Q2 2025 Science Applications International Corp Earnings Call

Music

Speaker Change: Good day and thank you for standing by. Welcome to the S.A.I.C. second quarter of the school year 2025 earnings call.

Speaker Change: At this time, our participants on Listen Only Mode.

Speaker Change: After the speaker's presentation, there will be a question answer session. To ask a question during this session, you'll need to press start 1-1-1 until the phone. You will then hear an automated message, revise your hand as race.

Joseph DeNardi: to withdraw your questions. Please press start one one again. Please be advised that today's conference is being recorded on night and the conference will receive your first speaker today, Joseph DeNardi Senior Vice President or Investigation Stress, please go ahead.

Joe DeNardi: Good morning, and thank you for joining SAC's second quarter fiscal year 2025 earnings call. My name is Joe DeNardi, Senior Vice President of Investor Relations and Treasure.

Speaker Change: and joining me today to discuss our business and financial results, our Toni Townes Whitley, our Chief Executive Officer, and Prabu Natarajan, our Chief Financial Officer.

Speaker Change: Today we will discuss our results for the second quarter of fiscal year 2025 that ended August 2, 2024.

Speaker Change: Earlier this morning, we issued our earnings release, which can be found at investors.sac.com, where you will also find supplemental financial presentation slides to be utilized in conjunction with today's call, and a copy of Management's Prepared remarks.

Speaker Change: These documents, in addition to our Form 10Q to be filed later today, should be utilized in evaluating our results and outlook, along with information provided on today's call.

Speaker Change: Please note that we may make forward-looking statements on today's call that are subject to known and unknown risks and uncertainties that could cause actual results to differ material and statements made on this call.

Speaker Change: I refer you to our SEC filings for discussion of these risks, including the risk factor section of our annual report on Form 10K.

Speaker Change: In addition, the statements represent our views as of today and subsequent events may cause our views to change.

Speaker Change: We may elect to update the forward-looking statement at some point in the future, but we specifically to exclaim any obligation to do so.

Speaker Change: In addition, we will discuss non-gap financial measures and other metrics, which we believe provide useful information for investors and both our press release and supplemental financial presentations slides include reconciliation to the most comparable gap measures.

Speaker Change: The non-gap measures should be considered in addition to and not a substitute for financial measures in accordance with gap.

Speaker Change: It is now my pleasure to introduce our CEO, Toni Townes Whitley.

Speaker Change: Thank you, Joe, and good morning to everyone on our call, which we're doing today from our offices in Huntsville.

Speaker Change: S.A.A.C. has deep roots in the rocket city with over five decades of support and community involvement. We are proud to be the third largest employer with more than 2,600 employees calling Alabama home.

Speaker Change: We recently held our board meeting here and will be taking our board members and other leaders to visit the Chamber of Commerce and an amazing high school that we support the Alabama School of Cyber Technology and Engineering.

Speaker Change: It is vitally important for us to develop and foster STEM education in our youth to ensure our future workforce can feel critical skills needs now and into the future.

Speaker Change: We'll also do the Keene customer sites.

Speaker Change: where we support some of the country's most mission critical operations in the space in missile defense sectors.

Unknown Executive: Good day, and thank you for standing by.

Joseph DeNardi: Welcome to the SAIC second quarter of the school year 2025 earnings call. At this time, all participants are on listen only mode. After the speaker's presentation, there will be a question and session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message revising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded.

Speaker Change: in our support of the U.S. Army and Missile Defense Agency, we strive to ensure we provide leading edge capabilities and technology to help them solve their hardest problems and field mission critical systems to our war fighters and military leaders.

Speaker Change: Our work includes modeling and simulation, live virtual constructive training, and digital engineering and I'm extremely proud of this workforce and committed to our ongoing upscaling initiatives which will see us growing expertise and skill to match and exceed our customer's requirements.

Joseph DeNardi: Thank you for joining SAIC's second quarter fiscal year 2025 earnings call. My name is Joe DeNardi, senior vice president of investor relations and treasure. And joining me today to discuss our business and financial results are Toni Townes Whitley, our chief executive officer, and Prabu Natarajan, our chief financial officer. Today, we will discuss our results for the second quarter of fiscal year 2025 that ended August 2nd, 2024. Earlier this morning, we issued our earnings release, which can be found at investors.saic.com, where you will also find supplemental financial presentation slides to be utilized in conjunction with today's call, and a copy of management's prepared remarks.

Speaker Change: My remarks today will focus on a quick review of our second quarter performance, followed by an update on the execution of our enterprise growth strategy. Prabu will then discuss our updated outlook and capital deployment plans in greater detail.

Prabu Natarajan: Overall, I'm pleased with our solid financial performance on all key metrics and the strategic progress we've made in the quarter.

Prabu Natarajan: We reported second quarter organic revenue growth, a 2% year over year, as increases from new business winds and on contract growth, we're partially offset by an approximately 5. headwind from contract transitions.

Prabu Natarajan: Adjusted EBITDA of $170 million in margin of 9.4% reflects solid program performance.

Joseph DeNardi: These documents, in addition to our form 10Q to be filed later today, should be utilized in evaluating our results and outlook, along with information provided on today's call. Please note that we may make forward looking statements on today's call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call. I refer you to our SEC filings for a discussion of these risks, including the risk factor section of our annual report on form 10K.

Prabu Natarajan: Due to revised bid thresholds we've put in place, and a focus on improved shop selection, we continue to expect an improved margin trajectory over the next several years.

Joseph DeNardi: In addition, the statements represent our views as of today, and subsequent events may cause our views to change. We may elect to update the forward looking statements at some point in the future, but we specifically display any obligation to do so. In addition, we will discuss non-gap financial measures and other metrics, which we believe provide useful information for investors, and both our press release and supplemental financial presentation slides include reconciliation to the most comparable gap measures. The non-gap measures should be considered in addition to and not a substitute for financial measures and accordance with gap.

Prabu Natarajan: Adjusted diluted earnings per share of $2.5 benefits benefited from an effective tax rate of approximately 19.5% and a 5% year-over-year reduction in our weighted average share count.

Prabu Natarajan: Second quarter free cash flow of 241 million was very strong due to a continued focus on working capital efficiency and good blocking and tackling from the team.

Prabu Natarajan: This brings first half-free cash flow to 262 million representing over 50% of our full-year guidance.

Prabu Natarajan: While we still have some revenue challenge in front of us in the second half of the year, as Prabu will describe later, I'm encouraged by the performance shown in the second quarter and to focus I see inside our company to meet our guidance for FY25 and sustain momentum into FY26.

Prabu Natarajan: I'll now provide an update on our enterprise growth strategy execution.

Prabu Natarajan: We flattened our organization, centralized business development, and implemented our enterprise operating model, designed to optimize investment planning, and align our pipeline with growth vectors.

Toni Townes Whitley: It is now my pleasure to introduce our CEO, Tony Towns Whitley. Thank you, Joe, and good morning to everyone on our call, which we're doing today from our offices in Huntsville. SAIC has deep roots in the rocket city with over five decades of support and community involvement. We are proud to be the third largest employer with more than 2,600 employees calling Alabama home. We recently held our board meeting here, and will be taking our board members and other leaders to visit the Chamber of Commerce, and an amazing high school that we support, the Alabama School of Cyber Technology and Engineering.

Prabu Natarajan: We continue to tune across all four pivots, portfolio, go to market, culture and brand.

Prabu Natarajan: The earliest indicators of progress against our strategy will be improved to business development performance, which we believe will unlock significant long-term values for shareholders.

Prabu Natarajan: The outcome is a more differentiated, more efficient, faster growing, and higher margin FACI.

Prabu Natarajan: Simply put, we expect that our execution of the strategy will initially translate into bid more, bid better, win more. The first step, bid more, is significantly increasing the total value of submissions to a level more line with our growth aspirations.

Toni Townes Whitley: It is vitally important for us to develop and foster STEM education in our youth to ensure our future workforce can fill critical skills needs now and into the future. We'll also visit key customer sites where we support some of the country's most mission critical operations in the space and missile defense sectors. In our support of the U.S. Army and missile defense agency, we strive to ensure we provide leading age capabilities and technology to help them solve their hardest problems and field mission critical systems to our warfighters and military leaders.

Prabu Natarajan: We continue to see good progress as evidenced by the 14.5 billion of submit volume in the first half of the year.

Prabu Natarajan: Comparer to 17 billion for full year fiscal year 24.

Prabu Natarajan: and we have improved visibility into exceeding our submission target of 22 billion for the full year.

Toni Townes Whitley: Our work includes modeling and simulation, live virtual constructive training, and digital engineering. And I'm extremely proud of this workforce and I'm committed to our ongoing upscaling initiatives which will see us grow in expertise and skill to match and exceed our customer's requirements.

Prabu Natarajan: The second step, bid better, is aligning our pipeline in bid processes with key strategic and financial objectives.

Prabu Natarajan: Strategicly, we will drive outside growth in the civilian market and within enterprise emission IT, two of the four growth factors where we see the opportunity to leverage our strength in the market to gain share.

Toni Townes Whitley: My remarks today will focus on a quick review of our second quarter performance, followed by an update on the execution of our enterprise growth strategy. Prabu will then discuss our updated outlook and capital deployment plans in greater detail. Overall, I'm pleased with our solid financial performance on all key metrics and the strategic progress we've made in the quarter. We reported second quarter organic revenue growth at 2% euro per year as increases from new business wins and on contract growth were partially offset by an approximately five point headwind from contract transitions.

Prabu Natarajan: These growth vectors align with our financial objectives to shift our pipeline towards higher value programs that are more margin-accretive.

Prabu Natarajan: The third step, Windmore, is driving bookings and backlog growth and eventually revenue growth more aligned with our long-term target.

Prabu Natarajan: We will accomplish this by increasing our volume and quality of bid submissions, returning our recompete win rate to the 90% range, and sustaining our strong new business performance.

Prabu Natarajan: In terms of how long it will take before we start to see results.

Toni Townes Whitley: Adjusted EBITDA of $170 million and margin of 9.4% reflect solid program performance. Due to revised bid thresholds we've put in place and a focus on improved shot selection we continue to expect and improve margin trajectory over the next several years. Adjusted diluted earnings per share of $2.05 benefited from an effective tax rate of approximately 19.5% and a 5% year-over-year reduction in our weighted average share count. Second quarter free cash flow of 241 million was very strong due to a continued focus on working capital efficiency and good blocking and tackling from the team.

Prabu Natarajan: Our expectation is for booking to continue to improve, with a particular inflection over the next two to three quarters, with the Associated Revenue Impact following one to two quarters later.

Prabu Natarajan: This should translate into a book to bill of 1.2 by the first half of fiscal year 26 with organic revenue growth aligning with our longer term target of 5% towards the end of fiscal year 26

Speaker Change: I want to thank the team at SAIC, for the enthusiasm and focus they bring to the company and the execution of our strategy.

Speaker Change: Thanks to their efforts, we are well on our way towards building a stronger FACIC for the future.

Speaker Change: I look forward to sharing further updates on our progress going forward. I'll now turn the call over to Prabu.

Toni Townes Whitley: This brings first half free cash flow to 262 million representing over 50% of our full year guidance. While we still have some revenue challenge in front of us in the second half of the year as Prabhu will describe later, I'm encouraged by the performance shown in the second quarter and the focus I see inside our company to meet our guidance for FY 25 and sustain momentum into FY 26.

Prabu Natarajan: Thank you, Toni, and good morning to those joining our call. I will now provide a review of our business development results, updated outlook for the fiscal year and our capital deployment plans.

Prabu Natarajan: Netbooking of 1.2 billion resulted in a book to bill in the quarter of 0.6x and 1.1x on a trailing 12-month basis.

Toni Townes Whitley: I'll now provide an update on our enterprise growth strategy execution. We flattened our organization centralized business development and implemented our enterprise operating model designed to optimize investment planning and align our pipeline with growth vectors. We continue to tune across all four pivots portfolio go to market culture and brand. The earliest indicators of progress against our strategy will be improved to business development performance which we believe will unlock significant long-term value for shareholders.

Prabu Natarajan: We submitted approximately 6.5 billion of total contract value in the quarter, bringing the year to date submitted Bids' value to approximately 14.5 billion.

