LDOS · Q2 2026 Earnings

Bullish

Leidos

Reported August 4, 2026

30-second summary

Revenue grew 7% YoY to $4.56B (4% organic) — a direct refutation of last quarter's "Q2 as likely low point" framing — with non-GAAP EPS of $3.26 (+2% YoY vs. $3.21). GAAP metrics were softer against a tough comp: net income $356M (-9% YoY) and adjusted EBITDA $631M (-2% YoY) with margin of 13.8%, down 140 bps from 15.2% but still slightly above the reaffirmed mid-13% FY guide; the prior-year period benefited from a $25M insurance reimbursement and other non-operational gains. Management raised FY26 across every metric that moves the model: revenue low end +$0.20B to $18.2–18.4B, EPS low end +$0.10 to $12.20–12.50, operating cash flow +$0.05B to ~$1.85B. The two segments most in question — Homeland (+32% reported, +15.1% organic after $141M Entrust contribution) and Health (-7.6% but with 224% operating cash conversion in the quarter) — resolved in opposite directions, but the Homeland scale-up and the Defense +6.2% acceleration validate the H2 acceleration thesis on a higher starting base than management had guided.

Headline numbers

EPS

Q2 FY2026

$3.26

+12.0% vs est.

Revenue

Q2 FY2026

$4.56B

+7.0% YoY

+2.7% vs est.

Free cash flow

Q2 FY2026

$0.76B

Operating margin

Q2 FY2026

11.3%

Key financials

Q2 FY2026

Metric	Q2 FY2026	Q2 FY2025	YoY	Q1 FY2026	QoQ
Revenue	$4.56B	$4.25B	+7.2%	$4.40B	+3.6%
EPS	$3.26	$3.21	+1.6%	$3.13	+4.2%
Operating margin	11.3%	13.4%	-210bps	11.5%	-20bps
Free cash flow	$0.76B	$0.46B	+66.5%	$0.27B	+181.9%

Guidance

Leidos raised FY2026 full-year guidance across revenue (low end +$0.20B to $18.2–$18.4B), EPS (low end +$0.10 to $12.2–$12.50), and operating cash flow (+$0.05B to ~$1.85B) while delivering a strong Q2 beat that contradicts prior 'likely low point' characterization.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q2 FY2026	Q2 as likely low point in revenue growth and margin for the year	$4.558 billion	Beat consensus by +2.7%, YoY growth +7%	Beat
Non-GAAP Diluted EPS	Q2 FY2026	Implied in FY guidance trajectory	$3.26	+12% vs consensus estimate ($2.91)	Beat

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Revenue	FY2026	$18.00 - $18.40 billion	$18.20 - $18.40 billion	+$0.20B low end	Raised
Non-GAAP Diluted EPS	FY2026	$12.10 - $12.50	$12.20 - $12.50	+$0.10 low end	Raised
Cash Flows Provided by Operating Activities	FY2026	Approximately $1.80 billion	Approximately $1.85 billion	+$0.05 billion	Raised

Segment KPIs

Q2 FY2026

Segment	Q2 FY2026	Q2 FY2025	YoY
Intelligence & Digital	$1.499B	—	+6.5%
Health	$1.086B	—	-7.6%
Homeland	$1.018B	—	+32.0%
Defense	$0.955B	—	+6.2%

Other KPIs

Q2 FY2026

Segment	Q2 FY2026	Q2 FY2025	YoY
Adjusted EBITDA	$631 million	$647M	—
Adjusted EBITDA Margin	13.8%	15.2%	—
Operating Cash Flow	$793 million	—	—
Operating Cash Flow Conversion	224%	124%	—
Free Cash Flow Conversion	185%	110%	—
Total Backlog	$48.7 billion	$46.2B	—
Funded Backlog	$10.2 billion	$7.1B	—
Book-to-Bill Ratio	1.1x	0.9	—

Management tone

Transcript prepared remarks and Q&A were not available for this brief; tone analysis is drawn from press-release qualitative statements and comparison to prior-call framing.

Guidance-language migration from "ongoing confidence" to "enhanced" is the cleanest tone signal of the year. Last quarter the raise reflected Entrust closing and was hedged with "Q2 as likely low point"; this quarter the language is "we have enhanced our 2026 guidance for revenues, earnings, and cash" backed by the actual Q2 print exceeding the low-point framing. The shift signals management now believes the H2 acceleration thesis is validated by H1 execution rather than being underwritten by forward promises.

Managed Healthcare framing has moved from "20% margin floor commitment" to "greater visibility into long-term role." On Q1 Bell defended Health as a margin-protected franchise even as fourth-vendor pressure entered the market. This quarter the language is "we have greater visibility into the long-term role of our Managed Healthcare pillar" — a notably softer framing that could read as pre-positioning for either a margin step-down or a strategic re-scoping. Paired with Health revenue -7.6% and non-GAAP operating margin sliding to 23.8% from 26.3%, this is the sentence in the press release worth the most scrutiny.

