Okay, thank you so much. My name is Sheila Kahyaoglu. For those of you who don't know me, I'm the Jefferies Aerospace, Defense, and Airlines equity research analyst, and today we have the Leidos team with us. We have Stuart Davis, who's quietly sitting in the audience, Tom Bell, who I got the pleasure of seeing in person today outside of a Zoom call, and Chris Cage, who's CFO. Tom is incoming, the new CEO as of May 3rd? Correct. 2023. So, it's been an absolute pleasure to meet you in person and sit in on some of these meetings, Tom. So I know one of the most popular questions you've been asked, and I'll start off with that, is, you know, what have you enjoyed about being at Leidos? What have you found that's differentiated relative to peers, and what do you think are the unique aspects of the portfolio? Thanks, and thanks for hosting the conference. Yeah, Leidos is an amazing company, and it doesn't take long, wearing a little purple to see just how special it is in the ecosystem. We have the scale of a $15 billion, 47,000-employee company, but also, fancy ourselves and still act with agility and, are able to be adroit in solving customer problems. Going back to the founding of the company, in 1969, we still fancy, wicked smart people looking at technology and deploying technology in a differentiated way for our customers to solve their most vexing problems. And those three characteristics still carry through in Leidos as calling cards that all people at Leidos, really feel of an affinity for. It's a company that moves fast, but has the scale to solve some of our customers' biggest problems, and it's well poised to serve our customers into the future. You reported Q2 results in August, and it's like within 60 days, all of a sudden, every quarter, every segment beat, and it was miraculous. So what did you do? What was your secret, and how do you kind of think about the next phase of the business from here? Yeah, thanks. Well, it was disappointing to ourselves and our investors that we had a first quarter miss that was so dramatically reflected in the market's reaction. However, as was once made popular by a politician, "Never let a good crisis go to waste." And so, Chris and I very quickly rallied the team after that miss and talked about what we were going to do. And, it was no big needle mover, no one single needle mover, but it was an earnest, honest self-reflection of where we were, where we wanted to be, and an EAC for the rest of the year. That allowed us to find some very quick things we could do in terms of cutting costs and refining the portfolio, focusing the team on profitable growth, and asking people and being very clear about the expectations of what good enough growth looked like. As a result, the team responded very positively to that. That not only gave us a very good quarter in Q2, but set Chris and I up to be able to confirm guidance for the full year, which is actually very, very, very pleasing for us and for our employees. Chris, do you wanna- Yeah, I mean, I would just say, obviously, we had a plan for the year when we set out, and one quarter was tough. But, you know, we didn't take our eye off the ball on what we thought the full potential of the company was, and pleased that Tom came in and rallied the team, you know, on the urgency of execution in the near term, and saw a great response. We've got a great leadership team, and they're up to the task, and everybody takes a lot of pride in what we do and delivering on our full-year commitment. So we're on track. Talking about the top line, let's start longer term and then go to the shorter term. This is a selfish question 'cause I'm often asked this by investors. You have very disparate segments in a way, health, civil, and defense, and you have different budgets that you abide by. So how do you think about the longer-term growth profile of each of those end markets? One of the things that we're doing is a fundamental reset of what full growth potential for Leidos is. And so we've asked each of the businesses to bring forward their plan for full growth and a resourcing plan for that growth plan. At the same time, we've asked them to talk to us about what is best-in-class profitability in their market and articulate or explain why we are it, or if we're not, how we will get to full best-in-class profitability. The good news is, all segments have a growth plan. Some are more robust than others, some survived the preliminary pressure test more than others, and as a result, we're necking down on the full growth plan and where we want to differentially invest in our portfolio to bring about a better result for our shareholders and for our company. But that's still preliminary. We're in the second cycle of pressure testing those growth plans, and that will set the tone for what our 2024 plan is and where we're going to be growing different than the current plan. Okay, fair. I won't, I won't test you on those numbers just yet. Not yet. Another 12 months to go then. Shorter term, your guidance is for 3%-5% organic growth for 2023. You took it up a touch. You know, how do you think about both, you know, what resulted in that pickup and the risks for the second half? Well, again, when we had the first quarter miss and we did the fundamental drain the tub and look at the numbers from the bottom up, it gave us confidence not only in the ability to meet our full-year numbers, but that organic growth number also. So it's buoyed by the results that we have in the first half of the year and the trajectory we have for the second half of the year, which sets us up well for our 2024 targets also. ... and let's talk about margins again, shorter term, just for 2023. You generated 10.2% EBITDA margins in the first half of this year. Your guidance for the full year is 10.1%-10.5%. You know, how are you thinking about the margin runway about the, of the business, and obviously longer term, how you're going to change the way folks think about profitability? Yeah, we were very happy with the results of the second quarter, but obviously we also widened the EPS range for $10.1-$10.5, and- EBITDA margin. EBITDA margin, excuse me. And, we did that because we had a lumpy first quarter and a very resounding