Greetings. Welcome to Leidos' Q1 2023 earnings call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Stuart Davis, Senior Vice President of Investor Relations. Mr. Davis, you may begin. I apologize. Mr. Davis, you may begin. Thank you, Rob. Good morning, everyone. I'd like to welcome you to our Q1 fiscal year 2023 earnings conference call. Joining me today are Roger Krone, our 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 supplemental financial presentation slides that we'll use during today's call. Turning to slide 2 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 3, during the call, we'll 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 4. Thank you, Stuart, and thank you all for joining us this morning. Our Q1 results demonstrate our ability to drive strong organic growth as record revenue performance was consistent with our long-term target. We expect earnings and cash performance to build momentum as we progress through the year and are fully committed to achieving our 2023 guidance. As I step down as CEO, I am confident that Leidos is truly the leader in our industry with unmatched talent, technical depth, and market-facing solutions. Our dedicated team is at the forefront of our customers' most challenging missions as we make the world safer, healthier, and more efficient. As usual, I'll touch on our financial performance, capital allocation, business development performance, and people. Number one, our top-line financial performance for the quarter was excellent. Record revenues of $3.7 billion were up 6% in total and over five percent organically year-over-year. Our growth is in line with our long-term model, and we continue to take share from our competitors. All three of our segments grew, led by Civil and Health, which speaks to the power of our diversified portfolio. Bottom- line performance was lower than anticipated, largely driven by delays in security product deliveries and continued investment in the security product offerings. The delays, based primarily on supply chain issues and customer site readiness, are fundamentally a matter of timing and will be resolved within the year. The strength that we're seeing across the Leidos portfolio, especially in the Health business, will help to accelerate margin and earnings performance throughout the year. As planned, cash generation was decreased by the cash tax payments for Section 174 expense for 2022 and the final payment on the CARES Act deferral. Absent those unusual items, cash flow from operations was consistent with last year's levels. We remain on track to generate more than $700 million of operating cash flow this year. Which brings me to point number two on capital allocation. Our long-term balanced capital deployment strategy has always consisted 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. We've committed to take down our gross leverage ratio to three times, and we expect to achieve that by the end of the year. In the Q1, we refinanced and extended our debt to position us to deploy capital in productive ways. We view our strong balance sheet and investment-grade rating as a strategic asset in the current market. The cash tax payments and upcoming debt paydown limited our ability to deploy capital in the quarter, we resolutely believe that our current valuation is not aligned with our fundamental earnings power and cash generation. Therefore, we bought back $25 million of shares through open market repurchases in the Q1. As we ramp free cash generation in the second half of the year, we'll create flexibility to allocate capital to benefit long-term shareholders. Number three, business development. Most importantly, award activity is returning to normal levels after a protracted period marked by procurement delays and obligations under running budget authority. A more active environment bodes well for Leidos, with our long history of being able to thrive in a competitive market. In the quarter, we exceeded our gross awards plan and booked a net of $3 billion in awards for a net book-to-bill ratio of 0.8. Total backlog at the end of the quarter stood at $35.1 billion. Of that, $8.3 billion was funded, which is up 17%. You can read about some of the key awards from the quarter in the press release. We're particularly pleased to see the intelligence community customers making awards again. Maritime continues as a focus item for us. International airport security is beginning to rebound. To ensure that we bring true differentiation to our bids, we continue to invest in strategic technologies that are core to our business. Last quarter, I talked about cyber, zero trust, confidential compute, and generative AI. We also have a rich history of delivering secure software at speed to support critical missions. We protect the software supply chain from development to deployment to operations, delivering software security that goes beyond compliance for customers like the FAA, DoD, and DHS. We're investing in cutting-edge emerging quantum technologies focused on applications such as quantum-augmented communications and the transition to quantum-resilient cybersecurity. We see tremendous opportunities ahead. We have $30 billion in submissio awaiting adjudication, and we expect to submit another $39 billion over the remainder of the year. Based on the successful Tranche Zero launches in April and the rapid Tranche One timeline, the Space Development Agency is accelerating the Wide Field of View program, Tranche Two should be a 2023 submission. We also expect expanded follow-on bids on our force protection and hypersonics programs this year. We're pursuing large supply chain modernization efforts for the Army and the Veterans Administration. Digital transformation remains a key priority for our customers. Lastly, point number 4, Leidos continues to be an attractive destination for talented people. In the Q1, we hired more than 2,500 people and increased headcount 7% year-over-year. Even more important, voluntary attrition has dropped down to pre-pandemic levels. This improved labor position provides potential uplift to our revenue plan. We're benefiting from the improved labor market for technical talent, but we believe our focus on employee engagement and career development is also a major positive factor. Our managers are living their commitments to Leidos Life by putting their employees' careers, flexibility, and well-being first. They are connecting with their teams and taking the time to engage with their employees around building a career. In our recently completed employee engagement survey, we were above external benchmarks across almost all categories, scoring particularly strong on manager relationships, inclusion