LDOS - Earnings call transcript Q4 2017

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Operator

Greetings and welcome to the Leidos Fourth Quarter and Full Year 2017 Earnings Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

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

Kelly Freeman

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

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

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

Roger A. Krone

XXXX transaction. fiscal this of Leidos joining in you, all, thanking to of employees resulting quarter the our the successes Thank potential great effort conference financial call. had my their incurred you, Kelly, earnings significant strong XXXX start fourth for performance realize morning our dedication for year us with year for another thank operational and commentary to our I in results. want by to many and

for new the focused required stay exited integration the and Business. Our employees and finding difficult delivering of able an to as to grow on as synergy drive we agile organization, customers leaner our the and become to were more business the while decisions IS&GS making opportunities

consequence XX.X%, results. the delivering am activity, Adjusted a notable As of I strong the to by proud cost from driven and some this our part increased large XXX margins our in of targets. by outperforming year report program synergy bps to XXXX EBITDA prior of highlights more performance

are solutions of problems, most new Leidos, of to has toughest pleased business. people. our to from innovative designed time to together with lower awards deploying leanest to million structures while booked team $XXX requiring of we has and customers into our over generated backlog decisions billion million proposals. on and levels technical of $X.X an those to At customer returned continue outstanding shareholders debt. We requiring $XX We innovation. organization. operations taking at with high We from $XX submitted the dividends and delivering their and an to come well stronger solutions portfolio how roughly to I'm through on well on grow cash the from another flexible the those await This can to billion delivery the of especially billion our us and positions capabilities. that of of going-forward the approach culture agility end commitment focused $XXX budget integration wide our rewarded. of on culture, customers commitments, Our emerged our We offer even on a organization been and the focus, all building recognized care cost

and focus rates. our investments look to we processes business resulted as improved activities and development importantly, More on growth has win business, improving the drive our in across

the confidence time our takes are meaningfully certainly actions it the which translate this revenue, increases to While to taking we are against and we in executing. strategy

the successfully focused to on integration concluded, As activities of XXXX more majority singularly been are having with we the growth. we look

right With capabilities are people the right and to to cost we innovative structure, portfolio at right eager around place, the best world. value the in of the deliver customers solutions more

the remarks, you further XXXX. in will expected Jim As in inflection This the XXXX expect our to growth detail accomplishments. business XXXX for we reflects in in rate impact his of our grow

we First, in had deal. far, resulting onset more more we in thus cost expected the than achieved million than at optimize the structure, continued cost XXXX, considerably of synergies our $XXX to of

activities However, due expect this future. XXXX thus in not on most decreased the revenues programs. resulted this in now in to reduction of concluded, headwind cost effect do this XXXX, our a to see growth we removing cost-plus from With headwind

already vehicles Additionally, our we to during XXXX, portfolio. XX broad added IDIQ

recognize our While aiding further these from the well XXXX. tangible don't to contribute we vehicles, materially backlog to growth are these believe positioned our year, value we in in

business the our improvement Finally, shared closed since we experienced as have these to and through and with rates taken actions expenditures. in and proposal XXXX, greater as win improve have we processes actions us modernize continuing expected development of our have proposal our the we return you, transaction a confidence gives bid on center. in result The

Agency leveraging to broad remain increasing focused just XXXX. innovative beginning We since our on solutions our period and of $XXX activities our a We in year, with Notably, to won cost the a and investment more lean capabilities we on As few value highlights the the XXXX National ceiling successfully technical better five-year such, of on area deliver BD structure are in ordering several have which a total price customers. our we in A this defended IDIQ and programs. Geospatial-Intelligence has significant contract contract these. fixed million. protest a single-award share to

the received and in task already work begun this contract the have order on We first future.

successes, received me with confidence are approximately classified positioned improved the for and deliver confidence new million $XXX awards roughly activities, the first budget in and rate long-term our committed or investment and give to win for and XXXX two-year authorizing billion successfully incumbent are XXXX we increasing on above XXXX. record of customers growth the quarter. that beyond budget $XXX We defended at re-competes strategy our also we recently designed in to our passed on Also a these couple business a on executing position The is for of at agreement incremental margin combined These development with top target. and in $XXX billion our defense a Pentagon for line the

the three higher spending level ago differently environment through budget As budgetary the more has we most time in of nice of evolved has than to which expecting to process. and many believe will expectations taken aspects, things a defense agreement that Washington, tailwinds the key budgetary were believe the I recent provide a includes do industry. work The year

removes the budget XXXX ceiling. and First, and XXXX the removes debt for caps the agreement

very includes agencies. for Second, both authority and security the agreement budget civil national strong numbers

