Q2 2024 Leidos Holdings Inc Earnings Call

Operator: Greetings. Welcome to Leidos' second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Operator: Greetings. Welcome to Lighthouse 2nd quarter 2024 earnings conference call. At this time, over distance, on a listen-only mode. A brief question and answer session will follow the form of presentation. Please note, this conference is being recorded.

Speaker Change: Greetings. Welcome to Leidos' second quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode.

Operator: 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.

Speaker Change: 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.

Operator: At this time, I'll send a conference over to Stuart Davis, Woman Vessel Relations.

Stuart Davis: Thank you, operator, and good morning, everyone. I'd like to welcome you to our 2nd 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.

Unknown Executive: 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 two 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 uncertainty. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially.

Unknown Executive: 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 slide. With that, I'll turn the call over to Tom Bell, who will begin on slide four.

Speaker Change: 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.

Speaker Change: 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.

Stuart Davis: 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.

Speaker Change: 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.

Speaker Change: Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially.

Stuart Davis: Finally, as shown on slide 3, during the call, we'll discuss gap and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides.

Speaker Change: Finally, as shown on slide 3, during the call we'll discuss GAAP and non-GAAP financial measures.

Speaker Change: 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.

Stuart Davis: 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 Lighthouse. 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.

Thomas A. 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. 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.

Thomas A. Bell: Thank you, Stuart, and good morning, everyone.

Thomas A. Bell: It's great to be with you all again today to report a record quarter for Leidos.

Thomas A. Bell: In this quarter, organic growth remained strong, achieving a record adjusted EBITDA margin of 13.5%.

Thomas A. Bell: Year-to-date, we've delivered industry-leading profitable growth, with adjusted diluted EPS 50% higher than last year.

Thomas A. Bell: The team is doing an excellent job converting our earnings into cash.

Thomas A. Bell: In turn, this has allowed us to continue to deploy capital to grow shareholder value per our plan.

Thomas A. Bell: We're now halfway through our commitment to repurchase $500 million worth of shares this year.

Thomas A. Bell: 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.

Tom Bell: Chris will give you a complete update on our financials and our guidance later in the call.

Thomas A. Bell: Chris will give you a complete update on our financials and our guidance later in the call.

Tom Bell: One year ago, on my first call with you all, I laid out four focus areas to begin Lighthouse's journey to best-in-class performance. In stilling in Lighthouse, a promise is 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 Lighthouse North Star strategy. First, our team has fully embraced a promise is made, promises kept blocked.

Thomas A. Bell: 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. First, our team has fully embraced a promises made, promises kept philosophy.

Christopher R. Cage: 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.

Christopher R. Cage: Instilling in Leidos a promises made, promises kept culture.

Christopher R. Cage: Sharpening Our Strategy

Christopher R. Cage: Improving the performance of previous acquisitions.

Christopher R. Cage: and enhancing our ability to win new business.

Christopher R. Cage: I'd like to take this opportunity to update you on the meaningful progress we're making in these areas.

Christopher R. Cage: I see this progress as foundational to putting ourselves in a great position to execute our forthcoming Leidos North Star strategy.

Christopher R. Cage: First, our team has fully embraced a Promises Made, Promises Kept philosophy.

Tom Bell: 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. It's certainly over time to grow shareholder value.

Thomas A. Bell: 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, which 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.

Christopher R. Cage: As part of this, we've made a firm commitment to each other to drive operational improvement, profitable growth, and robust cash conversion.

Christopher R. Cage: 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.

Christopher R. Cage: 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.

Tom Bell: 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 your 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 harness to best differentiate our solutions for our customers.

Christopher R. Cage: 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.

Christopher R. Cage: This brings me to that second focus area, creating our new North Star Strategy.

Thomas A. Bell: While we continue to deliver robust in-year program execution, and the energy and insights that are beginning to come into focus because of our purposeful strategy process are very intriguing, our own exclusive prediction of the challenges our customers will face, the solutions those challenges will require, and the technologies we must create and harness to best differentiate our solutions for our customers. This strategy will both leverage and enhance our current core business in the future we foresee. Technological innovation is and will remain a cornerstone of life. And our enterprise-wide technology investments are now more than 1% of total revenue and growing. Trusted Mission AI

Christopher R. Cage: While we continue to deliver robust in-year program execution, we are also aggressively prosecuting our year of deep strategic thinking.

Christopher R. Cage: And the energy and insights that are beginning to come into focus because of our purposeful strategy process are very intriguing.

Christopher R. Cage: We've now completed work on the Leidos Proprietary Hypothesis of the Future.

Christopher R. Cage: our own exclusive prediction of the challenges our customers will face, the solutions those challenges will require, and the technologies we must create and harness to best differentiate our solutions for our customers.

Tom Bell: 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.

Speaker Change: Informed by our hypothesis of the future, we're now halfway through crafting a new business strategy for Leidos.

Speaker Change: This strategy will both leverage and enhance our current core businesses and uniquely position us for outstanding success in the future we foresee.

Speaker Change: One clear component of our strategy will remain our focus on technical differentiators, our golden bolts.

Speaker Change: Technological innovation is and will remain a cornerstone of Leidos.

Speaker Change: And our enterprise-wide technology investments are now more than 1% of total revenue and growing.

Speaker Change: At our recent Investor Technology Day, we went in-depth on one of those golden bolts, Trusted Mission AI.

Tom Bell: 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.

Thomas A. Bell: Those of you who were able to join us witnessed firsthand our brilliant team in action. So everything we do, as the number one provider of IT to the federal government and the number eight U.S. 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. As a result, over the last three years, we've received more than $5 billion in awards that cite our zero-trust methodology as a differentiated strength.

Speaker Change: Those of you who were able to join us witnessed firsthand our brilliant team in action.

Speaker Change: Demonstrating how we use trusted mission AI to drive productive disruption across our customers' missions.

Speaker Change: We believe that when it comes to AI, the mission is the market.

Speaker Change: So, everything we do as the number one provider of IT to the federal government and the number eight U.S. defense contractor is an opportunity to exploit and deploy trusted mission AI for our customers' mission benefit.

Speaker Change: Another area of proactive investment for us remains cyber security. For instance, we've been investing in Zero Trust for years, before there was a requirement for it to be adopted by federal agencies.

Tom Bell: 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.

Speaker Change: 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.

Speaker Change: We're currently pioneering the application of quantum technologies to enable highly secure networks.

Thomas A. Bell: We're executing contract R&D for DARPA in this area and investing in post-qubit encryption technologies and solutions that 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, each of these now on a robust positive trajectory, and Satellite Payloads was a key supplier to the Space Development Agency's Wide Field of View Sensor Program within its proliferated warfighting space architecture and our current actual mission performance in space. On force protection, we've delivered 14 IF-PIC and DURING-SHIELD The Army recognizes this system's unrivaled air defense capability.

Speaker Change: We're executing contract R&D for DARPA in this area and investing in post-quantum encryption technologies and solutions.

Speaker Change: These will ensure our customers can rapidly respond to future developments in quantum computing.

Tom Bell: 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 and 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 agencies' wide field-of-view sensor program within its proliferated war-fighting space architecture. We have delivered all our payloads for Toronto, and those payloads were the first ones in lower orbit, providing FDA actual on-orbit imagery.

Speaker Change: These examples give you some understanding of our forward-looking approach to the market and our track record of investing ahead of demand.

Speaker Change: Third, we're on track to unlock the strategic value from the large acquisitions we made in 2020 and 2021, specifically Dynetics and Security Detection and Automation.

Speaker Change: On Dynetics, we have doubled down on three specific areas, each of these now on a robust, positive trajectory.

Speaker Change: And Satellite Payloads were a key supplier to the Space Development Agency's Wide Field of View Sensor Program within its proliferated warfighting space architecture.

Speaker Change: We have delivered all our payloads for Tron Zero, and those payloads were the first ones in low-Earth orbit, providing SDA actual on-orbit imagery.

Tom Bell: In addition, we remain on track to deliver our Toronto One payloads in early 2025. And we are teamed with Sierra Space to be their payload provider on their Toronto Two Birds. The Space Development Agency has recently issued their RFI for Toronto Three. So, in some, we believe our current comprehensive role on all three existing Toronto's 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 IF pick and during shield prototypes, which are successfully working their way through government testing.

Speaker Change: In addition, we remain on track to deliver our Tronch 1 payloads in early 2025.

Speaker Change: And we are teamed with Sierra Space to be their payload provider on their Tronch 2 birds.

Speaker Change: The Space Development Agency has recently issued their RFI for Tranche 3.

Speaker Change: So, in sum, we believe our current comprehensive role on all three existing tranches

Speaker Change: and our current actual mission performance in space.

Speaker Change: Position us well to continue to deliver for this critical and expanding mission.

Speaker Change: On force protection, we've delivered 14 IF-PIC and DURING-SHIELD prototypes, which are successfully working their way through government testing.

Tom Bell: 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. Lidos is supporting this progress by developing, excuse me, delivering technology advances through our common hypersonic glide body and mock TV 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.

Speaker Change: 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.

Speaker Change: And in hypersonics, the United States continues to progress in developing and fielding hypersonic weapons.

Thomas A. Bell: Leidos is supporting this progress by developing, excuse me, delivering technology advances through our common hypersonic glide body and Mach TV program. And all in all, we feel quite positive about this robust pipeline of opportunities in hypersonics. So 2024 maintains its promise to be a good year for the maturation of these programs, and we're also seeing our focus here translate into better financial performance. Our defense system's profitability was double digits in the quarter.

Speaker Change: Leidos is supporting this progress by developing, excuse me, delivering technology advances through our common hypersonic glide body and mock TV programs.

