Leidos Holdings, Inc.

Greetings, and welcome to the Leidos third quarter 2019 earnings conference call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. At this time, I'll turn the conference over to Kelly Hernandez with Investor Relations. Ms. Hernandez, you may now begin.

Thank you, Rob, and good morning, everyone. I'd like to welcome you to our third quarter and 2019 earnings conference call. Joining me today are Roger Krohn, 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 September 27th, 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 third quarter 2019 earnings conference call. We're pleased with the continued momentum in our business reflected in our third quarter results, which set new records for revenue, backlog, and bookings. Our results underscore our success in growing all segments of our business and demonstrate our ability to deliver our broad capabilities across our diverse customer base. Starting first with the growth engine of the company, our business development efforts, results in the quarter were strong, even beyond typical seasonal levels. We booked a record amount, over $5 billion of net new awards in the quarter, resulting in a book-to-bill of 1.8 times. These results reflect several notable awards, including a $400 million contract in our defense business for the provision of aircraft intelligence surveillance and reconnaissance support services in support of the Army's program executive office, intelligence, electronics, warfare, and sensors. We were also awarded a $900 million contract in our civil business by the Transportation Security Administration to continue to provide integrated logistics support services to sustain TSA passenger screening equipment at hundreds of airports and other designated facilities across the U.S. and its territories. During the quarter, we won roughly $1.3 billion of awards from our classified customers, reflecting growth across each of our customers in the intelligence community. Our success reflects mission-enabled solutions across transformational software development, analytics, and digital transformations. Our success in executing against our pipeline allowed us to increase our backlog to a record level of $23.9 billion, a leading indicator of our future growth potential. Beyond that, we also have a nearly $35 billion of submitted proposals awaiting decision. This still includes several large programs, GSM02, Hanford, and Navy Next Gen, all of which we expect will be awarded in the next couple of quarters. Revenue growth continued to accelerate in the third quarter, with year-over-year organic growth of 12%. This growth was broad-based across all of our businesses and reflects the success of the scale and diversity of our portfolios. Underpinning our growth was another strong quarter for hiring as we added another 2,500 people, bringing our year-to-date total to over 7,500 new hires. While the market for talent continues to be tight, our success in hiring in our key growth areas reflect the investments we have made in our organization, our employees, and our culture in making Leidos a great place to work. We are proud that every day nearly 34,000 people choose to work at Leidos and we take very seriously our responsibility to make their work life more rewarding in order to maximize our ability to retain them and to attract more top performing talent. Strong margins and a continued resolute focus on cash conversion allowed us to generate nearly $350 million of cash from operations in the quarter, resulting in a quarter-end cash and equivalence balance of $635 million. During the quarter, we deployed our excess capital consistent with our stated capital deployment philosophy, which balances investments for growth, including organic and M&A, with returning capital shareholders, through dividends and share repurchases. We executed a $200 million accelerated share repurchase during the quarter, which resulted in the retirement of 2.4 million shares outstanding. Beyond this, our M&A pipeline continues to be very robust, and we have been evaluating opportunities across all of our big business segments for acquisition targets, both big and small. While we routinely assess the market landscape for potential targets, we run a disciplined process for evaluating opportunities to ensure that transactions enable us to improve our strategic position and drive shareholder value. Many of the opportunities we have evaluated did not meet our criteria in these areas. However, We were pleased that one target did. We announced and closed the acquisition of IMX Medical Management Services during the quarter, and we are pleased to welcome IMX into the Leidos team. Our combined experience, footprint, and commitment to customer service positions us to be a significant player of independent medical evaluations in the commercial market as we are today in the federal space. In the quarter, we also divested our health staff augmentation services business in a sale to Alvarez and Marshall Capital. The business that was divested was a small, immaterial piece of our overall portfolio, which delivered staff augmentation services to commercial healthcare providers. This divestiture helps Leidos focus on what it does best providing solutions that meet the complex needs of our government or other highly regulated and complex industries. We recently completed a major milestone in one of our marquee programs in this area, the DoD Healthcare Management Systems Modernization Program, or DMSUM, the largest IT transformation in the history of the military health system. The Leidos Partnership for Defense Health successfully deployed MHS Genesis to a new wave of military treatment facilities on September 7, 2019. Following the release, our customer, Program Executive Officer of the Defense Healthcare Management Systems, lauded us for what he called a very successful release at Wave Travis. As I said before, patient safety is our number one priority. We added six new technical capabilities to MHS Genesis in advance of this wave, including CVPACs, a system that can be used to treat various heart conditions. Within the first 48 hours of go live at Travis Air Force Base, a heart attack patient was successfully treated using CVPACs, a capability that did not exist at this hospital before MHS Genesis. We also introduced enhanced training curriculum during this wave and noticed a significant increase in the speed of adoption at each site. We continue to make substantial progress on this program, and with this wave behind us, we are looking ahead to the next two waves, which have just kicked off pre-deployment activities right on schedule. These are Wave Nellis, which includes Nellis Air Force Base in Las Vegas, Nevada, and Wave Pendleton, which includes Camp Pendleton in San Diego, California. Wave Nellis is on track to go live in June 2020. Finally, turning now to the macro environment, conditions continue to remain favorable. The two-year budget agreement, which provides top-line spending amounts for both defense and and non-defense spending accounts creates a supportive foundation for the continued growth of our business. While we are starting the government fiscal year with a continuing resolution, as we have for 19 of the last 20 years, we see no material impact from a CR that lasts potentially through the end of the first quarter and could even last through the full government fiscal year 2020. While we are optimistic that we will avert a government shutdown, we are also prepared for this scenario should it occur. As we look ahead, the strength of our results thus far in the year and the continued acceleration in revenue growth gives us confidence to raise our expectations for the year across all guidance metrics. I'll now hand the call over to Jim Reagan, our Chief Financial Officer, for more details on third quarter results and our revised guidance.