolio as well as deliver a critical capability towards improved warfighter support. The contract has a total value of $1.5 billion dollars and includes a one-year base period of performance with four one-year options.
• U.S. Naval Sea Systems Command (NAVSEA) Medium Unmanned Undersea Vehicle (MUUV). Leidos was selected by the NAVSEA to design and build a MUUV to support intelligence preparation of the operational environment by providing submarine-based autonomous oceanographic sensing and data collection for the Navy. The MUUV will also provide surface-launched and recovered mine countermeasures. The single award, cost-plus-fixed-fee contract holds an approximate value of $358 million if all options are exercised.

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• Defense Information Systems Agency (DISA) Defense Enclave Services (DES) Task Order. DISA awarded Leidos a task order contract with a total estimated value of $138 million dollars with a five year period of performance. Through the DES contract, Leidos will consolidate enterprise IT services and provide standardized, responsive and cost-effective solutions for more than 370,000 users spanning 22 Department of Defense (DoD) agencies and field activities with over 500 sites both in the U.S. and abroad. This first task order will lay the framework and begin to consolidate, integrate and optimize five agencies on a common network architecture through digital modernization and transformation. The work will focus on mission value and user experience, while improving cybersecurity, network availability and reliability for Fourth Estate agencies.

Forward Guidance

Leidos is updating its fiscal year 2022 guidance as follows:

		FY22 Guidance
Measure	Current	Prior
Revenues (billions)	$14.2	- $14.4	$13.9	- $14.3
Adjusted EBITDA Margin	10.3%	- 10.5%	10.3%	- 10.5%
Non-GAAP Diluted EPS	$6.20	- $6.40	$6.10	- $6.50
Cash Flows Provided by Operating Activities (billions)	at or above $1.0	at or above $1.0

For information regarding adjusted EBITDA margin and non-GAAP diluted EPS, see the related explanations and reconciliations to GAAP measures included elsewhere in this release.

Leidos does not provide a reconciliation of forward-looking adjusted EBITDA margins or non-GAAP diluted EPS to net income due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. Because certain deductions for non-GAAP exclusions used to calculate projected net income may vary significantly based on actual events, Leidos is not able to forecast on a GAAP basis with reasonable certainty all deductions needed in order to provide a GAAP calculation of projected net income at this time. The amounts of these deductions may be material and, therefore, could result in projected net income and diluted EPS being materially less than what may be implied by projected adjusted EBITDA margins and non-GAAP diluted EPS.

Conference Call Information

Leidos management will discuss operations and financial results in an earnings conference call beginning at 8:00 A.M. eastern time on November 1, 2022. Analysts and institutional investors may participate by dialing +1 (877)

869-3847(toll-free U.S.) or [phone] (international callers).

A live audio broadcast of the conference call along with a supplemental presentation will be available to the public through links on the Leidos Investor Relations website (http://ir.leidos.com).

After the call concludes, an audio replay can be accessed on the Leidos Investor Relations website or by dialing +1

1. 660-6853(toll-free U.S.) or [phone] (international callers) and entering conference ID 13733461. About Leidos

Leidos is a Fortune 500® technology, engineering, and science solutions and services leader working to solve the world's toughest challenges in the defense, intelligence, civil and health markets. Leidos' 44,000 employees support vital missions for government and commercial customers. Headquartered in Reston, Va., Leidos reported annual revenues of approximately $13.7 billion for the fiscal year ended December 31, 2021.

For more information, visit www.leidos.com.

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Forward-Looking Statements

Certain statements in this release contain or are based on "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by words such as "expects," "intends," "plans," "anticipates," "believes," "estimates," "guidance" and similar words or phrases. Forward-looking statements in this release include, among others, estimates of our future growth and financial and operating performance, including future revenues, adjusted EBITDA margins, diluted EPS (including on a non-GAAP basis), and cash flows provided by operating activities, as well as statements about our business contingency plans, uncertainties in tax due to new tax legislation or other regulatory developments, the impact of COVID-19 and related actions taken to prevent its spread, our contract awards, strategy, planned investments, sustainability goals and our future dividends, share repurchases, capital expenditures, debt repayments, acquisitions, dispositions, and cash flow conversion. These statements reflect our belief and assumptions as to future events that may not prove to be accurate.

