Q2 2019 Earnings Call
Greetings welcome to the lighter second quarter earnings Conference call.
At this time all participants are in listen only mode. A brief question and answer session will follow the formal presentation.
If anyone today should require operator since during the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
At this time I will turn the conference over to Kelly Hernandez with Investor Relations Mr. Davis you may begin.
Thank you, Rob and good morning, everyone I'd like to welcome you to our second quarter 2019 earnings Conference call.
Joining me today are Roger Krone, our chairman and CEO , Jim Reagan, our Chief Financial Officer, and other members of the lightest management team.
Today, we will discuss our results for the quarter ending June 28 2018.
Roger will lead off the call with notable highlights from the quarter as well as comments on the market environment and our company 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 the supplementary financial information file are provided on the Investor Relations section of our website at IR dot lighter dot com.
With that I'll turn the call over to Roger Krone.
Thank you Kelly and thank you all for joining US this morning for our second quarter 2019 earnings Conference call.
Our growth momentum continues to accelerate through the second quarter.
With nearly 9% organic revenue growth record backlog position and strong win rates.
Our success in executing against our pipeline and driving growth across all segments of our business enables us to raise our full year guidance for both revenue and earnings.
In addition, our recently announced dividend increase demonstrates the confidence of the board of directors and the management team and the strength of the company's cash flow generation and ability to sustainably generate value for our shareholders.
Importantly, we achieved key wins during the quarter that increased our backlog to one to 21.7 billion, reaching a record level that also serves as a leading indicator of our future growth potential.
These successes resulted from our strategic focus on delivering innovative solutions to our customers and leveraging the scale of our organization.
A couple of highlights from the quarters Awards.
We successfully defended a protest on our takeaway win with Nasa's end user services and technologies program or Nash.
Under this contract Leidos will provide managed to secure and maintain a central ITC services that support the agencies core business scientific research and computational abilities. The single award contract has a total potential value of over $2.9 billion over the 10 year period of performance.
We also successfully defended are protesting one another takeaway win.
With the Air Force Air Combat command to support the war fighters intelligence surveillance and reconnaissance mission through intelligence gathering analysis distribution and training across the HCC enterprise.
This single award task order as a total ceiling value of approximately $900 million if all options are exercised.
Business development remains a key priority of the company's strategy and we have transformed it into a cross functional and collaborative effort.
I am proud to see us hitting our stride and winning the important work with key customers.
During the quarter, we continue to focus on leveraging the strong revenue growth to generate more cash.
We successfully converted 100% of non-GAAP net income to free cash flow and exited the quarter with $660 million in cash and equivalents on hand.
As we continue to evaluate options for deploying our excess capital in line with our stated capital deployment philosophy, we announced yesterday.
The companys first ever dividend increase.
The 6% increase to the dividend is effective with the September payment and raises our quarterly dividend from 32 to 30 34 cents per share.
This increase reflects confidence in our long term performance and reinforces our commitment to delivering strong returns to shareholders.
We remain committed to thoughtfully deploying our excess capital in line with our stated capital deployment philosophy, which balances our investments for growth, including organic and M&A with returning capital to shareholders through dividends and share repurchases.
The strong revenue growth and positive momentum in our business has driven a positive impact on our hiring and retention efforts.
During the quarter, we added a net 1200, new employees to our organization, increasing our total head count to more than 33000.
The takeaway wins in particular are helping our hiring efforts into the clear domain.
Being able to transfer cleared personnel directly into Leidos family helps alleviate some of the tightness in the cleared labor market.
While it's still takes significant time to move our new employees through the clearance process. We are encouraged by the progress made by the national background investigative Bureau in reducing the clearance backlog, while there's still room for improvement. We are seeing early results of the targeted effort by the bureau to reduce the backlog awaiting clearance.
We are excited to welcome all of our new employees and look forward to continuing to grow our organization to build on our customers Trust and support them with their most critical missions.