and diversity, and employee growth and development. If you wanna join an inclusive team and build your skills over a fulfilling career, Leidos is a great place to work. Before turning it over to Chris, I'll touch on the current federal budget environment. The US Congress is currently debating President Biden's $6.9 trillion budget request for fiscal year 2024. The proposed budget includes increases in critical areas that are important to Leidos, such as defense, transportation, Veterans Affairs, NASA, and energy. Last week, House Republicans passed a bill that would raise the debt ceiling and cap discretionary spending. The bill will not pass the Senate, but discussions can now begin in earnest towards resolving the debt ceiling and the government fiscal year 2024 budget, given the enormous challenges that we have as a nation. Finally, I wanna speak to the CEO transition. As I look back on my nine years at Leidos, I am proud to say that we have achieved incredible transformation and growth together, almost tripling revenues and establishing ourselves as a premier broad technology provider. Our strong leadership team helped us win numerous large competitive programs in the US and abroad. We completed transformational acquisitions, including integrating Lockheed Martin's Information Systems and Global Solutions business, which enabled us to expand our capabilities and better serve our customers. Our efforts have not gone unnoticed as we have been recognized as a leader in our industry, providing innovative solutions to complex challenges. Our commitment to our employees has been a top priority, and we have fostered a culture of innovation, engagement, and inclusion. We have built a team that is passionate about our mission, vision, and values and conveys that commitment to our customers. Throughout the COVID-19 pandemic, we took care of each individual and prioritized safety and well-being above all. Our focus on collaboration, innovation, and inclusion has allowed us to create a culture that enables each employee to grow and thrive, driving our success. We have also made a significant impact on our customers and communities. We have transformed logistics for the UK Ministry of Defence, enabling them to rapidly respond to the crisis in Ukraine. We have driven IT innovation throughout government and helped more than 200 utilities across the US build a more resilient, reliable, and sustainable electric grid. We have modernized healthcare information management across the Department of Defense on cost and on schedule, enabled our veterans to get the disability benefits they have earned through their service. We have worked in our communities to confront opioid addiction and remove stigmas associated with mental health challenges, making a positive difference in the lives of many. The driving force behind our company's prosperity is undoubtedly the exceptional talent of our employees and the unwavering strength of our leadership team. Without their incredible contributions, we would not be where we are today. I am confident with this team in place, Leidos is poised for continued growth in the future. As I transition out of my CEO role, I'm excited to welcome Tom Bell to the position. I have worked with Tom over the past month, and I am convinced he is the right person to lead this company into the future. With a great foundation in place at Leidos, I believe that Tom's tenure will be rewarding for our employees, customers, suppliers, and shareholders. I will end by saying thank you to each of you for your confidence you've showed in me during my tenure. It has been an honor of a lifetime. Thank you. Thank you, Roger, and thank you to everyone for joining us today. Let me begin by echoing Roger's assessment of the team. This management team is laser-focused on delivering on our financial commitments and driving above-market growth across all financial metrics over the long term. Turning to slide five, revenues for the quarter were $3.7 billion, up 6% compared to the prior year quarter. Revenues grew organically across all three reportable segments, given strong demand across our customer sets, robust hiring, and better retention. Our growth came despite a $24 million negative impact from foreign currency movements. At current foreign exchange rates, FX will become a tailwind sometime in our Q2. Turning to earnings, adjusted EBITDA was $346 million for the Q1 for an adjusted EBITDA margin of 9.4%. Non-GAAP net income was $205 million, and non-GAAP diluted EPS was $1.47. Non-GAAP net income and diluted EPS were down 8% and 7% respectively, compared to the Q1 of fiscal year 2022. I'll get to the underlying drivers next, but let me be clear. The shortfall to the level of performance we expect from this company is temporary, concentrated, and recoverable. Turning to those segment drivers on slide 6, Defense Solutions revenues increased 3% compared to the prior year quarter. The largest growth catalysts were the Navy NGEN-R and SDA Wide Field of View Tranche 1 contracts, as well as the Australian airborne acquisition. For the quarter, Defense Solutions non-GAAP operating income margin increased to 8.4%, up 30 basis points from the prior year quarter, with better program performance and growth in higher margin areas such as airborne surveillance. Health revenues increased 9% over the prior year quarter, driven by growth on the Social Security Administration IT work and another strong quarter on the DHMSM program. Non-GAAP operating income margin came in at 15.9%, which was up 160 basis points sequentially and at the high end of the mid-teens range we've talked about, bolstered by additional disability exam volume and excellent program execution. Civil revenues increased 10% compared to the prior year quarter. The NASA AEGIS program was the largest driver, we also saw increased demand from our commercial energy customers. Civil non-GAAP operating income margin was 6.4% compared to 7.7% in the prior year quarter and 11.2% last quarter. The decrease in segment profitability, which led to the sequential and year-over-year declines at the enterprise level, was focused in our security products business, driven by three main factors. First, certain of our existing programs were delayed due to customers not meeting their schedule commitments. They were unable to take possession of equipment because they had not yet completed site preparation. Second, supply chain disruptions led to higher component prices or shortages, which then impacted maintenance schedules and triggered penalties under certain service level agreements. Third, we're investing in enhancements to our product suite, particularly around our Mosaic software