Q1 2023 Science Applications International Corp Earnings Call
Prince call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you will.
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Good morning, and thank you for joining Saic's first quarter fiscal year 2023 earnings call. My name is Joe de Nardi, Vice President of Investor Relations and strategic ventures, and joining me today to discuss our.
As it Keith <unk>, our Chief Executive Officer, and <unk>, <unk>, our Chief Financial Officer.
Today, we will discuss our results for the first quarter of fiscal year.
2023 that ended April 29 2022.
Earlier this morning.
Supplemental financial presentation slides.
Slides to be utilized in conjunction.
A copy of management's prepared remarks.
These documents in addition to our Form 10-Q to be filed later today.
Note that we may make forward looking.
Statements on today's call that are subject.
Uncertainties that could cause actual results to differ materially from statements made on this call I refer you to.
Including the risk factors section of <unk>.
Our annual report on Form 10-K.
And quarterly reports on Form 10-Q.
As of today and subsequent events may cause our views to change we may elect to update the forward looking.
We specifically disclaim any obligation.
Patient to do so.
In addition, we will discuss non-GAAP financial measures and up for investors and both our press release.
And supplemental financial presentation.
And slides include reconciliations to the most comparable GAAP measures.
And good morning to everyone joining our call.
I am proud of the financial results, we delivered in our first quarter, representing our sixth consecutive quarter of positive organic growth.
Probably we'll discuss results for the quarter.
Greater detail and provide our update.
David outlook.
I would like to spend a moment discussing the results.
Internally to ensure all of our stakeholders our employees our customers our partners.
Better know who SAIC is.
That's why we do what we do and the values that drive us.
For over 50 years SAIC has worked hand in hand, as a trusted partner.
Partner of the U S government advancing our country's most critical no fail missions, we foster a culture, where inclusion leads to innovation because we know the best outcomes come from diversity of systems engineering and integration coupled with our proven ability to provide.
Our competitive advantages that we leverage to drive profitable growth.
The progress we have.
Made on further strengthening our culture and our continued focus on the mission have directly contributed to the improving financial results we've delivered over the past.
Several quarters.
In the first quarter, we reported revenues of approximately $2 billion.
Representing total growth of approximately 6% and organic growth of 4% both of which.
Combined with recent business developments.
SaaS give us greater confidence.
I am pleased with the performance, we delivered and believe it speaks to the progress we are making.
Strategic focus over the coming years.
Okay.
I would like to now.
Business and portfolio strategy has evolved.
Okay.
While we continue to go to market and manage the business.
Around our two customer facing operating sectors I want to highlight our key capability offerings that span those sectors, which we define as our growth and technology accelerates GTA and our core as shown on slide six and seven of our earnings presentation.
Key capabilities within our GTA.
They focus area includes secure cloud enterprise it.
And systems integration and delivery in.
In fiscal year 'twenty to GTA accounted for roughly 27% of our total revenue and a greater share of our operating profit.
We believe the investments we've made to develop differentiated market, leading solutions and recent M&A activity our leadership within these domains as reflected in recent ranking from Gartner, which place saic's It services market share.
At number one by revenue for the United States government vertical for both infrastructure implementation and managed services and application managed services.
We expect to increase our GTA revenue to over 35% of the portfolio within the next three years, reflecting strong growth from this area of our business at accretive margins.
Our core includes engineering services, and technical services and logistics and supply chain.
Total revenue in fiscal year 2022 across these capabilities represented roughly 73% of Saic's revenues.
As we transform her as well.
Our <unk>.
Strategic focus going forward will remain centered on creating the most rewarding and differentiated experience for our employees.
Investing in markets with growing demand, where SAIC has enduring competitive advantages and allocating capital to drive improving financial returns for our shareholders.
While saic's legacy and technical expertise to help solve our customers.
Customers' toughest challenges, we see more opportunities going forward to use these skill sets better to capture additional value as a technology integrator Peter.
We believe this has the potential to unlock improved opportunities for growth over the long term.
