Leidos Holdings, Inc.

Greetings. Welcome to Lido's third quarter 2020 earnings call. At this time all participants are in notes and only mode. A brief question and answer session will follow the formal presentation. If anyone 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 floor over to Peter Burrell with Investor Relations. Please go ahead.

Thank you, Rob, and good morning everyone. I'd like to welcome you to our third quarter 2020 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 October 2nd, 2020. 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'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two was 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 a 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 Crum.

Thank you, Peter, and thank you all for joining us this morning for our third quarter of 2020 earnings conference call. As we're near the end of a challenging year from both an individual and community perspective, I sincerely hope that each of you and your loved ones remain safe and healthy. Leidos' third quarter results reflect the hard work and dedication of our employees and close collaboration with our customers as we provided continuity of operations while accelerating our pandemic response plans. This is evidenced by record revenue, solid margins, record backlog, and record operational cash generation. While challenges still remain, we're pleased with the growth and margin trajectory as we enter the fourth quarter and beyond. In the quarter, the business delivered revenue of $3.24 billion, a new high watermark for the corporation, reflecting 14.4% growth from the prior year. Adjusting for acquisitions and divestiture activity, organic revenue grew by almost 2%, demonstrating the declining effects of COVID-19 as our teams diligently executed their recovery plans. We recorded non-GAAP, fully diluted earnings per share of $1.47, up 8% from the prior year. In addition, the business generated a record $592 million of cash from operations. Net bookings of $4.3 billion in the quarter yielded a book to bill of 1.3 times as well as 1.5 times on a trailing 12-month basis, despite several bid protests at the end of the quarter. Adjusted EBITDA margins of 10.7% reflect strong program execution across all business segments including an accelerated reopening of our medical exam business as we designed workflow protocols and safety measures that met customer requirements. While the impact of maintaining our fixed-cost exam infrastructure was deeply felt in Q2, that investment was the right decision as the market demand for our services rebounded well in the third quarter as demonstrated by our results. For the quarter, COVID-19 impacts to the overall business were approximately 109 million in revenue and 23 million in operating income, representing a significant decline from the prior quarter's impact of 223 million and 78 million, respectively. Furthermore, Third quarter impacts were partially offset by program performance and on-contact growth across our highly diversified portfolio. We continue to expect recovery of greater than 70% of COVID-19 impacts in future quarters. Now turning to some notable awards that contributed to our ninth consecutive quarter of record backlog. In the Defense Solutions Segment, Leidos was awarded a $306 million follow-on contract by the Army Contracting Command to provide the full spectrum of turnkey ground and flight operations for the Saturn Arch aircraft in OCONUS contingency environments. In the Civil Segment, we won a $292 million prime contract by the Federal Aviation Administration to design and develop a system to provide real-time access to essential weather, aeronautical, and national aerospace system, NAS, information through a common NAS-wide enterprise information display system. Additionally, within the intelligence community, the company was awarded contracts collectively valued at $445 million which encompass mission-critical services that help to counter global threats and strengthen national security. Our $31.7 billion backlog, about two and a half times our third quarter annualized revenue run rate, coupled with our strong new business pipeline, provides a strong foundation for accelerated growth into next year and beyond. Furthermore, Our backlog does not reflect recent awards with the Defense Health Agency and the Army Special Operations Command due to protest activity at the close of the quarter. Similarly, the $8 billion Navy Next Gen protest remains in the U.S. Court of Federal Claims with oral arguments now scheduled for November 13th. We still anticipate a favorable outcome shortly thereafter. Now turning to the macro environment. The US government is currently operating under a continuing resolution through December 11th, which includes an extension of Section 3610 of the CARES Act. It is likely that the CR is extended into the next calendar year. We do not anticipate any material impacts to our 2020 year-end results. Furthermore, we remain engaged with our industry partners to help ensure that extension of the CR also includes the existing Section 3610 language. Looking to 2021 and beyond, we continue to have conviction that our positioning in infrastructure, space exploration, and healthcare in the federal civil markets and in unmanned systems, hypersonics, and digital modernization in the defense and intel markets closely aligns with our customers' enduring needs, which are supported by both sides of the aisle within the federal government. Next, I want to update you on the Leidos Relief Foundation. which has been a tremendous resource for so many members of our Leidos family who have been affected by the pandemic. The Foundation is generously funded by hundreds of fellow employees, as well as members of the Leidos Executive Leadership Team and Board of Directors. To date, funds from the Foundation have already been directed to assist 175 employees or employee families who have experienced a financial hardship or lost a loved one during these challenging times. The health and well-being of our employees is our top priority, and I am proud to be part of a team that continually supports one another. I want to mention one other important development to you today. On October 20th, we announced the departure of a valued colleague from our board of directors. Lawrence C. Nussdorf. Larry stepped down from the company's board of directors for medical reasons, effective October 15th. Larry has dedicated more than a decade of service and leadership to our company, seeing us through transformational change, growth, and helping create enviable shareholder value. He has accelerated our strategies and added value at every turn. Recognizing that Larry is irreplaceable, our board decided to eliminate the vacancy caused by his departure, and we will carry on with 12 directors. To say that we will miss Larry is an understatement, as his expertise in all aspects of financial investment and legal activities gave us a sounding board we could always rely on. I am personally thankful for his friendship and counsel. At times he has challenged me, and I have grown because of it. I am incredibly appreciative of his mentorship and friendship, and I didn't want to close today without acknowledging his many contributions. We wish Larry and his family well as he focuses on his recovery. I will now turn the call over to Jim Reagan, our Chief Financial Officer, for more details on our third quarter results and guidance.