Speaker Change: 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.

Speaker Change: We remain on track for our common hypersonic glide body and thermal protection systems delivery.

Tom Bell: And all in all, we feel quite positive about this robust pipeline of opportunities in hypersonics. So 2024 maintains its promise to be a good year for the maturation of these programs. And we're also seeing our focus here translate into better financial performance. Our defense system's 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.

Speaker Change: And all in all, we feel quite positive about this robust pipeline of opportunities in hypersonics.

Speaker Change: So 2024 maintains its promise to be a good year for the maturation of these programs.

Speaker Change: And we're also seeing our focus here translate into better financial performance.

Thomas A. Bell: Our first time at that level of performance since we recast financials in the new organizational structure. Though challenges remain, SES is on sound footing because of the swift actions of our new management team and the steps that they took last year. We have focused our efforts and investments on product lines and geographies that make the most sense for Leidos and, therefore, our shareholders. Our new Charleston manufacturing facility is up and running.

Speaker Change: Our defense system's 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.

Tom Bell: in the future. Turning to security products, the SDNA acquisition is now fully integrated into our SES business area. So, challenges remain; SES is on sound footing because of the swift actions of our new management team and 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. 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.

Speaker Change: Turning to security products, the SDNA acquisition is now fully integrated into our SES business area.

Speaker Change: Though challenges remain, SES is on sound footing because of the swift actions of our new management team that they took last year.

Speaker Change: We have focused our efforts and investments in product lines and geographies that make the most sense for Leidos, and therefore, our shareholders.

Thomas A. Bell: 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. SES revenues are up 11% year-to-date.

Speaker Change: Our new Charleston manufacturing facility is up and operational, and we're performing better against our service-level agreements with our customers.

Speaker Change: We've had solid bookings this year and more consistent deliveries of large border solutions.

Tom Bell: 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.

Speaker Change: As a result, SES is ahead of plan for revenue and earnings for the quarter and the year.

Thomas A. Bell: 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. Fourth, we continue to make significant progress to enhance our business capture performance and backlog quality. While this quarter's performance adequately supports our 2024 growth commitments, we are not at all satisfied.

Speaker Change: SES revenues are up 11% year-to-date.

Speaker Change: And we've achieved almost 90% of last year's non-GAAP profit in the first two quarters of 2024 alone.

Tom Bell: 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 ditch 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.

Speaker Change: A common theme of this improved acquisition performance is the new organizational structure.

Speaker Change: which brings better alignment of sector resources and new leadership with an increased emphasis on execution and promises made, promises kept.

Speaker Change: Fourth, we continue to make significant progress to enhance our business capture performance and backlog quality.

Speaker Change: We've achieved net bookings of $4 billion this quarter, with a heavy emphasis on Cyber and Digimod awards, for a book-to-bill ratio of 1.0.

Speaker Change: We also have nearly three billion dollars of awards currently under protest.

Speaker Change: We ended the quarter with a total backlog of $36.5 billion, including $8 billion of funded backlog.

Tom Bell: While this quarter's performance adequately supports our 2024 growth commitments, we are not at all satisfied.

Speaker Change: While this quarter's performance adequately supports our 2024 growth commitments, we are not at all satisfied.

Tom Bell: And our growth teams have been working diligently to reignite our winning ways here at Lighthouse 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 front line growth leaders, each with deep mission and customer expertise in areas of strategic importance. Each of our account managers have a front line obsession and seamlessly integrate across both our P&L s and our Office of Technology to ensure we couple best in class teams with best in class technical solutions.

Thomas A. Bell: And our growth teams have been working diligently to reignite our winning ways here at Leidos and do much better on top-line growth. 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 of our account managers has a frontline obsession and seamlessly integrates across both our P&Ls and our Office of Technology to ensure we couple best-in-class teams with best-in-class technical solutions.

Speaker Change: 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.

Speaker Change: An element of this is strengthening our customer-centric framework of account management.

Speaker Change: 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.

Speaker Change: 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.

Tom Bell: Two examples which illustrate this point are our recent hires for Indo-PACOM 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 U.S. Pacific Deterrent Strategy. Maritime autonomy and undersea sensors work in Australia, and hypersonics work in the U.K. that fit within AUKUS pillar two. And U.S. Navy submarine trainer development efforts that fit within AUKUS pillar one. We've taken the further step of dedicating some 100 of our top engineers and solution architects to our front line growth. Works. Operating in full partnership with our account managers and capture teams, they are positioned to bring the best of the best of light-os to our customer needs.

Thomas A. Bell: Two examples which illustrate this point are our recent hires for Indopaycom in Auckland and maritime autonomy and undersea sensors work in Australia and hypersonics work in the UK that fit within AUKUS Pillar 2, and U.S. Navy submarine trainer development efforts that fit within AUKUS Pillar 1.

Speaker Change: Two examples which illustrate this point are our recent hires for Indopaycom and AUKUS.

Speaker Change: Because of their respective hard work, in very short order, we've won strategic awards to support military exercises that are fundamental to the U.S. Pacific deterrence strategy.

Speaker Change: Maritime autonomy and undersea sensors work in Australia and hypersonics work in the UK that fit within AUKUS Pillar 2.

Speaker Change: and U.S. Navy submarine trainer development efforts that fit within AUKUS Pillar 1.

Speaker Change: We've taken the further step of dedicating some 100 of our top engineers and solution architects to our frontline growth efforts.

Thomas A. Bell: Operating in full partnership with our account managers and capture teams, they are positioned to bring the best of Leidos to our customer needs. 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.

Speaker Change: 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.

Tom Bell: With the improvements for 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.

Speaker Change: 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.

Speaker Change: At quarter's end, we had $26 billion worth of bids awaiting adjudication.

Thomas A. Bell: 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.

Speaker Change: And more importantly, quality is improving dramatically.

Speaker Change: 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.

Tom Bell: 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 Light-OS North Star strategy.

Thomas A. Bell: So, in summary, I'm very pleased with our financial results this quarter and the momentum that we're carrying into the back half 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'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.

Speaker Change: 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.

Speaker Change: We're making great progress on our current four focus areas.

Speaker Change: This puts us in an excellent position to execute our emerging Leidos North Star strategy.

Tom Bell: I'm very proud of the 48,000 light-os teammates who collectively, every day, ensure light-os 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 Light-OS to break limits.

Speaker Change: 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.

Speaker Change: 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.

Chris Cage: I'll now turn the call over to Chris to walk you through our financial results in detail.

Chris Cage: He'll also provide insight into our upgraded outlook for the year, and then we'll be pleased to take your questions.

Speaker Change: 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 Cage: Chris, 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 five, revenues for the second quarter were 4.13 billion, up 7.7 percent year over year. Rebus revenue growth reflects the benefits of both a strong demand environment and historically low levels of attrition.

Christopher R. Cage: Our second quarter results demonstrate yet again the power of our focus on profitable growth in cash generation. Turning to the income statement on slide 5, revenues for the second quarter were $4.13 billion, up 7.7% year-over-year.

Speaker Change: Chris?

Christopher R. Cage: Thanks, Tom, and thanks to everyone for joining us today.

Christopher R. Cage: 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.

Christopher R. Cage: 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 a strong demand environment and historically low levels of attrition.

Chris Cage: The highlights for the quarter was margin performance. Adjusted EBITDA was 559 million for the quarter, up 33 percent year over year, and adjusted EBITDA margin increased 260 basis points to 13.5 percent. 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 of 43 percent and 46 percent respectively.

Christopher R. Cage: The highlight for the quarter was margin. 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. Turning to the segment view on slide six, national security and digital revenues increased 1% year

Christopher R. Cage: The highlight for the quarter was margin performance.

Christopher R. Cage: Adjusted EBITDA was $559 million for the quarter, up 33% year-over-year, and adjusted EBITDA margin increased 260 basis points to 13.5%.

Christopher R. Cage: We achieved this record margin through business mix and indirect cost management.

Christopher R. Cage: Program-level execution was generally very strong, but EAC adjustments were a net $12 million headwind.

Christopher R. Cage: non-GAAP net income was $360 million, and non-GAAP diluted EPS was $2.63, up 43% and 46%, respectively.

Chris Cage: Below the line items had no material impact on net income or EPS. Turning to the segment view on slide six, national security and digital revenues increased 1 percent 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 EGIS, which created a tough year-over-year comparison. National Security and Digital is also the segment most impacted by protests.

Christopher R. Cage: Below the line items had no material impact on net income or EPS.

Christopher R. Cage: Turning to the segment view on slide 6, national security and digital revenues increased 1% year over year.

Christopher R. Cage: 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 EGIS, which created a tough year-over-year comparison. National Security and Digital is also the segment most impacted by protests.

Christopher R. Cage: We saw volume growth on our Sentinel and DES programs, as well as several contracted research and development efforts.

Christopher R. Cage: You may also recall that last year we had spikes in some of our large digital modernization programs, notably EnGen and Aegis, which created a tough year-over-year comparison.

Chris Cage: Still, accelerating growth in national security and digital is a major focus of the ongoing strategy discussion. National Security and Digital non-gap operating income margin increased 20 basis points from the prior quarter to 10.4 percent, 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 and civil revenues increased 22 percent over the prior year quarter, and non-GAAP operating income margin came in at 24.9 percent, up from 14 percent a year ago. The primary driver of revenue growth and increased profitability with higher volumes across our Manage Health Services portfolio, and an extra quarter of ketchup on incentive fee awards on our VBA disability exam contracts.

