Q2 2027 Science Applications International Corp Earnings Call

August 31, 2026

Operator: Good day, and thank you for standing by. Welcome to the SAIC Fiscal Year 2027 Q2 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jon Raviv, Vice President of Investor Relations. Please go ahead.

Operator: Good day, and thank you for standing by. Welcome to the SAIC Fiscal Year 2027 Q2 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jon Raviv, Vice President of Investor Relations. Please go ahead.

Speaker #1: Good day, and thank you for standing by. Welcome to the SAIC Fiscal Year 2027 Q2 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone.

Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded.

Speaker #1: I would now like to hand the conference over to your speaker today, John Rabeev, Vice President of Investor Relations. Please go ahead.

Speaker #2: Good morning, and thank you for joining SAIC's second quarter fiscal year 2027 earnings call. My name is John Rabeev, Vice President of Investor Relations, and joining me today to discuss our business and financial results are Jim Regan, our Chief Executive Officer, and Prabu Natarajan, our Chief Financial Officer and Executive Vice President of Enterprise Operations.

Jon Raviv: Good morning, and thank you for joining SAIC's second quarter fiscal year 2027 earnings call. My name is Jon Raviv, Vice President of Investor Relations, and joining me today to discuss our business and the financial results are Jim Reagan, our Chief Executive Officer, and Prabu Natarajan, our Chief Financial Officer and Executive Vice President of Enterprise Operations. Today, we will discuss our results of the quarter ended 31 July 2026. Please note that we may make forward-looking statements on today's call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call. I refer you to our SEC filings for a discussion of these risks. In addition, we will discuss non-GAAP financial measures and other metrics, which we believe provide useful information for investors.

Jon Raviv: Good morning, and thank you for joining SAIC's Q2 fiscal year 2027 earnings call. My name is Jon Raviv, Vice President of Investor Relations, and joining me today to discuss our business and the financial results are Jim Reagan, our Chief Executive Officer, and Prabu Natarajan, our Chief Financial Officer and Executive Vice President of Enterprise Operations. Today, we will discuss our results of the quarter ended 31 July 2026. Please note that we may make forward-looking statements on today's call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call.

Speaker #2: Today, we will discuss our results for the quarter ended July 31, 2026. Please note that we may make forward-looking statements on today's call that are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from statements made on this call.

Speaker #2: I refer you to our SEC filings for a discussion of these risks. In addition, we will discuss non-GAAP financial measures and other metrics, which we believe provide useful information for investors.

Jon Raviv: I refer you to our SEC filings for a discussion of these risks. In addition, we will discuss non-GAAP financial measures and other metrics, which we believe provide useful information for investors. These non-GAAP measures should be considered in addition to, and not a substitute for, financial measures in accordance with GAAP. A more fulsome explanation of these measures can also be found in our SEC filings. It is now my pleasure to turn the call over to our CEO, Jim Reagan.

Speaker #2: These non-GAAP measures should be considered in addition to, and not as a substitute for, financial measures in accordance with GAAP. A more fulsome explanation of these measures can also be found in our SEC filings.

Jon Raviv: These non-GAAP measures should be considered in addition to, and not a substitute for, financial measures in accordance with GAAP. A more fulsome explanation of these measures can also be found in our SEC filings. It is now my pleasure to turn the call over to our CEO, Jim Reagan.

Speaker #2: It is now my pleasure to turn the call over to our CEO, Jim Regan.

Speaker #1: Thank you, John, and good morning to everyone joining our call. I want to start by saying how proud I am of this team. Our results this quarter are a testament to our employees' relentless commitment to our customers' most critical missions.

Jim Reagan: Thank you, Jon, and good morning to everyone joining our call. I want to start by saying how proud I am of this team. Our results this quarter are a testament to our employees' relentless commitment to our customers' most critical missions. Let's take a look at slide 3 for our key messages. We built on our momentum this quarter with performance once again ahead of our expectations. These results reflect our team's focus on driving program performance and operational efficiency, resulting in organic growth, double-digit margins, and robust free cash flow. While award activity reflected some unevenness in the procurement environment, we remain encouraged by the strength of our qualified pipeline, our submission plan, and the performance of our business development team.

Jim Reagan: Thank you, Jon, and good morning to everyone joining our call. I want to start by saying how proud I am of this team. Our results this quarter are a testament to our employees' relentless commitment to our customers' most critical missions. Let's take a look at slide three for our key messages. We built on our momentum this quarter with performance once again ahead of our expectations. These results reflect our team's focus on driving program performance and operational efficiency, resulting in organic growth, double-digit margins, and robust free cash flow. While award activity reflected some unevenness in the procurement environment, we remain encouraged by the strength of our qualified pipeline, our submission plan, and the performance of our business development team.

Speaker #1: So let's take a look at slide 3 for our key messages. We built on our momentum this quarter, with performance once again ahead of our expectations.

Speaker #1: These results reflect our team's focus on driving program performance and operational efficiency, resulting in organic growth, double-digit margins, and robust free cash flow. While award activity reflected some unevenness in the procurement environment, we remain encouraged by the strength of our qualified pipeline, our submission plan, and the performance of our business development team.

Speaker #1: We continue to believe that we're well-positioned to convert those opportunities into growth as we align with our customers' clear demand signals for more capability and capacity.

Jim Reagan: We continue to see healthy customer engagement, and we believe that we are well-positioned to convert those opportunities into growth as we align with our customers' clear demand signals for more capability and capacity. We also believe our base is more secure with a recompete win rate of over 90% this quarter, creating an easier path to on-contract growth and building momentum to capture the benefits of new business where our win rates are well within our target range. These results reflect our more disciplined bidding approach as we focus on fewer mission-oriented pursuits. It also underscores our commitment to execution excellence and the trust our customers place in us. Several wins over the last few months highlight our role in supporting critical national security missions. We booked over $1.6 billion of intel space awards in the H1 of this fiscal year, well ahead of our recent trends.

Speaker #1: We also believe our base is more secure with a recompete win rate of over 90% this quarter, creating an easier path to on-contract growth and building momentum to capture the benefits of new business, where our win rates are well within our target range.

Speaker #1: These results reflect our more disciplined bidding approach as we focus on fewer, mission-oriented pursuits. It also underscores our commitment to execution excellence and the trust our customers place in us.

Speaker #1: Several wins over the last few months highlight our role in supporting critical national security missions. We booked over $1.6 billion of Intel Space awards in the first half of this fiscal year, well ahead of our recent trends.

Speaker #1: This high-value engineering work demonstrates our domain expertise and long-standing commitment to the space superiority market. We also secured a recompete win to support hardware and software integration and interoperability, helping the Army deploy new technologies onto the battlefield.

Jim Reagan: This high-value engineering work demonstrates our domain expertise and longstanding commitment to the space superiority market. We also secured a recompete win to support hardware, software integration, and interoperability to help the Army deploy new technologies onto the battlefield. After the quarter closed, we won a significant recompete of a critical border security program. Combined with last quarter's successful DHS recompete, this latest win extends our longstanding role in delivering innovation with an integrated software hardware solution to secure our country's borders. These wins share a common thread across our intelligence, defense, and civilian markets. Each requires integrating advanced technology with deep domain expertise to deliver mission-critical outcomes. This is what SAIC does best. This is who we are. We continue to build on this identity with investments supporting enhanced capability, capacity, and speed.

Speaker #1: And after the quarter closed, we won a significant recompete of a critical border security program. Combined with last quarter's successful DHS recompete, this latest win extends our long-standing role in delivering innovation with an integrated software and hardware solution to secure our country’s borders.

Speaker #1: These wins share a common thread across our intelligence, defense, and civilian markets. Each requires integrating advanced technology with deep domain expertise to deliver mission-critical outcomes.

Jim Reagan: These wins share a common thread across our intelligence, defense, and civilian markets. Each requires integrating advanced technology with deep domain expertise to deliver mission-critical outcomes. This is what SAIC does best. This is who we are. We continue to build on this identity with investments supporting enhanced capability, capacity, and speed.

Speaker #1: This is what SAIC does best. This is who we are. And we continue to build on this identity with investment supporting enhanced capability, capacity, and speed.

Speaker #1: For instance, our investments in quantum solutions bridge the gap between critical technologies and practical mission applications. It's still early in the journey, but like AI, we expect quantum to create new mission challenges we're prepared to address as we help our customers sense, decide, and act across their domains.

Jim Reagan: For instance, our investments in quantum solutions bridge the gap between critical technologies and practical mission applications. It is still early in the journey, but like AI, we expect quantum to create new mission challenges we are prepared to address as we help our customers sense, decide, and act across their domains. Turning to operations, as we previously mentioned, we are transforming our enterprise to build a stronger, more agile company that supports growth-oriented investments and sustained margin improvement. Project Orbit, or Optimizing Resources for a Better Impact Tomorrow, is moving into its implementation phase. I am encouraged by our employees' dedication and enthusiasm for driving a foundational shift, so we can clear what I call the gunk out of our systems and processes. Let me give you a sense of what structural change looks like in practice.

Speaker #1: Turning to operations, as we previously mentioned, we are transforming our enterprise to build a stronger, more agile company that supports growth-oriented investments and sustained margin improvement.

Speaker #1: Project Orbit, or Optimizing Resources for a Better Impact Tomorrow, is moving into its implementation phase. I'm encouraged by our employees' dedication and enthusiasm for driving a foundational shift so we can clear what I call the "gunk" out of our systems and processes.

Speaker #1: Let me give you a sense of what structural change looks like in practice. In procurement, a new acquisition system can bring more rigor to how we buy—analyzing our spend, consolidating suppliers, and managing demand—so we buy smarter, not just spend less.

