Good morning, everyone. It's still morning, I think. My name is Sheila Kahyaoglu with the Jefferies Aerospace Defense Team. Thank you so much to the Leidos team for supporting us. We have Megan Fisher in the audience, Stuart Davis, and of course, Chris Cage, who's CFO of Leidos. Chris, thank you for being here once again. My pleasure, Sheila. You've done a few of these, and so, you're always a good sport about it. Leidos has had a phenomenal year on all aspects, whether it's revenue growth or profitability, amazing, for a defense organization. So maybe if you could talk about what's unique to Leidos and obviously, under Tom's current leadership, how things have changed. Sure. Well, great. You know, thanks again for having us out. We always enjoy coming out to Jefferies, first-class conference that you put together here. And so, you know, Leidos, for those that aren't as familiar, a $16 billion-plus government technology company, and we have had an excellent year, halfway through 2024. Have been able to increase our full year outlook twice now, after the first and second quarter, and so growth trajectory has been good and above our initial expectations. Margins have been an area of strength, and we're just getting started. As you mentioned, you know, Tom Bell is now 15, 16 months into the job. He's come in, really helped, first of all, align the organization to a new construct this year, which has helped unlock our full capabilities across a number of domains, but more importantly, putting in a lot of cycles, thinking about the future this year of deep strategic thinking that we're undertaking. And that's not. We're certainly not taking our eye off the ball in the present. I think the teams are locked in and executing, and we're, you know, doing our fair share to drive growth and profitability and cash conversion, but it's been refreshing to think about our customers' needs five and ten years down the road, how we're positioned to meet those needs, and which areas we want to continue to be more intentional about in the future. So that's what you'll see from us next, is really going after the areas of the market and our capabilities that offer the best promise for the future, and I'm excited about, you know, that next chapter for Leidos. Great. And maybe if we could start on the financials. First half growth is running well ahead of full year guidance, 4%-6%. Growth is 8% in the first half. How are you thinking about the biggest risks as we enter the second half, and any impact from elections? Well, certainly, you know, we've been down this road before on election cycles and adminis-- potential administration changes, things like that, but every year the government has to get a budget in place, and unfortunately, it's something that they rarely get done on time. So we're anticipating that that process will look like it has in the past, continuing resolution budgets hopefully late in the year or early into twenty twenty-five. I think as it relates to this year's outlook, there's not as many things in the-- up in the air that could impact us significantly one way or the other. There's, you know, four months to go, essentially, in the year. We're fairly locked in. It's really, how are those things gonna set us up for growth in twenty twenty-five? You know, there is a lot of bid activity that we've been working on, so there's a good pipeline of submitted bids and actual new bids that are going in. So it's really, do we see the decision cycles continuing to hold a good pace of government award activity? I think we've got plenty of things we're excited about, could be growth catalysts in the future. Some things, like, for example, an award we had earlier this year that got protested, hopefully that'll resolve itself favorably and, you know, that will be a growth catalyst for us in a classified customer setting. So, you know, to me, again, it's next year positioning, and we're optimistic that we can keep the momentum up that we've been showing so far this year. I'll stick to the revenue question. So maybe if you could talk about book-to-bill as it relates to growth. You've had a 1x book-to-bill in Q2, 1.2x over the last twelve months. How do we think about backlog and conversion of your $36 billion into twenty twenty-five revenues? Right, so you know, we've been focused on backlog and building quality backlog over time, and, you know, that discipline around which things are being bid on in our pipeline, you know, that journey started certainly when Tom came on board, but even before that, really focused on high-quality work and generating a good return for Leidos. And I think you're seeing that manifest itself in some of the margin performance that we see today and the and the outlook around margin growth in some of our lines of business into the future. $36 billion in backlog, and that really understates the amount of activity we have visibility into because we have a number of single award IDIQ vehicles on top of that, that we've only scratched the surface on as far as initial tasking from customers. So you layer that on top, where we can see many of those continuing to be growth catalysts for us over the next multiple year time horizon. You know, we think we're set up well with good visibility, and how do we build on that? We build on that by, you know, the pipeline, the front end engine, the account management model we put in place to kinda accelerate our growth. But as it relates to backlog and book-to-bill, you know, we're in a good position. I would expect the back half of the year. I mean, our expectation is that'll be more robust in the front, first half of the year. We do aspire to a book-to-bill greater than 1.0, but we're not fixated on point-in-time book-to-bill, but are the trends over time what we wanna see, and are we building quality backlog over time, and I think we've been doing that. Looking back over the past few years, Leidos has really had a track record of winning large programs. How do we think about, sustaining that track record and also any approach to bidding on new work from here? Right. So, you know, one of the things that Leidos has done exceptionally well is how we run a capture and our win plan model, and the gate reviews, and how we dissect what customers are really asking for and how we're responding to that. And again, understanding if we're in a situation where we're not as well positioned as we would like to be, how do you make that determination and move on to something that can be more productive? So the capture engine's been successful for us. I think what we're trying to do to enhance that even further is, I mentioned account management. How do we get increased visibility into our customers' environments early? We have much of that toda y, but there are areas that we weren't as well positioned in, that we've added capabilities and people to increase that level of unparalleled customer understanding. 