platform, which integrates all security components into a single management system. This innovation was key to our recent awards at Frankfurt and Luton Airports. Most of the fixes have already been implemented or are in process. We've reconfigured inventory management and rationalized our service provider network. We're working with customers on scheduling and expect that orders in our backlog will be delivered and accepted this year. We're taking actions to ensure that our investment and delivery model are right-sized to withstand the lumpiness that's inherent in a product-driven business. Turning now to cash flow and the balance sheet on slide 7. Operating cash flow for the quarter was a use of $98 million, and free cash flow was a use of $137 million. As expected and communicated, cash flow for the quarter was reduced by $191 million in tax payments for prior year activities, primarily related to the Tax Cuts and Jobs Act of 2017 provision requiring the capitalization and amortization of research and development costs. Cash collections were in line with our expectations in normal Q1 levels. For example, DSOs were at 62 days, which is a 1-day improvement from a year ago. We're on a path to take out at least 4 days over the course of the year, consistent with our usual pattern. Cash generation is a major focus item across the company, involving not only finance, but contracts, business development, and program management. We expect to drive sustainably improved performance over time. During the Q1, we returned $93 million to shareholders, including $25 million in open market share repurchases, $18 million in repurchases related to incentive compensation transactions, and $50 million through our ongoing dividend program. During the quarter, we also strengthened our balance sheet, increased our financial flexibility. We issued $750 million of 10-year bonds with a fixed rate of 5.75%, refinanced our Term Loan A and revolver, and paid off the $500 million note that was due in May. On balance, we put more of our debt on long-term bonds and less on the term loan while upsizing our revolver to $1 billion. With strong demand, we were able to price the transaction at very favorable terms in the current rate environment. Once we repay the remaining $320 million on the short-term loan, originally tied to the Gibbs & Cox acquisition, our next tranche of debt doesn't come due until 2025. Onto the forward outlook. We're maintaining our guidance from the Q4 call. Specifically, we expect 2023 revenues between $14.7 billion and $15.1 billion, adjusted EBITDA margin of 10.3%-10.5%, non-GAAP diluted earnings per share between $6.40 and $6.80, and cash from operations at $700 million or greater. With three quarters to go, we believe the current ranges still encompass the likely outcomes for the year. Revenue, margins, and cash should all build throughout the year. As Roger mentioned, strong demand in an improving labor market support revenue growth. Margins will improve through a combination of resolving the issues around the security products business, opportunities within the health segment, most notably increased medical examinations tied to the PACT Act, appropriate cost reductions, and normal seasonality in our portfolio. As is our usual pattern, cash generation will be back- end weighted in 2023 with a spike in the Q3, which is the end of the government fiscal year. In closing, I want to publicly thank Roger for his leadership over these nine years, both in transforming this company and providing valuable mentorship to me. He's hard to replace, I look forward to welcoming Tom Bell and introducing him to the investment community over the coming months. With that, I'll turn the call over to Rob we can take some questions. Thank you. At this time, we'll now be conducting a question- and- answer session. If you'd like to ask a question today, please press star one from your telephone keypad and a confirmation tone indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Thank you. Our first question is from the line of Robert Spingarn with Melius Research. Please proceed with your questions. Good morning. Hey, good morning, Rob. Hey, Rob. Roger, best wishes to you. It's been great working with you all these years. Hey, thank you very much. It'll be a lot of fun. Well, I think I wanted to start with something kind of high-level, and it hasn't been talked about a lot this quarter so far. We had these recent leaks of intelligence documents. I'm just wondering, Roger, if you think that's gonna slow down the approval process for security clearances or it may inhibit the ability of folks to do their jobs as efficiently as possible. Or on the other hand, could it provide work? Could it provide upside for companies like Leidos, to, you know, as DoD tries to re-secure its systems or its process? Well, we look back in history, you know, at the period of time around the Snowden leaks. You know, I'm a believer, at least in general, that history repeats itself, and it made things more difficult. The timeline to get clearances expanded, the depth of background investigations, the level of clearance required to do certain jobs, where maybe we were on a path for that to be relaxed, you know, maybe like one notch. I suspect it will go the other way. Access to information will be held tighter. First of all, you know, any leak like this is a really bad thing. You know, it hurts, you know, our military, it hurts our country, it hurts our standing in the community, you know, international community. I don't really see anything positive, to be quite honest, Rob, coming out of it. There are some companies, not us, that do background investigations, who do polygraphs. We're not in that business. We are a recipient of clearances, and I can't imagine that this is gonna make the clearance process any easier. In fact, I suspect it's gonna go in the opposite direction. I just I cannot believe, you know, my career, you know, it's 46 years in the business, that after Snowden that we're back here again with this problem. It's very, very unfortunate. Okay. Just maybe a little bit, shorter term, looking, you mentioned the procurement and award activity is picking up. Do you think that this is due to some acquisition officials trying to get ahead of the debt ceiling fight and the, you know, the perturbations that could come from that? Yeah, no, I really do. It's the debt ceiling. We've talked a lot about a CR that could go well into 2024. For people who have program managers, government, contracting officials who have, you know, authorizations, appropriations, and what have you, to get a program under contract before we hit the fall season. Yeah, I think there's a