Greetings, and welcome to the Leidos Q2 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Stuart Davis, Senior Vice President, Investor Relations. Please go ahead. Thank you, Hector. Good morning, everyone. I'd like to welcome you to our second quarter fiscal year 2021 earnings conference call. Joining me today are Roger Krone, our Chairman and CEO, and Chris Cage, our Chief Financial Officer. Today's call is being webcast on the investor relations portion of our website, where you'll also find the earnings release and presentation slides that we'll use during today's call. Turning to slide two of the presentation, today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on slide three, during the call, we will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I'll turn the call over to Roger Krone, who'll begin on slide four. Thank you, Stuart, and thank you all for joining us this morning for our second quarter 2021 earnings conference call. Our results in the second quarter reflect our leadership position in the government technology market. I am tremendously proud of the way Leidos has responded throughout the pandemic as our employees and business partners continually delivered for our customers and shareholders. While we remain vigilant with the recent uptick in COVID-19 cases, Leidos is stronger than ever, with new quarterly record levels of revenue and backlog consistent with our industry-leading organic growth. As I look at the quarter, four messages stand out. First, our strong financial results demonstrate that our strategy is working. Second, our business development momentum is setting the stage for future growth. Third, we're effectively deploying capital to broaden our offerings in attractive markets. Fourth, we're building an engaged and effective workforce. I'll now drill down on each of these four key messages. Number one, our strong financial performance was highlighted by double-digit organic growth and adjusted EBITDA margins above our long-term target. Revenue for the quarter were $3.45 billion, up 18% from the prior year on a total basis and up 16% organically. Adjusted EBITDA margins of 10.4% were in line with guidance and above the long-term target we established two years ago. After adjusting for the one-time gain in the second quarter of 2020, non-GAAP diluted EPS was up 37%. These results didn't just happen. Rather, they are a direct result of our strategy. We've differentiated ourselves within the market through scale, which creates a more competitive cost structure and expanded capability to take share and position in vital markets. We've also leveraged our cost structure to make key technology investments, which further separates us from our peers. Number two, our business development engine continued the momentum that is driving our industry-leading organic growth. We achieved net bookings of $3.8 billion in the quarter, representing a book-to-bill ratio of 1.1, our 14th consecutive quarter with a book-to-bill ratio of 1 or greater. Our trailing 12-month book-to-bill ratio is now 1.2. Total backlog at the end of the quarter stood at a record $33.5 billion, which was up 9% on a year-over-year basis. In our health segment, we were awarded a new fixed-price contract with a ceiling value of almost $1 billion to improve the health of military reservists before, during, and after deployment. Under this contract, known as the Reserve Health Readiness Program, or RHRP, we'll provide physical, mental health, and dental assessments, along with laboratory and diagnostic services, supported by a secure IT infrastructure and customer service call center. America's more than one million reserve component personnel stand ready to support and defend our nation when it's called upon. It's our honor to support them. In our Defense Solutions segment, the Transportation Security Administration awarded us a $470 million prime contract to integrate transportation screening equipment at airports all around the country. Based on our policy, we only booked a small initial task order in the quarter, although we expect to achieve the full value over the life of the contract. This work is a reconfiguration of work we've been performing for over 12 years, and we also maintain screening equipment for TSA at all U.S. federalized airports. Helping TSA ensure freedom of movement for people and commerce is one of the core ways Leidos is making the world safer, healthier, and more efficient. In our civil segment, the Federal Aviation Administration notified us that they have given us initial tasking as part of a long-term extension for the continued systems integration, sustainment, and enhancement of the En Route Automation Modernization, or ERAM system. The ERAM system is critical for operations in the National Airspace System and at the 20 air route traffic control centers in the continental U.S. We didn't book anywhere close to the $6.8 billion ceiling value, but it speaks to the confidence that the FAA has in Leidos. We expect to begin the 2022 government fiscal year with a continuing resolution, but customers will still be able to fund work in critical needs areas. Our positive outlook is bolstered by the level of proposal activity. At the end of the quarter, we had $49 billion in submits outstanding, of which $35 billion is new work for us. Number three, we're deploying capital to complete our offerings in attractive markets to spur profitable growth. In May, we completed the acquisition of Gibbs & Cox, which brings us world-class naval architecture, design, and engineering services. They designed 68% of the Navy's current surface combatant fleet and are truly a national asset. This deal enhances how we're viewed across the Navy and opens up significant market opportunity for us. Our strategic planning process had identified maritime as an attractive market where we were under-penetrated. To enable synergies, especially around unmanned surface and subsurface systems, Gibbs & Cox will be combined with Leidos' Maritime Systems Division and operate under Dynetics within the Defense Solutions segment. In addition, we're seeing early returns from our 1901 Group acquisition, which we closed in January of this year. Most directly, 1901 is providing significant support to the NGEN program transition and operations. They've significantly expanded their workforce, grown the current enterprise IT operations center in Virginia, accelerated the establishment of new NGEN service desk locations in San Diego, Norfolk, and Boise. 