Earnings call transcript Q2 2023

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Operator

Greetings. Welcome to Leidos’ Second Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. is conference this note, being recorded. Please

time, Davis, from this I’ll may turn Stuart to over conference Investor begin. the now At Relations. you Sir,

Stuart Davis

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

today Relations CEO, Chris slides Joining find website, you'll portion Chief of are Cage, webcast being the Bell, during call today's use and we'll also presentation Today's our that Officer. is Tom supplemental earnings on our our me and Financial the financial release Investor where call.

on statements presentation. includes Turning could that currently environment on X for Please see results the of actual to our cause information we and risks Slide Today's differ specific the discussion as risk to materially. such, contains forward-looking release refer based factors it, to uncertainties. as and press the more

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

With that, begin over Bell, I'll Tom call Slide X. on turn the who will to

Tom Bell

X% XX% strong environment, of million you, demand a achieved of Driven Also, and closed a first business mix, of by, everyone. costs driven and XX.X% $XXX business points and happy in from focused security was our $X.XX by to quarter, series report the last today margin we with you also Margins, strong operating fast-acting non-GAAP QX. Adjusted cashflow was healthy improving our was diluted I'm earnings Leidos from decade. $XXX cashflow basis per an across to organic QX, up a quarter. million up morning, recovery Stuart, EBITDA of all earnings, into share collections. sequentially. business, up revenue year-over-year, implemented the XXX products partial initiatives and on growth segments. we across of and be with growth rebounded leading from very exciting that pleased second Thank a good I'm

it this books the and speaks to underlying the putting Leidos reflects strength of even are when deliver quarter team focus While clear. quality the on me, the ability business, of to expectations important more to

this observations call my some I you, initial Leidos. of of share first is Now, my as with thought quarterly I'd

I've with operating months, three, I've I've headline so from to problems three incredible strategic vexing One, to ability all foundations and act our reviews combination first employees, The groups think work analysts, our leveraging our of solve organizations. are these scale. and enable two, with These impressive. is elements conducted met three the in our customers, pillars. far distinct pace an creation, business foundations technology ways. most team, to and these customers’ while and of compelling Over business clear, and each differentiated uniquely detailed functional us this come in with in

that a Let bit. me unpack

embraces a and into we're and exceptionally connected expertise Their talented palpably translates truly collaboration genuine at of company for that That First, entrepreneurship, to success. to is creates remarkable, differentiated esprit and dedicated culture customer they insights. corps the customers’ of with missions. individuals. care an Also, continuing each de our critical depth breadth and a are our other Leidos, and environment deep

graduates regard, consecutive employers one for a attract and of world's recognized effectively best advantage Ethisphere for the and year. most companies named us the is us. to sixth ethical motivate veterans, of top Forbes one distinct in And talent for as as competitive and for for ability us this diversity Our new the recently

couple the of our AI extraordinary enhancing deploy the cybersecurity the our I software to Electronic And golden capabilities and We've as successful and intelligence Record done some under and advances bring Leidos and customers. US hypersonic impressive, at test of forefront Genesis, processing, schedule, also complex entire includes, signal system these We've examples our to bolts, of launch capabilities for of refer in continental to these secure as recent so on A from technology we is deployment our was delivering customer Military Health ranging power golden bolts deployed across portfolio. to key we of are to been customers in significantly missions. leverage the unlocking mission MHS disciplines capability. System. challenging most nation's of This our at broad, major the artificial developed innovation our across decades. Second, MACH-TB deep. are for world-class. technological on the what Leidos pursuing tackle The program, trusted last time We also wave differentiators, to to

language debut AI part we're built scanning humans in is models of applied unlocked, AI XXXX, DARPA's AI work autonomous launched controlled vehicle a deploying a be in computer ship. unique to in now, as when in more by where support continue Leidos. rapidly the our By improve and a responsibly resources technology, Challenge. Differentiated we first self-driving deployed was will and vision amazing trusted to AI, And and we've Grand large our including partners designing unmanned our created, group, solution beneficiaries. Our for align attribute Also, our X Health we passenger recently, and XXXX platform. of as to people, automated next-generation ProVision

to broaden continue accelerate capabilities. our to our and innovation, are workforce deepen to investing Now, we technical

software we've ranging not our golden well technical employees, engineering, year, be to and fields over open our AI so to this cyber, it's wizards, from far X,XXX in of can that our just our all So to bolts. in to digital all upskilled conversant people

to their strong this clock velocity. bias speed us need speeds the we At met important, matches change. feeling ourselves I've and Hard, partners that here challenging are found the operate customer at about I've to experienced, scale pace with never problems and with a looking operate to pillar vexing at they've coming third they're environment with Leidos, them stress is of a these for with agility. lean They scale problems. speed holistic Every equally and is The urgency. address for into by

example, my tracking fighter. ideal war aren't the missiles. an in potential Tranche For remains only acceptable. we're This to delivery Agency mission space, space-based is for serve challenging Space payload an Leidos, in the end, layer Force, on our of findings and of rapid as Space launch standard of soon X All that Leidos. will have To cycles asset the the assets for that essential, the track from satellite our the X nation where today, focused procurement is within the joint US Development capabilities to foundation Tranche these strengthened conviction technically on hypersonic fit defense

