The paragraph is from a Leidos earnings call for the fourth quarter of fiscal year 2024. The call is hosted by Stuart Davis from Investor Relations, with CEO Tom Bell and CFO Chris Cage present. They provide a webcast of the discussion and access to relevant documents on the company's website. The focus is on forward-looking statements, potential risks, and financial measures, both GAAP and non-GAAP. Tom Bell expresses satisfaction with Leidos' strong performance, exceeding their 2021 three-year targets by achieving a 6.6% organic revenue growth CAGR, a 12.9% adjusted EBITDA margin, and a 100% free cash flow conversion rate.

The paragraph discusses Leidos' financial achievements and strategic plans. The company reached its target of $3.5 billion in operating cash flow, reduced its debt leverage ratio, and enhanced its financial flexibility. Despite a 25% drop in stock value, Leidos repurchased $400 million in shares, exceeding its 2024 commitment. The company appreciates its 48,000 employees for their contributions. It introduces a new growth strategy, "North Star 2030," focused on key pillars where customer demand and market profitability are rising, which aligns well with the new administration's priorities. This strategy, based on a decade-long projection of trends, will be detailed at the upcoming Investors Day.

The paragraph discusses Leidos's alignment with the new administration's priorities, emphasizing its role in enhancing government efficiency through IT modernization, transformational warfighting capabilities, and increased privatization. Leidos aims to make customer outcomes smarter and more efficient by leveraging innovation in response to national security challenges. The new administration's focus on eliminating regulations, streamlining procurement, and outcome-based contracting aligns with Leidos's mission. The company views government IT modernization as a critical step toward reducing costs and adopting enabling technologies, thus enhancing economic strength and efficiency.

The paragraph highlights Leidos' role as a leading IT software solutions provider for the federal government, focusing on their success in modernizing IT environments to improve efficiency and reduce costs. They have significantly enhanced the Social Security Administration's disability case processing and National 1-800 number systems, resulting in faster processing, reduced backlogs, and cost savings. Leidos also notes their ongoing efforts with the Defense Enclave Services program, having transitioned three defense agencies to a unified IT system, while planning to migrate 11 more agencies, which will enhance efficiency and reduce costs for the Department of Defense.

The paragraph discusses a company's efforts to develop advanced, cost-effective war-fighting capabilities for the Pentagon. They focus on rapidly transforming innovative ideas into market-ready solutions, particularly in maritime autonomy and unmanned systems. Achievements include developing a multi-mission unmanned undersea vessel and a small unmanned surface vehicle, Archer, within short timeframes. Additionally, they are advancing small cruise missiles with significant cost savings. These developments emphasize delivering affordable, efficient, and effective military capabilities to meet the demands of modern defense challenges.

The paragraph highlights the success of public-private partnerships led by Leidos, focusing on their collaboration with the Veterans Administration to improve healthcare delivery for veterans, including a significant increase in efficiency and quality of care. It also mentions their work with the Federal Aviation Administration, where they have modernized technology and saved over $2 billion. Leidos is recognized for its effective managed health services and is gearing up for future growth with the North Star 2030 strategy. In late 2024, they achieved record net bookings and a high book-to-bill ratio, indicating robust business growth.

In 2024, Leidos experienced significant growth and achieved an impressive backlog, driven by key contract wins in critical markets. Highlights include a multibillion-dollar contract with the VA for medical disability examinations, a $2.6 billion follow-on contract with the TSA for integrated logistics software, a $4.1 billion IDIQ for the IFPC Enduring Shield Air Defense System, and a $670 million task order for hypersonic weapon development. These successes underscore Leidos' ability to deliver and align with financial expectations while positioning the company for a promising future.

The paragraph discusses Leidos' commitment to innovative problem-solving and achieving outstanding customer results, particularly in alignment with the new administration's efficiency agenda. It highlights the company's North Star 2030 strategy and the development of initiatives aimed at enhancing government efficiency. Leidos is focused on acting quickly to seize opportunities in this new landscape. The company looks forward to its upcoming Investor Day and is confident in its track record and strategic vision. Chris Cage then takes over to discuss Leidos' recent accomplishments and the cultural transformation that has enabled consistent over-delivery of results.

In the fourth quarter, the company reported nearly $4.37 billion in revenue, reflecting a robust organic growth rate of 9.7%, partly due to an extra week in their financial calendar. For the full year, revenue grew 7.9% to $16.66 billion, exceeding their guidance. The company achieved an adjusted EBITDA of $508 million for the fourth quarter with a 20 basis point increase in margin year-over-year and $2.15 billion for the full year, reaching a margin of 12.9%. Margins improved due to a shift in their portfolio to 43% fixed-price contracts. Non-GAAP net income was $316 million for the quarter and $1.4 billion for the year, with non-GAAP diluted EPS growing 40% from 2023 to $10.21. Strong EBITDA generation and strategic capital deployment, which included lower share count and interest expenses, were key drivers of financial success.

