Leidos Holdings, Inc. (NYSE: LDOS), a national security, health and engineering solutions company, today reported financial results for the first quarter of fiscal year 2015, which ended May 2, 2014.
John Jumper, Leidos Chairman and Chief Executive Officer commented: "Our initiatives to improve profitability are gaining traction and starting to yield results. This quarter, Leidos's operating income margin and earnings per share increased compared to the prior year. We were able to achieve these results despite continued declines in overseas contingency operations revenues, a constrained federal funding environment and lower commercial revenues. Our management team continues to execute on our cost saving programs and portfolio shaping initiatives. We are committed to increase profitability, to leverage our assets and intellectual capital to enhance our competitiveness, and to generate strong cash flows to drive value for our shareholders."
First Quarter Fiscal Year 2015 Summary Results
Revenues for the first quarter of fiscal year 2015 were $1.32 billion, reflecting a revenue contraction of 17 percent, as compared to $1.60 billion in the prior year.
Operating income from continuing operations for the first quarter was $89 million, up $13 million, as compared to operating income from continuing operations of $76 million in the prior year.
Diluted earnings per share from continuing operations for the first quarter was $0.59 compared to $0.43 in the prior year. Non-GAAP diluted earnings per share from continuing operations for the first quarter was $0.60 compared to $0.57 in the prior year. The diluted share count for the quarter was 78 million, down 7 percent from 84 million in the prior year.
National Security Solutions revenues for the first quarter of fiscal year 2015 decreased $133 million, or 12 percent, compared to the prior year. The revenue contraction was attributable to contract activities tied to the drawdown of overseas U.S. military forces and by overall reductions in defense and U.S. Government spending resulting from sequestration and budget cuts.
National Security Solutions operating income margin for the first quarter was 8.2 percent, up from 6.6 percent in the prior year, with the increase primarily attributable to net favorable changes in contract estimates and an intangible asset impairment charge in the prior year period.
Health and Engineering revenues for the first quarter of fiscal year 2015 decreased $141 million, or 27 percent, compared to the prior year. The revenue contraction reflects a decline in engineering services due to the completion of two energy design-build construction projects, lower sales volume in the non-intrusive inspection systems business due to timing of product shipments and lower sales volume in our federal and commercial health businesses.
Health and Engineering operating income margin for the first quarter was 6.6 percent, down from 6.7 percent in the prior year. Operating income margin in the first quarter was primarily impacted by lower revenues from engineering products which typically generate higher margins and an operating loss for the Plainfield biomass power plant due to production short falls. The prior year quarter included an unfavorable change in contract estimates related to the Plainfield design-build construction project. The first quarter of fiscal year 2015 included a reserve adjustment following a favorable ruling on a legal matter and a year over year decrease in amortization expense of intangible assets.
Corporate and Other segment operating loss was $13 million for the first quarter of fiscal year 2015 compared to $30 million in the prior year. The first quarter loss included $1 million of separation transaction and restructuring expenses associated with the spin-off which was completed in fiscal year 2014. In the prior year, separation transaction and restructuring expenses totaled $14 million.
Cash Generation and Capital Deployment
Cash flow used in operating activities of continuing operations for the first quarter of fiscal year 2015 was $8 million.
During the first quarter of fiscal year 2015, the Company entered into a $200 million accelerated stock repurchase program and the Company paid a cash dividend of $0.32 per share. The Company intends to continue paying dividends on a quarterly basis, although the declaration of any future dividends will be determined by the Company's Board of Directors each quarter and will depend on earnings, financial condition, capital requirements and other factors.
As of May 2, 2014, the Company had $183 million in cash and cash equivalents and $1.3 billion in long-term debt.
New Business Awards
New business bookings totaled $857 million in the first quarter of fiscal year 2015, representing a book-to-bill ratio of 0.6.
Notable recent awards received include:
U.S. Air Force. The Company was awarded a prime contract by the U.S. Air Force to provide research, development, testing and evaluation for homeland defense and security technical area tasks to the Department of Defense community of interest. The cost-plus-fixed-fee, firm-fixed-price, multiple award, indefinite-delivery/indefinite-quantity contract has a one-year base period of performance, four one-year options and a total value of approximately $900 million for all awardees, if all options are exercised.
Intelligence Community. The Company was awarded contracts valued at $101 million, if all options are exercised, by U.S. national security and intelligence clients. Though the specific nature of these contracts is classified, they all encompass mission-critical services that help to counter global threats and strengthen national security.
United States Special Operations Command. The Company was awarded a subcontract for the Combatant Craft Medium Mk-1 (CCM Mk1). The contract will include production of low observable systems, integration and testing of craft tactical computing systems, full life-cycle integrated logistics support and incremental development and upgrades. The total potential value of the subcontract award is approximately $87 million of the total program ceiling of $400 million won by the prime contractor, Oregon Iron Works.
U.S. Navy Bureau of Medicine and Surgery. The Company was awarded a prime contract by the U.S. Navy Bureau of Medicine and Surgery to provide psychological health support services to the Naval Center for Combat & Operational Stress Control. The single-award, cost-plus fixed-fee contract has a one-year base period of performance, two one-year options and a total contract value of approximately $15 million, if all options are exercised.
Department of Veterans Affairs. The Company was awarded a prime contract by the Department of Veterans Affairs (VA) to provide systems integration support and services to the VA's Consolidated Mail Outpatient Pharmacy. The single-award, firm-fixed-price contract has a one-year base period of performance, two one-year options and a total contract value of approximately $12 million, if all options are exercised.
The Company's backlog of signed business orders at the end of the first quarter of fiscal year 2015 was $8.84 billion, of which $3.11 billion was funded. As compared to the end of the first quarter of fiscal year 2014, total backlog decreased 6 percent and funded backlog increased 5 percent. Backlog does not include any estimate of future task orders expected to be awarded under IDIQ, GSA Schedule or other master agreement contract vehicles.
Forward Guidance
The Company affirms fiscal year 2015 guidance:
Revenues of $4.9 billion to $5.1 billion;
Non-GAAP diluted earnings per share from continuing operations of $2.35 to $2.55; and
Cash flows provided by operating activities from continuing operations at or above $350 million.
Fiscal year 2015 guidance excludes the impact of potential future acquisitions and other non-ordinary course items.
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