CEO Tom Bell tells Wall Street the shutdown has caused “a little hiatus” in certain areas the company has prioritized, but “tremendous customer uptake and activity” should follow after the reopening. Federal contractors do have to keep one eye on the eventual reopening of government because all shutdowns do end at some point and the action does pick up where it left off, albeit slowly in many instances.
During Leidos’ third quarter earnings call with investors Tuesday, chief executive Tom Bell admitted “there’s been a little hiatus” in some contracting activity across areas the company has prioritized in its strategy.
Bell referenced air traffic control modernization, airport screening modernization, the Golden Dome missile defense initiative and border security as examples of that slowdown. All four of those areas received funding boosts from the One Big Beautiful Bill law signed by President Trump in July.
“We expect, as soon as this government shutdown is over, tremendous customer uptake and activity on all of these programs and more because the future is not waiting,” Bell told analysts. “We expect tremendous customer interaction to take place. The team is ready for it. We are excited about it. But exactly how those things will unfold and how those cards will come to play is something we’re still calculating.”
Leidos is watching the outcome of the Federal Aviation Administration’s search for a prime integrator to overhaul the U.S.’ air traffic control system, albeit from afar. Bell said the company did not submit a bid because the final solicitation has conflict-of-interest language that apparently renders Leidos ineligible.
But the company sees its “greatest value-add” in that effort as developing systems and technologies that will be central to that new system, Bell said.
Award decisions have slowed down across the board because of the shutdown. Bell said Leidos expects that customers will “get after those decisions” after they return to the workplace.
“We think orders could pick up and pace very dramatically even in this quarter. But certainly, there will be some lag into next year,” Bell added. “I expect next year to be a big book-to-bill year and a big business development effort, with a whole suite of products and services across the whole of Leidos.”
Third quarter revenue of $4.5 billion was up 7% from the prior year period, while the organic growth rate excluding acquired sales was 6%. Profit of $616 million showed a 3% year-over-year increase in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).
Leidos nudged up its bottom-line guidance to a high-13% adjusted EBITDA margin, up from the prior mid-13% outlook. The company’s revenue guidance remains at $17 billion-to-$17.25 billion.
Chris Cage, Leidos’ chief financial officer, told analysts the sales outlook range is wider than usual because of all the uncertainties surrounding the shutdown and the possibility of it lasting up to three months.
Also during the quarter, Leidos completed the sale of its Varec subsidiary in a move aimed at further refining the company’s portfolio to focus on the major growth pillars in its NorthStar 2030 strategy.
Bell said in a May earnings call that those pillars are space and maritime, energy infrastructure, highly-customized mission software, and managed services. Varec was roughly a “$40 million top-line business” and this divestiture also means Leidos is “almost through all of the portfolio shaping we’ve spoken about in the past,” Cage said.
Leidos’ decision to not pursue the recompete of its Antarctica contract with the National Science Foundation was one of those moves.
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