Q1 2025 Leidos Holdings Inc Earnings Call

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Unknown Executive: Greetings.

Unknown Executive: Welcome to Leidos first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. The brief question and answer session will follow the formal presentation. Please note this conference is being recorded.

Speaker Change: Greetings and welcome to the lighthouse first quarter 'twenty 25 earnings conference call. At this time, all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation. Please note. This conference is being recorded.

Stuart Davis: At this time, I'll turn the conference over to Stuart Davis from Investor Relations. Stuart, you may...

Speaker Change: At this time I'll turn the conference over.

Speaker Change: Stuart Davis from Investor Relations Stuart you may begin.

Stuart Davis: Thank you, and good morning everyone. I'd like to welcome you to our first quarter fiscal year 2025 earnings conference call. Joining me today are Tom Bell, our CEO, and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the investor relations portion of our website where you'll also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to slide two of the presentation, today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, includes risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially.

Stuart Davis: Thank you and good morning, everyone I'd like to welcome you to our first quarter fiscal year 2025 earnings Conference call.

Stuart Davis: With me today are Tom Bell, our CEO and Chris <unk>, our Chief Financial Officer.

Stuart Davis: Today's call is being webcast on the Investor relations portion of our website.

Stuart Davis: You'll also find the earnings release and supplemental financial presentation slides that we'll use during today's call.

Stuart Davis: Turning to slide two of the presentation. Today's discussion contains forward looking statements based on the environment as we currently see it and as such includes risks and uncertainties.

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

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

Speaker Change: Finally, as shown on slide three during the call, we'll discuss GAAP and non-GAAP financial measures a reconciliation between the two is included in today's press release and presentation slides with that I'll turn the call over to Tom Bill will begin on slide four.

Stuart Davis: With that, I'll turn the call over to Tom Bell. We'll begin on slide four.

Tom Bell: Thank you, Stuart, and thank you all for joining us. Today, I'm pleased to report a strong Q1 for Leidos, once again, delivering above plan revenue, EBITDA, and EPS. In this excellent quarter for Leidos, our organic revenue increased 7% year over year. Adjusted EBITDA margins improved again to 14.2%. and non-GAAP diluted earnings per share rose 30%. This strong start to 2025 builds on the significant momentum we built for our business during 2024. And we continue to push forward with optimism in our outlook. We are uniquely positioned in this environment to solve our customers' most vexing challenges by continuing to leverage our investments in, and the application of, cutting-edge technology.

Speaker Change: Thank you Stuart and thank you all for joining us.

Speaker Change: Today I am pleased to report a strong Q1 for lighters once again delivering above plan revenue EBITDA and EPS.

Speaker Change: In this excellent quarter for lighters, our organic revenue increased 7% year over year.

Speaker Change: Adjusted EBITDA margins improved again to 14, 2%.

Speaker Change: And non-GAAP diluted earnings per share rose, 30%.

Speaker Change: This strong start to 2025 builds on the significant momentum we built for our business during 2024.

Speaker Change: And we continue to push forward with optimism in our outlook.

Speaker Change: We are uniquely positioned in this environment to solve our customers' most vexing challenges.

Speaker Change: Continuing to leverage our investments in and the application of cutting edge technology.

Tom Bell: At the same time, as discussed on previous calls, 2025 was always envisioned to be a pivot year for us. As we lock in the gains from our hugely successful 2024, invest in further new business momentum based on our new North Star 2030 strategy, and actively get after the priorities of our nation's new administration.

At the same time as discussed on previous calls 2025 was always envisioned to be a pivot year for us as we lock in the gains from our hugely successful 2024 <unk>.

Speaker Change: Invest in further new business momentum based on our new North Star 2030 strategy and.

Speaker Change: We're actively get after the priorities of our nation's new administration.

Tom Bell: Given all this, I'm pleased to also announce on this call that we are reaffirming our full year 2025 guidance at this time. Since undertaking our year of deep strategic thinking last year, evidence is everywhere that the future we predicted is racing toward us at pace. It manifests itself in the geopolitics we see around us. in the challenges our customers are expressing to us and in the administration's rapid action. So we're excited to be playing offense in 2025. Now in full implementation mode on our North Star 2030 strategy and leaning into the robust opportunities this environment is presenting.

Speaker Change: Given all this I'm pleased to also announce on this call that we are reaffirming our full year 2025 guidance at this time.

Speaker Change: Since undertaking our year of deep strategic thinking last year evidence is everywhere, but the future. We predicted is racing toward us at pace.

Speaker Change: It manifests itself in the geopolitics, we see around us.

Speaker Change: And the challenges our customers are expressing to us and in the administration's rapid actions.

Speaker Change: So we're excited to be playing offense in 2025 now in full implementation mode on our North Star 2030 strategy and leaning in to the robust opportunities. This environment is presenting.

Tom Bell: So let me share with you, at a high level, our North Star 2030 strategy, its growth pillars, and their alignment to the new administration's priorities. Last year, we introduced the Leidos brand promise, Making Smart Smarter. That brand promise summarizes in three short words, the fact that everything we do, the core of our business model, is making customer outcomes smarter and more efficient. That's why we exist. And that's why we can confidently assert that Leidos is the digital mission and solutions leader serving customers with smarter, more efficient innovation.

Speaker Change: So let me share with you at a high level, our North Star 2030 strategy its growth pillars and their alignment to the new administration's priorities.

Speaker Change: Last year, we introduced the lightest brand promise, making smart smarter.

That brand promise summarizes in three short words, the fact that everything we do the core of our business model is making customer outcomes smarter and more efficient.

Speaker Change: That's why we exist.

Speaker Change: And that's why we can confidently assert that light OS as the digital mission and solutions leader, serving customers with smarter more efficient innovations.

Tom Bell: Under that entablature, our North Star 2030 strategy is supported by five growth pillars as shown on slide five. First Space and Maritime. where we will be building off the franchises we have today and further programs in development to provide commercially based, rapidly integrated, disruptive hardware products in these two select critical domains to the U.S. military. Second, energy infrastructure. In this growth pillar, we will continue to scale our electrical utility business within Leidos, serving commercial customers nationwide, making our nation's electrical grid more resilient and more secure. And we do this through our core design, engineering, IT and cyber capabilities further enabled by cutting edge Leidos AI tools.

Speaker Change: Under that entablature, our Northstar 2030 strategy is supported by five growth pillars as shown on slide five.

Speaker Change: First space in maritime.

Speaker Change: Where we will be building off the franchises, we have today and further programs in development to provide commercially based rapidly integrated disruptive hardware products. In these two select critical domains to the U S military.

Speaker Change: Second energy infrastructure.

Speaker Change: And this growth pillar, we will continue to scale, our electrical utility business within lighthouse, serving commercial customers nationwide, making our nation's electrical grid more resilient and more secure.

Speaker Change: And we do this through our core design engineering and.

Speaker Change: And cyber capabilities further enabled by cutting edge lighthouse AI tools.

Tom Bell: Third, digital modernization and cyber. Here, we will continue to leverage proprietary innovative technologies to build repeatable offerings at scale to make our customers' IT infrastructures more efficient, effective, and secure. Fourth, highly customized critical mission software. Here we turn our deep understanding of our customer's mission to translate vast amounts of customer data into actionable information. And we do this through best-in-class AI deployment, COTS integration, commercial development, and productionized software offering. and fifth, Managed Health Services. In this growth pillar, we will use our successful medical examination expertise. our existing infrastructure and our robust provider network to expand our health business to serve new populations and offer additional related services.

Speaker Change: Third digital modernization and cyber.

Speaker Change: Here, we will continue to leverage proprietary innovative technologies to build repeatable offerings at scale to make our customers it infrastructures more efficient effective and secure.

Speaker Change: Fourth highly customized critical mission software.

Speaker Change: Here, we turn our deep understanding of our customers' mission to translate vast amounts of customer data into actionable information.

Speaker Change: And we do this through best in class AI deployment.

Speaker Change: <unk> integration commercial development and production is software offerings.

Speaker Change: And fifth managed health services in this growth pillar, we will use our successful medical examination expertise, our existing infrastructure and our robust provider network to expand our health business to serve new populations and offer additional related services.

Tom Bell: These growth pillars have been carefully chosen as our analysis shows clearly that they are areas where customer needs and spending will continue to grow robustly. Leidos has a proven ability to perform cutting edge profitable work. and Leidos has clear differentiated technical capabilities that can be actively advanced. Our growth pillars are also squarely aligned with the priorities of our new administration. and we are sure they will remain national priorities well into the future. Our confidence is evidenced by recent executive orders and announcements, like the EOs on the electrical grid and maritime dominance, as well as orders calling for the modernization of federal technology and software.

Speaker Change: These growth pillars have been carefully chosen as their our analysis shows clearly that they are areas, where customer needs and spending will continue to grow robustly.

Speaker Change: Light OS has a proven ability to perform cutting edge profitable work.

Speaker Change: And lighthouse has clear differentiated technical capabilities that can be actively advanced.

Speaker Change: Our growth pillars are also squarely aligned with the priorities of our new administration.

Speaker Change: And we are sure they will remain national priorities well into the future.

Speaker Change: Our confidence is evidenced by recent executive orders in announcements like the E OS on the electrical grid and maritime dominance as well as orders, calling for the modernization of federal technology and software.

Tom Bell: The President and the VA Secretary, having been very vocal in advocating for faster, more comprehensive health care services for veterans. This administration's clear preference to work with firms that solve problems and get things done, not consultants that study problems and publish reports. This administration's drive to make the federal outcome smarter and more efficient through technology. and this administration's desire for commercial terms focused on outcome. In short, our administration is driving toward federal outcomes that are better, faster, cheaper. right in Leidos' wheelhouse and synonymous with our core business model of making customer outcomes smarter and more efficient.

Speaker Change: The president and the VA Secretary, having been very vocal in advocating for faster more comprehensive health care services for veterans.

Speaker Change: This administration's clear preference to work with firms that solve problems and get things done not consultants that study problems and published reports.

Speaker Change: This administration's drive to make the federal outcome smarter and more efficient through technology.

Speaker Change: And this administration's desire for commercial terms focused on outcomes.

Speaker Change: In short <unk>.

Speaker Change: Our administration is driving toward federal outcomes that are better faster cheaper right in light of his wheelhouse and synonymous with our core business model of making customer outcomes smarter and more efficient.

Tom Bell: So we're now actively advancing our North Star 2030 strategy, the right strategy at the right time. We are confident that our business, our strategic investments, and our go-to-market engine are all aligned with the needs and pace of our customers. You can see our conviction in how we've allocated capital so far in 2025. We've taken advantage of the current market conditions to significantly speed up our planned 2025 share buyback program. by executing a $500 million accelerated share repurchase agreement right out of the gate. This accomplishes the majority of our 2025 share buyback plan.

Speaker Change: So we are now actively advancing our Northstar 2030 strategy the right strategy at the right time.

Speaker Change: We are confident that our business our strategic investments in our go to market engine are all aligned with the needs and pace of our customers.

