LDOS - Leidos Holdings, Inc.

Operator: Welcome to Leidos Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker, Stuart Davis from Investor Relations. Stuart, you may begin. Stuart Davis: Thank you, and good morning, everyone. Joining me on today's earnings conference call are CEO, Tom Bell; and CFO, Chris Cage. Today's call is being webcast on the Investor Relations portion of our website, where you can find the earnings press release and the presentation slides for today's call. As shown on Slide 2, our discussion today will contain forward-looking statements based on the environment as we currently see it and thus includes risks and uncertainties. Our press release contains more information on the specific risk factors that could cause actual results to differ materially from anticipated results. Turning to Slide 3. We'll also discuss both GAAP and non-GAAP financial measures. In today's press release and presentation slides contain a reconciliation between the two. And now let me turn the call over to Tom, who will begin on Slide 4. Thomas Bell: Thank you, Stuart, and welcome, everyone. Today, I'm pleased to report another excellent quarter of performance for Leidos, including top line growth of 7%, adjusted EBITDA margin of 13.8% and operating cash flow of $711 million. So far in 2025, we've grown revenue 5%, grown EBITDA 13% and grown EPS 18%. These strong results enable us to raise guidance for 2025, marking our second guidance raise of the year. And we've been able to deliver these results despite the headwinds of DOGE earlier in the year, and the current government shutdown. Even through the dynamic market environment of 2025, we've been able to achieve improving strong performance. Regarding the current government shutdown, most of our programs have not been impacted. I see 3 primary reasons for this fact. Our programs are considered mission essential by our customer. They are funded or they are beyond the scope of discretionary budgets. This, in turn, reflects our business' ongoing alignment to true enduring customer needs, current administration priorities and our ability to thrive in a business environment that rewards outcome-based contracting. Our portfolio matches the moment with solutions that speak directly to many top priorities: Golden Dome, air traffic control modernization, border security, service to veterans, maritime, autonomy, et cetera. We have the products and services that match our nation's ongoing needs. And we are accelerating our business pace today, responding to our customers' desire to work with firms that invest in innovation, can deliver real outcomes quickly, have a proven track record of lowering costs and know how to deliver on time and on cost. Our improved financial performance over the past 2 years has enabled us to turbocharge our investments in our Leidos Golden Bolts. We're accelerating our focus on creating new solutions to vexing problems in areas ranging from air travel to rural health. Our customers' missions have always been our central focus. The founding motivation for Leidos over a decade ago was to shed advisory work to focus on real mission performance. And with Leidos' expanded position in defense tech, we're focused on getting innovative solutions into the hands of war fighters in areas like counter UAS, low-cost cruise missiles, hypersonics and autonomous maritime vessels. Leidos' core business model is to make our customers' outcomes smarter and more efficient. We're always working in every program to deploy technology to drive down costs for our customers. For example, this quarter, we rewon a $0.5 billion counterterrorism contract, a contract that had never been reawarded to an incumbent in large part because of our introduction of automation and AI to deliver smarter customer outcomes. And we continue to demonstrate to our customers our ability to perform for them on outcome-based contracts. An example about this -- about which we are very proud is our having delivered on time and under budget the very complex electronic health record system for the Department of War. This performance is a direct reflection of our commitment to a promises made, promises kept culture in action. Our NorthStar 2030 strategy is now firmly in place in guiding all our actions. With growth pillars that tightly align to our customers' priorities we are building momentum to drive accelerated growth through 2026 and into the future. As you will recall, our 5 NorthStar 2030 strategy growth pillars are: Space and maritime, energy infrastructure, digital modernization and cyber, mission software and managed health services. On our past 2 quarterly earnings calls, I've highlighted elements of 2 of these pillars, cyber in Q1, and maritime in Q2. Today, I'd like to highlight our energy infrastructure growth pillar. For more than 2 decades, Leidos has provided world-class engineering services for commercial electric utilities. The services we provide typically involve the design and placement of high-power transmission lines, electric substations and/or electric distribution infrastructure. And over the past 7 years, this business has grown by double-digit CAGRs while also delivering double-digit margins. It now represents more than $600 million worth of Leidos' annual revenues. As you will no doubt know, the United States is amid a sustained robust investment posture in its energy infrastructure. Electric utilities are aggressively expanding the grid to meet growing demand from electrification, reindustrialization and data center growth. At the same time, they are also investing to improve the grid's reliability and resilience against extreme weather events. Following a record investment level in 2024, U.S. utilities plan to invest well over $1 trillion in this area over the next decade, and we are prepared to help. Leidos proprietary engineering and design tools arm our power engineers with the latest data and tools. This ensures they are always the most efficient and effective engineers in the market. One such tool our engineers use is our proprietary software product, Skywire, powered by Leidos Trusted Mission AI that makes every step of the design process smarter, more efficient and more effective for our customers. Simply put, Leidos' Skywire is an AI platform that revolutionizes the efficiency of distribution system engineering. Over the past 12 months, Skywire has been used to optimize some 18,000 projects for 25 major utilities. And we're now extending the use of this AI technology across the entire value chain from distribution to transmission to create a smarter, safer and more secure grid. Reduction of project costs enabled by Skywire of 30% is routine. And as we expand the use of these solutions across all of our programs, we're seeing powerful lift in our commercial success. We've increased revenue on more than half of our top accounts by some 50%. In addition to Leidos' AI Golden Bolt deployment in this market, we're also deploying other all of Leidos capabilities to the energy market. We're currently proving out the use of advanced analytics in drone fleets to provide real-time grid damage intelligence. Utilities spend billions annually on this need. And through our products and tools, we see opportunity to radically accelerate storm recovery for millions of Americans. We've helped the key customer in the energy sector successfully migrate their mission-critical software applications to the cloud, a long-standing core Leidos competency. And we're investing in deploying AI-assisted defensive cyber solutions to protect our customers' grids from cyber attacks. In addition, we're also on the cutting edge of helping our nation expand our power generation means. We're collaborating with small modular and microreactor OEMs to prototype nuclear reactors for a secure military-grade sources of energy as our team leans into this exciting model for energy resilience in America. So the energy infrastructure pillar of NorthStar 2030 represents a focused robust area of growth for Leidos, our innovative technology offerings differentiate us in a rapidly growing market, and we see multiple channels by which we can grow this line of business for Leidos. Now turning to other aspects of the business. On Golden Dome, the Department of War is finalizing that program's reference architecture and is evaluating proposals for the $150 billion SHIELD IDIQ procurement. We're very much in the mix here, and we expect vigorous government reengagement on this subject later this month. In the meantime, we're having healthy customer conversations about unique Leidos capabilities that could have a critical role in Golden Dome such as interceptor modernization and advanced radar surveillance systems. On air traffic control modernization, the FAA is currently evaluating bids for the prime integrator role, which we no bid due to conflict of interest stipulations contained in that solicitation. Our focus remains where we see our greatest value add, perpetuation of our position in the development of key systems and technologies that are central to delivering our next-generation air traffic control system. And at the same time, we continue to move out with the FAA to enhance the current system in ways that are aligned to their future blueprint. On airport security modernization, we, along with our TSA customer, are executing a pilot program at the Houston and Sacramento airports to demonstrate the viability and scalability for smarter, safer and more efficient checkpoint operations. Our demonstrated approach includes digitized checkpoints, remote baggage screening and cybersecurity hardening. And on border security, Customs and Border Protection is moving out quickly to bolster non-intrusive inspection at the border as provided for in the reconciliation law. We've received an order for 24 of our mobile VACIS systems that will deliver very quickly over the coming months. This progress and pace is reflected in our current bookings tempo. We had a 27% sequential increase in funded backlog, one of the largest in our history, which tells me that our customers are moving out to accomplish missions with pace. Also, as part of our 1.3x book-to-bill ratio this quarter, we were awarded an extension to one of our core franchise programs to enhance and sustain the MHS GENESIS Electronic Health Record for the Department of War. We are expanding our contribution under an asset contract to support the ARTEMIS program in long-duration space exploration. And we received a large award to modernize Kazakhstan's air traffic control system using our Skyline X comprehensive air traffic management system. We are optimistic about our near-term growth prospects given our $69 billion pipeline of near-term opportunities, which includes $24 billion of bids awaiting adjudication. Regarding capital deployment, this quarter, we repurchased another $100 million worth of shares on the open market, and we accelerated payoff of $450 million on our term loan. We have also increased our quarterly dividend. This marks our third dividend increase in 3 years. Shareholders of record on December 15 will receive a dividend of $0.43 per share, a 7.5% increase over our past dividend. This speaks to our ongoing conviction regarding the earnings and cash generation potential of our business. In addition, given our sharpened strategic focus through our NorthStar 2030 strategy, I'm pleased that we recently completed the divestiture of Varec, a noncore legacy energy asset, acquired in 2006, the disposition of this asset will allow both Leidos and Varec to advance their respective missions and best maximize long-term value. Our strong balance sheet position and powerful free cash flow gives us multiple pathways to continue to grow shareholder value. Consistent with our NorthStar 2030 strategy, we will continue to accelerate investments in our growth pillars while we also opportunistically return capital to shareholders. I'm very pleased that our ongoing 2025 strong performance allows us to, again, improve guidance, reaffirming our guidance on revenue and cash while increasing our guidance on EBITDA and EPS. Now before I pass the call over to Chris, I wanted to take a moment to give a special shout out to our 47,000-plus Leidoceans that in a year of profound challenges have shown incredible resilience and focus. Their brilliance has been essential to our success. And the momentum we are building through this, our strategic pivot year, is a testament to their commitment to our customers and their missions. I am truly excited about what lies ahead for this team. So with that, over to you, Chris. Chris Cage: Thank you, Tom, and thank you, everyone, for joining us today. With another quarter of strong financial performance on the books, Leidos is demonstrating its ability to navigate complex market dynamics while delivering mission success for our customers, growth opportunities for our employees and financial rewards for our shareholders. Though we take pride as a team in what we've accomplished, we remain focused on finishing out 2025 strong and setting a path for a successful 2026. As Tom indicated, the shutdown impact so far has been modest, and we remain confident in our ability to thrive in the missions we serve despite any near-term uncertainty. With that, let's take a closer look at our third quarter results, starting with the income statement on Slide 5. Revenues were $4.47 billion, up 7% in total and 6% organically year-over-year. Our positive momentum enabled us to overcome the moderate headwinds from ongoing government efficiency reviews to post sequential growth of 5%, our best sequential third quarter since coming out of the pandemic in 2020. Each segment improved sequentially with especially robust growth in National Security and Digital and Defense Systems. Bottom line performance remains strong through consistent program execution, AI-driven cost efficiencies and overall prudent cost management. Even as we stepped up growth investments as discussed on the Q2 call, and increased legal reserves by $24 million, we still generated $616 million in adjusted EBITDA for the quarter, up 3% year-over-year for an adjusted EBITDA margin of 13.8%. Non-GAAP diluted EPS grew 4% to $3.05 as a lower share count more than offset slightly higher interest expense and tax rate. Digging a little deeper, let's now turn to the segment drivers on Slide 6. National Security and Digital revenues increased 8% year-over-year, with 7% coming organically. Record revenue growth was driven by recent contract awards and increased volumes for defense IT and mission support for intelligence customers. The multibillion-dollar classified award this quarter is ramping on plan and will provide healthy growth for several quarters. We also generated $26 million in revenues at attractive margins from the acquisition of Kudu Dynamics. This marks the first full quarter of contribution from Kudu, and we're focused on integrating quickly and unlocking new growth vectors. Non-GAAP operating income margin decreased modestly from 10.5% in the prior year quarter to 10%. Margins in the low to mid 10s is the right near-term ZIP code for National Security and Digital business. Health & Civil revenues increased 6% year-over-year with an uptick on our large infrastructure operations programs as well as continued high volumes within the managed health services business. Medical disability exam volumes helped drive record non-GAAP operating income margin of 25.7%, along with some nonrecurring items across the portfolio, including a prior period incentive award pickup and equitable cost adjustment and an EAC pickup tied to successful deployment of a key fixed price program. Commercial & International revenues were essentially flat and non-GAAP operating margin of 8.1% was down 70 basis points on a year-over-year basis. The Security Products business moderately pressured both revenue and fee as product deliveries shifted into Q4, and we increased investments to accelerate our AI deployment. The energy infrastructure business that Tom highlighted once again led the sector in growth and profitability. Lastly, in Defense Systems, again, is one of our strongest performing segments, growing 11% year-over-year, its seventh consecutive period of high single to low double-digit growth. Growth was paced by increased volumes in Integrated Air Defense, including the indirect fires protection capability Increment 2 system and multiple radar surveillance systems as well as the small glide munitions and hypersonic missile programs. Bottom line performance was consistent with our expectations, with non-GAAP operating margins of 8.9%. This level of profitability is the result of a higher mix of materials in the initial phases of production on multiple programs as well as increased investments to pursue large opportunities like Golden Dome and maritime autonomy. We're still progressing towards sustainable double-digit profitability in Defense Systems. Turning to cash flow and the balance sheet on Slide 7. In the quarter, we generated $711 million of cash flows from operating activities and $680 million of free cash flow for a free cash flow conversion ratio of 171%. Q3 was a phenomenal collections quarter as the government prioritized disbursements at the end of their fiscal year, and we aggressively manage working capital, improved DSO by 2 days and began to deduct some previously capitalized R&D costs. After the $450 million debt paydown and $100 million share repurchase, we ended the quarter with $4.7 billion of debt for a gross leverage ratio of 2x, and $974 million in cash and cash equivalents. Importantly, we'll now have no debt principal payments due until 2028. And even with the increased dividend, our capital commitment is not changing materially given aggressive share repurchases over the past 2 years. Our strong balance sheet stands as a key tool to unlock shareholder value through capital investments to drive growth, strategic M&A to accelerate our growth pillars in opportunistic share repurchases. Finally, on to the forward outlook on Slide 8. Based on our robust performance year-to-date and confidence in our positioning, we're enhancing our 2025 outlook. Consistent with Tom's remarks, we're reaffirming our revenue guidance of $17 billion to $17.25 billion, raising our adjusted EBITDA margin guidance from mid-13s to high 13s, raising our non-GAAP diluted EPS guidance by $0.30 at the midpoint for a new range of $11.45 to $11.75, and we're reaffirming our operating cash flow guidance of approximately $1.65 billion. Let me provide a little perspective on the guidance. First, with the quarter to go, we left wider ranges around revenue and EPS than usual, a proactive hedge against a less predictable government environment. Second, our team and our diverse portfolio are proving to be exceedingly agile. We've been able to absorb top line hits that could approach 3%, and split nearly equally across government efficiency imperatives and the potential for up to a 3-month shutdown and still slightly improved revenue guidance over the year. Third, we are full steam ahead on funding key investments in the fourth quarter, deepening our conviction in a mission-driven, technology-enabled and inherently profitable future. And fourth, cash flow is a metric that is most impacted by the current environment. We expect all of the additional earnings from the raised guidance to convert to free cash flow, but the timing is uncertain in this environment. With that, operator, we're ready to take questions. Operator: [Operator Instructions] The first question comes from the line of Ken Herbert with RBC. Kenneth Herbert: Nice results. Chris or Tom, I maybe just wanted to start on the balance sheet. You've done a really good job with the cash flow in the quarter and getting leverage down. You just called out the organic growth investments, some select M&A and other opportunities or priorities. Specifically, how do we think about M&A in this environment? How are you thinking about it? And where are you focused in terms of specific opportunities? And what's the potential that you maybe look to accelerate the pace of acquisitions here? Thomas Bell: Yes. Thanks, Ken. Yes, as we've tried to be consistent throughout, we'll always have a shareholder-friendly view of our capital deployment. And so while we didn't have a strategy for Leidos per se, we were very focused on share repurchases and capital deployment, investing in our growth strategies organically. As exemplified by the Kudu acquisition that we announced last quarter, now that we have a very defined growth strategy, NorthStar 2030, with specific growth areas where we know markets are growing, we can be profitable, and we see very good opportunities for us to grow Leidos top line and bottom line. We are now focusing on that a little bit more. That's not to say that it's a swing to all inorganic, it's just that now inorganic will be more a part of the playbook now that we've got a defined set of areas where we're willing to play. We'll continue to be judicious. We'll continue to be very prudent. We are focused on a holistic approach to the capital deployment, and we're always going to have the hurdle rates and shareholder value first in mind for how we deploy capital. So whether that's internal, external or share buybacks or dividend increases, we're going to have the same type of a lens. Operator: Our next question coming from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Congratulations on great results. Maybe if we could talk about Defense Systems because it was one of the highest growers in the portfolio. How do you think about the growth within that segment and just moving past DOGE and potential like issues with civil customers as we've seen from a recent competitor, how does that impact your portfolio? Thomas Bell: Thanks, Sheila, and appreciate the question. Yes, we're very, very proud of our Defense Systems business and frankly, I'm happy to highlight some of the opportunities that we see that we're leveraging in that business. We're tracking about 10 different franchise programs that we expect to deliver about $15 billion in potential value over the next 5 years. These are programs like air and base defense systems, counter-UAS systems, hypersonic missiles, our black arrow small cruise missile that you may have read about in the press or heard about and nonkinetic effects for counter UAS areas. Also in defense, as we discussed last quarter, we have our maritime area, where we're very bullish on our opportunity to help this administration increase the size and lethality of the U.S. Navy. And I'm very proud that both in Australia and the U.K., we have corollary unmanned autonomous vehicle programs that have synergy with what we're doing here in the U.S. So all in all, we see a tremendous pivot for our defense business from heavy in the R&D and heavy in the seed corn, if you will, and now really pivoting to LRIP and programs of record, which has always been our plan since we acquired our defense tech business some years ago. With that, Chris, do you want to talk a little bit about the shutdown? Chris Cage: Yes, sure, Sheila. Obviously, it's been a year where we've had to overcome a lot of twists and turns. And specific to your question around our Fedserv portfolio, actually, I think it's proving to be quite resilient. Our teams have been able to execute in this environment, exceedingly agile -- in an agile way. And it's mostly impacted our DigiMod business, but we still were able to deliver double-digit -- I'm sorry, mid-single-digit growth in our -- in that area in Q3 and on a year-to-date basis. And so that's through driving more IT efficiencies for our customers and on-contract growth. And you look beyond that, you see that of the missions we perform for our veterans benefits administration are mission essential. And those areas, the demand continues to be very robust. And obviously, our FAA business, we're seeing that we're a central part of the programs we're performing on today and hopefully a big part of the future there, too. So our portfolio is very well insulated, and we'll continue to be nimble there, but it's been holding up quite nicely in this environment. Operator: Our next question comes from the line of Peter Arment with Baird. Peter Arment: Tom, Chris, nice results. Chris, could you talk a little bit about, you've done a great job guys expanding margins in the Health & Civil segment. Just kind of the sustainability. Obviously, the record examinations volume, obviously, being a part of that all, but just how do you think about the business just sustaining these levels going forward? Chris Cage: Yes. Sure thing, Peter. I mean, again, the team has been knocking it out of the park there. And it's the portfolio that we have differentiated ourselves through innovation and investment -- ongoing investment around the quality and the efficiency of care, timeliness, all of the key metrics to customers really prioritizing. So we've been able to stay ahead of that curve, and we're certainly aware that as they're expanding capacity with other vendors in that environment, we like how we're positioned to sustain a very robust piece of that action. And the team is looking beyond just what's going on in the VBA business. Obviously, we're focused on our growth pillar there, expanding into rural and behavioral health care in other areas, and there's a very robust set of opportunities as we're looking at funding and the federal and state levels through CMS that we're looking to figure out how we can help those customers expand and meet their needs around exam delivery, telehealth, et cetera. So this team, I wouldn't bet against them. They've performed time and again, and we have given ourselves the opportunity to really turbocharge the investments in AI and innovation to ensure that we can meet that mission head on and deliver robust margins into the future. Thomas Bell: Yes. And Peter, if you don't mind, I'm going to pile on here just to give a little shout out to our customer. This administration has made it a focus to serve our nation's veterans and to work down the backlog of health exams that our veterans need to access the benefits that they deserve. And because we've been investing in this business for years, we have the capacity to serve that need. But we are not stopping there. We're very focused on the insertion of technology into this business so that exams are better, faster, cheaper, and we do it in a way that we can sustain this level of business and profitability for years to come. So we're very bullish on leaning into this environment and continuing to have a very robust Health & Civil business as a part of the Leidos portfolio. Operator: Our next question comes from Tobey Sommer with Truist. Tobey Sommer: I wondered if we could get your view of your submitted bid expectations for next year. I know we're in a shutdown and so forth, but if you could compare and contrast the amount of bids that you're submitting this year and give us an indication for what growth might look like in those numbers as we get into '26? Thomas Bell: Yes. So as we discussed on the call, Tobey, we are very happy with the volume of business that is in our pipeline. We've got, as we said, $69 billion of near-term efforts that we are tracking and that are in the pipeline that we plan to submit against, and $24 billion that is already submitted and just awaiting adjudication. We're seeing a little slowdown in customer decisions in that pipeline because of the government shutdown. However, we expect as soon as the government shutdown ends, customers are going to return to the workplace and get after those decisions. So we think orders could pick up and pace very dramatically even in this quarter. But certainly, there will be some lag into next year. So 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, whether that's FAA or TSA or Department of Homeland Security or the DoD, in the Department of State, everywhere we look we see a buildup, almost a bow wave of needs and opportunities for us to pursue. And our business development team is very actively pursuing them. Chris Cage: Yes, Tobey, I'd add, I mean, obviously, early in the year, we had to pivot because there were some things that we were pursuing that got reprioritized by the customer. But since that time, as Tom just talked about, momentum has been building, the activity level has been elevated. And we expect next year to have a submittal year that exceeds this year overall. That's the goal in the plan. And it's a nice mix of -- there are some recompetes out there that we're chasing, of course, but a lot of new work. And with the backdrop against a set of win rates that have continued to hold up quite well, we're very pleased with where those are. It's a good recipe for success. Operator: Our next question comes from the line of Jonathan Siegmann with Stifel. Jonathan Siegmann: Just the health side on the medical exam has been a real nice source of strength. Just can you give us an early preview of how you're thinking about how that holds up next year? And any kind of changes you see in today's environment possibly impacting that positively or negatively? Chris Cage: Jonathan, so again, the trends have been strong there, of course. And the customer -- I mean, the administration really had a focus on driving down the backlog of aged claims, and we've been slowly chipping away at that all year. The trends are good, but we're not at that goal. So the demand signal we think will remain elevated. You may be tracking again that they did introduce a fourth provider in some of the regions, and we're well aware of that. So that's an area that -- you have to stay ahead of the competition through innovation and technology, great performance, good customer satisfaction, and we'll continue to prioritize those things. So I'd say, next year is a year that it'd be difficult to add to the capacity that we're seeing right now given that fourth vendor, but sustaining the levels of performance is our expectation and then building off of that by expanding into these other areas that are part of our managed health services platform. So the exam business is in great shape. We're already looking ahead to the follow-on, the recompete that happens at the end of 2026. So the team has been shaping towards that for ever since the last contract was awarded. So we're prioritizing this as a really important part of our business, and we're in a great spot. Operator: Our next question comes from Gavin Parsons with UBS. Gavin Parsons: First, I would just love to clarify what you're assuming for the shutdown impact in 4Q? And then second, would love to just hear a little bit more on where you're focusing investment and how we see that come through the financials? Thomas Bell: Yes. Sure, Gavin. Before I turn it over to Chris to go over the specifics of our guidance and what we're assuming on shutdown, I really do want to foot stop the thanks to the Leidoceans who have been leaning into this environment. And it is no small feet that we've been able to overcome the shutdown and DOGE headwinds of 2025 almost holistically. I mean, again, just to put it in perspective, this is our second guidance raise for the year. And we've been able to hold our revenue guidance throughout. That is directly to the spirit of our Leidos teams that have been working to offset programs that have been canceled or curtailed and work for on-contract growth and other wins in other places to make sure that we continue to serve our customers and our communities. So a real big shout out to the team that has been so resilient through the year and a real testament to the diversity of the Leidos portfolio. It's not that we are a one-trick pony, and we're totally beholden to one type of business that has been more affected by DOGE and the shutdown, we're very diverse, and therefore, we have the opportunity to lean on other aspects of the portfolio as the year unfolds. Chris, do you want to underscore the guidance? Chris Cage: Sure. Thanks, Gavin. So Gavin, as we said in our prepared remarks, we left a little wider ranges because of the uncertainty in the environment. We're obviously all hopeful that the shutdown comes to an end here quickly. And I think if that were to be the case, you would see us trending towards the higher end of the guidance ranges that we put out for EPS and revenue. But we left a little bit wider range to accommodate the risk that it extends towards the end of the year. I don't expect that to be the case, but there's always that potential. And the one area that, again, probably the least direct control over is cash. If the shutdown goes longer, even if it ends here in the -- late in the fourth quarter, there's always risk that some of the collections do leak into 2026. It will all show up in time, but that's why we didn't change our cash guidance at this point in time. So I think we've accommodated a variety of outcomes. We're hopeful that those more extreme situations aren't in play and that we're able to get back to ordinary course of business here quickly. Regarding technology, yes. I mean, we've stepped up technology. Being in this position, having built the capacity in the business with such high margins and great returns has afforded us the ability and it's perfect timing because this environment, the customer is looking for proven solutions to deploy. And so we've been able to lean into investing in prototypes and different kinds of technology and capacity for example, in our Huntsville facilities to meet the moment as it relates to expanding the programs that Tom talked about. Obviously, AI investments are central to a lot of that too. But you're seeing that proliferated across a variety of our business segments in a number of areas, we call it our innovation fund where Leidos is putting a lot of its own resources, not company R&D -- funded R&D into this. And I think those things will really allow us to hit the ground running into '26 on an accelerated basis. Operator: Our next question comes from Seth Seifman with JPMorgan. Seth Seifman: Just to clarify a little bit more on that last question. When we think about the programs that you're talking about moving from R&D towards production, the capital investment, the capacity to ramp up on the types of opportunities that you're talking about that all exists already. And I guess related to that, it looks like this year is probably going to underrun, to some degree, the CapEx forecast that we had back at the beginning of the year. Do we think about that as reflecting some investments that may move to future periods? Or was the initial outlook just a little bit conservative? Thomas Bell: Yes. Thanks for the question. The -- yes, the majority of the CapEx we need to facilitize for the production programs I mentioned has been made. And at the same time, I do want to say that we've given a little bit more freedom to our defense tech business to make sure they have the resources necessary to continue to facilitize for the customer pull. We're in a very unique situation where this administration is very focused on lethality for select products and solutions. We meet the moment with our defense business that has very, very specific lethal production programs that are meeting the moment for base defense, counter UAS, small cruise missiles and the like. And so we're going to be a little bit more comfortable with a higher CapEx rate in our defense business, but on the whole of Leidos keeping that within CapEx expenditures that you, our investors, have grown accustomed to. So on balance, again, leveraging the portfolio and making sure that we use the portfolio as a strength, we can invest a little bit more in our defense business, while we don't have to invest the same amount of CapEx in other parts of the business. Chris, anything you would add? Chris Cage: Well, and Seth, I mean, to your comment, you're correct. I mean we have underspent the original expectations in '25 on CapEx. Some of that was just good, prudent management along the way. Some of that is expenditures we would have liked to have made, but there's been some delays in customer decisions that would drive the need for those investments, including what's going on with our airborne ISR business in Australia. So those are some things that could still take place here as we look into the early part of 2026, but all the while sitting in the affordability envelope that we've laid out for you guys over time. So I think we're in a great position there, have some capacity to step it up if the needs arise, but we'll certainly ensure that those incremental investments, we believe, are going to generate attractive returns for our shareholders. Thomas Bell: Our next question comes from Colin Canfield with Cantor Fitzgerald. Colin Canfield: When we think about kind of normalizing for shutdown results and the bridge from this year's mid-single-digit organic performance to next year. What are kind of some of the key puts and takes or contracts that you would flag as we think about the building blocks for mid-single-digit organic growth to potentially high single-digit organic growth next year? Chris Cage: Yes. Colin, I think too early to lay out any specifics on 2026. We obviously have to see when the shutdown ends and how quickly things get back to the ordinary course of business. But as Tom laid out, I think you can expect to see our Defense Systems business leading the way as an area with a number of programs that could accelerate away and drive growth. Obviously, our energy infrastructure business that was highlighted today is an area that we expect to see strong growth momentum and going into 2026. We talked about our large award in the intelligence community this quarter that will be ramping going into next year. So there's several things that have momentum behind them, not to mention the additional opportunities that may emerge through Golden Dome funding and air traffic control and of course, border security. Juxtaposed against that, it has been a year of DOGE, and we've navigated that well. And there'll be some programs that ultimately trade out of the portfolio or have ended over the course of the year. We did sell a small business in Varec that you heard us talk about that's very modest. Think of that as a $40 million top line business. And then we're almost through all of the portfolio shaping we've spoken about in the past, specifically our Antarctic support program, and that will ultimately come out of the portfolio in 2026. So we're excited about the growth momentum and looking at a number of levers there. But to put all that into a framework on what the growth expectations are for '26 is just little premature for that. Thomas Bell: A little context also, Colin, as we came out of DOGE and we started to gain traction on the One BBB Law, things like FAA, ATC modernization, Golden Dome, our border security opportunities and airport screening modernization, those were all areas that got tremendous traction. But then with the government shutdown, there's been a little hiatus there. And as I tried to suggest in my prepared remarks around Golden Dome, 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. So as soon as the government shutdown is over, 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. And as we come out of the shutdown, we'll put together our '26 plan, and then we'll have something to talk to you about what we expect next year. Operator: Our next question comes from Mariana Perez Mora with Bank of America. Samantha Stiroh: This is Samantha Stiroh on for Mariana today. Could you just talk a little bit about your international business, where we are seeing some pockets of strength or some slowness? Thomas Bell: Sure. Well, our international business is focused in Australia and the U.K., as you know. In each of those countries, we have a relatively large business and about 2,000 employees. We've got a leadership team in place in both of those countries that we're very proud of and very confident in. And they're both very aggressively figuring out how they expand their business in line with our NorthStar 2030 strategy. This is a point that I make internally all the time. Some people say, oh, international is not a growth area for Leidos, to which I answer, [ oh, contrary ]. We have a domestic homeland defense business in the U.K. and Australia and we have 5 growth pillars. And I am very confident and comfortable growing our international business in those 2 countries and maybe select other countries consistent with those growth pillars. That's the key. The growth pillars are the key to how we're going to grow Leidos regardless of what country or what Homeland you're discussing growing it in. So we're very bullish about growing our Australia and the U.K. business. We're going to be opportunistic elsewhere in the world, but not silly because our business is one where you have to be domiciled organic and local. You can't just parachute in and sell more products from a production line in the United States. And so international remains a part of our growth story, consistent with our NorthStar 2030 growth pillars. I hope that helps. Operator: Our next question comes from the line of Scott Mikus with Melius Research. Scott Mikus: Tom, you talked about the franchise program opportunities at your Defense Tech business, and we've seen a lot of defense tech companies raise capital at lofty valuations that don't have the track record of Dynetics. So does it make sense to potentially explore spinning off Dynetics given that it might attract a higher valuation outside of the broader Leidos portfolio? Thomas Bell: I think the corollary is also true, where we have a golden jewel in our Dynetics and Defense Tech business that as people and analysts get more comfortable with and they see the fact that we're stake, not just sizzle. They're going to start to value Leidos on the whole a little bit more robustly. So I'm looking at it at the other side of the straw, if you will, that says, I've got this wonderful asset. It's called Leidos Dynetics in Huntsville, Alabama. We're growing a business around it because we have a defense tech business that is more than just platforms, it's also mission systems. It's the ability to combine rapid prototyping and rapid fielding of platforms with the software and the smart and the mission systems that makes it effective for our war fighter. And that's the thing that these other people that are getting a lot of press can't do. They may be able to build products quickly and innovatively, but so can we. What we can do that they can't do is put the mission packages on them and make them relevant to the war fighter in the next years. And so I'm very excited about it. I have no plans to do anything, but invest in it and help sell the story that Leidos should be valued more because we have this crown jewel called Leidos Dynetics. Operator: Our next question comes from Gautam Khanna with TD Securities. Gautam Khanna: I was wondering if you could comment on recompetes next year. I know you mentioned the VBA contract. But if you could just call out what percentage of sales? And if there are any lumpier recompetes out there that we should be monitoring? Chris Cage: Gautam, yes, sure. This is Chris. I probably can't put a percentage on it just yet. We're fine-tuning all of that '26 planning. But I can tell you, there's a couple more significant ones we're paying attention to. Our reserve health readiness program is a large one that we expect could be decided here in the fourth quarter. I referred to an Australian airborne program. That's one where there was an expanded scope opportunity there, but still a key recompete for our commercial international business. Those are two of the larger ones running through the list, I am just eyeballing here of anything else of consequence, we've got a CBP opportunity. But I'd say beyond those two, actually, it lines up to be a pretty nice year, more weighted towards new business and takeaways than recompetes. But of course, those critical franchises we're going to focus on, and we already have, putting our best foot forward on our proposals there. Operator: And there are no further questions in the queue at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.

Operator: Greetings. Welcome to Leidos' Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Stuart Davis from Investor Relations. Stuart, you may now begin. M. Stuart Davis: Thank you, and good morning, everyone. Joining me on today's earnings conference call our CEO, Tom Bell; and CFO, Chris Cage. Today's call is being webcast on the Investor Relations portion of our website, where you can find the earnings press release and the presentation slides for today's call. As shown on Slide 2, our discussion today will contain forward-looking statements based on the environment as we currently see it and thus includes risks and uncertainties. Our press release contains more information on the specific risk factors that could cause actual results to differ materially from anticipated results. Turning to Slide 3. We'll also discuss both GAAP and non-GAAP financial measures, and today's press release and presentation slides contain a reconciliation between the 2. And now let me turn the call over to Tom, who will begin on Slide 4. Thomas A. Bell: Thank you, Stuart, and thank you all for joining us today. I'm pleased to speak to you all against the backdrop of our truly differentiated Q2 results. We've recorded robust revenue growth, 4.8% year-to-date, record profitability, 15.2% EBITDA margin this quarter and robust operating cash flow, up 28% this quarter. These results are especially gratifying given the dynamic market environment through which we are navigating. Behind this performance is our proactive enactment of intelligent austerity measures, a team that is leaning into our unparalleled customer understanding and engaging customers as their partner to create smarter and more efficient outcomes. Our wrapping technology, AI and all our golden bolts even more aggressively around all our products and services to enhance our customers' effectiveness and completely aligning all of Leidos around our North Star 2030 strategy. It is because of this that I'm also pleased to be able to raise our full year guidance for 2025. As you will recall, our North Star 2030 strategy is comprised of 5 growth pillars: space and maritime, energy infrastructure, digital modernization and cyber, mission software and managed health services. Our determined ongoing engagement with customers continues to validate these North Star 2030 growth pillars. In fact, the significant multiyear funds provided by the One Big Beautiful Bill speak directly to our North Star 2030 growth pillars and our core Leidos capabilities. With the One Big Beautiful Bill now law and the administration's priorities now clear, our customers are moving out to execute programs for essential missions right in our wheelhouse. These include our space and maritime growth pillar, supporting a wide range of needs in the Golden Dome initiative; our mission software growth pillar, along with our global air traffic control experience being tightly aligned to the FAA's ambition for a brand-new air traffic control system; the TSA embarking on an ambitious airport screening modernization effort, which is tightly aligned to our capabilities in our airport security business; the Department of Homeland Security receiving significant additional funding, validating our ongoing investments in our ports and border security business as well as our cutting-edge counter drone capabilities and the drive for improved health outcomes and better service to our nation's veterans, speaking directly to our managed health services growth pillars. All in all, it's indeed a very exciting time for all of Leidos. Now I'd like to take a few minutes on this call to highlight the maritime component of our space and maritime growth pillar. Over the coming years, the U.S. Navy plans to rapidly deploy a larger integrated fleet of manned and unmanned vehicles, a direction that closely aligns with our strengths in maritime autonomy. This enhanced battle force will not only prepare the U.S. for future challenges, but also revitalize the U.S. shipbuilding industrial base. Leidos' full life cycle maritime capabilities are unmatched to meet this need. Leidos is the only company that possesses world-renowned naval architecture capabilities, proven experience fielding successful autonomous maritime vessels, demonstrated capabilities in state-of-the-art maritime autonomy AI and experience in designing and integrating packaged mission payloads. So Leidos is in a pole position to support the expansion of the U.S. Navy with an autonomous maritime fleet. The fiscal 2025 reconciliation bill allocated robust funding for autonomous vessels along with related autonomy and battle management software. Let me highlight a few examples of the role Leidos is already playing in this area. First, the U.S. Navy has contracted Leidos to survey commercial ships for future potential conversion to high-performance mission-ready autonomous medium unmanned surface vessels. Second, the U.S. Marines have a desire to scale up production of Leidos' low-profile small unmanned surface vessel, Sea Specter to support expeditionary warfare, particularly in the Indo-Pacific. U.S. Marines currently have 3 Sea Specters in operation and have praised its low-profile approach and capacity for missions in contested environments. And third, a classified customer has contracted with Leidos to procure one dozen Sea Darts, our low-cost attritable unmanned underwater vessel to augment their arsenals. The customer has expressed an intent to acquire an additional 70 Sea Darts next year with additional units to follow. This opportunity further positions Leidos as a leader within the subsea warfare domain critical to our nation's defense strategy. We have invested in maritime autonomy for decades. And as a result, our Leidos Autonomous Vessel Architecture, or LAVA, is the most trusted and reliable maritime autonomy on the market. LAVA has demonstrated its endurance, long-range capacity and precision while sailing more than 120,000 nautical miles. This includes our fleet of Leidos-built MUSVs that transited the Pacific from San Diego to Australia and back last year. This journey marked a huge advancement in maritime autonomy and reinforced our leadership in this crucial domain. And we are continuing to invest in technology to improve the performance and interoperability of our nation's maritime capabilities. Our team is adding our proven battle management software, AlphaMosaic, software originally developed to optimize battlefield and airspace strategies to our maritime command and control capabilities. Simultaneously, our NATO allies are increasingly acknowledging their escalating maritime threats and therefore, the imperative to modernize and prepare their maritime forces. This collective global focus presents a nearly $4 billion pipeline for Leidos over the coming years. Across all these opportunities, the new administration's playbook is clear, leveraging technology and AI to disrupt old models, drive out costs and deliver more efficient solutions. We share that passion and are thrilled to have a receptive customer eager for technology adoption. For some time, Leidos has been deploying trusted mission AI to our own business to lead our own positive disruption. We've been putting AI to work for us for years. And the results are extremely encouraging. Our AI work is on track to save more than 0.5 million labor hours by the end of this fiscal year, and we're just getting started. Let me give you a few examples of this work in action. In our growth office, we're using generative AI to help write better proposals faster. In this regard, we've already achieved some 20% greater efficiency on tasks common to every large proposal. In finance, we're using advanced automation to expedite our cash flow process and as a result, have decreased invoice build and delivery time for select customers by almost 40% while driving down error rates. And we've enabled over 1,000 software developers with AI-powered coding tools. For these coders, we've seen an over 30% reduction in the time it takes for them to deliver ready-to-test code. And using the same Leidos AI tools deployed at the FAA, we've seen a 60% increase in development productivity. This brings me to my final point today. The government is now transitioning from policy to productivity. This administration came in with a clear objective to drive efficiencies and attack the status quo. And as discussed on our last call, that's fertile ground for Leidos and core to our business model. Now I'm pleased to report that we continue to have success positioning Leidos as part of the solution, not the problem as this administration moves quickly to make government outcomes smarter and more efficient. And it's apparent to me through the myriad of cabinet level engagements I've had to date that this administration is seeking to work with agile forward-leading solution providers like Leidos. Our customer decision environment is also improving. Our 0.9 book-to-bill ratio in the second quarter was a strong snapback from Q1 and more than half of these awards were for new and takeaway business. Late in the second quarter, we were notified that we were also awarded another multibillion-dollar takeaway within the intelligence community. But as happens, that contract wasn't definitized for several weeks. Had the contract been finalized in June instead of July, our Q2 book-to-bill ratio would have been 1.3, and our backlog would have increased 4%. Looking ahead, our pipeline of opportunities remains robust, and we expect much greater awards pace in the back half of this year. It also bears mentioning today that I am encouraged by the first fruits of our Kudu acquisition. As a result of fast integration of Kudu into our business, we've already added $400 million in pipeline opportunities that neither company was pursuing separately. And we are convinced that with the combined Leidos Kudu capabilities, we've now driven up probability of winning on another $2 billion of near-term submits. Given our improving market backdrop, we're confident in our ability to deploy capital to activate our strategy and benefit our shareholders. As we execute our North Star 2030 strategy, we will continue to be on the lookout for constructive acquisitions that support our growth pillars and offer a compelling return on capital. And at the same time, our confidence in future cash flows enables us to remain multifaceted in our capital deployment philosophy. So consistent with earlier indications, we will undertake additional share repurchases and debt paydown during the back half of this year. So in summary, we are fully executing our North Star 2030 strategy. We're seen as part of the solution in the drive for smarter and more efficient government outcomes. And our customers have the funding and the conviction to move forward boldly in areas that speak to Leidos' core capabilities. With that, before we take your questions, I'll turn the call over to Chris to run through our financial details of the quarter and our improved 2025 outlook. Chris? Christopher R. Cage: Thank you, Tom, and welcome to everyone joining the call this morning. With the first half of 2025 in the books, we've shown what our differentiated and diversified portfolio can achieve. Over that period, each segment expanded margins and delivered mid- to high single-digit growth. And we think the best is still yet to come for Leidos. From the 30,000-foot view, the second quarter looks like Leidos just being Leidos, another quarter of beating expectations to deliver top-tier earnings and cash flow growth. But this quarter was anything but business as usual. On the May call, we estimated the 2025 revenue impact from administration efficiency actions to be about 1%. That remains true today, and that impact is spread roughly evenly across the second, third and fourth quarters. Complicating our growth story, the procurement process was severely constrained in the first several months of the new administration. We've been able to overcome those obstacles by obsessively delivering on the administration's innovation and efficiency agenda. For example, many customers are looking to drive down IT costs as part of their efficiency imperative. After initially focusing on canceling contracts and reducing scope, we've now seen a pivot to consolidating contracts to increase accountability and lower the all-in cost of the government. We've offset a large part of our DOGE headwinds by using our scale, breadth of capabilities and unmatched contract portfolio to aid our customers in developing new requirements onto our existing contracts where we have expansive scope and ceiling. With that as a backdrop, let's take a closer look at this quarter's performance, starting with the income statement on Slide 5. Revenues for the second quarter were $4.25 billion, up 3% year-over-year and up sequentially despite the headwinds from award delays and ongoing contract reviews. Profitability was where the urgency and discipline of the team shown brightest. Adjusted EBITDA was $647 million for the quarter, up 16% year-over-year, and adjusted EBITDA margin increased 170 basis points to 15.2%. Non-GAAP diluted EPS grew 22% to $3.21, well surpassing last quarter's record high of $2.97. Our EBITDA margin in the quarter was our best ever by 100 basis points. Let me unpack that a little to give you some more insight into how we accomplished that level of profitability and what is likely to be sustainable going forward. The core drivers were our contract portfolio, solid execution and efficient operations, which we should maintain for the foreseeable future. The second quarter included an $8 million benefit from EAC adjustments, which is actually $3 million to $4 million less than our average quarterly performance. And as Tom described, we're heavily focused on leveraging the power of AI and automation to drive down indirect expenses to improve profitability and competitiveness. However, we did have some favorable onetime items that lifted earnings in the quarter. Most notably, we received a $25 million insurance reimbursement for legal costs and an $8 million tax refund from prior year state tax filings. Equally important, for the first 2 quarters of 2025, we proactively metered spending throughout the company, which was appropriate for these unprecedented times. Given the uncertainty surrounding the new administration and a host of new EOs, we maintain tight controls on our indirect expenses. As the customer environment is beginning to settle and the pace of procurement is now picking up, we expect to return to a more normal level of spending and also aggressively invest to capture market share. Turning to the segment drivers on Slide 6. It is clear that each of our segments contributed to our impressive results. National Security and digital revenues increased 3% year-over-year. Several contract awards from the second half of 2024 are now ramping, and we're seeing additional tasking on large franchise programs like DES. Building upon the award momentum, this segment was the primary bookings driver in the quarter. So we look for growth to sustain despite some continued DOGE headwinds for select digital modernization programs. Non-GAAP operating income margin of 10.4% was unchanged from the prior year quarter. With the late May close, the top and bottom line contribution from Kudu was minimal as expected. The team has done a great job with the integration so far, and we're very excited about the opportunities this acquisition is unlocking. Health and Civil revenues increased 1% year-over-year, and non- GAAP operating income margin was 24.9%. Sustaining the high levels of performance was enabled by the continued high throughput of medical disability exams and our team maintaining its laser focus on delivering excellence in innovation. In Commercial International, revenue increased 1% year-over-year from continued demand in SES, steady performance in our commercial energy business and improved execution and on-contract growth within our U.K. business. Top line growth was tempered by last year's hardware refresh in our Australian IT line of business. Non-GAAP operating income margins were 8.5%, up 780 basis points year-over-year, stemming from the anniversary of the write-downs on U.K. programs in the prior year quarter and a more favorable product mix within SES. Last but certainly not least, Defense Systems revenue saw the highest growth, increasing 10% year-over-year from increased volumes on SDA Wide Field of View Tranche 2 and integrated air defense programs like IFPC Increment 2 and the Electronic Warfare Mission Support program called out in the earnings press release. Non-GAAP operating margins of 9.8% were down from Q2 of 2024, but up sequentially. We continue to track towards sustainable double-digit margins in our Defense Systems business. As we look ahead, we are confident in our differentiated capabilities to support key priorities like Golden Dome and Maritime. Moving on to the cash flow -- to cash flow and the balance sheet on Slide 7. In the quarter, we generated $486 million of cash flows from operating activities and $457 million of free cash flow for a free cash flow conversion of 110%. During the quarter, we completed 2 major capital deployment activities. First, we closed the Kudu Dynamics acquisition for preliminary purchase consideration of $291 million, net of $29 million of cash acquired. And second, we finalized the $500 million accelerated share repurchase on May 20, retiring over 3.6 million shares at an average price of $138.44. These actions are perfect examples of what we're looking for as we use our balance sheet to grow shareholder value. Opportunistically putting about half of our operating cash flow for the year to work to turbocharge our access to a fast-growing market and to take down shares at very attractive prices sets us up well going forward. We ended the quarter with $5.1 billion of debt for a gross leverage ratio of 2.2x and $930 million in cash and cash equivalents. The strength of our balance sheet offers ample capacity for additional capital deployment, aligned with the strategic priorities that Tom laid out. We will continue to monitor the market and appropriately balance debt paydown, capability-focused M&A and additional share repurchases. Finally, on to the forward outlook on Slide 8. As you all are aware, the customer environment during the first half of the year has been somewhat unsettled. While some disruption may continue, as Tom outlined, awards are picking up and the administration is clearly moving forward. We now have greater clarity and conviction about the near- and long-term future for Leidos. As a result, we're very pleased to raise and narrow our guidance for the year across all metrics. On revenue, we're raising the low end of our range by $100 million and the midpoint by $25 million for a new range of $17 billion to $17.25 billion. Though Tom and I are confident in the trajectory of funding and ongoing contract reviews, we have experienced some revenue reductions, and we believe it's prudent to account for some potential customer delays and other unknowns. Our performance to date gives us high confidence in our ability to deliver on margins and earnings. We are raising our adjusted EBITDA margin guidance from mid- to high 12s range to mid-13s. As a result, we now expect non-GAAP diluted EPS between $11.15 and $11.45. So we are narrowing the range by $0.10 and increasing the midpoint by $0.75. These ranges reflect a return to more normal indirect spending and an uptick in investments we plan to make for the rest of the year to drive future growth and capitalize on the administration's priorities that are highlighted in and funded by the One Big Beautiful Bill. Lastly, we are raising our operating cash flow guidance by $200 million from $1.45 billion to $1.65 billion. The increase reflects about $50 million from better EBITDA performance and $150 million from the tax changes in the One Big Beautiful bill that allow us to immediately deduct some previously capitalized R&D costs. All in all, the team has again showcased its drive and agility through dynamically evolving high tempo times. We remain confident in our outlook for 2025 and beyond as we execute our North Star 2030 strategy. With that, operator, we're ready to take questions. Operator: [Operator Instructions] The first question comes from the line of Tobey Sommer with Truist. Tobey O'Brien Sommer: I was hoping if you could speak to the potential financial impact on the company if the new GSA initiative to purchase commercial software and services directly from vendors rather than integrators. Maybe talk about it from a pass-through perspective, which sometimes occurs or when it's embedded in contracts, that would be helpful. Thomas A. Bell: Sure thing, Tobey. Thanks, Tom here. I'll start and maybe hand it over to Chris for some additional details. We see -- generally speaking, we see the GSA taking a bigger role in government procurement as positive for the market and for the industry. They are a professional procurement organization, and they tend to meet their schedules and have consistent outcomes. So that's good for us. And they also prefer commercial behavior, which again, is right in our wheelhouse. Frankly, we love outcome- based commercial contracts, and we're thrilled to engage with this administration throughout to increase that level of exposure for Leidos. So generally speaking, we see ourselves as what the GSA is looking for more of, not less of. And we think we have a good opportunity to grow our business as a result. Specifically to what you're talking about from a hardware-software standpoint, Chris will maybe talk more about the details of it. But we're not a value-add reseller. We're not a consultant. We don't make our money by buying hardware and software and passing it through on contracts. Our jam is mission systems. And so anything that lets us buy hardware and software or the government hardware and software more efficiently leaves more budget space for mission systems, which is really where we have our value add. So generally speaking, this is a trend we're excited about, tracking closely, staying very close in contact with the GSA and are optimistic about our chances in this environment. Chris? Christopher R. Cage: Yes. Thanks, Tom. And Tobey, I would just add, I mean, certainly, we meet our customers where they are, right? So depending upon how they want to procure, we're ready to support. But as Tom said, procuring costs, hardware, software is not how we add value. It's -- today, I'd say it's on the order of several hundred million dollars on average that gets passed through to customers. Sometimes that's part of a bundled solution, and I don't see that changing. They want a particular mission outcome. But oftentimes, if we are buying hardware or software is passed through on a cost plus or T&M basis, those margins are very low and sometimes they're 0. So again, it's not a meaningful contributor to Leidos' value add, not a meaningful contributor to our earnings or cash. And so we can flex certainly either way depending upon how that situation evolves. But we'll continue to stand ready to support our customers. And as Tom mentioned, more dependable procurements are good for everybody, and that's the path that GSA is on. Operator: Our next question will come from the line of Jonathan [ Siegmann ] with Stifel. Unidentified Analyst: Appreciate all the comments on the Big Beautiful Bill and the great exposure you have to these areas. Just love to hear a little bit on how you think about with these demand signals being so strong, the opportunities for you to invest organically in the business, in particular, in marine time space, you guys have been really efficient in building a great business on a capital-light model. But just broadly, where are the opportunities today to invest organically? Thomas A. Bell: Yes. Thanks, Jonathan. Yes, we're very excited about all the opportunities in the Big Beautiful Bill. And like I said in my prepared remarks, all the priorities of this administration speak to our growth pillars and core Leidos competencies and capabilities. So we're very excited about it. From FAA air traffic control modernization, a huge opportunity for Leidos going forward. TSA screening modernization, a huge opportunity for Leidos going forward, especially if you bundle both of those and think about the airport of the future, we're very excited about the receptivity of this administration to big ideas like that, the airport of the future and taking air travel to a whole new level of customer experience. Border security, obviously, is a huge area of focus for this administration and a huge funded area in the Big Beautiful Bill. And Golden Dome is a big area that our defense systems is very plugged into with General Guetlein coming on board and ramping up that whole program and the shape and structure of how that's going to defend our homeland in the future. So we're very excited about the whole range of opportunities that the Big Beautiful Bill gives us. Specifically on Maritime, thank you for asking about it. We're exceptionally excited about that because we started talking to the INDOPACOM command over a year ago about the demands of that command in the Indo-Pacific and the requirement for unmanned autonomous vehicles. So we've been frankly, investing in and driving prototypes of unmanned vessels. We actually have deployed our LAVA autonomous vehicle architecture on over 10 vehicles that are in the water. And we have a program that we're bringing forward to the Navy that we think combines the need for a quick build of very agile maritime autonomous vessels with the rebuilding of the maritime industrial base in the United States. That doesn't mean to the specific question you asked, that we're going to get into the shipbuilding business or the shipyard business. We think there is ample shipyards in America that can satisfy the need for these medium and small USVs. That's the network we're tapping into to enable them to be a part of the solution around the whole of the nation as opposed to us buying and/or building shipyards. I hope that helps with the context. Chris, anything to add? Christopher R. Cage: Yes, just a couple of points there beyond maritime, right? First of all, to what Tom said, demonstration ready, pilot ready, this environment begs for what can you show me that you can feel now. And so again, with the guidance that we've laid out for the rest of the year and looking to the second half, part of the reason why we're not running at the same level of elevated earnings is we do see a rich set of investment opportunities that the teams are bringing forward to position ourselves in this environment. We're super excited about that. Secondly, Tom and I just toured upgrades to our Huntsville campus within the last few weeks. And I'll tell you, it's very impressive. The team have laid out a number of improvements to increase throughput and capacity on a number of our product lines there, many of which are positioned to accelerate as part of One Big Beautiful Bill. So -- and again, to your point, doing all of that in a capital-light environment. So I think we're well positioned there. Operator: Our next question is going to come from the line of Seth Seifman with JPMorgan. Seth Michael Seifman: I wanted to follow up talking a little bit about the opportunities in the reconciliation bill. And I wonder if you could maybe rightsize us on the scanning business and how you view the opportunities there, maybe the size of the business now. And then when you think about the nonintrusive border equipment, the TSA and airport equipment, how you think about the scale of opportunities, kind of your ability to capture them in the competitive environment and the time frame for capturing them? Thomas A. Bell: Yes. Thanks, Seth. And across the spectrum of the Big Beautiful Bill, like I was just speaking, we see ample opportunities. Let me run down a few numbers for you. In the billions of near-term addressable funding that we've identified core to Leidos' capabilities, $1 billion to $2 billion in the FAA modernization supplemented by annual appropriations going forward, $2 billion to $3 billion in autonomous shipbuilding, as I was just speaking with to Jonathan. There's $2 billion to $3 billion we estimate in nonintrusive inspection and border surveillance equipment. So a very big market there. $4 billion to $5 billion in counter UAS capabilities, ground- based radars, low-cost missiles, hypersonics and other things that will play back into the Golden Dome. And don't forget about the capacity for a large rural health transformation push through the VA that speaks right back to our wheelhouse of how we've positioned our health and civil business to serve our nation's veterans and meet them where they are. So we're very excited about the range of opportunities that the reconciliation bill gives us. And specific to your question, when it comes to border security, obviously, it was one of this administration's biggest thrusts coming into office. We've had multiple engagements with the Department of Homeland Security. We feel as if we have a very receptive audience in the Department of Homeland Security around our capabilities that are ready to field now. As Chris was saying before, they're not interested in PowerPoints and promises. They're interested in seeing capabilities demonstrated and products that are in production. We have those products for surveillance and for counter UAS and for ensuring safe venues in 2026 and beyond. And so the Department of Homeland Security, Customs and Border Patrol, these are people we're very actively speaking to right now and are very receptive to what Leidos has to offer. Chris, anything you'd like to add? Christopher R. Cage: The only thing I'd just to answer one part of your question there, Seth. I mean that's on the order of a $600 million business for us. I mean it's an integrated SES business with ports and borders and aviation equipment. But as you know, the ports and borders piece goes back decades. That's our heritage, and we've been serving CBP, TSA, other customers for a long, long time and look to continue to expand our offerings to those customers here going forward. Operator: Our next question is going to come from the line of Sheila Kahyaoglu with Jefferies. Sheila Karin Kahyaoglu: Great quarter, good performance. I wanted to ask a specific question maybe on health. How do we think about just health growth going forward, whether it's the rural health program, Tom, you just mentioned a minute ago. Maybe give us an update on DHMSM and VBA. And how do we think about the contribution from incentive fees in the quarter and how we should be thinking about it going forward? Thomas A. Bell: Yes. Thanks, Sheila, and thanks for joining the call this morning. Let's see. On Health and Civil, we've seen record volumes of about 5,000 cases per day in June. So there's a huge volume going through that business. And we're earning more than our 25% share of a 4- way provider down there. So we're very excited about the volume of business we're doing through our Health and Civil business and our ability to serve our nation's customers. As you know, the better you do, the more referrals you get, the more capacity you have, the more referrals you get. And so this is where, based on our performance, we're excelling. The team is laser-focused on driving our performance to be best-in-class. And as we've talked about in the past, we're investing in technology, both in the brick-and-mortar clinics that we operate and the software that creates a very cohesive scheduling dance between the patient, the clinician and the clinic itself and also our deployment of technology for the rural exams. As you ask, the rural exams are an area where we think we are leading the pack in the deployment of our mobile clinics where, again, through sophisticated scheduling software, we're able to deploy those units to meet the veterans where they are so that we serve them in ways that satisfy them. So we think this business is going well. The VA Secretary has said he wants to reduce backlog by 60,000 by the end of the year. So that would be 125 claims a day. So we think there's a tremendous amount of work through this year and well into next year as we seek to differentiate ourselves to continue to serve our veterans in that way. Chris, anything from you? Christopher R. Cage: Sheila, I would just hit on a couple of other points, too. Team has done great work on DHMSM, as you know. And after the second quarter, we were successful in securing that extension that we had previewed previously for another year, and that just speaks to the strong performance that we've delivered for that customer. And now as you're probably aware, they've come out and asked about or put out an RFI to talk about how to consolidate the DoD and VA EHR record systems. So that's out there. And obviously, our teams are looking to ensure that we position ourselves to support those efforts going forward. And then looking ahead to the pipeline, there's still plenty of things that we're positioning for with the Navy fleet and family support, global [indiscernible]. There are several procurements on the horizon that are already kind of in our pipeline capture teams and looking to how we grow that business going forward. But opportunity-rich environment, again, great funding that we see on the rural and behavioral side, sending a strong demand signal, and we've proven to be somebody that the customer can count on to deliver successfully with high performance. Operator: Our next question will come from the line of David Strauss with Barclays. Joshua Tyler Korn: This is Joshua Korn on for David. I wanted to follow up on, I think it was Seth's question. You mentioned border security and the procurement funding for unmanned Marine and UAS. But I wanted to ask specifically about the funding in the reconciliation for O&M. Do you have any benefit from the additions to those funds? Thomas A. Bell: From O&M funding, I'd say that, again, as that all sorts itself out, there's certainly ongoing programs and efforts that we benefit from O&M funding. And so that supports the deployed fleet of equipment that we've already have in place and upgrades and enhancements of those particular units as it relates to software, expanded sustainment efforts. It's unclear yet whether any of those funds will be able to be redirected to buying incremental equipment on the O&M side as it relates to the CBP and ports and borders, if that's where you're asking that. But very pleased about all of the opportunities around the reconciliation bill. And our teams have dissected that. And as Tom gave you a good walk down, we see a rich environment across many parts of our portfolio. Operator: Our next question will come from the line of Peter Arment with Baird. Peter J. Arment: Tom, Chris, Stuart, nice results. Tom, could you comment a little bit on -- recently, there was a very large multibillion-dollar award to a competitor where they were consolidating IT contracts at the DoD and around AI and just whether that was something that could have an impact on your business or is not an impact to your business, just concerns about this competitive landscape changing as it's a very dynamic environment as you kind of highlighted multiple times. Thomas A. Bell: Yes. Thanks, Peter. Yes, sure. We read the news, too, and that's an eye-watering number, $10 billion IDIQ. And that's very impressive. But as you all know, that's where the game begins, not where it ends. It's no surprise to us that this administration is very interested in commercial technology and outcome-based. And so we don't see that net-net as a huge new competition for us, but rather an opportunity for us to also be that commercial disruptor we've always been. As we've talked about in past calls, Leidos' core is making government outcomes smarter and more efficient. That's still our core today. We're disrupting ourselves. We don't feel like anybody knows how to deploy AI or AI tools better and more effectively than we do. And so we're looking forward to continuing to use AI in our products and solutions for our customers' benefits in ways that are trusted by our customers. You'll recall that in past calls, we've featured on trusted mission AI. And we still think that, that is a key calling card for Leidos that we continue to lean on. The ability for our customers to trust the AI they are deploying in their products and in their solutions and in their systems is key. And we continue to get great receptivity in our customers to the conversations we have about using all the commercial tools available in a way that also allows them to trust the outcomes that the products are giving them. So yes, eye-watering number, good on them, but that doesn't frighten me away from the market. Operator: Our next question is going to come from the line of Mariana Perez Mora with Bank of America. Mariana Perez Mora: My question is going to be about Dynetics. You received $265 million award this last month for indirect fire protection capabilities and a couple of other awards. This business was growing slower than expected back then when you bought it. Could you please like tell us like how is that going? What type of margins you are generating? And how do you think about growth ahead, especially as Golden Dome shapes up? Thomas A. Bell: Sure. Thank you, Mariana. And yes, the Dynetics acquisition was a very intelligent acquisition back in the day. Perhaps it took a little longer than we might have hoped to fully integrate it and get it running. But as Chris kind of mentioned in his comments, we feel like now we've got a leadership team there that is very focused on results, and it's matching the moment of Golden Dome and all the needs for counter UAS capability and surveillance that Dynetics has invested in for years. And so maybe a little less robust and uptake after the acquisition, but now some 4, 5 years later, it is really firing on all cylinders. And as you allude to, earning IDIQs, earning production awards, the IFPC program, a real key to the defense of Guam and Homeland Defense going forward. Golden Dome, the connectivity right there. And at the space layer, when you think about Golden Dome, the whole tranche 2 of our satellite programs is really right in the wheelhouse of constant surveillance. So I feel really good about the Dynetics acquisition and us bringing it to fruition. Just like Kudu and other acquisitions we've done in the past, they're very much part of the portfolio to meet the moment of a diversified Leidos, which is match fit to help our customers going forward. Chris, anything to add? Christopher R. Cage: Well, I mean, thanks for the question, Mariana. I appreciate you noticing. I mean, as Tom mentioned, it's been a journey, but they have made tremendous progress, second best quarter of organic growth since we reorganized them. We've seen double-digit margins in certain quarters, and we're certainly on a path to get there and exceed that on a sustainable basis. Yes, IFPC Increment 2 is a program that's accelerating. But beyond that, we see runway to scaling up our hypersonics capabilities under the common hypersonic glide body TPS contract. That's moving forward, and there'll be more funding there. Other programs of record, including AirShield and progress on our small cruise missile initiative with Black Arrow. So exciting times ahead, a number of capabilities that are maturing and a leadership team there that's just really knocking it out of the park. Mariana Perez Mora: And if I may, I want to do a follow-up on the DHS CBP opportunities that you mentioned related to the One Beautiful Bill. You talked about ports and borders and counter UAS. But how should we think about the SES exposure to nonintrusive machines as well as CBP also builds up that capability? Thomas A. Bell: Yes. We're alluding to that, Mariana. I mean, the VACIS equipment for border crossing, that's absolutely part of what the team is envisioning being fielded as part of that demand signal complemented by other capabilities that have emerged, as Tom alluded to, on air defense and situational awareness for radar systems, et cetera. So -- but the core nonintrusive inspection offering is well deployed on the southern and northern border. There's opportunities to expand that footprint going forward here, and the team looks to capture significant share as those awards come forward in the fall. Mariana Perez Mora: And is that a driver of the favorable mix at SES? Or what is driving that improving profitability? Christopher R. Cage: Good old elbow grease and great management. I got to give credit to the team that's been in there for the last 12 to 18 months and really have improved our global service footprint, solidified our supply chain issues. Yes, ports and borders is an area that we think is an attractive market. So as that scales up, that certainly bodes well for the future of that business accelerating profitability as well. Operator: Our next question is going to come from the line of Colin Canfield with Cantor. Colin Michael Canfield: Last call, I think the comment that the team provided suggested continued growth and margin expansion over a multiyear period. Maybe refreshing that view, how does the company think about growth acceleration from, call it, the kind of underlying guide midpoint of 4% growth ex efficiency headaches? And then maybe focusing on the civil portion of that specifically, like how does the team accelerate Civil growth? And then in terms of the margin expansion comment that you provided last quarter, is it still fair to assume margin expansion from the updated guidance midpoint this year? Thomas A. Bell: Thank you, Colin. Let me start with a little bit on the environment and the booking environment that we're seeing. As I said in my prepared remarks, we had a strong snapback from a low book-to-bill ratio Q1 to a strong Q2. That gives us a trailing 12-month book- to-bill of 1.3. So nothing to be ashamed of there and a very, very exciting pipeline. We see that our pipeline over the next 12 months is some $70 billion of opportunities, and that's up $3 billion year-on-year. And also important in that statistic is about 3/4 of that is takeaway work, not recompete for work we already have, but new work for the future. So we see the administration moving on to get after spending the money that has now been committed as a part of the multiyear funding and the reconciliation bill and the fiscal '26 budget. And so we expect a strong order intake over the next 2 quarters. In specific, there's a little bit of a lag from a profitability standpoint. But over to you, Chris. Christopher R. Cage: Yes, Colin, that was a multipart detailed question. So let me attempt to address those points. Yes, when we sat here last quarter, we didn't envision raising our full year margin guidance to mid-13s. Very pleased to be able to do that. The team has done a great job. Not ready yet today to say onwards and upwards from there, but we're very pleased with that performance. And I think you can see what we're capable of with what we just delivered in Q2. So the business has a lot of gas in the tank. And as we alluded to, Defense Systems isn't where we see it going to in the end game. Commercial International improved substantially, but there's more room to move up there. So there's still ample levers and parts of the portfolio to drive margin improvement. But sustaining the mid-13s is -- becomes our objective here that we'll focus on moving forward. And as it relates to growth, I mean, Tom just talked about opportunity-rich environment in the health and civil space, specifically, managed health services is our core growth pillar, but the opportunities in the FAA are part of that growth story as well. So we'll give you a lot more color on '26 as we get into the fall and next earnings call, but you can see the momentum is building. Operator: And our next question is going to come from the line of Gavin Parsons with UBS. Gavin Eric Parsons: Just following up on the bookings question. It seems like total book-to-bill pretty healthy here, funded, maybe has been trending a little lighter. Any dynamics to call out there and a little bit more on what you're expecting into government fiscal year-end, which is typically pretty strong. Christopher R. Cage: Yes. Thanks for that, Gavin. I mean, first of all, pleased that year-over-year backlog is up $5 billion, feel good about that. Tom talked about the momentum building, the big award that came in just after Q2 was over. So nice tailwind going into Q3. And I mentioned also solidifying our follow-on extension for our MHS Genesis work. So that momentum is building. pipeline is rich. Funding dynamics, certainly, there's -- we expect that to grow, and there's been some procurement slowdowns and a move towards more incremental funding in certain customer environments. That hasn't slowed us down. We expect the air to clear there and things to move forward on priority programs. And obligations can be lumpy at times. We also had a nice modification in our VBA business to get that funding here in the third quarter as well. So that's a nice uptick in the funding environment for that particular program. So I just think it's a symptom of what we've seen in the environment, some slowdown, some pause, take stock, incremental reviews, some of that logjam is breaking up, and we'll see that funded backlog position accelerate as we move forward. Thomas A. Bell: Yes. I would just foot stomp that last part of what Chris said. It's no surprise. We've been talking about it first 6 months that there was a certain constraint of outflow of cash from this administration during the last 6 months. But now all that is breaking free. So as we think about our funded backlog, it's not a concern for Chris and I. We have line of sight to where the funding is coming from. We think we have good unparalleled customer understanding, working with those customers, and we feel very confident that the money is going to flow to the contracts that represent the great needs that our customers have for our products and services. So not a concern issue for me right now as I sit here in August of 2025. Operator: And our next question is going to come from the line of Gautam Khanna with TD Cowen. Gautam J. Khanna: I was wondering just big picture, it sounds like the aggressive DOGE engagement with the industry is starting to wane a bit. Is that -- would you say that's true? I mean, are we not seeing any kind of continued -- I don't know what the right word is, aggressiveness or kind of heavy handedness by the new government with the industry? And then as a follow-up, if I could just ask if the medical exam fourth supplier has finally staffed up in all 4 regions, not just the 3? Thomas A. Bell: Yes, sure. Thanks. I'll take the -- I'll take a little bit of both and then turn it over to Chris. First of all, we track and have been tracking for 6 months very aggressively all the disruptions from contracts that are not only DOGE but DOGE related. So stop works, terminations, descopes and even what we call DOGE-inspired pricing reviews. And if you track that over time over the last 6 months, while there was a reasonably high slope in that curve during the first half of those 6 months, here in the last 3 months, that's been flat. So we haven't seen increases. And in fact, that's just gross disruptions, not net disruptions. As Chris said, the team has done a great job of taking gross disruptions and then turning lemons into lemonade by working with customers to understand how we still can serve them for products and services that they've just got to have. And so we're -- I wouldn't call it done. I still think that cost efficiency is alive and well as a part of this administration. I think now the cabinet level secretaries all have an impetus to save money and have better outcomes. But as I've been saying for 6 months, Leidos' core business model is making government outcomes smarter and more efficient. So we see that tide turning from simply slash and burn to now constructive conversations about what better looks like and how more efficient looks like and what smarter looks like, and that's right in Leidos' wheelhouse. As far as the fourth vendor, we estimate that our share loss due to the fourth vendor so far is less than 1% of our volume. So it's not my place to understand what's happening in their business, but it's not affecting our top line or bottom line of that business yet. Chris, anything to add to that? Christopher R. Cage: I think you nailed it, Tom. M. Stuart Davis: Michelle, it looks like we're coming up right on top of the hour. So I think we have time for one more question. Operator: All right. Just one moment, please. Our last question is going to come from the line of Kenneth Herbert with RBC Capital Markets. Kenneth George Herbert: Maybe just to follow up, Chris, on a comment you made earlier in the call. It sounds like you took a fairly aggressive or disciplined approach to sort of costs in the first half of the year. As things are normalizing here, it sounds like you're opening up the spigot a little bit as you really try and take -- be sure you can take advantage of the opportunity set. Is it possible to maybe quantify how we should think about that first half, second half cost dynamic and what that might imply to the margin outlook in the second half in particular? Christopher R. Cage: Well, I'm probably not going to get that specific for you, Ken, but I would tell you, you're absolutely right. I mean as soon as we saw the environment has shifted, we laid out a plan with Tom, myself and some members of our team of where we could dial back to preserve, obviously, the core operations of the company, invest in our people where appropriate, but to be fiscally conservative. And that added up to a substantial amount of savings that we had line of sight on for the year. We've delivered on 4 or 5 months of that savings profile to date. And now we see that it's time to go back to more normal operations for most of that given where we are in the environment and the opportunities that are coming forward. It's tens of millions of dollars of incremental investment, absolutely that we're planning to outlay here in the second half. And the idea is keep flooding our death, quite honestly. So we'll be smart and prudent around that, but we obviously want to turbocharge our AI adoption. Again, those demo-ready capabilities in maritime in the defense system space and with software. Those are our priorities, investing in our Golden Bolts. But I think it was just the right thing to do given the uncertainty on the horizon. And again, it kind of also speaks to our ability to flex our business model when needed. And we'll look to maintain some of those savings on certain areas that we didn't miss a beat on here going forward. So really excited about how the team responded to those dynamics. Thomas A. Bell: Yes. And just to foot stop that last point, really kudos to the team for how they reacted to the austerity measures we put in place earlier this year. There wasn't a peak of complaint about it. Everybody got it. In fact, I think there was a positive culturally within Leidos that everybody understood this was a serious issue we were dealing with to face into this environment and make sure Leidos was seen as part of the solution, not the problem. So really was positive. We'll now dial back those austerity measures, but as Chris says, we're not going to take our foot totally off the break. We're just going to release a little pressure. Operator: This concludes our question-and-answer session. And I would like to hand the conference back to Stuart Davis for closing remarks. M. Stuart Davis: I want to thank you, Michelle. I appreciate your help on this morning's call and obviously thank all of those who are able to join us this morning for your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Greetings. Welcome to Leidos First Quarter 2025 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. At this time, I will turn the conference over to Stuart Davis from Investor Relations. Stuart, you may begin. Stuart Davis: Thank you and good morning, everyone. I'd like to welcome you to our first quarter fiscal year 2025 earnings conference call. Joining me today are Tom Bell, our CEO; and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you'll also find the earnings release and supplemental financial presentation slides that we will use during today’s call. Turning to Slide 2 of the presentation, today's discussion contains forward-looking statements based on the environment as we currently see it, and as such includes risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on Slide 3, during the call we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I will turn the call over to Tom Bell, who will begin on Slide 4. Tom Bell: Thank you Stuart. And thank you all for joining us. Today I am pleased to report a strong Q1 for Leidos once again delivering above plan revenue, EBITDA, and EPS. In this excellent quarter for Leidos, our organic revenue increased 7% year-over-year, adjusted EBITDA margins improved again to 14.2%, and non-GAAP diluted earnings per share rose 30%. This strong start to 2025 builds on the significant momentum we have built for our business during 2024. And we continue to push forward with optimism in our outlook. We are uniquely positioned in this environment to solve our customers most vexing challenges by continuing to leverage our investments in and the application of cutting edge technology. At the same time as discussed on previous calls, 2025 was always envisioned to be a pivot year for us as we lock in the gains from our hugely successful 2024, invest in further new business momentum based on our new NorthStar 2030 strategy, and actively get after the priorities of our nation's new administration. Given all this, I'm pleased to also announce on this call that we are reaffirming our full year 2025 guidance at this time. Since undertaking our year of deep strategic thinking last year, evidence is everywhere that the future we predicted is racing toward us at pace. It manifests itself in the geopolitics we see around us and the challenges our customers are expressing to us and in the administration's rapid actions. So we're excited to be playing offense in 2025. Now in full implementation mode on our NorthStar 2030 strategy and leaning into the robust opportunities this environment is presenting. So let me share with you at a high level our NorthStar 2030 strategy, it's growth pillars, and their alignment to the new administration's priorities. Last year we introduced the Leidos brand promise making smart smarter. That brand promise summarizes in three short words the fact that everything we do, the core of our business model is making customer outcomes smarter and more efficient. That's why we exist and that's why we can confidently assert that Leidos is the digital mission and solutions leader serving customers with smarter, more efficient innovations. Under that in tablature our NorthStar 2030 strategy is supported by five growth pillars as shown on Slide 5. First, space and maritime where we will be building off the franchises we have today and further programs in development to provide commercially based, rapidly integrated disruptive hardware products in these two select critical domains to the U.S. military. Second, energy infrastructure. In this growth pillar we will continue to scale our electrical utility business within Leidos serving commercial customers nationwide making our nations electrical grid more resilient and more secure. And we do this through our core design, engineering, IT and cyber capabilities further enabled by cutting edge Leidos AI tools. Third, digital modernization and cyber. Here we will continue to leverage proprietary innovative technologies to build repeatable offerings at scale to make our customers IT infrastructure more efficient, effective, and secure. Fourth, highly customized critical mission software. Here we turn our deep understanding of our customer's mission to translate vast amounts of customer data into actionable information. And we do this through best in class AI deployment, cost integration, commercial development, and productionized software offerings. And fifth, managed health services. In this growth pillar we will use our successful medical examination expertise, our existing infrastructure, and our robust provider network to expand our health business to serve new populations and offer additional related services. These growth pillars have been carefully chosen as our analysis shows clearly that they are areas where customer needs and spending will continue to grow robustly, Leidos has a proven ability to perform cutting edge profitable work and Leidos has clear differentiated technical capabilities that can be actively advanced. Our growth pillars are also squarely aligned with the priorities of our new administration and we are sure they will remain national priorities well into the future. Our confidence is evidenced by recent executive orders and announcements, like the EOs on the electrical grid and maritime dominance, as well as orders calling for the modernization of federal technology and software. The President and the VA Secretary having been very vocal in advocating for faster, more comprehensive healthcare services for veterans. This administration's clear preference to work with firms that solve problems and get things done, not consultants that study problems and publish reports. This administration's drive to make the federal outcomes smarter and more efficient through technology. And this administration's desire for commercial terms focused on outcomes. In short, our administration is driving towards federal outcomes that are better, faster, cheaper, right in Leidos's wheelhouse and synonymous with our core business model of making customer outcomes smarter and more efficient. So we're now actively advancing our NorthStar 2030 strategy, the right strategy at the right time. We are confident that our business, our strategic investments, and our go-to-market engine are all aligned with the needs and pace of our customers. You can see our conviction in how we've allocated capital so far in 2025. We've taken advantage of the current market conditions to significantly speed up our planned 2025 share buyback program by executing a $500 million accelerated share of a purchase agreement right out of the gate. This accomplishes the majority of our 2025 share buyback plans. And I'm very pleased to have signed a definitive agreement to acquire a leader in full spectrum cyber. Our first acquisition in two and a half years to accelerate one of our aforementioned NorthStar 2030 strategic growth pillars. Cyber has long been a core competency for Leidos. With the largest cyber operation across the federal government, we see firsthand every day the complex destructive and coercive actions from nation-state threats, threats our customers defeat with our help. So with the cyber threat growing, customer needs becoming more complex, proven Leidos success in the cyber market, and our tangible ability to double down on technical differentiation, full spectrum cyber is a key piece of our five NorthStar 2030 growth pillars. We've also foreseen the cyber risk from AI adoption that creates even more vulnerabilities in attack surfaces for bad actors. Over the past five years, we've invested more than $75 million of our own R&D to develop patented technologies that change the cyber paradigm. Our pending acquisition brings additional exquisite cyber capabilities to strengthen our cyber growth pillar. Their expertise in vulnerability research, reverse engineering, exploit development, and the converging cyber electronic warfare markets are squarely in line with our cyber strategy. Our acquisition is focused on the DOD and the intelligence communities with deep roots in DARPA as well. This delivers to us a unique additional active value added role in the cutting edge future of cyber security technologies for national security. Leidos will leverage this acquisition both directly for our customers and in support of enhanced, informed, and resilient defensive solutions across our own corporation. The acquisition will add to our deep pool of cyber talent and strengthen our competitive position in the $15 billion worth of pure cyber opportunities in our pipeline and even more across the related network and cloud pursuits. As this is the first acquisition under my watch, I want to make it clear that when I do deploy capital in organically, this is precisely the kind of move you can expect us to make. Focused, technology risk rich companies in the wheelhouse of one of our five growth pillars poised for rapid integration into Leidos with a strong value unlock formula. Another very positive sign for our new NorthStar strategy is the administration's willingness to collaborate with industry to drive better performance across government. I've sought out and secured more meetings with cabinet members and key administration executives in the last month than I was able to secure during the whole of the last administration. And we're seeing significant receptivity in those meetings to big ideas we are bringing forward. One of these big ideas is also one of the administration's highest priorities, establishing our nation's next generation air traffic control system. Air traffic management in the U.S. is highly fragmented with multiple outdated systems and technologies with an over-reliance on human intuition and intervention. We are deeply aligned with the FAA's mission. For years, we have invested millions of dollars to develop and deploy both in the United States and overseas essential capabilities for achieving optimal cost-effective air traffic control outcomes. These investments are fueled by our comprehensive understanding of the complex environment, mission critical requirements, and innovation needs, putting us in a great position to help transform the performance and safety of the U.S. air travel for decades to come. Additionally, our Defense Systems team is moving out quickly on one of the Pentagon's top priorities, building a next-generation multi-layer mission defense shield or Golden Dome. From the moment that executive order was signed, we have been actively collaborating with key Golden Dome customers and stakeholders. With the administration's attention on the significance of the space domain for Golden Dome, Leidos stands very well positioned to contribute meaningfully to this mission. Our space-based sensing and tracking capabilities are deployed and in production for low-earth orbit missions across all trenches of the FDA's tracking layer. At the same time, we are working to expand our role within the broader proliferated warfighter space architecture. Golden Dome also requires an underlayer to defend against land and surface launch threats, such as cruise missiles and swarming drones, which can originate from virtually anywhere and strike with limited response time. Notably, we already lead the rapid production and deployment of the Army's latest air and missile defense capability, which plays a vital role in the defense of Guam [ph], a strategic stronghold essential for deterring threats in the Pacific. And we are already getting interest in potential deployments to defend the continental United States and key infrastructure and installations within the U.S. While we expect greater specificity regarding the Golden Dome opportunity to be outlined in the President's 2026 budget request, early funding signals in both the space and underlayer domain are very encouraging. And again, supportive of our growth pillar. So in summary, I'm thrilled to be out of the blocks with a strong set of Q1 results. We're confirming our 2025 guidance. I'm excited to be in the execution mode on 2030 strategy, we are very well positioned as this administration drives its agenda of making government outcomes smarter and more efficient. I hope you all can feel the productive sense of urgency with which we're approaching this exciting next chapter in our history. Today more than ever, our mission is compelling, our strategy is clear, and our opportunities are growing. With that, I will turn the call over to Chris to walk through our results for the first quarter and our outlook for fiscal year 2025. Chris? Chris Cage: Thank you, Tom and thanks to everyone for joining us on the call today. Our impressive start to the year is the results of the resiliency and tenacity of our entire team. In the first quarter, we maintain the exceptional level of performance delivered in 2024, while navigating an intensified macro-environment. We work proactively with customers to bring forward innovative ideas and never took our eyes off execution. I think it is clear that the diversity of our portfolio relative to peers benefits us now more than ever, creating fruitful inroads to support a wide range of enduring missions and at the same time providing insulation from meaningful industry shifts. Execution was strong across the entire portfolio. Three of our segments delivered solid mid to high single-digit growth and commercial and international posted double-digit growth for the second straight quarter. This broad-based performance enabled another quarter of exceptional earnings, well above initial expectations. With that, let's dive into the details starting with the income statement on Slide 7. Revenues for the first quarter were 4.25 billion, up 7% organically year-over-year. Bottom line performance continues to be a key focus, and it shows adjusted EBITDA was 601 million for the quarter, up 23% year-over-year, and adjusted EBITDA margin increased 190 basis points to 14.2%. Non-GAAP net income was 391 million and non-GAAP diluted EPS was $2.97, up 25% and 30% respectively. Turning to the segment drivers on Slide 8, national security and digital revenues increased 5% year-over-year. We're seeing traction on the new contract awards from the second half of 2024, as well as additional tasking on some of our franchise programs. Non-GAAP operating income margin of 10.1% was in line with the prior year quarter. Health and civil revenues increased 8% year-over-year and non-GAAP operating income margin was 23.6%. Continued strong demand in our managed health business, one of the five growth pillars in our NorthStar 2030 strategy, drove the bulk of the revenue and income growth, though the entire portfolio performed ahead of plan. Commercial and international revenues increased 12% year-over-year from robust deliveries in SES, continued strong performance in commercial energy, and increased volumes within the UK business, including reaching a critical milestone on one of the challenge programs from last year. Non-GAAP operating margins were 8.5% up 20 basis points year-over-year. Finally, defense systems revenues increased 7% over the prior year quarter, driven by increased activity in our space sensing and hypersonic programs. Non-GAAP operating margins of 9.1% expanded by 110 basis points year-over-year from excellent program execution. This portfolio is buzzing with opportunity from a rapidly maturing portfolio of innovative solutions. And in keeping without outlook, defense systems delivered its third straight quarter with a look to bill above one. Now on to cash flow and the balance sheet on Slide 9. In the quarter, we generated 58 million of cash flows from operating activities and 36 million of free cash flow. DSO for the quarter was 62 days, unchanged from a year ago despite modest customer delays from the administration transition. Let me provide a little context around cash performance. The first quarter of 2025 included an extra week of payroll which hasn't happened since 2019. Also we made a minor change in our cash accounting treatment effective this quarter. We now exclude outstanding payments from cash and cash equivalents on the balance sheet and statement of cash flows. This presentation is more aligned to industry practice and will enhance the predictability of our cash flow with no change to DSO or the income statement. The new policy had an immaterial impact to cash flow for the quarter and today's press release has recast 2024 financials for this change. To start this year, we made a series of three coordinated moves to solidify our balance sheet and allocate capital aggressively with conviction in our strategy. First, we issued 500 million of seven year notes and 500 million of 10 year notes with fixed rates of 5.4% and 5.5% respectively using the proceeds to repay the $500 million bond due in May. Second, we took advantage of the persistent market dislocation and executed a $500 million accelerated share repurchase agreement. And third, we targeted and signed a definitive agreement to acquire a fantastic company to strengthen our cyber Golden Bolt in our digital modernization cyber growth pillar. While the additional debt and higher interest rates add about 30 million of interest expense this year, the share repurchased and pending accretive acquisition more than offset the earnings impact and significantly enhanced our financial and strategic position for the future. We ended the quarter with 5.1 billion of debt for a gross leverage ratio of 2.3 times. We also had 842 million in cash and cash equivalents at quarter end. Though we still have ample capacity for additional capital deployment, given the current environment, we feel comfortable holding cash in the short term. As we get more clarity through the coming quarters, we expect to further allocate capital, potentially paying down some of our term loans, repurchasing additional shares, or completing additional accretive bolt-on acquisitions to generate long-term shareholder value. Moving to the forward outlook on Slide 10. Tom and I are confident in the enduring missions we serve for our customers. Most of what we do is essential to the customers, their constituencies, and the nation. No legislator wants to see the sensitive systems vulnerable to hackers or veterans unable to receive their benefits. For example, our exceptional Q1 performance derisks the potential unknowns in this volatile environment. So we are reaffirming our initial guidance of revenue between $16.9 billion to $17.3 billion, adjusted EBITDA guidance in the mid to high 12% range, non-GAAP diluted EPS between $10.35 and $10.75, and operating cash flow of approximately $1.45 billion for the year. This guidance does not include the pending cyber acquisition, although we expect the partial year revenue and EPS contribution to be relatively immaterial to 2025 financials. Consistent with our promises made, promises kept ethos, we take our guidance very seriously. This quarter, we took a clean sheet view of the risks and opportunities in our plan. We believe that our ranges accurately reflect the current realities and contain the foreseeable outcomes. Relating to the top line, what we have seen so far has confirmed our belief that the year would begin with relatively soft bookings, as is typical with any change in administration. In the first quarter we generated $2.1 billion of net bookings to end with a total backlog of $46.3 billion. Our strong finish to 2024 sustains a solid 1.3 book-to-bill on a trailing 12-month basis. You'll note that our backlog is up about $3 billion from what we reported last quarter. At the beginning of the year, we adjusted our backlog policy to include the expected value of single-award IDIQs. We believe this approach provides enhanced visibility for investors and more accurately captures the health of the business. Absent the change, this quarter's bookings would have increased slightly. You can find the recast quarterly bookings and backlog for 2024 in our press release. With a robust opportunity pipeline of $226 billion, including $25 billion proposals submitted and awaiting adjudication, we remain confident in our awards prospects for the back half of the year. But history suggests those wins will be more impactful to 2026 revenue than 2025. The midpoint of our revenue guidance implies $120 million of growth above our Q1 run rate, which is prudent based on current conditions. And as we look beyond this exciting pivot year for Leidos, we're confident in our NorthStar 2030 path ahead. With that, operator, we're ready to take questions. Operator: Thank you. [Operator Instructions]. And our first question is coming from the line of Peter Arment with Baird. Your line is now open. Peter Arment: Yeah, thanks, good morning Tom, Chris, nice results. I guess one, Tom, on some of your larger contracts like NGEN and just thinking under like the current contracting environment, we've seen some of the Navy leadership kind of canceling some of your peers' software contracts. I'm just wondering how things are going on that contract, kind of the expected run rate? And then if, Chris, you could just -- thanks for giving us the details on the backlog and what the changes were. But just the Health & Civil segment was the only one that saw a decline, and just maybe if you could just give us a little color around that? Thanks. Tom Bell: Yes. So first on the macro actions this administration is taking, yes, there's been some impact to our top line revenue in 2025 but I would define it as negligible, Peter. The impact on our revenue is certainly in the very, very, very low 1% range. And so we understand what's happening and at the same time, we're seeing the administration lean into some opportunities. You might remember on the last call, I talked about the opportunity that DISA has with The Defense Enclave services, and we're actually seeing great traction in the DoD for the fourth estate in looking to turn on additional acquisitions and additional modernizations of our IT infrastructure throughout the DoD. So a little bit of what I would call puts and takes. Certainly, there are some minor takes, but there is more opportunity coming our way, and those are the opportunities we're excited to be leaning into. Chris Cage: Yes, Peter and I'll just add. We've been contemplating this backlog change for some time. The team did some good work last year to lay the groundwork. And we do think it enhances your visibility into our book of business and our future revenue stream. And so we put those single award values into backlog. As it relates to Health & Civil, they recently just won, as you know, the big VBA recompete that went in last year. There's not a lot of large single-award IDIQs in that business area, so they didn't benefit from any adjustment there. And when we look ahead, they've got a couple of large things pending this year. The follow-on to the MHS Genesis is still something we feel very good about, the customer's intent to drive that our way on a sole-source basis that should be a future booking. And then we've got a Reserve Health Readiness program follow-on, too. So there's some big needle movers out there, but they're well-funded and have ample capacity as it relates to supporting their trajectory and you see the great start to the year they got off to. Peter Arment: Appreciate the color. Thanks guys. Operator: Thank you. And our next question coming from the line of David Strauss with Barclays. Your line is now open. Joshua Korn: Hi, good morning. Thanks for taking the question. This is Josh Korn on for David today. So wanted to ask specifically about the GSA request that was out about a month or two ago regarding potential contract kind of offerings. I wanted to ask, if you were asked to make any proposals, and if so, what sort of things that you offered? Thanks. Tom Bell: Sure, Josh. Yes, we were excited to lean into the opportunity to engage the GSA on an active conversation about how we could help them and their charge to make the government smarter and more efficient. And so we actively engaged in both rounds, you might have heard about, two letters and two back and forths between the GSA and WE. That's been supplemented with face-to-face meetings and an active e-dialogue in the margins. So I feel very good about the relationship we're building with the GSA. Josh and Stephen are very, very passionate about their role in helping make this government smarter and more efficient. And I believe we're positioning ourselves to be part of the solution, not the problem in so doing. One of the things that we've taken a little bit of issue with is the fact that while we've been lumped into a consulting review, we've never used those words back the GSA. Less than 1% of our revenue could generously be considered consulting revenue. And so all of what we do is mission-critical work that is key to our customers' outcomes, the customers of the GSA, if you will. And so what we've been doing is leaning into the GSA and saying, here's how we can make your customers the active agencies that use our products and solutions better, faster, cheaper by doing smarter things with technology, aggregating contracts, getting to commercial outcome terms and looking for more efficient ways to deliver services. So net-net, we're in the early innings of this ball game, but we're leaning in. And we believe Josh, Stephen and the GSA team are leaning in also. Thanks. Joshua Korn: Great, thank you. I will stick to one. Operator: Thank you. Our next