LDOS · Q3 2025 Earnings
BullishLeidos
Reported November 4, 2025
30-second summary
Revenue grew 6.7% YoY to $4.47B with non-GAAP EPS of $3.05, adjusted EBITDA margin of 13.8%, and book-to-bill of 1.3 — the H2 award acceleration management promised in August showed up. Management raised FY25 non-GAAP EPS by $0.30 at midpoint (to $11.45–11.75) and adjusted EBITDA margin from "mid 13s" to "high 13s," while explicitly holding revenue at $17.00–17.25B and operating cash flow at ~$1.65B — a deliberate hedge against shutdown timing rather than a soft top line. Health & Civil reaccelerated to +6.2% and Defense Systems printed its seventh consecutive period of high-single to low-double-digit growth at +11.5%, resolving two of last quarter's five watch items decisively.
Headline numbers
EPS
Q3 FY2025
$3.05
Revenue
Q3 FY2025
$4.47B
+6.7% YoY
Gross margin
Q3 FY2025
18.4%
Free cash flow
Q3 FY2025
$0.68B
Operating margin
Q3 FY2025
12.0%
Key financials
Q3 FY2025| Metric | Q3 FY2025 | YoY | Q2 FY2025 | QoQ |
|---|---|---|---|---|
| Revenue | $4.47B | +6.7% | $4.25B | +5.1% |
| EPS | $3.05 | — | $3.21 | -5.0% |
| Gross margin | 18.4% | — | 18.5% | -10bps |
| Operating margin | 12.0% | — | 13.4% | -140bps |
| Free cash flow | $0.68B | — | $0.46B | +48.8% |
Guidance
FY2025 EPS raised $0.30 at midpoint and EBITDA margin upgraded to high-13s while revenue and operating cash flow guidance held firm.
Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.
Changes to prior guidance
| Metric | Period | Prior guide | New guide | Δ | Result |
|---|---|---|---|---|---|
| Non-GAAP Diluted EPS | FY2025 | $11.15 - $11.45 | $11.45 - $11.75 | +$0.30 at midpoint (low +$0.30, high +$0.30) | Raised |
| Adjusted EBITDA Margin | FY2025 | Mid 13% | High 13% | From mid-13s to high-13s; Q3 actual 13.8% indicates momentum | Raised |
Reaffirmed unchanged this quarter: Revenue ($17.00 - $17.25 billion), Cash Flows Provided by Operating Activities (Approximately $1.65 billion)
Segment KPIs
Q3 FY2025| Segment | Q3 FY2025 | YoY |
|---|---|---|
| National Security & Digital | $2.015B | +8.0% |
| Health & Civil | $1.301B | +6.2% |
| Commercial & International | $0.571B | -1.2% |
| Defense Systems | $0.582B | +11.5% |
Other KPIs
Q3 FY2025| Segment | Q3 FY2025 |
|---|---|
| Total Backlog | $47.7 billion |
| Funded Backlog | $9.1 billion |
| Book-to-Bill Ratio | 1.3 |
| Net Bookings | $5.9 billion |
| Adjusted EBITDA Margin | 13.8% |
| Operating Margin | 12.0% |
| Free Cash Flow Conversion | 171% |
| Days Sales Outstanding (DSO) | 60 days |
Management tone
Narrative arc: DOGE freeze (Q1) → logjam breaking up (Q2) → awards in the numbers, shutdown as managed risk (Q3).
The cumulative shift from "navigating headwinds cautiously" to "thriving through adversity with accelerating momentum" is now backed by hard prints — book-to-bill flipped from 0.9 in-quarter to 1.3, NSD revenue growth more than doubled, and H&C reaccelerated by ~550bps. Management's anchor quote — "we re-won a half-billion-dollar counterterrorism contract, a contract that had never been re-awarded to an incumbent, in large part because of our introduction of automation and AI to deliver smarter customer outcomes" — signals that AI-enabled cost reduction is now generating concrete competitive wins, not just deck slides. This is a qualitative change from Q2's directional commentary on Golden Bolts.
The government shutdown framing has matured from undefined risk to quantified, manageable risk. Last quarter the shutdown was prospective; this quarter management states "most of our programs have not been impacted… they are mission essential… the shutdown impact so far has been modest" — and concretely embeds the risk in wider-than-usual guidance ranges rather than headline cuts. The decision to hold revenue while raising EPS is itself the tell: if management feared a Q4 revenue shortfall, they would have widened the revenue range or lowered the floor; they did neither.
Energy infrastructure has progressed from a secondary North Star 2030 pillar to a pillar with specific commercial proof points. The Skywire metrics — "18,000 projects for 25 major utilities… 30% project cost reduction is routine" and revenue up 50% on more than half of top accounts — convert a strategy slide into a measurable commercial momentum claim. This is the kind of granularity that distinguishes credible new-vector commentary from positioning.
Defense Systems has shifted from "approaching" to "consistently delivering" double-digit growth, with seven consecutive periods of HSD–LDD prints and a $15B five-year franchise-program pipeline newly quantified in Q&A (air/base defense, counter-UAS, hypersonic missiles, Black Arrow). The margin caveat — "still progressing towards sustainable double-digit profitability" — is the one place management remains explicitly cautious, and rightly so given the segment's R&D-to-LRIP transition.