'Cause oftentimes, the ingredient to winning is not just responding to what the customer asked for with a compelling proposal, but also understanding what they didn't ask for in the RFP, but they really need to meet their mission requirements. And if you've got that you can respond to, that's the secret ingredient to having a lot of success. So I like, you know, keeping the things that have been working really well for us, accentuating those, adding more front-end account management. And the other thing we've done is really enable a lot more of our solutions architects to be positioned on the growth side. So, you know, you'll win when you have a differentiated technical offering for a customer, and, you know, oftentimes, the people are the scarcest commodity of the really smart solution CTO type that can dissect the winning strategy and solution for a customer. So we've been intentional and invested more resources and partnering up a lot more people on the solution architect side with our growth team, and I think that's a recipe for a lot of success. We're gonna turn to the individual businesses. Okay. Starting with Health and Civil. This is the one where I have the most questions. It represents about 30% of your sales. You have this upcoming VA medical exam recompete. How do we think about the range of possibilities there coming out of the recompete on District 6? Sure. So the... You know, we do a number of things in our Health and Civil business, but certainly, we're a big supporter and partner to the Veterans Benefits Administration in running the disability examination contracts for them, and so we've been a long-term partner in that arena. So there are, you know, multiple different contracts that provide support for them, CONUS, OCONUS, active duty that are transitioning to veteran status, et cetera. Some of those are up for recompete at this time, and they should go through a process and be resolved, most likely in our fourth quarter. This has been an excellent year, but there's been multiple excellent years of support in this particular area. We see the demand trends as being staying elevated for a period of time. So we look at the horizon, and you look at the veterans that need to come through and have these disability determinations made and be supported by, you know, Leidos and other contractors, we think that signal is strong. It's still a recompete, so you still have to attack it the way you would with any, you know, piece of work, where you can't rest on your laurels and the success you've had. You really have to understand, how do you continue to provide incremental value to the customer, and most importantly, serve this critical mission of getting veterans the disability benefits that they are entitled to? So that's our primary mindset. We have every expectation, though, that we'll continue to be an important contractor in the future for the VA. You know, we've made significant amount of investments over time to position ourselves to meet the demands of that contract with high quality, high throughput, great customer satisfaction scores. We've invested in things like being able to reach rural veterans, mobile clinics, and things like that. So the fixed investments that Leidos has made are an area that it would be difficult for the VA to move away from those things. But again, we'll attack that head-on as a recompete, and, you know, we look forward to winning that work. Its range of outcomes, you know, I mean, you could win some or all of the work you have today. You could get bigger shares. Our expectation is, the future will look similar to the recent past, right? Volumes are high. We're a great provider. We'll continue to be in that ecosystem, and therefore, you know, that's an area that we're excited about the future prospects in. I have a few more questions on this topic. Sure. If it's okay, just 'cause I'm curious myself. So when we think about your VA business, correct me if I'm wrong, I believe it's $1 billion of revenue, and it's divided into four tranches. I might be making that up, so correct me if I'm wrong there. And so is the RFP out, and do we think about all four recompeted in Q4? So, I won't get the specifics as far as the size of that business, but it's been an excellent growing business. It's very, important to us, and, and again, it's an area that we see strong growth prospects into the future. There are four regions contracts that exist. That's how they dissect the United States into these various regions, and then there's an international program, and there's a pre-discharge program. Not all of them are up for recompete, but the regions are. And so, the RFP is out. We're evaluating how we respond to that, and attacking it like we would for any proposal, right? Going through our normal, win, and bid gates, and the team is, heads down in the proposal pit, making sure we put a compelling proposal forward for the VA. Leidos has been so successful on the program, both from a profitability perspective, but with the customer, given the investments you've made. How do we think about the trajectory of profitability? Does it dip down on a new contract, or are the investments in place, or will there be additional re-investments required? Well, again, it's a little premature to signal what the near-term expectations are post-recompete. I mean, every time there's a recompete, even if you're continuing the work that you do today, there's typically some changed conditions that you