Recent program awards, which give us confidence in this strategy include a key win in classified space and our expanding role as integrator on the Mark 48 program.
These are great examples of evolving our program from principally talent and expertise oriented to delivering a mission specific solution fueled by our talented teams.
We are confident in our strategy execute all SAIC stakeholders I will now turn the call over to <unk> for a discussion of our financial results and our outlook.
Thank you Isaac and good morning, everyone I will quickly summarize our first quarter results and then discuss enrollments in the quarter with revenues ahead.
So if our plan at roughly 2 billion, representing total growth of six months or so.
Ganic Rhem.
Revenue.
Performance in the quarter benefited from solid on contract growth and the timing of material sales previously planned for later in the year.
We delivered an adjusted.
So primarily impacted by the timing of indirect expenses and remain on track to meet.
9% with good visibility.
And the expected margin improvement through the rest of the year.
We reported.
Adjusted earnings per share of $1 88, which benefited from the more favorable revenue performance in the quarter.
I am pleased with our business development results in the quarter with net bookings over the next few quarters.
New business wins still in protest.
Representing over $1 billion in total contract value.
And squarely aligned with our GTA areas of focus we continue to see a growing pipeline as evidenced by a 15% increase in the value of submitted proposals to roughly $24 billion at quarter end.
The mix within our pipeline continues to change with new business.
<unk> of the value of submitted proposals.
So.
Both materially higher sequentially and at this time last year.
We also see good.
Progress in driving a greater share of our pipeline within markets that align with our longer term growth objectives as represented by a greater share of opportunities within the GTA.
As <unk> discussed this is an enterprise metric and will be a priority for the team.
Based on results for the quarter and our updated outlook.
For the year, we are increasing our revenue guidance by 1% at the bottom end to a range of 743 billion to 755 billion.
Our guidance continues to assume low single digit declines in <unk> and <unk>.
Three Q due to certain contract transitions before inflicting to low single digit growth in <unk> largely due to the benefit of additional working days. Our focus is driving on contract growth to profitably grow the company and we are confident in our ability to do so we are maintaining our full.
Year margin guidance of approximately eight 9% and expect improvement in the second half of the year led by a more favorable mix and the timing of certain new investments.
We are increasing our EPS guidance by 10 to a range of $6 90.
To $7 20, which continues to assume an effective tax rate of approximately 24% finally, our guidance for fiscal year 2023 free cash flow of $500 million to $530 million is unchanged and I would remind you that it represents an over 10% increase.
At the midpoint versus fiscal year, 2022, and assumes that the section 174 amortization provision is deferred.
<unk> unexpected working capital trends and final payments related to the <unk> acquisition, which both impacted first quarter results, we expect to generate 40% of our full year free cash flow in the first half of the year and 60% in the second half our capital deployment priorities are unchanged and.
We remain committed to a prudent deleveraging of the balance sheet with a bias towards deploying excess free cash flow towards our share repurchase program.
At this time, we do not expect to adjust our capital deployment plans as a result of the uncertainty related to section 174 legislation and plan to repurchase between 200 million to $250 million of shares for the year after having repurchased approximately $100 million fiscal year to date as we.
Notably in our earnings press release, the board of directors authorized a new share repurchase program for an incremental 8 million shares representing approximately 16% of our shares outstanding which we intend to utilize over the next three years market conditions permitting.
We believe this authorization also reflects our ongoing commitment to effectively allocate capital and the confidence we have in executing our plan to drive sustainable profitable growth and the energy we are investing to structurally improve our cash conversion.
I am proud of the results we delivered in the quarter and believe our strategic focus on investing in GTA, while sustaining our core business strengths position us well to maintain our forward momentum.
I'll now turn the call back over to the operator to begin Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
First question comes from the line of Sheila <unk> from Jefferies. Your line is open.
Hi, Good morning, Pablo and John Thank you so much.
When can we think about the guidance. Okay. Thank you and then organic growth down 1% for the remainder of the year versus 4% organic for.
Q1, the losses.
I think a key point and then I.