Jim Reagan: In procurement, a new acquisition system can bring more rigor to how we buy, analyzing our spend, consolidating suppliers, and managing demand so we buy smarter, not just spend less. In our recruiting function, a new onboarding system is designed to shrink the time between recruiting a candidate and putting them on a contract, protecting revenue, and serving our customers faster. In mission delivery, agentic AI tools can scale capacity without adding headcount, whether it is training air traffic controllers or generating actionable intelligence. With Orbit, we expect to book some quick wins at the start to fuel the investment for bigger changes with momentum building over the three-year time horizon. The most transformative ideas will take the most time, such as fundamentally rethinking our procurement process.

Speaker #1: In our recruiting function, a new onboarding system is designed to shrink the time between recruiting a candidate and putting them on a contract, protecting revenue and serving our customers faster.

Speaker #1: And in mission delivery, agentic AI tools can scale capacity without adding headcount, whether it's training air traffic controllers or generating actionable intelligence. With Orbit, we expect to book some quick wins at the start to fuel the investment for bigger changes, with momentum building over the three-year time horizon.

Speaker #1: The most transformative ideas will take the most time, such as fundamentally rethinking our procurement process. AI will play a role as we responsibly deploy relevant tools to achieve specific outcomes, rather than just directing people to consume more tokens.

Jim Reagan: AI will play a role as we responsibly deploy relevant tools to achieve specific outcomes, rather than just directing people to consume more tokens. We are excited to do this while our customers are making fundamental changes to increase capacity, drive speed, and more effectively shepherd taxpayer dollars. We look forward to partnering with them on these efforts as we both lean forward to transform our organizations. I want to update you on another piece of our transformation efforts, the portfolio and strategy review we announced last quarter. We have spent the last few months identifying the intersection of our strongest right to win and our greatest growth potential. I do not expect a sharp turn in who SAIC is or what it does, but I do expect to emerge with a sharper sense of where we want to go.

Speaker #1: We're excited to do this while our customers are making fundamental changes to increase capacity, drive speed, and more effectively shepherd taxpayer dollars. We look forward to partnering with them on these efforts as we both lean forward to transform our organizations.

Speaker #1: I want to transformation efforts. Their portfolio and strategy review we announced last quarter. We've spent the last few months identifying the intersection of our strongest right to win and our greatest growth potential.

Speaker #1: I do not expect a sharp turn in who SAIC is or what it does, but I do expect to emerge with a sharper sense of where we want to go.

Speaker #1: And I want to emphasize we are already doing a lot of things well, so this review is as much about doubling down and investing to grow those critical mission areas as it is about pursuing new ones.

Jim Reagan: I want to emphasize, we are already doing a lot of things well, so this review is as much about doubling down and investing to grow those critical mission areas as it is about pursuing new ones. This includes M&A, as we evaluate portfolio opportunities that are key to implementing our strategy. We will act on those opportunities as they arise, and we expect to share more on our December earnings call. I appreciate that we are asking a lot of our employees, and I am proud that the team has embraced these new efforts while maintaining strong operational performance. As a result of our improved performance and outlook for the year, we are raising our FY27 guidance for revenue, EBITDA, and EPS. As I have repeatedly said, FY27 is a year of commitment as we set targets that we are confident we can achieve.

Speaker #1: This includes M&A, as we evaluate portfolio opportunities that are key to implementing our strategy. We will act on those opportunities as they arise, and we expect to share more on our December earnings call.

Speaker #1: I appreciate that we're asking a lot of our employees, and I'm proud that the team has embraced these new efforts while maintaining strong operational performance.

Speaker #1: As a result of our improved performance and outlook for the year, we are raising our FY27 guidance for revenue, EBITDA, and EPS. As I've repeatedly said, FY27 is the year of commitment, as we set targets that we're confident we can achieve.

Jim Reagan: As a result of our improved performance and outlook for the year, we are raising our FY27 guidance for revenue, EBITDA, and EPS. As I have repeatedly said, FY27 is a year of commitment as we set targets that we are confident we can achieve. We look forward to making FY28 a year of implementation as the Orbit and strategy projects roll out. We see significant opportunities to create value for all of our stakeholders and continue the mission of supporting our customers and our country. With that, I will turn the call over to Prabu.

Speaker #1: And we look forward to making FY28 a year of implementation as the Orbit and strategy projects roll out. We see significant opportunities to create value for all of our stakeholders and continue the mission of supporting our customers and our country.

Jim Reagan: We look forward to making FY28 a year of implementation as the Orbit and strategy projects roll out. We see significant opportunities to create value for all of our stakeholders and continue the mission of supporting our customers and our country. With that, I will turn the call over to Prabu.

Speaker #1: With that, I'll turn the call over to Prabu.

Speaker #2: Thank you, Jim. And good morning to everyone joining our call.

Prabu Natarajan: Thank you, Jim, and good morning to everyone joining our call. I will review our Q2 results, updated guidance, and share more detail on the financial impact of Project Orbit. Turning to our results on slide 4. We reported Q2 revenue of $1.9 billion, representing organic growth of approximately 5%. The quarter benefited from solid growth across our markets and our team's focus on converting backlog into revenue across our existing contracts in an improving outlay environment. We reported adjusted EBITDA of $193 million in the quarter and margins of 10.3%, reflecting strong program execution and continued benefit from our cost efficiency efforts. This result is up modestly year-over-year, excluding the prior year's favorable legal settlement. Adjusted diluted earnings per share of $3.01 is down year-over-year due to a favorable settlement in the prior period, offset by lower share count.

Speaker #1: I'll review our second quarter results, update our guidance, and share more detail on the financial impact of Project Orbit. Turning to our results on slide 4.

Speaker #1: We reported second quarter revenue of $1.9 billion, representing organic growth of approximately 5%. The quarter benefited from solid growth across our markets and our team's focus on converting backlog into revenue across our existing contracts, in an improving outlay environment.

Speaker #1: We've reported adjusted EBITDA of $193 million in the quarter and margins of 10.3%, reflecting strong program execution and continued benefit from our cost-efficiency efforts.

Speaker #1: This result is up modestly year over year, excluding the prior year's favorable legal settlement. Adjusted diluted earnings per share of $3.01 is down year over year due to a favorable settlement in the prior period, offset by a lower share count.

Speaker #1: Free cash flow was $131 million in the quarter, another strong result as we maintain peer-leading cash conversion. Net leverage fell to 3.0x this quarter, as we continue to naturally delever as EBITDA improves.

Prabu Natarajan: Free cash flow was $131 million in the quarter, another strong result as we maintain peer-leading cash conversion. Net leverage fell to 3.0x this quarter as we continue to naturally de-lever as EBITDA improves. Going forward, we have flexibility to de-lever incrementally or actively shape the portfolio to support the strategy. Please turn to slide five to review our forward indicators. We are responding to clear customer signals for the services we deliver. We have seen some large opportunities slip to the right as procurement offices try to do more with less while implementing new guidelines, including fixed price directives. This resulted in a quarterly book-to-bill of 0.6 or 0.8 on a trailing 12-month basis. We would have been closer to 1.0 if not for a delay in a large re-compete award we booked two days after the quarter closed.

Speaker #1: Going forward, we have flexibility to delever incrementally or actively shape the portfolio to support the strategy. Please turn to slide 5 to review our forward indicators.

Speaker #1: We are responding to clear customer signals for the services we deliver. But we've seen some large opportunities slip to the right, as procurement offices try to do more with less while implementing new guidelines, including fixed-price directives.

Speaker #1: This resulted in a quarterly book-to-bill of 0.6, or 0.8 on a trailing 12-month basis. We would have been closer to 1.0 if not for a delay in a large recompete award we booked two days after the quarter closed.

Speaker #1: Slower RFPs and awards also drove contract extensions and increased ceiling utilization as we offered execution pathways for our customers, which is reflected in our year-to-date organic growth.

Prabu Natarajan: Slower RFPs and awards also drove contract extensions and increased ceiling utilization as we offered execution pathways for our customers, which is reflected in our year-to-date organic growth. Combined with a slower submission and award environment, this suggests we could finish the year closer to 1.0 on a book-to-bill basis. Our pipeline is in place, and the business development team is prepared to substantially increase submissions in the coming months. We are confident that applying our strong win rates against higher submissions should generate higher book-to-bill. In the meantime, you can expect our team to continue delivering capability to our customers as our funded backlog continues to grow. Please turn to slide six. This quarter's organic growth of 5% was driven by broad-based strength and unplanned material purchases worth approximately 1% that we do not expect will repeat. On-contract growth, or OCG, of 9% was well ahead of our plan.

Speaker #1: But combined with a slower submission and award environment, this suggests we could finish the year closer to 1.0 on a book-to-bill basis. Our pipeline is in place, and the business development team is prepared to substantially increase submissions in the coming months.

Speaker #1: We are confident that applying our strong win rates against higher submissions should generate higher book-to-bill. In the meantime, you can expect our team to continue delivering capability to our customers as our funded grow.

Prabu Natarajan: In the meantime, you can expect our team to continue delivering capability to our customers as our funded backlog continues to grow. Please turn to slide six. This quarter's organic growth of 5% was driven by broad-based strength and unplanned material purchases worth approximately 1% that we do not expect will repeat. On-contract growth, or OCG, of 9% was well ahead of our plan.

Speaker #1: Please turn to slide 5. Five percent was driven by broad-based strength, and unplanned material purchases worth approximately 1% that we don't expect will repeat. Our contract growth, or OCG, of 9% was well ahead of our plan.

Speaker #1: This maintains the momentum from one quarter, suggesting an improving outlay environment translating into revenue growth. As previously discussed, roughly half of this year's OCG comes from a handful of programs we won in FY25 and FY26 that ramped slowly last year.