have to assess and evaluate, and we'll do that. But until that award cycle plays out, you know, it's hard to know exactly what those look like. But our expectation, again, is we've made investments. We're continuing to invest, not just in physical locations and mobile locations and provider network, but technology, AI. You know, how do we help the whole cycle from appointment scheduling through throughput, through record review, et cetera, to the end product of getting, you know, the veteran their actual disability benefit through the VA process? Those investments will continue, and, you know, we expect to get returns on the investments that we make. So, you know, I think our profitability more recently has been very strong. I think it will continue to be strong, whether it stays at this elevated level we've seen in the first half, too early to say, but I feel good that, relative to our historical experience, we're able to continue that or improve on it. Just putting numbers on that, it's been 22% margins in the first half versus, I think, 14.5% in 2023. What's kind of accounted for that profitability improvement? How much of it has come from the incentive structure, and how do we kinda think about that into next year? Yeah, so exceptional numbers. Again, you know, there's more going on in our health and civil business than just the VA work, so it's a collection of programs that we're performing on, and you know, each of those have opportunities to provide excellent service and generate rewards. That's one of the things that we like about this customer set broadly in the health and civil arena, is they tend to share upside, right? If you can innovate and you can deliver outcomes for them at a more affordable pace or leverage technology to do it, there's opportunities to participate in the savings that are generated, and we've done that, so and then back to the VBA, yes, there's the opportunity to earn incentive fees on top of your base performance, so as volumes stay elevated, that's great. That means more veterans are being seen and evaluated and ultimately getting disabilities, but if you do that, you know, against set schedule criteria with excellent customer satisfaction, with good accuracy and timeliness, then you can participate in incentive fees, and at the same time, you can have disincentives happen, too, so it's not just a one-way street of only upside. You have to perform, or you have the risk of earning less than you originally contracted for. We've prioritized all those areas to provide excellent service and throughput and invested in technology, so we hope to continue to enjoy those incentive fees going forward. Makes sense. And before VA was all the talk, it used to be DHMSM. So- Mm-hmm. When we think about DHMSM, it's nearing the completion of its final deployment. I believe it accounts for about $400 million of revenues. How do we think about that program from here? Yeah. DHMSM's been a great success story for Leidos and the DHA customer. I mean, on schedule, on budget, you know, a ten-year program to deploy, you know, new electronic health record capability globally through the military health system. So we're proud of the work we've done for them over that period of time, and the team has built an excellent relationship with the customer and has been able to add capabilities not envisioned in the original contract, 'cause that's continued to evolve over time. It does have a horizon ahead of it next year, where there's life after that original contract. We know that there'll be the need to sustain and maintain the installed system. That's work that Leidos we believe is best positioned to perform on, and, you know, we're gonna compete for that v ery hard. You know, if we're fortunate, maybe perhaps there's not a competition, and the customer can take a different route. Our expectation is there's a follow-on contract. We bid and win on that, the expectation and hope is they use that as a vehicle to continue to innovate and modernize and add capabilities now into the installed environment. We've done some of that with things like digital first, helping the customer find RevX. You know, there's all kinds of additional capabilities that provides a platform to embed, and so. It really starts with unparalleled customer understanding, exceptional customer service, being a contractor that they trust, and hopefully, that positions us to sustain DHMSM at levels that are similar to what we see today. Okay, we're moving off health, I promise. So Defense Systems, that's about 12% of your sales. A focus there has been the Dynetics acquisition. You've progressed on IFPC, delivering 14 of 16 prototypes, I believe, and some progress on hypersonics. Can you talk about revenue and profitability inflection in this business and where it stands today on Dynetics? Sure. So, you know, Dynetics was an acquisition that Leidos did in 2020. So four years later, actually, this year, we've fully integrated that business, and we've now combined it with a couple legacy pieces of the portfolio, so to make up our Defense Systems sector. So, you know, that's a $2 billion-plus organization. A lot of heritage Dynetics capabilities underpin that. We're very excited about a couple key thrusts there, and they've been slower than we would originally would like to see as far as gestation period to go from development stage programs, and now some of them are migrating into, you know, low-rate production type programs and have the opportunity to ramp up into full-rate production. One of which being our space sensing, you know, our satellite, payload business, and that's an area that Leidos had a compelling capability on the algorithm development side, and now we're leveraged that into, you know, multiple tranche payload development under the Space Development Agency as a key subcontractor to a couple, primes that provide the satellite. That's one area that we see future growth opportunities for Leidos. You mentioned IFPC, and that's a program that, you know, it's been challenged in the early phases. We're near the finish line on the development stage program, and in fact, we're very, bullish on the fact that the customer actually procured a few