I think you've guided on working days that are some of the remainder of the slowdown. So can you just talk about I guess guidance, what your expectations and DARPA on contract growth.
What the real core organic business is growing and then you also mentioned <unk>.
Our number one position by revenues on infrastructure implementation and managed services.
I guess what are contracts that we might be familiar with.
With in these areas.
Great. Thanks, good to hear your voice just a couple of comments as we think about the quarter and the guidance and I'll, let property to provide some color, but I want to take the opportunity first and foremost to tell you and the team.
And extend it to our 26000 employees how proud we are of the performance that we have in the quarter as you referenced on contract growth was certainly a key component of that and we have tremendous opportunity to continue to drive that throughout the year.
<unk> performance in Q1 and allow us to modestly increase the guidance and probably will give you some color on that in a couple of key areas and so we're very very pleased with how we sit today and how the year is shaping up giving us greater confidence in our ability to execute the growth over the course of the year. Although we do want to provide a little color on the guidance that I'll circle back on the GTA.
Loan Sheila.
So with respect to the quarter itself good strong revenue performance to start the year.
I think I would think about the outperformance in Q1 roughly half timing.
Thanks.
Call true performance goodness in the quarter.
So we certainly had good momentum in the quarter delivery better growth than we expected.
Second data point.
We.
Reflected in the prepared remarks that we expect as a result of the contract transitions.
Modest contraction in Q2, and Q3, and then reflecting back too.
Low single digit growth.
For this year I would say some of that is going to be.
Hi.
Our new business versus obviously, the extra working days in the fourth quarter will certainly help organic revenues.
Or and the reality is we've got about a $1 billion.
<unk>.
Right now in protest.
As reflected in backlog to the extent we.
Good success.
Keeping those awards and pulling the revenues associated with those earlier in the year Youll start to see some modest improvement in the outlook for Q2, and Q3, probably more likely Q2.
But to me that's what I think fundamentally drives what we ended up in terms of the quarterly cadence cadence for revenue itself. So to me. That's a good start to the year nine months left in the year and I think I am.
Really, especially pleased with the dedication the intensity with which we executed in Q1 and hopefully we have a chance to continue the execution intensity over the remainder of the year.
Thanks, Pablo and Sheila let me touch on your question on GTA, and if I don't get them right.
Three asked but I wanted to get a little bit of color. So on the slide that's in the slide deck, you can see what we've shaded in blue.
Kind of a proportion of the revenue that we achieved today at each of those areas just to give you a sense for which one or greater which ones are left and we don't have specific numbers to report to you on those.
Yes, John sure, but that should give you some color as to what areas, we have more revenue and what areas we have left.
As it relates to a couple of examples. So if you think about the secure cloud environment cloud. One is a program you are probably aware of where we support the airports, providing a one stop shop for all the cloud migration activity. So that would be a great example of that area and then in the systems integration of delivery a program youre, probably familiar with Mark <unk>.
Eight torpedo where we provide the manufacturing assembly the test of delivery.
For that.
That torpedo program in support of the Navy. So those are a couple of recent examples that hopefully you are aware I have to give you some color on the type of work and the relationships we have the customers in those areas does that help.
Yes sure. Thank you so much perfect. Thank you.
Our next question comes from the line of Gavin Parsons from Goldman Sachs. Your line is open.
Hey, good morning.
Good morning, Kevin.
Maybe just following up on that question for a moment.
Probably you mentioned that 50% of the growth in the quarter as kind of core business performance and then how repeatable is that through the rest of the year.
Versus the pull forward, where it looks like you reiterated the second third and fourth quarter growth rate. So is there some upside on that front.
And is there any change in your assumptions for <unk> contribution for the year.
So I would take the second part of the question first no change in our estimates for that program.
That program is behind us at this point.
I'd say just headwinds associated with message.
Over the next say 12 months or so and in terms of kind of what's implied in the guidance Kevin.