fiscal are lag Third, to of fiscal the allowing improvement between weeks, the associated the time two-year prior take believe agreement outlays procurement noticeable tailwinds. to in the revenue suggests That to and possibility start expect XXXX bills additional benefit well we but a we environment. provide said, the we The positioned predictable appropriation year strategy in will stated budgets budgets. authority, the but year of and given materialize the do government from new continue detail will defense into XXXX, higher with XXXX from timely and benefit from hopefully to budget with coming XXXX for outlays level a for a in increases these

a to to more over I of our provide guidance, hand discussing business. and moment our Act the and financials Jim Cuts to the spend call want Tax Before Jobs on impact our the details on I

elements act, are discuss are a few to at we this prepared Although of evaluating areas of still some time. we the the

near tax new reduction our taxpayer, see full we expect a federal XX% as a the to rate First, rate. effective due rate overall in material to

in to bid plan and proposal targeting initiatives through Second, area we specific increased growth. line our more top invest

offering to our advantage to our plan solutions and capital to increase we Third, in more innovative invest in technology customers.

to committed remain we capital Finally, philosophy. deployment our

regular additional be in to up a shares. and time million will topic, authorization for announced XX morning our a expect of minimum, debt of This our to share programs. share for market in our M&A. capital at have in deployment, time both this to of including deploy to the compensation excess through investing we us consistently As from consider we board flexibility effects offset allow and share repurchase the indicated, from the near-term, growth we this business In to, creep a the the repurchase, by order we approval cash. organically options On dividends, number reduction

former I'd his like Chairman moment service to CEO, thank to spend and for Jumper, John Leidos. our Now, to a

results that Chief the the fiscal cost path as the of at let long and will decorated endure board for fourth announced Officer, from Financial pleased the am of in John's set and earlier growth we with quarter well hand after May. company, seen year have of more that Leidos outlook. to In on XXXX our came in intent may us results career of structure confident will retire as capabilities a serve a tenure continue Leidos' XXXX us call its leader. and XX-year to you leadership to am our efforts increase this our technical we a the undertook Force, term technology retiring that, his his Staff. in and Leidos And in as States Throughout counsel conclusion, the to and global the Reagan, our with over legacy I XXXX. John's Chief driving beyond. week, I XXXX improve we end As and to John Air Jim With United on details me in grow

James C. Reagan

we're tax to expect of be have some the released call tax a the for impact morning. beginning to Consistent below-the-line rate on federal the XXXX, state our previously, in resulting savings and with rate enhance reduction I'll rate The of to commentary a invest Act Tax the XXs enable the Roger, effective of in corporate you, suggested effective we in the these mid XX% rate the we Tax now plan the whereas range. first high of everyone, this thematic Act XX% from around in inclusive us business. joining the Tax we growth numbers nominal to remarks the Act, taxes, our providing Thank in before non-GAAP reduction we does with thanks, the start our tax to of – intent on today.

against Specifically, bid execute to to proposal growing pipeline. budget our and intend we better increase our

company business. to investment that will the rates meaningful highest be here the and Roger the indicated, returns within As that win improving particularly the that ROI with the the we generates believe

reduction other to the changes the included several provisions. beyond act rate, tax the in Additionally, corporate tax

accelerates the for capital beginning allows returns in acceptable of have these for of lower fourth One we and on investments of that of which such after-tax expensing expensing assets immediate meet rates, capital portfolio the XXXX, With ROIC. our the broader quarter investments. now threshold a immediate

been we generate While now some our higher committed evaluated technical will CapEx set investments of that we of CapEx where investments model, to to-date returns. to business our but discriminators have facilities-related, a we enable as capital-light expect exploit have select most well. remain increased us investments our ultimately We technology have opportunities always will

As of such, with prior roughly level from capital we XXXX, view steady-state being increase to for a the investments CapEx million. million company, of $XX up new expect $XX in our

date of the quarter, Act, some shortly. the did to I'll we on touch Tax enactment fourth see XXXX due which in benefit Additionally, the

with we performance. on our highlights positioned in are so we fourth from going targets believe we moment are Let XXXX against before and full-year results we well a Overall, our discussing into pleased margin with cash a particularly me XXXX. results delivered with the more results. and how spend XXXX, few quarter start strong full-year our I'll now our

our accomplished our First, through our annualized was as diligent synergies significantly of the XX.X%. Approximately performance more EBITDA as excellent well of cost-plus-type some margins and areas. year from of efforts the in primary prudently to gross in improve from all $XXX driving well resulting a as synergies end invested half drive customers intense portion by in offerings back three operating as views revenue of business. with employees for and that to the than program cash We on went to of to contracts, that million our margin. the of XXXX. directly drive cost $XXX generated realized of as focus improved cost We initial XX%, competitiveness million through on margin and of to other Roger headwinds adjusted the mentioned. operations year half exceeded X.X% This growth deployed We

we floating $X.X reduced shareholders one-third total our debt that to the end primarily the in will And provisions fixed is adjusting $XX replacement two-thirds infrastructure program-related of through second, debt, quarterly purchases to approximately Of have our tax expenses returned And our for some expensing $XXX late by million capital spent swaps outstanding that of we at on place. of net bringing debt year the take and our total is after $XXX dividend. immediate the plus First, third, year we billion. regular position of rate the advantage for company code. million we million