additional units here over the summer, for the integration test and evaluation p hase of the program. And we're actively in getting dialogue with them around defense of Guam and then ultimately the low-rate and full-rate production. So, you know, still have more testing to complete, but the strong signals around that being a key pillar of their defense strategy in Guam and elsewhere is really important, and so that could really turn into a sizable program for us over time. Hypersonics is a third one, where Leidos has a number of individual programs in the family of hypersonics, whether it's testing, whether it's the subcontractor on the launcher system and/or the Common Hypersonic Glide Body, you know, key component of that weapon system, you know. So that has a lower risk part of the portfolio, because it tends to be more cost plus, but stable with growth prospects into the future. So I think all of those, we're excited about where 2025 and 2026 take us. More broadly on profitability for Defense Systems, a lot of this was: how do we continue to shore up our capabilities on program execution, our bidding discipline, really understanding, you know, these programs and where they were going? And I think we've made strong gains in those areas, and so I'm very confident the team has, you know, got a portfolio now that we can more consistently drive margins higher on, and we saw some of that in Q2 with an above 11% performance. I wouldn't say we're there yet, where that's, we're gonna print that every time, but this is one that we definitely feel like there's room to move margins up significantly over the next few years. So Defense Systems is on stable footing, and Dynetics has a baseline profit level at this point? Yeah, I'd say that's where I see things. There's a baseline level of profitability. Inflections will come as some of these new programs transition into higher volumes, and those will give us the opportunity to step margins up higher. I didn't mention even the maritime piece of that business, too, kind of a legacy Leidos, coupled by an acquisition. Maritime autonomy, especially undersea, is an area that we've got some exciting capabilities in, too, and you know, believe that'll be a really important need for our country going forward, especially in the great power competition. So that's one that, you know, we're expecting big things over the next, you know, multiple year time horizon. In your new segment structure, National Security and Digital represents about half your revenues. DISA DES is one of the programs in that. Mm-hmm. You just received a task order in July for $823 million. I believe the program's generating about $110 million of revenues this year. How do we think about that getting to that $500 million dollar mark for that program? Sure. Well, you know, you're right. I mean, national security and digital, it's a huge portion of the company, and our digital modernization business at large has got several mega programs. Defense Enclave Services was the most recent win, and it was a little bit different because we didn't take over an established program that already had a baseline level of activity. We had to help the customer build out the network environment for the future to migrate other DoD Fourth Estate agencies onto. And, you know, you can imagine there was a level of getting that designed and implemented and getting a test bed with the DISA customer as customer zero, essentially, before you could be positioned to entice other agencies to come into this improved, more secure, stable network environment. We're finally at that juncture, so we're excited about this most recent task order award, $823 million, the DAFAs task order, we call it. That positions us with a discrete number of users that will migrate onto the network over the next, you know, couple years. So that is the key catalyst to the growth inflection we've been looking for. I still think we're on a couple year journey to get this ramped up to its full potential, but our expectation is 2025 will show growth, certainly over 2024, and then there's additional room to run beyond that. Well-run program, great partnership with the customer, and I think the team's ready to execute. And then, last segment you have is commercial and industrial, about 13% of sales. You completed the Cobham Aviation Services acquisition almost two years ago. Can you talk about the trajectory of your ISR business since that acquisition and your progress in Australia? Sure. So Commercial and International, not to correct you, Sheila. Sorry ... industrial, but and you wanted the feature of the international component. So Australia is a key- Sorry about that. ... portion of the business there, and we had we still have an excellent business in Australia, heavily focused on digital modernization for Australian government agencies. Well-run, been a nice growth driver for us with good margin performance. A couple years ago, we added an airborne ISR capability. We had one, we do have one in the States that we perform missions mostly for the Army, and this was a natural adjacency to extend a capability down in Australia. I'd say, you know, the business is performing well. There's always challenges. You know, certainly getting pilots and those types of things could be a challenge in some of the geographies where you have to operate, but we're excited about the returns that have been generated. The Australian government's looking to the future and how do they continue to evolve the mission requirements and look for ways to increase their surveillance and awareness of threats, you know, as their border. You know, they're kind of in a tough neighborhood of the world, potentially, so you know, we'll look to how Leidos responds to those growing mission requirements in the coming years, but very pleased with our Australian business more broadly, and Commercial International has got some excellent pieces in the portfolio, but there's also some areas that there's work to do to continue to drive margins higher in, and I'm very bullish on the prospects of bringing the whole C&I organization up to margin levels that are strongly in the double digits going forward. Maybe on that, last