LDOS - Earnings call transcript Q3 2017

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Operator

Greetings, and welcome to the Leidos Third Quarter 2017 Earnings Results.

As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Kelly Freeman, Director of Investor Relations. Please go ahead, Ms. Freeman.

Kelly Freeman

good and Rob, you, morning, everyone. Thank to earnings conference like welcome you XXXX quarter third our call. to I'd

includes follow Joining strategy. me XXXX. comments After members environment today specific results performance guidance your Jim are to refer quarter call remarks our risk actual will Roger forward-looking Krone, our with for results Jim, and, to will the Jim Chief management environment Today, of and our release our with risks the Officer; and and press discussion lead currently discuss cause our Leidos the such, we Today's our open expectations. Reagan, statements September more a Chairman factors market Financial and for and these call Krone uncertainties. discussion we the information on from the other XX, differ could will on the on it materially. of as the Please Roger ending team. company that we Roger for our and CEO; off based contains will see questions. as financial

the the turn in The is on I'll section the Relations press issued Investor presentation discuss call, at we presentation, included information non-GAAP well as With and our that that, file, and press of to measures. the release release are over slides. reconciliation also and as a available provided Roger ir.leidos.com. financial website during call between supplementary in Krone. two this is GAAP morning The we the Finally, financial will the the

Roger A. Krone

to thanks half hour midnight Houston those were Astros. quarter our us joining for early and congratulations this World dialing XXXX the till in Kelly, for an thanks, Well, for you everyone, up the earnings and and call, of thanks, Series, third especially watching who all and morning

course, crowded earnings a day release. Of it's on

half the performance quarter the business. to schedule. demonstrate an So, call accommodate from we've hour the strong continuing moved up our Results for

markets, earnings and margins repay $XXX EBITDA of X.X of In net adjusted debt also million solid that increasing ratio quarter to through exposure we transaction, on reduce our leverage enabled share, per short, $X.XX strong billion quarter, of target comes seen and business to During quarter a diluted contributed to third results the the $X.X IS&GS cash allowing of continuing highlight and new and that diversification are of delivered strength our generated XX.X%. composition. uniquely we to times. our momentum meaningfully us our growth. $XXX We year. our non-GAAP year-to-date bookings. health secured delivered focused we both operations, has We from driving results we had from and and have million The The diversified we of the civil this

of we their Social Security management continue Administration, and and with a as Security database, and Homeland support, couple provide a Under ceiling of for task proud segments, software our market but data the increasingly value operational other maintenance, these security award relationship a development each administration, not wins to Department long-standing across leveraged by program well us billion. our has $X.X managed only the organization. services In our the $XXX networks Secure improvement, well segment, Social order some engineering front, as Civil SENSX within are include million systems Support Health scale This under have with supporting awarded Services of XX-year win IDIQ, us Administration Program. activities follow-on three position Security as and the contract support. This We a also growth. that or with to lifecycle Network won drive security provide successes A successes allowed Leidos Systems, business notable on well future demonstrate which achieve the Enterprise in continues as supporting and to our optimization, notable this we the segment success. will of single to the operations,

we activity we to typically heightened While ratio In billion. in winds see level be backlog quarter, quarterly X.X with of fiscal of our as combination quarter and award the third did seasonal volatile, the do, government $XX.X the to end-of-quarter a the an with contributed in uptick, bookings position these tend yearend. coincident book-to-bill drove

to improving focus our for investing on prospects We top-line continue by growth.

refine investments areas to customers additional on to and in We our of and activities initiatives, yet years. growth we us internal commitment the generate areas form allows a we that innovative, benefit investment identified Our and cost-effective we for including have will proposal these meaningful R&D, scale leverage with in expenditures; in this as for share remarks. recently returns customers, future internal engage details will the continually bid his this solutions. our investment make Jim capital expect more in of strategic and capital the technical

I capital highest we expected internal initiatives earlier, continue with our Consistent can quarter. our to deployment the with for now ratio reach a a on Expanding during option the deployment, leverage investment return, to deployment did capital we the As as indicated be forward. growth posture. capital priority will pivot more prior going flexible statements, target

covenants, provides have reaching ratio some target investments, M&A. doing Beyond through the which the repurchase to from meaningful ability had debt restricted been closed, since relief internal X.X deploy us reduction debt our which times capital share excess previously or and leverage transaction we

long-term increased our breadth recent the not budget positive spending to macro available assumes perspective, request. pleased a interest line and it deeply passage full defense the top sequester a again capital the of deploy will readily From we as the are as as caps provides us, options We to is above more as guidelines have resolution shareholders. the in discretionary budget cut to excess of look for once best non-defense spending joint of our an be

beyond and and higher Senate authorization we defense we fruition. That all optimistic the the much on be to In look and said, there are to resolution come the work to point expiration this House will XXXX, addition, administration's X. continuing levels of current year fiscal amendment done is still December in XXXX the bills, budget as spending