1901's platform-delivered IT services made them the best choice for the program's requirements in this area. 1901 was also instrumental in securing a $125 million follow-on contract with the Bureau of Alcohol, Tobacco, Firearms and Explosives for managed IT services. 1901's strong customer relationships with the ATF, coupled with their efficient as-a-service delivery model, made them key to the bid and execution strategies. In addition to deploying capital to spur growth, we're also committed to returning capital to shareholders. To that end, our board just approved a 6% increase to the quarterly dividend. This increase reflects the confidence of the board of directors and the management team in the quality of our earnings and our ability to generate cash. Number four, this is a people business, and this quarter offered further proof that we are an employer of choice that can attract the workforce needed to meet our financial commitments. During the quarter, we hired more than 4,500 people, and at the end of the quarter, we were more than 42,000 strong. Our head count grew 6% sequentially and 11% year-over-year. Our ability to attract top talent in this manner is important as we staff up to successfully execute the new programs. One of the reasons we are attractive to job applicants is that we invest in talent management and career development. We regularly review talent and plan development actions, including rotations at all levels throughout the company. As an example, Executive Vice President Jim Cantor recently announced his intent to retire after a distinguished 31-year career at Leidos. This enabled us to reconfigure our team to optimize performance given our rapid growth and the changes in market priorities. I asked Vicki Schmanske, who was leading our Intelligence Group, to assume the new role of Executive Vice President, Corporate Operations. In her new role, Vicki will drive operational performance and implementation of strategic functional initiatives. Roy Stevens, who led business development and strategy, succeeded Vicki as the President of the Intelligence Group. In addition, I asked Chief Human Resources Officer, Paul Engola, to lead a strategic effort to chart our way forward in the national security space market. These changes will help us prepare for an uncertain future. A few weeks ago, we kicked off the million-dollar Move the Needle sweepstakes to encourage our employees to get vaccinated against COVID-19 and hasten our coming back together. At the time, all of our facilities were open and all vaccinated individuals were able to work without a mask. A lot has changed in the past weeks. The highly contagious Delta variant and the infection trends are disturbing. As we have throughout the pandemic, we'll comply with all CDC guidelines, and most of our facilities will require masks regardless of vaccination status. While we do not expect that our customers will be shutting down their offices again, we cannot be certain. In the face of that uncertainty, we have decided to keep our current forward guidance in place, and Chris will walk you through that in more detail. For me, part of returning to normal is being able to get together face-to-face with our investors and analysts. It is our intent to host an investor day in New York on October 7th. We have a compelling story to tell, and we look forward to doing just that. We'll closely watch for COVID protocols from New York City and update you if our plans change. Frank Kendall has stepped down from our board to serve as the Secretary of the Air Force. I want to thank Frank for his service to Leidos, and more importantly, to the Air Force, the Department of Defense, and the nation. I'll now turn the call over to Chris Cage. I'm delighted to have Chris step up to the CFO role and join us on these calls. Thanks, Roger, and thanks to everyone for joining us today. I've worked at Leidos for 23 years, and I've personally benefited from the forward-thinking developmental programs that Roger referenced earlier. My predecessor and mentor, Jim Reagan, created a very strong team and set of processes and disciplines that I've had the opportunity to help shape over the last few years. Going forward, my initial areas of focus will be threefold: delivering on our financial commitments, integrating acquisitions, and prioritizing spending on investments to execute our strategy. With that, let's jump right into the second quarter fiscal year 2021 results. Beginning with the income statement on slide five. I'll first run through the financial results at the corporate level, then turn to the segment level to address the primary revenue and profitability drivers. As Roger said, the highlight of the quarter was our organic growth, which is truly unprecedented in our industry at our scale. Revenues for the quarter were $3.45 billion, up 18% compared to the prior year quarter. Excluding acquired revenues of $58 million, revenues increased 16% organically. Notably, revenues grew organically across all three reportable segments. The organic growth is somewhat inflated by the drop in our revenues last year as a result of the pandemic, when, for example, our VA disability exam business was almost entirely shut down. Even if we add back the $132 million direct pandemic effect in the prior year, organic revenue growth was still 11%. Adjusted EBITDA was $359 million for the second quarter, which was up 5% year-over-year. Adjusted EBITDA margin decreased from 11.8% to 10.4% over the same period. Excluding the VirnetX gain from the prior period, adjusted EBITDA margin increased by 140 basis points in the quarter. This was primarily due to strong program management, higher volumes on some fixed price programs, and better direct labor utilization. non-GAAP net income was $218 million for the second quarter, which was down 2% year-over-year, and non-GAAP diluted EPS for the quarter was $1.52, also down 2% compared to the second quarter of fiscal year 2020. Excluding the impact of VirnetX gain from last