Speaker Change: You can see our conviction and how we've allocated capital so far in 2025.

Speaker Change: We've taken advantage of the current market conditions to significantly speed up our planned 2025 share buyback program.

Speaker Change: By executing our $500 million accelerated share repurchase agreement right out of the gate.

Speaker Change: This accomplishes the majority of our 2025 share buyback plans.

Tom Bell: And I'm very pleased to have signed a definitive agreement to acquire a leader in full-spectrum cyber, our first acquisition in two and a half years, to accelerate one of our aforementioned Northstar 2030 strategic growth pillars. Cyber has long been a core competency for Leidos. With the largest cyber operation across the federal government, we see firsthand every day the complex, destructive, and coercive actions from nation-state threats, threats our customers defeat with our help. So, with the cyber threat growing, customers' needs becoming more complex. Proven Leidos' success in the cyber market and our tangible ability to double down on technical differentiation, full-spectrum cyber is a key piece of our five Northstar 2030 growth pillars.

Speaker Change: And I'm very pleased to have signed a definitive agreement to acquire a leader in full spectrum cyber.

Speaker Change: Our first acquisition in two and a half years to accelerate one of our aforementioned Northstar 2030 strategic growth pillars.

Speaker Change: Ciber has long been a core competency for lighthouse.

Speaker Change: With the largest cyber operation across the federal government, we see firsthand every day the complex destructive and coercive actions from nation state threats threats, our customers defeat with our help.

Speaker Change: So with the cyber threat growing customers.

Speaker Change: Customers' needs, becoming more complex proven lighthouse success in the cyber market and our tangible ability to double down on technical differentiation full spectrum cyber is a key piece of our five north star 2030 growth pillars.

Tom Bell: We've also foreseen the cyber risk from AI adoption that creates even more vulnerabilities and attack surfaces for bad actors. Over the past five years, we've invested more than $75 million of our own R&D to develop patented technologies that change the cyber paradigm. Our pending acquisition brings additional exquisite cyber capabilities to strengthen our cyber growth pillar. Their expertise in vulnerability research, reverse engineering, exploit development, and the converging cyber electronic warfare markets are squarely in line with our cyber strategy. Our acquisition is focused on the DoD and the intelligence communities with deep roots in DARPA as well.

Speaker Change: We've also foreseeing the cyber risk from AI adoption that creates even more vulnerabilities and attack surfaces for bad actors.

Speaker Change: Over the past five years, we've invested more than $75 million of our own R&D to develop patented technologies that change the cyber paradigm.

Speaker Change: Our pending acquisition brings additional exquisite cyber capabilities to strengthen our cyber growth pillar.

Speaker Change: Their expertise in vulnerability research reverse engineering exploit development and the converging cyber electronic warfare markets are squarely in line with our cyber strategy.

Speaker Change: Our acquisition is focused on the D O D and the intelligence communities with deep roots and DARPA as well.

Tom Bell: This delivers to us a unique, additional, active, value-added role in the cutting-edge future of cybersecurity technologies for national security. Leidos will leverage this acquisition both directly for our customers and in support of enhanced, informed, and resilient defensive solutions across our own corporation. The acquisition will add to our deep pool of cyber talent and strengthen our competitive position in the $15 billion worth of pure cyber opportunities in our pipeline, and even more across the related network and cloud pursuit.

Speaker Change: This delivers to us a unique additional active value added role in the cutting edge future of cyber security technologies for National Security.

Speaker Change: <unk> will leverage this acquisition both directly for our customers and in support of enhanced informed and resilient defensive solutions across our own Corporation.

Speaker Change: The acquisition will add to our deep pool of cyber talent and strengthen our competitive position in the $15 billion worth of pure cyber opportunities in our pipeline and even more across the related network and cloud pursuits.

Tom Bell: As this is the first acquisition under my watch, I want to make it clear that when I do deploy capital inorganically, this is precisely the kind of move you can expect us to make. focused technology risk rich companies. in the wheelhouse of one of our five growth pillars poised for rapid integration into Leidos with a strong value unlock formula.

Speaker Change: As this is the first acquisition under my watch I want to make it clear that when I do deploy capital Inorganically. This is precisely the kind of move you can expect us to make.

Speaker Change: Focused technology risk rich companies.

Speaker Change: In the wheelhouse of one of our five growth pillars poised for rapid integration into light us with a strong value unlock formula.

Tom Bell: Another very positive sign for our new North Star strategy is the administration's willingness to collaborate with industry to drive better performance across government.

Speaker Change: Another very positive sign for our new North Star strategy is the administration's willingness to collaborate with industry to drive better performance across government.

Tom Bell: I've sought out and secured more meetings with cabinet members and key administration executives in the last month than I was able to secure during the whole of the last administration. And we're seeing significant receptivity in those meetings to big ideas we are bringing forward. One of these big ideas is also one of the administration's highest priorities.

Speaker Change: I've sort out and secured more meetings with cabinet members and key administration executives in the last months and I was able to secure during the whole of the last administration.

Speaker Change: And we're seeing significant receptivity in those meetings two big ideas, we are bringing forward.

Speaker Change: One of these big ideas is also one of the administration's highest priorities.

Tom Bell: Establishing our nation's next generation air traffic control system. Air traffic management in the U.S. is highly fragmented, with multiple outdated systems and technologies, with an over-reliance on human intuition and intervention. We are deeply aligned with the FAA's mission. For years, we have invested millions of dollars to develop and deploy, both in the United States and overseas, essential capabilities for achieving optimal, cost-effective air traffic control outcomes. These investments are fueled by our comprehensive understanding of the complex environment, mission-critical requirements, and innovation needs. putting us in a great position to help transform the performance and safety of the U.S.

Speaker Change: That wishing our nation's next generation air traffic control system.

Speaker Change: Air traffic management in the U S is highly fragmented with multiple outdated systems and technologies with an over reliance on human intuition and intervention.

Speaker Change: We are deeply aligned with the FAA as mission for years, we have invested millions of dollars to develop and deploy both in the United States and overseas essential capabilities for achieving optimal cost effective air traffic control outcomes.

Speaker Change: These investments are fueled by our comprehensive understanding of the complex environment mission critical requirements and innovation needs.

Speaker Change: Putting us in a great position to help transform the performance and safety of the U S air travel for decades to come.

Tom Bell: air travel for decades to come.

Tom Bell: Additionally, our Defense Systems team is moving out quickly on one of the Pentagon's top priorities, building a next-generation multi-layer mission defense shield, or Golden Dome. From the moment that executive order was signed, we have been actively collaborating with key Golden Dome customers and stakeholders. With the administration's attention on the significance of the space domain for Golden Dome, Leidos stands very well positioned to contribute meaningfully to this mission. Our space-based sensing and tracking capabilities are deployed and in production for low-Earth orbit missions across all trenches of the SDA's tracking layer. At the same time, we are working to expand our role within the broader proliferated warfighter space architecture.

Speaker Change: Additionally, our defense systems team is moving out quickly on one of the Pentagon's top priorities building. Our next generation multi layer mission defense shield or Golden Dome.

Speaker Change: From the moment that executive order was signed we have been actively collaborating with key golden dome customers and stakeholders.

Speaker Change: With the administration's attention on the significance of the space domain for Golden Dome Light O stands very well positioned to contribute meaningfully to this mission.

Speaker Change: Our space based sensing and tracking capabilities are deployed and in production for low Earth orbit missions across all tranches of the SDA is tracking layer.

Speaker Change: At the same time, we are working to expand our role within the broader proliferated Warfighter space architecture.

Tom Bell: Golden Dome also requires an underlayer to defend against land and surface launch threats, such as cruise missiles and swarming drones, which can originate from virtually anywhere and strike with limited response time. Notably, we already lead the rapid production and deployment of the Army's latest air and missile defense capability, which plays a vital role in the defense of Guam, a strategic stronghold essential for deterring threats in the Pacific. And we are already getting interest in potential deployments to defend the continental United States and key infrastructure and installations within the U.S.

Speaker Change: Golden Dome also requires and the underlayer to defend against land and surface launch threats, such as cruise missiles, and storming drones, which can originate from virtually anywhere and strike with limited response time.

Speaker Change: Notably we already lead the rapid production and deployment of the Army's latest air and missile defense capability, which plays a vital role in the defensive Guam, a strategic stronghold essential for deterring threats in the Pacific.

Speaker Change: And we are already getting interest in potential deployments.

Speaker Change: To defend the continental United States, and key infrastructure and installations within the U S.

Tom Bell: While we expect greater specificity regarding the Golden Dome opportunity to be outlined in the President's 2026 budget request, early funding signals in both the space and underlayer domain are very encouraging and again, supportive of our growth pillar.

Speaker Change: While we expect greater specificity regarding the golden boom opportunity to be outlined in the President's 2026 budget request early funding signals in both the space and Underlayer domain are very encouraging and again supportive of our growth pillar.

Tom Bell: So in summary, I'm thrilled to be out of the blocks with a strong set of Q1 results. We're confirming our 2025 guidance. I'm excited to be in execution mode on 2030 strategy. We're very well positioned as this administration drives its agenda of making government outcomes smarter and more efficient.

Speaker Change: So in summary, I'm thrilled to be out of the blocks with a strong set of Q1 results were.

Speaker Change: We're confirming our 2025 guidance imac.

Speaker Change: Im excited to be in execution mode on 2030 strategy.

Speaker Change: We're very well positioned as this administration drives its agenda of making government outcomes smarter and more efficient.

Tom Bell: I hope you all can feel the productive sense of urgency with which we're approaching this exciting next chapter in our history. Today more than ever, our mission is compelling, our strategy is clear, and our opportunities are growing.

Speaker Change: I hope you all can feel the productive sense of urgency with which we're approaching this exciting next chapter in our history.

Speaker Change: Today more than ever our mission is compelling our strategy is clear and our opportunities are growing.

Chris Cage: With that, I will turn the call over to Chris to walk through our results for the first quarter and our outlook for fiscal year 2025. Thank you, Tom, and thanks to everyone for joining us on the call today. Our impressive start to the year is the result of the resiliency and tenacity of our entire team. In the first quarter, we maintained the exceptional level of performance delivered in 2024 while navigating an intensified macro environment. We work proactively with customers to bring forward innovative ideas and never took our eyes off execution. I think that it's clear that the diversity of our portfolio relative to peers benefits us now more than ever, creating fruitful inroads to support a wide range of enduring missions and at the same time providing insulation from meaningful industry shifts.

Speaker Change: With that I will turn the call over to Chris to walk through our results for the first quarter and our outlook for fiscal year 2025, Chris.

Speaker Change: Chris.

Chris: Thank you, Tom and thanks to everyone for joining us on the call today.

Speaker Change: Our impressive start to the year as the result of the resiliency and tenacity of our entire team.

Speaker Change: In the first quarter, we maintained the exceptional level of performance delivered in 2024, while navigating an intensified macro environment.

Speaker Change: Worked proactively with customers to bring forward innovative ideas and never took our eyes off execution.