I've some areas we must first months, However, improve. where my identified also in

have First, acquisitions short plan. fallen some of recent

our believe business benefits, offer the cases. redouble our we I efforts us acquisitions While those achieve envisioned significant in to value strategic acquisition will

result, each made, or we Street, commitment commitment. our whether all Second, meet financial team had and our the candid Leidos when I promises customers of a this to simply that conversations a series The recognize have not have agreed fact we that call kept I performance has lived always this will other, the expectations. together promises a as investors' regard, on a philosophy. up this and in our make that call to

par. Third, metrics been up development recent business not to have

total believe a years like quarterly future more times, a the have ratios. and for backlog healthy last of us, via is X.X of ratio relevant we book-to-bill better. that backlog, five can a $XX book-to-bill must While measure built business growth revenue billion a I we currently over do than

with be our backlog will time total grow We to determined over quality wins.

appropriately. we resource that true such, it do ourselves answers. differentiated market differentiation, some a we'll courageously be candid capability on where ask ourselves the recognizes will about As we perhaps honest with And enjoy questions, and acting find probing we we have where their not

strategic Leidos Finally, now propel going and for our in forward, we believe process star crafting clear from sharpening. this new optimize success a to Leidos. I can the of To north benefit a certain are

all star, north and we strategic most our us serve win crystallize decisions, we will As and this customers’ our needs. enhancement, guide most this to margin use successfully enable to rates, our it time, improve drive important over better will new

indications to for you decision-making, a more our where We'll technology be few operational business differentiators. a to initial organizational allow I north tightly this promote work progress, in faster across star take is we'll and can key our While our currently of align structure simplify excellence, give steps going.

cost opportunity, best though, time our best I more a and focus disciplined both the for And line approach and so by be laser the likely will on of ratio, investors. In be improving to will much execution, inorganic toward enterprise. near in of we'll thoughtful complete externally. to and and us term, value clear the bottom greater select reach way and we refining discipline next opportunity to plan value there our focused will via We don't overall areas after the investment on allocation, our I is growth, those internally very sense on be capital but in crisp make Leidos additional for At create ensure our again. targeted that leverage strategic M&A our expect we'll strategy

return that any so shareholders drives and to predictable regular decisions believe capital as to enterprise, program forward investment to I looking across Lastly, better a be that well.

how cash. progress plan here forward earnings to work, updating especially we and you growth on accelerate this at to we I'll Leidos, As look on

billion, business delta range our our XXXX an and we prior a between in halfway and performance than XXXX basis due me element the on business. revenue the products for range margin recent to variability will The of top QX has in I'm pleased for the are variability feature our Leidos this in XXXX, profit Based to XQuarters past, guidance suggested midpoint. this momentum our guidance. raising to to increase the point acknowledge Today, greater of revenue that billion by the deliver to of of $XXX indicates to primarily at us. to through first key in XX Revenue bottom $XX.X that a strong security been is Now continue margin of new growth $XX.X our our and the million guidance

the timing, tied delivery our news XX margin XXXX. good product XX.X% EBITDA considering are revised aggressively Therefore, and knocking leaning be we to to company is XX.X% supply for the EBITDA becoming our of down the widening structure But Civil points. the by to challenges here chain. range range Now, cost strengthening slightly a guidance basis practicalities adjusted out more team that these the is will

reaffirming roadshows. I we're non-GAAP course optimistic I'm at Leidos’ to conferences about and growth, least to and future at our Lastly, decade range $XXX $X.XX In we operating meeting for diluted you of and we're our $X.XX, closing, as forward upcoming million. of reaffirming our second look target cashflow of set EPS with

turn more detail performance and that, over call Chris. financial I'll outlook. the updated Chris our on With to for

Chris Cage

Thank you, Tom.

financial revenue and good year. growth were a quarter Our for pace we picture, on put trajectory indeed on Big rebounded nicely us its results second strong earnings. and continued

last temporary, call, and the on results the QX said the together the products was security As recoverable. in We profit and deliver portfolio. had solid enterprise worked as I an improvement entire shortfall concentrated, business, across to we

million well Earnings growth all three and Non-GAAP drag share from QX levels XXXX. in came tax despite essentially we from fiscal quarter, along quarter at Turning up least organically. were and each improvement compared $XXX EBITDA prior necessarily Revenue as XX%, net enhanced there XX% Non-GAAP across spending year to for future indirect from on year-over-year. segments, drivers. of $XXX most year respectively, adjusted year-over-year, billion, rate unchanged $X earnings, were up net second profit X, segments achieving of $X.XX margin non-GAAP the to reporting our were grew quarters, up as effective Both driven Slide in points execution, to count truing million and growth profitability three some second program increased which interest a year. up EBITDA revenues and programs EPS last and the mix the recur and was was as the that Though key adjusted XX% were for was was broad-based, XX.X% Non-GAAP of quarter. X% milestones Onto the the diluted X% improved expense. EPS completed and net million, income by was focus up income $X.XX. was compared from quarter diluted company. business XX pickups won't basis saw

XX%. year-over-year performance SG&A was net up more a as points Total and sequential diluted percent EPS The with positive basis EAC up margin even paint EBITDA Specifically, well. were X%. improvement million, revenues was up write-ups of a of encouraging. non-GAAP picture, XXX strong, Adjusted revenue but $XX is showed and as numbers improvement was the

View our The SDA Turning digital to of the segment drivers Defense growth year-over-year. on the revenues Solutions hypersonics, especially areas Field as largest X, catalysts Australian business. well modernization, as X% Navy Slide NGEN were Tranche X, in Airborne Wide including and of increased Solutions

year non-GAAP to points the execution, Defense the quarter, X% up increased SSA prior driven from IT strong for prior over income basis year revenues lower Health and development and increased increased medical work, XXX spending. For programs, the with on operating growth indirect maturing quarter, the examinations. Solutions quarter, margin demand X.X%, by

