Leidos Holdings, Inc.

session will follow the formal presentation. At this time, all participants are on the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Stuart Davis from Investillations. So with you may begin.

Thank you, and good morning, everyone. Joining me on today's earnings conference call are CEO Tom Bell and CFO Chris Cage. Today's call is being webcast on the investor relations portion of our website, where you can find the earnings press release and the presentation slides for today's call. As shown on slide two, our discussion today will contain forward-looking statements based on the environment as we currently see it, and thus includes risks and uncertainties. Our press release contains more information on the specific risk factors that could cause actual results to differ materially from anticipated results. Turning to slide three, we'll also discuss both GAAP and non-GAAP financial measures, and today's press release and presentation slides contain a reconciliation between the two. And now, let me turn the call over to Tom. We'll begin on slide four.

Thank you, Stuart, and welcome, everyone. Today, I'm pleased to report another excellent quarter of performance for Leidos, including top-line growth of 7%, adjusted EBITDA margin of 13.8%, an operating cash flow of $711 million. So far in 2025, we've grown revenue 5%, grown EBITDA 13%, and grown EPS 18%. These strong results enable us to raise guidance for 2025, marking our second guidance raise of the year. And we've been able to deliver these results despite the headwinds of Doge earlier in the year and the current government shutdown. Even through the dynamic market environment of 2025, we've been able to achieve improving strong performance. Regarding the current government shutdown, most of our programs have not been impacted. I see three primary reasons for this fact. Our programs are considered mission essential by our customer, they are funded, or they are beyond the scope of discretionary budgets. This, in turn, reflects our business's ongoing alignment to true enduring customer needs, current administration priorities, and our ability to thrive in a business environment that rewards outcome-based contracting. Our portfolio matches the moment. with solutions that speak directly to many top priorities. Golden Dome, air traffic control modernization, border security, service to veterans, maritime autonomy, et cetera. We have the products and services that match our nation's ongoing needs. And we are accelerating our business pace today, responding to our customers' desire to work with firms that invest in innovation, can deliver real outcomes quickly, have a proven track record of lowering costs, and know how to deliver on time and on cost. Our improved financial performance over the past two years has enabled us to turbocharge our investments in our Leidos Golden Bolts. We're accelerating our focus on creating new solutions to vexing problems in areas ranging from air travel to rural health. Our customers' missions have always been our central focus. The founding motivation for Leidos over a decade ago was to shed advisory work to focus on real mission performance. And with Leidos' expanded position in defense tech, we're focused on getting innovative solutions into the hands of warfighters in areas like counter UAS, low-cost cruise missiles, hypersonics, and autonomous maritime vessels. Leidos' core business model is to make our customers' outcomes smarter and more efficient. We're always working in every program to deploy technology to drive down costs for our customers. For example, this quarter we re-won a half-billion-dollar counterterrorism contract, a contract that had never been re-awarded to an incumbent, in large part because of our introduction of automation and ai to deliver smarter customer outcomes and we continue to demonstrate to our customers our ability to perform for them on outcome-based contracts an example about this about which we are very proud is our having delivered on time and under budget the very complex electronic health record system for the department of war This performance is a direct reflection of our commitment to a promises made, promises kept, culture in action. Our North Star 2030 strategy is now firmly in place and guiding all our actions. With growth pillars that tightly align to our customers' priorities, we are building momentum to drive accelerated growth through 2026 and into the future. As you will recall, our five North Star 2030 strategy growth pillars are space and maritime, energy infrastructure, digital modernization and cyber, mission software, and managed health services. On our past two quarterly earnings calls, I've highlighted elements of two of these pillars, cyber in Q1 and maritime in Q2. Today, I'd like to highlight our energy infrastructure growth pillar. For more than two decades, Leidos has provided world-class engineering services for commercial electric utilities. The services we provide typically involve the design and placement of high-power transmission lines, electric substations, and or electric distribution infrastructure. And over the past seven years, this business has grown by double-digit CAGRs while also delivering double-digit margins. It now represents more than $600 million worth of Leidos' annual revenues. As you will no doubt know, the United States is amid a sustained robust investment posture in its energy infrastructure. Electric utilities are aggressively expanding the grid to meet growing demand from electrification, reindustrialization, and data center growth. At the same time, they are also investing to improve the grid's reliability and resilience against extreme weather events. Following a record investment level in 2024, U.S. utilities plan to invest well over $1 trillion in this area over the next decade, and we are prepared to help. Leidos proprietary engineering and design tools arm our power engineers with the latest data and tools. This ensures they are always the most efficient and effective engineers in the market. One such tool our engineers use is our proprietary software product, Skywire, powered by Leidos Trusted Mission AI, that makes every step of the design process smarter, more efficient, and more effective for our customers. Simply put, Leidos' Skywire is an AI platform