Prabu Natarajan: This maintains the momentum from Q1, suggesting an improving outlay environment translating into revenue growth. As previously discussed, roughly half of this year's OCG comes from a handful of programs we won in FY25 and FY26 that ramped slowly last year. These programs generated $350 million last year, and we are planning for $500 million this year. We are on track with approximately $240 million in the H1 of this year. Please turn to slide seven. We are increasing our revenue, margin, and EPS guidance to reflect our strong year-to-date performance. We are raising our revenue guidance by 2% to a midpoint of $7.25 billion, reflecting organic contraction of 2% to flat. The implied H2 contraction reflects the RITS contract rolling off, creating an approximately 350 basis point headwind in the H2.

Speaker #1: These programs generated $350 million last year, and we are planning for $500 million this year. We are on track with approximately $240 million in the first half of this year.

Speaker #1: Please turn to slide 7. We are increasing our revenue, margin, and EPS guidance to reflect our strong year-to-date performance. We are raising our revenue guidance by 2% to a midpoint of $7.25 billion, reflecting organic contraction of 2% to flat.

Speaker #1: The implied second-half contraction reflects the Ritz contract rolling off, creating an approximately 350 basis point headwind in the second half. We are also raising our adjusted EBITDA guidance by 4% at the midpoint, implying margins of 10.3% to 10.5%, or 20 basis points above our previous guidance.

Prabu Natarajan: We are also raising our adjusted EBITDA guidance by 4% at the midpoint, implying margins of 10.3% to 10.5%, or 20 basis points above our previous guidance. This increase is primarily due to strong H1 performance. We expect margins to step down in the H2 to the high 9% range as we make targeted investments in several high-priority areas where customer demand and strategic relevance are accelerating. Our investments include CapEx, where we have spent approximately $25 million in the H1 to support growth opportunities. We still expect free cash flow of at least $600 million or $14 per share this year. As Jim Reagan said, this is a year of commitment. Commitment to being transparent with our performance and expectations, and a commitment to setting targets within our control that we expect to achieve. Please turn to slide eight.

Speaker #1: This increase is primarily due to strong first-half performance. We expect margins to step down in the second half to the high 9% range as we make targeted investments in several high-priority areas where customer demand and strategic relevance are accelerating.

Speaker #1: Our investments include capex, where we've spent approximately $25 million in the first half to support growth opportunities. We still expect free cash flow of at least $600 million, or $14 per share, this year.

Speaker #1: As Jim said, this is a year of commitment—commitment to being transparent with our performance and expectations, and a commitment to setting targets within our control that we expect to achieve.

Speaker #1: Please turn to slide 8. We are pleased to be heading into the implementation phase of Project Orbit. Our disciplined, data-driven approach will support growth and margin improvement.

Prabu Natarajan: We are pleased to be heading into the implementation phase of Project Orbit, our disciplined, data-driven approach to support growth and margin improvement. As you can see on the left, these efforts span six themes. On the right, you can see how these themes map against timeline and customer partnership. The bubble size represents the three-year dollar value opportunity. We are running our project implementation just as we would run a program for our customers. We have staffed a strong team, set clear goals, and are focused on delivering an outcome. Buy smarter is the largest and longest term opportunity as it takes time to restructure how we buy across the enterprise. The automation theme requires more customer partnership as it impacts how we deliver programs. Other efforts like simplify processes and work smarter are more within our control and are areas where we can move faster.

Speaker #1: As you can see on the left, these efforts span six themes. On the right, you can see how these themes map against timeline and customer partnership.

Speaker #1: The bubble size represents the three-year dollar value opportunity. We are running our project implementation just as we would run a program for our customers.

Speaker #1: We've staffed a strong team, set clear goals, and are focused on delivering an outcome. 'Buy smarter' is the largest and longest-term opportunity, as it takes time to restructure how we buy across the enterprise.

Speaker #1: The automation theme requires more customer partnership, as it impacts how we deliver programs. Other efforts, like simplified processes and working smarter, are more within our control and are areas where we can move faster.

Speaker #1: As Jim said, we are excited to partner with our customers at a time when we are both hungry for change. Please turn to slide 9 so we can discuss what this means for the financial model.

Prabu Natarajan: As Jim said, we are excited to partner with our customers at a time when we are both hungry for change. Please turn to slide 9 to discuss what this means for the financial model. Late last year, we discussed approximately $100 million in cost reductions. Those were hard choices made quickly, and they are delivering benefits. Orbit is different. It is more fundamental. This means harder, more sustained work over a longer timeframe to generate more structural change. At this point, we expect approximately $150 million in annual run rate savings by the end of the three-year implementation period. This opportunity is spread across the business, including our direct programs and our indirect spending. We expect approximately two-thirds of the savings, or $100 million, to go back into the business, investing in new efforts, expanding our capacity to address demand on our current contracts, or making us more competitive.

Speaker #1: Late last year, we discussed approximately $100 million in cost reductions. Those were hard choices, made quickly, and they are delivering benefits. Orbit is different.

Speaker #1: It is more fundamental. This means harder, more sustained work over a longer time frame to generate more structural change. At this point, we expect approximately $150 million in annual run-rate savings by the end of the three-year implementation period.

Speaker #1: This opportunity is spread across the business, including our direct programs and our indirect spending. We expect approximately two-thirds of the savings, or $100 million, to go back into the business—investing in new efforts, expanding our capacity to address demand on our current contracts, or making us more competitive.

Speaker #1: The rest should support our margin expansion story. As a result, we consider mid-teens to be a reasonable margin target for next year, and we see a path to approximately 11% margin in FY30 as the benefits from Project Orbit fully materialize.

Prabu Natarajan: The rest should support our margin expansion story. As a result, we consider mid-tens to be a reasonable margin target for next year, and we see a path to approximately 11% margin in FY30 as the benefits from Project Orbit fully materialize. Our margin story does not depend on any single initiative. Orbit is a key driver, but it is one of several levers, including continued discipline in raising our bid thresholds, focused business development, and shaping and pursuing more outcome-oriented work. All of these dynamics support the business remaining solidly double digit on an annual basis going forward. In closing, I am grateful for the team's focus on executing these changes while running the business. There is more work to do, and I am confident that our efforts will continue to translate into value for our stakeholders in the coming quarters. With that, I will turn the call over for Q&A.

Speaker #1: Our margin story does not depend on any single initiative. Orbit is a key driver, but it is one of several levers, including continued discipline in raising our bid thresholds, focused business development, and shaping and pursuing more outcome-oriented work.

Speaker #1: All of these dynamics support the business remaining solidly double-digit on an annual basis going forward. In closing, I'm grateful for the team's focus on executing these changes while running the business.

Prabu Natarajan: All of these dynamics support the business remaining solidly double digit on an annual basis going forward. In closing, I am grateful for the team's focus on executing these changes while running the business. There is more work to do, and I am confident that our efforts will continue to translate into value for our stakeholders in the coming quarters. With that, I will turn the call over for Q&A.

Speaker #1: There's more work to do, and I'm confident that our efforts will continue to translate into value for our stakeholders in the coming quarters. With that, I'll turn the call over for Q&A.

Speaker #1: As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again.

Operator: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. In the interest of time, we ask that you please limit yourself to one question and one follow-up. You may then rejoin the queue for any additional questions. Please stand by while we compile the Q&A roster. Our first question comes from Jonathan Siegel with Stifel. Your line is open.

Speaker #1: In the interest of time, we ask that you please limit yourself to one question and one follow-up. You may then rejoin the queue for any additional questions.

Speaker #1: Please stand by while we compile the Q&A roster. And our first question comes from Jonathan Sigman with Stifel. Your line is open.

Jonathan Siegel: Good morning. Thank you for taking my question. Congratulations on the strong results. Real happy to see the organic growth. Maybe just on the on-contract growth portion of it, well ahead of plans. Can you talk about what the company is assuming for the H2? Maybe a sense of disaggregating where the upside came from. Is this really the market getting better, or is this some of the actions the team is taking to more efficiently pursue those opportunities? Thank you.

Jonathan Siegmann: Good morning. Thank you for taking my question. Congratulations on the strong results. Real happy to see the organic growth. Maybe just on the on-contract growth portion of it, well ahead of plans. Can you talk about what the company is assuming for the H2? Maybe a sense of disaggregating where the upside came from. Is this really the market getting better, or is this some of the actions the team is taking to more efficiently pursue those opportunities? Thank you.

Speaker #2: Good morning. Thank you for taking my question. Congratulations on the strong results. Really happy to see the organic growth. Maybe just on the on-contract growth portion of it, well ahead of plans—can you talk about what the company is assuming for the second half?

Speaker #2: And then maybe a sense of disaggregating where the upside came from. Is this really the market getting better, or is this some of the actions the team is taking to more efficiently pursue those opportunities?

Speaker #2: Thank you.

Speaker #3: Hey Jonathan, this is Jim. Thanks for your question. In terms of the strength that we've been seeing in on-contract growth, I'd say it's roughly double what we were seeing this time last year.

Jim Reagan: Hey, Jonathan, this is Jim. Thanks for your question. In terms of the strength that we've been seeing in on-contract growth, I would say it is roughly double what we were seeing this time last year. What we are seeing is that kind of a broad-based ability for the customers to move money faster onto contracts. That is not limited to any particular customer or part of the government. The velocity that we see there is expected to continue through the balance of the year, which is the basis upon which we have altered our guidance for the year. In addition to that, we are seeing broad-brushed success in executing and having a focus on executing programs that has enabled us to push our margin expectation a bit higher.

Speaker #3: And what we're seeing is that kind of a broad-based ability for the customers to move money faster onto contracts. And that isn't limited to any particular customer or part of the government.

Speaker #3: And the velocity that we see there is expected to continue through the balance of the year, which is the basis upon which we've altered our guidance for the year.

Speaker #3: In addition to that, we're seeing broad-brushed success in executing and having a focus on executing programs. That's enabled us to push our margin expectation a bit higher.

Jim Reagan: In addition to that, we are seeing broad-brushed success in executing and having a focus on executing programs that has enabled us to push our margin expectation a bit higher. That is not only strong executional programs, but it is also a result of the successful execution of some cost reduction programs from late last year that Prabu had mentioned during the script. I hope that answers your question, but if you have a follow-up, feel free to tee it up.