question coming from the line of Sheila Kahyaoglu with Jefferies. Your line is now open. Sheila Kahyaoglu: Thank you and good morning guys. Great quarter. Maybe if we could talk about, again, focusing on Health & Civil and diving into the budget a little bit more, the skinny budget included funding accelerating for the VA EHR modernization work where Leidos is a sub to Oracle. How are you thinking about the opportunity there just given the news we've had on VA for the last year or so and just the longer-term opportunity for Leidos given the success? Tom Bell: Yes. Thanks for that, Sheila. Yes, as you will note in our NorthStar 2030 growth pillars, managed healthcare and managed health services is one of our growth pillars. And that's because everything we knew would happen with demographics last year as we were undertaking our year of deep strategic thinking and every action and comment by this administration has reinforced our view that better choices, faster choices for veteran services will be a key part of the next years for our nation. So we're leaning into our health business. We're expecting to grow it over the next five years. And the early indications, the volumes coming through the VBA, the volumes of veterans coming through our clinics and having health benefits exams is actually raising and going up and continuing to go at pace. So we are very optimistic. We're bullish about the business. We're bullish about our opportunity to use the core capabilities we have and pivot into more services for more customers. And we expect to be talking a lot about growing our healthcare business over the coming years. Chris Cage: Sheila, I'd just add that we've had a long successful partnership with Oracle, of course, on the military health side. And our best proof point is to continue to deliver excellence on that program. And as Tom mentioned, we're a great partner into the VA. You would imagine, over time, there's opportunities for us to expand our offerings into the EHR rollout there, too. But that is something that's not directly within our control. But again, at some point in time, you would imagine as they integrate further, we could help them in a more meaningful way. So we'll continue to position for that. Sheila Kahyaoglu: Just to follow up quickly on that point, Chris. So are the margins in Q1 reflective of the full year performance, is that how we should think about it? Chris Cage: Well, the margins in Q1 were excellent. We're super pleased with how we got out of the gates as a company. And as it relates to Tom's comment on the managed health services business, the dialogue with the VA on that side is we need to sustain and increase the level of activity going on. We want to continue to work off the backlog. We want to treat the veterans. So we're well funded. We're well positioned. We're thinking about the future but delivering in the present for that business. And so I think that we're very capable of delivering at that run rate going forward, certainly. Sheila Kahyaoglu: Thank you. Operator: Thank you. Our next question coming from Colin Canfield with Cantor Fitzgerald. Your line is now open. Colin Canfield: Yeah, thanks for the questions. Maybe talking through the takeaways of the Supplemental Defense Bill, what are your understanding in terms of that being more FY 2025 or longer-dated money and then maybe talk through the opportunities that you see at the segment level, specifically missile defense as well as the maritime domain? Thanks. Tom Bell: Sure. The bill that is currently working its way through Congress, the Reconciliation Bill, represents tremendous upside for our customers and for Leidos. FAA modernization is a net-net winner in the reconciliation bill, and we expect to be a major part of helping the Department of Transportation and the FAA be a solution for the challenges of our nation's infrastructure when it comes to air traffic control. Border security is also an area that is getting a lot of attention in the reconciliation bill and the skinny budget that's been published for FY 2026. So again, we have an active dialogue going on with the Department of Homeland Security around how with technology and the deployment of products we have at already today, we can help secure the border even more. There is a tremendous amount of energy building around Golden Dome, as I said in my prepared remarks. And frankly, while we talked about the space layer and the underlayer, there are a myriad of programs and solutions -- technology solutions we have in our defense business that can plug into the various aspects of the Golden Dome architecture that will be required to secure the continent of the United States. So net-net, Colin, again, reconciliation, the skinny budget of FY 2026 points very squarely in the attention of our five growth pillars and gives us great confidence that when we picked these five growth pillars and we picked these subsets of the pillars, we were picking the right decks for us to pivot to, to find new revenue growth in 2026 and beyond. So very, very optimistic about the early signs we're seeing. Chris Cage: And the only thing I'd add, Colin, I mean, Tom mentioned a number of things, didn't even mention maritime, which is another area the team is very excited about. And we're seeing customer demand signal for a couple of our unmanned capabilities at record levels. So the team is actively working opportunities there for medium unmanned undersea vessel, for small vessel as well. So we're excited about seeing those things accelerate as we get into the back half of this year. Colin Canfield: Thanks, I will keep it to one. Operator: Thank you. Our next question coming from the line of Mariana Perez Mora with Bank of America. Your line is now open. Mariana Mora: Thank you, good morning everyone. So when you think about these opportunities but also the risk of actually having a continued resolution -- long continued resolution into fiscal year 2026, where the -- are these -- any of these opportunities are limited by actually the lack of funding, how you think about that? And on the other side, is there any way you could benefit from this administration or the agencies that are actually extending some programs that were supposed to mature or be recompeted within the next like 12 to 24 months and are actually extended by five years to good performers, like do you have any programs like that? Tom Bell: Well, thank you, Mariana. Yes, is the answer to your question. We think we are in a relatively good position to have programs that are continuing from programs that are already in execution mode. So we're not looking for new program starts or new technology investments. These are franchises that we've invested in over the past five years and are now up and running. I mentioned, for instance, IFPC and the underlayer. That is a program of record within the U.S. Army. And so the DoD can continue to exercise options for additional units as opposed to a new start program. We think the investment we've made in our defense business, in our other businesses and the programs of records we have gives us a tremendous opportunity for customers to hit the easy button and extend them and continue to build on them as opposed to requiring a new start program under a continuing resolution, which as your question suggests, is more difficult. Thanks. Mariana Mora: Thank you. Operator: Thank you. Our next question is coming from the line of Jason Gursky with Citi. Your line is now open. Jason Gursky: Hey, good morning everybody. Tom, I wonder if you could spend a few more minutes on the situation with the FAA here in the U.S. and air traffic control and the system that we have here in the United States. Maybe talk a little bit about, from your view, what's broken and what it's going to take to get this fixed, quantum of money that might need to get spent, how much time it's going to take, and what kind of capabilities and skill sets are going to be needed to fix this problem? Tom Bell: Thanks, Jason. Yes. So I mentioned in my comments that this administration has been very open to meeting with industry and engaging in conversations about what solutions look like. The Department of Transportation and the FAA are a part of that. And so I'm very pleased to say that we've had high-level engagements with those entities, and we've discussed very clearly the challenges and opportunities we see to modernize the air traffic control system in the United States and make it the envy of the world which is, as President Trump has suggested, is his goal. The Department of Transportation is keen to do that within this Presidential term. And we are, again, very well positioned with about 10, 12 programs that we do for the FAA now that are both systems that manage air traffic over the oceans, missions that -- systems that manage air traffic over land, systems that manage air traffic when it's on the ground and the terminals that the air traffic controllers use. So we are positioned throughout the life cycle and throughout the mission of air traffic control both in the United States and globally. We're a key technology provider for NATS in the UK, which is a very successful country-wide air traffic control system. And we also deploy elements of this system globally for something called Skyline, which is in service in the multiple countries around the world. So we feel like we're in a great position. The, obviously, Congress and the White House are also poised to fund this. That is the first thing you need. You need determination that you want to do it. And the second thing is you need funding to do it. I'll leave the quantum of that up to the administration. But suffice to say, as the country puts their system together and their thoughts together about what the future system looks like, I'm very, very sure Leidos is going to be a part of that solution both in pieces and overarching architecture. Thanks, Jason. Jason Gursky: Thank you. Operator: Thank you. Our next question coming from the line of Tobey Sommer with Truist. Your line is now open. Tyler Barishaw: Good morning. This is Tyler Barishaw for Tobey. Back to that quarter of 12% growth in the Commercial & International segment, can you just discuss some of the drivers of this and maybe the sustainability of this going forward? Thank you. Chris Cage: Yes. Thanks, Tyler. And no, it's something we're really excited to see from the team. They've been working very hard towards that goal. And there's a number of things that are going well in that portfolio. I mentioned in the remarks earlier that on the UK side the team was able to cover from some challenges we encountered last year and get a critical program on the right track, achieve a key milestone that provided some uplift on growth and profitability. We have been working, of course, on the security solution side for the last couple of years to get that business poised for a successful future. A lot of gains have been made there and as Tom trailed earlier, we're really excited about the opportunities in the ports and borders space. But core service and maintenance uplift in the portfolio have driven some growth there. And then finally, one of our key growth pillars in commercial energy is in that portfolio. That has been a strong grower now for multiple years. It continues that pace. So those are the elements that we're seeing taking off, and the future continues to have more prospects internationally for things like AUKUS and other uplift. But the team has made great progress, and we're excited to see that momentum continue. Tom Bell: Yes. The second straight quarter of double-digit growth is wonderful, but it's only a down payment on what we expect from this sector and the segment going forward. The fact is every element within Commercial & International is very robustly positioned for the future. Chris just mentioned at the end, AUKUS. As I've said on previous calls, the needs of AUKUS Pillar 2 are exactly in line with the capabilities Leidos brings to fore. So we're leaning into AUKUS, both in the United States and over in the UK and Australia. Energy is one of our growth pillars. It's a critical vulnerability. Everybody knows that critical infrastructure in the United States is in a challenged position right now. And especially as energy demands grow, the grid resilience and the need for us to secure our electrical grid is going to grow with it. So energy is a huge area of focus for us and a huge growth area for Leidos. And last but not least, SES, ports and border security, airport security. We were talking about the FAA before, but we weren't talking about the airports themselves. We play a key role in securing ports, borders, and airports. And so everything in the Commercial & International business is poised for robust growth as this administration sets about its priorities. And we're very optimistic that Vicki and her team can continue to turn in great growth quarters as we go out of 2025 and into the future. Tyler Barishaw: Okay, thank you. Operator: Thank you. And our next question coming from the line of Scott Mikus with Melius Research. Your line is now open. Scott Mikus: Good morning Tom and Chris. So a quick question on the decision to reaffirm the guide. Chris, if I add back about $0.35 of charges you booked in 2024, the EPS guide is essentially flat. And if I annualize your first quarter results, your EPS would be 10% above the high end of the guidance range. So the question I've been receiving from clients this morning is given the decision to reaffirm the guidance and the 0.5 book-to-bill this quarter, are the core fundamentals of the business expected to significantly deteriorate over the next few quarters or is the guidance just extremely conservative due to DOGE and all the executive orders from the new administration? Chris Cage: Yes. Thanks for that, Scott. No, there's nothing in the core business performance that we're concerned about as it relates to fundamentals. I think those have been proven to the opposite, right. Multiple quarters in a row where the team continues to drive improvement. Our highest margin quarter when it wasn't even highest Health & Civil margin quarters. So you see uplift in other parts of the portfolio, national security and digital, C&I, defense are all showing strength. It's more the latter where we're positioned for helping our customers accelerate. As we see the opportunity set ahead of us, as we've laid out NorthStar 2030 and our strategy pillars, we want to make sure we've got capacity to provide jump-start in critical areas where there is a unique opportunity here in the coming months to capture significant positions on meaningful priorities of the administration and in addition to partnering with critical agencies like the GSA to make sure we're part of the solution for the future. So with one quarter in the books and looking ahead to the landscape that's robust with opportunities, that's why it's now not the time to lean into increasing our guidance. It's really run the business very successfully, create capacity to invest for the future, and we're excited about where that takes us this year. Scott Mikus: Alright, thanks for taking the questions. Operator: Thank you. Our next question coming from the line of Ken Herbert with RBC Capital Markets. Your line is now open. Kenneth Herbert: Yeah, hi, good morning. Tom and Chris, thanks for the question. Tom Bell: Yeah Ken, good morning. Kenneth Herbert: Hey Tom maybe or Chris, as you look at the recompetes you have coming up for the remainder of this year has anything changed in response to all the executive orders and DOGE and focus on cost, have you seen any pronounced change in expected contract terms, or basically within contract structures, the risk you might be expected to take on these contracts? Tom Bell: Yes. So the pipeline for this year, you know how this business works, has been set for some time. And we are awaiting adjudication for some $26 billion worth of contracts that are already submitted. We haven't yet seen customers leaning into changing commercial terms and/or leaning into the opportunity of outcome-based contracting, but we expect that. I'm sure you saw the letters coming out of the administration this past Friday about revising the FAR and leaning into commercial terms. That's something we welcome. We believe in outcome-based contracting. We believe in sharing risks and rewards. And we feel like we make better outcomes when we're challenged to insert technology so that customer outcomes are better, faster and cheaper. So we haven't seen that yet, but I fully anticipate it. And we're spending a significant amount of effort in Leidos, making sure we're prepared for that. And we are leaning into those environments to make our customers' outcomes better, faster, cheaper. And Leidos is a winner, a net winner in that environment. Kenneth Herbert: Great, thank you. Operator: Thank you. Our next question coming from the line of Noah Poponak with Goldman Sachs. Your line is now open. Noah Poponak: Hey, good morning everyone. Tom Bell: Hi Noah, good morning. Noah Poponak: Tom, when you piece together the many cross currents going on at your customers and everything you're doing at Leidos specifically, do you feel like you can rule out having a year where revenue is down over the next three years or can we not roll that out, and that is possible given everything that's going on? Tom Bell: Gee, Noah, you're asking me to say never say never. And I have to start with that, right. You're asking about three years, and the future is never certain enough to be able to say it's absolutely impossible. But at the same time, I'll say I don't envision it and I don't really see it as a high probability. The growth pillars we've identified as a part of NorthStar 2030 are very in line with the administration's needs and the customer missions that are mission-critical. And so we're very confident that these are going to grow robustly. And I'll foot stomp. We picked these five because we know customer needs are growing. We know we can make good money leaning into opportunities in those areas. And we know we have technical differentiation that allows us to be more successful than our competitors in those areas. And every indication from this administration supports the selection of those pillars for our growth engines. And even if it wasn't areas of the Leidos portfolio that are not selected for growth, we see a status quo maintenance of the growth trajectory they've been on. So as we lean into the next three to five years in the whole plan of NorthStar 2030, the macro plan and what we think is absolutely achievable is holding on to the profitability of Leidos that we've established, this business is capable of and now growing top line robustly through the selection of these five pillars. So my plan and my expectation is over the next years, you're going to see revenue increasing better than peers and profitability holding at what you're used to now. We'll continuously update that for you and I bet I'll be smiling when I do. Noah Poponak: Thank you. Operator: Thank you. Our next question coming from the line of Gavin Parsons with UBS. Your line is now open. Gavin Parsons: Hey, thanks, good morning. Just wanted to clarify the comments on the sub-1% of revenue impacts from the new administration initiatives and the GSA contract review. Have you already taken that out of backlog and does the GSA review complete? Chris Cage: Yes. Gavin, no, we haven't taken those contracts out of backlog. There have been some impacts as it relates to those related contract actions, de-scopes, those types of things. Unrelated to Tom's comment on 1% is consulting. Now some of those consulting-related efforts may or may not continue into the future depending upon the priorities going forward of our customers. And I would say the conversations with the GSA remain ongoing, right. We've -- as Tom indicated, we've put forward, we think compelling ideas around where value can be created and savings can be generated, and we eagerly await ongoing discussions with them. Tom Bell: And I'll foot stomp what Chris said in his comments, which is the likelihood of revenue impacts and profitability have been included in our forward guidance. And so the reiteration of our guidance for 2025 assumes some possible degradation of revenue. Gavin Parsons: That’s helpful. Appreciate it. Operator: Thank you. Our next question coming from the line of Gautam Khanna with TD Securities. Your line is now open. Gautam Khanna: Yes, good morning guys. Tom Bell: Hey, good morning Gautam. Gautam Khanna: I was wondering if you could elaborate on the Health & Civil profitability in the quarter because it was very strong. Maybe if you could just -- was there anything about utilization that was particularly unusual in the quarter in the medical exams business? And if you could also just comment broadly on what you're seeing in that business given the VA itself is trying to reduce headcount and how that might evolve, how that might impact the business, if at all, in terms of...? Chris Cage: Yes. Okay. Well, great quarter by the team. And it was more than just the managed health side of the business. We saw strong performance in some of our civilian areas as well, quite honestly. And so very pleased across the portfolio and excited about -- we mentioned the FAA a number of times a day, that's a cornerstone piece of our civil business as we look to the future. We did have an excellent quarter overall as a company on our EAC performance. And again, that's just what we're capable of with good program management. So some of those benefits did accrue to the Health & Civil segment. And we don't, as a matter of course, expect that level of net EAC write-ups to continue, although we strive to make it so. As it relates to the VBA business, the volume -- the indications are the customer wants to sustain, if not increase volumes. And that's the goal. We haven't yet seen any impacts from VA staffing reductions on the VBA side that have created any bottlenecks for that workflow. So we're encouraged that, that momentum can continue. It will be an ongoing process to work actively with them. But the investments we've made in our throughput capacity, optimizing our processes just have allowed us to continue to scale up our throughput. So we're well positioned to do that. And so the expectation is, yes, we can continue to sustain that level of performance as we look to the future. Gautam Khanna: Thank you. And could you guys quantify the size of the EAC? Chris Cage: Well, they'll be in the Q. You'll see that later today, Gautam, so enjoy. Gautam Khanna: Sounds good. Thank you. Okay. Operator: Thank you. And we have a follow-up question from Colin Canfield with Cantor Fitzgerald. Your line is now open. Colin Canfield: Hey, thanks. I just want to go back to one of the comments you made during your prepared remarks, Tom, about repo, suggesting that the $500 million ASR completed most of the shares -- or most of the company's outlook for repo for the year. So maybe if you could just articulate on capital deployment and level set us on if the $1 billion or kind of the guidance that you gave at the start of the year is still the right expectation for repo, which is in line with 2024? Thank you. Tom Bell: Yes. Thanks for that. So very happy that we were able to get out of the blocks fast with the $500 million accelerated share repurchase program. Given prudence for the next months and the acquisition that we've made, the inorganic acquisition, we'll probably not move out with additional share repurchases in the near term. But as the year unfolds and we get back into the back end of the year, that's when capital deployment for share repurchases could be back in place. So as Chris said, we'll be looking at the environment in the six months of the back end of the year and looking at whether or not there's another inorganic play we want to make, whether or not share repurchases are the thing we want to do or other shareholder-friendly capital deployments. Chris Cage: Yes. Colin, I would just add, obviously, the back half of the year is when most of the cash flow is generated in the business. And so while we have a lot of cash on hand and our leverage is comfortably below targets, we'll continue to be building capacity as we get into Q3 and beyond. So to Tom's point, we'll remain flexible, but we'll have plenty of course, firepower to do a number of things as the year unfolds. Colin Canfield: Got it. And then we were at the back end of the call, but maybe talking a little bit about selling pieces of the portfolio. We saw that one of your competitors was able to get roughly 30 times EBITDA handle on their defense products business. And so the question is kind of how do you think about being opportunistic on pieces that look really good today? Tom Bell: Well, we're going to be opportunistic about all parts of the portfolio in the current environment. The whole concept of the year, deep strategic thinking, included looking at the portfolio for whether or not there were chronic underperformers in the portfolio. And there's possibly a small divestment we make in the coming months here or there. But nothing large, nothing that would be notable because, frankly, all the parts of the Leidos portfolio are well situated for the environment we're facing into. So minor divestments are possible, but I like the portfolio we're playing and the cards we have. And we think we're well positioned to serve our customers through it. Colin Canfield: Got it, thanks for the color as always. Operator: Thank you. And this concludes our question-and-answer session. I would now like to turn the conference back to Stuart Davis for any closing remarks. Stuart Davis: Thank you, operator for your assistance this morning, and thank you all for your time this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Operator: Greetings. Welcome to Leidos Fourth Quarter Fiscal Year 2024 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. At this time, I will turn the conference over to Stuart Davis from Investor Relations. Stuart, you may begin. Stuart Davis: Thank you, operator, and good morning, everyone. I'd like to welcome you to our fourth quarter and fiscal year 2024 earnings conference call. Joining me today are Tom Bell, our CEO; and Chris Cage, our CFO. Today's call is being webcast on the Investor Relations portion of our website, where you'll also find the earnings release and supplemental financial presentation slides that we're using today. Turning to Slide 2 of the presentation. Today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on Slide 3, will discuss GAAP and non-GAAP financial measures. A reconciliation between the 2 is included in today's press release and presentation slides. With that, let me turn the call over to Tom Bell, who will begin on Slide 4. Thomas Bell: Thank you, Stuart, and good morning, everyone. I'm happy you could join us to discuss another outstanding quarter for Leidos, capping off a very strong year, delivering 2024 results above the high end of our prior guidance. Leidos' excellent recent performance also allowed us to reach and exceed the 3-year performance targets we set out at our Investor Day in 2021. I'm very pleased we were able to over deliver on those cumulative commitments. Against the target set then, we delivered an organic revenue growth CAGR of 6.6% and well above our goal. We delivered adjusted EBITDA margin for 2024 of 12.9%, 240 basis points above our goal. And we drove free cash flow conversion of 100% exactly on our commitment. This delivered cumulative operating cash flow to our target of $3.5 billion. Our excellent multiyear performance enabled us to take our gross debt leverage ratio down from 3.4x to 2.2x today. And now our strong balance sheet and core financial engine give us the financial flexibility to deploy capital to support tangible growth initiatives and drive brilliant shareholder value. All on this call will be aware that since 12 November, our stock has traded down about 25%. As a result, we repurchased an additional $400 million worth of shares in the fourth quarter. That brought our open market repurchases for 2024 to $850 million, significantly exceeding our initial commitment. As always, I want to thank each of our 48,000 Leidosians who bring our bold vision for Leidos to life every day. Their passion for our customers' mission, their fortitude, resilience and ingenuity enable us to deliver exceptional value to our shareholders even in the most dynamic of environments. Turning to Slide 5. In addition to delivering exceptional performance last year, 2024 was a year of deep strategic thinking. We're calling our new growth strategy, North Star 2030. North Star 2030 keys on a specific group of growth pillars, where we know customer needs are growing, market profitability is robust and Leidos differentiation is evident and accelerating. We'll fully unpack our North Star 2030 strategy for you at our upcoming Investors Day. But undertaking this strategy effort last year is proving to have been timed perfectly. I mentioned all this now because a natural question today might be, how does North Star 2030 hold up to the priorities of this new administration? And the answer is incredibly well. You'll recall that our strategy process last year was grounded in a 10-year future-backed Leidos proprietary hypothesis of the future. That work detailed macro domestic and geopolitical mega trends that we predicted would occur over the next decade. Now we see those mega trends coming through at pace. And therefore, we are even more confident our growth pillars position us for success today and in the future because they are all grounded in one unifying theme. Leidos exists to make our customers' outcomes smarter and more efficient. Everything we do for every one of our customers is linked to that statement. We were created to leverage innovation for our customers to meet the immense and enduring national security challenges faced by America and its allies, from protecting the Homeland to deterring and winning battles abroad, and driving government efficiency is fundamental to everything we do. And of course, that's what's needed to expand America's economic strength. All that is what we are all about. And that's exactly what our new administration is all about, too. Therefore, we view the new administration's priorities as an opportunity for Leidos. Over the past months, the administration and the Department of Government Efficiency have begun to unveil an agenda to transform government operations and ensure taxpayer dollars are invested more wisely. This has given us increased confidence in our strategy. The new administration has signaled a focus on eliminating regulations, streamlining procurement and moving to more outcome-based contracting, all of which are exactly in line with the mission and work of Leidos to make government smarter and more efficient. 3 current focus areas are right in our wheelhouse: IT modernization, transformational war fighting capability and increased privatization. First, the new administration has said that IT modernization is low-hanging fruit for government efficiency. We totally agree. The federal government's ability to reduce costs, bridge outdated [ and desperate ] data silos and facilitate the adoption of enabling technologies like trusted mission hinges on having modern, adaptable IT systems. As the leading provider of IT software solutions for the federal government, we have a proven track record of modernizing and simplifying our customers' complex IT environments, while integrated trust [ and mission ] AI and robust cybersecurity. This allows agencies to achieve their mission objectives smarter, faster and cheaper. For example, the disability case processing system we built for the Social Security Administration has improved processing time of disability claims by over 90%, reducing backlog by over 50% and increasing the accuracy of benefit calculations by 20%. Leidos is delivering significant cost savings to the SSA through these customer efficiency enhancements and proven anti-fraud tools. In addition, just last year, we also transformed the SSA's National 1-800 number. In just 48 days, we reduced wait times by almost 75% for over 80 million callers each year. The administration's focus on IT modernization also affords us a great refreshed opportunity to accelerate adoption of our existing Defense Enclave Services program. To date, we've successfully transitioned only 3 defense agency and field activities, or [ DAFAS ], and their 32,000 users, each on time and on budget. As a result, those DoD offices now enjoy better user experiences and better service delivery. But even more importantly, they are now operating seamlessly within a single robust fiber secure, efficient integrated DoD IT system. But there are 11 [ DAFAS ] and nearly 330,000 additional users originally envisioned to be served by this program that are yet to be migrated. We look forward to helping our new Secretary of Defense greatly enhance user efficiency, hardened IT assets and reduce costs by completing the remaining migrations to DISA's standardized, unified and secured IT network. In turn, this will enable DoD reinvestment of real savings into critical war-fighting capabilities. So speaking of critical war-fighting capabilities; secondly, administration leadership has indicated that the Pentagon's top line budget should focus on the right kind of programs with increased investments in cost-effective and high-performance systems. In anticipation of these demands, we have positioned ourselves as a positive disruptor, rapidly transforming invative ideas into market-ready solutions essential for next-generation war-fighting capabilities. For example, we lead the way in maritime autonomy. We recently developed an unmanned undersea multi-mission vessel in less than 18 months. With a price that is, to the best of our knowledge, significantly lower than all comparable offerings. This success has enabled the Navy to expand our program size and scope, allowing us to enhance underwater ISR capabilities and develop multisensor UUVs and other unmanned platforms. We also designed and deployed a small unmanned surface vehicle called Archer. Archer is equipped with a modular mission bay designed for anything, contested logistics, ISR or weaponry. And we did all that in less than 9 months. Archer provides the U.S. and our allies with immediate access to flexible, advanced maritime designs with proven long endurance robust autonomous capabilities. Additionally, we're developing a new class of small cruise missiles, advancing from concept to successful demonstration flights in under 2 years. And we're achieving dramatic cost savings for this critical capability through a modular design, featuring open architecture that incorporates the best most affordable subsystems and technologies using digital twin philosophies and AI optimization. These groundbreaking developments highlight our defense system team's focus on delivering affordable mass war-fighting capabilities with unmatched speed efficiency and efficacy, which the DoD needs today to prevail across the increasingly complex and contested domains. Third, leaders are calling for expanded public-private partnerships for essential citizen services to create more efficient and effective outcomes. We have deep expertise and success here, too. For instance, for decades, we've partnered with the Veterans Administration to transform the delivery of health care to our nation's deserving veterans. With our proprietary capabilities to anticipate demand and our ability to innovate at scale, we have established the largest, most flexible network of first-class medical and mobile clinics. This has allowed us to increase veteran throughput by more than 300% and have the average exam time line. And we've delivered all this efficiency while consistently exceeding VA targets for both timeliness and critically quality of care. As part of this, we're very proud to deliver excellent care coordination for homebound veterans and those in remote locations, bringing first-class care to where the veteran is across all 50 states. These capabilities magnify Leidos' differentiation and recognition as a top managed health services provider for our federal customers. But our VA work is just one of many examples of successful privatization. Another case study of our success in public-private partnerships is the future flight services program for the FAA. Through this program, we provide critical services to general aviation pilots. By providing this service, we've saved the Federal Aviation Administration more than $2 billion. by significantly modernizing underlying technology, all while maintaining at or above 99.9% system availability. 2025 will be an exciting year as we implement our new North Star 2030 strategy, and we're already seeing great traction in our robust growth ambitions. In the fourth quarter of 2024, we had net bookings of $7.6 billion, delivering a book-to-bill ratio of 1.7, our highest ever for a December quarter. And 2024 overall was our best growth year since 2020, with an overall book ratio of 1.4 and a year-over-year backlog growth of 18%. I'm very proud of the quality of our backlog achieved through many significant wins, all aligned to durable markets and critical customer missions, which in turn, enjoy bipartisan political support. Let me walk through a few key awards in the quarter. First, the VA has awarded us a 2-year multibillion-dollar award for medical disability examinations. This award underscores our ongoing ability to deliver excellence for the VA and our nation's veterans. And it aligns with the financial expectations we outlined to you on our last earnings call. Second, we won a $2.6 billion follow-on for our integrated logistics software work for the Transportation Security Administration. This 8-year award comes with significant increases to our contract size and scope and continues to position us very well with the new administration's determined focus on homeland security. Third, we received a $4.1 billion sole-source IDIQ for our IFPC Enduring Shield Air Defense System. So far, we've only booked on task order under this IDIQ to provide systems for the defense of Guam. But this IDIQ provides us and our customer all the top line room they need to ramp up production of this critical capability for years to come. And fourth, we secured a $670 million task order to advance our nation's long-range hypersonic weapon, specifically, our development and production of the common hypersonic glide body and its thermal protection system. So in summary, 2024 was a great year for Leidos. But all that success is just prologue for our exciting future. Enabling disruptive progress is core to our work of making all our customers' outcomes smarter and more efficient. Pure American entrepreneurial spirit was forged at our founding and is alive and growing here today at Leidos. Our passion is to look at problems differently and seek innovative solutions and outstanding customer results. And this drive and culture serve us incredibly well in today's environment. Our new administration is moving quickly with its efficiency agenda, and Leidos is positioned to be a major contributor to the success of that agenda. Building on the bold vision of our North Star 2030 strategy and in light of the new administration's priorities and the core competencies I've outlined, we've developed a set of fast-paced initiatives in the spirit of those to make our customers' outcomes smarter and more efficient. And over the next 90 days, we will continue executing a purposeful campaign we've already begun to work with our customers, administration officials and elected representatives on these initiatives for a smarter, more efficient U.S. government now. Now is the time for us to act with pace in this new landscape. We are exceptionally well placed to be a critical part of the solution. And so seizing this opportunity remains our top corporate priority. As a result, we look forward to holding our Investor Day this summer. I'm super excited about our proven track record of performance in dynamic environments. Our strong foundation for executing a successful 2025 and beyond, our bold vision for Leidos and our North Star 2030 strategy and our outstanding outlook. With that, I'm going to pass the call over to Chris to walk through our 2024 results and give you our enhanced financial outlook for 2025. Chris? Chris Cage: Thanks, Tom, and good morning, everyone. I'd like to echo Tom's remarks on the remarkable journey we've been on. This team has rallied to over deliver at every turn this quarter, this year and over the past 3 years. These accomplishments are rooted in a meaningful cultural transformation in how we manage and operate our business, which enabled us to deliver outstanding results while building a path to a better future. We delivered industry-leading margins, and we invested to strengthen internal functions, enhanced technical capabilities, doubled down on business development and reward our employees. Now let me walk you through our financial performance for the fourth quarter and full year. Please turn to Slide 6. Revenue for the quarter was nearly $4.37 billion, for a robust organic growth rate of 9.7%. Although the quarter did include an extra week as part of the normal periodic true-up of our 4-4-5 financial calendar. For the year, total revenue grew 7.9% to $16.66 billion or $212 million above the high end of our prior guidance range. Adjusted EBITDA was $508 million for the fourth quarter and adjusted EBITDA margin of 11.6% was up 20 basis points year-over-year. The fourth quarter margin includes the cost of enhancing some of our employee benefits in light of our strong performance, which rippled through the segment margins as well. On a full year basis, adjusted EBITDA was $2.15 billion, and adjusted EBITDA margin increased 210 basis points to 12.9%, putting us right at the upper end of the high 12% guide from last call. Our margins have benefited from a fundamental shift in our portfolio. Currently, 43% of our portfolio is fixed price, up from 39% in 2023. As Tom touched on, we view the move to more outcome-based procurement as a continued area of opportunity for Leidos. Non-GAAP net income was $316 million for the quarter and $1.4 billion for the year, which generated non-GAAP diluted EPS of $2.37 and $10.21, respectively. For the year, non-GAAP diluted EPS was up an impressive 40%, almost $3 above 2023 and $0.21 above the high end of our prior guidance range. The primary driver of the robust EPS growth in 2024, the best in our history, was consistently strong EBITDA generation. Growth was propelled further by our capital deployment as lower share count and interest expense more than offset a slightly higher tax rate. Turning now to an overview of our segment results and key drivers. In the interest of time, I'll focus on the quarterly figures on Slide 7. The full year comparisons are shown on Slide 8. National Security and digital revenue growth accelerated to 5.5%, and spurred by strong business development results in the last 2 quarters. Segment operating income margin slipped a bit to 9.7%, with normal variations in profitability across multiple fixed price programs. Still, margin of 10.2% for the year was above initial expectations, and we look for profitability to continue to increase through repeatable offerings and higher-margin growth pillars. Health and Civil revenues and profitability remained strong. Revenues were up 16.4% from the prior year quarter, and non-GAAP operating margin was 21.6%. These results were driven by high demand in our managed health services as well as excellent program execution across the portfolio. With the VBA MD recompete in hand, we remain confident in our ability to win our fair share by continuing to bring innovative solutions to the VA to more efficiently serve our veterans. Commercial and international revenues increased [ 12.3% ] year-over-year with growth across all business areas. Non-GAAP operating margin for the quarter was 7.9%, down 80 basis points from the prior year quarter due to a product mix within SES and increased investments in growth. Building off this strong top line finish and sunsetting the challenges faced this year in the U.K., we fully expect margins to improve and stabilize going forward. Lastly, Defense Systems revenues increased 6.7%, spurred by this year's wins like [ Tiago and Whitefield ] Tranche 2 as well as additional production on our IFPC Enduring Shield program. Segment non-GAAP operating margin was 3.5%, which included a $21 million write-off associated with an airborne surveillance asset and investments in our proliferated low-earth orbit space architecture. So a short-term pause on the margin momentum built in the second and third quarters, we believe this provides a cleaner and more focused foundation as we enter 2025. Turning now to cash flow and the balance sheet on Slide 9. Operating cash flow for the quarter was $299 million. DSO for the quarter was 59 days, in line with the third quarter of 2024. For the year, operating cash flow was $1.39 billion, $42 million above our prior guidance. Netting out capital expenditures, free cash flow was $213 million in the quarter and $1.24 billion for the year, which was up 30% compared to 2023. In the fourth quarter, we repurchased $406 million worth of shares and paid $53 million in dividends. As Tom mentioned, we significantly exceeded our $500 million annual share repurchase commitment, keeping our promise to deploy capital in a shareholder-friendly manner. As of quarter end, we had $943 million in cash and cash equivalents, $4.7 billion in debt and a leverage ratio of 2.2x gross debt-to-adjusted EBITDA. Our healthy balance sheet and financial performance led S&P to enhance our investment-grade rating to BBB flat and Moody's to change their outlook to positive with the potential to upgrade to Baa1 within the next 12 months. These moves strengthen our position as we prepare for the maturation of a $500 million bond this May. We are still weighing our options but given our below target leverage, our current intention is to refinance this debt. Now on to the forward outlook on Slide 10. Coming off a record breaking 2024, we're even more confident in our market positioning and pathways for profitable growth. Recent wins create a strong growth footing, and our pipeline is robust. We submitted $8.3 billion of proposals in the quarter and have $25.6 billion of bids awaiting adjudication. With broad-based momentum building, we are confident in our ability to navigate any macro uncertainties from a position of strength. Getting to the specifics. For 2025, we expect revenues between $16.9 million and $17.3 billion, reflecting growth of up to 4% over fiscal year 2024, consistent with our prior messaging of low single-digit growth, but off of a much higher 2024 baseline. Our guidance accounts for the ongoing continuing resolution and a continued pivot away from low-margin work. We anticipate fairly balanced revenue growth across the segments. We're guiding 2025 adjusted EBITDA margin in the mid- to high 12% range, stronger than our prior expectations. We remain committed to margin expansion over the long term and see potential for higher profitability in all of our segments over time. We're guiding non-GAAP diluted EPS between $10.35 and $10.75, which assumes an effective tax rate of 23.5% to 24%. And share repurchase activity, roughly consistent with last year. In terms of cash, we expect operating cash flow of approximately $1.45 billion, from a free cash flow perspective, we're targeting capital expenditures of approximately $230 million or about 1.3% of revenues. This generation provides plenty of capital to allocate while also funding growth investments. With that, operator, we're ready for questions. Operator: [Operator Instructions] The first question coming from the line of Matt Akers with Wells Fargo. Matthew Akers: One thing that came up on a couple of the other conference calls this quarter, maybe some of the disruption around the new administration, some of the DOGE efforts. I think there was a period where they could sort of try to pause federal spending is [ probably ] a couple of weeks ago. Just curious if you saw any disruption, I guess, kind of in Q1 so far? And if so, if that's kind of behind us or you're still keeping an eye on that. Thomas Bell: Thanks for the question, Matt. Good to hear your voice. The short answer is not really. There's been some, let's call it, disturbances in the force perturbations, customers that are obviously, trying to understand the environment themselves. And that caused some day long, 2-day long pauses in contracting vehicles, but then that picked right back up. So we think our customers are adapting to the current environment. They're figuring themselves out and they're proceeding at pace. Chris Cage: Matt, the only thing I'd add is that we did take the opportunity to carefully evaluate our portfolio and come up with a playbook should those disruptions last longer, as Tom mentioned, we haven't seen that, but we stand ready to maneuver in this environment adroitly. Operator: Our next question coming from the line of Mariana Perez Mora with Bank of America. Mariana Perez Mora: So my question is about a focus on border security and the IRON DOME, you guys have like capabilities across the board from like screening solutions to like counter UAS or like air defense systems? Like how do you see that playing out and where Leidos can actually have an opportunity from this, like this project? Thomas Bell: Thanks, Mariana. Yes, both that you mentioned are, again, right in our wheelhouse and in fact, just yesterday afternoon, I was up on Capitol Hill working one of them. I won't tell you which one. But both of them are areas where we've prepared some big ideas that we have been putting forward to the administration and to the senior stakeholders. As you say, IRON DOME and the executive order on IRON DOME play to everything we do. All the capabilities that are requested in IRON DOME for America from space surveillance and understanding to counter effects for incoming cruise missiles and hypersonic weapons is right in our wheelhouse of what we do. So that's one of the reasons we are really focused on it because the Space Development Agency has asked for RFI responses within 30 days, and our team is laser-focused on answering that mail with compelling, really adroit, to use Chris' word, again, opportunities to satisfy that need quickly and affordably for our customers. On border security, obviously, border security is a huge area of focus for this administration, and it plays again right to our wheelhouse from the equipment at airports to the equipment on borders and the equipment necessary to see low altitude UAVs coming across borders. Everything I just spoke of is, again, right in Leidos' wheelhouse. So again, another reason we're so optimistic that this environment and this administration's priorities present tremendous opportunities for Leidos growth in the future. We're focused on seeding that field with our ideas, the ideas we've had for a long time for better, faster, cheaper solutions to these customer challenges. And we're finding now in this environment, a very, very receptive set of stakeholders who want to hear from us and are eager to advance that conversation at pace. So very exciting times, indeed. Operator: Our next question coming from the line Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: [ Tom and Chris ], just lots of focus on profitable growth. A lot of that is driven by your Health segment and the fixed price exposure there, which is fairly high. Maybe can you talk about VBA since you've tackled those head on. The VBA recompete was awarded earlier this year. How we think about that next phase of the program, both the top line and bottom line contribution and what the additional provider if it changes the outlook at all? Thomas Bell: Thanks, Sheila. Yes, we're very excited to have booked that substantial award for the continuation of our work there. And as I said in my prepared comments, the award we received gives us the confidence we can liquidate that up that order profitably in line with what we held out to you last quarter. Yes, there is a new entrant into a few of those regions. That's a participant we dealt with in one of the regions already. Obviously, we're looking forward to our scope, our scale, our technology to continue to allow us to have the volume and the profitability of that business that has satisfied our customers to date. And so over time, we'll have to adjust to a playing field that changes. But for 2025 and 2026, we feel very confident in our ability to execute that program along the lines that we have held out. I will say, though, this North Star 2030 and its growth pillars, don't just rely on our growing our medical exam business. The growth pillars, as I said in my prepared remarks are all about where we know strong customer demand is growing Robust profitability exists and Leidos differentiation is evident and accelerating. Those are the 3 things that we picked our growth pillars for. Those are the areas in Leidos we're now investing differentially in because we know that's going to bring us differential top line and bottom line results across a wider suite of capabilities within Leidos. And so we're very excited about North Star 2030, its growth pillars, broadening the number of programs that are high top line growth and bottom line growth in very excited about that. Chris, anything you'd like to add? Chris Cage: Yes. I mean, Sheila, obviously, the teams have been building towards this recompete for some time, and we've been innovating and investing to drive efficiencies into our process. So we won a competitive position. As Tom mentioned, another new entrant, that's fine because the demand signal is very robust. And this has always been a game around who can deliver outcomes timely with high quality and stand ready to take on increased capacity, and that's where Leidos has been positioned. So team has done excellent work there, and we're already looking ahead a couple of years down the road to make sure we're a step ahead for the follow-on. Inevitably, in this business, there's always a follow-on. So you always got to continue to prepare for that. but for this year, it gives us a great platform to continue the momentum that you've seen out of the health business, and that's our expectation. Operator: Our next question coming from the line of Gautam Khanna with TD Cowen. Gautam Khanna: You guys obviously guided 2025 and have a longer-term view as well with the North Star road map. I was wondering if you could opine directionally on bookings this year and maybe the growth reacceleration in '26 and beyond? Where do you think we end up kind of mean reverting back to you given the strong performance last year creates a tough compare for this year, but kind of more regularly looking at beyond '25 organic growth and however else you want to take it? Thomas Bell: Thanks, Gautam. And good to hear your voice, and pleasure to meet you. Thanks for initiating coverage of us. Let's see. Obviously, we're very proud of the December quarter, we printed a 1.7 book-to-bill ratio. [ And ] typically the weakest quarter gives us tremendous [ wind ] in our sales coming into 2025 and 2026. And the 1.4 on the whole year, our best year since 2020, again, gives us great confidence. The business development team at Leidos has been fundamentally retooled. We have a new approach to how we are pursuing market opportunities and positioning Leidos for [ win ]. That includes technologies like AI in our proposal activities. And so we're deploying AI internally and externally to have better outcomes. And I think that's what you're seeing. So while our Chief Growth Officer, will be retiring in a couple of months, and we thank him for helping us win back our hotspot in this area. We're going to be not missing a beat and continuing to improve our performance. Now obviously, right now, we're dealing with a continuing resolution. So any time you have a continuing resolution situation, that suppresses the amount of orders we see coming out immediately. But we're very hopeful that as the reconciliation package and the budget package moves its way through the administration and the Congress that this year will normalize and new orders will start to come in, and we're very excited about the future. The key to our longer-term top line and bottom line growth is the quality of these wins that I articulated. 2024 has a bunch of programs with very long legs and very long opportunities for single-award IDIQs to have new task orders for many years to come. And so it's not just winning awards. It's also then on contract growth. Another area where we and Leidos have been investing in our expertise at unlocking on-contract growth within program officers. Chris, anything you'd like to add? Chris Cage: I would -- obviously, you're trying to get at the heart of the matter, what, and looking ahead to our Investor Day, and we feel the story will be compelling. And those financial expectations are set. We've spent time building that up. And you can believe that we see the pace of activity accelerating as it relates to our growth. And when we have an opportunity to sit down with you all and go through that, I think you'll see our momentum that Tom just talked about on business development, coupled with our ample capacity from a cash generation and quality balance sheet perspective, we are very well positioned to build significant momentum over the next 4 years. Operator: Our next question coming from the line of Louie DiPalma with William Blair. Louie Dipalma: You discussed several positive wins for the Dynetics Leidos business with IFPC Enduring Shield and common hypersonic glide body, I was wondering what is taking place with MACH-TB 2.0, Kratos put out an announcement, and they listed you as a teammate. And I was wondering, did you transition from being the prime on that program to a subcontractor? Thomas Bell: Yes. On MACH-TB 2.0, we're sub to Kratos and happy to do that. And yes, you're right. We were prime on 1.0. But there's ceiling available still to us on 1.0. And so we're not letting go of our opportunity to serve our customer there. And there's significant role work share that exists for us as a sub to Kratos on 2.0. So we know Kratos very well. We like working with them, and we feel this relationship will help us advance this capability for our nation at pace and in the end, that's what it's all about. Louie Dipalma: Great. And on your April earnings call, you indicated that you secured a multibillion-dollar classified takeaway that was under protest. Can you update the investors on the call on like the amount of awards that are under protest. And was this specific contract put into backlog over the past 2 quarters? Thomas Bell: So the answer is we prefer not to indicate how much is under protest because talking about protests isn't our jam. But the answer to your second question is no, we don't put contracts under protest in our backlog. Those are still waiting in abeyance. Louie Dipalma: Okay. So that particular contract still hasn't been adjudicated? Thomas Bell: Correct. Louie Dipalma: Okay. And one last one, if I may, for your Enduring Shield IFPC system, it's obviously gaining traction, is that system viable to be deployed domestically and then it seems that it's meant for cruise missiles and counter drones, but do you think that there's market for that domestically? Or is it better suited overseas? And if it's not viable domestically, what products in your portfolio could fit into the iron dome initiative. I know that you provide the sensors for the proliferated warfare space architecture. So that is definitely suited, but what else could be applicable. Thomas Bell: Yes. Thanks for that, Louie. So the answer is, of course, it can be deployed along any border that you are worried about, cruise missiles or unmanned vehicles being a threat. So domestically, internationally, any countries, borders. And yes, that is a big part of our IRON DOME value proposition to our customers. Thanks, Louie. Operator: Our next question coming from the line of Colin Canfield with Cantor Fitzgerald. Colin Canfield: It's great to be back. Can you level set us on what you're assuming for FY '26 budget request? [ The investment ] DC that we're getting is that -- it looks like 10% nominal is probably a good base case. With [ task leadership looking up ] for [ $200 billion ] year-on-year increase. So maybe talk us through kind of what you're expecting in terms of top line for FY '26 request and how you think about that flowing through to your programs? Thomas Bell: Thank you, Colin, and welcome back. I appreciate you reinitiating guidance on us. The answer is I don't expect anything at this point. And I know that sounds a little bit cavalier, but we're in a world where there are many different agendas moving and exactly where the DoD budget ends up is one of those factors. I think there is bipartisan support that the world isn't getting to be a safer place, and that the defense budget needs to go up. But we're focused not only on what top line growth that gives us in new opportunities, but also helping unlock savings in the rest of the defense budget portfolio. I mentioned in my prepared remarks, the Defense Enclave Services opportunity to not only make these [ DAFAS ] more cybersecure and more resilient, better user experience, but unlock tremendous savings for the new Secretary of Defense to deploy for growth in weapons that are the pointy end of the spear. And so we're focused not only on the top line and what it will be for '26, '27, but we're also focused on unlocking savings that can be reinvested by the new Secretary of Defense and this administration in that future to augment whatever top line growth they get. We'll know more about what exactly we expect in '26 and '27 in 6 months or so. But obviously, between now and then, we're focused on our growth pillars. We know that those growth pillars are independent of specific top line growth because they are enduring existing customer demand that we know is growing over time. So we feel very good about the strategy we've laid out to grow in '25, '26, '27 and '28. Colin Canfield: I want to keep it to one, but just picking on that FY '26, '27 comment, are you suggesting that the proposal is going to be a 2-year budget deal like we've seen in the past? Thomas Bell: There are people on Capitol Hill that are talking about that, but I'm not basing my expectations that, that will come to pass. We'll see. Operator: And our next question coming from the line of Gavin Parsons with UBS. Gavin Parsons: In terms of the long-term kind of EBITDA and cash flow outlook when the VBA contract transitions to its next generation will you be able to still grow EBITDA and free cash flow through that contract transition? Chris Cage: Gavin, Chris here. So absolutely. But as Tom talked about, I mean, we're already building momentum in other areas to complement what happens with VBA. And that mission is not going away, but we imagine that there'll be an opportunity to continue to innovate there to drive more efficiency and automation through the whole delivery chain. But absolutely, our expectations will be growing EBITDA over the time horizon as we've been alluding to. We'll give you our point of view through 2028 on where we see the business going. But the growth pillars are robust, and there are plenty of other areas that will build momentum in the health and civil business along with our other segments. Operator: Our next question coming from the line of coming Scott Mikus with Melius Research. Scott Mikus: I have a question on the guide. In 2024, you did $10.21 in EPS. And if my math is correct, I think you had a $0.20 impact from the 2Q charge, the U.K. business and roughly an $0.11 impact from the asset write-down this quarter. So if I add those back, the guidance implies almost no underlying EPS growth. I'm just kind of wondering, is that conservatism based on the change in administration? Or any sort of color you can provide? Chris Cage: Scott, thanks for that. And you're right. Of course, we don't expect some of those things to repeat. Of course, running a business of this size and complexity, you always have to allow for the fact that there's things in the portfolio you have to manage through. I would say that as the year unfolds, we want to give ourselves the opportunity to invest in the pivot year for the future while delivering great performance. And if that allows an opportunity to increase those expectations over time, we will. I mean I think the other thing I'd point you to, we trailed the debt that we do expect that [ we'll ] be refinancing the interest rate environment is a little bit higher. So we'll see a small headwind on interest and taxes that factor into the EPS guide as well. But yes, so I think you sluiced it out. The only other thing I'd add, we had an excellent year on EACs on balance, aside from those 2 larger things that you pointed out. And the goal of the team is to continue to do that, but there's always variability in the portfolio you have to allow for. Scott Mikus: Okay. And then, Tom, you mentioned that the new administration wants to increase privatization. So although a new competitor has been added to the VBA contract in some of your regions, do you think that, that increased competition could be offset by a greater share of exams being outsourced? Thomas Bell: Well, that will be up to the new administration and the new cabinet level appointees and agency, the people running the agencies. What we're focused on is making sure we maintain and grow our market penetration by providing excellent service to veterans, allowing us to have availability for more veterans faster and cheaper. And we're excited about that. If opportunities present themselves for increased privatization in any of our markets, we will be there very eager to help our customers think that through. Operator: Our next question coming from the line of Seth Seifman with JPMorgan. Seth Seifman: I wanted to ask about the growth pillars you think about for North Star 2030, Tom, and how you -- the extent to which you think about the challenge of getting not just growth but profitable growth when you've got some new competitors coming into the space with very low cost of capital that are evaluated primarily on their ability to deliver very fast growth and kind of the extent to which you're thinking at all or how you're thinking about the challenge that poses to delivering profitable growth. Thomas Bell: Yes. Thanks, Seth. We certainly are aware of these new entrants into the marketplace, and we welcome them. And in fact, we work with them in many occasions. So we see them as part of the ecosystem that we're eager to work with to deploy better, faster, cheaper solutions for our customers. That being said, our growth pillars, again, are all founded on areas we know we have differentiated capability and we know we can accelerate away from the pack. So we are looking at growth pillars where we know we have something others don't. And yes, others might have low cost of capital and ability to build it over time, but we have these capabilities now. And so we're very focused in our growth pillars around those markets and those customer needs and those areas where we know we have a differentiated capability, and we're very excited about our ability to accelerate away from the pack in those areas. So not overly concerned and at the same time, looking for us to deploy our unique brand of partnership. We're always open to partners. We've always been open to partners, and we'll remain open for partners as we try to solve our customers' problem in different ways. Operator: Our next question coming from the line of David Strauss with Barclays. Joshua Korn: This is Josh Korn on for David. I wanted to ask you, you mentioned earlier a pivot away from low-margin work next year. I just wanted to dig in a little bit on what exactly does that mean? And are there implications for mix by contract type? What sort of work does that involve? Thomas Bell: Yes. Thanks for the question, Josh. And yes, the corollary to our growth pillars is areas where we're going to deemphasize in the portfolio. We're not turning and walking away from any business we have today. Because of our robust financial results, we've been able to print inside Leidos, we have the ability to continue to invest in all areas of the business while we overinvest in these growth pillars that I've mentioned. That being said, we're also looking at areas where we're not going to continue to invest and over time, allow to attrit. Nothing -- no knee jerks here, nothing, no student body left kind of moves. Over time, we'll simply leave that work for other people on recompetes. And so look for a gentle, purposeful approach to investing in the growth areas. Continuing to invest in areas we know where we can grow as we always have, and then deemphasizing some of these areas that are low-margin work and really not something that our customer rewards our innovation, our technology and our ability to make their outcomes smarter and more efficient. So that's the long-term playbook over the next 3 years. Chris Cage: Yes, Josh, you can think of things like infrastructure support services, big O&M jobs, things like that. If we're not technically differentiated, you'll see us shift our focus, as Tom mentioned, to the things where there are better opportunities for Leidos. And the pipeline there, it remains very robust. Thomas Bell: And better top line and bottom line growth. Operator: Our next question coming from the line of Peter Arment with Baird. Peter Arment: Tom, Chris, nice results. Thomas Bell: Thank you. Peter Arment: Tom, just to circle back kind of on this whole cost plus versus fixed price and was mentioned earlier, I think Chris mentioned 43% of Leidos is now a fixed price, but a large percentage of that is in health and civil. How do you think about when you look at your other national security segments and defense about opportunities to grow your fixed price mix there just given the environment of those. Thomas Bell: Well, we are always open to and eager for outcome-based contracting, whether that's fixed price or whether that's privatization, whether that's paying for a service at a fixed rate. There's different tunes you can play within that song. But we're -- I'm eager to grow that. I think we excel at that today. I think we've got a demonstrated track record of providing dramatic cost reductions for our customers and great profitability and revenue growth for our shareholders. And so the Leidos team is all about that. That's because we can unlock technology. When we own the outcomes, we own the inputs and the technologies that we can deploy into these areas that allow us to differentially serve our customers and have better results for them. And so we're very excited about it and leaning into it. DOGE, the administration I'm very happy that the conversations have begun around increased privatizations and increased opportunities for outcome-based contracting because I think that's an area that Leidos can excel. Chris Cage: Yes, we've seen some of it, Peter, in the defense space, less than we'd like. But in our digital modernization business, for example, cost per user or a cost per person on the network, And of course, some of the things we talked about in our defense systems area in support of IRON DOME and some of those opportunities will ultimately be a fixed price production outcome. So again, we're up for it. We invested robustly in our program execution capabilities. And so this is a direction that we want to be on. Operator: There are no further questions in the queue. This concludes our question-and-answer session. I would now like to turn the conference back to Stuart Davis for any closing remarks. Stuart Davis: Thank you, operator, for your assistance on today's call, and thank you all for your time and interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.

Operator: Greetings. Welcome to Leidos’ Third Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note this conference is being recorded. At this time, I'll turn the call over to Stuart Davis from Investor Relations. Stuart, you may begin. Stuart Davis: Thank you, and good morning, everyone. I'd like to welcome you to our third quarter fiscal year 2024 earnings conference call. Joining me today are Tom Bell, our CEO and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you will also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to Slide 2 of the presentation, today's discussion contains forward looking statements based on the environment as we currently see it, and as such, includes risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on Slide 3, during the call, we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I'll turn the call over to Tom Bell, who'll begin on Slide 4. Tom Bell: Thank you, Stuart, and good morning, everyone. As always, it's great to be with you all again today. This morning, I'm very happy to report our sixth straight quarter of excellent financial performance and I'm also very proud of the fact that the team has delivered high quality wins across the entire Leidos portfolio. As a result of this strong sustained financial performance, our growing business capture momentum and our increased clarity into important Leidos markets, we are again raising our forward guidance for 2024 across all metrics. Chris will provide full details regarding our outstanding financial performance and our improved 2024 guidance later on this call. This quarter's solid organic growth and industry leading margins enabled us to deliver substantial earnings growth and free cash flow. With record adjusted EBITDA margin of 14.2%, we've now achieved 12.9% EBITDA over the trailing 12 months. This excellent execution performance is the result of our robust portfolio of programs serving customer priority missions, our investments to drive efficiency and the team's embrace of a promises made, promises kept philosophy throughout our capability based organization. Our performance in this quarter reflects adjusted diluted EPS growth of 44% and free cash flow conversion of 159%. Our outstanding cash collections this quarter also enabled us to accelerate share repurchases. We purchased $200 million worth of shares on the open market, thereby clearing $450 million of our $500 million planned share repurchases for the year. As a result of our sustained performance and our conviction regarding our portfolio's ongoing earnings and cash profile, we have again increased our quarterly dividend. Shareholders of record on December 16 will receive a dividend of $0.40 a share, a 5.3% increase over our past dividend. The balance sheet strengthening we've undertaken over the past 18 months gives us excellent optionality. And this will be important as we begin to focus more capital in the future on our new North Star growth strategy. But for the remainder of this year, uses of capital will continue to be prudently focused on the potential for additional share repurchases and purposeful down payments on specific growth engines that have come into focus as a part of our new North Star strategy. We look forward to sharing more detail about our new North Star strategy and its suite of compelling Leidos growth engines at our upcoming Investors Day in March. Starting today, I'll take the opportunity from time to time to highlight one of our compelling Leidos growth engines. Today, I'll start this practice with an overview and update on our Health & Civil segment. Over the past year, our Health & Civil segment has been a growth and margin leader for us. Our team in Health & Civil is executing extremely well. And within this newly formed segment, they are optimizing performance across their broad portfolio. And in doing so, they are leveraging the synergies of the complete set of scientific experts we employ, what we refer to as our ologists, who come to Leidos to break limits in their careers and deliver superior results for our customers. We're seeing strong performance and positive developments across the full array of Health & Civil’s customers, including our work for NASA, the National Institutes of Health, the various customers of our air traffic management systems, and our virtual health solutions customers. One area of this segment that I know many of you track is managed health services, where we bring truly differentiated solutions to our customers, which in turn unlock truly differentiated performance. Currently, a core offering within our managed health services is disability and occupational health evaluations for a wide range of customers, including the Department of Labor, the FBI, and the U.S. Secret Service. Included in these flagship programs, we perform medical disability examinations for veterans and active duty members preparing to discharge. Exam volumes for this business have remained elevated based on the permanent increase in the eligible population from the Promise to Address Comprehensive Toxins Act, better known as the PACT Act, signed into law in August of 2022. Because of our continued ahead of the curve investments in this business with AI, virtual health and other key technology enablers, and investing in overall capacity, we're positioned to continue to respond with quality and speed to the increased volumes and complexity of exams the PACT Act creates. As an example, we've continued to expand our fleet of mobile clinics to meet the needs of underserved veteran populations. These include those living in rural communities, tribe members on Indian reservations and homebound veterans. And to assist our veterans beyond our own Leidos QTC clinics, we've developed cutting edge care coordination processes and algorithms for the VA. These help the VA optimize their use of their critical imaging systems, such as CT scan machines to ensure veterans are receiving quality and timely health care across the whole of the care ecosystem. I'm exceptionally proud of our performance for the VA and for our nation's veterans. And we are focused on working with the VA to continue to drive down case backlog and deliver timely exceptional service to veterans and service members. On our last earnings call, I relayed that volume and profitability of this business might be challenged in the second half of this year. I expressed this caution at that time because of the real customer budget challenges and the lack of clarity regarding an upcoming recompete for some of our work. Consistent with our promises made, promises kept philosophy, we issued improved guidance then that was prudent given the uncertainty at that time. I'm happy to report that we now have much greater clarity on both these fronts. First, Congress approved a $3 billion supplemental funding request by the VA for the government fiscal year 2024. And this was passed with clear bipartisan support. So we fully expect congress to approve the VA's $12 billion request for fiscal year 2025. And second, the VBA has already exercised the option year contained in our current region's contract. In addition, we've submitted what we believe to be a compelling bid for a new two year contract for this same work. And we expect to receive a contract award for this important work in the coming weeks. We very much look forward to continuing our long standing partnership with the VA in service to our nation's veterans. With this current option year in hand and the new two year contract ahead, we are very confident in the ongoing financial performance of this business. We expect the volume and margins of our future work here to be sustained on the back of the investments we've made and continue to make in throughput and quality. And looking beyond this new two year award, we remain confident in our ability to continue to differentially serve our nation and its veterans. The VBA is encouraging offers to drive even more innovation into veteran services before they award the next set of long-term contracts, and this plays to our strengths. With our scale and technical depth, our investments in cutting edge Trusted Mission AI, and the talent mission focus of our team, we are poised to demonstrate our ability to handle even greater volumes of exams with excellent quality, timeliness and veteran customer satisfaction. Turning now to business development. As you know, we've been focused on fundamentally resetting our future performance expectations by improving the size and quality of our backlog. This third quarter yielded an excellent return on this focus with net bookings of $8.1 billion, representing a book-to-bill ratio of over 1.9x. We ended the quarter with a total backlog of $40.6 billion, including $9.1 billion of funded backlog. And importantly, I'm very pleased with the improved quality of this future work. Quality wins this quarter were balanced across all our segments, with a rich mix of new growth drivers. Here is a sampling. We won over $700 million in new and takeaway wins in full-spectrum cyber. This is a testament to our capability and competitiveness in this market. It's also an early success from the investments we've made in repeatable solutions in our digital modernizations sector. A couple of key awards to mention this quarter include developing the army's new general unified network to deliver a next-gen transport capability compliant with zero trust principles. And we won a large classified takeaway contract for a member of our intelligence community. The Air Force tapped Leidos as its digital integrator to oversee planning, analysis and operations of its advanced battle management system digital infrastructure network, a core component of the Air Force battle network. This comprehensive network links together all Air Force assets, allows for optimal coordination between different units and enables commanders to respond rapidly to the changing situations on the battlefield. The $300 million award augments our growing portfolio of combined, joint all domain command and control programs. And we had $1.7 billion of net bookings within our defense systems segments. Reflecting our maturing product portfolio there, on IFPC Enduring Shield, we received an award for additional development work, and four more launchers after government-led development tests successfully intercepted a mix of unmanned and cruise missile targets. This means we remain on track to receive a low-rate production contract in 2025 and a full-rate production contract in 2026. We finalized our contract to provide wide field of view Tranche 2 satellite payloads. This means we will continue to serve our nation with payloads on the FDA's Tranche 0, 1 and 2 satellites. We received a contract from the U.S. Special Operations Command to restart production of our small glide munitions program. This program blossomed a decade ago from a Cooperative Research and Development Agreement or CRADA and we've now delivered more than 4,000 units. Of note, we're also on CRADA for a next-generation small cruise missile system called Black Arrow. Recently, Black Arrow completed multiple tests at customer ranges and will undertake even more advanced flight tests this fall. We believe that Black Arrow will help meet the DoD's critical need for affordable standoff strike systems that can be quickly produced and fielded in volume. It's encouraging to see these and other significant results from our focus on growth across our entire portfolio. The third quarter was also marked by high volumes of proposal submissions. So looking forward, even with the large number of Q3 awards, our pipeline of bids awaiting adjudication grew by $3 billion and now stands at $29 billion at the end of the quarter. We believe these positions us very well for even greater business capture performance in the future. As referenced earlier in our conversation, because of the hard work that the team has put into our year of deep strategic thinking, our new North Star strategy has come into clear focus. From the kaleidoscope of opportunities in front of us, I can confidently say that the rigorous process we have undertaken has unveiled an exciting set of focused opportunities for us to accelerate Leidos growth, top line, bottom line and cash over the coming years. That path forward and the compelling financial picture it will spawn will be the focus of our March 2025 Investors Day. I'll now turn the call over to Chris to walk through our financial results in detail and provide additional insight into our improved outlook. Chris? Chris Cage : Thanks, Tom, and thanks to everyone for joining us today. Our third quarter results again showcase what is possible, as we lower performance risk focused on high-quality wins and drive efficiency through the organization. This team is laser focused on sustainably growing earnings and cash and then deploying them responsibly to grow shareholder value. Turning to the income statement on Slide 5. Revenues for the third quarter were $4.19 billion, up 7% year-over-year. Customer demand remains robust and employee retention remains historically high. Margin performance was once again a standout in the quarter. Adjusted EBITDA of $596 million was up 32% year-over-year and adjusted EBITDA margin increased 270 basis points to 14.2%, a new high watermark for Leidos. Program level execution was one catalyst for margin performance. EAC adjustments were a $30 million net positive, our best performance in nearly four years. Non-GAAP net income was $396 million and non-GAAP diluted EPS was $2.93 of 40% and 44%, respectively. On a year-over-year basis, our slightly higher tax rate in the quarter fully offset our slightly lower diluted share count and net interest expense. Looking at the non-GAAP reconciliation tables in the press release and presentation appendix, you'll see $6 million of GAAP impairment charges from exiting and consolidating underutilized lease basis and we expect another $15 million or so of charges associated with additional actions over the next five quarters. We're closely managing our corporate costs and lowering our real estate footprint improves our competitiveness and keeps corporate costs in check. The annualized savings from these actions will be in the neighborhood of $25 million to $30 million, which we'll see the full benefit of in 2026. Turning to the segment view on Slide 6. National Security and Digital revenues increased 1% year-over-year. We saw volumes grow broadly across our digital modernization portfolio, which offset slowness across several intelligence community programs. I'm very pleased with the margin discipline of the segment as they continue to perform ahead of plan. National Security and Digital non-GAAP operating income margin increased 70 basis points from the prior year quarter to 10.5%. This was the highest margin of the year, and it reflects early success in digital modernization repeatability and utilization initiatives as well as excellent award fees on our intelligence community programs. As Tom alluded to earlier, Health & Civil continued to deliver for customers and shareholders. Revenues increased 16% over the prior year quarter and non-GAAP operating income margin came in at 24.2%, up from 16.5% a year ago. Revenue and margin over performance was primarily in the managed health services portfolio that Tom spotlighted, as we receive more disability exam requests than anticipated and our differentiated solutions were able to unlock higher performance and incentives. Profitability was roughly in line with Q2 levels. Commercial & International revenues increased 5%, with increased deliveries of security products and energy engineering services. Non-GAAP operating margins were 8.8%, their highest level this year. The UK business was a positive top and bottom line contributor in the quarter, and I'm pleased with the positive trajectory for this business area and the segment overall. Finally, Defense Systems revenues increased 13% over the prior year quarter and non-GAAP operating margins increased 280 basis points year-over-year to 10.2%. It's rewarding to see the kind of financial performance that we expected from this portfolio. There were many bright spots in the segment, highlighted by the move to the initial operating test and evaluation stage on IFPC Enduring Shield. Looking across the segments. Clearly, Health & Civil continued its strong execution, but I'm most encouraged by the broad-based strength of the entire portfolio. We had two sectors growing at double-digits for the first-time in the new organization structure. And if you set Health & Civil aside, margins for the remaining three segments were up 80 basis points from a year ago and higher than they've been as far back as we have recast financials. Turning now to cash flow and the balance sheet on Slide 7. With the end of the government fiscal year, we had exceptional cash performance. We generated $656 million of cash flows from operating activities and $633 million of free cash flow. In Q3, we repurchased a total of $203 million in shares, including $200 million in the open market and paid $51 million in dividends. We ended the quarter with $1.2 billion in cash and cash equivalents and $4.7 billion of debt. We have significant capacity to return cash to shareholders and invest in growth. Next, I'll go through our enhanced outlook for 2024 on Slide 8. We're raising and narrowing our revenue guidance range to $16.35 billion to $16.45 billion, an increase of $150 million at the midpoint. We're increasing adjusted EBITDA guidance from approximately 12% to the high 12% range. We're raising and narrowing our non-GAAP diluted EPS guidance range to $9.80 to $10, which is an increase of $1.10 at the midpoint. And lastly, we're increasing our guidance for operating cash flow by $50 million to approximately $1.35 billion for the year. Our new guidance reflects not just the outperformance in the third quarter, but also an improved outlook for the fourth quarter, spurred by positive momentum across all four segments and increasing visibility in our Health & Civil segment through the recompete of the [Regions] contracts. As you put together your models, we're expecting fourth quarter interest expense, tax rate and diluted share count to remain near Q3 levels. We plan to step up CapEx investments tied to growth in Q4 and end the year at $160 million or about $30 million below our original expectations for the year. Finally, as Tom indicated, our year of deep strategic thinking has brought our North Star strategy into clearer focus. We're not yet ready to give next year's guidance or new long-term targets, but I want to orient you to our current thinking. Our very strong performance in 2024 raises the bar for next year. The midpoint of our revised guidance range yields revenue growth of 6% and diluted EPS growth of 36% in 2024. At this point, we're not expecting to repeat quite that same level of growth in 2025. We see 2025 as the pivot year from the company we are to the company we're building towards as we implement our strategy. We currently expect revenue growth in 2025 to be in the lower single digits, with the longer term growth outlook potentially back to 2024 levels or above. Most importantly, we are committed to retaining margins near current levels and robustly and sustainably growing diluted EPS over time. With that operator, we're ready to take questions. Operator: [Operator Instructions] Our first question coming from the line of Peter Arment with Baird. Peter Arment : Maybe just to highlight the -- you talked about $700 million plus in new takeaways and full spectrum cyber, it's super impressive. Obviously, you guys are really -- company's doing well on so many fronts. But maybe you could just talk about more color there and where this -- where we expect to see this kind of flow through the new takeaways? Tom Bell : Yes, we're very excited about the National Security and Digital segment. As I think about that segment and Leidos, it really is the core of the core of the core of what Leidos has always been and has always done extremely well. And we've got a fantastic history in that segment of winning big franchise programs, multibillion-dollar franchise programs. And so we like that business. We've put a leadership team in that business that we trust. And you're already starting to see in this third quarter, the beginning of us getting our chutzpah back in our winning ways in that business. So very excited about that, and we look forward to more conversations about cyber wins going forward. At the same time, cyber has been one of the golden bolts that we've been investing in as a core competency of Leidos for our whole history. And so not only are we very proud of the team that's leveraging our cyber chops for cyber wins, especially for our very, very important in the intelligence community customer. But we're also very proud of the fact that our cyber capabilities and our zero trust gravitas is frequently commented on by customers as a reason we win in other markets also. So we're very proud of the return on investment we're getting in our cyber security business and as an underlying capability of everything Leidos does. Obviously, these are customers where we can't really say too much more than we already have about where we win and what those programs are, but we're very excited about it and we're very, very committed to expanding our capability to help our government be the smartest government on the face of the earth. Chris Cage : Yes, Peter, obviously, [ Aegon ] was certainly something that fits into that arena, but as Tom talks about a lot of classified work there that we can't get too much color on. But clearly, the team has been focused on differentiation and the investments that we've been making and we'll continue to make really positions us well to grow that area of the business more robustly as we head into '25 and beyond. Operator: And our next question coming from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu : Thanks for the script as well, Tom that was super helpful honing in on one segment. So I'm going to ask about Health & Civil, of course. So maybe if we could talk about where you are, just given the significant growth with the VA funding? There can it -- it seems like it's still outstanding from my understanding, but if you could give us some timing on that and how you're thinking about positioning there and potential risks and how we should think about Health & Civil EBIT as we head into next year? Tom Bell : Yes. So as I tried to highlight in my prepared remarks, we've had a fantastic third quarter in our Health & Civil business. And before I get into managed health services, I want to, again, broadly overview the fact that, that business is much more than just back. We serve a variety of customers, everything from NASA and making sure that the logistics to the space station are maintained. We do critical work for our customers at the National Institute of Health and the National Science Foundation. We do exams for the FBI, the secret service and the Department of Labor. So it really is a broad segment of our business and it's a business that is outperforming in all of those facets. On the VA and on the VBA since I appreciate the fact that, that's your question. We had a great quarter that helped us clear the air. Kind of the fog of war has been lifted and now we see our way through for not only the next year or two, but much longer into the future. As I mentioned, the customer has currently extended the current contract we have them with the option year that they had. We expect them to formally contract for the next two years, along essentially the same terms as the business we have today. We're very confident in the fact that we'll be able to maintain our volume, our throughput and our profitability of that business over that contract. And as I suggested in my prepared remarks, Sheila, we also are very excited about what the VBA is setting up for the terms of the next competition. It incents innovation, it incents technology. And when you talk about critical customer missions with deep technology needs, you're talking Leidos. So we're very excited about that business. We're currently continuing to invest in it. We're making sure we don't wait for the RFP to innovate and bring even more efficient and effective solutions forward for our customers. And so we're very bullish on the long-term business we're in for Health & Civil. And in fact, spoil alert, when you come to March, you'll see that growing this business is a core of our growth strategy going forward. So far from us seeing it as a business that is sun setting or at its apex, we see it as only a business that's just begun to be a growth engine for Leidos. Chris, do you have anything you'd like to add? ChrisCage : A couple of additional points, Sheila. Clearly, again, our third quarter performance, part of that was the incentives related to doing great work with high customer satisfaction, with differentiation. Those are the things that will compel us to be a prominent provider in this space for the foreseeable future. The other thing that you might have seen, it's not done yet. We don't count our chickens, but the customer and the military health side put out a justification authorization to extend our current work on the DHMSM program for an additional three years. That would -- should hopefully sort itself out middle of next year. But that's another strong indication of where customers really want to see the value that Leidos brings and they want to continue that relationship with us. Now as it relates to looking ahead to 2025, that's what we gave our color commentary. This business has outperformed everybody's expectations for this year. Health & Civil has had a fantastic year. Our goal in the near-term is to sustain that level of performance and that's what gives us confidence in our ability to keep margins solidly in the 12% range for the corporation. Growing off of that base will be an area of focus certainly for the intermediate to longer term horizon and we're very confident we'll be able to do that. Operator: Your next question coming from the line of Tobey Sommer with Truist Securities. Tobey Sommer : I wonder if you could give us an update on a smallish program that we haven't talked about on these calls in a while. Sort of your capabilities for unclassified data collection in the BuckEye program and others. I'm curious what the utilization of those company-owned assets is like and what the prospects for growth is like? Tom Bell : Yes, so BuckEye continues to be a very strong business within our Defense segment, where the assets we have deployed for that mission are I'll call it, fully utilized and we're sweating the assets very well. And in fact, expansions of those missions are part of what we're using some of the capital we have in this fourth quarter for down payments for further growth in the coming years. Personally, I expect that sometime in the next decade or two, manned ISR assets are probably going to be replaced by other capabilities. But in the here and now, these are critical capabilities that our war fighters rely on and we're proud to serve very specific focused niche of those customer capabilities that they need and want. So BuckEye and other programs like it remain a part of Cindy's business and it's a part of the business we're very happy with. Chris Cage : And Tobey, I'd just add, I mean, to Tom's point, we're seeing, even though there's been some programs that we haven't won, we actually are still a strong provider in the ecosystem of airborne ISR support to our customer missions. And to Tom's point, we'll continue to see select opportunities to increase investment. Those are high return on investment types of plays when we make them and so we'll look for those when they make sense. Operator: And our next question coming from the line of Mariana Perez Mora with Bank of America. Mariana Perez Mora : So Chris, you said you're not ready to talk about FY'25, but you mentioned the low-single-digit growth. And as you mentioned, DHMSM or MHS GENESIS is already expected to be extended, so that side the risk. Then I see a lot of opportunities coming from August. And at USA, everyone was really enthusiastic about the defense portfolio actually getting some traction, missile, ammunitions, counter missile, hypersonics, all those things. What are the areas that are actually not growing or that you are conservative going into next year to actually think it's going to be the transition year in terms of growth? Chris Cage : You're right, there are a number of things across the portfolio that we're very excited about. But what we've also learned is some of those things take a longer gestation period to manifest themselves like we're seeing in the defense systems business today. Growth has been nice and a good upward momentum, but it took some time to get there. As we look ahead to 25, we do like our position. We feel really good about how the company is stacking up. But clearly, Health & Civil off of this substantially elevated level of performance is going to be in a more muted growth posture in the near-term, accelerating away. We did talk about some of the wins in national security and digital, we see growth momentum accelerating there. But you look at the backdrop, we're clearly in an election year. There is a risk of potential of there's an extended CR and some disruption. We've seen that play out in the past. So as we see the landscape here today, we're going to be cautious about those things. And if we get more clarity in the several months ahead, we'll be in a better position to refine that point of view going into the early part of next year. Tom Bell : Mariana, I might add, I really appreciate your enthusiasm for the business, too, and optimism. I share it. I think there is tremendous growth available for Leidos. And that will be the feature of our March 2025 Investors Day, focusing on those engines of growth we see within the portfolio that have been clearly identified as a result of our year of deep strategic thinking. So we're very excited about it. But I cannot remind investors and analysts who attended our 2021 Investors Day that in -- then we promised profitability of 10.5% in 2024. And so here we are committing to guidance this year of 12.9%. And the fact is, even with next year and the solid 12s, we're streets ahead of where this portfolio was envisioned to be just three years ago. We will not be resting on our laurels there. This is just an indication of the kind of pivot year that 2025 brings, but a pivot year is just that. It's a pivot year to greater growth and continued growth for a great portfolio of critical needs that our customers reward us for. So that's the focus over the next coming months. We look forward to having that conversation with you in March, and we're very bullish about the future of Leidos. Mariana Perez Mora : And if I may, just a quick follow-up. On the $29 billion that you have of like submitted bids in the pipeline, how much of those are new businesses versus recompetes? Chris Cage : Well, the $29 billion, I can't give you that, but I can tell you that when we look ahead to next year's portfolio, almost 70% of what is in the 2025 portfolio is new business and takeaway. So I don't have the exact point on the $29 billion, but a high percentage of that would also be new business and takeaway, Mariana. The recompete landscape is quite modest. We've talked obviously about the VBA business and have clarity here on the next two years of that here soon, if the military health system DHMSM program does play out the way we hope. We're really not talking about any substantial recompete. So that's a great position to be in for our BD team to really be attacking new work with vigor next year. Operator: And our next question coming from the line of Cai von Rumohr with TD Cowen. Cai von Rumohr : Terrific results in Health. The recompete, the profitability is so good. Usually, when you see markets with that kind of profitability, you tend to attract more entrants. Now I know that the entry barriers are pretty high and that's been a plus. But you mentioned incentive improvements. Can you give us any color about the upcoming recompete, and do you expect that the profitability opportunity will be comparable? Or will there be more competitors or a different structure so that they get a good result, and you make good money, but not quite as much as you're making today. Tom Bell : I appreciate the sense of your question. But of course, there's some questions I really can't answer in there. And at the same time, I can say that we're very confident in the continued profitability of this business over the next couple of years and we look forward to the recompete because, as I suggested, it incents the very things that we're excellent at. So there is, for us, confidence that we'll be able to lean into the business to help the VA get what they want, which is customer satisfaction and volume. At the same time, we feel very good about how we've been able to weave into our solutions in this space Trusted Mission AI and other innovative processes that allowed us to bring down our costs and sweat the fixed assets that we have. And so as a result, the profitability of this business and the opportunity for us to expand it are core parts of our strategy for growth for Leidos. So we don't see it as a net negative, but rather an area where we're going to be able to hold on to the profitability and expand the top line. Chris Cage : I just would remind you, I mean, we did get the option your exercise. So we have clarity on the contract we're performing under right now, the recompete to Tom's point, we can't give a lot of detail there. But again, our team really focused on how do we maintain a competitive position and work with our customers. But at the same time, get a return on the investments we've made. And it's not just the work going on in the VA. Tom spotlighted there's much more going on in managed health services with other customers that we're doing work for. So the expansion of that entire portfolio enables us to have visibility and the confidence in the ability to retain a high level of margin performance there. Cai von Rumohr : And if I may one more, Dynetics. For years, it's basically had lots of potential and has had trouble really fully converting that. When you talk of low-single-digit growth next year and then better growth as we move further out, is Dynetics in that bucket? Chris Cage : Dynetics is definitely in that bucket. I mean, again, Tom featured -- think about the BD results they had this quarter is eye watering, excellent book-to-bill, programs that are moving forward to a low rate and then accelerating away. It will take a couple of years to get into a full rate production type mode and those are the kinds of things that give us confidence on the uplift. We still don't have full clarity on how quickly the customer will ramp up our hypersonics work. We're ready. We're ready to scale. We're dependent upon industry partners. So there are some things there that definitely are exciting for the future and we expect that growth momentum to continue, but the best years for that business is still ahead of it. Tom Bell : In fact, Cai, I'll just add on. Chris talks about an excellent book-to-bill. Just to put a little context on that, that's greater than a 3x book-to-bill just for our Defense segment. So that's the kind of quarter they had. And what we're starting to see, Cindy and the leadership team there are starting to really focus from that kaleidoscope of opportunities and the potential that's always been there, to focus on the things that are really important to our DoD customers now to fight for the future. So one of the things we talked about was the SOCOM customer restarting a production line for small glide munitions. In fact that's huge because that line had gone dormant and the customer has come back to Leidos and said, we need more of that product. And that has spawned the ability for us now to prototype and start to test this small cruise missile, Black Arrow that I referenced. That's a direct result of not only our prowess on small glide munitions. But also remember the Gremlin program, bringing those two capabilities together has put us in a position to test is small cruise missile. And frankly, that's exactly what our war fighters need. The rapid prototyping, rapid production at scale and affordable capability for standoff weapons. So we're very bullish, as Chris says, about the future of Dynetics and the ability for the current management team to take all of that potential and make diamonds out of it. Operator: And our next question coming from the line of Scott Mikus with Melius Research. Scott Mikus : Tom, Chris, a little over a year ago, you guys won CHS-6. I was wondering if you could talk about how that's ramped so far? And are the margins for that program accretive to the overall business? Or are they still dilutive as you're making the investments to ramp up? Chris Cage : Yes, Scott, I'd say the team has done a great job of getting that program ramped up in the year one. As you can imagine, both programs in the early phases aren't reaching their full potential and the same is true on CHS-6. We saw an early flurry of buying activity for longer lead things that will help increase revenue volume in '25 and beyond. So I would say the margins aren't where we expect them to be for the long haul as of yet. But -- and despite that, look at the great performance we're seeing in national security and digital. So the team is in a good spot there and CHS-6 will be a nice contributor to the portfolio over time, but it certainly hasn't reached its full potential yet. Tom Bell : Scott just to pile on a little bit. One of the things we've been doing as we retool our business development approach is, we've also been ensuring we have the experts who can communicate to customers the art of the possible. One of the things we've discovered is that the tool that CHS-6 is, is not universally understood within the army and we have people out there right now, ensuring that our customer understands their ability to use CHS-6 to buy a wide variety of products and capabilities. And so we feel very good about that. And we're incentivizing our program managers to fill out the full potential of the IDIQ contracts that we have. So we feel very good about the fact that maybe we're a little slow out of the blocks on that program, and it hasn't hit its stride yet, but I'm convinced that the army, we and our business development team are going to be able to help us supercharge that program for part of our success going forward. Operator: Our next question coming from the line of Noah Poponak with Goldman Sachs. Noah Poponak : Just want to make sure I have the time line on the VBA work inside of Health & Civil correct. Because, Chris, I thought you referenced the one year extension from the VA, but then I heard you thought in the Q&A referencing, multiple years. So I guess, how much visibility do you have now on what funding mechanisms? And then whenever there is a recompete, when exactly are you now expecting the recompete and how much actual revenue is being recompeted? And then on the margins, am I hearing you correctly that you believe north of 20% adjusted segment operating margin is a reasonable medium- to long-term framework for this business? Tom Bell : No. Let me go first, and I'll give you some big tectonic plates and then Chris will fill in the details. First, as we said, we're currently on an option year to the current contract. So that's ongoing. Second, we expect a two year award to be made in the coming weeks. So let's call that November, sometime in November. The terms of that contract will be largely similar to what we have now. And then after that two year contract, the customer assumes they'll be awarding new multi-year contracts for the way forward at that point. So we're currently on an option year. As soon as the new award gets placed, that option year will seed and will be on the terms of the new two year contract. And then there'll be a multi-year contract beyond that. Chris Cage : Right. So that kind of gives you the lay down of the activity set. It's not the entirety of the work we do for the VA. It's four of the regions. There's other contracts as well. So -- but it's a substantial piece of business that, again, we've put forward a compelling bid for, we believe. Going forward as it relates to margins, yes, I think you're in the right zip code here, right? As far as 20-ish-plus percent for this segment going forward. We've outperformed that over the last two quarters. You've seen numbers in the 24% range. I feel like that is excellent results by the team. So north of 20% is certainly something that we see increased clarity on now and feel much more bullish about sustaining that performance going forward. Tom Bell : And we're going to achieve that, not only by doing more of what we do now by expanding the suite of services that we provide. More in March. Operator: And our next question coming from Seth Seifman with JPMorgan. Unidentified Analyst: This is [Rocco] on for Seth. Are there any notable factors that have been weighing on national security and digital growth? And what does the pathway look like to accelerate the growth in the segment moving forward? ChrisCage : Well, so National Security Digital, we featured in our call, there's been some shifting of budgets and priorities in some of our intelligence community customers, not tectonic shifts, but smaller shifts, focused more towards great power competition. Some inability to get the cleared personnel in the right spot that is always an inhibitor. Our team has managed around that very successfully and I think has positioned that business for increased growth going forward. A lot of the key wins that we featured in the call will show up as catalysts in national security and digital and some new work there. There's also been some protests, unfortunately, that's par for the course in this business area but some of those are substantial growth drivers for us ultimately, once they clear that process. So we're looking forward to a positive resolution there. But the team has been shifting the portfolio, pivoting a bit and we're seeing early returns on the digital side, the digital modernization part of that portfolio and expect even greater results there going forward. Tom Bell : [Rocco], I mentioned to an earlier question that we see our place in the universe as helping our government be the smartest government on the face of the earth. I would suggest that one challenge our customers have in helping us help them fulfill that mission is relatively stable budgets or when you price in inflation flat to declining budgets. And so I know no taxpayer wants to hear that. But our national security and intelligence community work really is challenged with limited top line growth against a threat environment that is incredibly diverse and not seeding. So I would love to see a little bit more top line growth and I know our customers would love to be able to do more things so as to help our government be the most brilliant government on the face of the earth. Operator: Our next question coming from the line of Ken Herbert with RBC Capital Markets. Ken Herbert : Tom and Chris, really nice results. Maybe, Chris the guide for -- the updated guide for '24 implies sort of a step down in top line in the fourth quarter, the sort of that 3% range with what sounds like really nice results again expected out of Health & Civil. How do we think about maybe the moving pieces within the segments in the fourth quarter? If you can give any granularity there. And I guess as part of that, is it fair to sort of look at maybe the top line parameters and the operating or adjusted EBITDA in the fourth quarter is maybe a good indicator of starting point or how '25 could look based upon some of your higher level comments earlier? Chris Cage : And so again, we've had a fantastic year and that fantastic year has positioned us to be even more intentional around some investments that we're making in the fourth quarter to position ourselves for the long-term, both on innovation and technology, but also on our employees and employee engagement. So you'll see some of those things manifest themselves in Q4. Q4 obviously does have a higher level of time off, right, vacation time that we're baking in. And just allowing for the potential risk around any disruptions in funding and those types of things following on from election. We hope we don't see any of those, but there's always that potential. I would look more to our comments for next year as it relates to margins, solidly in the 12%. So a modest step down in Q4 is not indicative of how we see the business running into next year. We see strong performance out of the gates there and so you should expect that. But revenue volumes, there are some puts and takes. There's probably flattish performance from Q3 into Q4 as we look at the disability exam work, timing of some materials that could ebb and flow. But as I mentioned, just cautionary note on what happens with the budget environment and vacation and leave for our employees because it's been well deserved. Operator: And our next question coming from the line of Louie DiPalma with William Blair. Louie DiPalma : You discussed how the PACT Act is stimulating exam volumes. Based on your crystal ball, was the exam volume level in 2Q and 3Q, was that the peak in terms of exam volumes? Or should that continue to trend higher in the fourth quarter and 2025? Tom Bell: Yes. Go ahead, Chris. I'm sorry. Chris Cage : Louie, I mean as I just was saying to Ken, I don't see Q4 showing an uptick over what we've seen for Q2 and Q3 spectacular performance. But broadly, the demand signal is there to sustain that level of performance as we see it going forward. When you look at some of the stats on pending claims and backlog of claims, they remain substantially elevated from where they were a couple of years ago. So in that zone is probably the expectation that we see over the next several quarters and beyond, but not at an elevated level. Tom Bell : Yes, I agree. Operator: And our next question coming from the line of David Strauss with Barclays. Josh Korn : This is Josh Corn on for David. I just wanted to ask, so now that you've done just about the full [500 million] of share repurchases that you had been talking about. I just wanted to ask about repurchases and capital deployment priorities in Q4 and going forward. Tom Bell : Yes, obviously, we will certainly complete the [50 million] outstanding, and we'll be evaluating uses of capital against alternate internal uses at the same time. But as I trailed in my formal comments, we'll continue for this year to be customer-friendly -- or excuse me, investor-friendly. And I think you should look at the increase in our dividend as a down payment on how we view that. Chris Cage : Yes. I mean we're in a great position, Josh, as you realize, with the strong cash position coming out of Q3. We still see value in the stock clearly. And with our best days ahead of us, we'll continue to be comfortable moving into the market when it makes sense. Tom Bell : We have time for just one more. Operator: Our last questioner coming from the line of Matt Akers with Wells Fargo. Matt Akers : I wanted to comment, I guess, health margins help obviously, up a lot this quarter, but the other three margins -- other three segments have had pretty good uptake in profitability kind of over last. So I wonder if you could just talk about sort of what's driving that and kind of how much further there is to push margins higher in terms of those other segments. Chris Cage : We appreciate you recognizing that we're getting this done not just solely through the Health & Civil business, but our other leaders of really taking to hold the opportunities to drive increased profitability. Start with National Security and Digital. We featured repeatable offerings. Steve and that leadership team are really all in on practice areas and just kind of efficiencies that we can capitalize on through these franchise programs that we're already operating on. So we've seen some early returns there and we think there's more opportunities for how we do cloud migrations help us or you name it across our portfolio of contracts. In defense systems, again, just program execution discipline, better bidding discipline. The team has got a lot more rigors on their programs as they advance to -- beyond the initial prototype phases of some of those programs and that's showing up. And as I trailed in my prepared remarks, the EAC performance, the best in four years. So that gets to our program managers across the business, great work by them, great work on the program execution side. And so again, we're not done. I think there's more gas in the tank in the portfolio. Tom Bell : And all I'll add, Matt, is that while all our segments reflect different market realities of the potential profitability, all of our segment leaders are incentivized to be best-in-class profitability. So stand by for more. Stuart Davis : I appreciate the question, Matt. And I just want to thank the operator for your assistance on today's call, and thank everybody that joined us here for your time this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and you may now disconnect.