year's results, non-GAAP diluted EPS was up 37%. Our effective tax rate on non-GAAP income in the quarter was 24%, compared to the 22% we anticipated for fiscal year 2021. This negatively impacted non-GAAP diluted EPS by $0.04. The tax rate increase was primarily across our international business. The largest single driver was that in Q2, we recognized the full impact of a recently enacted increase in the U.K. corporate tax rate from 19% to 25%. For an overview of the segment results on slide six. Defense Solutions revenues increased by 14% compared to the prior year quarter. Excluding the acquisitions of 1901 Group and Gibbs & Cox, organic revenue was up 12%, primarily from ramping up recent contract wins such as NGEN and increased weapon systems development within Dynetics. Civil revenues increased 5% compared to the prior year quarter, with about half coming from the SD&A acquisition and half driven by increased demand on large programs such as Hanford Site Integration. Health revenues increased 62% compared to the prior year quarter, all of that growth was organic. We had a large year-over-year increase on the DHMSM program, as well as a nice ramp on the new Military and Family Life Counseling program, or MFLC. The largest increase, though, was in the VA disability examination business in our QTC subsidiary. Remember, this was the business hardest hit by the pandemic in the year-ago quarter. Now volumes are higher than ever as we continue to work through the backlog of exams. On the margin front, Defense Solutions non-GAAP operating income margin for the quarter came in at 8.3%, which was up 20 basis points compared to the prior year quarter. Civil non-GAAP operating margin declined from 12.9% in the prior year quarter to 9.1%, as we had fewer deliveries of our border import security systems and airport screening systems. Finally, most significantly, health non-GAAP operating income margin for the quarter was up to 17.8%, compared to 5.3% in the prior year quarter. This quarter's strong margin performance benefited from the significantly increased revenue volume, the year-over-year improvement was enabled by the strategic investments we made a year ago to keep our workforce in place and ready to meet the coming customer demand. Turning now to cash flow and the balance sheet on slide seven. Operating cash flow for the quarter was $17 million, free cash flow, which is net of capital expenditures, was a usage of $4 million. During the second quarter, we settled the accounts receivable monetization program, which negatively affected our operating and free cash flow by $94 million. On a year-to-date basis, the AR monetization program is neutral to cash flow, we do not plan to sell any more receivables. During the quarter, we used working capital to fund the startup of new programs and the expansion of existing programs and drive strong organic growth. You can see this impact most clearly in the drawdown of advanced payments compared to last year. Cash generation from the business segments was right on plan for the first half of the year and actually ahead of last year. That performance is overshadowed by one-time, non-operational cash benefits in the first half of 2020. These include $225 million from the AR monetization program, $85 million from VirnetX, $48 million in CARES Act tax deferrals, and $103 million in lower cash taxes, which is just a timing issue. During the second quarter, we paid down $27 million of debt and returned $48 million to shareholders in quarterly dividends. As laid out in Friday's 8-K, our board of directors approved a 6% increase in the dividend beginning in September. This is our first increase in two years and reflects our confidence in the future outlook and commitment to shareholder returns. We paid net consideration of $376 million to acquire Gibbs & Cox, which positions us to provide a broad set of engineering solutions to the U.S. and international navies. Gibbs & Cox is contributing a little more than $100 million in revenues this year at margins above the Defense Solutions segment average, given its higher proportion of fixed-price work. To finance the transaction, we borrowed $380 million with a one-year maturity at very attractive terms, no more than LIBOR plus 113 basis points. As of July 2nd, 2021, we had $338 million in cash and cash equivalents and $5.1 billion of debt. Last month, we established a commercial paper program for short-term liquidity management. Commercial paper will give us more flexibility at a lower cost than selling accounts receivable. Commercial paper is only available to us because our debt is investment grade, and we view our investment grade rating as a strategic asset. Over the remainder of the year, our primary capital deployment priority will be debt paydown as we return to a normalized leverage ratio of three times. We remain committed to our long-term, balanced capital deployment strategy, which consists of being appropriately levered and maintaining our investment grade rating, returning a quarterly dividend to our shareholders, reinvesting for growth, both organically and inorganically, and returning excess cash to shareholders in a tax-efficient manner. On to the forward outlook. As shown on slide eight, we're maintaining our guidance for fiscal year 2021, including revenue between $13.7 billion and $14.1 billion, adjusted EBITDA margin between 10.5% and 10.7%, non-GAAP diluted earnings per share between $6.35 and $6.65, and operating cash flow at or above $875 million. As the year progresses, we normally tighten our guidance ranges, there are a lot of forces at play, including potential worsening of the COVID-19 situation with the more contagious Delta variant and stagnation in vaccination rates, as well as ongoing challenges in the global supply chain, especially around computer chips. On revenues, NGEN is ramping well, this is still a new customer and new contract, we don't have an established history of order flow and don't want to get ahead of ourselves. The intelligence community award decisions have slowed noticeably. We're also incrementally more cautious on the bounce back of the international airport screening market. We're not forecasting a return to growth there until 2023. The Gibbs & Cox acquisition