Leidos Holdings, Inc.

Greetings. Welcome to the Leidos fourth quarter 2020 earnings call. At this time, all participants are in listen-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 conference over to Peter Burrell, Senior Vice President, Investor Relations. Mr. Burrell, you may begin.

Thank you, Rob. And good morning, everyone. I'd like to welcome you to our fourth 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 January 1st, 2021. 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 is included in the press release that we issued this morning. It 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 Krohn.

Thank you, Peter, and thank you all for joining us this morning for our fourth quarter and full year 2020 earnings conference call. Before we close the door on last year, I'd like to take a moment to thank the approximately 39,000 Leidos employees, our business partners, and our customers for their unwavering commitment and collaboration in light of the COVID challenges. I'm inspired by what we accomplished in the past year together and the challenges that we will solve in this new year for the betterment of our communities and our customers' missions. Fourth quarter results reflect the resilience of our growing portfolio with new record levels of revenue and backlog, coupled with margin expansion and further balance sheet optimization. This performance positions us for above market growth in 2021, fueled by our talented, diverse workforce who continue to engineer and deliver technologically innovative and secure solutions for our customers' evolving needs. Revenues for the quarter were $3.25 billion, up 10.1% from the prior year, reflecting two strategic acquisitions that closed in 2020. Q4's adjusted EBITDA of 11.3% up 30 basis points compared to the prior year period reflects strong program performance and indirect cost management that delivered 8% growth on non-GAAP EPS, totaling $1.63 for the quarter. Net bookings of $3.3 billion in the quarter resulted in a book-to-bill slightly above one and 1.4 times on a trailing 12-month basis. These solid results do not reflect any material contributions from the Navy Next Gen program, which was resolved in Leidos' favor late in the year. The $1.7 billion FAA NISC IV Recompete Award that is currently under protest or the $1 billion military and family life counseling award that was announced in January. These three wins, coupled with a backlog that is more than two and a half times our historical annual revenue and a healthy new business pipeline, provide us with high confidence in our growth outlook in the new year and beyond. For the full year, we generated record revenue of $12.3 billion, an annual increase of 10.8%. Full-year revenue delivered 10.8% adjusted EBITDA margins that yielded non-GAAP earnings per share of $5.83. This represents 13% growth over the prior year. Additionally, the business generated over $1.3 billion of cash from operations for the year, far exceeding our initial 2020 guidance. Full-year net bookings of $17.8 billion contributed to a record year-end backlog position of $31.9 billion, a year-over-year increase of over 32% or a healthy 23% after adjusting for acquired backlog. Turning now to several significant contract actions in the quarter that position the business for significant organic growth. In the Defense Solutions segment, the U.S. Court of Federal Claims ruled in favor of our Navy Customers Award of the NGEN program, where Leidos will unify, operate, and maintain the shore-based networks and data management for the Department of Navy's Program Executive Office Digital to improve capability and service under one enterprise network construct. The single award IDIQ has a five-year base period of performance followed by three one-year option periods with an approximate value of $7.7 billion if all options are exercised. Due to timing of the court's decision, no significant task orders were booked in the fourth quarter. Also in the Defense Solutions segment, the GAO denied a protest clearing the path of the U.S. SOCOM Tactical Airborne Multi-Sensor Platform Support Task Order, also known as STAMP-2, to Leidos. Under the contract, Leidos will provide pilot services, airborne sensor operations, hub and spoke operations, and excursion support, as well as other engineering support services in support of the programs De Havilland-8 and King Air 300 aircraft. The award has a total value of $649 million and includes a one-year base period of performance followed by four one-year option periods. Additionally, within the intelligence community, the company was awarded contracts collectively valued at $304 million if all options are exercised. Though the specific nature of these contracts are classified, they encompass mission-critical services that help to counter global threats and strengthen national security. This morning, we announced the second of two strategic acquisitions that occurred over the last several months. Similar to transactions we closed in 2020, these recent deals support our strategic framework of adding capabilities and deepening customer relationships. We expect Gibbs and Cox and 1901 Group to be immediately accretive to non-GAAP EPS. The acquisition of Gibbs and Cox will extend our existing maritime business and add specific capabilities and services such as naval architecture and marine engineering, 3D modeling and design, and specially engineering to the solutions set that we offer to our customers. Gibbs and Cox has a rich history dating back to 1929, and their workforce is highly regarded in the industry and across the globe. In addition to being positioned on the front end of next generation vessels, the business combination provides significant tailwinds for participation in the maritime unmanned market and accelerates Gibson-Cox expansion in the undersea domain. We anticipate that the transaction will close in the second quarter after the completion of regulatory reviews. Second, in early December, we announced the strategic acquisition of 1901 Group, a leading cloud and digital modernization as a service provider. The transaction is now closed, and this quarter we welcomed the nearly 400 IT cloud and cyber specialists to the Leidos family. In addition to its deep bench of technical talent, the company has developed a robust as-a-service delivery model that is scalable, repeatable, and affordable. As our customers continue to seek on- and off-premise managed service solutions, 1901 Group will expand our team's ability to address this accelerating market. Organizationally, 1901 Group is aligned with our Defense Group, and through collaboration with our CIO and CTO leadership, we are in the process of leveraging these new capabilities across the enterprise to the benefit of our customers. Looking to the macro environment, with the current year $740 billion NDAA passed into law, attention now turns to the President's pending physical year 2022 budget recommendation, which is unlikely to put pressure on defense industry outlays before physical year 2023. Given the great power competition and leading national security issues, we do not anticipate major cuts, but rather flattish to slightly declining budget numbers with focus on modernization and reprioritization. Also, with projected increased focus on healthcare demands and civil infrastructure, particularly transportation, We believe that our diverse portfolio of differentiated solutions is well aligned with the administration's and our customers' highest priorities. Next, I want to take a moment to highlight Lido's continued commitment to mental health and well-being of both our employees and our communities. a topic that has been increasingly more front and center for families over the past 12 months. Approximately three and a half years ago, we launched an initiative to do our part to tackle the opioid epidemic and challenged other companies to do the same. These efforts organically grew to also address the underlying contributors to substance misuse associated with mental health and well-being including anxiety, depression, and suicidal tendencies, all exacerbated by the COVID-19 pandemic. Last year, we added internal benefits and resources, for example, the offering of the Headspace app to our employees free of charge. We also elevated the conversation in our communities through continued engagements with the Community Anti-Drug Coalition of America, with the DEA in support of their national take-back days and by working with the American Foundation for Suicide Prevention. In the most recent quarter, we formed a strong relationship with the Millikan Institute's Center for Public Health, including participating in multiple virtual global panels focused on addressing both mental health and substance misuse. Additionally, Leidos participated in out-of-darkness suicide prevention virtual experiences in Washington, DC and North Alabama. At both events, we raised awareness as well as critical funds needed to address the stigma surrounding suicide. We look forward to continuing to lead and support these critical health initiatives for our nation's citizens in this new year. Finally, I would like to mention that Leidos for the fourth consecutive year has been recognized as one of the 2021 World's Most Ethical Companies by Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices. This recognition is a testament to our employees worldwide who embody this core value. With that, I will turn the call over to Jim Reagan, our Chief Financial Officer, for more detail on our results and our 2021 outlook.