The widened guidance ranges are being framed differently than typical conservatism. Bell explicitly called them "a proactive hedge against the less predictable government environment" — not a hedge against demand, not a hedge against execution, but specifically against shutdown-induced collection timing. That distinction matters: it implies the underlying operating performance is tracking above the EPS midpoint, with the range width reserving upside rather than protecting against downside.
Recurring themes management leaned on this quarter:
Risks management surfaced:
Q&A highlights
Ken Herbert · RBC
How should investors think about M&A strategy in the current environment? Where is the company focused on specific acquisition opportunities and what is the potential to accelerate the pace of acquisitions?
Management emphasized a shareholder-friendly approach to capital deployment with consistent hurdle rates. While M&A was not previously a strategic focus (preferring share repurchases), the newly defined North Star 2030 strategy with specific growth areas now makes inorganic growth part of the playbook. The company will be judicious and prudent, balancing organic investment, inorganic acquisitions, buybacks, and dividend increases.
Sheila Callego · Jefferies
How should investors think about defense systems growth trajectory and how does the company navigate potential DOGE impact on defense spending and civil customer concerns seen from competitors?
Management highlighted strong defense systems business with 10 franchise programs expected to deliver ~$15 billion in potential value over five years, including air base defense, counter-UAS, hypersonic missiles, and Black Arrow cruise missile. The pivot from R&D-heavy to LRIP and programs of record is proceeding as planned. Federal civil portfolio has proven resilient despite shutdown, with mid-single-digit growth in Digimod and robust demand in mission-essential Veterans Benefits Administration work.
Gavin Parsons · UBS
What shutdown impact is assumed in Q4 guidance, and where is the company focusing investment and how does that flow through the financials?
Management left wider guidance ranges to accommodate shutdown uncertainty. If shutdown ends quickly, the company expects to trend toward higher end of EPS and revenue ranges. Cash guidance unchanged due to potential collection delays into 2026 even if shutdown ends late in Q4. Technology investments have been stepped up, including AI, prototypes, and capacity expansion (particularly Huntsville facilities) funded through the innovation fund to meet current customer demand for proven solutions.
Jonathan Sigmund · Stifel
How will the health/medical exam business hold up next year given the addition of a fourth provider and current demand environment?
Management expects elevated demand to remain next year as the administration continues working down the backlog of aging claims. While a fourth provider was introduced in some regions, the company believes it can sustain current performance levels through innovation, technology, and customer satisfaction. Adding capacity next year will be difficult given the fourth vendor, but growth will come from expanding into other areas of the managed health services platform. The team is already shaping toward the re-compete at end of 2026.
Colin Canfield · Canaccord Fitzgerald
What are the key building blocks and contracts to watch for transitioning from mid-single-digit organic growth this year to potentially high-single-digit growth next year?
Management identified defense systems as leading growth driver with programs that could accelerate, energy infrastructure business expected to show strong momentum, a large intelligence community award ramping in 2026, and potential upside from Golden Dome funding, air traffic control, and border security opportunities. Offsetting factors include DOGE program attrition, sale of a $40 million business (Barrick), and exit of Antarctic support program in 2026. Management declined to provide specific 2026 guidance pending shutdown resolution.
Answers to last quarter's watch list
What to watch into next quarter
Q4 revenue print against the held $17.00–17.25B FY range. Management held revenue while raising EPS — implying Q4 needs to deliver ~$4.32–4.57B. Watch whether shutdown-driven timing slippage forces the low end or whether the "absorb 3% top-line hits" cushion proves real.
Operating cash flow Q4 finish to $1.65B. YTD FCF momentum (Q3 conversion 171%) makes the target reachable, but management explicitly flagged collection delays into 2026 if the shutdown extends. A miss of more than ~$100M would partially validate the cash-hedge framing as protection of something real.
Defense Systems margin progression toward sustainable double-digits. Seven consecutive quarters of HSD–LDD revenue growth with margin still "progressing toward" double-digits is the one place management remains explicitly cautious. Watch for a specific margin print or 2026 framing on the Q4 call.
Named OBBB / Golden Dome task-order awards. The $9–13B addressable framing from Q2 and the $15B Defense Systems franchise pipeline quantified this quarter need specific contract wins to convert from positioning into bookings. Watch for named awards in Q4 and on the FY26 outlook framing.
2026 organic growth framing. Canfield's Q&A teed up the question of mid-single-digit to high-single-digit organic growth transition for 2026. Watch the Q4 call for either an initial range or qualitative framing — and whether revenue acceleration in NSD (+8.0%) and H&C (+6.2%) sustains.
Health & Civil end-2026 recompete shaping. The team is already preparing for the medical exam contract recompete at end-2026. Watch for any disclosure on competitive positioning, scope changes, or risk-adjusted revenue framing as the recompete date approaches.
Sources
- Leidos Q3 2025 Press Release — https://www.sec.gov/Archives/edgar/data/1336920/000133692025000057/ldos100325q3pressreleaseex.htm
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