Speaker #3: That's not only strong execution on programs, but it's also a result of the successful execution of some cost reduction programs from late last year that Prabu had mentioned during the script.

Jim Reagan: That is not only strong executional programs, but it is also a result of the successful execution of some cost reduction programs from late last year that Prabu had mentioned during the script. I hope that answers your question, but if you have a follow-up, feel free to tee it up.

Speaker #3: So I think that—I hope that answers your question, but if you have a follow-up, feel free to tee it up.

Speaker #2: Maybe just so I understand the prepared remarks.

Jonathan Siegel: Maybe just if I understand the prepared remarks.

Jonathan Siegmann: Maybe just if I understand the prepared remarks.

Jim Reagan: Yeah, go ahead. Go ahead.

Speaker #3: Yeah, go ahead.

Speaker #2: $300 million is in the plan for on-contract growth, and you've already hit $250 million with Q1 and Q2. Is that the right math to do, Prabu?

Jonathan Siegel: 300 million is in the plan for on-contract growth, and you have already hit 250 with Q1, Q2. Is that the right math to do, Prabu?

Jonathan Siegmann: 300 million is in the plan for on-contract growth, and you have already hit 250 with Q1, Q2. Is that the right math to do, Prabu?

Speaker #3: Hey, John. Appreciate the question. First of all, big shout-out to the team that puts us in a place where we can sit here and talk about OCG being at 9%, which is obviously a far cry from where we were at Q2 of last year.

Prabu Natarajan: Hey, John. Appreciate the question. First of all, big shout-out to the team that puts us in a place where we can sit here and talk about OCG being at 9%, which is obviously a far cry from where we were at Q2 of last year. Jim was right on. I think the growth we saw was broad-based, and our assumption for the second half of the year is that we will see OCG at about a 5% clip. Obviously, we were expecting 2% to 3% for the remainder of the year at Q1. If obviously Q3 or Q4 happens to be better than the 5% we are modeling right now, then obviously we are going to see some upside pressure to the revenue guide itself. I think the other data point I would throw out there is last year's book-to-bill was 1.1.

Prabu Natarajan: Hey, John. Appreciate the question. First of all, big shout-out to the team that puts us in a place where we can sit here and talk about OCG being at 9%, which is obviously a far cry from where we were at Q2 of last year. Jim was right on. I think the growth we saw was broad-based, and our assumption for the H2 of the year is that we will see OCG at about a 5% clip. Obviously, we were expecting 2% to 3% for the remainder of the year at Q1. If obviously Q3 or Q4 happens to be better than the 5% we are modeling right now, then obviously we are going to see some upside pressure to the revenue guide itself. I think the other data point I would throw out there is last year's book-to-bill was 1.1.

Speaker #3: Jim was right on. I think the growth we saw was broad-based. Our assumption for the second half of the year is that we will see OCG at about a 5% clip. Obviously, we were expecting 2% to 3% for the remainder of the year at Q1.

Speaker #3: And if, obviously, Q3 or Q4 happens to be better than the 5% we're modeling right now, then obviously we're going to see some upside pressure to the revenue guide itself.

Speaker #3: I think the other data point I'd throw out there is, last year's book-to-bill was 1.1. And I think sometimes we lose sight of the booking strength that we've had, excluding the single-award IDIQ.

Prabu Natarajan: I think sometimes we lose sight of the booking strength that we have had, excluding the single award IDIQ. We were sitting at 1.1 at year end of last year. We all know that the outlay environment has been gradually improving over the course of the year, that there is probably a three to four-month lag from outlays converting into revenue. We saw some of that benefit come through. Importantly, over the last couple of years, Jonathan, we have had about $2 to $2.5 billion of single award IDIQ wins that are not nearly fully reflected in the backlog. I would say roughly 20%, 25% has been reflected in the backlog. So part of how we bookkeep, if you will, for the single award IDIQs, is we book the task orders that expect to convert into revenue, and that usually happens within 12 months.

Speaker #3: We were sitting at 11 at year-end of last year. We all know that the outlay environment has been gradually improving over the course of the year, and that there's probably a three- to four-month lag from outlays converting into revenue.

Speaker #3: We saw some of that benefit come through. And importantly, over the last couple of years, Jonathan, we've had about $2.5 billion of single award IDIQ wins that are not nearly fully reflected in the backlog.

Speaker #3: I'd say roughly 20 to 25 percent has been reflected in the backlog. So part of how we bookkeep, if you will, for the single-award IDIQs is we book the task orders that we expect to convert into revenue, and that usually happens within 12 months.

Speaker #3: So you're not going to see it come through the backlog, but you will definitely see it come through OCG. So that's sort of the confluence of things that caused OCG to be higher in the second quarter.

Prabu Natarajan: So you're not going to see it come through the backlog, but you will definitely see it come through OCG. That's sort of the confluence of things that caused OCG to be higher in Q2. Then finally on the $300 million, what we said was, when we set the plan and offered guidance early on, that there were a handful of programs that we expect will run rate to about a half a billion this year. At the H1 of this year, we were sitting at roughly the 50% mark. So those programs are continuing to provide the momentum we expect it to. Again, these are wins from last year and the year before that candidly had not converted into revenues, but they were in backlog, at least some of them. So I think you're seeing a combination of those factors come through.

Speaker #3: And then finally, on the $300 million, I think what we said was, when we set the plan and offered guidance early on, that there were a handful of programs that we expect will run rate to about half a billion this year.

Speaker #3: And at the first half of this year, we were sitting at roughly the 50% mark. So, those programs are continuing to provide the momentum we expected them to.

Prabu Natarajan: So those programs are continuing to provide the momentum we expect it to. Again, these are wins from last year and the year before that candidly had not converted into revenues, but they were in backlog, at least some of them. So I think you're seeing a combination of those factors come through. But again, big picture, about a 5% assumption for the H2 of the year. Let's see how Q3 plays out.

Speaker #3: Again, these are wins from last year and the year before that, which, candidly, had not converted into revenues but were in backlog—at least some of them.

Speaker #3: So I think you're seeing a combination of those factors come through. But again, big picture, about a 5% assumption for the second half of the year, and let's see how Q3 plays out.

Prabu Natarajan: But again, big picture, about a 5% assumption for the H2 of the year. Let's see how Q3 plays out.

Speaker #1: Thank you. Our next question comes from Sheila Kayaglu with Jefferies. Your line is open.

Operator: Thank you. Our next question comes from Sheila Kahyaoglu with Jefferies. Your line is open.

Speaker #4: Thank you, guys, and great quarter. Kudos to both of you. Jim and Prabhu, I know Orbit's a new initiative, so maybe spend some time on that, and Prabhu, I feel like you've been focusing on cost for so long.

Sheila Kahyaoglu: Thank you, guys. Great quarter. Kudos to both of you. Jim and Prabu, I know Orbit's a new initiative, so maybe some time on that. Prabu, I feel like you've been focusing on cost for so long. So what kind of drove the origination of Project Orbit? How you think about the $150 million of savings this quarter, sorry, as you think about that $150 million of savings in terms of buckets of efficiency and in a labor-oriented business, how do you really drive that?

Speaker #4: So what kind of drove the origination of Project Orbit? And how do you think about the $150 million of savings this quarter? Sorry, as you think about that $150 million of savings, in terms of buckets of efficiency?

Speaker #4: And in a labor-oriented business, how do you really drive that?

Speaker #3: Hey, Sheila. Thanks for the question. And I think you can tell from how we've talked about Orbit—it is an area of significant focus for us.

Jim Reagan: Hey, Sheila. Thanks for the question. I think you can tell from how we've talked about Orbit, it is an area of significant focus for us. When I arrived into my current role back in October and spent a lot of time with the team both here in headquarters, but more importantly out in the field, I heard repeated stories of things that people were identifying as opportunities to make the business run smoother. What really became apparent to me pretty quickly was that since the split, we had been focusing a lot on organization, what our capabilities were, how to grow the business, but not enough on how to operate the business. The opportunity that I saw were greater opportunities for organizational efficiency as well as putting some tools and processes in place to make the business run easier.

Speaker #3: When I arrived in my current role back in October and spent a lot of time with the team, both here and at headquarters—but more importantly, out in the field—I heard repeated stories of things that people were identifying as opportunities to make the business run smoother.

Speaker #3: And what really became apparent to me pretty quickly was that since the split, we had been focusing a lot on organization, what our capabilities were, how to grow the business, but not enough on how to operate the business.

Speaker #3: And so the opportunities that I saw were greater opportunities for organizational efficiency, as well as putting some tools and processes in place to make the business run easier.

Speaker #3: And so people hear me talk about gunk, which is kind of my own term, but it really is—there are things that, from a business process, do slow us down and aren't consistent with how we need to be operating in an environment where our customer is driving us to move faster, make decisions faster, and implement programs faster for them.

Jim Reagan: People hear me talk about gunk, which is kind of my own term, but it really is. There are things that, from a business process, do slow us down and aren't consistent with how we need to be operating in an environment where our customer is driving us to move faster, make decisions faster, and implement programs faster for them. That's really what the genesis of it was. What's different about this than other cost reduction programs that you might have heard about or even that I've worked in, is that this is not just taking targets and pushing them down. It's much more fundamental, and it is actually going out to the people that do the work and asking them to help us identify the opportunities to make things run better. It's everything from a resume to retire process.

Speaker #3: So that's really what the genesis of it was. And what's different about this than other cost reduction programs that you might have heard about, or even that I've worked in, is that this is not just taking targets and pushing them down.

Speaker #3: And it's much more fundamental, and it is actually going out to the people that do the work and asking them to help us identify the opportunities to make things run better.

Speaker #3: And so it's everything from resume-to-retire process. It's how we buy, and it's not just identifying a need and driving the process all the way through to writing a check to pay for it.