Operator: Greetings. Welcome to Leidos' Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. At this time, I'll turn the conference over to Stuart Davis from Investor Relations. Stuart, you may begin. Stuart Davis: Thank you, operator, and good morning, everyone. I'd like to welcome you to our second quarter fiscal year 2024 earnings conference call. Joining me today are Tom Bell, our CEO, and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you'll also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to Slide 2 of the presentation, today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, includes risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on Slide 3, during the call, we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I'll turn the call over to Tom Bell, who will begin on Slide 4. Tom Bell: Thank you, Stuart, and good morning, everyone. It's great to be with you all again today to report a record quarter for Leidos. In this quarter, organic growth remained strong, achieving a record adjusted EBITDA margin of 13.5%. Year-to-date, we've delivered industry-leading profitable growth, with adjusted diluted EPS 50% higher than last year. The team is doing an excellent job converting our earnings into cash. In turn, this has allowed us to continue to deploy capital to grow shareholder value per our plan. We're now halfway through our commitment to repurchase $500 million worth of shares this year. I'm also proud of the fact that this robust first half of 2024 allows us to once again raise guidance for the full year. Chris will give you a complete update on our financials and our guidance later in the call. One year ago, on my first call with you all, I laid out four focus areas to begin Leidos' journey to best-in-class performance. Instilling in Leidos a "Promises Made, Promises Kept" culture, sharpening our strategy, improving the performance of previous acquisitions, and enhancing our ability to win new business. I'd like to take this opportunity to update you on the meaningful progress we're making in these areas. I see this progress as foundational to putting ourselves in a great position to execute our forthcoming Leidos North Star strategy. First, our team has fully embraced a "Promises Made, Promises Kept" philosophy. As part of this, we've made a firm commitment to each other to drive operational improvement, profitable growth and robust cash conversion. The evidence of this culture taking hold is clearly visible in the 12-month trend of our results, and our second quarter results, summarized earlier, that are simply our best yet. Our currently strong and strengthening balance sheet puts us in an excellent position to continue to allocate capital prudently over time to grow shareholder value. Further share repurchases this year are possible, but at the same time, I must say that our new North Star strategy work is beginning to bring into focus exciting and compelling growth opportunities potentially worthy of investment. This brings me to that second focus area, creating our new North Star strategy. While we continue to deliver robust in-year program execution, we are also aggressively prosecuting our year of deep strategic thinking. And the energy and insights that are beginning to come into focus because of our purposeful strategy process are very intriguing. We've now completed work on the Leidos proprietary hypothesis of the future, our own exclusive prediction of the challenges our customers will face, the solutions those challenges will require, and the technologies we must create and harnessed to best differentiate our solutions for our customers. Informed by our hypothesis of the future, we're now halfway through crafting a new business strategy for Leidos. This strategy will both leverage and enhance our current core businesses and uniquely position us for outstanding success in the future we foresee. One clear component of our strategy will remain our focus on technical differentiators, our golden bolts. Technological innovation is and will remain a cornerstone of Leidos. And our enterprise-wide technology investments are now more than 1% of total revenue and growing. At our recent Investor Technology Day, we went in-depth on one of those golden bolts, Trusted Mission AI. Those of you who were able to join us witnessed firsthand our brilliant team in action, demonstrating how we use Trusted Mission AI to drive productive disruption across our customers' missions. We believe that when it comes to AI, the mission is the market. So, everything we do as the number one provider of IT to the federal government and the number eight US defense contractor is an opportunity to exploit and deploy Trusted Mission AI for our customers' mission benefit. Another area of proactive investment for us remains cybersecurity. For instance, we've been investing in Zero Trust for years before there was a requirement for it to be adopted by federal agencies. As a result, over the last three years, we've received more than $5 billion of awards that cite our Zero Trust methodology as a differentiated strength. We're currently pioneering the application of quantum technologies to enable highly secure networks. We're executing contract R&D for DARPA in this area and investing in post-quantum encryption technologies and solutions. These will ensure our customers can rapidly respond to future developments in quantum computing. These examples give you some understanding of our forward-looking approach to the market and our track record of investing ahead of demand. Third, we're on track to unlock the strategic value from the large acquisitions we made in 2020 and 2021, specifically Dynetics in security, detection and automation. On Dynetics, we have doubled down on three specific areas, each of these now on a robust positive trajectory. In satellite payloads, we're a key supplier to the Space Development Agency's wide-field-of-view sensor program within its proliferated warfighting space architecture. We have delivered all our payloads for Tranche 0, and those payloads were the first ones in low-earth orbit providing SDA actual on-orbit imagery. In addition, we remain on track to deliver our Tranche 1 payloads in early 2025. And we are teamed with Sierra Space to be their payload provider on their Tranche 2 birds. The Space Development Agency has recently issued their RFI for Tranche 3. So in sum, we believe our current comprehensive role on all three existing tranches and our current actual mission performance in space position us well to continue to deliver for this critical and expanding mission. On force protection, we've delivered 14 IFPC Enduring Shield prototypes, which are successfully working their way through government testing. The Army recognizes this system's unrivaled air defense capability, and we expect to receive awards soon to begin low-rate production in 2025 and full-rate production in 2026. And in hypersonics, the United States continues to progress in developing and fielding hypersonic weapons. Leidos is supporting this progress by developing -- excuse me, delivering technology advances through our Common-Hypersonic Glide Body and MACH-TB programs. These programs play a critical role in accelerating the pace and scale at which we can produce, test, assess, advance and field our nation's hypersonic capabilities. We remain on track for our Common-Hypersonic Glide Body and thermal protection systems delivery. And all in all, we feel quite positive about this robust pipeline of opportunities in hypersonics. So, 2024 maintains its promise to be the good year for the maturation of these programs. And we're also seeing our focus here translate into better financial performance. Our Defense Systems profitability was double-digits in the quarter, our first time at that level of performance from as far back as we recast financials in the new organizational structure. Turning to security products, the SD&A acquisition is now fully integrated into our SES business area. Though challenges remain, SES is on sound footing because of the swift actions of our new management team that they took last year. We have focused our efforts and investments in product lines and geographies that make the most sense for Leidos and therefore, our shareholders. Our new Charleston manufacturing facility is up and operational, and we're performing better against our service-level agreements with our customers. We've had solid bookings this year and more consistent deliveries of large border solutions. As a result, SES is ahead of plan for revenue and earnings for the quarter and the year. SES revenues are up 11% year-to-date and we've achieved almost 90% of last year's non-GAAP profit in the first two quarters of 2024 alone. A common theme of this improved acquisition performance is the new organizational structure, which brings better alignment of sector resources and new leadership with an increased emphasis on execution and Promises Made, Promises Kept. Fourth, we continue to make significant progress to enhance our business capture performance and backlog quality. We've achieved net bookings of $4 billion this quarter with a heavy emphasis on cyber and dig-mod awards for a book-to-bill ratio of 1.0. We also have nearly $3 billion of awards currently under protest. We ended the quarter with total backlog of $36.5 billion, including $8 billion of funded backlog. While this quarter's performance adequately supports our 2024 growth commitments, we are not at all satisfied, and our growth teams have been working diligently to reignite our winning ways here at Leidos and do much better on top-line growth soon. An element of this is strengthening our customer-centric framework of account management. 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. Each of our account managers have a frontline obsession and seamlessly integrate across both our P&Ls and our office of technology to ensure we couple best-in-class teams with best-in-class technical solutions. Two examples which illustrate this point are our recent hires for INDOPACOM and AUKUS. Because of their respective hard work in very short order, we've won strategic awards to support military exercises that are fundamental to the US Pacific deterrent strategy. Maritime autonomy and undersea sensors work in Australia and hypersonics work in the UK that fit within AUKUS Pillar 2, and US Navy submarine trainer development efforts that fit within AUKUS Pillar 1. We've taken the further step of dedicating some 100 of our top engineers and solution architects to our frontline growth efforts. 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. At quarter's end, we had $26 billion worth of bids awaiting adjudication. And more importantly, quality is improving dramatically. Our pursuits are more aligned with our strategic direction, our proposals demonstrate greater customer understanding, and we are doing better at pulling through enterprise-wide technical expertise into each customer solution. So in summary, I'm very pleased with our financial results this quarter and the momentum that we're carrying into the back of the year. We're making great progress on our current four focus areas. This puts us in an excellent position to execute our emerging Leidos North Star strategy. I'm very proud of the 48,000 Leidos teammates who collectively every day ensure Leidos is making smart smarter for the benefit of our customers. And I'm honored that every day more and more of the best of the best wicked smart people in the nation join Leidos to break limits. I'll now turn the call over to Chris to walk you through our financial results in detail. He'll also provide insight into our upgraded outlook for the year and then we'll be pleased to take your questions. Chris? Chris Cage: Thanks, Tom, and thanks to everyone for joining us today. Our second quarter results demonstrate yet again the power of our focus on profitable growth and cash generation. With clear intent, our team is driving current financial performance while also building for a more prosperous future. Turning to the income statement on Slide 5. Revenues for the second quarter were $4.13 billion, up 7.7% year-over-year. Robust revenue growth reflects the benefits of both the strong demand environment and historically low levels of attrition. The highlight for the quarter was margin performance. Adjusted EBITDA was $559 million for the quarter, up 33% year-over-year, and adjusted EBITDA margin increased 260 basis points to 13.5%. We achieved this record margin through business mix and indirect cost management. Program-level execution was generally very strong, but EAC adjustments were a net $12 million headwind. Non-GAAP net income was $360 million and non-GAAP diluted EPS was $2.63, up 43% and 46%, respectively. Below-the-line items had no material impact on net income or EPS. Turning to the segment view on Slide 6. National Security and Digital revenues increased 1% year-over-year. We saw volume growth on our Sentinel and DES programs, as well as several contracted research and development efforts. You may also recall that last year we had spikes in some of our large digital modernization programs, notably NGEN and AEGIS, which created a tough year-over-year comparison. National Security and Digital is also the segment most impacted by protests. Still, accelerating growth in National Security and Digital is a major focus of the ongoing strategy discussion. National Security and Digital non-GAAP operating income margin increased 20 basis points from the prior-year quarter to 10.4%, with some milestone achievements, strong cost control and excellent program execution. For the first half of the year, National Security and Digital has been solidly ahead of plan on profitability. Health & Civil revenues increased 22% over the prior-year quarter, and non-GAAP operating income margin came in at 24.9%, up from 14% a year ago. The primary driver of revenue growth and increased profitability was higher volumes across our managed health services portfolio and an extra quarter of catch-up on incentive fee awards on our VBA disability exam contracts. Commercial & International revenues increased 3%, paced by an uptick in deliveries on security products, higher volumes in our commercial energy business and a hardware refresh in our Australian IT business. These drivers offset $39 million of write-downs in our UK business, primarily on two fixed-price mission software development programs caused by changing requirements and scheduled slippages. The UK write-down suppressed non-GAAP operating income margin to 0.7% in the quarter. Absent these write-downs, Commercial & International would have posted 9.7% year-over-year revenue growth and non-GAAP operating income margins of 8%. Although these write-downs are disappointing, they underscore the rationale for the new organizational structure. The C&I team is bringing greater focus on programmatic execution within the international portfolio and they quickly took action to ensure the long-term success of our UK operations. We're confident that we'll get back on track towards our financial and operational objectives within the UK. And on balance, we remain encouraged by the strong performance and demand signals across our Commercial & International segment. Finally, in Defense Systems, revenues increased 6% over the prior-year quarter on a total basis and 7% organically. And non-GAAP operating income margins increased 170 basis points year-over-year to 10.3%. Tom touched on the improvements the segment is making on program execution, and it is good to see the kind of financial performance that we expected from this portfolio. As we transition from development to production on some key programs, we see Defense Systems as a growth and margin driver for Leidos. We're making great strides towards unlocking the full potential of this business and are optimistic 2024 marks a significant turning point towards a brighter future. Turning now to cash flow and the balance sheet on Slide 7. We generated $374 million of cash flows from operating activities and $351 million of free cash flow. We had our highest collection week ever, which led to the exceptional Q2 performance. Overall, we're seeing a strong focus on cash throughout the organization. DSOs for the quarter was 58 days, an improvement of one day from a year ago and four days sequentially. In Q2, we repurchased a total of $114 million in shares, including $100 million on the open market, and paid $51 million in dividends. We ended the quarter with $823 million in cash and cash equivalents and $4.7 billion of debt. Our gross leverage ratio now sits at 2.4 times, which gives us plenty of financial flexibility. Next, I'll go through our enhanced outlook for 2024 on Slide 8. We're raising the lower end of our revenue guidance by $100 million, which gives a new range of $16.1 billion to $16.4 billion. We're increasing adjusted EBITDA guidance to approximately 12%. And we're raising our non-GAAP diluted EPS by $0.20 to a new range of $8.60 to $9. Our guidance for operating cash flow remains at approximately $1.3 billion for the year. This enhanced outlook reflects our strong first half performance as well as broad-based momentum across the entire portfolio, but let me walk you through some of the drivers of the second half performance for your modeling. Clearly, we're seeing strong momentum in our managed health services business. Last call, we signaled some potential second half revenue and margin headwind in our VBA disability exam business based on an upcoming recompete, which remains ahead of us. In addition, the unprecedented caseload of disability claims spurred by the PACT Act is straining the VA's budget resources. Earlier this month, the VA urged Congress to approve $15 billion to fund budget gaps in government fiscal years '24 and 2025 for risk cuts to veterans' benefits and care. The VBA customer has implemented several measures to proactively manage through these budget challenges, including dialing back its internal staffing, which suppresses industry case volume. We're already seeing the impact of this change with reductions in our near-term case backlog. Given that veterans benefits work is funded through mandatory, not discretionary budgets, and caring for veterans has broad bipartisan support, we expect underlying caseload to rebound in our fourth quarter. Notwithstanding this temporary funding issue, we stand ready to continue to deliver exceptional service to the nation's service members as a trusted mission partner to the VA. We expect Commercial & International margins to snap back in the second half, and for National Security and Digital margins to moderate somewhat, consistent with our commentary on the last two calls. And lastly, in the back half of the year, we've stood up a robust innovation fund focused on growth. Our bottom-line performance puts us in a favorable position to accelerate investments across the business, as seed corn for our emerging strategy to continue to drive sustainable profitable growth. With that, operator, we're ready to take some questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And our first question coming from the line of Mariana Perez Mora from Bank of America. Your line is open. Mariana Perez Mora: Good morning, everyone. Tom Bell: Good morning. Mariana Perez Mora: So, my first question is on managed healthcare and the margins there and incremental margins there are really, really strong. How should we think about -- what is the moat that you guys have as you go ahead to this, like, competition and recompete coming? Because I could imagine like the installed base you have that actually allows for these incremental margins actually pose a really strong moat, but what else from a technical perspective you think that you have in your advantage to keep a good share of, like, this really growing market? Tom Bell: Thanks, Mariana. Really appreciate your question, and obviously, a part of the portfolio we're very, very proud of. The performance we're achieving in this part of the business is directly related to our passion to serve the nation and its veterans and our investment in technologies ahead of curve, so that we were poised to take additional volume as we came out of COVID and had an opportunity to serve more and more veterans. We're very proud of this and we're very proud of those investments that allow us to serve more veterans. And our modeling for what the output and input of veterans that need case management increases and stays the same over the coming years. So, we're very bullish on the absolute volume. What we're doing to affect our future in that overall volume is ensuring that VA sees us as their partners. So, we've leaned in to help make sure that they understand we are invested in their success and their budgetary challenges that they have right now. And that positions us well for this recompete that's coming in the third or fourth quarter, probably more like the fourth quarter. We expect the customer to expect us to continue to serve the veterans the way we are and we're very bullish about the opportunity for us to continue to invest in technologies that serve our customers even better. So, the challenge that we've given Liz and her team is not how to hold on to this business, but how to increase this business over time. So, as part of our year of deep strategic thinking, we're not seeing 2024 as the peak of this business. We're seeing it as a plateau of this business from which we continue to springboard. That's the challenge we've given Liz, and her and her team are responding very favorable to that. Chris, do you want to add anything? Chris Cage: Yeah, Mariana, I would -- Tom touched on the technology aspects, and clearly, that's been a major focus that we've added to the equation under Liz and Larry Schaefer's leadership over the past several years. But beyond that, we've been a longstanding partner here. We've won this recompete multiple times over. There's investments that we've made in physical locations, mobile locations, provider networks, critical staff, all of those things come to bear. And then, of course, the customer is going to evaluate what has your performance been. And, clearly, we can demonstrate a track record of strong performance with great customer satisfaction, great accuracy, throughput, all of the key metrics the VA is looking for. So, we're sharpening our pencils to make sure that we're putting ourselves in the best position possible to defend this critical work for ourselves, but obviously, it's an area we feel very encouraged about our position on. Mariana Perez Mora: Thank you. And if I may, my next question is about the -- as you focus on the account managers and capture these teams, what are the challenges you have on hiring and training the talent, both internal and people that you hire? Tom Bell: There's really a war for talent of these type of people, but we are bound and determined, as I've mentioned on previous calls, to make sure Leidos is the destination of choice for the best and brightest talent that's out there in the ecosystem. And so, what we've started to see, I mentioned, we've hired dozens of these account managers and we've allocated hundreds of people to be our solution architects for our new solutions. We have an environment in Leidos that is compelling. We are an employer of choice. And the more we win, the more people will want to be on the winning team. So, it's not so much a question of challenges. It's a question of helping them understand the opportunity that's in front of them for joining Leidos and the investment we're going to make in them to make a difference. People that are in this line of business are in this line of business because they want to serve their customers. And the most disenfranchising thing you can do for a customer -- for a person who is passionate about serving customers is not fully support them. So, Leidos is creating an investment strategy and we're investing in the people, processes and tools that allow them to affect their customers positively and bring solutions to them differentially. And that is the most compelling thing about coming to work for Leidos that we're hearing from others and attracting great talent as a result. Chris Cage: The only thing I'd add, Mariana, to that is, of course, a very good question, and Tom is right, I mean screening the right people to have the passion to want to serve the right customers' missions is critical. The area that we need to help them the most as they get into Leidos, there's clearly a tremendous amount of capability that we have that can be brought to bear to support those customers in multiple ways. Helping them understand the breadth of our offerings is an area that we are continuing to invest in and that's the reason why partnering them up with so many solutions, architects and other people that have been down that road is critical, but there's technology that's behind that as well. So, Gerry Fasano leads our growth office. He's very focused on that rollout plan and we're excited about that taking a lot of momentum here in the second half of the year. Mariana Perez Mora: Thank you very much for the color. Operator: Thank you. And our next question coming from the line of Matt Akers with Wells Fargo. Your line is open. Matt Akers: Yeah. Hey, guys, good morning. Thanks for taking the question. Tom Bell: Sure, Matt. Matt Akers: Tom, I wanted to follow up. You talked about kind of some of the portfolio pruning initiatives you're kind of looking at. Kind of could you give us an update on where we stand there and kind of what inning we are at that whole process? Tom Bell: Yeah, sure. Thanks, Matt. As I said in my prepared remarks, we're done with the Leidos proprietary hypothesis of the future. This is our own exclusive proprietary view of what the world looks like in 2033 and therefore, what are the challenges our customers are facing in 2028 in order to affect that future. We're halfway through building our business strategy as a result and affected by that view of 2028. So, it's very much a today forward view and a future back view meeting in 2028. As we are starting that, Chris trailed in his comments that we've put a small investment fund out there, because ideas are starting to emerge from this year of deep strategic thinking that we know are winners. These are areas that we are going to be investing in, in the future. And although we're not going to articulate it, we're putting seed corn out there now in those areas, so that we're not waiting for the whole process to be done to do the obvious compelling things we want to do to affect our future here. 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. And so, we're going to be doubling down on our core strengths. We're going to be really focused on repeatable business models. We're going to really focus on speed. We know that our customers are very concerned with speed, but they're concerned also that the people they hitch their wagons to have to have the scale to solve complex problems differentially. So, speed and scale. Trusted Mission AI, there's a reason we had a whole day focused on Trusted Mission AI, because we think it is a compelling technological unlock for the futures our customers are facing across all the markets that we serve. And we're going to continue to look for those areas of white space that are adjacent to the current businesses we're in for investment. Now, obviously, Matt, in the spirit of your question, there's also going to be parts of the portfolio we are not going to differentially invest. I've mentioned this in calls last year. I do not believe in spreading peanut butter around and watching every flower bloom. I think all about differential investment for differentiated results, but there is also not any part of the business yet that is raising its head in the strategy process is saying it's obvious this does not belong in Leidos. So, don't think of this as portfolio pruning. Think of this as simply investing to maintain, investing to grow and investing to grow exponentially. That's the way we're thinking about our strategy process. All that will be discussed at full in our March Investors Day that we look forward to welcoming you to. Matt Akers: Great. That's helpful color. Thank you. And I guess if I could do one more, just latest thoughts on upcoming recompetes and anything big that we should be watching for this year? Chris Cage: Yeah, Matt, obviously, we talked a little bit, of course, about the VBA exam business and that's top of mind as we navigate to the end of Q3 into Q4. Beyond that, I mean, there's not as many needle movers. There is an exciting opportunity in the hypersonics arena where Common-Hypersonic Glide Body and TPS contracts converge and we look forward to extending our work there with an important customer. There is an integrated logistics support contract with the TSA that -- whether it's late this year or first quarter next year and obviously, you can imagine that's a partnership between our C&I business and work we do elsewhere that specializes in the logistics side. And then, looking ahead to next year, I think the other big one I'd point out is the DHMSM contract. The follow-on to that obviously is an important piece of work for us. The team is already in the proposal bids, making sure that we're putting our best foot forward, but that is sometime in the middle of 2025 -- early-to-mid '25. Tom Bell: Hey, just to pile on a bit, Matt, sorry to have a reclama here, color for our pipeline, we've got $15 billion in submits in the second quarter. We've got $26 billion-plus awaiting customer decisions. In the next 12 months, we have a pipeline of almost $70 billion, and our whole qualified pipeline approaches $200 billion. So, we're very excited about the opportunities to grow, and that's why we are very much focused on priming the pump of our business capture teams with talent who can differentially go out there and get this business. Matt Akers: Great. Thank you very much. Chris Cage: Thanks, Matt. Operator: Thank you. And our next question coming from the line of David Strauss with Barclays. Your line is open. David Strauss: Thanks. Good morning, everyone. Chris Cage: Good morning. Tom Bell: Hey, David. David Strauss: A question, Tom, on National Security and Digital. I think you guys hit on the slow growth there in the first half, but it sounds like you're talking about an acceleration in the second half, but at the same time it sounds like you're signaling lower margins in the second half. So, could you just dig in exactly kind of what's going on there in the second half versus the first half? Thanks. Tom Bell: Yeah, our National Security and Digital segment is arguably the core of the core of Leidos. And it is an area that we've put two of our most talented leaders, Roy Stevens and Steve Hull. 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. Obviously, this is a business where we've won in the past. We know we can win in the future. The margins in this type of business are never going to be over the top. They're going to be in the low double-digits. But what we have in this segment, in my mind, David, is a revenue growth story. There is much more we can do to help our customers in these areas and our customers -- this comes back to the speed and scale conversation I had before, our customers are increasingly aware of the fact that the scale of the problems that they have requires people who have speed and scale to solve them. So, Roy and Steve are partnered with the whole enterprise with Jim Carlini in Technology and Gerry Fasano in Growth to make sure that we're leaning into serving our nation in this area and not looking to back off in any way. So, if we gave you an indication of softening here, that's probably not the guidance we'd want to give. Chris Cage: Yeah, David, I'd just add on to that. I mean, I think part of that is because we had an excellent first half of the year on margins. And there are some things that can move around, around milestone timing and things of that nature and how much special project work we see on programs like NGEN, but there's no fundamental issues here. And, in fact, we're actually very encouraged, to Tom's point, this will never be our highest-margin business, but we do see upside here over time and the teams are investing in more repeatable models in the dig-mod space and those will be some unlocks to future margin upside that we're expecting. But I don't want to overlook some important wins that did take place in the quarter. Getting the next Defense Enclave Services task order under contract is critical for us. That is a key unlock for Steve and his team to drive growth into that important program. So that clears the way for 13 additional DoD Fourth Estate agencies to migrate on to the network over time. So, we've been waiting for that and we're excited about what comes behind that as we get into '25 and beyond. David Strauss: Great. Thanks for that color. Chris, quick follow-up. You noted a pretty good working capital performance in the first half of the year relative to the prior year. How are you thinking about working capital through the rest of the year? Chris Cage: Yeah. So, I'm very pleased with the team's performance on cash management. I think we've done an excellent job. And last year, we made some really strong gains on managing the payable side and more industry standard terms with our vendors, and we've made some more progress in that regard this year. We've been attacking the DSO side. I would say, it's steady as she goes. I don't see anything at this point in time that would be a major use of working capital. We're always interested in great ideas that could be accretive to the business. But right now, we're focused on Q3 and Q4 are usually our strongest performance quarters and I expect this year to follow suit. David Strauss: Thanks very much. Operator: Thank you. And our next question coming from the line of Cai von Rumohr with TD Cowen. Your line is open. Cai von Rumohr: Thanks so much. And Tom, terrific results. Tom Bell: Thank you, Cai. Cai von Rumohr: So, you guys have mentioned that you expect Health -- the medical exam business is not at a peak, it's at a plateau, but given [indiscernible] at least early on next year, we'll be under the new contract. Should we assume that the margins are going to be lower? Because I assume it takes time until you get to the point where you kind of are doing well in terms of the incentives and all of that. So, is it likely that profits in Health will be down next year? Tom Bell: I hate to answer your question this way, but we don't know is the real answer, because we're awaiting the RFP that tells us what the customer actually wants to do. We know that the contract comes to an end at the end of this quarter. We are awaiting the RFP for the future. 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. And we don't know how the VBA is going to incentivize industry to bring its best and its most throughput to our veterans. So, we have no reason to model, in our own minds, a decrease in profitability, but there is a big unknown while we await the RFP. Chris Cage: Yeah, Cai, I'd only add, I mean, what we do know is that the VBA has asked Congress for more money, right? And that's a strong signal that they see the demand out there, more veterans need care, need throughput, and that's always been the priority. Now, we're in, call it, a temporary situation where they have to navigate this funding gap. Tom is right, I mean, a lot of things will become clearer for us as we get through the next quarter or two, but you can imagine that our early conversations with Health team about '25 is how do we grow off of '24 levels. And that's the way we're approaching it. And so, everybody's clear-eyed around looking at every opportunity to make sure we optimize our performance levels there and elsewhere to continue to grow earnings. Cai von Rumohr: Perfect. One quick one on your new business. You had $15 billion of submits, you have $26 billion awaiting. What should we think about in terms of your book-to-bill? You also have $3 billion in protest. I think there's a big classified award in there. Should we see book-to-bill pick up in the second half? And are you guys chasing some of the large takeaways you've been so successful in? Tom Bell: The team remains committed to a book-to-bill ratio slightly better than 1 for the year of 2024 and they are determined to meet or exceed that. There are some big swingers in there and it's possible that if many of these break our way, we'll far exceed the book-to-bill ratio that they have. But Cai, again, in my earliest call I talked about the fool's mission that chasing quarterly book-to-bills was in my mind, and the fact that what we should be focused on is building a quality backlog over time of profitable business. And that's really what I'm more incentivized and really focused on with the business capture team; how do we look at that trailing 12 months of book-to-bill and how is that looking at our future growth potential with the backlog that we've got on the books? The team is very focused on that. As I mentioned in my prepared remarks, we're doing a better job of bidding for the things that will reward Leidos adequately for technology and the capability we bring, and I feel as if many of those that are in our backlog will start to break our way. So, we're very bullish on the future without getting ahead of our skis. Cai von Rumohr: Terrific. Thank you so much. Operator: Thank you. And our next question coming from the line of Peter Arment with Baird. Your line is open. Peter Arment: Yeah, thanks. Good morning, Tom, Chris, Stuart. Tom Bell: Hey, Peter. Peter Arment: Terrific results. Hey, Tom, maybe just the focus on Commercial & International, just you had the write-down in the quarter. Absent the write-down, you would have had pretty good margin performance. Maybe just talk a little bit about, I guess, either the write-down or just confidence level in kind of the back half of the year, where your margins are, I guess, expected to be better? Thanks. Tom Bell: Yeah, sure. Thanks. Well, first of all, this is very much the benefit of having new eyes and a new organization structure that's looking with fresh perspectives on the business. As Chris mentioned, this is primarily two fixed price contracts that we have in the UK that through increased and very robust conversations with the customers, we've decided we have to take a write-down because of changing requirements and schedule slippage. But we feel confident that we've also taken a lap around the block and looked under the rocks to make sure that there's not more. So, Vicki and her team are doing a great job scrubbing the portfolio. She's cut the number of watch programs in her portfolio by half in these first two quarters. And we feel very bullish about the prospects for her business. I mentioned and I featured in our last call last quarter that we want to make Leidos synonymous with AUKUS Pillar 2. And as you heard in this call, we've taken some steps by really allocating and hiring some talent that can really get after making that so. So, Vicki and her team are very focused on bringing the team together around AUKUS. We've got excellent customer touchpoints in the UK and Australia, and obviously, here in the United States, and we're very bullish on the opportunities for Commercial & International. Also, I want to tip a hat to the SES team. They had a very good first half of the year and that is all credit to Mike Van Gelder and to Vicki, who have really gotten their arms around that business and really made sure that we're on a solid platform from which to grow. So, very optimistic about where that business is heading in her portfolio also. Chris Cage: The only thing I'd add there, Peter, is the piece of the business there that Tom didn't mention is our commercial energy business and that has been performing extremely well and tends to have a pattern where the back half of the year is stronger on a margin basis. There are some critical incentive and award fee determinations that happen sometime later in the year. So, a well-run business that we expect to continue to deliver great results, and the other piece of the portfolio we believe are on strong footing for the second half. Peter Arment: Yeah, that's very helpful commentary. And then just Tom, just quickly the DoD continues to make a lot of evolving changes or strategies around Counter-UAS and I know that Leidos through Dynetics has some exposure here. How are you guys thinking about the portfolio when you're thinking about the Counter-UAS business today? Tom Bell: It's a very timely question, Peter. I have a classified briefing later this week to dive deep into all our capabilities for Counter-UAS. Obviously, IFPC and Enduring Shield is the thing we talk most about, about Dynetics. But within our Leidos Innovation Center, the LInC, and our Defense Systems segment, we've got a myriad of other technologies that can affect Counter-UAS capabilities for our customers. So, we're going to take a step back, kind of look at everything that we've got in the pantry when it comes to technology and decide, are there some things we should be investing in this year to help our customers with this very, very vexing problem that they're uncovering now. So, very bullish about our opportunity to serve. The question is, do we have something in the pantry that will be compelling for the customer. Peter Arment: Appreciate the color. Thanks, Tom. Tom Bell: You bet. Operator: Thank you. Our next question coming from the line of Jason Gursky with Citi. Your line is open. Jeremy Jason: Hi. Jeremy Jason from Jason Gursky's team. Tom Bell: Hey, Jeremy. Jeremy Jason: Hello? Sorry. Tom Bell: Go ahead, please. Go ahead. Jeremy Jason: I kind of have a math question. Could you walk us through the pipeline for each of the segments for '25 and '26? And kind of give us an update on production capacity and how that might impact growth outlook? Thanks. Chris Cage: Well, Jeremy, Tom gave you some high-level metrics. We're probably not going to be able to dissect the pipeline by segment by year for you, but rest assured that we feel it is robust and each of the segments has opportunities north of $1 billion all the way down to some strategic small opportunities in the tens of millions of dollars. So, we like our positioning there. The big ticket numbers again, $26 billion pending, 200 overall pipeline, approximately $70 billion we expect to be decided in '25, two-thirds of that being new work and takeaway, great position on our BD side and the growth teams are highly energized. As it relates to production capacity, the good news is the Dynetics team had built up some capabilities down in Huntsville. We feel like we've augmented that in areas like the wide-field-of-view satellite payload needs. We've got a facility that we've been waiting to fill up from a capacity standpoint on the IFPC side, the Enduring Shield. So, we're excited about the ability to take full advantage of what we've got in place there. And then, we spoke previously on the SES side about our new Charleston facility that we toured just in the last few months. It's a great facility that the team has built out and in fact there's plenty of room to expand capability even in the footprint that we built out. So, I don't see a big need on major investments in those areas. It's always something that we look at and we're happy to entertain great ideas if there's a compelling expansion to the pipeline, but we're in good shape to be able to expand up to the needs that we foresee over the next 18 months or so. Tom Bell: And just to pile on a little bit on that, Jeremy, the $26 billion of pending awards we have, I mean, that is not only several home runs that we've got on deck, but 40, 50 big awards of $50 billion -- $50 million or more. So, we've got lots of proposals in work. And so, the batting average should be relatively positive on that. We've used the example internally of -- we've had a business capture problem and so to break that inertia, we have inputted energy, energy with new talent, energy with new processes and tools. And now we're very excited about the momentum that's going to build over the next 12 months to 15 months. You'll appreciate that in our customers' environment decisions take time and ultimately they're almost all protested. And so, it takes a little while before the flash of energy to break inertia becomes the bang of the momentum of actual wins, but we're highly confident that we're in a good place and Gerry is the right leader to bring us forward. Jeremy Jason: Thank you so much. Tom Bell: Thank you. Operator: Thank you. And our next question coming from the line of Ken Herbert with RBC. Your line is open. Ken Herbert: Yeah, hi, good morning. Tom and Chris, really nice quarter. Tom Bell: Hey, Ken. Chris Cage: Thanks, Ken. Ken Herbert: Hey. I just wanted to first start off, you obviously raised the guidance with the exception of the cash from operations. Is there anything in particular when you think about the cash flow outlook in the second half of the year we should keep in mind or maybe driving a little bit more conservatism there? Chris Cage: Yeah. Hey, Ken. Chris here. Obviously, we stepped up our cash guide last quarter by $200 million, a pretty significant increase. We're clearly focused on converting these extra earnings that you're going to see here into cash and there's always the chance that some of that comes in January versus December. So, at this point in time, with two quarters to go and two-thirds of our cash commitment for the year ahead of us, we just didn't feel it was prudent to increase the guidance at this time. But there's no headwinds that we're foreseeing, we're just kind of managing it down the middle. Tom Bell: And just to build on that, right, at the beginning of the year, we talked about the uncertainty in the market heading into an election year. Obviously, we're still dealing with some uncertainty. We're still dealing with customers that have budget challenges and issues around their performance of their business. And so, while we're extremely pleased with the first half of the year that allows us to raise our guidance again, we're not going to get ahead of our skis or over promise. We're going to keep our powder dry to make sure that the third and fourth quarter deliver the way we expect them to. Ken Herbert: That's great. Thanks, Tom. And if I could, it sounded like from your prepared remarks that there could be upside as well to the expected buyback this year, the $500 million. I guess maybe part of that's timing, but can you just reset in terms of what you might want to see to deploy more capital there? And maybe any change in how you think about the framework around returning capital to shareholders considering some of the investments you're talking about here today? But great, great cash in the quarter, really nice. Tom Bell: Yeah, sure. And great cash in the quarter is the reason that I only trailed it and didn't commit to more. We had great -- you know how the flow of the business comes. It's a little bit like a sine wave when it comes to cash coming in. And typically, the third quarter is a relatively robust cash quarter for our business. We had a very robust second quarter. So, I recommitted. We're committed to repurchasing $500 million worth of shares this year. We're halfway through that now. We'll continue that program. If the cash comes in per historical norms in the third quarter that may give us a chance to revisit it. But more on that as the third quarter unfolds and we look toward the fourth quarter. The one thing I will say Ken, just because to state the obvious, but not to assume it is stated, fear not, we're going to be -- continue to be prudent allocators of cash in a shareholder-friendly manner. And so, don't worry about this burning a hole in my pocket as my grandmother used to say. Ken Herbert: Perfect. Thank you. Tom Bell: Thanks, Ken. Operator: Thank you. And our next question coming from the line of Noah Poponak with Goldman Sachs. Your line is open. Noah Poponak: Hey, good morning, everyone. Tom Bell: Hi, Noah. Noah Poponak: So, I guess the EBITDA margin has to be a lot lower in the second half than the first half to be at the 12% for the year, and the second half EPS as a percentage of the total would need to be a lot lower than it's been historically to be in the earnings range for the year. Obviously, the Health & Civil margin pretty strong in the second quarter, but you're also absorbing this C&I margin. So, can you maybe, Chris, just walk me through that? I mean, what -- which segment's revenue growth or margins really moderate a lot? How are you thinking about that Health margin through the back half of the year? Chris Cage: Sure. No, thanks, Noah. And we get it, right, excellent first half of the year, excellent full year guidance, but the second half relative to the first half looks a little bit more modest. But stepping back, the guidance implies, let's call it, roughly 11% margins in the second half of the year. And just six months ago, we opened the year with an expectation of 10.5% to high 10%s on margin. So, we're pleased to be able to look ahead and say, even in a scenario where the disability examination work levels perhaps come down, we still see line of sight to, let's say, 11% margins kind of being delivered by the business. And that's really the primary reason, right? As we look at as the VA is kind of navigating the next few months, we're expecting those throughput to be lower, and then we've allowed ourselves some cautiousness as we look into the fourth quarter around how quickly that will snap back. So, there are certainly scenarios where that could do much better, but that's the primary backdrop. As we look at the rest of the portfolio, obviously, we did signal that National Security and Digital has had a very strong first half on margins. There's always the potential those are able to sustain at those levels, but again, looking at some of the milestones, we pulled back a bit on that for the second half guidance. And then, the last piece, Noah, that I'd point to is the investments. Taking advantage of this opportunity to make sure we're funding an innovation fund that we can dial up or dial back depending upon the progress that's being made and really make sure that we've got a jump start on 2025. So, the fundamentals of the business across the board are in great shape. We feel good about that. In fact, there are some areas still on the optimization side that we still have ahead of us to get after on indirect cost management. So, I feel like we're really well positioned as we look ahead at '25. Tom Bell: Noah, I'll just foot stomp something Chris said in his prepared remarks, and that is our 2Q profitability was aided by having two quarters worth of incentives in – hit in the second quarter. So, the profitability of that business was enhanced because of that. The underlying business remains as solid as it ever has been. Noah Poponak: Okay. And Chris, the VBA, I guess, it sounded like you guys are saying you don't have an RFP yet. It sounds like recompetes imminently without an RFP yet. Chris Cage: Yeah. Noah Poponak: It's maybe unlikely, I don't know. Is that sliding out? Does that make an extension more likely? Chris Cage: That's how we see it. It's been fluid. We've been rehearsing and preparing and can adapt to any scenario, but it's becoming more and more likely that there is an extension of some kind versus recompete, but we can't commit to that. We're just prepared for whatever the VA is able to do in a short order here. Noah Poponak: But you still expect them to slow down the activity while that's being sorted out? Chris Cage: At least until -- they've got a new government fiscal year and that'll help them get into a new budget environment. Now, they -- again, they could be aided by Congress in the near term, but our baseline assumption at this point in time is activity levels are more muted over the next few months. Noah Poponak: Okay. Thank you. Chris Cage: Thank you. Tom Bell: Olivia, it looks like we've gone beyond the hour. So, I think we'll call the Q&A at this point. So, I want to thank you for your assistance on the call and thank everybody on the call today for your interest in Leidos and we look forward to catching up with you in the future. Operator: Ladies and gentlemen, that does [conclude] (ph) our conference for today. Thank you for your participation. You may now disconnect.

Operator: Greetings, and welcome to Leidos First Quarter 2024 Earnings Conference Call. At this time, all participants are in a lister-only mode. A brief question-and-answer session will follow the formal presentation. Please note this conference is being recorded. At this time, I'll turn the conference over to Stuart Davis from Investor Relations. Stuart, you may begin. Stuart Davis: Thank you, operator, and good morning, everyone. I'd like to welcome you to our First Quarter Fiscal Year 2024 Earnings Conference Call. Joining me today are Tom Bell, our CEO; and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you'll also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to Slide 2 of the presentation. Today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, includes risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on Slide 3, during the call we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I'll turn the call over to Tom Bell, who will begin on Slide 4. Thomas Bell: Thank you, Stuart, and good morning, everyone. It's very good to be with you again today. And I'm thrilled to report a very robust start for Leidos in 2024, a substantial raise to our full year guidance and some additional details around the purposeful steps we're taking to position Leidos for an awesome future. The Leidos team got out of the starting blocks impressively this year, addressing our customers' most vexing challenges with passion and pace, and as a result, delivering an excellent quarter of top and bottom line results. First quarter revenue grew 7.5% year-over-year, all organically. First quarter adjusted EBITDA margin was 12.3%, a record for Leidos. And year-over-year non-GAAP EPS grew 56%. These results demonstrate that our new capability-based organization is unlocking significant value across the company. With good cash generation, as promised, we began our 2024 stock buyback program by repurchasing $150 million worth of shares on the open market during the quarter. You'll remember that during our last earnings call, I framed our initial 2024 guidance against the backdrop of a very good year for Leidos in 2023 and a very uncertain 2024 customer budget environment. Happily, since then, the House and Senate have passed appropriations for all the federal government. And now with funding in place, our customers have the resources and direction they need to confidently execute their missions. With that certainty in our customers' budget, the quick success of our organizational realignment and our team's strong start to the year, we have increased confidence in our near-term growth prospects. As such, we are significantly increasing our 2024 guidance and now expect to far exceed our previous multi-year financial commitments. Chris will detail our new 2024 guidance later in the call. As I round out my first year at the helm of Leidos, I remain impressed with the capability of our people to deliver for our customers and shareholders. Over the last 4 quarters, revenue has grown 8% and non-GAAP EPS has grown 25%. We've delivered adjusted EBITDA margins of 11.5% and free cash flow conversion of 109%. And we've maintained rigorous investments in IRAD and business development. I'm very pleased that we've been able to refine the conversation about what's possible here at Leidos, especially around profitability. Leidos is indeed a healthy business. So for the remainder of my prepared remarks, I'd like to share some additional details about the purposeful steps we are taking to position Leidos for an awesome future. We are achieving and propelling superior profitable growth by focusing on 3 key elements: first, continuing to unlock full value and flawless execution in our new capabilities-focused organization; second, increasing investment in distinct organic disruptive technologies; and third, developing a robust value-creating, merit-based Leidos' profit and growth strategy. 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're anticipating that this move will continue to unlock significant value going forward. For example, by consolidating our commercial and international business into a single segment for the first time, we're now better able to truly serve our global customers. In February, I had the opportunity to attend the Munich Security Conference. It was a sobering affair, which made abundantly clear that pervasive global threats are, in fact, growing and our collective efforts to help our allies and partners are becoming even more crucial. To give you an idea of where and how the new Leidos can help, global battlefields of the future demand ever more custom interoperability and leading-edge technical solutions. As we collaborate with our customers and allies around the world, we gain valuable insights into their interconnected issues across borders. Our realignment which integrates all our international customer touch points into one organization enables us to better correlate and quickly respond with a whole of Leidos' solution to their critical emerging needs. Also, globally, the AUKUS Trilateral Security partnership represents a unique opportunity for Leidos as Australia, the U.K. and the U.S. seek to work even more closely together. The focus of AUKUS Pillar 2 is seamless information sharing, AI and autonomy, advanced cyber, hypersonics, and electronic warfare. This list reads like a catalog of Leidos' strength. We believe Leidos through our new Commercial International segment is uniquely positioned to serve these ambitions like no other. Second, we will continue to accelerate investment in distinct organic disruptive technologies. On my first earnings call, I highlighted technology innovation as a core of Leidos. Nearly a year into this role, I can confidently reaffirm that the technology prowess at Leidos is impressive, broad and deep. Continually sharpening our portfolio of cutting-edge technologies, what I call golden bolts, to lead turn the market or remain foundational to our North Star. At Leidos, innovation is everywhere, but we have a particular passion and focus on remaining best-in-class in free technologies, Trusted Mission AI, full-spectrum cyber, and secure rapid software. In each, we maintain a robust IRAD pipeline in what we call accelerators, staffed with incredibly smart people who work across the entire customer solution set. And we combine the resulting immense organic technical prowess with a best-in-class commercial partnership program to truly bring Making Smart Smarter to life. Let's talk about one of these accelerators. Trusted Mission AI spans the breadth of our portfolio and is integral in practically all our customer solutions. Our Trusted Mission AI solutions work as a partner to humans in transforming the way we deliver high-quality, rapid and secure outcomes for our customers' most complex missions. For example, across the intelligence community, we have several large classified contracts where we're leveraging Trusted Mission AI to exploit vast amounts of data to address ever-changing national security challenges. In the cyber realm, our team of experts has spent the last 3 years developing the next generation of defensive cyber tools. These tools use AI to automate the discovery of new vulnerabilities and the development of novel defenses. This unique solution allows us to proactively deploy defenses before attacks occur. Crucial in foreseeing, averting and defeating cyber risks. In Defense Systems, Trusted Mission AI is the enabling technology that anchors all our autonomy work. We've built the first generation of autonomous vessels for the U.S. Navy, several of which recently transited the Pacific twice as part of a manned, unmanned task force, and we're now applying this proven Trusted Mission AI technology to the next generation of unmanned surface vessels. In software and IT, we're leveraging our exclusive relationships with key emerging technology providers to bring the best of the latest generation of Generative AI to our customers. This enables us to uniquely position our customers to operate more efficiently, delivering real quantifiable impact. Let me share a couple of examples here. Our partnership with Sourcegraph leverages their commercial cutting-edge, GenAI coding assistant to transform the way we develop software. In just a few months, by combining our unparalleled government customer knowledge with their tools' power, we've proven productivity increases in software development of 1/3. And we know these solutions are deployable even into the most secure customer environments. Our exclusive partnership with Moveworks gives us a differentiated ability to bring our customers the best in GenAI-based IT service desk solutions. We've already deployed their technology within the Leidos IT environment and have completely automated processing of thousands of service requests. Our focus on integrating Trusted Mission AI into our customer solutions rather than just selling AI labor positions us uniquely to meet the growing demand for AI solutions across our customers. I trust these examples begin to give you a sense of our leadership position in all our golden bolts, but especially Trusted Mission AI. But if you'd like to see more of our solutions in action and meet some of our wicked smart people, I invite you to an Investors event, we will be hosting here at our global headquarters in Reston on 12 June. Finally, I'd like to give you an update on the development of our strategy for Leidos' second decade of growth. As I mentioned during our last call, this is a year of deep formally structured strategic conversations across the whole of the business. And while this effort will not be complete until early next year, I did want to share with you now some high-level principles that are guiding our work. Principles of our upcoming strategy will be doubling down on our core strengths, seeking to exploit the power of repeatable business models, making speed a conscious competitive discriminator, differentially investing in the areas of greatest potential, building Trusted Mission AI into everything we do, and uncovering unique opportunities to expand Leidos into logical, closely adjacent growth markets. These guiding principles will enable us to stay true to what we do best. While being quick to respond to the opportunities that are emerging at pace in our market. Also of note, importantly, as we think about our strategy, we will continue to view our balance sheet and cash generation capacity as key strategic assets. I remain committed to a disciplined capital management and deployment policy continuing a focus on shareholder returns in the near term. In closing, we're off to a great start this fiscal year. We are committed to building on our successes and deliver smarter outcomes for our customers, shareholders and each other. As we continue to push the boundaries and challenge ourselves to think bigger, I am confident that 2024 will be Leidos' best year so far. We'll see tremendous achievements and a crystallizing compelling growth strategy. With that, I'll pass the call to Chris to discuss our financial results for the first quarter and our financial promises to you for the full year. Chris? Chris Cage: Thanks, Tom, and thanks to everyone for joining us today. The first quarter operating in our new organization was a great one, far surpassing our initial expectations. While Health and Civil was a standout, each segment's relentless focus on innovation and operational efficiency led to above-plan performance in revenue, profit and cash in every reporting segment. Putting these results into the context of the full year, we are well on track to deliver an exceptional year of top and bottom line performance. Turning to the income statement on Slide 5. Revenues for the first quarter were $3.98 billion, up 7.5% year-over-year. With appropriations in place, our teams are working with their customers to execute on vital missions. Strong top line growth in the first quarter enabled us to achieve record profitability. Adjusted EBITDA was $490 million for the quarter, up 42% year-over-year, and adjusted EBITDA margin increased 290 basis points to 12.3%. Non-GAAP net income was $313 million and non-GAAP diluted EPS was $2.29, up 53% and 56%, respectively. This explosive earnings' growth was the result of core operating performance. The net impact of a slightly lower net interest expense and share count was wholly offset by a slightly higher tax rate compared to the prior year period. This bottom line performance not only boosted our cash flows, but have put us in a favorable position to continue reinvesting across the business to support the execution of our longer-term strategic objectives. Turning to the segment drivers on Slide 6. National Security and Digital revenues increased 2% year-over-year. The largest growth catalysts were increased volumes on the Sentinel and DES programs, which more than offset the focused box loss early in 2023. National Security and Digital non-GAAP operating income margin increased 120 basis points from the prior year quarter to 10.1% with some milestone achievements, strong cost control and excellent program execution. Health and Civil revenues increased 19% over the prior year quarter and non-GAAP operating income margin also came in at 19%, up from 12.2% a year ago. The primary driver of revenue growth and increased profitability was higher volumes across our managed health services portfolio. We entered the year with tempered expectations around medical exam volumes but we're seeing increased complexity on PACT Act cases. And although we're investing heavily to drive throughput, the team did an amazing job at improving efficiency, optimizing resources and delivering exceptional service to the nation's active duty members, reservers and veterans. Commercial and international revenues increased 4%, and non-GAAP operating income margin was 8.3% up 360 basis points compared to the prior year. We had increased deliveries of security products, and we're seeing the impact of the changes we made in the SES business including a leaner cost structure, improved supply chain and rationalize product and geographic portfolio. Though our work is not done in fully optimizing the security products business, I'm proud of the team for their performance and recovery since this time last year. Finally, Defense Systems revenue increased 7% year-over-year with increased volumes in our airborne ISR and hypersonics businesses. Defense Systems non-GAAP operating margins of 8% declined 170 basis points over the prior year quarter but were up 30 basis points sequentially and we remain committed to margin improvement for this segment for the full year. Turning now to cash flow and the balance sheet on Slide 7. We generated $63 million of cash flow from operating activities and $46 million of free cash flow. DSO for the quarter was 62 days, unchanged from a year ago. In Q1, we repurchased a net of $170 million worth of shares including $150 million on the open market and paid $53 million in dividends. We ended the quarter with $633 million in cash and cash equivalents and $4.7 billion of debt. Our gross leverage ratio now goes at 2.6x, comfortably below our 3x target. On to the forward outlook on Slide 8. As we look ahead to the rest of the fiscal year 2024, we are poised to capitalize on the momentum we've been building. Based on our strong Q1 and improved outlook, we are raising our 2024 guidance for all metrics. We now expect revenue between $16 billion and $16.4 billion, an increase of $300 million to the range. Our new adjusted EBITDA margin range is mid- to high 11%, which would be record profitability for a full fiscal year. With an improving revenue and margin outlook, we're raising our non-GAAP diluted EPS by $0.90 to a new range of $8.40 to $8.80. And finally, we're raising our operating cash flow target by $200 million to approximately $1.3 billion for the year. Underpinning this updated guidance is a positive outlook on business development. In the first quarter, we booked a net of $3.7 billion, which translated to a book-to-bill of 0.9x for the quarter, and 1.1x for a trailing 12 months. The quarterly bookings total excludes a multibillion-dollar classified award that is currently under protest, and a $630 million Defense Systems award received on April 1, both of which are new work for Leidos. We're seeing positive business development momentum and we expect our awards this year to support our growth objectives. Finally, let me give you some sector-specific movements that color our full year guidance. On the fourth quarter call, we highlighted that Health and Civil had the potential to outperform if medical examination volumes remain high. Since then, volumes have actually increased given the complexity of PACT Act cases. The second quarter should see similar levels of performance or even a little better. However, as a result of the increased volumes, the VBA has burned through some of its contracts sooner than planned, and we'll have to recompete them early. We are well positioned to continue our best-in-class service as a long-standing 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. First quarter revenue growth in the Defense Systems and Commercial International segments was more robust than anticipated. Although we see some potential for growth in both segments, we still see the full year revenue performance as relatively flat. In Commercial and International, some of the SES geographies and products we exited will begin to weigh on revenue. And Defense Systems is still working to mature some of its developmental programs. Taken together, with funding certainty, positive demand signals and the performance seen across all 4 segments this quarter, we feel confident in our ability to deliver within these new ranges. With that, operator, we're ready to take some questions. Operator: [Operator Instructions] Our first question comes from the line of Bert Subin with Stifel. Bert Subin: Tom, when you started, I guess, about a year ago, you said you wanted to evaluate allocation of capital to each business based on the business case supporting the return on capital for each. It would seem like capital is being put to best use right now in Health and Civil. Is that a near-term phenomenon being driven by the PACT Act? Or is there a case for that business to be your fastest growing and most profitable longer term as well? Thomas Bell: I did say that, and I do believe in a merit-based strategy process. I mentioned that in my prepared remarks because what we are doing in 2024 as we undertake this year of deep strategic thinking is analyzing all the business cases and the sub business cases for where the best use of capital is to draw a superior top line and bottom line growth for Leidos. And so as a result, we're able to put some seed corn in areas that are emerging in this year, even though the strategy process is not done. And yes, in fact, the investments we've made in our managed health care business is absolutely paying dividends now, and that is the reason that business under Leidos' leadership has been so well positioned to respond to the increased demands that have come our way. So we're very excited about the strategy process we've got underway. We're very excited about the ideas that are emerging from that strategy process. And we're seeing great benefit of past decisions we made through last year about where to invest, how to invest and which businesses to position for future growth. Chris, did you want to add anything to that? Chris Cage: I just -- obviously, the Health and Civil organization has been a standout, and we do see that momentum continuing. And to Tom's point, it's been a multiyear investment strategy that's positioned us to be where we are and to deliver excellent results for our veterans and be rewarded for that. But there are other parts of the portfolio we're very excited about, too. And so I wouldn't limit our thinking and our investments to solely focus on Health and Civil. And at the same time, some of the Health and Civil organization results have benefited from investments we've made in things like AI and other capabilities at the center that apply broadly. So you'll see those strategies continue, and you'll see us continue to accelerate those investments as the year unfolds. Bert Subin: That's great. And Tom, you spent -- and Chris, you just mentioned it there. You spent several minutes in your prepared remarks talking about AI. I think one of your peers gets a lot of credit for sort of being the leader in the industry on AI and has taken some steps to break out like what their sales are and how it impacts their win rate on certain contracts. It seems like you're pretty confident in what you're doing there. And it would seem like it's helped quite a bit in your Health business with the VA. Are there some examples? Or are there some sort of numbers you can give us related to AI just to sort of think better about your positioning as we go forward? Thomas Bell: Well, thanks, Bert. Yes. And yes, the fun thing about capitalism is many people look at the same market and decide to prosecute it in different ways. We're aware that our competitors are looking at selling AI labor and think it's a market unto itself. That's not how we see the world. We see the world as difficult customer challenges, and we see ourselves as solution providers into that space. We see Trusted Mission AI as a huge key enabler to unlocking superior value for our customers and the solutions we bring forward. So we're going to continue to avoid breaking AI out as a specific target. But in the spirit of your questions, I can share with you some antidotal evidence. For instance, while we've been investing in AI, the deployment of that has enabled us to improve quality on about $1 billion of those health exams. In other words, some of the throughput we've been able to have in our clinics is the direct result of the efficiency that the AI tools we have embedded in our solutions unlocks. We've been able to put AI in our SES airport security business by linking things together there. We've been able to put AI in our unmanned systems, command and control systems that will enable us to help unmanned systems quickly speak to each other and aggregate their effects. So we're going to continue to see Trusted Mission AI as not an end but a means to serving customer missions. And I hope that differentiation is something that you can join us on the 12th of June to understand even more. Operator: Our next question comes from the line of Tobey Sommer with Truist Securities. Jasper Bibb: This is Jasper Bibb on for Tobey. I think last call, you talked about the initial mid- to high 10% guidance range on margin as a base sustainably grow off. And then you raised the '24 guides significantly this quarter. So I guess looking forward, how are you thinking about progression on margins given the progress you've already made this year? Chris Cage: Yes, Jasper, thanks for that, right. Obviously, we're very pleased with the start to the year. And as in our prepared remarks, we indicated it wasn't just the Health and Civil business. It was really all of our teams got out of the gate strong. And so now our full year outlook has been updated to mid- to high 11%. We think that's an area that, obviously, we're ahead of that in Q1, but that will be strong performance across the business as the year unfolds. And you think about some parts of the portfolio, for example, Commercial International and Defense Systems, both of which had good first quarters, but aren't yet where we expect that they will be on a margin performance basis. So there's uplift there over the course of this year and into the future. And for Health and Civil, sustained this level of performance through Q2 is what we indicated, and we'll have to see how the competitive process plays out on the recompetes in Q3, Q4, but there is the potential for that business to continue this momentum, certainly through the back half of this year and into '25. Thomas Bell: Just pivoting off of that a little bit, I want to give a shout-out to the team for how they've embraced this whole concept of promises-made, promises-kept culture. So while we have a standout first quarter performance in our Health business, they are not the only business committed to continuing to perform through the year. So we're very confident in our ability to hit the current range, and we're very excited about the degrees of freedom that gives us to invest differentially in our future and really propel our next growth strategy to great heights. Jasper Bibb: That makes sense. And then you mentioned the improvement in managed health programs for Health and Civil segment this quarter. I guess just curious what the trends were on the legacy Civil side of the segment as part of the growth in margins Leidos had driven in the first quarter. Chris Cage: Yes. The Civil part of the portfolio has some excellent programs in there. And as Leidos and the team are bringing that all together, it's more about the energy and the synergies that we see across those businesses on personnel and in software capabilities that can be extended to both sides of the equation. I wouldn't think there's any particular standouts in the Civil portfolio. It was a solid first quarter out of the gate. So we're looking forward to building on that momentum as the year unfolds, especially -- and as we look at our FAA business and where that can extend capabilities to certain international customers, et cetera, as a particular area of interest for us. Thomas Bell: But I can't let that question not go without a little bit of a foot stomp on the great performance we're having in the Health side of the business. We are continuing to invest in innovation there. And some of the innovations that Bert asked us about before that were built during the COVID crisis puts us in this position to do exams better for the VBA 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. And as Chris mentioned in his comments, the volume is even increasing now in 2024. More than just that, we're able to serve our rural veterans better by 33%, and we're able to serve our homebound veterans by over 55%. So the investments we've made in technology and capability to take the clinics to the veterans are serving our veterans in ways that are enabling us to then unlock volume and unlock financial results. We're very excited not only about the whole of Leidos' portfolio, but this part of the portfolio in particular. Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Kudos to the Leidos Board for choosing the right candidate, clearly, Tom, great results, the whole Leidos team. So maybe on Health, we talked about it a little bit and Chris mentioned it in his remarks in terms of the PACT Act moderation. Can you maybe frame how we should think about the upside and downside scenarios there? Thomas Bell: Yes. So the PACT Act volumes are racing forward. We're in a unique position to liquidate that volume on behalf of the Veterans Administration and feel very good about that. But as Chris mentioned in his comments, that puts pressure on reaching the contract ceiling value for the Veterans Administration, and they may have to -- and they will have to recompete that contract early. However, we've got a great position for that recompete. We feel very confident in the technology, the capabilities and the team we have assembled to continue to serve veterans in this nation. And so while, as Chris said in his comments, we've provisioned for some slight moderation in profitability in the second half of the year just because of the competitive dynamics and our being unsure of exactly how the Veterans Administration is going to put that RFP out. We feel very good that, that's a business we're in. That's a business we can continue to grow and that's a business that we can continue to serve our nation and its veterans very robustly. Chris? Chris Cage: Yes, Sheila, I'd just add, I mean, we have invested. We'll continue to invest in increasing our ability to drive throughput and drive excellent service for the veterans. We've gotten the strongest signal yet from the customer that the volume of activity should remain elevated, and we see that continuing into 2025. And it's not just the number of cases, it's the complexity of those cases. So we're, we believe, still in the early innings of where this thing can play out, and we're going to continue to invest accordingly to make sure veterans are well served with great experiences. I would say that even our first quarter results, which were quite strong, it wasn't aided by incentive fees as part of that, too. So there's still some opportunities to drive that performance higher over time. So I really like how we're positioned in that business right now. Sheila Kahyaoglu: And then maybe on Defense Systems margins, they were better sequentially but down 170 bps year-on-year. So how do we think about maybe just focusing on Dynetics, the key milestones there in terms of improvement in profitability? Chris Cage: Yes. So I mean, a couple of things we're tracking, and Cindy, leading that business is all over this with her team. But as we said in our remarks, we're actually pleased with the way we performed out of the gates in the first quarter. We're ahead of pace. There are some specific things we're focused on to drive margins higher over time, one of which we just completed at the end of last year, getting Dynetics fully integrated into the Leidos set of systems, whether that's financial, HR, et cetera, and our rate structure. And so there's a lot more collaboration, resource sharing, efficiencies that are unlocked as part of that. So that's very exciting program execution. It's a strength of Leidos, and it's an area that we've seen improvements in talent upgrades and process upgrades, and that's an area that we can identify mile markers along the rest of this year that will drive our program performance higher and our profitability higher as the year unfolds. And then finally, transitioning into next phase of key programs. We know sometimes on developmental programs, the early phases are not the most profitable, lessons are learned, and those are applied into the next round of bidding. And I think the team has incorporated those and we feel good about the bids we've been putting out and they are well positioned to win to keep growing that business. Thomas Bell: Yes. And just to foot stomp that a little bit, Sheila. I mentioned -- as I foot-stomped an earlier comment about all the businesses keeping up with their commitments to Chris and I for their full year performance and the promises-made, promises-kept modus operandi, and I'm very happy to report that Cindy is amongst them, undeterred by a less robust start to the year than perhaps we might have hoped for, but very committed to the full year results, and she and her team are committed to meeting or exceeding those. Operator: Our next question comes from the line of Seth Seifman with JPMorgan. Rocco J Barbero: This is Rocco for Seth. On margins, milestone achievements supported the National Security and Digital margin in the quarter. Should we expect additional milestones in the coming quarters? Or should the margin rate there normalize? And then on Health and Civil, Q2 is expected to be as stronger as Q1, but should we think about the back half falling into the mid-teens on margins [ seen as strongest ] in the business, obviously, pending the recompete? Chris Cage: Yes, I'll start and Tom can jump on. Obviously, National Security and Digital, excellent program execution is what we expect from that team because they've consistently delivered it. And sometimes you're not able to anticipate that you'll knock it out of park on award fees the way they have continued to do so, but I wouldn't bet against them. So we'll continue to see program execution as a strength there. And as it relates to Health, yes, when we -- Health and Civil, when we started the year, we signaled there in the mid-teens was a reasonable expectation for the year. We've exceeded that. We'll continue to exceed that level through Q2. And I think even in the second half of the year, there's the possibility and potential, it could be better than that, and we'll be able to give you some better color on that as we get closer to the recompete process. Thomas Bell: I would just say that my whole promises-made, promises-kept culture, never uninvites overperformance. And so overperformance is welcomed. Overperformance is understood as a goal we all look to achieve and I have every confidence, Roy and his team are going to work to overperform both in this year and the future. We haven't talked about it yet, but our business development pipeline is very exciting and very robust. And nowhere is it more robust and more exciting than in Roy's business, in our National Security and Digital space. So he and Steve are working very hard to make sure we are positioned to win in the marketplace in the future, not only to deliver results now but to deliver results for the next 5 years. Rocco J Barbero: Great. And then should we expect hypersonics to drive Defense Systems growth this year or when the business is changing to limit growth? Thomas Bell: Well, hypersonics is one of several areas that we're focused on in our Defense Systems business. And yes, we are very excited about the capabilities we've proven in our hypersonics programs. And in fact, this week, we're having very robust conversations with customers around where they want to go and how they want to take that technology forward. Obviously, it's a wicked hard problem, but we've got our wicked smart people working to solve them with and for the customers. But that's not the only one. We've obviously got a lot of expectation with regard to IFPC Enduring Shield. That program is progressing well through the Army test program this year, and we're very hopeful for an LRIP decision at the end of this year. And wide field of view Tranche 2, while we were disappointed that the prime for our payload wasn't selected, we're working several avenues to maintain our prowess in that market and serve our nation in their understanding of what's happening from a threat standpoint. So our Defense business isn't only hypersonics, but hypersonics is one of those areas, and we're very excited about the suite of capabilities we're currently focused on, necking down to and prosecuting effectively. Operator: Our next question comes from the line of Matt Akers with Wells Fargo. Matthew Akers: I wonder if you could comment on the security products business. I think you said in the prepared remarks, there's still work to be done optimizing that. So I was just curious if you could touch on -- I think you are in-sourcing some products you talked about that last year. And then kind of how big should we think about some of these products that you've decided to exit? Thomas Bell: We are very, very proud of Vicki and her team and the swift actions they've taken through last year and since last year. They're engaged, they're excited about the opportunities they see. And I'm very happy that they're not looking at that world through rose-colored glasses. They are being positively inclined pragmatists, looking at the market for what it is and looking at how we prosecute that market in the Leidos way to the best degree possible. We did exit certain geographies, as we talked about last year, and we continued to refine the products we're actually offering into the marketplace because we decided those have become commoditized and they weren't a great place for Leidos to perform. But while it's still early innings, we're very excited about the business. We're spending a lot of time on the strategy for how and where we grow that business into the future. And we expect that to be a part of our conversation as the strategy unfolds through the year and into next. Chris, anything you'd add? Chris Cage: And I would just add, I mean, we're excited about getting our Charleston facility up and running. And the teams have been doing a good job there. Actually, the leadership team will be down there next week to lay eyes on it ourselves. So we're looking forward to seeing that. There's a variety of products. I won't get into specifics about which ones we're pulling out of the portfolio. But clearly, we're focused on where we have technical differentiation, leadership positions, people screening has been a strength of that business for a long time. You can imagine that will be something we continue to stick with and double down on. We have excellent suite of port and borders equipment, but there are some pockets of the check baggage -- checkpoint baggage, et cetera, that we just have to continue to evaluate where we're positioned and make those changes accordingly. Matthew Akers: Great. And then I also want to ask on CapEx. A little bit of a slow start to the year. I might have missed it, but is the $190 million still the right way to think about that for this year? And does that sort of ramp up the year? Chris Cage: Yes, Matt, that's still our budget, and there's a little bit of reserve in there. And we ask the teams to be smart and disciplined even when we allocate them approvals. But you'll see a few things ramp up. We've got our San Diego facility that we're going to be proud of to get a brand-new facility for a lot of our classified work out in San Diego completed this summer, and the teams are also looking for interesting ways that we can get in front of the customer on unmanned capabilities, demos, tests, et cetera. So we expect that to ramp up a little bit, but we'll continue to manage that tightly. Thomas Bell: Chris mentioned San Diego a little bit. I'll just foot-stomp the great job the team is doing there. We're building a facility that will be world-class in terms of security and up to the latest standards of our nation. And so we'll have facilities on the West Coast that are as good as any and better than most. And we're very excited about the conversations and the opportunities that will unlock for us with our customers and the opportunity, therefore, to serve them at the highest classification levels. Operator: Our next question comes from the line of Noah Poponak with Goldman Sachs. Noah Poponak: So I guess on the margins, in the quarter, the total company EBITDA margin over 12% despite what you're saying about Defense Systems and the back half of last year kind of mid-11s with the same thing and a little bit more normal Health margin. I guess just without even putting a time frame on it, but just as you go forward beyond this year, should we all be thinking of Leidos as a 12% plus EBITDA margin business? Or is that getting ahead of ourselves, depending on where Health and Civil shake out? Thomas Bell: Well, no, we're not in the point where we're guiding to 2025 and beyond. But I remember last year, when we were wrapping up the year, we were talking about us being high-10s business and people were chastising me for suggesting we might be over 11%. Now we're proving we can be over 11% and very eager to see what the full potential of this business is. That's not a commitment to maintain margins at a certain level. We're going to make smart decisions. We're not going to get locked into certain preconceived notions of where we want to go, but better is always good. And we want to bank those gains and expand and exploit other areas to grow the business. So as we've guided this year, high 11s is our commitment to you in 2024. And as we prosecute 2025, we'll be very eager to see if we can meet or better that. Chris, anything? Chris Cage: Well, mid- to high 11s. Tom, I just want to make sure the team doesn't run away from us here on their models. But no, your points are well made. I think that we have lines of business that haven't reached their full potential, and we're driving them in that direction. And capitalizing on the gains we made, we're going to continue to invest to stay ahead of demand. So those are things that we'll have to evaluate where those opportunities are, Noah. But clearly, you can see this business has a lot of potential, and we're going to continue to unlock it. Noah Poponak: Okay. And Tom, you sound pretty positive on bid and proposal. It sounds like you're making changes there as well. The company has had a lot of growth in the all-in total backlog number. It's been kind of flatter on that funded number and the funded book-to-bill or your stated book-to-bill, it's been decent, but it's seen higher numbers in the past, I guess. Are you expecting or should we be expecting that -- those numbers to improve through this year? Or does it take you a little more time to make any changes you're making on the BNP side? Thomas Bell: And yes, we've put the right team in place to execute the vision for us being a growing business profitably, focused on profitable growth. And so the pipeline is being refined to go after aggressively the right business, not all business. You remember one of my sayings, not all business is good business. And for Leidos, people understand that message and our priming the pump of the pipeline accordingly. We've got a healthy backlog, as you rightly call out, I'm not a big fan of these quarterly book-to-bill ratios because they are a fool's mission. The right thing to do is focus on a health backlog, a profitable growth. And we're not embarrassed by the backlog we've got. It's up 4% year-over-year. And we're looking to improve that as the year goes on. We've got a huge pipeline of opportunities in front of us. All businesses have robust pipelines of good growth. And yes, in the latter half of this year, there are a significant number of new and takeaway businesses that we're hoping to brag about on future calls. But we've got to wait and see on those things. Operator: Our next question comes from the line of Cai von Rumohr with TD Cowen. Cai Von Rumohr: Tom, good work on medical exams, terrific numbers. So you mentioned that you're approaching the ceiling on the medical exam. Can you tell us approximately when you might hit that ceiling? And can you give us any range of time frame in terms of when we might expect a new RFP? Chris Cage: Cai, this is Chris. Again, the team has done great work, and we're proud to serve our veterans, and it's been volumes that the customer didn't see coming when the original contracts were put in place. So the ceiling is structured differently. It's based upon an exam volume, and they've actually had to issue a justification authorization to extend that once already to give them time to run this competitive process. We believe that process should play out over the next couple of quarters and culminate by the end of government fiscal year if things stay on track, that's the time line we're working towards. Obviously, it's not entirely within our control but our expectation is we'd have that new contractual vehicle in place beginning of our fourth quarter. Thomas Bell: Obviously, Cai, you'll appreciate the fact that our nation can afford the gap is critical capability for those who have served us. And so we are very appreciative that the Veterans Administration is working with alacrity around the whole of the system and how they keep serving our veterans adequately. And we're very much in dialogue with them to make sure that we're positioned to make sure our veterans continue to be served. Cai Von Rumohr: Got it. And so you've done way better than most of the other services business. Is there any risk or thought that because you're doing so well that the next bids might be structured so that there's not the same profit opportunity because obviously, I would assume, this has got to attract lots and lots of bidders. Or do you have any visibility at all or thought about how the VA might structure the next RFP? Thomas Bell: I think the long and short answer to that, Cai, is no, we don't yet. They're still working through that themselves. But we feel very confident in the investments we've made and the facilitation that we've done, the technology we've deployed, the team we've assembled that we're in a very good place to compete and continue to serve our nation and the Veterans Administration. Exactly what the rules are and what the incentives are in the next RFP will be known in time. But whatever the customer decides to do, we'll adjust accordingly and continue to work to make an adequate return on our investment and adequately serve our nation's veterans. So we're not deterred by this. We're actually excited. The fact is we are making robust profits here because we're serving our veterans so effectively. We're doing exactly what the Veterans Administration has incentivized us to do. And so it's a good news story. And the veterans who get served, the quality health care they get coming into a Leidos QTC clinic is better than any. And the customer service and the customer reputation we have is best-in-class. So we're very excited about it and very eager to continue to serve our nation in this way. Operator: Our next question comes from the line of Robert Spingarn with Melius Research. Robert Spingarn: So Tom, I wanted to start with a big-picture question, and it's about AI, you talked about it earlier. This is a little bit more from the industry perspective, but you and your competitors generate 60% or more of your sales from cost plus and time and materials contracts. And I'm wondering if the work of consultants can be automated or done more efficiently through AI, might that presumably lead to lower costs and reduced billable hours. And in that case, how does the value accrue to shareholders rather than all of that efficiency just being passed back to the customer? Thomas Bell: Rob, what we're looking at with AI, and I mentioned it in my prepared remarks, is really becoming that conduit from commercial best practices and GenAI technologies into the government space. You'll appreciate as well as anybody the fact that the government space and the government systems have a whole bunch of idiosyncrasies and complications that people like Leidos and Leidos in particular, know very well. So the 2 examples I cited in my prepared remarks of Sourcegraph and Moveworks are 2 examples of best-in-class commercial capabilities that we're being able to use to generate outsized productive results for our customers. What that does is it does cut down work in the customer ecosystem but it allows the people to go do more value-added work than just the trite, routine, repetitive or deeply analytical things that then we team with a human. We're very focused on integrating those solutions into our Trusted Mission AI solutions. And then we're very keen that we don't deploy AI and forget. We are very focused on our AI solutions being in partnership with the human being, never alone and unafraid. Chris, anything you'd like to add? Chris Cage: Rob, it's a good question. It's a good insight. I think we take the view that you've got to play the long game here. I mean if we were worried about maximizing the dollar on the current book of cost-plus contracts, I think that'd be a little bit shortsighted. 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. That's what's going to play well with our customers, and that's what's going to keep them coming back to Leidos. So we see this perpetuating our growth momentum as we continue to invest in this capability. Robert Spingarn: And that's a real interesting answer. And then, Chris, just not so much following on to that, but talking about cost plus, again, I think if we look at the other side of that, I think, around 40% of revenues are fixed price. So a pretty meaningful portion. I'm wondering, I want to ask you about stale backlog. If the backlog reflects that 40%, in other words, it's similar to the revenue profile. Is there any portion of that, that has pre-inflation pricing where you'd get a natural lift in margins as that work rolls off over the next couple of years and things are repriced post-inflation? Chris Cage: Rob, on inflation, I get where you're going with that. And I mean there's -- I'd say there's pockets of that, but there's not a pervasive opportunity or concern in our current backlog. I mean a lot of it as we priced our backlog on multiyear jobs, even if it's fixed price, we built in some inflationary expectation. Some of that, for a period of time, inflation ran hot. But the teams have flexibility on how they execute for those outcomes. And so we're also motivated to drive efficiencies in our process. And each new bid that we're moving forward with, we're evaluating them on their own merits and looking for opportunities to make sure they can generate an attractive return for our shareholders. So feel good about our backlog and feel good about our pipeline and where that helps support our margin objectives over time. Stuart Davis: Operator, it looks like we only have time for one more question. Operator: Our final question comes from the line of Jason Gursky with Citi. Jason Gursky: Tom, you mentioned during the quarter and then here again on the call today, the Munich Security Conference and the somber event that it was. I'm just curious from a demand perspective coming out of Europe, kind of what you at Leidos are seeing these days. And how do you go about taking advantage of the demand signals that you're seeing in Europe at this point kind of given where you operate on that side of the pond, so to speak? And what kinds of programs you might be chasing over there? Thomas Bell: Yes, it was a somber sobering affair. For those of you who haven't picked up the magazine that they published at the beginning, the title of the conference was lose-lose question mark. So that gives you a sense of the tone earlier this year. And I don't think that, that has become any more joyful. They are all to a, one, increasing defense budgets robustly. So there is certainly top line growth happening in Europe. But more importantly than that, my personal hypothesis is that we're going to see defense expenditures globally, morphed from hardware to more system solutions and effectors. I beg your pardon for those words, but systems, integrated solutions and effectors, not so much the platform that launches the product, but the actual effector for defense. And so Leidos is particularly well positioned to serve that market, not only because we've got a robust presence in Europe already anchored in the U.K., but throughout Europe. But also because as I look at that shift in spend, not only the increase in top line, but the shift to product services and solutions and effectors -- from products to solutions, services and effectors. I see Leidos in the unique opportunity to help our customers prosecute those needs. I mentioned in AUKUS, what AUKUS Pillar 2 is all about, seamless information sharing, AI, autonomy, advanced cyber, hypersonics, electronic warfare. And I mentioned -- I mean this reads like a catalog of Leidos' capabilities and strengths. So I think we are uniquely positioned. The fact that the U.S. is talking about lowering the ITAR hurdles between the U.S. and the U.K. as a part of all of this allows us to position ourselves even more forcefully to serve our U.K. customers in ways we have been inhibited from doing before. And I think that gives us a launching off point to talk to the Baltics around undersea capabilities, to talk to all about integrated air defense capabilities, to talk to all about electronic warfare capabilities. It just gives us the launching point to have much more robust conversations than we've been able to have before. And again, our Commercial and International segment now all aligned to have all those customer touch points aggregated into one place, so we can more jointly connect them and prosecute them with a whole of Leidos' approach. I just really think is an exciting time for Leidos. So early days. They're still doing a little storming and norming about those budgets and how they're going to do it. But we are not going to be haughty and say it's all got to be us. We also are humble partners in these things. So we're working to find out who we might want to partner with in Europe to prosecute these even better and work with national champions as a result. So it's a very exciting opportunity, but early days yet. Jason Gursky: And then just the last one on the pipeline that you have in front of you here domestically, maybe you could just talk about what you're seeing from a competitive perspective here of late and just general trends on the competitive environment would be great. Thomas Bell: Yes. So we're doing reasonably well in defending the work we have. Our recompetes and on-contract growth is good, and we are very happy with our performance there. The retooling in our business capture and growth areas is all about going after the big game and making sure we put ourselves in a position to robustly prosecute new opportunities for Leidos. I feel very good about the team we've got. I've got very -- the pipeline is actually stoped with those kind of takeaway opportunities, and there's many that are well over a billion. So we're seeing ample opportunities for Leidos to differentiate itself in competitions, and we're seeing ample customer uptake on the kind of things that Leidos does best. Chris, anything you'd like to add? Chris Cage: Yes, Jason, just quickly, I mean, I'd say that certainly, best value or decisions are the trend we continue to see. And I'm not seeing any Crazy Ivans and the competitive set is pretty well known and understood. We pay a lot of attention to that. Oftentimes, it just comes down to are you writing a compelling proposal, getting clarity of what your solution, and do you have the unparalleled customer understanding that you need to really hit the mark on the things that they're looking for that might not have jumped out in the RFI. So we think we're doing that well. We think we're focused on adding talent and depth in our account management structure to continue to do that well, and we like where we're positioned. Operator: This concludes the Q&A portion. I'll now turn the call back over to Stuart Davis for closing remarks. Stuart Davis: Thank you, operator, for your assistance on this morning's call, and thank you all for your time this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.

