The paragraph details the opening of Leidos' First Quarter 2025 Earnings Conference Call, introduced by Stuart Davis from Investor Relations. Key participants include CEO Tom Bell and CFO Chris Cage. The presentation discusses forward-looking statements and risks, with references to GAAP and non-GAAP financial measures. Tom Bell reports a robust Q1 performance for Leidos, with revenues, EBITDA, and earnings per share exceeding expectations. Organic revenue increased by 7%, EBITDA margins improved to 14.2%, and non-GAAP diluted EPS rose by 30%. This positive outcome builds on the momentum from 2024, with optimistic prospects for the future.

The paragraph discusses the company's strategic positioning in addressing customer challenges by utilizing advanced technology and outlines plans for 2025 as a pivotal year. The company reaffirms its 2025 guidance and emphasizes its transition to the implementation of the NorthStar 2030 strategy, which aligns with the new administration's priorities. The strategy, supported by five growth pillars, aims to enhance customer outcomes by making them smarter and more efficient, emphasizing the company's role as a leader in digital missions and solutions.

The paragraph outlines Leidos' five key growth areas: space and maritime, energy infrastructure, digital modernization and cyber, critical mission software, and managed health services. These growth pillars aim to meet increasing customer demands and align with national priorities. Leidos plans to leverage its innovative technologies and expertise in AI, engineering, and IT to expand these areas, focusing on building disruptive hardware, enhancing the electrical grid, improving IT infrastructure, translating data into actionable insights, and expanding health services.

The paragraph highlights the administration's focus on improving federal outcomes through technology and efficient problem-solving, emphasizing collaboration with result-oriented firms. Leidos aligns its business, investments, and strategy, specifically its NorthStar 2030 plan, with these goals. The company has expedited its 2025 share buyback program by executing a $500 million agreement and acquired a leader in full spectrum cyber security, marking its first acquisition in two and a half years to bolster its growth strategy. Cyber security remains a key strength for Leidos.

The paragraph discusses Leidos' strategic focus on enhancing its cybersecurity capabilities as part of its growth strategy. It highlights the company's experience in dealing with nation-state cyber threats and its investment of over $75 million in R&D for patented cybersecurity technologies. Leidos is acquiring additional capabilities to strengthen its position in the cyber market, particularly with a focus on the Department of Defense and intelligence communities. This acquisition aims to boost Leidos' role in advancing cybersecurity technologies and expand their talent pool, enhancing their competitive edge in a $15 billion market. The acquisition is a strategic move reflecting the company's commitment to targeted investments for growth.

The paragraph discusses Leidos' strategic alignment with government priorities, highlighting its NorthStar strategy aimed at integrating technology-rich companies for growth. It underscores Leidos' collaboration with the U.S. administration on modernizing the air traffic control system and building the next-generation air traffic management infrastructure. Leidos emphasizes its investment in air traffic control capabilities both domestically and internationally. Additionally, the company is actively engaged in developing a next-generation multi-layer mission defense shield, referred to as the Golden Dome, aligning with the Pentagon's objectives and the strategic significance of the space domain for this mission. Overall, the company is positioned to play a crucial role in enhancing U.S. air travel and defense systems.

The paragraph discusses the company's advancements in space-based sensing and tracking capabilities, which are operational for low-earth orbit missions and deployed across the FDA's tracking layer. The company is also focusing on expanding its role in the broader warfighter space architecture and addressing land and surface launch threats like cruise missiles and drones. They currently lead air and missile defense projects, notably contributing to the defense of Guam. There is interest in extending these defenses to the continental U.S. and key infrastructure. Encouraging early funding signals for the Golden Dome project are noted, with more details expected in the President's 2026 budget request. The company is satisfied with its Q1 results and reaffirms its 2025 guidance, with confidence in executing its 2030 strategy as governmental efforts focus on smarter and more efficient outcomes. Lastly, the call will continue with a financial overview from Chris Cage.