second quarter. However, we're very focused on meeting the upper edge of that range, and we're very committed to trying to achieve that. But, that also sets us up well for 2024, and the ultimate target that we held out two years ago for 2024, margins of 10.5%. So we feel good about where we are, and we feel good about how we're going to close out the year, and we feel good about how that sets us up for 2024. I'm scratching my next question because it seems like you're backing away a little bit from those three-year targets, or should we still think about that 5%-6%, 10.5%+ EBITDA margins? Yeah, I don't think I would like to characterize it as backing away. I'm simply focused on delivering now and making sure that I deliver against the quarter that I'm in. We're focused on finishing 2023 strong and setting up a 2024 that recognizes the targets that were set up previously. But of course, we'll actually give our 2024 guidance toward the end of the year when we set about our 2024 guidance forward. Yeah, Sheila, I just might add, I mean, you know, clearly the first half of this year, we're growing at 6%, right? So that's good momentum, a proof point. But, but again, as we look at the portfolio and look at the bets we want to make to optimize long-term bottom-line returns and cash generation, we'll be selective, and certainly we won't be chasing revenue growth just to deliver on that target. Sure. That's why we want to be thoughtful as we enter 2024 and tell you what we see about next year. But on the margin profile, I mean, the good news is 10.5% is still the high end of the current year range. 10.5% for next year still looks like it's very achievable. And, you know, clearly with a focus on profitability and margin, you know, coming from Tom's emphasis, you know, the team is taking that to heart. So we saw a line of sight to catalysts to drive margins before, and we're focused on capitalizing on those. Great. Turning to top line once again, how do you think about backlog book-to-bill? I never actually like backlog because people can make it up, but you have a $34 billion backlog. How do you think about the conversion of that, and is there a target bookings level you'd look to achieve? Yeah, you don't like backlog. I think that book-to-bill on a quarterly basis can incent very negative behavior and frankly, isn't a healthy metric for a business like ours to be chasing. So, you know, maybe the answer is both, right? Obviously, we need to be cognizant of our bookings, and we need to make sure that on a trailing twelve-month basis, it is not going negative or staying negative for long. But what I'm trying to focus the team a little bit more on is quality backlog, not just backlog in the aggregate and the number, but rather quality wins that set up profitable growth in the future. Leidos is a little bit different in the ecosystem than many of our peer competitors. We're bigger, we are more diverse, and therefore, book-to-bill ratios on a quarterly basis, when some of that business is somewhat lumpy, can be deceiving, and they can incent the sales team to chase revenue just to achieve a quota or a target. So rather than just chasing that exclusively, I'm turning the attention also to profitable growth at a healthy backlog, so that we talk about book-to-bill ratio against the backdrop of a quality backlog and talk about both. The good news is that as we've seen in the first half of this year, that organic growth is off the backlog that has been the book of business, and so we do know how to grow organically against the healthy backlog we have. The question is, feeding that pipe and making sure that the backlog is growing with quality wins. Maybe similar to that, you know, talk about your approach to winning new business, maybe things you've changed a little bit, or tweaked. Yeah. So the good news here is that obviously, I've spent a considerable amount of my time in sales and marketing and understand BD. Our BD processes at Leidos are world-class. We are a proposal machine, and we certainly have a track record that says we know how to win. There's no question it's in our DNA, and there's no question that the somewhat dry years or months we've experienced are disappointing to the team. There's nothing in the diagnostics of that process and the team that have shown some burning platform or something that we just need to fix dramatically. But it is a conversation that we're having with the BD team about focus, making sure we're applying the resources to the most appropriate, best, high-class wins that we could go capture. Making sure that we're talking about not only revenue, but profitability, and pursuing the growth that is going to set us up for profitable growth in the future. And making sure that we're not trying to grow all elements of the portfolio at the same rate, but rather differentially growing and applying the resources to where the opportunities really are for Leidos to win and to grow in the future. So it's more about focus and applying the resources a little bit more on a meritocracy as opposed to a democracy, and we feel very good about we're gonna have results to show for that. I wanna talk about the individual segments, if that's okay. So on health, there are a number of moving pieces, and I know I just asked you this. It seems like $2 billion is a number I thought you guys would come off of, but you haven't. Can you talk about the moving pieces, medical exams, RHRP, DHMSM? How do we think about the organic growth profile of health? Well, the first thing I'll say, and I'll turn it over to Chris to make some commentaries, is Liz and the team have just done a fantastic job of inserting technology and artificial intelligence in a way that allows our results for our customers to be differentiated. Where the throughput of the business, the ability of us to solve customer problems and bring down caseload is great, and we feel very good about our ability to prosecute and grow that marketplace. In fact, I'll say that one of the growth strategies that came forward in the preliminary full growth potential that was more robust was our health business. So we feel very optimistic about that business in the future. Yeah. Yeah, Sheila, I just to, you know, put a