I'd, probably reiterate some of my earlier comments, which is we have some new business out there in protests about $1 billion to $1 billion, one and to the extent, we get on those contracts a little sooner than what's implied in the modest contraction for Q2 Q3, we'll start to see some revenue pick up from those newer.
Programs.
And obviously one is much bigger than the other and as is our typical.
Practice, we don't comment on things that are in protest.
I'm going to wait it out and see where we end up but there is potential here for some modest improvement over the course of the year I will always caution us into thinking about this as a lab on labor based program. So it does take some time to ramp up there is always some materials earlier in the program. So we will have to get sort of an initial program review.
Done to ensure that we have the amount of materials on the program sized appropriately. So there are some puts and takes share over the course of the year that will discover as we go through the quarters here, but but I'd say, we're well positioned.
Are they going to be important to keep those wins that are in process right now and hopefully we have a chance to do a little bit better than whats implied in the guidance right now.
Great. That's helpful. And then maybe just asking about the pipeline. There one thing that struck me is that the backlog has grown quite a lot and you still have a record pipeline. So can you talk about how much of that is maybe end market growth versus you expanding the addressable market you can pursue versus deciding to pursue more of.
Work and how should we think about kind of the timing of conversion of the pipeline to backlog to revenue as we go forward.
Yes, I'm glad you asked the question Devin I think for us.
Especially it's really important to think about the pipeline over a really long period of time.
It has been this company's focus for several years now to ensure that we have the right quality and the pipeline.
But we have enough length in the periods of performance. So we actually have tangible visibility into the.
Our backlog and obviously the funding levels associated with the pipeline, so I'd say fundamentally.
The increase in the size of the pipeline really goodness from our BD teams are sector presence that are driving growth within the business. So that's what's driving fundamentally most of the increase in the pipeline. There is always an element of budget associated with seeing the end markets broaden out a little bit, but I'd say, it's probably.
And less of a driver at this point, we all see the budget talk out on the Hill.
Not quite seeing the impact of that implied in the pipeline I would say at this point, it's just solid execution, ensuring that we are bidding the right kinds of things and ensuring that we actually have accretive returns from a shareholder perspective to ensure we deliver value consistently and I would say the last thing I'd put some bespoke Vanessa Asia.
This loss was a big part of the portfolio and we lost 2% of our topline Nonstick and I are very proud of how resilient. The teams have been to bounce back and grow the pipeline consistently. So we can continue to grow the company on a topline basis. So that's what I said.
Thank you.
Your next question comes from the line of Matt Akers from Wells Fargo. Your line is open.
Hi, Good morning, guys. Thanks for the question.
I wanted to follow up on the GTA kind of mix shift then.
How much of that do you think is organic versus maybe any inorganic pieces that you may need to add and then also.
Is there any way to think of kind of how different the margins are between those two parts of the business and also sort of how capital intense both to pizza.
Yes, let me tackle some of that and then have probably provide some color as well so as we've talked about the GTA couple of things just to highlight although we're referring to it for the first time in the acronym on this call. This has been part of the strategy that we've been in development over the last couple of years and so.
Continue to refine the way we talk about it we want to be more certainly be transparent with you I'll. Let you all know what we're focused on and how we see that maturing over the course of the next couple of years, so but it has been the journey that we've been on if you think back the last couple of acquisitions.
Referenced organic loan and circle back it was to complement that part of the strategy.
The numbers that we're sharing with you the aspirational goals to get to a greater percentage of our portfolio.
As probably provide a little bit of commentary on the pipeline as we look at our pipeline as we pursue business we want to make sure that we are focused in those key areas not at the expense of core disproportionally grow that part of the portfolio greater than the core part of the portfolio.
And also look for the opportunity to drive.
More accretive margins in the portfolio. So I wanted to provide speak specifically about some of that.
Details around that thank you.
Thank you for your question is not that the stability of the business.
Okay.
Think about this business.
Okay.
Me too.
Yeah.
100 basis points higher margin than the <unk>.
Core part of the business. So you can do the math and effectively get to low double digit EBITDA margins.
The award recognizing.
Recognizing that we have greater success.