lot of that going on. Well, it's a positive thing. You know, I think the, you know, all the, you know, the political posturing around the debt ceiling and the budget, you know, I, you know, I know the President has is gonna have a sort of a budget summit in the next few days. Hopefully, that will lead to something positive. Yeah, no, I, you know, there is a positive outcome to that, which is we've had some programs that have been in the acquisition process for years, and they're starting to get awarded and adjudicated, and that's a positive thing. Thank you, Roger. Yeah, thank you. Thanks, Rob. Our next question is from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question. thank you. Good morning, Roger, Chris, and Stuart. Roger, it's been an absolute pleasure working with you, so thank you. Thank you, Sheila. Sure. I want to maybe ask, first on the supply chain comments you made within Civil and the security business there. I think your nearest peer there, OSI, grew 13% organically and margins went up. What kind of changed in your business specifically? It seems like you have some investments in Mosaic, and how do we kind of, assume that progresses? Hey, Sheila, it's Chris here. Yeah, there's definitely some positives going on in the business. And again, the one contract that was impacted by customer-driven delays, we've been executing on that back half of last year, and there's plenty of runway ahead of us to continue to execute on that, which will help drive growth. The supply chain challenges were disappointing, and there's some component parts, some CPUs, et cetera, that are sourced by various suppliers, some in China. You know, really was just hit us this quarter especially hard because as activity levels have ramped up, we weren't able to supply some components and sales that we would've been able to realize. You know, missing some service levels impacted us from a disincentive perspective. I think the team, you know, they've been working hard, and they're getting some additional support from our corporate procurement organization. We're all in on making sure we've got more redundancy in that supply chain. We've already made some changes, swapped out our third-party logistics provider. That transition has happened in the quarter. You know, and again, we're taking the appropriate actions to position that for growth. You know, there were some positives. We talked about, you know, Frankfurt and Luton. There's been some nice awards on the aviation product side, and continue to see, you know, a pipeline of activity there. Confident the team's gonna get it turned around. Yeah, Sheila, we're doing some other things. We're bringing more production in-house where we have more control. We're gonna stand up a new facility, that we're really excited about. We did have some licensing delays in the period that affected some of the maintenance work that we did, you know. It just. You know, I don't know why in the quarter, you know, everything seemed to hit us. You know, the good news is, I mean, the business is coming back, air travel is coming back. You know, the long-term prospect for SES is really, really positive. You know, we're bullish on the future. It's. You know, I, you know, I have the privilege of being involved in some other companies outside of Leidos, and they have had these supply chain issues, especially around general- purpose processors. You know, you think you have it nailed down, then it's the $5 chip that gets you. We had some of that in our own business. Very, very low-en d stuff that we had a reliable supplier, and then we ended up being gapped. You know, the business didn't go away, it's in backlog. We'll get our supply chain where it needs to be, and we'll deliver this product in the remaining 3 quarters of the year. Okay, great. Thank you for all that color, guys. Maybe one more on health, if you don't mind. You called out DHMSM as a contributor in the quarter. It continues to grow despite what we think of it peaking in 2023. How could we kinda think about the revenue expectations for that program over time? Well, Sheila, again, Chris here again. I would say, our expectation is, again, the tail end of this year, last quarter especially, you'll see that begin to tail down. Team's working really hard, continue to do exceptionally well, and Roger's prepared remarks, you know, the on-cost and on-schedule can't be overstated. The customer has trust in us, and there are additional capabilities we're working to deliver there. Health is a bigger story than just DHMSM, and we're proving that. You know, the SSA work, the pipeline strength, what we're seeing out of the disability exam business, you know, very pleased with how Liz Porter and the team have positioned that business. This quarter, 15.9% margins, you know, got to the levels that we committed to, and actually see more upside at this point in time than we had previously expected. It's in a good spot, and even to withstand the DHMSM ramp down, the RHRP contract is, you know, now active and didn't contribute much of anything in the quarter. We'll see more meaningful contributions beginning in Q2 from that program. That's what's going on in health. Yeah, Sheila, I'll give you know, kind of a longer term view of DHMSM. We have been focused on rolling out the, you know, the Cerner, now Oracle software to the military treatment facilities, and that is what has driven top line. As we are near the end of the rollout, the discussions we're having with the customer is now on the experience of the people who use it, and to enhance that, to make it more doctor and nurse- friendly, to provide patient access through patient portals, right? To capture the data, right? You know that if, you know, many of the people on the call have kind of lived the journey from paper records to electronic healthcare records through the HITECH Act and something called Meaningful Use 1 and Meaningful Use 2. The vision was always to get this data into a relational database so we can then analyze, you know, not just claims data, but clinical data to drive improvements in health for everyone, and in the DHMSM program, specifically for the active military. We are excited about partnering with the DHA customer on both the user experience and to capture the data to go after some of the root causes of medical issues within our active military. That was always the promise of the program. You know, now that we have a critical mass of information on the active military, you know, the task now is to improve their health, and that will be through data and data analysis and using, you know, big data, you know, and AI tools. We're really excited about the program as it rolls into