Leidos Holdings, Inc.

Greetings and welcome to the LIDA's fourth quarter fiscal year 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please note this event is being recorded. I would now like to turn the conference over to Stuart Davis of Investor Relations. Stuart, you may begin.

Thank you, Operator, and good morning, everyone. I'd like to welcome you to our fourth quarter and fiscal year 2023 earnings conference call. Joining me today are Tom Bell, our 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're using today. 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. As shown on slide three, 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, let me turn the call over to Tom Bell. We'll begin on slide four.

Thank you, Stuart, and good morning, everyone. It's good to be with you today to report another strong quarter for Leidos and to put a bow on a very successful 2023. I'll frame my part of our conversation today in three parts. First, our 2023 results. Second, the progress we've made towards building a brighter future. And third, what you can expect from us this year. First, in our fourth quarter, we delivered 8% revenue growth for record quarterly revenue just shy of $4 billion. EBITDA margin was an outstanding 11.4%. And we grew non-GAAP diluted EPS at 9% year over year. Operating cash was also well ahead of plan. This means we delivered full year results that were above the high end of the guidance we set last quarter. For the full year, revenue growth was 7%. Non-GAAP diluted EPS growth was 11%. And operating cash flow growth was 17%. Consistent with my previous commitment to you about disciplined cash management, we repurchased more than $200 million worth of shares in the fourth quarter of 2023. I continue to be very impressed by the people and sound business engine we have here at Leidos. And I believe our top and bottom line financial performance over the last three quarters of 2023 just begins to hint at our full potential. Even while affecting our recent organizational realignment, the team ran through the tape to deliver an impressive 2023. I want to thank my leadership team and our 47,000 people who made these results possible through their hard work and dedication to both Leidos and our customers' missions. This brings me to my second point, the progress we've made towards building a better future We're already working well in our new capability-focused organization and seeing the first fruits from these changes. For example, we're sharing best practices much better across digital modernization programs for greater efficiency and efficacy. In commercial and international, we're quickly redeveloping our growth playbook, especially internationally, which we'll use to extend several of our business lines outside the United States. And we're aggregating and better leveraging our robust engineering talent across our platform businesses within defense systems. As we go through this year, we'll see many more ways this new organizational structure unlocks value. Chris will describe a few of the tangible financial benefits of this realignment on which we already have line of sight. But the team and I are acting quickly on two additional critical components to building for our future, reinvigorating our business capture prowess and ensuring we remain the best employer of top talent in the market. On the business capture front, we finished the year with a solid book-to-bill ratio of 1.1 times. As we focus on building quality backlog over time, this gives us a healthy $37 billion backlog $8.8 billion of which is funded. Still, I believe Leidos has another gear in terms of business capture, and my new chief growth officer has stepped up to his new responsibilities in this regard with vigor. He shares my passion for winning, and we are committed to delivering industry-leading win rates and above-market organic growth. My chief technology officer is aggressively focusing our total IRAD expenditures in select areas to ensure we always have differentiated solutions for our customers. And my HR lead is undertaking an intense effort to rebuild our entire employee value proposition so we remain the best employer in the market for the best talent. Cindy Gruensfelder joins Leidos to lead our defense system sector. She brings extensive aerospace and defense leadership expertise and is excited to take this part of our portfolio to the next level. And Dan Antle will rejoin Leidos as General Counsel in April, so he will be able to hit the ground sprinting with us. As a result of these and other changes I've made, 75% of my ELT is now new, in new positions, or have newly enhanced and more focused areas of responsibilities. The momentum is building, having the right people in the right positions rightly aligned. Not only is this team rightly aligned to the jobs they now perform, but I've recommended and the board has approved fundamental changes to our incentive compensation plans. This means our incentives are much better aligned to our shareholders' and customers' interests. These changes are fully laid out in our upcoming proxy statement, but big picture, you'll see simpler metrics around revenue, profit, and cash with increased emphasis on margin while retaining a heavy focus on relative TSR performance. This brings me to my third point, expectations for 2024. Chris will provide specifics on our 2024 financial commitments in a few minutes. Notably, our guidance fulfills the three-year commitments that were articulated on our previous investor day. We've already exceeded the margin target that we set in 2021, and this level serves as a great foundation from which to grow in the future. Our three-year cash conversion results ought to be right at that 100% target, which is the right level of performance for our business. And we have clear line of sight to our three-year revenue growth target. While it is important to me that we meet our prior commitments to you, I expect us to do better going forward. Our financial performance should be at or near the top of the industry. And to bring this improved profitable growth trajectory to life, 2024 will include deep strategic analysis within Leidos. Let me summarize this strategy process for you. Each new sector president will bring forward a best in class three to five year growth and profitability plan for their markets in a today forward view. And our growth and technology organizations will work together to create a proprietary hypothesis of the future, a future back look at customer challenges and needs for 2033 and 2028. We'll synthesize these today forward and future back views to identify market gaps and growth opportunities. And choosing among them will enable us to crystallize our new North Star. This process is being engineered to position Leidos to lead the industry in revenue, profit, and cash growth. And we look forward to sharing our plan with you at our next full investor day, likely early next year. In the meantime, this year, we'll look forward to opportunities to showcase for you many of the differentiated technology solutions, what I call golden bolts, we already use and are creating to solve our customers' most vexing problems. Finally, you may have already noticed the launch of a new branding campaign for Leidos this year, Making Smart Smarter. While we've gained important name recognition over our first 10 years, this campaign is about capturing brand recognition for Leidos. As you can see in the example on slide five, making smart smarter is centered around our people, how they and the breakthrough technologies they create in a unique ecosystem with our partners and customers truly set Leidos apart from everyone else. With these three simple words, we'll tell the story of the collective intelligence that is uniquely Leidos. Our campaign will catapult understanding of what Leidos does differently and better than anyone else, and also serve as a beacon for present and future best of the best employees. In closing, with a growing promises made, promises kept culture at Leidos, We've put many of the commitments I've made to you over the past nine months in the done category. We've exceeded our 2023 financial commitments. We've enhanced our focus on cost controls and cash generation. We've taken down leverage substantially. We've allocated more capital to shareholders, and we've moved expeditiously to a leaner, more focused organizational structure. By delivering on our 2024 plan, we'll soon put our full 2022 to 2024 investor day commitments in the done category also. But we are far from done. We have a busy and productive year ahead of us at Leidos. We will continue to drive toward great full profitable growth, not just revenue growth. We will aggregate our efforts toward better customer outcomes and better business pursuits. And the new leadership team and I will be working every day to make Leidos not just successful, but awesome in every way for every stakeholder. With that, I'll turn the call over to Chris for more details on our 2023 results and our 2024 outlooks.