Leidos Holdings, Inc.

Greetings. Welcome to the Leidos Second Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. A brief 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 will turn the conference over to Kelly Hernandez with Investor Relations. Ms. Hernandez, you may begin.

Thank you, Rob, and good morning, everyone. I'd like to welcome you to our second quarter 2019 earnings conference call. Joining me today are Roger Crone, our chairman and CEO, Jim Reagan, our chief financial officer, and other members of the Leidos management team. Today we will discuss our results for the quarter ending June 28, 2019. Roger will lead off the call with notable highlights from the quarter, as well as comments on the market environment and our company strategy. Jim will follow with a discussion of our financial performance and our guidance expectations. After these remarks from Roger and Jim, we'll open the call for your questions. 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, during the call, we will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in the press release that we issued this morning and is also available in the presentation slides. The press release and presentation, as well as the supplementary financial information file, are provided on the investor relations section of our website at ir.leidos.com. With that, I'll turn the call over to Roger Krohn.

Thank you, Kelly, and thank you all for joining us this morning for our second quarter 2019 earnings conference call. Our growth momentum continues to accelerate through the second quarter with nearly 9% organic revenue growth, a record backlog position, and strong win rates. Our success in executing against our pipeline and driving growth across all segments of our business enables us to raise our full-year guidance for both revenue and earnings. In addition, our recently announced dividend increase demonstrates the confidence of the Board of Directors and the management team in the strength of the company's cash flow generation and ability to sustainably generate value for our shareholders. Importantly, we achieved key wins during the quarter that increased our backlog to 21.7 billion, reaching a record level that also serves as a leading indicator of our future growth potential. These successes resulted from our strategic focus on delivering innovative solutions to our customers and leveraging the scale of our organization. A couple of highlights from the quarter's awards. We successfully defended a protest on our takeaway win with NASA's End User Services and Technologies Program, or NEST. Under this contract, Leidos will provide, manage, secure, and maintain essential IT services that support the agency's core business, scientific, research, and computational abilities. The single award contract has a total potential value of over $2.9 billion. over the 10-year period of performance. We also successfully defended a protest on another takeaway win with the Air Force Air Combat Command to support the warfighter's intelligence, surveillance, and reconnaissance mission through intelligence gathering, analysis, distribution, and training across the ACC enterprise. This single award task order has a total ceiling value of approximately $900 million if all options are exercised. Business development remains a key priority of the company's strategy, and we have transformed it into a cross-functional and collaborative effort. I am proud to see us hitting our stride and winning important work with key customers. During the quarter, we continue to focus on leveraging the strong revenue growth to generate more cash. we successfully converted 100% of non-GAAP net income to free cash flow and exited the quarter with $660 million in cash and equivalents on hand. As we continue to evaluate options for deploying our excess capital in line with our stated capital deployment philosophy, we announced yesterday the company's first ever dividend increase. The 6% increase to the dividend is effective with the September payment and raises our quarterly dividend from 32 to 34 cents per share. This increase reflects confidence in our long-term performance and reinforces our commitment to delivering strong returns to shareholders. We remain committed to thoughtfully deploying our excess capital in line with our stated capital deployment philosophy, which balances our investments for growth, including organic and M&A, with returning capital shareholders through dividends and share repurchases. The strong revenue growth and positive momentum in our business has driven a positive impact on our hiring and retention efforts. During the quarter, we added a net 1,200 new employees to our organization, increasing our total headcount to more than 33,000. The takeaway wins in particular are helping our hiring efforts into the cleared domain. Being able to transfer cleared personnel directly into the Leidos family helps alleviate some of the tightness in the cleared labor market. While it still takes significant time to move our new employees through the clearance process, we are encouraged by the progress made by the National Background Investigatives Bureau in reducing the clearance backlog. While there's still room for improvement, we're seeing early results of the targeted effort by the Bureau to reduce the backlog awaiting clearance. We are excited to welcome all of our new employees and look forward to continuing to grow our organization to build on our customers' trust and support them with their most critical missions. Continuing with the people theme, I want to highlight a couple of refinements we have made to our executive leadership team during the quarter. I am pleased to announce the promotion of Jim Carlini to the position of Chief Technology Officer for the company. Prior to joining the company in 2018, Jim spent decades in technical leadership roles throughout government, academia, and industry, including having served as the Director of the Special Programs Office at the Defense Advanced Research Projects Agency, or DARPA. Jim is also a member of the Defense Science Board and was previously Vice President of Advanced Development Programs at Northrop Grumman Electronic Systems. Jim will continue to drive technical excellence throughout the enterprise, ensuring differentiated solutions in critical technology areas ranging from artificial intelligence and machine learning to cyber defense to rapid and secure delivery of mission-critical software. He will also lead the effort to leverage the cutting-edge capabilities incubated in the Leidos Innovation Center, the link, throughout the business to deliver solutions to customers in all of our served markets. Jim takes over the role from Jim Cantor, who has moved into a newly created position of Chief of Performance Excellence and Strategic Partnerships. In this role, Jim will be responsible for enhancing our strategic supplier framework and driving the Leidos Business Framework principles throughout all program operations. Turning now to the macro environment, conditions continue to remain quite favorable. The recent passage in the House of the Bipartisan Budget Act and the expected approval by the administration and Senate is positive for our business. The bill allows for stable, predictable, and large defense and discretionary budgets for two more years, government fiscal year 20 and 21. Although appropriations are still outstanding, the overall budget growth of 3% in defense and 4.5% in non-defense provide a supportive foundation for the continued growth of our business. The key priorities embedded in the National Defense Strategy remain unchanged and continue to tightly align with our core capabilities and our ability to provide innovative solutions to help our customers execute on their most critical missions. As we look ahead, and as previously mentioned, the strength of our results through the halfway point in the year, combined with the continued tailwinds we see in the market landscape, give us confidence to raise both our revenue and earning expectations for the full year. Jim will provide details of the revised guidance in a moment. Before I hand the call over to Jim, as we did last quarter, we again want to spotlight some of the social and community initiatives we engage in as a company. This quarter, I want to highlight the progress that we have made in our efforts to help resolve the nationwide opioid epidemic, the scale of which is alarming. In response to difficult times, some of our own employees have experienced with family members affected by this epidemic. Leidos launched the CEO Pledge, which encourages business leaders to create and nurture work environments that are safe for conversations about addictions to educate employees about the potential dangers of opioids and to support nonprofit organizations focused on additional prevention and recovery. I'm pleased to report that to date, more than 60 CEOs from organizations across the country have demonstrated their commitment to ending the epidemic by signing the CEO pledge and making changes in their organizations to support employees throughout this crisis. There is still much work to be done, and our goal is to have at least 100 signatures, but I am proud to share this initiative with you as we recognize that all of us can share in helping to navigate this growing health concern in the communities where we live and work. In conclusion, we remain focused on delivering innovative solutions to our customers by leveraging the strength of our scale We continue to focus on leveraging our success with customers to generate cash in the business. With that, I'll turn the call over to Jim Reagan, our Chief Financial Officer, for more details on our second quarter results and guidance.