However, direction with from control, ahead. the priorities on capabilities In we as macro results what and reinforces focus further positioned our benefit this belief budget related and our within third are am quarter backdrop well strategic is year-to-date. I customer the dollars. closing, that of the exposure am our and and our our with we what administration with lies encouraged pleased in I the to

ensure cost-effective our solutions of most the their and missions. they customers have look and to line the We growing to the on have collaborating innovative as all focus offer a top organization levels segments at to across accomplish we

clear program Chief call excellent outlook. our With more for a dedicated of a savings over sight and delivering key Reagan, Officer, and Financial an details to to for our organization have rigorous professionals future for Jim milestones committed performance synergy on increased we in XXXX. early to shareholders. me plan unparalleled hand Leidos' year We enabled of in capture value and full continuing by cost the have customers And XX,XXX success line and our for have the finally, that, let quarter

James C. Reagan

to which lower-than-expected ramp an in reflected diluted this a you and key performance; partial from the highlights just call provide XX.X% prior-year of XX% down benefited give elevated program some continued early shared rate. first, to business. more EBIDTA Thank Non-GAAP year's sales the operations the IS&GS an or I In days. have for our to typical leave to the of in on over you continue time level transitions second, and that of; programs. a of adjusted programs outstanding, the from the a margin margin quarter, everyone, with had associated a discussed for and as systems some our press with during cost from will details grew line the release, thematic disclosed will of $X.X which flow tax strong and timing days period, driven slightly prior for of previously all questions operations. continuing on we've DSOs, some of this we from we strong the at call. exiting of numbers transaction, billion morning. the IS&GS performance the with so reduction us third contribution the a thanks, quarter expectations program Roger, calls; has the some full Roger results was by XX reflecting surpassed quarter as elevated joining Due you, Revenues the effective seasonality, EPS strong well combination slower-than-expected and quarter cash $X.XX third, commentary for write-ups on of Non-GAAP context are already this of achievements high-margin our quarter the

days. the operations the and in with said this level in past, again, Note now do DSO fourth expect approximately cash below line seasonality. of quarter expect in quarter the reduce year-end targeting in that we've from flow to we XX the in come we levels, third to are As a fourth quarter

approximately the In we've cost million over day our $XXX one to quarter, Now, already instrumental of third synergies. relative to for in Remember $XXX in plans increase consolidate first financial We on the run addition with million level a realized realized on the cost targeted XXXX. systems to update step is $XXX synergies total, integration a million, quick track this function cost activities. remain in our of through of rate quarter in to that realizing synergies.

Our expenses achieve target expectation level of required the of unchanged. synergies to is

$XXX the and the million levels was to our in quarter targeted $XXX million. of cash end million, balance Our equivalents cash cash with of at $XXX line

our During QX, reducing through future three to progress cost we in interest make continue actions.

$XXX levels debt; B, basis spreads $XXX approximately First, million we additional million A repaid portion we of debt the an by loans of our executed XX%. and third, of bringing we portfolio fixed the and, second, points; interest applicable XX term XX% prior from of refinanced swaps, to up reducing rate our

we me on our prior-year on single the in and But although, case, the in and some thus linked comparisons included in Solutions revenue not our let numbers protested our not numbers. IS&GS portion in billion IDIQs for book-to-bill the during results. segment order, Now, revenues Notably, quarter award less and particularly the partial some Defense which awarded this. Their these details provide was to given some in quarter. task in the a are quarter, release. contract are the the of meaningful Starting $X as wins corresponding new been is me let nice therefore the We wins a the segment. has and of Again, IDIQ first increasingly had bookings were is additional period. margins, press share recognized details context, significant

non-GAAP for driven quarter X.X% we earlier, operating basis declined margin at was of high certain reductions down ramp margin operating as the margin as contracts. achieved our XX non-GAAP of reflecting Civil income quarter recognition of was robust well Our first a in new sequentially, of income watermark segment, gain higher our the program points contract. discussed cost on higher XX.X%. this This level by share of the quarter LCST the Notably, the In performance.