Operator: Greetings, and welcome to Leidos Fourth Quarter Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Stuart Davis, of Investor Relations. Stuart, you may begin. Stuart Davis: Thank you, operator, and good morning everyone. I'd like to welcome you to our fourth quarter and fiscal year 2023 earnings conference call. Joining me today are Tom Bell, our CEO, and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you'll also find the earnings release and supplemental financial presentation slides that we are using today. Turning to slide two of the presentation, today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on slide three, we’ll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, let me turn the call over to Tom Bell, who will begin on slide four. Tom Bell: Thank you, Stuart, and good morning everyone. It's good to be with you today to report another strong quarter for Leidos and to put a bow on a very successful 2023. I'll frame my part of our conversation today in three parts. First, our 2023 results; second, the progress we've made towards building a brighter future; and third, what you can expect from us this year. First in our fourth quarter we delivered 8% revenue growth for record quarterly revenue just shy of $4 billion. EBITDA margin was an outstanding 11.4% and we grew non-GAAP diluted EPS at 9% year-over-year. Operating cash was also well ahead of plan. This means we delivered full year results that were above the high end of the guidance we set last quarter. For the full year revenue growth was 7%. Non-GAAP diluted EPS growth was 11% and operating cash flow growth was 17%. Consistent with my previous commitment to you about disciplined cash management, we repurchased more than $200 million worth of shares in the fourth quarter of 2023. I continue to be very impressed by the people and sound business engine we have here at Leidos and I believe our top and bottom line financial performance over the last three quarters of 2023 just begins to hint at our full potential. Even while affecting our recent organizational realignment, the team ran through the tape to deliver an impressive 2023. I want to thank my leadership team and our 47,000 people who made these results possible through their hard work and dedication to both Leidos and our customers’ missions. This brings me to my second point, the progress we've made towards building a better future. We're already working well in our new capability focused organization and seeing the first fruits from these changes. For example we're sharing best practices much better across digital modernization programs for greater efficiency and efficacy. In Commercial & International, we're quickly redeveloping our growth playbook, especially internationally, which we'll use to extend several of our business lines outside the United States. And we're aggregating and better leveraging our robust engineering talent across our platform businesses within Defense Systems. As we go through this year, we'll see many more ways this new organizational structure unlocks value. Chris will describe a few of the tangible financial benefits of this realignment on which we already have line of sight. But the team and I are acting quickly on two additional critical components to building for our future, reinvigorating our business capture prowess and ensuring we remain the best employer of top talent in the market. On the business capture front, we finished the year with a solid book-to-bill ratio of 1.1 times. As we focus on building quality backlog over time, this gives us a Healthy $37 billion backlog, $8.8 billion of which is funded. Still, I believe Leidos has another gear in terms of business capture. And my new chief growth officer has stepped up to his new responsibilities in this regard with vigor. He shares my passion for winning, and we are committed to delivering industry-leading win rates and above market organic growth. My Chief Technology Officer is aggressively focusing our total IRAD expenditures in select areas to ensure we always have differentiated solutions for our customers. And my HR lead is undertaking an intense effort to rebuild our entire employee value proposition, so we remain the best employer in the market for the best talent. Cindy Gruensfelder joins Leidos to lead our Defense System Sector. She brings extensive Aerospace and Defense leadership expertise and is excited to take this part of our portfolio to the next level. And Dan Antle will rejoin Leidos as General Counsel in April. So he will be able to hit the ground sprinting with us. As a result of these and other changes I've made, 75% of my ELT is now new in new positions or have newly enhanced in more focused areas of responsibilities. The momentum is building having the right people in the right positions, rightly aligned. Not only is this team rightly aligned to the jobs they now perform, but I've recommended and the board has approved fundamental changes to our incentive compensation plans. This means our incentives are much better aligned to our shareholders and customers' interests. These changes are fully laid out in our upcoming proxy statement, but big picture, you'll see simpler metrics around revenue, profit and cash with increased emphasis on margin, while retaining a heavy focus on relative TSR performance. This brings me to my third point, expectations for 2024. Chris will provide specifics on our 2024 financial commitments in a few minutes. Notably, our guidance fulfills the three-year commitments that were articulated on our previous Investor Day. We've already exceeded the margin target that we set in 2021, and this level serves as a great foundation from which to grow in the future. Our three-year cash conversion results ought to be right at, at 100% target, which is the right level of performance for our business. And we have clear line of sight to our three-year revenue growth target. While it is important to me that we meet our prior commitments to you, I expect us to do better going forward. Our financial performance should be at or near the top of the industry. And to bring this improved profitable growth trajectory to life, 2024 will include deep strategic analysis within Leidos. Let me summarize this strategy process for you. Each new sector president will bring forward a best-in-class three-to-five year growth and profitability plan for their markets in a today-forward view. And our growth and technology organizations will work together to create a proprietary hypothesis of the future, a future back look at customer challenges and needs for 2033 and 2028. We'll synthesize these today forward and future back views to identify market gaps and growth opportunities, and choosing among them will enable us to crystallize our new North Star. This process is being engineered to position Leidos to lead the industry in revenue, profit, and cash growth, and we look forward to sharing our plan with you at our next full Investor Day, likely early next year. In the meantime, this year, we'll look forward to opportunities to showcase for you many of the differentiated technology solutions, what I call Golden Bolts, we already use and are creating to solve our customers' most vexing problems. Finally, you may have already noticed the launch of a new branding campaign for Leidos this year, Making Smart Smarter. While we've gained important name recognition over our first 10 years, this campaign is about capturing brand recognition for Leidos. As you can see in the example on slide five, Making Smart Smarter is centered around our people. How they and the breakthrough technologies they create in a unique ecosystem with our partners and customers truly set Leidos apart from everyone else. With these three simple words, we'll tell the story of the collective intelligence that is uniquely Leidos. Our campaign will catapult understanding of what Leidos does differently and better than anyone else, and also serve as a beacon for present and future, best of the best employees. In closing, with a growing Promises Made, Promises Kept culture at Leidos, we've put many of the commitments I've made to you over the past nine months in the done category. We've exceeded our 2023 financial commitments. We've enhanced our focus on cost controls and cash generation. We've taken down leverage substantially. We've allocated more capital to shareholders, and we've moved expeditiously to a leaner, more focused organizational structure. By delivering on our 2024 plan, we'll soon put our full 2022 to 2024 Investor Day commitments in the done category also. But we are far from done. We have a busy and productive year ahead of us at Leidos. We will continue to drive toward great full profitable growth, not just revenue growth. We will aggregate our efforts toward better customer outcomes and better business pursuits. And the new leadership team and I will be working every day to make Leidos not just successful, but awesome in every way for every stakeholder. With that, I'll turn the call over to Chris for more details on our 2023 results and our 2024 outlook. Chris. Chris Cage: Thanks, Tom, and thanks to everyone for joining us today. Let me echo Tom and express my gratitude to the entire Leidos team for how we executed in 2023. On balance, 2023 was an excellent year, and our financial performance was well ahead of the pace we set for ourselves at the 2021 Investor Day. Turning to slide six, revenues for the quarter were $3.98 billion. Revenues came in stronger than expected as customers continued spending despite a continuing resolution, and Congress acted to avert a government shutdown. In each quarter of ‘23, each segment grew year-over-year. Adjusted EBITDA was $452 million for the fourth quarter for an adjusted EBITDA margin of 11.4%. Health sustained its excellent performance, and we saw good sequential improvement in the Defense Solutions and Civil Segments. With a keener focus on margins, we exceed our 2021 Investor Day target of 10.5% plus one year ahead of schedule. Non-GAAP net income was $276 million for the quarter and more than $1 billion for the year, which generated non-GAAP diluted EPS of $1.99 for the quarter and $7.30 for the year, increases of 9% and 11% respectively. This strong bottom-line performance came despite a drag from non-operating drivers. The non-GAAP effective tax rate for the quarter came in at 25.2%. Net interest expense was a $2 million tailwind for the quarter based on debt paydown, but a $13 million headwind for the year given the higher interest rate environment. Taken together, tax rate and interest lowered non-GAAP diluted EPS by $0.13 for the quarter and $0.14 for the year. Now, for an overview of our segment results and key drivers, beginning with the revenues on slide seven. With a lot to cover today, I'll focus on the quarterly figures, but you can also see the full year comparisons on the slide. Defense Solutions revenues were up 7%, driven primarily by digital modernization, especially NGEN, offensive hypersonics and the Sentinel Program. Civil revenues were up 2% compared to the prior year quarter. The primary growth driver in the quarter was infrastructure spending by the FAA. Health continued to be a standout performer. Quarterly revenues increased 17% year-over-year, ending the year north of $3 billion. Higher levels of medical examinations was a key driver, as well as expanding capabilities on DHMSM, increasing group events on RHRP, growing our Social Security Administration work, and breaking into new customer spaces like ARPA-H. On the margin front, on slide eight, Defense Solutions showed consistently strong profitability growth. Non-GAAP operating margin was 9% for the quarter, up 40 basis points year-over-year. The increase in segment profitability was primarily attributable to improved program execution and disciplined cost management. Civil non-GAAP operating margin was 10.8% for the quarter, compared to 11.2% in the prior year quarter, which had a rich mix of security product sales. What's especially rewarding to see is sequential improvement in Civil margins for three straight quarters. Health non-GAAP operating margin for the quarter was 19%, which was essentially unchanged sequentially after excluding the $14 million Ecoroll adjustment received in Q3. The 470 basis point increase in quarterly margin was primarily driven by increased volumes, greater efficiency, and better program execution in the medical examination business, all of which led to higher incentive awards. Turning now to cash flow and the balance sheet on slide nine. Operating cash flow for the quarter was $304 million, and free cash flow net of capital expenditures was $226 million. Net cash provided by operating activities benefited from strong collections and working capital management. Day sales outstanding for the quarter was 56, a one-day improvement from the third quarter of 2023, and a two-day improvement from the fourth quarter of fiscal year 2022. For the year, operating cash flow was just shy of $1.2 billion and free cash flow was $958 million for a 95% conversion rate. Excluding the $260 million of one-time cash tax impacts, primarily from Section 174, free cash flow conversion would have been 121%. In the fourth quarter we repurchased $202 million of shares and paid $51 million in dividends. As of quarter end, we had $777 million in cash and cash equivalents and $4.7 billion in debt. With a leverage ratio of 2.8x gross debt to adjusted EBITDA, we are comfortably below our three-times target. Our strong balance sheet gives us flexibility to return capital to shareholders, and we have 13 million shares remaining under our repurchase authorization. On to the forward outlook on slide 10. For 2024 we expect revenues between $15.7 and $16.1 billion, reflecting growth of 2% to 4% over fiscal year 2023. Customer demand remains strong for our products and solutions, and our programs are well insulated from significant budgetary risk. But we are erring on the side of caution given the realities of the current funding environment. The government is still operating under a continuing resolution. Although we believe Congress will likely pass a budget within the next month or so, we cannot rule out the possibility of a sequester and the year-long CR. We are also provisioning for a slight temporary revenue headwind as our business leaders shift their team's focus to higher reward opportunities for Leidos. We expect 2024 adjusted EBITDA margin to again be in the mid to high 10% range, above the target that we laid out at our October 21 Investor Day. We remain committed to long-term margin expansion. To begin the year, we are guiding to non-GAAP diluted earnings per share between $7.50 and $7.90 on the basis of 134 million shares outstanding. This is down an average of 4 million shares from fourth quarter levels, based on Q4 repurchases accomplished, and another 500 million of repurchases anticipated in ‘24. This level of repurchase activity still allows for significant flexibility for additional share repurchases and other responsible capital deployment. Assumed in the EPS guidance is an effective tax rate of 23% and net interest expense of $225 million. Finally, we expect another strong year of operating cash flow at approximately $1.1 billion. Fiscal year 2024 cash flow guidance reflects approximately $60 million of cash tax payments related to the Section 174. 2023 cash performance was exceptional, and we expect conversion to return to normative levels near 100% in ‘24. From a free cash flow perspective, we're targeting capital expenditures of approximately $190 million or about 1.2% of revenues. With broad bipartisan support, the House passed a tax package that restores immediate expensing of R&D costs under Section 174, with retroactive effect to 2022. The bill has yet to be taken up by the Senate. Our guidance assumes the Section 174 cost capitalization rules remain in place, so we would have additional cash to deploy if the House bill becomes law. In 2024, we'll be operating our new segment structure, and to help your modeling, we recast 2022 and 2023 financials in the new structure and filed them with our press release. Let me spend a few minutes outlining these segments and how we see them performing in 2024. The largest, National Security and Digital, includes core Defense and Intel services, digital modernization for U.S. federal customers, and our Leidos Innovation Center. Flagship programs include NGEN, AEGIS, DES, and large Cyber Analysis and Mission Software Development Contracts with the Intelligence Community. 2023 revenues for this segment were $7.2 billion, up 7% year-over-year, with non-GAAP operating income margin of 10%. In 2024, we expect revenue growth within our guided range, with margins contracting slightly. Long term, we see margin upside with shared resources and best practices across the digital modernization space. The Health and Civil Segment will deliver customer solutions with unique capabilities in the areas of public Health, care coordination, life and environmental sciences, and transportation. Key programs include our disability exam work, DHMSM, National Airspace System Support for the FAA, and our DOE and National Science Foundation based support contracts. Last year, Health and Civil generated $4.2 billion in revenues, up 7% year-over-year, with non-GAAP operating income margin 14.5%. In 2024 we expect robust growth beyond the corporate average with margins coming down slightly. This segment offers the most potential upside in ‘24 with growing examination volumes. Commercial & International combines our existing SES, Commercial Energy, UK and Australian businesses. Last year Commercial & International generated $2.1 billion in revenues, up 12% year-over-year, with about five points of growth coming from the Airborne Solutions business acquisition, and non-GAAP operating income margin of 7.8%. Based on actions taken in 2023 within SES, an indirect structure tailored to non-federal work, we expect margins to increase in 2024. Revenues however should be relatively stable and reflect a similar seasonal pattern to 2023. Finally, Defense Systems combines our core Dynetics work with our Maritime and U.S. sponsored Airborne Surveillance Support. In 2023 Defense Systems accounted for $1.9 billion in revenues, up 4% year-over-year, with non-GAAP operating income margin of 8.3%. With additional engineering discipline from the combined organization, we expect to increase margins through better program execution, but revenues should remain relatively flat compared to 2023. In the fourth quarter of ‘23, our customers accelerated Hypersonics Weapon Testing, resulting in pull through work previously scheduled for the first and second quarters of 2024. As a result, the Defense System segment revenues will be backend loaded in 2024. So rolling up to the enterprise level, we expect both revenues and margin to step down from Q4 levels in Q1 and then grow throughout the year. The Q1 step down in margins will outpace that of revenue given the timing of incentive and award fee payments, but we have good line of sight into strong margin performance for the year. With that, operator, we're ready for some questions. Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Jason Gursky with Citi. Your line is open. Jason Gursky: Yeah, good morning, everybody. Thanks for taking the question. Just kind of curious as your putting – about some of the assumptions that are going into the outlook. So I guess on two fronts. First would be kind of the assumptions that are embedded in your guidance related to the DOD budget, both in fiscal ‘24 and beyond as you think about your medium-term targets. Just kind of the growth rate that you are assuming in the DOD's budget. And then secondly, just whether you have anything in your backlog today associated with some of the supplemental funding that has been passed here over the last several years. That's the first question there. Tom Bell: Thanks, Jason. Tom here. I'll go first and then ask Chris to chime in. Macro picture, as Chris articulated, our ‘24 guidance is somewhat conservative given the funding uncertainties on Capitol Hill. So we're not leaning forward assuming that there's growth in the Defense budget this year. It all depends what Congress decides to do in the coming weeks and months. But longer term, sadly, the world is not becoming a safer place, and we don't see that customers are going to be spending less on National Security and Defense. So generally speaking, we see a 3% to 4% increase in Defense budgets over time. But we're going to model all of that as we go through this year of deep strategic analysis in ’24, to make sure that our assumptions going from ‘25 through ‘28 are in keeping with what the budget assumption is from the Pentagon and other Intel agencies in the U.S. Chris, anything you'd like to add? Chris Cage: Yeah Jason, good to talk to you this morning and way to get us started trying to give us long-term guidance questions. But, I would say on the second part of your question relative to the supplemental, it's not an area that we've had very much exposure to at all. Some of the work that we've done there has actually been through our U.K. customer and a little bit of Airborne Support work. So that's not a – hasn't been a driver for us and therefore it's not a risk as that particular funding stream potentially, comes under some pressure going forward. Jason Gursky: Okay, great. I'll leave it at one, so the others can get in and ask some questions. Thanks gentlemen. Tom Bell: Thank you. Chris Cage: Thanks, Jason. Operator: One moment for our next question. Our next question comes from Ken Herbert with RBC Capital Markets. Your line is open. Ken Herbert: Yeah, hey. Good morning, Tom and Chris. How are you? Tom Bell: Good Chris Cage: Good morning, Ken. Ken Herbert: Hey, I just wanted to first start on the Health segment if we could, Legacy Health Segment I guess. I mean it's been pretty significant outperformance as you've gone through ‘23 and it seems like each quarter, it continues to be better than expected. Can you just maybe walk through as you look at the guide for ‘24? I know obviously you've got now Health and Civil combined, but as you think about the Health in particular, how does that continue to trend and what's the visibility on continued strength, especially if you look at the examinations and everything else that have driven much of the upside? Tom Bell: Thanks, Ken. I'll start and then hand it over to Chris. We are so proud of Liz and the Health team for their performance, their sustained performance that you call out over time. And, it is important to recognize that that's a unique mix of unique customer understanding that we feel we have and then unparalleled service to our veterans and others that we serve through the deployment of technology and artificial intelligence in the solutions that allow us to have more throughput for our customers, so that our customers can be served faster. Obviously, 13% revenue growth for the year is based on excellent program execution and profitability and passing the $3 billion threshold for that business is huge, if you don't mind me saying. So we're very proud of Liz and the team, macro, and we see that continuing in ‘24. Chris? Chris Cage: Yeah Ken, just to add on a little bit, obviously the disability examination work has been a standout, but there's a lot more going on as I mentioned in my prepared remarks, and really looking to extend our reach on some existing programs and there's plenty more new programs in the pipeline the team's pursuing, so excited about the prospects there. As we said in our guidance, we'll continue the outperformance from a top-line growth perspective heading into ‘24. On the margin front, a slight pullback, but that's really because we're continuing to invest, we're investing in our capabilities, we're investing to improve the workflow and the infrastructure to allow for that increased volume on the disability exam front. And really what's important about that is making sure the veterans get served and we love to see those volumes increase. And clearly that's not a baseline assumption in our forward guidance that we see a higher level of activity there, but it's certainly a scenario that we have to be prepared for, and so we're making sure we're ready to step up to meet that demand if it happens. Ken Herbert: Great. Thank you very much. I'll keep it there. Tom Bell: Thanks Ken. Operator: One moment for our next question. Our next question comes from Sheila Kahyaoglu with Jefferies. Your line is open. Sheila Kahyaoglu: Good morning, Tom and Chris. Thank you so much. Two questions, if you don't mind. Maybe one big picture and then one on the segment restructuring, resegmentation. So first on the resegmentation, National Security, it seems like it mostly split off on Defense. The margins in ‘23 are about 10%. And I think Chris, you might have mentioned that there's opportunity for more margin expansion in that segment. Can you just talk about what you see there? Chris Cage: Sure. Yeah, absolutely, Sheila. Thank you. So, the National Security and Digital Segment combines a couple pieces of our business, one of which is our new digital modernization sector, and that's the one that we see a lot of uplift over time. Steve Hull and the team have already highly energized around bringing together some commonality that we've been using to serve multiple customers and bringing those into repeatable solutions. And so we're often running there and really looking at how we get that leverage from a combined bench, a combined workforce and investing class tools and repeatable solutions. So we see that opportunity. And then, of course, within the core, National Security work we do with our Intel customers, that has been exceptionally well run. And we continue to expect excellent program execution and performance and maximizing our opportunities with that client base as well. But the longer term margin improvement that we see in the near term relates to the gains we can make in digital monetization space. Tom Bell: And just for clarity, the third part of that business is our LinC, our Leidos Innovation Center. And so while that has historically been home roomed under our Dynetics subsidiary, we've pulled that up to the CTO level, so that the innovation and entrepreneurial spirit that it deploys, can be deployed for all the sectors and all the segments of Leidos. So that's the third part of that component Sheila, just for clarity. Sheila Kahyaoglu: Okay, got it. And then Tom, maybe a big picture for you. You talked about incentive comp changes that'll come out in the proxy. And you highlighted profitability. I think I know why you did that. But where do you think profitability could go just given peers in this business are at the 11% mark at most? Tom Bell: Yeah, how high is high? We don't know, Sheila. And that's part of the enjoyment of 2024 and the challenge that we're giving each of the sector presidents to come forward with their sector best-in-class growth and profitability plan. Obviously, we're guiding to mid to high teens in 2024. Obviously, that is already at a pretty world class level. Excuse me, high tens. Chris Cage: Mid-high 10s. Tom Bell: Yeah, high 10s, not teens. That would be... Chris Cage: Someday Tom. Tom Bell: That would be someday. But mid to high 10s. But you know, in the fourth quarter, we hit 11.4. So is cresting over 11 out of the range of possibilities some year in the future? I don't know. We'll see. But we're very focused on restoring bottom line growth as we increase top line growth. And as a result of both of them, it'll be a very accretive business from a cash standpoint. Chris Cage: Sheila, I'd only add on, obviously again, as we gave you some color commentary on the new segments, there is a lot of gas in the tank that we see on Defense Systems and Commercial & International. They'll step up in margins in ’24, but that could be a multi-year runway for those pieces of the business and so we've been on this journey for a period of time now. Tom's come in and accelerated that journey, and I think we're seeing what the team's capable of. So excited about where the margins could go over time. Sheila Kahyaoglu : Great. Thank you. Operator: One moment for our next question. Our next question comes from Mariana Perez Mora with Bank of America. Your line is open. Mariana Perez Mora: Hi everyone. Tom Bell: Hey, good morning. Mariana Perez Mora: I'll follow-up on Defense Systems and Commercial & International. So you think Defense System is going to be flat this year, but hypersonic should be something that like actually has a lot of upside opportunity. And I could imagine the same from the [inaudible] in international. Could you please give us a sense of like how the CAGR should look like in a three to five year range from now? Tom Bell: So she – I'm sorry Mariana, I think you're asking about hypersonics and customer demand for hypersonics and then international. The hypersonics is a good news story. And as Chris alluded to in his comments, we saw a pull in to ‘23 of work we thought was going to be in the first half of 2024 of our customer demand signal for hypersonics. We're in deep dialogue with the customers about how we continue to accelerate that business, because that is a capability that the United States needs to deploy robustly. So again, it's kind of like I answered Sheila, I don't know how high is high, but there is very, very strong demand for the United States to field hypersonic capabilities that are in the world class range and obviously we are in a very good position to be a key component of those hypersonic systems going forward. So, I think you're going to continue to see pull through there and focus. I think on the international side one of the most exciting things we have going for us is the strong footprint we have organically and already, obviously in the United States, but also in the UK and Australia. And there is great customer interest in what Leidos can do around AUKUS, not in Pillar 1. I mean, I have no interest in building nuclear submarines, but I really am interested in helping those customers in what they call Pillar 1 and Pillar 3, which are in the Intel data and digital systems worlds. So very much in our wheeled house for what we do here in the United States and in the UK and Australia, and very much a growth engine for us should be how we leverage AUKUS going forward. Chris, anything you'd like to add? Chris Cage: Well, one more point Mariana, back to the Defense Systems. We talked about hypersonics, but in addition to that, the force protection work that we talked about in the past. The team has been working hard on the IFPC Enduring program and we're excited about the fact that we delivered some of the first fieldable prototype launchers in December. That will transition into a phase here early in the year, but we're looking forward to a potential award in that particular area on LRIP [ph] and then full rate production later in the year and that also is a growth catalyst that we see. So when you start to look at that CAGR over a multi-year time horizon, our expectations is those businesses will be accelerating, and Tom talked to a couple of key points there that we see driving that activity. Mariana Perez Mora: Thanks so much. And if I may, more of a program related question. Do you have an update on how CHS-6 is trending and how much do you expect the program to contribute into 2024? Tom Bell: Yeah Mariana, let me start and then I'll hand it over to Chris also. Obviously CHS-6, a major franchise win for Leidos in the fourth quarter of last year, one we're very proud of the team for. And it's a model that we expect to deploy going forward where we bring customers a value proposition that is compelling to them, both in the delivery we can give them and the speed with which we can spool up to solve their problems. But, one of the things that is not understood about CHS-6 is it's actually a very broad mandate for the customer and it's not just IT, it's the whole C-5 ISR domain. And so not only is it broad in what the customer can procure through CHS-6, but it's also a great example of how we can use the breadth and scale of Leidos to solve problems for customers. So not only is that home-roomed in one sector, but the Dynetics business is going to be a key part of helping it deliver for our customers. So we're very happy about that and the basic catalog is being built out and the orders are starting to come in, but Chris will give you some more details on that. Chris Cage: Yeah, just to add some color and I will stay away from specifics, but obviously this is a program we expect that will build in revenue and profitability over the life of the contract and a long contract like this does have a ramp up period. Tom's right, and we were encouraged by the order activity, some long lead items that will actually contribute to revenue in ‘25 even, but we're rounding it out. The profile is going to depend greatly upon what those particular technical solutions, but we're leveraging our vendor network, we're leveraging AI, we've got a great team. There are some activity that we're not interested in low margin work, so some of the pass through will not show up as revenue for Leidos, but overall you can expect this to be an accretive margin program to Leidos overall and with a ramping revenue profile probably more later in the year. Mariana Perez Mora : Thank you so much. Operator: One moment for our next question. Our next question comes from David Strauss with Barclays your line is open. Unidentified Analyst : Hi, good morning. This is actually Josh calling on for David. Tom Bell: Hey, Josh. Unidentified Analyst : So hi. I wanted to ask about the revenue guidance for next year. What when you have as you just discussed CHS-6 and ramping and some of the Health care programs really strong. What are some of the – are there any offsets to get to the only 2% to 4% growth next year? Chris Cage: Yeah David, let me start and Tom can make some bigger picture and comments. I mean we've talked in the past about Health has been great, but the DHMSM program as an example, we're through the deployment phase essentially and so even though we've won some additional work there with Digital First, there is a step down in volumes on that particular program. There was a National Security Intel program that transitioned away from us earlier last year, so that's a little bit of a headwind. So there's always some puts and takes in the portfolio, but more big picture, we're focused on – there's some budget uncertainty. Customer demand has been very strong in Q3 and Q4 and that led to our performance. But as we look ahead to early parts of the year, a lot of the activity will need to transition into Q3 and Q4. So it all depends upon how quickly get certainty in our budget environment and make sure customer demands remain robust. Tom, anything you'd add to that? Tom Bell: Well, I would just add Josh, there's two macro headwinds that informed the conservative end of our range. One was the over performance in 2023 that makes year-on-year comparators difficult, and in this case challenging. We are very proud of our performance in ‘23, but that creates a headwind for ‘24 year-on-year revenue growth, against also the backdrop of the budget situation that is not yet crystal clear here in Washington, DC. And so while the 2% provisions against the worst case scenario in that, we will be working with the team to meet or exceed the high end of that range as we prosecute the year. So you can be sure we won't be satisfied if we just hit the bottom end of that range. Unidentified Analyst: Great, thank you. Operator: One moment for our next question. Our next question comes from Louie DiPalma with William Blair. Your line is open. Louie DiPalma : Tom, Chris and Stuart, good morning. Tom Bell: Good morning. Chris Cage: Good morning. Louie DiPalma : Tom, you discussed how you believe Leidos can increase its business capture. Does Leidos consider its Gremlins Air Vehicle a viable candidate for the emerging high profile drone replicator program? Tom Bell: The Gremlins program was a fantastic demonstration of our prowess in aerospace. For those that don't know it, it was a remotely piloted vehicle that was also recaptured and then brought on board another manned aircraft. So a fantastic capability. But at this point, no. No, there's no discussions going on with the customers around that program going forward, although it has spawned other unmanned capabilities that we are talking to customers about, that help inform possible growth aspects for our Defense Systems business. Louie DiPalma : Great. So is there a possibility that some of the dynamics drone assets can be involved in replicator. Tom Bell: There is certainly a possibility, yes. Louie DiPalma : Great. And a follow-up on the international opportunity. You referenced how there is demand on the international front for the Leidos data and digital services. It would seem that allies have similar IT Cloud networking and zero trust ambitions as the U.S. and you are obviously the largest provider of these types of mega projects. And I was wondering, can you bring variance of IT mega projects such as the navy NGEN the NASA AEGIS and Enclave to allies or are there security restrictions as it relates to personnel. And are you focusing more on IT services or hardware as it relates to the international opportunity. Thanks. Tom Bell: Thanks. Thanks, Louis. Yes, so the beauty of Pillar 2 of AUKUS is not only our presence in the U.S., the UK and Australia. But the fact that the work that is being done in those countries right now in the area that you referenced, is to a large degree already a place that we're playing in. So the beauty of AUKUS is an incentive for the nations to collaborate. We are very excited about the opportunities that gives us to lower the thresholds of sharing data. And obviously there's also big parts of the AUKUS legislation that lower those trade barriers, lower the ITAR restrictions and allow greater data sharing. So we see it as an open door for us to promulgate Leidos capabilities that hereto for Louis, kind of to your question, have been so piped in one country or the other across all those countries, and allow these great allies to punch above their weight collectively. Louie DiPalma: Great. That's it for me. Thanks everyone. Tom Bell: Thanks, Louis. Chris Cage: Thank you. Operator: One moment for our next question. Our next question comes from Peter Arment with Baird. Your line is open. Peter Arment : Thanks. Good morning, Tom and Chris. Excellent results. Tom Bell: Thank you. Peter Arment : Hey, a quick one on just maybe an update on DES and how that's kind of projected for the year. And then Tom just more of a bigger picture question on kind of a capital deployment versus M&A. You've done – made just a tremendous amount of progress realigning the businesses and you've turned over I think, what you said, 75% I think of your executive leadership team I see there in new roles or has been replaced. Just how are you thinking, is ‘24 more of a year where you’re just going to continue to be internally focused and kind of showing the progress versus how do we think about that versus M&A and just regarding you know buybacks as a preference. Thanks. Chris Cage: Yeah Peter, it's Chris. Let me get started with a little bit of color on DES and then turn it to Tom. I mean. You know again this has been a longer growth story than we originally anticipated, but it's a nice one. The team is performing exceptionally well. We've actually extended from one task order now to five active task orders under the program, and it will be on a growth trajectory over the still the next couple years. ‘24 will be stronger than ‘23 on both the top and bottom line and we've seen good migration on the planning efforts, working closely with the customer, and the DAFA’s to get them ready for more migrations as we progress through 2024. So all I can tell you is it'll be a contributor to growth this year, not as significant as maybe once envisioned, but really looking forward to that growth rate continuing to accelerate later this year and into ‘25. Tom Bell: And Peter, I'm going to answer you’re – the punch line first and then give you some color. No, M&A is not a priority in 2024. It continues to be in the playbook, but subordinated to other deployments of cash. As Chris articulated in his prepared comments, we've already provisioned to repurchase $500 million worth of Leidos shares this year. I'm happy to share with you that that is not all the bullets in our ammunition. We have other ability to deploy cash for great ideas that start to come out of the strategy process that I spoke to. And we're very excited about bringing forward those ideas and deploying cash responsibly, organically in great capabilities and great technologies that will enable us to have differentiated solutions going forward. Ultimately the five sector strategies that the Presidents are building will not ignore M&A, but the primary focus first and foremost will be what are the gaps, what are the needs we see our customers needing and how do we position Leidos best for those over time. Obviously if we can build it, we have the funds and the capability to provision for that. But if it's better, faster, cheaper and more expeditious for us to buy that, then M&A can come back into the playbook. But those will be a very thoughtful process through this year of strategy, where we carefully think through the playbook for what inorganic plays make sense for the North Star strategy we're creating. I hope that helps Peter. Peter Arment : Very much so thanks. Thanks Tom. I appreciate it. Operator: One moment for our next question. Our next question comes from Noah Poponak with Goldman Sachs. Your line is open. Noah Poponak : Hi. Good morning everyone. Tom Bell: Hey Noah. Chris Cage: Hey Noah. Noah Poponak : The Civil margin, I guess for the full year ended up flat year-over-year and not a ton of discussion in the prepared remarks here, I guess, despite the consternation there early in the year. So have we sounded the all clear? Maybe you could just spend a little more time on where you stand in stabilizing the challenges you've had there. And is the quarterly progression on the Civil margin through 2024 a ramp up like the last two years or is it more stable? Chris Cage: Yeah Noah. Hey, this is Chris. I'll get started and maybe Tom can talk big picture. So Civil is obviously more than SES, but that kind of is implicit is where you're going. And I really applaud the team for great progress and ‘23 to right the ship, and ultimately revenue and margins were in line with our expectations. So the SES business itself is improving. We were higher on revenues year-over-year, but minimal contribution sequentially from product mix. So as we pivot into ’24, we'll expect the pattern to kind of not be as pronounced as in ’23, but probably lower in the early part of the year, accelerating towards the back half of the year, how we see that rolling out right now. We're not all the way done, but we are you know well down the road on executing all of the turnaround efforts that we put in place and some of the things where we're exiting certain geographies. That's a thoughtful, carefully orchestrated process, right, that takes sometimes many quarters to fully see it through. But I'd say, we're in line with where we had hoped to be at this point in time and I think the business is looking forward to better days ahead. Tom Bell: Yeah, I would echo that Noah. And just give a quick shout out to Vicki who has taken on the responsibilities for this sector with great vim and vigor, and the person leading SES, Michael Van Gelder, just a rock star for us at Leidos. And they are taking this reset business and really they are excited about the opportunities that the market is presenting to us to grow, both in the traditional places and non-traditional places. So they and we remain bullish on the long term outlook for this business and we're excited to be in this aspect of the market. Noah Poponak : Okay, great. And then just on Health. You've sort of touched on this, but just the year-over-year comparison will be pretty different in the first half or the back half next year. And then, the exit rate on the margin is a lot different than where you started the year. Any color you can provide on the cadence of the growth rate and the margin through the quarters of the year, not to ask – like they ask quarterly questions, but just seems like we could all be kind of thrown off on versus what you're expecting there. Tom Bell: Yeah, I mean Noah, it's a little nuance there, and you know again without too many specifics, just keep in mind, in Q3 we did have a request for like a little adjustment. That contributed some uplift in profitability and Q4 we benefited from nice incentive performance. I think our commentary in the past and it still holds true is, the customer is expecting industry to continue to step up volumes to meet the increased demand and therefore the threshold on throughput continues to rise to achieve full incentive. So early in the year our expectation is we'll have some work to do to be ready to be able to prosecute that level of demand to earn full incentives. So therefore it's probably safer to assume that pattern will improve as the year progresses forward. The main point is, investing to make sure are the veterans get treated and seen and get the care and the benefits they are entitled to and we are looking forward to continue to make those investments to prosecute that work as timely as possible. Noah Poponak : Okay. Thanks so much. Tom Bell: Thank you. Operator: One moment for our next question. Our next question comes from Bert Subin with Stifel. Your line is open. Bert Subin: Hey, good morning, Tom, Chris. Tom Bell: Hey, Bert. Good morning. Bert Subin: Chris, if we think about the revenue growth for you in terms of hiring inflation, does 2% to 4% growth indicate you're carrying some additional costs just because inflation is going to be in that range and hiring is presumably positive. And then on, I guess, another sort of related question on the revenue side, as we think about outlays like the normalizing at some point soon, how do you capture that in that 2% to 4%? Chris Cage: Yeah Bert, obviously the inflationary environment has been volatile, but it's been improving. And so as we progress into ’24, our outlook in that regard is it's moderated down relative to where we were a year ago. So I'm not worried that we've got an imbalance between our top line and bottom line as it relates to inflationary impacts on the business. We've anticipated a robust merit pool for our labor costs and we understand how those will be passed along to certain customers under our cost reimbursement programs. But our pricing patterns have anticipated this inflationary environment now over the last couple years. So as it relates to protecting the margin, the downside on inflation, I feel good about where we're positioned there. Obviously, on the outlay side, there's always this lag, right, between the budget and the outlay and the timing that it's difficult to project. Certainly it's an area that we could see some things accelerate in the near term, depending upon how we get through March in the budget environment. But right now I'd say that, that's not a significant driver as far as any pent up outlays that we're waiting to have, happen to drive significant growth catalyst for us. Tom Bell: And I – if you don't mind, Bert, I'm going to piggyback on that to give some comments about our people. We ended the year with 47,000 employees, up about 3% year-on-year. But the most exciting thing about our whole HR system in 2023 was attrition at very good levels for our industry, low levels for our industry. And one of the reasons we do that is not only do we have a competitive structure in our compensation plan, but we also are investing in our talented employees with technical upskilling, which is being taken up by thousands of our employees who remain curious about things like AI and Cyber and Autonomy. And the technical upskilling we have allows us to hold on to those employees and upskill them in place, because as you'll appreciate, it's one thing to pay for talent. It's a whole different ball of wax to have to constantly bring on new talent. So we're very excited about the attrition rates being low, the uptake in our technical upskilling being very high, and therefore that being a lever that we're using to manage our personnel costs. Bert Subin: Got it. Okay. Thanks, Tom and Chris. Just a follow up on – we've had a lot of questions on the VA side. I guess I'm curious, Tom, as you've gone through sort of this review of the business, how big do you want the clinical business to be? Clearly the VA-MDs have been a pretty material driver of profitability upside, and I'd have to assume the ROIC profile is sort of on the higher end of the company. Are there other meaningful opportunities out there, like not maybe the VA-MDs, but like RHRP and Military Family Counseling and others in the backlog and the pipeline that you think, could make clinical a bigger part of the business longer term? Tom Bell: Yeah, the short answer to that is, yes, we do think there are opportunities for us to grow this business, and that is the very task that Liz and her team are undertaking. It's one thing to say yes, there are opportunities. It's another thing to think how do we prudently and purposefully execute a plan to grow that business in the lowest risk possible. That's very much what Liz and her team are focused on right now and part of the process that we'll be reviewing through the year. Bert Subin: Great. Thank you for the comments. Stuart Davis: Abigail, we're at the top of the hour, so we'll just take one more question. Operator: Thank you. Our last question. One moment for our last question. Our last question comes from Matthew Akers with Wells Fargo. Your line is open. Matthew Akers: Yeah, hey guys. Good morning. I think we're squeezing me in. Tom, you alluded to some IRAD targeted investments in the opening remarks. Can you elaborate on those at all? What capabilities you're going after? Tom Bell: Sure. There's actually two parts of that equation, Matthew. One of the things that we're focused very much on with our link being elevated to our CTO office is CRAD [ph]. So making sure that we get customer focused IRAD, which has a two prong benefit. (A), it is doing the things that the customers need done. So that points you in the direction of what is the scratch they want to itch, but also its funded work that we can co-invest in. So we're very focused on targeting CRAD in the areas of technology that are going to differentiate us going forward, and we're very much focused on matching our investment, our IRAD in those focused areas also. Macro picture, obviously Software, Cyber, AI, Maritime Autonomy are four of the top things we're investing in. But again, as part of the strategy process, we're asking each sector to identify the Golden Bolts that will truly differentiate them over the coming three to five years, so as to give them solutions to the customer problems that are emerging over that same period of time. So we have an articulated playbook of focused IRAD. We have an articulated playbook of CRAD that we're going after, but we're also creating organically a poll from the businesses of what would you have me invest in that will differentiate my solutions and my capabilities to solve my customers problems. Matthew Akers: Great. Thanks for the color. And I guess one for Chris. On Section 174, can you just remind us how much you have you could potentially recover if that does get overturned? Chris Cage: Yeah, sure Matt. And I mean, it's a nuanced situation, so there's some variables you got to think through. Obviously, looks like it may be retroactive. And so if that were to be the case, and if there is a path forward to recovery, monies that were previously paid in the year, and then we have some state taxes that have to follow suit. If all that lines up, it could be north of $200 million of benefit to Leidos. There'd be a little bit of modest uplift on the effective tax rate. But net-net, it would be a great benefit to the company and add to that additional amount of capital we'd have to consider how we deploy appropriately in the later part of the year. So a little bit over $200 million plus, not having to pay the $60 million that we've got teed up in ‘24. So goodness all around. Matthew Akers: Great. Thank you. Tom Bell: Thank you. Operator: This concludes our question-and-answer session. I would now like to turn the conference back to Stuart Davis for any closing remarks. Stuart Davis : Thank you, Abigail, for your assistance on this morning's call, and thank you all listening on the line today and this morning for your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Operator: Greetings. Welcome to Leidos’ Third Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note, this conference is being recorded. At this time, I’ll turn the conference over to Stuart Davis, from Investor Relations. Stuart, you may now begin. Stuart Davis: Thank you, Shamali, and good morning, everyone. I'd like to welcome you to our third quarter fiscal year 2023 earnings conference call. Joining me today are Tom Bell, our CEO, and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you'll also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to Slide 2 of the presentation, today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, includes risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on Slide 3, during the call, we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I'll turn the call over to Tom Bell, who will begin on Slide 4. Tom Bell: Thank you, Stuart, and good morning everyone. It's really good to be with you today. I'm pleased to report another strong quarter for Leidos this morning, a quarter of record revenue, earnings, cash flow, bookings, and backlog. Revenue grew 9% year-over-year this quarter, our fastest (indiscernible) two years, and well ahead of the pace implied in our guidance. Customer demand remained robust across all three of our segments, and we are proud of the work that we accomplished with our customers to deliver on important missions. Non-GAAP EPS was up 28% year-over-year, with an adjusted EBITDA margin of 11.5%. Cash management and collections were even stronger. Operating cash flow of $795 million was already in excess of our existing full year guidance of at least $700 million. As a result of this quarter's strong performance and the momentum established in our second quarter, we are raising our 2023 financial guidance across all measures. This quarter's results and our improved outlook were driven by the substantial progress the team has made delivering on our performance initiatives articulated during our last call. First, instituting a promises made, promises kept culture here at Leidos. Second, analyzing and improving acquisition performance. Third, enhancing business development performance and backlog quality. And fourth, sharpening Leidos’ strategy. Let me speak to each of these initiatives in turn. First, we're executing well on creating a promises made, promises kept culture here at Leidos, challenging ourselves to consistently deliver on the expectations we set for ourselves, and ensuring that we're having candid conversations about what is working and what can be improved. We're taking decisive actions to reallocate resources and course correct when needed. The team understands that creating this culture is not a one and done or twice as nice event, but rather a quarter-by-quarter disciplined drumbeat. Second, we're taking definitive actions to enhance performance, drive predictability, and de-risk our Dynetics and security products or SES businesses. In Dynetics, we're in the final stages of business integration across all financial contracts, supply chain, manufacturing, and HR systems. This will result in full proactive management visibility into the business, better business efficiency, and a better employee experience. We've added significant engineering and program management expertise to Dynetics to better serve our customers throughout critical programs of record. The growth outlook for Dynetics is strong in the three priority areas I identified in our last quarter. In hypersonics, we're ramping up production rates, while looking to improve effectiveness and lower costs. In small satellite payloads, we have all four Wide Field of View tracking layer Tranche 0 payloads in orbit. Moreover, we're executing on Tranche 1, and recently submitted and recently submitted our proposal for Tranche 2. In force protection, we're tracking toward government-level development testing of IFPC Enduring Shield in early 2024, and we're making progress on the persistent surveillance needs of the Army and Marine Corps. In SES, we saw improvement in the quarter on revenue and margin, coupled with strong bookings. We bolstered our supply chain resiliency and took costs out of the business to create more predictability. At the same time, consistent with the promises laid out last quarter, the team has critically evaluated the business to identify unprofitable product lines and unfavorable geographies, and we've updated our sales projections to better reflect current customer buying behavior. Based on these candid evaluations and proactive measures to right-size the business, we are taking a non-cash pre-tax charge of $688 million. As previously disclosed, the market has changed since the SD&A acquisition and won't return to pre-pandemic levels as fast as previously expected. As a proof point, the TSA administrator testified to Congress recently that the rollout of CT at the checkpoint would not be completed until 2042 at current funding levels. Broadly, customers are delaying recapitalization decisions and holding onto existing machines longer. With this as a backdrop, the team has moved to right-size the business, discontinue sales of an unprofitable product line, and exit numerous higher-risk, lower-return geographies. We remain committed to the overall security products market where we offer differentiated technology-driven solutions. Security concerns will be just as, if not more pervasive going forward, providing a long-term growth opportunity for Leidos. This includes the regulated aviation and ports and border markets, as well as commercial infrastructure security and loss prevention markets. The definitive actions we have now taken will better position our security business to grow from here in both margins and earnings. We also made progress on our third initiative, delivering exceptional business development performance in the third quarter. $7.9 billion in awards is a new quarterly high watermark for Leidos. Our book-to-bill ratio in the quarter of 2.0 brings our year-to-date and trailing 12-month ratios to 1.2. But more important to me, our $38 billion of backlog is now $4 billion larger than last quarter’s, and supports our growth and margin objectives. This is what I was referring to last quarter when I mentioned growing our total backlog over time with quality wins. Let me touch on a few of those quality wins this quarter, which demonstrate the ways Leidos provides differentiated solutions to meet customer (indiscernible). The largest win was the Army Common Hardware Systems’ sixth generation, known as CHS-6, which is a single-award IDIQ with a potential value of $7.9 billion over 10 years. Through technology, we'll be streamlining and optimizing complex supply chains and transforming logistics to be resilient to supply chain disruptions and cyber risks. Because we offered the army a truly differentiated solution, this award was not protested, and task orders are already beginning to flow. Please note, because of the nature of IDIQ contracts, CHS-6 did not material - did not contribute to our record Q3 bookings and backlog that I mentioned earlier. We also had two large Recompete awards in our Intelligence Group that secure our portfolio for years to come. On a $900 million contract to support and enhance Department of Homeland’s security networks, we'll enable cross-agency intelligence sharing and secure collaboration, while delivering capabilities like quantum resistant cryptography, AI operations, robotic process automation, and classified cloud service integration. On a $700 million contract to provide prototype and technology development support to a longtime customer, we'll identify emerging technologies and develop new tools, techniques, and cyber capabilities to enhance their mission. My final callout is a $125 million contract to defend army weapons systems from cyber electromagnetic activities. This award builds on the R&D and field testing we've been doing for years, and it's another example of Dynetics’ ability to transition from prototypes to fielded capability. You'll notice that cyber is a common theme on each of these wins. Cyberattacks are a persistent, vexing problem for our customers, and Leidos is a top provider of full spectrum capabilities and services. In keeping with our approach of anticipatory technology investment, we continue to focus on addressing the next generation of cyber threats, with emphasis in zero trust, quantum proof encryption, network Defense, and cyber physical systems. We also anticipated the convergence of cyber and AI, what we call cognitive cyber, years ago. We've matured a number of technologies and capabilities in this area into pilots that defend against AI-based cyberattacks. As a key driver of our business development strategy, we'll continue to invest in differentiators in areas of critical importance to our customers. Fourth, we're executing a multi-phase, strategic sharpening under the effort we call Leidos Next, a robust journey to unlock the next level of technological innovation, the next level of execution and performance, and the next level of customer success. The goal of Leidos Next is to create a company with a much clearer and even more inspiring vision, our new North Star. We want to become the best company in the world that's solving a core set of problems for our customers and the best employer in the world, hiring and retaining the most talented people in order to do this. This is the essence of Leidos Next. As an enabler of Leidos Next, we will be simplifying our organizational structure to promote operational excellence, allow for faster decision-making, and more tightly align our business around key technology discriminators. This more focused, capability-oriented structure will better enable us to create clear, differentiated growth strategies for each market we serve, allow for more targeted and efficient investment in the highest areas of potential, and enable repeatable solutions to drive profitable growth. Each new sector has ample room for expansion, while benefiting from the collective strength and scale of our $15 billion company. Beginning in 2024, we’ll operate in five sectors that are focused on specific defined capability sets we bring to our customers. Health and Civil will deliver customer solutions with unique capabilities in the areas of public Health, care coordination, life and environmental sciences, and transportation. National security will combine all our technology-enabled services and mission software capabilities for Defense and intel customers in the area of cyber, logistics, security operations, and decision analytics. Commercial and international will combine our existing SES commercial energy, UK, and Australian businesses. Digital modernization will bring together our IT operations and digital transformation programs. This will allow us to serve all our digital transformation customers with better scale and speed brought about by better repeatability of best-in-class solutions with greater efficiency. And lastly, Defense systems will combine elements of Dynetics and our prior Defense business to develop and produce advanced space, aerial, surface, and subsurface manned and unmanned Defense systems. By streamlining the organization and encouraging decision-making at the appropriate levels, we’ll be more efficient and responsive to market changes and customer needs. I'm also upgrading several existing executive leadership team positions. We'll centralize strategy, business development, marketing, communications, government relations, all in one value stream under a new Chief Growth Officer. As such, we'll rejuvenate our customer-centric business approach. Our new Chief Performance Officer position will spearhead program execution to ensure that we keep our commitments to customers, as well as drive cost efficiencies through world class supply chain management, IT delivery, and real estate portfolio management. Lastly, our Chief Technology Officer will now also lead LinC, the Leidos Innovation Center, adding even more emphasis on (technology) innovation and development, and making a profound organization-wide commitment to discovering, developing, and deploying market-differentiating technology, Golden Bolts. We're placing technology innovation at the forefront of our sharpened Leidos Next North Star strategy. Later this week, we'll announce our sector presidents and those who will serve in these key positions. Finally, as I mentioned on our last call, a key element to our approach going forward will be disciplined resource allocation both internally and externally. Internally, last quarter we acted to refine our investment strategy toward those areas of best overall value to the enterprise. Our BD teams have removed opportunities that do not have a clear path to an acceptable market and are reallocating our resources and realigning our pipeline to better achieve top and bottom-line growth for Leidos. Externally, as promised, our team deployed capital during the third quarter towards debt reduction to reach and slightly surpass our previously announced target leverage ratio of three times gross debt to EBITDA. After reaching this milestone, and with near-term acquisitions not a priority for this business, I recommended, and the Board of Directors approved, the first increase in our dividend in over two years. Shareholders of record on December 15 will receive a dividend of $0.38 a share, a 6% increase over our past dividend. Our strong balance sheet enables us to deploy additional capital to shareholder returns. With a stock price that does not fully capture our earnings and cash generation power, we expect share repurchase to be a primary focus for excess cash in the near term. And as we look to the future, we expect earnings and cash to grow, and remain committed to this disciplined capital management and deployment policy. In closing, we're building momentum with two successful quarters as we work toward ending 2023 in a position of strength. Our Q3 results speak to our ability to focus, grow the business, grow earnings, and generate robust cash conversion. I'm very excited about our new organizational alignment for 2024, our new North Star coming into focus, and indications of the full potential of this business becoming evident. With that, I'll turn the call over to Chris for more detail on our financial performance and updated outlook. Chris Cage: Thank you, Tom. Despite our GAAP loss, our third quarter operating results were positive across the board, and speak to the underlying strength of the team, market position, and management discipline. Revenue growth, profitability, and cash conversion all improved not only year-over-year, but also compared to a very strong Q2. Our enhanced outlook puts us on track for an excellent 2023. Turning to Slide 5, revenues for the quarter were $3.92 billion, up 9% compared to the prior year quarter. Revenue growth has accelerated each quarter this year and was ahead of our long-term target in Q3. Growth was robust in all three of our reporting segments, especially in Health. Customers continued to expand scope on existing contracts ahead of an uncertain budget environment. Adjusted EBITDA was 451 million for the quarter, up 21% year-over-year, and adjusted EBITDA margin increased 120 basis points to 11.5%. I'll get a little more granular later, but big picture, Civil and Defense profitability were in line with the year-ago quarter, and Health was up substantially. Non-GAAP net income was $283 million, and non-GAAP diluted EPS was $2.03, both up 28% compared to last year. Below EBITDA, a lower effective tax rate added about $0.08 to EPS, which offset a $0.02 headwind from increased interest expense. Turning to the segment drivers on Slide 6, Defense Solutions revenues increased 7% year-over-year. The largest growth catalyst were in digital modernization, offensive and defensive hypersonics, and our Australian Airborne Solutions business. Defense Solutions Non-GAAP operating income margin increased 30 basis points from the prior year quarter to 8.4%, with some milestone achievements and strong cost control. That said, we did have some unfavorable EAC adjustments as we wind down prototype developments on a couple of programs, which led to the 90 basis point sequential decline in margin. As we complete systems integration and add technical depth, we are committed to delivering better and more predictable returns at Dynetics. Civil revenues increased 6% compared to the prior year quarter, driven by continued recovery in security products, infrastructure spending at the FAA, and increased demand for engineering support to commercial energy companies. Civil non-GAAP operating income margin was 10.4% compared to 11% in the prior year quarter. The year-over-year segment profitability decreased as a result of the mix of security product sales. The changes that we've implemented, including a leaner cost structure, improved supply chain and rationalized product and geographic portfolio, will stabilize and enhance the margin going forward, and did contribute to the 130 basis point sequential increase in Civil non-GAAP margins. Health revenues increased 18% over the prior year quarter, driven by higher levels of medical examinations and growth on our Social Security Administration’s IT work. Non-GAAP operating income margin came in at 20.4%, compared to 15% in the prior year quarter. The increase in segment profitability was driven primarily by the increased volumes from PACT Act and strong incentive fee performance in the medical examination business. In addition, we received an equitable adjustment to cover costs incurred as a result of the COVID-19 pandemic. This adjustment added $14 million to both revenue and operating income, similar to the recovery incurred in the second quarter of 2022. We'll operate in and report on these three segments through Q4, and then we'll move to the five-sector structure that Tom described. For financial reporting segmentation, we'll combine the national security and digital modernization sectors based on their similar economic characteristics. The remaining three sectors, Health and Civil, Defense Systems, and Commercial and International, will be their own reporting segments. We believe the new segmentation will enhance visibility and provide investors and analysts a clearer picture of Leidos going forward. We're still completing the contract-by-contract mapping into the new sectors. On our Q4 call, we'll provide supplemental disclosure to help you with modeling, including revenue and operating income for the new segments for full year 2022 and 2023. Turning now to cash flow and the balance sheet on Slide 7. We generated $795 million of cash flow from operating activities, and $745 million of free cashflow. Cashflow benefited from strong collections and ongoing working capital improvement initiatives. In addition, we saw some benefit from our US government customers accelerating payment at their fiscal year-end. DSO for the quarter was 57 days, a two-day improvement from the second quarter of 2023. During the quarter, we paid off the remaining $200 million of commercial paper to reach our target leverage ratio of three times gross debt to adjusted EBITDA, actually achieving 2.9 times, which gives us flexibility to return capital to shareholders. We ended the quarter with $750 million in cash and cash equivalents, and $4.7 billion of debt. Tom mentioned the non-cash charge recorded this quarter, so let me provide some additional details around that. There are three basic components that are add-back to net income from the statement of cash flows, a goodwill impairment of $599 million, asset impairment of $88 million, and $12 million of inventory and other assets associated with product lines we are exiting. Goodwill and asset impairments are both separate lines on the income statement and cash flow statements. The restructuring charge for inventory is included within the $19 million other line in the statement of cash flows, and then within cost to revenues on the income statement. The vast majority of the charges are associated with SES, but we also held a small unprofitable asset within Dynetics for sale, resulting in an $11 million impairment. The sale has been completed and will be reflected in our Q4 financials. In both the SES and Dynetics impairments, we've taken action to improve the margin and earnings outlook, with no significant impact to current revenue projections. On to the forward outlook on Slide 8. Based on our strong Q3 and year-to-date results, we're raising our 2023 guidance for all metrics. We now expect revenue between $15.1 billion and $15.3 billion, an increase of $150 million at the midpoint. Profitability has been a key focus area over the last two quarters, and the team has delivered. Our new adjusted EBITDA range is 10.5% to 10.7%, an increase of 40 basis points on the bottom, and 20 basis points on the top of our previous guidance. With an improving revenue and margin outlook, we're raising our non-GAAP diluted EPS $0.40 at the low end, and $0.30 at the high end, to $6.80 to $7.10. and we're raising our operating cashflow target by $150 million to at least $850 million for the year, which is right at our year-to-date performance. Let me put some context around our guidance related to the current budget environment. We're hopeful that Congress will be able to avoid a shutdown, but in the spirit of promises made, promises kept, our guidance explicitly includes our current assessment of the risk of a government shutdown. A potential full 45-day shutdown could put us closer to the bottom end of guidance for revenue in EPS. A shutdown’s impact on cash flow is harder to predict. We expect to generate operating cash flow in the fourth quarter, but our revised cash guidance reflects the possibility of a modest disruption associated with the potential government shutdown. Our strong balance sheet positions us well to navigate this potential headwind. With that, Shamali, we're ready to take some questions. Operator: [Operator Instructions]. Our first question comes from the line of Matt Akers with Wells Fargo. Please proceed with your question. Matt Akers: Yes. Hey, good morning, guys. Thanks for the question. I guess to follow up on SES, curious if you could give us an update on some of the insourcing activities and how that's going, if you're still on track for Charleston kind of early next year. Chris Cage: Yes, Matt, thanks for the call and the question. Yes, definitely, the team has continued to make steady progress over the course of the last few quarters, and Charleston is really important to our future strategy. We are on track. It's something that will go live, whether it's late Q1, early Q2. We've launched our hiring campaign. We're working on outfitting the facility. So, that's still tracking to where we want it to be, and we've made other progress as it relates to various supply chain improvements over the course of the quarter. So, again, one of the reasons why the Civil margins trended up this quarter was the SES business showing some signs of improvement, and we're really happy with that progress. Tom Bell: I would just add, Matt, that while your question was tactical, so I wanted Chris to go first, I'm glad the first question was about SES, because while it's unfortunate we have to take the impairment charge, the fact is, we're all very bullish about the prospects of this business going forward. In fact, I referenced in my comments, changing customer buying behavior. Over in Europe at a major trade show, we recently unveiled two new products that directly speak to this changing customer buying behavior. A Pro:Vision 3 people scanner, which features wideband AI-based gender-neutral algorithms for higher quality imaging and detection, something that customers are asking for the technology to be faster and better. And more important to me, a product we call ProSight, which is a secure and scalable enterprise platform that integrates a customer's diverse suite of screening machines and operations that allow them to create a system-wide view of their security operations at any airport or any lane. So, very excited about not only the tactical decisions the team is making to right-size the business for the future, but also the forward investment in future products that will allow us to compete and win going forward in both the regulated market and the commercial market. Matt Akers: Great, thanks. And then I guess as a follow-up, could you touch on kind of the cash flow? I guess the Q4 cash is implied a lot weaker. Is that just kind of timing of the working capital, like you mentioned? Is there anything else kind of one-time in there. Chris Cage: Yes, no, Matt, nothing more than that. Obviously, we're very pleased with the third quarter performance, and that allowed us to raise our full-year guidance by the $150 million. We're navigating the risk around a shutdown and the potential challenges that may or may not pose. We're hopeful to be able to exceed that performance level. And the other thing is, we did certainly experience some benefit, as I mentioned, of customers paying a few things early as we closed out Q3. So, team’s motivated to finish the year strong, but we'll just be cautious as we navigate what our government customers do going into Q4. Matt Akers: Great. Thank you. Operator: Our next question comes from the line of Bert Subin with Stifel. Please proceed with your question. Bert Subin: Hey, good morning, and congrats on the strong quarter. As we think about - hey, Tom, and Chris. This is probably for Chris. As we think about 3Q performance relative to future earnings, were there items in the quarter that you anticipate do not recur outside of the $14 million Health benefit you just mentioned? Your no-shutdown case for earnings in 4Q is expected to be closer to just shy of $1.80, which is still a step-down from 3Q when factoring in that benefit and the tax benefit. So, I'm just curious if there was pull-forward of security products or, something unordinary, or if the business is just performing really well. Chris Cage: Yes. I'd say, kind of our base outlook, Q4 looks a little bit like Q2. Bert, there wasn't anything other than the $14 million that we highlighted that was what I'd consider to be a one-timer. The Health business performed exceptionally well. When you normalize that one-time benefit out, the margins were still in the high 18% range. We did see strong performance from PACT Act's caseload. We did see strong incentive fee performance around that as well. And those are things that could moderate a little bit quarter-to-quarter. But on the contrary, I also pointed to the fact that Defense stepped back a little bit due to some EAC adjustments, and those are things that we don't expect to recur on an ongoing basis. So, Q4, hopefully, we're right down the middle. We will see where the government shutdown risk takes us, but really pleased, quite honestly, with the progress we're seeing across the business on margin and revenue growth. Bert Subin: Yes. Great. Maybe just as a follow-up there, both on the Health and the Defense side, I guess there's three big contracts to think about. There's DES. there's CHS-6, and there's DHMSM. Can you just give us maybe some - a viewpoint on sort of how we should think about those contracts going forward? I know DHMSM was expected to be a headwind. It doesn't seem like that's happened yet. Maybe you're repurposing some of that ceiling value. So, I'm just curious how you think those are going to - those two are going to ramp up and then DHMSM’s going to step down. Tom Bell: Well, let me jump in first, Bert, if you don't mind. I'll talk about DHMSM first and then we'll take them from there. Obviously, we're very, very pleased and proud of the team and how they deployed DHMSM to great customer satisfaction to date. It's about 91% deployed, with 7.3 million Conus beneficiaries out of 9.6 million that we envision full-time. And we're on track to deliver to all the DoD locations by the end of this year. But what's more exciting to me is, while most of us, and most of my first six-month conversations with analysts have been about what are we going to do when DHMSM trails off, what I learned this past quarter is, actually this program is just in the first phase of a three-phase program that the customer expects regarding the whole suite of programs around Health margins. So, what is interesting to me is how our excellent customer satisfaction and performance to date positions us not only to continue to work on the program of DHMSM, but also puts us in a great position to compete for the follow-on efforts and the rest of the efforts that the customer is looking for. So, I'm actually very excited about where we're going. Chris Cage: Yes. Well, I am too, Tom, and I think that this definitely has a horizon, a next horizon to it, Bert. And we've talked about trying to, once the system got deployed, add more capabilities. And to that point, the team was very successful. We won a contract this quarter, not huge, but it's a relatively shorter duration contract digital-first under the DHMSM umbrella. And that is starting on the next phase that Tom was just talking about, taking - digitalizing the information to digitalization and how patient benefits are extended and modernized. And so, that will help moderate the impact of the deployments coming to an end. It is lower in Q4 than it had been earlier this year because of the deployment phases, but we're able to see line of sight to holding kind of at the Q4 level going into 2024, which is excellent. And then quickly on the other two, DES, hey, it's performing as expected and we're seeing some ramp-up consistent with what we said last quarter. A couple of nice task orders are in the hopper right now, multi hundred-million-dollar task orders. Tom Bell: Well, in fact, we just got a major award this quarter of $274 million in DES, and there's likely another one even larger in the near term. Chris Cage: That's right. So, it will be a growth catalyst for us in 2024. And then finally CHS-6, Tom highlighted, very proud of the team to prevail without a protest. Won't see any notable activity from that in 2023, but we're positioned for it to be a growth catalyst in 2024. And too early to speculate until we get a little bit more clarity on what those task orders are, but we're rounding out the catalog. Customer seems very motivated to use us to buy as much of the C5 ISR activity as they can to support their mission. So, really excited about getting that one up and running. Tom Bell: Yes, and just to pile on that one, Bert, if you don't mind, so proud of the team. The RFP asked for a transition plan of 60 days. The team accomplished it in 19 days to be fully up and running for the customer in this important part of their value stream. So, just so super excited about the team that was able to lean into that and satisfy the customer quickly out of the blocks. Bert Subin: Super helpful. Thank you, Tom, and Chris. Operator: Our next question comes from the line of Mariana Perez Mora with Bank of America. Please proceed with your question. Mariana Perez Mora: Good morning, everyone. I have two questions. First one is more like big picture. How should we think about the organizational structure in terms of timing, how long, how much it's going to cost, and how should we think about the cost structure and workforce once this is done? Tom Bell: Yes, thanks, Mariana. So, first of all, we will operate in the current structure through the rest of this year. So, in fact, in all of my communications to the Leidos team, I've been hammering home, stay focused, stay focused on the current organizational structure. Our customers rely on us, and I'm relying on the team to deliver on our promises this year to our customer. The new organizational structure that I articulated will take place on January 1st. And frankly, it is not a reorganization. It's simply a realignment of the existing Leidos business in a post-pandemic fresh look at the organization for efficiency and effectiveness, and that's really the main goal. How do we increase repeatability, increase our prowess going to the markets? How do we satisfy customers with better products across customers where they tended to be siloed in the last organizational construct we had? And so, it's my expectation that the new organization is going to unlock all sorts of revenue and profit opportunities. In that regard, one of the first things I'll be doing in the new year is challenging the new executive leadership team to create full potential growth plans for each of the new five businesses. And in those full potential growth plans, we'll be looking at the marketplace, the competition, the whole suite of technologies and capabilities we need to compete and win effectively. And I expect that we'll see growth plans for each business that are unlocking growth that is currently squelched or squandered in the current environment. So, I'm very hopeful about it. In terms of costs, Chris. Chris Cage: Less is better, but listen, that's not the primary motivation to do this, as Tom talked about. I do see each of these businesses having different objectives as it relates to that. In the example of Defense systems, hey, we have been investing and we will continue to invest more in engineering and technical depth. That is not a cost-driven exercise to get those businesses aligned effectively. But in the case of digital modernization, these repeatable solutions, this automation, obviously, those can lead to more efficient delivery structures, back-office structures, those types of things. So, we're very excited to get to the full potential, and we'll have a lot more to share on that, Mariana, as we get to that next call at Q4. Mariana Perez Mora: Thanks so much. And then my follow-up is more specific to healthcare. Incentive fee performance on the medical examination was strong once again. Could you please measure that for the quarter and give us a sense of how are your expectations for that too, like in the near term to come down or not? Chris Cage: Yes, Mariana, absolutely. This is an area where the customer's always had both incentives and disincentives associated with these contracts. And earlier this year, as the PACT Act volume was ramping up, they modified some of those. And the team has been doing an excellent job not only on throughput, volume, but customer satisfaction, timeliness, et cetera. The customer is motivated to raise the bar yet again because they want to make sure we're continuing to deliver against a high volume of demand. So, we'll continue to recalibrate on what that full potential looks like. But I would just say that we're excited about the prospect of those incentives continuing to contribute, not only in the fourth quarter, but as we look ahead in 2024. Tom Bell: Yes, and just if you don't mind, Mariana, me piling on, so proud of the team. And frankly, as a taxpayer, proud of the customer. The customer should be challenging us to raise our standards and raise expectations each contract. And so, they did. We performed. We - through strikes - they changed the strike zone and tightened it up a little bit. And so, I have every expectation that the team can throw strikes even better in 2024 than they did in 2023. Mariana Perez Mora: Thanks so much. Operator: Our next question comes from the line of Cai von Rumohr with TD Cowen. Please proceed with your question. Cai von Rumohr: Yes, terrific. Thank you very much. Great results, guys. To maybe follow up on Mariana's question, so if we take out the $14 million COVID, which was kind of prior period, you did $18.6 million, which is terrific in Health. Could you quantify how big were the incentive accords in that quarter? And give us some sense if they've tightened it up. I mean, are they going to tighten it so those margins go down? Because I think at one point, you were hoping to do mid-teens. It now looks like you're doing $18.5 million, $18.6 million this quarter. So, where's that likely to go? And what impact do you see from potential government shutdown, because you mentioned that as a potential issue going forward. Chris Cage: Yes, Cai, let me get going here, and if Tom wants to add on, he can. Look, we're not going to quantify the specifics around the incentives. I would just say that this year, if you look at 2023, we will not have a full year worth of those incentives in our results. So, the good news is, 2024, we expect that to be something that can contribute for a full year, but also we'll have to step up our game relative to the customer increasing the standards because we all want to make sure the veterans are being well served, that our timeliness stays high, that the throughput stays high, and the quality stays high. So, it's been a nice benefit. We have incentive fee structures across a variety of contracts, and our objective is to deliver exceptional service and try to maximize those. These ones just happen to be more noteworthy. But big picture on Health, we had previously said a mid-teens was a good margin level for the business. Obviously, we think we can do better, and we are doing better than that now. And whether that's in the 17%, 18% zone, we'll endeavor to sustain that level of performance. On the shutdown, this is an imperfect science, but we've spent a lot of work because we got so close at the end of September. Big picture we think on the order of $100 million-ish of revenue, potential risk, $10 million to $15 million of OI risk that we're managing through. I mean, the most important thing is we work hand in glove with our customers right up to the deadline, and that we work with our employees to make sure they understand what they're to do if they're unable to perform on the customer mission. And hopefully, we'll find an opportunity to get back to work quickly if it were to happen. But that's kind of our current assessment, but it's one that we will continuously refresh as we work through a write-up to a potential deadline. Tom Bell: But again, just to foot-stomp at a little bit, Cai, as Chris mentioned in his comments, the risk of a full 45-day shutdown is included in the lower end of our guidance. So, consistent with promises made, promises kept, given the risk of a full 45-day shutdown is possible, the guidance incorporates that risk. Chris Cage: I mean, the good news, Cai is, we have a lot of funded backlog. We have a lot of essential programs, and we're well positioned to navigate these headwinds. Cai von Rumohr: So, just to be clear, as a follow-up, the $100 million and the $10 million to $15 million in OI, that is for Health or that is across the company? Chris Cage: No, no, no, across the company, Cai. As it relates to Health, that's probably one of the least impacted areas. So, that's across the company. Tom Bell: Veterans is an essential service. Chris Cage: That's right. Cai von Rumohr: Okay. Thank you very much. Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question. Sheila Kahyaoglu: Good morning, guys. Thank you for the time. So, I wanted to ask about Dynetics and just how comfortable you guys feel with the development programs there, and what sort of hurdles you're looking to get through to sort of get through the development stage into production on those. Tom Bell: Yes, thanks Sheila, and good to speak to you again. On Dynetics, I'm convinced and we are convinced that the best days are still ahead of us. We've got a great management team down there. And as I alluded to in my comments, we're adding technical and financial expertise to Dynetics to ensure its success going forward. So, feel really good about the team and feel really good about the people who are eager to go help us find success and be successful at Dynetics and in our Defense business. The team down there is really focused on those three major markets that I have spoken to now for four, five months, which is small satellite payloads, hypersonics, and force protection. And on each of them, we are tracking, Sheila, biweekly the actual burn-down plan and the tasks that we have to hit to find success, not only as we turn the page from 2023 into 2024, but through 2024. So, we've got a complete roadmap that the team is knocking down purposefully one by one. Are there challenges? Always. Supply chain challenges, testing challenges, customer-focused challenges? There's all sorts of challenges that the team is having to wrestle to ground, but they're on it. We're engaged, both at the Pentagon and at the operational level. The customer demand for the solutions in those three spaces is acute, and frankly, world events that are happening right now only heighten their desire for these solutions that we're providing. So, we feel very good about them, and I think that Dynetics is going to benefit from being a part of this new figure Defense business in the organization of 2024, where even more broad engineering program management and technology capabilities will be brought to bear for the benefit of Dynetics and in our Huntsville teammates. Chris Cage: Yes, Sheila, I mean, obviously, it's a high priority item. We're putting all the right resources on it and very excited about the long-term prospects there. In any event, Dynetics will be a growing business for us in 2024. The higher, steeper ramp, the inflection point on related to IFPC moving to fuller volumes could be later in the year, could trend to 2025. But all signs point to that continuing to be the capability the Army's focused on deploying. Sheila Kahyaoglu: Okay. I'll follow up on that later, but on the backlog, Tom, I wanted to ask about this since you mentioned it in your prepared remarks. I think you said it grew $4 billion, and the last time we chatted, you mentioned you added a criteria about EBITDA margins to potential wins. So, can you talk about how you think EBITDA margins should be on some of these new wins that you have in the pipeline now? Tom Bell: Well, you're right, Sheila. What I am doing as we talk about the pipeline for business development opportunities across all the businesses is, we're adding the criteria of, well, what is the expected margin? And that's why in my comment, I talked about not only the increase in the backlog, but that increase supporting our margin and cash expectations for Leidos. So, you could assume that the general health of the pipeline has increased in - has been accretive in the margin potential, and is very much on track with helping us stay a very profitable, cash-accretive business in the future. Sheila Kahyaoglu: Great. Thank you. Operator: Our next question comes from the line of Tobey Sommer with Truist. Please proceed with your questions. Jack Wilson: Yes. Good morning, this is Jack Wilson on vent, Tobey. Could you dig down a little bit more into that reallocation of business development resources sort of in light of pursuing that higher margin work? Tom Bell: Sure. I mean, it's not really rocket science. It's simply looking at the pipeline, Jack, and making sure that where we are spending the talents of our people are on the opportunities with the highest P win and the highest benefit to Leidos. It was that each business area in Leidos was given a general growth target, which was generally the same for each businesses, and that's not my philosophy. My philosophy is, we're running one company called Leidos. We're trying to grow the topline and bottom line of Leidos. And as opportunities ebb and flow between the five businesses that we have today, or the five businesses that we'll have in 2024, the key is that we aggregate business development resources and talent to those areas that are going to have the biggest bang for the buck. And so, that's really all it is. Instead of trading resources chasing low margin work, because each business was incentivized to grow no matter what, I am interested in growing Leidos as a whole. And sometimes that means some businesses will grow disproportionately to others. Chris kind of touched on this a little bit. In the future, not all five businesses for Leidos will have the same topline and bottom-line goals. I'll be measuring those and putting them out there for the team, commensurate with the market that they're in, the potential of that market, and the competitions and the opportunities that present themselves in that market for the next year, two years, three years, four years. And that's the whole philosophy of redeploying the business development time and talent to those areas of greatest return for Leidos, therefore, our customers, and by extension our shareholders. Jack Wilson: Thank you very much. Operator: Our next question comes from the line of Seth Seifman with J.P. Morgan. Please proceed with your question. Seth Seifman: Hey thanks very much and good morning, everyone. Just maybe to follow up a little bit on that question about relative growth rates and kind of the new sectors that you laid out. Not expecting any kind of numerical targets or anything like that, but just in a relative sense, how should we think about the growth rates in those different sectors that you laid out relative to each other and also how it fits in, Tom, with your internal capital deployment plans? Tom Bell: Yes, thank you, Seth. Great question, and you're right. I'm not going to get to specifics because frankly, we don't have them yet, but I have hypotheses. And so, the hypotheses is, if you look at the five businesses, some of them are positioned for topline growth because of customer demand and interest in solutions that they can provide. Other businesses, we're going to be calling them sectors going forward, they are more and aggregation of programs so as to bring better bottom-line results. My hope is that in time, each business over time, over five, six years, topline growth and bottom-line growth may be countercyclical in businesses, but that doesn't mean I ever think any business is not also a topline growth story, and also a bottom-line growth story. So, we'll be using 2024 to have a very purposeful strategic planning exercise around, what is the full potential of each business? Where are they in the customer's ecosystem? How does the customer's buying behaviors, how do we predict they'll unfold in the coming year? And therefore, what are the goals and objectives for that business in the near term and the long term? And business development resources, technology resources, will be deployed according to those plans. It's simply going to be, the money is going to follow the plans that have survived the scrutiny of the strategic planning process, and therefore have the most merit for investment of our capital. That's it in a nutshell. And as Chris suggested, we're excited about 2024 and going through that strategic planning process and sharing more results with you over time as those come to fruition. Seth Seifman: Great. Thanks, Tom. Thanks very much. And maybe just for a quick follow-up, a little more model-focused. As we think out and we think about uses of cash and capital deployment other than - I would assume that there would be an intention to repay the $500 million that's due in 2025, just given that it's a pretty low coupon and would probably need to be replaced with something higher. And other than that, should we think about the potential for most cash to be returned? Chris Cage: Yes, I mean, big picture, Seth, I think you're thinking of it right. We hit our leverage target. We're happy with where we are. The interest rate environment could be vastly different in 2025. So, that's something we'll pay close attention to, but I think you've got it right. We've got a dividend program. Tom just talked about an increase that uses a little over $200 million a year of cash, a CapEx program at around 1% to 1.5% of revenue. And then we've got a lot of excess cash that we’ll generate, not only in the fourth quarter, but next year. Delevering further at this time is not a priority, but it's always something we'll evaluate relative to the interest rate environment much. Tom Bell: It'd be a nice problem to have. Seth Seifman: Thank you. Operator: Our next question comes from the line of Louie DiPalma with William Blair. Please proceed with your question. Louie DiPalma: Tom, Chris, and Stuart, good morning. Within healthcare, you referenced how DHMSM could be stable going into 2024. How should we think about the VA healthcare exam volumes going forward with the tailwind of the PACT Act? And has there been any changes in the competitive dynamic there? Chris Cage: Yes. Hey, Louie. Again, just a clarification on DHMSM, stable relative to our Q4 kind of exit rate, right? It'll be - it's been trending a little lower as deployments have ramped down, but the good news is we, at this time, don't see a significant of a step-down in 2024 as we once did. So, that's great news. On the VA side, listen, I mean you always have competitors that are highly motivated to ensure they are stepping up their game to capture as much of the allocation as possible. And the VA wants a robust competitive dynamic because we need to keep the throughput high and give veterans the benefits that they deserve. At this time, it's hard to predict 2024. we'll have more color in a few months, but we see that stable and it's been a growing part of the portfolio. And there's other good things going on in the VA too. The RHRP program - sorry, in Health, the RHRP program will continue to be a growth catalyst for us as well. So, it's not just the PACT Act volume, but right now that's trending very favorably, and we're very pleased with the performance of the Health leadership team and really delivering great results. Louie DiPalma: Excellent. Thanks. Stuart Davis: Thank you. Shamali, looks like we have time for just about one more question. Operator: Sure, no problem. And our last question comes from the line of Ken Herbert with RBC Capital Markets. Please proceed with your question. Ken Herbert: Yes, good morning, Tom, and Chris, and Stuart. Thanks for squeezing me in. Hey Tom, maybe just to take a step back, I appreciate all the details you've outlined here in terms of the sharper focus, and obviously reflected in the backlog and the wins and everything else. But as you think about the business now transitioning into 2024, what do you think are the biggest opportunities from a cost standpoint as we think about sort of the margin opportunity? Obviously, not looking for specifics in guidance, but how much of a cost standpoint do we think there is in the business, which obviously should support what you're doing in terms of the higher quality bids and business opportunities? Tom Bell: Yes, well, I can't put a number on it because we're only now at the point where we can start to imagine the opportunities that are in front of us. But I'll call your attention to the three functional leaders that I talked about enhancing their positions. First and foremost, the Chief Technology Officer. Bringing LinC into our Chief Technology officer is going to help us become more efficient and more effective at creating and deploying technologies for the benefit of all of our businesses. I am really excited about focusing our R&D pipeline on those areas of technology that will propel our current business, enable us to compete and win and insert technology in those businesses, and win new businesses going forward. So, I think there's great opportunity for us in the CTO office. In the CPO office, the Chief Performance Officer, that is the internal wheelhouse of everything that makes Leidos an efficient, effective corporation. I mentioned real estate, procurement, IT, program management, are all going to be in that. The new leader of our Chief Performance Officer will have the responsibility to not only make sure we are best-in-class when it comes to the quality of the product we put on the field to make Leidos as effective as possible, but I'll also be asking that individual to ensure we are world class as a cost of doing business at the corporate level. And then last but not least, aggregating the complete value stream of growth, strategy, sales, marketing, communications, government relations, all in the Chief Growth Officer, will put us in a prime position to ensure we have unparalleled customer understanding for where the customer's going and how we're going to skate to the puck of where it's going to be, as opposed to just chasing RFPs. So, the net sum of all of that, Ken, I believe will make us a more efficient and effective corporation. But again, as Chris said, it’s not - this isn't a cost-cutting exercise, this realignment. This is aggregate the capabilities of Leidos in a better way to make us more effective and efficient. Chris Cage: Yes, and I'd only say, I mean, we're already seeing and feeling kind of a leaner ongoing operating environment now, and that's showing up in our results. Clearly, we are focused on next year's 10.5% plus margin target. That's an area that I think we're demonstrating that we have line of sight to delivering on that. And that's still a goal the corporation's rallying behind. Ken Herbert: Great. I'll leave it there. Thanks for the color and nice quarter. Operator: And this concludes our question-and-answer session. I would now like to turn the conference back to Stuart Davis for any closing remarks. Stuart Davis: Well, thank you, Shamali, for your assistance on this morning's call, and thank you all for your interest in Leidos this morning. We look forward to updating you again soon. Have a great day. Operator: And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings. Welcome to Leidos’ Second Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note, this conference is being recorded. At this time, I’ll turn the conference over to Stuart Davis, from Investor Relations. Sir, you may now begin. Stuart Davis: Thank you, and good morning, everyone. I'd like to welcome you to our second quarter fiscal year 2023 earnings conference call. Joining me today are Tom Bell, our CEO, and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you'll also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to Slide 2 of the presentation. Today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, includes risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on Slide 3, during the call, we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I'll turn the call over to Tom Bell, who will begin on Slide 4. Tom Bell: Thank you, Stuart, and good morning, everyone. I'm pleased to be with you today leading Leidos into our exciting second decade. I'm also very happy to report that we closed a strong Q2. Driven by a healthy demand environment, we achieved revenue growth of 7% year-over-year, with strong organic growth across all segments. Margins, earnings, and cashflow rebounded from our first quarter, driven by, an improving business mix, a partial recovery in the security products business, and a series of fast-acting initiatives implemented across the business focused on costs and collections. Adjusted EBITDA margin of 10.9% was up 150 basis points from Q1, and non-GAAP diluted earnings per share of $1.80 was up 22% sequentially. Also, operating cashflow of $164 million was up $262 million from last quarter. While putting this quality quarter on the books speaks to the underlying strength of the business, even more important to me, it reflects ability of the Leidos team to focus and deliver when expectations are clear. Now, as this is my first quarterly call with you, I thought I'd share some of my initial observations of Leidos. Over these first months, I've met with customers, employees, and analysts, and I've conducted detailed operating and strategic reviews with all our business groups and each of our functional organizations. The headline from this work so far is clear, our business foundations are impressive. I've come to think of these foundations in three distinct pillars. One, an incredible team, two, compelling technology creation, and three, the ability to act with pace while leveraging scale. These three elements in combination enable us to uniquely solve our customers’ most vexing problems in differentiated ways. Let me unpack that a bit. First, we're a company of exceptionally talented and dedicated individuals. Their breadth and depth of expertise is remarkable, and they are palpably connected to our customers’ missions. That translates into a truly differentiated culture with deep customer insights. Also, the esprit de corps and genuine care for each other at Leidos, creates an environment that embraces collaboration and entrepreneurship, critical to our continuing success. Our ability to effectively attract and motivate top talent is a distinct competitive advantage for us. And in this regard, Forbes recently named us as one of the best employers for diversity for new graduates and for veterans, and Ethisphere recognized us as one of the world's most ethical companies for the sixth consecutive year. Second, technological innovation at Leidos is impressive, broad, and deep. The advances we are pursuing across Leidos are world-class. We leverage these key technology differentiators, what I refer to as golden bolts, across our entire portfolio. And we deploy these golden bolts in disciplines ranging from secure software to cybersecurity to signal processing, so as to bring extraordinary capabilities to our customers. A couple of recent examples of delivering complex mission capabilities to our customer includes, the successful hypersonic test launch under our MACH-TB program, and the last major deployment wave in the continental US of MHS Genesis, the Military Electronic Health Record System. This was done on time and on schedule, also significantly enhancing system capability. We've also been at the forefront of unlocking the power of artificial intelligence for our customers for decades. We've developed and deployed trusted AI to tackle some of our nation's most challenging missions. Our debut in applied AI was in 2004 when we built a self-driving vehicle as part of DARPA's Grand Challenge. By 2016, we launched the first unmanned autonomous ship. And now, we're deploying next-generation computer vision for automated passenger scanning in our ProVision 2 platform. Also, recently, we've deployed large language models in our Health group, designing a trusted AI solution where humans and AI work as partners to more rapidly align resources and improve our support to beneficiaries. Differentiated technology, including AI, created, unlocked, and responsibly controlled by our amazing people, is and will continue to be a unique attribute of Leidos. Now, to continue to accelerate our technical innovation, we are investing to broaden and deepen our workforce capabilities. So far this year, we've upskilled well over 3,000 of our people in fields ranging from AI to cyber, to software to digital engineering, and it's open to all our employees, not just our technical wizards, so that all can be conversant in our golden bolts. The third pillar I've found here is equally important, scale and agility. Every customer I've met with is feeling the stress about the pace of change. Hard, vexing problems are coming at them at speeds they've never experienced, and they're looking for partners with speed and scale to address these holistic problems. They need us to operate with a clock speed that matches their urgency. At Leidos, we lean into this environment by challenging ourselves to operate with a strong bias for velocity. For example, within the US Space Force, the Space Development Agency is focused on rapid delivery of space-based capabilities to the joint war fighter. This is an ideal fit for Leidos, an essential, technically challenging mission where standard procurement cycles aren't acceptable. To that end, today, our satellite payload remains the only Tranche 0 tracking layer asset in space, and we're on track to launch Tranche 1 assets soon that will serve as the foundation for the defense of our nation from hypersonic missiles. All these findings have strengthened my conviction in the potential of Leidos. However, also in my first months, I've identified some areas where we must improve. First, some recent acquisitions have fallen short of plan. While I believe those acquisitions offer us significant strategic benefits, we will redouble our efforts to achieve the value envisioned in our acquisition business cases. Second, all on this call recognize the fact that our financial performance has not always lived up to our investors' expectations. The team and I have had a series of candid conversations in this regard, and as a result, we have agreed that together when we make a commitment whether to each other, our customers or the Street, Leidos will meet that commitment. I call this simply a promises made, promises kept philosophy. Third, recent business development metrics have not been up to par. While we have a healthy backlog, currently $34 billion built over the last five years via a book-to-bill ratio of 1.3 times, we can and must do better. I believe that for a business like us, total backlog is a more relevant measure of future revenue growth than quarterly book-to-bill ratios. We will be determined to grow our total backlog over time with quality wins. As such, we'll be candid with ourselves about where we have a differentiated capability that the market recognizes and resource it appropriately. And where perhaps we find we do not enjoy true differentiation, we will ask ourselves some honest probing questions, courageously acting on their answers. Finally, I believe Leidos can benefit from a certain strategic sharpening. To propel this and to optimize our success going forward, we are now in the process of crafting a clear new north star for Leidos. As we crystallize this new north star, we will use it to guide all our strategic decisions, and over time, this will improve our win rates, drive margin enhancement, and better enable us to most successfully serve our customers’ most important needs. While this north star is currently a work in progress, I can give you a few initial indications of where we'll be going. We'll take steps to simplify our organizational structure to promote operational excellence, allow for faster decision-making, and more tightly align our business across our key technology differentiators. We will focus more on the bottom line via greater cost discipline and by refining our investment strategy toward those areas of best opportunity, best overall value to the enterprise. And we'll be very thoughtful and disciplined on capital allocation, both internally and externally. In the near term, I will be laser focused on improving execution, so I don't expect much in the way of additional inorganic growth, but after we complete our next strategic plan and reach our targeted leverage ratio, select M&A will likely make sense for us again. At that time though, we'll be crisp in our approach to ensure there is a clear opportunity to create value for Leidos and our investors. Lastly, I believe that a regular and predictable program to return capital to shareholders drives better investment decisions across any enterprise, so be looking forward to that as well. As we progress this work, I'll look forward to updating you on how we plan to accelerate growth here at Leidos, especially on earnings and cash. Now to our 2023 guidance. Based on our strong Q2 and our revenue momentum halfway through 2023, we are raising the top and bottom of our revenue guidance to a new range of $14.9 billion to $15.2 billion, an increase of $150 million at the midpoint. Revenue growth has been a key feature for Leidos in the recent past, and I'm pleased to acknowledge that this element of our business will continue to deliver for us. The delta in margin performance between the first 2Quarters of 2023 indicates to me variability in profit margin greater than that suggested by the prior 20 basis point guidance range Today, this is primarily due to the variability in our security products business. Now, the good news here is that the Civil team is aggressively knocking down these challenges by leaning out the cost structure and strengthening the supply chain. But considering the practicalities of a company becoming slightly more tied to product delivery timing, we are widening our adjusted EBITDA margin range guidance to 40 basis points. Therefore, our revised EBITDA range will be 10.1% to 10.5% for 2023. Lastly, we're reaffirming our non-GAAP diluted EPS range of $6.40 to $6.80, and we're reaffirming our operating cashflow target of at least $700 million. In closing, I'm optimistic about our future as we set course for Leidos’ second decade of growth, and I look forward to meeting with you at upcoming conferences and roadshows. With that, I'll turn the call over to Chris for more detail on our financial performance and updated outlook. Chris. Chris Cage: Thank you, Tom. Our second quarter financial results were indeed strong and put us on pace for a good year. Big picture, revenue continued its growth trajectory and we rebounded nicely on earnings. As I said on the last call, the Q1 profit shortfall was temporary, concentrated, and recoverable. We had improvement in the security products business, and we worked together as an enterprise to deliver solid results across the entire portfolio. Turning to Slide 5, revenues for the quarter were $3.84 billion, up 7% compared to the prior year quarter. Revenue growth was broad-based, as each of our three reporting segments grew at least 5% organically. Onto earnings, adjusted EBITDA was $420 million for the second quarter, which was up 15% year-over-year, and adjusted EBITDA margin of 10.9% increased 70 basis points year-over-year. Non-GAAP net income was $252 million, and non-GAAP diluted EPS was $1.80. Non-GAAP net income and diluted EPS were up 15% and 13%, respectively, compared to the second quarter of fiscal year 2022. Earnings growth came despite a $6 million drag from net interest expense. Both share count and the effective tax rate were essentially unchanged from last year. Non-GAAP profitability was up from Q1 levels in all three segments, driven by improved business mix and program execution, as well as enhanced focus on indirect spending across the company. Though there were some pickups from achieving milestones and truing up completed programs that won't necessarily recur in future quarters, we saw improvement along most key profit drivers. Specifically, EAC performance was strong, with net write-ups of $18 million, and SG&A as a percent of revenue showed improvement as well. The year-over-year numbers paint a positive picture, but the sequential improvement is even more encouraging. Total revenues were up 4%. Adjusted EBITDA margin was up 150 basis points and non-GAAP diluted EPS was up 22%. Turning to the segment drivers on Slide 6, Defense Solutions revenues increased 7% year-over-year. The largest growth catalysts were in the areas of digital modernization, including Navy NGEN and hypersonics, especially SDA Wide Field of View Tranche 1, as well as our Australian Airborne Solutions business. For the quarter, Defense Solutions non-GAAP operating income margin increased to 9.3%, up 100 basis points from the prior year quarter, with maturing development programs, strong execution, and lower indirect spending. Health revenues increased 9% over the prior year quarter, driven by growth on the SSA IT work, and increased demand for medical examinations. For VB A, we're seeing higher volumes from the PACT Act, and we're earning a higher work share as a result of our performance. Also, the Reserve Health Readiness Program is now building. Non-GAAP operating income margin came in at 17% compared to 19.8% in the prior year quarter. The decrease was primarily driven by the $28 million equitable adjustment in the second quarter of 2022 to cover costs incurred as a result of the COVID-19 pandemic. More important, Health non-GAAP operating income margin was up 110 basis points, sequentially bolstered by increased volume, solid program execution, and a positive outlook on incentive fee performance. Civil revenues increased 5% compared to the prior year quarter. The primary drivers of revenue growth were the NASA Aegis program, increased demand for engineering support to commercial energy companies, and a partial recovery within the security products portfolio. Civil non-GAAP operating income margin was 9.1% compared to 6.5% in the prior year quarter, which was unfavorably impacted by an adverse arbitration ruling in associated legal fees totaling $17 million. Sequentially, Civil non-GAAP margins improved by 270 basis points, which reflects partial improvement in the security products business. Consistent with expectations, the security products business is recovering but is not yet at peak levels. For perspective, year-to-date, the security products businesses actually up slightly year-over-year on revenue and down modestly on margin. As with last year, the back half of the year has the potential to be significantly stronger than the first half. We're seeing good traction in the business with the recent Leeds Airport award, and we've implemented the changes we talked about on the last call, including a leaner, more responsive cost structure and an improved supply chain. In addition, as part of the review of the business, we're looking at pruning the portfolio of products and geographies with lower returns. This work is ongoing. Taking a step back, we see security as an important and growing market, and we are positioning for success with our investment in the Charleston production facility, and looking to expand into new areas such as data center protection. Turning now to cashflow and the balance sheet on Slide 7, we generated $164 million of cashflow from operating activities, and $124 million of free cashflow. Net cash provided by operating activities benefited from strong collections and working capital management. DSO for the quarter was 59 days, a three-day improvement from the first quarter of 2023. We are in the middle of a cross-functional review of cash generation to include harmonizing vendor payment terms and building in more favorable collection terms on our contracts where possible. We continue to expect to drive sustainably improved performance over time. During the quarter, we paid the remaining $320 million of principal on the 364-day term loan agreement that came due in May, taking on $200 million of commercial paper to do so. These were the key movers of our $125 million net reduction in debt during the quarter. We expect to clear out the commercial paper during the third quarter, which will free up capital to deploy. On to the forward outlook. Tom gave you the revised ranges. Let me provide a little more color. We expect revenue to remain near Q2 levels in the back half of the year, with some degradation from the (Focus Fox) loss, and a move to a single wave of deployments on DHMSM by Q4. We have a large pipeline of opportunities pending decisions, and we aren't dependent upon significant new business wins to sustain our current revenues. On EBITDA, the expanded guidance range primarily reflects the range of outcomes on the security products business, as well as the volume of special project work, on fixed price contracts, and incentive fee determinations. We've made our best assessment of the likely outcomes and are comfortable that our wider range conservatively incorporates the reasonable potential results. With a narrower range on revenue, and a wider range on margin, we're comfortable with our EPS range, which also tracks well to our cash target for the year. As in prior years, cash generation is concentrated in Q3. With a strong Q2, we are ahead of our internal plan year-to-date. With that, I'll turn the call over to the operator so we can take some questions. Operator: [Operator Instructions]. And our first question is from the line of Bert Subin, Stifel. Please proceed with your questions. Bert Subin: Hey, good morning and welcome, Tom. So, there was clearly a lot of concern coming out of 1Q earnings that weakness would persist in the securities product business. I mean, so far, that business seems to be recovering ahead of schedule. Can you just walk us through what changed in 2Q versus 1Q? What changes in the back half and whether you think SES can return to double-digit growth again next year? Tom Bell: Yes, thanks Bert. Well, first, before I turn it over to Chris to give some specificity on the latter part of your questions, let me say how proud I am of Jim and the team as they've been driving progress against that recovery plan. One of the first meetings I had with Jim was about the recovery plan and how we were going to get that ship righted. And as Chris said, the guidance that we've articulated incorporates the range of likely outcomes. The market is improving, as Chris suggested, with the Leeds award. We believe we have a superior product offering. We believe the customer continues to show confidence in our solutions, and the team is out there aggressively prosecuting the market. So, we feel very good about the fundamentals internally and the market externally. And also, the team is very focused on expanding the market that we serve with less traditional security solutions that are needed by a different set of customer sets. Chris, anything you'd like to add? Chris Cage: Yes. Well, I mean, Bert, obviously, there were a number of areas we were focused on driving improvements into, and the team has made great progress in that regard. I would tell you that we're not to the end game yet. Let me hit on a couple of areas. I mean, the customer-driven delays, that improved during the second quarter. We’re not back to the original plan, but we see a path. Again, that was one of the reasons why we put the guidance forward that we did today. In sourcing, you saw the announcement on Charleston. We're excited about that. The team went through a very thorough evaluation of alternatives, and we're full speed ahead to get that operational. We think it's a relatively modest investment with a longer-term payback. And then there were a lot of cost reduction actions that were taken. Those are never easy. As part of that, one of the things that we did do is revector a senior resource to focus on strategic supplier obsolescence parts management. We're seeing improvements in that regard, helping our supply chain in that relationship. So, pipeline remains strong. As we indicated, looking at areas outside of the conventional airport and ports and borders, and we'll be selective on how we prosecute those bids for maximum benefit to the bottom line and cashflow going forward. Bert Subin: Great. That's super helpful. Thanks. And just as a follow-up, Tom, so Leidos has been talking about a Dynetics inflection being on the horizon for a little while now, and previously the expectation was organic growth was going to ramp pretty materially in 2024 for that business. As you've come into Leidos over the last three months and got a greater assessment of sort of where things are going, can you just walk us through how you're thinking about Dynetics and what you see as the growth path there. Tom Bell: Sure, Bert. Well, my first trip as CEO was to Huntsville to visit with the Dynetics team down there, and I was just thrilled to see what we have there in Alabama. Great facilities, great people, and really importantly, great customer connectivity. Steve and the team down there are bringing focus to what defines them. They're always going to be a place, I hope, that the customers believe they can get stuff done cleverly and fast. I think that's a real dynamic for Dynetics. And at the same time, Steve and the team are refocusing their attention on three primary areas. They're really focused on differentiating themselves in the markets of small satellite payloads. So, the success I referred to with Tranche 0 and Tranche 1, tracking layer assets. That's them being focused on small satellite payloads. Hypersonics, the MACH-TB launch that I mentioned is one of our hypersonics pursuits. So, we think that's a key area where we can be differentiated in the market. And last, but not least, force protection and making sure that as our forces are out there, we have products and services that protect our forces when they're deployed. So, those are the three areas that we're focusing on while we maintain the agility and entrepreneurship that has always defined Dynetics. And with that, I'll kick it to Chris to see if he has any more color to add. Chris Cage: Bert, the only thing I'd add there is, I mean, Tom's right, our agility and expertise gets us in the door. Our frontend Leidos Innovation Center, we call it LInC, with some of the brightest minds in some of these areas in the world, have us access to the most important customer sets. So, we have to perform. That gets us in the door. The team has to perform and deliver, and that's what I'm most encouraged by seeing progress that they're making on having improved discipline on bidding and execution, improved supply chain management, all those things that are critical as we ramp some of these programs up towards low-rate production and full-rate production. Bert Subin: Thank you. Operator: Our next question is from the line of Peter Arment with Baird. Please proceed with your questions. Peter Arment: Yes, thanks. Good morning, Tom, and Chris. Hey, Tom, just to follow up on just kind of the products business in general. You kind of made some opening remarks on kind of improving the execution there. Just the variability in margins now because of the timing on product deliveries, just what's your view on just in general Leidos being in the products business? And do you expect to do more of this once you've kind of, I think you kind of said integrate and kind of improve the execution? Just your overall view on the product side? Tom Bell: Yes. Thanks for that, Peter. Yes, so I think having some diversity in our portfolio really makes sense for Leidos. I mean, after all, we're a $15 billion company, and in order to have countercyclical capabilities, you have to have some exposure, both to services and products. So, I like the fact that we're in a products business also. And I also like that there is connective tissue in everything we currently do that is poised in that thing I talk a lot about around how we solve our customers’ most vexing emerging problems. So, whether it be products or services or software, it's really focused on how we lean into our customers’ biggest challenge. I'm coming to understand our specific products and how they mix in with our services business models and how that makes sense. And at the core, whether it be a product or a service, remember that everything we do these days is at its core, IT services and algorithms and software and cyber, something that we are absolutely world class in. So, I like the mix and I think we'll be continuing the mix, and at the same time, we'll be very purposeful in how we exploit our advantages in each of those sides of the business. Peter Arment: Appreciate that. And then just, Chris, just quickly on the new EBITDA margin range, just puts and takes of what would make the difference between coming in and staying at the lower end or at the higher end? Is it all just tied to this aviation product deliveries? Are there any other factors that you would call out? Chris Cage: Yes, thanks, Peter. I mean, first of all, obviously the team here wants to deliver against the original commitment, but the wider range was prudent, given where we are and the volatility you'd seen in the first half of the year. But I’m very encouraged about the second half and very optimistic about how we'll progress from here. I would point to a couple of things. Security products is an element of that, and as I said in my prepared remarks, we have the potential to have a significantly stronger second half there. We've laid a lot of good groundwork to realize that. Not everything is within our control. On top of that, there are a couple other things. In Health, we had a great quarter in Health and the team has done an excellent job, and there is the opportunity to sustain that momentum as we move forward. But some of that is dependent upon not only our performance, but throughput and customer satisfaction, some variables on incentives that, again, we'll monitor closely, and our past performance suggests that those are fully attainable. So that's another variable that we wanted to give ourselves some capacity for because that incentive calculations is somewhat new. And then lastly, just some of our digital monetization programs continue to ramp up and we're very pleased with the performance the team has executed against there. And there are some opportunities for more project work in the back half of the year. And depending upon how and when that comes to pass, could push us towards the higher end of that range. Peter Arment: Appreciate it. Thanks, Chris. Operator: Our next question is coming from the line of Matt Akers with Wells Fargo. Please proceed with your questions. Matt Akers: Yes. Hey, guys, good morning, and welcome to Tom. I wanted to ask about defense margins, kind of the strongest margins here we've seen in a little bit. Could you just talk about sort of how sustainable that is as we get into the back half and into 2024? Chris Cage: Hey, thanks, Matt. Yes, obviously, we're super pleased with the performance there. 