What's implied in the Powerpoint chart, we ended up driving margins a little bit higher.
There is not the only source.
Margin expansion and then I think.
I think <unk> touched on something just as importantly, we don't view.
The increase.
East of GTA as a share of the pipeline into revenue as requiring a change in a capital light business model, we tend to see this as predominantly still very capital light business.
We are watching our capital investment in the business to ensure that we remain a good value proposition for our shareholders. So I would say that we are not seeing a fundamental change in the capital deployment strategy as it relates to investments ahead of some of these.
As production program, so I'd say fundamentally significantly I may have missed it but can you quantify how big the cash payment for acre wells that impact cash in the quarter.
Yes. So there were two predominantly change of control related payments.
Earlier last year together.
I would call it about 25% to 30%.
And and if you then.
Get the math to bridge to last year's free cash flow. The remainder was primarily working capital change, including higher bonus payments in Q1 of this year compared to Q1 of last year I always tend to think of those as good things for our employees. So as I sort of normalize for those two things.
We ended up with free cash flow in that circa $160 million to $170 million on a normalized basis.
Eric will share our normalized but that's how we think about it.
Great. That's helpful. Thank you.
Okay.
Our next question comes from the line of Bertsch, Stephen <unk> from Stifel. Your line is open.
Hey, good morning.
Right.
Purdue Saic's leverage is towards the higher end of the industry can you just walk us through how you're thinking about your leverage in relation to how aggressive you could be on the buyback program.
Yes, so so our leverage is sitting our expectation, which we've communicated fairly consistent Q now.
And we even said at points in time, we may be a little bit lower end points in time, we may be a little bit higher.
As it relates to the capital deployment and buyback question.
How we think about it we are deploying free cash flow in ways that maximize shareholder value.
And you'd mentioned fairly consistent now that our bias is towards our strategy is really based on our view.
General.
Underlying.
Tends to reflect skepticism.
This consistency.
<unk>.
As <unk> pointed out we have confidence we can consistently grow this business. So we view returns on our repurchase program as offering an attractive return on capital. So as I think about it. We also think about the capital deployment in the context of the excess cash we generate on an annual basis.
And therefore, as we think about the roughly 8 million shares of incremental authorization and what's implied in terms of.
Share count out there.
At roughly 8 million shares or so thats about three years out of the chart in the supplemental data that shows the history of repurchases of SAIC and I'd say just wants a little bit larger than the prior ones.
We think there is capacity here.
Organic cash generation of the business for us to be able to fund the repurchases out of excess capital and we can quickly.
We do this.
<unk> neutral way.
That's very helpful. Thank you.
Just a follow up to some of your comments earlier on thinking about the puts and takes of the business.
One of the larger theme outstanding.
Okay.
Is that still the case.
Packed on FY 'twenty three.
Okay.
Ganic growth or is that.
Something thats.
Further down the road.
Sure.
So we are watching.
It's a recompete that we are in the middle East we tend not to comment to great deal on those re competes I think we've seen some programs.
Sure just like everybody else and watching the timeline here it could have an impact on revenues in FY 'twenty three to the extent that the procurement process.
This remains on track, but again I think it's anybody's guess as to whether that happens or not this year.
And candidly if it pushes out of FY 'twenty suite it becomes a consideration for FY 'twenty for revenue. So we're just watching it just like everybody else.
It is a complex procurement and where they're executing mission as teams during the fantastic job.
Just just a quick clarification question on an earlier answer.
You said GTA is 200 to 300 bps above is that above your average margins for the eight 9% or is that above the core segment. Thank you for thinking about it is above the core and think of the core as low to mid 8%. So it's about two to 300 bps higher than that.
Thanks Robert.
Your next question comes from the line of Cai von <unk> from Cowen Your line is open.
Yes, thank you very much so.
The December quarter was basically very weak for the entire sector.
But I think there was a thought that bookings momentum would pick up.
The momentum you saw through.
Throughout the quarter and as.
Going into this quarter are we seeing a pickup in terms of your booking momentum.