The three-pillar growth framing has crystallized. Prior quarters cited Defense Tech, Energy Infrastructure, and Cyber as forward opportunities; this quarter management pairs them as the three pillars where "meaningful growth is emerging." Combined with Defense +6.2% inflection and Homeland scaling to $1B/quarter, the pillar language now has segment-level evidence behind it.

Entrust references are present but limited to mechanics, not synergies. The press release discloses $29M of Entrust-and-JV-related acquisition/integration/restructuring costs, $141M of Entrust revenue contribution in Homeland, and $371M of Entrust backlog acquired. What is absent is any qualitative statement on synergy progression or accretion — a step back from Q1's "synergies already surfacing" language. Investors should press for H2 Entrust contribution in follow-up.

Answers to last quarter's watch list

Q2 revenue growth and margin print against management's "likely low point" framing. Q2 revenue grew 7% YoY to $4.56B (4% organic) and adjusted EBITDA margin printed 13.8% — still above the mid-13% FY floor though down 140 bps YoY against a comp that included a $25M insurance reimbursement. The "likely low point" characterization was contradicted on revenue growth. Status: Resolved positively.

Defense segment growth trajectory — third consecutive sub-mid-single-digit print would damage the segment-mix story. Defense printed +6.2%, led by defense tech product lines. The segment-mix thesis regains credibility. Status: Resolved positively.

Q2 book-to-bill recovery above 1.0. Q2 book-to-bill printed 1.1x (TTM also 1.1x). Funded backlog rose to $10.2B (+44% YoY) and total backlog to $48.7B (+5% YoY). Status: Resolved positively.

CapEx pacing toward $350M. Q2 capex was $32M (H1 $63M) against a $350M FY target — H2 would need ~$287M or roughly $143M/quarter, a step-up materially larger than management has previously articulated. The undershoot risk that would boost FCF above the raised $1.85B OCF guide remains live. Status: Continue monitoring.

Health segment progression from flat to positive YoY. Health printed -7.6%, driven by lower medical disability exam volumes. Non-GAAP operating margin slid to 23.8% from 26.3%. Management's press-release language of "greater visibility into the long-term role" is qualitatively softer than Q1's 20% margin floor commitment. Status: Resolved negatively.

Entrust accretion visibility — does H2 deliver the synergies "already surfacing" in Q1? Entrust is referenced in Q2 disclosures as contributing $141M of Homeland revenue and $371M of acquired backlog, with $29M of related acquisition/integration/restructuring costs recorded — but no qualitative synergy or accretion progression statement was made. Status: Continue monitoring — the accretion narrative has not been reinforced qualitatively in this print.

What to watch into next quarter

Q3 revenue growth against the raised FY range. The raised FY26 guide of $18.20–18.40B implies H2 revenue of $9.24–9.44B against H1 actual of $8.96B — roughly $4.62–4.72B per quarter. Watch whether the "meaningful growth emerging" pillar language translates to segment-level acceleration in Defense and Homeland specifically.

Health segment stabilization or continued decline. Watch whether Q3 stabilizes back toward flat or whether -7.6% is the new run rate — the latter would mean the FY26 Managed Healthcare "greater visibility" framing is pre-positioning for a step-down. The 20% margin floor commitment from Q1 becomes the next test.

EBITDA margin compression H2 versus H1's 13.9% average. For the FY to land at midpoint mid-13%, H2 needs ~12.5-13.0%. Watch Q3 margin — if it holds at 13.5%+, the FY guide is meaningfully sandbagged; if it steps to mid-12s, management's H2 compression signaling was accurate.

Homeland organic growth sustainability at $1B+ quarterly scale. Reported +32% flatters the underlying +15.1% organic once Entrust is stripped out. Watch whether Homeland sustains the ~$877M organic run rate in Q3 or whether Q2 included a one-time program pull-through in Air Traffic or Energy.

CapEx H2 step-up to meet or undershoot $350M FY. Implied H1 capex of $63M means H2 needs ~$287M for the FY target. A Q3 print of $60-80M would signal FCF upside above the $1.85B raised OCF guide.

Named Entrust accretion disclosure or continued mechanics-only referencing. Q1's "synergies already surfacing" language has not been reinforced qualitatively in Q2. Watch the Q3 call for either specific Entrust segment EPS contribution figures or continued qualitative deferral.

Sources

Leidos Q2 2026 Press Release — https://www.sec.gov/Archives/edgar/data/1336920/000133692026000243/ldos070326q2pressreleaseex.htm

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