Christopher R. Cage: Still, accelerating growth in national security and digital is a major focus of the ongoing strategy discussion. The National Security and Digital Non-Gap Operating Income Margin increased 20 basis points from the prior quarter to 10.4%, with some milestone achievements, strong cost control, and excellent program execution, up from 14% a year ago. The primary driver of revenue growth and increased profitability with higher volumes across our managed health services portfolio and an extra quarter of catch-up on incentive fee awards on our VBA disability exam contract.

Christopher R. Cage: National Security and Digital is also the segment most impacted by protests.

Christopher R. Cage: Still, accelerating growth in national security and digital is a major focus of the ongoing strategy discussion.

Christopher R. Cage: National Security and Digital non-GAAP operating income margin increased 20 basis points from the prior quarter to 10.4% with some milestone achievements, strong cost control, and excellent program execution.

Christopher R. Cage: For the first half of the year, National Security and Digital has been solidly ahead of plan on profitability.

Christopher R. Cage: Health and 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.

Christopher R. Cage: 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.

Chris Cage: Commercial and international revenues increased 3 percent, paced by an uptick and 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 schedule slippages. The UK write down suppressed non-GAAP operating income margin to 0.7 percent in the quarter. Absent these write downs, commercial international would have posted 9.7 percent year-over-year revenue and non-GAAP operating income margins of 8 percent.

Christopher R. Cage: Commercial and International Revenues increased by three, Paste Buy and Uptick and 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. The UK write-down suppressed non-GAAP operating income margins to 0.7% in the quarter.

Speaker Change: Commercial and 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.

Speaker Change: 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 schedule slippages.

Speaker Change: The UK write-down suppressed non-GAAP operating income margins to 0.7% in the quarter.

Christopher R. Cage: Absent these write-downs, Commercial International would have posted 9.7% year-over-year revenue growth and non-GAAP operating income margins of 8%. 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 operation. 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 and international sectors. Finally, in defense systems, revenues increased 6% over the prior quarter on a total basis and 7% organically, and non-GAAP operating income margins increased 170 basis points year-over-year to 10.3 percent.

Speaker Change: Absent these write-downs, Commercial International would have posted 9.7% year-over-year revenue growth and non-GAAP operating income margins of 8%.

Chris Cage: Although these write downs are disappointing, they underscore the rationale for the new organizational structure. The CNI 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 operation. 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 and international segments. Finally, in defense systems, revenues increased 6 percent over the prior quarter on a total basis and 7 percent organically, and non-GAAP operating income margins increased to 170 basis points year-over-year to 10.3 percent.

Speaker Change: Although these write-downs are disappointing, they underscore the rationale for the new organizational structure.

Speaker Change: 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.

Speaker Change: We're confident that we'll get back on track towards our financial and operational objectives within the UK.

Speaker Change: And on balance, we remain encouraged by the strong performance and demand signals across our commercial and international segments.

Speaker Change: Finally, in defense systems, revenues increased 6% over the prior quarter on a total basis and 7% organically.

Speaker Change: And non-GAAP operating income margins increased to 170 basis points year-over-year to 10.3%.

Chris Cage: Tom touched on the improvements the segments 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 light-ups.

Christopher R. Cage: Tom touched on the improvements the segment is making in 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, and are optimistic that 2024 marks a significant turning point towards a brighter future. Turning now to cash flows on the balance sheet on slide 7, we generated $374 million of cash flows from OPERDAN and $351 million of free cash.

Speaker Change: 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.

Speaker Change: As we transition from development to production on some key programs, we see defense systems as a growth and margin driver for Leidos.

Chris Cage: We're making great strides towards unlocking the full potential of this business, and our optimistic 2024 marks a significant turning point towards a brighter future. Turning now to cash flow in 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. Over all, we're seeing a strong focus on cash throughout the organization. DSOs for the quarter was 58 days and improvement of one day from a year ago and four days sequentially.

Speaker Change: We're making great strides towards unlocking the full potential of this business.

Speaker Change: and are optimistic that 2024 marks a significant turning point towards a brighter future.

Speaker Change: Turning now to cash flow in the balance sheet on slide 7.

Speaker Change: We generated $374 million of cash flows from operating activities.

Christopher R. Cage: 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. 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.

Speaker Change: and $351 million of free cash flow.

Speaker Change: We had our highest collection week ever, which led to the exceptional Q2 performance.

Speaker Change: Overall, we're seeing a strong focus on cash throughout the organization.

Speaker Change: DSOs for the quarter was 58 days, an improvement of one day from a year ago and four days sequentially.

Chris Cage: In Q2, we repurchased the 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 growth leverage ratio now sits at 2.4 times, which gives us plenty of financial flexibility.

Speaker Change: In Q2, we repurchased a total of $114 million in shares, including $100 million on the open market, and paid $51 million in dividends.

Speaker Change: We ended the quarter with $823 million in cash and cash equivalents and $4.7 billion of debt.

Speaker Change: Our growth leverage ratio now sits at 2.4 times, which gives us plenty of financial flexibility.

Chris Cage: Next, I'll go through our enhanced outlook for 2024 on Friday. We're raising the lower end of our revenue guidance by 100 million, which gives a new range of 16.1 to 16.4 billion. We're increasing adjusted EVA dog guidance to approximately 12%, and we're raising our non-GAAP diluted EPS by 20 cents to a new range of $8.60 to $9. Our guidance for operating cash flow remains at approximately 1.3 billion per year. This enhanced outlook reflects our strong first half performance, as well as broad-based momentum across the entire portfolio.

Christopher R. Cage: We're raising the lower end of our revenue guidance by $100 million, which gives a new range of $16.1 to $16.4 billion. We're increasing adjusted EVADOG guidance to approximately 12%, and we're raising our non-gap diluted EPS by 20 cents to a new range of $8.60 to $9. 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 model.

Speaker Change: Next, I'll go through our enhanced outlook for 2024 on slide 8.

Speaker Change: We're raising the lower end of our revenue guidance by $100 million, which gives a new range of $16.1 to $16.4 billion.

Speaker Change: We're increasing adjusted EVA doc guidance to approximately 12%. And we're raising our non-gap diluted EPS by 20 cents to a new range of $8.60 to $9.

Speaker Change: Our guidance for operating cash flow remains at approximately $1.3 billion for the year.

Speaker Change: 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.

Chris Cage: 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 cycled some potential second half revenue and margin headwind in our VVA disability exam business based on upcoming recompense, 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, or risk cuts to veteran benefits in care.

Christopher R. Cage: Clearly, we're seeing strong momentum in our managed health services business. On last call, we signaled some potential second half revenue and margin headwinds in our VBA disability exam business based on an upcoming re-compete, which remains ahead of us. Earlier this month, the VA urged Congress to approve $15 billion to fund budget gaps in government fiscal years 2024 and 2025 for risk cuts to veterans' benefits and care, which suppresses industry

Speaker Change: Clearly, we're seeing strong momentum in our managed health services business.

Speaker Change: Last call, we signaled some potential second-half revenue and margin headwind in our VBA Disability Exam business based on an upcoming re-compete, which remains ahead of us.

Speaker Change: In addition, the unprecedented caseload of disability claims spurred by the PACT Act is straining the VA's budget resources.

Speaker Change: Earlier this month, the VA urged Congress to approve $15 billion to fund budget gaps in government fiscal years 2024 and 2025, or risk cuts to veterans' benefits and care.

Chris Cage: The VVA 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 veteran 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 trust admission partner to the VA.

Speaker Change: The VBA customer has implemented several measures to proactively manage through these budget challenges, including dialing back its internal staffing, which suppresses industry case volumes.

Speaker Change: We're already seeing the impact of this change with reductions in our near-term case backlog.

Operator: 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. We expect commercial and 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 set up a robust innovation fund focused on growth.

Speaker Change: 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.

Speaker Change: 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.

Chris Cage: We expect commercial and 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 set up a robust innovation fund focused on growth. Our bottom-line performance puts us in a favorable position to accelerate investment across the business, as seed corn for our emerging strategy to continue to drive sustainable, profitable growth.

Speaker Change: 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.

Speaker Change: And lastly, in the back half of the year, we've stood up a robust innovation fund focused on growth.

Operator: Our bottom line performance puts us in a favorable position to accelerate investment 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. Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star 1 1 on your touch phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: Our bottom line performance puts us in a favorable position to accelerate investment across the business as seed corn for our emerging strategy to continue to drive sustainable, profitable growth.

Operator: With that, operator, we're ready to take some. Thank you.

Operator: Thanks, Angelman.

Speaker Change: With that, Operator, we're ready to take some questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star 11 on your touch phone. If you are using a speaker phone, please pick up your headset before pressing the keys. To withdraw your question, simply press Star 11 again.

Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star 1 1 on your touch phone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, simply press star 1 1 again.

Operator: At the start, we will pause momentarily to assemble a roster.

Thomas A. Bell: To withdraw your question, simply press star 1 1 again. At this time, we will pause momentarily to assemble our... Good morning, everyone. Morning. So my first question is on managed health care and, Thanks, Mariana. I really appreciate your question, and obviously, a part of the portfolio we're very, very proud of. You know the performance we're achieving in this part of the business is directly related to our passion for serving the nation and its veterans and our investment in technologies ahead of the curve so that we are poised to take additional volume.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Mariana Perez-Mora: And the first question coming from the line-off, Mariana Perez-Mora from Bank of America, Yalan is open.

Speaker Change: And the first question coming from the line of Mariana Perez Mora from Bank of America. Your line is open.

Mariana Perez-Mora: Good morning, everyone. Good morning. So my first question is on managed healthcare, and the margins there and incremental margins there are really, really strong.

Speaker Change: Good morning, everyone. Morning.

