Chris Cage
Chief Financial Officer at Leidos
Thanks, Roger, and thanks to everyone for joining us today. Let me echo Roger and express my gratitude to the entire Leidos team for how we executed in 2022. We navigated many challenges throughout the year, including an unexpected adverse arbitration ruling in Q2 and to deliver at the top end of our revenue guidance range and above our EPS guidance range for the year, all while delivering for our customers.
Turning to Slide 5. Revenues for the quarter were $3.7 billion, up 6% compared to the prior year quarter. For the year, revenues were $14.4 billion, which was up 5% compared to 2021, despite a $107 million headwind from foreign currency movements primarily from work in the U.K. and Australia in our Defense Solutions segment.
2022 revenue performance was in line with the targets that we laid out 16 months ago for '22 through '24. Turning to earnings. Adjusted EBITDA was $397 million for the fourth quarter for an adjusted EBITDA margin of 10.7%, our highest margin of the year and above expectations based on higher growth on more profitable programs, better performance on some large programs and disciplined cost management.
2022 adjusted EBITDA was $1.49 billion for a margin of 10.4% or right at the midpoint of guidance that we've held all year. Non-GAAP net income was $255 million for the quarter and $919 million for the year, which generated non-GAAP diluted EPS of $1.83 for the quarter and $6.60 for the year. Non-GAAP diluted EPS was up 17% for the quarter and essentially flat for the year as a result of some one-time events that we've talked about in the past.
Looking at the key drivers below EBITDA. The non-GAAP effective tax rate for the quarter came in at 20.1%, which was below our expectation and added about $0.09 to EPS. The tax rate benefited from certain international tax credits and limitations, increases in our federal research tax credit and higher-than-planned stock compensation deductions. In addition, net interest expense in the quarter increased to $51 million from $46 million in the fourth quarter of 2021.
Finally, the weighted average diluted share count for the quarter was 138 million compared to 142 million in the prior year quarter, primarily as a result of the $500 million accelerated share repurchase agreement implemented in the first quarter of fiscal year 2022.
Now for an overview of our segment results and key drivers on Slide 6. Defense Solutions revenues in Q4 of $2.07 billion were essentially flat compared to the prior year quarter. 2022 Defense Solutions revenues of $8.24 billion were up 3% for the year. Civil revenues were $938 million in the quarter, up 17% compared to the prior quarter, and 2022 revenues were $3.46 billion, up 10% compared to 2021.
The primary driver for growth in the quarter and the year was the ramp on the NASA AEGIS program. In addition, we had good growth within our commercial energy business as well as increased security products, sales and maintenance. Health revenues were $691 million for the quarter, an increase of 10% compared to the prior year quarter, driven primarily by performance on DHMSM and our new work on SSAT.
Health revenues were $2.69 billion for the year, up 5% over 2021, with the same drivers that I cited for the quarter plus strong performance on the Military and Family Life Counseling program. On the margin front, on Slide 7, Defense Solutions and Civil posted their highest margins in more than a year based on mix and some excellent program performance.
For the quarter, Defense Solutions non-GAAP operating margin came in at 8.6%, up 40 basis points compared to the prior year quarter; and Civil came in at 11.2%, up from 10% in the prior year quarter. Defense Solutions non-GAAP operating margin for the year was 8.3%, which was down 30 basis points from 2021, primarily from investments in new program startups.
Civil non-GAAP operating margin for the year was 9.2%, down from 10.2% in the prior year, driven by legal matters that we've addressed in prior calls, a $26 million gain in 2021 and a $19 million expense in 2022. Health non-GAAP operating margin for the quarter was 14.3%, consistent with what we've been talking about for some time. Health non-GAAP operating margin for the year finished at 17.1%.
Turning now to cash flow and the balance sheet on Slide 8. Operating cash flow for the quarter was $105 million, and free cash flow, which is net of capital expenditures, was $52 million. For the year, operating cash flow was just shy of $1 billion and free cash flow was $857 million for a 94% conversion rate.