PACT on program the For XXX More a second fee share cover work now VB of from result volumes non-GAAP important, Reserve increased A, and Health points, to performance. basis was costs Also, came incentive Act, of COVID-XX a quarter quarter. was a year by prior margin income Non-GAAP our Program equitable as the of outlook we're in compared to income driven $XX and operating decrease incurred the bolstered sequentially volume, result is we're XXXX positive in in solid the XX.X% pandemic. million a seeing adjustment higher margin higher primarily by Readiness execution, up earning at Health XX% the performance. operating The building. the as

at prior recovery business is security year increased security within revenues revenue quarter, the income in were drivers the XXX to to Consistent was but Civil arbitration legal compared million. X.X% compared portfolio. to levels. commercial fees energy the non-GAAP increased Sequentially, yet program, associated improved $XX not recovering prior products Civil the impacted engineering in Aegis quarter. support X.X% reflects the a X% margin growth by basis partial of products an Civil expectations, primary which unfavorably peak which operating non-GAAP partial the The for demand adverse improvement in and by security companies, points, NASA totaling was business. with products margins is ruling year

and margin. modestly For products revenue perspective, actually down year-to-date, businesses the slightly on security on up year-over-year

good year, half award, implemented than back supply the structure with of Airport stronger last on leaner, seeing the has business the the last with we including call, Leeds traction half. As We're and improved cost first the more responsive in be the year about significantly the to changes an recent a the chain. talked we've and potential

of ongoing. part see and success data growing This step with review production important an we to business, we as In the products for the and into at work the the as lower investment such as security center Taking our market, Charleston protection. pruning geographies of addition, a returns. of we're back, areas positioning with and facility, looking in expand are portfolio and looking is new

X, benefited to and Net and from we XX million first days, was XXXX. balance quarter the management. the operating cash of provided for of cashflow now quarter strong operating capital cashflow on $XXX generated Slide three-day Turning from the sheet million a activities collections and $XXX activities, from improvement working cashflow. of free DSO by

cross-functional where terms We are a more include in payment generation in vendor review of middle terms of the favorable cash our building and contracts collection to on harmonizing possible.

time. We expect sustainably performance drive over improved continue to to

due so. $XXX our reduction in million key of the during quarter. that term During the paper paid do on quarter, of $XXX These taking we of debt May, movers to were XXX-day net came commercial remaining $XXX agreement the million the principal the loan in million on

which paper to third expect up the to clear free during We out will commercial deploy. the capital quarter,

to forward the revised Tom outlook. On you the gave ranges.

me a little provide color. Let more

single wave We to and the on half of expect of with QX. levels loss, some a QX the Fox) DHMSM revenue a back to the from by (Focus remain degradation move near year, deployments in

the volume the fee outcomes contracts, wider of business, sustain primarily We've target our opportunities outcomes on wider of the decisions, incentive tracks revenue, business our best and well cash and range as our comfortable on range on of reasonable current pending we're significant with for on the range EBITDA, assessment fixed conservatively range are On incorporates margin, dependent likely security We new expanded which EPS have work, products a the our narrower guidance to a revenues. as the project made a large potential that price pipeline With determinations. range special comfortable the of also aren't and wins well range, we our and upon to reflects year. results.

QX. is year-to-date. a strong generation in of internal in we QX, are With years, ahead plan As cash our concentrated prior

With can over we the turn take to operator the call questions. that, I'll so some

Operator

the first your from question our of is Bert And Instructions]. with questions. Please Subin, proceed line [Operator Stifel.

Bert Subin

and morning good Tom. welcome, Hey,

there concern persist half in versus in lot changes you SES of would I next So, weakness the that out that whether XQ schedule. was earnings business think in back XQ year? and walk Can of changed what growth can to securities us ahead a What coming you clearly return seems through double-digit just again XQ? product be business. so to far, of the recovering mean,

Tom Bell

thanks over been say specificity plan. to Well, on turn how it questions, of they've Chris that let and team first, Yes, your some against the the of as Bert. before recovery proud progress am I give driving latter Jim I part to me

improving, One with plan The market a team we've and solutions, and believe to the righted. is the continues out ship outcomes. as we get incorporates were recovery suggested, the Leeds guidance confidence award. range market. said, that there And product of that the have Jim articulated of with offering. first We had the is as how meetings I We aggressively the Chris going our believe we prosecuting was superior the about likely the to Chris in show customer

security the anything a is the very fundamentals the customer the So, solutions different with focused are of internally by set that externally. And serve also, we to add? we that traditional feel Chris, expanding about you'd like on very market needed good and market team less sets.

Chris Cage

great made the end regard. we're obviously, areas focused would in game were improvements Bert, that yet. on progress you not driving number has were team we and tell mean, of I Well, I the to a Yes. into, there that

I quarter. second mean, the delays, of customer-driven that during me hit improved areas. on Let the a couple

to ahead We’re through original payback. that we're easy. were lot sourcing, why saw it's excited Again, not Those one the you We actions reasons a think the full we modest of forward a of speed are that and about team we that thorough today. did went alternatives, we with was then path. Charleston. but see that back cost the reduction of were In a the put We're on a get operational. longer-term evaluation plan, that. And guidance there very never to taken. investment relatively a The announcement

that on obsolescence regard, As part things supplier management. to in our improvements of senior of strategic seeing relationship. revector parts We're in focus the that, resource one a is did chain we supply helping do that that

So, pipeline strong. remains

As those indicated, areas conventional outside at looking selective and we borders, the cashflow airport going prosecute line bids benefit be to forward. on of we we'll for maximum ports and bottom and the and how

Bert Subin

expectation Thanks. And a been inflection Leidos follow-up, previously now, helpful. while has pretty the going super organic about the talking little Dynetics materially XXXX in being growth that and That's Great. on for so was just Tom, a for ramp to was horizon a as business.