Prabu Natarajan: We are encouraged.

Prabu Natarajan: by the momentum and increased velocity we are seeing within our business development organization and remain on track to exceed our target for 22 billion of submission this year with further growth in FY26 and FY27 beyond our initial estimates.

Prabu Natarajan: The processes and metrics we have put in place give me confidence that we will be able to improve our business development and capture outcomes over the next few years.

Toni Townes Whitley: The outcome is a more differentiated, more efficient, faster growing and higher margin SAC. Simply put, we expect that our execution of the strategy will initially translate into bid more bid better win more. The first step bid more is significantly increasing the total value of submissions to a level more aligned with our growth aspirations. We continue to see good progress as evidenced by the 14.5 billion of submit volume in the first half of the year compared to 17 billion per full year fiscal year 24 and we have improved visibility into exceeding our submissions target of 22 billion for the full year.

Prabu Natarajan: We returned approximately 220 million to shareholders in the quarter, including 201 million of share repurchases reflecting a planned increase in our pace and opportunity repurchases on top of that.

Prabu Natarajan: We remain on track to exceed the high end of our prior target of 350 to 400 million in repurchases for the year. We intend to achieve this while maintaining sufficient capacity for M&A. I'll now provide an update on our outlook for the year.

Prabu Natarajan: We are reaffirming our prior guidance for revenue, adjusted EBITDA and free cash flow.

Toni Townes Whitley: The second step bid better is aligning our pipeline and bid processes with key strategic and financial objectives. Strategically, we will drive outsized growth in the civilian market and within enterprise emission IT, two of the four growth vectors where we see the opportunity to leverage our strength in the market to gain shape. Center. These growth vectors align with our financial objectives to shift our pipeline towards higher value programs that are more margin accretive.

Prabu Natarajan: We are increasing our guidance for adjusted deluded earnings per share by 10 cents to a range of $8.10 to $8.30 due to a lower tax rate and share count offsetting modestly higher interest expense.

Prabu Natarajan: Our revenue guidance, which reflects performaorganic growth in a range of 1.5% to 3.5% continues to assume an approximately 5% headwind from reconpeed pressures.

Toni Townes Whitley: The third step, win more, is driving bookings and backlog growth and eventually revenue growth more aligned with our long-term target. We will accomplish this by increasing our volume and quality of bid submissions, returning our recomplete win rate to the 90% range and sustaining our strong new business performance. In terms of how long it will take before we start to see results, our expectation is for bookings to continue to improve with a particular inflection over the next two to three quarters with the associated revenue impact following one to two quarters later. This should translate into a book to bill of 1.2 by the first half of fiscal year 26 with organic revenue growth aligning with our longer-term target of 5% towards the end of fiscal year 26.

Prabu Natarajan: At the midpoint, this implies an improvement in our second half growth compared to first half results.

Prabu Natarajan: We expect the improvement to be driven primarily by the further ramp up in volume on previously one new business and continued momentum from on contract growth.

Prabu Natarajan: Consistent with what we communicated last quarter, and based on our expectation for 3Q and 4Q revenue growth as provided on slide 7, we see the midpoint to the lower end of our revenue guidance as more likely than the higher end.

Prabu Natarajan: We are reaffirming our prior guidance for adjusted EBITDA in a range of 680 to 700 million and margin in a range of 9.2% to 9.4%.

Prabu Natarajan: We are reaffirming our free cash flow guidance of 490 million to 510 million and expect to sustain the momentum we build during a very strong second quarter.

Toni Townes Whitley: I want to thank the team at SAIC for the enthusiasm and focus they bring to the company and the execution of our strategy. Thanks to their efforts, we are well on our way towards building a stronger SAIC for the future. I look forward to sharing further updates on our progress going forward.

Prabu Natarajan: Our capital deployment strategy remains focused on maximizing long-term shareholder value. We have confidence that the strategy we are executing will produce free cash flow growth in excess of what is implied by current market valuations.

Prabu Natarajan: I'll now turn the call over to Prabhu. Thank you Tony and good morning to those joining our call. I will now provide a review of our business development results, updated outlook for the fiscal year and our capital deployment plans. Net bookings of 1.2 billion resulted in a book to bill in the quarter of 0.6x and 1.1x on a trailing 12 month basis. We submitted approximately 6.5 billion of total contract value in the quarter, bringing the year-to-date submitted bid's value to approximately 14.5 billion.

Prabu Natarajan: Given this view and the opportunity we see to drive significant improvement from our existing business, we expect our threshold for M&A to remain high and capital deployment to remain targeted on our repurchase program.

Prabu Natarajan: However, we retain sufficient balance sheet flexibility to add differentiated businesses to our company should an opportunity meet our risk adjusted threshold for returns.

Prabu Natarajan: We are encouraged by the momentum and increased velocity we are seeing within our business development organization and remain on track to exceed our target for 22 billion of submissions this year with further growth in FY 26 and FY 27 beyond our initial estimates. The processes and metrics we have put in place give me confidence that we will be able to improve our business development and capture outcomes over the next few years.

Prabu Natarajan: In closing, I am proud of the team's focus on delivering value for our shareholder and on executing our strategy to drive sustainable growth going forward. The progress we are making is clear and will begin converting into stronger financial performance in the coming years.

Speaker Change: I'll now turn to call over to begin Q&A.

Speaker Change: Thank you. At this time we'll conduct the question and session. As a reminder to ask a question, you need to press star 1, 1, or telephone and wait for your name to be announced. To withdraw your question, please press star 1, 1 again.

Prabu Natarajan: We returned approximately 220 million to shareholders in the quarter, including 201 million of share repurchases reflecting a planned increase in our pace and opportunistic repurchases on top of that. We remain on track to exceed the high end of our prior target of 350 to 400 million and repurchases for the year. We intend to achieve this while maintaining sufficient capacity for M&A.

Speaker Change: Please stand by with a composite Q&A roster.

Speaker Change: Our first question comes from a line of my acres of wool as far as the line is now open.

Speaker Change: Yeah, hey, good morning everybody, thanks for taking my question. I wanted to ask about, you know, the comment about book to build getting to 1.2. That makes me very good now. What gives you confidence to get there?

Prabu Natarajan: I'll now provide an update on our outlook for the year. We are reaffirming our prior guidance for revenue, adjusted EBITDA and pre-cash flow. We are increasing our guidance for adjusted deluded earnings per share by 10 cents to a range of $8.10 to $8.30 due to a lower tax rate and share count offsetting modestly higher interest expense. Our revenue guidance which reflects performance organic growth in a range of 1.5% to 3.5% continues to assume an approximately 5% headwind from recompete pressures.

Speaker Change: Specifically, just curious if there are any new big kind of new work opportunities that we should watch out for.

Speaker Change: Hey Matt, it's Toni. Thank you for the question, thank you for joining us on the call. Yeah, there are a couple of indicators that get us more comfortable around that kind of book to build expectation.

Speaker Change: One is just the submission rate, as you've seen. We are at 14 and a half now, against last year with 17 billion full-year, we fully expect to.

Speaker Change: surpassed our 22 billion expectations on our submission this year and feel strong about that. Secondly, we're also submitting, we have a larger qualified pipeline and we see the size of that qualified pipeline increasing quarter of a quarter.

Prabu Natarajan: At the midpoint this implies an improvement in our 2nd half growth compared to 1st half. Results. We expect the improvement to be driven primarily by the further ramp up in volume on previously one new business and continued momentum from on contract growth consistent with what we communicated last quarter and based on our expectation for three Q and four Q revenue growth as provided on slide seven we see the midpoint to the lower end of our revenue guidance as more likely than the higher end.

Speaker Change: We're sitting with about 10 billion of submitted goods.

Speaker Change: are pending a work. And so, and two thirds of those being participants to third being reconteed. And so, when you look at this...

Speaker Change: The shape of our pipe, what we submitted, the velocity, we feel strongly that we've got all of the indicators that drive to a north of 1.0 into the 1.2 range of both to build in the next 12 months.

Prabu Natarajan: We are reaffirming our prior guidance for adjusted EBITDA in a range of 680 to 700 million and margin in a range of 9.2% to 9.4%. We are reaffirming our free cash flow guidance of 490 million to 510 million and expect to sustain the momentum we build during a very strong second quarter. Our capital deployment strategy remains focused on maximizing long-term shareholder value. We have confidence that the strategy we are executing will produce free cash flow growth in excess of what is implied by current market valuations.

Speaker Change: I think you also caught out in the opening remarks that I think civilian may be a little bit of focus area. I guess one of the questions I get from people is depending on who wins in November, maybe the budget shifts.

Speaker Change: You know, the one way for the other defense versus down defense is that a consideration and just how you think of civilian versus defense.

Speaker Change: Thank you for that. We get that question a lot. If you look at our portfolio, we have called out to billion that's one of our four growth vectors. We find that to be not only a large addressable market for us, but also one that's really accreted to our portfolio.

Prabu Natarajan: Given this view and the opportunity we see to drive significant improvement from our existing business, we expect our threshold for M&A to remain high and capital deployment to remain targeted on our repurchase program. However, we retain sufficient balance sheet flexibility to add differentiated businesses to our company should an opportunity meet our risk adjusted threshold for returns.

Speaker Change: But if you look at where we're positioned in the civilian agencies, agencies like Department of Transportation, Department of Homeland Security State Department of VA and others...

Speaker Change: We feel like we are inoculated from any major swing post November from a partisan perspective. We are in agencies that have bipartisan support and have had that for many, many years.

Speaker Change: and we're positioned in those agencies both across enterprise IT and sort of mission critical IT which tends to be generally funded going forward. So we feel pretty strong there in terms of the defense and natural security.

Prabu Natarajan: In closing, I am proud of the team's focus on delivering value for our shareholder and on executing our strategy to drive sustainable growth going forward. The progress we are making is clear and will begin converting into stronger financial performance in the coming years.

Speaker Change: Look, we believe that healthy political support for different spending given the global.

Speaker Change: Environment and Geopolitical challenges of the country's faces. We also have to be, I would argue, across areas of national defense that are integrating more technology, more.

Unknown Executive: I will now turn the call over to begin Q&A Health. Thank you. At this time, we will conduct a question and sit session. As a reminder to ask a question, you need to press start one on your telephone and wait for your name to be announced. To withdraw your question, please press start one again. Please stand by where we compiled the Q&A roster.

Speaker Change: and more innovation, and that's where we're positioned. So we feel like in both regards portfolio is balanced and stable enough to be able to continue to move forward and grow independent of the part of the outcome.

Matthew Akers: Our first question comes from the line of Mac Acres of Wells Fargo. The line is now open.

Speaker Change: Look, the sense of spending we think is going to be flat and we think everyone's made that call.

Speaker Change: and so it becomes a share game, but again we feel like we're positioned with the right different chambers and our portfolio. Probably when it's not she might have on that, it's the only thing that we're adding to that.

Toni Townes Whitley: Hey, good morning, everybody. Thanks for taking my question. I wanted to ask about, you know, the comment about book to bill getting to 1.2. What gives you confidence to get there and specifically just curious if there are any new big kind of new work opportunities that we should watch out for? Hey, Matt, it's Tony. Thank you for the questions. Thank you for joining us on the call. Yeah, there are a couple of indicators that get us more comfortable around that kind of book to bill expectation.

Speaker Change: would be that, you know, we are looking to add market share in the civil use space. I would say we are somewhat underrepresented as a personal market share in that area, and therefore...

Speaker Change: As we look at our pipeline, it continues to inflect towards higher levels of new business even in the civilian space So that's why we're cautiously optimistic that there's a real opportunity to gain market share.

Toni Townes Whitley: One is just the submission rate as you've seen. We are at 14.5 now against last year with 17 billion full year. We fully expect to surpass our 22 billion expectation on our submissions this year and feel strong about that. Second, we're also submitting, we have a larger qualified pipeline and we see the size of that qualified pipeline increasing quarter of a quarter. We're sitting with about $10 billion of submitted bid at this point pending award.

Speaker Change: Very good, thank you.

Speaker Change: Our next question, concerned line-up Jason Cursey of City, your line is now open.

Jason Cursey: Yeah, good morning everybody. Thanks for taking my time.

Jason Cursey: Hey, just a quick question on the bidding activity that's going on, I believe you can just give a sense of what the contract takes.