In the fourth quarter, we completed the acquisition of the Australian airborne business, which provides maritime surveillance operations for the Australian border force and search and rescue response capability for the Australian Maritime Safety Authority, purchase consideration was approximately $190 million, net of $6 million of cash acquired. During the fiscal year 2022, Leidos returned $741 million to shareholders, including $199 million as part of its regular quarterly cash dividend program and $542 million in share repurchases. As of December 30, 2022, the company had $516 million in cash and cash equivalents and $4.9 billion in debt.
Roughly $1 billion of that debt will come due in this year. Most of it in May. We expect to fully repay the remaining $320 million on the short-term loan originally tied to the Gibbs & Cox acquisition and then rolled over in support of the ASR program. We'll refinance the $500 million of maturing bonds as well as the bank term loan A still tied to LIBOR in an efficient and flexible manner, but interest expense will increase given the current rate environment.
As we approach the debt market, we're pleased with the recent upgrade from Moody's to BAA2 credit rating, which signals their confidence in our financial stability and outlook. We're already benefiting from improved terms on our commercial paper borrowing and expect that to carry through on the debt transactions. As we close out the year, we remain committed to a target leverage ratio of 3 times.
Our long-term balanced capital deployment strategy remains the same and consists of being appropriately levered and maintaining our investment-grade rating, returning a quarterly dividend to our shareholders reinvesting for growth, both organically and inorganically and returning excess cash to shareholders in a tax-efficient manner.
On to the forward outlook on Slide 9. For 2023, we expect revenues between $14.7 billion and $15.1 billion, reflecting growth in the range of 2% to 5% over fiscal year 2022. Demand remains strong as our customers execute robust budgets, and we enter 2023 with a number of programs that are ramping, but the procurement process is still protracted.
We expect 2023 adjusted EBITDA margin between 10.3% and 10.5%. The midpoint of the margin range is the same as 2022. And the top end is consistent with the target that we laid out at our October 2021 Investor Day. We're committed to long-term margin expansion, and we'll pull multiple levers to offset the impact of inflation and supply chain on our cost structure as we demonstrated in the back half of 2022. We're closely managing our corporate cost with a special focus on real estate.
GAAP net income in the quarter reflected impairment charges of $37 million from exiting and consolidating underutilized lease spaces. Since beginning our journey to optimize our real estate footprint post COVID, we've exited over 2 million square feet, which is about 25% of our office space. Getting out of that space improves our competitiveness and keeps corporate costs in check.
We expect non-GAAP diluted earnings per share for 2023 between $6.40 and $6.80 on the basis of 138 million shares outstanding, which is unchanged from fourth quarter levels. To provide some context around that range, we expect 2023 net interest expense of approximately $225 million and a non-GAAP tax rate between 23% and 24%. These two items amount to an EPS headwind of about $0.20 for the year.
Finally, we expect operating cash flow of at least $700 million. This guidance reflects approximately $300 million of additional cash taxes compared to fiscal year 2022, primarily related to the Tax Cuts and Jobs Act of 2017 provision requiring the capitalization and amortization of research and development costs. As we're awaiting potential congressional action, we didn't make any Section 174 related tax payments last year. So we'll need to make payments this year to cover both '22 and '23.
We paid the 2022 Section 174 taxes in January, and we expect to pay the 23 taxes in quarterly installments throughout the year. From a free cash flow perspective, we're targeting capital expenditures of approximately 1.5% of revenues based on the timing of some investments in Australian and U.S. airborne surveillance as well as in-sourcing some of the security product supply chain.
As is our usual pattern, cash generation will be back-end weighted in 2023, along with the tax and debt payments in Q1 and Q2, this limits the ability to deploy capital for shareholders in the first half of the year. As a result, the EPS guidance range does not account for any repurchases, and we'll update you as we go throughout the year.
With that, I'll turn the call over to Rob so we can take some questions.