The paragraph highlights a strong start to the year for the company, attributing success to the team's resilience and diverse portfolio. Despite a challenging macro-environment, the company delivered exceptional earnings, with three segments showing mid to high single-digit growth and commercial and international segments achieving double-digit growth for the second consecutive quarter. Revenues for the first quarter reached $4.25 billion, increasing 7% organically from the previous year. The company reported a 23% year-over-year increase in adjusted EBITDA to $601 million, with a margin improvement of 190 basis points to 14.2%. Non-GAAP net income was $391 million, and diluted EPS rose by 30% to $2.97. Segment-wise, national security and digital revenues grew by 5%, while health and civil revenues saw an 8% increase.

The paragraph discusses the company's robust performance, highlighting a strong demand in its managed health business, which significantly contributed to its revenue and income growth. Commercial and international revenues increased by 12% due to strong performance in various sectors, while defense systems revenues rose by 7%, driven by successful program execution. Non-GAAP operating margins improved year-over-year for both sectors. The company generated $58 million in operating cash flows and $36 million in free cash flow, with a stable DSO of 62 days. The first quarter of 2025 included an extra payroll week, and a new cash accounting policy was implemented, aligning with industry practices and enhancing cash flow predictability. The change had an immaterial impact, and 2024 financials were adjusted accordingly.

The company initiated three strategic financial moves to strengthen its balance sheet and advance its strategy. They issued $1 billion in notes to repay existing debt, executed a $500 million accelerated share repurchase, and agreed to acquire a company to enhance its cyber capabilities. Despite an increase in interest expenses, these actions are expected to improve earnings and strategic positioning. The company ended the quarter with $5.1 billion in debt, a gross leverage ratio of 2.3, and $842 million in cash, maintaining capacity for future capital deployment. Looking ahead, they plan to allocate capital by potentially paying down loans, repurchasing shares, or acquiring additional businesses. The leadership remains confident in serving essential customer needs, as demonstrated by strong Q1 performance despite market volatility.

The company is reaffirming its financial guidance for the year, expecting revenue between $16.9 billion and $17.3 billion, adjusted EBITDA in the mid to high 12% range, non-GAAP EPS between $10.35 and $10.75, and operating cash flow of about $1.45 billion. This excludes the impact of a pending cyber acquisition, which is expected to have little effect on 2025 financials. The company has updated its backlog policy to include single-award IDIQs for better investor visibility, leading to a backlog increase to $46.3 billion. Net bookings for the first quarter were $2.1 billion, and the company has a strong opportunity pipeline of $226 billion. Despite initial soft bookings, the company is optimistic about future awards, which are anticipated to impact revenue more in 2026 than 2025.

In the paragraph, Leidos executives discuss their revenue guidance and future outlook, highlighting a projected $120 million growth. They express optimism about their NorthStar 2030 strategy and invite questions from analysts. Peter Arment from Baird asks about the status and anticipated performance of Leidos' major contracts like NGEN, given recent cancellations by Navy leadership affecting other companies. Tom Bell responds, noting minor impacts to 2025 revenue but emphasizing negligible effects overall. He highlights opportunities in the Department of Defense, particularly in IT infrastructure modernization, suggesting more positive prospects than setbacks.

The paragraph discusses a conversation among Chris Cage, Peter Arment, and Joshua Korn regarding business operations and future contracts. Chris Cage mentions the backlog change that enhances visibility into their business and future revenue. He highlights recent and upcoming contract wins in the Health & Civil sector, including the VBA recompete and pending contracts for MHS Genesis and the Reserve Health Readiness program. Joshua Korn, substituting for David Strauss from Barclays, asks about their engagement with a GSA request, and Tom Bell confirms their active participation in discussions with the GSA to improve government efficiency.