As mentioned the shares. repurchase up share we board announced earlier, this of from our a approval morning million to authorization XX for

year a Beyond share billion as in to the billion market and for in rate. net our shareholders billion of in with X.X. capital be We of have the already consolidated to time pipeline $XX of to dividend, we backlog book-to-bill our booked through expect our time the year than to awards consideration return during $XX.X from the repurchase greater by for our the revenue XXx backlog in run pipeline programs been submitted We customers. of a exited well. $XX

to correlation programs between integration-related quarter enabled X.X% declined for compared results. some our to revenue saw capture. lower declines cost-plus Revenues commentary direct our Now quarter year. synergy of cost prior the in fourth We on billion a by $X.X cost the the our and the specific

key were of able this offset our was the with decline. by these prices, we cases driving from lower to that some year-over-year benefited some greater headwind in this customers revenue While impact to scope contributor a

X.X, XXXX year in in up expectation strong billion submitted XXXX. Net expect we've confidence quarter driven the across ending at in in us Despite quarter of flow this of the was with Cash number submitted these on in diminish and some growth the cost existing level $XXX than compared higher XX operations which EBITDA of are the of we and of our a prior DSO improved broader conjunction as expected, the occasionally as quarter level impact level for million several activity notably seasonally advance awaiting breadth, payments a IDIQ basis to scale, resulted stable cost on driven that win array more small more programs. a the a $X.X in a activities by years points backlog, margin program Non-GAAP better to around highest X.X% reflecting This due soft structure. than headwinds than payment seen adjusted by of proposals. of the rates for in We our higher decision from level offset of we experience our give anticipated volatility XX $XX specific in bookings days. came of year reduction our expected, book-to-bill a billion customer do performance. proposals DSO of to large in

by IS&GS successful synergy system. intensely area the material ultimately mentioned to delivering and migration the of to financial cost the guided of we the levels in optimizing While on systems the target. the billing significant remain as the We've and with Leidos our operations reflect in last final at systems focused of items, our planned you being this legacy final reached in a the remaining accounting or billings these collection DSO milestone migration cash We past tranche from will the the level timing this instrumental delivering transaction over month processes. flow from of above some efficiency and

quarter tax to XX.X% far, talk just So non-GAAP lower under net my remarks. as about full expected income and shortly more year bringing for rate on than the our XX%. of guidance at in cutover slightly been rate effects the expected, the came this have during The we'll

to as a we will indicated lower Act. Tax due rate from benefit forward, earlier, Going the here

primarily offsetting we XXXX. of Given excluded its results Partially this assets revaluation XXXX liabilities our our impairment enactment lower receivable Note net note from of date, million we an tax to $XXX from that this from the fourth disposed and non-GAAP recognize to income, related excluded at an have quarter in of the $XX the also benefit of million on the of charge outstanding benefit net GAAP deferred one-time promissory rate. results. was benefit non-GAAP restructuring resulting

quarters, highlights as other I'd discussing from our earlier, intangibles now amortization has our discussed non-GAAP outlook. declined lower Revenues of before we impacted segment results was of year-over-year. the headwind from to cost of concentration revenue our and it in well as As provide impact the by highest of restructuring as the the in quarter our X% Defense the the Solutions This structure contracts. segment expenses segment results. also cost-plus like most transaction exclude some in

strength results quarter's program. in program one XXX to as strong and the we programs reflect the we the were well points see program the as across year period, XX performance grew drive book-to-bill a in on programs in growth the strong the also the others. our as revenue timing versus some programs. quarter margins we in year Sequentially, year-over-year indirect of non-GAAP improved lower the the the prior did Health to some a segment this revenues offset just performance increase from prior in to earlier which the sequential slightly on recent expected expected wind able In basis approximately were purchases The costs. decline Non-GAAP X% This discussed year addition, revenues versus points the period. margins also were essentially due for year lower decline, costs. was in begin X% margins time increase reflects due couple the the in by from and certain which in material manifested now. period year as while lower of X% volume prior in helped delay have versus X.X revenues by declines the more segment, portfolio rates period, operating win momentum contracts Civil down sequentially down from driven prior the indirect Despite segment. from reduced of basis a broad-based the increased flat realize to revenues segment we segment to operating of continued