this sort of second life. It may not be as large from a revenue standpoint because we're not rolling, 2 waves, you know, a quarter out to military treatment facilities. I think the benefit to the active military will be even greater than it has been as we've installed the electronic healthcare record system. Great. Thank you very much. Our next question is from the line of Peter Arment with Baird. Please proceed with your questions. Yes, good morning, Roger, Chris Stuart. I'll echo everyone's comments, Roger. Best of luck in the future. Great. Thanks, Peter. Hey, Chris, on the EBITDA margin guidance, it just implies kind of a much stronger mix, probably in the second half. Just maybe if you could call out, you know, maybe some of the puts and takes around that and, you know, the confidence level around kind of that seeing that stronger performance. Yeah. No, thanks, Peter. You're absolutely something we've been spending a lot of time on internally, making sure that there's a clear path to get there. Look, it's gonna take some hard work. It's not the start that we hope for, but fundamentally, it begins with, you know, getting the SES business back on track. The team has a concrete plan. They've implemented a number of action. There's been some reduction in force. There's, you know, been a lot of transition there to make sure that business in and of itself is a strength, not a weakness in the quarters ahead. I've mentioned health, again, we're very pleased with what we see there and looking ahead to the, you know, next few quarters with PACT Act cases ramping up, the SSA program, you know, continuing to run strong. There's margin uplift that we see there. Then, you know, the defense business. Quite honestly, they had year-over-year margin increase, but it hasn't reached its full potential, and the team knows that. So from a mix perspective, we see some programs that are coming online or others that are ramping that will absolutely, you know, lift some margins across the board. Then we're gonna have to, you know, make sure that we run very efficiently on cost management for the rest of the year. We did that last year, the back half, and, you know, showed what we're capable of. There's a number of things there that are already in flight. There is a little bit of seasonality in the portfolio too, Peter. I mean, there's definitely, as it relates to award fee timing, incentive fee timing, we've looked hard at when those things should come to pass and when they get recognized. You know, it'll be a combination of, you know, SES getting returned to, the right level of profitability, strength, and health, and some program mix in defense, and then, you know, some cost control actions. You know, Peter, I would add. Go ahead. As you know, our business model still has a significant dependency on our great people. You know, we had some goals for hiring and retention for the year, and we're very, very pleased that our voluntary attrition is significantly below what we had planned. You know, Leidos is still an attractive place for people to come to work, so our hiring has not slowed down. We've actually eaten into, if you will, our open, you know, kind of wreck situation where we're in one of the best staffing positions that we have been in for years. You know, now we may benefit from some of the hyperscalers, you know, reducing their staffing, but albeit, we are very comfortable with where we are from a, you know, a teammate standpoint. I think it's early, but the Q1 performance has really been outstanding. If we can maintain that throughout the year, that will give us a lot of momentum as we close out 2023. That's super helpful. Jeff, if I can just sneak one in. Roger, can you give us the latest update on the Cobham business, how that is going, and just any thoughts there? Thanks. I'm sorry, Peter, say that again? The business you acquired in Australia, Cobham. Oh. Oh. I was at the Avalon Air Show earlier this year, which is down in Melbourne. It is at or better than our business case, and doing really, really well. Peter, you know, I'm an airplane guy, so this was like, you know, walking in, you know, tall cotton for me. It was just a lot of fun. We have, you know, two contracts, one to do search and rescue and one to do a maritime patrol. Both of those are performing very, very well. They are, I'd say 75% fully integrated into Australian operation. You know, the only challenge that we have, which is a worldwide, you know, I know that this morning's radio, that American Airlines' pilots, you know, they, you know, it's a challenge everywhere. We wish we could hire more pilots. If we had more pilots, we could fly more hours. Paul Chase in Australia and Roy Stevens, who runs that group, have really leaned forward on integrating that business into our unit in Australia. We couldn't be more pleased. Again, I was at Avalon earlier this year, and I got to sit in the airplane and talk to the pilots. I went to our training academy, talked to some of the students, and it's a vertically integrated airborne operations. Really we've got the full value stream. Yeah, like I said, it is everything that we thought it would be and probably more so. The other huge benefit for us is they are flying the same types of aircraft in Australia that we're flying here in the US. Our ability to build some cross-linkages and some synergies between the business that Gerry Fasano has and our ASO organization, what Roy has in Australia, has been really, really good. So far so good. Actually, maybe a little bit better than we expected. Appreciate it. Thanks, Roger. Yeah. Our next questions are from the line of Matt Akers with Wells Fargo. Please proceed with your questions. Yeah. Hey, good morning, guys. Thanks for the question. Roger, like everybody else said it, yeah, good luck with whatever comes next for you. Great, thanks. I wanted to ask about the orders environment, I guess. You know, book-to-bill a little bit late in the quarter. Do you think that ends up kind of above one for the year? I know you mentioned some of the big pipeline there. Is there any risk around that with the debt ceiling? Have you seen any change in kind of customer behavior around some of those talks? Well, you know, let's see. Of course, we wanna grow. We've got a long-term target out there. You can back out of our long-term target that our book-to-bill has to be greater than one. Where we sit today, we fully expect our book-to-bill to be greater than one. That means, and, you know, you all know this, is that we have to win some programs between now and the end of the year. We have done well in winning large programs. We don't win them all, unfortunately. We never put a bid in