9.3% OI margin, the highest in five years, and a lot of that's led by progress we've seen on some of our big digital monetization programs. And the team's done an excellent job there with NGEN, and DES is continuing to ramp, and there are others. And there are some other things going on that are sustainable outside of that, maturing development programs. Tom talked about Wide Field of View, especially Tranche 1, incorporating the lessons learned from Tranche 0, better mix overall with the Australian airborne aviation business that we acquired last year. That's helping us. And then there are some variable items, and I wouldn't say these are totally one-off, but we need to continue to perform well to realize these in the future. Award fee scores were very strong. We reached certain program milestones, and we did close out some old older projects. So, we won't deliver 9.3 every quarter near term, but that's the expectation we're setting for ourselves and the team longer term. And so, one thing that we will not take our eye off the ball on is an underpinning focus on indirect cost management and program execution. So, yes, great progress in the Defense Solutions segment and we're optimistic that there's more of that ahead of us. Matt Akers: Okay, thanks. And then I wanted to ask about DES. We haven't talked a lot about it, just how you're thinking about the timing, and does that ramp up here as we get into 2024? Chris Cage: Yes, it's a great question. Very timely. In fact, we had a review internally with the team yesterday, and we've got a really strong team on DES and working hand in glove with the customer. This year, it's still a modest contributor to the company in the order of $50 million of revenue, but we just walked through a number of active task orders that are either in evaluation by the customer, or some other ones that were coming up for bid and evaluation later this year. So, we're seeing the activity level increase and there's a roadmap on migrations of more users under the DoD net. So, again, continue to think of that as something that will be a much more significant contributor in 2024 and 2025 really beyond that. And we'll have more to say as we get later in the year and have some clarity on when those get determined. Matt Akers: Great. Okay, thanks. Operator: The next questions are from the line of Jason Gursky with Citigroup. Please proceed with your questions. Jason Gursky: Yes, good morning. Tom, I was wondering if we might double-click for a minute on the comment that you made about leveraging acquisitions, maybe to better understand from your perspective kind of what went wrong, whether it was misalignment with expectations or execution, and what do you think it's going to take to fix what you've already acquired and what's going to change as you evaluate new acquisitions? Tom Bell: Yes, thanks for that. I wasn't here, so I can't say exactly what went “wrong.” I don't know that anything went wrong per se. I'm just looking at the current annual operating plan and the five-year plans for business against the original business case that was put forward to the board to approve the deals. And there's a certain gap. Now, I've been in this industry 40 years. I've frankly never seen an acquisition business case that doesn't have a gap. So, that's not new. That's not novel to Leidos, and that doesn't say that we've made mistakes in the past. That just means we've got the ball now and it's our job to make sure we leverage the investments we've made and the capital we've deployed to ensure that the real cores of the acquisition business case come to pass. That's with focus. That's with resolve. That's obviously by getting deep dives into program executions, and also making sure that we go back to the basics of the original business case and say, what is the golden bolt that we were trying to buy, and how do we make sure we deploy it across the enterprise as effectively as possible? So, that's what I'm focused on playing forward from here. As I suggested in my comments, I think the acquisitions that have been accomplished over the past 7, 8, 9 years here at Leidos, all make sense to me. Now, the key is just doubling down and making sure we make them make sense for our bottom line. Chris? Chris Cage: Yes. I mean, the one thing I'd add the playing off of Tom's words, the golden bolt example, I think our 1901 acquisition is a great example of that, right? And you don't hear us talking much about that because it's embedded into the organization and providing capability broadly against a number of our digital monetization contracts cutting across multiple sectors. That's the kind of leverage we want to see gained as we move forward with acquisitions. Dynetics, we talked about the Wide Field of View programs. And quite honestly, that is a combination of a legacy capability that Leidos brought to bear out of our Leidos Innovation Center. Dynetics is now in the midst of executing that program and building the payloads. That is the leverage we want to see going forward. So, we need to move more rapidly to link those capabilities together to get the full leverage out of future acquisition. Tom Bell: And on the subject of future acquisitions, you asked about what's going to be the drive going forward? As I suggested in my prepared remarks, obviously I think having a regular return of capital to investors makes sense to us. So, we're really focused on executing the work that we have on our plate now before we get back into the market to do M&A. However, when we do, in keeping with the north star that I referenced and a very clear articulation of where we want Leidos to be in 2030 - in 2028 and 2033, which are the two vistas we're setting out for ourselves, we'll have very clear articulations of, what are the technologies that we see emerging, what's the hypothesis of what the customer problems are going to be in the next five, 10 years, how might we either build those capabilities organically or acquire those capabilities inorganically. But all of those will be tempered with a very clear articulation of affordability, hurdle rates, and a very clear strategic narrative. So, premature to actually talk about what those are because we're still working out the north star and the vision of what our customers are going to need us to be, to serve them into the future. But those are the kind of things we'll be talking about. Jason Gursky: Okay, great. And then as a quick follow-up here, your comments on backlog growth and kind of maybe not necessarily being where you'd like it to be at this point, can you talk a little bit about whether that is a market issue overall and kind of the dynamics going on with your bid and proposal activity and whether we're seeing either a slowing or acceleration? And then just kind of what you might want to change internally if it's not a market issue. Tom Bell: Yes. So, the good news is, I don't think there's a negative market dynamic we're dealing with here. There's positive demand across all of our customers and there's great opportunity for organic growth. As I suggested, we have a strong backlog. We have a strong pipeline, and I think the number is something like $26 billion in pending awards. So, the timing of those awards is unfortunate in that the first half of the year has been light. But again, as I referred to in my comments, I think quarterly book-to-bill ratios can become quite a distraction and are actually quite unhelpful. What I'm focused on is building a quality backlog over time with quality wins that speak to long-term growth for Leidos. And I don't think the BD process here is broken. I know we know how to win. I'm passionate about winning. The whole ELT is passionate about winning and I would not count us out just yet. Chris? Chris Cage: Yes, Jason, I would - Tom said his remarks that we need to be better. So, that does imply there were some things where we swung and missed on some opportunities, and we would've liked to have won those, but be rest assured the team dissects those backwards and forwards anytime we have a loss, right? And there's always lessons learned moving forward, and we're not going to win them all. So, there's that combination, coupled with there are some things that are out there pending, and we're optimistic that those decisions will come here in the second half of the year. Plus, the pipeline is strong, $135 billion. We expect to put another $20 billion of proposals through the back half of this year. So, very active, and again, our track record over the long haul has been strong. So, this is - there's not a fundamental breakdown in our process. We've got great people in our business development organization, but we do need to land some of these ones that we have out there for decision right now. Jason Gursky: Great. Thank you, guys. Operator: The next questions are from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your questions. Sheila Kahyaoglu: Thank you. Good morning, Tom, and Stuart. So, Tom, first one for you, please, and I appreciate your comments in the opening remarks about margin enhancements. What are some of the steps on organizational structure and bottom-line financial discipline you plan to take? Because I was just under the impression that Leidos has pretty good margins, it just could be variable at times. So, where do you see the potential opportunities on the profit margin side outside of the security business? Tom Bell: I think there is - thanks for the question, Sheila. I think there is a slight reset in the culture that I've enjoyed putting out there, which is treating Leidos’ money as if it's our own. And as a result, Chris and I both talked about indirect spend and just tightening our belts a little bit and being a little bit more prudent with some of the indirect spend that is in any big bureaucratic organization. The reorganization I refer to is a tuning exercise. It's not a fundamental reset of Leidos. But I do think it will add to the bottom-line because as Leidos has grown dramatically over the last five years, we've bolted on and fit in some of those acquisitions such that there is replication and duplication of capabilities in different parts of our current value stream. And I think there is opportunity for us to bring those capabilities together, better bottle repeatability for customer solutions in some of those businesses, simplify the organization, promote better operational excellence around delivery for customer expectations, certainly speed up decision-making. And again, very key, align the organization around the key technology differentiators that set Leidos apart and define who we are in the markets that we serve. So, again, this isn't fundamental reset. It's a tuning exercise to take advantage of the inorganic plays that have been made, rationalize the organization toward those goals, and then incentivize teams to actually deliver against very crisp goals for those businesses. Chris, anything to add? Chris Cage: Yes, no, Sheila, I would echo that. I mean, clearly the primary objective here isn't to organize to drive costs out of the business. That'll be a second order variable. And we always try to run lean, so that'll create some opportunity to reinvest. We're hopeful, but back to your question, where are the margin opportunities? Obviously, super pleased with Health moving up a bit from what we had set as an expectation. You see what's possible within the Defense Solutions segment of the business. I think some of that will come down to selectivity. The teams will be more focused on which opportunities they have the ability to earn a quality return on. And so, we’re very optimistic that that'll pay dividends as we move into 2024 and beyond. Sheila Kahyaoglu: Great. And then Chris, one more specific one on Health. Yes, I thought the merchants were very good at 17%. I think you mentioned a new incentive calculation on the VBA work. Can you provide additional detail around how we might think about that opportunity going forward, and how do we think about the wind-down on the single wave at DHMSM impacting profitability in the second half? Chris Cage: Yes, thanks, Sheila. So, on the incentive side, again, this was a change that went into effect earlier this year. So, we're working through it and we'll have more to say as we learn more. But I would tell you that the incentive structure at the VBA was optimized from their point of view for all participants in order to better serve the veterans and to deliver better outcomes for VBA. And it gives contractors like Leidos the opportunity to invest, to drive quality outcomes, better throughput, better patient experience, and be recognized and compensated potentially for those outcomes. So, that's just getting started and that creates an opportunity where we're a bit more optimistic that if we perform the way we have in the past, and you have to earn it every quarter that the mid-teens margin has some upside to it that we previously communicated. And we'll just have to see how that goes. Obviously, the caseload volume from the PACT Act is still settling in. And the other thing that's settling in is us earning more than our fair share, if you will, of the work share, because our performance has been so strong. So, some of those variables will impact that as well. But we're optimistic that that should create some sustainable upside. And then on DHMSM, obviously this is a little bit of a headwind on the growth side, and we'll see a bit of a moderation in Q4 and more so in 2024. But from a margin perspective, I mean, it's a quality program, well run, but it is not one of the highest margin programs within the Health portfolio. So, I don't think that's a negative as it relates to Health margin. And the team is working hard and has a number of high-profile opportunities that they're pursuing right now that'll help offset the revenue piece as we move forward. And we talked about RHRP as another example of a program ramping that'll help offset that a little bit too. So, a few dynamics going on there, but don't look at DHMSM as a margin headwind for us. Tom Bell: Yes, and just not to let that go without my commentary too. I just want to say that we couldn't be more proud of Liz and the team there in Health because they are earning great margins because they have a differentiated offering that is serving our veterans and our customer in a differentiated way. So, it's really a joy to see that ecosystem come together. Sheila Kahyaoglu: Great. Thank you. Operator: Our next question comes from the line of Seth Seifman with J.P. Morgan. Pleased to proceed with your questions. Seth Seifman: Hey, thanks very much. Good morning and welcome, Tom. I just wanted to follow up. I think there was an earlier question asking about Dynetics and the inflection that was expected there next year. I wonder, maybe zooming out to the whole business, there are some standing three-year targets out there in terms of organic growth that would point to some acceleration in 2024. I guess, Tom, in the spirit of promises made, promises kept, should we should we still consider those targets to be operative? Tom Bell: Yes. Well, I'll start and let Chris fill in some blanks. I certainly am very aware of the Investor Day we held a couple of years back and the view toward 2024 that we gave at the time. I've started staring at 2024 lightly, but in all brutal honesty, Seth, I'm very focused on finishing 2023 strong and laying a strong foundation for Leidos over the next 3, 5, 10 years. So, I actually haven't done my own diagnostics of how achievable the 2024 targets are. But obviously, if we do hit the objectives in 2023, we're a step closer to achieving those objectives that we laid out in that industry day a couple of years ago. Chris, you want to? Chris Cage: Yes. Seth, the only thing I'd add, obviously, Tom coming on board, we've got to get him even more deep into our detailed plans as we look ahead to 2024. And one of the things that is a change condition is ensuring that we are optimizing for the best bottom line in cash performance and the selectivity that'll come with that. So, really being thoughtful around how our resources get allocated to pursue opportunities in technical investment and differentiation as we pivot into 2024. And some of those things will have near term paybacks and some of those things will have longer term paybacks. So, more to say on 2024 as we progress through the year, but everybody's heads down on delivering this year as strong as we can and putting some wins on the board and positioning for the future. Seth Seifman: Great. Thanks. I'll stick to one this morning. Operator: Our next questions are from the line of Robert Spingarn with Melius Research. Please proceed with your question. Robert Spingarn: Hey, good morning. Just following on that - hey, good morning, everybody, and welcome, Tom. On 2024, just with regard to the budget and the difference between the budget caps from the debt ceiling deal on the defense budget, and then on non-defense where there's going to be decreases, given that you have a couple of segments that point away from defense. Do you just broaden the aperture there so that your pipeline can offset potential pressure on the budget? Tom Bell: Yes, you're right, there is a curious dynamic that's been set up as a result of the debt ceiling debate and resolution that occurred, that obviously people on Capitol Hill are expressing optimism that they will solve before we're facing another government shutdown. At the same time, we're actively working with all of our customers on both sides of that equilibrium, if you will, to ensure that if there are things we can do this year to get them out of harm's way of any possible budget challenges they might face next year, we're engaged with them on that. And we're also focusing on exactly what you suggest, Robert, which is expanding the areas where we can help those customers and/or customers like them. So, I’m not overly concerned about 2024 and the law of unintended consequences, if you will. I'm very focused on the fact that the team is engaged with customers about all those eventualities, and we feel we're fairly insulated against near-term impacts from any possible government shutdown. Chris? Chris Cage: Yes, Rob, I mean, there's certainly areas within our Civil and Health business that we've been positioning to make sure we're in priority areas for our customers. We just talked a bit about the VBA side and that's not going to change. But outside of the civilian agencies, I mean, you look at what we do in our commercial energy business, and grid resiliency and critical infrastructure, and those are areas that you're going to see more spending dedicated to. So, the team's really been doing an excellent job there. And obviously, we've been talking a lot about security products in the pipeline and opportunities there. So, there are definitely parts of the portfolio that we will have strong budgetary environments, we believe, and we'll prioritize those in the near-term. And as Tom mentioned, we're optimistic that we'll weather any challenges in certain customer areas. Robert Spingarn: Chris, just on that last part, when we think about healthcare and discretionary versus non-discretionary funding, so Medicare, Medicaid and so on. Is there a way to quantify what portion of your healthcare business gets funded out of those non-discretionary budgets? Chris Cage: Well, a lot of the stuff that we're doing on the medical examination businesses is in that bucket, right? So, we know that's well protected and insulated. And then, obviously the health record modernization programs are priorities for our customer sets and what we're doing on Reserve Health Readiness. So, I think by and large, Rob, we’re in a good position there, but that'll be something we can come back with details on in the future. Robert Spingarn: Great. Thanks so much. Operator: The next question is from the line of Toby Sommer with Truist Securities. Please proceed with your questions. Jasper Bibb: Hey, good morning. This is Jasper Bibb on for Toby. Just wanted to ask about the security products business and underperformance versus the acquisition case there. Would there be any way to quantify what getting that business back up to your targets might mean for Civil segment revenue growth and margins over the next few years? Chris Cage: Yes, Josh, I think it's a little premature. Obviously, we all know that with the COVID pandemic and worldwide aviation travel not where we thought it would be, that we're quite a bit under on the topline where that business was expected to be, but the growth rates over the last couple of years have been improved, and we're optimistic as we look ahead we'll continue to see that. So, when you look at Civil, I mean, what we're focused on is raising the floor of performance. Q1 was below our standards. Q2 much improved. Over time, we expect the Civil business to be on average a 10% plus margin business. And in the best quarters we'll see it 11% and above. And if we raise the floor of performance, which we're focused on in security products, that'll allow us to do that and achieve significant upside, hopefully over time. So, again, I think that just gives you a sense that there is room for that to grow going forward, and our job is to take out the variability that you've seen more recently Tom Bell: And on the top line and bottom-line expansion of our security business, as I have said, security is a vexing problem that's not going away. And in fact, more and more Civil customers, don't think government, civilian customers, are thinking about the security of their premises and the need for them to be more guarded on what goes in and what comes out. This is a great opportunity for market expansion for the team at very good margins. So, I like our bet on security, and I think it's going to be a good place for us to be as we prosecute the next five years. Jasper Bibb: Thanks for that. I’ll stick to just one question today so we can get some more people going. Stuart Davis: Thanks, Josh. Hey, Rob, it looks like we're coming pretty close to the top of the hour, so I think we have time for one more question. Operator: Sure. That question will come from the line of Noah Poponak with Goldman Sachs. Noah Poponak: Hi, good morning, everyone. Chris, last quarter with security products, you provided a lot of detail on where the challenges were. You talked about customer schedule delays where they couldn't accept product, supply chain disruption, and then you said there were service agreement penalties and product investments. I was wondering if you could just quickly update each of those. I mean, how many customers are delayed and how many are on schedule? And then I guess those other three, are they just kind of fully behind you or not? Chris Cage: Yes. Hey, thanks, Noah. And I hit on this a little bit earlier on one of the questions, but just to reiterate, on the customer, it's predominantly a large program with a single customer that we've been - it's a multi-year arrangement to deliver a number of products. We are still not on the original schedule that we had laid out with them, and the team is working hard to get units accepted and progress was made in the second quarter. That will continue to be something we'll work through the third quarter and the fourth quarter this year. And again, with the guidance range we gave you, we're comfortable that if we're not able to get all the way back, we're still solidly in our range. So, that is ongoing, improving, but, but not resolved. The supply chain side of things, several things are going on there. Number one, setting up our capability to perform light manufacturing in the future. That commitment was made. We're full speed ahead on outfitting that Charleston facility, and we'll be well positioned beginning in 2024. In the meantime, we have improved our ability to get the component parts that we need. We've insourced certain circuit board repairs. We've seen OEMs step up with better response times. And as I mentioned, we've positioned one of our senior leaders in that organization to focus on critical supplier management and part obsolescence. So, again, that's shown improvements, which is not fully resolved, but significantly improved the service level penalty situation. I would say the R&D investments are on track. The team has laid out a plan. We're not compromising there. Ensuring that we have the full capability of our software with our hardware is critical as a differentiator for us. And so, we like where that is trending. And then we took out a lot of additional costs in the business to set ourselves up for more streamlined performance going forward. And I think that'll actually yield better communication flow, clear roles and responsibilities. And so, that'll - as we optimize that with the team that we have in place going forward, we think we'll see some continued improvements in our performance. So, solid progress. Not done, Noah, I think is the punchline, and that is an area that gets full visibility from Jim Moos, our Civil leader, and the whole security detection team, they're all over it. Noah Poponak: Okay. I guess it's a pretty good step-up in the quarter sequentially, despite not being to the finish line on all of that. And I appreciate the widening of the margin range and the volatility that's inherent in what we're talking about here, but the guidance implies the margin is a decent amount lower in the back half, yet you're describing getting to the finish line on these Civil items. So, does the low end just incorporate the unlikely but can't rule it out risk that that customer delay takes a big step backwards? Or is there something outside of the tail that could get you to the low end of that margin range? Tom Bell: I’ll take that, if you don't mind, Noah. If I could characterize the widening of the range, that is in my mind more applicable for a business like ours that does products and services and is subject to the timing thereof. And so, I just think a 40-basis points guidance range is going to be the new normal going forward, but don't read into the 10.1 acquiescence or fatalism that that is the goal. It is certainly not the goal. The team is driving toward the high end, as you would expect the team to do. However, it is consistent with our promises made, promises kept philosophy where I don't want to put out a range that is - that later I'm not going to be able to hit. So, 10.1 to 10.5 is an adequate and realistic view of the entire range of possibilities we can see at this time, and we'll keep driving for the upper end of that range. Noah Poponak: I understand. And if I might just quickly, Tom, appreciate all the color you've given here, and there's a lot of things you're talking about working on. You've had these questions on the financials of the business beyond 2023 and the prior Investor Day-oriented midterm, long-term outlook. How are you thinking about eventually having another Investor Day providing a fresh set of midterm financial goals versus not doing that and just running the business and letting the results speak for themselves? Tom Bell: The team is already talking to me about when we would have the next Investor Day. So, in my mind, it's a question of when, not if. Noah Poponak: Okay. Thanks for taking my questions. Operator: Thank you. This concludes our question-and-answer session. I would now like to turn the conference back to Stuart Davis for any closing remarks. Stuart Davis: Thank you, Rob, for your assistance on the call this morning. And thank you all for your time this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings. Welcome to the Leidos First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note, this conference is being recorded. At this time, I’ll turn the conference over to Stuart Davis, from Investor Relations. Mr. Davis, you may now begin. Stuart Davis: Thank you, Rob. And good morning, everyone. I'd like to welcome you to our first quarter fiscal year 2023 earnings conference call. Joining me today are Roger Krone, our Chairman and CEO, and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website where you'll also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to slide 2 of the presentation. Today's discussion contains forward-looking statements based on the environment as we currently see it and, as such, does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on slide 3, during the call, we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I'll turn the call over to Roger Krone, who will begin on slide 4. Roger Krone: Thank you, Stuart. And thank you all for joining us this morning. Our first quarter results demonstrate our ability to drive strong organic growth as record revenue performance was consistent with our long-term target. We expect earnings and cash performance to build momentum as we progress through the year and are fully committed to achieving our 2023 guidance. As I step down as CEO, I am confident that Leidos is truly the leader in our industry with unmatched talent, technical depth, and market facing solutions. Our dedicated team is at the forefront of our customers' most challenging missions as we make the world safer, healthier, and more efficient. As usual, I'll touch on our financial performance, capital allocation, business development performance, and people. Number one, our top line financial performance for the quarter was excellent. Record revenues of $3.7 billion were up 6% in total and over 5% organically year-over-year. Our growth is in line with our long term model, and we continue to take share from our competitors. All three of our segments grew led, by Civil and Health, which speaks to the power of our diversified portfolio. Bottom line performance was lower than anticipated, largely driven by delays in security product deliveries and continued investment in the security product offerings. The delays based primarily on supply chain issues and customers site readiness are fundamentally a matter of timing and will be resolved within the year. The strengths that we're seeing across the Leidos portfolio, especially in the Health business, will help to accelerate margin and earnings performance throughout the year. As planned, cash generation was decreased by the cash tax payments for Section 174 expense for 2022 and the final payment on the CARES Act deferral. Absent those unusual items, cash flow from operations was consistent with last year's levels. We remain on track to generate more than $700 million of operating cash flow this year. Which brings me to point number two on capital allocation. Our long term balanced capital deployment strategy has always consisted 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. We've committed to take down our gross leverage ratio to 3 times and we expect to achieve that by the end of the year. In the first quarter, we refinanced and extended our debt to position us to deploy capital in productive ways. We view our strong balance sheet and investment grade rating as a strategic asset in the current market. The cash tax payments and upcoming debt paydown limited our ability to deploy capital in the quarter, but we resolutely believe that our current valuation is not aligned with our fundamental earnings power and cash generation. Therefore, we bought back $25 million of shares through open market repurchases in the first quarter. As we ramp free cash generation in the second half of the year, we'll create flexibility to allocate capital to benefit long term shareholders. Number three, business development. Most importantly, award activity is returning to normal levels after a protracted period marked by procurement delays and obligations under running budget authority. A more active environment bodes well for Leidos with our long history of being able to thrive in a competitive market. In the quarter, we exceeded our gross awards plan and booked a net of $3 billion in awards for a net book-to-bill of 0.8. Total backlog at the end of the quarter stood at $35.1 billion. Of that, $8.3 billion was funded, which is up 17%. You can read about some of the key awards from the quarter in the press release, but we're particularly pleased to see the intelligence community customers making awards again. Maritime continues as a focus item for us and international airport security is beginning to rebound. To ensure that we bring true differentiation to our bids, we continue to invest in strategic technologies that are core to our business. Last quarter, I talked about cyber, zero trust, confidential compute, and generative AI. We also have a rich history of delivering secure software at speed to support critical missions. We protect the software supply chain from development to deployment to operations, delivering software security that goes beyond compliance for customers like the FAA, DoD and DHS. And we're investing in cutting edge emerging quantum technologies focused on applications, such as quantum augmented communications and the transition to quantum resilient cybersecurity. We see tremendous opportunities ahead. We have $30 billion in submits awaiting adjudication, and we expect to submit another $39 billion over the remainder of the year. Based on the successful Tranche 0 launches in April and the rapid Tranche 1 timeline, the Space Development Agency is accelerating the Wide Field of View program, so Tranche 2 should be a 2023 submit. We also expect expanded follow-on bids on our force protection and hypersonics programs this year. In addition, we're pursuing large supply chain modernization efforts for the army and the Veterans Administration, and digital transformation remains a key priority for our customers. And lastly, point number 4, Lighthouse continues to be an attractive destination for talented people. In the first quarter, we hired more than 2,500 people and increased headcount 7% year-over-year. Even more important, voluntary attrition has dropped down to pre pandemic levels. This improved labor position provides potential uplift to our revenue plan. We're benefiting from the improved labor market for technical talent, but we believe our focus on employee engagement and career development is also a major positive factor. Our managers are living their commitments to Leidos Life by putting their employees careers, flexibility and wellbeing first. They are connecting with their teams and taking the time to engage with their employees around building a career. In our recently completed employee engagement survey, we were above external benchmarks across almost all categories, scoring particularly strong on manager relationships, inclusion and diversity, and employee growth and development. If you want to join an inclusive team and build your skills over a fulfilling career, Leidos is a great place to work. Before turning it over to Chris, I'll touch on the current federal budget environment. The US Congress is currently debating President Biden's $6.9 trillion budget request for physical year 2024. The proposed budget includes increases in critical areas that are important to Leidos, such as defense, transportation, Veterans Affairs, NASA, and energy. Last week, House Republicans passed a bill that would raise the debt ceiling and cap discretionary spending. The bill will not pass the Senate, but discussions can now begin in earnest towards resolving the debt ceiling and the government physical year 2024 budget given the enormous challenges that we have as a nation. Finally, I want to speak to the CEO transition. As I look back on my nine years at Leidos, I am proud to say that we have achieved incredible transformation and growth together, almost tripling revenues and establishing ourselves as a premier broad technology provider. Our strong leadership team helped us win numerous large competitor programs in the US and abroad. We completed transformational acquisitions, including integrating Lockheed Martin's Information Systems & Global Solutions business, which enabled us to expand our capabilities and better serve our customers. Our efforts have not gone unnoticed as we have been recognized as a leader in our industry, providing innovative solutions to complex challenges. Our commitment to our employees has been a top priority, and we have fostered a culture of innovation, engagement and inclusion. We have built a team that is passionate about our mission, vision and values, and conveys that commitment to our customers. Throughout the COVID-19 pandemic, we took care of each individual and prioritized safety and wellbeing above all. Our focus on collaboration, innovation, and inclusion has allowed us to create a culture that enables each employee to grow and thrive, driving our success. We have also made a significant impact on our customers and communities. We have transformed logistics for the UK Ministry of Defense, enabling them to rapidly respond to the crisis in Ukraine. We have driven IT innovation throughout government and helped more than 200 utilities across the US build a more resilient, reliable and sustainable electric grid. We have modernized healthcare information management across the Department of Defense on cost and on schedule, and enabled our veterans to get the disability benefits they have earned through their service. And we have worked in our communities to confront opioid addiction and remove stigmas associated with mental health challenges, making a positive difference in the lives of many. The driving force behind our company's prosperity is undoubtably the exceptional talent of our employees and the unwavering strength of our leadership team. Without their incredible contributions, we would not be where we are today. I am confident, with this team in place, Leidos is poised for continued growth in the future. As I transition out of my CEO role, I'm excited to welcome Tom Bell to the position. I have worked with Tom over the past months, and I am convinced he is the right person to lead this company into the future. With a great foundation in place at Leidos, I believe that Tom's tenure will be rewarding for our employees, customers, suppliers, and shareholders. I will end by saying thank you to each of you for your confidence you've showed in me during my tenure. It has been an honor of a lifetime. Thank you. Chris Cage : Thank you, Roger. And thank you to everyone for joining us today. Let me begin by echoing Roger's assessment of the team. This management team is laser focused on delivering on our financial commitments and driving above market growth across all financial metrics over the long term. Turning to slide 5. Revenues for the quarter were $3.7 billion, up 6% compared to the prior-year quarter. Revenues grew organically across all three reportable segments, given strong demand across our customer sets, robust hiring, and better retention. Our growth came despite a $24 million negative impact from foreign currency movements. At current foreign exchange rates, FX will become a tailwind sometime in our second quarter. Turning to earnings. Adjusted EBITDA was $346 million for the first quarter for an adjusted EBITDA margin of 9.4%. Non-GAAP net income was $205 million and non-GAAP diluted EPS was $1.47. Non-GAAP net income and diluted EPS were down 8% and 7%, respectively, compared to the first quarter of fiscal year 2022. I'll get to the underlying drivers next, but let me be clear. The he shortfall to the level of performance we expect from this company is temporary, concentrated and recoverable. Turning to those segment drivers on slide 6. Defense Solutions revenues increased 3% compared to the prior-year quarter. The largest growth catalysts were the Navy NGEN and SDA Wide Field of View Tranche 1 contracts, as well as the Australian airborne acquisition. For the quarter, Defense Solutions non-GAAP operating income margin increased to 8.4%, up 30 basis points from the prior-year quarter, with better program performance and growth in higher margin areas such as airborne surveillance. Health revenues increased 9% over the prior-year quarter, driven by growth on the Social Security Administration IT work and another strong quarter on the DHMSM program. Non-GAAP operating income margin came in at 15.9%, which was up 160 basis points sequentially and at the high end of the mid-teens range we've talked about, bolstered by additional disability exam volume and excellent program execution. Civil revenues increased 10% compared to the prior-year quarter. The NASA AEGIS program was the largest driver and we also saw increased demand from our commercial energy customers. Civil non-GAAP operating income margin was 6.4% compared to 7.7% in the prior year quarter and 11.2% in the last quarter. The decrease in segment profitability, which led to the sequential and year-over-year declines at the enterprise level, was focused in our security products business, driven by three main factors. First, certain of our existing programs were delayed due to customers not meeting their scheduled commitments. They were unable to take possession of equipment because they had not yet completed site preparation. Second, supply chain disruptions led to higher component prices or shortages, which then impacted maintenance schedules and triggered penalties under certain service level agreements. Third, we're investing in enhancements to our product suite, particularly around our Mosaic software platform, which integrates all security components into a single management system. This innovation was key to our recent awards at Frankfurt and Luton Airport. Most of the fixes have already been implemented or are in process. We've reconfigured inventory management and rationalized our service provider network. We're working with customers on scheduling and expect that orders in our backlog will be delivered and accepted this year. And we're taking actions to ensure that our investment and delivery model are rightsized to withstand the lumpiness that's inherent in a product driven business. Turning now to cash flow and the balance sheet on slide 7. Operating cash flow for the quarter was a use of $98 million and free cash flow was a use of $137 million. As expected and communicated, cash flow for the quarter was reduced by $191 million in tax payments for prior year activities, primarily related to the Tax Cuts and Jobs Act of 2017 provision requiring the capitalization and amortization of research and development costs. Cash collections were in line with our expectations and normal Q1 levels. For example, DSOs were at 62 days, which is a one day improvement from a year ago. We're on a path to take out at least four days over the course of the year, consistent with our usual pattern. Cash generation is a major focus item across the company, involving not only finance, but contracts, business development and program management, and we expect to drive sustainably improved performance over time. During the first quarter, we returned $93 million to shareholders, including $25 million in open market share repurchases, $18 million in repurchases related to incentive compensation transactions, and $50 million through our ongoing dividend program. During the quarter, we also strengthened our balance sheet, increased our financial flexibility. We issued $750 million of 10-year bonds with a fixed rate of 5.75%, refinanced our Term Loan A and revolver, and paid off the $500 million note that was due in May. On balance, we put more of our debt on long term bonds and less on the term loan, while upsizing our revolver to $1 billion. With strong demand, we were able to price the transaction at very favorable terms in the current rate environment. Once we repay the remaining $320 million on the short term loan, originally tied to the Gibbs & Cox acquisition, our next tranche of debt doesn't come due until 2025. On to the forward outlook. We're maintaining our guidance from the Q4 call. Specifically, we expect 2023 revenues between $14.7 billion and $15.1 billion, adjusted EBITDA margin of 10.3% to 10.5%, non-GAAP diluted earnings per share between $6.40 and $6.80, and cash from operations at $700 million or greater. With three quarters to go, we believe the current ranges still encompass the likely outcomes for the year. Revenue, margins and cash should all build throughout the year. As Roger mentioned, strong demand and an improving labor market support revenue growth. Margins will improve through a combination of resolving the issues around the security products business, opportunities within the Health segment, most notably increased medical examinations tied to the PACT Act, appropriate cost reductions and normal seasonality in our portfolio. As is our usual pattern, cash generation will be back-end weighted in 2023 with a spike in the third quarter, which is the end of the government fiscal year. In closing, I want to publicly thank Roger for his leadership over these nine years, both in transforming this company and providing valuable mentorship to me. He's hard to replace, but I look forward to welcoming Tom Bell and introducing him to the investment community over the coming months. With that, I'll turn the call over to Rob, so we can take some questions. Operator: [Operator Instructions]. Now our first question is from the line of Robert Spingarn with Melius Research. Robert Spingarn: I think I wanted to start with something kind of high level and has been talked about a lot this quarter so far. But we have these recent leaks of intelligence documents. And I'm just wondering, Roger, if you think that's going to slow down the approval process for security clearances or it may inhibit the ability of folks to do their jobs as efficiently as possible? Or, on the other hand, could it provide work, could it provide upside for companies like Leidos as DoD tries to resecure its systems or its process? Roger Krone: Well, shall we look back in history at the period of time around the Snowden leaks. And I'm a believer, at least in general, that history repeats itself. And it made things more difficult. The timeline to get clearances expanded the depth of background investigations, the level of clearance required to do certain jobs where maybe we were on a path for that to be relaxed, maybe like one notch, I suspect it will go the other way. Access to information will be held tighter. First of all, any leak like this is a really bad thing. And it hurts our military, it hurts our country, it hurts our standing in the international community. So I don't really see anything positive, to be quite honest, Rob, coming out of it. There are some companies, not us, that do background investigations, who do polygraphs, we're not in that business. We are a recipient of clearances. And I can't imagine that this is going to make the clearance process any easier. In fact, I suspect it's going to go in the opposite direction. And I cannot believe, my career, 46 years in the business, that after Snowden that we're back here again with his problem, and it's very, very unfortunate. Robert Spingarn: Maybe a little bit shorter term looking. You mentioned the procurement and award activity is picking up. Do you think that this is due to some acquisition officials trying to get ahead of the debt ceiling fight and the perturbations that could come from that? Roger Krone: I really do. It's the debt ceiling. We've talked a lot about a CR that could go well into 2024. And so, for people who have program managers, government contracting officials who have authorizations, appropriations and what have you to get a program under contract before we hit the fall season, I think there's a lot of that going on. And by the way, it's a positive thing. I think all the political posturing around the debt ceiling and the budget – I know the President is going to have a sort of a budget summit in the next few days. Hopefully that will lead to something positive. But there is a positive outcome to that, which is we've had some programs that have been in the acquisition process for years and they're starting to get awarded and adjudicated, and that's a positive thing. Operator: Our next question is from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: I want to maybe ask, first, on the supply chain comments you made within Civil and the security business there. I think your nearest peer there, OSI, grew 13% organically and margins went up. So what kind of changes in your business specifically? Seems like you have some investments in Mosaic. And how do we kind of assume that progressive? Chris Cage: There's definitely some positives going on in the business. And again, the one contract that was impacted by customer driven delays, we've been executing on that back half of last year and there's plenty of runway ahead of us to continue to execute on that, which will help drive growth. The supply chain challenges were disappointing, and there's some component parts and some CPUs, et cetera, that are sourced by various suppliers, some in China, and really just hit us this quarter especially hard because as activity levels have ramped up, we weren't able to supply some components and sales that we would have been able to realize. And then missing some service levels impacted us from a disincentive perspective. So I think the team, they've been working hard and they're getting some additional support from our corporate procurement organization. And so, we're all in on making sure we've got more redundancy in that supply chain. And we've already made some changes, swapped out third party logistics provider. So that transition has happened in the quarter and, again, we're taking the appropriate actions to position that for growth. There were some positives. We talked about Frankfurt Luton, there's been some nice awards on the aviation product side, and continue to see a pipeline of activity there. So confident the team's going to get it turned around. Roger Krone: Sheila, we're doing some other things, we're bringing more production inhouse where we have more control. We're going to stand up a new facility that we're really excited about. We did have some licensing delays in the period that affected some of the maintenance work that we did. And I don't know why in the quarter, everything seemed to hit us. But the good news is, the business is coming back, air travel is coming back, the long term prospect for SES is really, really positive. And we're bullish on the future. I have the privilege of being involved in some other companies outside of Leidos and they have had these supply chain issues, especially around general purpose processors. And you think you have it nailed down, and then it's the $5 chip that gets you and we had some of that in our own business. Very, very low end stuff that we had reliable supplier, and then we ended up being gapped. The business didn't go away. It's in backlog. We'll get our supply chain where it needs to be, and we'll deliver this product in the remaining three quarters of the year. Sheila Kahyaoglu: Maybe one more on Health, if you don't mind. You called out DHMSM as a contributor in the quarter. It continues to grow despite what we think of it peaking in 2023. So how could we kind of think about the revenue expectations for that program over time? Chris Cage: Chris here again. And I would say our expectation is, again, the tail end of this year, last quarter especially, you'll see that begin to tail down, teams working really hard and continue to do exceptionally well. And Rogers prepared remarks, the on-cost and on-schedule can't be overstated. And so, the customer has trust in us and there are additional capabilities we're working to deliver there. But Health is a bigger story than just DHMSM and we're proving that. The SSA work, the pipeline strength, what we're seeing out of the disability exam business, very pleased with how Liz Porter and the team have positioned that business. This quarter, 15.9% margins, got to the levels that we committed to and actually see more upside at this point in time than we had previously expected. So, it's in a good spot. And even to withstand the DHMSM ramp down, the RHRP contract is now active and didn't contribute much of anything in the quarter. So we'll see more meaningful contributions beginning in Q2 from that program. So that's what's going on in Health. Roger Krone: Sheila, I'll give you kind of this longer term view of DHMSM. So we have been focused on rolling out the starter [ph], now Oracle software to the military treatment facilities, and that has what has driven top line. As we are near the end of the rollout, the discussions we're having with the customer is now on the experience of the people who use it. And to enhance that, to make it more doctor and nurse friendly, to provide patient access through patient portals, right, and then to capture the data. Right? Many of the people on the call have kind of lived the journey from paper records to electronic healthcare records through the HITECH Act, something called Meaningful Use 1 and Meaningful Use 2, but the vision was always to get this data into a relational database, so we can then analyze not just claims data, but clinical data to drive improvements in health for everyone and in the DHMSM program specifically for the active military. So we are excited about partnering with the DHA customer on both user experience and to capture the data, to go after some of the root causes of a medical issues within our active military. And that was always the promise of the program. And now that we have a critical mass of information on the active military, the task now is to improve their health. And that will be through data and data analysis and using big data and AI tools. And we're really excited about the program. As it rolls into this sort of second life, it may not be as large from a revenue standpoint, because we're not rolling two waves a quarter out to military treatment facilities. But I think the benefit to the active military will be even greater than it has been, as we've installed the electronic health care record system. Operator: Next question is from the line of Peter Arment with Baird. Peter Arment: Chris, on the EBITDA margin guidance, it just implies kind of a much stronger mix probably in the second half. Just maybe if you could call out maybe some of the puts and takes around that and the competence level around kind of that seeing that stronger performance? Chris Cage: Absolutely something we've been spending a lot of time on internally, making sure that there's a clear path to get there. Look, it's going to take some hard work. It's not the start that we hoped for. But fundamentally, it begins with getting the SES business back on track and the team has a concrete plan. They've implemented a number of action, there's been some reduction in force, there's been a lot of transition there to make sure that businesses, in and of itself, is a strength, not a weakness in the quarters ahead. I've mentioned Health. And again, we're very pleased with what we see there. And looking ahead to the next few quarters with PACT Act cases ramping up, the SSA program continuing to run strong, there's margin uplift that we see there. The Defense business, quite honestly, they had year-over-year margin increase, but it's not where – it hasn't reached its full potential. And the team knows that. And so, from a mix perspective, we see some programs that are coming online or others that are ramping that will absolutely lift some margins across the board. And then, we're going to have to make sure that we run very efficiently on cost management for the rest of the year. We did that last year the back half and showed what we're capable of. So there's a number of things there that are already in flight. And there is a little bit of seasonality in the portfolio too, Peter. There's definitely – as it relates to award fee timing, incentive fee timing, we've looked hard at when those things should come to pass and when they get recognized. So it'd be a combination of SES getting returned to the right level of profitability, strength in Health and some program mix in Defense and then some cost control actions. Roger Krone: Peter, I would add. As you know, our business model still has a significant dependency on our great people. And we had some goals for hiring and retention for the year. And we're very, very pleased that our voluntary attrition is significantly below what we had planned. And Leidos is still an attractive place for people to come to work. So our hiring has not slowed down. We've actually eaten into, if you will, our open kind of wreck situation where we're in one of the best staffing positions that we have been in for years. Now, we may benefit from some of the hyperscalers reducing their staffing, but albeit we are very comfortable with where we are from a teammate standpoint. I think it's early, but the first quarter performance has really been outstanding. And if we can maintain that throughout the year, that will give us a lot of momentum as we close out 2023. Peter Arment: If I can just sneak one in. Roger, can you give us the latest update on the Cobham business, how that is going and just any thoughts there? Roger Krone: Peter, say that again? Peter Arment: The business you acquired in Australia, Cobham. Roger Krone: I was at the AVALON airshow earlier this year, which was down in Melbourne. It is at or better than our business case and doing really, really well. Peter, I'm an aeroplane guy. So this was like walking in, tall cotton for me. It was just a lot of fun. And we have two contracts, one to do search and rescue, one to do a maritime patrol. Both of those are performing very, very well. They are, I'd say, 75% fully integrated into our Australian operation. The only challenge that we have, which is a worldwide, I know that on this morning's radio that American Airlines' pilots – it's a challenge everywhere. And we wish we could hire more pilots. If we had more pilots, we could we could fly more hours. But Paul Chase in Australia and Roy Stevens who runs that group have really, really leaned forward on integrating that business into our unit in Australia. And we couldn't be more pleased. And again, I was at AVALON earlier this year, and I got to sit in the airplane and talk to the pilots. I went to our training academy, talk to some of the students and it's a vertically integrated airborne operations. And really, we've got the full value stream. And so, yeah, like I said, it is everything that we thought it would be, and probably more so. The other huge benefit for us is they are flying the same types of aircraft in Australia that we're flying here in the US. So our ability to build some cross linkages and some synergies between the business that Gerry Fasano has in our ASO organization, what Roy has in Australia has been really, really good. So, so far, so good. Actually maybe a little bit better than we expected. Operator: Our next questions are from the line of Matt Akers with Wells Fargo. Matthew Akers: I want to ask about the orders environment. I guess your book-to-bill a little bit light in the quarter. Do you think that ends up kind of above 1 for the year? I know you mentioned some of the big pipeline there. And is there any risk around that with the debt ceiling? Have you seen any change in kind of customer behavior around some of those talks? Roger Krone: Of course, we want to grow. We've got a long term target out there. You can back out of our long term targets, then our book-to-bill has to be greater than 1. And where we sit today, we fully expect our book-to-bill to be greater than 1. But that means, and you all know this, is that we have to win some programs between now and the end of the year. There are some big programs yet to be awarded. We have done well in winning large programs. We don't win them all unfortunately. We never put a bid in that we don't expect to win, but it's a very, very competitive environment and we have to do better in second, third and fourth quarter that we've done. I don't expect, even with the machinations around the debt ceiling and the budget, for the award process to slow down this year. I think it could get a little rocky in 2024 as we get into presidential politics, if we're in a full year CR, trying to get new starts started in 2024. If we don't get an omnibus, I'd like to think we do get an omnibus, but time will tell. We're pretty active. As I said, we still have a lot of proposals to write this year, some of those might actually get awarded this year. We have a ton, well, I guess $30 billion, maybe more than a ton of awards that need to be adjudicated. And many, many of those are going to happen this year. So we're very optimistic about the future, our track record of winning big awards, and we don't talk a lot – actually, our track record of winning small awards is even better than our track record of winning big awards. And that has to do with our customer intimacy and our great program leadership working with our customers, and I feel really good. Something we haven't talked a lot about what we call on contract growth, but our ability to expand our business base with the existing customers, that has always been very strong for us. So I'm optimistic. And Tom Bell, he's got a strong business development background. He's sold globally around the world. He has built a terrific business at Rolls Royce, and he's going to lead the business development effort here. And he'll probably do a much better job than I did of winning programs. So I'm really optimistic about the future. Matthew Akers: If I could do one more, maybe, Chris, can you give us any help with sort of the pacing of earnings for the year? Just kind of a lot of moving pieces with the impacts this quarter from supply chain and DHMSM maybe dipping at the end of the year? Is Q2 kind of flat and then a big ramp up in the second half? Or is it more kind of smooth or just any way we should think about that? Chris Cage: Matt, we usually don't give a lot of details quarter by quarter, but I would tell you that we'll build. Clearly, the SES turnaround, the actions that are taken and underway, they're not going to deliver its full potential overnight. So I would expect Q2 to be better, but Q3 and Q4 to be better still. And I think you should expect we'll be gaining a lot of steam into the summer. We'll get Tom fully on board as he'll have a point of view. And he'll want to be aggressive. I expect that fully to make sure we're delivering on our commitments as we all do. So my expectation is Q2 will definitely be better, but you'll see our full potential in the back half of the year. Operator: Our next question is from the line of Bert Subin with Stifel. Bert Subin: Maybe just to sort of switch gears a little bit. Where do we stand across Dynetics? You noted the Wide Field of View award. But can you update us on how IFPC and the hypersonic glide body contracts or potential contracts progressing? Do you still expect that we'll see a material inflection in that part of the business next year? Roger Krone: Yeah. For those of you who are able to make the trip to Huntsville, you saw a lot of what our future is going to be in what we call platform or the systems integration business. And generally, everything's on track. IFPC Enduring is doing well. We expect some magicians in the hypersonic glide body business. We won a program called Mayhem in the hypersonic world, which is really going to be helpful. If you made the trip to Huntsville, I don't want to repeat a lot of what we presented down there, but we talked about this year being one where we're in development and ramping and then 2024 is, if you will, kind of the payoff year where a lot of these programs are starting to hit production. And so, we see both the top line grow and the bottom line grow with it as we move out of development on a whole series of programs. But we've got great people there. We continue to send people to Huntsville. By the way, Huntsville is one of those places in the US where technical people just want to go. They love the environment. It's a great outdoors city. There's a huge technology community there. And we've had many, many of our best and brightest self-select to go down and work at Dynetics. And that has helped us add depth to the team as we have ramped up the business there. Two things we haven't talked a lot about because I think they are at the kind of a high beta. We still have a human lander bid that is outstanding. We're one of two bidders on that program. And I think it will be a complicated award. But we're hopeful that we will realize something out of our human lander position. And then, if you were at Space Symposium, and I know some of you were, we had a mockup of our lunar rover, and that will be more of a 2024 award. But we're pretty excited about our rover offering. We're actually teamed with NASCAR on our rover. And so there, there are some kind of shoot for the stars, literally, programs in the NASA world that could further enhance the portfolio at Dynetics. But so far, across the board, generally doing well, not to say we don't have a program or two that's ever going to have a development problem because when you're doing development, there are issues. But we're pretty much in line with what we showed you when you were down in Huntsville. Bert Subin: Maybe just a follow-up question within the Defense side. Last quarter, you highlighted that customers wanted to move a little faster on DES and you were just sort of balancing that against providing sort of the highest quality service you could. Can you update us on where transitions stand and whether your view of the ramp process of that contract has changed at all? Roger Krone: Our part is going well. So we've got the architecture in place and ONE-Net and what have you, and so now it's getting the next task orders. Within the DISA organization, we're in the middle of the transition of the DISA environment. So that's actually going well. But the strength of that program is when we start to do networks in the fourth estate outside of DISA, and that hasn't started to ramp yet. And we're working well with Lt. Gen. Skinner to make that happen. But it hasn't happened yet. And would I like to see it ramp faster? You bet. I would like to see it ramp faster. But the best thing we can do is offer a faster, better, less expensive and more secure network to the support agencies within DoD and then help DISA sell those benefits. And that's our job on the program. We have, again, a great team, a great program manager, we have a great relationship with DISA. But we've got to some book some early transformations of networks and some of that work is still ahead of us Operator: Our next question is from the line of Seth Seifman with J.P. Morgan. Seth Seifman: Just wanted to ask about the Health business. And it sounds like maybe we should be expecting some margin expansion there in order to drive the rest of the year. And that'll be driven in part by the PACT Act. Can you talk a little bit about how those expectations have changed in terms of the number of exams there and how much of the mix will be coming out of that exam business and what that opportunity is looking like now over time? And are we looking at kind of high teens margins in that business the rest of the year? Roger Krone: Seth, I'll start and I'll let Chris add. We always like to talk about our portfolio. And if we have a situation like an SES where the first quarter is a little slow and we look at the full year, we're always looking at other parts of the portfolio that have the potential to outperform. And where we stand today, we're optimistic about both top line and bottom line in health. PACT Act exams in general, our ability to hit our service level agreements and in the future earn incentives based upon performance. So we feel we feel good about that. I talked at some length about the DHMSM program. The other two programs, what we call, military family life and counseling, and there were reserve health readiness programs are both doing extremely well. And RHRP, we're finally starting to do events with guards people and reservists which will drive top line. But I really want to give kind of hats off to the whole Health team. They have done just an outstanding job of executing on their program, staying close to the customer, providing a value added benefit. And when you do that, then good things happen in the group. And customers come back, they want to do more, they want to do expanded work. And PACT Act is a positive influence in the future. But in the disability exam business, you get more than your fair share because you hit your service level agreements with both timeliness and quality of the exams that you do. And our organization at QTC has always been at the forefront of performing in the exam business. And it just gives us confidence and optimism that, overall, we may see some better performance in Health than we had initially thought. And as we look at our guidance in the balance of the portfolio, when we were behind in one business, we're always looking to where we think we will overachieve and Health is certainly that area this year. Chris Cage: Let me just add. So don't put us down for high teens as a long term new goal. But I think we've demonstrated we're doing what we said. We'll get it to mid-teens and you saw Q4 got into the 14.5% range. We improved it from there to Q1 and we see more improvement ahead of it. Part of is what Roger talked about. The team has done an excellent job focused on quality. That will pay dividends, we believe, in the long term. Our throughput has been excellent. And the customer is seeing, with the PACT Act as a catalyst for more volume, that they needed to rethink how they did incentives and disincentives. And that created an opportunity for a contractor like Leidos that has confidence in our ability to maintain high throughput, great quality. There's an opportunity to continue to do better on the incentive side as we move forward. So, again, that's going well. Our SSA program is going well. There's a lot of things that we're bullish about. And again, I see some upside on margins. But we're not committing to a new long term expectation at this point in time for that business. Seth Seifman: Maybe if I could follow up on that, Chris, just to put a little more fine point on it. If I annualize Q1, it's basically implying that that the Health earnings are going to be flat in 2023 versus 2022, which I think would be a pretty good result, given some of the margin headwinds there. Is that then a sustainable level of earnings going forward, given the maybe above trend margin that we're going to see in 2023 and some of the DHMSM headwinds? Is it a level off of which the business can grow? Because it's been executing quite well for the last couple years? Or is it a level that you kind of had to run real hard to get there in 2023, and so maybe that's a level that's above what's sustainable? Chris Cage: No, we don't look at it as taking all the air out of the balloon just to make 2023's numbers. I think we're conscious on all the bids that are going through. There's quality bids in that portfolio we have to continue to win. The only upside on DHMSM, quite honestly, is it's a huge volume program, it's well run, well executed, we're happy with it, but it's not at the top end of the Health margins in the business. So as we look at some of the other programs we're bringing on board, we think we can offset that DHMSM profitability with a lower top line volume. And so, our expectation is we set plans for the team every year, and I don't want to get ahead of Tom, but we'll set a 2024 plan where the Health business should deliver a growth in earnings. Quite honestly, that's my expectation at this point in time. Operator: Our next question is from the line of Tobey Sommer with Truist Securities. Tobey Sommer: I was hoping you could expand on and contextualize the retention perhaps by quantifying the improvement year-to-date, give us some context for the arc of retention trends in recent years and what, if any, financial implications there were in the quarter of maybe having more employees than you anticipated and what that could mean for the balance of the year in achieving your top line guidance? Chris Cage: First of all, I don't think we actually put out hard numbers. But let me give you a little bit more visibility. So there are some industry benchmarks that we all track. And pre-pandemic, we were always maybe a point better, okay? And then during early in the pandemic, everybody's retention went to single digits, mid-single digits, and then coming out of it, everybody went to the benchmark, historic benchmark, and actually significantly over it by 100 basis points, maybe more than that. And so, when we set the level and we put together a staffing plan that goes with our financial plan and our great HR team takes that as they plan their recruiting for the year, we had a number that was kind of halfway between the worst of the pandemic heights and the traditional benchmark. And we have been operating maybe 3% below that to give you just a sense. And if you take an employee base of 46,000 people and you are 3% better on voluntary turnover, then, Tobey, you can kind of run the numbers in your head what – you don't have to recruit just to stay even. By the way, there's huge benefits to retention and culture and learning. Just beyond a numbers game and being able to do the talent acquisition task, what it does for us from esprit de corps and learning and customer intimacy. So, it's a huge positive for us. And I know good things are going on throughout the industry. Frankly, we're focused on Leidos. And we just completed our all employee engagement survey where we literally go out to everyone who's a Leidos employee around the world and we are just really thrilled with the feedback that we get, the information that we receive, and we can parse it down to very, very small cohorts. And, again, we are significantly over almost every benchmark that our survey provider provides us. And we spend a lot of time to try to make this a great place to work and to take care of our employees. We have this program, I referred to a little bit of my comments around Leidos Life, which is around their career development, flexibility and mobility in how we get the work done and then this new look at total health, where all of us grew up in sort of a comp and benefits world, and post-COVID, we realized that benefits really has to start with the whole self. You have to think about physical health, mental health, financial health, all of those things that come back together. And the implications, I think, for the long term – by the way, our direct labor base is probably a little bit higher than we had planned. That can be favorable to rates, but it's early. And we're only one quarter into it. And we may see some movement in the second half of the year that would be adverse. But given all that we have experienced over the last two or three years, to be where we are today on the second of May, it just makes us feel really, really good about the human talent that we have in the organization. It's only going to provide positive aspects for the company and the positive aspects financially. Because if we can hire faster, we can ramp faster if we retain more people, it's going to pay off in top line and bottom line. Rob, it looks like we're over time. So I think we only have time for one more questioner. And then we'll wrap up. Operator: That last questions will be coming from the line of Cai von Rumohr with TD Cowen. Cai von Rumohr: Roger, I have to say you've done a terrific job. You've really transformed Leidos significantly from what it was when you joined the company. Cai von Rumohr: The one question I have looking at this year, the security products was light in the quarter and you mentioned some of the reasons. But with AEGIS just building presumably quite a bit below average margin and with having to pay higher prices, I think you've mentioned some inflation impact. It sounds like security products – excuse me, the totality of Civil is probably going to be a little bit lighter than it was, than you're expected going into the year. Is it reasonable to expect that the margins there might be sort of midway between the 9.2% of last year and the 10.2% of the year prior, and that, therefore, any goodness in Health is pretty much offset by a little tougher outlook in security? Roger Krone: I don't know why I thought the last question that I would have in my career would be an easy one. And I think we've covered everything that's going on in civil. Let's see. There is potential for Civil to be at the margin it was last year. But there's more risk, given the performance in the first quarter. And you I think you appropriately described the portfolio challenge that we have as a company. Jim Moos, who runs our Civil group, is all in on driving performance, both in the SES organization and the other parts of his portfolio. And he has tightened the belt, if you will. I think Chris mentioned that we have done some focused reductions in force. We have reconfigured the value stream in the SES business, bringing inside and into our control more of the production processes. We've got a very, very strong handle around our inventory, and how we distribute spares and what have you. Part of what drives that business is the services side. And we've got to get the services side running like a fine Swiss watch. And Jim knows that. His team is fully committed to that. And I expect him to pick up margin significantly throughout the year, whether he actually gets all the way to where he was last year. We will talk about it or Tom will talk about it on a quarter by quarter basis. But the potential is there. We don't need for him by the way to be all the way where he was last year to still make our guidance. But it certainly would be helpful. Operator: Thank you, everyone. I'll turn the call back to Stuart Davis for closing remarks. Stuart Davis : Thank you, Rob, for your assistance on this morning's call and obviously thank you all for your time this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings. Welcome to the Leidos Fourth Quarter 2022 Earnings Call. At this time, all participants will be in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. At this time, I’ll turn the conference over to Stuart Davis, from Investor Relations. Mr. Davis, you may now begin. Stuart Davis: Thank you, Rob, and good morning, everyone. I'd like to welcome you to our fourth quarter and fiscal year 2022 earnings conference call. Joining me today are Roger Krone, our Chairman and CEO, and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you'll also find the earnings release and supplemental financial presentation slides that we're using today. Turning to Slide 2 of the presentation. Today's discussion contains forward-looking statements based on the environment as we currently see it and, as such, does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on Slide 3, we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, let me turn the call over to Roger Krone, who will begin on Slide 4. Roger Krone: Thank you, Stuart and thank you all for joining us this morning. [indiscernible], by the way, Happy Valentine's Day. The fourth quarter marked a strong finish to a banner year for Leidos with record revenue and non-GAAP diluted EPS driving us to the top end of our revenue guidance range and beyond our EPS guidance range for the year. Our performance validated that our diversified and resilient portfolio and our investments in technology and innovation are positioning us for growth in key customer missions including digital modernization, cyber, hypersonics and force protection. Each and every day, our 45,000 people are helping our customers execute on important missions and meet the world's most complex challenges. Against the challenging backdrop in 2022, we delivered on our financial commitments, allocated capital to deliver value for our shareholders, won multiple franchise programs that position us for future growth and significantly grew our talent base. So let me provide more detail on each of these points. Number one, our strong financial performance in the fourth quarter enabled us to deliver on our financial commitments. Record revenue of $3.7 billion for the quarter and $14.4 billion for the year, we’re up 6% and 5% respectively. Adjusted EBITDA margin of 10.7% in the quarter was up 40 basis points year-over-year, which helped drive adjusted non-GAAP diluted EPS to a record $1.83, which represents growth of 17%. For the year, adjusted EBITDA margin of 10.4% helped lead to non-GAAP diluted EPS of $6.60, which was well above our guidance. We generated $105 million of cash flow from operations in the quarter and free cash flow of $52 million. For the year, that translates to nearly $1 billion of cash flow from operations and $857 million in free cash flow, which were right at guided levels. These results came despite multiple headwinds, most notably a protracted continuing resolution to start the year inflation, supply chain disruptions and labor constraints. Even at industry leading scale, we’re nimble enough to pivot as needed. And I'm proud of how well the team pulled together and weather these challenges. Number two, in 2022, we allocated capital to deliver value for our shareholders. Over the year, capital deployment was heavily weighted towards return to shareholders, while still layering in strategic acquisition of the Australian airborne business and investing to grow our core business through capital expenditures and internal R&D. With our asset light model, CapEx was just under 1% of revenues with large investments in airborne ISR and Dynetics and we're seeing those investments payoff in additional aircraft performing valuable missions and key wins in hypersonics, which takes me to number three, business development. This year, we won franchise programs in each segment that position us for growth. Programs like DES in Defense, Social Security Administration, IT in Health, and AEGIS in Civil, contributed to performance in 2022 and have built the foundation for 2023 and beyond. They demonstrate our ability to take away work and target brand new opportunities. In the fourth quarter, which is typically the weakest in our industry, we booked $3.7 billion of net awards for our book-to-bill ratio of 1.0. For the year, our book-to-bill ratio was 1.1. Total backlog at the end of the quarter stood at $35.8 billion of which a record $8.4 billion was funded. Total backlog is up 4% and funded backlog is up 13% year-over-year. After a relatively slow start to the year across the industry, contract activity is improving. Most importantly, our submit volume picked up dramatically in the fourth quarter with $23 billion in submits of which 92% was for new business. Taken together, the two Social Security Administration IT task orders that we spoke of last call were the largest award in the quarter. GAO dismissed the competitor's protest earlier than expected and that program has fully ramped. We also won more than $0.5 billion in hypersonics awards, including Mayhem, our first major contract on the air breathing side and wide field of view Tranche 1, which is the backbone of the nation's hypersonics defense capability. We're pleased that so many of you were able to join us in Huntsville last December to get a clear picture of the opportunities that we see at Dynetics. Our Independent research and development investments were critical to procuring these awards just as they were for our landmark wins in digital modernization. In 2022, we invested $116 million in IR&D and IRAD (ph) has grown at a compound annual rate of 23% over the last five years. We continually invest to develop proprietary tools and unique processes to drive competitive advantage. We've already deployed workflow transformations using the latest generation of AI-based on large language models and we're at the leading edge of combining artificial intelligence and cyber to enable our customers to achieve security levels that are beyond compliance. Speaking of cyber, earlier this month, we announced the latest version of our Zero Trust Readiness Level tools suite that simplifies Zero Trust adoption for government organizations, consolidating a six month to nine month planning process to less than 60 days. We drive digital innovations by working tightly with our product partners. For example, we've partnered with Intel Corp. to demonstrate confidential computing through a hardware-based independently attested trusted execution environment. And just last month, we were recognized as the 2023 ServiceNow America's Premier Partner of the Year. Number four, we significantly grew our talent base. We hired more than 2,400 people in the fourth quarter and more than 11,000 in 2022. Headcount was up 6% for the year and attrition rates continue to subside. We've seen great synergy between our people engagement and technology investment initiatives. Employees in our technical upskilling programs have significantly higher retention, and we more than doubled participation in 2022 compared to 2021. Our technical upskilling programs are aligned with our technology strategy and broad participation is enabling us to enhance our competitive position and deepen our culture of innovation. If you want to build your technical skills over a fulfilling career, Leidos is a great place to work. In 2022, we offered courses in artificial intelligence and machine learning, software, cyber, cloud and digital engineering. In 2023, we're expanding with new offerings in cyber operations, secure rapid software development and specialized learning pass in AIML. We also take learning and engagement beyond the classroom. Two weeks from now, we will launch our seventh annual AI Palooza challenge (ph), where employees around the company will engage with some of the newest AIML techniques in a creative and collaborative competition. Perpetual learning is part of our culture and we make it fun. Before turning it over to Chris, I'll touch on the current budget environment. Demand trends are very positive for our business. Late last year, Congress overwhelmingly passed and the President signed the Omnibus Appropriations bill, funding the government through September. Budgets across the board saw healthy increases, including defense spending, which was up about 10%. The budget address the critical challenges we're facing as a nation, including national security concerns arising from China and Russia and Leidos is well-positioned to respond. Amidst a highly partisan backdrop, President Biden's calls in the State of Union address to support Ukraine, protect our country and modernize our military to safeguard stability and deter aggression received strong bipartisan support. That said, we're anticipating a series of noisy debates over the coming months around the debt ceiling and the 2024 appropriations given the razor-thin majorities and the deep divisions in Congress. As a matter of prudence, we are preparing contingency plans around a potential government shutdown. But we built our 2023 guidance, assuming a continuing resolution beginning in October and extending through the rest of the year with no government shutdown. We believe this is the most likely outcome. In summary, I'm pleased with the performance and the momentum of the company. In the fourth quarter, we posted record levels of revenue, non-GAAP diluted EPS and funded backlog as well as the highest adjusted EBITDA and adjusted EBITDA margin and lowest attrition rate for the year. We anticipate that 2023 will be another good year for Leidos, marked by strong hiring, important new wins, solid growth in revenue and operating income. With that, I will turn the call over to Chris for more details on our results and our 2023 outlook. Chris Cage: 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 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 UK 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 year 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 SSA IT. 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. Onto 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. Operator: Thank you. At this time, we will be conducting question-and-answer session. [Operator Instructions] Thank you. And our first question comes from the line of Robert Spingarn with Melius Research. Please proceed with your question. Robert Spingarn: Hey. Good morning. Roger Krone: Good morning, Rob. Chris Cage: Good morning, Rob. Robert Spingarn: Chris, about the guidance, I wanted to ask you if you might not give us some more detail on a segment basis for the -- what drives the 2% to 5% growth across the segments and then how do the margins look relative to the '22 performance on a segment basis? Chris Cage: Well, Rob, you know that we don't guide by segment, but I'll give you a little additional color commentary. First of all, we're planning on growth across all of our segments. And our leaders have signed up to that. We feel good about that. We're seeing strong demand and pipeline and bid opportunities really across all three segments: Defense Solutions, Civil and Health. On the margin front, we've been communicating this for some time. Health margins were overheated in '20 and '21. Those started to moderate down. You saw that in the fourth quarter that they're coming to a place that we believe is sustainable, and then we can build off of that going forward. So what I would tell you is that's how we see health playing out is in the mid-teens as we've communicated. But we're very focused in the other two segments about continuing to drive margin expansion, Defense Solutions and Civil. So that's generally how we see the year playing out. And hopefully, that gives you enough additional color commentary. Robert Spingarn: Yeah. And then, Roger, going back to the security products business and the supply chain there, what parts of that might you bring in-house? Roger Krone: Some of the manufacturing. We've had -- we've used a contract manufacturer for -- if you think about it for some of the lower level parts and then final assembly of some of the pieces of equipment. And with the Dynetics organization and the expertise we now have -- we're very, very comfortable with doing more of those operations internally. We have more control. We can manage the supply chain. Frankly, we think we can drive the cost down. And that's been part of our strategy, and we are having the conversations about a manufacturing center of excellence which I think really is a great part of the evolution of the company. And so we can look at, if you will, larger manufacturing like the provision system, which I'm sure you all go through and be very confident that we can build that well in-house. Robert Spingarn: Thanks so much. Roger Krone: Yeah. Thanks, Rob. Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your questions. Sheila Kahyaoglu: Good morning, everyone and thank you. Roger Krone: Good morning. Sheila Kahyaoglu: Just a follow-up maybe on health, and I know you don't guide on a segment basis, but can you give us the moving pieces as we think about your growth rate. You mentioned SSA in the quarter starting to contribute RHRP. How do we think about that incremental contribution in 2023? And what you're seeing from burn pit and then the offset from DHMSM? Chris Cage: Well, you nailed all the big players there, Sheila. So you're on top of it. First of all, I mean, the SSA team did an outstanding job, and couldn't be happier with the transition, the fact that the customer did the right thing. Let us get started in the fourth quarter, we're off and running, and we expect that to be a significant contributor to growth in 2023, so that is solid. RHRP, finally, we feel very confident that, that will start to ramp up here really at the tail end of the first quarter. There'll be some activity in March, but think about that as building from Q2 onward through the rest of the year. So that gives us solid growth momentum. [indiscernible] is still again early. I'd say the team is doing excellent work in QTC. The story got a little complicated last year because some of the pre-discharge work went to multiple competitors. We also have the international work that we won that's ramping up this year. So I'd say that's -- we expect growth in that area, but more color on that as we get a quarter or two down the road. And then, finally, DHMSM, this year, there's, I would say, towards the tail end of the year, we've got to continue to work to offset that ramp down on the deployment side, but the teams have been doing excellent work to expand the capabilities within the software that's been deployed. And so we're continuing to find opportunities to do that. I don't know, Roger, if there's anything more you'd add there. Roger Krone: No, not really. Although, Sheila, I'm sure you've heard in the state of union address that the President talked about burn pits and making sure that we took care of veterans. And so it has been slow, but solid and we would expect that momentum to continue throughout the year. That's more likely to affect volume than margin. But we've seen, again, our volume hold up well in our exam business and look forward to another strong year. Sheila Kahyaoglu: Okay. No, that's helpful. And then I wanted to talk about margins as well, defense was solid in the quarter, but I think it was mainly stable that in Q3 and Q4 have seen really good performance there. So what's sort of going on? You mentioned larger programs, but I didn't think you had anything in particular there. So how do we think about Civil margins going forward and what's the driver of the better performance in the second half of the year? Chris Cage: Well, Civil -- again, we talked a little bit on the prepared remarks about the security products area seeing some ramp up. And that will -- certain quarters will have more volume there. Certain quarters will have less, but that is always a nice contributor. Steady performance in our commercial energy business that has grown nicely quarter-over-quarter. It's higher margin work. Team does an excellent job there. And then just on the digital modernization side, AEGIS coming in, not one of our higher-margin programs, but it's a great base. A lot of employees go into work that helps absorb costs elsewhere, helps make other programs more profitable. And so we like the pipeline of additional digital modernization IT opportunities that we see in that unit as well. And lastly, everybody has been focused on cost management, Sheila, that was kind of the mantra across the company in the back half of the year, the civil team got to give them kudos. They went above and beyond and finding opportunities where they could drive efficiencies sustainably into the organization. And so we like how that performance is trending. Roger Krone: Sheila, I would add, if I could, because I know you followed us for a long time. What's been great about our civil business is that it's growing. And we have a base of business in that segment that is sort of infrastructure support business. We run Antarctica. We've got the Hanford contract. We do some other work for DOE. And as great that work is, it traditionally does not carry the margin of the rest of the company. And so as Civil grows top line, you see the margin increase because we're adding new business sort of at the margin and the mix is shifting in civil. So the more we grow civil and we hold the infrastructure business constant, the more growth in margin you're going to see. And the team there has done a great job of growing. Sheila Kahyaoglu: Great. Thank you very much. Roger Krone: Yeah. Chris Cage: Thank you. Operator: The next question is from the line of Bert Subin with Stifel. Please proceed you’re your questions. Bert Subin: Hey. Good morning. Roger Krone: Good morning. Bert Subin: Roger, maybe if I -- or Chris, maybe if I follow up to an earlier question. If we look across the portfolio at Leidos in ‘23 just a couple of items you've got the continued aviation security recovery. You guys noted the growth in commercial energy. You're going to have the annualization of the SSA task orders. You got the [indiscernible] debt. This is just to name a few. All of which I would think would be mid-single growth, mid-single digit organic growth tailwinds. What are the offsetting mechanisms there that puts you down to that 2% to 5% range? Chris Cage: You make it sound so easy, Bert, you're right. There are a lot of tailwinds, no doubt about it. But we… Roger Krone: We've always talked about the DHMSM program coming off the peak. One of -- by the way, I think one of the real marquee programs for the company, but we're better than half done now, and we will start to slow down as we have talked about in the past. And that program has just been such a great performance program for us, both top line and bottom line and frankly, delivering on time and on schedule to our soldiers. So that's one of the programs that's coming down. Chris Cage: I would also point there's a couple of spots in our Intel business. It's been fairly public, the focus Fox (ph) procurement process. And while that has some room to go ahead of it still to see how that fully plays out. That's an area that could be -- put some pressure on revenue growth if it doesn't go our way. And then, we lost a program a year ago, and this is how long things take called items UFS. And so the good news is the Intel leadership team did a great job throughout 2022 to continue to support the customer during transition, but now we're fully rolled off that program. So that's a little bit of a headwind. But by and large, we've had great success on our recompetes. I really love the team's performance there. There are a lot of tailwinds that are known, but we also have seen customer behavior take longer. And especially if they're worried about the budget environment transitioning into government fiscal year 2024. So our hope is, we'll build momentum through the year. We'll have some successes, and we'll be able to update you in a positive direction. Bert Subin: Yeah. That's super helpful. Thanks. Maybe one item, Roger, that you had talked about before and I thought I gave some good color from DES. Obviously, that has the ability to be a significant driver on the sales side for the company. And you talked about that as being tens of millions of dollars in '22 and then maybe doubling from that range in '23 and then really starting to ramp by ’24, is that still how you're looking at it or how should we think about the range of potential outcomes for that contract this year? Roger Krone: Yeah. I think that's a good way to build your model. And I was with a customer yesterday, actually, we had a long meeting on the program. We all want to move fast. This is about transitioning non-combat support organizations to new, what we call DoD net. And -- but we want to do it the right way. We want to do it when we're ready, and we all want to move fast because it will save money. It will help interoperability between all these support agencies, but we want to do it the right way. We don't want to create a negative user experience for all the people that are supporting the military. And so the discussion was, well, okay, are we -- can we move up some of the transformations and some of the transitions, and we're looking at that. So I think there is potential for it to be higher, but we're not guiding to that. And we'll talk to you quarter-by-quarter as to what our success has been and whether we've been able to increase the ramp. And I will tell you, we're very enthusiastic about it in '24 and '25. As it fully ramps and we're doing these conversions, how much more than what you described we can do in '23, we have yet to see. But I can tell you, the customer wants to move fast, we want to move fast. But we all know if you -- sometimes you move too fast and you create a negative user experience, you're really not serving the user well, and we don't want to get ahead of ourselves. Bert Subin: Thanks. Roger Krone: Yeah. Chris Cage: Thanks, Bert. Operator: Our next question comes from the line of Matt Akers with Wells Fargo. Please proceed with your question. Matt Akers: Yeah. Hey, guys. Good morning. Thanks for the question. Roger Krone: Good morning, Matt. Matt Akers: I wanted to ask about the cash flow guidance for '23. And I think if you back out Section 174, I think it's kind of flattish year-over-year. I think the payroll tax goes away in '23. Is there any other sort of offsets to that or working capital maybe that are preventing that from being higher? Roger Krone: Well, again, Matt, with the growth we've had and the growth that we see ahead of us, there are some investments -- modest investments in working capital for a few particular programs. If we're able to win a program like FINS, for example, there's an initial amount of equipment that you have to procure and bring on board to support the customer. So there are a few things like that in our pipeline that we're anticipating. We finished the year at 58 days DSO, and that's good performance. I think there's opportunities to drive that even lower and we're focused on that as a finance team with our lines of business leaders. So we thought we'd start the year at $700 million. I mean it's not a never a slam dunk, but our focus is to continue to build momentum on the cash side. But nothing out of the ordinary as it relates to working capital investment, but there are a few programs that we are anticipating needing some support as we win them and grow them. Matt Akers: Got it. Thanks. And then I guess it sounds like you're doing some sort of contingency planning around if there's a shutdown, are you willing to share what kind of quantify the impact would be if we do get a shutdown? Roger Krone: Well, first of all, no, because we really haven't -- we haven't gotten to that level of planning where we've -- in order to have -- to quantify, we'd have to pick a date and then go through and figure out which programs would be deemed essential and which programs would not be deemed essential, then how we would go mitigating. What we do, and unfortunately, we have done this way too many times as we get our contracts organization, and we go through our 3,000 or so contracts and try to understand how each contract would perform in a government shutdown and some are easy. They're deemed essential. We know those will continue. Some we know will not be deemed essential. And then as part of our preparation, we start to have conversations with contracting officers about things that might be in the middle and work with them on ways that we could mitigate a shutdown. And it just behooves us to be prepared. And by the way, we have learned the better prepared we are, the less likely it is, we'll ever use the plan. but we would never want to maybe McCarthy and the President have a meeting. I think they're going to meet again in a couple of weeks. And if it comes out of that and we get to June, and we're not prepared, then we haven't done our job to manage through a government shutdown as best we can. And that's the process really that we have kicked off. And unfortunately, we have done this before. So we have a pretty well-developed playbook and we have gotten our playbook out and dusted it off. Matt Akers: Thank you. Roger Krone: Yeah. Chris Cage: Thanks, Matt. Operator: Next question is from the line of Peter Arment with Baird. Please proceed you’re your questions. Peter Arment: Yeah. Good morning, Roger, Chris. Roger Krone: Hey. Good morning, Peter. Peter Arment: Maybe you can just update us on how NGEN is doing. I think we are kind of expected to hit kind of a steady state in 2023 in terms of a ramp. What's your thoughts on that? Roger Krone: NGEN? Peter Arment: Yeah. Roger Krone: Well, it's pretty much fully ramped. And you're really doing well. We're in full possession of the network Peter, I know you know the program well, but our first task was to take the custodianship of the Asure Network, okay? So we've done that. Now the challenge is to transform that network to modern technology. And we're in the process of keeping the call center up, maintaining the network, trying to get the quality of service up while we move to the new environment. And there is opportunity, we believe, this year for additional scope through special projects and on-contract growth in task orders. And we are starting to see some of that. I think we have talked in prior calls that was a little slow in coming. But we have talked to the Navy and frankly, I've talked to our program manager, and we're starting to see some of that break free. We see lots of opportunities where technology can add value to the user experience in the Navy. And so we're constantly making suggestions to the customer about things that can be done to improve the network and which would end up in growth for us, but more importantly, would end up in better quality of service for the user. I don't know, Chris, do you want to add? Chris Cage: No. I mean, first of all, we've got an outstanding team running that program. And it's our largest program, as you can imagine, and we're only a year, 18 months into this thing. So the best days are ahead of it. To Roger's point, we're clearly identifying areas where there we can help support the mission and the customer better and that would lead to contractual actions and modifications. And let's just say, of course, we're interested in pursuing that, but at the pace that makes sense for the customer. So we're hopeful that there's -- we'll continue to see growth and margin improvement around that program as it moves into next year and the year after. Peter Arment: I appreciate that color. Hey, Roger, you mentioned technology kind of insertions and things that AI has obviously gained a lot in the press here recently with chat GPT (ph) and other things. Are you seeing opportunities to really automate some parts of your business where you can really potentially improve margins? Roger Krone: Absolutely. And Peter, we're all smiling because we actually do have chat GPT in our environment, and we debated whether we ought to talk about it. And it seems such a popular term now and I guess Microsoft is going to put it under being and really make a super search engine out of it. But I think what everyone needs to understand is those technologies are available to anyone who wants to use them. And I think the benefit goes to those people who capitalize on not only the money we spend internally, but the billions of technology money that's spent outside the company. And so we are very aggressively using things like chat GPT and other modern language AI platforms. And we've deployed robotic process automation in accounting, like in Chris' area. I mean we don't talk much about that. We're certainly doing it for customers. We're using it. I like to analyze images and all the applications that you can imagine. But we're also using it internally in our functions to be able to, if you will, use computers to do what we call the dull, the dirty and the dangerous, right, and free up the human, whether that be a financial analyst or an accountant or an imagery analyst or even a linguist, right, in our linguistic. Program do what the human does best, which is to add that cognitive discernment and then let the computers crunch through the gigabytes and petabytes and terabytes of data that we now collect. Peter Arment: Appreciate the details. Thanks, Roger. Roger Krone: Thanks, Peter. Operator: The next question is from the line of Seth Seifman with JPMorgan. Please proceed with your questions. Seth Seifman: Hey. Thanks very much. Good morning, everyone. Roger Krone: Good morning. Seth Seifman: I was wondering maybe if you could talk a little bit about the '23 Omnibus and kind of how that's set up your expectations for the growth that should be coming in the Dynetics programs, particularly in the 2024 time frame? Roger Krone: Yeah. Okay. Those are -- you two, I would say, lightly linked subject. So let me talk through them and I'll have Chris clean up after me when I make a mistake. But given the year and what's going on, on the Hill, I think the Omnibus is about the best we can expect. And my hope and our plan is McCarthy, the President find a way to raise the debt ceiling long before the June date. And the debt is really paying for past years for authorizations and appropriations that have already been made, commitments that the country has been made, and we're just funding the government. And that will probably fund it we're hoping a little bit higher than the 2023 levels. I think we can count on that. And as you know, it's always a discussion between defense and nondefense, and if we raise defense, then there's a group of elected officials who want to raise the non-defense budget at the equal amount. And that may tamp down a little bit of the raise in defense, but we're coming off such a robust defense budget this year that I think we will all do okay. Now how does that roll into Dynetics? And again, if you were down in Huntsville and I'll describe a little bit what you would have seen is a lot of productions that are in low rate initial stage of the program, where we're building the first age preproduction or production units that will be followed in '24 by a fairly aggressive ramp and significant production. We're talking instead of one a month, one a week, two a week. And we could go through the different programs. I won't do that now. Those monies are pretty much already authorized and appropriate, okay? Not in every case, I won't go program by program, but if we get an omnibus then the ramp that we talked about in December is certain because these are programs of records that will be fully funded. I won't go into all the scenarios if there's a debt ceiling or there's a reason and all the things that the government could do, which is certainly within the realm of possible. We think the high probability is they'll get an omnibus. It will have some growth in it. There may be a Ukraine supplemental depending upon how it goes and it certainly doesn't appear to be lessening. So they may cover those expenses with the supplemental as they have done in the past. And then our production ramps in '24, which are again, we think we're very pleased. I think they're very attractive. Those would be fully funded and we would see significant growth in Dynetics in '24, and I'll let Chris add to that. Chris Cage: Not a lot to add. I mean, Seth, obviously, you can tell from Roger's comments, which were mostly focused towards the future ‘24 we felt really good about how '23 Omnibus came out, and our Leidos affairs