Continuing with the people thing I wanted to highlight a couple of refinements, we have made to our executive leadership team during the quarter.
I am pleased to announce the promotion of Jim Carter lean to the position of Chief Technology Officer for the company.
Prior to joining the company in 2018, Jim spent decades and technical leadership roles throughout government academia and industry.
Including having served as the director of the special programs office at the Defense Advanced Research projects agency or DARPA.
Jim is also a member of the Defense Science Board.
And was previously vice president of the vast development programs at Northrop Grumman electronic systems.
Jim will continue to drive technical excellence throughout the enterprise, ensuring differentiated solutions in critical technology areas, ranging from artificial intelligence and machine learning to cyber defense to rapid and secure delivery of mission critical software.
He will also lead the effort to leverage the cutting edge capabilities incubated in the Leidos innovation center the link throughout the business to deliver solutions to customers in all of our served markets.
Jim takes over the role from June Kantor, who has moved into a newly created position of chief of performance excellence and strategic partnerships.
In this role Jim will be responsible for enhancing our strategic supplier framework and driving the Leidos business framework principles throughout all program operations.
Turning now to the macro environment conditions continue to remain quite favorable.
The recent passage in the house of the bipartisan budget Act and the expected approval by the administration and Senate.
Is positive for our business.
The Bill allows for stable predictable and large defense and discretionary budgets for two more years.
Government fiscal year, 20 and 21.
Although appropriations are still outstanding the overall budget growth of 3% in defense and 4.5% in non defense provide a supportive foundation for the continued growth of our business.
The key priorities embedded in the National Defense strategy remain unchanged and continue to tightly aligned with our core capabilities and our ability to provide innovative solutions to help our customers execute on their most critical missions.
As we look ahead and as previously mentioned the strength of our results through the halfway point in the year combined with the continued tailwinds, we see in the market landscape.
Give us confidence to raise both our revenue and earning expectations for the full year.
Jim will provide details of the revised guidance in a moment.
Before I hand, the call over to Jim as we did last quarter. We again won a spotlight some of the social and community initiatives, we engage in as a company.
This quarter I want to highlight the progress that we have made in our efforts to help resolve the nationwide opioid epidemic the scale of which is alarming.
In response to difficult times, some of our own employees have experience with family members affected by this epidemic.
Leidos launched the CEO pledge, which encourages business leaders to create and nurture work environments that are safe for conversations about addictions to educate employees about the potential dangers of opioids and to support nonprofit organizations focused on additional prevention and recovery.
I am pleased to report that to date more than 60 Ceos from organizations across the country have demonstrated their commitment to ending the epidemic by signing the CEO pledge and making changes in their organizations to support employees. Throughout this crisis. There is still much work to be done and our goal is to have at least 100 signatories what I'm proud to share this initiative with you.
As we recognize that all of us can share in helping to navigate this growing health concern in the communities, where we live and work.
In conclusion, we remain focused on delivering innovative solutions to our customers by leveraging the strength of our scale.
We continue to focus on leveraging our success with customers to generate cash in the business.
With that I'll turn the call over to Jim Reagan, our Chief Financial Officer for more details on our second quarter results and guidance.
Thanks, Roger and thanks to everyone for joining us on the call today in summary, we have achieved continuing strong execution across all of our segments.
Our revenue growth of 8.8% over the prior year is the highest organic growth we've seen in several years, driven by new program wins and accelerated on contract growth.
We were able to deliver this strong growth, while maintaining adjusted EBITDA margins of 10.0% in line with our long term targets.
Lower profit write ups were the primary driver of the year over year margin compression.
This is reflective of our revenue composition that is more heavily weighted to early phase programs as we have discussed previously.
non-GAAP diluted EPS increased four cents over the prior year to one dollar and 16 cents, primarily driven by the lower share count, resulting from our share repurchases over the past year.
Operating cash flows were $186 million.
Reflecting 110% conversion of non-GAAP net income.
We had another great quarter on the business development front.