Defense us of this implementation through reminder, to a with and the contract As our Ministry savings the systems infrastructure. enabled share allows for of the

in a margins segment as continue beyond to and we XX.X%, provided that to to Health growth higher levels uptick performing benefit these from continued prior both to uplifts more the expected With OI perform contributions normalized from steady-state slight than with and, margin move revenue to the programs Our will believe are quarter. very at programs These We guidance. from of level on-contract programs level non-GAAP that, return well, I'll a on on couple which what again, increased contribution a consider QX. well. we from a

gives previously us previewed, elements upward QX in revise guidance. our year-to-date which confidence performance strong As continued of Roger our to through

to XX.X%, unchanged to from expect of range up Our $X.XX prior revenue now expected at $X.XX, up our to range $X.XX. to expectations billion EBITDA to to We $XX.X margin of in diluted of to is range for prior from be $X.XX EPS the adjusted $XX.X range of of X.X% the in range billion. remain now the a Non-GAAP XX.X%. XX.X% be

the is operations million. $XXX few above about million, from a also believe drive to We're we year prior our at year non-GAAP will at million which We're by Our XX.X% or revenue by up above in to profit CapEx our effective our guidance $XXX guidance guidance. increasing million, of for range $XX driven XX.X%. notes related flow to range identified, future or from we down now for cash from have full tax growth. estimate investments prior specific $XX to other additional and A directly revising of our rate of to XX% be already XX%,

an challenges positioned achieve XXXX. customers while well embed it we're pleased it's to continues we're and conclusion, Rob, assumption we continuing to-date, our guidance to cash. open that questions. increasing on resolution the our with confident remain our the the In focused now, operating to of Finally, targets. critical be a performance and are addressing government We for growth, under balance will of most our up some profitability generating driving for time that

Operator

Thank Thank be you. you. a now question-and-answer We'll session. conducting

comes ahead Please with go question first Our your Citigroup. from Jon line question. Raviv of with the

Jon Raviv

guys. morning, Good Hey.

Roger A. Krone

Hey. morning, Good Jon.

Jon Raviv

Jim, or just that spend that one-time run in? a you're that this talk we $XX question down the assume of comes of specific rate, about you on And the should new number. Can later? also, million CapEx things a investing that looking kind is quick at is some

James C. Reagan

on think CapEx more it many a specific program The the due I for asset It liberty not on is uptick on and early. to a tell customer. that work we First, of and – we're an defense a we're a up. there. as intangible, Jon, details program nature bump it's probably one-time thanks to that at now, so related for it's the a delivering of give fixed to But you would dialing in right in not you doing is particular for

Jon Raviv

really Thank above and slides that. you you on a back too then, they're XXXX invested the when should year it. laid company. over XX% talked in plus, XX% anything that ago sustainability, this far margin And into I be Got also, think above you again about targets the out for morning, for and the

from So, expect upon this XX.X% and you you benefit a of the – more for is the is said is from it with to year, XXXX? some as that more this Or than side margin forward the in the where growth going number come – EBITDA should sales to is that XX.X% guidance the combination? see expect a this side to get improve we number that

James C. Reagan

think strong our it's we ability It's about again, year-to-date the achieve that Jon, it's three performance first, had we way really things. margin things. – the this is primarily to is, two –

bit First, that our ability reductions the had cost expecting been than previously planned. we faster we achieve to a

be would couple And have executing programs of that expect their are fantastic you third and thing of integration of second material a the two large we and a XXXX, on can increases talked be and program That and delivering talk businesses about our and beyond, on we'll continue that bumps our in plans health call lifecycle for is that delivering well. normally in would XXXX The we'll without earlier people doing in you in our margin little is as during have you said, as programs like normally that's should complex hear margins we that. up the me one job than in visibility temporal about are have rolling higher you the any programs ground in and better February. and a the for do things into speed I a of business thing margins business, bit what when that defense we have that more a even tell of we kind certain consider of the better the those phase that typical,

Jon Raviv

I'll hop Thanks. queue. right. back the All in

Roger A. Krone

Jon. Thanks,

Operator

Cowen. line of question. proceed your with next from the question Cai with von Please Our Rumohr is

Cai von Rumohr, CFA

quarter. good and much, very you Thank Yes.

new you color if programs business of on percent those? maybe, you've on awards So, amount of color and give protests are won. of the us some big outstanding what How your some that were maybe

Roger A. Krone

really we the to in Though billion out billions. against we between frankly talk in protest to potential protests We then a programs and across $X.X the I'll lost that and defending have we protests it some way. number probably Jim low-double we've protest in should believe both a have board. we That's good number that frankly break let and bit the awards much businesses continue would Cai, I'll the won. you about see digit revenue on activity I tied new. we in don't about is won hard think protest, in of know protests, that is little Thanks, we how business a But how ask involved that up disclose morning. of filing some

So, his billion. would the greater $X to programs, the threshold. awards one you all forecast in in number that into And roll prepared be remarks account if of when were going just that we in revenue. over into it and And world mentioned up that than add Jim we the is that us gets try to to these live are take we when itself and

about if the you know, to want Jim, I split. talk don't So,

James C. Reagan

Yes.