Speaker Change: So my first question is on managed health care and

Tom Bell: How should we think about what is the mode that you guys have as you go ahead to this like competition and recompetent capital? I mean, because I could imagine like the install base you have that actually allows for these incremental margins actually pose a really strong mode. But what else, from a technical perspective, do you think that you have in your advantage to keep a good share of like this really growing market. Thanks, Mariana.

Speaker Change: The margins there, incremental margins there, are really, really strong.

Speaker Change: How should we think about what is the mode that you guys have as you go ahead to this like

Speaker Change: competition and re-compete coming because I could imagine like the install base you have that actually allows for these incremental merges 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: Really appreciate your question, and obviously a part of the portfolio we're very, very proud of. You know, 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 are modeling for what the output and input of veterans that need case management increases and stays the same over the coming years.

Speaker Change: Thanks, Mariana. I really appreciate your question and obviously a part of the portfolio we're very, very proud of.

Speaker Change: You know, 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

Speaker Change: as we came out of COVID and had an opportunity to serve more and more veterans.

Speaker Change: We're very proud of this and we're very proud of those investments that allow us to serve more veterans.

Speaker Change: 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.

Tom Bell: So we're very bullish on the absolute volume, but we're doing to affect our future in that overall volume is ensuring that the VACs 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.

Speaker Change: What we're doing to affect our future in that overall volume is ensuring that the VA sees us as their partners. So we've leaned in to help make sure that they understand we're invested in their success and their budgetary challenges that they have right now.

Tom Bell: 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.

Speaker Change: And that positions us well for this re-compete that's coming in the third or fourth quarter, probably more like the fourth quarter.

Thomas A. Bell: 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, um, great customer satisfaction, you know, 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 in. There's really a war for talent among these types of people.

Speaker Change: 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.

Speaker Change: The challenge that we've given Liz and her team is not how to hold on to this business.

Tom Bell: 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.

Liz: but how to increase this business over time. So.

Liz: As part of our year of deep strategic thinking, we're not seeing 2024 as the peak of this business.

Liz: 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 Cage: Chris, do you want to add anything? Yeah, I'm there out. I would, you know, 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 Shapers' leadership over the past several years.

Christopher R. Cage: Chris, do you want to add anything? Yeah, Mariana, I would, you know, 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 Schaffer's leadership over the past several years. But, you know, beyond that...

Chris Cage: But, you know, beyond that, we've been a long-standing partner here. We've won this recompete multiple times over. You know, there's investments that we've made in physical locations, mobile locations, provider networks, you know, critical staff; all of those things come to bear. And then, you know, of course, the customer is going to evaluate what has your performance been, and clearly we can demonstrate a track record of strong performance, the great customer satisfaction, you know, great accuracy, throughput, all of the key metrics to be 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.

Christopher R. Cage: We've been a long-standing partner here. We've won this re-compete multiple times over. You know, there's investments that we've made in physical locations, mobile locations, provider networks.

Christopher R. Cage: You know, critical staff, all of those things come to bear. And then, you know, of course, the customer is going to evaluate what has your performance been. And clearly we can demonstrate a track record of strong performance.

Christopher R. Cage: with great customer satisfaction, you know, great accuracy, throughput, all of the key metrics the VA's 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.

Tom Bell: Thank you, and if I may, my next question is about the, as you focus on the account managers and capture these teams, where do the challenges you have on hiring and training the talent both in terms of people that you hire? There's really a war for talent of these type of people, but we're bound to determine, as I've mentioned on previous falls, 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.

Speaker Change: 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 internment and people that you hire?

Thomas A. Bell: But we're 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 at 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.

Speaker Change: There's really a war for talent of these type of people, but we're 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.

Speaker Change: And so what we've started to see, I mentioned we've hired

Speaker Change: 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.

Tom Bell: We have an environment in Leidos that is compelling; we are an employer of choice. And the more we win, the more people will we will want to be on the winning team.

Speaker Change: We are an employer of choice.

Tom Bell: 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.

Thomas A. Bell: 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.

Speaker Change: 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...

Speaker Change: of challenges. It's a question of helping them understand the opportunity that's in front of them for joining Leidos.

Speaker Change: 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.

Speaker Change: And the most disenfranchising thing you can do for a person who is passionate about serving customers is not fully support them.

Thomas A. Bell: 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 differently. 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. The only thing I'd add, Mariana, to that is, you know, and of course, a very good question and Tom's right. I mean, screening the right people that have the passion and that want to serve the right customers' missions is critical.

Speaker Change: 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.

Chris Cage: 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.

Speaker Change: 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, you know, and of course, a very good question in Tom's right. I mean, screen the right people to have the passion to want to serve the right customers. Missions as critical area that we need to help them the most is 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.

Speaker Change: The only thing I'd add, Mariana, to that is, you know, of course, a very good question. And Tom's right.

Unknown Executive: 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.

Speaker Change: Screening the right people to have the passion to want to serve the right customers' missions is critical.

Speaker Change: 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.

Chris Cage: 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.

Speaker Change: Helping them understand the breadth of our offerings is an area that we are continuing to invest in and that's the

Speaker Change: reason why partnering them up with so many solutions architect and other people that have been down that road is critical, but there's technology that's

Tom Bell: So Jerry Fassano leads our Growth Office. He's very focused on that roll out plan, and we're excited about that taking a lot of momentum here in the second half of the year.

Unknown Executive: So Jerry Pisano leads our growth office. He's very focused on that rollout plan, and we're excited about that picking up a lot of momentum here in the second half of the year. Thank you very much for the caller. And our next question comes from the line of Matt Akers with Wells Fargo. Your line is open. Yeah, hey, guys. Good morning.

Unknown Executive: Behind that as well. So Jerry Pisano 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 caller.

Matt Akers: And on the next question coming from the line up, Matt Acres with Wells Fargo. You're on his open. Yeah, hey guys, good morning. Thank you for the question. Tom, I wanted to follow up. You talked about kind of some of the portfolio pruning initiatives you're kind of looking at. Can you give us an update on where we stand there and kind of what I think we are that that old process. Yeah, sure.

Speaker Change: Thank you very much for the caller.

Speaker Change: Thank you. And our next question coming from the line of Matt Akers with Wells Fargo. Your line is open.

Thomas A. Bell: Thank you for the question. Sure, man. Tom, I wanted to follow up. You talked about kind of some portfolio pruning. Initiatives you're kind of looking at, kind of, can you give us an update on where we stand there and kind of what I think we are in that whole process? Yeah, sure. Thanks, Matt. As I said in my prepared remarks, we're done with the Leidos Proprietary Hypothesis of the Future.

Matthew Carl Akers: Hey guys, good morning. Thanks for the question. Sure, Matt. Tom, I wanted to follow up. You talked about kind of some of the portfolio pruning initiatives you're kind of looking at. Could you give us an update on where we stand there and kind of what ending we are, that whole process?

Tom Bell: Thanks, Matt. As I said in my prepared remarks, we're done with the lightest proprietary hypothesis of the future. This is our own exclusive proprietary view of what the world looks like in 2033.

Thomas A. Bell: This is our own exclusive proprietary view of what the world looks like in 2033 and, therefore, what 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.

Thomas A. Bell: Yeah, sure. Thanks, Matt. As I said in my prepared remarks, we're done with the Leidos proprietary hypothesis of the future.

Thomas A. Bell: This is our own, exclusive, proprietary...

Tom Bell: 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 our 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 sea 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.

Thomas A. Bell: View

Thomas A. Bell: 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.

Thomas A. Bell: 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.

Thomas A. Bell: 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 seacorn 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.

Thomas A. Bell: 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.

Speaker Change: 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 seacorn out there now in those areas.

Thomas A. Bell: 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 a 180-degree pivot.

Thomas A. Bell: 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.

Tom Bell: So we're very excited about that.

Tom Bell: Now the overall objective and the parameters of our year's 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 a 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 differently.

Thomas A. Bell: So, we're very excited about that.

Thomas A. Bell: The overall objective and the parameters of our year of deep strategic thinking, I think I mentioned it in our last call,

Thomas A. Bell: It's not going to be a pivot for Leidos, a 90 degree pivot or a 180 degree pivot, it's going to be

Thomas A. Bell: 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 also concerned 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

Thomas A. Bell: variations on the cores that we're in now.

Thomas A. Bell: And so we're going to be doubling down on our core strengths.

Thomas A. Bell: We're going to be really focused on repeatable business models.

Thomas A. Bell: 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.

Tom Bell: 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.

Thomas A. Bell: There's a reason we had a whole day focused on Trusted Mission AI because we think it is a compelling technological breakthrough 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 in. I mentioned this in calls last year. I do not believe in spreading peanut butter around and watching every flower bloom.

Thomas A. Bell: Trusted Mission AI. There's a reason we had...

Thomas A. Bell: A whole day focused on trusted mission AI because we think it is a compelling technological unlock.

Thomas A. Bell: for the futures our customers are facing across all the markets that we serve.

Thomas A. Bell: And we're going to continue to look for those areas of white space that are adjacent to the current businesses we're in.

Tom Bell: 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 a differential investment for differentiated the results. But there's 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 light of, 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.

Thomas A. Bell: for investment.

Thomas A. Bell: 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.

Thomas A. Bell: I do not believe in spreading peanut butter around and watching every flower bloom. I think all about differential investment for differentiated results.

Thomas A. Bell: I think all about differential investment for differentiated results. But there's also not any part of the business yet that is raising its head in the strategy processes saying it's obvious this does not belong in Leidos. So don't think of this as portfolio pruning.

Thomas A. Bell: But there's also not any part of the business yet that is raising its head in the strategy processes saying it's obvious this does not belong in Leidos.