Looking over 3 billion in net awards into our backlog, including significant contribution from takeaway wins.
Takeaways and new business represented nearly 70% of the bookings for the quarter and more than 60% of bookings year to date.
Our ending backlog of 21.7 billion is up 18% over the past year and 27% over the past two years, highlighting the success of our business development strategy and our scale advantage.
In the quarter, we submitted $10.3 billion of proposals, which after accounting for some large decisions adjudicated in the period resulted in 30 billion in submitted pending decision at quarter end.
Now for an overview of our segment results.
Defense solutions grew 6.7% over the prior year quarter as new program revenues more than offset program completions.
non-GAAP operating margins of 8.6% declined 20 basis points from the prior year largely related to the results of newer programs, which carry lower margins in the early phase.
Defense solutions also booked over 1.7 billion of net awards, including a large takeaway win resulting in a book to Bill of 1.3 acts for the quarter and on a trailing 12 month basis.
In our civil segment.
Revenues grew 11% organically when adjusting for the sale of our commercial cyber business.
This growth largely reflects the ramp up of recent takeaway wins.
non-GAAP operating margins in our civil segment declined 40 basis points from the prior year due to lower net profit write ups and a revenue composition, it's more heavily weighted to early phase programs and the materials.
Civil segment bookings were very strong at 1.2 billion, reflecting a large takeaway award.
The result was a book to Bill of 1.3 acts for the quarter and zero point Ninex on a trailing 12 month basis.
And finally, our health segment results here again showed strong growth with dim sum wave deployments and expansion on other programs contributing to 11% revenue growth over the prior year.
non-GAAP operating margins of 14.4% in the health group were again very strong but down from the prior year's level as the margin profile in certain recompete programs shifted to a more normalized level that we have previously previewed with you.
And from a bookings perspective, our health segment generated a little over a $100 million in that bookings and while this level is lower than in the past is driven primarily by delays in the procurement process rather than by any reflection of win rates.
Q2 decision volume was very low and we continue to have a healthy pipeline of awards awaiting decision, which we expect to be resolved over the coming months.
On a trailing 12 month basis health has a book to Bill of 2.0, X. and remains very well positioned in the market.
To summarize we are pleased with the performance across our entire business and as Roger mentioned, we are updating our 2019 revenue and EPS guidance to reflect our strong results through the second quarter and increased seven second half visibility.
First we are raising and narrowing our revenue guidance to a range of 10.65 to 10.95 billion, an increase of $100 million at the midpoint from the prior range.
Second, reflecting the higher revenue growth and slightly lower estimated net interest expenses were also raising and narrowing our earnings per share guidance. We now expect non-GAAP diluted EPS for the year to be in the range of $4.50 to 475.
Representing a 15% increase at the midpoint over the prior range.
Our expectation for adjusted EBITDA margins and cash flow from operations remained unchanged.
With that I'll turn the call over to Rob. So we can take some questions.
Thank you.
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One moment please poll for questions.
Thank you.
Our first question today is from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question.
Good morning, and thank you.
Just a.
Picked your question for you Roger first I think you mentioned a $30 billion pipeline. This quarter you had 36 billion last quarter very large numbers. Maybe can you comment is this an overall industry trend, where you're seeing bigger award sizes or is the consolidation of <unk>, resulting in more bits per program.
I really can't speak to what's going on with other companies do we have stated for a long time that we wanted to pursue larger programs and.
By growing and adding the scale that we have we now go after.
Fewer programs, but larger in the amount and I would tell you for Leidos. It is a trend that we expect to continue.
I think you'd have to go company by company to see what everybody else is doing but.
And.
I think you had a second part which is sort of like is do we see the customer aggregating or dis aggregating and it's interesting they kind of they go in waves and we see them aggregate and then we have another program that we've had for a long time, which they're going to break into a couple pieces. A navy Nexgen is an example, where the old and see my was one contract and they are essentially going to break it into two so it. It just comes and goes but for US our strategy has been to go after larger larger programs.