should keep us comfortably in our revenue range. It likely won't put us above the range. We expect revenue to grow fairly linearly through the back half of the year from Q2 levels. Growth drivers in the third and fourth quarters include the full contribution of Gibbs & Cox, the continued ramp on NGEN, MFLC, and several other programs. Towards the end of the year, we expect the VA medical exams will begin to return to their pre-pandemic levels. On EBITDA margins, year-to-date performance the second quarter was 11.1%. To land in the guidance range for the year, adjusted EBITDA margin for the back half of the year will be around the same level as this quarter. Non-GAAP diluted EPS will generally follow revenue and margin. However, we're now forecasting the FY 2021 tax rate to be between 23 and 23.5%, instead of our original 22% forecast, which slightly outweighs the accretion from Gibbs & Cox. In addition to the international tax headwinds I mentioned earlier, we're now forecasting a lower deduction for share-based compensation based on stock price performance over the first half of the year. Finally, we expect cash flow to follow our normal pattern and accelerate in the back half of the year to land us at the guided level. Over the past five years, we've generated an average of 65% annual operating cash flow in the third and fourth quarters. That pattern will be slightly more pronounced this year as a result of the working capital that we have devoted in the first half of this year to drive 17% year-over-year growth. We have a detailed execution plan to achieve our operating cash flow guidance. With that, I'll turn the call over to Hector so we can take some questions. Thank you. At this time, we'll be conducting a question and answer session. One moment please while we poll for questions. Your first question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question. Hi. Good morning, Roger. Hey, good morning, Sheila. Welcome, Chris. Thank you both. Hi. Maybe, Roger, if you could comment on your intel business, how large is it? You mentioned some delays there. Booz, I think, was down mid-single digits in the quarter. Maybe what's going on with the intel customer specifically, and what sort of delays are you seeing? Well, it's a little bit larger than $2 billion. Of course, it's in our Defense Solutions segment, we don't really spike it out. The good news for us is after the quarter, we did win a recompete, which is below $1 billion. What we've seen overall is it just has taken them longer to get through their acquisition process and awards, recompetes, new business that we had put in our plan have taken literally months or quarters to come to fruition. What that has meant for us and for others in the industry, rather than booking a full increment of a recompete, we're getting shorter extensions. It's not really contributing to the increase in backlog. In the last quarter or two, we really haven't lost a significant amount of business. It's just been, like a lot of things in COVID, things have just been moving to the right. Maybe one quick one on margins. You guys did really well with first half margins up 11%. I am sorry, 11% EBITDA margins, your implied guidance is 10%. Is this like the start of Chris' conservatism, or is that maybe mostly due to the Civil margin impact? That looked like it was down in the quarter, I think you mentioned due to the Security business. Sheila, this is Chris. Hey, thank you, no pattern of conservatism here, we laid out some reasons to be cautious, right? There are some unknowns. Last year with COVID-19, things whipsawed a little bit. With Delta variant, we're being conservative there. We laid out for civil, of course, we're expecting some uplift over time from the security products business. Not just the aviation side, but the ports and borders, which, that business has performed very well for us on a legacy basis. There are some puts and takes. We're still intending to increase our level of investment on research and development. We built that into our plan all year long, some of that is programmed in for the back half of the year. We want to make sure that we can deliver on these commitments. Thank you. Thanks, Sheila. Thanks. Your next question comes from the line of Robert Spingarn with Credit Suisse. Please proceed with your question. Hi, good morning. Hey, good morning, Robert. Roger, maybe Chris, you talked about your attention to the top-line guidance a couple times here so far, but there are a bunch of moving pieces. I was wondering if we could size some of this. Would it be right to characterize the naval architecture business as around, I don't know, $80 million-$90 million a quarter? No, we would say maybe $100 for the half. Remember, that's about what we get. It's about a half a year, call it $100, maybe a little bit better than $100, and it's growing. For the half that we'll book, round it to $100. Okay. That's what you're thinking in terms of maybe offsetting downside from COVID? I know COVID's a tough discussion to begin with, but how are you thinking about that? Maybe another way to ask this, Roger, is have your organic growth targets changed since Q1 for the three segments? Well, we're talking 139. I'm not talking about that. Yeah. I mean, not appreciably. Yeah. Hey, Robert, and you, and I think the other folks on the call know where we were a year ago. And we thought we made a reasonable change a year ago. We sort of walked into the second wave. I think we all learned that this COVID thing is unpredictable. Throw onto that the shortage of computer chips. We usually get a lot of material deliveries in the second half. Although we've seen some lengthening in the supply chain, we don't see any shortages yet. You all have taught us a great lesson in the last 12 months. I kind of like where we are. Yeah, Gibbs & Cox gives us a little bit of lift. There's a ton of uncertainty out there in the next six months. Robert, hey, this is Chris. Just to add on to that, obviously, we do detailed forecasts and ops reviews quarterly with all our business lines, and there's always movements across the portfolio. Roger just talked about the Intel delays, and so that might have been a business area where some of the things that we put into the