Short answer
Leidos (LDOS) filed its fiscal 2026 10-K annual report with the SEC on Feb 17, 2026.
- Top risk flagged: Regulatory risk: Non-compliance with U.S. government procurement laws may trigger penalties including contract termination, suspension, or debarment from federal contracting
Leidos FY2026 10-K analysis
AI summary of each section, grounded in the filing text
Business Overview
- Core business model: Provides technology, engineering, and scientific services to government and commercial customers, with emphasis on defense, intelligence, and health sectors
- Strategic emphasis on evolving ESG practices amid increased regulatory and stakeholder attention, driving new compliance costs and reputational risk management efforts
- Backlog $49.0B (including $9.7B funded) as of Jan 2, 2026, with revenues dependent on contract realization and subject to government termination rights
- Profitability risk heightened by 43% revenues from Fixed-Price contracts, requiring precise cost estimates amid inflation, subcontractor performance, and force majeure challenges
- Noteworthy focus on operational risks from employee/subcontractor misconduct, data security lapses, and talent retention amid regulatory scrutiny and executive compensation restrictions
Management Discussion & Analysis
- Revenue $17.174B, up 3% YoY from $16.662B driven by program wins, volume increases, and a $60M acquisition contribution
- Operating margin 12.3% vs 11.0%; Operating income $2.109B, up 15% YoY from $1.827B
- Best segment Health & Civil: revenue $5.069B (+1%), operating margin 23.7% vs 21.8%, operating income $1.202B (+10%); Worst segment Commercial & International: revenue $2.315B (+3%), operating margin 7.2% vs 4.6%, operating income $166M (+60%) but lowest margin
- Cash flow from operations $1.750B (+$315M); Capital allocation includes $211M dividends, $400M open market stock repurchases, and $500M accelerated share repurchase, plus $293M acquisition cash outflow
- Forward outlook notes risks from U.S. government spending uncertainty and competitive pressures; liquidity sufficient for next 12 months including $1.5B amended credit facility and $1.4B bridge loan for $2.4B Entrust acquisition
Risk Factors
- Regulatory risk: Non-compliance with U.S. government procurement laws may trigger penalties including contract termination, suspension, or debarment from federal contracting
- Macroeconomic threat: Budget Control Act of 2011 and Fiscal Responsibility Act of 2023 impose caps, risking reduced defense spending and DoW contract revenue (49% of total)
- Supply chain vulnerability: Inflation and global supply disruptions raise costs, underpricing risk on fixed-price multi-year U.S. government contracts, pressuring profitability
- Competitive risk: Larger competitors and federal contract research centers intensify competition, potentially reducing contract awards and market share
- Financial risk: Revenues heavily reliant (87%) on U.S. government contracts with budget delays and continuing resolutions risking payment delays and government shutdown impacts
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