Cai, at so of – you our new. typical new that can to So, But booking when year XX% as more existing quarter in bookings, is of and seeing net been on-contract that – we've contracts. in growth think the trend of roughly a spend is it one extensions far look take the you the related the new is

reminder of hadn't delaying certain a through that they – case conservative incumbent, As about five-year while have that us, go this their those until factors. something, stay to got prudent for, in ask on it I this specific would to thinking would of we you And pretty protests. about seeing book-to-bill. longer get it point of variety than don't a close a I consider procurements, for We we've of IDIQs after policy we by The are orders, the bit for go we procurement book don't one have that way normal to and quarter. make – single-award we lot a customers runway a task to re-procuring the compete and shortly been on IDIQ was it's rather if they're that of the and in and the question due a nice protested we're a think, other protests single-award on higher cycle amplifies, book-to-bill just of the will that where

Cai von Rumohr, CFA

given as this large strong as of the bookings the say tends number fourth quite in the So, not to you seasonally which quarter, what does protests have, third? potential about that for be

Roger A. Krone

the Well, Cai, to they XX-day GAO I when it limit protest. a kind we extend could within was now process a full filed, And on how if of you go think protest days, these depending question, you've actually down, it the some the a could the obviously we it's where, quarter. resolved quarter, over into the but first upon couple but upon of get or have go depending count answered expect fourth

think I bit throughout really a is this which industry. little hard. is we've on year, touched work this way, write By the a the the proposal, true across you you

You and once. win, gets XX been and then that will protested, in resolved it more protested it had hope have We've be than programs you days.

unfortunately, So, now to trend is that the right. move things the

in think number fourth about the expect I more of question some given was your protests. strength quarter more we the

some the therefore, first. I that. their will quarter we think again, slide that, fourth to But have that see there way planned one could into then, awards for may be

Cai von Rumohr, CFA

last cost your the resulted us of sequence of should we booking lower forward. those cuts, had? the past of otherwise look the And achieved rates wrap that in going you've your indicated for might in down. And success one, wrap rates the give have you've kind as taken have you not Maybe you've what results

James C. Reagan

previously losing of other reasons win We're have competitive rates. and we a is Clearly, rates And we pretty there. something say lower in the more out that than than I – realized are expected a some Yes. or seen often for benefit market Cai, seeing it's price. wrap when than this lose should – lower Jim.

other working the for gives the in With going in we've said capability more we've before. great one, invest that cetera. it or to us development, to out being price et stop so, lean And research we're continuing growth now whether made structure progress more in to Number toward initiatives, that greater it's invest development more and we're things business ability cost reasons in to that said, never competitive. comfortable

the right So, investing them some these at we're business. able and now, of back taking to in savings look cost

Cai von Rumohr, CFA

you. Thank

Operator

Suisse. next Spingarn Robert of Credit M. is the Suisse Rob from Credit LLC Please Securities Our question. proceed morning. line Good your Spingarn with question (USA) with -

Roger A. Krone

morning, Good Hey. Rob.

James C. Reagan

quarter systems. Hi, the on embedded Suisse LLC (USA) Rob. in expectation Robert in what was to And And applies growth quarter? M. organic Spingarn based Jim, the the defense particularly that I Securities the guess guidance? the then, - what's Credit fourth

James C. Reagan

comment Yes. of defense follow legacy the data the on the really materials more IS&GS we're think The primarily – relative Rob, me on in roughly because up. procurement direct IS&GS seeing Leidos is This I to and are – on for numbers versus contracts. growth year-over-year that will certain side. let rates, because that what

where we the of bit the the U.K., couple the a that without the On certain opposite we direct some going other Leidos had defense side primarily pass-throughs of building And programs a of down. was where were margin, showed center a on, defense little Ministry Defense in decline we because whole were side, pass-through direct year-over-year of has a big kind that of which fulfillment had the for down. lot wound in programs

we've before, the been of rest – as business, bit relative little said to bookings the lighter. defense So, the a have the

of headwinds? normalized organic about should be these growth – you this about is a question the see growth Spingarn of and the I on way business. on next IS&GS? – to think Securities the maybe so, Credit this at both more stronger probably normalized once is, in better companies, bit to - you And ask Is the way and of LLC what's looking the M. Suisse legacy going what the for to the And business the think there quarters, organic civil little Defense Robert health either a couple get of that through for a (USA) in across quarter. we're the we're Solutions side Or in growth some defense question

James C. Reagan

Yes.

and what Suisse should defense at side we pipeline, we the based about at larger I analysis Credit bit Spingarn to The quite of X% going is Obviously, on – is regard a the - that think in has readiness? normalized company's like – think of And emphasizing Korea. bids that with AUSA it, a the there's Okay. element to submits XXXX to We looking to we about the a is then, The emphasizing and in defense that. we're couple an inside where North there our discussion entire tell? and expect. how exposure just own heard some do outstanding the M. upside we're on particularly of this military do in that Securities back. simply – been army on about what look LLC Robert might you weeks context, in a in Beltway just rate your beyond (USA) an Is it soon think been growth placed lot business? what see What this readiness. on for happen XXXX, has or too