Jim Reagan: It's how we buy, and it's not just identifying a need and driving the process all the way through to writing a check to pay for it. It is the substance of how we determine who we're buying from, how we're going to source, how we're going to write a contract, and it runs through every significant business process. Now, you asked about how we're feeling about the $150 million annualized run rate savings. That's what we've laid eyes on today. When Prabu and I, given our background and history, we're going to put a number out that we're very comfortable in meeting. But I would say that over time, we're going to continue to be looking for more opportunity, and we're going to continue to update you as to how those numbers will change.

Speaker #3: It is the substance of how we determine who we're buying from, how we're going to source, how we're going to write a contract, and it runs through every significant business process.

Speaker #3: Now, you asked about how we're feeling about the $150 million annualized run-rate savings. That's what we've set our sights on today. And when Prabu and I, given our background and history, put a number out there, we're very comfortable that we can meet it.

Speaker #3: But I would say that, over time, we're going to continue to look for more opportunities, and we're going to continue to update you as to how those numbers would change.

Speaker #2: Jim, right on. And maybe to start where Jim left off, I think our internal aspirations are higher, Sheila. I think, too, in a predominantly labor-oriented business, to answer your question, we would say that you should expect to see a little bit of top-line compression, but Orbit is as much about revenue maximization as it is about finding ways to structurally lower our costs.

Prabu Natarajan: Jim, right on. Maybe to start where Jim left off, I think our internal aspirations are higher, Sheila. I think, too, in a predominantly labor-oriented business, to answer your question, we would say that you should expect to see a little bit of top-line compression, but Orbit is as much about revenue maximization as it is about finding ways to structurally lower our cost. We did take out $100 million last year. I'm going to compare that to a little bit of a sugar high, because you can sort of, with a blunt instrument, take some cost out of the organization. What I'm excited about vis-à-vis Orbit is that this is very structural. I think at a time where customers need more innovation, if you're in a predominantly cost-oriented business, we have to show the ability to actively manage our total cost portfolio.

Speaker #2: And we did take out $100 million last year. I'm going to compare that to a little bit of a sugar high, because you can sort of, with a blunt instrument, take some cost out of the organization.

Speaker #2: What I'm excited about vis-à-vis Orbit is that this is very structural. And I think at a time when customers need more innovation—if you're in a predominantly cost-oriented business—we have to show the ability to actively manage our total cost portfolio, and that's exactly what Orbit is about.

Prabu Natarajan: And that is exactly what Orbit is about. I think, to Jim's comment, we effectively crowdsourced about 3,500 ideas from across the company, ideas for improvement, ideas all the way from cost savings to revenue maximization. We had a dedicated team internally made up that worked with a handful of external Sherpas that actually helped us navigate the process of streamlining the ideas, bucketizing them, allocating some return criteria so that we can evaluate which opportunities need to be prioritized in the waterfall of opportunities that we have in front of us.

Speaker #2: I think, to Jim's comment, we effectively crowdsourced about 3,500 ideas from across the company—ideas for improvement, all the way from cost savings to revenue maximization.

Speaker #2: And we had a dedicated team internally made up that worked with a handful of external sharpeners that actually helped us navigate the process of sort of streamlining the ideas, bucketizing them, allocating some return criteria so that we can evaluate which opportunities need to be prioritized in the waterfall of opportunities that we have in front of us. And candidly, I think part of getting more efficient is investing a little more in the internal infrastructure.

Prabu Natarajan: Candidly, I think part of getting more efficient is investing a little more in the internal infrastructure, I am going to say, where for better or for worse, and I am probably as guilty as anybody else here, that we had to starve certain portions of the infrastructure just to be able to support a business that was simply not growing. So I think part of how you should interpret Orbit is a sign that we are, I would say, more excited about the business ahead of us, and we are just getting ready because we all know growing is, I think, harder to execute than contracting. So I think there is a bunch of holistic reasons why we are doing Orbit, and as I said, I am going to end where I started, which is there is greater aspiration than is reflected right now in the 150th annual run rate savings.

Speaker #2: I'm going to say, for better or for worse—and I'm probably as guilty as anybody else here—that we had to starve certain portions of the infrastructure just to be able to support a business that was simply not growing.

Speaker #2: So I think part of how you should interpret Orbit is as a sign that we are, I'd say, more excited about the business ahead of us, and we are just getting ready because we all know growing is, I think, harder to execute than contracting.

Prabu Natarajan: So I think part of how you should interpret Orbit is a sign that we are, I would say, more excited about the business ahead of us, and we are just getting ready because we all know growing is, I think, harder to execute than contracting. So I think there is a bunch of holistic reasons why we are doing Orbit, and as I said, I am going to end where I started, which is there is greater aspiration than is reflected right now in the 150th annual run rate savings.

Speaker #2: So I think there are a bunch of holistic reasons why we're doing Orbit. And as I said, I'm going to end where I started, which is, there are greater aspirations, and it's reflected right now in the $150 million of annual run rate savings.

Speaker #4: Super helpful. And maybe just a little bit more short-term as a follow-up, how do we think about the second half margins, given they're slated to go down about 100 bps with the implied guidance?

Sheila Kahyaoglu: Super helpful. Maybe just a little bit more short term as a follow-up, how do we think about the H2 margins given they are slated to go down about 100 bps with the implied guidance?

Speaker #2: Yeah. Now, fair question, Sheila. I think what we said in the script is that 'high nines' is how we see the second half of the year.

Prabu Natarajan: Yeah. No, fair question, Sheila. I think what we said in the script is that high 9s is how we see the H2 of the year. The reality is we are sitting at 11% in the H1 of the year and core performance of this business, if I look at excluding the corporate allocations of indirect costs and the incentive comp allocations that we allocate to our segments, the core business out of our three Business Groups I would say has been very strong at kind of the low to mid 10% range. I think part of the guide reflects some planned investments we make in the H2 of the year. But it also assumes that the Business Groups are going to be closer to 10% than mid-10s. To the extent that the Business Groups, and we are putting the incentive where it needs to be.

Speaker #2: The reality is, we're sitting at 11% in the first half of the year. And the core performance of this business, if I look at it excluding the corporate allocations of indirect costs and the incentive comp allocations that we allocate to our segments, the core business out of our three—I’d say three business groups—I would say has been very strong at kind of the low to mid-10% range.

Speaker #2: And I think part of the guide reflects some planned investments we make in the second half of the year, but it also assumes that the business groups are going to be closer to 10 than mid-teens, to the extent that the business groups—and we're putting the incentive where it needs to be.

Prabu Natarajan: But it also assumes that the Business Groups are going to be closer to 10% than mid-10s. To the extent that the Business Groups, and we are putting the incentive where it needs to be. If the core performance out of the BGs continues to be in the mid-10s, we are likely to see a little bit of upside pressure to H2 margins. We are going to take it one quarter at a time and hopefully keep the pressure on the team and not have them get too distracted about next year just yet.

Speaker #2: If the core performance out of the BGs continues to be in the mid-teens, we're likely to see a little bit of upside pressure to second half margins.

Prabu Natarajan: If the core performance out of the BGs continues to be in the mid-10s, we are likely to see a little bit of upside pressure to H2 margins. We are going to take it one quarter at a time and hopefully keep the pressure on the team and not have them get too distracted about next year just yet.

Speaker #2: But we're going to take it one quarter at a time and, hopefully, keep the pressure on the team and not have them get too distracted about next year just yet.

Operator: Thank you. Our next question comes from John Godyn with Citi. Your line is open.

Speaker #1: Thank you. And our next question comes from John Godden with Citi. John, your line is open.

Speaker #5: Hey, guys. Thanks for taking my question. I wanted to follow up a little bit more on Orbit. You have this you have a great couple of slides here, slide 8 and 9, which have interesting detail on Orbit.

John Godyn: Hey, guys. Thanks for taking my question. I wanted to follow up a little bit more on Orbit. You have a great couple slides here, slide 8 and 9, which have interesting detail on Orbit. Obviously, slide 8 does not have all the numbers and everything, and slide 9 does not really have tremendous granularity on FY28 and FY29 margins as we go on this journey. My question is just maybe spending an additional minute on the shape over the next few years. Is this a situation where the margin improvement is linear? Does it have a different kind of contour to it? Do we step back and then it is kind of back-end loaded? I am just trying to put these visualizations together and just make sure I am not too far off in interpreting what you are saying.

Speaker #5: Obviously, slide 8 doesn't have all the numbers and everything, and slide 9 doesn't really have tremendous granularity on FY28 and FY29 margins as we go on this journey.

Speaker #5: So my question is just about maybe spending an additional minute on the shape over the next few years. Is this a situation where the margin improvement is linear?

Speaker #5: Does it have a different kind of contour to it? Do we step back? And then it's kind of back-end loaded. I'm just trying to put these visualizations together and make sure I'm not too far off in interpreting what you're saying.

Speaker #2: Hey, John. I appreciate the question. And full credit to John Derviv for dreaming up chart 8 here and getting us into a place where it's easy to see—visualize—how we're thinking about the Orbit process over the next couple of years.

Prabu Natarajan: Hey, John. Appreciate the question. Full credit to Jon Raviv for dreaming up chart 8 here and getting us into a place where it is easy to see, visualize how we are thinking about the Orbit process over the next couple of years. To directly answer your question, I think we put the 11% there because we always sort of want to know where we are driving to, and I think it is really important to communicate to all our stakeholders that this is sort of how we see the business evolving over a couple of years. Some of the trajectory in terms of going from, let us call it mid-10s next year to 11%, ideally we would say we would want to get 20 to 30 bps higher in FY29 and then get to 11% in FY30. The reality is we know life is not linear.

Speaker #2: To directly answer your question, I think we put the 11% there because we always sort of want to know where we're driving to. And I think it's really important to communicate to all our stakeholders that this is how we see the business evolving over a couple of years.

