Leidos 4Q 2020 Earnings Conference Call
February 23, 2021
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 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, the impact of COVID-19 and related actions taken to prevent its spread and contract awards. 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, our ability to recover costs under contracts and insurance challenges; developments in the U.S. government defense and non-defense budgets, including budget reductions, sequestration, implementation of spending limits or changes in budgetary priorities, or delays in the U.S. government budget process or approval of raising the debt ceiling; delays in the U.S. government contract procurement process or the award of contracts and delays or loss of contracts as a result of competitor protests; changes in U.S. government procurement rules, regulations and practices; our compliance with various U.S. government and other government procurement rules and regulations; governmental reviews, audits and investigations of our company; our ability to effectively compete and win contracts with the U.S. government and other customers; our reliance on information technology spending by hospitals/healthcare organizations; our reliance on infrastructure investments by industrial and natural resources organizations; energy efficiency and alternative energy sourcing investments; investments by U.S. government and commercial organizations in environmental impact and remediation projects; our ability to attract, train and retain skilled employees, including our management team, and to obtain security clearances for our employees; our ability to accurately estimate costs associated with our firm-fixed-price contracts and other contracts; resolution of legal and other disputes with our customers and others or legal or regulatory compliance issues; cybersecurity, data security or other security threats, system failures or other disruptions of our business; our compliance with international, federal, state and local laws and regulations regarding privacy, data security, protection, storage, retention, transfer and disposal, technology protection and personal information; the damage and disruption to our business resulting from natural disasters; our ability to effectively acquire businesses and make investments; 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; the failure of our inspection or detection systems to detect threats; the adequacy of our insurance programs, customer indemnifications or other liability protections designed to protect us from significant product or other liability claims; our ability to manage risks associated with our international business; exposure to lawsuits and contingencies associated with Lockheed Martin's Information Systems & Global Solutions business; our ability to protect our intellectual property and other proprietary rights by third parties of infringement, misappropriation or other violations by us of their intellectual property rights; our ability to prevail in litigation brought by third parties of infringement, misappropriation or other violations by us of their intellectual property rights; our ability to declare future dividends based on our earnings, financial condition, capital requirements and other factors, including compliance with applicable law and our agreements; our ability to grow our commercial health and infrastructure businesses, which could be negatively affected by budgetary constraints faced by hospitals and by developers of energy and infrastructure projects; our ability to successfully integrate acquired businesses; 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. This release also contains statements about the proposed acquisition of Gibbs & Cox, Inc. that are based on assumptions currently believed to be valid but involve significant risks and uncertainties, many of which are beyond our control, which could cause our actual results to differ materially from these forward-looking statements with respect to the transaction, including risks relating to anticipated tax treatment, ability to retain key personnel, the dependency of the transaction on market conditions and the impact of a change in market conditions on the value to be received in the transaction, unforeseen liabilities, future capital expenditures, uncertainty as to the expected financial condition and economic performance of the company following the closing, including future revenues, expenses, earnings, indebtedness, losses, prospects, business strategies for the management, expansion and growth of the company following the closing, our ability to integrate the businesses successfully and to achieve anticipated synergies, and the risk that disruptions from the transaction will harm our business. 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 atwww.leidos.com.
All information in this release is as of February 23, 2021. The Company 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 the Company's expectations. The Company also disclaims any duty to comment upon or correct information that may be contained in reports published by investment analysts or others.
4Q & FY 2020 Highlights
Continued Revenue Growth |
|
Operating Margin Improvement |
|
Healthy Cash Flow Generation |
|
Disciplined Cash Deployment |
|
(1) 137% reflects 4Q FY20: [Cash Flow from Operations ($1,334M) - Capex ($183M)] / Non-GAAP Net Income ($840M)
Leidos FY 2020 Results
Note 1: Dotted line represents organic revenue for the quarter; see appendix for calculation of organic revenue growth Note 2: See appendix for definition & reconciliation of Non-GAAP Financial Measures
(1)Year-end cash from operations does not include any contribution from the existing account receivables monetization facility.