Speaker Change: I think that it's clear that the diversity of our portfolio relative to peers benefits us now more than ever creating fruitful inroads to support a wide range of enduring missions and at the same time, providing insulation from meaningful industry shifts.

Chris Cage: Execution was strong across the entire port. Three of our segments delivered solid mid- to high-single-digit growth, and Commercial International posted double-digit growth for the second straight quarter. This broad-based performance enabled another quarter of exceptional earnings, well above initial expectations.

Speaker Change: Execution was strong across the entire portfolio three of our segments delivered solid mid to high single digit growth in commercial international posted double digit growth for the second straight quarter.

Speaker Change: This broad based performance enabled another quarter of exceptional earnings well above initial expectations.

Chris Cage: With that, let's dive into the details, starting with the income statement on slide 7. Revenues for the first quarter were $4.25 billion, up 7% organically year over year. Bottom line performance continues to be a key focus, and it shows. Adjusted EBITDA was $601 million for the quarter, up 23% year-over-year, and adjusted EBITDA margin increased 190 basis points to 14.2%. non-GAAP net income was $391 million and non-GAAP diluted EPS was $2.97, up 25% and 30% respectively. Turning to the segment drivers on slide eight, National Security and Digital Revenues increased 5% year over year. We're seeing traction on the new contract awards from the second half of 2024, as well as additional tasking on some of our franchise programs. non-GAAP operating income margin of 10.1% was in line with the prior year.

Speaker Change: With that let's dive into the details starting with the income statement on slide seven.

Speaker Change: Revenues for the first quarter were 425 billion up 7% organically year over year.

Speaker Change: Bottom line performance continues to be a key focus and it shows adjusted EBITDA was $601 million for the quarter up 23% year over year and adjusted EBITDA margin increased 190 basis points to 14, 2%.

Speaker Change: non-GAAP net income was 391 million and non-GAAP diluted EPS was $2 97.

Speaker Change: 25% and 30% respectively.

Speaker Change: Turning to the segment drivers on slide eight National security and digital revenues increased 5% year over year, we're seeing traction on the new contract awards from the second half of 2024 as well as additional tasking on some of our franchise programs.

Speaker Change: non-GAAP operating income margin of 10, 1% was in line with the prior year quarter.

Chris Cage: Health and civil revenues increased 8% year-over-year and non-GAAP operating income margin was 23.6%. Continued strong demand in our managed health business, one of the five growth pillars in our North Star 2030 strategy, drove the bulk of the revenue and income growth, though the entire portfolio performed ahead of plan. Commercial and international revenues increased 12% year-over-year from robust deliveries in SES, continued strong performance in commercial energy, and increased volumes within the UK business, including reaching a critical milestone on one of the challenge programs from last year. non-GAAP operating margins were 8.5 percent, up 20 basis points year-over-year.

Speaker Change: Health and civil revenues increased 8% year over year and non-GAAP operating income margin was 23, 6%.

Speaker Change: Continued strong demand in our managed health business one of the five growth pillars, and our Northstar 2030 strategy.

Speaker Change: Drove the bulk of the revenue and income growth. So the entire portfolio performed ahead of plan.

Speaker Change: Commercial international revenues increased 12% year over year from robust deliveries in SCS continued strong performance in commercial energy and increased volumes within the UK business, including reaching a critical milestone on one of the challenge programs from last year non.

Speaker Change: non-GAAP operating margins were eight 5% up 20 basis points year over year.

Chris Cage: Finally, defense systems revenues increased 7% over the prior quarter, driven by increased activity in our space sensing and hypersonic programs. non-GAAP operating margins of 9.1% expanded by 110 basis points year-over-year from excellent program execution. This portfolio is buzzing with opportunity from a rapidly maturing portfolio of innovative solutions. And in keeping with that outlook, Defense Systems delivered its third straight quarter with a book-to-bill above one.

Speaker Change: Finally defense systems revenues increased 7% over the prior year quarter, driven by increased activity in our space sensing and hypersonic programs now.

Speaker Change: non-GAAP operating margins of nine 1% expanded by 110 basis points year over year from excellent program execution.

Speaker Change: This portfolio is buzzing with opportunity from a rapidly maturing portfolio of innovative solutions and in keeping with that outlook defense systems delivered its third straight quarter with a book to bill above one.

Chris Cage: Now on to cash flow and the balance sheet on slide 9. In the quarter, we generated $58 million of cash flows from operating activities and $36 million of free cash flow. DSO for the quarter was 62 days, unchanged from a year ago, despite modest customer delays from the administration. Let me provide a little context around cash performance. The first quarter of 2025 included an extra week of payroll, which hasn't happened since 2019. Also, we made a minor change in our cash accounting treatment effective this quarter. We now exclude outstanding payments from cash and cash equivalents on the balance sheet and statement of cash.

Speaker Change: Now on to cash flow and the balance sheet on slide nine.

Speaker Change: In the quarter, we generated $58 million of cash flows from operating activities and $36 million of free cash flow.

Speaker Change: DSO for the quarter was 62 days unchanged from a year ago, despite modest customer delays from the administration transition.

Speaker Change: Let me provide a little context around cash performance.

Speaker Change: The first quarter of 2025 included an extra week of payroll, which hasn't happened since 2019.

Speaker Change: Also we made a minor change in our cash accounting treatment effective this quarter, we now exclude outstanding payments from cash and cash equivalents on the balance sheet and statement of cash flows.

Chris Cage: This presentation is more aligned to industry practice and will enhance the predictability of our cash flow with no change to DSO or the income. The new policy had an immaterial impact to cash flow for the quarter and today's press release has recast 2024 financials for this change.

Speaker Change: This presentation is more aligned to industry practice and will enhance the predictability of our cash flow with no change to DSO or the income statement.

Speaker Change: The new policy had an immaterial impact to cash flow for the quarter and today's press release has recast 2020 for financials for this change.

Chris Cage: To start this year we made a series of three coordinated moves to solidify our balance sheet and allocate capital aggressively with conviction in our strategy. First, we issued 500 million of seven-year notes and 500 million of 10-year notes with fixed rates of 5.4 and 5.5 percent respectively. using the proceeds to repay the $500 million bond due in May. Second, we took advantage of the persistent market dislocation and executed a $500 million accelerated share repurchase agreement. And third, we targeted and signed a definitive agreement to acquire a fantastic company to strengthen our cyber golden vote in our digital modernization and cyber growth.

Speaker Change: To start this year, we made a series of three coordinated moves to solidify our balance sheet and allocate capital aggressively with conviction in our strategy.

Speaker Change: First we issued $500 million of seven year notes and $500 million of 10 year notes with fixed rates of five four and five 5% respectively.

Speaker Change: Using the proceeds to repay the $500 million bond due in may.

Speaker Change: Second we took advantage of the persistent market dislocation and executed a $500 million accelerated share repurchase agreement.

Speaker Change: And third we targeted and signed a definitive agreement to acquire a fantastic company to strengthen our cyber cyber Golden boats.

Speaker Change: In our digital modernization cyber growth pillar.

Chris Cage: While the additional debt and higher interest rates add about $30 million of interest expenses. The share repurchase, impending accretive acquisition, more than offset the earnings impact and significantly enhance our financial and strategic position for the future. We ended the quarter with $5.1 billion of debt for a gross leverage ratio of 2.3 times. We also had $842 million in cash and cash equivalents at quarter end. Though we still have ample capacity for additional capital deployment, given the current environment, we feel comfortable holding cash in the short term. As we get more clarity through the coming quarters, we expect to further allocate capital, potentially paying down some of our term loans, repurchasing additional shares, or completing additional accretive bolt-on acquisitions to generate long-term shareholder value.

Speaker Change: While the additional debt and higher interest rates at about $30 million of interest expense. This year, the share repurchase and pending accretive acquisition more than offset the earnings impact and significantly enhance our financial and strategic position for the future.

Speaker Change: We ended the quarter with $5 1 billion of debt for a gross leverage ratio of two three times. We also had $842 million in cash and cash equivalents at quarter end.

Speaker Change: But we still have ample capacity for additional capital deployment given the current environment, we feel comfortable holding cash in the short term as we get more clarity through the coming quarters, we expect to further allocate capital potentially paying down some of our term loans repurchasing additional shares or completing additional accrue.

Speaker Change: Bolt on acquisitions.

Speaker Change: Generate long term shareholder value.

Chris Cage: Moving to the Forward Outlook on slide 10. Tom and I are confident in the enduring missions we serve for our customers. Most of what we do is essential to the customers their constituencies and the nation. No legislator wants to see the sensitive systems vulnerable to hackers or veterans unable to receive their benefits. For example, Our exceptional Q1 performance de-risked the potential unknowns in this volatile environment, so we are reaffirming our initial guidance of revenue between $16.9 to $17.3 billion, adjusted EBITDA guidance in the mid to high 12% range. non-GAAP diluted EPS between $10.35 and $10.75.

Speaker Change: Moving to the Florida outlook on slide 10.

Speaker Change: Tom and I are confident in the enduring missions, we serve for our customers most of what we do is essential to the customers.

Speaker Change: Their constituencies and the nation.

Speaker Change: No legislator wants to see the sensitive systems and vulnerable to hackers or veterans unable to receive their benefits for example.

Speaker Change: Our exceptional Q1 performance de risk the potential unknowns in this volatile environment. So we are reaffirming our initial guidance of revenue between 16, 9% to $17 3 billion.

Speaker Change: Adjusted EBITDA guidance in the mid to high 12% range non-GAAP diluted EPS between $10 35, and $10 75.

Chris Cage: and operating cash flow of approximately $1.45 billion for the year. This guidance does not include the pending cyber acquisition, although we expect the partial year revenue and EPS contribution to be relatively immaterial to 2025 financial. Consistent with our Promises Made, Promises Kept ethos, we take our guidance very seriously. This quarter, we took a clean sheet view of the risks and opportunities in our plan. We believe that our ranges accurately reflect the current realities and contain the perceivable outcomes. Relating to the top line, what we have seen so far has confirmed our belief that the year would begin with relatively soft bookings, as is typical with any change in administration.

Speaker Change: And operating cash flow of approximately 1.45 billion for the year.

Speaker Change: This guidance does not include the pending cyber acquisition, although we expect the partial year revenue and EPS contribution to be relatively immaterial to 2025 financials.

Speaker Change: Consistent with our promises made promises kept ethos, we take our guidance very seriously. This quarter, we took a clean sheet view of the risks and opportunities in our plan. We believe that our ranges accurately reflect the current realities and can say and contain the foreseeable outcomes.

Speaker Change: Relating to the top line, while we have seen so far has confirmed our belief that the year would begin with relatively soft bookings as is typical with any change in administration in the first quarter, we generated $2 1 billion of net bookings to end with a total backlog of $46 3 billion, our strong finish to two.

