Leidos Holdings, Inc.

Greetings. Welcome to LIDO's first quarter 2022 earnings call. At this time, all participants are in listen-only mode. A 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'll turn the conference over to Stuart Davis, Senior Vice President, Investor Relations. Stuart, you may now begin. Thank you.

Thank you, Rob, and good morning, everyone. I'd like to welcome you to our first quarter fiscal year 2022 earnings conference call. Joining me today are Roger Krohn, our chairman and CEO, and Chris Cage, our chief financial officer. Today's call is being webcast on the investor relations portion of our website, where you'll also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to slide two of the presentation, 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, as shown on slide 3, during the call we'll discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, I'll turn the call over to Roger Crone, who will begin on slide four.

Thank you, Stuart, and thank you all for joining us this morning. Our first quarter marked a strong start to 2022 with record levels of revenue, backlog, and backlog stemming from our leadership position in the government technology market. We continue to build our reputation and track record of performance in digital technology, cyber, and innovative systems across our diversified, resilient business portfolio. Our strong first quarter results and the improving federal budget picture increase our confidence in delivering on our full-year financial commitments. I'll organize my remarks around four messages. First, our financial results demonstrate our ability to meet our commitments and outperform the market. Second, our business development results are a testament to our differentiated position in the market. Third, our consistent capital allocation approach drives shareholder value. And fourth, we're able to attract the workforce we need and develop them for long-term success. Number one, our financial performance was strong at both the top and bottom lines. Revenues of $3.49 billion were up 5.4% in total and up 4.4% organically year over year, which is once again towards the top of the market. Non-GAAP diluted EPS for the quarter was $1.58 with an adjusted EBITDA margin of 10.2%. All three metrics were ahead of our plan for the quarter. Finally, we generated $93 million of cash flow from operations and free cash flow of $65 million. We remain on track to generate more than a billion dollars of operating cash flow this year. Number two, business development sustained the momentum that drove our industry-leading organic growth last year. We achieved net bookings of $5.4 billion in the quarter, representing a book-to-bill ratio of 1.6. As a result, total backlog at the end of the quarter stood at a record $36.3 billion, which was up 11.6% year over year. The awards in the quarter were rich in new business and takeaways balanced across our three segments and concentrated in key capability areas, including digital transformation and cyber. In civil, two large awards successfully completed lengthy protests. We won the $2.5 billion 10-year Advanced Enterprise Global Information Technology Solutions, or AGES, program, where we'll provide communication, data center, cloud, and cybersecurity services across all of NASA's centers and facilities. For the FAA, we'll continue our more than 20 years of support on the National Aerospace Systems Integration Support Contract. The new NISC contract is a single award IDIQ with a $1.7 billion ceiling across 10 years. Our work encompasses strategic and transition planning, flight procedures, security and safety, data analytics, and unmanned aircraft systems in support of air traffic control modernization efforts. In health, we won two multiple award IDIQs totaling about $1.7 billion over six and a half years to provide disability examinations for the Veterans Benefits Administration. The first was a re-compete for pre-discharge exams in the United States, and the second is a new area for us, exams outside the United States. Although we'll have more competition within our legacy business, we're excited about the opportunity to expand internationally. In defense solutions, our Gibbs and Cox subsidiary won a $319 million five-year award for Ship Design Engineering Services for the U.S. Navy's Future Service Combatant Program. We won two new cyber programs totaling $340 million, focusing on agile secure DevOps, cyber inspection and assessment, continuous monitoring, and audit and security management services. We also had a takeaway win on $100 million single award IDIQ to modernize the Army's gunnery training simulation systems. This work serves to enhance readiness across the operational spectrum in support of national defense. And the biggest, most impactful win for the quarter is not included in our bookings. We were awarded the $11.5 billion Defense Enclave Services contract by the Defense Information Systems Agency. The DES contract is a 10-year digital modernization program focused on consolidating common IT services into a single service provider framework. As expected, this award is now in protest with the GAO scheduled to decide in mid-June. One of the keys to our BD success is our strategic partnerships, including with Amazon Web Services. I am proud that Leidos was awarded the AWS 2021 Public Sector Consulting Partner of the Year. AWS recognized Leidos with this honor because of our deep technical partnerships in areas such as edge to cloud and next generation digital infrastructures to build solutions