Speaker #2: Some of the trajectory, in terms of going from, let's call it, the mid-10s next year to 11, ideally, we would say we want to get 20 to 30 bps higher in FY29, and then get to 11% in FY30.

Speaker #2: The reality is, we know life is not linear. And to the extent that we win more work, especially on the new business front, that pressures near-term margins. That's an okay trade.

Prabu Natarajan: And to the extent that we win more work, especially on the new business front, that pressures near term margins. That is an okay trade, recognizing 10.5% for next year is probably the right base off of which to work. I would love to say ideally linear. The reality is there will be some movement between, I would say within 10 to 20 bps of the 10.7% to 10.8% over the next couple of years. The other way to think about this, John, would be to say that to the extent we make good progress on Orbit, we would love to be here a year from now and say we could see these windows moving a year to the left. That would be sort of the ideal scenario from a non-linearity perspective. Hopefully that is helpful, but we will obviously keep you all updated as we navigate Orbit.

Speaker #2: Recognizing 10.5% for next year is probably the right base off of which to work. So I'd love to say ideally linear; the reality is there'll be some movement, I'd say within 10 to 20 bps of the 10.7–10.8% over the next couple of years.

Speaker #2: The other way to think about this, John, would be to say that to the extent we make good progress on Orbit, we would love to be here a year from now and say we could see these windows moving a year to the left.

Prabu Natarajan: The other way to think about this, John, would be to say that to the extent we make good progress on Orbit, we would love to be here a year from now and say we could see these windows moving a year to the left. That would be sort of the ideal scenario from a non-linearity perspective. Hopefully that is helpful, but we will obviously keep you all updated as we navigate Orbit. Jim, would you add anything to that?

Speaker #2: That would be sort of the ideal scenario from a non-linearity perspective. So hopefully that's helpful, but we'll obviously keep you all updated as we navigate Orbit.

Speaker #2: Jim, would you add anything to that?

Prabu Natarajan: Jim, would you add anything to that?

Speaker #3: Yeah, yeah. Just the one thing I would add to this is that if you think about the Orbit process as being a way that we can be disruptive to ourselves, in a way that you might expect a company to go after cost opportunities when there's an acquisition involved.

Jim Reagan: Well, the one thing I would add to this is that if you think about the Orbit process as being a way that we can be disruptive to ourselves in a way that you might expect a company to go look after or go after cost opportunities when there is an acquisition involved. That is kind of what we are going through right now. We are being extremely critical of and we are being very critical how we look at our own opportunities to enhance margins, reduce cost, increase efficiency, and most importantly, make the business operate better. Really that is the real focal point, and the cost and the opportunities for streamlining drop right out of that. We are pretty excited about it, and you can tell by the amount of time that we have spent talking about it.

Speaker #3: Well, that's kind of what we're going through right now. And we're being extremely critical of and how we we're being very critical of how we look at our own opportunities to enhance margins, reduce cost, increase efficiency, and most importantly, make the business operate better.

Speaker #3: And really, that's the real focal point, and the cost and the opportunities for streamlining drop right out of that. So we're pretty excited about it.

Jim Reagan: Really that is the real focal point, and the cost and the opportunities for streamlining drop right out of that. We are pretty excited about it, and you can tell by the amount of time that we have spent talking about it. But the most important thing is this gives us an opportunity to invest in growing the business, and that is what is really exciting. Thanks again for your question.

Speaker #3: And you can tell by the amount of time that we've spent talking about it. But the most important thing is that this gives us an opportunity to invest in growing the business.

Jim Reagan: But the most important thing is this gives us an opportunity to invest in growing the business, and that is what is really exciting. Thanks again for your question.

Speaker #3: And that's what's really exciting. So, thanks again for your question.

John Godyn: No, that's great. If I could ask one follow-up. Jim, you also made clear the importance of revenue and accelerating revenue growth. You guys have that slide 5 where you show all the leading indicators. They're not pointing in the right direction yet, for the last few quarters, and there are some reasons for that. My question is, kind of piggybacking on the shape of Orbit, when do we see these charts kind of move in the right direction? When do we see the shape of this kind of change trajectory in your mind's eye?

Speaker #1: That's great. And if I could ask one follow-up, Jim: you also made clear the importance of revenue and accelerating revenue growth. You guys have that slide 5 where you show all the leading indicators.

Speaker #1: They're not pointing in the right direction yet for the last few quarters, and there are some reasons for that. But my question is, kind of piggybacking on the shape of Orbit, when do we see these charts kind of move in the right direction?

Speaker #1: When do we see the shape of this kind of change trajectory in your mind's eye?

Speaker #3: Yeah. I mean, our objective is to get on a clear path to stronger growth next year. So, we will have the impact of some recompete losses from last year completely flushing through the year-to-year comparisons.

Jim Reagan: Yeah. Our objective is to get on a clear path to stronger growth next year. We will have the impact of some recompete losses from last year completely flushing through the year-to-year comparisons. When we take a look at what's happening in our proposal shop and our business development function, our recompete win rates are back to where we would like them to be, which is north of 90%. New business win rates are at where we would expect them to be, which is at or above 30%. Right now, what we need to do is to just make sure our customers are continuing to move RFPs through the cycle at the pace that meets their own needs.

Speaker #3: And when we take a look at what's happening in our proposal shop and our business development function, our recompete win rates are back to where we would like them to be, which is north of 90%.

Speaker #3: New business win rates are at where we would expect them to be, which is at or above 30%. And right now, what we need to do is just make sure our customers are continuing to move RFPs through the cycle at the pace that meets their own needs.

Speaker #3: The last thing that I would say is that, when we really tear apart where our book-to-bill opportunity is, when you have large recompetes getting moved to the right and contracts get extended, that doesn't do much for your book-to-bill, but it certainly does a lot to de-risk how you're thinking about revenue growth in the future.

Jim Reagan: Last thing that I would say is that, when we really tear apart where our book-to-bill opportunity is, when you have large recompetes getting moved to the right and contracts get extended, that doesn't do much for your book-to-bill, but it certainly does a lot to de-risk how you're thinking about revenue growth in the future. Once the customers get those recompetes back on schedule, or at least on an amended schedule where there will be some opportunities for us to have some very large bookings to get book-to-bill back over 1.0. Then I think that you'll be looking at numbers that you'd expect us to be over the long haul.

Speaker #3: And so, once the customers get those recompetes back on schedule, or at least on an amended schedule, there will be some opportunities for us to have some very large bookings, to get book-to-bill back over 1.0. Then I think that you'll be looking at numbers that you'd expect us to be over the long haul, so.

Operator: Thank you. Our next question comes from Seth Seifman with JP Morgan. Your line is open.

Speaker #1: Thank you. Our next question comes from Seth Seifman with JP Morgan. Your line is open.

Speaker #4: Okay. Thanks very much. Good morning, and very nice results. I wanted to start off by asking about the contracting type. I think you mentioned the move to fixed-price contracting, and we also have the executive order as a reason why awards have been slipping out.

Seth Seifman: Hey, thanks very much. Good morning, and very nice results. I wanted to start off asking about the contracting type. I think you mentioned the move to fixed price contracting, and we also had the executive order as a reason why awards have been slipping out. Maybe a little bit more color on how long that process takes. I thought it was also interesting you did not really mention it as a driver of the margin expansion that you expect. I know we are all kind of wondering how to think a little bit about how much can really happen on this fixed price evolution and when that is going to happen. Should we be thinking that in a couple of years instead of the current portion of fixed price sales, it is going to be 500 basis points higher as a percentage of the mix or 10 points higher?

Speaker #4: So maybe a little bit more color on how long that process takes. But I thought it was also interesting you didn't really mention it as a driver of the margin expansion.

Speaker #4: That you expect. And I know we're all kind of wondering how to think a little bit about how much can really happen on this fixed-price evolution, and when that's going to happen.

Speaker #4: Should we be thinking that in a couple of years, instead of the current portion of fixed-price sales, it's going to be 500 basis points higher as a percentage of the mix, or 10 points higher?

Speaker #2: Yeah. Hey, Seth, Prabu here. I'll try to take that question. On the contracting mix question, I would say our FFP right now is about 15% to 18% of our sales.

Prabu Natarajan: Yeah. Hey, Seth, Prabu here. I will try to take that question. On the contracting mix question, I would say our FFP right now is about 15% to 18% of our sales. It moves around a little bit inside of that frame. Sometimes we tend to think about, so what does the mix and the shape of the pipeline look like? The pipeline is actually inflecting to about one third that I am going to call fixed price. I think that is actually a pretty material change in the pipeline. That presumes things stay on track and awards get announced on time, and then we can convert revenue from the awards.

Speaker #2: It moves around a little bit inside of that frame. And sometimes we tend to think about, so what is the mix and the shape of the pipeline like?

Speaker #2: And the pipelines actually inflecting to about one-third—that I'm going to call fixed price. And so, I think that's actually a pretty material change in the pipeline.

Speaker #2: Now, that presumes things stay on track and awards get announced on time, and then we can convert revenue from the awards. But there is a slower, underlying shift in the shape of that pipe that suggests that if we win our share of that new work, then we should start to see a little more upside pressure to margin, because our Civil business group is where we have, I would say, almost all of our fixed-price exposure right now.

Prabu Natarajan: There is a slower underlying shift in the shape of that pipe that suggests that if we win our share of that new work, then we should start to see a little more upside pressure to margin because our Civil Business Group is where we have, I would say, almost all of our fixed-price exposure right now. Our EBITDA margins in our Civil Business are running north of 15%. I think that becomes a good proxy to say, if we take on the right kinds of fixed price work and we execute as well as we are executing right now in our Civil Business, then that should be an incremental lever for margin expansion downstream.

Speaker #2: And our EBITDA margins in our civil business are running north of 15%. So I think that becomes a good proxy to say, if we take on the right kinds of fixed-price work, and we execute as well as we're executing right now in our civil business, then that should be an incremental lever for margin expansion downstream.