Speaker Change: that you're chasing, look like, and kind of what the risk around execution is on all the the digital chasing at this point, and whether it kind of is any different than what you've kind of wrestled with in the past.

Toni Townes Whitley: And so, and two-thirds of those being new business, the third being Reconceased. And so, when you look at the shape of our pipe, what we submitted, the velocity, we feel strongly that we've got all of the indicators that drive to a north of 1.0 into the 1.2 range of those to bill in the next 12 months. Got it. Thanks.

Speaker Change: So, look, and we think about our bid profile. We are tracking and increasing our bidding into our growth factors. So, we are bidding more into civilian, we are bidding more into enterprise and mission ITs, and we have.

Toni Townes Whitley: And I think you also caught out in the opening remarks, I think civilian, maybe a little bit of a focus area. I guess one of the questions I get from people is, you know, depending on who wins in November, maybe the budget shifts, you know, one way versus the other defense versus non-defense. Is that a consideration and just how you think of civilian versus defense? Yeah, no, thank you for that. Look, we get that question a lot.

Speaker Change: and each of those has its own...

Speaker Change: It's own sort of characteristics in terms of with enterprise IT, the risks that go from into IT operations all the way through cloud and an enterprise level.

Speaker Change: to Mission Critical IT, which has its own list portfolio. We are bidding for fixed price, then we have in our backlog, and our current contract portfolio, we're bidding more fixed price.

Toni Townes Whitley: If you look at our portfolio, we have called out civilian as one of our four growth vectors. We find that to be not only a large addressable market for us, but also one that's fairly accreted to our portfolio. But if you look at where we're positioned in the civilian agencies, agencies like Department of Transportation, Department of Homeland Security, State Department, VA, and others, we feel like we are inoculated from any major swing post-November from a partisan perspective.

Speaker Change: Deals, and that is another area that we said was part of the pivot to move more into some fixed price engagement. And so we are about 10 points up on the difference between what's in our backlog and what's in our fixed price.

Speaker Change: Overall, we're also, as I mentioned, to the growth factors, we're also getting in areas of differentiation. So we are tracking the bids with the use of our factory differentiators. And we see an increase in uptake and use of those differentiators across.

Toni Townes Whitley: We are an agency that has bipartisan support and have had that for many, many years. And we're positioned in those agencies both across enterprise, IT, and sort of mission critical IT, which tends to be generally funded, going forward. So we feel pretty strong there in terms of the defense and national security. Look, we believe there will be political support for defense spending given the global environment and geopolitical challenges that the country faces.

Speaker Change: Operational AI, Digital Engineering, Secure of Cloud, as well as some of the work that we're doing.

Speaker Change: with data platform, secure data platform. So when we think about the complexion of our bidding, we see ourselves bidding more strategically, bidding more margin, the creatively which we've seen a higher bid margin and what's going out the door than what has been.

Toni Townes Whitley: We also happen to be, I would argue, across areas of national defense that are integrating more technology, more innovation, and that's where we're positioned. So we feel like in both regards, portfolio is balanced and stable enough to be able to continue to move forward and grow independent of the partisan outcome. Look, defense spending, we think it's going to be flat. I think everyone's made that call. And so it becomes a share game.

Speaker Change: and prior years, and you see yourself bidding in areas that leverage our differentiation. So in that regard, I feel like an obviously fixed price. So in that regard, I feel like the future both well.

Speaker Change: We still have to win them, so let's just acknowledge this is, you know, we're getting more, we feel better, we're getting better, but we still have to win, we have to execute, we mentioned execution this, we're also typing with our inner prize.

Toni Townes Whitley: But again, we feel like we're positioned with the right different chairs in our portfolio. Probably we thought you might have on that. The only thing I would add to that would be that, you know, we are looking to add market share in the civilian space. I would say we are somewhat underrepresented as a personal market share in that area. And therefore, as we look at our pipeline, it continues to reflect towards higher levels of new business, even in the civilian space. So that's why we're cautious about the mistake that there's a real opportunity to gain market share.

Speaker Change: Operating model, our execution expectations with our program managers and so we are really refining and adding more metrics and more review and more monitoring and quality assurance as it relates.

Unknown Executive: Very good. Thank you.

Toni: to executing these kids, particularly our mission critical work. Probably when it comes to that. Toni, that was perfect. Jason, the only thing I would add is that, you know, over the course of the last few years, as we do, the deep reliefs on our winds and losses.

Speaker Change: We know that on average, we tend to do just fine on cost.

Speaker Change: and you know we've fallen short on technical differentiation. So part of the enterprise operating model is to get the solution architects working directly with the capture teams to ensure that we are critically putting together a technical proposition that we can access.

Unknown Executive: One more for our next question.

Jason Korn: Our next question comes from line of Jason Garcia City. Your line is now open. Yeah.

Jason Korn: Good morning, everybody. Thanks for taking a question. Hey, just a quick question on the bidding activity that's going on. I don't even just give a sense of what the contract type, that you're chasing look like and what the risk around execution is on all the bids that you're chasing at this point and whether it's any different than what you've kind of wrestled with in the past. So look, when we think about our bids profile, we are tracking and increasing our bidding into our growth factors.

Speaker Change: Our history with fixed price work is actually pretty good, you actually executed the work

Speaker Change: at Good Margins. For example, most of the Civilian portfolio happens to be fixed price and can't work, and as you can see, we're comfortably in the double-digity with our margins there on that work.

Speaker Change: So I say it's a little more of let's not be that cost-conscious, let's actually focus on getting the right solution in place and then how do we start executing it in a way that gives...

Speaker Change: We can actually get to these thresholds that we are anticipating the program to use to get to. So a lot of work going around just the muscles required to execute effectively. But I think the most important thing I would say is we want to take good.

Jason Korn: So we are bidding more into civilian, we are bidding more into enterprise and mission IT than we have. And each of those has its own characteristics in terms of with enterprise IT, the risks that go from end to end, IT operations all the way through clouds and an enterprise level. To mission critical IT, which has its own risk portfolio, we are bidding more fixed price than we have in our backlog in our current contract portfolio, we're bidding more fixed price deals.

Speaker Change: of Shots, and that means not being rash or not chasing growth for the sacred growth, as we've said on call us before, its vitamins, not calories.

Speaker Change: Thank you very much.

Ren: Ren, okay, if you don't mind, just a quick follow-up to that too.

Speaker Change: Double click a touch on the firm fixed price, bid that you're...

Jay Singh: Jay Singh, the firm fixed price development, hasn't been the great story across the industry over the last.

Jason Korn: And that is another area that we said was part of the pivot to move more into some fixed price engagement. And so we are about 10 points up on the difference between what's in our backlog and what's in our bids line on fixed price. Overall, we're also bidding, as I mentioned, into the growth factors, we're also bidding in areas of differentiation. So we are tracking the bids with the use of our factory differentiators.

Ren: A number of years, I'm just kind of curious how much sure the technologies are that you are leading with on some of these firm fixed price bids and how much work you think you've got ahead of you to still develop some of the solutions that you're trying to solve for.

Jason Korn: And we see and see an increase in uptick and use of those differentiators across operational AI, digital engineering, secure cloud, as well as some of the work that we're doing with data platform, secure data platform. So when we think about the complexion of our bidding, we see ourselves bidding more strategically, bidding more margin accretively, which we've seen a higher bid margin in what's going up the door than what has been in prior years, and we see ourselves bidding in areas that leverage our differentiation.

Speaker Change: I think it's a fair statement. When I look at our portfolio though, why we made some investments quite frankly in the differentiation coming out of the factories that we would lead.

Speaker Change: with that differentiation where we've been able to build up our capability, probably we've said we've got a track record of the Lovering fixed price.

Speaker Change: with solid, you know, estimates that complete meeting, the financial profile meeting, the customer expectation. We don't have sort of disastrous 65 programs as many organizations have had to face.

Jason Korn: So in that regard, I feel like an obviously fixed price. So in that regard, I feel like the future both well, you still have to win them. So let's just acknowledge this is, you know, we're bidding more, we feel better, we're bidding better, but we still have to win. We have to execute. We mentioned execution this. We're also tightening with our enterprise operating model, our execution expectations with our program managers. And so we are really refining and adding more metrics and more review and more monitoring quality assurance as it relates to executing these bids, particularly our mission critical work.

Speaker Change: We're meeting with our secure multi-cloud, we're meeting with our digital engineering capabilities, we're meeting with our data platforms and our operational AI capabilities generally when we're introducing.

Speaker Change: New Solutions into the space. And quite frankly, we're ensuring that we have the right human capital answer, meaning individuals, program managers who have led fixed rights engagement and tightening all of the controls throughout how we deliver fixed rights engagement and monitor it over time.

Speaker Change: So right now, we're not feeling overly concerned about increasing our fixed price portfolio, but of course we've got quite a bit of attention to the day-to-day execution we need to customer expectation.

Jason Korn: Probably any thoughts there. Tony, that was perfect. Jason, the only thing I would add is that, you know, over the course of the last few years, as we do the debriefs on our wins and losses, we know that on average, we tend to do just fine on cost. And, you know, we've fallen short on technical differentiation. So part of the enterprise operating model is to get the solution architects working directly with the capture teams to ensure that we are personally putting together a technical proposition that we can execute to our history with fixed price work is actually pretty good.

Speaker Change: Great, appreciate the time today.

Speaker Change: Thank you for watching, we'll meet for the next question.

Speaker Change: Our next question, Confront Line of Set Seaman of JP Morgan, your line is not open.

Speaker Change: Hey, thanks very much and good morning.

Speaker Change: I wanted to ask, you mentioned, probably exceeding the...

Jason Korn: We've actually executed the work at good margins. So, for example, most of the civilian portfolio happens to be fixed price and TNM work. And as you can see, we're comfortably in the WGD without margins there on that work. So I say it's a little more of let's not be that cost-conscious. Let's actually focus on getting the right solution in place. And then how do we start executing in a way that gives us comfort that we can actually get to these thresholds that we are anticipating the program teams to get to.

Speaker Change: Gold for submitted visits this year, and it was seem very much on the way to doing that, I guess.

Speaker Change: What led to the submitted bits in the first half being so much higher? Is there a particular reason why you and is there a particular reason why you see the opportunity set in the second half being so much lower? I mean it would seem like you're probably on a pace to have

Speaker Change: submitted beds on par with what you're looking for in fiscal 27 right here in fiscal 25.

Jason Korn: So a lot of work going around just the muscles required to execute effectively, but I think the most important thing I would say is we want to take good shots. And that means not being rash. We're not chasing growth for the sake of growth as we've said on call us before. It's vitamins, not calories. Thank you. Thank you, Jason. Right. Okay.

Speaker Change: What we appreciate that forecast though. I appreciate it. Let me first say that, you know, why the focus on...

Speaker Change: and what's happening in terms of some of this part of centralizing the business.

Speaker Change: Development Function.

Seth: When I first came in, Seth was, we get to a standard process and set a protocol for our friends, we need to how we did and the acknowledgment that over the last few years are did to lots, we had been dropping.

Jason Korn: And if you don't mind, just a quick follow up to that, double click, a touch on the firm fixed price bids that you're chasing. The, you know, firm fixed price development hasn't, you know, been such a great story across the industry over the last number of years. I'm just kind of curious. How much sure the technology is that you are leading with on some of these firm fixed price bids and how much work you think you've got ahead of you to still develop some of the solutions that you're, that you're trying to solve for.

Seth: and that we need it to reverse that if we were going to underpin the kind of growth that we are setting its expectations for ourselves.

Seth: and in doing that, the centralization allowed us to allocate resources much more dynamically across the full enterprise towards

Speaker Change: The big set I needed our attention, the quick

Speaker Change: Determination of whether it was qualified, so increasing our conversion rate to, from a amount of

Speaker Change: and, again, the resource allocation of our talent towards those bits, that's all including our submission process in terms of the number of bits and quite frankly, I would argue changing some thresholds in terms of the role of the EOTR executive team and reviewing.

Jason Korn: Jason, I think at the fair statement, when I look at our portfolio, though, why we made some investments quite frankly in the differentiation coming out of the factories that we would lead with that differentiation where we've been able to build up our capabilities. Prabu has said we've got a track record of the delivering fixed price with solid, you know, estimates that complete meeting the financial profile meeting the customer expectation. We don't have sort of disastrous fixed price programs of many organizations have had to have had to face.