Leidos 4Q FY 20 Results
Note 1: Dotted line represents organic revenue for the quarter; see appendix for calculation of organic revenue growth Note 2: See appendix for definition & reconciliation of Non-GAAP Financial Measures
(1)
4Q FY20 cash flows from operations reflects the full repayment of the account receivables monetization facility.
Defense Solutions Segment
Revenue | Non-GAAP Operating Income | Non-GAAP Operating Margin |
($M) | ($M) | (%) |
$1,928
+16.5%
(-1.6% organic)
$172
$163
+5.5%
9.8%
$1,655
8.9%
-90bps
4Q FY19
4Q FY20
4Q FY19
4Q FY20
Note 1: Dotted line represents organic revenue for the quarter; see appendix for calculation of organic revenue growth Note 2: See appendix for definition & reconciliation of Non-GAAP Financial Measures
Note 3: Prior year amounts have been recast for the contracts that were reassigned between the Defense Solutions and Civil reportable segments
4Q FY19
4Q FY20
Civil Segment | ||
Revenue | Non-GAAP Operating Income | Non-GAAP Operating Margin |
($M) | ($M) | (%) |
Note 1: Dotted line represents organic revenue for the quarter; see appendix for calculation of organic revenue growth Note 2: See appendix for definition & reconciliation of Non-GAAP Financial Measures
Note 3: Prior year amounts have been recast for the contracts that were reassigned between the Defense Solutions and Civil reportable segments
Health Segment | ||
Revenue | Non-GAAP Operating Income | Non-GAAP Operating Margin |
($M) | ($M) | (%) |
Backlog & Book-to-Bill
Quarterly Book-to-Bill
(1) Backlog presented at exchange rate in effect at quarter end
Trailing Twelve Month Book-to-Bill
(2) Book-to-bill excludes the impact of currency fluctuations on backlog and does not include acquired backlog
2021 Guidance
Revenue
$13.7B - $14.1B
Adjusted EBITDA Margin(1)
Non-GAAP Diluted EPS(1)(2)
Operating Cash Flow(3)(4)
Meet or exceed $850M
Note: 2021 guidance does not include the announced acquisition of Gibbs & Cox.
(1) A quantitative reconciliation of adjusted EBITDA margin and non-GAAP diluted EPS forward-looking guidance to the most directly comparable measure calculated in accordance with GAAP is not available because these non-GAAP measures are intended to exclude items that are either unforeseeable, abnormal, or the timing and amount of which is difficult to predict.
(2) Assumes 2021 Non-GAAP Effective Tax Rate of 22%. See appendix for definition & reconciliation of Non-GAAP Financial Measures.
(3) Operating Cash Flow includes the impact of $34M of transaction/integration costs associated with the acquisitions of Dynetics, the L3Harris Security Detection and Automation businesses and
1901 Group.
(4) Operating cash flow does not include any contribution from the existing account receivables monetization facility.
Guidance Assumptions
Business Specific Factors |
|
Customer Driven Factors |
|
Budgetary Driven Factors |
|
2020 ESG Accomplishments & Recognitions
Sustainability is embedded within our business
EnvironmentalSocial
2021 Initiatives
• SASB Submission
• Science Based Target
• Expanded Supply Chain Sustainability Program
Appendix
Non-GAAP Financial Measures
This presentation includes certain non-GAAP financial measures, such as non-GAAP operating income, non-GAAP operating margin, non-GAAP effective tax rate, non-GAAP diluted earnings per share (EPS), adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA margin and free cash flow.
These are not measures of financial performance under generally accepted accounting principles in the U.S. ("GAAP") and, accordingly, these measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be read in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.
Management believes that these non-GAAP measures provide another measure of the Company's results of operations and financial condition, including its ability to comply with financial covenants. These non-GAAP measures are frequently used by financial analysts covering Leidos and its peers. The Company's computation of its non-GAAP measures may not be comparable to similarly titled measures reported by other companies, thus limiting their use for comparability.
Leidos does not provide a reconciliation of forward-looking adjusted EBITDA margins (non-GAAP) or non-GAAP diluted EPS to GAAP 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 GAAP net income and diluted EPS being materially less than projected adjusted EBITDA margins (non-GAAP) and non-GAAP diluted EPS.