The paragraph provides an overview of the company's segment results and key drivers for the quarter. National Security and digital revenue growth accelerated to 5.5%, with an operating income margin of 9.7%, while Health and Civil revenues grew 16.4% and maintained a strong non-GAAP operating margin of 21.6% due to high demand in managed health services. Commercial and international revenues rose 12.3%, with an operating margin decline to 7.9% due to product mix and growth investments. Defense Systems revenues increased 6.7% driven by new project wins, although the segment experienced a lower operating margin of 3.5% due to a write-off and investments in space architecture. Overall, the company shows confidence in future profitability through repeatable offerings and higher-margin growth areas.

The paragraph discusses the company's financial performance and outlook. In 2024, the company generated $1.39 billion in operating cash flow, with free cash flow increasing by 30% from 2023 to $1.24 billion. The company exceeded its share repurchase commitment and maintained strong shareholder returns through dividends and repurchases in the fourth quarter. They have a solid balance sheet with $943 million in cash and a leverage ratio of 2.2x. Credit ratings from S&P and Moody's reflect confidence in the company, with refinancing plans for a maturing bond. Looking forward, the company is optimistic about growth prospects with a strong pipeline and substantial proposals submitted, positioning them well against macroeconomic uncertainties.

The article outlines financial projections for 2025, expecting revenues between $16.9 million and $17.3 billion, with up to 4% growth over 2024. The guidance anticipates balanced revenue growth across segments, a shift from low-margin work, and an adjusted EBITDA margin in the mid- to high 12% range. The non-GAAP diluted EPS is projected between $10.35 and $10.75, with a tax rate of 23.5% to 24%. The company plans capital expenditures of about $230 million, or 1.3% of revenues, and operating cash flow of around $1.45 billion, allowing for investments and share repurchase activities similar to the previous year. During a Q&A segment, Thomas Bell noted disruptions due to the new administration and federal spending pauses but indicated they were minimal.

The paragraph discusses Leidos' readiness to navigate vehicle contracting disruptions and its strategic focus on border security and air defense systems like IRON DOME. Chris Cage mentions the company's portfolio evaluation to handle disruptions, while Thomas Bell highlights their capability to address requirements such as space surveillance and missile defense. Leidos is actively engaging with the government to propose innovative solutions for these areas, particularly following a request for information from the Space Development Agency.

The paragraph discusses the focus on border security by an administration and how it aligns with Leidos' expertise, particularly in providing equipment for airports, borders, and detecting low altitude UAVs. Leidos is optimistic about growth due to the administration's priorities, and is actively proposing better solutions for customer challenges, finding stakeholders receptive to their ideas. The conversation then shifts to Sheila Kahyaoglu from Jefferies asking a question about the company's Health segment growth, particularly concerning the Veterans Benefits Administration (VBA) recompete award. Thomas Bell responds by expressing excitement about the substantial award and confidence in delivering profitable results. A new entrant is involved in some regions, but the company has previously worked with this participant.

The paragraph discusses Leidos' confidence in executing its program plans for 2025 and 2026, while also focusing on its "North Star 2030" growth strategy, which is not solely reliant on expanding the medical exam business. Leidos is investing in areas with strong customer demand, robust profitability, and clear differentiation to achieve substantial top and bottom line growth. The emphasis is on innovation and efficiency to maintain a competitive edge, with the team preparing for future opportunities. Chris Cage highlights the importance of delivering high-quality outcomes and being ready to manage increased capacity, ensuring Leidos stays ahead in the market.

The paragraph features a conversation about Leidos's performance and future growth expectations. Gautam Khanna questions the company about its booking trends for the current year and growth projections for 2026 and beyond. Thomas Bell responds by highlighting the company's strong performance in the previous December quarter, noting a 1.7 book-to-bill ratio, and emphasizing the retooling of their business development team. Leidos has been incorporating AI into its processes to improve outcomes, and despite the retirement of their Chief Growth Officer, the company expects to maintain its performance. He also mentions that a continuing resolution is currently limiting the number of orders received immediately.