We throughout XXXX. stabilizing to this the next in second of trend half couple expect of the continue quarters

However, headwind growth this we programs. through offsetting are focused other in on

to Now, a to solid look XXXX, ahead we're start. we already as off

and employees technical portfolio vehicles, capabilities lean organization, a most increasingly have in industry. the talented development a committed the We structure powerful and cost IDIQ XX,XXX and of and of business broad over

against pipeline turn that us confidence largest had allow pipeline. view with and beyond. we're our in will for XXXX optimistic more that, are since the now These give for acquisition factors executing we've I'll that We a two-year the guidance. in against closed to agreement this and process award budget And the expeditious XXXX

XXXX expect billion growth in the of the $XX.XX We billion, revenue $XX.XX X% reflecting to a range midpoint. year-over-year at

the by top growth more the couple out expect rates, improved on the budgetary process. to budget numbers see driven our back-end We the years, strength growth given stronger for of expect Qualitatively, to further approved of the line the environment effects years. the win our be of we the in loaded, our next procurement and pipeline, increase

slight earlier. the we XX.X% XXXX growth in margin reflecting We a to in range to investments discussed EBITDA uptick drive expect adjusted XX.X% of as

share the range to Our expectation is earnings for $X.XX a non-GAAP share. of $X.XX XXXX in per

of required transition further to lower million offset to growth. the cash low earlier with reflecting by our tax the above to an We revenue working profile the do transitions Finally, benefit QX at to support cash due capital our billing is or net rate, systems the of exacerbate increased flow $XXX seasonally operations be mentioned financial expect customers. level from expected

the expected our our $XXX cash this few QX effect exiting cash to held that do at and is million we expect in level the cash targeted million a notes reason guidance. of other to throughout A we reverse primary of This $XXX balance QX related to level to dip higher our year However, QX. million. compared $XXX

XXXX First, about is be expense anticipated to net for $XXX interest million.

we million. with revised the to for range of now and And we And at some for be the with the to to XX% expect levels XXXX rate year it spending $XX non-GAAP tax approximately consistent earlier, of as Following the over finally, our be effective treatment Rob expect turn and the in to CapEx take XX%. Act enactment XXXX discussed stop of that, Tax to I'll questions. CapEx

Operator

a question Thank to questions, will possible question-and-answer this many question. To and as one you. as At time, allow primary we please session. conducting ask ask one be follow-up

Company. Cai Our your first from question with line questions. von and comes Cowen Please of proceed Rumohr with

Cai von Rumohr

Good so quarter. Yes. Thanks much.

extension So are re-compete, you light with I first this top vigor up year seeing should contracts wave any bookings reversal situation that your six had the you bow awards you just potential re-compete a really see and have through? so fairly recall this going of you you three you're XX bookings, on don't any the we're of last so of to for get come year when – have you months' seeing, year, the to

Roger A. Krone

appropriations the what the what today, still bills, got we're and by of facing comment. we okay? we're thanks Cai, decision seeing the we've omnibus where Now, but we're That's an on XXrd March. that's way, thinking, sit for

lot see Defense few Our the passed (XX:XX). both that in forward is omnibus quite the up will new that fiscal in get free on the will assumption budgets sort of up process procurement That programs, been in hung remainder of the year and and we specific will XXrd. up cleared brakeless a cycle for continuous get Civil, CR a starts, have we'll and the the the that of acquisition going frankly,

Cai von Rumohr

the Terrific. we to the would X in And quarter it a should hopefully for year? fair comments and first based see that definitely first on book-to-bill about be your quarter, the assume above

Roger A. Krone

as in and two, nice year. since We January. which guide the can it our specific as And are just really favor protest answer. what I and know and up why know We in with a I let the quarter-by-quarter. that's those appreciate seen first or pleased we've have of don't happened we already simply say in be. on included awards me question We comments, – cleaned kind I we And frankly, of Cai, the you seen some the XXXX,

Cai von Rumohr

Thank you.

Operator

Caso Fargo. Please with the Our next question Wells Ed proceed comes of from questions. line with your

Rick M. Eskelsen

on Good Question, IS&GS the for morning. if synergies transaction. expect you've that to Ed. seen actually from revenue Eskelsen It's on can, I and Rick see the Hi.

was on an going rate? the cost synergies done what side. how You've the you to I contributing but always have higher revenue seen longer, impressive take And job the is know to win that and

James C. Reagan

the Hi. Good up for the is Jim. way of is that morning. compare from talking way case This acquisition. would I that couple I things it improved what steady-state in that the DOD in had than that Thanks to that previewed have space talk have And we synergies in The at have bid defined pipeline question. that we numbers shown in on think and think we about Day, that that the were past, of about or the plan revenue the we received actually awards not did you earlier in contract might fact, was. recall done either kind win then, us things pipeline we the we significant Investor XXXX, before in business. not The better rates a significantly the

with So we and expected revenue where little we're things up than earlier so gone have popping synergies bit a started far. pleased