Speaker Change: and many more bits that we take a look at on a weekly basis, have improved the quality of those bits and setting a measure of what a good bit looks like.

Speaker Change: When we look at the year, we are pleased with our progress. There's absolutely no question that we are on a great pace. We have bits that move out as you know, every quarter, we have a few keep bits that...

Speaker Change: are right on the cup, large bits that are on the cup of our fiscal year. And so those of us who've been in the industry for a while know that when you start to get to the cup, and fourth quarter bit, you start to sort of almost have to handicap that amount that number to make sure that you can, um,

Jason Korn: We're leading with our secure multi cloud. We're leading with our digital engineering capabilities. We're leading with our data platforms and our operational AI capabilities generally. When we're introducing new solutions into this space and quite frankly, we're ensuring that we have the right human capital answer, meaning individuals program managers who have led fixed price engagement and tightening all of the controls around how we deliver fixed price engagement and monitor it over time.

Speaker Change: You know, really pull them in for the fiscal year so...

Speaker Change: Do I feel good about us exceeding 22 absolutely. I feel good about it. Do we overstate the we change that right now? No, we're halfway through. We see it. We've got line of sight. We feel good about it as we go into next year as well. We've got quite a bit of commitment, this, that are pending and we're excited about what that might mean for just the year.

Jason Korn: So right now, we're not feeling overly concerned about increasing of fixed price portfolio, but of course, we've got quite a bit of attention to day-to-day execution to meet customer expectations. Great. Appreciate the time today. Thank you, Jason. Thank you. Thank you very much.

Speaker Change: Okay, okay, excellent. And then just maybe following up.

Speaker Change: They're taking to the next step, you know, beyond biz to the awards and you've been out look for both to bill. When you think about what's in front of us in terms of...

Speaker Change: CR and most likely and an election and the protests that we often see around all kinds of contracts is...

Speaker Change: To what degree is there still risk around your kind of book to bill targets for those items or do you feel like you've kind of, you know, handicapped all of those fairly, you know, fairly well in the book to be dialogue.

Seth Seifman: I wanted to ask, you know, you mentioned probably exceeding the goal for submitted business here, and you know, it would seem you're very much on the way to doing that. I guess what led to the submitted bids in the first half being so much higher, is there a particular reason why you and is there a particular reason why you see the opportunity set in the second half being so much lower. I mean, it would seem like you're probably on a pace to have submitted bids on par with what you're looking for in fiscal 27 right here in fiscal 25.

Speaker Change: He said I'm going to love Prabu speaking to that and I'll add any color for him. He said, okay, so look, I think if we think about where our backlog is right now, and the volume of the bits that are awaiting the duplications.

Prabu Natarajan: We would like to calibrate our expectations around book to build for the year based on, you know.

Prabu Natarajan: Many things, including the things you mentioned, so I think that's the way we're thinking about it. Thankfully we're sitting in a place where there's enough volume in the pipeline.

Seth Seifman: Well, we appreciate that forecast though. Let me, let me first say that, you know, why the focus on and what's happened in terms of submitted bids, part of centralizing the business development function when I first came in. That was we get to a standard process and set a protocol, quite frankly, into how we did. And the acknowledgement that over the last three years or did the loss we had been dropping and that we needed to reverse that if we were going to underpin the kind of growth that we are setting as expectations for ourselves, and in doing that, the centralization allowed us to allocate resource as much more dynamically across the full enterprise towards the bids that needed our attention, the quick determination of whether a bid was qualified, so increasing our conversion rate to from an unsolicable qualified bid.

Prabu Natarajan: that, you know, one or two things moving out of the year would not have a material-out-sized negative impact to our expectations for Gupta Bill as Toni has been corrected pointed out.

Prabu Natarajan: I think our expectation is to get to a book to build that's comfortably north of one and hopefully you keep the volume up, one of the benefits of

Speaker Change: I was going to add the benefit of increasing the qualified pipeline and the back club of Submitter Bits is that's not a motion and perpetuity. In other words, there's a point at which you've got enough.

Speaker Change: Pipeline, and you've got enough in the way of submitted bits, it becomes a question of can you replicate that consistency and volume over multiple years?

Speaker Change: and candidly one of the, you know, the richness of having a rich backlog is that you get to actually improve the kinds of things you go after. So I think there's more of a focus on the quality of what's in the bag backlog in the pipeline versus just increasing the absolute volume there.

Seth Seifman: And again, the resource allocation of our talent towards those bids, that's all improved our submission process in terms of the number of bids. And quite frankly, I would argue changing some thresholds in terms of the role of the ELTR executive team and reviewing our bids and many more bids that we take a look at on a weekly basis have improved the quality of those bids and setting a measure of what a good bid looked like.

Speaker Change: So...

Speaker Change: Thank you very much.

Speaker Change: Thank you, one moment for next questions.

birthsubin: Next question, come from the line of birthsubin, a steep floor your line is now open.

Seth Seifman: When we look at the year we are pleased with our progress, there's no there's there's actually no question that we are on a great pace. We have bids that move out as you know every quarter and we have a few key bids that are right on the cup, large bids that are on the cup of our fiscal year. And so those of us who've been in the industry for a while know that when you start to get to the custody and for quarter bids you start to sort of almost have to a handicap that amount, that number to make sure that you can really pull them into the fiscal year.

Speaker Change: Hi, good morning and thank you for the questions.

Speaker Change: Immort.

Speaker Change: Maybe just a start, I guess following up on the point.

Speaker Change: That's question there. I mean, if we look at it...

Speaker Change: The fiscal second quarter, you know, coming in at 2% organic, I guess this is really like 7% organic to the...

Prabu Natarajan: and Prabu, you've called out five points of reconvened headwinds. And maybe normally in a year you would have some headwinds, maybe it's like six percent organic, but that's being pretty good. Can you just break down, you know, maybe what's the components that are driving that is for, you know, from new awards, ramping to on contract roads to other items.

Seth Seifman: So do I do I feel good about us exceeding 22 absolutely I feel good about it do I do we overstate that we change that right now know we're halfway through we see it we've got line of sight we feel good about it as we go into next year as well. We've got quite a bit of commitment bid pending and we're excited about what that might mean for just a year 26. Okay, excellent.

Prabu Natarajan: Yeah, so we, as we thank you for looking forward to each two, we've got...

Speaker Change: Ramping of existing programs, right, that have been one earlier in the year prior year that we see on the civilian side if she was a T-cloud.

Speaker Change: in our Air Force business, you've seen this.

Seth Seifman: And then just maybe following up taking to the next step, you know beyond bids to the awards and you've been outlook for book to bill. When you think about what's in front of us in terms of CR and most likely and an election and you know the protests that we often see around all kinds of contracts. You know is to what degree is there still risk around your kind of book to bill targets for for those items or do you feel like you've kind of you know handicapped all of those fairly, you know, fairly well in the book to the outlook.

Speaker Change: with our AOC and our Cloud One probably just recently seen an extension of our Cloud One business at a 260 million, I think, is reputed there. So we have these sort of ramps.

Speaker Change: that are happening and then we have on contract growth occurring, particularly in our civilian and in our army business system, significant on contract growth that's occurring there. It's a combination of those that not only provided the uplift, the second board of the developed interest base.

Speaker Change: to help us close the year as we've indicated.

Speaker Change: We even have a new business win in our combatant command that is going to probably start to ramp, even it's twisting into this year that we'll have a little bit of release.

Seth Seifman: I'm going to probably speak to that and I'll add any color. So look, I think as we think about where our backlog is right now and the volume of the bids that are awaiting adjudication, we invite to calibrate our expectations around book to bill for the year based on, you know, many things including the things you mentioned. So I think that's the way we're thinking about it. Thankfully, you know, we're sitting in a place where there's enough volume in the pipeline that you know one or two things moving out of the year would not have a material outsize negative impact or expectations for book to bill.

Speaker Change: But we have to be aware of it, that they're still risk, they're still risk, we have that five points that you mentioned that you'll have throughout the full age shoe that five point headwinds that we are feeling with, we know we'll eat going into fiscal year 20.

Speaker Change: Sixth, but we have to, it's really an all-hands-on-deck feel that everybody is.

Speaker Change: is pushing for note.

Speaker Change: with your existing contracts, ramping and obviously ramping in an environment where there's a lot still happening politically, a lot happening in Congress and so, and a lot happening with our customers. So we're trying to be thoughtful about how we think about revenue growth here, but we are still fairly...

Seth Seifman: So as Tony, I think correctly pointed out, I think our expectation is to get to a book to bill that's comfortably north of one and hopefully keep the volume of one of the benefits of. I was going to add the benefit of increasing the qualified pipeline and the backlog of submitted bids is that's not a motion in perpetuity. In other words, there's a point at which you've got enough pipeline and you've got enough in the way of submitted bids.

Speaker Change: are part of the fact that we can stay within the guidance that we regard.

Speaker Change: Thank you, Toni, and hey, birds, the only thing I would add is, you know, D-Tem is expected to round a little more in the second half relative to the first half, that's the program we want, you know, earlier this year.

Speaker Change: So that program has not grant in any material sense. TeCloud will be a growth driver for us in the second half of the year and of course the program that Toni just referred to in our Air Force, come back and command.

Seth Seifman: It becomes a question of can you replicate that consistency and volume over multiple years and candidly one of the, you know, the riches of having a rich backlog is that you get to actually improve the kinds of things you go after. So I think there's more of a focus on the quality of what's in the back backlog in the pipeline versus just increasing the absolute volume. Thank you very much. Thank you.

Speaker Change: Business that is also expected to ramp in the second half of the year so we've got some good momentum on things that are either already in backlog and expect to grow off of or things that we are winning. We're not just focused on okay.

Unknown Executive: One moment for next question.

Speaker Change: I go up here, there's some good go up, go up, drive us.

Speaker Change: Thanks for that turning in, Prabu. I just want to follow up.

Speaker Change: You know, the 2% organic, particularly with the recompense, you know, is positive, and then when you put it into the context of an amount of lays, only being up 1% in that quarter, you know, looks certainly better. As we think about current quarter, can you give sort of any early indications the way you're seeing, and you've given the 1 to 3% viewpoint, but outlays were up 19% in a lot, you know, we have the potential for maybe a significant budget plus going into an election year, so just curious.

Bert Subin: Next question comes from the line of Bert Subin, a steeple your line is now open. Hey good morning and thank you for the question. Maybe just the start I guess following up on Seth's questions there.

Prabu Natarajan: I mean, if we look at the fiscal second quarter, you know, coming into 2% organic, I guess this is really like 7% organic. Prabu, you've called out five points of recompute headwinds and maybe normally any year you would have some headwinds and maybe it's like 6% organic, but that's been pretty good. Can you just break down, you know, maybe what's the components that are driving that is first, you know, from new awards, ramping on contract growth to other items.

Speaker Change: You know, from an on contract perspective, do you think there are maybe more opportunity out there?

Bern: Hey, Bern, I'll take that first part of the question here, so in terms of, hopefully, if I think you're exactly right, I think we are expecting outliers to be normal as one might define normal.

Prabu Natarajan: Yeah, so we, as we think, look at Q2 and even looking forward to H2, we've got ramping of existing programs, right, that have been one earlier in the year, a prior year that we see on the civilian side, we see with a T cloud in our Air Force business, you've seen with with our AOC and our cloud one, probably just recently seen an extension of our cloud one business at a 262 million. I think it's pretty there.

Bern: We do think that.

Bern: We started to see a little bit of a pickup in the outplays, maybe in the July timeframe, or sort of in-current views that that typically translates to maybe higher levels of revenue growth in the bout previous six months. So, as we sort of, you know, close out the year, starting next year, we will expect to see some of that outlay, and you know, the war benefit obviously last year was a fantastic year for a couple of days, and that the year feels a little more normal, but...

Bern: But there's again, that's why the focus on making sure that we're bidding the right kinds of work and overall we expect the environment to remain supportive, but we're not foolish about that happening any time.