Definition of Non-GAAP Financial Measures
Non-GAAP operating income is computed by excluding the following items from net income: (i) non-operating expense, net; (ii) income tax expense, and (iii) the following discrete items and the related tax impacts:
Acquisition, integration and restructuring costs - Represents acquisition, integration, lease termination and severance costs related to the Company's acquisitions.
Amortization of acquired intangible assets - Represents the amortization of the fair value of the acquired intangible assets.
Amortization of equity method investment - Represents the amortization of the fair value of the acquired equity method investment.
Acquisition related financing costs - Represents the amortization of the debt financing commitments in connection with the Company's acquisitions of Dynetics and the SD&A Businesses.
Loss on debt modification - Represents the write-off of debt discount and debt issuance costs as a result of debt modifications.
Asset impairment charges - Represents impairments of long-lived tangible assets.
Gain on sale of business - Represents the net gain on sale of businesses.
Other tax adjustments - Represents discrete tax items.
Non-GAAP operating margin is computed by dividing non-GAAP operating income by revenue.
Non-GAAP effective tax rate is computed by using the effective GAAP tax rate plus the tax impact of the non-GAAP items calculated using an estimated statutory tax rate.
Non-GAAP diluted EPS is computed by dividing net income, adjusted for the discrete items as identified above and the related tax impacts, by the diluted weighted average number of common shares outstanding.
Adjusted EBITDA is computed by excluding the following items from income before income taxes: (i) discrete items as identified above; (ii) interest expense; (iii) interest income; (iv) depreciation expense; and (v) amortization of intangibles.
Adjusted EBITDA margin is computed by dividing adjusted EBITDA by revenue.
Organic revenue calculation excludes revenue of acquired and divested businesses and assets until 12 months from the month of closing has passed.
Organic Revenue Calculation
Defense Solutions Revenues, as reported
Dynetics revenues (Acquired on 1/31/2020) Pro-forma revenues
YoY revenue growth on reported revenues
YoY "Organic Revenue Growth" on pro-forma revenues
Civil
Revenues, as reported
SD&A revenues (Acquired on 5/4/2020)
Commercial Cybersecurity Business revenues (Divested on 2/20/2019) Pro-forma revenues
$
612
$
667
$
733
$
773
$
2,785
$
YoY revenue growth on reported revenues
YoY "Organic Revenue Growth" on pro-forma revenues
654 $ 5.0% 6.9%
678 $
697 $
722 $ 2,751
13.6% 5.2%
4.9% 7.1%
1.6% -4.9%
-6.6% -1.2%
Health
Revenues, as reported
IMX revenues (Acquired on 8/15/2019)(1)
Health Staff Augmentation Business revenues (Divested on 9/15/2019) Pro-forma revenues
YoY revenue growth on reported revenues
YoY "Organic Revenue Growth" on pro-forma revenuesTotal Operations Revenues, as reported
$
2,577
$
2,728
$
2,835
$
2,954
$
11,094
$
2,889
$
2,914
$
3,242
$
3,252
$ 12,297
Total SD&A, Dynetics, Commercial Cyber, IMX & Health Staff Augmentation revenues (1)
36
27
27
-
90
140
293
387
389 1,209
Pro-forma revenues
$
2,541
$
2,701
$
2,808
$
2,954
$
11,004
$
2,749 $
2,621 $
2,855 $
2,863 $ 11,088
YoY revenue growth on reported revenues
12.1% 6.8%
14.4% 10.1% 10.8%
YoY "Organic Revenue Growth" on pro-forma revenues
8.2% -3.0%
1.7% -3.1% 0.8%
Note: See definition of organic revenue calculation on slide 15.
