Leidos

Leidos Holdings, a US-based defense, intelligence, and civil services company, reported revenue of approximately $14.4 billion in fiscal year 2022 (ended December 30, 2022) with over 44,000 employees. The company manages hundreds of concurrent government programs across three segments: Defense Solutions, Health, and Civil. Government services margins are structurally constrained by contract type — cost-plus contracts (government reimburses costs plus a negotiated fee of 5-10%) cap upside, while fixed-price contracts offer 10-15% margins but carry execution risk. Leidos's margin improvement opportunity lay in shifting its contract mix toward higher-margin work and improving program execution to reduce cost overruns on fixed-price engagements. Total backlog stood at $35.8 billion at the end of FY2022, of which $8.4 billion was funded — a record at the time.

Leidos pursued a two-pronged strategy of winning higher-value digital modernization contracts and improving program execution across its portfolio:

• Digital modernization contract wins: Leidos secured several large-scale digital transformation and IT modernization contracts, including an $11.5 billion, 10-year indefinite delivery/indefinite quantity (IDIQ) DES contract to optimize network services for Fourth Estate Defense Agencies and Field Activities (DAFAs) as they migrate from legacy systems to the modernized DoDNet. The company also continued work on the Navy Next Generation Enterprise Network Recompete (NGEN-R) Service Management, Integration and Transport (SMIT) contract.
• High-value contract pursuits: Won a ten-year, firm-fixed-price contract with a maximum value of $7.9 billion from the U.S. Army Program Executive Office for Common Hardware Systems 6th Generation (CHS-6), demonstrating ability to compete for and win the largest defense technology programs.
• Health segment expansion: Expanded the Health segment's higher-margin technology and analytics work, growing segment operating margins from 15.7% (FY2022) to 17.4% (FY2023) on a GAAP basis, and from 17.1% to 18.1% on a non-GAAP basis.
• Defense Solutions margin improvement: Improved Defense Solutions operating margin from 6.6% (FY2022) to 7.3% (FY2023) GAAP, and from 8.3% to 8.8% non-GAAP, through better program execution and mix shift toward higher-margin digital work.
• Bookings and pipeline management: Achieved full-year FY2023 bookings of $16.5 billion with a book-to-bill ratio of 1.1, growing the backlog to $37.0 billion ($8.8 billion funded).

• Revenue growth: Revenue grew from approximately $14.4 billion (FY2022) to $15.44 billion (FY2023), an increase of approximately 7-8%.
• Defense Solutions margin: Operating income margin improved from 6.6% to 7.3% GAAP (8.3% to 8.8% non-GAAP), a gain of 70 basis points (50 bps non-GAAP).
• Health segment margin: Operating income margin improved from 15.7% to 17.4% GAAP (17.1% to 18.1% non-GAAP), a gain of 170 basis points (100 bps non-GAAP).
• Civil segment revenue: Civil revenues reached $3.66 billion for FY2023, up 6% over FY2022.
• Backlog expansion: Total backlog grew from $35.8 billion (FY2022) to $37.0 billion (FY2023), with funded backlog increasing from $8.4 billion to $8.8 billion — both records at the time.
• Book-to-bill: Full-year FY2023 book-to-bill ratio of 1.1, indicating continued pipeline strength and share gains.
• Timeframe: Margin improvements and backlog growth realized primarily in FY2023 (fiscal year ended December 29, 2023).

• Leidos's scale (hundreds of concurrent programs, 44,000+ employees) and existing agency relationships provided incumbent advantages for winning large digital modernization contracts that carry better margin profiles than legacy IT infrastructure work.
• The 2016 acquisition of IS&GS from Lockheed Martin provided the broad government services platform and cleared workforce that enabled Leidos to compete across defense, intelligence, and civil domains.
• Government contracting's standardized earned value management (EVM) requirements provided a common measurement framework that enabled portfolio-level program performance monitoring.
• Security clearances across the workforce created structural barriers to entry — cleared personnel take 6-18 months to obtain, protecting Leidos's competitive position on classified programs.