<unk>, let me, let me touch on a little bit of that to then probably we can provide some color as well.
I think we saw Q1.
Fairly normative we didn't see anything that was.
Significantly out of the ordinary certainly the budget.
Processes has helped I think uncertainty outlays have been slower and I think you've probably heard that throughout the industry. So although we did see a positive environment.
And we continue to operate in that environment I would characterize Q1 as fairly normative as Tommy mentioned, we do have over $1 billion of new business in protest and so if you kind of partner that with the rest of Q1 I would say it was a relatively strong quarter as it relates to bookings and obviously those will clear through the process.
A quarter or so.
But I would just characterize it as fairly normative and we don't see anything swinging one way or the other going forward, obviously as the government continues to execute on their budget as we get towards the year end, we keep a close eye on.
And thank you for the question I would say broadly supportive budget environment agnostic second we are not seeing that translate necessarily into higher outlays on a month to month basis. In fact looking at the data for the last six months.
Government fiscal year.
I cannot think of a year, where the OE piece and slower in the last 20 years candidly, except maybe 2003, so to meeting the data implies a slowness, India outlay, recognizing we've got a few months left here in the year.
We did see some pressure buildup in the system or higher outlays, but we're just going to have to sit back and watch it but as of at least April we've not quite seen the data, but I think that's exactly right. It's been a fairly typical pattern normal quarter end.
We do take a fair amount of time looking at what's in the pipeline and not just <unk>, but also the pico and likely pressure on timing and I think one of the reasons were.
Remaining a little bit cautious about the revenue guide for the areas that we are continuing to see some slowness in the way that the awards, we're getting coming out of the system.
And therefore, we're just mindful of that and converting that backlog into revenue.
<unk> is a little bit harder.
Something that I think we touched on it earlier.
Sure.
And.
And as <unk> seen with our number.
And we've reported we have tremendous ceiling in which to execute and so in addition to what I'll call normal blocking and tackling of winning new business booking new business clearing protest period. Our team is doing an exceptionally good job and executing on contract growth retiring some ceiling.
And certainly seeing some of that in our revenue performance.
Very helpful. Thank you.
Pieces, but it's also.
Expanded recompete.
Some color like that.
Case, if you win it's bigger.
And what.
What are the pieces that we should be watching for.
I assume they are not all equal size, but one of the ones that are the bigger ones and.
And roughly when would you expect decisions.
Hi, I'm going to try to answer that as best I can.
Fairly start youre not going to love my answer.
We are very fortunate to be one of the incumbents as they do repositioning this portfolio.
Well.
Youre right the the absolute value of all the <unk>.
Limitations that will come out is greater in nature.
All of them uncertainty will be small business set aside.
Some of them will be work streams that arent in our kind of our long term strategy and some are absolutely are those that we believe we have a very strong position permission to win and we will absolutely win our fair share.
All that being said I really can't quantify it for you they are still in the process of.
Putting together their solutions solicitation strategy so.
<unk>.
So there's a lot of unknown. So at this juncture I really can't give you an answer I can tell you that we will pursue aggressively those parts of the business, where we believe we can differentiate where we can win.
And we can deliver excellence to our customers, but they are probably are going to be some pockets that aren't part of our strategy or may just even be satisfied for a small business portfolio.
So that's the best I can tell you at this point.
Thank you very much.
<unk>.
Okay.
Hi, good morning I.
I'd like to get your thoughts and updates on the workforce turnover rate.
Any new initiatives.
Those rates are trending year over year sequentially. However, you want to frame it.
And then does the PTA.
Sure.
But.
Aspect and filter on your hiring.
<unk> that it because.
The last sentence of your question if you could just.
Something about GTS.
Okay.
Sure if you could describe the implications.
You're sort of hiring target employee.
Okay.
As it relates to the labor market certainly.
The labor market is the height of Covid, we're seeing increased turnover as well as <unk>.
So I think just about everybody in our industry and our technology industry, but with that being said we've been remained very successful in our ability to hire great talent into the company.