Makes sense and then maybe a follow up to that on NASA next now that the protest is over can you give us any color on how we think about the ramp of the program.
The potential to go to the high end of that I think 3 billion dollar number on.
Just the profit impact.
Well I.
This is Jim Sheila Thanks for your question I think that the the best way to think about the ramp of NASA nest is first of all we take that into the bookings number.
By task order.
And that that will be something that is going to ramp.
Over the next 12 to 18 months the profit profile on that program is pretty consistent with what our overall average is we don't normally comment with very specific numbers on.
On the profit margins on a program by program basis, but I think it's fair to say that.
You can think of the NASA nest program as being relatively consistent.
Thank you thanks.
The next question is from the line of Rob Spingarn with Credit Suisse. Please proceed with your question.
Hi, good morning.
Hey, good morning, Rob.
So Roger I wanted to home in on the on the growth here. It's obviously a theme in the sector. It's come on quite strong you guys talked about it earlier.
And at the same time, I don't want to putting water on this but I wanted to reconcile your 3% to 4% type numbers that you referred to earlier.
With the fact that the budgets are beginning to flatten I understand there's going to be some lag, but could you talk about.
Your growth projections in your assessment of the market in the context of a five if thats kind of flattish, especially when we look at this 21 budget flat with 20.
Yes.
So I had 3% for defense, four and a half or.
Non defense and.
Yeah of course, you have to do the analysis underneath that and you have to look at.
Two components, how long does it take a budget to roll through the PBS system to become outlays and that can often be 18 to 24 months. So when you get a strong budget in 2021. It gives you momentum for a couple of a couple of years and then you then you have to dissect both the defense and the civil budgets and look at where the spend is and what kind of accounts are growing and what accounts are shrinking and we're seeing a lot of favorable favorable movement for us.
Modernization digital transformation move to the cloud back office efficiencies, a consolidation really across federal government writ large so.
And we've always said that.
There.
The budget overall is going to be kind of bounded by that three four percentage as you just can't go up forever, but we're very very pleased by the strength that we've had over the last couple of years to strength going forward and then where we see increases honestly agency by agency by agency then accounts within those agencies.
Okay, and then on that could you maybe delve into some of the larger program opportunities in any roll offs and perhaps you can comment I think.
Navy next and just came up but of course with the change in structure and the bit of the leg, we talk about that one a little bit.
Yeah, well Costar with Navy Nexgen, which is the old in NMCI I and we are bidding on a portion of that called semi to T Y which really is is.
More of the architecture and the network as opposed to buying the equipment, where we had hoped that that would be a fall award think than the Navy has gone back and looked at their procurement. It is making some adjustments to the solicitation and we expect that now probably will go to next year and that we won't see an award on Navy Nexgen till 2020.
That's that's my my Best guess at this time, Rob you know we have two other large bids outstanding I'll just touch on those of the Hanford Department of energy Recompete and we're hopeful that's within a couple of weeks, maybe a onetime it was supposed to be on the 29th I actually think it's going to be a week or two behind that and then our large.
Infrastructure program at DISA that we call the global support.
Management organization or Geo CMO and that is probably four weeks six weeks ish.
We are still hopeful that there will be an award made.
Probably in the third quarter, and then you've got to think about protest and things from there when that actually might enter into someone's backlog.
Okay anything going the other way hi, rolling off.
Well of course National nest came off and so that hurt our submits right because I went from submits to award.
We talked about HCC is are those are the big ones in the in the period.
Okay. Thank you very much yeah. Thank you.
The next question is from the line of Cai von Rumohr with Cowen and company. Please proceed with your question.
Yes, thanks, so much and good quarter.
So.
NASA nest and the is our program both are big but they both are a quasar I'd to structure, how much did they actually contribute to your $3 billion of awards in the quarter.
Hi, This is Jim.
You can think of those contributing to the additional backlog is being a little bit under $1 billion between the two of them.
Got it okay.
And then could you give us some color.