Chris Cage: In the first quarter, we generated $2.1 billion of net bookings to end with a total backlog of $46.3 billion. Our strong finish to 2024 sustains a solid $1.3 book-to-bill on a trailing 12-month basis. You'll note that our backlog is up about $3 billion from what we reported last quarter. At the beginning of the year, we adjusted our backlog policy to include the expected value of single award IDAQs. We believe this approach provides enhanced visibility for investors and more accurately captures the health of the business. Absent the change, this quarter's bookings would have increased. You can find the recast quarterly bookings in backlog for 2024 in our press.

Speaker Change: 24, sustains a solid one three book to Bill on a trailing 12 month basis.

Speaker Change: You'll note that our backlog is up about $3 billion from what we reported last quarter at.

Speaker Change: At the beginning of the year, we adjusted our backlog policy to include the expected value of single Award <unk>. We believe this approach provides enhanced visibility for investors and more accurately captures the health of the business.

Speaker Change: Absent that change this quarter's bookings would have increased slightly.

Speaker Change: You can find the recast quarterly bookings in backlog for 2024 in our press release.

Chris Cage: With a robust opportunity pipeline of $226 billion, including $25 billion in proposals submitted and awaiting adjudication, we remain confident in our awards prospects for the back half of the year. But history suggests those wins will be more impactful to 2026 revenue than 2025. The midpoint of our revenue guidance implies $120 million of growth above our Q1 run rate, which is prudent based on current conditions. And as we look beyond this exciting pivot year for Leidos, we're confident in our North Star 2030 path ahead.

Speaker Change: With a robust opportunity pipeline of $226 billion, including 25 billion proposals submitted and awaiting adjudication, we remain confident in our awards prospects for the back half of the year.

Speaker Change: But history suggests those wins will be more impactful to 2026 revenue in 2025.

Speaker Change: The midpoint of our revenue guidance implies a $120 million of growth above our Q1 run rate.

Speaker Change: Is prudent based on current conditions and as we look beyond this exciting pivot year for lighters, we're confident in our Northstar 2030 path ahead with that operator, we're ready to take questions.

Unknown Executive: With that, operator, we're ready to take questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star 1 1 on your touch phone phone. If you are using a speaker phone, please pick up your handset before pressing star 1 1. For your questions, simply press star 119.

Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press star one on your touch on it.

Speaker Change: Using a speakerphone please pick up your handset before pressing.

Speaker Change: To withdraw your question simply press Star one again.

Unknown Executive: We ask that you please commit yourself to one question before getting back. At this time, we will pause momentarily...

Speaker Change: We ask that you please limit yourself to one question before getting back into the queue.

Speaker Change: We will pause momentarily to assemble Boston.

Peter Arment: And our first question coming from the line of Peter Arment with Baird, Yolanda Snow. Yeah, thanks. Good morning, Tom, Chris. Nice results.

Speaker Change: And our first question is coming from the line of Peter Arment with Baird. Your line is now.

Peter Arment: Yes, Thanks, Good morning, Tom Chris Nice results.

Tom Bell: Hey, I guess one, Tom, on, you know, some of your larger contracts like NGEN and just thinking under like the current contracting environment, we've seen some of the Navy leadership kind of canceling some of your peer software contracts and just wondering how things are going on that contract, kind of the expected run rate. And then if, Chris, you could just thanks for giving us the details on the backlog and what the changes were, but just the health and civil segment was the only one that saw a decline. And just maybe if you could just give us a little call around that.

Hey.

Speaker Change: I guess one.

Speaker Change: Tom.

Speaker Change: Some of your larger contracts like Amgen, just thinking under the current contracting environment. We've seen some of the Navy leadership kind of canceling some of your peers software contracts I'm. Just wondering how things are going on that on that contract kind of the expected run rate and then if Chris you could just thanks for giving us the details on the backlog and what the change.

Speaker Change: We're but just the health and civil segment was the only one that saw a decline in just maybe if you could just give us a little color around that thanks.

Chris Cage: Thanks. Yeah, so first on the macro actions this administration is taking, yes, there's been some impact to our top line revenue in 2025, but I would define it as negligible, Peter. The impact on our revenue is certainly in the very, very, very low 1% range. And so we understand what's happening. And at the same time, we're seeing the administration lean into some opportunities. You might remember on the last call, I talked about the opportunity that DISA has with Defense Enclave Services. And we're actually seeing great traction in the DoD for the fourth estate in looking to turn on additional acquisitions and additional modernizations of our IT infrastructure throughout the DoD.

Speaker Change: Yeah. So first on the macro actions. This administration is taking yes, there has been some impact to our <unk>.

Peter Arment: Top line revenue in 2025, but I would I would define it as negligible Peter.

Peter Arment: The impact on our revenue is certainly in the very very very low 1% range and so.

Peter Arment: We understand what's happening and at the same time, we're seeing the administration lean into some opportunities you might remember on last call I talked about the opportunity.

Peter Arment: That DISA has with the defense enclave services and were actually seeing great traction in the Dod for the fourth estate in looking to turn on additional acquisitions and additional modernization of our it infrastructure throughout the Dod so a little bit of what I would call puts and takes.

Tom Bell: So a little bit of what I would call puts and takes. Certainly, there are some minor takes, but there is more opportunity coming our way.

Peter Arment: Certainly there are some minor takes but there is more opportunity coming our way and those are the opportunities. We're excited to be leaning into yes, Peter and I'll just add.

Tom Bell: And those are the opportunities we're excited to be leaning into.

Chris Cage: Yeah, Peter, and I'll just add, you know, we've been contemplating this backlog change for some time. The team did some good work last year to lay the groundwork. And we do think it enhances your visibility into, you know, our book of business and our future revenue stream. And so we put those single award values into backlog. As it relates to health and civil, you know, they recently just won, as you know, the big VBA recompete that went in last year. There's not a lot of large single award IDAQs in that business area, so they didn't benefit from any adjustment there.

Peter Arment: We've been contemplating this backlog change for some time the team did some good work last year to lay the groundwork and we do think it enhances your visibility into.

Peter Arment: Our book of business and our future revenue stream.

Peter Arment: And so we put those single award values into backlog as it relates to health and civil.

Peter Arment: You know they recently just one as you know the big BVA Recompete that went in last year Theres not a lot of large single award idea choose in that business area. So they didnt benefit from any adjustment there and when we look ahead you know they've got a couple of large things pending this year the follow on to the MHS Genesis still something we feel very good.

Chris Cage: And we look ahead, you know, they've got a couple large things pending this year. The follow-on to the MHS Genesis, still something we feel very good about. The customer's intent to drive that our way on a sole source basis, you know, that should be a future booking. And then we've got a Reserve Health Readiness Program follow-on too. So there are some big needle movers out there, but they're well funded and have ample capacity as it relates to supporting their trajectory. And you see the great start to the year they got off to.

Peter Arment: The customers' intent to drive that our way on a sole source basis that should be a future booking and then.

Peter Arment: We've got a reserve health readiness program follow on two so there are some some big needle movers out there, but they are well funded and have ample capacity as it relates to supporting their trajectory and you see the great start to the year they've got off to.

Unknown Executive: Appreciate the call. Thanks, guys. Thank you.

Speaker Change: I appreciate the color. Thanks, guys. Thank you.

David Strauss: Our next question, coming from the line of David Strauss with Barclays, your line is now open. Hi, good morning. Thanks for taking the question.

Speaker Change: Thank you and our next question coming from the line of David Strauss with Barclays. Your line is now open.

Speaker Change: Hi, Good morning, Thanks for taking the question. This is Josh <unk> on for David today.

Joshua Korn: This is Josh Korn on for David today. So I wanted to ask specifically about the GSA request that was out about a month or two ago, you know, regarding potential contract kind of offerings. I wanted to ask if you were asked to make any proposals, and if so, what sorts of things that you offered then? Sure, Josh. Yes, we were excited to lean into the opportunity to engage the GSA on an active conversation about how we could help them and their charge to make the government smarter and more efficient. And so we actively engaged in both rounds, you might have heard about two letters and two back and forths between the GSA and we.

Speaker Change: Hi wanted to ask specifically about the GSA request that was out.

Speaker Change: About a month or two ago.

Speaker Change: Regarding a potential contract.

Speaker Change: Alrighty I wanted to ask if you were asked to make any proposal and if so what sorts of things that you offered.

Speaker Change: Sure Josh Yes, we were excited to lean into the opportunity to engage the GSA on an active conversation about how we could help them and their charge to make the government smarter and more efficient and so we actively engaged in both round you might have heard about.

Speaker Change: Two letters and two back and forth between the GSA and we that's been supplemented with.

Tom Bell: That's been supplemented with face to face meetings and an active e-dialogue in the margins. So I feel very good about the relationship we're building with the GSA. Josh and Stephen are very are very passionate about their role in helping make this government smarter and more efficient. And I believe we're positioning ourselves to be part of the solution, not the problem in so doing. One of the things that we've taken a little bit of issue with is the fact that while we've been lumped into a consulting review, we've never used those words back to the GSA.

Speaker Change: Face to face meetings.

Speaker Change: And and active.

Speaker Change: E dialog in the margins so I feel very good about the relationship we're building with the GSA.

Speaker Change: Josh and Stephen are very.

Speaker Change: <unk>.

Speaker Change: Im very passionate about their role in helping make this government smarter and more efficient and I believe we are positioning ourselves to be part of the solution not the problem in so doing.

Speaker Change: One of the things that we've taken a little bit of issue with is the fact that.

Speaker Change: While we've been lumped into a consulting review, we've never used those words back to the GSA less than 1% of our revenue could generously be considered consulting revenue and.

Tom Bell: Less than 1% of our revenue could generously be considered consulting revenue. And so all of what we do is mission-critical work that is key to our customers' outcomes, the customers of the GSA, if you will. And so what we've been doing is leaning into the GSA and saying, here's how we can make your customers the active agencies that used our products and solutions. better, faster, cheaper by doing smarter things with technology, aggregating contracts, getting to commercial outcome terms, and looking for more efficient ways to deliver services. So net-net, we're in the early innings of this ballgame, but we're leaning in, and we believe Josh, Steven, and the GSA team are leaning in also.

Speaker Change: So.

Speaker Change: All of what we do is mission critical work that is key to our customers' outcomes.

Speaker Change: The customers of the GSA, if you will and so what we've been doing is leaning into the GSA and saying here's how we can make your customers the active agencies that used our products and solutions.

Speaker Change: Better faster cheaper by doing smart things with technology aggregating contracts.

Speaker Change: Getting to commercial outcome terms and looking for more efficient ways to deliver services. So net net we're in we're in the early innings of this of this ball game, but we're leaning in and we believe Josh Stephen in the GSA team are are leaning in also.

Unknown Executive: Thanks. Great. Thank you.

Speaker Change: Thanks.

Unknown Executive: I'll stick to one.

Speaker Change: Great. Thank you I'll stick to one.

Speaker Change: Yes.

Speaker Change: Thank you.

Sheila Kahyaoglu: Our next question coming from the line of Sheila Kahyaoglu with Jeffrey C. Alanis-Malcolm. Thank you and good morning, guys. Great quarter.