Thomas A. Bell: 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, which we look forward to welcoming you to. Great, that's helpful.

Thomas A. Bell: 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.

Tom Bell: That's the way we're thinking about our strategy process.

Tom Bell: All that will be discussed at full in our March Investor's Day that we look forward to welcoming you to.

Thomas A. Bell: 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.

Thomas A. Bell: And I guess if I could do one more just the latest thoughts on upcoming recompetes and anything big that we should be watching for. Yeah, Matt, obviously, you know, we talked a little bit, of course, about the VBA exam business, and that's, you know, top of mind as we navigate to the end of Q3 and the end of Q4. Beyond that, I mean, there are not as many needle movers.

Matt Akers: Thank you.

Matt Akers: And I guess if I could do one more, just lay the stuff on upcoming recompense and anything big that we should be watching for the share. Yeah, Matt, obviously, you know, we talked a little bit, of course, about the VBA exam business, and that's, you know, top of mind as we navigate to the end of Q3 and the Q4. Beyond that, I mean there's not as many needle movers.

Speaker Change: Great, that's helpful. Thank you. And I guess if I could do one more just just latest thoughts on upcoming re-competes and anything big that we should be watching for this year.

Speaker Change: Yeah, Matt, obviously, you know, we talked a little bit, of course, about the VBA exam business, and that's, you know, top of mind as we navigate to the end of Q3 and the Q4.

Thomas A. Bell: There's an exciting opportunity in the hypersonics arena where common hypersonic live body and TPS contracts converge, and we look forward to extending our work there with an important customer. There's an integrated logistics support contract with the TSA, 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 DIMSUM contract.

Tom Bell: There's an exciting opportunity in the hypersonic arena where common hypersonic library and TPS contracts converge, and we look forward to extending our work there with the important customer. There's an integrated logistic 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 CNI business and work we do elsewhere that specializes in the logistic side.

Speaker Change: Beyond that, I mean, there's not as many needle movers. There's an exciting opportunity in the hypersonics arena where a common hypersonic live body and TPS contracts converge and we look forward to extending our work there with an important customer.

Speaker Change: There's an integrated logistics support contract with the TSA that whether it's late this year, first quarter next year, and obviously you can imagine that's a

Speaker Change: 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 Dim Sum contract. You know, the follow-on to that, obviously, is a...

Tom Bell: And then looking ahead to next year, I think the other big one I'd point out is the dim sum contract. You know, that the follow on to that obviously is an important piece of work for us. The team is already in the proposal pits, making sure that we're putting our best foot forward, but that is some time in the middle of 2025 early to mid 25.

Thomas A. Bell: You know, the follow-on to that obviously is an important piece of work for us. The team is already in the proposal pits making sure that we're putting our best foot forward, but that is sometime in the middle of 2025, early to mid 2025. Hey, just to pile on a bit, Matt, sorry to have a complaint here.

Speaker Change: important piece of work for us. The team is already in the proposal pits making sure that we're putting our best foot forward, but that is sometime in the middle of 2025, early to mid-25. Hey, just to pile on a bit, Matt, sorry to have a reclama here. You know, color for our pipeline, we've got, uh,

Chris Cage: Just to pile on a bit, Matt, sorry to have a recloma here. You know, color for our pipeline, we've got $15 billion in submits in the second quarter. We've got $26 billion plus a waiting 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.

Thomas A. Bell: You know, color for our pipeline, we've got $15 billion in orders 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 differentiated go out there and win this business. Great, thank you very much, Map.

Speaker Change: $15 billion in submits in the second quarter. We've got $26 billion plus dollars awaiting customer decisions.

Speaker Change: 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: Matt. Thank you.

David Strauss: Now, next question coming from the line up: David Strauss with Barclays Hill on his open. Thanks. You know, national security and digital, yeah, I think you guys hit on the slow growth there in the first half, but it sounds like you're talking about acceleration in the second half. But at the same time, it sounds like you're signaling lower margin from the second half. So you can you just dig in exactly what's going on there in the second half, first of the first half. Thanks.

Thomas A. Bell: Thank you. And our next question comes from the line of David Strauss with Barclays. Your line is open. Thanks. Good morning, everyone.

Speaker Change: Great. Thank you very much.

Speaker Change: [inaudible]

Speaker Change: Thank you. Our next question coming from the lineup, David Strauss with Barclays. Your line is open.

Thomas A. Bell: Good morning, David. Question, Tom, on national security and digital. I think you guys hit on slow growth in the first half, but it sounds like you're talking about 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 on exactly what's going on there in the second half versus the first half? Yeah, our national security and digital segment is arguably the core of the core of Leidos.

Speaker Change: Thanks. Good morning, everyone. Morning, David.

David Strauss: Question, Tom, on, you know, national security in digital. Yeah, I think you guys hit on the slow growth there in the first half, but it sounds like you're talking about acceleration in the second half. But at the same time, it sounds like you're

David Strauss: signaling lower margins in the second half. So could you just dig in exactly, you know, 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 light. And it's it is an area that we've put two of our most talented leaders, Roy Stevens and Steve Hall, 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.

Thomas A. Bell: Yeah, our national security and digital segment is...

Thomas A. Bell: And it's an area that we've put two of our most talented leaders, Roy Stevens, and Steve Hall, 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.

Speaker Change: arguably the core of the core of Leidos and it's it is an area that we've put two of our most talented leaders Roy Stevens and Steve Hall and they are partnered to make sure that we are focused on how we help our customer

Speaker Change: in deterrence and being the smartest government on the planet.

Thomas A. Bell: 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.

Speaker Change: We don't think that there is a...

Speaker Change: 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.

Speaker Change: The margins in this type of business are never going to be

Tom Bell: 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.

Thomas A. Bell: 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 earlier. 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 Jerry 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.

Speaker Change: over the top.

Speaker Change: 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.

David Strauss: aware of the fact that the scale of the problems that they have requires people who have speed and scale to solve them so

Chris Cage: So Roy and Steve are partnered with the whole enterprise with Jim Carleini and technology and Jerry Fuzano 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.

Speaker Change: Roy and Steve are partnered with the whole enterprise with

Speaker Change: Jim Carlini in technology, and Jerry Fusano in growth, to make sure that we're leaning into serving our nation in this area.

Speaker Change: and not looking to back off in any way. So, if we gave you an indication of softening here...

Thomas A. Bell: 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, you know, 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 Engine. But there are no fundamental issues here.

Chris Cage: Yeah, David, I just add on to that. I mean, I think it's 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 engine. But there's no fundamental issues here. 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 feature margin upside that we're expecting.

David Strauss: That's probably not the guidance we'd want to give. 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.

David Strauss: You know, 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 NGIN, but there's no fundamental issues here. And in fact, we're actually very encouraged, to Tom's point, this will never

Christopher R. Cage: And, in fact, we're actually very encouraged. To Tom's point, this will never, you know, be our highest-margin business, but we do see upside here over time. And the teams are investing in more repeatable models in the Digimod space, and those will be some unlocks to future margin upside that we're expecting. But I don't want to overlook, you know, some important wins that did take place in the quarter. Getting the next Defense Enclave Services task order under contract is critical for us.

Chris Cage: 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 for the state agencies to migrate onto 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.

Speaker Change: But I don't want to overlook, you know, some important wins that did take place in the quarter.

Speaker Change: getting the next Defense Enclave Services task order under contract.

Christopher R. Cage: That is a key unlock for Steve and his team to drive growth into that important program. So, you know, that clears the way for 13 additional DOD fourth estate agencies to migrate onto 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.

Speaker Change: is critical for us. That is a key unlock for Steve and his team to drive growth into that.

Speaker Change: important program. So you know that clears the way for 13 additional DOD fourth estate agencies to migrate onto 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.

Christopher R. Cage: Chris, quick follow up. You know, you know, the pretty good working capital performance in the first half of your year relative to the prior year. How are you thinking about working capital through the rest of the year? Yeah, so I'm very pleased with the team performance on cash management. I think we've done an excellent job and, you know, last year we made some really strong gains on managing the payable side and more industry-standard terms with our vendors. And, you know, we've made some more progress in that regard this year. We've been attacking the DSO side. I would say, you know, it's steady as she goes.

Chris Cage: Chris, quick follow up. You know, you know, the pretty good working couple performance in the first half of year relative to the prior year. How are you thinking about working couple through the rest of the year? Yeah, so I'm very pleased with the team performance on cash management. I think we've done an excellent job. And you know, last year we made some really strong gains on managing the payable side and more industry-standard terms with our vendors. And you know, we've made some more progress in that regard this year. We've been attacking the DSO side. I would say, you know, it's steady as she goes.

Christopher R. Cage: Great. Thanks for that, Culler. Chris, quick follow-up. You know the pretty good working capital performance in the first half year relative to the prior year. How are you thinking about working capital through the rest of the year?

Christopher R. Cage: Yeah, so I'm very pleased with the team's performance on cash management. I think we've done an excellent job and, you know, last year we made some really strong gains on managing the payable side.

Christopher R. Cage: More industry standard terms with our vendors and you know, we've made some more progress in that regard this year. We've been attacking the DSO side.

Christopher R. Cage: 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. These are usually our strongest performance quarters, and I expect this year to follow suit. Thanks very much.

Chris Cage: I don't see anything at this point in time that would be a major use of working couple. We're always interested in and great ideas that could be accreted 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.

Christopher R. Cage: I would say, you know, 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.

Ken Herbert: And our next question coming from the line up with TD Colony on his office. Thanks so much, and the time terrific results. Thank you. You guys have mentioned that the medical exam business is not a piece. It's out of plateau. But given, you know, more early on next year, we'll be under the new contract. Could we assume that the margins are going to be lower because I assume it takes a 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 and health will be down next year?