that we don't expect to win, but it's a very, very competitive environment and we, you know, we have to do better in Q2 Q3 and Q4 that we've done. I don't expect the, you know, even, you know, with imaginations around the debt ceiling and the budget for the award process to slow down this year. I think it could get a little rocky in 2024 as we get into presidential politics if we're in a full year CR, trying to get new starts started in 2024. If we don't get an omnibus, you know, I'd like to think we do get an omnibus, but, you know, time will tell. Now we've, you know, we're pretty active. As I said, we still have a lot of proposals to write this year. Some of those might actually get awarded this year. We have a ton, well, I guess $30 billion, maybe more than a ton, of awards that need to be adjudicated, and many, many of those are gonna happen this year. You know, we're very optimistic about the future. Our track record of winning big awards, and we don't talk a lot. Actually, our track record of winning small awards is even better than our track record of winning big awards, and that has to do with our customer intimacy and our great program leadership working with our customers. You know, I'm actually really good. Then something we haven't talked a lot about, what we call on-contract growth, but our ability to expand our business base with the existing customers, that has always been very strong for us. I'm optimistic. You know, Tom Bell is a, you know, he's got a strong business development background. You know, he's sold globally around the world. He's built a terrific business at Rolls-Royce and, you know, he's gonna, you know, lead the business development effort here and, you know, and he'll probably do a much better job than I did of winning programs. I'm really optimistic about the future. Great. Thanks. If I could do one more, maybe for Chris. Can you give us any help with sort of the pacing of earnings through the year? A lot of moving pieces with, you know, the impacts this quarter from supply chain and then some maybe dipping at the end of the year. I mean, is Q2 kind of flat and then a big ramp- up in the second half? Or is it more kind of smooth or just any way we should think about that? Yeah. I mean, Matt, you know, e usually don't give a lot of details quarter by quarter, but I would tell you that we'll build. Clearly the SES turnaround, the actions that are taken and underway, you know, they're not gonna deliver its full potential, you know, overnight, right? I would expect Q2 to be better, but Q3 and Q4 to be better still. I think you should expect, you know, we'll be gaining a lot of steam into the summer. We'll get Tom fully on board as he'll have a point of view, and he'll wanna be aggressive. I expect that fully to make sure we're delivering on our commitments as we all do. Y ou know, my expectation is Q2 will definitely be better, but you'll see our full potential in the back half of the year. Great. Thanks very much. Thank you. Our next question is from the line of Bert Subin with Stifel. Please proceed with your question. Hey, good morning and congratulations, Roger, on obviously an impressive tenure at Leidos. Great. Thanks, Bert. Maybe just to sort of switch gears a little bit, where do we stand across Dynetics? You noted the Wide Field of View award, can you update us on how IFPC and the hypersonic glide body contracts or potential contracts are progressing? Do you still expect that we'll see a material inflection in that part of the business next year? Yeah. you know, for those of you who were able to make the trip to Huntsville, you know, you saw a lot of what our future is gonna be in what we call platform or the systems integration business. you know, generally everything's on track. IFPC Enduring is doing well. We expect some additions in the hypersonic glide body business. We won a program called Mayhem in the hypersonic world, which is really gonna be helpful. If you made the trip to Huntsville, I don't wanna repeat a lot of what we presented down there, but we talked about, you know, this year being one where we're in development and ramping, and then 2024 is, if you will, kind of the payoff year where a lot of these programs are starting to hit production. We see both the top line grow and the bottom line grow with it as we move out of development on a whole series of programs. You know, we've got great people there. We continue to send people to Huntsville. By the way, Huntsville is one of those places in the US where technical people just wanna go. I mean, they love the environment. You know, it's a great outdoor city. There's a huge technology community there, and we've had many, many of our best and brightest, you know, self-select to go down and work at Dynetics. You know, that has helped us add depth to the team as we have ramped up the business there. You know, two things we haven't talked a lot about because I think they are, you know, at the high, kind of a high beta. You know, we still have a Human Lander bid that is outstanding. You know, we're one of two bidders on that program. And, you know, I think it will be a complicated award, but we're hopeful that we will realize something out of our Human Lander position. And then if you were at Space Symposium, and I know some of you were, we had a mock-up of our lunar rover and, you know, that it will be more of a 2024 award, but we're pretty excited about our rover offering. We're actually teamed with NASCAR on our rover. There, you know, there are some, you know, kind of shoot for the stars, literally, programs in the NASA world that could further enhance the portfolio at Dynetics. You know, so far across the board, generally doing well. You know, not to say we don't have a program or two that's ever gonna have a development problem because when you're doing development, you know, there, you know, there are issues. We're pretty much in line with what we showed you when you were down in Huntsville. Great. Thanks for that, Roger. Maybe just a follow-up question, you know, within the defense side. Last quarter, you highlighted that customers wanted to move a little faster on DaaS, and you were just sort of balancing that against providing sort of the highest quality service you could. Can you update us on where transitions stand and whether your view of the ramp process for that contract has changed at all? Yeah. I, our part is going well. You know, we've got, you know, the architecture in place and, you know, one net and what have you. Now it's, you know, it's getting the next task orders. Within the DISA organization, we're in the middle of the transition of the DISA environment, that's actually going well. You