Leidos into how you where us going, of greater growth come the of and sort walk a just about through can last got you're Dynetics you've things over as path the thinking assessment there. three and As you months are see what

Tom Bell

customers They're can be to defines I as in get place, to hope, are see my Sure, thrilled believe trip team customer to Dynetics stuff that cleverly visit down Alabama. great there, they bringing facilities, and importantly, with have CEO them. the what we there really fast. Huntsville focus and Bert. Great always done there to and the and was what first a people, connectivity. team Steve Well, to just going down the great was I

real a focused that's Steve areas. Dynetics. primary themselves really their team time, in for on satellite small three markets payloads. are the attention And the of and the dynamic refocusing same on at differentiating think I They're

is and X, I hypersonics satellite payloads. our So, That's referred tracking them launch the Tranche to one I success pursuits. X focused mentioned with the layer MACH-TB assets. of being Tranche Hypersonics, small on that

that sure market. can differentiated but products making not that have last, there, and area protect our that's And So, as in the be we when are least, protection services forces a we think out our forces force key deployed. and they're we where

see three areas with has the we're more Chris that, he defined on to focusing we has if to the while maintain are any that those it and that entrepreneurship to So, Dynetics. And always add. I'll agility color kick

Chris Cage

mean, the Tom's gets us door. thing there Bert, expertise I right, I'd in only our and add is, agility the

we have it areas call with these Our brightest the world, us frontend important LInC, some in of minds in of Leidos Innovation sets. some customer the Center, most access the to

in perform things full-rate improved critical and us execution, towards having So, discipline we most team The have management, making we ramp on and I'm improved that that encouraged some deliver, seeing to and and has production. what by they're bidding perform. programs that's as the those these progress on low-rate are That gets door. production up supply chain all to of

Bert Subin

Thank you.

Operator

the Our of Arment next proceed Baird. line with question your with Please is questions. from Peter

Peter Arment

up kind Good thanks. the of just general. Yes, Hey, just on Tom, Chris. and follow Tom, morning, to business in products

You of remarks improving execution of on some kind the kind there. made opening

on on Just variability just the the this of and products timing do of your expect execution? the product of you view to of, kind And overall in do the you think being Leidos your business? more kind I side? what's just margins Just in said kind integrate of view on now product once because in improve the you've general deliveries,

Tom Bell

have Peter. our exposure, capabilities, to for so Thanks that, sense portfolio billion really a some Leidos. Yes. I we're for and both mean, order after makes you diversity in all, $XX services have company, products. having in have and to Yes, I some countercyclical think to

how everything in products So, the that in solve lot that currently is like customers’ in tissue we that is I poised I do most there problems. emerging vexing that also about fact I we thing talk around our And a like also. we're a connective business

business core, service, how whether at it cyber, really remember services that core, days our we specific lean customers’ or So, how and everything and do and models be a that or mix we I'm is into understand these or makes something it software, IT products to and a challenge. its coming biggest it's services software be products we our on and product with class services whether focused absolutely And our how they that world are at algorithms in. sense. the in

I the purposeful the I each in be in we be and the mix, time, how mix those the at of like we'll exploit of business. continuing advantages sides So, same and we'll very think our

Peter Arment

And Appreciate just, on end? just Are would Is EBITDA end and range, that. Chris, in other out? there then and this the lower at between margin at quickly call aviation what new the staying tied make higher of to factors deliveries? takes difference you the any or coming puts the just it all that would just product

Chris Cage

that, prudent, I encouraged half thanks, second where first would mean, element the but a the Health, good that, the about that that but satisfaction, have our only as about upon customer a performance, obviously Yes, sustain in But of monitor second the is said is my But within Peter. are everything all, team of there. there have we a couple an again, is seen done job, to progress stronger I we'll deliver very team performance those against we move original excellent how throughput potential wider very was to great We've and and some the first things. has On as prepared quarter groundwork you'd In and opportunity volatility our half things. we'll half in had wants the the we commitment, we are in top that. Health momentum optimistic products some are year. of that, not and Security point the that variables to suggests of range and from and there the of to significantly here attainable. realize here. I’m control. past remarks, I to given couple a of and lot Not other closely, fully laid our of an dependent is on forward. the incentives a

monetization there. that opportunities continue half that we then somewhat for work team to wanted us our when higher pass, comes another And some programs very And we're to incentive capacity calculations that And end of give to just lastly, towards back year. for in ramp push and the upon So that digital project the depending up has new. that's pleased against some ourselves variable some with because is executed are performance the of there of the how the range. more could and

Peter Arment

Chris. Thanks, it. Appreciate

Operator

next Wells Fargo. Akers question from the of with line with Please questions. your is Our proceed coming Matt

Matt Akers

guys, about into good morning, defense to sustainable talk in sort kind into Tom. little a that of ask of I and to back and here we've the as the Could Yes. is welcome Hey, how wanted half margins, margins get we bit. just about seen strongest you XXXX?