Rick M. Eskelsen

And XXXX? now? in that's was you can big win You two away us quantify Thank then give what And you. how can. cost-plus also quantify about are numbers just revenue being going you you better. questions, you Thanks. they Can rates are? your talked headwind a that them of sense if what Can

James C. Reagan

Yeah.

what was win So at put we rates owe but the a factors. in we've or way improvement we number with this, looked our what really we're time it very to might as that together. different you that the compared And habit not in three we've the deal the And any are, an whole analyzed we're in disclosing rate pleased it, of to at expect, of win primary two ways.

we're – business of to does significantly leaner secondly, for to than it quarters development impact the structure now, executing couple about seeing seeing the the of different new people benefit actually, that annualized that new First, leading the was And win revenue basis annual cost then a And business the as development more to some $XXX that. headwind having transaction. synergies. pipeline processes in imagine, against. both than that during processes well we're start you revenue and million talked of the million. it half And you we're of cost over of that involved, And $XXX closing the size up of on terms a period as the rates the as is a little can take headwind, an some in then, cumulative is we bit see

Rick M. Eskelsen

Thank you very much.

Roger A. Krone

Sure.

Operator

The comes with next proceed question your of Please Goldman with from Sachs. the Poponak Noah line questions.

Noah Poponak

Hey. Good morning, everyone.

Roger A. Krone

Noah. morning, Good

James C. Reagan

morning. good Hey,

Noah Poponak

because that the Hey, revenue synergies. I revenue impact quarter from in just to you the And item, was I did hear fourth mostly basis, cost-plus also, from of million, the correctly fourth there The about follow-up that that on that before? as less cost of also, come half some a you out the $XXX on then annualized don't slippage just quarter? contract timing separate talking guys just remember did totally an

James C. Reagan

roughly question, $XXX of we actually it couldn't clearly Noah, was it year-over-year year, about that X/X The hadn't We ignore been took we something primarily guys. because been you had when year. and get wanted felt of full for throughout stepped back at impact and that it the the on the the to million, to our talking analysis a first look we

Roger A. Krone

TSA as off October in savings. of the is CAO we And second course, of and some of the his those that got headwind our cost occur our Noah, aligned cost in because that accounting work the team half our great rate has about with the completely and system, supplier in Because benefits agreement system our reduction did of talked Jim and have on we call. done management of synergy XXXX

Noah Poponak

alluding a slippage that anything? to you're in your like also additionally It Okay. of And there was remarks. prepared sounded

wanted big understand that that happened. to how Just if was

Roger A. Krone

There was a little bit.

expected I typical to think a little we last QX in, would the the number things about good mean, some pull we but month about I think in have pretty – that felt overall, a QX. bookings we able think actually, less, the were compared when bit of to I We quarter.

So good we about felt pretty that.

when bit that's of one headwind that the thing Because we were was awards, customers relative a were that bookings number that the us XXXX. adjust The required going take new in we on momentum because that number, going probably backlog it gives to for against and about feel had some a that the the contracts thing And pretty the of at gross of we to good other is good gross contract amount notable that change in them adjustment we to place, into to rates. the year. number bookings, bookings savings it full offering in for take year us look us the

Noah Poponak

And just last working total your embedding I XXXX thing, capital am correctly you're – you outlook, then cash a working that you headwind on Okay. capital, year-over-year. saying hearing that Is Jim, in correct? flow you're

James C. Reagan

that's headwind sequential in says have Yeah. as view year-over-year now, isn't that it some headwind of And hold going of picture to does comes in where the you DSO it back put require year. accounts your visibility DSO-focused much we're – we the kind the that constant, growth of have to into right cash end revenue really, receivable. from. and the is And our with growth When you our that

Noah Poponak

tailwind the bill that process Do you from integration? was the the reversal novation of specific from large IS&GS to have the not the

James C. Reagan

QX. saw but that question, great in and a That's QX we really

the and you little been we end a flow where out. have take from than novation stronger look has playing bit the at back guided, was a if indicated XXXX, in So came process and that previously cash

Noah Poponak

Okay.

very much thanks Okay, guys.

James C. Reagan

Right. Thank you.