pipeline haven't come out yet. We were hopeful that some of those would and potentially give some uplift. None of those have been lost. There's always small movements within the portfolio, within $13.9 billion midpoint that we're driving towards. The Gibbs & Cox piece potentially helps offset some of that or give us some capacity for downside risk given the COVID situation. Okay. I guess what I'm really looking for is, because last year was so challenging and this year you're catching up a lot, and you have a lot of good businesses that are growing. I mean, this obviously is a high growth year. You're the highest grower in the sector, as we've discussed. Maybe high level, Roger, looking into the future, once things normalize, how do you see the growth patterns in the business? Well, we still see strong growth, but not at the level that we've just demonstrated. At our investor meeting two years ago, we kind of talked about 5%. We'll talk about that again in October. Clearly, we're comfortable with 5%. What we have been doing over the last couple quarters is really unprecedented, and I don't expect to paint another quarter like we did. Some of that certainly year-over-year is COVID recovery, but we've enjoyed a significant number of wins and a high percentage of our competes. We're still very bullish on our long-term growth prospects, but not at the double-digit level. Okay. Thanks very much. Yeah. Thanks, Robert. Your next question comes from the line of Cai von Rumohr with Cowen. Please proceed with your question. Yes, terrific. Thank you very much. Roger, you won AEGIS, but it's under protest. Maybe update us on that and on your larger outstanding bids. I believe they include Enclave, UDS recompete, and the $3.5 billion FAA award. Okay, Cai von Rumohr, thanks, and hey, good morning. It's a NASA bid about in the order of $2.5 billion. It was protested by the incumbent, as it seems everything is nowadays. NASA is taking corrective action, and so it's a little hard to forecast what the outcome will be. History has told us NASA takes corrective action. They make another award decision, and then, of course, usually that's followed by another protest, and those tend to last kind of 100 days. It may take them another three, four weeks to do the corrective action, and then you tack another three months on the back of that. We suspect we'll be talking about NASA AEGIS through the third and fourth quarter, unfortunately. On DES, it's a big contract up at DISA. We're hoping it will be a fourth quarter award. It could easily slide into first quarter, and I would suspect, Cai, that that will be protested one way or the other. The UDS bid, which is at NGA, which is in the nominally $4 billion-$5 billion, a significantly large bid. We expected that to come out July and August. There are some other things going on at NGA, which is in the Intelligence Group, Sheila's question, which may cause that to be delayed. It could happen in August, could happen in September. Frankly, the acquisition team at NGA is really busy, and when they get around to clearing the award, they'll make the award. We think it's third quarter, but these things become ever increasingly hard to forecast. Those are the big ones that are out there. There's some other things that are down in the $1 billion level. Great. Thank you. If I could follow up on Sheila's question about margin. It sounded like you went out of your way to remind people that your long-term target is 10%, it's not 10.4%. I guess as we just look at next year, I would assume health, the margin has to be down because you don't have the VA catch-up. If you get AEGIS, that's below average, I assume Civil also would have downward pressure year-over-year. Is that calling out the 10% just to be conservative, or is there a real concern that realistically there's no way 10.5% is kind of anything you could do on a sustainable basis? Well- Go ahead, Chris. I'm sorry, Roger. Cai, Chris here. I just was going to jump in on that. First of all, we weren't trying to send a signal about 2022 yet, right? That's what we'll lay out when we get to Investor Day in October. There's more going on to what you pointed out, and those are various due observations. Number one, Roger talked about 1901 and the contribution that's making to our portfolio, and that would really be an enabler across not only the defense opportunities in Enterprise IT, but also into the Civil segment and others to help us deliver those capabilities more cost effectively and drive margin uplifts. We see that as something that will help us there. Obviously, in the Civil segment, margin will ride up with the recovery in our security products business, not just the aviation side, but as I mentioned, ports and borders. There are opportunities, whether it's within the infrastructure bill or otherwise with our customers internationally, for that line of business that we're very bullish on. Those things would help us lift margins in that area, and we do have to be prepared for health margins moderating back down a bit as the exam backlog works its way down. Again, that will still be a robust part of the portfolio on margin. More to come in October, but I don't think you should read in that we're resetting to 10% longer term. Thank you very much. Thanks, Cai. Your next question comes from the line of Gavin Parsons with Goldman Sachs. Please proceed with your question. Hey, good morning. Good morning. Morning. Roger, I just wanted to clarify your organic growth comment in response to Rob's question. You said at the last Investor Day, you talked about 5%. You're comfortable with that. Without getting ahead of Investor Day targets, can you just clarify if you mean you think you can continue to grow five on a multi-year outlook? I want to be absolutely clear. The long-term outlook that is out is what we gave at the investor conference, gosh, in May two years ago. We raised it from three to five. Okay. We have done nothing to change that. Okay. That's what I was just trying to articulate to Rob. That being said, our organic growth, frankly, our total growth, has been really remarkable. Our book-to-bill, it's just been great. The team has done such a great job. I'm not going to update the 5% until October, but I've tried to