Speaker Change: And our next question coming from the line of Sheila <unk>.

Speaker Change: With Jefferies. Your line is now open.

Speaker Change: Thank you and good morning, guys great quarter.

Tom Bell: Maybe if we could talk about, again, focusing on health and civil and diving into the budget a little bit more. The skinny budget included funding accelerating for, you know, the VA's EHR modernization work where Leidos is a sub to Oracle. You know, how are you thinking about the opportunity there, just given the news we've had on VA for the last year or so, and just the longer term opportunity for Leidos and given the dim sum success? Yeah, thanks for that, Sheila. Yes, as you will note, in our North Star 2030 growth pillars, managed health care and managed health services is one of our growth pillars.

Speaker Change: Maybe if we could talk about again, focusing on health and stable.

Speaker Change: Diving into the budget, a little bit more of the skinny budget included funding accelerating.

Speaker Change: Four.

Speaker Change: The VA PHR modernization work later.

Speaker Change: Oh.

Speaker Change: How are you thinking about the opportunity there just given the municipal.

Speaker Change: <unk> for the last year or so.

Speaker Change: And just the longer term opportunity for light and.

Speaker Change: Given them some success.

Speaker Change: Yes, thanks for that Sheila yes.

Speaker Change: You will note in our Northstar 2030 growth pillars manner.

Speaker Change: Managed health care and manage health services is one of our growth pillars, and that's because everything we knew would happen with demographics last year as we were undertaking our euro deep strategic thinking and every action and comment by this administration has reinforced our view that better.

Tom Bell: And that's because everything we knew would happen with demographics last year, as we were undertaking our year of deep strategic thinking, and every action and comment by this administration has reinforced our view that better choices, faster choices for veteran services will be a key part of the next years for our nation. So we're leaning into our health business. We're expecting to grow it over the next five years. And the early indications, the volumes coming through the VBA, the volumes of veterans coming through our clinics and having health benefits exams is actually raising and going up and continuing to go at pace.

Speaker Change: This is faster choices for veteran services will be a key part of the next years.

Speaker Change: For our nation. So we're leaning into our our health business, we are expecting to grow it over the next five years.

Speaker Change: And the early indications are the <unk>.

Speaker Change: <unk> coming through the BBA the volumes of veterans coming through our clinics and having health benefits exams is actually raising and going up and continuing to grow at pace. So we are we are very optimistic we are bullish about the business. We are bullish about our opportunity to use.

Chris Cage: So we are very optimistic. We're bullish about the business. We're bullish about our opportunity to use the core capabilities we have and pivot into more services for more customers.

Speaker Change: The core capabilities, we have and pivot into more services for more customers and we.

Chris Cage: And we expect to be talking a lot about growing our health care business over the coming years. Sheila, I'd just add that we've had a long successful partnership with Oracle, of course, on the military health side. And our best proof point is to continue to deliver excellence on that program. And as Tom mentioned, we're a great partner into the VA. You would imagine over time, there's opportunities for us to Spend our offerings into the EHR role out there too, but that is something not directly within our control. But again, at some point in time, you would imagine as they integrate further, we could help them in a more meaningful way.

We expect to be talking a lot about growing our health care business over the coming over the coming years, Sheila I would just add that we've had a long successful partnership with Oracle of course on the military health side and our best proof point is to continue to deliver excellence on that program and as Tom mentioned, we're a great partner into the VA.

Speaker Change: You would imagine over time, there's opportunities for us to.

Speaker Change: Expand our.

Speaker Change: Our offerings into the EHR rollout there too but that is something that's not directly within our control, but again it at some point in time, you would imagine as they integrate further.

Speaker Change: We can help them in a more meaningful way so we'll continue to position for that.

Chris Cage: So we'll continue to position for that.

Chris Cage: Just to follow up quickly on that point, Chris, so are the margins in Q1 reflective of the full year performance? Is that how we should think about it? Well, the margins in Q1 were excellent. We're super pleased with how we got out of the gates as a company. And as it relates to Tom's comment on the managed health services business, you know, the dialogue with the VA on that side is we need to sustain and increase the level of activity going on. We want to, you know, continue to work off the backlog. We want to treat the veterans.

Speaker Change: Yes, just to follow up quickly on that point.

Speaker Change: Are the margins in Q1 reflective of the full year performance is that how we should think about it.

Speaker Change: Well the margins in Q1 were excellent we're super pleased with how we got out of the gates as a company and as it relates to Tom comment on the managed services business you know the dialogue with the VA on that side as we we need to sustain and increase the level of activity going on we want to continue to work off the backlog we want to.

Unknown Executive: So we're well funded. We're well positioned. We're thinking about the future, but delivering in the present for that business. And so, you know, I think that we're very capable of delivering at that run rate going forward, certainly. Thank you.

Speaker Change: The veteran so we're well funded and we're well positioned we're thinking about the future, but delivering in the present for that business and so I think that we're very capable of delivering at that run rate going forward certainly.

Speaker Change: Thank you.

Speaker Change: Thank you.

Colin Canfield: Next question coming from the line of Colin Canfield with Kemp's office, Gerald, the line is now open. Okay, thanks for the question.

Speaker Change: Our next question coming from the line of.

Speaker Change: Colin Canfield with Cantor Fitzgerald. Your line is now open.

Speaker Change: Okay. Thanks for the question.

Tom Bell: Maybe talking through the takeaways from the Supplemental Defense Bill, what are your understanding in terms of that being more FY25 or longer dated money? And then maybe talk through the opportunities that you see at the segment level, specifically missile defense as well as the maritime domain. Sure. The bill that is currently working its way through Congress, the Reconciliation Bill, represents tremendous upside for our customers and for Leidos. FAA modernization is a net-net winner in the Reconciliation Bill, and we expect to be a major part of helping the Department of Transportation and the FAA be a solution for the challenges of our nation's infrastructure when it comes to air traffic control.

Speaker Change: Maybe talk you through the takeaways from the supplemental defense still what are your understanding in terms of that being more FY 'twenty five or a walgreens aided money and then maybe talk to the opportunities that you see at the cellular level.

Speaker Change: Typically in missile defense as well as the maritime domain.

Speaker Change: Sure.

Speaker Change: The the Bill that is currently working its way through Congress the reconciliation Bill.

Speaker Change: Represents tremendous upside for our customers and for for light us FAA modernization as is.

Speaker Change: As a net net winner in in the reconciliation Bill and we expect to be a major part of helping.

Speaker Change: The department of transportation and the FAA be a solution for the challenges of our nations infrastructure. When it comes to air traffic control border Security is is also an area that.

Tom Bell: Border security is also an area that is getting a lot of attention in the Reconciliation Bill and the skinny budget that's been published for FY26. So again, we have an active dialogue going on with the Department of Homeland Security around how, with technology and the deployment of products we have at our ready today. We can help secure the border even more. There is a tremendous amount of energy building around Golden Dome, as I said in my prepared remarks. And frankly, while we talked about the space layer and the underlayer, there are a myriad of programs and solutions, technology solutions we have in our defense business that can plug into the various architecture that will be required to secure the continent of the United States.

Speaker Change: Is getting.

Speaker Change: A lot of attention in the reconciliation bill and the Skinny budget, that's been published for FY 'twenty six so again.

Speaker Change: We have an active dialogue going on with the department of Homeland security around.

Speaker Change: Now with technology and the deployment of.

Speaker Change: Products, we have at already today, we can help secure the border even more there is a tremendous amount of energy building around Golden Dome as I said in my prepared remarks, and frankly, while we talked about the space layer and the Underlayer there are.

Speaker Change: A myriad of programs and solutions technology solutions, we have in our defense business that can plug into the various aspects of the Golden dome architecture that will be required to secure the continental United States. So net net Colin again reconciliation the skinny budget of.

Tom Bell: So net-net, Colin, again, reconciliation, the skinny budget of FY26 points very squarely in the attention of our five growth pillars and gives us great confidence that when we picked these five growth pillars and we these subsets of the pillars, we were picking the right bets for us to pivot to, to find new revenue growth in 2026 and beyond. So very, very optimistic about the early signs we're seeing.

Speaker Change: FY 'twenty six.

Speaker Change: It's very squarely in the attention of our five growth pillars and gives us great confidence that when we pick these five growth pillars and we pick these subsets of the pillars, we were picking the right bets for us to pivot to to find new revenue growth in <unk>.

Speaker Change: <unk> 26, and beyond so very very optimistic about the early signs, we're seeing and the only thing I'd add call I mean, Tom mentioned on a number of things Didnt, even mention maritime which is another area of the team's very excited about and we're seeing you know customer demand signal for a couple of our unmanned capabilities at record levels. So the team is actively working.

Chris Cage: And the only thing I'd add, Colin, I mean, Tom mentioned a number of things, didn't even mention maritime, which is another area the team's very excited about. And we're seeing, you know, customer demand signal for a couple of our unmanned capabilities at record levels. So the team is actively working opportunities there for medium unmanned undersea vessel for our small vessel as well. So we're excited about seeing those things accelerate as we get into the back half of this year. Thanks. I'll keep you to one.

Speaker Change: The opportunities there for the medium unmanned undersea vessel for our small.

Speaker Change: Vessel as well so we're excited about seeing those things accelerate as we get into the back half of this year.

Speaker Change: Thanks, I'll keep it to one.

Speaker Change: Thank you.

Mariana Peres-Mora: Our next question coming from the line of Mariana Peres-Mora with Bank of America. Your line is now open. Thank you. Good morning, everyone.

Speaker Change: Next question coming from the line of Mariana Perez Mora with Bank of America. Your line is now open.

Speaker Change: Thank you good morning, everyone.

Speaker Change: Hi.

Tom Bell: So when you think about these opportunities, but also the risk of actually having a long continual resolution into fiscal year 26, are any of these opportunities limited by actually the lack of funding, how you think about that? And on the other side, is there any way you could benefit from this administration or the agencies that are actually extending some programs that were supposed to mature or be recompeted within the next like 12 to? 24 months and are actually extended by five years to good performers. Like, do you have any any programs like that?

Speaker Change: So when you think about these opportunities, but also the risk of actually having a continuing resolution it long continuing resolution into fiscal year 'twenty six.

Speaker Change: Our dad.

Speaker Change: Are these any.

Speaker Change: Any of these opportunities are limited by Anthony the lack of funding how you think about that and on the other side is there any way you could benefit from <unk>.

Speaker Change: Ministration are the agencies that are actually extending some programs that were supposed to mature RMB recompete. It within the next 12 to.

Speaker Change: 24 months and are actually extended by five years to get performers like do you have any any programs like that.

Tom Bell: Well, thank you, Mariana. Yes, is the answer to your question. We think we are in a relatively good position to have programs that are continuing from programs that are already in execution mode. So we're not looking for new program starts or new technology investments. These are franchises that we've invested in over the past five years and are now up and running. I mentioned, for instance, IFPIC and the Underlayer. That is a program of record within the U.S. Army, and so the DOD can continue to exercise options for additional units as opposed to a new start program.

