Leidos Holdings, Inc.

Greetings. Welcome to LIDO's first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Please note, this conference is being recorded. At this time, I'll turn the conference over to Stuart Davis from Investor Relations. Stuart, you may begin.

Thank you, and good morning, everyone. I'd like to welcome you to our first quarter fiscal year 2025 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'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, includes 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 three, 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 Tom Bell. We'll begin on slide four.

Thank you, Stuart, and thank you all for joining us. Today I'm pleased to report a strong Q1 for Leidos, once again delivering above plan revenue, EBITDA, and EPS. In this excellent quarter for Leidos, Our organic revenue increased 7% year over year. Adjusted EBITDA margins improved again to 14.2%. And non-GAAP diluted earnings per share rose 30%. This strong start to 2025 builds on the significant momentum we built for our business during 2024. And we continue to push forward with optimism in our outlook. We are uniquely positioned in this environment to solve our customers' most vexing challenges by continuing to leverage our investments in and the application of cutting-edge technology. At the same time, as discussed on previous calls, 2025 was always envisioned to be a pivot year for us. As we lock in the gains from our hugely successful 2024, invest in further new business momentum based on our new North Star 2030 strategy, and actively get after the priorities of our nation's new administration. Given all this, I'm pleased to also announce on this call that we are reaffirming our full year 2025 guidance at this time. Since undertaking our year of deep strategic thinking last year, Evidence is everywhere that the future we predicted is racing toward us at pace. It manifests itself in the geopolitics we see around us, in the challenges our customers are expressing to us, and in the administration's rapid actions. So we're excited to be playing offense in 2025. Now in full implementation mode on our North Star 2030 strategy and leaning into the robust opportunities this environment is presenting. So let me share with you at a high level our North Star 2030 strategy, its growth pillars, and their alignment to the new administration's priorities. Last year, we introduced the Leidos brand promise, Making Smart Smarter. That brand promise summarizes in three short words the fact that everything we do, the core of our business model, is making customer outcomes smarter and more efficient. That's why we exist. And that's why we can confidently assert that Leidos is the digital mission and solutions leader, serving customers with smarter, more efficient innovations. Under that entablature, Our North Star 2030 strategy is supported by five growth pillars as shown on slide five. First, space and maritime, where we will be building off the franchises we have today and further programs in development to provide commercially based, rapidly integrated, disruptive hardware products in these two select critical domains to the U.S. military. Second, energy infrastructure. In this growth pillar, we will continue to scale our electrical utility business within Leidos, serving commercial customers nationwide, making our nation's electrical grid more resilient and more secure. And we do this through our core design, engineering, IT, and cyber capabilities, further enabled by cutting edge Leidos AI tools. Third, digital modernization and cyber. Here, we will continue to leverage proprietary innovative technologies to build repeatable offerings at scale to make our customers' IT infrastructures more efficient, effective, and secure. Fourth, highly customized critical mission software. Here, we turn our deep understanding of our customers' mission to translate vast amounts of customer data into actionable information. And we do this through best-in-class AI deployment, COTS integration, commercial development, and productionized software offerings. And fifth, managed health services. In this growth pillar, we will use our successful medical examination expertise our existing infrastructure, and our robust provider network to expand our health business to serve new populations and offer additional related services. These growth pillars have been carefully chosen as our analysis shows clearly that they are areas where customer needs and spending will continue to grow robustly. Leidos has a proven ability to perform cutting-edge profitable work and Leidos has clear differentiated technical capabilities that can be actively advanced. Our growth pillars are also squarely aligned with the priorities of our new administration, and we are sure they will remain national priorities well into the future. Our confidence is evidenced by recent executive orders and announcements, like the EOs on the electrical grid and maritime dominance. as well as orders calling for the modernization of federal technology and software. The President and the VA Secretary having been very vocal in advocating for faster, more comprehensive healthcare services for veterans. This administration's clear preference to work with firms that solve problems and get things done, not consultants that study problems and publish reports. This administration's drive to make the federal outcome smarter and more efficient through technology. And this administration's desire for commercial terms focused on outcomes. In short, our administration is driving toward federal outcomes that are better, faster, cheaper, right in Leidos' wheelhouse, and synonymous with our core business model of making customer outcomes smarter and more efficient. So we're now actively advancing our North Star 2030 strategy, the right strategy at the right time. We are confident that our business, our strategic investments, and our go-to-market engine are all aligned with the needs and pace of our customers. You can see our conviction in how we've allocated capital so far in 2025. We've taken advantage