that revolutionizes the efficiency of distribution system engineering. Over the past 12 months, Skywire has been used to optimize some 18,000 projects for 25 major utilities. And we're now extending the use of this AI technology across the entire value chain transmission to create a smarter, safer, and more secure grid. Reduction of project costs enabled by Skywire of 30% is routine. And as we expand the use of these solutions across all of our programs, we're seeing powerful lift in our commercial success. We've increased revenue on more than half of our top accounts by some 50%. In addition to Leidos' AI Golden Bolt deployment in this market, we're also deploying other all-of-Leidos capabilities to the energy market. We're currently proving out the use of advanced analytics and drone fleets to provide real-time grid damage intelligence. Utilities spend billions annually on this need. And through our products and tools, we see opportunity to radically accelerate storm recovery for millions of Americans. We've helped a key customer in the energy sector successfully migrate their mission-critical software applications to the cloud, a longstanding core Leidos competency. And we're investing in deploying AI-assisted defensive cyber solutions to protect our customers' grids from cyber attacks. In addition, we're also on the cutting edge of helping our nation expand our power generation means. We're collaborating with small modular and micro reactor OEMs to prototype nuclear reactors for secure military grade sources of energy as our team leans into this exciting model for energy resilience in America. So the energy infrastructure pillar of North Star 2030 represents a focused, robust area of growth for Leidos. Our innovative technology offerings differentiate us in a rapidly growing market, and we see multiple channels by which we can grow this line of business for Leidos. Now, turning to other aspects of the business, on Golden Dome, the Department of War is finalizing that program's reference architecture. and is evaluating proposals for the $150 billion SHIELD IDIQ procurement. We're very much in the mix here, and we expect vigorous government re-engagement on this subject later this month. In the meantime, we're having healthy customer conversations about unique Leidos capabilities that could have a critical role in Golden Dome, such as interceptor modernization and advanced radar surveillance systems. On air traffic control modernization, the FAA is currently evaluating bids for the prime integrator role, which we no bid due to conflict of interest stipulations contained in that solicitation. Our focus remains where we see our greatest value add, perpetuation of our position in the development of key systems and technologies that are central to delivering our next generation air traffic control system. And at the same time, we continue to move out with the FAA to enhance the current system in ways that are aligned to their future blueprint. On airport security modernization, we, along with our TSA customer, are executing a pilot program at the Houston and Sacramento airports to demonstrate the viability and scalability for smarter, safer, and more efficient checkpoint operations. Our demonstrated approach includes digitized checkpoints, remote baggage screening, and cybersecurity hardening. And on border security, Customs and Border Protection is moving out quickly to bolster non-intrusive inspection at the border as provided for in the reconciliation law. We've received an order for 24 of our mobile vacuums systems that will deliver very quickly over the coming months. This progress in pace is reflected in our current bookings tempo. We had a 27% sequential increase in funded backlog, one of the largest in our history, which tells me that our customers are moving out to accomplish missions with pace. Also, as part of our 1.3 times book-to-bill ratio this quarter, We were awarded an extension to one of our core franchise programs to enhance and sustain the MHS Genesis electronic health record for the Department of War. We are expanding our contribution under a NASA contract to support the Artemis program and long duration space exploration. And we received a large award to modernize Kazakhstan's air traffic control system. using our SkylineX comprehensive air traffic management system. We're optimistic about our near-term growth prospects, given our $69 billion pipeline of near-term opportunities, which includes $24 billion of bids awaiting adjudication. Regarding capital deployment, this quarter we repurchased another $100 million worth of shares on the open market, and we accelerated payoff of 450 million on our term loan. We have also increased our quarterly dividend. This marks our third dividend increase in three years. Shareholders of record on December 15th will receive a dividend of 43 cents per share, a 7.5% increase over our past dividend. This speaks to our ongoing conviction regarding the earnings and cash generation potential of our business. In addition, given our sharp and strategic focus through our North Star 2030 strategy, I'm pleased that we recently completed the divestiture of VARIC, a non-core legacy energy asset. Acquired in 2006, the disposition of this asset will allow both Leidos and VARIC to advance their respective missions and best maximize long-term value. Our strong balance sheet position and powerful free cash flow gives us multiple pathways to continue to grow shareholder value. Consistent with our North Star 2030 strategy, we will continue to accelerate investments in our growth pillars while we also opportunistically return capital to shareholders. I'm very pleased that our ongoing 2025 strong performance allows us to, again, improve guidance, reaffirming our guidance on revenue and cash, while increasing our guidance on EBITDA and EPS. Now, before I pass the call over to Chris, I wanted to take a moment to give a special shout out to our 47,000-plus Leidosians that, in a year of profound challenges, have shown incredible resilience and focus. Their brilliance has been essential to our success. And the momentum we are building through this, our strategic pivot year, is a testament to their commitment to our customers and their missions. I am truly excited about what lies ahead for this team. So with that, over to you, Chris.