couple things in perspective. You know, that team, they have a variety of ways that they're getting it done. And, you know, that can be a strategic takeaway in the case of our SSA work, where we've really doubled our position with a key customer and done that through great performance over time and knowledge of what the customer's mission needs really are. We've done that on our DHMSM program, which, you know, we've had eight years now of designing the solution, deploying the solution. Yes, that is now coming to a stage where the deployment phase will moderate down, but, you know, taking that into the sustainment and operations phase, and also looking with the customer at what additional capabilities can be deployed, and they're asking us to propose on that and do that work because we're a trusted partner that's built a strong reputation of performing for them over the last eight years. So, DHMSM, you know, a small headwind, but we're working hard to overcome that. And then you talk about the disability examination business, which, you know, team's done an excellent job of repositioning that as the customer has tried to add capacity. Now we're performing, you know, at or better than any of the peers and really able to take on increased caseload volume as we're trying to get more veterans the disability benefits that they're entitled to. They've done that with innovation on how we process things, how we've deployed AI, and so that is an area now that we see as a potential growth trajectory, given the demand signal coming from the customer. Finally, RHRP, a long, hard-fought win and a takeaway, and that's been slow to ramp up. It is finally ramping up. We're going to invest in that program for the long-term success with the customer and look at that as something, you know, we take a five to ten year view as being a f- in a franchise position to really execute exceptionally well for them. So, you know, plenty of... There are some headwinds, there are some tailwinds, but I wouldn't bet against that team to continue to drive growth, in a very profitable way in that market. Poor Stuart will be answering me the preciseness of that headwind on DHMSM- Mm-hmm ... if it's $25 million, $75 million, or $100 million in 2024. But, Just for you, though. Just, just for me. Just for you. In health, you guys continue to put up pretty good margins, up 60 basis points year-over-year in Q2, I believe, excluding equity in earnings. How do you think about the level of profitability? How much of that is dependent on the PACT Act or the medical exam business? Well, clearly, you know, again, we like the way that customer operates because they're incentivizing industry to invest in throughput. And if you make those investments, which we have, you know, they're fine with giving you know, a return on those investments over time. And so, again, we've got to continue to up our game, gotta continue to meet quality and throughput standards to achieve the full potential of those. But again, those track record is there, and we're able to deliver on that. And then again, more of our other customers look for contracting models that, you know, incentivize innovation, incentivize efficiencies, and it's a shared gain between the customer and the contractor. And so, right now, we had signaled mid-teens margins for health. We're doing better than that right now. You saw a quarter where we're coming off of a 17% margin quarter, and our goal is to try to drive the team to find a way to sustain that going forward. Great. And then, turning to defense, a clear focus on Dynetics here. Maybe if you could talk about, the revenue profile and expectations of Dynetics, the programs that transition from development to maturity, and, you know, how that affects the overall profitability profile of the defense segment. Well, first, let me make some comments about Dynetics, and then you can talk about some of the financials. First of all, we have a real crown jewel in Dynetics in Huntsville. It's known throughout the customer ecosystem as an innovative problem solver and somebody they turn to to solve some of their most vexing problems. So we're really happy to have that in the Leidos portfolio, and we're very eager for it to be as successful as we think it can be. To do that, we're focused in three primary areas. We're focused on force protection issues that are vexing problems for our customers. We're focused on hypersonics, which obviously are important for our customer and a niche that we think we can exploit our differentiated capabilities in. And then third, small sats is an area that payloads we think we can accelerate away and have a differentiated capability for our customer. These are the three areas that we're focused most on, and all three of those have great successes that are either in the bank or in the making, to include some incredible wins in terms of flash to bang of technology demonstrators that frankly many people didn't think was possible. So feel really good about Dynetics, feel really good about the focus that the team there, Steve and the team there, are applying, and we feel really good about the trajectory going forward. Yeah, I, I totally agree, and again, it's part of our longer term thesis. Dynetics should be a margin-accretive part of the company, no doubt about that. Team understands that all the potential is there, and we're in this period of time where some of those programs that Tom talked about have demonstrated the ability to do that. Some of those programs have another, you know, 6 months- 12 months of working through to the development stage to get to that point in time, and we're gonna do what it takes to be successful in that regard. But I, I'd say that's the thesis, Sheila, is that it—there's a path there that we have visibility into. We need to continue to execute. The customer's demand signal continues to be strong, and so that will be an area that should drive our defense margins up over time and get closer to the company average margin. When we think about the specific programs, is it IFPC that specifically is being delivered to the customer and the timing of that? And then hypersonics, is it pretty steady state there? Yeah. The IFPC program is the one that still