Operator

from proceed with Citigroup. of comes the questions. next question your line Jon Raviv with Our Please

Jon Raviv

everyone. morning, good Hey,

Roger A. Krone

morning. Good

Jon Raviv

more question add that you accelerate interact growth give running just I perspective be seeing? day, sense both the in sales going on the already above? in with from target the of how the you or the margin you mostly coming us then might could which do terms does little at guess, forward? years, of a long-term Roger, margin what out is, potential we're for growth mentioned a see earnings you or the end to And what

Roger A. Krone

funds double-digit from in we pretty as the capital see, to going to which achieved will, skinny we XXXX, we you I programs our little of tried budgets our low. be and that completely of budget invest were would have right? Day, solutions than want nice quarter-by-quarter, seen acquisition that the it balance sort my and that questions, and in the I XXXX. and margin high, little we improvement to clear tailwind are of in in funds, of has in frankly, between all to A and operate continue, is say we'll an digit, services. had we a quarter in business take there, in a that said fuels that calls, rate, And early that fortunate I if technology consistently think we think competitiveness already we analyzed want as prepared our intertwined, great is past in in investment Good. the invest answer ask, and comments, I growth. appropriate predicted or capital use out been, Coming and And low-double and earlier customers on maintain to new the but where you often that bill few those appropriations Okay. we've actually was what it it would couple of forward. we And prefer? got being We would we try a things read think there back margins to want as that our we standpoint, Investor plus that, minus been business we had that and we but in once quarter, August And are is, to it's to

buy in on a but we're their and that to their important, ships hand, rates partners. of program to allow participate mission-capable but airplanes, and for VistA one benefit needs from have instance, with we who to also and them we they a also additional updating and on we hope for program, money platforms, we have very see soldier have electronic think which tanks, records more aggressively VA, for instance, customer pleased move actually that become and healthcare think the forward we we So, our readiness will both, welfare,

point the last an – of good for the a the Budget I'll things Bipartisan way so in And out. not just came us One to there's Act BBA long actually too of lot make get see civil, the answer, they defense had budget caps the increase but constructed, raise in well because expected spending, but actually the on how defense. to bill people many as of was to government as

civil our the to our And the business, a well. balanced agencies, and and here a we so lot we the increase was trade of relatively completely between in quarter proportionally significant markets. that going part is raised, But and sit like all a help get defense as gets of that what know, going increase of because business top a wanted top to to today it their side. That's our we're get sequester you be we're We a understood part in organizations where for side ago, as to a both it on now to the the government which have the civil realizing appeared caps maybe civil maybe of exposure line going FAA really defense line wasn't business.

Jon Raviv

Thanks answer. hop other for folks in and give change. it. Got some I'll the comprehensive the that queue back

Roger A. Krone

Okay. Jon. Great. Thanks,

Operator

Please proceed your comes Our with Vertical the with Sinha question of from line Krishna questions. next Research.

Krishna Sinha

for Hi. the Thanks questions. taking

don't expense So, know just the in quarter? you the remarks, prepared mentioned the in corporate quick I what a housekeeping was if this but increase in one.

James C. Reagan

primarily to sure underlying related increase receivable. you're the of which That significant to we was a on there The one – collateral the a impaired. increase was significant pretty charge related numbers pretty but because that – I'm a not in had well, about, – been note an took has talking impairment we corporate

related and to a of we we So that's to ago. some disposed take assets years needed of that charge couple that

Krishna Sinha

Okay.

James C. Reagan

driver the was That biggest single there.

Krishna Sinha

your seven that ability And low Is the back clarity timeline just just earlier expect by, comments talked XXs. it five on quarters, on down into DSOs a for have obviously think, to elaborate outline can then to to DSOs, that? much you individual to but you I like get Okay. lumpy, days the so about reduce I something around they're an the still the and goal don't

James C. Reagan

Yeah.

the non-cash that always being very over balance familiar guided of working the we our billing customers with. and to we cost I whole at to out is get would where improving today Business, as done program-by-program. which continue DSO capital our to improvements solid extract that we one we look business a improve processes, sheet to end off goal are our significant on we've singular at to it's run our point, significant say guiding and is even So to, that number aspire confident that result of up future which the way it that to terms we've IS&GS on of and legacy we I a that collected single is that a have, but also are in we're platform major the done numbers cut coming do billing we be at the continue going they the over processes the one processes. billing this pretty putting as to is and what we into better are that year. bills them differently. and They being I that, done were to really were think and both how billing as The to the get get the think, therefore programs all actually the in speed was And driving look those able to we all opportunity of

is when. that is just I a opportunity. So It's I think of that think there the question answer

Krishna Sinha

And one. one Okay. final then

is billion the $XX I is proposals or It as announced that your team are I about include there. then guess talked sounds even GD contract just contracts. one consolidating certainly question a broader awaiting I buy contracts have you know know that contract for opportunities to does question. And to recently? in a any out decision. that there There factored reason sizable cited larger CSRA. contract government You NGEN VA some like the