1QFY19
2QFY19
3QFY19
4QFY19
FY19
1QFY20
2QFY20
3QFY20
4QFY20
(dollars in millions)
$
1,491 -$
1,560 -$
1,594 -$
1,655 -
$
6,300 -
$
1,705 129
$
1,757 206
$
1,951 302
$
$
1,491
$
1,560
$
1,594
$
1,655
$
6,300
$
1,576 14.4% 5.7%
$
1,551 12.6% -0.6%
$
1,649 22.4% 3.5%
$
$
623 - 11
$
667 - -$
733 - -$
773 - -
$
2,796 - 11
$
654 - -$
758 80 -$
771 74 -$
$
463 - 25
$
501 - 27
$
508 $ 6 21
526 - -
$
1,998 6 73
$
530 $ 11
399 $ 7
520 $ 11
-
-
-
$
438
$
474
$
481
$
526
$
1,919
$
519
$
392
$
509 2.4% 5.8%
$
14.5% 18.5%
-20.4% -17.3%
(1) IMX revenues for 4QFY19 of $12M was presented in the 3QFY20 Supplementary Financials. IMX was owned by Leidos for the full quarter of Q4FY19 and therefore, has been removed to calculate pro-forma revenues.
FY20
1,928 300
$
7,341 937
1,628
$
6,404
16.5% 16.5%
-1.6% 1.7%
811 89 -
$
2,994 243 -
513 - -
$
1,962 29 -
513
$
1,933
-2.5% -2.5%
-1.8% 0.7%
Non-GAAP Operating Income Reconciliation
1QFY19
2QFY19
3QFY19
4QFY19
FY19
1QFY20
2QFY20
3QFY20
4QFY20
FY20
Operating income
(in millions)
$
192 $ 2 42 - 3 239 $ 9.3%
210 $ 1 43 - 2 256 $ 9.4%
249 $ - 43 - 3 295 $ 10.4%
261 $ 2 43 - 3
912 $ 5 171 - 11 1,099 $ 9.9%
192 $ 12 42 - - 246 $ 8.5%
249 $
258 $
299 $ 998
16 5 6 39
Acquisition, integration and restructuring costs Amortization of acquired intangibles
51 59 43 195
Asset impairment charges
11 - 1 12
Amortization of equity method investment Non-GAAP operating income Non-GAAP operating income margin
Note: See definition of Non-GAAP Financial Measures on slide 15.
- 2 - 2
$
309 10.5%
$
327 $ 11.2%
324 $ 10.0%
349 10.7%
$
1,246 10.1%
Reportable Segments Non-GAAP Operating Income Reconciliation
Quarter Ended January 1, 2021
(in millions)
Defense Solutions Civil
Operating income
Acquisition, integration Amortization of Asset impairment and restructuring costs acquired intangibles charges
Health Corporate Total
$
147 $ 89 86 (23)
- -1 $ 24 $ 10
9 - 95
5
- - (18)
$
299
$
6
$
43
$
Quarter Ended January 3, 2020
(in millions)
Operating income
Acquisition, integration Amortization of Amortization of equity and restructuring costs acquired intangibles method investment
Defense Solutions(1) Civil(1)
$
147 $ 74 73 (33)
- $ - -
16 $ 16
Health Corporate Total
11 - 84
2
- - (31)
$
261
$
2
$
43
$
(1) Prior year amounts have been recast for the contracts that were reassigned between the Defense Solutions and Civil reportable segments.
Non-GAAP operating income
- $ 172
1 100
1
$
349
Non-GAAP operating income
- $ 163
3 93
3
$
309
Non-GAAP Financial Measures Reconciliation
1QFY19
(in millions, except per share amounts)
Non-GAAP operating income
Depreciation expense
Other income (expense), net
Amortization of internally developed intangible assets Adjusted EBITDA
Depreciation expense Interest expense, net
Income tax expense adjusted to reflect non-GAAP adjustments Amortization of internally developed intangible assets
Non-GAAP net income
Less: net income attributable to non-controlling interest Non-GAAP net income attributable to Leidos Holdings, Inc.
Acquisition, integration and restructuring costs
Amortization of acquired intangibles Acquisition related financing costs Gain (loss) on sale of business Loss on debt modification Asset impairment charges
Amortization of equity method investment
$
239 15 4 1
$
$
259 (15) (38) (39) (1)
$
$
166 -$
$
166
$
(2)
(42)
-
88 - -
(3)
Adjustment to the income tax provision to reflect non-GAAP adjustments(1)
(18)
13
13
18
19
23
Net income attributable to Leidos Holdings, Inc.