Operator: And our next question, coming from the lineup, Kaivan Poonoo with TD Colony, line is: Thanks so much, and Tom, terrific results.

Speaker Change: Thanks very much.

Speaker Change: Thank you. And our next question, coming from the lineup, Kai Van Buna with TDK One, your line is open.

Thomas A. Bell: Thank you, Cai. You guys have mentioned that health. Medical Exam Business is not at a peak; it's at a plateau.

Kaivan Buna: Thanks so much, and Tom, terrific results.

Connie: Thank you, Connie.

Thomas A. Bell: But given, you know, more work at least early next year, when 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, you know, are doing well in terms of the incentives and all that. So, Is it likely that profits and health will be down next year? I hate to answer your question this way, but we don't know the real answer because we're awaiting the RFP that tells us what the customer actually wants to do.

Speaker Change: Expect Health, the medical exam business.

Speaker Change: If not at a peak, it's at a plateau. But given, you know, my work, 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 a time until you get to the point where you kind of, you know, are

Speaker Change: doing well in terms of the incentives and all that, so is it likely that profits and 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 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.

Speaker Change: 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

Thomas A. Bell: We know that the contract comes to an end at the end of this quarter, and we are awaiting the RFP for the future. We're not sure 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.

Speaker Change: What the customer actually wants to do. We know that the contract comes to an end at the end of this quarter.

Speaker Change: 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.

Speaker Change: How the VBA is going to incentivize industry to bring its best.

Chris Cage: 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. 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, needs throughput. And that's always been the priority. Now we're in a temporary situation where they have to navigate this funding gap. Tom, 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 our health team about 25 is how do we grow off of 24 levels?

Thomas A. Bell: 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. I'd only add that what we do know is that the BVA has asked Congress for more money, right? And that's a strong signal that they see the demand out there. More veterans need care, and need throughput, and that's always been the priority. Now we're in a, call it a temporary situation where they have to navigate this funding gap. Tom's right.

Speaker Change: 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.

Speaker Change: I'd only add, I mean, you know, what we do know is that the BVA 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 a...

Tom Fright: Call it a temporary situation where they have to navigate this funding gap. Tom Fright, I mean, a lot of things will become clearer for us as we get through the next quarter or two.

Christopher R. Cage: 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 our health team about 25 were, "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.

Speaker Change: You can imagine that our early conversations with our 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.

Chris Cage: And that's the way we're approaching it. And so everybody's clear, eye to round, looking at every opportunity to make sure we optimize our performance levels there and elsewhere to continue to grow.

Ken Herbert: One quick one on your new business. You know, 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 it's a big classified award in there. Should we see book-to-bill pick up in the second half? And, you know, are you guys chasing some of the large takeaways you've been so successful in? The team remains committed to a book-to-bill ratio slightly better than one for the year of 2024. And they are determined to meet or exceed that.

Christopher R. Cage: One quick one on your new business. You know, you had 15 billion in sales, and you have 26 billion awaiting. What should we think about in terms of your book to bill? You also have 3 billion in protests.

Speaker Change: One quick one on your new business. You know, you had 15 billion of submits, you have 26 billion awaiting.

Thomas A. Bell: I think there's a big classified award in there somewhere. Should we see book to bill pick up in the second half? And, you know, are you guys chasing some of the large takeaways you've been so successful with? The team remains committed to a book-to-bill ratio slightly better than one 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.

Speaker Change: What should we think about in terms of your book-to-bill? You also have three billion in protests. I think there's a big classified award in there. Should we see book-to-bill pick up in the second half? And, you know, are you guys chasing some of the large takeaways you've been so successful in?

Speaker Change: The team remains committed to a book-to-bill ratio slightly better than one for the year of 2024, and they are determined to meet or exceed that.

Tom Bell: 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.

Speaker Change: There are some big swingers in there and it's possible that if many of these break our way, we'll far far exceed the book-to-bill ratio that that they have.

Thomas A. Bell: But, you know, 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?

Tom Bell: But, you know, Kai, 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 in incentivize 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.

Speaker Change: But, you know, Cai, again, in my earliest call, I talked about...

Kai: 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.

Kai: And that's really what I'm more incentivized and really focused on with the business capture team.

Cai: 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?

Thomas A. Bell: 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 the technology and the capability we bring. And I feel as if many of those that are in our backlog will start to come our way. So we're very bullish on the future without getting ahead of ourselves. Terrific. Thank you so much.

Tom Bell: As I mentioned in my prepared remarks, we're doing a better job of bidding for the things that will reward Light OS adequately for the 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. Terrific.

Speaker Change: 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 the technology and the capability we bring.

Speaker Change: 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.

Peter Arment: Thank you so much.

Peter Arment: And our next question coming from the line off. Peter Arman with Barriciel on the Sultan. Yeah, thanks. Good morning, Tom. Chris Stewart. Terrific, terrific results.

Operator: And our next question, coming from the line of Peter Arment with Bear Galen, is open. Thanks. Good morning, Tom, and Chris.

Speaker Change: Terrific, thank you so much.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of Peter Arment with Bear Galen is open

Thomas A. Bell: Terrific, terrific results. Hey, Tom, maybe just focus on commercial and international. You had a write-down in the quarter.

Peter J. Arment: Yeah, thanks. Good morning, Tom, Chris, Stuart. Thank you. Terrific, terrific results. Hey, Tom, maybe just to focus on commercial and international, just...

Tom Bell: Tom, maybe just the focus on commercial and international, just you had the right down the quarter abs in the right down. You would have had, you know, pretty good marks and forms, maybe just talk a little bit about, I guess, either the right down or just confidence level and kind of the back half of the year, you know, where your, your marches are, I guess, expected to be better. Yeah, sure. Thanks. Well, first of all, you know, this, this is very much the benefit of having new eyes and a new organizational structure that's looking with.

Thomas A. Bell: Absent the write-down, you would have... Maybe just talk a little bit about, I guess, either the write-down or just confidence levels and kind of the back half of the year. Yeah, sure. Thanks.

Peter J. Arment: You had the write-down in the quarter. Absent the write-down, you would have had, you know, pretty good margin performance. Maybe just talk a little bit about, I guess, either the write-down or just confidence level and kind of the back half of the year, you know, where you're...

Thomas A. Bell: Well, first of all, you know, this is very much the benefit of having new eyes and a new organizational structure that's looking at the business with fresh perspectives. 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 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 are not more. So Vicky 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.

Speaker Change: expected to be better.

Speaker Change: Yeah, sure, thanks. Well, first of all, you know, this this is

Speaker Change: Very much the benefit of having new eyes and a new organizational structure that's looking with fresh perspectives on the business.

Tom Bell: Fresh perspectives on the business. As Chris mentioned, this is primarily to fix price contracts that we have in the UK that, through increased and very robust conversations with the customers. We've, we've decided we have to take a right down because of changing requirements and a 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.

Speaker Change: 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 a schedule slippage.

Vicky: 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, Vicky 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.

Tom Bell: And we feel very bullish about the prospects for her business.

Tom Bell: I mentioned and I featured in our last call last quarter that, you know, we want to make Light Dose synonymous with August Pillar Two. 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 August. We've got excellent customer touch points in the UK and Australia, and obviously here in the United States. And we're very bullish on the opportunities for commercial and international.

Vicky: and we feel very bullish about the prospects for her business.

Thomas A. Bell: And we feel very bullish about the prospects for her business. I mentioned, and I featured on our last call last quarter that, you know, 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 help make that happen. So Vicky and her team are very focused on bringing the team together around Aukus.

Vicky: I mentioned, and I featured in our last call, last quarter,

Vicky: that, you know.

Vicky: We want to make

Vicky: Leidos, synonymous with AUKUS Pillar 2.

Vicky: And as you heard in...

Vicky: This call, we've taken some steps by really allocating and hiring some talent.

Vicky: that can really get after making that show.

Vicky: So Vicky and her team are very focused on bringing the team together around AUKUS.

Thomas A. Bell: We've got excellent customer touch points in the UK and Australia and, obviously, here in the United States. And we're very bullish on the opportunities for commercial and international growth. Also, I want to tip a hat to the SES team. They had a very good first half of the year.

Vicky: We've got excellent customer touch points in the UK and Australia and obviously here in the United States.

Chris Cage: 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.

Vicky: and we're very bullish on the opportunities for...

Vicky: Commercial and International.

Speaker Change: 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 Vicky, who have really gotten their arms around that business.

Thomas A. Bell: And that is all credit to Mike Van Gelder and to Vicky, 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. The only thing I'd add there, Peter, is that the piece of the business there that Tom didn't mention is our commercial energy business, which 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 sometimes later in the year.

Speaker Change: 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 guy to add their Peter is the, you know, 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 some time later in the year. So a well-run business that we expect to continue to deliver great results. And in the other piece of the portfolio, we believe are on strong footing for the second half.

Peter J. Arment: 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...

Christopher R. Cage: So a well-run business that we expect to continue to deliver great results. And the other pieces of the portfolio, we believe are on, you know, strong footing for the second half. Very helpful commentary.

Speaker Change: critical incentive and award fee determinations that happen sometimes 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, you know, strong footing for the second half.

Peter Arment: That's very helpful commentary.

Thomas A. Bell: And then just, Tom, just quickly, the DOD continues to make a lot of evolving changes or strategies around counter UAS. How are you guys thinking about this? 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, IFPIC Enduring Shield is the thing we talk most about Dynetics, but within our Leidos Innovation Center, the LINC, and our defense systems segment.