The paragraph discusses the company's optimism about future growth related to new contracts and orders as legislative packages progress. They are particularly excited about the potential long-term opportunities in 2024 through single-award IDIQs and on-contract growth. Chris Cage notes that the company's financial expectations are set, and they have a solid position for growth over the next four years due to ample cash and a strong balance sheet. During a discussion, Louie DiPalma inquires about MACH-TB 2.0, and Thomas Bell explains that they transitioned from being the prime contractor to a subcontractor, with Kratos now leading the program.

In the conversation, Thomas Bell discusses the company's ongoing collaboration with Kratos to develop capabilities that serve national interests, emphasizing the importance of this partnership. He avoids specifying how much of their work is under protest but clarifies that contracts under protest are not added to the backlog. Louie Dipalma inquires about the viability of the Enduring Shield IFPC system for domestic deployment, noting its potential in countering cruise missiles and drones. Bell confirms its applicability both domestically and internationally along borders needing protection from such threats.

Thomas Bell responds to a question from Colin Canfield about expectations for the FY '26 defense budget request. Bell expresses uncertainty regarding the exact budget outcome due to varying agendas but notes a general bipartisan consensus for increased defense spending. He emphasizes the importance of not only seeking new growth opportunities from potential budget increases but also finding savings within the current defense budget. Bell highlights the Defense Enclave Services as a means to enhance cybersecurity and resilience while generating savings that can be reinvested in advanced weaponry. The focus is on both top-line growth and cost savings that can be redirected for future weapon development. Bell anticipates having a clearer understanding of FY '26 and '27 expectations in about six months, while concentrating on their growth strategies.

The paragraph discusses a company's growth strategy and financial outlook. It mentions that their growth pillars are independent of top-line growth and are supported by increasing customer demand. Colin Canfield inquires about a potential 2-year budget deal for fiscal years 2026 and 2027, to which Thomas Bell responds there is discussion on Capitol Hill but no expectations set. Gavin Parsons from UBS asks about EBITDA and cash flow prospects with the upcoming VBA contract transition, and Chris Cage assures continued growth through innovation, efficiency, and robust growth pillars, forecasting through 2028. Scott Mikus from Melius Research inquires about the 2024 EPS of $10.21, noting financial impacts from a 2Q charge, U.K. business, and an asset write-down.

The paragraph discusses a company's financial guidance, indicating little underlying EPS growth. Chris Cage explains that while certain financial factors won't recur, it's important to manage portfolio variability and invest for future growth. He mentions potential interest and tax headwinds affecting EPS forecasts. Scott Mikus inquires about the impact of increased competition on a VBA contract due to a new administration interested in privatization. Thomas Bell responds that they aim to maintain and grow market share by delivering efficient and high-quality service to veterans, although decisions depend on the administration's appointees.

In the paragraph, Thomas Bell addresses a question about the challenges of achieving profitable growth in the face of new low-cost competitors. He acknowledges the presence of these new entrants but sees them as potential partners within the ecosystem rather than threats. Bell emphasizes that the company's growth strategy, known as North Star 2030, is focused on areas where they have unique and differentiated capabilities. This focus allows them to outpace competitors in those specific markets. He stresses that despite the new competition, they're confident in their abilities and remain open to partnerships to solve customer problems effectively.

In the paragraph, during a conference call, Joshua Korn from Barclays asks about the implications of Leidos' plan to shift away from low-margin work in the upcoming year. Thomas Bell from Leidos explains that the company intends to gradually reduce involvement in low-margin areas without abruptly exiting any current business commitments. Instead, Leidos will gently phase out certain work over time, particularly in areas where they cannot leverage their innovation and technology for substantial customer impact. Chris Cage adds that the shift will focus on areas where the company lacks technical differentiation, such as infrastructure support and large operations and maintenance jobs. Overall, the goal is to concentrate on projects that offer better growth prospects for both revenue and profits.

The paragraph is a discussion between Peter Arment, Thomas Bell, and Chris Cage regarding Leidos' approach to cost-plus versus fixed-price contracting. Thomas Bell expresses enthusiasm for outcome-based contracting, emphasizing Leidos' track record of reducing costs for customers while ensuring profitability for shareholders. The company is eager to expand its fixed-price mix, especially in the defense sector, by leveraging its technology and expertise. Chris Cage notes that while progress has been slower than desired, there are opportunities in areas like digital modernization and defense systems, such as IRON DOME, where fixed-price outcomes could be implemented. Leidos is investing in its program execution capabilities to support this shift.

The paragraph concludes a conference call, with the operator stating there are no further questions and handing it back to Stuart Davis for closing remarks. Stuart Davis thanks the operator and participants, expressing gratitude for their time and interest in Leidos, and anticipates future updates. The operator then closes the conference, thanking everyone for their participation.

This summary was generated with AI and may contain some inaccuracies.