Prabu Natarajan: So we have these sort of ramps that are happening and then we have on contract growth occurring, particularly in our civilian and our army businesses, some significant on contract growth occurring there. It's a combination of those that not only provided the uplift on the second quarter, but it's what we anticipate to help us close the year as we've indicated. We even have a new business win in our combatant commands that is going to probably start to ramp even in towards the end of this year that will add a little bit of relief, but what we have to be aware of is that they're still risk.

Speaker Change: Thank you. I think you heard with the Q3, if you're looking at a Q3 outlay environment, you think it's slightly increasing, you know, probably it's just indicated, that's not a one for one by timing. There's about a three month lag. You can see that our Q4 guide needs to adjust.

Speaker Change: and Higher Growth and Q4. Thank you, Theresa. We're aware of the outline of the boundary, but we think it's reflected in the call.

Prabu Natarajan: There's still risk. We have that five points that you mentioned that we'll have throughout the full H2, that five point headwinds that we are dealing with, we know will ease going into fiscal year 26, but we have to, it's really an all-hand on debt field that everybody is pushing for growth with your existing contracts, ramping and obviously ramping in an environment where there's a lot still happening politically, a lot happening in Congress and so and a lot happening with our customers. So we're trying to be thoughtful about how we think about revenue growth here, but we are still fairly positive that we can stay within the guidance that we have offered.

Speaker Change: Our next question comes on line of Toby Lomer, of course, your line is how open.

Speaker Change: Yeah, hey, good morning. This is Jack Wilson on for Toby. Can we just double click on sort of the gross trajectories for some of those figure contracts that were mentioned sort of the air force work in the G mass works specifically?

Speaker Change: Sure, sure, all of that Jack will take a first stab at it, I think, you know, DeTown was a program we won earlier this year. It's a 450 million dollar program, roughly. The way the program works is to technical directives, so we call them KDLs in our business.

Prabu Natarajan: Thank you, Tony. And Dave Bird, the only thing I would add is, you know, D10 is expected to ramp a little more in the second half relative to the first half. That's a program we won earlier this year. So that program has not ramped in any material sense. T Cloud will be a growth driver for us in the second half of this year, and of course the program that Tony just referred to in our Air Force combat and command business that is also expected to ramp in the second half of this year.

Speaker Change: and that takes a little bit of time to round as we, you know, sit with the customer and sort of plan out the year with them. And so that program is expected to round for the second half of the year. Teclout was obviously a big win for us a little over year ago and obviously we are a well-on the round. We said Teclout will get to between one to one and a half percent of total company revenue this year with some expected to go to maybe up to two percent next year. So that one is a growth driver and then the one in Air Force. That's a new takeaway win and that's expected to add about, you know, that's called it 30 million or so a year starting hopefully in the Q3 time frame. So we'll certainly provide a little more color.

Prabu Natarajan: So we've got some good momentum on things that are either already in backlog and we expect to grow off of or things that we are winning. We're not, we're not just focused on our contract growth here. There are some good growth drives.

Bert Subin: Thanks for that, Toni, and Prabu. Just one follow-up. You know, the 2% organically with the Recompete, you know, is positive. And then when you put it into the context of Owen and Malleys, only being up 1% in the next, that quarter, you know, looks certainly better. As we think about the current quarter, can you give sort of any early indications the way you're seeing, I know you've given the 1 to 3% viewpoint, but Malleys were up 19% in July, you know.

Speaker Change: the best, just a sample of the two or three things that we call that.

Speaker Change: I would have to move as a quick follow-up, can you speak to how the space franchise compares to the rest of the company as a whole in terms of growth and margins?

Speaker Change: Sure, so I think as you know, we've got a good chunk of space to eat at many of the restricted customers.

Bert Subin: We have potential for maybe a significant budget budget. So we're going into an election year, so just curious, you know, from an on-contract perspective, do you think there could be more opportunity out there? Hey, Bert, I'll take that first part of the question here. So, so in terms of Outlayers, I think you're exactly right. I think, you know, we are expecting Outlayers to be normal, as one might define normal. We do think that, you know, we started to see a little bit of a pick up in the Outlayers, you know, maybe in the July timeframe.

Speaker Change: That is a really good portfolio that it is

Speaker Change: Solidly, you know, margin producing as well as a good cash generator for.

Speaker Change: So we like our positioning, having said that, I think the team there is doing a really nice job continuing to reflect that portfolio towards.

Speaker Change: and non-seater work.

Speaker Change: Obviously, D.T.T.T is an example of that win capability that we can take some of the expertise we have in the seated space and go build a market outside of C.D. So that one was an important win. G-masters, another program we won last year, that was to take away from one of the crimes and that is another one.

Bert Subin: Or sort of internal views that that typically translates to maybe higher levels of revenue growth in about 3 to 6 months. So as we, you know, sort of, you know, close out the year starting next year. We will expect to see some of that outlay, you know, in order to our benefit, obviously last year was a fantastic year for Outlayers, and that this year feels a little more normal. But, but there's again, that's why the focus on making sure that we're bidding the right kinds of work.

Speaker Change: Programme out there at the team's executing on, that is really interesting and then of course we've talked publicly about BMC3, which is real time software development for the FDA. So there's a good balance, I think, we are developing between Cida and non Cida, but our objective is, you know, the Cida business is a really high quality business.

Bert Subin: And overall, we expect the environment to remain supportive, but we're not bullish about that happening anytime soon. Yeah. And Brad, I think you heard with the Q3, if you're looking at a Q3 Outlay environment, you think it's slightly increasing, you know, probably was just indicated. That's not a one for one by timing. There's about a three month lag. You can see that our Q4 guidance suggests a higher growth in Q4 than Q3. So we're aware of the Outlay environment. We think it's reflected in the call.

Unknown Executive: Thank you. One for next question.

Speaker Change: and that we're developing a non-seek of business as we go here.

Speaker Change: and I would say that non-Cetibusness is moving into Mission IT and that's the important part of our portfolio shift is what we believe to be the more critical and more tech-heavy, if you will, we'll recognize the mission IT within space, but we'll do more critical times.

Speaker Change: Thank you very much. Thank you.

Speaker Change: Thank you, we'll move it for our next question.

Jack Wilson: Our next question comes online of Toby, former of course, your line of style open. Yeah, hey, good morning. This is Jack Wilson on for Toby. Can we just double click on sort of the growth trajectory? Some of those bigger contracts that were mentioned sort of the Air Force work in the G mass work specifically? Sure, sure.

Speaker Change: thank

Speaker Change: i

Speaker Change: Our next question, because from the line of Kibon, we're more of a dedicated, allowing your line is not open

Speaker Change: Yes, thanks so much so much

Speaker Change: The one point to book to bill, is that you're defining that as trailing 12-month or in the second quarter? And then secondly, what does that assume about your win rate?

Toni Townes Whitley: So all of that Jack, I'll take a first stab at it. I think, you know, detail was a program we won earlier this year. It's a $450 million program roughly the way the program works is to technical directives. So we called them TDOs in our business. And that takes a little bit of time to ramp as we, you know, stick with the customer and sort of plan out the year with them.

Kai: So Kai, the first part of the question, it is trailing 12 months

Speaker Change: and I think in terms of what it implies for win-wage.

Speaker Change: is I think it assumes that our new business win rate and we've said this publicly before, it is higher than 30%.

Toni Townes Whitley: And so that program is expected to ramp in the second half of the year. T cloud was obviously a big win for us a little over a year ago and obviously we are well on the ramp. We said T cloud will get to between one to one and a half percent of total company revenue this year with some expected growth to maybe up to two percent next year. So that one is a growth driver and then the one in Air Force that's that's a new takeaway win and that that's expected to add about, you know, that's called a 30 million or so a year starting hopefully in the Q3 time frame. So we'll certainly provide a little more color, but that's just a sample of the two or three things that we called out.

Speaker Change: and comfortably higher.

Speaker Change: and so I think it is we expect our new business to win right to be sort of where the industry is on new business.

Speaker Change: and we are expecting to get our recompense back to what's normal for the industry. Let's call it, you know, high 80% of the economy.

Speaker Change: So that's what we're assuming. At this point, the only known reconquered headway we're going into next year is NCAPS.

Speaker Change: and that's about a little over one percent and so I think maybe even to bird's question on earlier on the call.

Speaker Change: When we have one or two percent reconfigured headwinds and organic road tends to be, you know, mid-singual digits and redemistry of that last year with 7.5 percent organic road with a headwind of one to two percent on vehicles.

Toni Townes Whitley: Okay, the move is a quick follow-up. Can you speak to how the space franchise compares to sort of the rest of the company as a whole in terms of growth and margins? Sure, so I think as you know, we've got a good chunk of space to work at many of the restricted customers. That is a really good portfolio that is solidly, you know, margin-producing as well as a good cash generator for us.

Speaker Change: And that's what we're assuming in terms of the math, obviously a lot that goes into what's getting bid and what we're expecting to show up before the end of the year, but that is what we'll assume time.

Speaker Change: In terms of recompete, I mean, you mentioned that.

Speaker Change: I don't know whether that was evolved, you know, what is the status of that recompete and also very important to me as well because that's your biggest contract and what is the status of that potential recompete.

Toni Townes Whitley: So we like our positioning. Having said that, I think the team there is doing a really nice job continuing to inflect that portfolio towards non-seater work. Obviously, decam is an example of that win capability that we can take some of the expertise we have in the seated space and go build a market outside of CDF. So that one was an important win. G-Mass was another program we won last year. That was a takeaway from one of the crimes.

Speaker Change: So, I heard the first part of your question on involved in NAFJ, should you repeat the second part of the question? The first part of the question on involved is, you know, that's an ongoing procurement where super pleased about our current performance with that contract.

Speaker Change: and with that customer set, as it continues to move right.

Speaker Change: We expect that there will not be any award activity until we get in the next.

Matt Holobang: You're possibly an even Matt Holobang extended protest period that would probably have any revenue impact or change.

Toni Townes Whitley: And that is another program out there the teams executing on that is really interesting. And then of course, we've talked publicly about BMC-3, which is real-time software development for the SDA. So there is a good balance. I think we are developing between CDA and non-seater. But our objective is, you know, the CDA business is a really high quality business. And we're developing a non-seater business as we go here. And I would say that non-seater business as is moving into mission IT. And that's the important part of our portfolio ship is what we believe to be the more critical and more tech. If you will, check enable mission IT within space, which will be more creative over time.

Unknown Executive: Thank you very much. Thank you.

Matt Holobang: I'll make fiscal year 26, maybe early fiscal year 27. So if that continues to move forward, move right.

Matt Holobang: We're focusing on our performance on that contract as you know that's a consolidation of meaning.

Cai Rumohr: We'll move it for our next question. Our next question, because online of Kylon, more of Diddy Cowell and your line is now open.

Cai Rumohr: Yes. Thanks so much.

Speaker Change: Contracts, so there's up-side potential there, obviously, there's risk on recent heat there, but overall, there's very pleased with what we're hearing from the customer and our performance there, and we think we're positioned, but don't see that having a 2016 impact immediately.

Speaker Change: What was the other deal you asked up in one was the Army S1.

Speaker Change: We have to be sitting here in our shelter, so it's appropriate for us to come up there.

Speaker Change: The look the timing of that we believe is probably on the coast for the end of our fiscal year, beginning of the next fiscal year, is our timing, we feel very, very solid about our performance today.

Speaker Change: and obviously this is the first of a series of contracts that we compete for the next 18-24 months with this customer set.

Speaker Change: but for this and one of the largest of the rebuilt, we feel very, very solid about it, but the timing, we're now sort of thinking about it in the fiscal year 26 timeframe in terms of Maxwell's.

Cai Rumohr: So the one point to book to Bill, is that you're defining that as trailing 12 months or in the second quarter? And then secondly, what does that assume about your win rate? So Ky, the first part of the question, it is trailing 12 months. And I think in terms of what it implies for win rate is I think it assumes that our new business win rate, and we've said this publicly before, it is higher than 30%, comfortably higher.

Ward: Ward. In Cuy, the only thing I would add is last time on the M-Comb recon piece, as it was known about five years or so ago. We went for football. The team's doing an amazing job and great relationships here, and we're hoping to keep the streak alive.

Speaker Change: and refresh my memory, is this going to be bid similar to the way M comm was bid in terms of separate packages or what the structure is looking at for this.