Tom Bell: 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 Dynamics has some exposure here. How are you guys thinking about the portfolio and when you're thinking about the counter UAS business today? It's a very timely question, Peter.

Peter J. Arment: 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? And when you're thinking about the

Tom Bell: I have a classified briefing later this week to dive deep into all our capabilities for counter UAS. Obviously, if pick and during shield is the thing we talked most about dynamics, but within our Lighthouse Innovation Center, the link 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.

Thomas A. Bell: 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.

Thomas A. Bell: The question is, do we have something in the pantry that will be compelling for the customer? We appreciate the call. Thanks, Tom. Our next question coming from the lineup is Jason Gursky with Citi, you're on a... Hi, Jeremy Jason is on Gursky's team. Hello?

Tom Bell: 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? Appreciate to call it a nice time.

Jason Gersting: Our next question coming from the line-up, Jason Gersting with City on Assulpen. Hi, Jeremy Jason is from Jason Gersting team. Hi, Jeremy. Hi. Hello. Sorry. Thanks for that question.

Unknown Executive: Kind of 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? Well, Jeremy, we're, you know, 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 a billion dollars, all the way down to some strategic small opportunities in the, you know, tens of millions of dollars.

Chris Cage: 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 our outlook. Thanks. Well, Jeremy, Tom gave you some high-level metrics.

Chris Cage: 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 in each of the segments. It has opportunities north of a billion, all the way down to some strategic small opportunities in the, you know, tens of millions of dollars. So we like our positioning there, you know, the big ticket numbers again, you know, 26 billion pending, 200 overall pipeline, approximately 70 billion. And we expect to be decided in 25, two thirds of that being new work and take away in great position on our BD side and the growth teams are highly energized.

Speaker Change: <unk> 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 and the big ticket numbers again 26 billion pending 200 overall pipeline approximately $70 billion, we expect to be decided in 'twenty five two thirds of that being new work and take off.

Unknown Executive: So we like our positioning there. You know, the big ticket numbers, again, 26 billion pending, 200 overall pipeline, approximately 70 billion we expect to be decided in 2025, 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, you know, the good news is the Dynetics team has built up some capabilities down in Huntsville. We feel like we've augmented that in areas like the Wide Field of View and satellite payload needs.

Peter J. Arment: Wei.

Peter J. Arment: Great position on our BD side and the growth teams are highly energized.

Chris Cage: As it relates to production capacity, you know, 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 use satellite payload needs. We've got to facility that we've been waiting to fill up from a capacity standpoint on the if pick side the enduring shield. So we're excited about the ability to take full advantage of what we've got in place there.

Peter J. Arment: As it relates to production capacity.

Peter J. Arment: Good news is.

Speaker Change: The dynamics team had built up some capability 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 too.

Christopher R. Cage: We've got a facility that we've been waiting to fill up from a capacity standpoint on the IFPIC 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've built out. So I don't see a big need for major investments in those areas.

Speaker Change: Fill up from a capacity standpoint on the epic side the enduring shield. So we're excited about the.

Speaker Change: The ability to take full advantage of what we've got in place there and then we spoke previously on the SCS side about our new Charleston facility that we tour.

Chris Cage: 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 teams 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, you know, 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.

Speaker Change: Just in the last few months, it's a great facility that the team's built out and factors.

Speaker Change: <unk> have 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 theres a compelling.

Thomas A. Bell: It's always something that we, you know, 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, you know, 18 months. And just to pile on a little bit on that, Jeremy, the, you know, the 26 billion of pending awards we have, I mean, that 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, you know, the batting average should be relatively positive on that. We've, you know, we've used the example internally of, We've had a business capture problem.

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 and just to pile on a little bit on that Jeremy.

Chris Cage: And just to pile on a little bit on that, Jeremy, the, you know, the 26 billion of pending awards we have, I mean, that 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, you know, the batting average should be relatively positive on that. We've, you know, we've we've used the example internally of a, we've had a business capture problem. And so to break that inertia, we have inputted energy with new talent, energy with new processes and tools.

Speaker Change: The 26 billion of.

Jeremy: Pending awards, we have I mean.

Speaker Change: That is not only several home runs that we've got.

Speaker Change: On deck, but $40 50, Big awards of $50 billion $50 million or more so we've got.

Jeremy: Lots of proposals in work and so the batting average should be relatively.

Jeremy: Positive on that.

Jeremy: We've used the example internally of.

Jeremy: Sure.

Jeremy: We've had our business capture problem and so to break that inertia, we have input at 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 to 15 months Youll appreciate.

Thomas A. Bell: And so to break that inertia, we have invested 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 to 15 months. You'll appreciate that in our customer's environment, decisions take time, and ultimately, they're almost all protested. And so it takes a little while before a flash of energy to break inertia becomes the bang of the momentum of actual wins.

Chris Cage: And now we're very excited about the momentum that's going to build over the next 12 to 15 months. You'll appreciate that in our customer's environment, decisions take time. And ultimately, they're almost all protested. And so it takes a little while before a flash of energy to break inertia becomes the bang of the momentum of actual wins.

And in our customers environment decisions take time and ultimately they are almost all protest. It. So it takes a little while before a flash of energy to break inertia becomes the bang of the momentum of actual.

Thomas A. Bell: But we're highly confident that we're in a good place and Jerry's the right leader to bring us forward. Thank you so much. Thank you. Thank you. And our next question, coming from the line of... Ken Herbert, Clint Arbuthnott, Yolanda Silver, Yeah, good morning, Tom and Chris, really nice quarter. Thank you, Ken.

Chris Cage: But we're highly confident that we're in a good place, and Jerry's the right leader to bring us forward. Thank you so much.

Jeremy: <unk>, but we're highly confident that we're in a good place and Jerry is the right leader to bring us forward.

Speaker Change: Thank you so much.

Jerry: Thank you.

Ken Herbert: And our next question coming from the line-up, Ken Herbert with Arbor, Neil Onis open. Yeah, good morning, Tom and Chris. Really nice quarter. Hey, I just wanted to first start off, you obviously raised the guidance with the exception of the cashm 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? Yeah, hey, Ken, Chris here. You know, obviously we stepped up our cash guide last quarter by 200 million, a pretty significant increase.

Jerry: Thank you and our.

Speaker Change: Next question coming from the lineup.

Speaker Change: Ken Herbert with RBC. Your line is now open.

Kenneth George Herbert: Yes, hi, good morning, Tom and Chris really nice quarter.

Thomas A. Bell: Hey, I just wanted to start off by saying you obviously raised the guidance with the exception of cash from operations. Is there anything in particular when you think about the cash flow outlook for the second half of the year we should keep in mind or maybe drive a little bit more conservatism there? Yeah, hey Ken, Chris here.

Kenneth George 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.

Christopher R. Cage: 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 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 are no headwinds that we're foreseeing.

Christopher R. Cage: Yeah, Hey, Ken Chris here.

Christopher R. Cage: Obviously, we stepped up our cash guide last quarter by $200 million of pretty significant increase.

Chris Cage: 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 on 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 first seeing. We're just, you know, kind of managing it down the middle.

Speaker Change: We're clearly focused on converting these extra earnings that youre going to see here into cash and Theres always the chance that some of that comes in in January versus December. So at this point in time with two quarters ago.

Speaker Change: Two thirds of our cash.

Speaker Change: Commitment for the year ahead of US we just didn't feel it was prudent to increase the guidance at this time, but theres no headwinds that we're seeing we're just kind of managing it down the middle.

Thomas A. Bell: We're just, you know, kind of managing it down the middle. 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 the performance of their business.

Chris Cage: 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 the 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.

Speaker Change: And just to build on that 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.

Speaker Change: And issues around.

Thomas A. Bell: And so, while we're extremely pleased with the first half of the year, which allows us to raise our guidance again, we're not going to get ahead of our skis or overpromise. We're going to keep our powder dry to make sure that the third and fourth quarters deliver the way we expect. That's great. Thanks, Tom.

Speaker Change: Their performance of their business and so.

Speaker Change: 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.

Thomas A. Bell: And if I could, it sounded 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 corner. Yeah, sure.

Tom Bell: And if I could, the it sounded like from a prepared remarks that there could be upside as well to the expected buyback this year is a 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. Yeah, sure. And great cash in the quarter is the reason that I only trailed it and didn't commit to more.

Speaker Change: That's great. Thanks, Tom if I could.

Speaker Change: It sounded like from your prepared remarks that there could be upside there as well to the expected buyback. This year is a $500 million.

Speaker Change: I guess, maybe part of that is timing, but can you just reset in terms of what you might want to see too to deploy more capital there and maybe any change in how you think about the framework around.

Speaker Change: Returning capital to shareholders considering some of the investments you are talking about here today, but great great cash in the quarter really nice, yes, 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 sign wave when it comes to cash coming in and tips.

Thomas A. Bell: 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.

Tom Bell: We had great, you know, you know how the flow of the business comes. It's a little bit like a sign 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; you know, we were 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.

Thomas A. Bell: And typically, the third quarter is a relatively robust cash quarter for our business. We had a very robust second quarter. So I recommitted, you know, we're committed to repurchasing $500 million worth of shares this year. We're halfway through that now.

Speaker Change: <unk> 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 will continue that program.

Thomas A. Bell: 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. 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 continue to be prudent allocators of cash in a shareholder-friendly manner. And so don't worry about it burning a hole in my pocket, as my grandmother used to say.

Speaker Change: 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.

Speaker Change: The third quarter unfolds, and we look towards the fourth quarter.