The paragraph discusses the efforts to strengthen a relationship with the General Services Administration (GSA) through face-to-face meetings and active communication. The speaker emphasizes that their work is mission-critical and distinct from typical consulting, which constitutes less than 1% of their revenue. They focus on improving efficiency for GSA's customer agencies by utilizing smarter technology solutions. The paragraph also transitions to a conversation between Joshua Korn and Sheila Kahyaoglu, with Sheila asking about Leidos' involvement and opportunities in the VA Electronic Health Record modernization project, where Leidos collaborates with Oracle. Tom Bell acknowledges the question and its relevance to recent developments in the Veterans Affairs sector.

The paragraph discusses the company's focus on expanding its managed healthcare and services over the next five years, driven by demographic trends and government actions. They see growth opportunities in veteran services, reflected in increasing volumes at their clinics. They are optimistic about utilizing their capabilities to expand services for more customers. The company has a strong partnership with Oracle, particularly in military health, and aims to continue delivering excellence while exploring opportunities to expand offerings, including potential involvement in the VA's EHR rollout. Chris Cage notes that Q1 margins were excellent, indicating a strong start to the year.

The paragraph discusses the ongoing dialogue and developments related to the managed health services business and Tom's comments on sustaining and increasing activities to support veterans. It highlights the promising prospects due to the Supplemental Defense Bill, noting its potential benefits for Leidos, particularly in FAA modernization and border security. The Reconciliation Bill and FY 2026 budget outline opportunities for involvement with the Department of Transportation and Department of Homeland Security, aiming to address air traffic control and border security challenges. Additionally, there is significant interest and momentum around the Golden Dome initiative.

The paragraph discusses the strategic focus on the Golden Dome architecture to secure the United States, highlighting confidence in the company's five growth pillars chosen for future revenue growth by 2026. Chris Cage adds that there is strong demand for unmanned maritime capabilities, with active efforts to capitalize on these opportunities. Colin Canfield limits questions to one. Mariana Perez Mora from Bank of America raises a concern about potential funding limitations due to a prolonged continuing resolution into fiscal year 2026 and asks about the impact on the company's opportunities.

The paragraph involves a discussion between Tom Bell and others on the potential benefits of program extensions by the current administration. Tom Bell mentions that their company is well-positioned to benefit from the extension of existing programs, such as the IFPC program with the U.S. Army, rather than seeking new program starts. He highlights that these are existing franchises that have been invested in over the past five years. Additionally, Bell emphasizes that extending current programs is more feasible under a continuing resolution rather than initiating new ones. Following this discussion, the focus shifts to a question by Jason Gursky regarding issues with the FAA and air traffic control in the U.S., asking Tom Bell for insights on the challenges, necessary investments, and skill sets required to address these problems.

The paragraph discusses the efforts to modernize the U.S. air traffic control system, highlighting collaboration between the current administration, the Department of Transportation, and the FAA. It emphasizes the administration's openness to industry engagement and mentions high-level discussions about challenges and opportunities. The goal is to create a world-leading system as envisioned by President Trump, with existing programs already in place. Leidos, a key technology provider, is well-positioned to contribute to this modernization, both domestically and globally, with its experience in the UK and other countries. Success depends on determination and funding, which the administration and Congress are expected to provide.

In the paragraph, Tyler Barishaw, speaking for Tobey Sommer, inquires about the 12% growth in the Commercial & International segment and its sustainability. Chris Cage responds by attributing the growth to several factors: overcoming challenges in the UK, advancements in security solutions, growth in the ports and borders space, and continued growth in commercial energy. He expresses optimism about future prospects, including international opportunities like AUKUS. Tom Bell highlights the consistent double-digit growth and emphasizes the strong positioning of the Commercial & International sector for future success.

The paragraph features a discussion involving several business areas relevant to Leidos, specifically focusing on their alignment with AUKUS Pillar 2 needs and areas of growth such as energy infrastructure and security for ports, borders, and airports. It mentions the vulnerability of the U.S. critical infrastructure and the emphasis on energy and grid security as growth opportunities for Leidos. The conversation also highlights optimism regarding future growth driven by the current administration's priorities. Following this, Scott Mikus from Melius Research questions the reaffirmation of Leidos' guidance for 2024, despite higher-than-expected first-quarter results and possible conservative guidance due to changes from executive orders and DOGE (presumably referring to factors from the new administration).