Speaker #4: Okay, that's helpful. Are you seeing that fixed-price work emerge more in the defense and intel portion of the business as well?

Seth Seifman: Okay. That is helpful. Are you seeing that fixed price work emerge more in the defense and intel portion of the business as well?

Speaker #2: I would say the civil customers have been traditionally, I would say, more comfortable with fixed-price and outcome-oriented contracts. I think our defense and intel customers are slower moving in that direction, but candidly, we are seeing more in the way of, I'm going to say, fixed-price CLINs—contract line item numbers.

Prabu Natarajan: I would say the civil customers have been traditionally more comfortable with fixed-priced and outcome-oriented contracts. I think our defense and intel customers are slower moving in that direction. But candidly, we are seeing more in the way of, I am going to say, fixed-price CLINs, contract line requirements.

Speaker #2: Inside of cost-plus programs. And so we're starting to see that shift. And, candidly, some of the newer executive directives will certainly, I think, help accelerate that move.

Prabu Natarajan: Inside of cost-plus programs. We are starting to see that shift, and candidly, some of the newer executive orders will certainly, I think, help accelerate that move. So I would say it is slowly evolving, but clearly not at the pace at which we have seen our civil customers move at. I think this is sort of the longer-term conversation. One of the more important muscle movements inside the company, because I really think we can talk about all the things that are outside of our control. Then we can fixate on the things that are inside of our control. If you think about what we want to see, even inside of our cost-plus programs inside the company today, we want to see more outcomes.

Speaker #2: So, I would say it is slowly evolving, but clearly not at the pace at which we have seen our civil customers move at. And I think this is sort of the longer-term conversation.

Speaker #2: One of the more important muscle movements inside the company—because I really think we can talk about all the things that are outside of our control, and then we can fixate on the things that are inside of our control—and if you think about what we want to see, even inside of our cost-plus programs, inside the company today, we want to see more outcomes.

Speaker #2: We want to see more metrics because that's the way you build the muscles, so that when the customers are ready to actually make that shift at scale, our team is actually ready to make that shift very quickly.

Prabu Natarajan: We want to see more metrics, because that is the way you build a muscle, so that when the customers are ready to actually make that shift at scale, our team is actually ready to make that shift very quickly. So we are training our PMs on fixed price contracting. Our contract teams are going through some, I am going to say, sort of hands-on training. We are training folks on commercial delivery models. Our SilverEdge acquisition from last year is another way to move that muscle inside the company. The ability to quickly pivot from cost-plus to, I am going to say, initial prototyping, rapid prototyping, low-rate production to full-rate production, that is a journey. We are putting in the work right now to ensure that we are ready for that transition when that transition happens.

Speaker #2: So we are training our PMs on fixed-price contracting. Our contracts teams are going through some, I’m going to say, sort of hands-on training.

Speaker #2: We are training folks on commercial delivery models. Our Silver Edge acquisition from last year is another way to move that muscle inside the company.

Speaker #2: The ability to quickly pivot from cost plus to, I'm going to say, initial prototyping rapid prototyping, low rate production to full rate production, that's a journey.

Prabu Natarajan: The ability to quickly pivot from cost-plus to, I am going to say, initial prototyping, rapid prototyping, low-rate production to full-rate production, that is a journey. We are putting in the work right now to ensure that we are ready for that transition when that transition happens. But again, hopefully upside the margins downstream, as long as we are thoughtful in the kinds of programs we take on. It is going to be a longer-term change rather than a near-term fix, I think.

Speaker #2: And we are putting in the work right now to ensure that we are ready for that transition when that transition happens. But again, hopefully, there's upside to margins downstream as long as we're thoughtful in the kinds of programs we take on.

Prabu Natarajan: But again, hopefully upside the margins downstream, as long as we are thoughtful in the kinds of programs we take on. It is going to be a longer-term change rather than a near-term fix, I think.

Speaker #2: But it's going to be a longer-term change rather than a near-term fix, I think.

Speaker #1: Thank you. Our next question comes from Gautam Khana with TD Cowen. Your line is open.

Operator: Thank you. Our next question comes from Gautam Khanna with TD Cowen. Your line is open.

Gautam Khanna: Yes, good morning. I was just on a follow-up to the last question on the fixed price pipeline. Is that just a pivot by choice where you guys are actually pursuing more of that business? Is it representative of more civil work? I am just curious what that or if it is just a broader market shift that you are already seeing in the pipeline.

Gautam Khanna (Managing Director of Industrials and Aerospace, Defense Electronics, and Government Services: Yes, good morning. I was just on a follow-up to the last question on the fixed price pipeline. Is that just a pivot by choice where you guys are actually pursuing more of that business? Is it representative of more civil work? I am just curious what that or if it is just a broader market shift that you are already seeing in the pipeline.

Speaker #5: Yes, good morning. I just wanted to follow up on the last question about the fixed-price pipeline. Is that pivot by choice, or are you actually pursuing more of that business?

Speaker #5: Is it representative of more civil work? I'm just curious if that's the case, or if it's just a broader market shift that you're already seeing in the pipeline.

Speaker #2: Hey, Gautam, thanks for the question. Look, big picture, I think we are seeing a broader change in the pipeline in the market, but I wouldn’t over-rotate to that.

Prabu Natarajan: Hey, Gautam. Thanks for the question. Look, big picture, I think we are seeing a broader change in the pipeline in the market, but I do not want to over-rotate to that. I think there is always some idiosyncrasies inside everyone's pipeline that causes that number to be higher or lower. The reality is we are seeing it in somewhat of a broad-based fashion, both within kind of defense and intel, as well as civilian. At any point in time, I think we are going to have a change in the mix of civil versus DNI, both pipeline as well as backlog. So we are seeing a little bit of that happen as well. So it can be a little noisy at times. But big picture, I do think that regardless of who is in charge of Congress or who is in the White House, the move to more outcome-oriented fixed price is real.

Speaker #2: I think there are always some idiosyncrasies inside everyone's pipeline that cause that number to be higher or lower. The reality is, we are seeing it in somewhat of a broad-based fashion, both within defense and intel, as well as civilian.

Speaker #2: At any point in time, I think we're going to have a change in the mix of Civil versus DNI, both pipeline as well as backlog.

Speaker #2: So we're seeing a little bit of that happen as well. It can be a little noisy at times, but big picture, I do think that regardless of who's in charge of Congress or who's in the White House, the move to more outcome-oriented fixed price is real.

Prabu Natarajan: So we are seeing a little bit of that happen as well. So it can be a little noisy at times. But big picture, I do think that regardless of who is in charge of Congress or who is in the White House, the move to more outcome-oriented fixed price is real. I would say instead of maybe trying to measure progress every quarter, we may have to zoom out a little and say on a year-over-year basis, are we seeing some changes? The reality is, I think we are seeing some changes, but they are gradual in some places.

Speaker #2: And I would say, instead of maybe trying to measure progress every quarter, we may have to zoom out a little and say, on a year-over-year basis, are we seeing some changes?

Prabu Natarajan: I would say instead of maybe trying to measure progress every quarter, we may have to zoom out a little and say on a year-over-year basis, are we seeing some changes? The reality is, I think we are seeing some changes, but they are gradual in some places.

Speaker #2: And the reality is, I think we are seeing some changes, but they're gradual in some places.

Speaker #5: Okay. Thank you. And just as a follow-up, earlier you made a reference to portfolio and M&A. And I'm just curious, what is I don't know if there's any big reveal that you're planning, but I just was curious, what is still pending that needs to be conveyed to the street about how the portfolio might reshape over time?

Gautam Khanna: Okay. Thank you. Just as a follow-up, earlier you made a reference to portfolio and M&A. I am just curious, what is, I do not know if there is any big reveal that you are planning, but I just was curious, what is still pending that needs to be conveyed to the street about how the portfolio might reshape over time?

Gautam Khanna (Managing Director of Industrials and Aerospace, Defense Electronics, and Government Services: Okay. Thank you. Just as a follow-up, earlier you made a reference to portfolio and M&A. I am just curious, what is, I do not know if there is any big reveal that you are planning, but I just was curious, what is still pending that needs to be conveyed to the street about how the portfolio might reshape over time?

Speaker #3: Yeah. Gautam visited you and I'll take that. I think that what we've said before, and I'll just reiterate, is that through the summer we've been going through a pretty deep look at what our strategy change might be, and we've been doing what I would now think is more than a refresh. But I don't think you should expect us to make a huge 180-degree turn either.

Jim Reagan: Yeah, Gautam, this is Jim. I will take that one. I think that what we have said before, and I will just reiterate it, is through the summer, we have been going through a pretty deep look at what our strategy change might be. We have been doing what I would now think as being more than a refresh, but I do not think you should expect us to make a huge 180-degree turn either. The things that we are looking at are areas where we can make some more investment that are not too far from our core, and spend some more money. Some of that will be investment that comes out of Orbit. Some of this will be investment that is made possible simply by how customers want us to go to contract with them.

Speaker #3: The things that we're looking at are areas where we can make some more investment that are not too far from our core, and spend some more money in. Some of that will be investment that comes out of Orbit.

Jim Reagan: Some of that will be investment that comes out of Orbit. Some of this will be investment that is made possible simply by how customers want us to go to contract with them. But I think what I would ask you to do is to sit tight and wait for what I would say is a broader discussion about strategy and what our portfolio direction might be looking like, that we are going to hold off until our December call.

Speaker #3: Some of this will be investment that's made possible simply by how customers want us to go to contract with them. But I think that what I would ask you to do is to sit tight and wait for what I would say is a broader discussion about strategy and what our portfolio direction might be looking like, that we're going to hold off until our December call.

Prabu Natarajan: But I think what I would ask you to do is to sit tight and wait for what I would say is a broader discussion about strategy and what our portfolio direction might be looking like, that we are going to hold off until our December call.