Roger A. Krone

both we think I that, can Rob. cover

have in ago. think every We all, seen contracts soldier last Afghanistan those soldier. all that in even more I the troops there's or think a And said – we across contractors we we've support we've Afghanistan for would have First are a that year overseas and ratio know that upticks. than quarter. support of there that's about this that – I we moderate where We've four pretty and much board mission, troops if three we seen did say

Robert number O&M. for around in seen of programs it's those very We probably I But theater increased a we're across connected couple, We dollar really again, have increased you, on programs. U.S. the a and activity Securities activity we've put haven't important to think, in overseas. Okay. And XX% revenue that Spingarn activities - out forces that M. of seeing, both. that's Thank board Credit Suisse LLC area. (USA) somehow

Operator

go Krishna the question Research. your Please from question. with with line of next is Sinha Our Vertical ahead

Krishna Sinha

Thanks. Hi.

about Leidos X% is But is growth the question I the building talked that been sort looks quarter. revenue of last just like since Rob IS&GS off this down X.X%. guess has business it I growing the target. know asked. legacy just you So, And the

up quarter. again think last quarter, up in I probably this it was X%

GENESIS some get you'll installations. know we year, tailwind from Next

to can X% But to what's X% other that's IS&GS X%? growth. with X% help of just just – you in it maybe pull the us moving mechanism X% Is terms – I of So, that the the what's I more growth? up to that work? other guess, parts there you

James C. Reagan

is one award you yes. and just like mentioned said is including contract, – Well, the where as billion IDIQ, number there also We've mentioned got GENESIS – of Krishna, single to before, lift. going a a the we've dollar a that tailwind a provide things contracts, number example. orders I tailwind. task There orders I task queued say, will should of just of some give of likely terms are of there And in kind way by meaningful up to that's others. or, start number potential of that are

submitted have worth of the pipeline customer. $XX been bids are We about award the awaiting in billion that by have and

Defense, about basis recent Health including laid X% award Civil our together, we and this by together getting we next layering call that ones at bottoms-up the contracts when when when details on and submits growth. we're so, good albeit plans they're and the the are – our have And put where the segment. pretty view. But have that awards, for all in which built that we we our our run-out of are But that of protested $XX ones wrapped And the that's February feeling of sense currently that again, place. we're about have when the guide upon we'll a and view more XXXX year's don't look billion existing look and we of business and at That's – – enforced it's schedule. into

Krishna Sinha

much. Thank That's Okay. you great. very

Roger A. Krone

Sure.

Operator

line next The with is Goldman with Sachs. Noah question question. the Poponak of from Please your go ahead

Noah Poponak

Hey. morning, Good everyone.

Roger A. Krone

Noah. morning, Good

James C. Reagan

Noah. morning, Good

Noah Poponak

super a this if me question. obvious forgive I So, just But to is confirm. want

organic call this XXXX. this on and revenue growth be with X% total report in today, that are, You forecasting the company correct? Is to

Roger A. Krone

Yes.

just reiterate. Let's

year out, have from – we number We revenue guidance ago. or line we that Day last we top have obviously, guidance it a X% been of X% that Investor guidance put right? So, August changes has revenue the to consistent and line, out been. left the X% that All our since no over put we where made

Noah Poponak

the XXXX, for This I'm But X% rate compound XXXX. Day Okay. was the from correct annual – X% growth a wrong. XXXX, if me Investor

would And you're – enough to in XXXX just so, honing you curious different I'm than on have if little that. visibility be just a if XXXX saying is X%. be

Roger A. Krone

mean not made Noah, comments we out and reiterating And, see It's specifically reason I'm the our to past, sure XXXX. just you comments – the And and to don't this evasive is, this. process. Jim It's anticipate Yes. policy. made the that not earlier. for that had no we as I said today, has we we change just had guidance I'm are putting be on our in answer

We with call. XXXX earnings guidance out put our will February for

Noah Poponak

And I that actually average would window? to XXXX if would other the guess, or for it on by to standing Okay. is to shaping that you're years that imply way be X% faster be XXXX to or that flat, statement X%. one XXXX is, target three my those about the three-year than then that XXXX a was XXXX, up think to and X% to closer extent both actually then, the get and of XXXX CAGR question right Is

Roger A. Krone

right? We – going Noah, All thanks. not Okay. to just at go said Nice X% CAGR we're is Investor Day... try. there. It

James C. Reagan

beyond. and XXXX For

Roger A. Krone

until address and to any we're beyond, about February going in do to and so... XXXX specifics we're guidance For beyond and revenue in not XXXX more ready just that

Noah Poponak

Okay. XXXX, and XXXX I for CAGR thought XXXX. was that

saying for it's XXXX You're and beyond.