Cai Rumohr: And so I think it is we expect our new business win rate to be sort of where the industry is on new business. And we are expecting to get our recomputes back to what's normal for the industry. Let's call it, you know, high AD, approximately 90%. So that's what we're assuming. At this point, the only known recompute headwind going into next year is NCAPS. And that's about a little over 1%. And so I think maybe even to birds question on earlier on the call, you know, when we have one or two percent recompute headwinds, then organic growth tends to be mid single digits.

Speaker Change: I think we're looking at a very similar structure. We have four separate contracts and this is the first of the four Kai that shows up as I said in the January category timeframe is what we're expecting on the work.

Speaker Change: Thank you for following me for next question.

Speaker Change #100: Our next question, concern a line of David Strauss of Barclays, your line is not open.

Josh Korn: Hi, good morning. This is Josh Korn on for David. Thanks for taking the question. I just wanted to ask you about the drop in civilian margins over the last two quarters and sort of what the trajectory is there, how variable those would be over time.

Cai Rumohr: And we demonstrated that last year with 7.5% organic growth with a headwind of 1 to 2% on recompute. So that's what we're assuming in terms of the math. Obviously a lot that goes into what's getting bid and what we're expecting to show up before the end of the year, but that is what we assume.

Speaker Change #102: So, Joseph's putting in contact with the building and the year over year compares, we had a...

Cai Rumohr: And in terms of recompete, I mean you mentioned, I don't know whether that was evolved, you know, what is the status of that recompete and also very importantly as well because that's your biggest contract, what is the status of that potential recompete? So I heard the first part of your question on evolve, I may have to ask you to repeat the second part of the question. The first part of the question on evolve, as you know that the ongoing procurement is that we're super pleased about our current performance with that contract and with that customer set.

Speaker Change #103: and Major, a high revenue activity that happened last year.

Speaker Change #104: was one time, sort of a nominal surge of revenue in one of our programs that was not repeatable this year, as well as the Wampup of some of our new programs in civilian has been, and as had a lower margin start, we fully expect this as a tailwind as the margin is coming up over time on those programs.

Speaker Change #104: We talk about moving into H2 with contract on contract growth as well as ramp up the civilian portfolio is ramping up in the margin expectations on execution are higher than where we started and so we feel like we'll be back in the range to be appropriate range for civilian minus that one time event of prior fiscal year.

Cai Rumohr: As it continues to move right, we expect that there will not be any award activity until beginning the next year, possibly an even that hollow by an extended protest period that would probably have any revenue impact or change late fiscal year 26, maybe early fiscal year 27. So as that continues to move right, we're focusing on our performance on that contract. As you know, that's a consolidation of many contracts. So there's there's a upside potential there is obviously a risk on recompete there, but overall we're very pleased with what we're hearing from the customer on our performance there and we think we're positioned, but don't see that having a 26 impact immediately.

Speaker Change #105: Great thanks, I'll stick to one.

Speaker Change #106: Okay, thank you. Thank you. I'm showing all further questions at this time. Thank you for your participation in today's conference. This has concludes program. You may not disconnect.

Speaker Change #107: Thank you for watching!

Speaker Change #108: [inaudible] I'm a little tired, I'm a little tired, I'm a little tired,

Cai Rumohr: What was the other deal you asked someone was the Army S1 contract, I believe. Yeah, we have to be sitting here in hospital, so it's a verb rate for the comment there. But look, the timing of that we believe is probably on the cost for the end of our fiscal year beginning of the next fiscal year is our timing. I mean, we feel very, very solid about our performance today, and obviously this is the first of a series of contracts that we compete for the next 18, 24 months with this customer set.

Cai Rumohr: But for this and one of the largest of the other recompete, we feel very, very solid about it, but the timing we we are now sort of thinking about it in the fiscal year 26 timeframe in terms of the next award. And Kai, the only thing I would add is last time on the income recompete, as it was known about five years or so ago, we went for the teams doing an amazing job and great relationships here and we're hoping to keep the streak alive.

Speaker Change #109: I'm going to tell you what's going on.

Cai Rumohr: And refresh my memory, is this going to be bid similar to the way and common was bid in terms of separate packages or, you know, what's the structure you're looking at for this bit. I think we're looking at a very similar structure. We have four separate contracts and this is the first of the four. Kai, that shows up, as I said, in the January, February timeframe is going to be expecting an award. Thank you, one moment for next question.

David Strauss: Our next question comes on the line of David Strauss of Barclays.

Joshua Korn: Your line is not open. Hi, good morning. This is Josh Korn on for David. Thanks for taking the question. I just wanted to ask, just wanted to ask about the drop in civilian margins over the last two quarters and sort of what the trajectory is there, how variable those would be over time.

Speaker Change #110: I'm going to tell you what's going on.

Prabu Natarajan: Thanks. Yeah, so Josh just put it in context on civilian. The year over year compares we had a major, a high revenue activity that happened last year. One time, sort of a normal surge of revenue, one of our programs that was not repeatable this year, as well as the lamp up on some of our new programs and civilian has been. It's had a lower margin start. We fully expect this as a tailwind because the margin is coming up over time on those programs.

Prabu Natarajan: We talk about moving into H2 with contract on contract growth as well as ramp up the civilian portfolio is ramping up in the margin expectations on execution are higher than where we started. And so we feel like we'll be back in the range, the appropriate range for civilian minus that one time within a prior fiscal year, here.

Speaker Change #110: no

Speaker Change #110: Music

Joshua Korn: Great, thanks. I'll stick to one.

Unknown Executive: Okay, thanks, Josh.

Unknown Executive: Thank you.

Unknown Executive: I'm showing no further questions at this time. Thank you for your participation in today's conference.

Unknown Executive: This was Concoursed[inaudible] .

Unknown Executive: Good day, and thank you for standing by.

Joseph DeNardi: Welcome to the SAIC's second quarter of the school year 2025 earnings call. At this time, all participants are listening only mode. After the speaker's presentation, there will be a question answer session. To ask a question during this session, you will need to press start 1-1 on your telephone. You will then hear an automated message revising your hand as raised. To withdraw your questions, please press start 1-1 again. Please be advised that today's conference is being recorded.

Joseph DeNardi: Thank you for joining SAIC's second quarter fiscal year 2025 earnings call. My name is Joe DeNardi, senior vice president of investor relations and treasure. And joining me today to discuss our business and financial results are Toni Townes Whitley, our chief executive officer, and Prabu Natarajan, our chief financial officer. Today, we will discuss our results for the second quarter of fiscal year 2025 that ended August 2, 2024. Earlier this morning, we issued our earnings release, which can be found at investors.saic.com, where you will also find supplemental financial presentation slides to be utilized in conjunction with today's call and a copy of management's prepared remarks.

Joseph DeNardi: These documents, in addition to our form 10Q to be filed later today, should be utilized in evaluating our results and outlook along with information provided on today's call. Please note that we may make forward-looking statements on today's call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call. I refer you to our SEC filings for discussion of these risks, including the risk factor section of our annual report on form 10K.

Joseph DeNardi: In addition, the statements represent our views as of today and subsequent events may cause our views to change. We may elect to update the forward-looking statements at some point in the future, but we specifically display any obligation to do so. In addition, we will discuss non-gap financial measures and other metrics, which we believe provide useful information for investors, and both our press release and supplemental financial presentation slides include reconciliations to the most comparable gap measures. The non-gap measures should be considered in addition to and not a substitute for financial measures and accordance with gap.

Toni Townes Whitley: It is now my pleasure to introduce our CEO, Tony Towns Whitley. Thank you, Joe, and good morning to everyone on our call, which we're doing today from our offices in Huntsville. SAIC has deep roots in the Rocket City with over five decades of support and community involvement. We are proud to be the third largest employer with more than 2,600 employees calling Alabama home. We recently held our board meeting here and will be taking our board members and other leaders to visit the Chamber of Commerce and an amazing high school that we support, the Alabama School of Cyber Technology and Engineering.

Toni Townes Whitley: It is vitally important for us to develop and foster STEM education in our youth to ensure our future workforce can feel critical skills needs now and into the future. We'll also visit key customer sites where we support some of the country's most mission critical operations in the space and missile defense sectors. In our support of the U.S. Army and missile defense agency, we strive to ensure we provide leading age capabilities and technology to help them solve their hardest problems and feel mission critical systems to our warfighters and military leaders, members.

Toni Townes Whitley: Our work includes modeling and simulation, live virtual constructive training, and digital engineering, and I'm extremely proud of this workforce and I'm committed to our ongoing upskilling initiatives which will see us grow in expertise and skill to match and exceed our customers requirements.

Toni Townes Whitley: My remarks today will focus on a quick review of our second quarter performance, followed by an update on the execution of our enterprise growth strategy. Prabu will then discuss our updated outlook and capital deployment plans in greater detail. Overall, I'm pleased with our solid financial performance on all key metrics and the strategic progress we've made in the quarter. We reported second quarter organic revenue growth at 2 percent euro per year, as increases from new business wins and on contract growth were partially offset by an approximately five point headwind from contract transitions.

Toni Townes Whitley: Adjusted EBITDA of $170 million and margin of 9.4 percent reflect solid program performance. Due to revised bid thresholds we've put in place, and a focus on improved shot selection, we continue to expect and improve margin trajectory over the next several years. Adjusted diluted earnings per share of $2.5 benefited from an effective tax rate of approximately 19.5 percent and a 5 percent year-over-year reduction in our weighted average fair count. Second quarter free cash flow of $241 million was very strong due to a continued focus on working capital efficiency and good blocking and tackling from the team.

Toni Townes Whitley: This brings first half free cash flow to $262 million representing over 50 percent of our full year guidance. While we still have some revenue challenge in front of us in the second half of the year, as Prabhu will describe later, I'm encouraged by the performance shown in the second quarter and the focus I see inside our company to meet our guidance for FY25 and sustain momentum into FY26.

Toni Townes Whitley: I'll now provide an update on our enterprise growth strategy execution. We flattened our organization, centralized business development, and implemented our enterprise operating model designed to optimize investment planning and align our pipeline with growth vectors. We continue to tune across all four pivots, portfolio, go-to-market, culture, and brand. The earliest indicators of progress against our strategy will be improved business development performance, which we believe will unlock significant long-term value for shareholders. The outcome is a more differentiated, more efficient, faster growing, and higher margin SAIC.

Toni Townes Whitley: Simply put, we expect that our execution of the strategy will initially translate into bid more, bid better, win more. The first step, bid more, is significantly increasing the total value of submissions to a level more aligned with our growth aspirations. We continue to see good progress as evidenced by the 14.5 billion of submit volume in the first half of the year, compared to 17 billion per full year fiscal year 24. And we have improved visibility into exceeding our submission's target of 22 billion for the full year.

Toni Townes Whitley: The second step, bid better, is aligning our pipeline and bid processes with key strategic and financial Actives. Strategically, we will drive outsized growth in the civilian market and within enterprise emission IT, two of the four growth vectors where we see the opportunity to leverage our strength in the market to gain share. These growth vectors align with our financial objectives to shift our pipeline towards higher value programs that are more margin accreted.

Toni Townes Whitley: The third step, win more, is driving bookings and backlog growth and eventually revenue growth more aligned with our long-term target. We will accomplish this by increasing our volume and quality of bid submissions, returning our re-compete win rate to the 90% range and sustaining our strong new business performance. In terms of how long it will take before we start to see results, our expectation is for bookings to continue to improve with a particular reflection over the next two to three quarters with the associated revenue impact following one to two quarters later. This should translate into a book to bill of 1.2 by the first half of fiscal year 26 with organic revenue growth aligning with our longer-term target of five percent towards the end of fiscal year 26.

Toni Townes Whitley: I want to thank the team at SAIC for the enthusiasm and focus they bring to the company and the execution of our strategy. Thanks to their efforts, we are well on our way towards building a stronger SAIC for the future. I look forward to sharing further updates on our progress going forward.

Prabu Natarajan: I'll now turn the call over to Prabhu. Thank you Tony and good morning to those joining our call. I will now provide a review of our business development results updated outlook for the fiscal year and our capital deployment plans. Net bookings of 1.2 billion resulted in a book to bill in the quarter of 0.6x and 1.1x on a trailing 12-month basis. We submitted approximately 6.5 billion of total contract value in the quarter, bringing the year-to-date submitted bid's value to approximately 14.5 billion.