Chris Cage

are these milestones, there strong. fee very to perform did that some are and excellent we've Matt. thanks, Award Hey, going we And in to Yes, DES continuing progress certain on ramp, are highest reached scores older led other old Tranche then out continue there. are the And better some airborne five incorporating there the on talked aviation about others. were the outside that, of is that's business totally maturing super our helping seen OI a digital X.X% job and us. mix Australian of sustainable X, Tom there to there these acquired programs. in of some an We variable lessons items, well to need from we learned and that View, the we performance with last NGEN, margin, obviously, say we're overall And but the especially Field by and projects. team's pleased the That's and close one-off, I of some Tranche are with Wide years, done future. X, with realize lot big program wouldn't development monetization programs. year. things

quarter So, we're team term, setting we and term. expectation near the for won't deliver but longer X.X ourselves every the that's

program focus that the underpinning will and management eye so, our indirect ball execution. take And an thing one not on on is we off cost

So, optimistic great in segment Solutions that us. we're progress of the and yes, more Defense there's ahead of that

Matt Akers

And DES. to ask thanks. Okay, I wanted then about

get a ramp does into XXXX? the as thinking you're talked haven't timing, lot we just it, and that up how about We about here

Chris Cage

Yes, timely. it's a great Very question.

the had and company modest it's a In on fact, order glove year. yesterday, working ones by contributor the and of really customer. we've $XX with for and either active million a orders that with a the of task got to still DES of revenue, but we in that strong the team hand some This year, through or bid in internally in review team we other evaluation just this later a coming were walked up evaluation the are customer, number

on net. activity increase seeing roadmap migrations and a there's we're the level more DoD under the So, of users

as of to something more get to the and again, in significant contributor that beyond really year clarity think we a have that much that. determined. have we'll on those say as will when So, more continue later XXXX and XXXX get And in be some

Matt Akers

Great.

thanks. Okay,

Operator

next are with questions. Gursky Please the Citigroup. proceed from Jason line with questions your The of

Jason Gursky

double-click a about Yes, you made to that good acquisitions, of was I kind wondering your from perspective morning. might if comment leveraging maybe what better Tom, on we understand for minute it whether you went do you've acquired fix and what's to think new acquisitions? wrong, it's as was you execution, what expectations misalignment going evaluate to and take already going to with what or change the

Tom Bell

certain five-year to looking original wrong went deals. that here, that. per plan put I “wrong.” exactly the for was forward for board there's that operating thanks the se. know don't the gap. just can't at the anything current wasn't the business what a approve so And to I'm annual and I say went case I Yes, against business plans

Now, in never industry business that I've I've years. gap. acquisition a case have doesn't this been an seen frankly XX

deploy to and got to that focused across I'm and new. past. doesn't how that That's we novel to not do now as that's the that's possible? as just by So, our business That's obviously That So, we've Leidos, say getting the is what in made and not making the mistakes to into and pass. means it's capital ensure deep That's we focus. the bolt what job playing the buy, make were we've also to we've to that executions, investments back that ball acquisition the that made we've effectively the golden with of the sure deployed trying on from basics cores we case go say, the the dives and That's sure forward business come resolve. we sure make case with program we of original it and here. real enterprise leverage

Leidos, been sense in I the comments, have me. the past accomplished acquisitions As at all suggested X over here years to X, think that my X, make I

key down is doubling make make the making bottom sure our them Chris? sense and we for Now, just line.

Chris Cage

the View honestly, move the building gained a to going payloads. of you leverage bear about golden I embedded bolt digital Leidos the as example, mean, a Yes. our the right? our see of Dynetics number one that we great across acquisitions. of that, much that Center. providing brought That of the words, sectors. that I'd add of Wide forward. our to forward want with a talking playing I Field it's leverage we a program against acquisition of is programs. we into is us talked capability and Leidos see Tom's And Innovation combination off of out organization in monetization XXXX Dynetics, quite because don't we and is multiple of the midst broadly now And executing that think capability That's to kind is cutting about thing contracts example the hear legacy the want the

capabilities out So, future rapidly get to we more the full to need together to link move of those leverage acquisition.

Tom Bell

you As to sense having return drive makes remarks, the be subject of future asked acquisitions, suggested investors I forward? to And what's of about going obviously I going regular us. capital prepared on my think a in the to

on So, M&A. we plate into do the back our the executing get focused now we're to really have before on market that we work

very capabilities what's organically hypothesis affordability, hurdle might those acquire years, will are narrative. a capabilities and in what with we clear the clear want to of, XXXX XXXX with how those which that where referenced strategic customer of and be or clear articulations - for of tempered in of next in keeping the problems articulation emerging, have we when XXXX, very inorganically. of the are I ourselves, to build all Leidos do, the However, those technologies the star clear are we be the we But we'll see five, articulation two that what setting and going north a very either rates, we're in very a be vistas out XX

are out be are north be, premature us So, still about the of to are those actually we'll But to kind to our customers need serve into the vision star to working what because going we're the talk things those and them what future. of the about. talking

Jason Gursky

Okay, a at of kind it's on of either of can issue market be seeing proposal bit want if kind we're acceleration? great. the point, a and issue. this then quick you a bid internally being kind whether to And and as whether that and you market on follow-up a And it is overall not necessarily where or you'd going and not to little just with then slowing talk about growth here, activity your a comments maybe like dynamics your might change what backlog