If we exclude GSM, though you know, what's the booking environment that you're seeing kind of.
Over the last couple of weeks and your anticipation of the third quarter, which normally as the seasonal peak.
Well Cai we were.
We were pleased that really related more to protest activity that we had a.
Second quarter.
And in fact, we still have the rest of the week to go in the month, which is really third quarter, but we're looking at in July has been a good quarter, although we're still waiting to see how it ends up but you're absolutely right third quarter has always been or cyclical cyclical high and we have no reason to believe that that would be any different.
Again, we're pleased by the budget action and you just get a sense that a lot of the federal agencies really want to get.
Decisions made before the end of the fiscal year and now with budget certainty. There is no reason for them to slow down so.
We expect most of these things to happen.
Albeit in a navy Nexgen has got to go through some revisions and I don't think that's going to be able to happen in the fiscal year.
Thank you very much.
The next question comes from the line of Edward Caso with Wells Fargo. Please proceed with your question.
Hi, good morning, Congrats on another set of good numbers here.
You mentioned you could win rates could you frame that a little bit more sort of what levels.
How much improvement thanks.
Yes, as we've said before we don't give specifics on it.
For details on win rate, but qualitatively the way, we think about him is that.
There's only been really one significant disappointment this year to date on Recompetes other than that you know recompete win rates have been.
What we would really like you know.
In the mean.
Roughly with the exceptional one thing if you carve that out it's roughly high eightys around 90%, but the thing that's been most notable in the thing that I think can help contribute to both the current revenue growth being above what you would think of coming from normal budget increases as well as our prospect for the rest of the year and into the future. It really has been.
Our success in new business and takeaways.
In helping to get a little bit of.
Some nice share growth and so.
You normally think of.
Takeaways as being kind of the converse of Recompetes right. So if you think of.
A lot of companies think of a good number for takeaways as being somewhere between 20 and 30% our takeaway win rates have been well in excess of that and our new business win rates have also been well in excess of the 30% to 40% that I know a lot of companies target. So I'll leave it at that.
Great. My other question is you mentioned strong net total.
Head Count heads can you tell us a little bit more about your attrition and then split it sort of capital reach and outside of the capital region. Thanks.
I think both you and I will comment on that.
Our attrition is cyclical downturn.
It's still not as low as we would like it to be.
We.
And it's a real focused effort for us we have broken it into what we call voluntary and involuntary and we have fought really really hard on we call involuntary and that's that's when a contract comes to an end and we have trouble redeploying because of geography or skill set and we're really really working hard with our team our leaders and our employees to more aggressive lead redeploy the.
The employees and then voluntary is down and you're not we're I think anybody would like it to be.
And I would say in the National capital region.
Probably the hottest market for that type of schools that we hire but we have been pleased with our ability to hire people and to retain people and they're clearly isolated groups. If you have a.
Hi level security clearance and you live in the <unk>.
Maryland area, that's probably the hottest commodity I think it just is going to remain that we've had a strategy that we've talked about in the past of when the contract permits us to do the work beyond the 25 mile radius that we remove that work to other sites, where our retention is higher and that has been successful for us we have places in Morgantown West Virginia in Charlotte.
Charlottesville, and frankly, Saint Louis and Eagan, Minnesota, where.
People tend to stay.
Longer and enjoy the kind of work that we do.
Great. Thank you.
Yes.
The next question comes from the line of Matt Sharpe with Morgan Stanley . Please proceed with your question.
Good morning, gentlemen, and nice quarter.
Thank you.
Just wanted to touch on the budget here for a moment, obviously going into 2019, it looks like a CR was likely a.
Got to play out in four Q, but at this point, where negotiations are with Congress and the president that might no longer being the cards.
If we do get a deal prior to October one how does that impact for Q revenue is there upside there or just what's the play off between revenue and the budget dynamics at this point in that I would say is is.
Significant.
And I am sure that you you would adjust your model I'll just talk about the behavior if you're.
The government program manager.