Roger A. Krone

the we and in charts August Investor the recently. that's Day last yes, that – at had that's But

Noah Poponak

beyond? and XXXX For

Roger A. Krone

what that's said. – the what we That's

Noah Poponak

Got it or that of – DHMSM was accurate? prior it. questions a next of Is adds two that growth year. that Is point one the accurate

Roger A. Krone

about level be. We – you program details what what can haven't mean, we've kind of – is their again, of of XXXX, and revenue I specifically. and And we actually or picture between that talked peaking the program. said don't XXXX provide $X revenue roughly would contribute it's will program with camel the XXXX, contribution XXXX a $X.X It goes kind that hump that billion in on billion,

the math can So, of that you kind way. interpolate

Noah Poponak

saying Okay. you you – that's that CapEx for program? The mentioned, elevation were classified is a

Roger A. Krone

about. least, us that don't a They program in it talk – is It classified. customer Yeah. would rather I that At it government detail call sensitive. not calls know the it's the sensitive

Noah Poponak

DHMSM? not it Is

Roger A. Krone

DHMSM. not is It

Noah Poponak

Okay.

Roger A. Krone

is defense a program. It

Noah Poponak

it. Got

Okay. you. Thank

Roger A. Krone

you, All right. Thank Noah.

Operator

question session due our you. of Thank analysts large And follow-up for question. please today, one one question to number and ask the

next Our Please question. the with proceed with Ruttenbur Drexel is line question Brian of your from Hamilton.

Brian Ruttenbur

Okay.

it down. Just two questions, I'll narrow and

The to plan the ones and cash on up is of XXXX Is more shut it the percentage rebid? question target. second rebids. for you first in paying the is ratio Is it what Can acquisitions? And about forward? up. you debt. be you your the is coming one your you've then, going where talk down flow hit about focus to The Is major debt? up And I'll portfolio Can buybacks? want about that now talk going

James C. Reagan

Okay. Thanks.

X/X also, tuck-in focused our before are through there. or the either kind share completely resume. and about think expected enhance first, are a acquisitions? although speaks pleased roughly buybacks our get it to than things better finishing be next about taking the So, put of We're expected spread and investing things that with capability growth, still with that that the pricing in then more It's integrating thinking be. – always to, the level the bit to are to more said where comfortable that fixed continued been we're we're previously, possible that at R&D, those about think to we've And integration us, of are on And of LIBOR IS&GS to be the bit a where we business. looking and that but this I competitive and very debt augment times. really on capital really, we've What leverage we're your on question priority I them of we EBITDA deal. today, since priced given some not But And able talked to cash we we've cash. talked X/X not the opportunities priorities ahead enhancing it M&A. can order, work, also fixed. possible to about flow returning think dividend we so of that, We've our win things for it and this cash, for scale work shareholders, that And X.X at table, it about T&M the us reflects, that at of we're allow rates particularly contain closed little off very might that on

And it XX%, at contracts. years, awards XX% any of then, So, from big looking again, XX%, new then, year on at, any talk are stuff the all to new takeaways it's from from options. in about not reasons. growing already we rest any that particular bids the some roughly don't we we're as existing relates those that's in order but year, anywhere that things we're our the coming given But there, in are competitors And revenue, roughly looking specific looking or pipeline, for the at XX% obvious comes books. from with given

Brian Ruttenbur

you. Thank

James C. Reagan

Thank All you, Brian. right.

Operator

with line Our Kahyaoglu Jefferies. next question. your proceed of Sheila with Please question comes the from

Sheila Kahyaoglu

Good Thank questions. you taking morning. for my

Roger A. Krone

morning, Sheila. Good

Sheila Kahyaoglu

morning. Good

GENESIS as do business, then, see this? I margins, the about more of you a up? we guess, within So, bit can on sustainable little program? the ramp first, is little talk on falloff a healthcare pick a the ramp And just maybe the of When starts specifically to how bit kind

Roger A. Krone

Thanks Yes. going give I'll on, some what's questions. Health you the your program. Defense on updates just on for

successful we're performing You've going probably how IOC fourth that gone IT is read here, we written, really an being site how that's being at some our with installation, was, Madigan, have tickets the not which really, live pleased forward. but that relatively team without at and

we're year. in to structured, waves. we've we to the the the through IOC then, start rest sites the Now, of of the spring, program really and our GENESIS going the And way got those always program out roll operate implementations was in

level ramp-up we that as next And about down. then and until said, we the waves ramp we back we implementing so, Jim year. half stay towards start the of at start XXXX and And

install is we a hospitals grow. As there care software the facilities, new and will of the at which this, piece sustainment

your always next will our So, in the can I can at see implementations, we camel. a what and look But probably program build sustainment model line growth you you talked about, one-hump mean, we've add you and have year.