So what such of terms larger making as to seeing you're and in them IT fed can awarding you just talk contracts government about larger yourself? on companies prioritization

Roger A. Krone

of Let that part that me in Jim. By take questions way, lot to give a I'll there. of of and the part

We to we think gone or they because they and programs and do of simpler indeed, me go company to of don't is of past in of contractors, spectrum those different all, bid programs them our large yes than innovation to, do those it's general our can of Are size the the But the with our Jim, for of they all on $XX customer broader future. been pipeline. we our have size add...? aggregating that about the companies? our a administration be consolidated go like First, customers significantly it's things artificial of of and kind – – is a larger question and they too and at a do more for look is point a If compete and take they stage, and structure with Next-Gen smaller any in in contracts bids they cost pipeline discussions, maintain wouldn't than with to and we programs We any do write go important the the will the kinds But maybe They all within out do one and our start I one thesis but for a in machine R&D more? our And and of as customers, our of intelligence larger they innovation, obviously at against of the an but be that we large behaviors. is cycle. being they customers for think like opting have what things, has provide see number customers people $XX of to They learning, that, and see customers the had pipeline to off track kind any able cost let many compete the all firms sort kind start aggregating through execute. the the Leidos. First say can in of solutions trend it some Neither expensive. lifecycle do pipeline submits. to the EHR/EMR to for only far looking a customers, And with find a And, assurance contracts are at I be are to in information in company you those. do we invest some the they technology also I the you smaller the risk billion? agencies those Navy watching to VA so have Leidos want the could And be then a contracts see of that prospective billion. we larger those. and think into significantly of

James C. Reagan

Yeah.

and then and on that before, or other backlog. task Just and efficient. a to are we a big more think orders with contracts get that will received quite process contracts is means toward is tendency, us rather increasing the worth is that about are an to IDIQ-type value larger, into the side IDIQ big, honestly, to we only even from adding in And than many contractors, contract there single the the add talked putting what be that that this full orders the to task a backlog contracts moving big open while award that, we for Krishna, thing participate allow getting is IDIQ I government away procurement the as we and

Operator

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

Roger A. Krone

Good morning.

James C. Reagan

of consolidation on of there? Suisse Robert consolidation M. LLC - be the Spingarn same in out Roger, roughly What there and fact Securities brought (USA) you efforts latest back now that the do that, size So, Hey, will Rob. the of two make was Credit the up. you the industry

Roger A. Krone

Yeah.

Not surprised, Rob. see, Let's right.

I transparent further consolidation expected have think been the in industry. along we all pretty that we

we two there and think There's DXC. always players. AECOM you depending and IBM are I said have and already say size, are the big industry, us to upon – of how have – define tried We indicate you our there

companies. And so bidding, companies upon there's see we're and small – big depending where we

that think Our well. deal is thesis balance right. sheet, being put the we over, what on latest must strength believe we we as as make, there to you the the can we've it's view think consolidations said investments And calls, I other benefits are people your prior bigger, forward don't of Rob, was and as

swing won't more there? consolidation to there And one in you X%, the another? there's because create or strong two play some entities are smaller LLC Not said choice. think guide, a for I able major the very the Securities capture, way? but put that be Okay. we're synergies when be of concentrated that players on to more depending what this who out, maybe value Spingarn to looks for opportunity revenue on different is if the the factors - just at Robert (USA) with that's growth are, M. how we billion, they $X at for nichey, then And instance, fine We who Jim, differently. you How being and look Credit made that them. We Suisse is business where want on will, decide things – be like to market together. about segment then, is about the do think X% it

James C. Reagan

Yeah.

And segments. upon So, really the segments. business avoid isn't contract would that guiding kind award any that our these trying all is of of tell Rob, business to based single we're sits. kind in being guide it there of I big numbers specific across of broad to which you revenue

the pipeline size I that's consistent against M. you start the size trends I with bids today. reaccelerate think growth - been businesses confident legacy in what's Leidos with based engine be executing, the to customers is we're have was which Suisse the guidance what our with that and to that that evaluation on number that think are we're the the XXXX? along to will Credit expect of say win which rate it and IS&GS, our Spingarn fair (USA) Securities in of LLC Robert Is

James C. Reagan

we I and there business analyze opposed one a being Securities kind rate at IS&GS have so of the looking even to development Leidos - say The don't that they're without are Robert as business that think with Credit managed that stopped fully thinking book-to-bill. looking do system, about (USA) Leidos at integrated the Suisse Spingarn IS&GS. about business performing same when or legacy legacy one and M. – as systems Today, the I Leidos LLC the on we that and system legacy way. numbers legacy whole think book-to-bill a would win and is accounting legacy it that strength or Okay. way, a

Okay, thank you.