Prabu Natarajan: We are encouraged by the momentum and increased velocity we are seeing within our business development organization and remain on track to exceed our target for 22 billion of submissions this year with further growth in FY 26 and FY 27 beyond our initial estimates. The processes and metrics we have put in place give me confidence that we will be able to improve our business development and capture outcomes over the next few years.

Prabu Natarajan: We return approximately 220 million to shareholders in the quarter including 201 million of share repurchases reflecting a planned increase in our pace and opportunistic repurchases on top of that. We remain on track to exceed the high end of our prior target of 350 to 400 million in repurchases for the year. We intend to achieve this while maintaining sufficient capacity for M&A.

Prabu Natarajan: I'll now provide an update on our outlook for the year. We are reaffirming our prior guidance for revenue, adjusted EBITDA and pre-cashload. We are increasing our guidance for adjusted deluded earnings per share by 10 cents to a range of $8.10 to $8.30 due to a lower tax rate and share count offsetting modestly higher interest, expense. Our revenue guidance which reflects performance organic growth in a range of 1.5% to 3.5% continues to assume an approximately 5% headwind from recompete pressures.

Prabu Natarajan: At the midpoint this implies an improvement in our second half growth compared to first half results. We expect the improvement to be driven primarily by the further ramp up in volume on previously one new business and continued momentum from on contract growth. Consistent with what we communicated last quarter and based on our expectation for 3Q and 4Q revenue growth as provided on slide 7 we see the midpoint to the lower end of our revenue guidance as more likely than the higher end.

Prabu Natarajan: We are reaffirming our prior guidance for adjusted EBITDA in a range of 680 to 700 million and margin in a range of 9.2% to 9.4%. We are reaffirming our free cash flow guidance of 490 million to 510 million and expect to sustain the momentum we built during a very strong second quarter. Our We have confidence that the strategy we are executing will produce free cash flow growth in excess of what is implied by current market valuations.

Prabu Natarajan: Given this view and the opportunity we see to drive significant improvement from our existing business we expect our threshold for M&A to remain high and capital deployment to remain targeted on our repurchase program. However we retain sufficient balance sheet flexibility to add differentiated businesses to our company should an opportunity meet our risk adjusted threshold for returns.

Prabu Natarajan: In closing I am proud of the team's focus on delivering value for our shareholders and on executing our strategy to drive sustainable growth going forward. The progress we are making is clear and will begin converting into stronger financial performance in the coming years.

Unknown Executive: I will now turn the call over to begin Q&A help. Thank you. At this time we will correct the question answer session. As a reminder to ask a question you need to press star one on your telephone and wait for your name to be announced. To withdraw your question please press star one again. Please stand by while we compile the Q&A roster.

Matthew Akers: Our first question comes from the line of Mac Akers of Wells Fargo. The line is now open. Yeah, good morning everybody. Thanks for taking my question. I wanted to ask about the comment about book to bill getting to 1.2. What gives you confidence to get there and specifically just curious if there are any new big kind of new work opportunities that we should wash out for. Hey Matt, it's Tony. Thank you for the question.

Matthew Akers: Thank you for joining us on the call. Yeah, there are a couple of indicators that get us more comfortable around that kind of book to bill expectation. One is just the submission rate as you've seen. We are at 14.5 now against last year with 17 billion full year. We fully expect to surpass our 22 billion expectation on our submissions this year and feel strong about that. Second, we're also submitting, we have a larger qualified pipeline and we see the size of that qualified pipeline increasing quarter of a quarter. We're sitting with about 10 billion of submitted bid at this point pending award. And so, and two-thirds of those being new business, the third being recompete.

Toni Townes Whitley: So when you look at the shape of our pipe, what we submitted, the velocity, we feel strongly that we've got all of the indicators that drive to a north of 1.0 into the 1.2 range of book to bill in the next 12 months. Got it. Thanks. I think you also caught out in the opening remarks. I think civilian, maybe a little bit of a focus area. I guess one of the questions I get from people is, you know, depending on who wins in November, maybe the budget shifts, you know, one way versus the other, defense versus non-defense.

Toni Townes Whitley: Is that a consideration and just how you think of civilian versus defense? Yeah, no, thank you for that. Look, we get that question a lot. If you look at our portfolio, we have called out civilian as one of our four growth vectors. We find that to be not only a large addressable market for us, but also one that's fairly accreted to our portfolio. But if you look at where we positioned in the civilian agencies, agencies like Department of Transportation, Department of Homeland Security, State Department of VA, and others, we feel like we are inoculated from any major swing post-November from a partisan perspective.

Toni Townes Whitley: We are an agency that has five partners in support and have had that for many, many years. And we're positioned in those agencies both across enterprise, IT, and sort of mission critical IT, which tends to be generally funded, going forward. So we feel pretty strong there in terms of the defense and national security. Look, we believe that there will be political support for defense spending given the global environment and geopolitical challenges that the country faces.

Toni Townes Whitley: We also happen to be, I would argue, across areas of national defense that are integrating more technology, more innovation, and that's where we're positioned. So we feel like in both regards, portfolio is balanced and stable enough to be able to continue to move forward and grow independent of the partisan outcome. Look, defense spending we think is going to be flat. I think everyone's made that call. And so it becomes a share game, but again, we feel like we're positioned with the right different chairs in our portfolio.

Toni Townes Whitley: Probably any thoughts you might have on that? The only thing that would add math to that would be that, you know, we are looking to add market share in the civilian space. I would say we are somewhat underrepresented as a persona market share in that area. And therefore, as we look at our pipeline, it continues to reflect towards higher levels of new business, even in the civilian space. So that's why we're cautious about the mistake that there's a real opportunity to gain market share. Very good. Thank you.

Unknown Executive: One more for our next question.

Jason Korn: Our next question comes on line of Jason Garcia City. Your line is now open. Yeah.

Toni Townes Whitley: Good morning, everybody. Thanks for taking a question. Hey, just a quick question on the bidding activity that's going on, that you're chasing look like and kind of what the risk around execution is on all the bids that you're chasing at this point and whether it kind of is any different than what you've kind of wrestled with in the past. So look, and we think about our bids profile. We are tracking and increasing our bidding into our growth vectors.

Toni Townes Whitley: So we are bidding more into civilian, we are bidding more into enterprise and mission ITs and we have. And each of those has its own characteristics in terms of with enterprise IT, the risk that goes from end to end IT operations all the way through clouds and an enterprise level. To mission critical IT, which has its own risk portfolio, we are bidding more fixed price than we have in our backlog in our current contract portfolio, we're bidding more fixed price deals.

Toni Townes Whitley: And that is another area that we said was part of the pivot to move more into some fixed price engagement. And so we are about 10 points up on the difference between what's in our backlog and what's in our bid pipeline on fixed price. Overall, we're also bidding, as I mentioned to the growth vectors, we're also bidding in areas of differentiation. So we are tracking the bids with the use of our factory differentiators and we see and see an increase in uptick and use of those differentiators across operational AI digital engineering secure cloud, as well as some of the work that we're doing with data platform secure data platform.

Toni Townes Whitley: So when we think about the complexion of our bid type of our bidding, we see ourselves bidding more strategically, bidding more margin accretably, which we've seen a higher bid margin and what's going up the door than what has been in prior years and we see ourselves bidding in areas that leverage our differentiation. So in that regard, I feel like an obviously fixed price. So in that regard, I feel like the future both well.

Toni Townes Whitley: We still have to win them. So let's just acknowledge this is, you know, we're bidding more. We feel better. We're bidding better, but we still have to win. We have to execute. We mentioned execution this. We're also tightening with our enterprise operating model our execution expectations with our program managers. And so we are really refining and adding more metrics and more review and more monitoring quality assurance as it relates to executing these bids, particularly our mission critical work.

Jason Korn: Tony, that was perfect. Jason, the only thing I would add is that, you know, over the course of the last few years, as we do the debriefs on our wins and losses, we know that on average, we tend to do just fine on costs and, you know, we've fallen short on technical differentiation. So part of the enterprise operating model is to get the solution architects working directly with the capture teams to ensure that we are critically putting together a technical proposition that we can execute to our history with fixed price work is actually pretty good.

Jason Korn: We've actually executed the work at good margins. So for example, most of the civilian portfolio happens to be fixed price and TNM work. And as you can see, we're comfortably in the WGD without margins there on that work. So I say it's a little more of let's not be that cost-conscious. Let's actually focus on getting the right solution in place. And then how do we start executing in a way that gives us comfort that we can actually get to these thresholds that we are anticipating the program teams to get to.

Jason Korn: So a lot of work going around just the muscles required to execute effectively. But I think the most important thing I would say is we want to take good shots. And that means not being rash. We're not chasing growth for the sake of growth as we've said on call us before. It's vitamins, not calories.

Jason Korn: Thank you, Jason. Right.

Toni Townes Whitley: Okay, and if you don't mind just a quick follow up to that, double click, a touch on the firm fixed price bids that you're chasing. The, you know, firm fixed price development hasn't, you know, been such a great story across the industry over the last number of years. I'm just kind of curious, how much sure the technology is that you are leading with on some of these firm fixed price bids and how much work you think you've got ahead of you to still develop some of the solutions that you're, that you're trying to solve for.

Toni Townes Whitley: Jason, I think at the fair statement, when I look at our portfolio though, why we made some investments quite frankly in the differentiation coming out of factories that we would lead with that differentiation where we've been able to build up our capability. Probably said we've got a track record of delivering fixed price with solid, you know, estimate that complete meeting the financial profile meeting the customer expectation. We don't have sort of disastrous fixed price programs that many organizations have had to have had to face.

Toni Townes Whitley: We're leading with our secure multi cloud, we're leading with our digital engineering capabilities, we're leading with our data platforms and our operational AI capabilities generally when we're introducing new solutions into this space. And quite frankly, we're ensuring that we have the right human capital answer, meaning individuals program managers who have led fixed price engagement and tightening all of the controls around how we deliver fixed price engagement and monitor it over time. So right now we're not feeling overly concerned about increasing our fixed price portfolio, but of course we've got quite a bit of attention to day to day execution to meet customer expectations.

Unknown Executive: Great, appreciate the time today. Thank you.

Seth Seifman: We'll move on for next question.

Seth Seifman: Our next question. Confirm line of set semen of JP Morgan. Your line is now open.

Seth Seifman: Thanks very much and good morning. I wanted to ask you know, you mentioned probably exceeding the goal for submitted business year and you know, it was seem you're very much on on the way to doing that. I guess what led to the submitted bits in the first half being so much higher. Is there a particular reason why you and is there a particular reason why you see the opportunity set in the second half being so much lower.

Seth Seifman: I mean, it would seem like you're probably on a pace to have submitted bits on par with what you're looking for in fiscal 27 right here in fiscal 25. Well, we appreciate that forecast though. Let me let me first say that, you know, why the focus on and what's happened in terms of submitted bits part of centralizing the business development function. When I first came in a set was you get to a standard process and set a protocol quite frankly to how we did and the acknowledgment that over the last three years are good velocity had been dropping.

Seth Seifman: And that we needed to reverse that if we were going to underpin the kind of growth that we are setting this expectation for ourselves, and in doing that, the centralization allowed us to allocate resources much more dynamically across the full enterprise towards the bids that needed our attention, the quick determination of whether bid was qualified, so increasing our conversion rate from an unqualified to a qualified bid. And again, the resource allocation of our talent towards those bids, that's all improved our submission process in terms of the number of bids.

Seth Seifman: And quite frankly, I would argue changing some thresholds in terms of the role of the ELTR executive team and reviewing our bids and many more bids that we take a look at on a weekly basis have an improved quality of those bids and setting a measure of what a good bid looked like. When we look at the year, we are pleased with our progress. There's absolutely no question that we are on a great pace.

Seth Seifman: We have bids that move out, as you know, every quarter, we have a few key bids that are right on the cup, large bids that are on the cup of our fiscal year. And so those of us who have been in the industry for a while know that when you start to get to the custody and for quarter bids, you start to almost have to a handicap that amount, that number, to make sure that you can really pull them into the fiscal year.