And we have done some things, but I think theres a slide in the deck as we think about the value that the <unk>.
Creation for our employees.
We are very focused on ensuring that we put together a competitive benefits package. We are reinforcing the flexible work model that became one of the positives that came out of the COVID-19 situation for our employee base.
And our customers are doing the same so we continue to make sure.
And we are investing in creating an environment that a workplace, where our employees choose to stay at SAIC everyday.
That is certainly part of our strategy our people strategy.
Absolutely an underpinning of our corporate strategy.
Sorry.
Like are the consistent with the industry.
And our ability to hire I think it is absolutely outstanding So I don't it's something we pay attention to but it's not something that.
I think causes undue risk to the organization, probably actually the opposite as it relates to the type of people that we look for as we focused on GTA in some cases, it's very similar skill set.
The way in which we deliver the work can be slightly different.
The the mechanisms of the contract mechanism delivering solutions.
<unk> over just labor services.
And it can be slightly different but in many cases the type of people. The engineers are software engineers. The cloud engineered are oftentimes the same people that we've got some internal training that we're doing to make sure. Our workforce is ready as we expand as part of our portfolio and then we also look to hire individuals as well that help complement that.
I don't view it as a radical shift in the type of people the type of labor and we'll just continue to help us continue to build on that great workforce that we have today.
Thank you.
Another question on the workforce.
Do you have any sense for whether we're still in the.
The most competitive environment with the biggest wage pressure and labor mobility or are there any signs that you would observe that we have crested and work and we're either sort of stable sequentially are maybe even seeing some of those.
I'll give you an opinion.
As I talk to colleagues in the industry and even in other technology industries.
I think there is a common view that we may have already crested that we're seeing some.
Some of the less acute labor challenges across the United States and technology.
Certainly you are hearing some of the major commercial technology players message that theyre doing less hiring and and I think that that.
They need to do some hiring so so.
So I think it's too early to tell we watch this every month.
But I think just based on some conversation.
That may be we've seen the craft and it's getting better, but but again.
<unk> opinion, we don't have the data at this juncture to support that.
Thank you very much.
Thank you.
Comes from the line of Louis Depalma.
Okay.
NASDAQ.
Probably you and Joe good morning.
<unk>.
NASDAQ when SAIC acquired and agility one of the key drivers to increase your exposure to the space Force and the National reconnaissance organization It seems that.
The elevated geopolitical conflicts have resulted in a sharp increase in demand for geospatial of flash.
Earth observation services and Youre, a key provider of those services.
I was wondering is space one of your focus areas for the GTA category that you outlined because it seems very strategic for for you and a growing area.
Thank you and I will.
The simple answer is absolutely yes.
The space is a critical part of our strategy our growth strategy.
I think one of the reasons are not called out in its own box as it spans many of the so the work that we did have a secure cloud.
Cloud or an enterprise it.
To support many many space mission and so I would I would say absolutely we have seen good growth in our site based portfolio. We see continued opportunity in our space portfolio really spanning all of those areas of the growth accelerants.
Okay. Thanks.
Its helpful and one for <unk> if.
If you achieve the 65 35 split for GTA versus core and your fiscal 2025 as you've targeted what is the implication on your current eight 9% margin.
The short version of that would be tens of basis points of improvement to our margin rate.
So think of that is comfortably over 90%.
And of course, our aspirations are always higher than whats on a Powerpoint chart. So hopefully we have a chance to.
But I would say tens of.
Percentage improvement in the margin rate.
Again, as we play it's one of many avenues for us to grow margin.
The company and this happens to be a really attractive wanted to grow the company and improve margins at the same time.
Awesome, that's it for me thanks.
<unk>.
Yes.
And there are no further questions at this time I turn the call back over to Joe de Nardi for some final closing remarks.
Great. Thank you, Rob and thank you to everyone for joining US today, we look forward to speaking with you next quarter.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Okay.
Okay.
Okay.
Sure.
Okay.
Okay.
[music].
Okay.