Speaker #1: Thank you. Our next question comes from Toby Summer with Truist. Your line is open.

Operator: Thank you. Our next question comes from Toby Sommer with Truist. Your line is open.

Speaker #4: Good morning. This is Tyler Barishon for Toby. You mentioned the recompete win rate was over 90%. Can you maybe just give us an expectation for where you expect that figure to go going forward?

Tyler Barash: Good morning. This is Tyler Barash on for Toby. You mentioned the recompete win rate was over 90%. Can you maybe just give us an expectation for where you expect that figure to go going forward?

Tyler Barishaw: Good morning. This is Tyler Barash on for Toby. You mentioned the recompete win rate was over 90%. Can you maybe just give us an expectation for where you expect that figure to go going forward?

Speaker #3: Yeah. Hi, this is Jim. You might want to add on with any other observations. But right now, what I have said is that the standard for how we're defining success is for it to be at or above 90%.

Jim Reagan: Yeah. Hi, this is Jim, and Prabu might want to pile on with any other observations. But right now, what I have set is that the standard for how we're defining success is for it to be at or above 90%. We've spent a lot of time in how we've organized our proposal activity and the discipline around how we rebid work to expect 90% or better. That is in concert with the work that we're doing to decide how we're going to pursue new work as well. We've gone through a pretty extensive pipeline review to make sure that we're spending time and money on things that we have the right to win, and we're not chasing butterflies.

Speaker #3: We've spent a lot of time on how we've organized our proposal activity and the discipline around how we rebid work to expect 90% or better.

Speaker #3: And that is in concert with the work that we're doing to decide how we're going to pursue new work as well. We've gone through a pretty extensive pipeline review to make sure that we're spending time and money on things where we have the right to win, and we're not chasing butterflies.

Jim Reagan: the work that we're doing to decide how we're going to pursue new work as well. We've gone through a pretty extensive pipeline review to make sure that we're spending time and money on things that we have the right to win, and we're not chasing butterflies. With that, we are expecting to be at or above a 30% win rate on new work. That tells us we're spending our money in the right place and looking to grow our business in the right places where our customers will reward us by paying us for the good work that we do and keeping us on board when we perform well.

Speaker #3: And so with that, we are expecting to be at or above a 30% win rate on new work. And that's the right place for that. It tells us we're spending our money in the right place and looking to grow our business in the right places, where customers will reward us by paying us for the good work that we do and keeping us on board when we perform well.

Jim Reagan: With that, we are expecting to be at or above a 30% win rate on new work. That tells us we're spending our money in the right place and looking to grow our business in the right places where our customers will reward us by paying us for the good work that we do and keeping us on board when we perform well.

Speaker #4: Jim, thank you for that. Tyler, the only thing I would add to that is that in the last five years, we've grown 3%, 2%, 7.5%, 3%, and negative 3%.

Prabu Natarajan: Jim, thank you for that. Tyler, the only thing I would add to that is the last five years, we've grown 3%, 2%, 7.5%, 3%, and -3%. Almost every one of those years, we've had recompete headwinds of between 5% to 8%, sometimes higher, of annual revenues. That's because our recompete win rates were materially below 90%. To the extent that we get our recompete win rates, I think per Jim's expectation and our expectation, at or above 90%, that would suggest that there is a floor and you start to grow off the floor. The trick is our new business win rates have been higher than 30% in the past, and if we can get that combination working where new is at least at 30%, then you have a flywheel that is going to suggest some upside to revenue growth in the future.

Speaker #4: And almost every one of those years, we've had recompete headwinds of between 5% to 8%, sometimes higher, of annual revenues. That's because our recompete win rates were materially below 90%.

Speaker #4: To the extent that we get our recompete win rates, I think per Jim's expectation and our expectation, at or above 90%, that would suggest that there is a floor, and you start to grow off the floor. The trick is our new business win rates have been higher than 30% in the past.

Prabu Natarajan: The trick is our new business win rates have been higher than 30% in the past, and if we can get that combination working where new is at least at 30%, then you have a flywheel that is going to suggest some upside to revenue growth in the future. But this is a math exercise that I am responding to right now, but the reality is the teams have to go execute to it every quarter, and that is where our focus is right now.

Speaker #4: And if we can get that combination working where new is at least at 30, then you have a flywheel that is going to suggest some upside to revenue growth in the future. But this is a math exercise that I'm responding to right now.

Prabu Natarajan: But this is a math exercise that I am responding to right now, but the reality is the teams have to go execute to it every quarter, and that is where our focus is right now.

Speaker #4: But the reality is the teams have to go execute to it every quarter, and that's where our focus is right now.

Speaker #5: Thank you.

Tyler Barash: Thank you.

Tyler Barishaw: Thank you.

Speaker #1: Thank you. And our next question comes from Matt Akers with BNP Paribas. Your line is open.

Operator: Thank you. Our next question comes from Matt Akers with BNP Paribas. Your line is open.

Speaker #5: Hey, Jim, Prabhu, and John. It's Luke Leoneoff from Matt. Thanks for the question. Could you just talk about the overall contracting environment—what you're seeing there in the prepared markets? You had mentioned slower RFPs and awards.

Luke Leone: Hey, Jim, Prabu, and Jon. It is Luke Leone in for Matt. Thanks for the question. Could you just talk about the overall contracting environment, what you are seeing there? In the prepared remarks you had mentioned slower RFPs and awards, but then mentioned an improving outlay environment.

Speaker #5: But then mentioned an improving hourly environment.

Speaker #4: Yeah, appreciate the question. And so, look, I think the outlay environment has been improving. As I mentioned earlier on this call, there's typically a lag between outlays and revenue growth, and we're starting to see some of the, I would say, preceding months' outlays translate into revenue growth right now.

Prabu Natarajan: Yeah. Appreciate the question. Look, I think the outlay environment has been improving, and as I mentioned earlier on this call, there is typically a lag between outlays and revenue growth, and we are starting to see some of the, I would say, the preceding month's outlay translate into revenue growth right now. Having said that, the reality is the Request for Proposals process is still moving in fits and starts. We are seeing some awards come through, but we are not seeing the, I am going to say, the regularity and a process that is working seamlessly because the government, our customers, are trying to do more with less because they are still, I would say, somewhat impacted by the big changes from those last year on the personnel side. We are seeing some of that come through in the fits and starts that we are seeing on the awards front itself.

Speaker #4: Having said that, the reality is, the RFP process is still moving in fits and starts. We are seeing some awards come through, but we're not seeing the—I'm going to say—the regularity and a process that is working seamlessly, because the government, our customers, are trying to do more with less. They are still, I would say, somewhat impacted by the big changes from last year on the personnel side.

Prabu Natarajan: We are seeing some awards come through, but we are not seeing the, I am going to say, the regularity and a process that is working seamlessly because the government, our customers, are trying to do more with less because they are still, I would say, somewhat impacted by the big changes from those last year on the personnel side. We are seeing some of that come through in the fits and starts that we are seeing on the awards front itself.

Speaker #4: So, we are starting to, we are seeing some of that come through in kind of the fits and starts that we're seeing on the awards front itself.

Speaker #4: And candidly, this is one of the reasons our submit volume is down to about $24 billion now for the year, down from about $25 to $28 billion.

Prabu Natarajan: Candidly, this is one of the reasons our submit volume is down to about $24 billion now for the year, down from about $25 billion to $28 billion. Next year, we think submit volume is going to be in that circle at $25 billion to $28 billion, but it still feels early. To the extent things move right, if you are the incumbent on a program, you continue to see organic revenue growth opportunities, but your book-to-bill is impacted in the near term when those things happen to shift to the right. Again, we are seeing some of that move in that direction. It is hard to really get our arms around when this gets better. We are right now assuming that nothing gets better materially in any sense for the remainder of this year, and hopefully next year feels a little bit better than this year does.

Speaker #4: Next year, we think submit volume is going to be in that circa $25 to $28 billion. But it still feels early, to the extent things move, right?

Speaker #4: If you're the incumbent on a program, you continue to see organic revenue growth opportunities, but your book-to-bill is impacted in the near term when those things happen to shift to the right.

Speaker #4: So again, we're seeing some of that move in that direction. It's hard to really get our arms around when this gets better. We are, right now, assuming that nothing gets better materially in any sense for the remainder of this year.

Speaker #4: And hopefully next year feels a little bit better than this year does.

Speaker #5: Okay, got it. Thanks for that. And then, as we go into the next government year, are you guys assuming a CR? And just, like, any thoughts around that?

Luke Leone: Okay, got it. Thanks for that. As we go into the next government year, are you guys assuming a CR? Just any thoughts around that, how that plays out?

Speaker #5: How that plays out?

Speaker #4: We are assuming, yeah, our base case is that we will start the year with a CR. Look, I think what Jim and I have said on prior calls is that we do not need a trillion-dollar budget to grow this business.

Prabu Natarajan: We are assuming, yeah, our base case is that we will start the year with a CR. Look, I think what Jim and I have said on prior calls is that we do not need a trillion-dollar budget to grow this business. I think we are focused on what is in our control, and there are plenty of opportunities inside of the current budget. But we do and expect to be in a CR to start the fiscal year. Obviously to the extent budgets are healthier than the $850 billion or $900 billion, regardless of how you break it up between base and supplemental and reconciliation, there is going to be some upside pressure, hopefully, to outlays and downstream revenues. But right now, we are not banking on that.

Speaker #4: I think we're focused on what's in our control, and there are plenty of opportunities inside of the current budget and what we do, and expect to be in a CR to start the fiscal year. And obviously, to the extent budgets are healthier than the $850 or $900 billion, regardless of how you break it up between base and supplemental and reconciliation, there's going to be some upside pressure, hopefully, to outlays.

Speaker #4: And downstream revenues. But right now, we're not banking on that.

Operator: Thank you. I am showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.