James C. Reagan

Rob. Thanks,

Roger A. Krone

Rob. Thanks,

Operator

next The the your from line questions. is Greg Please of Jefferies. proceed question with Konrad with

Greg Konrad

at wouldn't there how we merger that Good billion any different prior those I on able as synergy mean just way. today? pipeline of quantify bid happened revenue that have the to outstanding, versus to to way $XX at on many bid wanted bid maybe you're in you the look is been morning. question able opportunities a I to when come

James C. Reagan

that with any you technical the there been well, you, we this in deal. Greg. I And we we that that a that wouldn't or are with when honest than precision could numbers point are with deal had kind in be tell capabilities be executing we of acquired things we're show on – better before. previewed it the can not confident the numbers or acquired for consistent can we do have Roger that to you, customer and intimacy okay, that Not we up though, bid either the is been to as review What saying, something

Greg Konrad

includes of integration I impact million Thanks. And and then transaction costs. on the $XX just it a number. follow-up cash mean cash flow

to is you And that the mean, XXXX? XXXX? you kind so Just there million in potential the said generated maybe in I complete synergy clarify, any costs those $XXX versus to update do of

James C. Reagan

Yeah.

Just million $XX price make to accounting matter window. we've the previewed a we benefit does XXXX it a of with of of for outside that, was on P&L resolution because cost purchase purchase roughly to and the one-year that relative for Lockheed clarity, include Martin the took sure the number to adjustment

XXXX. There has $XX trailing other million that's XXXX a do of you or expecting to there. systems really that X/X costs with amount real end which related to in our to is really estate integration of of expected small not is It that footprint, is So, we're consolidation see in the that things.

Greg Konrad

when any at? the of we think just $XXX And those are XXXX synergy about million kind mean you synergy-producing number, that I the ended of on

James C. Reagan

That's $XX first acquisition that producing synergy-related are the $XX Of with not million, the to $XXX similar quarter we've run a up indicated million, and definitely million, that just million we have $XXX we close amount and there's remaining on do associated then they other some but Yeah. investments to closing and the that, go also will up the have costs. some make. that, there's significant and systems cost been of to the that to the on in severance migration, relates in investment significant rate

Greg Konrad

Thank you.

James C. Reagan

Thanks.

Operator

Thank you.

the from one for Hamilton. It's morning. Ruttenbur time line additional have of this We with question Drexel coming Brian

Brian Ruttenbur

you very much. Thank Yeah.

Just quick of questions. a housekeeping couple

is the We charges beyond half. it that you in any Is done first that that. IS&GS, shouldn't mean? Is see what correct? additional So

James C. Reagan

You acquisition? I mean the additional mean... charges related to

Brian Ruttenbur

Right.

James C. Reagan

than ...other we've previewed. what

Brian Ruttenbur

right. That's

James C. Reagan

correct. that's Yes,

Brian Ruttenbur

Okay.

or And XX% your so now you're – in right XX% as opinion? done just

James C. Reagan

acquisition relative that's a Yeah. of I that mean costs, integration estimate. to when think the costs about percentage we we're expecting incur to and fair

Brian Ruttenbur

for count you've you XXXX, assumed that share housekeeping. any little terms And of in Okay. projection or interest buyback or any couple flows? assumed that have The then of a other cash in your

James C. Reagan

with Our point any this assumes buyback guidance our issuances that employee benefit programs. connection share additional kind at in of the care take of will

Brian Ruttenbur

Okay.

you going assume forward. flattish So just basically

guidance big make lower the or to higher? you purchase, a from So should that if accretive be move the to guidance your

James C. Reagan

is true. That

Brian Ruttenbur

very Great. much. Okay. Thank you

Roger A. Krone

you. right. All Thank

Operator

for Freeman you. Thank to remarks. turn I back Kelly closing floor now the

Kelly Freeman

a for thank Rob, all, and day. participation the your good call Thanks, in today. you, Have

Operator

conference your Today's has for Thank concluded. participation. you

time. lines this disconnect now your at may You

Kelly Freeman	Leidos Holdings, Inc.
Roger A. Krone	Leidos Holdings, Inc.
James C. Reagan	Leidos Holdings, Inc.
Cai von Rumohr	Cowen and Company, LLC
Rick M. Eskelsen	Wells Fargo Securities LLC
Noah Poponak	Goldman Sachs & Co. LLC
Jon Raviv	Citigroup Global Markets, Inc.
Krishna Sinha	Vertical Research Partners LLC
Robert M. Spingarn	Credit Suisse Securities (NYSE:USA) LLC
Greg Konrad	Jefferies LLC
Brian Ruttenbur	Drexel Hamilton LLC

Leidos (LDOS) 22 Feb 182017 Q4 Earnings call transcript