Speaker Change: Thank you Marianna, yes is the answer to your question.

Speaker Change: We think we are in a relatively good position to have programs that are continuing from programs that are already in execution mode. So we're not looking for new program starts or new technology investments. These are franchises that we've invested in over the past five years and are now up and running.

Speaker Change: I mentioned for instance, if pik and the Underlayer.

Speaker Change: That is a program of record within the U S Army and so.

Speaker Change: The D O D can continue to exercise options for additional units as opposed to a new start program we think.

Unknown Executive: We think the investment we've made in our defense business, in our other businesses, in the programs of records we have, gives us a tremendous opportunity for customers to hit the easy button and extend them and continue to build on them as opposed to requiring a new start program under a continuing resolution, which, as your question suggests, is more difficult. Thanks. Thank you.

Speaker Change: The investment we've made in our defense business and our other businesses in the programs of records. We have gives us a tremendous opportunity for customers to hit the easy button and extend them and continue to build on them as opposed to requiring a new start program under a continuing resolution, which.

Speaker Change: As you as your question suggests is more difficult.

Speaker Change: Thanks.

Speaker Change: Thank you.

Speaker Change: Thank you.

Jason Gursky: Our next question coming from the line of Jason Gursky with City, your line is now open. Hey, good morning, everybody. Hi, Jason.

Speaker Change: And our next question coming from the line of Jason Gursky with Citi. Your line is now open.

Speaker Change: Hey, good morning, everybody Hi, Jason.

Tom Bell: I'm wondering if you could spend a few more minutes on the situation with the FAA here in the U.S. and air traffic control and the system that we have here in the United States, maybe talk a little bit about, from your view, what's broken and what it's going to take To get this fixed, you know, quantum of money that might need to get spent, how much time it's going to take, and what kinds of capabilities and skill sets are going to be needed to fix this problem. Thanks, Jason. Yes. So I mentioned in my comments that this administration has been very open to meeting with industry and engaging in conversations about what solutions look like.

Speaker Change: Tom I Wonder if you could spend a few more minutes on.

Speaker Change: The situation with the FAA.

Speaker Change: Here in the U S.

Speaker Change: Air traffic control in the system that we.

Speaker Change: We have here in the United States, maybe talk a little bit about from your view what's broken.

Speaker Change: And what it's going to take.

Speaker Change: To get this fixed.

Speaker Change: Quantum of money that might need to get spent.

Speaker Change: Much time, it's going to take in.

Speaker Change: Kinds of capabilities and skill sets are going to be needed to fix this problem.

Jason: Thanks, Jason Yes, so I mentioned in my comments that.

Jason: This administration has been very open to meeting with industry and an engaging in conversations about what solutions look like.

Tom Bell: The Department of Transportation and the FAA are part of that. And so I'm very pleased to say that we've had high-level engagements with those entities, and we've discussed very clearly the challenges and opportunities we see to modernize the air traffic control system in the United States and make it the envy of the world, which is, as President Trump has suggested, is his goal. The Department of Transportation is keen to do that within this presidential term, and we are, again, very well positioned with about 10, 12 programs that we do for the FAA now that are both systems that manage air traffic over the oceans, systems that manage air traffic over land, systems that manage air traffic when it's on the ground.

Jason: Marvin the transportation and the FAA are part of that and so I'm very pleased to say that we've had high level of engagements with those entities and we've discussed very clearly the challenges and opportunities we see to modernize the.

Jason: Air traffic control system in the United States and make it the.

Jason: The envy of the World, which is president Trump has suggested this his goal.

Jason: The department of transportation is keen to do that within this presidential term.

Jason: And we are again very well positioned with about 10 12 programs that we do for the FAA now.

Jason: That are both systems that manage air traffic over the oceans missions that.

Jason: Systems that manage air traffic overland CIS.

Jason: Systems that manage air traffic when it's on the ground and the terminals that the air traffic controllers you. So so we are positioned.

Tom Bell: And the terminals that the air traffic controllers use. So we are positioned throughout the lifecycle and throughout the mission of air traffic control, both in the United States and globally. We're a key technology provider for NATS in the UK, which is a very successful countrywide air traffic control system. And we also deploy elements of this system globally for something called Skyline, which is in service in multiple countries around the world. So we feel like we're in a great position. Obviously, Congress and the White House are also poised to fund this. That is the first thing you need.

Jason: Positioned throughout the lifecycle.

Jason: The mission of air traffic control, both in the United States and globally, we're a key technology provider for Knott's in the UK, which is a very successful.

Jason: Countrywide Air traffic control system, and we also deploy.

Jason: Elements of this system globally for something called Skyline, which is in service and the.

Jason: Multiple countries around the world. So we feel like we're in a great position.

Jason: Obviously Congress and the White House are also poised to <unk>.

Unknown Executive: You need determination that you want to do it. And the second thing is you need funding to do it. I'll leave the quantum of that up to the administration. But suffice to say, as the country puts their system together and their thoughts together about what the future system looks like, I'm very, very sure Leidos is going to be a part of that solution, both in pieces and overarching architecture. Thanks Jason. Thank you.

Jason: <unk>. This that is the first thing you need you need determination that you want to do it and the second thing is you need funding to do it I'll leave the quantum of that up to the administration, but suffice to say as the country puts their sis.

Jason: System together and their thoughts together about what the future system looks like I am very very sure light OS is going to be a part of that solution both in pieces and over our overarching architecture.

Jason: Thanks, Jason.

Jason: Okay. Thank you.

Jason: Thank you.

Tyler Beruchon: Our next question coming from the lineup, Tobey Sommer with Truist, you're on your phone. Good morning, this is Tyler Beruchon for Tobey. Back to that quarters of 12% growth in the commercial and international segment. Can you discuss some of the drivers of this and maybe the sustainability of this going forward? Thank you. Yeah, thanks, Tyler. And no, it's something we're really excited to see from the team. They've been working very hard towards that goal. And, you know, there's a number of things that are going well in that portfolio.

Speaker Change: Our next question coming from the line of Tobey Sommer with tourists. Your line is now open.

Tyler Bearish: Good morning, This is Tyler bearish on for Tobey.

Speaker Change: Strong.

Speaker Change: Back to that quarters at 12% growth in the commercial and international segment could you just discuss some of the drivers of this and maybe the sustainability of this going forward. Thank you.

Tyler Bearish: Yeah. Thanks Tyler.

Speaker Change: No. It's it's.

Speaker Change: Something we're really excited to see from the team they've been working very hard.

Speaker Change: Towards that goal and Theres, a number of things that are going well in that portfolio I mentioned in the remarks earlier that.

Chris Cage: I mentioned in the remarks earlier that on the UK side, the team was able to recover from some challenges we encountered last year and get a critical program on the right track, achieve a key milestone that provided some uplift on growth and profitability. We have been working, of course, on the security solution side for, you know, the last couple of years to get that business poised for a successful future. A lot of gains have been made there. And as Tom trailed earlier, we're really excited about the opportunities in the ports and borders space. But, you know, core service and maintenance uplift in the portfolio have driven some growth there.

Speaker Change: On the UK side, the team was able to recover some from some challenges we encountered last year and get a critical program on the right track achieve a key milestone that provided some uplift on growth and profitability.

Speaker Change: We have been working of course on the security solution side for the last couple of years to get that business poised for a successful future a lot of gains have been made there and as Tom trailed earlier, we're really excited about the opportunities in the ports and borders space, but core service in May.

Speaker Change: <unk> uplift in the portfolio have driven some growth there and then finally one.

Tom Bell: And then finally, you know, one of our key growth pillars in energy is in that portfolio. That has been a strong grower now for multiple years. It continues that pace. So those are the elements that we're seeing, you know, taking off. And, you know, the future continues to have more prospects internationally for things like AUKUS and other uplift. But the team has made great progress, and we're excited to see that momentum. Yeah, the second straight quarter of double-digit growth is wonderful, but it's only a down payment on what we expect from this sector and the segment going forward.

Speaker Change: One of our key growth pillars and commercial energy.

Speaker Change: Is in that portfolio that has been a strong grower now for multiple years that continues at pace.

Speaker Change: So those are the elements that we're seeing you know taking off in the future continues to have more prospects internationally for things like office and other uplift but.

Speaker Change: The team has made great progress and we're excited to see that momentum continue.

Speaker Change: A second straight quarter of double digit growth is wonderful, but it's only a down payment on what we expect from this sector and the segment going forward. The fact is every element within <unk>.

Tom Bell: The fact is, every element within commercial and international is very robustly positioned for the future. Chris just mentioned at the end, AUKUS. As I've said on previous calls, the needs of AUKUS Pillar 2 are exactly in line with the capabilities Leidos brings to fore. So, we're leaning into AUKUS, both in the United States and over in the UK and Australia. Energy is one of our growth pillars. It's a critical vulnerability. Everybody knows that critical infrastructure in the United States is in a challenged position right now, and especially as energy demands grow, the grid resilience and the need for us to secure our electrical grid is going to grow with it.

Speaker Change: Commercial and international is.

Speaker Change: Is very robustly positioned for the future Chris.

Speaker Change: Chris just mentioned at the end of August.

Speaker Change: As I've said on previous calls the needs of August pillar to our R. R.

Speaker Change: Exactly in line with the capabilities <unk> brings to four so we're leaning into August both in the United States and over in the UK and Australia energy is one of our growth pillars. It's a it's a critical vulnerability everybody knows that critical infrastructure in the United States as.

Speaker Change: As in a challenged position right now and especially as energy demands grow.

Speaker Change: That the grid resilience and the need for us to secure our electrical grid is going to grow with it. So energy is a is a huge area of focus for us and a huge growth area for lighters and last but not least SCS ports and border security.

Unknown Executive: So, energy is a huge area of focus for us and a huge growth area for Leidos. And last but not least, SES, ports and border security, airport security. We were talking about the FAA before, but we weren't talking about the airports themselves. We play a key role in securing ports, borders, and airports. And so, everything in the commercial and international business is poised for robust growth as this administration sets about its priorities. And we're very optimistic that Vicky and her team can continue to turn in great growth quarters as we go out of 2025 and into the future.

Speaker Change: The airport security, we were talking about the FAA before but we werent talking about the airports themselves. We play a key role in securing ports borders and airports and so everything in the commercial and international business is poised for robust growth as this administration sets about its priorities.

Speaker Change: We're very optimistic that.

Speaker Change: Vicky and her team can continue to turn in great growth quarters, as we go out of 2025 and into the future.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you.

Scott Mikus: And our next question coming from the line of Scott Mikus with Mellius Research.

Speaker Change: And our next question coming from the line of SKU.

Unknown Executive: Your line is now open. Morning, Tom and Chris. So a quick question on the decision to reaffirm the guide. Chris, if I add back about 35 cents of charges. 2024, the EPS. essentially flat. And if I annualize your first quarter results, your EPS would be 10% above the highest. So the question I've been receiving from clients this morning. Given the decision to reaffirm the guidance and the 0.5 book the bill this quarter.