of the current market conditions to significantly speed up our planned 2025 share buyback program by executing a $500 million accelerated share repurchase agreement right out of the gate. This accomplishes the majority of our 2025 share buyback plans. And I'm very pleased to have signed a definitive agreement to acquire a leader in full spectrum cyber. our first acquisition in two and a half years, to accelerate one of our aforementioned North Star 2030 strategic growth pillars. Cyber has long been a core competency for Leidos. With the largest cyber operation across the federal government, we see firsthand every day the complex, destructive, and coercive actions from nation-state threats, threats our customers defeat with our help. So, With the cyber threat growing, customers' needs becoming more complex, proven LIDO success in the cyber market, and our tangible ability to double down on technical differentiation, full-spectrum cyber is a key piece of our five North Star 2030 growth pillars. We've also foreseen the cyber risk from AI adoption that creates even more vulnerabilities in attack surfaces for bad actors. Over the past five years, we've invested more than $75 million of our own R&D to develop patented technologies that change the cyber paradigm. Our pending acquisition brings additional exquisite cyber capabilities to strengthen our cyber growth pillar. Their expertise in vulnerability research, reverse engineering, exploit development, and the converging cyber electronic warfare markets are squarely in line with our cyber strategy. Our acquisition is focused on the DoD and the intelligence communities with deep roots in DARPA as well. This delivers to us a unique, additional, active, value-added role in the cutting-edge future of cybersecurity technologies for national security. Leidos will leverage this acquisition both directly for our customers and in support of enhanced, informed, and resilient defensive solutions across our own corporation. The acquisition will add to our deep pool of cyber talent and strengthen our competitive position in the $15 billion worth of pure cyber opportunities in our pipeline and even more across the related network and cloud pursuits. As this is the first acquisition under my watch, I want to make it clear that when I do deploy capital inorganically, this is precisely the kind of move you can expect us to make. focused technology-rich companies in the wheelhouse of one of our five growth pillars poised for rapid integration into Leidos with a strong value unlock formula. Another very positive sign for our new North Star strategy is the administration's willingness to collaborate with industry to drive better performance across government. I've sought out and secured more meetings with cabinet members and key administration executives in the last month than I was able to secure during the whole of the last administration. And we're seeing significant receptivity in those meetings to big ideas we are bringing forward. One of these big ideas is also one of the administration's highest priorities, establishing our nation's next generation air traffic control system. Air traffic management in the U.S. is highly fragmented with multiple outdated systems and technologies with an over-reliance on human intuition and intervention. We are deeply aligned with the FAA's mission. For years, we have invested millions of dollars to develop and deploy, both in the United States and overseas, essential capabilities for achieving optimal, cost-effective air traffic control outcomes. These investments are fueled by our comprehensive understanding of the complex environment, mission-critical requirements, and innovation needs, putting us in a great position to help transform the performance and safety of the U.S. air travel for decades to come. Additionally, our defense systems team is moving out quickly on one of the Pentagon's top priorities, building a next-generation multi-layer mission defense shield, or Golden Dome. From the moment that executive order was signed, we have been actively collaborating with key Golden Dome customers and stakeholders. With the administration's attention on the significance of the space domain for Golden Dome, Leidos stands very well positioned to contribute meaningfully to this mission. Our space-based sensing and tracking capabilities are deployed and in production for low Earth orbit missions across all trenches of the SDA's tracking layer. At the same time, we are working to expand our role within the broader proliferated warfighter space architecture. Golden Dome also requires an underlayer to defend against land and surface launch threats. such as cruise missiles and swarming drones, which can originate from virtually anywhere and strike with limited response time. Notably, we already lead the rapid production and deployment of the Army's latest air and missile defense capability, which plays a vital role in the defense of Guam, a strategic stronghold essential for deterring threats in the Pacific. And we are already getting interest in potential deployments to defend the continental United States and key infrastructure and installations within the U.S. While we expect greater specificity regarding the Golden Dome opportunity to be outlined in the President's 2026 budget request, early funding signals in both the space and underlayer domain are very encouraging, and again, supportive of our growth pillar. So in summary, I'm thrilled to be out of the blocks with a strong set of Q1 results. We're confirming our 2025 guidance. I'm excited to be in execution mode on 2030 strategy. We're very well positioned as this administration drives its agenda of making government outcomes smarter and more efficient. I hope you all can feel the productive sense of urgency with which we're approaching this exciting next chapter in our history. Today, more than ever, our mission is compelling, our strategy is clear, and our opportunities are growing. With that, I will turn the call over to Chris to walk through our results for the first quarter and our outlook for fiscal year 2025.