The paragraph discusses a company's positive core business performance and strategic focus. Despite multiple quarters of improvement and strong performance across various sectors like national security and digital, the company is cautious about increasing its guidance. The strategy includes creating capacity to invest for the future, aligning with government priorities, and partnering with agencies like the GSA. The company is preparing for upcoming opportunities and re-competes but remains wary of changes in contract terms and risk associated with executive orders and cost focus. The discussion ends with an exchange between company executives and an analyst from RBC Capital Markets.

The paragraph discusses Leidos' current business outlook and pipeline, mentioning that they are awaiting decisions on $26 billion worth of contracts. They haven't yet observed customers changing commercial terms or adopting outcome-based contracting but expect this shift, especially following recent government communications about revising regulations. Leidos supports outcome-based contracting, emphasizing risk and reward sharing to improve customer outcomes efficiently. They're preparing to adapt to these changes and believe they will benefit from them. When asked about the possibility of a revenue decline in the next three years, Tom Bell acknowledges the unpredictability of the future but doesn't see a revenue drop as highly likely.

The paragraph discusses the growth strategy of NorthStar 2030, highlighting the identification of five key growth pillars aligned with customer needs and administration priorities. The company believes these pillars will lead to robust growth, leveraging their technical differentiation for competitive advantage. Even areas not selected for growth are expected to maintain their current trajectory. Over the next few years, the plan aims for increased revenue growth and sustained profitability, potentially outperforming peers. A subsequent exchange involves Gavin Parsons from UBS seeking clarification on the impact of new administration initiatives and a GSA contract review, with Chris Cage explaining that the related contracts have not been removed from the backlog despite some contract adjustments.

In the paragraph, the speakers discuss ongoing and future consulting efforts, particularly those involving the GSA, and the potential impacts on revenue and profitability. Tom Bell emphasizes that any revenue and profitability changes are already considered in the company's forward guidance for 2025. Gautam Khanna asks about the strong profitability in the Health & Civil sector during the quarter, with specific interest in the medical exams business and its future given potential headcount reductions at the VA. Chris Cage responds positively, noting strong performance across different sectors, including managed health and civilian areas like the FAA, highlighting effective program management as a key factor.

The paragraph discusses the performance and expectations for the Health & Civil and VBA segments, noting that while benefits have accrued, they don't expect these to continue indefinitely. The VBA business sees potential for sustained or increased volume without current bottlenecks. Investments in processes have enhanced throughput capacity. Gautam Khanna inquires about the EAC size, and Chris Cage indicates it will be available in an upcoming report. Colin Canfield asks about stock repurchase plans, specifically regarding a $500 million accelerated share repurchase program, to which Tom Bell responds positively, indicating they were able to start this quickly and suggests that the company's initial expectations for repurchase plans remain on track.

The paragraph discusses the strategy of a company regarding its capital deployment plans, including share repurchases and potential inorganic acquisitions, for the remainder of the year. It highlights a cautious approach in the near term due to a recent acquisition, but suggests that share repurchases may be reconsidered later in the year as more cash flow is generated. The company is open to other shareholder-friendly capital deployments and remains flexible regarding its financial strategies. Additionally, it mentions the possibility of small divestments of underperforming portfolio elements, while asserting that most of the portfolio is well-positioned for the current business environment. The overall emphasis is on strategic opportunism and flexibility in navigating market conditions.

The paragraph features a conversation during a conference call where Colin Canfield thanks the speaker for their insights, particularly about minor divestments and the company's strong position to serve customers. The operator then concludes the Q&A session and hands the call back to Stuart Davis. Stuart Davis expresses gratitude for the participants' time and interest in Leidos and looks forward to future updates. The operator then ends the call, thanking everyone for their participation.

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