team does an excellent job, and we clearly were making sure members understood the importance of some of our key programs. And we like the way we came out. You don't get everything funded at the level that you'd like. But on balance, we thought we came out exceptionally well and well protected with key programs and that sets us up nicely for this year. Seth Seifman: Cool. Excellent. Okay. I’ll leave it there for this morning. Thanks very much. Chris Cage: Thank you. Operator: Next question coming from the line of Ken Herbert with RBC Capital Markets. Please proceed with your questions. Kenneth Herbert: Yes. Hi. Good morning. Chris Cage: Hey. Good morning. Kenneth Herbert: Maybe for Chris or Roger, you did a really nice job sort of sequentially first half to second half in '22 on the margins. And I know you went through a number of items around your physical footprint, some insourcing, maybe some labor savings. But it also sounds like from the guide that in your comments that you're obviously not going to keep all of this. My question would be, how do you view sort of incremental sort of corporate level cost opportunities as you look at the business into '23? And how is the discussion with the customer in terms of how much you're able to keep, what's necessary to be competitive and win share in the marketplace? I mean how do you view these dynamics into '23? And where are the incremental opportunities at the corporate level from the cost side? Chris Cage: Well, Ken, let me get started. Roger might pile on. So first of all, very proud of the team, second half of the year as a team, we really rallied and showed we're capable of on the cost control, margin improvement front. And quite honestly, that was despite the fact that we had some program areas where we could have done better. And so I think that gives us some confidence and momentum going into '23. Now a couple of things to keep in mind. The Health Group overall for the year finished still above 17% on margins. right? So fourth quarter was definitely more in line with what expectations are going forward. But earlier in the year, there was still some stronger performance from caseload and QTC and other things that drove that higher. So that will still moderate down a bit, but we do intend to capture the savings and the margin upside that we've been able to realize in other parts of the business. And we're not done in Defense Solutions and in civil for sure. And as we build our pricing, we have a rigorous process with our competitive intelligence team to kind of keep us in tune with where we need to be on a price to win front. We factor that in and making sure that we can remain competitive while still trying to capture some of the margin upside. So the guidance is balanced for next year. And again, there's momentum there. I wouldn't say there's any super low-hanging fruit on the cost reduction side because we do focus on that continuously. But there's still more that we can do, and we're focused on hitting that 10.5% long-term margin target or greater by 2024. Roger Krone: Yeah. I don't have much to add, Ken. I'll make a couple of points that I'm not sure we get the food stomp. So taxes and interest which I wish I could control, but I don't. That's like a $0.20 headwind on EPS. And we'll do all we can, and we've got a great tax department, and we'll see if we can mitigate that. Unfortunately, interest rates are up and the way we manage our balance sheet, we're in the market, we're always replacing expiring debt instruments, and so that creates a headwind. But really, our philosophy is if we can grow revenue faster than we grow our indirect costs, then we get better every year. And so growing the top line has really helped us control costs. We had really good growth in the second half. Again, we expect continuous growth for the rest of this year. And then the challenge is to control costs below revenue growth, but we've found -- like we have some costs that grow with the number of people right? And so one of our thoughts are we've had a business that was somewhat dependent on people to grow, right? And we've talked in the past about, well, we want a little bit more product mix. We wanted a little bit more diversity in our portfolio. Part of that is so that we can grow nonlinear with people -- and so if we have -- we get to the ramp in Dynetics where we're building more products, we can leverage our terrific workforce, but it's not one to one, and that allows us to grow faster than our indirect rates, and you can think about HR and benefits and all the things, the training programs that we have with our people. So that's just kind of our philosophy. And I think Chris did a good job of saying, we got fixed price and cost plus. And I'm sure you know how the mechanics are about what we have to give back based upon the contract type. Kenneth Herbert: Great. I’ll stop there and pass it back. Thanks, Roger. Thanks, Chris. Roger Krone: Yeah. Chris Cage: Thanks, Ken. Operator: Our next question is from the line of Cai von Rumohr with Cowen & Company. Please proceed with your questions. Cai von Rumohr: Yes. Thanks so much. So I think early on, you talked about 6% headcount growth, and I would have to assume wages go up about 3% which would say payroll is up in the area of 9%, and your revenues are up 2% to 5%. Help us square those two items? Chris Cage: Well, Cai, I mean, keep in mind, first of all, half of our revenue is kind of Leidos content. We've got subcontractors. We've got materials, right? So that's only a portion of the business that you're focused on the headcount growth. And that headcount growth that Roger talked about, the 2,400 people that we brought on last year was over the course of the year, right? We were adding them kind of pro rata throughout the year. So it's not like that's going to all be incremental heading into '23. But that being said, we have big plans around the additional heads that we plan on adding again this year. So the combination of factors, headcount should be up. You're correct. There's payroll growth on top of that, that gives you some upside, that immediately gets passed through on the cost reimbursable programs. You don't necessarily get uplift immediately on your fixed price programs. But that's part of the equation, too, that would suggest, if we're successful, we don't have any major losses, and we continue to win our fair share, we like the momentum that we see on the growth side. Cai von Rumohr: Thanks. And the second one is, you have very strong bid submits. And Roger, you mentioned we have a very strong FY '23 budget. So there's lots of money available. Can you give us some color on what you expect your book-to-bill might be in '23 and what that would suggest for '24? Roger Krone: Yeah. Sure, Cai. And, of course, it's early. And we've got about $34 billion of submits pending awards. And we had -- I don't know whether our submits of $23 billion last quarter was a record or not. I think it probably was. So we've got just a lot of things out there. And so we expect '23 to be at or better where we were in '22. And it's so early -- we start leaning forward and then we get hit with the protest and the program gets pushed out of ‘23 to ‘24, which we've certainly seen happen in the past. But we feel that '23 is going to be strong. And the '22 levels or better. There's always a couple of wild cards. It says you would win. There are a couple, I would say, maybe more sort of like 1 square over that we could win that would really fuel the top end. We didn't really put those in our plans and our guide. What we're trying to do is to build a balanced guide around what we see in the portfolio. And again, clearly above one for the year, again, as it has been for years and years and years, but the potential for a very strong year. And then we'll just -- we've got fans, which still hasn't been awarded and we're hopeful that FIS will be awarded soon. I'll tell you, Cai, without going into the details, there's a program that has been under protest that we thought would be awarded in first quarter. And the customer just asked us to extend our pricing to next year. So there's -- as enthusiastic as we are. Every once in a while, we do get disappointed and the protest process and the adjudication court of federal claims tends to damp down some of our enthusiasm. And so in the first quarter, we're going to be thoughtful about what we put out there. But you know the number, 35, 36 in backlog, 34 awaiting award, our strong submits. And we'll have a very strong submit year in '23 as well. Cai von Rumohr: Thank you very much. Chris Cage: Thanks, Cai. Operator: Our next question is from the line of Jason Gursky with Citigroup. Please proceed with your question. Jason Gursky: Hey. Good morning, everyone. Just want to follow up there with kind of a follow-up question to the line of thinking that Cai had there on the bookings. You mentioned in your prepared remarks the protracted acquisition process that's in place. That's something we've been hearing for quite some time now. I'm wondering if this is just kind of the normal environment now? And what your assumptions are for the year? Are you expecting things to get better or worse on how quickly things can get out the bid and then awarded? Roger Krone: Yeah. I mean, I'll talk kind of top level. Chris can add in. And this is, just what I think. So everybody has their opinion there's a lot that's being written is what I think I'm seeing is customers wanting to get things under contract before we end up in this argument over the debt ceiling. With looming government shutdown, who knows what comes out of those discussions. If you've got a customer and you've got appropriated funds, you're going to really work hard to get those committed between now and June. And so we are seeing a little bit more activity, and we're hopeful that these folks will try to move a little faster and get these things under contract. And then we probably end up with an agreement on debt ceiling with some kind of a future trade on some kind of a top level budget constraint. I mean I don't -- I'm not smart enough to know what that will look like. Last time this happened, we got sequester. But I suspect it will be something just what I read about how McCarthy got elected as a speaker, there is some kind of a budget deal that's going to be cut for the long term. But that could be by -- and I don't really understand how you balance the budget in 10 years. Again, that's not my job, but I run the numbers, and it seems unbelievably difficult. But that's going to put a damper perhaps on what the budget could be. You're starting to talk now 25%, right? And so I suspect that if you have money and you have a program and you have a mission with requirements, you're going to work as hard as you can to get those things committed in '23. And I think that speaks well. And then as you know, we get an award in '23 that's a '24, '25, '26 revenue. So again, our future, we think, is still looks relatively bright. And then plus the diversity in our portfolio, the Civil group has been growing very strongly. The health group has been growing very strongly. So we've been working really hard to make Leidos somewhat resistant to the vagaries of what happens from our elected officials. I don't know, Chris, you want to add anything? Chris Cage: No, I think you covered it well. I mean the only thing I'd say, we wish customer contracting shops were more fully staffed. They're not in many cases. One path that we think has been successful is more use of Fed Sim. Fed Sim runs a good acquisition process. the rules are well defined. And so we've had some success with our teams competing in that arena, and we see more customers going in that direction. Jason Gursky: Okay. And then quick clarification. Can I ask one clarification. You mentioned the CapEx at 1.5% this year. And I think you mentioned part of that is being driven by Australia. I'm just curious if that has to do with the recent acquisition and kind of what's going on down there, specifically on. Chris Cage: Yeah. Good question, Jason. So it does. When we acquired that -- the Australian Airborne business, we knew they were kind of halfway through a major investment in the mission management system software capability. We're continuing that investment. So that will be completed in '23, but that was fully factored in the valuation of the business. And so that's elevated for a period of time. Then as you know, I mean, just like the rest of Arbor business, there will be some preventative maintenance, ongoing normal maintenance CapEx that we'll spend there over time. But think of that as slightly elevated in '23, just to continue the full development of that capability. And then we've got additional CapEx in that number for our U.S. based airborne business as we're acquiring more capability, fitting it out to run more mission, and we're optimistic on some bids that we've put forward and some more that are in the pipeline there. Jason Gursky: Great. Thank you. Chris Cage: Thanks, Jason. Stuart Davis: Hey, Rob, we're running a little bit over, but we have time for one quick question. Operator: Sure. That will be coming from the line of Louie DiPalma with William Blair. Louie DiPalma: Roger, Chris, Stuart and Gabe, good morning. Chris Cage: Good morning. Roger Krone: Good morning. Louie DiPalma: The success of drones in Ukraine and more recently, surveillance balloons have increased Congress's focused on unmanned systems last summer, on a $300 million contract to develop a medium unmanned undersea vehicle for the Navy and your unmanned surface vessels Sea Hunter and Shaw have participated in several successful demonstrations. Is there potential, Roger, for some of these Navy unmanned platforms to convert to programs of record or even for Leidos to provide surveillance as a service similar to the cocoa model that you're doing in the U.S. and in Australia? Thanks. Roger Krone: Yes. Well, that's great. I mean Louie, you really are following things well, and I think you really understand our programs. I would add to that, we have some unmanned vehicles that are made of Dynetics. By the way, we have some counter drone programs that we probably exposed to a little bit to when you were down in Huntsville, where we actually have a radar on Jeep and we launch a drone, and it can go -- or attack another drone. And so -- but we see exactly what you see is the use of uninhabited vehicles under the water on the surface in the air, and we'll call it in the rare air, up between 60,000 and 80,000 has -- first of all, I will tell you that it has been robust. There's been a lot of work already done. The MUUV is a program of record. So we won that, that's a program of record that's fully funded. The Sea Hunter and the autonomous vehicles in the Navy are not yet programs of record but the Navy is doing a lot of experimentation. They're doing some things in the Mid-East that have really demonstrated some capabilities. As you have mentioned, we've done a lot with Sea Hunter Sea Hawk and Sea Innovator. And we believe there is a strong demand for those. I think for us, on the surface. The next thing for us may not be a full program of record, but they may buy additional vehicles to extend their experimentation, which they can do under an OTA that would happen much faster. But I believe that the Navy is committed to having a significant percentage of their fleet both unmanned and optionally manned. And our autonomy software and the things that we have demonstrated really set us up well to capitalize on that and to bring them the capability that they need. There are a couple of other programs. There's MUSV, there's LUSV that are out there. They are going through their development processes. But to get all the way to the program of record, I think, is years away, but that doesn't mean that the Navy won't be spending funds to further their understanding and to experiment with unmanned capabilities, and we would be right in the middle of those activities. So Louie, thanks for the question. Louie DiPalma: Thanks, Roger. Thanks everyone. Roger Krone: Yeah. Operator: At this time, I'll turn the floor back to Stuart Davis for closing remarks. Stuart Davis: Thank you, Rob, for your assistance on this morning's call, and thank you all for your time this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings. And welcome to the Leidos Quarter Three 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Stuart Davis, Senior Vice President, Investor Relations. Thank you, sir. You may begin. Stuart Davis: Thank you, Maria. And good morning, everyone. I'd like to welcome you to our third quarter fiscal year 2022 earnings conference call. Joining me today are Roger Krone, our Chairman and CEO, and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you'll also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to slide 2 of the presentation. Today's discussion contains forward-looking statements based on the environment as we currently see it and, as such, does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on slide 3, during the call we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I'll turn the call over to Roger Krone, who will begin on slide four. Roger Krone: Thank you, Stuart. And thank you all for joining us this morning. Our third quarter results demonstrate the momentum in our business as we continue to report revenue growth at the upper end of our guidance across our diversified portfolio. In addition, our dedicated team delivered earnings in excess of our forecast and generated the highest quarterly cash flow from operations in our history. These results position us well to deliver on our full year financial targets as we make the world safer, healthier and more efficient. As usual, I'll touch on our financial performance, capital allocation, business development performance, and people. First, our financial performance for the quarter was strong and ahead of consensus at both the top and bottom lines. Record revenue of $3.61 billion were up 4% year-over-year. Adjusted EBITDA margin of 10.3% was up 10 basis points sequentially and non-GAAP diluted EPS came in above our forecast and consensus. Our third quarter performance and improved visibility enables us to raise our revenue outlook and derisk our earnings for the full year. We also generated a record $748 million of cash flow from operations. This puts us on track to meet our cash commitment for the year, strengthens our balance sheet and positions us for future capital deployments to benefit shareholders. Which brings me to point number two, our approach to capital allocation. Yesterday, we closed our acquisition of Cobham Aviation Services, Australia's aviation Special Mission unit. This business provides border force airborne surveillance, and marine safety search and rescue, and generates roughly $100 million in annual revenues. It is immediately accretive to both non-GAAP EPS and EBITDA margin. At this point in our strategic journey, the Cobham acquisition is a great example of what we're looking for. It expands market access, provides us franchise programs with a customer of strategic importance and complements our existing business, all at a multiple below ours and a price that enables our shareholders to benefit from future revenue and cost synergies. Our cash balance at the end of the quarter was $807 million as collections were especially strong in the back half of September to close out the government fiscal year. Our plan is not to accumulate cash. We just paid for the Cobham acquisition, and we'll be paying down some debt to move closer to our target leverage ratio of 3 times. Our balance sheet enables us to steadily deploy capital in productive ways. Given the strength of the company and a valuation that doesn't reflect our long history of driving steady earnings growth and cash generation, we'll lean towards share repurchase when we have deployable capital. Number three, our business development results demonstrate that our strong positioning in the government technology marketplace is enabling us to navigate a difficult environment. The current timelines continue to extend and DoD outlays continue to lag budget authority. With net bookings of $4.1 billion in the quarter, we achieved a book-to-bill ratio of 1.1 and grew backlog to $35 billion or $35.4 billion on a constant currency bases. We also had nearly $1 billion of third quarter awards protested. Absent the protests, book-to-bill would have been 1.4. Highlighting some important awards. We received a five-year $1.5 billion task order to support the DoD with rapid technology insertion to enhance C5ISR missions globally. We expect to receive the full award value over the life of the contract. But in accordance with our policy, we only booked $100 million in the quarter. This award, known as Sentinel, is all about getting capabilities into theater and to the combatant commanders quickly. As a solution agnostic integrator, part of our role is to find innovative technologies that can be rapidly matured, proven and integrated in support of multi-domain operations. Sentinel fits within the Joint All-Domain Command and Control or JADC2 umbrella. Our positioning on JADC2 was also bolstered by the Air Force's selection of the Advanced Battle Management System Digital Infrastructure Consortium. With four other consortium members, Leidos will work to deliver the Air Force's vision for distributed battle management and decision advantage by enabling speed, security and integration at scale. NAVSEA awarded Leidos a $358 million contract to design and build a medium-sized unmanned undersea vehicle to provide autonomous oceanographic sensing and data collection for operational intelligence as well as to support mine countermeasures. We also received our first task order on the $11.5 billion Defense Enclave Services contract. The $138 million task order will lay the framework and begin to consolidate, integrate and optimize five agencies on a common network architecture through digital modernization and transformation. We successfully completed the transition period and have assumed operational responsibility for DODNet and DISANet. And in a key win for our space business within Dynetics, we received a subcontract with Northrop Grumman to develop hypersonic defense sensors for the Space Development Agency. We have more than 40 years of experience developing and flying space-based electrooptical and infrared sensors and payloads for a variety of missions. Through this award, we'll develop and build the sensor payload for a proliferated constellation of low Earth orbit satellites for the Tranche 1 Tracking Layer. The Tracking Layer constellation will detect and track advanced hypersonic and ballistic missile threats as part of SDA's missile defense architecture. On the predecessor contract, our Tranche 0 payload is on scheduled to launch by the end of the year. The Tranche 1 design will increase coverage area, while reducing payload size, weight and power. Eventually, these constellations of satellites will form the core of a new National Defense Space Architecture, providing global coverage and adding resiliency in the country's missile warning arena. As a reminder, we'll be hosting an investor site visit at Dynetics in Huntsville, Alabama on December 1. Please reach out to Stuart if you're interested in attending. And the final key win that I'll touch on this morning is the re-award of our IT support to the Social Security Administration. As of the second quarter call, our award was protested by the previous incumbent. And after a resubmission of proposals, the SSA re-awarded all of the work to Leidos. The incumbent once again protested the award and the new GAO review period expires on January 3. And lastly, point number four. Leidos is an attractive destination for great talent. In the third quarter, we hired just over 2,800 people. And year to date, we've hired more than 9,000 people and increased headcount by more than 2,000. It's still early, but voluntary attrition is trending in the right direction, and we don't expect that staffing will significantly constrain our plans for next year. Our dedicated and capable people are a key differentiator for us and an important national asset. Before turning it over to Chris, let me touch on the federal budget landscape. As expected, the federal government is operating under a continuing resolution at last year's funding levels until December 16. Congress is still working on the appropriations and authorization bills for government fiscal year 2023. Nothing will get voted on until after the November 8 elections, but we expect that robust budgets will get passed before the end of the calendar year. Outlays are beginning to improve which bodes well for future growth. Chris, over to you. Chris Cage : Thanks, Roger. And thanks to everyone for joining us today. Third quarter results were positive and in line with the picture that we gave on the second quarter call. Turning to slide 5. Revenues for the quarter were $3.61 billion, up 4% compared to the prior-year quarter despite a currency translation headwind of $32 million. Adjusted EBITDA was $372 million for the third quarter for an adjusted EBITDA margin of 10.3%, which was up 10 basis points sequentially. Non-GAAP net income was $221 million or $1.59 per share. Non-GAAP net income and diluted EPS were down 15% and 12% respectively compared to the third quarter of fiscal year 2021, which had the highest earnings in our history, driven primarily by the COVID catchup in the business. Let me touch on a few of the below-the-line drivers. Net interest expense increased to $50 million from $47 million in the third quarter of fiscal year 2021 with the rise in interest rates. The weighted average diluted share count for the quarter was 138 million compared to 143 million in the prior-year quarter, driven by the ASR we executed in the first half of the year. Finally, the non-GAAP effective tax rate for the quarter was 25.8%, up 170 basis points sequentially, which reflected the cumulative catchup for changes to the mix of revenues across foreign and state jurisdictions. The higher-than-expected tax rates lowered non-GAAP diluted EPS in the quarter by $0.04. Now for an overview of our segment results and key drivers on slide 6. Defense Solutions revenues increased by 3.3% compared to the prior-year quarter. The largest growth drivers were the ramps on the NGEN and various force protection programs, which more than offset the end of our Afghanistan support contracts and the foreign exchange headwind. Defense Solutions non-GAAP operating margin for the quarter came in at 8.1%. Civil revenues increased 10.4% compared to the prior-year quarter. The NASA AEGIS program was the primary revenue driver, but we also saw good growth on our security products and commercial energy businesses. The mix shift helped drive non-GAAP operating income margin to 11%, up from 9.6% in the prior-year quarter and the highest level in six quarters. Health revenues decreased 3.4% over the prior-year quarter. Revenue in the year-ago period benefited from the backlog of disability exams caused by COVID-19. And our share of certain exams has fallen with additional competitors added to one of our contracts. These factors outweighed another strong quarter on the DHMSM program. To this point, we have not seen much benefit from the PACT Act that was passed in the last quarter, although disability exam volumes remain high. Non-GAAP operating income margin came in at 15%, which is where we've been signaling all year. Turning now to cash flow and the balance sheet on slide 7. Operating cash flow for the quarter was $748 million and free cash flow was $721million. These were record numbers for Leidos, and I'm tremendously proud of the team's focus and dedication. In addition, the government customers were looking to clear the decks at the end of their fiscal year and, in some cases, paid invoices that would normally have been collected in Q4. DSOs in the quarter came down 3 days sequentially to 58, which is our target level. Great effort by the entire team. During the third quarter, we returned $53 million to shareholders primarily through our ongoing dividend program. At the end of the quarter, we had $807 million in cash and cash equivalents and $5 billion of debt. We closed the Cobham Aviation Special Mission acquisition earlier this week for $214 million inclusive of the hedge that we had taken at the signing of the definitive agreement. In addition, we continue to focus on reducing our leverage ratio and we'll use some of our cash balances to repay part of the billion dollars of debt that matures in the first half of 2023 and reposition our balance sheet for the future. On to 2022 guidance. Our new ranges are shown on slide 8 and you can see the outlook has improved from last quarter based on strong performance across the company. The revised guidance includes two months of contribution from the Special Mission business acquisition as well. We now expect 2022 revenues between $14.2 billion and $14.4 billion. So we've added $300 million to the bottom of the prior range and $100 million to the top end, even after absorbing an adverse impact of foreign exchange rates of about $70 million. We're reaffirming our adjusted EBITDA margin guidance of 10.3% to 10.5%. We still have work to do to get back in the margin range for the year, but I'm proud of how the entire company has responded to the margin pressures that we spoke of on last call. For example, we decreased indirect spending and improved direct labor utilization across all three segments. We're also taking a look at accelerating real estate reductions to drive out additional cost, which will improve our competitiveness and our margins going forward. We'll have more to report on that front on the Q4 call. We're now guiding non-GAAP diluted earnings per share between $6.20 and $6.40. So we've taken $0.10 off the top and bottom of the prior ranges. As I touched on earlier, our effective tax rate for the year is going to be a full point higher than we previously expected, which creates an $0.08 headwind to EPS. Compared to last quarter, our confidence around operating performance has improved. Finally, we're keeping cash flow from operations guidance at $1 billion or greater. Obviously, we had a tremendous performance in Q3, which puts us on track for another strong cash year. We continue to monitor the potential for Congress to act on the tax research cost capitalization rules. With no change in law, the cost capitalization provision amounts to a negative impact to operating cash flow of about $150 million annually. We haven't made any federal tax payments related to the amortization of resource costs this year, and do not plan to, although we will continue to reevaluate as conditions change. Barring a legislative fix, we expect to pay this $150 million in early January of 2023 and then make normal quarterly tax payments inclusive of this impact thereafter. With that, I'll turn the call over to Rob, so we can take some questions. Oh, I'm sorry, Maria. Maria, we're ready to take some questions. Operator: [Operator Instructions]. Our first question is from Gavin Parsons with Goldman Sachs. Gavin Parsons: Roger, you mentioned you don't expect staffing to significantly constrain your 2023 plan. Could you give us an early look at what that plan is in terms of revenue, margins and maybe cash flow? Roger Krone: We don't guide to 2023 until the end of the year. And so, we're not going to put out any numbers. What we will tell you, though, is that if you go back to our Investor Day and we put some longer term goals on Investor Day, and we're still confident with the numbers we provided you. I think it was October a year ago. But we're still very excited about what's going on in our space and we had a great quarter and we expect 2023 to be strong. Gavin Parsons: Maybe in terms of defense, you guys have talked a lot about investments you're making there. I wonder if you could tell us a little bit more about that and the expected payback period, that will be great. Roger Krone: Well, maybe I'll start and then Chris can come back in. We, especially in our mission and operations area, find customers who want to accelerate capability and look to the contractor base to make investments to get them capability into theater faster. And the army has some airborne programs. In fact, I think our RFP just came out a week ago and we made some investments ahead of that program. And we hope to get a decision, which will be next year, and actually start the program next year. When we make an investment like that, it's usually on a pretty short string. And it's very consistent with the airborne work that we already do, and those margins tend to be above our corporate average. Chris Cage: Yeah, that's right. And, Gavin, just add to that, Roger talked about the great win our space team had on the Tranche 1 Tracking Layer. And that's an example of where we've made some investments to ensure we could acquire the appropriate long lead items. Everybody's talking about supply chain constraints. We've been monitoring that to make sure we got out ahead of the materials were needed to successfully win that contract as one example and then to continue to invest in our capability in clean rooms, engineering talent, etc. So those are a few example. The Dynetics, if you're able to make it down to the trip that Roger talked about, that'll give you a firsthand view of some of the areas where we've clearly made some investments in our facilities, team and capabilities. Operator: Our next question comes from Robert Spingarn with Melius Research. Robert Spingarn: Roger, when we talk to investors new to Leidos, we often highlight your diverse segments and end markets. And so in that vein, I wanted to ask a longer term question as you head into next year and beyond, where you see the sales momentum among the segments based on market interest in your products and services. So, essentially, what I mean is that, obviously, we're hopefully exiting the pandemic and rethinking how we handle a major medical crisis. And you're in the health business. We're in the midst of a major infrastructure build here in the US and here in the Civil business. And of course, we have a rising defense budget and a war in Europe. So how do you think long term about relative growth for each of the segments? Roger Krone: Of course, what we have been saying for years is we have been portfolio shaping and positioning the company both in Health, Civil and Defense, to be in the swim lanes that are moving faster. And so, just as I reflect on all three of those, of course, our Health business continues to have really, really strong momentum. We're almost through the COVID catchup and back to normal growth levels. But we see continued growth in our Health business really driven by CMS, Social Security, and what's going on in DHA, and it's just been a great performer for us. In Civil, we've talked now for quarters about the resurgence in air travel. And we're seeing strong resurgence certainly in the US, as I think all of us can attest. And we're finally starting to see the revenue passenger kilometers pick up internationally. And our SCS team has had probably more meetings with customers in the last quarter than they did all of last year. So we're traveling again. And that bodes well for increased orders, which will lead to increased sales in our global security business. And then Defense, which we actually – if you think about a year ago – thought was probably going to be our lower growth business. But as we've all come to learn, the world is a very complicated place and it continues to be very, very complicated. And I think those issues require that both the US and our allies continue to invest, maybe more than they would otherwise like to in the defense of the nation. And so, our Defense business has really held up held up well. And we don't see anything on the horizon that changes our view of that future. And I think it really speaks to some of the decisions we made to shape the portfolio and emphasize on the parts of the business that we did. And I'll highlight one other thing. It's a smaller business for us and we don't often talk about it. But within the Civil group, we have a commercial energy business. That has just been going great. We do a lot of engineering for investor owned utilities and energy savings programs for large production facilities. And that business has been growing in double-digits. And it's interesting that utilities are connected to 5G because you put 5G on towers and you need engineering for that. And that business has turned out to be a huge growth engine for us as well. I don't know, Chris, you want to… Chris Cage: Rob, I think Roger covered the landscape pretty well. I would say that, in the near term, again, our Health business, very proud of that business and the team and we spoke about the SSA. This is a hard fought battle to make sure that we ultimately prevail through the protests. Feel confident. That'll be a growth catalyst for us in 2023. We're quite sure. The RHRP program that we've been talking about for years, finally, we're up and running on that. So really feel like the Health business has room to grow in the near term. And then, the Dynetics business is really 2024 and beyond when you've got these force protection programs, you've got space, you've got things that can really ramp up into significant program quantities. We're very excited about that. Robert Spingarn: So, Chris, on that last part, you talked about up to 2024. But when I think about five years from now, for example, if Dynetics is growing faster than the rest of the company, do you see the overall portfolio, the three segments, the same relative sizes in that long-term timeframe, five years out? Chris Cage: No, I would say that… Robert Spingarn: Defense is the biggest piece by double. Chris Cage: Yeah, if you start to get into the back half of the 20s, if things play out the way we hope to, I think Dynetics has more opportunities with the defense hardware side to really grow those into substantial programs. But don't forget, we've got the DES program too ramping up on the digital modernization side. So that should be a big catalyst for us in defense as well. So probably, back half of the year, I can see that Defense segment accelerating growth beyond what we're seeing in Health and Civil, but I wouldn't count them out. Roger Krone: Rob, a point I would make as you think about the coming five years from now, the Health is primarily a kind of a people services driven business and I think it will continue to grow well and we'll provide health managed services to active military and veterans and others. But five years from now, some of the programs that we've been talking about, [indiscernible] or SS, they'll be an in significant production. And that will help to look change the complexion of the company a little bit, so that we have 15% or 20% of month-over-month production programs generating higher margin than our average. And what we're going through now in 2022 and 2023 is the development of the programs in enduring fires, the high energy laser, the Common-Hypersonic Gide Body, which is just ramping up, and the stuff we're doing on Tranche 1. By the way, there is a Tranche 2 and a Tranche 3. So if you think about what we will look like five years from now, we will have the base business that we've always had and we will add to it, kind of above that base some significant production program. So we're really excited about the company five years from now. Operator: Our next question comes from Cai von Rumohr with Cowen. Spencer Breitzke: This is Spencer Breitzke on for Cai. Can you talk about if you've seen a pickup in award activities since the Pentagon occupancy limit was lifted in September? Chris Cage: I don't know, Spencer, that we've seen a noticeable difference before or after, quite honestly. That wasn't really a constraint that we'd seen. I think the Pentagon activity generally has been as expected, the bookings. As Roger mentioned, we did see a number of RFPs dropped in our Defense business here over the course of October. So that's been very active in our proposal pits very recently. So that's exciting to see. But the Pentagon volume, I wouldn't say we noticed a big impact pre or post. Roger Krone: A comment I would make is Bill LaPlante finally was confirmed by the Senate and put in as the acquisition exec in the Pentagon. And I would say since he's taken office, we've seen sort of upbeat in activity. Bill's been very accessible to industry. There have been a couple of tri service meetings with Bill. And he's trying to, I think, accelerate the RFPs and to get outlays where they need to be. And I think that's a real positive sign. I would look more towards that than I would the occupancy limit on the Pentagon. But I will confirm whether it's delivered on the Pentagon or not, I think we've probably been in the Pentagon more in the last quarter than we were in the first half of the year. So I think it all bodes well that will – increase the activity and we'll get some of these procurements under contract. Operator: Our next question is from Matthew Akers with Wells Fargo. Eric Yan: This is Eric Yan on for Matt. Just on CR, could you talk a little bit about the environment we're in today compared to last year? Just what kind of impact have you seen from the CR so far? Also, if you think it'll get extended again into next year? Roger Krone: Yeah. Especially if we compare it to last year – this time last year, I guess I was optimistic that we'd get a bill before the end of the year. And as we recount what happened last year, almost took the whole first quarter to finally get a bill. And that did have an impact. It just caused everything to slow because you're captive to prior-year level. I'm more optimistic this year. I can't predict the future. None of us can, but when we talk to members of Congress, the senior senator from the State of Alabama, they all seem committed to get it done in the lame duck period after the election. And so, I have more calm pretense that we'll get an omnibus before the end of the year, but no one can predict, lots of issues. I think we're all reading the newspaper about the election and how things will go. But I feel better today than I did a year ago that we're going to get an omnibus and we'll avoid the extended CR that we had last year. Operator: Our next question comes from Peter Arment with Baird. Peter Arment: Chris, maybe you could just update us on how you're dealing with labor inflation just regarding any salary adjustments and how that kind of flows through and impacts the top line, how should we be thinking about that? Chris Cage: Well, definitely. And certainly, something we've spent a lot of time on throughout the year and even most recently as a leadership team. So I think what we've been doing is, obviously, our merit budget pool has been increasing and we've seen that consistently over the course of the past two to three years and expect it'll tick up again as we're looking ahead to 2023. So in the past, that was a sub 3% kind of annual pool and then we'd have some one-off increases over the course of the year. I think what we're seeing now is above – mid 3s to 4 or higher in certain cases. And so, that will roll through the top line as a tailwind on the cost reimbursable programs, which I'm sure you're aware are in the order of 50% of the portfolio. So that's goodness there on the top line contributor for growth. The balancing act is managing that on the fixed price and T&M programs. And we've been successful there. I would say that managing margins this quarter at 10.3%, could have been better. But we're looking ahead to a strong Q4. So we're very thoughtful on building our pricing up and passing those inflationary cost pressures along to our customers where we can. Certainly, it'll be priced in as we put together next year's forward pricing rates. But it's absolutely something we're spending a lot of time on as a management team and being thoughtful, especially for the areas of talent that are in the highest demand. Peter Arment: And just as a follow-up, Roger, can you maybe just update us on the aviation screening business. I know that you kind of put it out there that this was still going to be a [Technical Difficulty] in 2024. But just any kind of greenshoots you might be seeing there. Thanks. Roger Krone: I see if I can do this quickly. And we've always described the US business as sort of an RFP, get certified, compete for the business. And it's funded really through authorizations and appropriations. That business continues to go well. There's opportunities to insert new technology, what we call CT or computer tomography at the checkpoint for carry on. And we're in the process of getting our equipment certified. And we continue to see success domestically or in the US, along with our competitors. So that business is great. What will really drive growth in that business is the return of the international business, and the international business tends to be funded by ticket surcharges. So it's more related to travel volume than it is in the US where it's essentially funded by the federal government. And it's a lag. So the tickets, traffic has to come back, the ticket volume has to go up. The airport authorities, every airport has a different governance structure, they have to be confident that the volume is there. And then they start to engage with the contractor base, they put out RFPs, we go and talk, we do demos, right. And then it takes literally months or a year or two before there's acquisition, you get certified, you get an award, you build the equipment, you deliver it. So, unfortunately, there's a long timeline to this recovery. But the good news is, at the front end, the RFP activity, the demos, the requests that we have for specifications and the like is up significantly year-over-year. And I said our team is literally flying all over the world, talking to airport owners and operators about what's available. And I'll make another point. We've done this before. During the period, kind of the COVID period, we couldn't use that as an opportunity to up our investment in technology and our product. We wanted to make sure that we had state-of-the-art detection equipment. There are a variety of new substances that airports want to detect, fentanyl being one of them. And that required us to tweak our algorithms. There are some other reasons why we tweaked algorithms in the US. But we took the time, right, when maybe production wasn't where we wanted it to be. But we took our team and used it to invest in technology to make sure that our products were worldwide competitive. And now, we're benefiting from that, is that we are at the leading edge with competition on what we have to offer. And customers realize that and they've asked us to come and talk to them. So we're excited about that. Chris Cage: Especially in the European market, Peter, I'd say that's probably the area we're seeing the most receptiveness, we've had the most visits, there's probably some things that we're more optimistic on there. Hopefully, Asia will follow. But that's probably further behind. Roger Krone: Yeah, I think everyone knows that China is still essentially shut down for COVID and that does dampen travel in the Pacific region. But Chris is right, we've had a lot of trips to Europe. Operator: Our next question is from Colin Canfield with Barclays. Colin Canfield: Certainly back on the defense production and airport recovery comments, can you just maybe talk us through the margin bridge from here to 2024's Investor Day target of over 10.5%? And then maybe discuss which programs that you guys are developing under fixed price and how you think about kind of that cash risk versus getting to production? Chris Cage: Colin, I'll start and Roger can pile on. So, certainly, the margin bridge, and as Roger was asked earlier, we're not going to paint a detailed 2023 picture at this point in time. But the good news is, when you look at how this quarter played out, I think that's indicative of a great jumping off point. Health kind of came back to where we expected to be more on normalized basis. We'll have some up quarters and down quarters, but mid-teens was kind of the baseline and to give us a platform to potentially expand from there. Civil showed what it's capable of with a modest increase in volumes, security products and good management. And I'd say the defense side of the business is where we have some more opportunities to increase margins, right? So, balancing all that out, I'd say, looking ahead to 2023, coupled with the inflationary discussion earlier, we'll put together a plan that keeps us in the 10s and where that falls out. More work to be done. But I liked the portfolio. But, definitely, when we get to 2024 and we've gotten more production oriented outputs of bounce back in SES, that's when we feel more bullish on the 10.5% plus margin target longer term. So I think we're in a good place to bridge that. I don't know if it'll be an up year or flat year, but more to come on that when we give you the 2023 guidance. Roger Krone: I'll just add a sense or two, kind of footstall what Chris discussed. So, really two ways we drive margin. Performance on the existing contracts and then changing the mix, so that we have programs that on their face have higher revenue opportunity. We have always focused on performance, and that's your write ups versus write downs and control of indirect costs and overhead. And we're a very lean company. We have less than 100 senior executives in the company. We run a $15 billion, $14 billion company with that, and we continue to focus on that. And we've had success. But in our success, we are not adding to corporate office overhead and indirect costs. And then on mix, and that's been our story now for years, is that we do have in our portfolio some businesses where we operate in Antarctica, we do large M&O. And those tend to be below the corporate average. And over time, those were important programs, important programs for the nation, but we want to complement those with programs that have higher margin potential. And we talked about production programs earlier. Even in some of our digital transformation programs, if we can get special project work, if we can do enhancements, we can drive those to the higher margin. If we do all of that, the 10.5% is achievable. Colin Canfield: It looks like the DoD put out a strategic plan on Friday. And it seems like the plan suggested that we get to 100% MHS GENESIS roll out by 2024. So, if you can just maybe update us on the revenue cadence around that program and kind of how that multi-year stepdown interacts with your Health margins. Chris Cage: Colin, again, I think the team has done an excellent job. GENESIS has been a growth driver for us this year. And we certainly are pivoting into a point where it's going to taper down a bit, and we're approximately two-thirds deployed through the program at this point in time. So, 2023 will continue on that cadence. What I will say is, certainly, the customer, and Roger can elaborate on this, there's been a lot of discussion, getting the base deployment, but then enhancing the capability of the software suite that we've got available to the customer. And there's been a lot of discussion and opportunity and growth that we'll see coming on the back of that, that take full advantage of what the capabilities are. So, little early to paint the picture on how much of a step down we'll see as the deployments moderate. But we're very cognizant of that. And the Health team has been working hard to find opportunities to offset that. Roger, you want to…? Roger Krone: We continued our deployments through Hurricane Ian. Really on schedule to finish the program, frankly, on cost or under cost and on schedule. The DHMSM program is probably below the average in the Health group. So if you kind of understand the portfolio, it's a very solid program. We're excited about the performance. But there are just the way that portfolio shapes and the nature of the programs that as it tails down and we replace it with other work, frankly, there might even be some opportunities for margin improvement. But the volume is definitely going to come down. And we're trying to get to a position where we're doing the operations and maintenance of the system at all the military treatment facilities. But as we've said, I am sure you've followed the program from the beginning, you do get to the point where you've installed the [indiscernible] GENESIS software and all the military treatment facilities and the program takes a different shape. Operator: Our next question is with Bert Subin with Stifel. Bert Subin: Maybe staying on the Health side of things, the PACT Act should result in an uptick in the VA backlog as just veterans start applying for those benefits and compensation. But, Chris, you seem to note during your prepared remarks that you aren't seeing that yet. How should we think about that bill impacting both 4Q sales and then into 2023? And is that something that could get Health back to year-over-year growth? Chris Cage: Well, definitely. Part of what we're not seeing is that the VA didn't necessarily set up a way to track that explicitly just yet. So the team is working to make sure we understand what's coming through as the PACT Act cases versus otherwise. But I think the main point is, this is ahead of us. Right? And, yes, it could be a contributor to the fourth quarter, that would be something, if it were to happen, could be one of the catalysts to push us up in the margin range as an example. So that's why there's a range there. But certainly, for 2023, we're bullish on how that plays out. And we've seen good overall referral volume. We were navigating throughout the year this recompete and reallocation of some of our other work to multiple competitors. But for the most part, that's settled out, maybe there's a little bit more of that to go. But I certainly look at the PACT Act case volume to be one of the areas that can drive growth for us in 2023. Bert Subin: Just on your comments there on sort of the margin and EPS range. The narrowed guidance that you guys have implies a pretty wide range of potential outcomes for 4Q, I think, from anywhere from $1.44 to $1.64 in earnings, which would be at the midpoint below what you've seen sort of each quarter this year. Just curious what's driving that expectation? And if you guys were to end up closer to that low end, what do you think would have driven that? Chris Cage: Bert, so a couple of things going on there. Obviously, we'll still see interest rates have been trending up, right? That'll be a little bit of a headwind as we look at the fourth quarter on the below-the-line item. Diluted share count, we're at 138 million, rounding down. There's a scenario where it could pop to $139 million and round up. So, that's kind of in play there. And we talked about the tax rate, right? So, taxes were a driver, the tax rate being higher than we expected at the end of the year. The team is working hard, as they always do, to minimize the tax expense. But I'd say it's more of the below-the-line items that are kind of in play there. I think, operationally, we feel solid about the trajectory of the business. Bert Subin: And just a clarification question, Roger, for you, if I could quickly. You noted some positive commentary on SG&A. Are you sticking with sort of the 2024 full recovery timeline? Roger Krone: Yeah. Yeah. We're expecting 2024 to be at or above pre-COVID levels. Operator: Our next question is from Ellen Page with Jefferies. Ellen Page: I understand that you don't want to give 2023 guidance. But are there any major program drivers beyond the SDES [ph] and RHRP to think about? And we always hear about your successes, but are there any losses to be aware of? Chris Cage: Those are the bigger ones. Obviously, the SSA, RHRP, we just talked a little about the PACT Act on the disability case volume and where that can play out. Aegis will have a full year of volume. So that's great. And you mentioned DES as well, right? So those are some of the ones that are kind of in the bag that will be growth catalysts. It's not a recent loss, but the NGA items, UFS contract, for example, we talked about that at the beginning of the year as a loss. We continue to execute on that for half the year through the third quarter. That'll fall out of the portfolio. So that's one of the headwinds that we'll have. But more recently, our recompete win rate has been quite strong. And so, feel good about that. And so, I can't think of another material downer that we'd have to overcome heading into 2023. Roger Krone: Ellen, what's been great about the journey at Leidos is losing a $1 billion program when we were 5 or 10 years ago was really, really material for us. Now, we're bidding probably north of $50 billion worth of stuff in a year. And so, if we were to lose a $1 billion program – and, clearly, we don't win everything, and so there are programs like that that we have not won. Usually new business and takeaways, not a recompete. It tends not to have a significant impact. All companies do this. Sometimes we stretched a bid on something that's maybe a little bit outside the strike zone, and we lose those, but it helps to build a relationship with the customer. And then maybe when we bid the next program, we win those. Like all companies, we do lose programs. Not every week, but often. But we win a lot more than we lose, which is what we're trying to do. And as Chris said, we have a lot of work to do between now and the end of the year. It's amazing how many RFPs have dropped and how busy our team is, frankly, across all five of our business groups and three of our reporting segments and writing proposals over the two holidays, which tends to be the way things work in our industry. Ellen Page: Just on NGEN, profitability was a little lower in the first half. How do we think about revenue and profitability on that program into Q4 and beyond? Chris Cage: I think that's one that I would say the best days are ahead of it as far as profitability goes, quite honestly. Revenue has settled into a nice range, team's done a great job, staffing levels are robust. And so, our team, DJ, our program manager, Steve Hall [ph] (51:27), our ops manager, have done an excellent job preparing that program for success. But I still would say, our expectations, our margins will continue to tick up. I don't think you should expect significant movements, but it should be a nice tailwind for us as we look ahead to 2023 and beyond. Operator: Our next question is from Mariana Perez Mora with Bank of America. Mariana Perez Mora: [indiscernible] acquisition clause, what's your appetite to increase international and/or NATO exposure? Chris Cage: International. Mariana, I would say, well, obviously, Roger talked about Cobham extensively, very excited about that one. You know we've got a large presence in Australia just like we do in the UK. So certainly those would be areas that we're quite comfortable adding more capability on to. And then, internationally, NATO has been around customer of ours historically. We've done some excellent work for them, some challenging programs and some very successful programs. But I don't think you'll see a scattershot of other international beachheads. I think we'll be very selective where we have kind of a major muscle movement. Obviously, our SES business does a lot of work internationally. So, that's one that if there's areas to complement their capabilities from a service delivery perspective, we'll look to do that. But right now, it's probably playing to our strengths. And I would say our strengths are our business in Australia and the UK is the top priorities. Roger Krone: Mariana, we tend to go where the US goes. The Five Eyes countries, the NATO aligned countries, and then we tend to go where the world is complicated. And right now, Europe and the Pacific Rim are places that we see growth. And so, we're excited about that. And Chris mentioned, I think we sell equipment through the SES business maybe to 125 different countries. Not all of that is direct, some of that is through manufacturers reps, but we have people probably in 40, maybe 45 different countries supporting some of the SES products at commercial airports. Mariana Perez Mora: Would you mind reminding us from an M&A point of view, what do you look at in terms of like capabilities, customers, contracts that you would like to add to your portfolio? Chris Cage: We've been talking about M&A for quite some time. And first the footstall. We don't feel compelled to do a big M&A. We like the portfolio. We like the size, the scope and scale of the business. It's really opportunistic, and places where we can either add a new capability that complements an existing line of business, or we get access to a new customer. The Cobham acquisition is really an example of a capability that we're very comfortable with. We actually fly the same type of aircraft, Challenger 650s and Dash 8s. So, really familiar with the hardware, but it allowed us to extend to a new customer in Australia that's really, really important to the country. Australia has literally thousands of miles of coastline. And really important that those are surveyed, and that they provide search and rescue services. And so, we saw that in combination with our existing footprint in Australia, to extend our business and to access a new customer base that we hadn't access before. So it's a perfect example of what we would look for. But I will just put stop again. We're not in an aggressive posture on M&A. I think we're going to be opportunistic, as we go forward and execute on our book of business and deploy our cash in a way that creates value for our shareholders. Operator: Our next question is from Tobey Sommer with Truist Securities. Tobey Sommer: From a product standpoint and solution standpoint, sort of the higher margin areas of the business, where are you from a mix shift perspective, sort of where the current portfolio is versus maybe what you aspire to over time? And do you have any visibility to that improving or increasing into next year? You mentioned a LEO satellite, which is why I asked? Roger Krone: Toby, we don't put out hard numbers. I would tell you from a solution standpoint, we're pretty comfortable with where we have moved and the valuated work that we do, the special project work we do on some of our contracts. And to provide a solution to a customer, we've really worked hard to position the business in that way. From the actual hardware component – by the way, we love to make hardware that is part of the bigger solution where those things go, go hand in glove. But we've been working through program wins and through M&A to add a slight bit more hardware component to our offering. By the way, it tends to have very sticky IP. If you've got a manufacturing facility, you tend to hold on to the program. They tend to be longer lived as programs go. You have 5-year production runs, you have 10-year production runs. And although we have some things that are in production, our hope is to add four or five products to our production portfolio. And as we said at the at the beginning, five years from now, to have a more significant part of our portfolio is actually connected to some hardware. Tobey Sommer: To follow-up on a prior question about sort of M&A, I know you've put out some stuff, but from a market perspective, with higher rates and PE maybe not being able to pay the same kind of multiples they otherwise would, lower leverage, higher interest, does that over the next, I don't know, so many quarters provide a better opportunity for strategic buyers, such as yourselves with the financial flexibility to maybe compete even more successfully on a go forward basis for acquisitions than you might have been able to in recent years with low interest rates? Roger Krone: Toby, it's a good theory. And I think there's a strong basis in the points that you make. First I'd point out is, PE is still very strong in our markets. And without going through some of the specific firms, one just did a $10 billion capital raise, and so there seems to be a lot of money available to private equity. So, we don't see them leaving the market. Interest rates drive up the cost of capital for everybody. It does change the business case. But it also would change the business case for us. Do I think strategics kind of come back with a little bit more balance sheet power and then play in the market? It could happen. What we try to do is not get tied up in the kind of it's a good interest rate, it's a bad interest rate. We really try to look at the fundamental, strategic fit of the business, and then see if we can get it at a price which closes on our business case. And we've used that approach in everything that we bought. And that's really how we do M&A going forward. Interest rates come and go, PE can come and go, and we just need to stay close to our strategy and our knitting and buy those things that makes sense for us. Stuart Davis: Maria, it looks like we're just at the top of the hour. So I think we have time for just one more question. Operator: Our last question is Ken Herbert from RBC Capital Markets. Ken Herbert: Roger, I just wanted to ask you. You've got, obviously, a number of opportunities on the hardware side. And if I think about your defense portfolio and you've alluded to an anticipated step up in 2024 in this business, what should we focus on? What are the key milestones in 2023 as you look at that portfolio, either in terms of contract milestones, downselects? How should we think about tracking this through 2023 and what could you highlight as sort of the key watch items? Roger Krone: Ken, great kind of a provocative question. By the way, the good news is lots. So, no single program, no single downselect drives the business. We've got to get wide field of view Tranche 0 up into space, we're going to get Tranche 1 up into space, we've got to transition our enduring fires, both the enduring, which is the missile and high energy laser, we need to get those in to test. We have some things on the weapons side, those need to get into test. On the airborne, we need to win the next airborne competitive program with the Army for their enhanced ISR program, which is a Bombardier 6500 class aircraft. And so, we just go around the portfolio and it's a lot of, I won't call it, singles and doubles, but is World Series season. So they really are kind of singles and doubles, there is no big home run out there that we need to execute the strategy. And so, you just kind of look at the press releases and we went into programs, so they have hardware content. Are we successful in getting these things fielded, getting things in orbit? Our MUUV program that I talked about, so we now are in development. So that needs to go. PDR, CDR into production. We need to start building UUVs. And they just continue in that vein. Chris Cage: I feel like we're a shill for the Dynetics business, but the team will certainly talk in more detail at the end of November, December 1 on what some of those milestones look like. And so, Roger has just hit on it. We're excited that we have more than a handful to focus on, but we've got the right team executing against that. And there's some things where hopefully will be some additional contractual orders you'll see out of SES and maybe a low rate production order out of Dynetics. But, again, that site visit will give you an opportunity to dig deeper there. Ken Herbert: If I could, just one quick follow-up. You're, obviously, well positioned in a lot of growing markets, relatively early stage in some of these, how much is technology maturation a risk around just the government's ability to move forward on some of these to the scale in which we'd like to see? Roger Krone: By the way, come to Huntsville, and we'll talk about technology, we'll talk about the technologies in the different products. First of all, we want to have programs across the lifecycle of technology. We're going to be doing work with DARPA, low level TRL kind of programs. When we're starting to talk about production, then those are higher TRL programs. And if I think about, say, if the enduring fires programs, the technology risk is essentially behind us. So, we need to apply the technology, we need to make it work, we need to connect it to the fire control system, we need to take it out on the ranges and shoot it and demonstrate it. But from an invention standpoint, we do that kind of work under, we call it, 6263 [ph] kind of early stage programs with customers like the Office of Naval Research and AFRL and DARPA. And then, those are take risk, invest, fail fast kind of programs, and we love having those. Our people love working on those, but the ones that are significant in our financials going forward, we've gotten through CDR, PDR, we bought down the technical risk. And I think you'll be impressed with the level of technology we have in those programs and how mature that technology is, if you can make it to Huntsville. Operator: Okay. There are no further questions at this time. I would now like to turn the floor back over to Mr. Davis for closing comments. Stuart Davis: Maria, I want to thank you for your assistance on this morning's call. And thank you everyone for joining us this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings. Welcome to the Leidos Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] Please note, that today's conference is being recorded. At this time, I'll now turn the conference over to Stuart Davis, Senior Vice President, Investor Relations. Mr. Davis, you may begin. Stuart Davis: Thank you, Rob, and good morning, everyone. I'd like to welcome you to our second quarter fiscal year 2022 earnings conference call. Joining me today are Roger Krone, our Chairman and CEO; and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you'll also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to slide two of the presentation. Today's discussion contains forward-looking statements based on the environment as we currently see it and as such, does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on slide three, during the call we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I'll turn the call over to Roger Krone, who will begin on slide four. Roger Krone: Thank you, Stuart, and thank you all for joining us this morning. Leidos remains on track for another year of solid organic growth and core business profitability. The affirmation of our Defense Enclave Services contract award by the Government Accountability Office demonstrates our leadership in digital modernization across the federal government, with strong demand for our technology solutions and services across our diversified business portfolio. We continue to execute on our disciplined and balanced capital allocation strategy to drive shareholder value. And we are proving our ability to compete successfully for talent with another quarter of robust hiring. I'll now expand on these four points. Number one, our financial performance for the quarter was strong, ahead of consensus at both the top and bottom lines. Revenues of $3.6 billion were up 4.3% in total and up 4% organically year-over-year. Non-GAAP diluted EPS for the quarter was also up 5% to $1.59, with an adjusted EBITDA margin of 10.2%. We also generated $40 million of cash flow from operations and are on track to generate at least $1 billion of operating cash flow this year. Number two, our business development results demonstrate our strong positioning in the government technology marketplace. We achieved net bookings of $2.2 billion in the quarter, representing a book-to-bill ratio of 0.6. Over the past 12 months, net bookings are $15.4 billion and book-to-bill is 1.1. Total backlog at the end of the quarter stood at $34.7 billion, which was up 4% year-over-year with funded backlog of $7.5 billion, up 5%. On a constant currency basis, backlog was $268 million higher. You can read about some of our awards in the press release, but let me highlight a few developments in the quarter. Most importantly the GAO affirmed $11.4 billion DES award to Leidos. We'll support DISA's mission by consolidating enterprise IT services at a global scale and by providing standardized responsive and cost-effective solutions. This program should have a several year runway of growing revenue and expanding profitability, but will not add materially to the 2022 revenue or earnings. We also had an outstanding outcome on our Social Security Administration position. The SSA recompeted all of the work under its primary IT services IDIQ known as ITSSC-2 in two task orders. And we significantly expanded our role. We were the sole large business awardee on both task orders. On the first, we'll modernize and manage the SSA's IT infrastructure, including data center, data operations, networks telecommunications, cloud, and user services. And all of this is new work for us. On the second, we'll now perform all of the software development and mission application work that we previously split with other providers. As expected, both of the awards were protested last week. But should we prevail, we could double our revenue at SSA and make ITSSC2 a top 10 program. Finally, we've seen some initial indications of an improving airport screening landscape. We were selected by the Dominican Republic's, Punta Cana International Airport to upgrade both people and baggage screening at all security lanes within the Terminal B checkpoint. In addition, bid volume and bid scale has increased meaningfully when compared to the first half of 2021. And we're getting great feedback on our ability to differentiate our offerings by bringing broader Leidos capabilities like cyber protection. Although, we're not expecting a full recovery in the airport screening business until 2024, it's good to see some positive trends here. That said, the overall bookings environment has been challenging, as procurement time lines continue to extend. DoD outlays for example are down 2% this government fiscal year-to-date compared to fiscal year 2021, despite a higher budget. Still, our book-to-bill ratio, understates the true strength of the business development performance in the quarter, as it includes nothing for DES, and the protested SSA awards. Our win rates and summit volumes remain high and we expect procurements will pick up to match the improved budget environment. Number three. Our approach to capital allocation is a core part of our investment thesis. We've talked about being appropriately levered and maintaining our investment-grade rating, returning a quarterly dividend, reinvesting for growth, both organically and inorganically and returning excess cash to shareholders in a tax-efficient manner. And we're doing all of that. In Q1, we executed a $500 million accelerated share repurchase. And we've just entered into a definitive agreement to acquire Cobham Aviation Services, Australia's Aviation Special Mission business for about US$215 million. The transaction is subject to regulatory approval and other customary closing conditions and we expect to close by the end of the year. We expect the acquisition to be immediately accretive to non-GAAP EPS. The business owns and operates 14 modified aircraft, providing border force airborne surveillance and maritime safety search and rescue to the Australian Federal Government and a critical element of Australia's national security. This acquisition diversifies our Australian portfolio into capability and mission services work, with both the Defense Maritime and Homeland Affairs programs. Finally, integration risk is manageable, because airborne surveillance is what we know how to do well and we already have strong local leadership and infrastructure to support success. Number four, Leidos is an attractive destination for talented people. In the second quarter, we hired nearly 3,600 people, a number we've only surpassed once in five years. And that's when we were simultaneously staffing the Navy NGEN program and the Military and Family Life Counseling program. Year-to-date, we've hired more than 6,200 people. Quarter-after-quarter, we demonstrated that talent acquisition is a core Leido's strength. On the Q1 call, we talked about challenges around retention. Competition for talent remains high as critical skills for us, such as software engineers and developers are in demand by both tech and non-tech companies. Even though voluntary attrition seems to have peaked, we remain focused on keeping engaged with our people. In fact, our June leadership offsite was focused on retention and we're now implementing many of the ideas that came out of that session. Before turning it over to Chris, let me touch on the federal budget landscape. The House and Senate Armed Services committees approved versions of the Fiscal Year '23 National Defense Authorization Act. Both of which recommended healthy increases to the President's request. Congress fully recognizes the urgency of investing in our national security in the face of global security threats. The fiscal year '23 appropriations process is also underway which should result in significant nominal increases to 2022 levels, but we expect that the government will begin the fiscal year with a continuing resolution that should be resolved before the end of the 116th Congress. And finally, I'm pleased to announce that we'll be hosting an investor site visit at Dynetics in Huntsville Alabama this fall. Dynetics is an important part of our value proposition for investors and a key differentiator for us in the marketplace. The event will start with a dinner with the leadership team on November 30th with a mix of briefings tours of the production facilities and Q&A with the team on December 1. Expect to come away with a much better understanding of the culture and key growth drivers for Dynetics including the Hypersonic's, Indirect Fire Protection Capability and space-based missile defense programs. Please reach out to Stuart if you're interested in attending. I'll now turn the call over to Chris. Chris Cage: Thanks Roger and thanks to everyone for joining us today. Second quarter results were very positive overall. And there are a number of moving pieces I want to cover this morning, starting with the income statement on Slide 5. Revenues for the quarter were $3.6 billion, up 4.3% compared to the prior year quarter. Revenues grew organically across all three reportable segments, given robust hiring and our recent program wins. Adjusted EBITDA was $366 million for the second quarter which was up 1.9% year-over-year and adjusted EBITDA margin decreased from 10.4% to 10.2% over the same period. Non-GAAP net income was $220 million for the second quarter which was up immaterially year-over-year. And non-GAAP diluted EPS for the quarter was $1.59 up 5% compared to the second quarter of fiscal year 2021. The performance of the base business is solid and stable. A couple of factors below EBITDA that drive EPS are worth noting. Net interest expense increased to $50 million from $46 million in the second quarter of fiscal 2021 with higher borrowing and the rise in interest rates. The weighted average diluted share count for the quarter was 138 million compared to 143 million in the prior year quarter. The current share count benefits from the retirement of 300,000 shares as part of the final settlement of the ASR program. Now for an overview of our segment results and key drivers on Slide Six. Defense Solutions revenues increased by 2.4% compared to the prior year quarter. The largest growth drivers were the NGEN and IFPC ramps which more than offset the end of our Afghanistan support contracts and reduced material purchases supporting hypersonics programs. In addition, the strengthening dollar represented about a $24 million year-over-year headwind for our UK and Australia businesses which lowered the segment growth rate by about a 1 point. Defense Solutions non-GAAP operating margin for the quarter came in at 8.3% which was unchanged compared to the prior year quarter. Civil revenues increased 7.3% compared to the prior year quarter, primarily driven by the start-up of the NASA AEGIS program and increased demand on existing programs, including the support to Hanford and our engineering support to commercial energy providers. Civil non-GAAP operating income margin was 6.5% compared to 9.1% in the prior year quarter as a result of an adverse arbitration ruling which led to $17 million of additional expense, related to a dispute arising out of the acquisition of the IS&GS business from Lockheed Martin in 2016. Excluding this arbitration write-down, Civil margins would have been up sequentially to 8.5%. Health revenues increased 6.7% over the prior year quarter. We continue to benefit from the ramp on the Military and Family Life Counseling program and DHMSM had a nice year-over-year increase based on the deployment timing. In addition, we had a $28 million equitable adjustment to cover costs incurred as a result of the COVID-19 pandemic which caused non-GAAP operating margin to improve to 19.8% from 17.8% in the prior year quarter. We had originally anticipated to receive this payment in the second half of the year, so we're pleased to resolve this matter earlier than expected. Turning now to cash flow and the balance sheet on slide 7, operating cash flow for the quarter was $40 million and free cash flow which is net of capital expenditures was $19 million. While DSOs in the quarter came down two days sequentially to 61, $110 million of collections that we anticipated in Q2 came in during the first week of July. We're targeting another three days of DSO improvement over the back half of the year which is consistent with our historical pattern. During the second quarter we returned $51 million to shareholders, primarily through our ongoing dividend program. We also rolled over the $380 million term loan related to the Gibbs & Cox acquisition that came due in May. At the end of the quarter we had $339 million in cash and cash equivalents and $5.2 billion in debt, including $150 million of commercial paper notes outstanding. The purchase price for the Cobham Aviation Special Mission acquisition was AUD310 million, which we hedge to lock us in at the $215 million purchase price that Roger quoted. With that acquisition we expect 2022 will follow our standard capital allocation approach with the balance of organic and inorganic growth investments, dividends, share repurchases against the backdrop of a leverage ratio trending towards three times. On to the forward outlook, as shown on slide 8 we're maintaining our guidance ranges for fiscal year 2022. The guidance does not include the impact of the Australian Aviation acquisition which should be relatively small for this year. Taking a big picture view, when we put together our plan for 2022, we had expected to build momentum through the year. Our guidance calls for the second half to be more in line with the first half from a revenue, EPS and EBITDA perspective. Part of that shift is driven by over performance in the first half. But there are a number of other factors that I'll address as I walk through the individual guidance elements. On revenues, we're ahead of where we expected coming into the year, stemming from the build-out of our recent wins and on-contract growth through trusted customer relationships. This gives us increased confidence in being in the upper half of the revenue range. Increased legal expenses and the unexpected arbitration ruling are pressuring EPS and EBITDA margin. And we're experiencing a larger-than-expected headwind from broader economic issues including foreign exchange rates and interest expense. In addition, we've had more margin dilution than anticipated from the start-up of some newer programs. Accordingly, it will be challenging to perform at or above the midpoint of the EPS and EBITDA margin ranges. Even though most of the cargo factors are transitory in nature we're taking actions on items within our control. We haven't changed our long-term view of margins. Finally, we're maintaining our operating cash flow guidance of at least $1 billion. The arbitration ruling will result in a $25 million cash payment. We'll have to offset that payment but I have confidence in our team's ability to deliver on the cash commitment. We continue to monitor the potential for Congress to act on the new tax research cost capitalization rules. At this time we do not expect to make any federal tax payments related to the amortization of research costs this year. If the 2022 effective date of the Tax Cuts and Jobs Act research cost capitalization provision remains in place, we expect our income taxes payable and net deferred tax assets will each increase by approximately $150 million in fiscal 2022 and the related negative impact to cash will be realized in fiscal 2023. With that, I'll turn the call over to Rob, so we can take some questions. Operator: Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Peter Arment with Baird. Please proceed with your questions. Peter Arment: Yes. Good morning, Roger and Chris. Hey, Roger I guess you gave us some high-level color on the budget in the backdrop. I was wondering if just the way you look at it a longer term we're seeing the plus-ups. Do you think just given the wins that you've had your ability to that -- revenues could actually begin to accelerate as we think about longer term picture? I know you're not giving 2023 guidance but I appreciate any color? Thanks. Roger Krone: Yeah. We're still really optimistic about the out years. We made the comment I think both Chris and I that long-term, we don't see anything that changes the conversation that we've had in the past. And frankly since we were all together in New York last fall, the budget environment actually has gotten better and better in the areas where we're focused and differentiated. So I am still very bullish on the future. Peter Arment: And then just as a quick follow-up. Anything to highlight in terms of the Dynetics program of record outlook? It seems like that was -- continues to be something I think that's gaining a lot of attention. Roger Krone: Well, it's really exciting across the board. The hypersonic programs strong support. We have actually three Enduring Fires program, one with the laser, one with a missile and one with a high-powered microwave. And those are all strongly supported. The space business, there's things that hopefully we'll be able to talk about next quarter that are really great developments there. And we are -- I don't want to overemphasize this, but we're really, really pleased with how that has worked out. And of course that's why we chose it for the visit in the fall. And I can't wait to walk you through the plant and let you meet some of the team down there. I think you'll be really excited too. Peter Arment: Appreciate the detail. Thanks. Roger Krone: Yeah. Operator: The next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question. Sheila Kahyaoglu: Hey, good morning and thank you. Roger Krone: Hi. Good morning, Sheila. Sheila Kahyaoglu: Good morning. Roger I appreciate your comments on talent hiring and your retention focus. When we look at your head count it was up 10% I believe year-over-year with organic growth of 4%. So maybe if you could square that disconnect for us a little bit. Roger Krone: We've got an emphasis to -- a little bit complicated. I'll try to make it very simple. Direct labor is really important to us. It's how we absorb lot of our costs. And so if we can have higher direct labor under the same revenue bucket that's a positive for us. So we're trying to increase the Leidos' content of the work we have across the board. Now I'll also tell you quarter-to-quarter month-to-month it's going to fluctuate. But we have a long-term effort to increase our content. And Sheila as you know significant part of our content is the work that our great people do every day. And so seeing headcount grow faster than revenue, we actually view that as a positive. That means we are implementing our strategy. And we're having success in attracting and retaining the people that we need to help us be successful. Sheila Kahyaoglu: Okay. Thank you. And then I wanted to ask about how the business has been very good. And maybe on two specific opportunities with burn pit currently facing some hurdles in the Senate, how do you think about that and how it could be potentially incremental to your VA medical business? And then the second with Cerner and their EHR Modernization program, it's currently paused again. What are your thoughts there and the opportunity for Leidos? Chris Cage: Yeah. Sheila this is Chris. I'll get started. Maybe Roger can comment on the VA program. Obviously, we're very pleased with the Health team and their ongoing performance. And we had told you in Q1 that we had won a recompete successfully that was critically important, although that there was an increased amount of competition introduced on that program. We also won some new work on international. So both of those dynamics are shaking their way out and we'll continue to see international ramp-up and we might see some pressure on the legacy side on the pre-discharge work. You talked about burn pit that's something we're watching very carefully. The team believes there is a significant increase in demand that will come from that. Obviously, we had hoped and expected that legislation would have passed by now. We're monitoring that daily, hourly and we hope to have some good news soon. So that's something that there is a modest amount of increased volume in the back half of the year associated with that coming through. And we think hopefully we'll be in a position where we could do better than that if things work through quickly. And Roger might comment on the VA. Roger Krone: Yes. And thanks Sheila. Obviously, we watch the VA program very closely. We have a relatively small role in supporting Cerner on the program. The movement of Cerner to Oracle, I think is going to be a positive for the program. Oracle is a real strong company, very strong software and data management. There's the Oracle Cloud. I think that will all be favorable for the VA. I know that they are paused while they reassess their go-forward plan. We stand ready to support Oracle, Cerner, the VA, any one of those organizations with the best of Leidos and frankly, members of our DHMSM team, and we'll just have to sit back and see how it develops. Again, I know they're paused. But the VA needs a single electronic healthcare record system and they need the interoperability with the active military, and we're strongly supportive of both of those. Sheila Kahyaoglu: Thank you very much. Roger Krone: You’re welcome. Operator: Our next question is from the line of Robert Spingarn with Melius Research. Please proceed with your questions. Robert Spingarn: Hey, good morning. Chris Cage: Good morning. Roger Krone: Good morning. Hey, Rob. Robert Spingarn: Roger, one thing that we're noticing with -- in your numbers today and also happened for Booz, but flat sequential sales in defense. And I wanted to ask, why we didn't see a sequential uptick from the March quarter to the June quarter, just given that the CR concluded in March? What's going on? Is it just slow acquisition activity out of the Pentagon? And why? Roger Krone: Yes. It is slow acquisition activity. It's a slow ramp on the programs that we've won. Of course, some of the programs that we won got protested, so they got pushed further into the year. Outlays are actually down. And I really can't -- I can't tell you why -- what's going on in the acquisition in the Pentagon, although we do talk to the Pentagon officials, head of Acquisition head of Research. They fully intend to spend the money. And they've got the money authorized and appropriated. I think they're a little bit like everyone that a lot of their talent retired. They're still working remote. So things are just taking longer. And then, something that's really important to us is, what we call special project work on a lot of our contracts. This is where we have a base contract with a defined statement of work and the customer says, gosh, why you're doing that? Well, could you do these other things? That's really beneficial to us, both from a top line and a bottom line. And that project work got delayed because of the budget uncertainty. And we're optimistic that we'll see more of that in the second half of the year. But we're cautious to forecast it, as you noticed in Chris' remarks. So I think overall there's good news. I think short-term, it's just kind of getting the machine, running again and getting them to spend the money. Robert Spingarn: Well, just on the back of that, is there anything particular about the types of awards that are being delayed or the size that are being delayed? Is it more common for larger awards and task orders to be delayed? Roger Krone: It was a good question. I'm kind of thinking of -- looking at Chris and... Chris Cage: I think that's typically what we would see, the larger, more complicated to evaluate, multiple competitors, longer EM, evaluation process. I think the -- where we do best is on-contract growth on existing vehicles. There's no competition. And again, there's hope that we'll see more of that come through in this -- in the fall quarter leading up the government fiscal year-end. But the more complicated procurements -- and you've seen that. I mean different agencies are different, but we've seen more consolidation into larger vehicles is often the case. And so those things can tend to push out the procurement cycle. Robert Spingarn: Yes. Okay. Roger Krone: Yes. And Rob, I would comment. And this is an absolute, but if a program is over $1 billion, I think the customer runs the acquisition process with the knowledge that there'll be a protest. So I think in both peer review and in writing the acquisition opinion and the sourcing letter, I think they're taking more time to get it right to either avoid the protest, which obviously hasn't been happening or to ensure that the award will be upheld. We've got protested again. It happens to us almost every quarter now in our large social security win. And I think in the government that they are now kind of like a protest is almost the normal and the bigger the program, the more likely the protest. Robert Spingarn: Okay. That's very helpful. I just wanted to ask you a clarification on the hiring. You said attrition is coming down. Is that because fewer people are going into the tech – that tech hiring is slowing I guess the best way to ask it. Roger Krone: Yes. Of course, I mean you and I are both speculating on why. I think there's a concern about the economy. Some of big tech has slowed their hiring. Some big tech has actually announced some layoffs. It's the summer and just a lot of people are on vacation or not. There is sort of a cycle and a seasonality to when people leave and when people stay. Very few people leave before like incentive awards are made in March. And I hope we're seeing a change in our long-term trend. But we've all been here before. It could spike back. We are still not back to pre-COVID levels. So although, we have started to see some moderation in attrition which I view as favorable but I do worry a little bit about the economy. And I'm not forecasting recession but I am forecasting maybe a little toning down in growth. So – and I think for a lot of people we have great jobs. We have great work. I mean we pay really great salaries. We have really cool stuff to do and we're able to attract some really great people. And I think once they get here and they start doing some of the fantastic stuff that we do, they go gosh, I want to do that. And that has that message has gotten through to our employees and I think we benefited from that. Robert Spingarn: Very helpful. Thank you. Roger Krone: Yes. Operator: Our next question is from the line of Gavin Parsons with Goldman Sachs. Gavin Parsons: Hey, good morning. Roger Krone: Good morning, Gavin. Gavin Parsons: Roger, I think you said you didn't book anything for DES. But just any update on your expectations for what that ramp could look like or how much that could contribute in the future and whether or not that could ultimately be a top 10 program? Roger Krone: Yes. And DES, we've been turned on for the first task quarter which is very small. We are – let me spend at least 15, 20 seconds to describe the program. So in DES we work with DISA to create a common architecture called DoD ONE-Net. And once we've established that architecture then we will migrate 20-some-odd federal agencies to the new architecture. So the first thing we have to do is partner with our customer and define the architecture. And that is really hard work but a small number of people working in partnership with a DISA customer. And that's going to go on for months. So it's going to be really low. I don't think we put numbers out. But as I think I said not significant impact to top line or bottom line. Next year right, we started to do migrations. And then in the third year we do even more migration. So – and again I think we said this last quarter is that when we clear it – it was going to be a very slow ramp. But then it will ramp into a significant program. Whether we'll ever achieve the IDIQ value of $11.5 billion I guess we'll have to tune in 10 years from now. It has the potential to do that because we believe the architecture and the cost savings and the increased cybersecurity and the efficiency of this new DoD ONE-Net will be so advantageous to the government customers that people will want to migrate maybe even more agencies over time. But it's going to take a while to get there. Gavin Parsons: Okay. That's helpful. And maybe just in terms of margins. It looks like it was 9.9% in the quarter excluding the charges. Maybe if you could just give us kind of around the horn by segments what that looks like through the rest of the year with Health, down from these elevated levels maybe Defense and Civil, what those trajectories look like? Chris Cage: Yes, Gavin. We won't put too fine of a point on margins by segment but I think you've got it right. We've been signaling Health is an area that we would expect to moderate down. We still expect that to be the case. But again, we love the team's performance. We talked earlier about burn pit legislation. There are some dynamics there that could help us. But it will not run at these levels because there's been a couple of one-timers in Q1 and Q2 in Health. Civil I think again AEGIS was a program brand new start. We knew it was going to be certainly at the front end of this program, multiyear program on the lower margin range. And that will continue to ramp up. But Civil is also where we absorbed a lot of the legal charges that I talked about. So we see those margins trending better. We -- Roger spoke about some areas of improved activity in our security products business. I don't want to get ahead of ourselves but that's an area that I'd say the back half will be stronger than the first half on profitability and margins. And Civil is a well-run business overall. So I think the Civil performance should trend a little bit higher. And then Defense, quite honestly is probably -- over time, it will be higher. Whether that occurs in the back half of this year's TBD, I mean the special project work that Roger talked about is something that we'd love to see that come on at a higher volume. We're not yet seeing that and therefore don't anticipate that will change in the very near term. There is some transition. The Afghan work moderated down. There's some great airborne opportunities that the team is pursuing. That's something we hope to speak about in the future. That will be a growth catalyst and margin catalyst for us. But right now, I'd say probably along these -- this current trajectory on the defense margin side for the near term. Gavin Parsons: Okay. Thank you. Chris Cage: Thanks, Gavin. Operator: The next question is from the line of Colin Canfield with Barclays. Please proceed with your question. Colin Canfield: Hey, good morning. Tying together perhaps Peter and Rob's question. Can you just discuss some of the bigger drivers of next year's growth acceleration? It sounds like the defense hardware pieces of Dynetics seem to be adding outsized lift. And obviously, I understand it takes time to get all the head count added and commercial aero are going to returns in 2024. I guess it's still a TBD given the kind of exposure that you guys have to widebody traffic. So maybe if you could tie together kind of what are your biggest uplifters into next year? Chris Cage: Yeah. I mean, Colin, we're early to get in detail about 2023, right? And we'll certainly speak about that more as we get to next year's guidance. But again, I think Roger talked about the budget backdrop is a foundational starting point and that's favorable. Therefore, the volume of things that we're seeing and bidding on continues to be strong and favorable. And so, defense activity is one that we've seen a lot of throughput in opportunities more Dig MOD opportunities more C4ISR opportunities. I mentioned hopefully some airborne opportunities where we've demonstrated a great capability that the customer is interested in seeing more of. Dynetics in the defense hardware side, absolutely ,there are some programs that will be ramping up. There's also some programs that will be moderating, as we transition towards proof of concept, completing demos and getting into hopefully a production cycle award which will probably be more likely 2024. And so those things all should do fine. Civil again, would probably be the aviation hardware accelerating growth, but not back to pre-COVID levels, but the trends are positive there. And more civil agency digital modernization opportunities we continue to see and bid on that we're pursuing. And the wildcard is Health. Now the one big catalyst that we've been waiting on is the Reserve Health Readiness program. We spoke about that for over a year now. That had been delayed. It was originally in this year's expectation. It's now fully out of any contribution for 2022. But we see that as a big program that we've already won and should ramp up nicely in 2023. So those are a few things that come to mind. But again, we'll talk in more detail about 2023 as we get to that time of the year. Colin Canfield: Got it. And then a longer-term strategic question. But can you just talk about how you're preparing the business for a structurally impaired head count environment? Both you and Booz are kind of talking about IT cyclical benefits and a softer economy freeing up head count. But if you look at the population statistics, labor force participation isn't coming back and the US population growth is almost close to shrinking. So if you think about how you guys are structuring the business around kind of that environment? Roger Krone: Hey, Colin, I'll touch on it a little bit. I'm not sure we have enough time on the call to talk about all the things we're doing. But I think we all realize that we are in an era where there are going to be more jobs than people. I mean, it's just a fundamental structural problem. If you look at college grads and where we can source. And so that from a long-term standpoint talking with our HR and our leadership team, it's about okay, what can we automate, how can we put RPAs into our administrative and functional organizations and free the talent up, so that they can provide value-added goods and services to our customers? And then what is our new knowledge worker work look like in this industry? And then how do we hire them retain them upskill them right and grow them over time? And so we have a long long-term view of our labor strategy and how we want to take people and create multiple gates and multiple steps in their career. So, they graduate from college, they come here they pick up some stretch Thunkable credentials. They add another computer language. They pick up Python. They get a master's degree. We continue to invest in them. They continue to grow and move professionally. And they go wow I'm doing great work. I'm making competitive salary. And I see my career advancing at the company opportunities for growth and management. We're growing. And that's a terrific place to be where we're growing and hiring people. But we do realize that the world that I grew up in is no longer here. And we have to be very thoughtful about where we want to put our people and frankly maybe what we want to do with partners and what we want to do with automation. Chris Cage: And the only thing I'd add to that is again we've been talking about some of these businesses. But clearly we see as growth catalysts some of our businesses that are less head count-dependent. What's happening in Dynetics what's happening with the security products business. So, again, they're not a huge part of the portfolio but they'll becoming increasingly larger part of the portfolio over time. Colin Canfield: Got it. Thanks for the color. Roger Krone: Thank you. Good questions. Operator: Our next question comes from the line of Cai von Rumohr with Cowen. Please proceed with your question. Cai von Rumohr: Yes. Thank you. So, you and Booz had some trends that were very similar; strong sales a very anemic bookings although very strong fundings which I don't understand how you get those two together; and very weak cash which slips into the next quarter. Maybe give us some color on how we could get the see the incongruity of bookings and funding. And then looking forward, we've got all that funding is there are we going to have the super blowout September quarter in bookings that we could, or is that still going to be slowed by the issues you discussed Roger? Roger Krone: Yes. So, Cai I think the next quarter will be better, but I don't see the super blowout. I think and clearly Booz and all the other competitors we all work in the same industry. We're all facing the same acquisition issues. A point I would make which is something I can speak to from Leidos, I don't know about the other companies is our win rates are about the same, right? We didn't lose a lot of programs in first quarter or second quarter. There wasn't a lot of opportunities that were canceled, right? Things just moved to the right. And we saw that across our entire value stream. Again, as you pointed out some of our cash payments that we thought were going to happen in the quarter got paid in the first week or two of July. Chris talked about that being I think over $100 million. And it's just the process in the customer is slow. And we -- and I'll go back -- and then we got a couple of protests which really hurt our book-to-bill. But we kind of plan those. Every once in a while we get surprise. We don't get a protest, but more likely than not we get a protest. And that -- the social security bid probably won't turn around provided we prevail in the protest not until third quarter but in fourth quarter. So, that's not really going to give us much lift in third quarter. Again it should be stronger. But I think it is a slower ramp from the budget problems that we had earlier this year and the end of last year. Chris Cage: And I think Cai is increasingly we're talking about the mega awards the larger awards those just don't often line up with the government fiscal year-end third quarter cycle. So, you could see the bigger quarters any time like we had a great first quarter. On the funding side, I mean again I think that's conversion of previous prior awards unfunded to funded. That's not always going to follow the same cycle. It's easy for a contract officer to make that action on something they've already awarded and give you incremental funding dollars versus a whole new procurement decision process. So, to me, it's great. We like to see our funded backlog improving. But I don't think you can read too much into the cycle around when those activities take place versus brand-new award decisions. Roger Krone: Yes Cai. I think a good example is this program we call FENS, which is sort of a network infrastructure program for the FAA. A year ago, we thought it would have happened in first quarter and first quarter it got delayed to the second half of the year. Now it's a little bit uncertain, even when they're going to make the award, I think we can almost count on a protest. So if they make the award in the third quarter or fourth quarter, that could be extended well into 2023. And we just have that kind of uncertainty. And we've seen more of that trend, and more of that behavior perhaps than we have over the past couple of years. Cai von Rumohr: Thank you. And can you give us just some quick color, on what are you seeing in terms of July? Is there being any pickup, or is it still at the same level? What are you seeing there? Roger Krone: Well, cash was good in July. From a war... Chris Cage: We have a couple of strategic wins. We'll be able to talk about that happening. Roger Krone: Yes, we did. They're not quite -- well they're not announceable, yet. Well, I always think every month, we have great wins. So I mean that's just sort of me. There's -- sometimes the wins, I'm most excited about probably don't make the print, because they're strategic and there is technology involved. And we had some of those in July that we'll be able to talk about in the next quarter. And -- but there was no mega win in July. Probably, our next biggest win on the horizon, there's a couple of programs there's a big IDIQ that might get award. But then we have to fight for tens score, it's probably that FAA FENS program. Cai von Rumohr: Thank you very much. Roger Krone: Thank you. Operator: Our next question comes from the line of Matt Akers with Wells Fargo. Please proceed with your question Matt Akers: Hi. Good morning, guys. Thanks for questions. Roger Krone: Good morning, Matt. Matt Akers: I wonder, if you could -- could you comment on your international business? So you did the acquisition in Australia. Obviously, a lot of our allies are talking about spending more on defense. Just curious, if that could be a bigger part of the business in the future. Roger Krone: Listen, we're really pleased with our international work. And we're a little under 10%, by revenue of dollars that come from outside the US, right? And -- but we're going to be very selective. We tend to follow the US, in five Whys. So we're strong in the UK and Australia has always been a traditionally strong market for us. And by the way, they are a terrific ally of the United States. They have fought, I think in every war alongside the US, since the turn of the century. So growing more in Australia, is definitely a priority for us. But we want to grow in the right way and think of us as kind of growing country by country. We want to be in a country, grow large enough where we're going to have infrastructure in critical mass, and then use that country to maybe move regionally. We are not going to be like some of our competitors, where we're big enough that we can have offices in every country. But we think -- the international, is a nice mix in the portfolio. It could be countercyclical, with some of the priorities within the US. And then I put into a whole different category, our SES business, our security business, which by its nature is global, I mean, it's just -- the way that business works both at airports and ports and borders. The machines are easily transportable. By the way the specs and the requirements, are relatively uniform. If you can put a provision at Dulles, you can put a provision in Hong Kong usually with small mods. And that equipment for us is, manufactured in the US and then we export it around the world. And around the world, looks to US, as the standard setter. So in the SES business, we're probably anomaly 125 countries. But it doesn't mean, that we have necessarily a large organization in those countries. We might have a field service tech and an airport. We might have a couple of people doing maintenance and support. And that business, I would tell you today, is already global and isn't going to become more global. We're about in every country, that we feel is appropriate for us to sell in I really understood your question to be more of okay, well you bought another business in Australia, which we think is a real positive. We're really excited about the business. It's a critical mission for the Australian government. And growing larger in Australia, is absolutely part of our strategy. Matt Akers: That's, great. And then, I guess, just one more on kind of DES and the long-term targets that you guys gave at the Investor Day, last fall. How much was DES included in that, not only from kind of, I guess, a growth standpoint, but also margins? And is -- any potential dilution from that contract we should think about as that program ramps up over the coming years? Chris Cage : Well, Matt, I would tell you that certainly in the near term that won't -- we don't expect the margins on that program to get at or above the corporate average. So we recognize there's some initial investment. In fact that's part of what we're seeing this year quite honestly is while we are in the protest process, the team was building out the PMO staff. They were getting ahead of transition working jump-start. So we're spending money on DES, and we'll continue to do so, because we're taking a big picture a long-term view on that. I would just tell you that I expect 2024 to be more of a significant contribution than 2023. So we've got this ramp-up that Roger spoke about. It's early so we can't give you a lot of precision on exactly the timing and customer adoption. But certainly by 2024, it should be a more significant part of the growth story for us. Matt Akers: Great. Thank you. Chris Cage : Thank you. Operator: The next question is from the line of Bert Subin with Stifel. Please proceed with your question. Bert Subin: Hey, good morning and thank you for the time. Roger Krone: Hey, good morning. Chris Cage: Good morning, Bert. Roger Krone: Roger you noted that SD&A will not recover until 2024. You had previously guided that business, I guess, if we go back to early 2020 to low teens, annual sales growth with expanding margins back when you did that deal with L3. How should we think about the path forward for SD&A now? Does it get back on to that track, or are you really just sort of thinking about it in terms of pro forma 2019 sales? Roger Krone: No. The way we look at it is, we had a path when we bought the business and we signed the deal before COVID. And then we -- there's this huge trough in our revenue and it has affected margin too, although, it's still a nice margin business, right? And we hit bottom. And now we've seen it start to recover and we are seeing double-digit growth in that business year-over-year. In our forecast it will continue where in 2024, we'll hit the pre-COVID level and then it will continue to grow beyond that as airports both in the US and in the rest of the world end up modernizing their equipment, one, because of age, but secondly, because of evolving threat, which is new chemicals, fentanyl, other chemicals, meth that the old machines couldn't detect. What we call touchless is the big demand at airports as we all know is to be able to just walk through. And the technology is emerging where most airports 10 years from now will have a touchless experience for the passenger and we expect that to drive significant demand. I know I would go down a lane that was touchless versus one that was not. Chris Cage : Well, I think look at improved throughput right which is a huge deal. Roger Krone: And efficiencies. So -- and we have been during this sort of troughed area investing heavily in technology so that we are ready to compete as the business comes back. Bert Subin: Just a clarification question on that. Where does border security fit in? I know you have some products there and that seems like there's going to be a lot of future demand. Does this acquisition in Australia have any relation to what you might be doing in that business, or are they completely separate? Roger Krone: Yes. They're completely separate. So this is more -- the Australia business are airplanes with sensors flying over pretty much blue water and littoral water looking for boats that are in distress and maybe boats that shouldn't be there. And our other business is literally where you drive a car through, you drive a truck through. We have a rail business. We're at the Mexican border where the railcars go through one of our machine and then we do personnel screening. So they're very, very different. It is -- I think you are right. The customer when you go way to the top is the same in Australia, but it's probably a different organization of that customer. And we were not interested in the carbon business, because of a crossover to our SES business. Bert Subin: Got it. And then just a quick follow-up if I may. The appropriations process is likely to yield. I think you mentioned earlier Roger defense budget is higher than the initial request. But that's likely to put pressure on non-defense just in terms of thinking about total spending. Is that a good outcome in your view? I know you have pretty similar exposure to both. Roger Krone: Yes. First of all, let me tell you what I think is going to happen and then if you want an editorial of what do I think -- I use -- that too. I think that non-defense will move with defense. I don't think you get an omnibus without moving the non-defense budget in the same direction. I think that's what we've seen in the past couple of years. I think that's what will happen this year. And whether we do this in the lame duck which is what I think is going to happen and people are going to want to move non-defense and defense sort of in lockstep we will get an omnibus. It will get done before the next Congress comes in and we will move on. And I think that will be good for Leidos across the board both our Defense business, our Intel business our Health and Civil. Now if you ask me if that's good, by the way, I think it's good for the company. I think it's good for our employees and our shareholders. I have three-year-old kids and there are times where I wonder when we're going to have to pay this back. And that means maybe there's a tax increase sometime in the distant future or another source of revenue for the federal government. But from a Leidos standpoint, from an investor standpoint I expect the budget environment to be very, very healthy for us for years. Bert Subin: Thanks, Roger. Thanks, Chris. Roger Krone: Okay, Bert. Operator: Our next question is from the line of Seth Seifman with JPMorgan. Please proceed with your questions. Seth Seifman: Hey, thanks very much and.. Roger Krone: Hi, Tobey. Seth Seifman: Hi. Its Seth. Just a quick one from me this morning keep it short. But the release mentions the reduction in materials intake at Dynetics as a driver for defense. Does that have to do with sort of scheduled changes in activity there, or is that more of a supply chain issue kind of as we've seen across the industry including at some companies in similar areas like Raytheon and Aerojet? Chris Cage: Yes. So Seth it – obviously, supply chain is a factor that we're seeing here and there. But the particular issue in hypersonics was kind of plan, the cycle production schedule for that program. It's following course that we expected it to. Now we're hopeful for some more authorizations from a funding perspective that could help the program. As a growth catalyst in 2023 that's something we're paying attention to. But right now there's not a big issue from a supply chain bottleneck although I would say that we're still not out of the woods on that as it relates to certain component parts in various parts of the business. But it hasn't been a major factor for us this quarter. Seth Seifman: Right. Okay. Chris Cage: Thank you. Seth Seifman: I will stick to one today. Thanks. Chris Cage: Great. Appreciate it. Operator: Thank you. The final question is coming from the line of Tobey Sommer with Truist Securities. Please proceed with your question. Jasper Bibb: Hi. Good morning. This is actually Jasper Bibb on for Tobey. Thanks for taking our questions. So I just wanted to ask about margins in the Civil segment. I think you highlighted SG&A and the contract ramps there. But can you provide a bit more color on when you expect that segment to return to more normalized 2018-2019 profitability level? Chris Cage: Yes. That's certainly something we have ongoing discussion with the leadership team. And there's a lot of catalysts within the Civil business. Certainly, SES is a big part of the longer-term margin strategy. I've mentioned some of the nice program wins that we've had on the defense -- on the digital modernization side and those will be on the lower margin side in the near-term. Where we do really well on margins -- our commercial energy business has been a strong margin catalyst for Civil. We're continuing to see that grow although it's a smaller part of the portfolio. We do well in our transportation, aviation business with the FAA quite honestly. And that's subject to FAA budget environment new program starts. And the anchor is some of our MNO support contracts, mission ops whether that's with DOE or other customers are tend to be on the lower margin side. So I would say in the near-term to get back to those levels is probably a multiyear undertaking as we look to win and execute more Dig Mod portfolio and see SES rebound, but some small improvements in other parts of the portfolio or what we after with the team. So that's how we see it right now Jasper in the near-term. Jasper Bibb: Okay. I appreciate the detail. Thanks for taking my questions, guys. Chris Cage: Okay. Great. Thank you. Operator: Thank you. We reach the end of our question-and-answer session. And I will now turn the floor back to Stuart Davis for closing remarks. Stuart Davis: Thank you, Rob and thank you for your assistance on today's call. And thank you all for joining us this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: This will conclude today's conference. You may disconnect your lines at this time. Log off your webcast and have a wonderful day.