Tom Bell: The one thing I will say can just because to state the obvious, but not to assume it is stated. Fear not, we're going to continue to be prudent allocators of cash in a shareholder-friendly manner. And so don't worry about disperning a hole in my pocket as my grandmother. He used to say. Perfect, thank you.

Speaker Change: The one thing I will say, Ken just because to state the obvious but not to assume it is stated.

Ken: Fear not we're going to be continue to be prudent allocators of cash in.

Speaker Change: In a shareholder friendly manner and so.

Speaker Change: Don't worry about this burning a hole in my pocket as my grandmother used to say.

Thomas A. Bell: Perfect. Thank you. Thank you. And our next question coming from the lineup is from Noah Poponak with Goldman Sachs New London. Hey, good morning, everyone. Hey, Noah.

Speaker Change: Perfect. Thank you.

Kent: Thanks, Kent.

Noah Poponak: And our next question coming from Delina, Noah Poponak with Goldman Sachs, Hill on the Falcon. Hey, good morning, everyone. So I guess the EBITDA margin has to be a lot lower in the second half than the first half to be at the 12th of the year. In 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. You know, obviously the health and civil margin, you know, pretty strong in the second quarter, but you're also absorbing this CNI margin.

Kent: Thank you and our next question coming from the line of Noah.

Speaker Change: <unk> with Goldman Sachs. Your line is open.

Noah: Hey, good morning, everyone.

Christopher R. Cage: So I guess the EBITDA margin has to be a lot lower in the second half than in the first half to be at 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. You know, obviously, the health and civil margin was pretty strong in the second quarter, but you're also absorbing, Um, we get it, right?

Noah: <unk>.

Speaker Change: So I guess the.

Speaker Change: The EBITA margin has to be.

Speaker Change: A lot lower in the second half than the first half to be at the 12 for the year in the second half EPS as a percentage of the total will need to be a lot lower than it has been historically to be in the earnings range for the year.

Speaker Change: Obviously, the health and civil margin.

Speaker Change #100: Pretty strong in the second quarter, but Youre also absorbing this scene.

Chris Cage: So, can you maybe, Chris, just walk me through that? I mean, what, which segments, revenue growth or margins really moderate a lot? How are you thinking about that health margin through the back half of the year? Sure. No, thanks, Noah. And, you know, we get it right excellent first half of the year, you know, excellent, full year guidance, but the second half relative to the first half looks a little bit more modest. But stepping back, you know, the guidance implies, let's call it roughly 11%. Mark margins in the second half of the year. And just six months ago, we opened the year with the next expectation of, you know, 10 and a half to high tens on margins.

Speaker Change #101: Our margin so.

Speaker Change #101: Can you maybe Chris just walk me through that I mean, what which segments revenue growth or margins really moderate a lot.

Christopher R. Cage: Or are you thinking about that health margin through the back half of the year sure no. Thanks Noah.

Christopher R. Cage: We get it right.

Christopher R. Cage: excellent first half of the year, you know, excellent full-year guidance, but the second half, relative to the first half, looks a little bit more modest. But stepping back, you know, 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, you know, 10 and a half to the high 10s on margins. 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 percent margins kind of being delivered by the business. And that's really the primary reason, right?

Speaker Change #102: Excellent first half of the year excellent full year guidance, but.

Speaker Change #103: Second half relative to the first half looks a little bit more modest but stepping back.

Speaker Change #104: 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 five to <unk> on margins. So we're pleased to be able to look ahead and say even in a scenario where the.

Chris Cage: 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 aside to, let's say 11% is margins kind of being delivered by the business. And that's really the primary reason, right? As we look at, you know, as the VA is kind of navigating the next few months, we're expecting those throughput to be lower and, you know, then we've allowed ourselves some cautiousness as we look into the fourth quarter around how quickly that'll snap back. So there's certainly scenarios where that could do much better, but though that's the primary backdrop, we look at the rest of the portfolio. Obviously, you know, we did signal that national security and digital has had a very strong first half on margins.

Speaker Change #104: Disability examination work levels, perhaps come down we still see line of sight to let's say 11 percentage margins kind of being.

Speaker Change #104: Being delivered by the business.

Christopher R. Cage: As we look at, you know, as the VA is kind of navigating the next few months, we're expecting throughput to be lower. And, you know, then we've allowed ourselves some caution as we look into the fourth quarter around how quickly that'll snap back. So there's certainly scenarios where that could do much better. But that's the primary backdrop.

Speaker Change #104: And Thats really the primary reason right as we look at it.

Speaker Change #104: The VA has kind of navigating the next few months, we're expecting those.

Speaker Change #104: 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.

Speaker Change #104: 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 is always the potential those we're 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 <unk>.

Christopher R. Cage: As we look at the rest of the portfolio, obviously, you know, we did signal that national security and digital had a very strong first half on margins. There's always the potential that they could sustain at those levels. But again, looking at some of the milestones, we pull back a bit on that for the second half guidance. And then, the last piece, what I point to is the investments, you know, 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.

Chris Cage: There's always the potential those were able to sustain at those levels, but again, looking at some of the milestones, we hold back a bit on that for the second half guidance. And then the last piece know what I point to is the investments, you know, 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.

Speaker Change #105: No what I point to is.

Speaker Change #105: The investments taking advantage of this opportunity to make sure we're funding an innovation fund.

Speaker Change #105: We can dial up or dial back depending upon the progress that's being made in and really make sure that we've got a jumpstart on 2025. So in the fundamentals of the business across the board or are in great shape, and 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.

Christopher R. Cage: So, you know, 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, you know, optimization side that we still have ahead of us to get after indirect cost management. So I feel like we're really well positioned as we look ahead to 2025. You know, I'll just foot stomp on something Chris said in his prepared remarks. And that is, you know, 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.

Chris Cage: 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 the indirect cost management. So I feel like we're really well positioned as we look at it 25. I'll just put something Chris said in his prepared remarks, and that is, you know, our two Q profitability was aided by having two quarters' worth of incentives 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.

Speaker Change #105: Management, So I feel like we're really well positioned as we look at it 25, no I'll just footstone something Chris said in his prepared remarks and that is our <unk>.

Speaker Change #106: Two Q profitability was.

Speaker Change #107: Aided by having two quarters worth of incentives in hit in the second quarter. So the profitability of that business was enhanced.

Speaker Change #108: Because of that the underlying business remains as solid as it ever has been.

Noah Poponak: Okay. and Chris, the VBA, I guess it's not like you guys are saying you don't have an RFP yet. It sounds like, you know, recompense, imminently without an RFP yet. Is that sliding out? Does that make an extension more likely? That's how we see it. It's been fluid. We've been rehearsing and preparing and, you know, can adapt to any scenario, but it's becoming more and more likely that there is an extension of some kind versus the recompense, but we can't commit to that. We're just prepared for whatever the VBA is able to do in a short order here.

Thomas A. Bell: And Chris, the VBA, I guess it sounded like you guys were saying you don't have an RFP yet. It sounds like, you know, re-competes imminently without an RFP yet. Yeah. Is that sliding out? Does that make an extension more likely? That's how we see it.

Speaker Change #107: Okay.

Christopher R. Cage: And Chris the V.

Christopher R. Cage: The VBA.

Christopher R. Cage: I guess it sounds like you guys are saying you don't have an RFP yet.

Speaker Change #109: It sounds like Recompete imminently without an RFP.

Speaker Change #110: Yes, maybe unlikely I don't know is that flattening out as does that mean does that make an extension more likely.

Christopher R. Cage: 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 will be an extension of some kind versus a re-compete, but we can't commit to that. We're just prepared for whatever the VA is able to do in a short order here. But do you still expect them to slow down the activity while that's being sorted out? At least until, you know, they've got a new government fiscal year, and that'll help them get into a new budget environment. Now they, again, could be aided by Congress in the near term, but our baseline assumption at this point in time is that activity levels are more muted over the next few months.

Speaker Change #112: How we see it it's been fluid.

Speaker Change #111: We have been.

Speaker Change #111: Rehearsing in preparing and.

Speaker Change #111: Can adapt to any scenario, but it's becoming more and more likely that there is an extension of some kind versus recompete, but.

Speaker Change #111: We can't commit to that or 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? At least until, you know, they've got a new government fiscal year, and that'll help them, you know, get into a new budget environment, and now they, again, 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. Okay, thank you.

Speaker Change #113: But you still expect them to slow down the activity, while that's being sorted out at least until they've got a new government fiscal year end and that will help them get into a new budget environment now they again, they could be aided by Congress in the near term, but are our baseline assumption at this point in time as activity levels are.

Speaker Change #113: More muted over the next few months.

Operator: Thank you.

Speaker Change #114: Okay. Thank you. Thank you.

Operator: 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 Lidos, and we look forward to catching up with you in the future.

Christopher R. Cage: Thank you. Thank you. 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 their interest in Leidos, and we look forward to catching up with you in the future. Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect.

Olivia: Olivia it looks like we've gone beyond the hour. So I think we will 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 <unk> and we look forward to catching up with you in the future.

Operator: Please, thank you, and that's our conference for today. Thank you for your participation, and you may now disconnect.

Speaker Change #115: Ladies and gentlemen that does stock conference for today. Thank you for your participation you may now disconnect.

Speaker Change #114: Sure.

Speaker Change #114: Yes.

Speaker Change #114: Yes.

Speaker Change #114: Sure.

Speaker Change #114: Okay.

Speaker Change #114: Yeah.

Speaker Change #114: Yes.

Speaker Change #114: [music].

Speaker Change #114: Okay.

Speaker Change #114: Okay.

Speaker Change #114: Okay.

Okay.

Okay.

Speaker Change #114: Sure.

Speaker Change #114: Yes.