And you have to operate under CR Youre really restricted in what you're going to do relative expanding your statement of work and and.
With.
An authorization bill and hopefully appropriations and by what I think I think we will get most of the bills done the DHS Bill May languish.
And they may take a little longer but I think they will they will spike that out.
So it it encourages what we call normal order, which obviously has been anything but normal.
And people will now spend the money that they have they have been obligated I think it stabilizes. It gives us a slight lift but I think it has confidence and certainty to our third quarter fourth quarter revenue and it really lets us look at the election season with a lot more confidence there's going to be again I think there is another debate Tonight. There is just going to be a lot going on and.
Elections tend to be the the sport in the U.S. and the good news is we've taken sort of budget battles off the table and that's great for our customers and their ability to do their mission and conduct the work of the nation.
Got it thanks, and then just a quick quick one on competition.
Over the last couple of years, obviously some of your peers have been playing catch up in terms of scaling of their businesses, but but at this point there are some other notable names with substantial size.
I was wondering if you're beginning to see elevated competition for some of the larger opportunities that they may now be able to pursue.
It has there been a change in behavior or or more names bidding on the same programs at this point.
Let's see I first of all I would tell you that it's always been.
A very very competitive marketplace, I mean, just unbelievable and.
Which is the world that we live in and.
The five years that I've been here, we've we've it's always.
A very very difficult and you really have to put your best foot forward you have to be really really good at presenting your technical story.
I would say because of consolidation we have seen maybe the number of bidders where it might have been five now there for.
Or maybe it goes down to three especially for some bids but that doesnt reduce the amount of competition menu.
As I learned in my prior career, sometimes you only need two competitors to have really robust competition and we have found here, but I wouldn't say it's gotten worse.
I think.
It is about where it has always been and you know it motivates us to come up with great.
Solutions that are differentiated from our peers and to be able to articulate articulate those well in their proposals that we write and present to customers.
Got it thank you.
Our next question comes from the line of Jon Raviv with Citigroup. Please proceed with your question.
Hey, good morning on capital allocation, so you've got the dividend increase but recall was a bit light in the quarter with your stock, making all time highs and also you've previously highlighted.
M&A opportunities now that ice and she has integrated so so I guess big picture question, almost how are you evaluating organic versus inorganic bursary Paul at this point.
Well you know John we've we've been.
May be mined.
Numbingly, consistent and how we've talked about capital deployment Weve mentioned in the prepared remarks and.
We'll do the same we.
We first we spend or first dollar internally on organic.
Growth and we try to use that to support customer mission and we're always thinking about.
Creative ways that we can do that you saw a little increase in capital.
Because we're able to deploy some of our balance sheet.
To support customers.
We are whatever active in M&A might mean, but just as we look at a lot of opportunities we think thats.
A prudent thing for us to do.
So we're we're always thoughtful about how we spend your money.
We want to make sure that we create long term value that is sustainable and not just over a couple of years because with interest rates today. Almost every deal is going to be accretive in the short term, we want to make sure from like a Dcs standpoint that we see we see true value and.
We we hope that you know there will be some deals out there that are well aligned for us, but if there isn't then you know just a we will return the capital in an efficient ways to our owners and as we've always said the dividends very very important couldn't be more pleased we had to go back and check but.
We found out we never actually increased the dividend.
So it's kind of remarkable thing and.
Over everybody, we'll enjoy that and then Oh, we have obviously been committed to share repurchases and that's.
That's in our our.
Our toolbox as well.
Okay. Thank you and then.
As you see growth opportunities really pick up here.
How does that change the way you consider where else you can spend the cash specifically on investments in working capital.
Capex or some more internally funded R&D.
Yes, John This is Jim you know, we're we're always analyzing where we get the best return and we you know over the.
Past 18 months, we've increased the run rate on how much we spend on investments in new business funds, meaning marketing and bid and proposal costs and in addition to that we are part of that investment has made the deployment of that money much more efficient. So we're able to bid on more for the same amount of money.