that drive digital and cloud transformation. This recognition illustrates the value of the Leidos Alliance Partner Network, which we founded in 2018 to deepen relationships with the most important vendor partners across our business groups. This network has fostered greater collaboration with partners to drive technology innovations and continues to be a differentiator for Leidos on a wide range of proposals and programs. Number three, I view capital allocation as one of the keys to creating shareholder value. Last quarter, we talked about a greater focus in 2022 on share repurchase, and we followed through with a $500 million accelerated share repurchase. We sit near our target leverage ratio, and our ability to generate cash gives us significant firepower for further capital deployment. We're well positioned to grow, and we'll continue to look for technology add-ons and strategic initiatives that bring us differentiated capabilities for customer access. We'll pursue large M&A only for a company that truly accelerates our strategy. Number four, people are at the heart of what we do. In this quarter, we hired more than 2,600 people. One reason people are attracted to Leidos is that we enable our employees to build successful careers. We regularly review talent and plan development actions at all levels of the company. This quarter, we made several key moves at the executive leadership team and board levels. We're pleased to welcome our new Chief Human Resources Officer, Maureen Watterson. who brings an impressive background and skillset to the Leidos team. Her excitement and commitment will enhance our people experience here at Leidos. With about 1600 funded vacancies and an industry-wide shortage of cleared technical talent, recruiting and retention remains areas of strategic focus. Maureen will lead our human capital strategy and continue shaping the employee journey at Leidos through our Leidos Life initiative. Dave King has decided to step back from his role as Dynetics Group President. He will continue in a consulting capacity, ensuring a smooth change to new leadership and advising on matters of strategic importance. I want to thank Dave for his outstanding contributions thus far, and I look forward to working with him in his new capacity. Dave's deputy, Steve Cook, is stepping up as Dynetics Group President. Steve's extensive experience and background, both with Dynetics for 13 years and leading critical programs for NASA before that, have prepared him well for his new role. He'll team with Paul Angola as his deputy. In addition, Paul will lead the national security space business for Leidos with a focus on space surveillance, missile warning, and space situation awareness. Next, our digital modernization business is growing rapidly with an expanding portfolio of differentiated technology. To meet the demands of our growing business, Steve Hull will move from his role as CIO to lead the enterprise and cyber solutions operation within the defense group. We've moved our CIO team under Chief Technology Officer Jim Carlini to tightly align our technology and CIO capabilities. Finally, Pat Shanahan has joined our Board of Directors. He's served at the highest levels of government, including Deputy Secretary of Defense and Acting Secretary of Defense, and industry, including more than 30 years with Boeing, where he led supply chain and operations, commercial airplane programs, and many other relevant areas. While at DoD, he was a passionate champion of digital and technological advancement for the department, driving modernization in cybersecurity, AI, and cloud computing, as well as command, control, and communication. Pat's wealth of expertise offers tremendous benefits for our shareholders and customers. Before turning the call over to Chris, I'd like to address the current congressional budget environment. Since the Q4 call, Congress passed the fiscal year 2022 omnibus spending package, funding the federal government through the remainder of the fiscal year, with $782 billion in defense spending, a 5.6 increase from fiscal year 21, and $730 billion in non-defense spending, a 6.7 increase from fiscal year 21. The budget also includes $14 billion in emergency supplemental spending in support of Ukraine, given the devastation at the hands of the Russians. It will take time for the new budgets to work their way individual programs and new opportunities, but this provides positive momentum for the back half of 2022 and into 2023. President Biden has also released his $5.8 trillion fiscal year 2023 budget request. This request includes $813 billion in defense spending and $769 billion in non-defense spending. In addition to kicking off the fiscal year 2023 congressional budget process, Congress remains focused on finalizing a $10 billion bipartisan COVID-19 relief measure and passing legislation to increase American competitiveness with China. Congress also continues to grapple with rising inflation rates, strained energy markets, supply chain issues, and the conflict in Ukraine. In closing, Our thoughts are with the people of Ukraine and our colleagues who have family and friends in the country. The United Nations estimates that more than 11 million people are displaced. To help those impacted, we've made a significant donation to Project HOPE to mobilize emergency teams and send medical supplies. The people of Ukraine have lost infrastructure that will take lifetimes to replace. When the war ends, it will only be the beginning of their struggle. I'll now turn the call over to Chris Cage.