know, the strength of that program is when we start to do networks in the Fourth Estate outside of DISA, that hasn't started to ramp yet. We're working well with Lieutenant General Skinner to make that happen, it hasn't happened yet. You know, would I like to see it ramp faster? You bet, I would like to see it ramp faster. You know, the best thing we can do is offer a faster, better, less expensive and more secure network to the support agencies within DoD and then help DISA sell those benefits. You know, that's our job on the program. We have a, again, a great team, a great program manager. We have a great relationship with DISA. We've got to book some early transformations of networks, and some of that work is still ahead of us. Great. Thank you, Roger. Yep. Thanks, Mark. Our next question is from the line of Seth Seifman with JP Morgan. Please proceed with your question. Hey. Thanks very much. Good morning. Roger, congratulations on everything you've done at Leidos and all the best. Just wanted to. Great. Thanks, Seth. Sure. Just wanted to ask about the health business, and it sounds like maybe we should be expecting some margin expansion there in order to drive the rest of the year and, you know, that'll be driven in part by the PACT Act. You know, can you talk a little bit about how those expectations have changed in terms of, you know, the number of exams there and how much of the mix will be coming out of that exam business and what that opportunity is looking like now over time. You know, are we looking at kind of, you know, high teens margins in that business the rest of the year? Yeah, Seth, I'll start and I'll let Chris add. You know, we always like to talk about our portfolio, and if we have a situation like in SES where the Q1's a little slow and we look at the full year, we're always looking at other parts of the portfolio that have the potential to outperform. You know, where we stand today, we're optimistic about both top line and bottom line in health. PACT Act exams in general, our ability to hit our service level agreements and in the future earn incentives based upon performance. We feel good about that. You know, I talked at some length about the DHMSM program. You know, the other two programs, what we call Military and Family Life Counseling, and the Reserve Health Readiness programs, are both doing extremely well. In RHRP, we're finally starting to do events with guards people and reservists will drive top line. I really wanna give, you know, kind of hats off to the whole health team. They have done just an outstanding job of executing on their program, staying close to the customer, providing a value-added benefit. When you do that, then good things happen in the group and, you know, customers come back, they wanna do more, they wanna do expanded work. You know, PACT Act is a, you know, a positive influencer in the future, but in the disability exam business, you get more than your fair share because you hit your service level agreements with both timeliness and quality of the exams that you do. Our organization at QTC has always been at the forefront of performing in the exam business. It just gives us confidence and optimism that overall, we may see some better performance in health than we had initially thought. As we look at, you know, our guidance and the balance of the portfolio, you know, when we are behind in one business, we're always looking to where we think we will overachieve, and health is certainly that area this year. Chris, you can add. Let me just add. I mean, don't put us down for high teens as a long-term new goal. I mean, I think we've demonstrated we're doing what we said. We'll get it to mid-teens, and you saw Q4 got into the 14.5 range. We improved it from there to Q1, and we see more improvement ahead of it. Part of it is what, you know, Roger talked about. The team has done an excellent job focused on quality that will pay dividends, we believe, in the long term. Our throughput has been excellent. The customer scene with the PACT Act as a catalyst for more volume that they needed to rethink how they did incentives and disincentives. That created an opportunity if, you know, for a contractor like Leidos that has confidence in our ability to maintain high throughput, great quality, you know, there's an opportunity to continue to do better on the incentive side as we move forward. Again, that's going well. Our SSA program's going well. There's a lot of things that we're bullish about. Again, I see some upside on margins, but, you know, we're not committing to a new long-term expectation at this point in time for that business. All right. Okay, great. Thanks. Maybe if I could follow up on that, Chris, just to put a little more fine point on it. I mean, if I annualize Q1, it's basically implying that the health earnings are gonna be flat in 2023 versus 2022, which I think would be, you know, a pretty good result given, you know, given some of the margin headwinds there. Is that then a sustainable level of earnings going forward, given, you know, the maybe above trend margin that we're gonna see in 2023 and some of the dim sum headwinds? Is it a level off of which the business can grow because it's been executing quite well for the last couple of years? Or is it- Right ... you know, a level that, you know, you kinda had to run real hard to get there in 2023, and so maybe that's, a level that's above what's sustainable. No, we don't look at it as taking all the air out of the balloon just to make 2023's numbers. I think we're conscious on all the bids that are going through. You know, there's quality bids in that portfolio we have to continue to win. The only upside on dim sum, quite honestly, is it's a huge volume program. It's well run, well executed. We're happy with it, but it's not, you know, at the top end of the health margins in the business, right? As we look at some of the other programs we're bringing on board, we think we can offset that dim sum profitability with a lower top-line volume. You know, our expectation as we set plans for the team every year, and I don't wanna get ahead of Tom, but we'll set a 2024 plan where the health business should deliver a growth in earnings. Quite honestly, that's my expectation at this point in time. Great. Thank you very much. Thank you. Our next question is from the line of Tobey Sommer with Truist Securities. Please proceed with your question. Thanks. I was hoping you could expand on and contextualize the retention, perhaps by quantifying the improvement year to date, giving us some context for the arc of retention trends in recent years. What, if any, financial implications there were in the quarter of maybe having