James C. Reagan

storm Yeah. we And as is. remarks the it then, I Health Sheila, of more back and of relative where to of business perfect down to the begin look I we're into is intimated earlier, guide that in margin generating where a that and margin normalized But question very they of we margins phase several something And contracts that don't quarter margin contracts a are as wonderful, that this – clear wind again, the are the XX.X% had level. that to sustainable that we it's clear because make over view of want we in we are at there be that haul in generating that had, we XX.X% the kind the will the stand, at are to sustain to to don't go that of But segment not higher is a do pleased want my you everyone performing kind same the level. time because that – things there the sure number XXXX. have long is

Sheila Kahyaoglu

Got it. one a is just follow-up. enter as we across have guess, portion segments? healthcare or And XXXX of similar I Does re-competes a larger it

James C. Reagan

had a is of be XXXX, re-competes the on in cycle lower will we on re-competes picture we've we than in we won into those. some level in again, to that profit We've sure we visibility will gone think, through the have re-competes. the margins working be that of – And what I bit because of will those, lower make were and win the work a XXXX.

Sheila Kahyaoglu

you. Thank Great.

Roger A. Krone

you. Thank

Operator

SunTrust your line of Please Tobey with question from is next Robinson. question. the Our proceed with Sommer

Tobey Sommer

very you much. Thank

spending in could could Thank overhaul. a system healthcare about And The you your environment suggest if that EBITDA is your an you comment question maintain a then, on margin outlook? positioning XX%-plus does a for And as pipeline, potential kind wondering of first climate, an backlog was I margin. VA you.

James C. Reagan

to as looks on a outstanding in year above our on like that the that the VA of the talk we portfolio as house, a margins EBITDA Roger on of what speak – margin, Yeah. belief fashion the at we line. view then Tobey, will confident opportunity. Yes, manage or overhaul at and programs make is we can the we're the bids well ago I'll that have of XX% and made when we in about promise we over margins again, start good and look just portfolio backlog

So, yeah, confident we in remain that. Roger?

Roger A. Krone

they taking IT the are asking major you're that announced in system. of VA, have We sort In across scheduling already which board. contract new modernizing was writ we a working program specifically view of lot refer records with vendor Yes. where as VA, healthcare one is in electronic Mass a Cerner with strategic the a the we're systems to put to of as (XX:XX), a about large think their with I is a prime. June scheduling VA But healthcare

We a to have of provide We a value great relationship with lot VA. Cerner. the

way that the either call out last – will this and is think had week I a roll Cerner week. or

hopeful contract role that in the can of was going said we the our records meaningful with with them place. VA program that and level they we healthcare conversations how they what provide happens in think when veterans And negotiations the need. prime are help get And I they're that to to we their in Cerner have forward. have a about we'll will

Tobey Sommer

much. very you Thank

Operator

the line Please Jon is Citigroup. question your Raviv with proceed The coming of from next question. with

Jon Raviv

for fitting back me Hey. Thanks in.

Roger A. Krone

Sure, Jon.

Jon Raviv

A question Defense. on the

also are bookings when the and because lose, a segments light of it's not that, other bit the mentioned compared price. You to you

on far? of how So, have thus learned you you've other some improving the I'm the curious, What dynamics? some are been of lessons

James C. Reagan

think in be installed proposals. wrap again, us looking are little bit submit time, we and Anything that in saying these them time right the looking thing the rates of of get that But of I put the the but the will we we proposals we pin the way is are learned of that the with understanding sure the – get the winning. slots for that to sure that and I'm in lessons else, we little finding day. a that making are XXX% on are more terms the that have the Roger? we've getting depth customers a write of management year last days for, not enable not to what and in have in the spending to account the is And spent that when closer we make customers an site focused we bit better customer what and is right people every team the customer

Roger A. Krone

No.

James C. Reagan

Okay. Thanks, Jon.

