Nov 3, 2026 earnings call — Q3 results and VBA recompete update
Leidos reported Q3 revenue of $4.63 billion and free cash flow of $476 million.
Revenue $4.6B (est $4.7B) · EPS $3.62 (est $3.03)
Key quotes
"Immediately after the quarter, we closed on the divestiture of SES and retained a 41.5% equity interest in the new joint venture."
"This translated into a Defense book-to-bill ratio of 1.9 this quarter and 2.0 year-to-date."
"As such, we believe it's highly likely our existing contracts will be extended through the first half of 2027, in line with the customers' planned new contract start date of July 1, 2027."
Analyst Q&A 10
bookings and demand in defense and cyber
Q (John Godyn · Citi): He asked what demand signals are driving bookings and for color on defense tech, intelligence, and cyber.
A: Management said the environment is improving and customers are moving faster on procurement, though some decisions still slide. Book-to-bill has been rising through the year to 1.2 and total backlog is $49.6 billion with funded backlog $11.1 billion. They noted Leidos' OTA strength with 212 OTA contracts, $6.6 billion ceiling this year, $28 billion awaiting decision (including $21 billion new), and active cyber awards.
"We have $28 billion right now awaiting decision, including $21 billion that is new and takeaway business." — Thomas Bell (CEO)
defense tech investment and profit timing
Q (Tobey Sommer · Truist): He asked when production investments will peak and when margins will improve as production ramps.
A: Management said they are investing ahead of demand and increasing CapEx, but remain judicious and spend as opportunities trigger. They have more than a dozen programs moving from development into rate production, IFPC is on pace to reach full rate potential in 2027 after LRIP in 2025, and there have been $10 billion in Defense Tech awards over the last 18 months ($6 billion year-to-date). They expect margins to improve in 2027 and over the next several years as production volumes ramp.
"As I said at the beginning of this year, we would be increasing our CapEx to make sure we're positioning the company for that growth in this critical part of our portfolio." — Thomas Bell (CEO)
VBA draft RFP and Health margins
Q (Kenneth Herbert · RBC): He asked how the draft RFP favors Leidos in the VBA rebid and whether Q4 high-teens Health margin is a run rate into H1 '27.
A: Management said they feel well positioned for the draft RFP because of incumbency, veteran satisfaction, timeliness, accuracy, and their innovations like mobile clinics. The draft leans to awarding 2 companies per service group with a requirement that 2 vendors be able to stand up capacity in 30 days, which plays to incumbents. On margins, Q4 exit in the high teens is a reasonable run rate into the first half of next year while the current contract continues through mid-year.
"So while we're still dealing with the draft RFP, we know that it looks toward the things that are the strength for us." — Thomas Bell (CEO)
Intelligence and Digital margin durability
Q (Peter Arment · Baird): He asked what drove the strong Intelligence and Digital margins this quarter and whether that performance is durable.
A: Management said Intelligence had record margins and grew double digits while Digital had modest contraction but very strong profitability from execution and cost management. They said matured programs and repeatable offerings are finding efficiency opportunities, and favorable EACs helped this quarter though that exact level may not fully repeat. Overall they like the trajectory and see ability to push margins higher over time.
"You look at Digital especially and they run some of the largest programs in the company and typically is the case as you mature those programs, you technology, you get into the customers' environment, you find opportunities that drive efficiency." — Chris Cage
Defense ramps and munitions plans
Q (Jonathan Siegmann · Stifel): He asked about timing of the one-off in Defense growth and how good 2027 could be for the segment.
A: Management said momentum is building with clear runways for program ramps like IFPC (which has tripled in revenue) and other programs (ABADS, ALPS, Mirador, hypersonics) set to accelerate. They noted more than $10 billion in Defense Tech awards in the last 18 months and $6 billion year-to-date, and they expect higher growth in Q4 and into 2027 with a goal of double-digit growth over time. They also outlined a munitions pathway to become a $1 billion annual business by 2030 and multiple product and sensor programs moving forward.
"We have a pathway for our munitions side of our Defense Tech business to be $1 billion business by 2030 annually." — Thomas Bell (CEO)
VBA impact and maritime MUSV outcome
Q (Gautam Khanna · TD): He asked if earnings will not grow in '27 and '28 given the VBA timing and Defense ramp, and what the plan is after the MUSV non-selection.
A: On maritime, management said they were disappointed by the MUSV non-selection for the first round but remain active in the market and see traction for their capabilities in Navy and other customers; they also highlighted undersea warfare strength. On VBA and earnings, they said Q4 should be the jumping-off point; '27 is likely not a bottom-line growth year due to the VVA step-down, but they expect accelerating top-line growth elsewhere and are bullish on 2028 and beyond.
"We just demonstrated the power of the portfolio in Q3, absent Health, and we'll continue to focus on accelerating the rest of those business growth drivers and higher-margin parts of the portfolio." — Chris Cage
Bounding VBA outcomes and revenue impact
Q (Noah Poponak · Goldman Sachs): He asked if management can bound best and worst case impacts to Health revenue and margins and requested 2026 earnings/EBITDA without VBA.
A: Management said they cannot bound outcomes because the RFP is still a draft and the customer decision is expected around April or May, with clarity likely mid-2027. They said they cannot provide detailed earnings or EBITDA without VBA at this disclosure level. They also noted an upside case exists where Leidos could gain more work share under the draft rules, but it's too early to commit to that.
"And at that point, we'll know what we've won and where we're positioned and how much volume is coming our way and how we can continue to be of service to this country." — Thomas Bell (CEO)
growth ex-Health and Parcata commercial potential
Q (Gavin Parsons · UBS): He asked what top-line could grow next year excluding Health and about Parcata's commercial potential in cyber.
A: Management said Defense, Energy, and Cyber each have potential to be double-digit growers and that, absent Health, the portfolio could see an above-market growth rate next year though some Digital wins remain to be decided. On Parcata, they described it as a proprietary AI platform from Kudu that autonomously detects and patches software in minutes without human intervention, initially focused on Intelligence customers and expected to be made commercially available later this year.
"And it's a proprietary AI platform that goes and autonomously detects and patches software in minutes that is without human intervention." — Thomas Bell (CEO)
Homeland and Defense growth drivers next year
Q (Sheila Kahyaoglu · Jefferies): She asked which programs and businesses will step up next year in Homeland and Defense and what is driving Homeland growth.
A: Management said Homeland growth is driven by FAA modernization (ERAM uptime and Terminal Flight Data Manager deployments), international air traffic customers, airport modernization, and the Entrust energy business whose integration is nearly complete. They said the Entrust pipeline has grown 230% since acquisition with over $10 billion of orders targeted, and Defense growth is supported by space payloads, IFPC volume, ALPS product lines, and munitions programs starting to contribute.
"We now have over $10 billion of orders targeted there." — Thomas Bell (CEO)
VBA bullish scenarios and vendor work share
Q (Louie Dipalma · William Blair): He asked whether the bullish VBA scenario is mainly due to fewer vendors and whether other bullish scenarios exist.
A: Management explained the draft envisions 6 service groups with between 2 and 4 vendors per group, and 2 vendors per service group must be ready to stand up capability within 30 days, which favors incumbents while new entrants have a year to stand up. They also noted another bullish scenario is that work share need not be equal in the draft; best-performing vendors could receive a disproportionate amount of work even if four vendors are selected.
"The current draft envisions 4 vendors -- between 2 and 4 vendors in each service group, and it envisions 6 service groups." — Thomas Bell (CEO)