So we've had some nice returns on those investments getting to the.
Inorganic side.
So I want to underscore what you I think you just should have heard from what Roger said, which is that our process.
To look at those opportunities is ongoing we've got a team of people that is evaluating opportunities.
And it is in a very disciplined fashion and so you don't don't mistake the lack of.
Meaningful M&A announcements from the company I mean, we're not actively looking and that you know.
You should not be surprised if you hear something from us in the coming six months.
On something that is strategic it's meaningful and it meets the financial criteria that we're going to continue to stick to before we undertake anything any big transaction.
And as Roger said.
We will continue to keep share buybacks in our toolbox for capital deployment.
Thank you.
Our next question comes from the line of Joseph Denardi with Stifel. Please proceed with your question.
Hey, good morning.
Jim and Roger you guys have sounded pretty bullish for the past.
Several quarters it seems like on your takeaway win success Im just wondering if you could provide a little bit deeper in terms of.
What's driving that is it past performance price kind of the the technical offering where are you seeing the.
The best performance there and please don't say all three in your answer.
Okay.
Let's just kind of go back.
And look at the journey that we've been on.
When we were fortunate enough to close the Irish Ingeus transaction, we talked a lot about being able to reset their cost structure that traditional business and so we would tell you that.
Price we were able.
By bringing them into our cost structure, and then taking advantage of the combined scale, we've been able not that we never lose on price but.
It is not the number one reason that we lose and so.
And that helped Eversource gun immediate shot, but what has really helped us is.
Kind of going back to our roots investing in what we call, Iran, winning CRAD from the SNC agencies that help to develop technology that we then.
Deploy against the larger programs, what we call the programs of record, which have fueled our growth and every time, we write or proposal, we and kind of ask ourselves. The question. What are we offering the customer that is unique and differentiated to our offering.
And then we've got a great team behind that that continues to refresh the technology that we generate to help us create that differentiated offering so we want to win on our technical approach. That's the company that's the.
The core and the culture that we have here and.
And we're now in a position where we are.
And by will obviously, we don't win everything there's always losses in their launches I wish.
We had one but we are we are.
We are pleased with the improvements that we've made in our our win rate based upon differentiated technology and I think that has been the difference for us.
That's helpful. Thank you and then Jim just from a a recompete standpoint is there anything to call out as unusual next year or is it just kind of the normal level. Thank you.
It will be kind of back to the normal level for next year. This year, we've got some of those big ones.
You've heard about Hanford and gizmo earlier in the call.
But.
We're not going to have nearly as many big lumpy.
Recompetes that are going to be submitted next year like we do this year.
Thank you.
Yes.
Our next question comes from the line of Kevin persons with Goldman Sachs. Please proceed with your questions.
Hey, good morning, everyone, Hey, good morning, guys.
Hey, guys. If you look out over the next few years, what would you say is the gating factor for your growth as it is at the amount of work you can win is it the rate at which you can hire is it the kind of budget dollars that the government's able to get passed and how is that different than kind of the last couple of years.
Well, it's not it's not been win rate is not the ability to hire <unk>. What he has been a great journey for all of US is our ability to address new markets and we've been able to do that with the addition of the ice Ngs organization. They brought a long history and long relationships with customers that lightest didn't have so that expanded our addressable market and I think to maintain the clip.
We have to continue to think about how do we continue to expand our addressable market by way not just to new customers like new federal agencies, but within a federal agency that we've had a long relationship with to expand our offering across they're directorships and.
Its cross selling so it's we've we've sold the capability to one agency and then how do we.
Take the lessons learned from the work that we've done for that agency and use that to expand our offering at a second agency for which we have a relationship with but we have not traditionally sold them.
That.
That kind of a solution, so but people new business funds, our ability to win our scale.
We're nowhere near being constrained in those regards.
Got it that's helpful.
I think we haven't talked about jet Idlewild, just maybe any updated thoughts on kind of the aspirations of non traditional companies in the space whether other.