Jon Raviv

you. Thank

Operator

Mr. from is your question Poponak, Poponak is Please Sachs. open line of proceed question. with your questions. next line for with the Goldman Our Noah

Noah Poponak

Sorry. I of in synergies versus to be left XXXX? the was dollar on mute there. IS&GS XXXX gained What is amount

James C. Reagan

be In to going rate terms areas. run of to on basis, The much not come primarily synergies going it is from Noah. next we're is than experiencing in step what now, a function more two

today that from sustaining That have Lockheed them, That's software systems of in we the is – cost significant that Leidos systems cost. those IT the we – and two legacy Martin, is the cost process migrate as maintenance and of platform. cost onto over that that's ERP of One came reduction finance. large people and within

capital function or of of us now, $XXX pleased run and The about second a bulk will to of The better it we're million time and rate of in finished. that of that also synergies of around but by real Right here And we're give consolidating we've on be function at lot get other achieve – vacant that will in capital The of slug country. national also synergies. the next $XXX process it part the but we number to we're years also space. said estate. a national A around this the synergy is continuing again, step to year big our million. locations in following – the the on we're region, region, step going here

Noah Poponak

Okay.

you that pretty first be which XXXX I except sounded step-up said your versus know very like a mean? Do sentence, of what in healthy All there one. XXXX wouldn't for

James C. Reagan

in our creation synergies large what system. – the that our no. early general affect cross ERP that XXXX, think won't think of we of cost for structure. made be consolidate XXXX we've no, most it the changes was, ledgers, and Noah, linkage until will And I I systems our in said don't No, we

system. you that we big the for next have systems $XXX I in there'll announced maybe room that Costpoint But million bring I think year accounting we of be There's in achieved. together $XXX of could next millions. the the we single what said XXXX see on us was probably mean, event this beyond call million lot to year. most back-end digit a a calendar that not be left Deltek will

Noah Poponak

the you Got when be, and what talking the looking to about in down of it. it's getting if it repurchase. kind wanted of deployment meaningful that the you I further with right. used elaborate even road? possible ratio where leverage on share you quantify were be capital think description at, maybe Roger, All we Can flexibility word you level could

Roger A. Krone

Yeah. Well, okay.

it trying not reform We're a week. there's way to just right, So, to we out. quarterly buy all it And you will we to be just a back is buy on comp. we what just just if our to also executive seems put And be Again, Congress. it is finance our to it this be to obviously trivial. much choose that We're those when through But would back I creep, to that's program, words indicate of meet be will. to you did the it due to program, a chairman, initiate Fed initiate sometime our to of us, which buyback tax new the if bill trying is We're a committee would what making we And that with But meaningful. one we're on options with call, its I the going reiterate basis. a appear, going thought. get consider not we want dilution message that, won't was that going significant. if we

that those to we to based cash upon how redeploy and we efficiently cost how our about we will our capital we're things and of cash, our and appetite driving thoughtful and decisions options all owners. make affect capital going so, excess for have And the do growth in organic return that our to

James C. Reagan

that, me more say I XXXX. your just a answered more I question ago, Kelly said wasn't thing, in much to in one there wasn't opportunity And pointed XXXX. that opportunity I there moment meant to just Noah. more out when

Noah Poponak

Got it.

James C. Reagan

next saying by kind then I there's contradicted myself know of I another year. $XXX million

Noah Poponak

opportunity. the all Here's

James C. Reagan

Yes, right.

there you. for apologies my So, confusing

Noah Poponak

lot a makes a and That like of lot more No. sounds sense opportunity.

Just up brought since one tax. you more then

a the there wouldn't Before be reform assuming normalized should bill, rate company? long using what run tax tax any annualized for for – be we

Roger A. Krone

afraid we're plan tax hold finish I'm to our until do Noah, our next we – year. going to have for off

Noah Poponak

Okay.

Roger A. Krone

to you've for new us so we've ago. that. but what, to wait with call. the a what head we and a said, that or have far say made we've doing in We've better have planning of rate two – year that is been improvements had of us great February better I a got just We over, job about tax until that than seen mean, do XX%, who's a more normalized in you'll helping and doing

Noah Poponak

a Thanks lot. Okay.

James C. Reagan

Thanks, Noah.

Operator

we've Ladies of end for reached you. and Thank question-and-answer the gentlemen, session the today.

Kelly Freeman to remarks. for I'll Now, call turn the closing back

Kelly Freeman

Thanks, Rob, us early joining a all, and you, call the today. day. Have good on for bit a thank

Operator

teleconference. concludes This today's

may your lines this participation. disconnect You time. at for your Thank you

Kelly Freeman	Leidos Holdings, Inc.
Roger A. Krone	Leidos Holdings, Inc.
James C. Reagan	Leidos Holdings, Inc.
Jon Raviv	Citigroup Global Markets, Inc.
Cai von Rumohr, CFA	Cowen & Company, LLC
Robert M. Spingarn	Credit Suisse Securities (NYSE:USA) LLC
Krishna Sinha	Vertical Research Partners LLC
Noah Poponak	Goldman Sachs & Co. LLC
Brian Ruttenbur	Drexel Hamilton LLC
Sheila Kahyaoglu	Jefferies LLC
Tobey Sommer	SunTrust Robinson Humphrey, Inc.

Leidos (LDOS) 2 Nov 172017 Q3 Earnings call transcript