Tom Bell

Yes.

is, organic market across news there's good all positive with our and dynamic There's growth. I opportunity the here. there's So, of don't customers we're demand a for dealing negative think great

we suggested, As a have I strong backlog.

and $XX awards. We like is pending billion think number have the in a strong pipeline, I something

I'm So, awards half to the that BD passionate over is unhelpful. know would win. focused timing time Leidos. are first I backlog I not how count is in winning we year as to about here of ratios speak I process unfortunate those the And quality know comments, whole quite I long-term growth distraction about Chris? out ELT on been wins for us don't just the has The referred think a can book-to-bill a and yet. and But actually winning. again, with passionate broken. quarterly think of quite What that the to is I I'm my light. quality building become is in

Chris Cage

we need Yes, that - said remarks Jason, better. to I be would Tom his

some liked forward, And all. we that on win not to backwards and things we So, always opportunities, them those going to anytime there imply moving forwards some and assured there's and does would've a dissects rest were and loss, those, learned have we swung missed we're team right? the lessons be but where won have

that decisions here billion. Plus, there's $XXX So, are the those combination, the optimistic pipeline coupled second and will with we're that out year. there that come strong, is in the pending, half things are there of some

expect proposals this of $XX through to of another billion year. half back put We the

again, been and active, our record strong. track over the very long So, has haul

our - business process. We've is development have got out land we there's that this right now. So, in need a breakdown great organization, people some for to our not do but we in there fundamental of ones decision these

Jason Gursky

Great. Thank guys. you,

Operator

the The questions. your Jefferies. next of with proceed questions Please with are Kahyaoglu Sheila from line

Sheila Kahyaoglu

Stuart. Thank and morning, you. Good Tom,

you, could the margins, opening comments I first I are structure discipline organizational at was and remarks for financial Leidos that you variable take? just has under Tom, impression your about one the the of So, good bottom-line margin enhancements. it plan in What be appreciate times. on just pretty please, steps some and Because to

So, opportunities on security the you profit margin where see the potential do the business? outside side of

Tom Bell

for I thanks think question, - is Sheila. there the

for to is Leidos. as prudent refer I belts has bit tuning some think just the and us our little such five acquisitions customer I capabilities a of around do decision-making. apart replication is serve. bottom-line excellence is those capabilities there that will it exercise. with different out better key and bring bolted big is the slight a that it's Leidos’ if and and repeatability I organization a because the think speed in in And markets fundamental about I've there, key, a is align very duplication of our in bottle treating and simplify set some more certainly over around enjoyed which for that on who to is in a tightening that talked expectations, I organization, the we've the last reset together, Chris reset those those own. there result, dramatically not businesses, little indirect and think organization. a culture both as money of up there add opportunity bureaucratic bit differentiators the fit again, The the current in define Leidos parts are reorganization to I some But customer And spend putting It's we any that being promote of our of better delivery grown spend indirect Leidos value as solutions the technology years, stream. in operational of we for And

It's fundamental been of exercise very advantage deliver toward anything reset. again, those teams organization to then rationalize take incentivize So, a Chris, plays businesses. tuning goals, inorganic this crisp to add? goals made, and against the actually that isn't those have to the for

Chris Cage

up to here order second to And of Yes, be mean, lean, a drive isn't That'll business. hopeful, from question, some to where reinvest. expectation. to run echo with try opportunities? no, create We're Sheila, costs what primary that'll would objective your margin the had organize I I that. clearly the so moving pleased to always we back out a are set opportunity super Health the we but an variable. bit as Obviously,

within the You see of the business. Solutions possible what's Defense segment

which they think to on. will ability that be quality The teams on earn some of I a come have more focused selectivity. the return to opportunities down will

beyond. and And into very as so, that XXXX we’re that'll move we dividends pay optimistic

Sheila Kahyaoglu

then very XX%. were And merchants thought more good Great. Chris, I one Health. at specific one the on Yes,

work. wave at wind-down we the on how about and going about forward, you the calculation you the around incentive on do single that the we Can second think detail how new think I might provide in think VBA profitability a impacting additional half? mentioned DHMSM opportunity

Chris Cage

thanks, Yes, Sheila.

earlier the on again, effect into So, year. a incentive went this this side, was that change

working experience, outcomes, learn I we'll for like order deliver and contractors would throughput, better you outcomes. the serve But So, better we're more better their at all that of in drive participants those VBA incentive it was for have say optimized compensated Leidos to as potentially we be structure and through to the point and the gives patient opportunity VBA. and tell better veterans to recognized And it outcomes from quality for invest, to the more. view to

where settling thing the volume just that just And share, past, have have margin And in strong. to is optimistic more in a our performance earning So, Obviously, we'll other every share, fair have that's you previously getting has we the mid-teens the will, from the way and we still more our that's is if settling it see the the so in. us goes. some and caseload to work been we're PACT quarter it you opportunity communicated. the than of how that Act if because that we that an has creates upside to bit that started earn perform

and program, so in QX I the not from So, some we're the DHMSM, bit sustainable highest that perspective, And a should within margin little portfolio. bit is run, create mean, that then more as well quality side, a of a moderation the XXXX. well. those but a variables will optimistic a we'll of upside. of and it's headwind on programs this some impact in growth is that margin But see Health it a But obviously on of one

little that'll to is don't piece I example hard opportunities we margin. negative that's bit of And help think another offset forward. they're the ramping a move right as high-profile as that Health working help offset it revenue pursuing relates So, number the has program as now of And talked too. a and team we a about that a that'll RHRP

going but DHMSM us. dynamics a look at margin So, don't there, for headwind few on a as

Tom Bell

customer be just proud Yes, the because Health way. in margins Liz too. say to they and of and that just in and there offering go is great we I our want because team earning they a our more that have my to are differentiated couldn't a without serving commentary differentiated not that let veterans

together. it's see come really that ecosystem a joy to So,

Sheila Kahyaoglu

you. Thank Great.