give reasons why there should be a lot of confidence at five or perhaps better. Gavin, that's about as far as I can go. Okay. No, that's great. I appreciate the clarification. I just wanted to make that clear. Chris, anything you could do to help us quantify the healthcare exam contribution? That business is running 30% above 2019 levels, obviously you have some other growth drivers in there. Any sense of what maybe that business has grown versus 2019, excluding the lumpiness in exams? Yeah, Gavin, as you can appreciate, there's some sensitivities on getting too far down into the portfolio competitively or otherwise on that. That's not the only thing that's going on in health. That's the point we wanted to make. We've told you for a long time that the DHMSM program would be ramping up. It has. That team is performing exceptionally well. MFLC is really on a nice trajectory to ramp up, and those margins will be lower than other parts of the portfolio initially, but they'll have an opportunity to increase over time. We've got zero contribution from our RHRP in these numbers, right? That will be something that we'll look forward to next year to really ramp up as that program gets underway. The exam business is above its historical levels, but quite honestly, that team has delivered so well that the customer is looking to send more work our way over time. We're prepared to accommodate them and their needs however possible. The hope is that we can continue that at a nice clip. Thank you. Thanks, Gavin. Your next question comes from the line of Matthew Akers with Wells Fargo. Please proceed with your question. Hey, good morning, guys. Thanks for the question. Hey, Matt. Can you update, what are your latest thoughts on the infrastructure bill and maybe areas where you could see a benefit from that? A great question. Of course, we're hoping that there'll be a rare show of bipartisan. That looks like it's a $550 billion-plus over what we would have seen. There's a lot of focus on roads and public transit and water systems, but we think broadband, airports, ports, waterways, security equipment. We think there's going to be emphasis on protecting the infrastructure, and whether that be cybersecurity or grid hardening. That is right in our swim lane. We're really excited about 5G, and frankly, 5G really to everyone in the country. We think that will spur sort of another big investment in IT and IT technology as The ability of all of us to function from an edge device. The phones that we have today are just a beginning. When we all have 5G, the functionality that you will carry in your pocket is going to increase by an order of magnitude. That, with cloud and as a service, we could see that as spurring a whole new round of investment and application migration. We're very bullish. I will caution everyone, our typical federal government authorize, appropriate, then it gets distributed to the agencies. They put plans together. They put out RFPs, and they have industry days, and we bid. I don't want to sound too negative here, it takes a long time for money like that to flow through the system to where we win contracts, we start performing, we turn it into revenue, and then finally into cash and earnings. It's all positive, and it's positive for us, not only because of our civil group, but really across the board in everything that we do in technology. It's just going to be months or years away. Overall, positive. Thanks. I guess, on the COVID and this latest wave, it sounds like that's a big driver of conservative guidance for the rest of the year. Are you seeing any signs from particular areas that maybe customers are considering closing down locations again or contracts getting delayed? Anything that you're seeing there, is that just caution in the guidance? We haven't seen customers like we did when we were talking about 3610 and the CARES Act, and the intel went to shift work. What we all know, the president comes on national TV and talks about a mask mandate, we all stand up and listen. We're essentially going back to a mask mandate according to the CDC guidelines, and we would expect all of our customers to do that. A bigger concern for us is really what's going on outside of the U.S. As you know, we have significant operations in Australia, the U.K., the Middle East, and they are hunkering down again. In Australia, not only is it difficult to get in the country, it's difficult to get around the country, to go from Melbourne to Canberra and to Sydney. I think Chris addressed it well, but our SD&A business, and certainly the part that we acquired, is heavily dependent on international business, which is dependent upon tariffs on airline tickets. When the volume is down, the money is not there. Although we have not lost any significant competitions in the SD&A business, we have seen many canceled and delayed. I think the impact for us will be in our civil segment, in the business that we refer to as Security Detection and Automation. Got it. Thank you. Yep. Thanks, Matt. Your next question comes from the line of Peter Arment with Baird. Please proceed with your question. Hi, good morning. You actually have Eric Ruden on the line for Peter today. Maybe just a quick one for me. With a lot of the focus across many industries today being on rising input costs and labor being the lion's share of yours, are you seeing any pressure there? I know you mentioned the 4,500 new hires. Any color on how you're offsetting these headwinds in the current environment? How much additional staffing is needed near-term? Let's see. It's sort of a mixed answer. We refer to them as unicorns. Someone with a lifestyle polygraph, a security clearance, and can program in a computer language called Python in the National Capital Region around D.C., yes, we're seeing a lot of competition for that person. In order to get the staff that we need, we have to compete. That is driving up labor in those areas. In other areas, there's a lot of people available. We've been able to meet our hiring goals. Of course, as we have said on this call, we have a strategy to deconcentrate our work in the National Capital Region and move to areas of the country where the workforce is more readily available. Our 1901 Group acquisition, which