Seth Seifman: So do I, do I feel good about us exceeding 22? Absolutely. I feel good about it. Do I, do we overstate that we change that right now? No, we're halfway through. We see it, we've got line of sight. We feel good about it as we go into next year as well. We've got quite a bit of submitted bid that are pending and we're excited about what that might mean for just a year, 26.

Prabu Natarajan: Okay, excellent. And then just maybe following up, they're taking to the next step, you know, beyond bids to the awards and, you know, you've an outlook for book to bill. When you think about what's in front of us in terms of CR and most likely and an election and, you know, the protests that we often see around all kinds of contracts. You know, is to what degree is there still risk around your kind of book to bill targets for, for those items or do you feel like you've kind of, you know, handicapped all of those fairly, you know, fairly well in the book to the outlook.

Prabu Natarajan: I'm going to probably speak to that and I'll add any color. It's a look, I think as we think about where our backlog is right now and the volume of the bids that are awaiting adjudication. We like to calibrate our expectations around book to bill for the year based on, you know, many things including the things you mentioned. So I think that's the way we're thinking about it. Thankfully, you know, we're sitting in a place where there's enough volume in the pipeline that, you know, one or two things moving out of the year would not have a material outsize negative impact or expectations for book to bill.

Prabu Natarajan: And so, you know, you know, you know, we're sitting in the pipeline and the backlog of submitted bids is that's not a motion in perpetuity. In other words, there's a point at which you've got enough pipeline and you've got enough in the way of submitted bids, it becomes a question of can you replicate that consistency volume over multiple years. And candidly, one of the, you know, the riches of having a rich backlog is that you get to actually improve the kinds of things you go after. So I think there's more of a focus on the quality of what's in the backlog in the pipeline versus just increasing the absolute volume.

Bert Subin: Thank you very much. Thank you. One moment for next question.

Bert Subin: Next question comes from the line of Bert Subin, a steeple your line is now open.

Bert Subin: Hey good morning and thank you for the question. Hey Bert. Maybe just the start I guess following up on Seth's questions there. I mean if we look at the steeple second quarter you know coming in at 2% organic I guess this is really like 7% organic because Prabu you called out five points of recompute headwinds and maybe normally any year you would have some headwinds maybe it's like 6% organic but that seems pretty good.

Bert Subin: Can you just break down you know maybe what the components that are driving that is first you know from new awards ramping to on contract growth to other items? Yeah so we as we think look at Q2 and even looking forward to H2 we've got ramping of existing programs right that have been one earlier in the year prior year that we see on the civilian side we see with a T-cloud in our Air Force business you've seen with with our AOC and our cloud one probably just recently seen an extension of our cloud one business at a 262 million I think is repritted there.

Bert Subin: So we have these sort of ramps that are happening and then we have on contract growth occurring particularly in our civilian and our army businesses and some significant on contract growth that's occurring there. It's a combination of those that not only provided the uplift on the second quarter but it's what we anticipate to help us close the year as we've indicated. We even have a new business win in our combatant commands that is going to probably start to ramp even towards the end of this year that will add a little bit of relief but what we have to be aware of is that they're still risked.

Bert Subin: They're still risked. We have at five points that you mentioned that we'll have throughout the full H2 that five point headwind that we are dealing with we know will ease going into fiscal year 26 but we have to it's really an all-hands-on-deck feel that everybody is pushing for growth with their existing contracts ramping and obviously ramping in an environment where there's a lot still happening politically a lot happening in Congress and so and a lot happening with our customers so we're trying to be thoughtful about how we think about revenue growth here but we are still fairly positive that we can stay within the guidance that we have offered.

Bert Subin: Thank you Tony and Dave Bird the only thing I would add is you know D10 is expected to ramp a little more in the second half relative to the first half that's a program we won you know earlier this year so that program has not ramped in any material sense T Cloud will be a growth driver for us for the second half this year and of course the program that Tony just referred to in our Air Force combat and command business that is also expected to ramp in the second half this year so we've got some good momentum on things that are either already in backlog and we expect to grow offa or things that we are winning we're not we're not just focused on our contract growth here there are some good growth drivers Thanks for that, Toni, and Prabu.

Prabu Natarajan: Just one follow-up. You know, the 2% organically with the recompete was positive, and then when you put it into the context, the bow and the malaise only being up 1% in the next quarter, you know, looks certainly better. As we think about the current quarter, can you give sort of any early indications the way you're seeing, I know you've given the 1% to 3% viewpoint, but outlairs were up 19% in July, you know, we have potential for maybe a significant budget budget.

Prabu Natarajan: So I'm just curious, you know, from an on-contract perspective, do you think there could be more opportunity out there? Hey, Bert, I'll take that first part of the question here. So in terms of outlairs, I think you're exactly right. I think, you know, we are expecting outlairs to be normal as one might define normal. We do think that, you know, we started to see a little bit of a pick-up in the outlairs, you know, maybe in the July timeframe, are sort of in current views that typically translates to maybe higher levels of revenue growth in about 3 to 6 months.

Prabu Natarajan: So if we sort of close out the year starting next year, we will expect to see some of that outlay, you know, in order to our benefit, obviously last year was a fantastic year for outlairs, and that this year feels a little more normal. But, but there's again, that's why the focus on making sure that we're bidding the right kinds of work, and overall we expect the environment to remain supportive, but we're not bullish about that happening anytime soon.

Prabu Natarajan: Yeah, and Brad, I think you heard with the Q3, if you're looking at a Q3 outlay environment, you think it's slightly increasing, you know, probably was just indicated that's not a one for one by timing. There's about a three month lag. You can see that our Q4 guidance suggests a higher growth in Q4 than Q3, so we're aware of the outlay environment we think it's reflected in the call. Thank you.

Bert Subin: One for next question.

Jack Wilson: Our next question comes online of Toby. Of course, your line is out open. Hey, good morning. This is Jack Wilson on for Toby. Can we just double click on sort of the growth trajectory for some of those bigger contracts that were mentioned, sort of the Air Force work in the GMAS work specifically? Sure, sure. So all with that Jack, I'll take that first stab at it. I think, you know, D time was a program we won earlier this year.

Jack Wilson: It's a $450 million program roughly the way the program works is to technical directives. So we called them TDIs in our business. And that takes a little bit of time to round as we, you know, sit with the customer and sort of plan out the year with them. And so that program is expected to ramp in the second half of the year. T Cloud was obviously a big win for us a little over a year ago and obviously we are well on the ramp.

Jack Wilson: We said T Cloud will get to between one to one and a half percent of total company revenue this year with some expected growth to maybe up to two percent next year. So that one is a growth driver and then the one in Air Force that's a new takeaway win. And that's expected to add about, you know, let's call it 30 million or so a year starting hopefully in the Q3 time frame.

Toni Townes Whitley: So we'll certainly provide a little more color, but that's just a sample of the two or three things that we call it. Okay, and maybe a quick follow-up, can you speak to how the space franchise compares to sort of the rest of the company as a whole in terms of growth and margins? Sure, so I think as you know, you know, we've got a good chunk of a space fee to work at many of the restricted customers.

Toni Townes Whitley: That is a really good portfolio that is solidly, you know, margin-producing as well as a good cash generator for us. So we like our positioning. Having said that, I think the team there is doing a really nice job continuing to inflect that portfolio towards non-seater work. Obviously, DKAM is an example of that win capability that we can take some of the expertise we have in the seeded space and go build a market outside of seeded.

Toni Townes Whitley: So that one was an important win. GMAS was another program we won last year, that was to take away from one of the crimes. And that is another program out there, the teams executing on, that is really interesting. And then, of course, we've talked publicly about BNC-3, which is real-time software development for the SDA. So there's a good balance. I think we are developing between CEDA and non-SEEDA. But our objective is, you know, the CEDA business is a really high quality business.

Toni Townes Whitley: And we're developing a non-SEEDA business as we go here. And I would say that non-SEEDA business as is moving into mission IT, and that's the important part of our portfolio shift, is what we believe to be the more critical and more tech-heavy if you will, tech-enable mission IT within space, which will be more credible to time.

Toni Townes Whitley: Thank you very much. Thank you, John. Thank you.

Unknown Executive: We'll move it for a next question.

Unknown Executive: Our next question, because we're in line with Kaivon-Rumor, Tiddy Cowell, when your line is not open. Yes, thanks so much. The 1.2 book to Bill, is that you're defining that as trailing 12 months or in the second quarter? And then secondly, what does that assume about your win rate? So Kaivon, the first part of the question, it is trailing 12 months. And I think in terms of what it implies for win rate, is I think it assumes that our new business win rate, and we've said this publicly before, it is higher than 30%, comfortably higher.

Unknown Executive: And so I think we expect our new business win rate to be sort of where the industry is on new business. And we are expecting to get our recomputes back to what's normal for the industry. Let's call it high AD across 190%. So that's what we're assuming. At this point, the only known recompete head win going into next year is NCAPS. And that's about a little over 1%. And so I think maybe even to Bird's question on earlier on the call, when we have 1% or 2% recompete head wins, then organic growth tends to be legal digits, and we demonstrated that last year with 7.5% organic growth with a head win of 1% to 2% recompete.

Unknown Executive: So that's what we're assuming in terms of the math. Obviously a lot that goes into what's getting bid and what we're expecting to show up before the end of the year, but that is what we assume. And in terms of recompete, I mean you mentioned, I don't know whether that was evolved, you know, what is the status of that recompete? And also very importantly, as well because that's your biggest contract, what is the status of that potential recompete?

Unknown Executive: So I heard the first part of your question on evolve, I'm gonna have to ask you to repeat the second part of the question. The first part of the question on evolve, as you know, that's an ongoing procurement, we're super pleased about our current performance with that contract and with that customer said, as it continues to move right, we expect that there will not be any award activity until beginning the next year, possibly an even that holiday extended protest period that would probably have any revenue to impact or change late fiscal year 26, maybe early fiscal year 27.

Unknown Executive: So as that continues to move right, we're focusing on our performance on that contract. As you know, that's the consolidation of many contracts. So there's there's an upside potential there is obviously a risk on recompete there, but overall we're very pleased with what we're hearing from the customer on our performance there, and we think we're positioned, but don't see that having a 26 impact immediately. What was the other deal you asked the one was the army S1 cons like the police.

Unknown Executive: Yeah, we have to be sitting here in obstacle, so it's appropriate for the comment there. But look, the timing of that we believe is probably on the cost for the end of our fiscal year, beginning of the next fiscal year is our timing, we feel very, very solid about our performance today, and obviously this is the first of a series of contracts that we compete with. We're going to compete for the next 18, 24 months with this customer set, but for this and one of the largest of the of the recompete, we feel very, very solid about it, but the timing we're now sort of thinking about it in the fiscal year 26 timeframe in terms of the next award.

Unknown Executive: And Kai, the only thing I would add is last time on the income recompete, as it was known about five years or so ago, we went for the teams doing an amazing job and great relationships here, and we're hoping to keep the streak alive. And refresh my memory, is this going to be bid similar to the way and common bid in terms of separate packages or, you know, what structure you're looking at for this.

Unknown Executive: I think we're looking at a very similar structure. We have four separate contracts, and this is the first of the four. Kai, that shows up, as I said, in the January, February timeframe is going to be expecting an award. Thank you, one moment for next question.

Joshua Korn: Our next question comes on the line of David Strauss of Barclays. Your line is now open. Hi, good morning. This is Josh Korn on for David. Thanks for taking the question.

Joshua Korn: I just wanted to ask, just wanted to ask about the drop in civilian margins over the last two quarters, and sort of what the trajectory is there, how variable those would be over time. Thanks. Yeah, so Josh just put it in context on civilian. The year-over-year compares, we had a major, a high revenue activity that happened last year. One time, sort of a normal surge of revenue in one of our programs that was not repeatable this year, as well as the ramp up on some of our new programs in civilian has been, has had a lower margin start.

Joshua Korn: We fully expect this as a tailwind because the margin is coming up over time on those programs. We talk about moving into H2 with contract on contract growth, as well as ramp up. The civilian portfolio is ramping up in the margin expectations on execution are higher than where we started. And so we feel like we'll be back in the range, the appropriate range for civilian might have set one time within a prior fiscal year, here. Great, thanks. I'll stick to one. Okay, thanks, Josh. Thank you. I'm showing no further questions at this time. Thank you for your reputation in today's conference.

Unknown Executive: This is Conclusion