$
189
$
Non-GAAP diluted EPS attributable to Leidos Holdings, Inc.(2)
Total adjustments from non-GAAP income
Diluted EPS attributable to Leidos Holdings, Inc.(2)
$
1.13 0.16
$
$
1.29 147
$
Diluted shares (for computing non-GAAP EPS)
Note: See definition of Non-GAAP Financial Measures on slide 15
(1) Calculation uses an estimated statutory tax rate on non-GAAP adjustments.
2QFY19
3QFY19
4QFY19
FY19
1QFY20
256 14 3 -
$
295 16 (7)
$
309 16 (1) 1
$
1,099 61 (1) 2
$
-273 (14) (33) (54)
$
304 (16) (28) (62)
$
325 (16) (32) (59) (1)
$
1,161
$
(61) (131) (214)
-
-
(2)
172 2
$
198 1
$
217 -$
753 3
$
170
$
197 - (43)
$
217
$
750
$
(1)
(2)
(5)
(43)
(43)
(171)
-
- - - -
(2)
(2)
(1)
- -
1 - -
88 - -
(2)
(3) 10
(3)
(11)
136
$
161
$
181
$
667
$
1.16 (0.23)
$
1.36 (0.25)
$
1.51 (0.25)
$
5.17 (0.57)
$
0.93 146
$
1.11 145
$
1.26 144
$
4.60 145
$
(2) Earnings per share are computed independently for each of the quarters presented and therefore may not sum to the total for the fiscal year.
2QFY20
3QFY20
4QFY20
FY20
246 18 5 1
$
327 20 (4)
$
324 22 - 1
$
349 24 (8) 1
$
1,246
84
(7)
-
3
270 (18) (46) (34) (1)
$
343 (20) (38) (61)
$
347 (22) (44) (68) (1)
$
366 (24) (46) (61) (1)
$
1,326
(84)
(174)
(224)
-
(3)
171 -$
224 1
$
212 -$
234 -$
841
1
171
$
223
$
212 (5) (59)
$
234 (6) (43)
$
840
(12)
(16)
(39)
(42)
(51)
(195)
(2)
(3)
- - - -
-
(5)
-
-
-
-
(19)
(12)
-
(31)
- -
(11)
(1)
(12)
-
(2) 17
- 13
(2)
72
115
$
153
$
163
$
197
$
628
1.19 (0.39)
$
1.55 (0.49)
$
1.47 (0.34)
$
1.63 (0.26)
$
5.83
(1.47)
0.80 144
$
1.06 144
$
1.13 144
$
1.37 144
$
4.36
144
Non-GAAP Financial Measures Reconciliation (cont'd)
(in millions, except per share amounts)
As reported
Operating income
Non-operating expense, net Income before income taxes
Income tax expense(1)
Net income
Less: net income attributable to non-controlling interest Net income attributable to Leidos common stockholders
$
245
$
Diluted EPS attributable to Leidos common stockholders Diluted shares
$
Income before income taxes Depreciation expense Amortization expense Interest expense, net EBITDA
$
$
EBITDA margin
(1) Calculation uses an estimated statutory tax rate on non-GAAP adjustments.
Quarter Ended January 1, 2021
Acquisition, integration and restructuring costsAmortization of acquired intangibles
Asset impairment chargesNon-GAAP results
299 $
6
$
43 -$
1
$ 349
(54)
-
- (54)
6 (2) 4
43 (11) 32 -
1 295
(48)
- (61)
197 -
-
-1
234 -197
$
4
$
32
$
1
$
234
1.37 144
$
0.03 144
$
0.22 144
$
0.01 $ 1.63
144 144
245 24 44 46
$
6
$
43
$
1 $ 295
- - -
- - 24
(43) - 1
- - 46
359 11.0%
$
6
$
-$
1
$
366 11.3%
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Leidos Holdings Inc. published this content on 23 February 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 February 2021 17:01:03 UTC.