Leidos' Recent Contracts: Implications for Future Growth

Overview of Recent Contracts

Leidos has secured a five-year contract with a six-month extension option, contributing to a funded backlog that spans multiple years. However, there is uncertainty about the extension or renewal of some current contracts, which could impact future contract stability.

"The contract covers a five-year performance period, with a six-month extension option." --- (LDOS, press release, 2024/08/13)

"Funded backlog for contracts with non-U.S. government entities and commercial customers represents the estimated value on contracts, which may cover multiple future years, under which Leidos is obligated to perform, less revenue previously recognized on the contracts." --- (LDOS, press release, 2024/07/30)

"We're not sure if that's going to be -- if we're going to have an extension to the current contract, a new contract for a fixed period of time or a new contract for a long period of time." --- (LDOS, earning call, 2024/Q2)

Competitive Positioning

Leidos is strategically positioned as a trusted mission partner, leveraging organizational realignment and regulatory changes to enhance service delivery and competitiveness. Their focus on improving business capture performance and delivering more mission outcomes within budget sets them up for sustained competitive advantage.

"We are well positioned to continue our best-in-class service as a longstanding, trusted mission partner to the VA, but we are planning for performance in the Health and Civil segment to moderate in the back half of the year through the competitive process." --- (LDOS, earning call, 2024/Q1)

"So I think we are uniquely positioned. The fact that the US is talking about lowering the ITAR hurdles between the US and the UK as a part of all of this allows us to position ourselves even more forcefully to serve our UK customers in ways we have been inhibited from doing before." --- (LDOS, earning call, 2024/Q1)

"Let me walk through each of these elements with you. First, we're very happy with the quick wins we're achieving from our capability based organizational realignment and we are anticipating that this move will continue to unlock significant value going forward." --- (LDOS, earning call, 2024/Q1)

"Operating in full partnership with our account managers and capture teams, they are positioned to bring the best of the best of Leidos to our customer needs. With the improvements we're making in the growth value stream, we are getting set up for a much better business capture performance in the future." --- (LDOS, earning call, 2024/Q2)

"So recognizing that, to Tom's point, we can deliver more mission outcome with the same budget and then set ourselves up to be incrementally more competitive on future opportunities." --- (LDOS, earning call, 2024/Q1)

Financial Impact

Leidos anticipates a significant positive financial impact from recent contracts, as evidenced by increased 2024 guidance and exceeding previous financial commitments. Investments have also led to a 27% increase in veterans served, further indicating strong financial results. Higher tariffs are not expected to significantly affect the business.

"The following discussion contains forward-looking statements, including statements regarding our intent, belief or current expectations with respect to, among other things, trends affecting our financial condition or results of operations, backlog, our industry, the impact of our merger and acquisition activity, government budgets and spending, our business contingency plans, interest rates and uncertainties in tax due to new tax legislation or other regulatory developments." --- (LDOS, sec filing, 2024/Q1)

"As such, we are significantly increasing our 2024 guidance and now expect to far exceed our previous multiyear financial commitments." --- (LDOS, earning call, 2024/Q1)

"And some of the results that are behind the financial results are that Leidos investments have allowed us to increase the total number of veterans served by 27% in 2023." --- (LDOS, earning call, 2024/Q1)

"We are currently evaluating the impact of higher tariffs, and do not expect the tariffs to have a significant impact to our business." --- (LDOS, sec filing, 2024/Q1)

Strategic Alignment

Leidos' strategic alignment focuses on maintaining and enhancing its core areas, particularly in national security and intelligence, in line with U.S. government budget priorities. The company has bolstered its strategic positions by hiring key personnel with mission-specific expertise, ensuring its offerings remain aligned with government spending trends.

"Accordingly, our business performance is affected by the overall level of U.S. government spending, especially on national security, homeland security and intelligence, and the alignment of our service and product offerings and capabilities with current and future budget priorities of the U.S. government." --- (LDOS, sec filing, 2024/Q2)

"So, we're very excited about that. Now, the overall objective and the parameters of our year of deep strategic thinking, I think I mentioned it in our last call, it's not going to be a pivot for Leidos, a 90-degree pivot or 180-degree pivot, it's going to be variations on the cores that we're in now." --- (LDOS, earning call, 2024/Q2)

"Over the past six months, we've hired dozens of key account managers and frontline growth leaders, each with deep mission and customer expertise in areas of strategic importance." --- (LDOS, earning call, 2024/Q2)

"But I think the important part is that, yes, we wanted to be part of next year at an Investor Day to kind of reveal some of that strategic thinking." --- (LDOS, conference, 2024/06/05)

Risks and Challenges

Leidos faces challenges in adapting to higher risk and technology-intensive contracts, but remains confident in its pipeline. Additionally, applying AI in healthcare presents significant difficulties, indicating potential hurdles in their recent contracts.

"And so we have seen those changes. Again, they're case-by-case. But I can tell you that at least what we're seeing, particularly in the higher risk, higher technology-type risk arenas, we are seeing a shift in contracting to contracting vehicles that are just more relevant to those circumstances." --- (LMT, earning call, 2024/Q1)

"And they are partnered to make sure that we are focused on how we help our customer in deterrence and being the smartest government on the planet. We don't think that there is a challenge here with the pipeline." --- (LDOS, earning call, 2024/Q2)

"There are daunting challenges in applying #AI to the complex, low-margin-for-error world of #healthcare." --- (LDOS, Twitter, 2024/06/18)