Mike: Mike just with Melius research your line is now.

Speaker Change: Good morning, Tom and Chris.

Speaker Change: Yes.

Speaker Change: So a quick question on the decision to reaffirm the guide Chris If I add back about 35 of charges you booked in 2020 for the EPS guidance essentially flat.

Speaker Change: And if I annualize your first quarter results your EPS would be 10% above the high end of the guidance range. So the question I've been receiving from clients. This morning.

Speaker Change: Given the decision to reaffirm the guidance and the 0.5 book to Bill this quarter are the.

Chris Cage: Are the core fundamentals of the business expected to significantly deteriorate over the next few quarters, or is the guidance just extremely conservative due to DOJ and all the executive orders from the new administration? Yeah, thanks. Thanks for that, Scott. No, there's nothing in the core business performance that we're concerned about as it relates to fundamentals. I think those have been proven to the opposite, right? Multiple quarters in a row where the team continues to drive improvement, our highest margin quarter when it wasn't even our highest health and civil margin quarter. So you see uplift in other parts of the portfolio, national security and digital CNI, defense are all showing strength.

Speaker Change: Core fundamentals of the business expected to significantly deteriorate over the next few quarters or is the guidance just extremely conservative due to <unk> and all the executive orders from the New administration.

Speaker Change: Yeah. Thanks, Thanks for that Scott no.

Speaker Change: There is nothing in the core business performance that we're concerned about as it relates to fundamentals I think those have been proven to the opposite right multiple quarters in a row, where the team continues to drive improvement our highest margin quarter when it wasn't even our highest health and civil margin quarter. So you see uplift in other parts of the portfolio National security in digital.

Speaker Change: C&I defense are all showing.

Chris Cage: It's more the latter where we're positioned for helping our customers accelerate. You know, as we see the opportunity set ahead of us, as we've laid out Northstar 2030 in our strategy pillars, we want to make sure we've got capacity to provide jumpstart in critical areas where there's a unique opportunity here in the coming months to capture significant positions on meaningful priorities of the administration. In addition to partnering with critical agencies like the GSA to make sure we're part of the solution for the future. So, you know, with one quarter in the books and looking ahead to the landscape that's robust with opportunities, that's why it's now not the time to lean into increasing our guidance.

Speaker Change: Strength in its more the latter where we're positioned for helping our customers accelerate as we see the opportunity set ahead of us as we've laid out Northstar 2030, and our strategy pillars, we want to make sure. We've got capacity to provide jumpstart in critical areas, where there's a unique opportunity here in the coming <unk>.

Speaker Change: <unk> to capture significant positions on meaningful priorities of the administration and in addition to partnering with critical agencies like the GSA to make sure. We're part of the solution for the future. So with one quarter in the books and looking ahead to the landscape that's robust with opportunities.

Speaker Change: That's why it's now not the time to lean into increasing our guidance, it's really run the business very successfully create capacity to invest for the future and and we're excited about where that takes us this year.

Unknown Executive: It's really run the business very successfully, create capacity to invest for the future. And we're excited about where that takes us this year. All right, thanks for taking the question. Thank you.

Speaker Change: Yeah.

Speaker Change: Alright, thanks for taking the question. Thank.

Speaker Change: Thank you.

Kenneth Herbert: Next question, coming from the line of Kenneth Herbert with Arby's Capital Markets, the line is now open. Yeah, hi, good morning. Tom and Chris, thanks for the question. Yeah Ken, morning.

Speaker Change: Thank you.

Speaker Change: Question coming from the line of Ken <unk>.

Speaker Change: <unk> with RBC capital markets. Your line is now open.

Yes, hi, good morning, Paul and Kris Thanks for the question.

Speaker Change: Yeah, Ken good morning.

Tom Bell: Hey, Tom, maybe, or Chris, as you look at the recompete you have coming up for the remainder of this year, has anything changed in response to all the executive orders and DOJ and focus on cost? Have you seen any pronounced change in expected contract terms or basically, within contract structures, the risk you might be expected to take on these contracts? Yes, so the the pipeline for this year, you know, you know how this business works has been set for some time and we're awaiting adjudication for some $26 billion worth of contracts that are that are already submitted.

Speaker Change: Hey, Tom maybe Chris as you look at the re competes you have coming up for the remainder of this year has anything changed.

Speaker Change: In response to all the executive orders in those and focus on costs have you seen any pronounced change in expected contract terms or basically.

Speaker Change: Within contract structures, the risk you might be expected to take on these contracts.

Speaker Change: Yes, so the pipeline for this year.

Speaker Change: You know how this business works has been set for some time.

Speaker Change: We are awaiting adjudication for.

Speaker Change: Some $26 billion worth of contracts that are that are already submitted.

Tom Bell: We haven't yet seen customers leaning into changing commercial terms and or leaning into the opportunity of outcome-based contracting, but we expect that. I'm sure you saw the letters coming out of the administration this past Friday about revising the FAR and leaning into commercial terms. That's something we welcome. We believe in outcome-based contracting. We believe in sharing risks and rewards and we feel like we make better outcomes when we're challenged to insert technology so that customer outcomes are better, faster, and cheaper. So we haven't seen that yet, but I fully anticipate it and we're spending a significant amount of effort in Leidos making sure we're prepared for that and we are leaning into those environments to make our customers outcomes better, faster, cheaper and Leidos a winner, a net winner in that environment.

Speaker Change: We haven't yet seen customers leaning into changing commercial terms and <unk> leaning into the opportunity of outcome based contracting, but we expect that.

Speaker Change: I'm sure you saw the.

Speaker Change: The letters coming out of the.

Speaker Change: Of the administration this past Friday about revising the far and leaning into commercial terms, that's something we welcome.

Speaker Change: We believe an outcome based contracting we believe in sharing risks and rewards.

Speaker Change: We feel like we make.

Speaker Change: Better outcomes, when we're challenged to insert technology.

Speaker Change: So that.

Speaker Change: Customer outcomes are better faster and cheaper so we haven't seen that yet, but I fully anticipate it and we're spending.

Speaker Change: Significant amount of effort in light of making sure we're prepared for that and we are leaning into those environments to make our customers outcomes better faster cheaper and lighthouse a winner a net winner in that environment.

Unknown Executive: Thank you.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Noah Poponak: Our next question coming from the line of Noah Poponak with Sportsman's Pack. Your line is now open. Hey, good morning, everyone. Hi, Noah. Morning.

Speaker Change: And our next question coming from the line of Noah.

Speaker Change: With Goldman Sachs. Your line is now open.

Noah: Hey, good morning, everyone. Good.

Speaker Change: Morning.

Tom Bell: Tom, when you piece together the many cross currents going on at your customers, and everything you're doing at Leidos specifically, Do you feel like you can rule out having a year where revenue is down over the next three years? or can we not roll that out? And that is possible, given everything that's going on. Gee, Noah, you're asking me to say never say never. And I have to start with that, right? You're asking about three years, and the future is never certain enough to be able to say it's absolutely impossible. But at the same time, I'll say, I don't envision it.

Speaker Change: Hum.

Speaker Change: When you piece together, the many cross currents going on at your customers.

Speaker Change: And everything you're doing.

Speaker Change: Patrick Lighthouse specifically.

Speaker Change: Do you feel like you can rule out.

Speaker Change: Having a year where revenue was down over the next three years.

Speaker Change: Or can we not roll that out.

Speaker Change: That is possible given everything that's going on.

Noah: G Noah.

Noah: Youre asking me to say never say never.

Noah: And I have to start with that right you are asking about three years.

Noah: Yes.

Noah: The future is never certain enough to be able to say, it's absolutely impossible, but at the same time, I'll say I don't envision it and I don't really see it as a high probability the growth pillars, we have identified as a part of North Star 2030.

Tom Bell: And I don't really see it as a high probability. The growth pillars we've identified as a part of North Star 2030 are very in line with the administration's needs and the customer missions that are mission critical. And so we're very confident that these are going to grow robustly. And I'll foot stomp. We picked these five because we know customer needs are growing. We know we can make good money leaning into opportunities in those areas. And we know we have technical differentiation that allows us to be more successful than our competitors in those areas. And every indication from this administration supports the selection of those pillars for our growth engines.

Noah: Our very in line with the administration's needs and the customer missions that are mission critical and so we're very confident that these are going to grow robustly and all foot stomp. We picked these five because we know customer needs are growing we know we can make good money.

Noah: Leaning into the opportunities in those areas and we know we have technical differentiation that allows us to be more successful than our competitors in those areas.

Noah: And every indication from this administration supports the selection of those pillars for our growth engines and even if it wasn't the areas of the lightest portfolio that are not selected for growth, we see a status quo maintenance of the growth trajectory.

Tom Bell: And even if it wasn't areas of the Leidos portfolio that are not selected for growth, we see a status quo maintenance of the growth trajectory they've been on. So we lean into the next three to five years and the whole plan of North Star 2030, the macro plan and what we think is absolutely achievable is holding on to the profitability of Leidos that we've established this business is capable of, and now growing top line robustly through the selection of these five pillars. So my plan and my expectation is over the next years, you're going to see revenue increasing better than peers and profitability holding at what you're used to now.

Speaker Change: I've been on so as we lean into the next three to five years and the whole plan of of Northstar 2030.

Speaker Change: The macro plan and what we think is absolutely achievable is holding on to the profitability of light OS that we've established this business is capable of and now growing topline robustly through the selection of these five pillars. So my plan and my expectation is over the next years.

Speaker Change: Going to see revenue, increasing better than peers and profitability holding at what youre used to know.

Unknown Executive: We'll continuously update that for you. And I bet I'll be smiling when I do. Thank you.

Speaker Change: We will continuously update that for you and.

Speaker Change: And.

Speaker Change: I bet, all I'll be smiling when I do.

Speaker Change: Thank you.

Speaker Change: Thank you.

Gavin Parsons: Our next question coming from the line of Gavin Parsons with UPS, he'll let us know. Hey, thanks. Good morning. Hey, morning, Gavin.

Speaker Change: Our next question coming from the line of Gavin Parsons with UBS. Your line is now open.

Gavin Parsons: Hey, Thanks, good morning.

Speaker Change: Hey, good morning, Kevin.

Chris Cage: Just wanted to clarify the comments on the sub 1% of revenue impact from the new administration initiatives and the GSA contract review. Have you already taken that out of backlog? And is the GSA review complete? Yeah, Gavin, no, we haven't taken those contracts out of backlog. There have been some impacts as it relates to DOJ-related contract actions, de-scopes, those types of things.

Kevin: Just wanted to clarify the comments on the sub 1% of revenue impact from the New administration initiatives.

Kevin: The GSA contract review have you already taken that out of backlog and as the GSA review complete.

Gavin Parsons: Yes Gavin.

Speaker Change: We haven't taking those contracts out of backlog.

Speaker Change: There have been some impacts as it relates to those related contract actions. These scopes those types of things unrelated to Tom's comment on 1% is consulting now some of those consulting related efforts may or may not continue into the future depending upon the priorities going forward of our customers.