Operator

line next Morgan. J.P. with to your with of questions. comes proceed question Pleased Our Seth from Seifman the

Seth Seifman

Good welcome, wanted much. to morning thanks just very Hey, and Tom. I follow up.

was promises asking consider that standing business, there out XXXX. I was year. operative? of to terms there wonder, three-year Dynetics still the promises in the earlier maybe zooming we acceleration whole inflection out kept, targets spirit are an question of I point in made, be should think some guess, to those should growth in targets that would and Tom, about to there we some organic there I expected next the

Tom Bell

a foundation am next at staring let we some on brutal and XXXX gave laying Day and view and Investor honesty, XXXX X, X, lightly, a that very in fill strong years start started all XX I'll the we Chris Seth, Well, blanks. I've I'm of toward at aware of I Yes. the in finishing the for back years. focused held certainly time. very strong but XXXX couple the over Leidos

we're So, targets that XXXX, out I the Chris, But objectives hit to step diagnostics done years a want achievable achieving in to? ago. industry XXXX you those how are. objectives obviously, closer the if laid haven't a couple in do of that my actually we day own we of

Chris Cage

as obviously, condition Seth, line board, for more come only one things bottom is deep I'd we add, thing best the plans that Yes. look ensuring the we that of get is a optimizing the Tom into on even coming the cash change him XXXX. to and our got that'll performance detailed with ahead we've in selectivity And that. to are

XXXX. So, really pivot being and investment thoughtful around opportunities how differentiation our resources as we in pursue to technical into get allocated

paybacks. term term some those And some things near have of have will longer will those and of things paybacks

down to XXXX as positioning progress on year, on the delivering some can for strong more putting the the So, we year board as but and future. as say heads this and everybody's wins we on through

Seth Seifman

one this I'll Thanks. morning. to Great. stick

Operator

the are questions line Robert next proceed Our question. your Melius with Please Spingarn with Research. of from

Robert Spingarn

morning. good Hey,

morning, Tom. budget point of offset can couple defense. away budget? defense the welcome, there deal that the the budget a the just given XXXX, pressure good be - on the pipeline everybody, that non-defense to then hey, have regard to the On on ceiling with that aperture from debt caps following potential budget, on Just where there's going and your and decreases, and the between on difference you broaden segments from so just you Do that

Tom Bell

exactly expanding them At do Yes, dynamic debate customers of another year, are customers working up debt the that areas actively optimism we're help curious the government a what a people before with on on which result Capitol if there And both equilibrium, next all will, that. way of we're budget that also Hill we them out that's suggest, to challenges our that there of can on them. are will obviously any and with occurred, Robert, customers where get to sides they might on we're this ceiling time, set harm's focusing like right, they and/or possible been that facing expressing that things as is solve face the those is you're shutdown. of we resolution of year you ensure if can engaged we're you same

about very So, fairly team about eventualities, will. I’m shutdown. concerned we're and government customers that is unintended the we feel you not and from those law with Chris? impacts the the of insulated focused overly near-term XXXX consequences, possible if engaged on I'm fact against any all

Chris Cage

our Yes, about for priority customers. Civil been a that positioning I sure certainly and not We and just we're within that's mean, business going in Health VBA bit make our Rob, to the side areas we've talked there's areas at to do what grid areas change. and energy our more civilian that agencies, But spending critical infrastructure, in you look outside to. I those resiliency are you're going business, we the and and commercial see of to dedicated mean,

And the excellent been products we've about opportunities really a and So, team's an the been obviously, security in lot there. doing there. talking job pipeline

and are Tom we're that we there believe, optimistic And weather portfolio we'll of that definitely in challenges mentioned, as in we customer any certain parts the we'll the will areas. environments, near-term. budgetary So, prioritize have those strong

Robert Spingarn

Is those quantify to we funded business there of so part, of out last when Medicare, what Chris, discretionary healthcare budgets? think so that non-discretionary portion and and healthcare just funding, on. a versus on about gets your non-discretionary Medicaid way

Chris Cage

that Well, we're customer our know Readiness. protected record businesses that priorities are the that's and of we're medical modernization doing right? So, a we doing sets Reserve on for Health the on stuff then, obviously programs and the And in health well bucket, insulated. lot examination what is

So, come details back we’re something I there, position with be that'll can think good a we by in the in and large, future. Rob, on but

Robert Spingarn

Great. Thanks so much.