I know we haven't talked a lot about, has a significant presence in Blacksburg and a great relationship with Virginia Tech. That was just one more reason why it was attractive to us. It opens up a new workforce for us. We have a software development center in Morgantown at West Virginia University. We have one in Charlottesville at UVA. Now we have one in Blacksburg. Overall, we're expecting to hire maybe a number that's in the 9,000-10,000 new. We're at the, I think I said 4,500. We're a little bit better than that now because of the Navy Next Gen staffing, which has continued to go very well. We have enjoyed what we call incumbent capture, where people who are on the contract with the prior contractor have elected to come to work at Leidos. We're actually significantly above that number. We are on track to meet our hiring goals, but there's always that specific individual, a PhD in radiology, that's difficult to find, especially if you're geographically limited, as you often are in the intel business. Okay, thanks. That's very helpful. I'll leave it at one for me. Thanks. Your next question comes from the line of Joseph DeNardi with Stifel. Please proceed with your question. Hey, Joe, you out there? Joe, are you on mute? Your next question Yeah, go ahead, Hector. Your next question comes from line of Tobey Sommer with Truist Securities. Please proceed with your question. Thank you. I was hoping you could speak to how you anticipate wage inflation, should it materialize broadly, impacting the business. When you describe your answer, could you touch on the different contract types to the extent that that could be informative? Yeah. Tobey, I'll start, and Chris can come in with some of the numbers. We have a portfolio mix, which is a little bit, it's almost 50/50. It's a little bit off from that, which is fixed price. Some of our fixed-price work is what we call time and materials, but think of that as fixed rate. It's so much per hour, and the customer buys number of hours. Then we have what we call our cost reimbursable or cost-type contracts. Let me start very simple, then I'll see if I can address your question. Clearly on the cost-reimbursable work, if there is wage inflation, that essentially becomes a pass-through to the customer. That's maybe not quite as positive as it sounds because customers live on annual budgets, and if you're a NASA customer, you have X for a program in a given year. You don't have X plus inflation. So if our wages increase inside a budget year, often the customer will have to decrease scope because they don't have any additional funds to execute the program. Of course, on fixed price, we have said we will do a program or complete a task for a fixed dollar amount. They therefore rely on us to balance the cost per hour with the number of hours. Our challenge, and I think it will be the challenge across the industry, if we see significant wage inflation above what we estimate when we bid, then we're going to have to find new efficiencies in service and delivery to offset that inflation. We're always trying to do that. That's why sometimes on fixed-price programs, our profit margin might be a little bit better. We'll just have to do more of that. Part of the, again, going back to our 1901 comment, the excitement about 1901 is it has an as-a-service platform, which is really independent on labor. We charge so much for a service, and we use essentially application IT platform to deliver that. There's a lot of opportunity for us to create new efficiencies through the service and delivery model. Hey, Tobey, this is Chris. Just to add on to Roger's point, he hit most of the issues here. Every year, we do a detailed pricing build-up, multi-year pricing build-up for our indirect and our direct labor costs, certainly contemplate some level of inflation as we build multi-year projections around that. If it turns out that wage inflation is outpacing what we've estimated, we have an opportunity to refresh that, which we will do, we'll build those costs in. You really are just, at any given time, you might win some contracts where you've priced them with the old rates. To Roger's point, you have to find opportunities to drive efficiencies to protect margins. On the future bids, we're pricing in what we think it requires to execute the work. We're very transparent about that with our customers, and we've got good competitive intel on where we think we need to be on a price to win. All those factors play into how do we deliver, how do we win work, and how do we maintain the margin profile that we're committing to you. Yeah, Tobey, one additional thought, just because I think it's a really thought-provoking question. One of the things that we have seen is as we mix more college hires and less experienced employees into the mix, what we call labor categories and their wrap rates, they make less. We've been thrilled with the quality of our less experienced workforce and their ability to do the job. Right. That's another lever for us as we increase our college hiring to use more of that newly graduated workforce in key positions. Thank you very much. I wanted to get your perspective on continuing resolution and what sort of the date is you might expect that to extend at this juncture? Yeah, I'll be really quick. We want to get one or two more questions in. I think everyone does, expect a CR at the end of the fiscal year. I'm not optimistic. I don't think we'll have a government shutdown. I think we'll get through the debt ceiling limit. I don't think there's any appetite for that in either side of the aisle. I'd love to be optimistic and say we're going to get a bill before the end of the year, but I'm not. I think we'll run a CR through into the first quarter. Just everything that seems to be going on, that would be my forecast. What that will do, as we all know, is the work that's under contract will continue. New starts will get delayed. By the way, new starts are getting delayed anyway. As we have said, again, many times, I think, in what is it, 19 of the last 20 years we've had a CR. I don't see it as a big impact to our business. I would love to see a bill, but we're certainly able to handle a CR as long as it doesn't go past first quarter. Thanks, Tobey. Thank