Operator: Greetings. Welcome to Leidos’ First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone today should require Operator assistance during the conference, [Operator instructions]. Please note, this conference is being recorded. At this time, I'll turn the conference over to Stuart Davis, Senior Vice President, Investor Relations. Stuart, you may now begin. Stuart Davis: Thank you, Rob. And good morning, everyone. I'd like to welcome you to our first quarter fiscal year 2022 earnings conference call. Joining me today are Roger Krone, our Chairman and CEO; and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you will also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to Slide 2 of the presentation, today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on Slide 3, during the call, we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I'll turn the call over to Roger Krone, who will begin on Slide 4. Roger Krone: Thank you, Stuart and thank you all for joining us this morning. Our first quarter marked a strong start to 2022 with record levels of revenue, backlog and backlog standing from our leadership position in the government technology market. We continue to build our reputation and track record of performance in digital technology, cyber and innovation -- innovative systems across our diversified, resilient business portfolio. Our strong first quarter results and the improving federal budget picture increase our confidence in delivering on our full year financial commitments. I'll organize my remarks around four messages. 1. Our financial results demonstrate our ability to meet our commitments and outperform the market. 2. Our Business Development results, are a testament to our differentiated position in the market. 3. Our consistent capital allocation approach drives shareholder value, and 4. We are able to attract the workforce we need and develop them for long-term success. 1. Our financial performance was strong at both the top and bottom lines. Revenues of $3.49 billion were up 5.4% in total and up 4.4% organically year-over-year, which is once again towards the top of the market. Non-GAAP diluted EPS for the quarter was a $1.58 with an adjusted EBITDA margin of 10.2%. All three metrics were ahead of our plan for the quarter. Finally, we generated $93 million of cash flow from operations and free cash flow of $65 million. We remain on track to generate more than a billion dollars of operating cash flow this year. Number 2, Business Development sustained the momentum that drove our industry-leading organic growth last year, we achieved net bookings of $5.4 billion in the quarter, representing a book-to-bill ratio of 1.6. As a result, total backlog at the end of the quarter stood at a record $36.3 billion, which was up 11.6% year-over-year. The awards in the quarter were rich and new business and takeaways balanced across our three segments and constant -- and concentrated in key capability areas, including digital transformation and cyber. In civil, two large awards successfully completed lengthy protests. We won that $2.5 billion 10-year advanced enterprise Global Information Technology Solutions. We're agents program, where we will provide communication, data center cloud and cybersecurity services across all of NASA centers and facilities. For the FAA, we'll continue our more than 20 years of support on the national aerospace systems integration support contract. The new NISSC contract is a single award IDIQ with a $1.7 billion ceiling across 10 years. Our working conferences, strategic and transition planning, flight procedures, security, and safety, data analytics and unmanned aircraft systems in support of air traffic control, modernization efforts. In Health, we won two multiple award IDIQs totaling about $1.7 billion over six and a half years to provide disability examinations for the veterans benefits administration. The first was a re-compete for pre -discharge exams in the United States, and the second is a new area for us, exams outside the United States. Although we'll have more competition within our legacy business, we're excited about the opportunity to expand internationally. In Defense Solutions, our Gibbs and Cox subsidiary won a $319 million five-year award for ship design engineering services for the U.S. Navy's future service combatant program. We won two new cyber programs totaling $340 million, focusing on Agile Secure DevOps, cyber inspection and assessment, continuous monitoring, and audit and security management services. We also had a takeaway win on a $100 million single-award IDIQ to modernize the Army's gunnery training simulation systems. This work serves to enhance readiness across the operational spectrum in support of national defense. And the biggest, most impactful win for the quarter is not included in our bookings. We were awarded the $11.5 billion Defense Enclave Services contract by the Defense Information Systems Agency. The DES contract is a 10-year digital modernization program focused on consolidating common IT services into a single-service provider framework. As expected, this award is now in protest with a GAO schedule to decide in mid June. One of the keys to our BD success is our strategic partnerships, including with Amazon Web Services. I am proud that Leidos was awarded the AWS 2021 public sector consulting partner of the year. AWS recognized Leidos with this honor because of our deep technical partnerships in areas such as edge to cloud and next-generation digital infrastructures to build solutions that drive digital and cloud transformation. This recognition illustrates the value of the Leidos Alliance Partner Network, which we founded in 2018, to deepen relationships with the most important vendor partners across our business groups. This network has fostered greater collaboration with partners to drive technology innovations and continues to be a differentiator for Leidos on a wide range of proposals and programs. Number 3, I view capital allocation as one of the keys to creating shareholder value. Last quarter, we talked about a greater focus in 2022 on share repurchase. And we followed through with a $500 million accelerated share repurchase. We set near our target leverage ratio and our ability to generate cash gives us significant firepower for further capital deployment. We're well-positioned to grow and will continue to look for technology add - ons and strategic initiatives, that bring us differentiated capabilities for customer access. We'll pursue large M&A only for a company that truly accelerates our strategy. 4. People are at the heart of what we do. And this quarter, we hired more than 2,600 people. One reason people are attracted to Leidos is, that we enable our employees to build successful careers. We regularly review talent and plan development actions at all levels of the company. This quarter, we made several key moves at the Executive Leadership team and Board levels. We're pleased to welcome our new Chief Human Resources Officer, Maureen Watterson, who brings an impressive background and skill set to the Leidos team. Her excitement and commitment will enhance our people experience here at Leidos with about 1,600 funded vacancies and an industry-wide shortage of cleared technical talent, recruiting and retention remains areas of strategic focus. Maureen, will lead our human capital strategy and continue shaping the employee journey at Leidos through our Leidos Life Initiative. Dave King has decided to step back from his role, as Dynetics Group President. He will continue in a consulting capacity, ensuring a smooth change to new leadership and advising on matters of strategic importance. I want to thank Dave for his outstanding contributions thus far, and I look forward to working with him in his new capacity. Dave's Deputy Steve Cook is stepping up as Dynetics Group President. Steve's extensive experience and background, both with Dynetics for 13 years and leading critical programs for NASA before that, have prepared him well for his new role. He'll team with Paul Angola as his deputy. In addition, Paul will lead the national security space business for Leidos with a focus on space surveillance, missile warning, and space situation awareness. Next, our digital modernization business is growing rapidly with an expanding portfolio of differentiated technology. To meet the demands of our growing business, Steve Hall (ph) will move from his role as CIO to lead the enterprise and cyber solutions operation within the defense group. We've moved our CIO team under Chief Technology Officer, Jim Carlini, to tightly align our technology and CIO capabilities. Finally, Pat Shanahan (ph) has joined our Board of Directors. He served at the highest levels of government, including Deputy Secretary Defense, and acting Secretary Defense and industry, including more than 30 years with Boeing, where he led supply chain and operations, commercial airplane programs, and many other relevant areas. While at DOD, he was a passionate champion of digital and technological advancement for the department, driving modernization in cyber security, AI, and cloud computing, as well as command, control, and communication. Pat, wealth of expertise offers tremendous benefits for our shareholders and customers. Before turning the call over to Chris, I'd like to address the current congressional budget environment. Since the Q4 call, Congress passed the fiscal year 2022 omnibus spending package funding the federal government through the remainder of the fiscal year, with $782 billion in defense spending of 5.6 increase from fiscal year '21 and $730 billion in non-defense spending, a 6.7 increase from fiscal year '21. The budget also includes $14 billion in emergency supplemental spending in support of Ukraine given the devastation at the hands of the Russians. It will take time for the new budgets to work their way individual programs and new opportunities. But this provides positive momentum for the back half of 2022 and into 2023, President Biden has also released his $5.8 trillion fiscal year 2023 budget request. This request includes $813 billion in defense spending and $769 billion in non-defense spending. In addition to kicking off the fiscal year '23 congressional budget process, Congress remains focused on finalizing a $10 billion bipartisan COVID-19 relief measures. And passing legislation to increase American competitiveness with China. Congress also continues to grapple with rising inflation rates, strained energy markets, supply chain issues, and the conflict in Ukraine. In closing, our thoughts are with the people of Ukraine and our colleagues who have family and friends in the country. The United Nations estimates that more than 11 million people are displaced. To help those impacted, we've made a significant donation to project hope to mobilize emergency teams and send medical supplies. The people of Ukraine have lost infrastructure that will take lifetimes to replace. When the war ends, it will only be the beginning of their struggle. I will now turn the call over to Chris Cage. Christopher Cage: Thanks, Roger. And thanks to everyone for joining us today. As Roger said, Q1 was an outstanding quarter across the board, and I'm proud of the team for delivering such strong operating performance. Let's jump right into the first quarter results, beginning with the income statement on Slide 5. Revenues for the quarter were $3.49 billion, up 5.4% compared to the prior-year quarter. Revenues grew organically across all three reportable segments, given robust hiring and high labor utilization. Adjusted EBITDA was $358 million for the first quarter, which was down 8% year-over-year, and adjusted EBITDA margin decreased from 11.7% to 10.2% over the same period. Adjusted EBITDA was down primarily as a result of the $26 million net benefit related to the Mission Support Alliance joint venture recorded in the first quarter of fiscal year 2021, as well as a return to more normative indirect spending levels as we move past the pandemic. Non-GAAP net income was $223 million for the first quarter, which was down 10.4% year-over-year and non-GAAP diluted EPS for the quarter was $1.58, down 8.6% compared to the first quarter of fiscal year 2021. Interest expense was up $3 million year-over-year with the additional borrowing to fund the Gibbs & Cox acquisition and the $500 million accelerated share repurchase. The Non-GAAP estimated tax rate was 21.2%, which was in line with our expectations for the quarter, but below the projected 23% for the year. The weighted average diluted share count for the quarter was 140 million shares compared to 144 million in the prior-year quarter. Now, for an overview of our segment results in key drivers on Slide 6. Defense Solutions revenues increased by 4.6% compared to the prior-year quarter. The largest growth drivers were the engine and if pick ramps, which more than offset the completion of the human landing system-based contract within Dynetics and the end of our Afghan support contracts. Defense Solutions, Non-GAAP operating margin for the quarter came in at 8.1%, which was down compared to the prior year quarter, as the result of higher investments on developmental programs. Civil revenues increased 3.8% compared to the prior year quarter. The revenue increase was primarily driven by volume growth on existing programs, including the support to Hanford and the FAA, as well as our engineering support to commercial energy providers. Civil, Non-GAAP operating income margin was 7.7% compared to 12% in the prior-year quarter. The decline in segment profitability was primarily attributable to the MSA gain in the prior period, as well as the write-down taken on a minority interest joint venture program. Health revenues increased by 10% compared to the prior-year quarter. We continue to benefit from the ramp on the Military and Family Life Counseling program and dim sum had a large year-over-year increase based on deployment timing. Health non-GAAP operating income margin was 19.2% compared to 18.6% in the prior year quarter. The improvement in segment profitability was primarily attributable to efficiencies introduced into procurement and delivery on certain contracts. As we've discussed previously, we expect Health segment margins to land in the mid-teens for the year. Turning now to cash flow and the balance sheet on Slide 7. Operating cash flow for the quarter was $93 million and free cash flow, which is net of capital expenditures, was $65 million. During the first quarter, we returned $577 million to shareholders, principally through the $500 million accelerated share repurchase program that we put in place two days after our February earnings call. We were immediately able to retire 4.5 million shares. The program will end within the next two weeks, and if our share price remains relatively constant, we'll retire another few hundred thousand shares at that time. We're funding the ASR with a combination of cash on-hand and proceeds from the issuance of commercial paper. When the Russians invaded Ukraine, the CP market became more volatile so we sold some accounts receivable for short-term liquidity. Since then, CP markets have cleared and we've exited the AR monetization by quarter-end, so there was no impact on cash flow for the quarter. At quarter-end, we still had about $75 million of borrowings outstanding through our commercial paper program. As of April first 2022, we had $297 million in cash and cash equivalents and $5.1 billion of debt. We remain committed to a target leverage ratio of three 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 now, to the forward outlook, as shown on Slide 8, we are maintaining our guidance for fiscal year 2022. Specifically, we expect revenues between $13.9 billion and $14.3 billion adjusted EBITDA margins between 10.3 and 10.5% non-GAAP diluted earnings per share between $6.10 and $6.50 and cash from operations of $1 billion or greater. With three quarters to go, we believe the current ranges still encompass the likely outcomes for the year. That said, I will offer a few comments to help with modeling. On last quarter's call, I mentioned a range of EPS benefits from share repurchases. When we were implementing the plan, our stock was trading in the mid '80s. We're now forecasting a volume weighted average share price of around $105. In addition, with world events, interest rates have risen and liquidity has tightened, which has increased borrowing costs. Given these factors, we are now projecting the addition from the Q1 ASR program to be closer to $0.10 than $0.20. In addition, we see the current environment is favorable towards growth, and we're exploring multiple opportunities where prudent investments could pay long-term benefits to Leidos and our shareholders. These increased investments may come in Business Development, R&D, and program execution. Finally, as Roger mentioned, we remain on track to generate a billion dollars of operating cash flow. As is our usual pattern, we expect the lion's share of operating cash flow will be generated in the back half of the year. We still believe that Congress will retroactively delay implementation of the new tax research costs, capitalization rules, given the number of members from both parties who have cosigned legislation to restore pro innovation tax policy before the end of the year. However, if we were to amortize research costs and pay the taxes currently required, our operating cash flow target will be lower by approximately a $150 million. With that, I'll turn the call over to Rob so we can take some questions. Operator: Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions]. One moment, please, while we poll for questions. [Operator Instructions]. Thank you. Thank you. Our first question will be coming from the line of Peter Arment with Baird. Please proceed with your question. Peter Arment: Good morning, Roger and Chris. Roger Krone : Good morning, Peter. Peter Arment: Roger, maybe you could talk a little bit about, how you're seeing the fiscal '22 enacted came in and certainly the outlook for '23 looks even better for when we're talking about the longer-term budgets. Just kind of in the context of how you think Leidos is fairing there. And when I think about, just also the Dynetics business and you talked a lot about the program and records, the outlook there. If you could give any kind of insight and is there any potential benefit from activity in Ukraine? I know you do have some area defense type products where you envision benefit. Roger Krone : Peter, you broke up in the last sentence or two. Peter Arment: Just regarding Ukraine. Roger Krone : Yes, okay, great. Peter Arment: Is there any opportunity there when I know you have some Area Defense products? Roger Krone : Yes, let me talk in general. First of all, on Ukraine. Yes, we're probably seeing higher op tempo in our defense sector because of support that the U.S. is giving to the effort and the supplemental spending. But that being said, the conflict I think long term is probably bad for the industry. We're not in the business of war, we're in the business of providing a deterrent and so I think it's -- we will spend money now, but we will take it away from the future, and I think it's also bad for the country. Certainly bad, I think, for Europe, and I think it's really bad for the global community. We're seeing more stratification of nations and going back to a tripolar world, and I'm not sure that's really good for anyone. That being said, we've probably worked more overtime, which meant our cost probably went down because we've got more direct labor that we didn't plan for. And yes, there are some programs that appear to be accelerated because of some of the emerging threats that were used in Ukraine, hypersonics comes to mind. But we have the Indirect Fires program, which we expect to be fully supported. And then, to the extent that anybody is in the weapons business and we don't have a significant weapons business, but some of our peers that make [Indiscernible] and switchblades and javelins and things like that, and those inventories and that stock will have to be replenished. I think the broader view is, every time I think we as a country get comfortable that we can lower the defense budget because if you will, peace is broken out across the world. We learned that the world is still a very complicated place and we end up having to put the money back in the defense budget. So I think the long term prospect is that we will see a strong defense budget for the foreseeable future. And what's especially good for us at Leidos is as the defense budget has moved up, there's now seems to be almost like an iron bar between the defense side and the civil side. So we rarely now are seeing increase on the defense side without a commensurate increase in the civil side, which really provides us a benefit across all of our segments. And so now I will, as a citizen, as a tax payer, I worry about the national debt and I worry about balancing the budget someday and all of that. But from my position as CEO, this has all been a real positive for the company and for Leidos and the strategy that we implemented, which was to be able to address the broad markets within the federal government. And some of the international government. So as I said in my comments, we'll see the money start to come through that PBB system in the second half of '22 and then '23 looks like it's going to be another strong year on both sides. And frankly, '24 will follow. I just think we're at a place relative to government spending. That's going to favor our industry. So thanks for your question, Peter. Operator: Thank you. Our next question is coming from the line of Sheila Kahyaoglu (ph) with Jefferies. Proceed with your questions. Sheila Kahyaoglu : Morning Roger, Chris. Thank you. Christopher Cage : Good morning, Sheila. Sheila Kahyaoglu : Morning. Good quarter. Chris, you mentioned in your comments, R&D investment in program execution investment if need be, was this regard to specific program with does or is it broader? And just in regards to profitability for the year, are you seeing costs come back or how do we see the cadence of profitability? Does it step up from Q1 levels? Christopher Cage : Right. Thanks, Sheila. So it's more than a singular program. In fact, it just been a variety of opportunities. And we encourage our teams to be creative and bring forward business cases, where they see opportunities that could lead to longer-term payoffs and we've seen a number of those opportunities. Some on programs that we're performing on, that were all in to make sure we deliver on time and on schedule and on budget. And so we believe those performance on those programs will lead to future opportunities with those customers. That's one example, but there's also areas where we see next generation of certain technologies that we want to continue to invest in because we believe the demand will be there. As it relates to the pattern of profitability through the year, we always had an expectation that that would build, as we progress through the year for variety of factors. Some of which, just the timing that we have visibility into program performance, product deliveries or a little bit more back end loaded over the course of the year. Programs like maybe NextGen, which has been ramping up very nicely. There's more project work now that we're into that program, 6 plus months and the team sees opportunities, as we move to the back half of the year to continue to deliver for the Navy customer. So I think the pattern with some modest increases over the course of the year and that will counterbalance some of the things that we're seeing in Health where the margins were a little bit inflated in the first quarter as you saw. But as far as the close on your indirect spending question, it's not a surprise to us. We certainly anticipated getting back, being on the road, being involved with trade shows as necessary. And so, as we built our pricing rates for the year, we certainly incorporated those expectations. Sheila Kahyaoglu : Thank you. Roger Krone : Thank you. Christopher Cage : Thanks, Sheila. Operator: Thank you. Our next question is coming from the line of Caivon Rumohr with Cowen. Please proceed with your questions. Cai von Rumohr: Yes. Thanks so much. So like Khaki, you guys had a week funding to sales in the quarter per se, 0.9 although your trailing 12 of 1.01 is stronger. Can you give us some color on the cadence throughout the quarter in terms of funding and whether it's picked up here in April, and they're following onto that. Maybe some help in terms of the cadence of revenues and earnings over the next three quarters. Christopher Cage : Sure, Cai. It varies on the funding. And right now, I would tell you, other than one particular example that comes to mind where we wish there was a little bit more immediate funding on a particular program with one of our customers. Funding hasn't been an issue and some of the orders that we won, those notably on the VBA contracts, that funding will be there over time. It just the way it gets recorded, so we don't see funding as an issue. And in fact, we're starting to see some customers come to us and say I'm anticipating more funding being available on these particular programs. What types of things could we potentially do? So that's the way we're seeing things play out. And I'm sorry, the second part of your question was on the progression of revenue and earnings? Cai von Rumohr: Yes, the progression of revenue and earnings over the year. Christopher Cage : Right. It's a modest uptick as we see the year playing out; obviously, we just got started. Roger talked about our AEGIS award program, so there was really no contribution of that in the first quarter. That will start to contribute more in the second and build through the second half of the year. There's obviously some other new start programs that we just talked about. One of the key variables will be within health and how we see the exam volume moderating, but we've certainly anticipated that coming back down to the more normative levels that we've discussed. Think about steady uptick in the run rate with the growth rate will moderate as you know the back half of last year was a little bit stronger, so you'll see those growth rates dial down. And that I think margin profile will continue modest increases over the course of the year. Roger Krone : Hey, Cai. I would add on the funding side. When we start some of these very, very large programs, getting the billing process where we aggregate bills and getting the contracting officer and that whole process to work as smoothly as it will on a mature program takes us a couple of cycles. And so it's not the available of funding at the customer level, it's getting the process of submitting invoices, aggregating invoices, and working with contracting officers, some of which are new to us because these are new programs, and just getting that process to operate as efficiently as we do on our more mature programs. So we expect as the year goes on, that you will see that reverse. Cai von Rumohr: Thank you. Christopher Cage : Thank you. Operator: Our next question comes from the line of Robert Spingarn with Melius Research. Please proceed with your question. Robert Spingarn : Hi, good morning. Roger Krone : Good morning. Christopher Cage : Hey Rob. Robert Spingarn : Roger, I wanted to ask on the SDA business where that's running and if that's improving with the traffic recovery. I think it was made -- it maybe trending at about, I don't know, 60% of where it was when you acquired it. Roger Krone : Lessee, there is more proposal activity and we're out on the road more, we're engaged with customers more. But like any acquisition process, when you essentially come to a stop, getting it started again so there's RFI, there's an RFP cycle and it just takes time. And air traffic in the U.S. is at or better than international is still lagging. And then in certain regions, there's still lagging, but our team is traveling again. In fact, the Group President has been overseas talking to airports and the airports are now coming forward with new forward plans post COVID, which will include a modernization of both checkpoint baggage. And we've been investing in technology. We're trying to get to a touchless passenger experience, which I think is kind of the Holy Grail of all of us who want to go through airports. But that's just going to take time. So the recovery has been slow and it's going to take us well into '23 before we get back. Robert Spingarn : Okay. And can you remind us what the domestic versus international split is in that business? And then Chris, I have a quick one for you. Roger Krone : Rob, I don't know that we'd given a precise estimate of that. Because it ebbs and flows, right. Where the demand signal comes from in the service. But these days, it's less internationally focused a little bit more domestically focused. But to Roger's point, where we see that bounce back in that future demand will be more internationally focused when that does occur. Robert Spingarn : I'd probably should've asked it is installed base, maybe that's the better way to think about it? Roger Krone : We're going to test this now. More internal -- more installed base internationally. Robert Spingarn : Okay. And then Chris just on backlog, how much of that is fixed price and to what extent do those contracts have annual escalators like CPI or ECI to protect a bit? Christopher Cage : Well, the large awards in health this quarter are like a fixed unit rate pricing. And I would tell you, well we don't have necessarily escalator protection, we spent a lot of time in our pricing building in the forward rates and oftentimes those are prescriptive assumptions by the customer. And if things deviate, you have an opportunity to revisit that. But we take that estimate of inflationary cost increases into consideration we're building up our price on. As far as the overall, our fixed-price concentration hasn't moved much as a percent of revenue. So you're seeing the new orders come in along the same lines of what we've seen historically. Robert Spingarn : Okay. So no real change to your long-term margin expectations from inflation? Christopher Cage : No, not at this time. We're doing the best we can to come back that as we priced new opportunities and having still more than 50% cost plus mix in the portfolio certainly gives you some backstop installation, but we're certainly being thoughtful about pricing that the fixed price components of the new bids. Robert Spingarn : Sure. Thank you. Operator: Our next question is coming from the line of Gavin Parsons with Goldman Sachs. Please proceed with your questions. Gavin Parsons: Hey, good morning. Roger Krone : Good morning, Gavin. Christopher Cage : Morning, Gavin. Gavin Parsons: Maybe just a follow on the inflation question. Roger, a couple of quarters ago, you made the point that the customer doesn't necessarily -- the customer will lose purchasing power if they don't raise their budgets for inflation. Seems like now we have a placeholder for inflation in the DoD Fiscal 23 budget. So, is it your sense that the government customer is cognizant of the inflation environment both in terms of real purchasing power and cost inputs? Christopher Cage : Well, let's see. It's hard for me to judge whether the government customer writ large, understands the complete impact of inflation versus a real growth in their budget. Certainly a variety of customers that we talk to. And I would point out, Gavin. The fuel cost is in immediate problem for, say, the Department of Defense, especially as they have increased op tempo and they have to buy the fuel comes out of the working capital fund. And so there are a variety of things that are happening in the macro economy that are going to cap down sort of the enthusiasm on the top-line increase. And I see -- my view is that at the SEC depth -- SEC depth level, they completely understand that. I don't think they're going to get supplemental for inflation. I think that they're thinking through the impact to the overall budget as they look at '23 and '24. But I also -- I'll just share with you what the rhetoric is around town here in Washington is that we will not sustain inflation at this rate. Is as we come out of the back of the pandemic, as we get to whatever normal is, and Ukraine, Roger Krone : Inflation will come down. Maybe not to pre - COVID levels, but won't sustain at this level. And I know there's a lot of focus on quarter-by-quarter of these numbers. But the economic -- economists that I talk to and the reports that I'm reading are that this will temper over the next quarter or two, back to a more normal level which will give them a little bit more real top-line Gavin Parsons: Okay. Appreciate that insight. And then maybe just in terms of reiterating guidance, seems like you've de -risked a lot of the risk factors that were originally in place when you guided. Could you talk a little bit about what the moving pieces are, that would take you towards the higher low end of the range for the year? Roger Krone : Yeah. I'll start and Chris can add. What we said is we're still within the range that we have put out in the marketplace, although they are obviously pluses and minuses. And I made a comment in my prepared remarks that a lot of risk has been retired and we have more confidence in our ability to meet our numbers for the year. But it's the first quarter, there's a lot of uncertainty. I don't know what's going to happen in Ukraine. And you should take away is that we're still bounded by our guidance. But the team here is certainly a lot more confident than we were when we talk to you at first quarter, when we didn't have a budget, we didn't know about Defense Enclave Services. We hadn't gotten out of the ages of protest, so there's a lot of good things going on from a forecast standpoint within Leidos, but we're still clearly within our upper and lower balance in our guidance range. Christopher Cage : Yeah Gavin, that's certainly the thought process that we went through, and we're a lot -- we've learned from last year, things could evolve. The speed at which we think the positive budget environment flows through to orders we'll have to watch that carefully over here. The next couple of months. There's some exciting new programs that were -- we've been bidding on. And so depending upon those decision timings over the next two to three months could certainly be positive catalyst for us. But at this point in time, we're on a nice trajectory. We're still in, we believe the overall ranges for the year and so it was premature to think about changing that at this time. Gavin Parsons: Makes sense. Thank you. Roger Krone : Thanks, Gavin. Operator: The next question comes from the line of Seth Seifman from JPMorgan. Please proceed with your questions. Seth Seifman : Thanks very much. Good morning. Roger Krone : Good morning, Seth. Seth Seifman: Just wanted to start off with health and the profitability there and I know that nearly 20% is not necessarily a normalized margin, but if it's better than what was a very high-margin last year, I guess. How should we think about what's going to cause that to decline? Saw there was a win on the medical exam contract in the quarter. You'd probably have a little bit more visibility there. Were medical exams down year-on-year and the margin rate still went up? And if so, what drove that and do the drivers give you an ability to, maybe, sustain something that's closer to high cans? Christopher Cage : Yes. So let me start and Roger can pile on. So for the first quarter, we're not featuring the exam businesses, the primary driver for strong margins. I have to give it to the dim sum team. They're just doing an excellent job and we saw, again as they've deployed more, they're seeing more efficiencies. And we talked about procurement and delivery in our prepared remarks. How we're delivering software for the customer, finding opportunities to get more efficient and doing so. So that one really helped contribute in the quarter. That was a little bit of a onetime pickup, but actually it will help us on ongoing basis maintain a little bit. Margin profile there. The exam business is doing well. I would say largely about the same levels that where we were a year ago. And I think if you read carefully our prepared remarks, we talked about two things. Number 1, we're excited to have won a position internationally, which provides opportunity to expand that business in an area we haven't been before. On the flip side, on one of our regions, one of the areas we perform on, we were re-awarded that contract, but they also added a couple additional suppliers, potentially to the mix. We don't know how that dynamic will play out as far as how the case load gets distributed there, so that's certainly an area that we'll have to watch and moderate and could potentially we're anticipating will put some downward pressure on margins over the course of the year, but we'll have to wait and see. Roger Krone : Yeah, Seth, Christopher Cage : I'll just add a little bit of colors of the number of exams we do per day, per week, maintained strong through the period. The discussions that we've had with the customer is there is a potential this year and next year that they will go back and review. So what they call prior presumptive cases, things related to [Indiscernible] and some other things that might sustain the volume of -- in the exam business sort of above what we have forecasted. We've had those discussions with the customers. We haven't seen the volume come all the way through yet, so it's a bit of wait and see. And on the district six, which is your transition exam when you lead the active military and you go to VA. They added another -- actually added two more contractors because of the anticipation that there will be added volume through this presumptive cases. And we can talk more about it as the quarters go by, but it's really, really important for our customer to provide a timely medical exam to the people who served the country. And so they want to add more capacity into the system because I think we'll have more exams and we'll just have to wait and see how it plays out. Seth Seifman: Okay. Great. Thanks. And then, just as a quick follow-up. It seems like the company is in a pretty strong place with regard to the revenue outlook for the year. With regard to the margin guidance, it seems that margin rates had expand through the year, but health has probably had an unsustainable level in Q1, and you talked about some more investments. So what's the driver of in improving margin rate? Christopher Cage : There's a variety of things, Seth. Well, first of all, on the investment questions, if we see smart investments, we believe for the long term we're going to fund those even if they were over and above the plan. But as of right now, obviously, we are holding to our guidance. I talked about some of the product deliveries, although as Roger alluded to, the SDA business is not where we ultimately hope it will be. We are still shipping some products and those are more back-end loaded over the course of the year. We'll be ramping up some new program wins. That scale will continue to increase the engine. Project work is back-end loaded, and some of the projects that Dyne tics is working on in delivering we are anticipating a better performance over the back half of the year. There's a variety of factors across the portfolio. We're not far off obviously at [Indiscernible] margin. We're not far off of what our goals are, but you're right, and we're preparing for health moderating down in the other parts of the portfolio, moderating up a little bit this year. Seth Seifman: Thanks very much. Christopher Cage : Thank you. Operator: Our next question is coming from the line of Bert Subin with Stifel, please proceed with your question. Bert Subin : Hey, good morning. Christopher Cage : Hey, good morning. Hey, Bert. Bert Subin : So following up on the SD&A question, Roger, you said last quarter normalization was something in the ballpark of several $100 million higher. So you could see up to or greater than a 2.0 organic tailwind for that business heading into 2023, could you not? Roger Krone : And without doing the math in my head -- Christopher Cage : Well, yes. It all bounced back overnight, right? We're not expecting that we'll get a step function increase, but that's where we think we'll ultimately be able to get back to. Bert Subin : Okay. And then just a quick follow-up. Can you just give us an update on where things stand with the hypersonic business? Roger Krone : Sure. We make the common hypersonic glide body down Dynetics in Huntsville and we have delivered our first Leidos manufacturer, common - hypersonic glide body to the customer. And we are ramping up production, I can't share what the production numbers are, but it's a fairly steep ramp. The program is fully funded. We also won -- we've talked about this in the past the thermal protection system contract. This is the coating that goes on the outside of the common - hypersonic glide body. And so we're producing in manufacturing the thermal protection system. And I will say this, we have ample capacity to raise our rates significantly above what we're contracted for. And then we also makes the launcher, which is more associated with the parent program, though long-range hypersonic weapon. And we had delivered our first tranche of launchers in there with the army doing training. And we're in a position to build additional launchers. And as those contracts get written, but we're excited about the program. We believe there is a huge near-term need, and although we're conservative in what we put in our financial forecast, we clearly think there's upside on the hypersonic business. Christopher Cage : But we're really excited but the team is doing a great job. In fact, Roger, myself, a few other executives are getting on a plane later today to fly down to Huntsville and celebrate some of the recent successes they've had because they're really knocking it out of the park. Bert Subin : Thanks, Roger. Thanks Chris. Operator: The next question is from the line of Matt Akers with Wells Fargo. Please proceed with your questions. Matthew Akers : Hi. Good morning. Thanks for the question, guys. Roger Krone : Hey. Good morning. Matthew Akers : I wanted to ask about -- good morning. I just wanted to ask about DAZ. And realizing that that programs still under protest. But assuming that does come back to you at some point later this year, how should we think about kind of the pacing of how fast that could ramp up? And ultimately, what's sort of the run rate we should expect on that program? Roger Krone : Yeah. Well, I'll give you an overview and then Chris can sharpen the numbers part of it. We're in protest. We're optimistic that the GAO rule on time, it clearly could go to another round of protest. Should go to the quarter Federal Claims. But it is a very slow ramp. So let me describe the program is, this is -- this are taking over more IT environment to come to if you will, a common network approach across, DOD. And so we will transform networks of other DOD agencies outside of the services and this happens agency by agency basis. The first couple agencies that we will transform are relatively small. If we come out of a protest in June, the revenue this year is very small. Almost double-digit but not much more than that. And then it builds over time. I would caution dividing 11.5 by 10 and putting a billion-dollar in your model. We have to win and achieve that. I mean, there is a potential to do that several years out, but it's not at that level in our models. It's smaller than that. That's an IDIQ ceiling. If you're familiar on how that contract works, that gives the customer room to grow in to spend at that level. But from our own internal modeling, it will be a slow ramp and we'll actually take years to become a significant program at that level. Christopher Cage : I mean, Matt, I'm probably going to dodge your question even more. Obviously, we don't want to get ahead of ourselves. Very excited to get the win notification, have a high degree of confidence in our team. They know how to defend protests. And so we're going to go through that process. We're going to see what happens in June. And to Roger's point, I feel like this is a program that will continue to drive growth for multiple years. That's the good news and we'll do everything we can to deliver for the customer, maximize the value of the contract, because that means we're really delivering great capability to up to 22 agencies within the DoD Fourth Estate. But think about this potentially, it will become, we believe, one of our top programs but don't expect that in '23 and probably not in '24. It will take multiple years to get there. Matthew Akers : Got it. Thanks, that's helpful. And then if I could just do one more on kind of the hiring environment and you guys have had won a lot of new work here. What are you seeing? Is it getting any easier to hire people? And are you confident you can get enough people to support all this new work? Christopher Cage : It's really interesting. We're People Company and clearly, every day, almost every hour we're talking about people and hiring. And the great resignation, unquote means people are moving. And if they're resigning from Leidos that are going to work someplace else, if the resigning from someplace else, they are coming to work at Leidos. So our accepts are in the 90% of the offers that we make. We fill most of our positions between 30 and 45 days. So it's not a hiring problem, it's a retention problem. And we all have. I've got kids and coming out of COVID people are looking around. They want to try something different and so we're doing a lot. If you were in our meetings we have a great talent acquisition team. They are doing a great job and we can always do better. But we're spending a lot of our time on how we continue to make Leidos an attractive place not to come to work, but to stay. And so this is career development, this is investing in the future of our employees. This what we call upskilling, teach them new languages like Python and things like that so that they can have a new job and stay at Leidos, if you will. And there's a lot of work and I know I was talking to some of our competitors and they have the same problem and we're all focusing on employee development. Not so much from a hiring standpoint. But where there's always a shortage of cleared computer science majors, you're with access in the Intel world, that's always going to be a challenge. But you should not -- you listened about the great resignations or they can't hire the people. We've been very, very successful in attracting and hiring. And now our emphasis is on retention. Matthew Akers : That's helpful. Thanks. Operator: Thank you. The next question is from the line of Colin Canfield with Barclays, please proceed with your questions. Colin Canfield : Hey, good morning. [Indiscernible] the growth this year. Unchanged guidance suggests that you need to hit roughly 7% organic, that's like 23, 24. So then as we look out over a multi-year period, what are some of the pain points that you guys are looking at split between headcount issues, supply chain? Really, what does it take to not achieve those levels? Christopher Cage : Well, Colin, over a multiyear time horizon things can go wrong and we've been talking about some of them here that Roger just feature of retention. So it's not a hiring issue per se, it's certainly for making sure we can retain people to have the headcount, we need to achieve that level of growth. First of all, we put that multiyear guidance out in October. We knew when we put this year's guidance out that we were on the lower end of the range. We're off to a good start. We're not updating this year's guidance at this point in time. But we just talked about things like DES and catalyst for future momentum. So then it becomes, can you execute? Can you get the people on the supply chain? So we're watching all those things very carefully. All indicators at this point in time are nothing would take us away from feeling like we can still achieve those longer-term objectives. So that's the trajectory we're on. But clearly something we focus on all the time as we go through and execute and deliver for our customers every day. Roger Krone : And Colin, there's still some big opportunities we have to win. We've talked about the FENS program, which now been delayed to the fall and there are a series of multi-billion-dollar programs that are still in our pipeline. So we have to continue to do overdoing, hire the people, execute in the business development area, win the programs and in staff, the programs. And then the customer has to fully fund. And right now, I think '22 and '23 looked pretty solid. But if there is a big sea chain, frankly, if we get into a war where the U.S. is actually involved, that we'll re-prioritize spending within the federal government. Maybe a way from long-term modernization to actual combat operations. We're hopeful that won't happen, but that could have a significant effect on how we view the future. Colin Canfield : Got it. And then in terms of CapEx for the year, can you just discuss some of your biggest investment areas and the return metrics that you're contemplating within that portfolio? Christopher Cage : Yes. When we put together our CapEx plan for the year, all of our business have a variety of needs and there's a laundry list of items. Some of the bigger ones were in the airborne ISR business, and that's an area we've made some investments and generated excellent returns with IRRs. Certainly, mid to high teens, if not better. We certainly look at the risks of an investment, we look at our weighted average cost of capital, and we tried to generate returns, obviously, that exceed that. And we are still putting money into -- as much as we're trying to overall strength and densify our facility footprint. There are certain areas, especially in the intel space, new classified facilities we're having to invest in some areas on the manufacturing side that we're investing. And so facilities will probably be our second biggest expense area and then it's just a variety of smaller initiatives across the company. Roger Krone : Rob, it looks like we have time for just one more question. Operator: Yes. That question is coming from the line of Mariana Perez Mora of Bank of America. Mariana Perez Mora : Good morning, gentlemen. Roger Krone : Morning. Christopher Cage : Morning. Mariana Perez Mora : My question is a follow up to Cai's question. As we try to understand the market trends versus the company-specific story, would you mind giving us some color on how much of the 4% organic growth or how much of like the low-single-digits organic growth from better or implied in here, in our guidance is related to legacy programs. How much is related to new on ramping up contracts, and how much is related to loss re-compete. Christopher Cage : Loss re-compete. So you're talking about Mariana, our organic growth profile, and kind of dissecting that a little bit is what I think I heard from that question, we're certainly seeing some uplift and we look for what we call on-contract growth every year as we build our plan between inflationary pressures on cost reimbursable programs and just because there's capacity within contract budgets that we look for opportunities to continue to expand services to existing customers. That's certainly an area that's contributing a couple of points of growth. At a minimum, we look for that and then obviously comes down to the New Star programs. We've talked, featured many of those. Engine will still be a growth story for us this year. Military Family Life Counseling continues to ramp up. We talked about aegis. So some of those new mega programs are probably the next thing I would point to, to give us confidence on this year's growth trajectory. And then Roger just talked about the pipeline is still rich and we're continuing to pursue multiple programs beyond that to fuel our growth. I'm not sure if that exactly hit on your question, but happy to expand as necessary. Mariana Perez Mora : Now, that's good color. And then, outreach through M&A, could you mind giving us some color on watching the pipeline in terms of how we are today and what companies, customers, capabilities are you looking for on those packing or bolt-on acquisitions? Christopher Cage : Well, Mariana, we won't give you too much in the way of specifics as far as what we're looking at in the M&A arena, but I would tell you that a lot of properties continue to come to market. Roger talked last quarter about and followed up again this quarter, the mega properties, the larger ones are probably not something we have an immediate interest in unless we really saw a compelling case to accelerate our strategy. We're certainly seeing some companies out of the space arena come to market. That's interesting to follow. But we look at things that makes sense to us. We bet things, but we're going to be thoughtful about where we engage, and back to his prepared remarks, it really has to fit a strategy niche for us. Roger Krone : Yeah, Mariana, I would just foot stomp. We're really happy with our portfolio today, and so we look at M&A as a way to accelerate technology or customer access or relationship with a customer. We were fortunate to be able to do some larger transactions early, and it rounded out our portfolio. And now as we see technology advance, there's always a couple areas where I think our time-to-market would be benefited by partnering with a company rather than trying to develop that internally. And then there are still customers in the federal space that we don't have a long term relationship with, and so if we're able to accelerate that relationship through another company that has a great portfolio will do that. Otherwise, as we said in our capital allocation, we're really thinking about how we get value back to you, our shareholders. So thanks for the question. Operator: Thank you. At this time, I'll turn the floor back over to Stuart Davis for closing remarks. Stuart Davis: Thank you, Rob, for your assistance on this morning's call and thank you all for your time this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings. Welcome to Leidos' Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. At this time, I'll turn the conference over to Stuart Davis with Investor Relations. Stuart, you may now begin. Stuart Davis: Thank you, Rob. And good morning, everyone. I'd like to welcome you to our fourth quarter and full fiscal year 2021 earnings conference call. Joining me today are Roger Krone, our Chairman and CEO; and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you will also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to Slide 2 of the presentation. Today's discussion contains forward-looking statements based on the environment as we currently see it and, as such, does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on Slide 3, during the call, we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I'll turn the call over to Roger Krone, who will begin on Slide 4. Roger Krone: Thank you, Stuart, and thank you all for joining us this morning. 2021 was a banner year for Leidos, with industry-leading organic revenue growth and expanded profitability. In addition, we enhanced our market presence during the year with strategic acquisitions and investments that added important technical capabilities. Despite the ongoing impact of COVID-19 and an extended Continuing Resolution, we are positioned to grow in 2022, bolstered by our scale, differentiated technical offerings, and dedicated workforce. In my remarks, I'll address four topics: our financial results and outlook, capital allocation, business development and people. Number one, our financial performance in the quarter was strong despite a challenging market. Revenues for the quarter were $3.49 billion, up 7% year-over-year. For the year, revenues grew organically across all reportable segments and were up 12% in total compared to 2020. In 2021, our adjusted EBITDA margin of 11% represented the sixth consecutive year of margin expansion and non-GAAP diluted EPS was up 14% to $6.62. We generated $210 million of cash flow from operations in the quarter and free cash flow of $177 million. For the year, that translates to $1.30 billion (sic) [$1.03 billion] of cash flow from operations and $927 million in free cash flow. These results came despite well-documented headwinds, most notably a protracted Continuing Resolution, which slowed both tasking on existing contracts and the award of new opportunities, a resurgence of the pandemic, which lowered workforce productivity and limited our interactions with customers, and a national security community transitioning to new threats. I am proud of how well the team weathered these headwinds. In 2021, we achieved our guidance for all of our metrics, but the standout metric was cash, which came in well ahead of our expectations through close coordination with our customers and strong operational focus. Our asset-light model, lean cost structure and efficient collections process enabled us to generate strong cash flow that we can deploy to grow our business and drive value for our shareholders, which brings me to number two, capital allocation. Over the fiscal year, capital deployment was balanced, with a mix of strategic acquisitions, debt paydown towards our target leverage ratio, an enhanced dividend and share repurchases. In the fourth quarter, we made a strategic investment in HawkEye 360 to build on our multi-decade heritage of serving national security space customers. HawkEye 360 is driving innovative solutions around space-based radio frequency data and analytics, and we're confident this investment will enable us to better serve key customers who safeguard the United States and allied interest. On the opposite side of the ledger, we agreed to divest Aviation & Missile Solutions LLC, a small CEDAR [ph] business within Dynetics. This divestiture allows us to focus on leading-edge and technologically advanced services, solutions and products that are more in our sweet spot. In 2021, we put $270 million towards repurchasing our shares. Looking ahead, our Board of Directors authorized a new share repurchase program of up to 20 million shares, replacing the prior authorization. We only had 4.5 million shares remaining on our $20 million share authorization from 2018 and we thought it prudent to increase our buyback capability. Under the authorization, we can repurchase shares in the open market or through privately negotiated transactions, including accelerated share repurchase transactions. Based on the current valuation of our stock, our financial outlook, our liquidity, our view of the M&A market and a consistent operating environment, we expect to be more aggressive on buybacks in 2022, and Chris will provide more color on that shortly. Number three. In business development, the December quarter is seasonally - is the seasonally weakest for our industry. Still, we achieved net bookings of $3.2 billion in the quarter, representing a book-to-bill ratio of 0.9. Importantly, about half of the awards were for new work. For the year, we booked $15.5 billion of awards for a book-to-bill ratio of 1.1. Our bookings don't include anything for the roughly $4 billion of protested awards we've been tracking, although earlier this month, we received positive developments on two of them. The FAA re-awarded us our incumbent work modernizing the national aerospace system and GAO denied the protest of our takeaway of the NASA networking communications program known as AEGIS. We're still awaiting word on whether either firm continues to object. Total backlog at the end of the quarter stood at $34.5 billion, which doesn't include any future task orders for many of our large single award IDIQs, like NGEN, with total backlog almost 2.5 times our 2022 revenue, we have a strong foundation for growth. In the fourth quarter, we had large awards in each sector, including ISR Support for the Air Combat Command in defense, operational support to a publicly traded utility and R&D support to the National Energy Technology Laboratory in Civil and IT support to the Federal Parent Locator Service in Health. I want to focus on another award that speaks to what makes Dynetics so attractive to us. Our Dynetics subsidiary was awarded a six-year $479 million cost-plus-fixed fee contract to develop Hypersonic Thermal Protection System prototypes for the U.S. Army's Rapid Capabilities and Critical Technologies Office. Under the contract, Dynetics will also support materials research, novel inspection and acceptance efforts. The thermal protection system shields elements of the long-range hypersonic weapon system and the navy conventional prompt strike system from extreme environments seen during flight. The army and navy working jointly have made hypersonic weapons their top priority, and this program is just one of the ways that we're supporting the broader hypersonic program. We're also the prime contractor for the common-hypersonic glide body weapon and a key subcontractor for the long-range hypersonic weapon system. These programs are well funded and Dynetics is right at the center of them. Number four, our ability to recruit, retain, motivate and grow our people is critical to our success. We were relatively flat from a headcount standpoint in the quarter but were up 11% for the year. As tough as this year has been for our customers and the market, it's been just as tough for our people. I would like to take a moment to thank the 43,000 Leidos employees for their unwavering commitment and collaboration in light of COVID challenges. We asked a lot of them and they truly delivered, whether executing a complex NGEN transition three months ahead of plan or successfully delivering the MHS GENESIS electronic health record system to an additional 10,000 clinicians and providers as part of its largest wave deployment to date, our teams have put mission first and delivery for our customers. One of the ways that we support our people is through a company culture that fosters a sense of belonging, welcomes all perspectives and contributions and provides equitable access to opportunities and resources for everyone. Inclusion and integrity are intrinsically linked by the responsibility to respect yourself and others. Our employees are empowered to uphold our values, creating a culture that we are incredibly proud of and that makes Leidos unique. We're committed to continued transparency in how we're doing from a diversity standpoint, as well as making the lives of our employees and their communities better. For the first time, we'll publish our consolidated EEO-1 report on our website, which includes detailed information regarding workforce diversity, so we can chart our progress on the journey. Before turning it over to Chris, I'd like to address the current budget environment. Since the Q3 call, Congress passed the fiscal year 2022 National Defense Authorization Act and President Biden signed the bill into law. The NDAA legislation authorizes approximately $740 billion for defense programs, a $25 billion increase to last year and well above the original presidential request. Bipartisan leadership of the House and Senate appropriations panels reached an agreement on February 9 on the fiscal year 2022 top line spending numbers for defense and non-defense programs. Spending levels won't be publicly announced until after the Senate passes another CR. However, it appears there will be an increase for defense accounts and a slightly larger increase for non-defense accounts. Ultimately, 12 appropriation bills will be packaged into a single omnibus bill for floor consideration. We are hopeful that the omnibus will be brought to the floor by March 8 so the President can approve it - so it can be approved by the Senate and then signed by the President before the March 11 CR deadline. With that, I'll now turn the call over to Chris Cage for more details on our results and our 2022 outlook. Christopher Cage: Thanks, Roger. And thanks to everyone for joining us today. With lots to cover, let's jump right into the results, beginning with the income statement on Slide 5. Revenues for the quarter were $3.49 billion, up 7% compared to the prior year quarter. Excluding acquired revenues of $52 million, revenues increased 6% organically. For the year, revenues were $13.74 billion, which was up 12% in total and 9% organically compared to 2020. In the quarter, we saw a continuation of the behavior that we cited on our Q3 call, where some customers, especially in the defense and intelligence sectors, worried about the extended CR and held back on funding. This was exacerbated by the limited ability to meet with customers with the onset of the Omicron variant and lower than anticipated direct labor given higher than normal paid time off usage by employees on cost reimbursable contracts. These factors led to revenues in the lower half of the guidance range that we gave on the last call. Turning to earnings. Adjusted EBITDA was $359 million for the fourth quarter for an adjusted EBITDA margin of 10.3%. Margins were down sequentially and year-over-year, consistent with our prior messaging, although higher than normal leave taking and lower than normal net favorable impacts from EACs lowered margins 20 to 30 basis points below our expectations. For the year, adjusted EBITDA was $1.51 billion, which was up 14% over fiscal year 2020. Adjusted EBITDA margin of 11% was an improvement of 20 basis points over 2020. In 2021, we benefited from a $26 million gain related to the Mission Support Alliance joint venture recorded in the first quarter and the backlog of disability exam cases that were pushed from 2020 to 2021 because of COVID. These two items added 60 basis points to the 2021 adjusted EBITDA margin. Non-GAAP net income was $224 million for the quarter and $952 million for the year, which generated non-GAAP diluted EPS of $1.56 for the quarter and $6.62 for the year. For the year, non-GAAP net income and non-GAAP diluted EPS were up 13% and 14%, respectively, compared to fiscal year 2020. EPS growth benefited from a reduction of about 2 million shares from repurchases during the year. The non-GAAP effective tax rate came in at 22.4% for the year, which was in line with expectations. Now for an overview of our segment results and key drivers on Slide 6. Q4 Defense Solutions revenues of $2.06 billion increased by 7% compared to the prior year quarter. Excluding the acquisitions of 1901 Group, Gibbs & Cox and a small strategic acquisition, Defense Solutions revenue were up 4% organically. The largest growth driver was the NGEN SMIT ramp, which more than offset the completion of the human landing system-based contract within Dynetics and the program supporting operations in Afghanistan. For the full year, Defense Solutions revenues were $8.03 billion, an increase of 9% in total and 6% organically. Civil revenues were $800 million in the quarter compared to $811 million the prior year quarter, down 1% in total and organically. In the quarter, lower deliveries of security products outweighed increased demand on existing programs with commercial energy providers, the FAA and the National Science Foundation and the transfer of a small number of programs from the Defense Solutions segment. For the year, Civil revenues increased from $2.99 billion in 2020 to $3.16 billion, driven by on-contract growth across many programs and a full year of contribution from the L3Harris Technologies Security Detection and Automation business acquisition. Health revenues were $630 million for the quarter, an increase of 23% compared to the prior year quarter, and all of that growth was organic. The largest year-over-year increase was in the disability examination business, with the Military and Family Life Counseling program and DHMSM up nicely as well. As we previewed on the last call, fourth quarter revenues for the Health segment were down from the third quarter as we completed the backlog of cases from 2020. Health revenues were $2.55 billion for the year, up 30% over 2020 with the same drivers that I cited for the quarter. On the margin front, on Slide 7. Defense Solutions margins were relatively stable. Non-GAAP operating margin came in at 8.2% for the quarter compared to 8.9% in the prior year quarter and 8.6% for the year compared to 8.2% in 2020. Civil non-GAAP operating margin for the quarter was 10%, which was up sequentially but down from 12.3% in the prior year quarter. Civil non-GAAP operating margin for the year was 10.2% compared to 11.7% in the prior year. Declines in segment profitability for the quarter and year were primarily attributable to lower volumes of security product deliveries. Health non-GAAP operating margin for the quarter decreased from 18.5% in the prior year quarter to 17.8% primarily from investments to enhance long-term program execution. Health non-GAAP operating margin for the year increased from 14.4% in fiscal year 2020 to 18.8%, primarily from increased volume on fixed unit price programs. Turning now to cash flow and the balance sheet on Slide 8. Operating cash flow for the quarter was $210 million, and free cash flow, which is net of capital expenditures, was $177 million. This was exceptional performance across every segment and enabled us to close out the year with operating cash flow of $1.03 billion, well above our guidance threshold of $875 million. Free cash flow for the year was $927 million for a 98% conversion rate. Without the $62 million headwind from the CARES Act tax deferral, we would have exceeded our 100% conversion target for the fourth straight year. As we close out the year, we remain committed to a target leverage ratio of three 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 now to the forward outlook on Slide 9. Before commenting on 2022, let me first close out the financial projections we gave at our 2019 Investor Day. FY '21 marked the end of a 3 year forecast period, and we exceeded or achieved all of our financial targets. Over the period, we grew organically at a compound annual growth rate of 7% versus a 5% target, achieved an adjusted EBITDA margin of 10.8% versus a 10% or greater target and converted 116% of adjusted net income into free cash flow above our 100% or greater target. As we look towards 2022, there are some important factors to consider. There is no guarantee that we'll get an omnibus spending bill in February; the continuing impacts of COVID are unknown, and it's likely that Omicron won't be the last coronavirus variant. We can't be sure how long it will take to get our two large takeaway awards through the protest cycle; and we should expect that the large awards that we will receive this year will be delayed through protest. We want to take a measured, balanced approach to guidance, recognizing that there are significant outside forces to contend with. With that, let's walk through the drivers for each metric. We expect revenues between $13.9 billion and $14.3 billion, reflecting growth in the range of 1% to 4% over fiscal year 2021. This growth would almost entirely be organic when balancing the remaining revenues from 2021 acquisitions with the divestiture that Roger mentioned. To put that growth into context, let's consider the puts and takes moving from 2021 to 2022. On the positive side, we have NGEN and some other wins that are still ramping that provide good visibility into the upside. On the negative side, we have about $160 million of headwind from the Afghanistan drawdown, about $80 million reduction in disability exam volume and another $80 million from the human landing system program. These were all known and discussed as of the Q3 call. Since then, a few additional headwinds have emerged. First, we were not awarded the follow-on to our NGA UFS work that was consolidated into the UDS procurement. UFS represented about $100 million of revenue in 2021 with the opportunity to more than double that amount if we had won UDS. In addition, the customer has recently notified us that they are not yet ready to complete the RHRP transition. This program should generate about $150 million of revenue a year and the start date has now been pushed from January until September. Finally, the multibillion-dollar FAA network procurement known as FENS has just been pushed from an expected award date in Q1 to at least Q4. Moving on, we expect 2022 adjusted EBITDA margin between 10.3% and 10.5%. The mid-point of the margin range is the same as 2021 when you exclude the $26 million MSA gain and the extra disability exam case load. And the top end of the range is consistent with the target we laid out at our October Investor Day. We're committed to long-term margin expansion with multiple levers over time. We expect non-GAAP diluted earnings per share for the year between $6.10 and $6.50 on the basis of 142 million shares outstanding, which is unchanged from fourth quarter levels. Finally, we expect operating cash flow of at least $1 billion. This guidance incorporates the final $62 million repayment of the 2020 CARES Act payroll tax deferral. As you're aware, there was a provision of the Tax Cuts and Jobs Act of 2017 that went into effect at the start of the year that requires us to capitalize and amortize research and development costs. Our operating cash flow guidance assumes that the provision will be deferred, modified or repealed. We currently estimate the impact of the provision on fiscal year 2020 operating cash flow - 2022 operating cash flow to be about $150 million. Expanding on Rogers capital allocation comments, we expect to deploy a significant portion of our operating cash flow towards share repurchases, assuming no unforeseen material developments in our operating environment. Depending upon the share price and timing of any repurchases, we currently estimate this could add $0.10 to $0.20 to 2022 non-GAAP EPS. The $6.10 to $6.50 range we provided does not account for any repurchases, and we'll update you all as we go through the year. Given the industry factors that we've addressed, we expect a slower start to the year with a sequential decline in revenues in Q1, which is normal for us. We expect both revenues and margins to build significantly throughout the year. Now a couple of other comments to help you with modeling 2022. We expect net interest expense of approximately $190 million and a non-GAAP tax rate of about 23%. Capital expenditures are targeted at approximately $150 million or roughly 1% of revenues. Before we open up for questions, I would like to comment on something you will see in our upcoming 10-K filing related to a portion of our business that conducts international operations. In late 2021, we discovered through our internal processes activities by certain of our employees and third parties raising concerns that there may have been violations of our code of conduct and potentially applicable laws, including the FCPA. We're conducting an internal investigation led by an independent committee of our Board and have retained outside counsel to investigate. We voluntarily self-reported our investigation to the DOJ and SEC. Because the investigation is ongoing, we're not able to anticipate the ultimate outcome or impact. As we look to 2022, we recognize the challenges, but believe we're well positioned to navigate them. Ultimately, the issues facing our industry are transitory and what remain are urgent needs for our customers and a compelling value proposition that we can offer as the largest, most capable company in our industry. With that, I'll turn the call over to Rob so we can take some questions. Operator: Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question comes from the line of Seth Seifman with JPMorgan. Please proceed with your question. Seth Seifman: Hey, thanks very much, and good morning. Roger Krone: Hey, good morning, Seth. Seth Seifman: Chris, I think if I caught the headwinds you mentioned, it probably, it sounds like it adds up to maybe $450 million or so for 2022. And I guess if you could outline the places where you expect to be able to offset that. Just given that, that by itself, it seems like a reasonable amount of headwind to overcome next year? Christopher Cage: Sure, Seth. Thanks for the question. No, absolutely. I mean we're fortunate that going into the second year of the NGEN program, we have really strong visibility into how that program will continue to ramp up. And kudos to our team that's just done an excellent job getting that transitioned early. And now we're starting to see some of the project work that follows on to that program as well. So that's certainly one catalyst. We previously talked about the Military and Family Life Counseling program continuing to ramp up as we transition forward. Roger featured the thermal protection system program. There is several nice things going on within Dynetics that we're excited about, the IFPC program that we won in the third quarter, a thermal protection program. So those will both be transitioning into a growth mode. We had expected, obviously, we were hopeful RHRP would have been a big growth catalyst for us this year. We still expect it to be, but that's been pushed out for six months now. And then ultimately, one of the other big swingers will be what happens with AEGIS. We've modeled AEGIS to come in later in the year because we're anticipating potentially further action by the incumbent to delay that award. If they don't, that potentially gives us upside on the revenue line. But that's how we've positioned it within the guidance that we provided today. Seth Seifman: Okay, great. Thanks. And then maybe just to dig in a little bit more. I know you guys don't guide by segment, but just for Health, you talked about the $80 million exam headwind. But just if we thought about Health at the overall level, just because it's been - that piece of the business has been running so hot, just thinking about the - even qualitative discussion about the overall level of growth or contraction in Health and the level of margin pressure? Christopher Cage: Well, as we said, we do expect to be able to continue to grow our Health business. We have programs like DHMSM that continue to ramp up, which gives us a nice visibility there. Ultimately, RHRP will be an important contributor. But the 2022 revenue and profitability for the segment is consistent with what we've been trying to position, which is we knew that margins would be coming down. We had talked about potentially in the mid-teen area. We're on track with that expectation. The COVID case backlog has been worked down, but that particular line of business still performs excellently, we're very pleased with their performance. And there is a number of other large opportunities in the pipeline. But given the timing that we've seen on how procurements have been delayed, we're just being cautious about when those procurements might come out and our ability to win those and begin to execute. Seth Seifman: Okay. Thank you very much. Roger Krone: Thank you. Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your questions. Sheila Kahyaoglu: Hey. Good morning, Roger, Chris, since Seth… Roger Krone: Good morning, Sheila. Sheila Kahyaoglu: …asked about the margins, I might as well ask about the balance sheet then. You both mentioned more aggressive with share repurchases. Obviously, that's deviating a little bit from your M&A strategy. So how do you kind of think about that? And what's your appetite for larger deals? Roger Krone: Hey, thanks, Sheila, and good morning. We're pretty transparent on the bigger deals. We're not really enthusiastic about what is out there. We - and we talked about this before, of course, Sheila, is that we've done some major transactions over the past several years and we're now performing against those. And our M&A is really focused on adding capability or access to a new customer, and those tend to be smaller. And barring something that really is transformative, our capital allocation is going to stay the way it has been, which is we invest in the company, we pay a dividend, we maintain our debt level and then we find a tax efficient way to give the excess cash back to our shareholders. And of course, we've said some things this quarter that indicate that we have less need for that cash. So take that as you will, but we are such a great cash generator. Our ability year-over-year to raise the dividend, buy back shares, I think, is impressive, and we're just saying we believe that will continue in the future. Sheila Kahyaoglu: And then maybe one on Civil segment. I think it declined in the quarter, and it was one of the - I think it was the lowest growth segment in 2021, but it's unlike your Analyst Day end market outlook. So can you kind of talk about what drives the reacceleration of growth in Civil and kind of your expectations there for 2022? Roger Krone: Well, I'll talk about a couple of things, and I'll let Chris follow. Civil is an area where protests and program delays really hurt us. We had a program named FILMS [ph], which is in protest. AEGIS was in protest. The FENS program at one time could have been a '21 award, and we thought it was a first quarter '22 and now it looks like it's a third quarter '22. So as we mentioned, both in my piece and in Chris, the delay of acquisitions have, I think, hurt the industry across the board. And for us, I think Civil took a major part of the brunt of that. But these - by the way, these programs are still going to happen. And so we're enthusiastic about our competitive position. The customer just has to get them through the acquisition cycle and they've got to get awarded and then we've got to sort our way through the protest period. And we mentioned with AEGIS, we don't know what's going to happen to AEGIS. Some of that upside, maybe that will get resolved earlier. But if there's another round of protest at Court of Federal Claims, it could be somewhere again. And then the Omicron variant kind of kept our security detection business sort of at nominative levels. We were hoping for a much stronger rebound in - frankly, in air travel and leisure, and although we have seen a rebound, but nowhere near what we had hoped. And I don't know, here in D.C., we'll look like we'll come off the back of Omicron, we have our fingers crossed, but I've said that before, and there could be another variant right behind it. Christopher Cage: Yes. Sheila, the only thing I'd add, I mean Roger mentioned a few. We certainly continue to see a number of digital transformation, IT modernization opportunities within the Civil customer set. And those tend to be bigger and they tend to take longer to get through a decision process, but we like that aspect of the pipeline. But he also mentioned SD&A, and that will continue to be something that we're assuming is not a growth catalyst in the near-term, but positioning that for '23 and beyond. Sheila Kahyaoglu: Okay, thank you. Roger Krone: Yeah. Operator: Next question comes from the line of Matt Akers with Wells Fargo. Please proceed with your questions. Matt Akers: Hey. Good morning, guys. Thanks for the questions… Roger Krone: Hey, good morning. Christopher Cage: Morning. Matt Akers: I was wondering if you could comment on the long-term 5% to 6% organic growth target. And just if you could give us maybe sort of a walk of what are kind of the biggest things. I know you mentioned some of the - I think at Civil in the last question. But if you just can sort of kind of bridge the gap from '22 growth to where you think it will be longer term? Roger Krone: Well, I'll mention a couple of things and I'll let Chris add. But the Defense Enclave Services, if you were around the office, you will know what we're talking about in the hallways, I mean we were right up against that award. And that's a - it's just a large program, I can't underestimate how big that program is. And there's another competitor, and it's a very competitive program. And we're hoping that it will be a first quarter award with probably at least a 100 day protest, maybe more than that. And so that will start to ramp, assuming we win that later in the year. And then Chris touched on a couple of things. RHRP will start ramping. We'll get a full year of maybe NextGen. So there's a lot that can happen for us that's very, very positive. But here we are in the first quarter frankly with a fair amount of uncertainty. And you saw where we are on the guide, it's a nice range on the guide. We're going to do everything we can to get to the high end of that. But with the CR and Omicron and Ukraine and everything else that's going on, we thought positioning ourselves where we did was the right thing to do. Christopher Cage: That's right. Matt, just a couple other things I'd mention. Again, as we look towards that 3 year time horizon, especially '23 and '24, I talked about a couple of the Dynetics programs, we continue to be excited about the positions on prototype programs that they're winning, which ultimately we have every expectation will turn into more full scale production programs and those could be significant growth catalysts for those out years. The return of the aviation screening market, again, cautious outlook in 2022, but we're several hundred million dollars below levels pre pandemic for that combined business as far as the top line goes. So that could be a future growth catalyst area. And then Roger mentioned a couple of the big programs that we're tracking, whether it be DES or FENS, AEGIS, and there's many more in the pipeline. So that's how we kind of think about it. There's several things that we anticipate over the course of this year will position us for accelerating our growth rate. But until we can bring those things in with more visibility, we'll be cautious on the near term outlook. Matt Akers: Great. That's helpful. And I guess is there any more you can tell us on - you mentioned the issue that you discovered late last year of potential FCPA violations. Is there anything more you can give us on the magnitude or when that might get resolved? Roger Krone: Yeah. We wish we could. But when you have these open investigations, we're really restrained on what we can tell you. So - and I think Chris pretty much paraphrased the paragraphs you see in the litigation section in the K. But what we will tell you is when we have more to tell you, we'll let you know. But right now, it's an open investigation and we're proceeding. And sometime in the future, we'll have more to say. Matt Akers: Understood. Thanks. Roger Krone: Yeah. Operator: Our next question comes from the line of Gavin Parsons with Goldman Sachs. Please proceed with your questions. Gavin Parsons: Hey, good morning. Roger Krone: Hey. Good morning, Gavin. Gavin Parsons: Chris, I appreciate all the color on the revenue bridge on the headwinds and tailwinds. Could you help us quantify the impact this year of, assume full quarter of a CR, the procurement delays, the COVID-related utilization, any of those other headwinds that aren't the program specific numbers you just gave us? Christopher Cage: Well, it's all kind of tied in. As we thought about that, we took a view of when decisions might be made on some of the new programs that we're chasing and also kind of really layering in what we saw in the third and fourth quarter as far as lower than normal activity on kind of on-contract growth activity, Matt - or Gavin. So again, it's more of a point-by-point as we thought through our pipeline and award timing and decisions. But obviously, where we position kind of the mid-point of the growth, all those things considered, shaved a couple of points off of where we ordinarily might have been. Gavin Parsons: Got it. So then maybe to Roger, how do you think about the level of conservatism that, that does encapsulate kind of given how unpredictable a lot of these headwinds have been? But it also sounds like maybe you're assuming some contribution from DES, which could be a coin flip. So how are you thinking about the level of conservatism that you've baked in here? Roger Krone: Well, we really want, especially with everything that's going on this year, we want to be in a really balanced position here in the first quarter. And then as these decisions, we need to get an omnibus, we need to get some of these programs awarded, as we can release that risk, then - your words, not mine, conservatism, I would rather call it balance, we can rebalance where we are throughout the year. And there are just so many multibillion-dollar opportunities ahead of us that with potential for another COVID variant, I think we're going to get an omnibus. But if not, I mean, there's still people in Washington saying there could be a potential government shutdown. And here we are, and we haven't even had the State of the Union or the skinny budget by the President. So there's a lot of uncertainty here in D.C. if you listen to radio. And so we just want to be in a position where we've got a good range, and we can work away up in the range as these risk items get released. Gavin Parsons: Got it. I appreciate it. And a quick clarification to just Matt's question. Is 5% to 6% still the right 3 year range? Or should we think of this year as normally disrupted and it's 5% to 6% after '22? Christopher Cage: Yes. We haven't - Gavin, at this point in time, we're not changing kind of that 3 year CAGR outlook, right. There's lower starting point than we had anticipated given the dynamics that have played out over the last couple of months, but as we pointed to many paths to continue to get there. And as we resolve some of these major swingers such as DES and others in the near term, hopefully, we'll be able to give you more clarification on that 3 year outlook. Gavin Parsons: Got it. Thank you. Operator: Our next question is coming from the line of Robert Spingarn with Melius Research. Please proceed with your question. Robert Spingarn: Good morning. Roger Krone: Morning. Christopher Cage: Morning, Robert. Robert Spingarn: So yeah, hey, I don't know if Roger or Chris, which one of you want to take this, but we talked about '22 being a bit of a transitionary year from a revenue perspective. I wanted to try, with COVID lingering and the CR going into March, I wanted to ask the question from a margin perspective. And you've got Civil, which improved a little sequentially, but it's still down on the security detection. How do you think about the segment margins in '22? And how does that compare to normal? Christopher Cage: Well, I'll start and Roger might have some thoughts here, too, Robert. I would say that we've been signaling for some time now that Health was running at an elevated level and that was going to moderate down. And I'll tell you that the conversations we've been having internal to the business around the other lines of business have been around margin expansion opportunities and where are those going to come from and what actions are we taking. And so as we built our 2022, we're finding opportunities and challenging the business leaders to drive margin expansion across their portfolios. And we're doing that in a thoughtful and balanced way but have good confidence on the levers to pull to make that a reality over time. So I think that's what you should continue to see, is a little bit more rebalancing of the margins across the portfolio and then getting the Health group to a position that is stable, that we can grow off of there. And so that's the way '22 should play out for you as far as margins go. Roger Krone: And Rob - go ahead and ask your question. Robert Spingarn: I didn't want to interrupt you, Roger. Roger Krone: No, Rob, I don't want to interrupt you. Robert Spingarn: Well, longer term, getting back to like an 11% type of number, what time frame should that be? Christopher Cage: Well, for Civil, if you're talking about Civil specifically, I mean, it gets to 11% if there's a significant rebound across our aviation screening market, right. That's critical to that portfolio, and that's an above average margin piece of the portfolio, the volume needs to increase there. As we've signaled, we're hopeful, at this point in time, we'll see that continuing to get to those levels starting in 2023 and growing from there. But the core aspects of the portfolio wouldn't be 11% without a decent contribution across the security products business. Roger Krone: Rob, I'll make the point that I was going to make earlier. You raise margin in our business, really two ways, right, through operating performance, being more efficient, scale, being able to spend less capital, less R&D, less marketing because you have size, right. And we've been on that journey, and you've seen some real benefits from that. The other way you can raise margin in our business is you change your mix, right. We don't bid on relatively low LPTA 3% bids, and we bid on highly value-added differentiated programs like the thermal protection system. But if you've got a contract that's 4 or 5 years to support a mission where you're doing maintenance operations and maintenance work, those things have to roll off so the portfolio mix doesn't change as quickly as perhaps you would like or perhaps our investors would like. And by the way, those are good contracts and they generate a lot of cash and they help us build relationships with customers. So we have been moving over time really on both fronts, operating better, being more efficient, using our discretionary funds better. But also, if you will, moving up on the value chain and bidding on more differentiated work and then shying away from things that are LPTA and more commodity. Robert Spingarn: Okay. And Chris, when I mentioned the 11%, I was thinking enterprise-wide, just... Christopher Cage: Yes, Rob, well, you're challenging me today then on 11% for the enterprise, well, that was a great year last year, as we pointed to. 60 basis points came from a couple of items that aren't going to repeat. We signaled 10.5% as our long-term target at Investor Day. Again, our expectation is to get to that level and then - and we do believe, as Roger pointed out, depending upon the mix in the portfolio, continuing to pursue areas, contracts, work areas that will give us margin expansion opportunities from there. Robert Spingarn: Got it, got it. Thank you, both. Roger Krone: Thank you. Christopher Cage: Thanks, Rob. Operator: The next question comes from the line of Colin Canfield with Barclays. Please proceed with your questions. Colin Canfield: Hey. Good morning, guys. Thanks for the question. So just a follow-up first on Matt and Gavin's question. With respect to the headcount growth and kind of your organic targets that are applying FY '23, FY '24 of mid single digit to high single digit. Can you just talk us about - talk to us about the headcount growth assumed in getting into that accelerated organic growth rate? Roger Krone: Well, yeah, I mean, we can. Let's see, we don't really put out numbers, but we obviously have to add heads. We're at about nominally 43,000. The exact number will be in the K, maybe just a little short of 43,000 by like 20 or 30. And we have to add a significant number of people in the thousands, again, without putting out a specific number. And I think your question is really more of the risk around being able to continue to attract people to the company. And we - that's something actually, as a leadership team, we look at literally every week. And when you look at the number of people that we've hired and the people who have left, either the great resignation who have left the industry or retired or the people that have gone to competitors. And we are still comfortable with our ability to attract and retain the workforce that we need. The other question we usually get is about wage inflation, and I'll just hit that one, is that, we have seen a little bit of uptick in what we're paying people. It's all based in our numbers and our guidance. But we're also seeing the opportunity to hire some college grads at a lower wage rate. And frankly, some of the skills we need are coming right out of college, like Python programming language. And so that allows us to bring in some earlier career people into our cost structure which has a beneficial effect. So we always say that the workforce is a risk item for us, but we've been fortunate to create a company and a culture where people want to come to work. And we - frankly, our first six weeks of the year have been pretty impressive on the hiring that we've already done in 2022. Christopher Cage: Colin, the only thing I would add to Roger's comment, and he's right, it is thousands of employees, but it's not - doesn't have to grow at the same rate as revenue because some of the things we pointed to for the '23 and '24 catalysts are going to come more on the manufacturing product side, those production programs in Dynetics and the return of the SD&A business market that we expect. Those don't require the same level of headcount growth contributions to drive that revenue uplift. So it's a big challenge, we're focused on it, but it's not a one-for-one relationship to get to the outcome. Colin Canfield: Got it. Thanks. And then with respect to the margin question, kind of following up to Rob's vein of thinking, both you and CACI are assuming that you can mix shift kind of into better work. Can you just talk us about what sort of competitive win rate you're assuming on hardware type contracts and kind of where Leidos competes on price versus capability? Roger Krone: Let's see. I'm not sure I even know the number on hardware versus digital transformation. I'll describe just a little bit. The acquisition process for us on hardware is very, very different than, say, some of our large digital transformation opportunities. The large digital transformations are a lot of bidders, RFP process, draft RFP, competitive bid, maybe down selected to then a competitive bid. On the hardware side, it starts with spending our own R&D to create a concept and investing in a prototype or a demo or a simulation and then maybe getting a CRADA, like a cooperative research program where we take it out in the field and we shoot a prototype and we get a customer interested in it. And eventually that leads to a limited production order, which can actually lead to a large production order. So for us, I can't speak to the other people in our industry, in the areas where we compete, we're really competing off of differentiated technology that we've developed. Very rarely are we taking our widget against somebody else's widget and a third-party's widget and we're fighting it out in the proposal process, which, again, is typically in our large digital transformation jobs, how we win there. And it's why we like some of this in our mix. If you followed our story over the long term, we've said we would like a little bit more product, a little bit more hardware, where we can invest in a differentiation and then we can reap the benefits of that over the long-term. Christopher Cage: The only other thing I'd add there, Colin, is on the differentiation front, the other attribute that allows us to be successful is speed. And we've talked about that, but we're more nimble, we're more agile. And so sometimes as we're looking at positioning for emerging capabilities, our ability to get that delivered and fielded more quickly, because we can respond more quickly, is a characteristic that allows us to be successful. Roger Krone: Yeah. Just an example there, because you can tell that we're really excited about this part of our business. We had a customer who needed an airborne asset. And we went from concept to delivery within 12 months. So we bought the airplane, we minded [ph] the airplane, we put equipment in, the customer gave us some GFE, we went through a test program, we got and fielded within 12 months. And that speed, security and scale, we think, is one of our differentiators. Operator: Thank you. Next question comes from the line of Mariana Perez Mora of Bank of America. Please proceed with your questions. Mariana Perez Mora: Good morning, everyone. Roger Krone: Morning. Mariana Perez Mora: So 1% to 4% organic growth, what makes you confident that this is just a slow start and you could get to the mid-single digits growth in the next 3 years and this is not a new normal from a macro environment? So in other words, given this uncertain environment, why not under promise and over deliver? Christopher Cage: Well, we're only giving '22 guidance today, right? And so we're trying to make sure that based on the factors we've seen, Mariana, over the last 4 months, it reflects those challenges that we see. But at the same time, we also see these needs and these opportunities in the pipeline. And so as we sit here today, we look at where our customer is going and the things that we think ultimately they will be buying and the demands that they have and the funding levels that we believe will be there still give us the ability to achieve that longer term aspiration that we have for growth. But for right now, '22, you're right, it is a little bit more of a cautious start given the uncertainty in the environment today. But we try to paint a picture of how that could increase our growth rate over time, depending upon how some of these uncertainties resolve themselves. Roger Krone: Yeah. And Mariana, we've talked about this in the past, is we have been trying to position the company to where we think the puck will be in the future. So - and as we look at the omnibus, we think there's going to be an even greater growth in non-defense. So that will benefit us in our Health and Civil business, which we have bolstered over the past several years. And then within Defense, the shift to great power competition, which we think benefits things like space and hypersonics and electronic warfare, again, areas that we have been positioning now for years. And so we're enthusiastic about the long term. In first quarter of 2022, there's just a lot of risk that needs to be retired which is why we are where we are. Mariana Perez Mora: Thank you. And then could you please discuss on competitive dynamics [indiscernible] win rate [ph] some pricing pressure being affected as more industry players are also doing the scale and sculpt strategy? Christopher Cage: Competitive dynamics, so I would say that it's the same competitors that we go up against typically. And we're - we have a great team leading our business development, great capture managers, a good price to win team. We think we have a good pulse on what each procurement competitive set looks like, and so each one is different. To Roger's earlier point, we do try to steer away early in the process in our pipeline of things that we believe are only going to be based upon a price oriented decision, that's not where we want to compete. But clearly, I mean, the market is always competitive and we approach it that way. So there's no different - we're not taking our eye off the ball, we always go after everything, anticipating that it's going to be highly competitive, we need to put our best foot forward. And so that's the way we've been prosecuting the bids in our pipeline. Mariana Perez Mora: Thank you very much. Roger Krone: And Rob, it looks like we're coming up to the top of the hour, I think we have time for one more question. Operator: Yes, that question will be coming from the line of Tobey Sommer with Truist Securities. Tobey Sommer: I was wondering if you could give us a perspective on the proportion of your business up for re-compete this year and next and how that may inform the aperture that you have in your business development pipeline to look for new and takeaway work? Christopher Cage: Hey, Tobey, this is Chris, and Roger can add some more color. I would say it's actually a lower-than-normal year in '22, and so that kind of informs our internal goal on what we think our book-to-bill needs to be and what our target is. So absolutely, it's an increased percentage of takeaway and new business opportunities that we're going after, ad that comes with lower expected win rates. So we have to be very thoughtful about the volume that we're prosecuting through. And certainly, we don't take our eye off the ball on any re-competes and put our best foot forward. But it is a lower than average year, which is great. So we're definitely more on the attack in '22 than we might ordinarily be. Tobey Sommer: Would that hold true for '23 as well? Christopher Cage: I would tell you that we haven't probably broken that down with great visibility yet. I mean there is not one of our top 10 programs that come to mind that are coming up for a re-compete cycle next year. So -- but more color on that as we get our way through the year, Tobey. Tobey Sommer: Okay. Thank you. Christopher Cage: Thank you. Operator: Thank you. I will now turn the floor back to management for closing remarks. Stuart Davis: Thank you, Rob, for your assistance on this morning's call. And thank you all for your time this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.

Operator: Greetings! Welcome to Leidos Third Quarter 2021 Earnings Call. At this time, all participants will be in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded. At this time, I'd like to turn the conference over to Stuart Davis with Investor Relations. Stuart, you may now begin. Stuart Davis: Thank you, Rob. And good morning, everyone. I would like to welcome you to our third quarter fiscal year 2021 earnings conference call. Joining me today are Roger Krone, our Chairman and CEO, and Christopher Cage, our Chief Financial Officer. Today's call is being webcast on the Investor Relations portion of our website, where you will also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to Slide 2 of the presentation, today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on slide 3, during the call we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I will turn the call over to Roger Krone who will begin on slide 4. Roger Krone: Thank you, Stuart. And thank you all for joining us this morning. The third quarter marked another strong quarter for Leidos with record levels of revenue, adjusted EBITDA, non-GAAP diluted EPS, and backlog. Our success is the direct result of building a business portfolio focused on vital missions and a workforce that is motivated to enhance those missions through technology, engineering, and science. As we described at our October Investor Day, we see continued success ahead based on our scale, positioning, and talented people. To organize my remarks, I'll address 4 messages. First, our financial results demonstrate our ability to grow organically, drive earnings, and generate cash. Second, our business development engine delivered large and important awards that speak to our differentiated position in the market. Third, we're effectively deploying capital to create shareholder value. And fourth, we are investing in our people and building a Company that we can all be proud of. Number 1, our strong financial performance was highlighted by outstanding earnings and cash performance. Revenue of $3.48 billion were up organically 6% year-over-year ahead of the market. Non-GAAP diluted EPS for the quarter was a $1.80 which was up 22% year-over-year driven by strong operating performance as reflected in our adjusted EBITDA margin of 11.6%. Finally, we generated $565 million of cash flow from operations, and free cash flow of $541 million for our free cash flow conversion ratio of 211% of non-GAAP net income, With an asset-light model and ability to take EBITDA and to convert it to cash and a lean balance sheet, cash generation is a hallmark of Leidos. Number 2. Business Development continued the momentum that is driving our industry-leading organic growth this year. We achieved net bookings of 4.7 billion in the quarter, representing a book-to-bill ratio of 1.4. Our 15th consecutive quarter with a book-to-bill ratio of 1.0 or greater. As a result, total backlog at the end of the quarter stood at a record $34.7 billion, which was up 9% on a year-over-year basis. I will now touch on 4 of our key wins. We were awarded a $600 million prime contract to continue to support the Army's Geospatial Center, BuckEye mission. We're providing mission critical, unclassified, high-resolution color imagery and digital 3D terrain over all operationally relevant areas of the world. Our scale enabled us to invest in aircraft that we own and operate and a cadre of professionals to support the mission. Through this program, we provide our warfighters with a decisive advantage on the battlefield, and given the unclassified nature of the Buckeye data, support partner nations as well as humanitarian assistance and disaster relief. The National Security Agency awarded us a $300 million prime contract to develop and modernize the agency's Technical Signals Intelligence mission. Under the contract, we provide the technical services to develop, deploy, and sustain a wide range of enhanced Tech SIGINT collection, production, and analysis capabilities that provide our nation's leaders and military troops with actionable intelligence and critical information to protect and defend our country. The US Army awarded are Dynetics subsidiary, a $237 million 2.5 year contract for the enduring Indirect Fire Protection Capability or IFPC to produce a transportable system to engage and defeat cruise missile and unmanned aircraft system threats. Our solution uses an open system architecture that provides both flexibility and growth, as well as full integration with the Army's Integrated Air and Missile Defense Battle Command System. Under this initial contract, we'll deliver 16 launcher prototypes and 60 interceptors. I view this as the seed corn if we do it right, IFPC can grow into $1 billion plus program. The contract includes options for full-on production of 400 launchers with associated interceptors. Finally, Customs and Border Protection awarded us another important multi-award IDIQ for non-intrusive inspection. So far this year, we've received 2 IDIQs with a total of $870 million in ceiling value and $200 million in tasking on those contracts. Safeguarding our nation's ports and borders is a critical priority, and CBP has set a goal of 100% screening of cars and cargo at the border versus the single-digit percentages that we achieved today. Congress has appropriated a significant amount of money for more screening. So we see this as a great opportunity for us. Number 3, I view capital allocation as one of my key functions as CEO, and we're deploying capital to create shareholder value. During the quarter, we bought back a $137 million of our stock through open market repurchases. At our Investor Day in October, we shared a target of $3.5 billion in cash flow from operations from 2022 through 2024. After considering capital expenditures, some debt pay-down, and our dividend program, we'll have approximately $2.2 billion to deploy across M&A and share repurchases. We're always looking at technology add-ons, and so that pipeline is pretty active. In Q3, we added a small strategic acquisition to our Dynetics subsidiary to accelerate some of its growth opportunities. Beyond that, there is currently nothing major on the horizon. We built a portfolio that we're proud of, and we think we're well positioned to grow. We'll pursue large M&A only if we find a property along the way that could really help accelerate our strategy. Number 4, people are at the heart of what we do, and this quarter demonstrated our ability to attract the talent that we need. During the quarter, we hired more than 2,900 people and at the end of the quarter, we were more than 43,000 strong. Our headcount grew 2% sequentially and 12% year-over-year. Still, recruiting is an evergreen challenge. We have about 1,400 funded vacancies and recruiting and retention remains areas of strategic focus for the leadership team. One of the reasons we're attractive to job applicants is that we invest in upskilling our people and building an innovation culture. As an example, in Q3, we held our first ever Leidos Sphere, a 24-hour virtual technology conference that brought together employees from around the world to share technical solutions. CTOs, solutions, architects, and other technologists streamed presentations live from the U.S., Australia, Israel, and the UK. I personally saw the clear value for participants with real-time answers to questions and lively chat discussions. In a time of increasingly complex global challenges, our global network of customers and colleagues working together to address those challenges is a competitive differentiator. Another part of what makes Leidos so attractive is that we're a values-based Company. This leadership team is committed to Leidos being a great corporate citizen. We're mindful of our opportunities and responsibilities to our many stakeholders, especially as we grow. With our mission to make the world safer, healthier, and more efficient, we believe we can build a future where our people and technology make a real impact. Having achieved our legacy greenhouse gas emissions reduction goal, we have now set new environmental goals as well as social and governance goals for 2030. Our new next level Leidos ESG goals highlight key efforts related to cultivating inclusion, advancing environmental sustainability, and promoting healthier lives. We believe these efforts will not only sustain and enrich our culture at Leidos, but they'll also have a positive impact on all of our stakeholders. We'll report our progress annually in our Corporate Responsibility report, which we've been publishing for more than a decade. Through this effort, we're committed to continued transparency and how we're doing from a diversity and environmental standpoint, as well as making the lives of our employees and communities better. And so you'll see that in our disclosures. Before turning the call over to Chris, I'd like to address the current budget environment as it gives important context for the guidance that he will be providing. As expected, Congress enacted a continuing resolution and suspended the debt ceiling to avoid a shutdown and economic turmoil. Each is now set to expire on December 3rd. The current thinking, is that Congress will try to package the spending bills together into an omnibus spending bill for the president to sign before December 3rd or they may kick the can down the road and pass another CR that could last until next March. In addition, the House has indicated that it plans to attempt to pass two large legislative items this week or maybe this month. The first -- the $1.2 trillion bipartisan infrastructure framework to improve the country's roads, bridges, broadband, and other critical infrastructure priorities has already passed the Senate, so it would head to President Biden's desk for signature. The second, the 1/3 quarters trillion, Build Back Better proposal to overhaul the nation's healthcare, education, climate, and tax laws would head to the Senate for debate. The fate of both bills is still unclear as is the path forward on the spending bills and the debt ceiling. In the face of this uncertainty, some of our customers have tamped down their normal spending patterns. Given the mission critical nature of our work, we expect only a modest impact to our results while the budget issues remain unresolved. I will now turn the call over to Chris Cage. Christopher Cage: Thanks, Roger. And thanks to everyone for joining us today. As Roger said, Q3 was an outstanding quarter for earnings and cash, and I'm proud of the team for delivering such strong operating performance. Let's jump right into the third quarter results, beginning with the income statement on slide 5. Revenues for the quarter were $3.48 billion, up 7% compared to the prior-year quarter. Excluding acquired revenues of $47 million, revenues increased 6% organically with organic growth across all 3 reportable segments. We're pleased to continue to outpace the market, but revenues were below our expectation. The main driver of the shortfall was in lower margin material purchases, due in part to supply chain issues for computers and technology components, and due to reduced activity levels due to concerns over the predictability of funding that Roger just mentioned. We were able to deliver strong earnings despite these factors. Adjusted EBITDA was $403 million for the third quarter, which was up 16% year-over-year. And adjusted EBITDA margin increased from 10.7% to 11.6% over the same period. This was primarily due to strong program management, higher volumes on some of our fixed-price programs, and better direct labor utilization. Non-GAAP net income attributable to Leidos common stockholders was $257 million for the third quarter, which was up 21% year-over-year, and non-GAAP diluted EPS for the quarter was a $1.80, up 22% compared to the third quarter of fiscal year 2020. Now for an overview of our segment results and key drivers on Slide 6. Defense Solutions revenues increased by 3% compared to the prior-year quarter. Excluding the acquisitions of 1901 Group and Gibbs & Cox, organic revenue was up 1%. The largest growth driver was the engine ramp, which more than offset the completion of the Human Landing System base contract within Dynetics. Civil revenues increased 3% compared to the prior-year quarter, and all of the growth is now organic. The revenue increase was primarily driven by volume growth on existing programs, including the Antarctic support contract. Our managed IT services support to the Bureau of Alcohol, Tobacco, Firearms, and Explosives, where we're leveraging our 1901 Group acquisition and our engineering support to commercial energy providers. Health revenues increased 31% compared to the prior-year quarter, and all of that growth was organic. We continue to see a nice ramp on the Military and Family Life Counseling program and dim sum had a large year-over-year increase based on deployment timing. Like last quarter, the largest year-over-year increase was in the disability examination business in our QTC subsidiary. On the margin front, Defense Solutions, non-GAAP operating margin for the quarter came in at 8.8%, which was unchanged compared to the prior-year quarter. Civil non-GAAP operating margin declined from 10.5% in the prior-year quarter to 9.6% as we had fewer deliveries of airport screening systems. Importantly, margins for both Defense and Civil were up sequentially consistent with our long-term view for these segments. Health non-GAAP operating margin for the quarter was at 20.7%, compared to 16.3% in the prior-year quarter. This quarter's strong margin performance benefited from the significantly increased revenue volume on fixed unit price programs in the higher direct labor utilization. Turning now to cash flow and the balance sheet on Slide 7, operating cash flow for the quarter was $565 million, and free cash flow, which is net of capital expenditures, was $541 million. The exceptional operating cash flow was driven by strong operational performance across the enterprise and higher customer advance payments and came despite the $62 million cash tax headwind from last year's CARES Act deferral. During the quarter, we paid down $27 million of debt and repurchased 1.4 million shares. In total, we returned a $188 million to shareholders through our quarterly dividend program and share repurchases. As of October 1st, 2021, we had $587 million in cash equivalents and $5.1 billion of debt. As we close out the year, we remain committed to a target leverage ratio of three times. Our long-term balanced capital deployment strategy remains the same, and consists of being appropriately levered, maintaining our investment-grade rating, returning a quarterly dividend to shareholders, reinvesting for growth both organically and inorganically, and returning excess cash to shareholders in a tax-efficient manner. On now to the forward outlook, as shown on Slide 8, we are updating our guidance for fiscal year 2021. Let's walk through the drivers for each metric. We now expect revenues between $13.7 billion and $13.9 billion, which is the bottom half of our previous range. Supply chain delays and customers holding back spending due to concerns over the predictability of funding are the primary drivers here. But some protests have also pushed revenue out of this year. And we're also mindful of the potential impact of vaccine mandates on our workforce. At the midpoint of revenue guidance, revenues in Q4 would increase about $70 million compared to Q3, driven by the continued ramp on new programs like NGEN offsetting moderation in the volume of our medical exam business. At the revenue midpoint, organic growth for the year would be 9% and total revenue growth would be 12%. We expect 2021 adjusted EBITDA margin between 10.9% and 11.1%, which is above the previous range as a result of our Q3 outperformance. As the revenue composition shifts in the fourth quarter, we expect EBITDA margins will come back in and land in the mid-10% range. We expect non-GAAP diluted earnings per share for the year between $6.55 and $6.75. So we've increased the midpoint of the range by $0.15 based on our Q3 outperformance. Share repurchases in the third quarter will also add about a penny to Q4 non-GAAP diluted EPS. Finally, our expectation for cash from operations is unchanged at $875 million or greater. Our strong Q3 performance increases our confidence in meeting or exceeding $875 million for the year, but the advanced payments in Q3 will be a headwind to Q4 cash generation. Before I close, I want to highlight the 3-year targets we laid out at Investor Day last month. From 2022 through 2024, we're targeting organic revenue CAGR of 5% to 6%. Adjusted EBITDA margins of 10.5% or greater by 2024, free cash flow conversion of approximately 100%, and cumulative cash flow from operations generation of approximately $3.5 billion. Our market positioning, industry-leading scale and technology differentiation support our position and ability to deliver on these targets. With that, I will turn the call over to Rob so we can take some questions. Operator: Thank you. At this time we'll now be conducting a question-and-answer session. [Operator Instructions] [Operator Instructions]. One moment, please, while we poll for questions. Thank you and our first question comes from the line of Peter Arment with Baird. Please proceed with your questions. Peter Arment: Good morning, Roger Chris. Roger Krone: Hey. Good morning, Peter. Peter Arment: Nice results. Hey, Roger, you mentioned some customers tampering down their spending plans just given the uncertainty. Maybe you could just give us a little more color on what's specifically you're seeing? Thanks. Roger Krone: What typically happens -- so we end up with a contract. This IDIQ. We work on [Indiscernible] and then we always anticipate, especially in the next fiscal year, that those customers will come forward with projects which will expand our revenue base. And it's discretionary money on their part, but it's below the IDIQ ceiling. And I'm thinking, in my mind primarily, about 3 or 4 agencies. And those projects just haven't materialized. And the base program is running fine but we always anticipate maybe 10% on some of these IDIQ, kind of test quarter contracts that will come in. And a couple of agencies, specifically, just haven't been spending their project money. And so that's something we sort of plan on. It's not unusual. We've seen it before when the budget uncertainty gets as bad as it is today. And pretty much eventually, I’ll spend that money be it next year or year after. So the work still needs to get done, it's just not getting done in third and fourth quarter. Christopher Cage: And Peter, the only thing I'd add is we're not really seeing that in our civil and health customers, it's pretty much in our Defense Solutions segment between the intel and some defense customers where we're seeing that activity. Peter Arment: Okay. I appreciate that. I'll leave it there at 1. Thanks. Roger Krone: Great. Thank you. Operator: The next question comes from the line of Seth Seifman with JPMorgan. Please proceed with your question. Seth Seifman: Thanks very much, and good morning, everyone. Christopher Cage: Good morning Seth. Seth Seifman: So Chris, I wonder if you could help level set us with the health business. I guess from 2017 to 2019, we had adjusted EBIT pretty regularly and like the $275 million range in that business. 2020 included the COVID impacts, so obviously it would have been much higher. In this year we're looking at something considerably higher than that, maybe even something approaching 500. And so when we think about the headwind that's obviously going to be there next year as the outside exam revenue comes off, can you help us to size the sales and margin impact of that? Christopher Cage: Well, first of all, I want to congratulate our team. I think our team has done an exceptional job running that business and continuing to optimize performance along the way. Clearly this was a banner quarter with the growth and the margins above 20%. I will tell you and we have told you that is not where we see this being sustained. And we have worked down the backlog that came about through the pandemic, and we're seeing a level of referral volume continuing to stay fairly high. So there's some reasons to be a bit optimistic there, but it will come back down. And what we said before is when the business was running at a normal level, it was in the mid-teen margin. And while we don't guide by segment, I would tell you somewhere at that level is certainly the bottom end of what we feel comfortable with. But with the improvements in the business operations and the growth, I think there is opportunity to do better than that over time. So we're preparing for a scenario where health is not performing at these levels that we've communicated that at Investor Day, and we're driving the rest of the business to make sure we're driving margins up over time. But again, couldn't be more happy with the performance of the health team and we're going to sustain that performance as long as we can. Roger Krone: Yeah. And Seth, as you know, we've got a couple fairly large programs starting up. The Military and Family Life Counseling Program and their Reserve Health Readiness Program, and they will be fully ramped next year. And those are more towards our normative levels that you might see in our defense group. And so it's a great business really proud of the team but next year should look more normal. There's this COVID has created swings in our business that we saw last year and now it's as we had predicted it's swinging back this year. Seth Seifman: Okay, great. That's very helpful on the margin and then maybe just a follow-up on the sales. I assume that the exempt business will be down on the top line next year, but to your point there has been some nice wins and some programs ramping. Can health grow next year, top line? Christopher Cage: Well, so we'll, obviously, get into those details in our fourth quarter call with you. In fact, we're going to be with our team here in a couple of weeks going through the bottoms-up annual plan, but I would say yes. Our expectation is to [Indiscernible] business -- can grow next year and that's certainly the way we're approaching it. So some more to come on the details around that, but we're actively working that and there's a healthy pipeline that we're pursuing at all times. Seth Seifman: Great. Thank you very much. Roger Krone: Thanks. Operator: Our next question comes from the line of Gavin Parsons with Goldman Sachs. Please proceed with your question. Gavin Parsons: Good morning. Christopher Cage: Good morning, Gavin. Gavin Parsons: There's something you had to quantify some of the impacts of the delays or impacts you cited. And then some of the other businesses that may not be kind of running at normal level, right? Health might be a little high, but I think SD&A is a little low. So do you have to quantify the impacts of chip shortages, intel delays, things like that, that would be really helpful. Roger Krone: I'll take a stab, Gavin. So we took down the midpoint of our guidance a $100 million. So that's kind of the size of the pie, if you will, is how we think about potential headwinds that we're facing. And on the material side, which is kind of tied up in some of the chip shortage we've seen, lack of material availability, most are on the computing side, but some technology components impacting our Dynetics or our airborne ISR business, think of that as roughly a third of the impact, right? And then we've got the budgetary headwinds where we expected certain projects to come through. We're not seeing that activity from customers. That's another roughly third of the impact. And then there's this protest bucket. So we had a couple of programs that we won. And in fact, we had another program that we won last quarter on the TSA side, the TEDS and said, which an OEM underneath that protest. And so we're not able to do some of the work. So there's this bucket of protest activity that costs us some of the revenue miss as well. So there's a few of those things going on. We didn't talk about Afghanistan draw-down, but I would just add that in. That that's certainly -- probably at the higher end of our previous estimates on what that impact will be. So there is a little bit of -- we expected or hoped that we would have some over-the-rise and support that's not really materializing. All those things added together kind of are the $100 million guide down on the midpoint of our revenue. Gavin Parsons: Got it. And then maybe on civil margins. I appreciate that can be pretty lumpy with timing of hardware delivery but it's it to below average quarters in a row here. Anything that's changed structurally there, or is there just a lot of timing going on there as well? When would you expect that to normalize itself? Roger Krone: I would tell you again, I was pleased to see the sequential improvement from Q2. That's our expectation going into next year, we will continue to see that tick up. The team's done an excellent job getting the SD&A business ready for growth in the future when that market rebounds. A lot of new talents been added to the team, we're happy about that. But there's a lot of other things going on Civil. When I highlighted the growth in our commercial energy customer business, which is above the segment average on margins, that will continue to see expansion we believe going into next year, which will help us. So again, the Civil business should be above the corporate average margins. It's slightly below right now, but that's a quarter-to-quarter thing that we see trending up. Gavin Parsons: Thank you. Operator: Our next question is from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your questions. Sheila Kahyaoglu: Hey. Thank you. Good morning, everyone. Christopher Cage: Good morning, Sheila. Sheila Kahyaoglu: Can we think about profitability? Adjusted EBITDA margins are in that 10.3% range in Q4 versus 11.2% year-to-date. What are the drivers of the contraction as we head into Q4? And I think consensus looks at 10.5% margins for next year. So maybe, can you talk about the puts and takes-in for the last quarter of the year and what we should be considering if health margins are mid-teens next year? Christopher Cage: Well, that's one of the -- first of all, Sheila, I'll start and Roger can add in. Health as we've been signaling, there was the expectation that Q4 will start to see a bit of a ramp down on the medical exam business. That might not be the case, but we're preparing for that to be the case. And that clearly will put some dampening on margins overall. I would also point to the execution in Q3 was quite strong. In the program performance side. You'll see when you get into the queue that we had an excellent quarter on net write-ups, and that helped us in the third quarter pick our margins up to 11 6, but we're absolutely targeting kind of that mid-10 rate. And as we paid it in Investor Day, that's kind of our longer view on where the business should be. All things considered in Q4, with the holiday season and uncertainty in health, we feel pretty good about landing in that area. Sheila Kahyaoglu: Okay. And then maybe 1 more question. Roger, in the release you said you're gaining share. What areas do you find that you're gaining the most traction? Roger Krone: We've always been strongest in this area, If you look at our technical core competency is called digital transformation. And this is moved to the cloud, IT-as-a-Service, helping our customers operate more efficiently. And what has been exciting for us is that line of business crosses really all 5 business units. And we've got some major wins that we've talked about. We've got some things in the pipeline. We've actually moved forward even in the health group with some commercial healthcare providers. And so overall, that's a real strong business for us. And then another area that's really been nice, and again, we talked about this already, is the new wins in the Health group, which has allowed us to grow our Health group faster than the rest of the business. And in order to do that, things like the Military Family Life and Counseling was a takeaway. The Reserve Health Readiness Program was a takeaway from other people and we have as we said at our Investor Day and Sheila, we've been talking about for years, we want to have that balanced portfolio. And so we're investing in Health and Civil to grow and to grow -- it's great to go after a new business, but sometimes we have to go after re-competes as well and to take business away from others in our industry. Sheila Kahyaoglu: Thank you. Roger Krone: Yes. Operator: Our next question is from the line of Cai von Rumohr with Cowen. Please proceed with your question. Cai Von Rumohr: Yes. Thanks so much for taking the question. So as we look at the full year, and actually third quarter also, while you say the guides come down $100 million, it's basically very mixed. Clearly, Health looks like it's $200 million or so better for the year, and the big miss is really in Defense. Could you basically drill down a little bit more on the programs? For example, it looks like Dynetics might have been short. So we can understand which programs are contributing to the shortfall. Christopher Cage: Sure, Cai. Obviously Health being up $200 million is against your estimates. We don't give the guidance by segment, but we're pleased with the health growth. And in defense clearly is where we're seeing the preponderance of some of the impacts that we've talked about. The Afghan drawdown, that was a headwind for the team this year, and it's hurt what would ordinarily be a growing airborne business. The material shortages, a lot of that in our Intel customer space have been an impact. We've previously talked earlier this year on the Intelligence Customer Award delays having some impacts on the business as well. Those things are all factors that are driving that, and of course, the Human Landing System Program while we had never put that follow-on in our plan. Clearly, the $240 million that we executed on that 10-month program, That's gone and that becomes a growth headwind. Now Dynetics -- Roger featured the IFPC program in the quarter and we're very bullish on the growth from that over time into the future. So we're excited about some of the programs that they are winning and executing on. But it is a different business model where you're not going to see some of those large franchise program wins in each and every quarter. So there is some variability on how the growth plays out. But if you pull human landing system out of Dynetics performance, they're still on a very nice growth trajectory. Roger, anything to add. Roger Krone: Yes, I would also add, in the 3rd and 4th-quarter we can -- to buy a lot of material in our contracts and then we kind of spend the spring installing it. And the chip shortage has affected the type of -- and we say material. Yeah, we buy raw material, but we buy a lot of computer equipment. PC, laptops, servers, routers, switch gear, and what have you. And we really have seen those supply chains lengthen. A PC we could use to get maybe in 4 months or in 4 weeks, now probably takes 20 weeks. A server, probably the same, maybe if not longer. Some of the networking equipment about the same. Normally we would place the orders -- we get through the fiscal year, we get into the next year funding, we placed these orders, we get the equipment delivered before the end of the year, and we book revenue against it. Now, we're placing those orders. We're on backlog, like everyone else in the industry, and it will arrive in the first quarter. And those programs are primarily in our Defense segment. Cai Von Rumohr: Okay. Thank you very much. Roger Krone: Yes. Christopher Cage: Thank, Cai. Operator: Next question is coming from the line of Matt Akers with Wells Fargo. Please proceed with your question. Matthew Akers: Hi. Yes, thanks. Good morning. Could you comment on CaPex? I mean, it's running a little bit lower year-to-date. Is that something we should expect to pick up next year? And I think you've talked about kind of 1.5% of sales. Is that kind of the right way to think about it in the future? Christopher Cage: Hey, Matt, thanks for the question. You're right, it has been running a little bit lower than our expectations. We do expect a modest ramp up in Q4 from what we've been running at. And 1.5%, I would say that's kind of what we see as the upper bound, right? Our job is to make sure that each and every capital expenditure request passes muster as it relates to returns that we expect to generate from that. And we'll go through the detailed scrub of that in Rio P. As you can imagine, there is some things from a supply chain issue also impacting us on the capital expenditure side where we've -- Roger mentioned, airborne assets and some of the planes that we're outfitting were not able to get some of the technology components to get those in operations. So that's taking longer than it's been expected. And some of the facilities, especially in the Dynetics side for fabrication in some of our new wins, getting contractors, getting materials to get those things outfit is taking a little bit longer. But -- so a little bit of uptick is what I would expect for the fourth quarter and then as we head into next year, 1.5% I'd say is the upper balance, and we'll kind of see how things play out as far as what the opportunity space looks like when we get through our planning process. Roger Krone: And Matt, we just completed a big hypersonic facility in Huntsville so that's mostly in our history. And then when we moved into the new headquarters here in Reston and we had a new building in Gaithersburg, and we facilitated Campus Point, we went through -- although we lease our facilities generally, we have to buy the capital equipment and do capital improvements. That's going to be down next year, and Chris said -- I'm not sure we've ever been at 1.5%, but somewhere between 1% and 1.3% is probably a working number. And just to reiterate what Chris mentioned, I can think of a couple of projects in the building that we're in, which we have put on hold because we can't get the material to finish it. There's something on the floor above us that we just had to wrap up and leave fallow and probably get it finished probably next year. So it's just amazing how far reaching the supply chain is. And if you look at the pictures of Long Beach Harbor, there's a lot of material out there and [Indiscernible]. Matthew Akers: Great. Thank you. That's really helpful. And just one more on NGEN. I think last quarter, you had mentioned that was one of the reasons to be cautious on the guidance. That it was a new program and you weren't sure of the order pattern. Did that fully ramped up now and is that flowing through at the run rate that you had expected? Roger Krone: Yeah. But I'll give you some details and if I don't cover it sufficiently, Chris will jump in. We're fully staffed on the program. So normally 4000 people give or take a little bit. From a revenue standpoint, though, we won't hit full revenue until next quarter or first quarter. So it's still gotten some room to go from a revenue standpoint. If you're looking for a full-year then it's probably next year or maybe even 23 until we're at the absolute run rate. But the great news is we've taken over the network. We own it now. We have starting the transformation part of the program, which is to move the Navy into, if you will, the next-generation of a short network. And the program is actually running really, really well, and we're literally amazingly went from a ward to fully staffed in literally just a quarter or two, and that's almost unprecedented. So really great stuff on the program. We're not at the max revenue this quarter, but we got a good shot to be close next quarter. Christopher Cage: Yeah, I mean, the team I think it's a highlight across the Company of how quickly they staff that thing up and the executive management attention to get there. Roger mentioned earlier some of our customers have special projects in NGEN will be a program that would have budget for special project. So again, we're learning this customer. We're ready to execute on those as those orders come through, but that's a variable demand signal that we have to be prepared to respond to, but we're pleased with where that sits right now with room to grow. Matthew Akers: Great. Thank you very much. Roger Krone: Yeah. Operator: Our next question comes from the line of David Strauss of Barclays. Please proceed with your question. David Strauss: Thanks. Good morning. Christopher Cage: Good morning. Roger Krone: Good morning, David. David Strauss: I want to ask you how are your recent acquisitions, 1901, Gibbs & Cox doing? The acquired revenue in the quarter was a little lighter than what I was expecting based on what you had indicated Gibbs & Cox would contribute this year. Roger Krone: Well, it's still early on both of those. Let me talk more strategically. The 1901 has been just a real energizer for our digital transformation work. We have used the talent in 1901, really to de -risk our engine ramping and staffing. They have an as-a-service platform and have a culture that just attracts people. And so we were able to set up our call center literally in a month using the people in 1901. And that is really allowed us to get ahead and provide that level of customer service that we wanted to get on NGEN. And its the top-line growth. There's a lot of work on 1901 that happens through the other units, and so the way we account for it, if they facilitate a sale in our Civil Group, you'll see that revenue in our Civil Group, and the way we account for acquisition, revenue is the standalone 1901. On Gibbs & Cox, on a standalone basis, which is probably not all that relevant even today, because we've combined our heritage link, Leidos Innovation Center Maritime group with Gibbs & Cox, but you don't see that in the way we account for the revenue. And the cross linkages, the synergies between the heritage maritime business where we would have see on our -- in our traps program and some other classified program, and what goes on in Gibbs & Cox. You're not going to get that visibility in our GAAP reported financials. But the naval architecture work and the relationships at NAVC and in the Navy, that now complement our autonomy business and the work that we do under the water has been terrific. And then Gibbs & Cox on a standalone basis, continue to have strong support from the Navy, on the new Frigate contract and the new Destroyer contract, and they continue to grow and to staff. It's really been exciting, they bring a level of systems engineering and platforms that we have wanted to have for a long time. And that knowledge in that culture really we're using across the whole organization. Christopher Cage: Something I'd add on -- what we love about the Gibbs & Cox team is they are so close to the customer, so important to the customer's mission. And they're going to support that mission even in advance of a contract award. For example, just as they become part of a bigger corporation making sure that we're getting out with the right contractual arrangements so we can recognize revenue on some of the work they are doing, they are in a good position to continue growing and delivering. As Roger mentioned, the 1901 group is contributing a lot internally on other programs which are adding value and will ultimately be accretive to our performance. That doesn't show up in the external report that you see. David Strauss: Okay. That helps. And then, Chris, wanted to ask on working capital. It looks like to get down closer to the 875, or a little above that, you're banking in, I would guess, something like a couple $100 million working capital headwind in the fourth-quarter. So can you talk about that and then in terms of your long-range forecast, I know we have the $3.5 billion in operating cash flow that you forecast, but what specifically do you have baked in there in terms of working capital. Do you expect working capital to be a net drag over that period? Thank you. Christopher Cage: Sure, David. So let me first address the fourth quarter and we signaled a couple of main things that are going to go on in the fourth quarter. We talked about advanced payments, and so one of our large programs, customer funds us in advance at the end of their fiscal year, we get that money in our third quarter. There are some material, subcontractors, and other payments that will go out in the fourth-quarter, right? So we get paid, we pay some of them, so that will be an outflow that's already planned and programmed. And then we talked a lot about NGEN and that's, again, a new customer with new buying behavior for us. And one of the things that we'll be in a position to do in the fourth quarter is procure a number of software licenses that they use and execute on. As you can imagine, some of those arrangements are pay-in-advance to the software license providers. The way the Navy funds those is kind of an overtime model. So there's some of that that's built in in our expectations of working capital usage. Big picture over time, I would tell you this. I like the way the team is managing, working capital today. I think we're having an excellent year. We're programming in improvements where we can make them. We're thoughtful about certain particular business areas that might need a little bit of investment, but that's modest. And so generally speaking, our DSO this quarter at 60 days is something that I see as being able to be sustained, perhaps improved in certain spots. And right now, the way we're going to manage inventory, I think there's a ability to continue to tighten that down and drive improvements into that. So I don't see a big change in our working capital usage to execute our growth plan over the next 3years. David Strauss: Alright. Great. Thanks very much. Christopher Cage: Thank you. Operator: Next question is coming from the line of Mariana Perez Mora with Bank of America. Please proceed with your question. Mariana Perez Mora: Thank you. Good morning, everyone. Roger Krone: Good morning. Christopher Cage: Good morning, Mariana. Mariana Perez Mora: So supply chain, you gave us color on what's going on, but could you please discuss the actions you are taking to mitigate the headwinds and how much of these headwinds could actually slip into next year? Roger Krone: Well, we're doing what everybody else is doing. Our purchasing organization is out having discussions with all of our supplier partners. We're trying to place orders ahead of need, we would be willing to own and hold stock if we can get it. We are trying to substitute what's in inventory for what's not in inventory. We're having discussions frankly with our customers about would they rather wait? Would you rather have the X laptop now or the Y laptop tomorrow? But most of our customers are saying now we'll wait another month to get the Y laptop. We've got really good visibility into our supply chain. We tend to have from a system standpoint, material resource, and planning, our major suppliers connect into our system. So we know where the supply is, we know when it's going to arrive. And as such, we don't want to get ahead of the arrival of the equipment. But, like everybody in the industry, we see this as a delay not a long-term problem, something that will -- for most of us will correct early next year. I don't think we have the same issues that you might see in the auto industry or in others. And these are supplier partners that we've got 10-year, 20-year relationships with, and we buy a lot of volume, and so we have a preferred position. When they get into the server or the router, we're near the top of the list in getting our fair share. But there's only so much you can do, which is why we talked about it this morning. If the chips aren't there, they're not being put on the boards, they are not being put into the equipment, and we can't put the equipment in the customer and take revenue credit. Mariana Perez Mora: Yeah, that makes sense. And now if I may, switching gears to vaccine mandate. I know the White House is already hinting some flexibility and you mentioned no significant impact, but it will be really helpful if you can give us some color on the workforce vaccination rates, what are the most exposed businesses, and what are your actions to prepare for early December? Roger Krone: Well, we're almost gone through with the call. I could spend an hour on this. I will try to give you a summary, so that you have a good sense of where we are and what we're doing. First of all, we had a sweepstakes, what we call The Carrot, where we encouraged our employees to get vaccinated and we gave 10 employees a year's salary. That was very, very, very successful. We think a lot of people went and got vaccinated. They kind of came off the fence because of the -- we call it the move -- the needle sweepstakes. Okay, we are now looking -- by the way, our current status is, to enter our facility, you have to be vaccinated today or you have to have a recent 72-hour COVID test. And that's all of our facilities. And then customer facilities, we have to follow whatever rule the customer has put in place. And it varies. It varies by -- customer varies by state and varies by county. We all know there is an Executive Order 14042 that says everyone needs to be vaccinated by the 8th of December. We are working with the customers really down to every contract officer in every contract on what that looks like. I'm sure you know that it allows for exceptions because of the ADA and the civil rights act, which means there is a health exception and religious exception. We are processing exceptions through a relatively rigorous process. We have, if you will, forms you have to fill out, and then we have a group of people who adjudicate that. You asked me, what is our current vaccination status? I can give you a range. We think we're in the mid-90's today. And because that's PHI data, and the requirement to verify your vaccination is not in place here until the 8th of December, we don't know for sure. But based upon all the data we've got, the number of people who have already updated -- uploaded their vaccination card, we think we are in those mid 90's. We worry about a small percentage number of people who won't apply for an exemption, won't get vaccinated, and simply say, "Hey, I just don't believe it. I'm a non - vaccinater. We think that number is in the single-digit percentages. Were concerned which is why we talked about it on the call. It could have an impact of revenue. If an employee -- if the mandate stays in place as it's written and there's a lot of discussion even yesterday that the firm requirement of December 8th maybe relaxed, but it has not yet been although there's a lot of rhetoric from the White House. But if an employee, were not to be vaccinated, then we would treat that like any disciplinary action where we go through an oral and then a written and then they have to go through our employee disciplinary board and that will take literally months as it would if you parked in somebody else's parking spot or something like that, and it is unlikely that we would involuntarily separate employees early, but there is a possibility that at some point we're going to have to lay off some people because they don't get vaccinated. We don't want to do that. And we are working with the legislators and with the White House on a sensible implementation of the executive order, but I would tell you right now, it's fluid. There have been lawsuits filed, there are some states who have said you can't comply, and so we're trying to understand state law versus federal law. Like I said, this could -- this explanation could go on at length, but what we want to do is to keep COVID out of our facilities and out of our customer facilities. And where the EO gives us a great opportunity to do that, and we're going to do everything in our power to keep COVID out and be compliant with the rules and laws and executive order. But we care about our employees, and we are a people Company and our workforce is really, really important. And we're going to do all we can to maintain jobs for our employees. One other benefit that we have -- and then I'll cut this off, Mariana. As I said, it's probably longer than you wanted. Because of our diverse portfolio, we have parts of our business that are not subject to the Executive Order. We do work for some commercial customers. Actually a considerable amount of work for commercial customers. If it's possible, based upon skill set and geographical location, if we have people who don't want to get the vaccine and they have a skill set that we can use in our civil business, and our civil health business, and some other businesses, we can actually move those people to open jobs in other parts of the business and maintain their employment with Leidos. That's not going to be true in every case. But the strength of having a diverse portfolio that we do have allows us to move people back and forth. And in this COVID world, a fair amount of people are working at home. So, that adds to our flexibility that we could take someone who maybe was on a Defense contract and move them to a Civil, Commercial and Infrastructure program. We do have a process set up to do that, we are encouraging those non - vaccinators if they would like to take one of the jobs that we have in the Commercial segment. Like I said, I could go on but that's probably more than you wanted to know but I appreciate the question. Mariana Perez Mora: No, I appreciate the [Indiscernible]. Thank you. Christopher Cage: And Rob, I think we have time for 1 more question. Operator: Next question will be coming from the line of Tobey Sommer with Truist Securities. Tobey Sommer: Thank you. I was hoping that you could give us some perspective on what an increase in wage inflation over the next year or two could mean to your different businesses, whether that would crowd out some new contract starts because existing programs may need to be kind of plussed up to keep the staffs and accomplish their mission? Thanks. Roger Krone: Let me give you a quick overview and then Chris can talk about the numbers. So we have yet to see the wage inflation, but we are being thoughtful about that. And with the hiring that we're doing, especially in some geographical areas and some skill sets. The fight for talent is something that we are being very thoughtful about. Tobey, you know, we have forward pricing rates. There's escalation assumed in the forward pricing rates. If we hire ahead or above that then on our cost-type contracts, that makes us a little less competitive while we flow through the customer on our fixed-price contracts, it lowers our fee. The numbers, as we look at '22 and '23, are really small because we procure about half of what we sell and our labor content theory is a percentage of that, and then you have to start seeing where we are on our labor category by labor category. So it's a risk item for everyone in the industry, but it is not yet a significant risk for us. It's literally, I mean, and Chris can probably give you some colors, in the single or double-digit millions. But it's something we're being thoughtful about is, why in our labor strategy, you have heard us talk about building centers of excellence in areas that are outside some of the large geographical metropolitan areas like The 1901 Group gave us a large footprint in Blacksburg, which we love. By the way, Blacksburg is a fantastic place, a great place to work. The people who work there, love it. They're big Virginia tech fans and is a very different economic environment than trying to hire someone in Reston, Virginia. And our strategy for the past few years have been to be in places like Morgan Town, West Virginia, and Blacksburg. Even St. Louis, which with the movement of the second headquarters of NGA has become a pretty exciting place for us to hire people and to grow. Christopher Cage: And Tobey, it's certainly something, as Roger said, we're being very thoughtful about, we've been thinking about for some time. And actually just had some discussion on this as the leadership team yesterday as part of our planning process. I went through the analysis and I would tell you that the budget that we're establishing for our merit increases for next year will be higher, than what it's been the last several years. We're very cognizant of the fact that that's reality, but it's affordable to do so. And as we've talked about margin levers longer-term, we understand that that's an area we're going to be making a little bit more investment. There is other areas we're going to emphasize. So I don't see that something that puts big headwind on us. We know how to do this, we know how to attract talent, retain talent, and I think ultimately doing the right thing on the front-end with paying our people can offset costs elsewhere, such as retention or other things that you have to put in place. So again -- big picture, I don't think it's a material driver for near-term margin impacts and it's something we're certainly planning for. Roger Krone: Tobey, I would just to add and I know you've thought through this is the rehire cost, the recruiting cost far exceeds the risk of wage inflation. And so paying at market, or slightly better is always been our philosophy and we want to keep up with market and we would pay more to lose an employee and then go have to recruit of a replacement than a small percentage in wage increase. And our focus frankly is always been about making this a great place to work, attracting people, having them build their career here, and stay with us over the long term. Christopher Cage: Thanks, Tobey. Tobey Sommer: Thank you. Roger Krone: Thanks. Operator: Thank you. At this time, we've reached the end of the question-and-answer session. I will turn the call over to Stuart Davis for closing remarks. Stuart Davis: Rob, I want to thank you for your assistance on this morning's call, and thank you to all the listeners and questioners for your time this morning and your interest in Leidos. Have a great day. Operator: Thank you, everyone. This concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.