Operator

is questions. Please of Truist your Toby Sommer proceed question next line the with Securities. from The with

Jasper Bibb

morning. good Toby. is Jasper Bibb This on for Hey,

to few Just way and over underperformance up Would and there for any to that wanted back revenue case quantify versus segment business getting ask the mean business security might products be targets there. margins acquisition Civil years? next about the the to what growth your

Chris Cage

the quite that know all think premature. that we Yes, thought under worldwide with it's COVID continue years a pandemic and been aviation see topline business it couple would where expected we'll the improved, as a we're that not on be, of was Obviously, we be, that. rates travel to over but and we to little I where last Josh, bit the optimistic look ahead we're have the growth

look the the business. you focused much and if mean, do when allow So, at And we was raising performance. the QX we're significant quarters average products, in over our of us be business it that'll Civil, to below standards. of in expect we raise floor the Civil floor to what we're QX upside, above. focused is and XX% time, Over on see plus hopefully improved. on which best on security time. XX% I margin And that achieve performance, a we'll

recently just more that that think the for I you again, a So, our is that seen to you've job and out gives to take is going that room there sense grow forward, variability

Tom Bell

what opportunity margins. to the their security security what comes and for business, expansion government, in more be and said, of out. goes our market customers, have Civil expansion think and guarded bottom-line vexing good problem a that's more not on in team and for line And I top the security are fact, at on as This very going away. customers, don't need more a the of about the And them thinking great premises civilian is is for

on So, to as us we a I I for next like security, five and good place prosecute our to bet it's be be the going years. think

Jasper Bibb

to going. more some stick I’ll people question one today that. so just for Thanks we can get

Stuart Davis

like question. Thanks, close one I Josh. time looks of we're to top hour, it Rob, more the the Hey, for coming have pretty think we so

Operator

Sure. with Goldman of That come line question Noah the Sachs. Poponak will from

Noah Poponak

on you quarter lot products, with security morning, good everyone. provided Hi, Chris, the a detail of where last challenges were.

accept are there I talked are they and quickly said fully of and behind schedule delays And how three, or mean, you investments. was customer many You couldn't I each were and you those you about guess how agreement those. wondering then product, penalties could not? other product chain customers delayed of disruption, just service many if kind are just they where I then schedule? on supply update

Chris Cage

the a to Noah. - thanks, Yes. hit large just products. to this single earlier on deliver questions, bit of it's it's one predominantly a on program the of I number arrangement been customer, And reiterate, a with customer that little but multi-year Hey, a on a we've

with out That original units to get working We progress had schedule the in are still quarter. work third will solidly be something the to the made fourth the we on quarter and comfortable that we're again, the way range not all that you, we the able still was this if and second we'll quarter back, and And to guidance our team is we're we're laid gave hard with through them, year. range. not in the accepted get continue

beginning So, on in several commitment outfitting and the improving, be XXXX. but, facility, positioned supply setting up Number The resolved. ahead well side we'll perform that light That made. going future. Charleston manufacturing our things there. chain is speed capability are of ongoing, things, We're full one, was to on that not in but

seen we with have part circuit times. response improved and in we that the need. meantime, certain as focus component We've I our organization critical step up the one of repairs. management positioned better leaders our senior on And to board insourced supplier In ability OEMs get obsolescence. we've that We've to parts mentioned,

improved for team full laid compromising not but us. capability is with R&D So, again, have hardware Ensuring We're penalty plan. out as would level our shown resolved, we the service say not software the differentiator is track. of which are that investments critical our I has situation. improvements, a The significantly fully there. that's on a the

And where that think in going out yield we and costs for streamlined I actually of clear to a then the trending. additional we responsibilities. so, flow, set communication like forward. lot And that'll took ourselves roles up more performance business And better is

forward, that that'll with in the we some - we have our improvements that And we think we'll in as place team see performance. so, optimize going continued

visibility gets I is Not from over punchline, team, and all solid that Noah, full done, So, the Moos, leader, security Jim that progress. area and the an is think they're it. detection Civil whole our

Noah Poponak

margin finish you're describing in back lower decent guidance about pretty inherent the volatility line that's to sequentially, quarter And step-up to Okay. all the I the half, that. being the of good amount items. getting not here, the the and widening we're in implies margin what I it's on despite but in the talking finish of appreciate on yet is these range the a Civil guess a the line

risk the out the just that that could low customer get it end delay the there margin incorporate the can't something end is unlikely backwards? a low does rule that So, of step but that Or takes range? outside to you tail big of

Tom Bell

Noah. the does in thereof. if products and If and that the a is I could don't I’ll take that, range, timing like my is ours of that you for mind, services business mind subject applicable characterize more to widening the

high driving is acquiescence I the just a The points team XX.X toward range the be It you think so, going do. XX-basis forward, is the the to normal certainly end, expect guidance goal. not fatalism team would is to And going new is that or the but goal. the read that don't into as

it a be promises to to don't However, promises put that later is kept able I'm that want to going consistent made, range with hit. philosophy out not I - our is where

So, at XX.X of time, and keep to entire the is the range. this realistic XX.X and for of end range that see an we upper of adequate view can we'll possibilities driving

Noah Poponak

appreciate lot might you've talking quickly, of all there's things about if working you're the I given understand. Tom, and I here, on. And just color a

not the Investor doing of midterm, these for and versus outlook. beyond business themselves? about another goals providing you fresh midterm the eventually Day-oriented of on long-term the a having Investor questions and letting prior the and speak thinking How financial results running are had set Day the just You've business that financials XXXX

Tom Bell

talking me already Investor the to we next when would is about team have The Day.

my in mind, it's So, of a question not if. when,

Noah Poponak

taking Okay. Thanks for my questions.

Operator

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

Stuart Davis

all look morning for day. to in Thank you, updating soon. you And thank a this and the morning. call your great Rob, Have your you on Leidos. for again interest assistance time forward this We your

Operator

conference. today's concludes This

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

Leidos (LDOS) 1 Aug 232023 Q2 Earnings call transcript