Chris Cage: Unrelated to Tom's comment on 1% is consulting. Now, some of those consulting-related efforts may or may not continue into the future depending upon the priorities going forward of our customers. And I would say the conversations with the GSA remain ongoing, right? As Tom indicated, we've put forward, we think, compelling ideas around where value can be created and savings can be generated. And, you know, we eagerly await ongoing discussion.

Speaker Change: And I would say the conversations with the GSA remain ongoing right.

Speaker Change: As Tom indicated we've put forward, we think compelling ideas around where value can be created and savings can be generated.

Speaker Change: And we eagerly await.

Speaker Change: Ongoing discussions with them.

Unknown Executive: And I'll foot stomp what Chris said in his comments, which is the likelihood of revenue impacts and profitability have been included in our forward guidance, and so the reiteration of our guidance for 2025 assumes some possible degradation of revenue. That's helpful. Appreciate it.

Speaker Change: And I'll foot Stomp, what Chris said in his comments.

Speaker Change: Which is the the likelihood of revenue impacts and profitability have been included in our forward guidance and so.

Speaker Change: The reiteration of our guidance for 2025.

Speaker Change: Assumes.

Speaker Change: Some possible degradation of revenue.

Speaker Change: That's helpful. I appreciate it.

Speaker Change: Thanks.

Gautam Khanna: Our next question coming from the line of Gautam Khanna with City Security. Yes. Good morning, guys. Good morning, Gautam.

Speaker Change: Next question coming from the line of kind of economy with TD Securities. Your line is now open.

Speaker Change: Yes, good morning, guys, Hey, good morning Gautam.

Chris Cage: I was wondering if you could elaborate on the health civil profitability in the quarter because it was very strong. Maybe if you could just was there anything about utilization that was Particularly unusual and In the quarter in the medical exam business, and if you could also just comment broadly on what you're seeing in that business, given. The VA itself is trying to reduce headcount and how that might evolve how that might impact the business if at all in terms of Yeah, okay.

Speaker Change: Hey, I was wondering if you could elaborate on the health civil profitability in the quarter because it was very strong.

Speaker Change: Maybe if you could just was there anything about utilization that was.

Speaker Change: Particularly unusual.

Speaker Change: Okay.

Speaker Change: In the quarter and the medical exam business. If you could also just comment broadly on what you're seeing in that business given.

Speaker Change: The VA itself is trying to reduce head count and how that might evolve how that might impact the business if at all in terms of.

Chris Cage: Well, great quarter by the team, and it was more than just the managed health side of the business. We saw strong performance in some of our civilian areas as well, quite honestly, and so very pleased across the portfolio and excited about, you know, we mentioned the FAA a number of times today. That's a cornerstone piece of our civil business as we look to the future. You know, we did have an excellent quarter overall as a company on our EAC performance, and again, that's just what we're capable of with good program management. So some of those benefits did accrue to the health and civil segment, and, you know, we don't as a matter of course expect that level of net EAC write-ups to continue, although we strive to make it so.

Yes.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Well great quarter by the team and it was more than just the managed health side of the business. We saw strong performance in.

Speaker Change: Some of our civilian.

Speaker Change: Areas as well quite honestly and so very pleased across the portfolio and excited about.

Speaker Change: Mentioned, the FAA a number of times a day.

Speaker Change: Cornerstone piece of our civil business as we look to the future.

Speaker Change: We did have an excellent quarter overall as a company on our EAC performance and again, that's just what we're capable of with good program management. So some of those benefits.

Speaker Change: Benefits did accrue to the health and civil segment, and we don't as a matter of course expect.

Speaker Change: That level of net EAC write ups to continue although we strive to make it so as it relates to the BBA business. The volume the indications are the customer wants to sustain if not increase volumes and that's the goal we haven't yet seen any impacts from VA staffing reductions on the BBA side that have.

Chris Cage: As it relates to the VBA business, you know, the volume, the indications are the customer wants to sustain, if not increase volumes, and that's the goal. We haven't yet seen any impacts from VA staffing reductions on the VBA side that have created any bottlenecks for that workflow, so we're encouraged that that momentum can continue. It'll be an ongoing process to work actively with them, but the investments we've made in our throughput capacity, optimizing our processes, just have allowed us to continue to scale up our throughput, so we're well positioned to do that, and so the expectation is, yeah, we can continue to sustain that level of performance as we look.

Speaker Change: Created any bottlenecks for that workflow. So we're encouraged that that momentum can continue.

Speaker Change: And it'll be an ongoing process to work actively with them, but the investments we've made in our throughput capacity optimizing our processes is to have allowed us to continue to scale up our throughput. So we're well positioned to do that.

Speaker Change: So the expectation is yes, we can continue to sustain that level of performance as we look to the future.

Unknown Executive: Thank you.

Unknown Executive: Did you guys quantify the size of the EAC? Well, they'll be in the queue. You'll see that later today, Gautam, so enjoy. That's good. Thank you.

Speaker Change: Thank you did you guys quantify.

Speaker Change: The size of the EAC.

Gavin Parsons: There'll be in the Q, you'll see that later today gautam so enjoy.

Speaker Change: Sounds good thank you okay.

Colin Canfield: And we have a follow-up question from Colin Canfield with Cancer Fitzgerald.

Speaker Change: Thank you and we have a follow up question from Colin Canfield with Cantor Fitzgerald. Your line is open.

Colin Canfield: Hey, thanks. I just want to go back to one of the comments you made during your prepared remarks, Tom, about repo, suggesting that the $500 million ASR completed most of the shares, or most of the company's outlook for repo for the year. So maybe you could just articulate on capital deployment and level set us on if the billion dollar or kind of the guidance that you gave at the start of the year is still the right expectation for repo, which is in line with 2024.

Speaker Change: Hey, Thanks, I just had to go back to one of the comments you made during your prepared remarks Tom.

Speaker Change: No.

Tom: Suggesting that the $500 million ASR completed most of the shares.

Tom: Most of the company's outlook for our repo for the year. So maybe if you could just articulate on capital deployment and level set us on if the $1 billion or.

Tom: Or kind of the.

Tom: You gave at the start of the year is still the right expectation per rig which is in line with 2024.

Tom Bell: Thank you. Yeah, thanks for that. So very happy that we were able to get out of the blocks fast with the $500 million accelerated share repurchase program. You know, given prudence for the next months, and the acquisition that we've made, the inorganic acquisition, we'll probably not move out with additional share repurchases in the near term. But as the year unfolds, and we get back into the back end of the year, that's when capital deployment for share repurchases could be back in place. So as Chris said, we'll be looking at the environment in the six months of the back end of the year and looking at whether or not there's another inorganic play we want to make, whether or not share repurchases are the thing we want to do, or other shareholder friendly capital deployments.

Speaker Change: Yes, thanks for that so very happy that we were able to get out of the blocks fast with the $500 $500 million accelerated share repurchase program.

Speaker Change: Given prudence for the next months and the.

Speaker Change: The acquisition that we've made the inorganic acquisition will probably not move out with additional share repurchases in the near term, but as the year unfolds and we get back into the backend of the year, that's when capital deployment for share repurchases could be back in place so as Chris said.

Speaker Change: We will be looking at the environment.

Speaker Change: In the in the six months of the back end of the year and looking at whether or not theres. Another inorganic play we want to make whether or not the share repurchases are the thing we want to do or other shareholder friendly capital deployment, Yeah, Collyn I would just add obviously the back half of the year is when most of the cash flows generated in the.

Chris Cage: Yeah, Colin, I've just said, obviously, the back half of the year is when, you know, most of the cash flow is generated in the business. And so while we have a lot of cash on hand, and our leverage is comfortably below targets, you know, we'll continue to be building capacity as we get into Q3 and beyond. So to Tom's point, we'll remain flexible, but we'll have plenty of horsepower to do a number of things as the year unfolds. Got it.

Speaker Change: Business and so while we have a lot of cash on hand, and our leverage is comfortably below targets will continue to be building capacity as we get into Q3 and beyond so to Tom's point women remained flexible but.

Speaker Change: We will have plenty of firepower to do a number of things as the year unfolds.

Tom Bell: And then while we're at the back end of the call, but maybe talking a little bit about selling pieces of the portfolio, we saw that one of your competitors was able to get roughly, you know, 30 times even a handle on their defense products business. And so the question is kind of how do you think about being opportunistic on pieces that look really good today? Well, we're going to be opportunistic about all parts of the portfolio in the current environment. The whole concept of the year of deep strategic thinking included looking at the portfolio for whether or not there were chronic underperformers in the portfolio.

Speaker Change: Got it and then while we're on the back into the call, but maybe talk a little bit about selling pieces of the portfolio. We saw that one of your competitors is able to gather roughly 30 times EBITDA handle on there.

Speaker Change: Defense products business.

Speaker Change: A question just kind of how do you think about being opportunistic.

Speaker Change: Pieces that look really good today.

Speaker Change: Well we are.

Speaker Change: We're going to be opportunistic about all parts of the portfolio in the current environment.

Speaker Change: The whole.

Speaker Change: Whole concept of the year deep strategic thinking included looking at the portfolio for whether or not there were chronic underperformers in the portfolio and there is there is possibly a small divestiture divestment, we make in the coming months here or there, but nothing nothing large nothing that would be notable because frankly.

Tom Bell: And there's possibly a small divestment we make in the coming months here or there, but nothing large, nothing that would be because, frankly, all the parts of the Leidos portfolio are well situated for the environment we're facing into. So minor divestments are possible, but I like the portfolio we're playing and the cards we have, and we think we're well positioned to serve our customers through it. Thanks for the color, as always. Thank you.

Speaker Change: All the parts of the lightest portfolio are well situated for the environment, we're facing into so minor divestments are possible but.

Speaker Change: I like the portfolio, we are playing in the cards we have in.

Speaker Change: We think we're well positioned to serve our customers through it.

Speaker Change: But I think Mexico is always.

Unknown Executive: And this concludes our question and answer session.

Speaker Change: Thank you and this concludes our question and answer session I would now like to turn the conference back to Stuart Davis for any closing remarks.

Stuart Davis: I would now like to turn the conference back to Stuart Davis for any closing remarks. Thank you, operator, for your assistance this morning, and thank you all for your time this morning and your interest in Leidos. We look forward to updating you again soon.

Stuart Davis: Thank you operator for your assistance this morning, and thank you all for your time this morning, and your interest in light of US. We look forward to updating you again soon have a great day.

Unknown Executive: Have a great day. to today's conference call.

Stuart Davis: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Unknown Executive: Thank you for your participation and you may now Thanks for watching!

Stuart Davis: Okay.

Stuart Davis: Okay.

Stuart Davis: Okay.

Stuart Davis: Sure.

Stuart Davis: Dan.

Stuart Davis: No.

Stuart Davis: Thanks, Dan.

Stuart Davis: Yes.

Stuart Davis: I've said that gate.

Stuart Davis: Yeah.

Stuart Davis: Thanks, Dan.

Stuart Davis: Yes.