more employees than you anticipated and what that could mean for the balance of the year in achieving your top line, guidance? Well, let me first of all, I don't think we actually put out hard numbers, but let me give you a little bit more visibility. There are some industry benchmarks that we all track. Pre-pandemic, we were always maybe 1 point better, okay? Then early in the pandemic, everybody's retention went to single digits, I mean, mid-single digits. Then coming out of it, right, everybody went to the benchmark, the historic benchmark, and actually significantly over it by, you know, 100 basis points, maybe more than that. When we set the level, you know, and we put together a staffing plan that goes with our financial plan, and our great HR team, you know, takes that as they plan their recruiting for the year, we had a number that was kind of halfway between the worst of the pandemic heights and the traditional benchmark. All right? We have been operating maybe 3% below that, right, to give you just a sense. If you take an employee base of 46,000 people and you are 3% better on voluntary turnover, then, you know, Toby, you can kinda run the numbers in your head, you know, what you don't have to recruit just to stay even, right? There's... By the way, there's huge benefits to retention and, you know, you know, culture and learning and, you know, just beyond a numbers game and being able to do the talent acquisition task, what it does for us from esprit de corps and learning and customer intimacy. So it's a huge positive for us. You know, I know good things are going on throughout the industry. Frankly, we're focused on Leidos. We just completed our all-employee engagement survey, where we literally go out to everyone who's a Leidos employee around the world, and we are just really thrilled with the feedback that we get, the information that we receive, and we can parse it down to very small cohorts. Again, we are significantly over almost every benchmark that our survey provider provides us. We spend a lot of time to try to make this a great place to work and to take care of our employees. We have this program I referred to a little bit in my comments around Leidos Life, which is around, you know, their career development, flexibility and mobility in how we get the work done, and then this new look at total health. All of us grew up in sort of a comp and benefits world, and post-COVID, we realized that benefits really has to start with the whole self. You have to think about physical health, mental health, financial health, all of those things that come back together. The implications, I think, for the long term are, by the way, our direct labor base is probably a little bit higher than we had planned. That can be favorable to rates, right. It's early, right. We're only 1 quarter into it and, you know, we may see some, you know, some movement in the 2nd half of the year that would be adverse. Given all that we have experienced over the last 2 or 3 years to be where we are today on the 2nd of May, it just, you know, makes us feel really, really good about the, the human talent that we have in the organization is only going to provide positive aspects for the company and the positive aspects financially. 'Cause if we can hire faster, we can ramp faster, if we retain more people, it's gonna pay off in the top line and bottom line. Thank you. Yep. Thanks, Tobey. Robert, it looks like we're over time. I think we only have time for one more questioner. We'll wrap up. Sure, sure. The last question will be coming from the line of Cai von Rumohr with TD Cowen. Super. Thank you very much. Roger, I have to say, you've done a terrific job. You've really transformed Leidos significantly from what it was when you joined the company. Well, Cai, thanks. As sort of the, you know, you're sort of the benchmark in our industry, having done this for decades. By the way, I appreciate everyone's comments and, you know, it seems, you know, kind of, you know, almost, you know, icing on the cake is my final question and my final call is coming from you, so I really appreciate that. Great. Thank you. The one question I have, you know, looking at this year, the security products was light in the quarter, and you mentioned some of the reasons. With each is building presumably quite a bit below average margin, and, you know, with having to pay higher prices, I think you mentioned some inflation impact, it sounds like security products, excuse me, the totality of Civil is probably gonna be a little bit lighter than it was than you expected going into the year. I mean, is it reasonable to expect that, you know, the margins there might be sort of midway between the 9.2% of last year and the 10.2% of the year prior, and that therefore any goodness in Health is pretty much offset by a little tougher outlook in security? Yeah, Cai, I don't know why I thought the last question that I would have in my career would be an easy one. I think we've covered everything that's going on in Civil. Let's see. There is potential for Civil to be at the margin it was last year, but there's more risk given the performance in the Q1. You know, you, I think you appropriately described the portfolio challenge that we have as a company. The, you know, Jim Moos, who runs our Civil group, is all in on driving performance, both in the SES organization and the other parts of his portfolio. He has tightened the belt, if you will. We have, I think Chris mentioned that we have done some focused reductions in force. We have reconfigured the value stream in the SES business, bringing inside and into our control more of the production processes. We've got a very, very strong handle around our inventory and how we distribute spares and what have you. You know, part of what drives that business is the services side, and we've got to get the services side, you know, running, you know, like a fine Swiss watch. Jim knows that. His team is fully committed to that, and I expect him to pick up margins significantly throughout the year, whether, you know, he actually gets all the way to where he was last year. We will talk about it, or Tom will talk about it on a quarter-by-quarter basis, but the potential is there. Yeah. We don't need for him, by the way, to be all the way where he was last year to still make our guidance, but it certainly would be helpful. Terrific. Thank you so much. All right. Thanks, Cai. Thanks, Cai. Thanks, everyone. Thank you, everyone. I'll turn the call back to Stuart Davis for closing remarks. Thank you, Rob, for your assistance on this morning's call. Obviously, thank you all for your time this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.