Thread has increased or there's more opportunity in your view to partner with them on something like a July rollout yeah, well of course, we were not a we're not a a bidder on Jed I.
And our.
Our prediction is that Jed I will go forward and they'll be award made.
Relatively soon we have done.
Digital transformation cloud hosting with all of the cloud providers. We work we have ADW certified people way of Azure certified people I would say that we have great relationships with all of the offers and with the eventual eventual a customer and.
We just see this as a way for our customers to reduce the cost right of ITC spend and be able to change the choose to tail ratio of the amount of money that the customer spends to operate the they're back offices, vice providing yeah mission capable of.
Programs that further the goals and objectives of the agency so.
We are thrilled and again all the competitors have reached out they look for mission partners like us to come in.
And help the customer better utilize their cloud hosting capability.
Got it thank you.
Yes.
Our next question is from the line of Tobey Sommer with Suntrust. Robinson. Please proceed with your question.
Thanks.
You you commented a couple of times on questions about size of contracts and competition.
I was wondering at the segment level, if there is an echelon of contracts.
Beyond the Companys easy reach now or you can attain kind of everything you want at the scale you are in those segments.
The.
Let me answer the question I think you asked if not follow up so although you might view leidos at the corporate level is having scale. The question is in the four segments are they large enough for which they also have scale and therefore are free to bid on any size of contracted it.
That they may.
C and the customer space.
And the answer is absolutely and I would further comment boy that's true in the U.S. is also true in the United Kingdom in Australia, where we have a significant operations and in a few other select countries, where we feel we have reached back and the scope and the scale that we can go after.
Hundreds of millions and billions of equivalent U.S.U.S.U.S.U.S. dollar work and what what we have really strive to do at the company is to create an environment where collaboration is natural and so if the health group feels like you know maybe in machine learning. They don't quite have the depth that they need they talk to the CTO and we have a CTO council across the company and they will seek out a machine learning capability and the other groups and in delaying our latest innovation center and they will be able to pull that across and that has really contributed to some of our success as of late is the ability to.
To leverage what all of Leidos knows in going after competitions.
Thank you.
Could you comment on the ramp and expected current tour of Genesis and then Roger I was curious could you also maybe tell us what is the pitch to prospective employees as to why they should choose light dose as an employer.
Okay great.
And we are near the end I will try to go quick first of all on the on the Genesis program.
We are now actively involved into waived appointments and.
But where there are no longer sequential we've kind of changed the order. So we're we're implementing a wave one and wave for.
And so were.
Fully involved in those way for began last week of June we expect to add another wave about every three months and.
That means for the next Oh, probably three years, maybe more than that we will have two waves ongoing and so that says that we should see a ramp in 19 and the peak activity occurring probably late 21.
Early early early 22.
We have agreed with the customer on the deployment schedule that has been locked down.
We've got a great team our DJ customer has been really really supportive, we're making terrific progress. So that program is really hitting.
Hitting its stride.
On why people come to light of this we were like everything we do we do surveys we talk to employees on the way in we also talk to employees, who leave we think there are three reasons that people come first is they love the nature of the work that we do.
They we have a mission we support very very important customers most of which.
Our at the.
The national level, whether it be social security payments National security Intel organizations.
Transforming health in the United States, our employees Love that second is they love the professional environment and the people that they work with.
So great people attract great people is a cycle of that that we just love and then the third is they come here for professional development. The opportunity are continuing education programs, our certificate programs the ability to grow their skill set.
To be lifelong.
Learners and to be rewarded for their performance.
And frankly to see the growth of the company, which creates opportunities to do more to work on larger programs to have more responsibility and eventually to move up the organization and be a leader at Leidos.
Thank you.
Thank you we have reached the end of our question and answer session I will now turn the call over to Kelly Hernandez for closing remarks.
Thank you Rob.
Thank you all for your time this morning and for your interest in light of this we look forward to updating you again next quarter have great day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.