has the most development stage work to be done, right? There's capability that needs to be proven, you know, tested, right? There's fielded units that need to be completed. There's subcontractors that we're relying on that need to perform scope. So that one's got some ways to go, but that one also has a clear demand signal for here's what low-rate production looks like, 'cause we've already exchanged dialogue with the customer around that, and then full-rate production after that. So there's a very clear demand signal. It needs to get its way through the stage gates. The SmallSat payload stuff, we're already... You know, we've moved from Tranche 0 to Tranche 1. We're bidding on Tranche 2, so that's advancing nicely. And then the hypersonics- We're on orbit. We're on orbit, so we've got actually payloads that are out there and, you know, received first light, and feedback's been great. And then Hypersonics, a family of programs where the good news there is those are more of a cost plus in nature, so it's not a margin drag. It's how do we just get the production ramped to where there's more significant volume? Makes sense. Civil, you know, I know the security business got a whole lot of attention in Q1, but there's a lot more going on in that business outside of that. So maybe if you could just talk about, you know, secure SES we know is lumpy. How does it kind of trend from here? And then other parts of the business, the bright spots and maybe some, you know, potential areas of trouble. Sure. Well, I mean, again, Civil is a diverse portfolio, and we've got strong leadership that oversees the diverse pieces of the business. Let me talk about some areas of strength first. We've won some excellent jobs in the digital modernization space for some critical customers like NASA and other federal civilian agencies. We do great work for the FAA, have for decades. You know, they give us 10-, 15-, 20-year programs because we're a trusted partner. We've got an excellent energy transmission, distribution, engineering business that's well-run, been growing, highly profitable. So lots of parts of Civil that we're very proud of, that are performing well. We've got the security detection business, and we've had a franchise, ports and border security business for years, decades. We did an acquisition three years ago in the aviation market. Market conditions have been tough. First quarter this year was disappointing. The team kind of used that as a challenge to dive in and figure out how can they accelerate some of the optimization strategies around cost reduction, efficiencies, markets we want to compete in, how we're gonna price, et cetera. I would say that work is ongoing. Progress is being made. We were pleased to see the second quarter was much more robust, but it's still not to its full potential for the Civil organization, which we expect, again, margins to get back to 10% or greater over time. That's the horizon we're looking for. But, but if you think about the hypothesis that Leidos is a company that deploys wicked smart people to look at technology differentiated to solve vexing customer problems, I don't think anybody thinks that security solutions is going to be a problem that customers, wish away. They're only getting bigger, and they're only getting more technologically complex. And so I think there is a real there there for Leidos to play and win in that market. And with the optimization of the company and the business pursuits, I think we're gonna be in a good place to exploit that and grow that business. Just turning to capital deployment, how do you think about the balance sheet from here, whether it's share repurchases, dividends, acquisitions, tuck-ins? How are you guys prioritizing? Well, priority one is to complete the balance sheet clean-up and get to our targets, which we're on track to do in the relative near term. Mm-hmm. Then we will look to our 2024 plan and talk about how we want to resource it for full growth potential, as I alluded to before. Then we'll be talking to the board about dividends and share repurchases and other deployments of capital. The good news is we can see a way forward where there is room for all of that and more. Yeah. How are you thinking about free cash flow conversion? For a long time, actually, conversion was well above 100%- Mm-hmm ... Chris. So this year it's below 100% 'cause of some one-time items. You know, how do you think about getting back to that point? Yeah, no, it's definitely a target that we, you know, keep front and center in the business. There are some reasons why this year's lower than we'd like it to be. I mean, some within our control, some outside of our control. Obviously, the taxes related to the Section 174, Research and Development, those bills had to be paid. But beyond that, we strategically made some decisions in our airborne business, both domestically for the Army and then internationally as we bought a business in Australia to run ISR missions. Those took some capital investments. We understood that kind of going in. We expect the payback for those investments to be attractive as we look ahead to the next, you know, three to five-year horizon, right? So that took us off of that conversion target in the short term. But as we get back to where's the company going, I don't see a strategic need to invest heavy capital to drive the growth that we're talking about. In fact, everybody's very focused on how can they further optimize the balance sheet, not just on the leverage side, but in, you know, where are there days to take out of DSO, and where are there opportunities in our supply chain, right? Where we're not best in class on how we've negotiated terms, and those opportunities are being brought forward, and we're working strategically with our suppliers to do what we think is industry standard. So I'm bullish, Sheila, on, you know, as we look ahead to 2024, but certainly by the next three-year horizon, that metric is something we'll stay focused on. Great. Yeah, and I would just say it feels like we should be 100% there about cash conversion metrics. That makes sense. Well, thank you both for joining us, and thanks, everyone for listening. Yeah. Thank you, Sheila. Thank you. Thanks, guys.