Actual performance and results may differ materially from those results anticipated by our guidance and other forward-looking statements made in this release depending on a variety of factors, including, but not limited to: the impact of COVID-19 or future epidemics on our business, including the potential for facility closures, re-evaluation of U.S. government spending levels and priorities, delay of new contract awards, supply chain impacts, airline travel levels, our ability to recover costs under contracts, insurance challenges, uncertainty regarding the efficacy of vaccines against variants, booster vaccinations, or the lack of public acceptance of vaccines and low vaccination rates, and laws and regulations with respect to vaccinations; changes to our reputation and relationships with government agencies, developments in the U.S. government defense budget, including budget reductions, implementation of spending limits or changes in budgetary priorities; delays in the U.S. government budget process or approval of raises to the debt ceiling; delays in the U.S. government contract procurement process or the award of contracts or our ability to win contracts; delays or loss of contracts as a result of competitor protests; changes in U.S. government procurement rules, regulations and practices; changes in interest rates and inflation, and other market factors out of our control, including general economic and political conditions; our compliance with various U.S. government and other government procurement rules and regulations; governmental reviews, audits and investigations of Leidos; our reliance on information technology spending by hospitals/healthcare organizations, infrastructure investments by industrial and natural resources organizations and other customer investments related to our business; our ability to attract, train and retain skilled employees, including our management team, and to obtain security clearances for our employees; the mix of our contracts and our ability to accurately estimate costs associated with our firm-fixed-price and other contracts as well as our ability to realize as revenues the full amount of our backlog; cybersecurity, data security or other security threats, systems failures or other disruptions of our business; resolution of legal and other disputes with our customers and others or legal or regulatory compliance issues; our ability to effectively acquire businesses and make investments and any related contingencies or liabilities to which we may become subject; our ability to maintain relationships with prime contractors, subcontractors and joint venture partners; our ability to manage performance and other risks related to customer contracts, including complex engineering projects; our ability to obtain necessary components and materials to perform our contracts, including semiconductors and related equipment, on reasonable terms or at all; the failure of our inspection or detection systems to detect threats; changes in business conditions that could impact business investments and/or recorded goodwill or the value of other long-lived assets; the adequacy of our insurance programs designed to protect us from significant product or other liability claims; our ability to manage risks associated with our international business; our ability to declare future dividends or repurchase our stock based on our earnings, financial condition, capital requirements and other factors, including compliance with applicable laws and contractual agreements; changes in accounting, U.S. or foreign tax, export or other laws, regulations, and policies and their interpretation or application; and our ability to execute our business plan and long-term management initiatives effectively and to overcome these and other known and unknown risks that we face.

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This release also contains certain forward-looking statements with respect to Leidos' acquisition of Cobham Aviation Services Australia, including benefits of the transaction and the products and markets of each company. Many factors could cause actual future events to differ materially from the forward-looking statements in this release, including but not limited to: (i) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement, (ii) the effect of the announcement of the transaction on Cobham Aviation Services Australia's business relationships, operating results, and business generally, (iii) risks that the transaction disrupts current plans and operations of Leidos or Cobham Aviation Services Australia and potential difficulties in Cobham Aviation Services Australia's employee retention as a result of the transaction, (iv) risks related to diverting management's attention from Cobham Aviation Services Australia ongoing business operations, (v) the outcome of any legal proceedings that may be instituted against Leidos or against Cobham Aviation Services Australia related to the merger agreement or the transaction, (vi) the ability of Leidos to successfully integrate Cobham Aviation Services Australia's operations, product lines, and technology, and (vii) the ability of Leidos to implement its plans, forecasts, and other expectations with respect to Cobham Aviation Services Australia's business after the completion of the proposed acquisition and realize additional opportunities for growth and innovation. These are only some of the factors that may affect the forward-looking statements contained in this release. For further information concerning risks and uncertainties associated with our business, please refer to the filings we make from time to time with the U.S. Securities and Exchange Commission ("SEC"), including the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Legal Proceedings" sections of our latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, all of which may be viewed or obtained through the Investor Relations section of our website at www.leidos.com.

All information in this release is as of November 1, 2022. Leidos expressly disclaims any duty to update the guidance or any other forward-looking statement provided in this release to reflect subsequent events, actual results or changes in Leidos' expectations. Leidos also disclaims any duty to comment upon or correct information that may be contained in reports published by investment analysts or others.

CONTACTS:
Investor Relations:	Media Relations:
Stuart Davis	Melissa Lee Dueñas
571.526.6124	571.526.6850
[e-mail]	[e-mail]

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