year, the Security Enterprise Solutions business, SES, within Commercial and International made a lot of headlines. What's the size of that business today? How do you think about that business growing internationally and the profitability markers? Mm-hmm. Sure. Yes, I think, you know, in retrospect, the Security Enterprise Solutions probably got a little bit more airtime than it could have relative to the size and, impact to Leidos overall, but I get it. You know, we had a tough first quarter in 2023, where that business ran into some challenges. We've spent, you know, the back part of 2023 getting that shored up, and I like the progress that's been made. It's roughly a quarter of our commercial international segment, so, you know, on a Leidos scale, it's certainly less than 5% of our top line. So it's, it's important. All of our businesses are important, but it's not, you know, the critical driver for our success and profitability. That being said, we do like the business. You know, we recognize that we've got a suite of products, several of which are, you know, franchise products that are installed with a huge footprint, both domestically and some internationally. And you know, our job is to make sure that those we continue to innovate for the future product offerings, but we also support those installed products with excellent service and maintenance. And you know, that's been a hallmark of Leidos. You know, at times, that can be challenged. It was challenged a bit with supply chain back when COVID disrupted some things. I think we're mostly through that, and the trajectory has been positive. We're looking for, you know, consistent, sustained level of profit performance, and then being selective on the growth drivers of the top line, making sure that we're focused on the geographies where it makes sense for us to do business for the long term. 'Cause a lot of that business, as we look to customer demands, are international opportunities, Middle East, Asia, et cetera, so like I said, not, not every geography is one that we wanna be in, but we do think there's plenty of opportunities for growth as we look at the future of that business. Then, given you're the man who controls the balance sheet and capital deployment, you've deployed $300 million for share repurchases in the first half. How do we think about that as we head into the rest of the year? Certainly, I'd say that, you know, Leidos has been, you know, focused on cash generation and, and our capital deployment priorities, more recently, have featured share repurchases. We made a commitment as part of our original guidance this year that we expected to repurchase up to at least $500 million of shares. We're well on our way, but not done with that commitment, as you just pointed out, Sheila. I think you can expect that we'll continue down that path as we progress in the second half of the year. You know, the way our business works with government cycles and government fiscal year-end, the second half of the year tends to be the strongest cash generation part of the cycle for us. I'm expecting robust cash generation in Q3 and 4, and we'll continue that journey. We don't wanna short-change investment in the business. We've certainly prioritized capital expenditures when we saw great opportunities that could generate exciting returns for Leidos, and today that's fit comfortably within the 1%-1.5% of revenue sizing, and I think that's the sweet spot that we'll stay in for the near term, and you know, we haven't been active per se in the M&A arena because it's been a year of deep strategic thinking, and we wanna finish that work and make sure we're intentional about any moves we'd make if we are going to make any moves in the M&A arena, you know, you'll hear about that in the future. We're heading towards a big investor day early next year, talk more about the strategy development, talk more about the future as we see it and, you know, and then, you know, feature the capital deployment priorities as part of that. But I, I like where we're sitting today. I like having optionality. We've been de-leveraging the balance sheet at the same time, so we're in a very comfortable spot there on leverage, which is a good place to be, so it gives us plenty of capacity for share repurchases and other investments. And just to be able to deploy that capital, how do we think about free cash flow conversion getting back to that 100% mark? Yeah. You know, we set that objective, and I look at it over a multi-year time horizon, and I think over the three-year horizon that we focused on, we'll be able to hit that 100% conversion. Year to year, you know, there are certain circumstances, depending upon growth or new contracts or what have you, that could create small headwinds for us. But we've got a great customer broadly in the U.S. government. They pay their bills. You know, it's our job to make that as automated as possible, to do great work, invoice timely, collect cash with good terms, make sure that we're fair with our supplier network and our vendors, but also, you know, negotiate industry standard terms on payment cycles, too, and I think we've been able to do that. So I believe, you know, that multi-year 100% conversion's a good number for us. If we were to dip a little bit below that, it's because we see exciting investment opportunities that could generate compelling returns, and I think that's something you'd want, you know, the Leidos management team to be focused on and our shareholders would benefit from. So we're not afraid to, you know, dip into that if need be, to finance good growth prospects. But broadly speaking, I think you'll see us stick to our knitting with customers that we understand, with strong payment terms, and just focus on doing good work and generating cash. So just to sum it all up- Mm-hmm. -revenue growth, mid to high single digits, margins sustained at these levels, and conversion getting back to 100%. Well, you're not gonna get me to comment on- Yeah ... twenty-five or longer-term horizon yet, but we're on track for a great year, you know, with growth in the mid single digits or better, and certainly 12% is margins for the year. So we're very pleased-