Operator: Greetings, and welcome to the Leidos Q2 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Stuart Davis, Senior Vice President, Investor Relations. Please go ahead. Stuart Davis: Thank you, Hector, and good morning, everyone. I would like to welcome you to our second quarter fiscal year 2021 earnings conference call. Joining me today are Roger Krone, our Chairman and CEO; and Chris Cage, our Chief Financial Officer. Today’s call is being webcast on the Investor Relations portion of our website, where you will also find the earnings release and presentation slides that we will use during today’s call. Turning to Slide 2 of the presentation. Today’s discussion contains Forward-Looking Statements based on the environment as we currently see it, and as such, does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on Slide 3, during the call, we will discuss GAAP and non-GAAP financial measures a reconciliation between the two is included in today’s press release and presentation slides. With that, I will turn the call over to Roger Krone, who will begin on Slide 4. Roger Krone: Thank you Stuart and thank you all for joining us this morning for our second quarter 2021 earnings conference call. Our results in the second quarter reflect our leadership position in the government technology market. I’m tremendously proud of the way Leidos has responded throughout the pandemic as our employees and business partners continually delivered for our customers and shareholders. While we remain vigilant with the recent uptick in COVID-19 cases, Leidos is stronger than ever, with new quarterly record levels of revenue and backlog, consistent with our industry-leading organic growth. As I look at the quarter, four messages stand out. First, our strong financial results demonstrate that our strategy is working. Second, our business development momentum is setting the stage for future growth. Third, we are effectively deploying capital to broaden our offerings in attractive markets. And fourth, we are building an engaged and effective workforce. I will now drill down on each of these four key messages. Number 1, our strong financial performance was highlighted by double-digit organic growth and adjusted EBITDA margins above our long-term target. Revenue for the quarter were $3.45 billion up 18% from the prior year on a total basis and up 16% organically. Adjusted EBITDA margins of 10.4% were in line with guidance and above the long-term target we established two years ago. After adjusting for the one-time gain in the second quarter of 2020, non-GAAP diluted EPS was up 37%. These results didn’t just happen rather they are a direct result of our strategy. We have differentiated ourselves within the market through scale, which creates a more competitive cost structure and expanded capability to take share and position in vital markets. We have also leveraged our cost structure to make key technology investments, which further separates us from our peers. Number 2, our business development engine continued the momentum that is driving our industry-leading organic growth. We achieved net bookings of $3.8 billion in the quarter, representing a book-to-bill ratio of 1.1. Our 14th consecutive quarter with a book-to-bill ratio of one or greater. Our trailing 12-month book-to-bill ratio is now 1.2. As a result, total backlog at the end of the quarter stood at a record $3 billion, which was up 9% on a year-over-year basis. In our Health segment, we were awarded a new fixed-price contract with a ceiling value of almost $1 billion to improve the health of military service before, during and after deployment. Under this contract, known as the Reserve Health Readiness Program, or RHRP. We will provide physical, mental health and dental assessments along with laboratory and diagnostic services supported by a secure IT infrastructure and customer service call center. America’s more than one million reserve component personnel stand ready to support and defend our nation when it is called upon. It is our honor to support them. In our Defense Solutions segment, the Transportation Security Administration awarded us a $470 million prime contract to integrate transportation screening equipment at airports all around the country. Based on our policy, we only booked a small initial task order in the quarter, although we expect to achieve the full value over the life of the contract. This work is a reconfiguration of work we have been performing for over 12-years. And we also maintain screening equipment for TSA at all U.S. federalized airports, helping TSA ensure freedom of movement for people and commerce as one of the core ways Leidos is making the world safer, healthier and more efficient. In our Civil segment, the Federal Aviation Administration notified us that they have given us initial tasking as part of a long-term extension for the continued systems integration sustainment and enhancement of the En Route Automation Modernization, or ERAM system. The ERAM system is critical for operations in the national aerospace system and at the 20 air route traffic control centers in the Continental U.S. We didn’t book anywhere close to the $6.8 billion ceiling value, but it speaks to the confidence that the FAA has in Leidos. We expect to begin the 2022 government fiscal year with a continuing resolution, but customers will still be able to fund work in critical needs areas. Our positive outlook is bolstered by the level of proposal activity. At the end of the quarter, we had $49 billion in submits outstanding of which $35 billion is new work for us. Number 3, we are deploying capital to complete our offerings in attractive markets to spur profitable growth. In May, we completed the acquisition of Gibbs & Cox, which brings us world-class naval architecture design and engineering. They design 68% of the Navy’s current surface combatant fleet and are truly a national asset. This deal enhances how we are viewed across the Navy and opens up significant market opportunity for us. Our strategic planning process had identified maritime as an attractive market where we were underpenetrated. To enable synergies, especially around unmanned surface and subsurface systems, Gibbs & Cox will be combined with Leidos’ Maritime Systems division and operate under Dynetics within the Defense Solutions segment. In addition, we are seeing early returns from our 1901 Group acquisition, which we closed in January of this year. Most directly, 1901 is providing significant support to the NGEN program transition and operations. They have significantly expanded their workforce, growing the current enterprise IT operations center in Virginia and accelerate the establishment of new NGEN service desk locations in San Diego, Norfook and Boise. 1901’s platform delivered IT services made them the best choice for the program’s requirements in this area. 1901 was also instrumental in securing a 125 million follow-on contract with the Bureau of alcohol, tobacco, firearms and explosives for managed IT services. 1901’s strong customer relationships with the ATF, coupled with their efficient as-a-service delivery model, made them key to the bid and execution strategies. In addition to deploying capital to spurn growth, we were also committed to returning capital to shareholders. To that end, our Board just approved a 6% increase to the quarterly dividend. This increase reflects the confidence of the Board of Directors and the management team in the quality of our earnings and our ability to generate cash. Number 4. This is a people business, and this quarter offered further proof that we are an employer of choice that can attract the workforce needed to meet our financial commitments. During the quarter, we hired more than 4,500 people and at the end of the quarter, we were more than 42,000 strong. Our headcount grew 6% sequentially and 11% year-over-year. Our ability to attract top talent in this manner is important as we staff up to successfully execute the new programs. One of the reasons we are attractive to job applicants is that we invest in talent management and career development. We regularly review talent and plan development actions including rotations at all levels throughout the company. As an example, Executive Vice President, Jim Cantor, recently announced his intent to retire after his distinguished 31-year career at Leidos. This enabled us to reconfigure our team to optimize performance given our rapid growth and the changes in market priorities. I asked Vicki Schmanske who is leading our intelligence group to assume the new role of Executive Vice President, Corporate Operations. In her new role, Vicki will drive operational performance and implementation of strategic functional initiatives. Roy Stevens who led business development and strategy succeeded Vicki as the President of the Intelligence Group. In addition, I asked Chief Human Resources Officer, Paul Angola, to lead a strategic effort to chart our way forward in the national security space market. These changes will help us prepare for an uncertain future. A few weeks ago, we kicked off the $1 million move-the-needle sweepstakes to encourage our employees to get vaccinated against COVID-19 and Hasson are coming back together. At the time, all of our facilities were open and all vaccinated individuals were able to work without a mask. A lot has changed in the past weeks. The highly contagious delta variant and the infection trends are disturbing. As we have throughout the pandemic, we will comply with all CDC guidelines, and most of our facilities will require masks regardless of vaccination status. While we do not expect that our customers will be shutting down their offices again, we cannot be certain. In the face of that uncertainty, we have decided to keep our current forward guidance in place and Chris will walk you through that in more detail. For me, part of returning to normal is being able to get together face-to-face with our investors and analysts. It is our intent to host an Investor Day in New York on October 7th. We have a compelling story to tell, and we look forward to doing just that. We will closely watch for COVID protocols from New York City and update you if our plans change. Finally, Frank Kendall has stepped down from our Board to serve as the Secretary of the Air Force. I want to thank Frank for his service to Leidos and more importantly, to the Air Force, the Department of Defense and the nation. I will now turn the call over to Chris Cage. I’m delighted to have Chris step up to the CFO role and join us on these calls. Christopher Cage: Thanks, Roger, and thanks to everyone for joining us today. I have worked at Leidos for 23-years, and I have personally benefited from the forward-thinking developmental programs that Roger referenced earlier. My predecessor and Mentor, Jim Reagan, created a very strong team in set of processes and disciplines that I have had the opportunity to help shape over the last few years. Going forward, my initial areas of focus will be threefold: delivering on our financial commitments, integrating acquisitions and prioritizing spending on investments to execute our strategy. With that, let’s jump right into the second quarter fiscal year 2021 results. Beginning with the income statement on Slide 5, I will first run through the financial results at the corporate level, then turn to the segment level to address the primary revenue and profitability drivers. As Roger said, the highlight of the quarter was our organic growth, which is truly unprecedented in our industry at our scale. Revenue quarter were $3.45 billion up 18% compared to the prior year quarter. Excluding acquired revenues of $58 million, revenues increased 16% organically. Notably, revenues grew organically across all three reportable segments. The organic growth is somewhat inflated by the drop in the revenues last year as a result of the pandemic when for example, our VA disability exam business was almost entirely shutdown. Even if we add back the 132 million direct pandemic effect in the prior year, organic revenue growth was still 11%. Adjusted EBITDA was 359 million for the second quarter, which was up 5% year-over-year. Adjusted EBITDA margin decreased from 11.8% to 10.4% over the same period. Excluding the VirnetX gain from the prior period, adjusted EBITDA margin increased by 140 basis points in the quarter. This was primarily due to strong program management, higher volumes on some fixed price programs and better direct labor utilization. Non-GAAP net income was 218 million for the second quarter, which was down 2% year-over-year and non-GAAP diluted EPS for the quarter was $1.52, also down 2% compared to the second quarter of fiscal year 2020. Excluding the impact of VirnetX gain from last year’s results, non-GAAP diluted EPS was up 37%. Our effective tax rate on non-GAAP income in the quarter was 24% compared to the 22% we anticipated for fiscal year 2021, this negatively impacted non-GAAP diluted EPS by $0.04. The tax rate increase was primarily across our international business. The largest single driver was that in Q2, we recognized the full impact of a recently enacted increase in the U.K. corporate tax rate from 19% to 25%. Now for an overview of the segment results on Slide 6, Defense Solutions revenues increased by 14% compared to the prior year quarter. Excluding the acquisitions of 1901 Group and Gibbs & Cox, organic revenue was up 12%, primarily from ramping up recent contract wins such as NGEN and increased weapon systems development within Dynetics. Civil revenues increased 5% compared to the prior year quarter, with about half coming from the SD&A acquisition and half driven by increased demand on large programs such as Hanford site integration. Health revenues increased 62% compared to the prior year quarter, and all of that growth was organic. We had a large year-over-year increase on the DHMSM as well as a nice ramp on the new Military and Family Life Counseling program or MFLC. The largest increase, though, was in the VA disability examination business in our QTC subsidiary. Remember, this was the business hardest hit by the pandemic in the year-ago quarter and now volumes are higher than ever as we continue to work through the backlog of exams. On the margin front, Defense Solutions non-GAAP operating income margin for the quarter came in at 8.3%, which was up 20 basis points compared to the prior year quarter. Civil non-GAAP operating margin declined from 12.9% in the prior year quarter to 9.1% as we had fewer deliveries of our border and port security systems and airport screening systems. Finally, and most significantly, health non-GAAP operating income margin for the quarter was up to 17.8% compared to 5.3% in the prior year quarter. This quarter’s strong margin performance benefited from the significantly increased revenue volume, but the year-over-year improvement was enabled by the strategic investments we made a year-ago to keep our workforce in place and ready to meet the coming customer demand. Turning now to cash flow and the balance sheet on Slide 7, operating cash flow for the quarter was 17 million and free cash flow, which is net of capital expenditures, was a usage of four million. During the second quarter, we settled the accounts receivable monetization program, which negatively affected our operating and free cash flow by $94 million. On a year-to-date basis, the AR monetization program is neutral to cash flow, and we do not plan to sell any more receivables. During the quarter, we used working capital to fund the start-up of new programs and the expansion of existing programs and drive strong organic growth. You can see this impact most clearly in the drawdown of advanced payments compared to last year. Cash generation from the business segments was right on plan for the first half of the year and actually ahead of last year. But that performance is overshadowed by one-time non-operational cash benefits in the first half of 2020. These include 225 million from the AR monetization program; 85 million from VirnetX; 48 million in CARES Act tax deferrals; and 103 million in lower cash taxes, which is just a timing issue. During the second quarter, we paid down 27 million of debt and returned 48 million to shareholders in quarterly dividends. As laid in Friday’s 8-K, our Board of Directors approved a 6% increase in the dividend beginning in September. This is our first increase in two-years and reflects our confidence in the future outlook and commitment to shareholder returns. In addition, we paid net consideration of 376 million to acquire Gibbs & Cox, which positions us to provide a broad set of engineering solutions to the U.S. and international navies. Gibbs & Cox is contributing a little more than 100 million in revenues this year at margins above the Defense Solutions segment average, given its higher proportion of fixed price work. To finance the transaction, we borrowed 380 million with a one-year maturity at very attractive terms, no more than LIBOR plus 113 basis points. As of July 2, 2021, we had 338 million in cash and cash equivalents and 5.1 billion of debt. Last month, we established a commercial paper program for short-term liquidity management. Commercial paper will give us more flexibility at a lower cost than selling accounts receivables. Commercial paper is only available to us because our debt is investment grade, and we view our investment-grade rating as a strategic asset. Over the remainder of the year, our primary capital deployment priority will be debt pay down as we return to a normalized leverage ratio of three times. We remain committed to our long-term balanced capital deployment strategy, which 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. As shown on Slide 8, we are maintaining our guidance for fiscal year 2021, including revenue between 13.7 million and 14.1 billion, adjusted EBITDA margin between 10.5% and 10.7%; non-GAAP diluted earnings per share between $6.35 and $6.65; and operating cash flow at or above 875 million. As the year progresses, we normally tighten our guidance ranges, but there are a lot of forces at play, including worsening of the COVID situation with a more contagious Delta variant in stagnation in vaccination rates as well as ongoing challenges in the global supply chain, especially around computer chips. On revenues, NGEN is ramping well, but this is still a new customer and new contract. So we don’t want to have an established history of order flow and don’t want to get ahead of ourselves. The Intelligence Community award decisions have slowed noticeably, and we are also incrementally more cautious on the bounce back of the international airport screening market. So we are not forecasting a return to growth there until 2023. The Gibbs & Cox acquisition should keep us comfortably in our revenue range, but it likely won’t put us above the range. We expect revenue to grow fairly linearly through the back half of the year from Q2 levels. Growth drivers in the third and fourth quarters include the full contribution of Gibbs & Cox, the continued ramp on NGEN, MFC and several other programs. Towards the end of the year, we expect the VA medical exams will begin to return to their pre-pandemic levels. On EBITDA margins, year-to-date performance in the second quarter was 11.1% to land in the guidance range for the year, adjusted EBITDA margin for the back half of the year will be around the same level as this quarter. Non-GAAP diluted EPS will generally follow revenue and margin. However, we are now forecasting the FY 2021 tax rate to be between 23% and 23.5% instead of our original 22% forecast, which slightly outweighs the accretion from Gibbs & Cox. In addition to the international tax headwinds I mentioned earlier, we are now forecasting a lower deduction for share-based compensation based on stock price performance over the first half of the year. Finally, we expect cash flow to follow our normal pattern and accelerate in the back half of the year to land us at the guided level. Over the past five-years, we have generated an average of 65% annual operating cash flow in the third and fourth quarters. That pattern will be slightly more pronounced this year as a result of the working capital that we have devoted in the first half of this year to drive 17% year-over-year growth. We have a detailed execution plan to achieve our operating cash flow guidance. And with that, I will turn the call over to Hector so we can take some questions. Operator: Thank you. [Operator Instructions] Your first question comes from the line of Sheila Kayaglu with Jefferies. Please proceed with your question. Sheila Kahyaoglu: Hi good morning Roger. And welcome, Chris. Thank you both. So maybe, Roger, if you could comment on your Intel business, how large is it? And you mentioned some delays there, Booz I think, was down mid-single digits in the quarter. So maybe what is going on with the Intel customer specifically and what sort of delays are you seeing? Roger Krone: Well, it is a little bit larger than two billion. And of course, it is in our Defense Solutions segment, so we don’t really spike it out. The good news for us is, after the quarter, we did win a recompete which is below one billion. But what we have seen overall is it just has taken them longer to get through their acquisition process and awards, recompetes, new business that we had put in our plan have taken literally months or quarters to come to fruition. And what that has meant for us and for others in the industry rather than booking a full increment of a recompete, we are getting shorter extensions. And so it is not really contributing to the increase in backlog. But in the last quarter or two, we really haven’t lost a significant amount of business. It has just been like a lot of things in COVID, things have just been moving to the right. Sheila Kahyaoglu: Okay and then maybe one quick one on margins. You guys did really well with first half margins up 11% - I’m sorry, 11% EBITDA margins, and your implied guidance is 10%. Is this like the start of Chris’ conservatism or is that maybe mostly due to the civil margin impact because that looked like it was down in the quarter, and I think you mentioned due to the security business. Christopher Cage: Sheila, this is Chris. Thank you. And no pattern of conservatism here, but we laid out some reasons to be cautious, right. And so there are some unknowns. Last year with COVID, things whipsawed a little bit. So with Delta variant, we are being conservative there. We laid out for Civil, of course, we are expecting some uplift overtime from the security products business and not just the aviation side, but the ports and borders, which that business has performed very well for us on a legacy basis. So there are some puts and takes. We are still intending to increase our level of investment on research and development. We built that into our plan all year long and so some of that is programmed in for the back half of the year, but we want to make sure that we can deliver on these commitments. Sheila Kahyaoglu: Thank you. Operator: Your next question comes from the line of Robert Spingarn with Credit Suisse. Please proceed with your question. Robert Spingarn: So Roger, maybe Chris, you talked about your attention to the top-line guidance a couple of times here so far, but there are a bunch of moving pieces. And I was wondering if we could size some of this. Would it be right to characterize the naval architecture business is around I don’t know, 80 million, 90 million a quarter. Christopher Cage: No. We would say maybe 100 for the half. So remember, that is about what we get. So it is about a half a year, call it, 100 million, maybe a little bit better than 100 million, and it is growing. But for the half that we will book rounded to 100 million. Robert Spingarn: Okay. And that is what you are thinking in terms of maybe offsetting downside from COVID? I know COVID is a tough discussion to begin with. But how are you thinking about that? Maybe another way to ask this, Roger, is have your organic growth targets changed since Q1 for the three segments? Roger Krone: Well, you know we are talking 139. Robert Spingarn: I’m not just talking about that. Roger Krone: Yes. I mean not appreciably - hey Robin you and I think the other folks on call know where we were a year-ago, and we thought we made a reasonable change a year-ago. And we sort of walked into the second wave. And I think we all learned that this COVID thing is unpredictable. Throw on to that the shortage of computer chips and which - and we usually get a lot of material deliveries in the second half. And although we have seen some lengthening in the supply chain, we don’t see any shortages yet. But you all have taught us a great lesson in the last 12-months. And I kind of like where we are. Yes, Gibbs & Cox gives us a little bit of lift. But there is a ton of uncertainty out there in the next six months. Christopher Cage: Yes, Robin, this is Chris. Just to add on to that. Obviously, we do detailed forecasts and ops reviews quarterly with all our business lines, and there is always movements, right, across the portfolio. Roger just talked about the Intel delays. And so that might have been a business area where some of the things that we put into the pipeline haven’t come out yet. We were hopeful that some of those would and potentially give some uplift. None of those have been lost. But there is always small movements within the portfolio within $13.9 billion midpoint that we are driving towards and so the Gibbs & Cox piece potentially helps offset some of that or give us some capacity for downside risk given the COVID situation. Robert Spingarn: Okay. I guess what I’m really looking for is because last year was so challenging, and this year, you are catching up a lot, and you have a lot of good businesses that are growing. I mean, this obviously is a high growth year. You are the highest grower in the sector, as we have discussed. Maybe high level, Roger, looking into the future, once things normalize, how do you see the growth patterns in the business? Roger Krone: Well, we still see a strong growth but not at the level that we have just demonstrated. At our investor meeting two-years ago, we kind of talked about five, right. And we will talk about that again in October. So clearly, we are comfortable with five. But what we have been doing over the last couple of quarters is really unprecedented, and I don’t expect to paint another quarter like we did. Some of that certainly year-over-year is COVID recovery, but we have enjoyed a significant number of wins and a high percentage of our competes so we are still very bullish on our long-term growth prospects, but not at the double-digit level. Robert Spingarn: Okay. Thanks very much. Operator: Your next question comes from the line of Cai von Rumohr with Cowen. Please proceed with your question. Cai von Rumohr: Yes. Terrific. And so Roger, you won AEGIS, but it is under protest. Maybe update us on that. And on your larger outstanding bids, I believe they include in-play, UDS recompete and the 3.5 billion FAA award. Roger Krone: Okay, Cai, thanks and hey good morning. So we won the - it is a NASA bid about - in the order of 2.5 billion. It was protested by the incumbent as it seems everything is nowadays, NASA is taking corrective action. And so it is a little hard to forecast what the outcome will be. History has told us NASA takes corrective action, they make another award decision and then, of course, usually that is followed by another protest and those tend to last kind of 100 days. And so it may take them another three, four weeks to do their corrective action and then you tack another three-months on the back of that. So we suspect we will be talking about NASA ages through the third and fourth quarter, unfortunately. On DAS, it is a big contract up at DISA. We are hoping it will be a fourth quarter award. It could easily slide into first quarter. And I would suspect, Cai, that will be protested 1 way or the other. The UDS bid, which is at NGA, which is in the nominally four billion to five billion, a significantly large bid, we expected that to come out July and August. There are some other things going on at NGA, which is in the Intel group, Sheila’s question, which may cause that to be delayed. It could happen in August, it could happen in September. Frankly, the acquisition team at NGA is really busy. And when they get around to clearing the award, they will make the award. We think it is third quarter, but these things become ever increasingly hard to forecast. But those are the big ones that are out there. There is some other things that are down in the one billion level. Cai von Rumohr: Great, thank you. And then if I could follow-up on Sheila’s question about margin. It sounded like you went out of your way to remind people that your long-term target is 10%, it is not 10.4%. I guess as we just look at next year, I would assume health the margin has to be down because you don’t have the VA catch-up. If you get AEGIS, that is below average so that I assume civil also would have downward pressure year-over-year. So is that calling out the 10% just to be conservative or is there a real concern that realistically, there is no way 10.5% is kind of anything you could do on a sustainable basis. Roger Krone: Go ahead, Chris. Christopher Cage: I’m sorry, Roger. So Cai, Chris here, I just was going to jump in on that. So first of all, we were trying to send a signal about 2022 yet, right. That is what we will lay out when we get to Investor Day in October. But there is more going on to what you pointed out, and those are various due observations. Number one, Roger talked about 1901, the contribution that is making to our portfolio. And that would really be an enabler across not only the defense opportunities in enterprise IT, but also into the Civil segment and others to help us deliver those capabilities more cost effectively and drive margin uplift. So we see that as something that will help us there. Obviously, in the Civil segment, margin will ride up with the recovery in our security products business and not just the aviation side, but as I mentioned, ports and borders and there are opportunities, whether it is within the infrastructure bill or otherwise with our customers internationally for that line of business that we are very bullish on. So those things would help us lift margins in that area, and we do have to be prepared for health margins moderating back down a bit as the exam backlog works its way down. But again, that will still be a robust part of the portfolio on margins. So more to come in October, but I don’t think you should read in that we are resetting to 10% longer term. Cai von Rumohr: Thank you very much. Operator: Your next question comes from the line of Gavin Parsons with Goldman Sachs. Please proceed with your question. Gavin Parsons: Hey good morning. Roger, I just wanted to clarify your organic growth comment in response to Rob’s question. You said at the last Investor Day, you talked about 5%, you are comfortable with that. Without getting ahead of Investor Day targets, can you just clarify if you mean you think you can continue to grow 5% on a multiyear outlook? Roger Krone: I want to be absolutely clear. The long-term outlook that is out is what we gave at the investor conference, gosh, in May two-years ago, and we raised it from three to five, okay. We have done nothing to change that, okay. And that is what I was just trying to articulate to Rob. That being said, our organic growth, frankly, our total growth has been really remarkable. And our book-to-bill, it has just been great. I mean the team has done such a great job. I’m not going to update the 5% until October. But I have tried to give reasons why there should be a lot of confidence at five or perhaps better. So Gavin, that is about as far as I can go. Gavin Parsons: Okay. No, that is great. I appreciate the clarification. I just wanted to make that clear. And then Chris, anything you could do to help us quantify the health care exam contribution that business is running 30% above 2019 levels, but obviously, you have some other growth drivers in there. So any sense of what maybe that business has grown versus 2019, excluding the lumpiness in exams? Christopher Cage: Yes. Gavin, I mean, as you can appreciate, there is some sensitivities on getting too far down into the portfolio competitively or otherwise on that. But that is not the only thing that is going on in health. That is the point we wanted to make. We have told you for a long time that the DHMSM program would be ramping up, it has. That team is performing exceptionally well. MFLC is really on a nice trajectory to ramp up, and those margins will be lower than other parts of the portfolio initially, but they will have an opportunity to increase overtime. And we have got zero contribution from RHRP in these numbers, right. So that will be something that we will look forward to next year to really ramp up as that program gets underway. So the exam business is above historical levels, but quite honestly, that team has delivered so well that the customer is looking to send more work our way overtime. And so we are prepared to accommodate them in their needs however possible. And so the hope is that we can continue that at a nice clip. Gavin Parsons: Thank you. Operator: Your next question comes from the line of Matt Akers with Wells Fargo. Please proceed with your question. Matthew Akers: Hey good morning guys, thanks for the question. Could you kind of update what are your latest thoughts on the infrastructure bill in maybe areas where you could see a benefit from that? Roger Krone: Great question. Of course, we are hoping that there will be a rare show of bipartisan that looks like it is a $550 billion plus over what we would have seen. And there is a lot of focus on your roads and public transit and water systems. But we think broadband, airports, ports, waterways, security equipment. And then we think there is going to be emphasis on protecting the infrastructure and whether that be cyber security or grid hardening. That is right in our swim lane and then we are really excited about 5G and frankly, 5G really to everyone in the country. And we think that will spur sort of another big investment in IT and IT technology as the ability of all us the ability of all to function from an edge device. The phones that we have today are just the beginning. When we all have 5G, the functionality that you will carry in your pocket is going to increase by an order of magnitude. And that with cloud and as a service, we could see that as spurring a whole new round of investment and application, migration, so we are very bullish. Now I will caution everyone, it is our typical federal government authorized appropriate then it gets distributed to the agencies. They put plans together then they put out RFPs and they have industry days and we bid. And I don’t want to sound too negative here, but it takes a long time for money like that to flow through the system to where we win contracts, we start performing, we turn it into revenue and then finally into cash and earnings. So it is all positive and it is positive for us, not only because of our Civil group, but really across the board and everything that we do in technology, it is going to be months or years away, but overall positive. Matthew Akers: Thanks and I think on the COVID in this latest wave, it sounds like that is a big driver kind of conservative guidance for the rest of the year. Are you seeing any signs from particular areas that maybe customers are considering closing down locations again or contracts getting delayed or anything that you are seeing there or just is that sort of just cautious in the guidance? Roger Krone: We haven’t seen customers like we did when we were talking about 360 and the CARES Act and the Intel went to shift work. I will just what we all know, I mean, the President comes on national TV and talks about a mask mandate, we all stand up and listen. We are essentially going back to a mask mandate according to the CDC guidelines, and we will expect all of our customers to do that. A bigger concern for us is really what is going on outside of the U.S. And as you know, we have significant operations in Australia, the U.K., the Middle East. And they are hunkering down again. In Australia, not only is it difficult to get in the country, it is difficult to get around the country to go from Melbourne, to Canberra and to Sydney. And I think Chris addressed it well, but our SD&A business and certainly the part that we acquired is heavily dependent on international business, which is dependent upon tariffs on airline tickets and when the volume is down, the money is not there. And although we have not lost any significant competitions in the SD&A business, we have seen many, many canceled and delayed. So I think the impact for us will be in our Civil segment in the business that we refer to as security detection and automation. Matthew Akers: Got it, thank you. Operator: The next question comes from the line of Peter Arment with Baird. Please proceed with your question. Eric Ruden: Hi good morning. You actually have Eric Ruden on the line for Peter today. Maybe just a quick one for me. With a lot of the focus across many industries today being on rising input costs and labor being the lion’s shares of yours. Are you seeing any pressure there, I know you mentioned the 4,500 new hires. So any color on how you are offsetting these headwinds in the current environment and then how much additional staffing is needed near-term? Roger Krone: Let’s see. It is sort of a mixed answer. We refer to them as unicorns. So someone with a lifestyle polygraph, a security clearance and can program in a computer language called Python in a national capital region around D.C. Yes, we are seeing a lot of competition for that person. And in order to get the staff that we need, we have to compete, and that is driving up labor in those areas. In other areas, there is a lot of people available. We have been able to meet our hiring goals. And of course, as we have said on this call, we have a strategy to de-concentrate our work in the national capital region and move to areas of the country where the workforce is more readily available. Our 1901 acquisition, which I know we haven’t talked a lot about, has a significant presence in Blacksburg, and a great relationship with Virginia Tech. And that was just one more reason why it was attractive to us, and it opens a new workforce for us. We have a software development center in Morgantown, at West Virginia University. We have one in Charlesville at UVA, and now we have one in Blacksburg. Overall, we are expecting to hire maybe a number that is in the 9,000 to 10,000 new and we are at the I think I said 4,500. We are a little bit better than that now, because of the Navy NextGen staffing, which has continued to go very, very well. And we have enjoyed what we call incumbent capture where people who are under contract with the prior contractor have elected to come to work at Leidos. So we are actually significantly above that number. And so we are on-track to meet our hiring goals but there is always that specific individual, you know a PhD and radiology that is difficult to find, especially if you are geographically limited as you often are in the Intel business. Eric Ruden: Okay. Thanks that is very helpful. That was the one for me. Operator: Your next question comes from the line of Tobey Sommer with Truist Securities. Please proceed with your question. Tobey Sommer: I was hoping you could speak to how you anticipate wage inflation, should it sort of materializing broadly impacting the business and when you described your answer, could you touch on the different contract types to the extent that, that could be informative? Roger Krone: Yes. Tobey, I will start and Chris can come in with some of the numbers. We have a portfolio mix, which is a little bit - it is almost 50/50. It is a little bit off from that, which is fixed price. And some of our fixed-price work is what we call time and materials, but think of that as fixed rate. Right. So it is so much per hour and the customer buys a number of hours. And then we have what we call our cost reimbursable or cost type contracts. And I will - let me start very simple and then I will see if I can address your question. Clearly, on the cost reimbursable work, if there is wage inflation, that essentially becomes a pass-through to the customer. And that is not as - maybe not quite as positive as it sounds because customers live on annual budgets. And if you are a NASA customer, you have X for a program in a given year, you don’t have X plus inflation. And so if our wages increase inside a budget year, often the customer will have to decrease scope because they don’t have any additional funds to execute the program. And then, of course, on fixed price, we have said, we will do a program or complete a task for a fixed dollar amount. And the therefore, rely on us to balance the cost per hour with the number of hours. And our challenge, and I think it will be the challenge across the industry, if we see significant wage inflation above what we estimate when we bid, then we are going to have to find new efficiencies in service and delivery to offset that inflation. We are always trying to do that. That is why sometimes on fixed-price programs, our profit margin might be a little bit better. And we will just have to do more of that. Part of the again, going back to our 1901 comment, the excitement about 1901 is it has an as-a-service platform, which is really independent on labor, so we charge so much for a service, and we use essentially application IT platform to deliver that. And there is a lot of opportunity for us to create new efficiencies through the service and delivery model. Christopher Cage: And Tobey, this is Chris. Just to add on to Roger’s point, you hit most of the issues here. Every year, we do a detailed pricing build up - multiyear pricing buildup for our indirect and our direct labor costs and certainly contemplate some level of inflation as we build multiyear projections around that. If it turns out that wage inflation is outpacing what we have estimated, we have an opportunity to refresh that, which we will do, and we will build those costs in. And so you really are just - at any given time, you might win some contracts where you price them with the old rates. And to Roger’s point, you have to find opportunities to drive efficiencies to protect margins. But on the future bids, we are pricing in what we think it requires to execute the work. So we are very transparent about that with our customers. And we have got good competitive Intel on where we think we need to be on a price to win. So all those factors play into how do we deliver, how do we win work and how do we maintain the margin profile that we are committing to you. Roger Krone: Yes. Tobey, one additional side. Just because I think it is a really thought-provoking question. One of the things that we have seen is as we mix more college hires and less experienced employees into the mix, what we call labor categories and their wrap rates, they make less. And we have been thrilled with the quality of our less experienced workforce and their ability to do the job. And that is another lever for us as we increase our college hiring to use more of that newly graduated workforce in key positions. Tobey Sommer: Thank you very much. And I wanted to get your perspective on continuing resolution and what sort of the data you might expect that to extend at this juncture? Roger Krone: Yes. I will be really quick. We want to get one or two more questions in. I think everyone does expect to see at the end of the fiscal year. I’m not optimistic I don’t think we will have a government shutdown. I think we will get through the debt ceiling limit. I don’t know if there is any appetite for that in either side of the aisle. I would love to be optimistic and say we are going to get a bill before the end of the year, but I’m not. I think we will run a CR through - into the first quarter. Just everything that seems to be going on, that would be my forecast. And what that will do is we all know is the work that is under contract will continue, new starts will get delayed. By way, new starts are getting delayed anyway. And as we have said again many, many times, I think, in like, what is it, 19 of the last 20-years, we have had a CR. So I don’t see it as a big impact to our business. I would love to see a bill, but we are certainly able to handle a CR as long as it doesn’t go past first quarter. Christopher Cage: Thanks, Tobey. Tobey Sommer: Thank you. Operator: Your next question comes from the line of Joseph DeNardi with Stifel. Please proceed with your question. Joseph DeNardi: Maybe Roger or Chris, just following up on a prior question, enterprise IT has been a big focus for you all and obviously, a lot of success there with NGEN and now AEGIS. I can’t imagine it would be such a focus if that work was dilutive to margins. So is there a rule of thumb, say, for a 10-year contract when that work becomes accretive? Is it right away? Does it take a few years? Is it not until the end of the contract? How does that work generally? Roger Krone: You mean accretive to our average margin or accretive to EPS? Joseph DeNardi: Accretive to your average margin. Roger Krone: Yes. There is not a rule. And really it is customer by customer and competition by competition. We have some programs that start out and they are above our margin. We have other programs, HRP, which is really not an IT program, but RHRP has a six-month very low-level transition built in. So we won’t see RHRP as accretive to margins until significantly into next year just because of the way the contract is structured. So there is not a particular rule of thumb. But we have generalized on this call in the past is it takes us a while after we staff up and we have demonstrated performance to be confident and therefore to raise our accrual rate. But I will turn it over to Chris. Christopher Cage: No, Joe, I would say usually, we kind of say, give us 1.5 years to two-years. It depends. What we like about those contracts in general is they are often - whether a fixed unit rate or fixed price and we do think as we understand the environment better, there is opportunities to introduce more efficiencies into the environment and drive savings that way through automation, through as a service, et cetera. With workforce rebalancing, as Roger indicated, what can you get for lower level employees potentially. So everyone is a little bit different. It depends on whether there is a transition phase, how that was bid, what they are paying you for, so really contract by contract. Joseph DeNardi: Got it. That is helpful. And then, Roger, you said earlier that you can’t necessarily expect to grow 10% every year, which is understandable. I’m just curious if you see that because you are just trying to manage expectations, which is obviously fair or do you not see the opportunities in terms of taking market share over the next couple of years that maybe you had a few years ago? Roger Krone: Yes. Joe, it is really more of the former. Without putting too many numbers out there, we intend this year to submit more proposals in aggregate than we did last year, all right. And we will look at our pipeline, and we have a fairly well disciplined business development process where we go out early five to 10-years, we build a pipeline of potential business. We are not constrained by opportunity. In fact, what we are trying to do is to call out of our pipeline earlier, those things that are not, if you will, not in our strike zone. So we spend our new business funds more efficiently, but we will submit more proposals this year than we did last year. And clearly, last year, we did more than the year before. So it is really not an opportunity. It is, gosh, I would love to think we could grow 10% forever that we were sort of a Silicon Valley high-tech startup. And it is just - we have been very, very fortunate and we don’t want to get too far over our skis. Joseph DeNardi: Thank you. Operator: Our final question today comes from Mariana Perez Mora with Bank of America. Please proceed with your question. Mariana Perez Mora: Good morning everyone an thank you. Your updated outlook, you mentioned the challenges related to the supply chain and especially the lengthening and the supply chain of computer chips. Would you mind telling us and giving some color on the impact so far and how should we think about the potential impact in the future? Roger Krone: I think I understood your question. Let me take a shot at it. Christopher Cage: And act so far on the main challenges. Roger Krone: Yes, we haven’t seen a lot. We probably have seen - and we install a lot of end-user equipment as part of several of our programs. And so we buy from all of the household names that you are familiar with. And what we are talking about silicon wafers that then get converted into processors, both general-purpose processors and application-specific integrated circuits. What we thought was COVID-related, and we kind of put it into a big category, as we sort of started to come out of COVID, we find that parts of the supply chain shut down in this lower end computer chip market and is not coming back as quickly as anyone thought. And in fact, in some markets like auto, their concerns, some of - certainly at the wafer level that some of that capacity is not going to come back at all. We have not seen shortages. We have just seen delays. And we are planning a couple of years out. But we have seen lengthening in - especially for IT equipment, probably in the weeks to a month in some areas and material has an impact on our revenue, both good when it happens and bad when it gets delayed. And it is a part of why we are not touching guidance for the last six-months. Although we are doing fine now, some of our contracts have significant material purchases planned for the last half of the year. And out of an abundance of caution, we wanted to give you visibility and transparency into our supply chain. Christopher Cage: And I think Mariana, it is definitely something we will spend more time on as we build our 2022 plan because, as Roger indicated, we have relationships, key relationships with critical suppliers and we stay abreast of what is going on there. But while the IT component of many contracts isn’t always our highest margin contributor. It does contribute to revenue. And so therefore, it is fairly integral. So as we get to 2022 planning make sure we have got good line of sight on what the latest expectations are. But this year, with the guidance range we provided, we think we gave ourselves some latitude for some potential delays, modest delays across the supply chain. Roger Krone: Thank you. Operator: Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Mr. Stuart Davis for closing remarks. Stuart Davis: Thank you, Hector, for your assistance on this morning’s call. And thank you to all joining in this morning and for your interest in Leidos. We look forward to updating you again soon and especially in October. Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you all for your participation.

Operator: Greetings. Welcome to the Leidos First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Peter Berl of Investor Relations. Peter, you may begin. Peter Berl: Thank you, Rob, and good morning, everyone. I’d like to welcome you to our first quarter 2021 earnings conference call. Joining me today are Roger Krone, our Chairman and CEO; Jim Reagan, our Chief Financial Officer and other members of the Leidos management team. Today, we will discuss our results for the quarter ending April 2, 2021. Roger will lead off the call with notable highlights from the quarter, as well as comments on the market environment and our Company's strategy. Jim will follow with a discussion of our financial performance and our guidance expectations. After these remarks from Roger and Jim, we’ll open the call for your questions. Today's discussion contains forward-looking statements based on the environment as we currently see it, and as such does include risks and uncertainties. Please refer to our press release for more information on the specific Risk Factors that could cause actual results to differ materially. Finally, during the call, we will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in the press release that we issued this morning and is also available in the presentation slides. The press release and presentation, as well as a supplementary financial information file are provided on the Investor Relations section of our website at ir.leidos.com. With that, I’ll turn the call over to Roger Krone. Roger Krone: Thank you Peter, and thank you all, for joining us this morning for our first quarter 2021 earnings conference call. As we communicated in our press release this morning, I'm pleased to announce that Chris Cage will be Leidos' next chief financial officer later this year. Chris will succeed Jim Reagan who has chosen to retire following a long and distinguished career, in particular, the last six years as my good friend and business partner. I will have a few remarks on this transition before I hand the call over to Jim, but first let's jump into the quarter. First quarter results reflect the perseverance, focus, and tremendous execution of our employees and business partners. New quarterly record levels of revenue, non-GAAP EPS and backlog were achieved, and significant organic growth was delivered across all business segments. This early momentum favorably positions Leidos to deliver on our full-year financial commitments. Revenues for the quarter were $3.3 billion, up 14.7% from the prior year, and up 9% organically, underscoring our accelerated recovery from last year's pandemic headwinds and the early ramp of new business wins. Adjusted EBITDA margin of 11.7%, up 240 basis points compared to the prior year period reflects strong program performance and the resolution of the long-standing MSA legal matter, which together delivered 45% growth on non-GAAP EPS of $1.73 for the quarter. Net bookings of $3.8 billion resulted in a book-to-bill of 1.2 times and 1.3 times on a trailing 12-month basis. This increase, driven by success in both our Solutions and Health segments established a record backlog of $32.6 billion for a 13th consecutive quarter, providing greater clarity and confidence in near-term revenue growth expectations. I will now touch on a few of the major wins we received in the quarter that underpin our growth and backlog. In the Health segment the company was awarded a new prime contract to provide nonmedical counseling to military service members and their families through the Military & Family Life Counseling program known as MFLC. This important work will be conducted at approximately 100 U.S. military installations or nearby civilian communities. We currently estimate revenues will be approximately $1 billion over the potential seven-year life of the program. This new award is especially timely with May being mental health awareness month. Military members and their families experience unique stresses. These include fears for the safety of the service member and feeling anxious or overwhelmed by deployment related challenges and responsibilities. Nearly one in four active-duty service members show signs of a mental health condition. Children of service members are especially vulnerable. One third of children with a deployed parent have psychological challenges, such as depression, anxiety, and behavior disorders. Through our work on the MFLC program we provide confidential counseling to alleviate stresses and enhance military members and their families ability to cope with these challenges. Counselors aim to prevent the escalation of stress into harmful conditions. About a quarter of our employees are veterans, so this program is meaningful to us on many levels. Next, in the Civil segment, the company was awarded a prime contract by U.S. customs and border protection to provide multi-energy portal systems for nonintrusive inspection of commercial vehicles at land and sea ports of entry. Under the contract Leidos will integrate, deploy and train CBP staff to use its VACIS MEP with low-energy backscatter and high-energy transmission cargo inspection system. The multiple award IDIQ contract has a total value of $480 million and a five-year base period of performance and options up to 10 years if exercise. And in the Defense Solutions segment, the company was awarded a prime contract by the Naval Undersea Warfare Center to provide engineering, technical, and management services for the Naval Array Technical Support Center. Leidos will be responsible for production engineering, technical and logistics support of the U.S. Navy and foreign governments towed [ph] array assets. This single award IDIQ contract has a total estimated value of $149 million. Finally, the company was awarded contracts valued at $822 million if all options are exercised by U.S. National Security and Intelligence clients. Though the specific nature of many of these contracts is classified, they all encompass mission-critical services that help to counter global threats and strengthen national security. Turning now to several notable accomplishments and events that took place in the quarter. We closed the 1901 Group acquisition in January and as anticipated the business is being levered across all of our business segments in both the performance of backlog programs and new program bids. The inclusion of 1901 Group's cloud based solutions and fully integrated service delivery platform will enhance performance on our customers important missions and continue to differentiate Leidos' value proposition across our defense, intelligence, civil and health markets we serve. Furthermore, as we shared with you on the February call, the Gibbs & Cox acquisition is nearing completion with yesterday's expiration of the HSR waiting period. With that gate cleared, we now expect the deal to close later in this month. Also, I want to take a moment to highlight the ongoing significant progress with the DoD Healthcare Management Systems Modernization program, otherwise known as DHMSM. The MHS GENESIS electronic health record system is now 30% deployed and is currently live and operational at more than 42 military treatment facility commands across the country with nearly 41,000 active users. Notably, during this unprecedented global healthcare crisis, this system has provided advanced capabilities to support clinicians and advice and providers including 24 x 7 access to medical and dental records and effectively tracking COVID-19 cases and mass vaccinations. Since its initial award, the program has been expanded to include the United States Coast Guard and the National Guard and Reserve. We remain on schedule to deliver MHS GENESIS by the end of calendar year 2023. Shifting to the macro environment, while we are still awaiting the release of the President's 2022 Detailed Budget Request and subsequent multiyear defense projections, we are encouraged by last month's release of the high level budget request. While the recommended defense funding level was in line with our expectations, our innovative technology and strategic investments remained squarely aligned with the administration's prioritization of certain critical need areas, such as digital modernization, cybersecurity, autonomy, and hypersonics. Additionally, we are very pleased with the proposed 16% increase in nondefense discretionary funding. This proposed growth supports the value proposition of our diverse business portfolio, which extends beyond defense and intelligence into the federal health and civil markets, including ports, borders and airport security. And while a continuing resolution in the fall is feeling like a near certainty, the typical annual disruptions may be muted given the no growth request for defense and the reality that under a CR, agencies generally continue to receive stopgap funding in line with prior years appropriation levels. With nearly $6 trillion of congressionally approved relief and stimulus funding since the start of the pandemic and a pending $2 trillion infrastructure request, we believe there could be additional opportunities for Leidos, particularly in our Civil segment. Areas of interest include airport and FAA upgrades, as well as civil agency research and development. However, we will need to see the final details when they become available to better understand what is truly addressable over the multiyear infrastructure plan. With regard to the administration's decision to withdraw all troops from Afghanistan by early September, Leidos has been directed to leave the region within the same time line. We currently estimate the revenue impact to be less than 1% of our defense solutions segments current year revenue. While program level customer discussions are still evolving, our best estimates have been incorporated into the guidance that Jim will cover later in the call. As we recently marked the one year milestone of this devastating pandemic at the end of Q1, I want to provide you with another update on our Leidos Relief Foundation and how it has been assisting Leidos employees who have been impacted by the virus. Since March 2020, the fund has raised and distributed over $1.7 million through generous personal donations from employees, members of the executive team, and the Board of Directors, including company matched contributions. With those funds, over 500 Leidos families who have suffered a COVID-19 hardship or loss of a loved one have received financial assistance. The ongoing generosity of our colleagues is inspiring and a constant reminder of our share values no matter the challenge. Finally, as I noted at the top of the call, I will close my prepared remarks with a few comments on the upcoming CFO transition here at Leidos. On behalf of our Board of Directors and management team, I want to thank Jim for his countless contributions to this company and wish him all the best in his planned retirement. Jim joined us six years ago and has been my steadfast advisor and business partner. Jim and his team has grown the business over 160%, built an investment grade balance sheet and delivered significant total shareholder return. While Jim's contributions were critical in strategic planning and M&A deal structuring for key transactions, value creation takes place in successful business transformations and building and nurturing culture and talent, and that is where Jim made the biggest impact for our employees, our customers, and our shareholders. Thank you, Jim. However, I will save my goodbye since you'll be continuing to be an advisor through year-end. Meanwhile, I'm pleased to share that our Board of Directors has elected Chris Cage as our next Chief Financial Officer effective July 5 of this year, the beginning of our third quarter. Chris is a great example of the talent development and succession planning process here at Leidos. Chris joined the company in 1999 and many of you have had a chance to interact with him over the last several years as he has held a series of financial leadership roles with increasing responsibility, most recently as our Chief Accounting Officer. His financial experience and deep understanding of our business has prepared him and therefore our company for continued success. Since it is May 4, before I turn the call over to Jim, I just wanted to say May 4th be with you. I will now turn the call over to Jim Reagan for more details on our first quarter results and guidance. James Reagan: Thank you, Roger for those kind words and thanks to everyone for joining us on the call today. Upon reflection, I've had a very fulfilling career and these past six years here at Leidos have been truly special on account of all of the passionate and brilliant people who work here. I deeply value the relationships that we've built and the accomplishments that we have achieved together. I have great confidence in Chris's ability to lead the finance organization and I look forward to working with him on a seamless transition. With that, I'll start by providing an overview of our first quarter 2021 results, followed by an update to the 2021 guidance. We are pleased with our strong start and growth momentum through the first quarter of 2021. First quarter revenue grew 14.7% over the prior year quarter and 8.9% organically. The increase in revenue was driven by the Dynetics SD&A and 1901 Group acquisitions, growing on our existing -- growth on our existing programs and increased contribution from new programs. This solid start to the year aligns with our fourth quarter messaging and showcases our resilient program execution fundamentals with all segments delivering double-digit top line growth. Adjusted EBITDA margins of 11.7% grew 240 basis points over the prior year quarter. The increase was driven by program performance, mix and continued indirect cost management, as well as the benefit from the successful settlement of the MSA legal matter. Excluding the positive impact of this $26 million legal reserve adjustment, adjusted EBITDA margins would have been approximately 11%. First quarter non-GAAP diluted EPS of $1.73 grew $0.54 over the prior year quarter, driven by strong execution, and organic growth, as well as the settlement of the MSA legal matter. Without the settlement, non-GAAP diluted EPS would have been $1.59 reflecting 34% growth year-over-year. Operating cash flows for the quarter were $239 million. Excluding the net proceeds from the accounts receivable monetization facility, operating cash flows would have been approximately $145 million. The decision to utilize the facility enabled us to buy back approximately $100 million of Leidos stock on the open market during the quarter, which aligns with our long-term balanced capital allocation strategy, which consists of being appropriately levered and maintaining our investment grade rating, and 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. Additionally, first quarter operating cash flow does not reflect any net cash benefit from the MSA settlement, which is expected to be realized in the second quarter. Bookings of $3.8 billion were strong across all segments, resulting in a 1.2 times consolidated book-to-bill and record ending backlog of $32.6 billion. This represents 15% growth in backlog from the first quarter of 2020. Now for an overview of our segment results. Defense Solutions revenue increased 14.8% year-over-year and 9.2% organically. Driving the strong growth was the Dynetics acquisition, the diligent execution of new programs, such as the CBP Traveler Processing and Vetting Software system and growth on existing programs. As a reminder, consistent with our policy, Dynetics revenue will now be included in our organic revenue calculation since we owned the business for a full year effective February 2021. Defense Solutions non-GAAP operating margins of 9.2% increased 240 basis points from the prior year period, reflecting strong program growth on certain contracts, reduced indirect expenditures and the recovery of a previously reserved international receivable. Defense Solutions booked nearly $2 billion in net awards for the quarter, resulting in a book-to-bill of 1.0x and 1.3x on a trailing 12-month basis. In our Civil segment, revenues grew 17.1% from the prior year quarter and 6.1% organically. This growth was driven by the SD&A acquisition and volume growth on our existing programs. Non-GAAP operating margins in the Civil segment grew 110 basis points year-over-year, driven by the net benefit from the MSA legal reserve adjustment, partially offset by lower margins on certain programs. Civil recorded approximately $700 million in net bookings for the quarter, resulting in a 0.9 times book-to-bill and 1.1 times on a trailing 12-month basis. And finally, turning to our Health segment. Health segment revenues increased 11.5% over the prior year quarter on both a gross and organic basis. This growth was driven by increased volumes on existing programs, including the continued backlog burn down in our medical exam business and timing of wave deployments on the DHMSM contract. Health segment non-GAAP operating margins were strong at 18.6%, an increase of 310 basis points over the prior year quarter, reflecting increased volume and growth on programs with our VA and DoD customers, and reduced business investments only a commercial IT venture. We expect elevated levels of non-GAAP operating margin to continue through the first half of 2021 and return to normalized segment levels starting in the third quarter. The Health segment booked over $1.2 billion net awards driven by the successful win of the Military & Family Life Counseling contract, which resulted in a book-to-bill of 2.1 times for the quarter and 1.6 on a trailing 12-month basis. Before I turn to guidance, I want to give you a quick update on the $7.7 billion Navy Engine program. Transition and onboarding are going well, but due to the late fourth quarter resolution in the courts, the pace of the ramp was lighter than the first quarter. We expect the ramp to pick up considerably over the next two quarters, giving us confidence in the organic contribution in both this year and next, as outlined in last quarter's earnings call. Moving now to the remainder of the year. We are increasing our guidance for adjusted EBITDA margin, non-GAAP EPS, and operating cash flow to account for two distinct items, the settlement of the MSA legal matter, and reduced share count resulting from our share repurchase during the quarter. Our guidance does not reflect the announced acquisition of Gibbs & Cox. As we've done in the past, we will provide an update in our next quarterly earnings call after the deal has closed. Our guidance range for revenue remains unchanged. We expect to deliver between $13.7 billion and $14.1 billion revenue for the year. We expect adjusted EBITDA margins for the year between 10.5% and 10.7%, a 20 basis point increase at the midpoint, from the previous guidance, reflecting the benefit from the MSA legal matter. As a result of the $100 million share repurchase executed in the first quarter and the net gain from the MSA legal matter, we are increasing our non-GAAP EPS guidance by $0.20 to a range of $6.35 to $6.65 on the basis of 143 million shares outstanding. And finally, to account for the expected net proceeds from the MSA legal matter, we are increasing our operating cash flow guidance by $25 million to at or above $875 million for the year. This updated guidance assumes no full year contribution from the accounts receivable monetization facility. And with that, I'll turn the call over to Rob so we can take some questions. Thank you. Operator: [Operator instructions] Thank you. And our first question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question. Sheila Kahyaoglu: Thank you very much. Good morning, Roger and Jim congratulations on your retirement. James Reagan: Good morning, Sheila. Sheila Kahyaoglu: Good morning. Maybe just because you spent a few minutes on your prepared remarks talking about this Roger, and obviously there's an acquisition this morning from one of your competitors, can you talk about your Health Division? How do you expect revenue growth to kind of work through within some 30% implemented at the moment or deployed? And just bigger picture in terms of the Health market, how do you see it evolving, whether the growth or just competitive nature of it? Roger Krone: Well, let's see, on DHMSM we will be at our current revenue level or higher for another couple years. And Sheila, as you know, our Health Group has traditionally been our highest margin and our highest growth area and it's not surprising to us that others have seen the market as attractive as we have. And the interesting thing about the Health market is, it's always been highly competitive, and whether it's one of our competitors getting into one of our traditional businesses, it's just changing the name of the competitor. And it is a very much a commercial world and now we see the Biden Administration, maybe the Human Infrastructure Bill as it comes to pass, is continuing to increase the spend. And we think it raises the importance of agencies like CMS and Social Security. And that's going to attract maybe some new competitors and maybe some non-traditional competitors which in our strategic view of the market, we have always expected. And we believe we are successful in that market because we offer value added service to our customers and we are if you will sharpening our tools and getting ready for what we think will be a significant growth in the top line in the market overall. Sheila Kahyaoglu: Thank you. Operator: Our next question is coming from the line of Robert Spingarn with Credit Suisse. Please proceed with your question. Robert Spingarn: Hi good morning, and congrats Jim, best wishes ahead. James Reagan: Thanks Rob. Robert Spingarn: On the defense margins, they were sequentially up and above the level you had achieved previously in any quarter last year. So, I wanted to talk a little bit more about the drivers, you did touch on them, you talked about mix, et cetera, but and just whether COVID related margin pressure is easing there and if you can quantify the impact of the international receivable there? Roger Krone: Yes, just starting with the last one, think of the recovery on the international receivable is $2 million or $3 million or so. I think more fundamentally the businesses performed well on execution basis. Companies with portfolios of our size always have a program or two that are not making their planned margins, but the execution in the Defense Group has been going pretty well, including the strong management of indirect costs, which has also been something that's provided them with a lift. Now that said, we do have an R&D budget that we under spent a bit in the fourth quarter and we expect that the level of R&D spending to tick up a bit through the balance of the year. And that's important for our long-term strategic priorities that are going to grow the business at strong levels going forward. Last thing that I would say is that there's -- as we think about the margin in defense for the rest of the year, it's going to continue to be strong, but I don't think you should necessarily be thinking of the Q1 level as being something you'll see every quarter for the rest of the year. Robert Spingarn: Jim, is that the case in all the segments you touched on this earlier that the second half is just a little bit lighter because the first quarter or first half was elevated, is that all three segments? James Reagan: Well, you know, in Health we've got the backlog burn down that we talked about that because of the way the operating leverage in that segment works, the margins are going to be a little higher than normal through the second quarter of the year. Those margins will damp down a bit in the backend. But unless we find that healthcare costs are lower than we expect and if we find that our ability to generate proposals is more efficient somehow than we are currently modeling, I think that you could expect the margins to be a little bit lower in the back end of the year and that is across the board, yes. Robert Spingarn: Yes. Thank you very much. James Reagan: Sure. Operator: Our next question is from the line of Cai von Rumohr with Cowen. Please proceed with your question. Cai von Rumohr: Thank you very much. So, could you comment a little bit on the burn off of the backlog of the medical exams in the Health area and what that means going forward? And then somewhat relatedly, Roger, you talk of the 16% increase in FY '22 Fed Civil budget. Talk about the opportunities you see there? Thanks so much. Roger Krone: Yes, let me start with the backlog. So, just for everyone on the line, we do medical exams for those people who are looking for disability benefits. Our largest customer is the VA, but we do them across the board. And during COVID there was a period of time we were shut down and a period time that our efficiency was diminished because of social distancing, and so there was a inventory or backlog of people who want these exams. And it grew up pretty much through last year to really for us, an all time high. Our commitment has been to work literally nights and weekends to over staff our clinics to work off the backlog. And we're benefiting in this quarter by that although we did have some weather in Texas and other states that damped our quarter down just a little bit. But we think it will take us into the third quarter before we get back to our normal run rate. That's our best estimate today Cai and we look at that level. The team looks at it every day. I look at it. Jim and I look at it on a weekly basis. We look at it by region and by type of exam. But we're making good progress. The backlog is significant and we think it's probably going to affect third quarter as well. And this is all positive by way as it was severely negative a year ago and we talked through that a year ago. As we think about the increase in the budget and about all we know at this point Cai, is what agencies look like they're getting the increase and we are all waiting for the PB to come out. But it does look like these are agencies for which we have a significant presence and significant heritage contract. So, it's civil infrastructure, it's also some health. I mentioned in my prepared remarks there's going to be ports and borders and airports, FAA infrastructure, those seem to be prime. There's probably going to be some roads and bridges, which is not really all that relevant to us. We think there may be some smart cities, smart highways, and we do have some contracts with the Department of Transportation, so we may benefit there. But the details are yet to be revealed and when we are on the call next quarter we will have the budget and we will be able to address those better then, but thanks for your question Cai. Cai von Rumohr: Thank you. Operator: Our next question is from the line of Gavin Parsons with Goldman Sachs. Please proceed with your question. Gavin Parsons : Hey, good morning. Roger Krone: Good morning. James Reagan: Good morning, Gavin. Gavin Parsons : Congrats to both Jim and Chris. James Reagan: Thank you. Gavin Parsons : I wanted to follow up just a bit on Cai's question there. That 16% initial request number, often that gets revised, but it does seem like there is more appetite in DC for raising non-defense budgets, may be there had been for the last two years. So, I just -- what are your thoughts on kind of weather that growth rate in the mid-teens or even double-digits is actually realistic and what the request messages for the multiyear defense budget outlook? Roger Krone: Yes, Gavin it's really hard to handicap the most watched sport in the national capital region which is our political process. Yes, I think they're going to go to conference. I don't think they're going to try reconciliation, but they could. And if central mansion [ph] from West Virginia, who has some influence, I think they'll come down a little bit and defense may go up. There are some politicians that we talked to who say it's, assume it's sequester and it's a tit for tat. So, if you're going to take Civil up, you have to take Defense up. I don't think that's exactly where we're going to land. I think we're probably going to have higher growth number on Civil than Defense. And by the way the Defense number, depending upon where you call it, 704, 715 or 753, does include the pay raise and now all go [ph] in the base budget. So if you look at it from that standpoint, the overall you could say has some downward pressure. The areas that we compete we view as just generally flat. We are though, I think when the dust settles and we get through this year and we get a bill, are expecting maybe high single or low double-digit increase on the Civil side. And that's going to benefit our Health and our Civil Group. We've already, as you would expect, put teams together to try to anticipate where those funds are going to be spent and to make sure that we're doing the prep work to get ready to provide customers value on programs that they're going to come forward with. We actually think cybersecurity is a good area for us. We think DHS is what's called the CISA which is their cybersecurity office which tends to deal with cybersecurity in the dotcom space. We expect them both to get money in the base bill and money in the infrastructure bill. So, cybersecurity overall looks like a good place to be. Thanks Gavin. Operator: Our next question is from the line of Tobey Sommer with Truist Securities. Please proceed with your question. Tobey Sommer: Thank you. Over the last handful of years or so customers have been a little bit more willing to contract using different methods that end up being more profitable for service providers. What's your expectation for sort of a flattening of the defense budgets, meaning for the ability of that trend to continue in yield, good profit margins for the space? Roger Krone: Yes. Tobey let me see if I can address your comment and then I will let Jim add is, we tend to perform better when the contract is either fixed price or time and materials, where frankly the risk of performance is on us and then we can invest in, you know we can put in RPAs or something to drive more efficiency in the contract. We have something we call our cost based contract. You know, we are kind of limited on the earnings potential based upon the fee that we bid on the contract. And with fixed price we again -- we are almost immediately rewarded for technology innovation on the contract. It's always hard to call trends and I'm not sure we've seen, because not all of the officials have even been confirmed on the Biden Administration. I wouldn't say that we have seen a trend away from T&M. When you started, I thought you are going to talk about OTAs and I would simply say OTAs are alive and well and I don't see that changing. And maybe this is wishful thinking. Yes, I would like to see the customers go to more fixed price because I think it's fixed their cost, so they don't have to worry about year-over-year plus outs and it gives us performance responsibility and then the ability to earn more over the life of the program if we can drive efficiencies into the contract. I don’t know, Jim, anything you want to add? James Reagan: Yes, just to pile on that, that also delivers a benefit for the customer because when we have more latitude in how to deliver a solution as opposed to something that's prescribed in a cost type contract, it allows us to help the customer save some money too. Tobey Sommer: And if you could just provide a little bit more commentary and color on the relative size of the opportunities within the infrastructure space, I think in your prepared remarks you mentioned airports as well as research? Thanks. Roger Krone: Yes, let's see, I think it's too premature to give you a number. But for instance when I said research, we are safer, healthier, and more efficient through IT, engineering, and science. And a lot of people have forgotten about our science work. And so, we run the National Cancer Lab for NCI as part of HHS. We also run the National Energy Lab up in Pittsburgh for the Department of Energy and that's another great program where -- and we do essentially early stage 62 [ph] kind of R&D and we expect certainly the Energy Lab in Pittsburgh where in the last administration we did a lot of work around coal and how we can burn coal cleaner and more efficient. We would expect this administration will spend a lot of money on renewable. And we see the charter and the work in the National Energy Technology Lab really growing as we think about wind and solar and hydro, and so that will grow. And then there are a lot of other places, we do work on the Defense Threat Reduction Agency and really across the board we do some work for the Army up in Fort Detrick, in the medical field. And so, we don’t talk a lot about it because there's not a big contract like Navy NextGen in our science work. But our heritage of doing early stage scientific work is alive and well and of course as everyone knows we were founded as the science application company. And so we still have a fair amount of business in that early stage work. Tobey Sommer: I appreciate that. Thank you. Roger Krone: Yes. James Reagan: Thanks Tobey. Operator: Next question is coming from the line of Joseph DeNardi with Stifel. Please proceed with your question. Joseph DeNardi: Oh thanks. Good morning. James Reagan: Hi good morning. Joseph DeNardi: Good morning. Roger, just on the SDA business, I think the expectation when you all bought it was that, it would be about $500 million of sales and grow at 10%, it looks like you're running about $300 million now. Where do you expect that run rate to be by the end of this year? And then what are you all looking for on the infrastructure side to kind of give you clarity on what incremental opportunity that could provide for that business? Roger Krone: Let's see, we obviously don't guide by below -- we don’t guide by segment much less by program and so we're not going to do that now. We have said that the SDA business overall has been impacted by COVID and there is less airport traffic and so that's affected the business. And more so overseas, where funding is tied to the ticket surcharges. So, we are going to be below our business case when we bought the L3 business for this year. That being said, in the U.S., we continue to see strong activity by TSA and Customs and Border patrol in buying equipment, because in the U.S. the purchasing dollars are really not tied to volume, they're tied to the Federal budget. And as I said in my prepared remarks, we got an award on VACIS. We had gotten an award on rail at the border. We are bidding on upgrading, adding something called CT at the check point at major airports. We actually have a prototype in demo at Dallas. If you come and visit us you will likely, well if you leave from here you will go through our CT at the checkpoint scanner at Dallas Airport. And we would expect some of the infrastructure dollars out of the Stimulus Bill to be spent on ports and borders, maybe some on airport and we're already working at those opportunities. I'll also tell you that really country by country, you know some countries are down. There are other country opportunities that have popped up that were not in our plan. So, it's always a mixed bag, but if you were to walk away from the call, I want everyone to know that the pandemic still has affected the SD&A business and where we might have expected we'd be fully recovered at the end of this year or into next year. We think it's probably the end of '22, beginning of '23 before we're back to normal volume. Joseph DeNardi: That's helpful. And then Jim, a lot of focus on cash flow obviously last quarter. I'm wondering if you could just provide some perspective on the updated guidance for this year of $875 million, is that a level of operating cash that you can grow off of in 2022? If not, what are some of the headwinds you face there? Thank you. James Reagan: Yes, absolutely. The change in the guide is really as I said in the prepared remarks, the result of the expected cash coming in from the MSA settlement. We clearly believe that we should be moving back toward a conversion rate of about 100%. The headwinds for this year really are the reversal of all the tailwinds we had last year. And going forward into '22 the only real change in conversion would be because of significant growth that will require the funding of working capital for receivables and you know, think of that as being roughly, the net amount of that, net of payables is about 27 days of sales is kind of the net working capital metric that we model based on. Joseph DeNardi: Okay it would be that working capital plus the payroll tax, those would be the two primary headwinds in '22? James Reagan: Yes, that is right. Joseph DeNardi: Okay, thank you very much. James Reagan: Sure. Operator: Our next question is from the line of Seth Seifman with JPMorgan. Please proceed with your question. Seth Seifman: Thanks very much and good morning and congratulations Jim. I just wanted to ask about the Civil segment and so, if we back out the legal settlement there, the profitability was a little bit lower than what we're used to seeing, and sort of what drove that and you expected to kind of move back into that sort of low double-digit range in Q2 that we saw last year? James Reagan: Yes, historically the Civil segment has had a little bit more volatility in its operating income margin number, primarily as a result of the timing of delivery of product out of the security products business and this year will be no exception to that. We have some orders that are in the pipe that are being built, probably you will see those ship in the second half of the year and you can probably see volatility on the other end for that, that's what our forecast is telling us. Seth Seifman: Okay, I will just stick to one. Thank very much. James Reagan: All right. Thank you, Seth. Operator: Our next question is coming from the line of Mariana Perez Mora with Bank of America. Please proceed with your questions. Mariana Perez Mora: Good morning everyone and congratulations to Jim and Chris. James Reagan: Thank you very much. Roger Krone: Good morning, Mariana. Mariana Perez Mora: So, my question is on SD&A. Yesterday [indiscernible] announced they expect awards from the TSA to expand the deployment of checked baggage screening equipment to all federally managed airports nationwide. Can you please describe what was light or small on that contract and also like discuss competitive dynamics on that business? Roger Krone: Yes, Mariana, it is a great question. The contracts that you are bringing up, we did not bid on it. That is a -- that's a contract to support the maintenance of the checked baggage screening machines. And we chose to really pursue a path of bidding on the larger contract, which is checkpoint equipment of all kinds, whether it's the screening machines or scanners or trace detection equipment. And we were concerned that to try to bid both of them could compromise our ability to get the bigger prize which is the one we're pursuing and you should hear about it sometime this month. Mariana Perez Mora: And how is competitive dynamics there for the main competitors and how has that over the last year? Roger Krone: Well, we currently hold what I think is the largest contract for the maintenance of the checkpoint screening equipment and while the TSA has divided that up, we have consistently gotten good performance ratings and we think that we're well positioned to win a big piece of that work later this month. Mariana Perez Mora: Thank you. Operator: Thank you. Our final question is coming from the line of David Strauss with Barclays. Please proceed with your questions. David Strauss: Thanks, good morning. I wanted to if you could provide an update on dynamics. It looks like the revenue run rate there just based on disclosure around the acquired revenue was a little bit lower, is that just seasonality? And then anything you can say with regard to the lunar-lander and the protest there? Thanks. Roger Krone: Well see, I'll start off and let Jim kind of catch you up on numbers. First of all on the Dynetics integration the team is going really well. You know there growth on a standalone basis is really eye watering. And we've integrated our Leidos Innovation Center into Dynetics to better cross fertilize our technology with their technology and that has really created a lot of excitement and we will see dividends of that in quarters to come. But performance at Dynetics is really solid and they continue to win programs in their relevant area and our hypersonic glide body facility is up and running. I was down there two weeks ago, three weeks ago, it's going classified. We actually have parts that we're building and really across the board Dynetics is going well. I will give you a little bit of insight on HLS. I can't give you much. So there were three bidders two of which everybody in the country knows and us, and the contract was given to SpaceX and upon our debrief and our review we felt that things needed a closer look, and so we did file a protest, and I'm not going to disclose a lot of what's in our protest. There is some stuff out on the web. There was a good article written out of the Washington Post that I would refer you to and I would also caution that the Washington Post is owned by one of the companies that was a competitor, but I still thought that the article was very thoughtful and is a good basis of trying to understand what's going on in the HLS program. And because our protest is really sort of and it's not quite a lawsuit, but it is certainly a dispute with a customer, I'd just rather not comment at length on our protest, but they typically last about 99 days and so in a couple months we will see what comes out of the HLS program. James Reagan: Yes, and in terms of the numbers, it is our policy that we don't include pro forma pre-acquisition revenues in calculating our growth rate. And so we didn't include strong growth that Dynetics had on a standalone basis last year in our growth numbers. Now that it's -- we had it for a year. We are including it and we do expect that as it is a part of the Defense Solutions segment, we expect that to show some continued growth into 2022 and 2023. Roger Krone: Hey Jim, I think the question may be around, you know we break it out in page 14 of our calculation in the back, but after 12 months we break it off and so what you're seeing, $83 million number, yes, the 83, that's a sub period. So you don’t, you should not think of that as being the Q1 revenue from Dynetics and so I think Dave, what you might be seeing is just a partial period there and it might be misleading here to think that the revenue is down in Dynetics when in fact Dynetics is still continuing to performance well. James Reagan: Yes maybe to close at the end of January a year ago, so that's… Roger Krone: Early February. James Reagan: Yes. David Strauss: Yes, I was just comparing $83 million for one month versus kind of what you're -- had been your $300 million quarterly run rate the last couple of quarters. James Reagan: Yes, I think that's just a little, it's just a timing thing, yes for sure. David Strauss: All right, thanks very much. James Reagan: Yes, okay thanks. Roger Krone: Thank you. Operator: Thank you. At this time, I will turn the floor back to Peter Berl for closing remarks. Peter Berl: Great, thank you Rob, and thank you all for your time his morning and for your interest in Leidos. We look forward to updating you again soon. Have a great day. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.