you. Your next question comes from the line of Joseph DeNardi with Stifel. Please proceed with your question. Oh, thanks. Good morning. Sorry, mute button got me. Maybe Roger or Chris, just following up on a prior question. Enterprise IT has been a big focus for you all, and obviously a lot of success there with NGEN and now AEGIS. I can't imagine it would be such a focus if that work was dilutive to margin. Is there a rule of thumb, say, for a 10-year contract when that work becomes accretive? Is it right away? Does it take a few years? Is it not until the end of the contract? How does that work generally? You mean accretive to our average margin or accretive to EPS? Accretive to your average margin. There is not a rule. It really, it's customer by customer and competition by competition. We have some programs that start out, and they are above our margin. We have other programs, RHRP, which is really not an IT program, but RHRP has a 6-month, very low-level transition built in. We won't see RHRP as accretive to margins until significantly into next year, just because of the way the contract is structured. There's not a particular rule of thumb, but we've generalized on this call in the past, is that it takes us a while after we staff up and we have demonstrated performance to be confident and therefore to raise our accrual rate. I'll turn it over to Chris now. Joe, I'd say, usually we say give us a year and a half to two years. It depends. What we like about those contracts, in general, is they're often, whether a fixed unit rate or fixed price. We do think as we understand the environment better, there's opportunities to introduce more efficiencies into the environment and drive savings that way through automation, through as-a-service, et cetera. With workforce rebalancing, as Roger indicated, what can you get for lower-level employees, potentially. Everyone's a little bit different. It depends on whether there's a transition phase, how that was bid, what they're paying you for. Really contract by contract. Got it. That's helpful. Roger, you said earlier that you can't necessarily expect to grow 10% every year, which is understandable. I'm just curious if you see that because you're just trying to manage expectations, which is obviously fair, or do you not see the opportunities in terms of taking market share over the next couple of years that maybe you had a few years ago? Yeah. Hey, Joe, it is really more the former. Without putting too many numbers out there, we intend this year to submit more proposals in aggregate than we did last year. All right? We will look at our pipeline, and we have a fairly well-disciplined business development process where we go out, literally 5 years-10 years, we build a pipeline of potential business. We are not constrained by opportunity. In fact, what we are trying to do is to cull out of our pipeline earlier those things that are not, if you will, not in our strike zone. We spend our new business funds more efficiently, but we will submit more proposals this year than we did last year. Clearly last year, we did more than the year before. It's really not opportunity. Gosh, I'd love to think we could grow 10% forever, and that we were sort of a Silicon Valley, high-tech startup. It's just, we've been very fortunate, and we don't want to get too far over our skis. Thank you. Yeah. Our final question today comes from Mariana Perez Mora with Bank of America. Please proceed with your question. Good morning, everyone, and thank you. Hey, morning. Good morning. In your updated outlook, you mentioned the challenges related to the supply chain, and especially the lengthening in the supply chain of computer chips. Would you mind telling us and giving some color on the impact so far, and how should we think about the potential impact in the future? I think I understood your question. Let me take a shot at it. Impact so far on the supply chain challenges. We haven't seen a lot. We install a lot of end-user equipment as part of several of our programs. We buy from all of the household names that you're familiar with. What we're talking about, silicon wafers that then get converted into processors, both general-purpose processors and application-specific integrated circuits. What we thought was COVID-related, and we kind of put it into a big category. As we sort of started to come out of COVID, we find that parts of the supply chain shut down in this lower-end computer chip market and is not coming back as quickly as anyone thought. In fact, in some markets like auto, there are concerns, certainly at the wafer level, that some of that capacity is not going to come back at all. We have not seen shortages. We have just seen delays. We're planning a couple of years out, but we have seen lengthening, especially for IT equipment, probably in the weeks to a month in some areas. Material has a big impact on our revenue, both good when it happens and bad when it gets delayed. It's a part of why we're not touching guidance for the last six months, although we're doing fine now. Some of our contracts have significant material purchases planned for the last half of the year, and out of an abundance of caution, we wanted to give you visibility and transparency into our supply chain. I think, Mariana, it's definitely something we'll spend more time on as we build our 2022 plan, because as Roger indicated, we have key relationships with critical suppliers, and we stay abreast of what's going on there. While the IT component of many contracts isn't always our highest margin contributor, it does contribute to revenue, and so therefore, it's fairly integral. As we get to 2022 planning, we'll make sure we've got good line of sight on what the latest expectations are. This year, with the guidance range we provided, we think we gave ourselves some latitude for some potential delays, modest delays across the supply chain. Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to Mr. Stuart Davis for closing remarks. Thank you, Hector, for your assistance on this morning's call, and thank you to all joining in this morning and for your interest in Leidos. We look forward to updating you again soon, and especially in October. This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.