Greetings and welcome to the Leidos Fourth Quarter and Full Year 2017 Earnings Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kelly Freeman, Director of Investor Relations Please go ahead.

Thank you, Rob, and good morning, everyone. I'd like to welcome you to our fourth quarter and full year 2017 earnings conference call. Joining me today are Roger Krone, our Chairman and CEO; Jim Reagan, our Chief Financial Officer; and other members of the Leidos management team. Today, we'll discuss our results for the quarter ending December 29, 2017. Roger will lead off the call with notable highlights from the year as well as comments on the market environment and our company's strategy. Jim will follow with a discussion of our financial performance and our guidance expectations. After these remarks from Roger and Jim, we'll open up the call for your questions. 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. Finally, during the call, we will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in the press release that we issued this morning and is also available in the presentation slides. The press release and the presentation as well as the supplementary financial information file are provided on the Investor Relations section of our website at ir.leidos.com. With that, I will turn the call over to Roger Krone.

Thank you, Kelly, and thank you, all, for joining us this morning for our fourth quarter and fiscal year 2017 earnings conference call. Leidos had another great year of performance in 2017 with many operational successes resulting in strong financial results. I want to start my commentary by thanking our employees for their dedication to the significant effort incurred to realize the potential of our transaction. Our employees were able to stay focused on delivering for our customers and finding new opportunities to grow the business while making the difficult decisions required to drive synergy and become leaner and more agile as an organization, as we exited the integration of the IS&GS Business. As a consequence of this activity, I am proud to report some of the more notable highlights of our 2017 results. Adjusted EBITDA margins increased by 145 bps from the prior year to 10.4%, driven in large part by delivering strong program performance and outperforming our cost synergy targets. Our commitment to delivering innovative solutions to our customers on time and on budget has been recognized and rewarded. We emerged from the integration with an even stronger culture, focused on agility and innovation. I'm especially pleased with how well the team has come together at all levels of the organization. At Leidos, we are building the going-forward culture of customer focus, delivery on commitments, and taking care of our people. We designed an organization that can offer our customers a wide portfolio of solutions to their toughest problems, from those requiring the leanest of cost structures to those requiring the most high end technical capabilities. This flexible approach positions us well to grow our business. We booked roughly $10 billion of new awards into backlog and continue to await decisions on another $24 billion of submitted proposals.…

Thank you, Roger, and thanks, everyone, for joining us on the call today. I'll start first with remarks on the impact of the Tax Act before providing thematic commentary around the numbers we released this morning. The reduction in the federal corporate rate resulting from the Tax Act does enable a reduction in our non-GAAP effective tax rate beginning in 2018, whereas previously, we have suggested a nominal tax rate in the mid to high 30s inclusive of state taxes, we're – we now expect our effective tax rate to be in the 23% to 24% range. Consistent with the intent of the Tax Act, we plan to invest some of these below-the-line savings to enhance the growth of our business. Specifically, we intend to increase our bid and proposal budget to better execute against our growing pipeline. As the investment within the company that generates the highest ROI and particularly with the improving win rates that Roger indicated, we believe that the returns here will be meaningful to the business. Additionally, beyond the reduction in the corporate tax rate, the act included several changes to other tax provisions. One of these allows for the immediate expensing of capital assets beginning in the fourth quarter of 2017, which accelerates the after-tax returns on such capital investments. With immediate expensing and lower rates, we now have a broader portfolio of investments that meet our acceptable threshold for ROIC. While most of our CapEx investments to-date have been facilities-related, we have always evaluated a select set of technology investments as well. We remain committed to our capital-light business model, but we now have some opportunities where increased CapEx investments will enable us to exploit our technical discriminators that we expect will ultimately generate higher returns. As such, we expect to increase capital…

Thank you. At this time, we will be conducting a question-and-answer session. To allow as many as possible to ask questions, please ask one primary question and one follow-up question. Our first question comes from line of Cai von Rumohr with Cowen and Company. Please proceed with your questions.

Yes. Thanks so much. Good quarter. So first on the bookings, this year I recall you don't have any of your top 10 contracts up for re-compete, so you should have a fairly light re-compete year, and with the bookings vigor you're seeing, are you seeing any reversal of the situation you had last year when you just – you get three to six months' extension so that we're really going to see this bow wave of potential awards come through?

Cai, by the way, thanks for the comment. That's what we're seeing and that's what we're thinking, okay? Now, where we sit today, we've got appropriations bills, but we're still facing an omnibus decision on the 23rd of March. Our assumption going forward is that we will get the specific budgets cleared up in the omnibus that will get passed on the 23rd. That will free up for the remainder of the fiscal year the acquisition and procurement process in both Defense and Civil, and we'll see a lot of programs, frankly, quite a few new starts, that have sort of been hung up in the continuous CR cycle brakeless (30:20).

Terrific. And based on your comments about the first quarter, would it be fair to assume that we should see a book-to-bill definitely above 1 in the first quarter and hopefully for the year?

We know – Cai, I appreciate the question and you kind of know the answer. We don't guide on it quarter-by-quarter. And let me just simply say and why I included those comments, we are pleased with what we have seen since the first of the year. We cleaned up a protest or two, which happened in 2017, frankly, in our favor and we've seen some nice awards already in January. And that's really as specific as I can be.

Thank you.

Our next question comes from the line of Ed Caso with Wells Fargo. Please proceed with your questions.

Hi. Good morning. It's actually Rick Eskelsen on for Ed. Question, if I can, on the revenue synergies that you've seen and expect to see from the IS&GS transaction. You've done an impressive job on the cost synergies side. And I know the revenue was always going to take longer, but what have you seen and how is that contributing to the higher win rate?

Hi. Good morning. This is Jim. Thanks for the question. The way we have defined revenue synergies in the past, and I think that the way you might recall us talking about it at Investor Day, is things that would not have shown up in the pipeline or significantly improved win rates on things that we compare to kind of the steady-state case before the acquisition. The numbers that we previewed then, we have actually done better than what that plan was. And in fact, earlier in 2017, I think that we did talk about a couple of significant contract awards that we had received in the DOD space that were not in the bid pipeline from either business. So things started popping up a little bit earlier than we expected and we're pleased with where revenue synergies have gone so far.

Thanks. And then just two numbers questions, if you can. Can you quantify what your win rates are now? You talked about them being better. Can you give us a sense of what they are? And can you also quantify how big that cost-plus revenue headwind that's going away was in 2017? Thank you.

Yeah. So we're not in the habit of disclosing what our win rates are, but we've analyzed this, as you might expect, in a whole number of different ways. And any way we've looked at it, we're very pleased with an improvement in the win rate compared to what it was at the time that we put the deal together. And that really we owe to two or three primary factors. First, the cost structure is significantly leaner than it was during the period leading up to closing the transaction. And then secondly, having some different business development processes – new business development processes and some new people involved, as you can imagine, it does take more than a couple of quarters for you to start to see the benefit of that. And now, we're seeing that in both the win rates that we're seeing as well as the size of the pipeline that we're executing against. And then, in terms of the revenue headwind, we talked about a $350 million cumulative annualized impact of cost synergies. And actually, the revenue headwind on an annual basis is a little bit over half of that $350 million.

Thank you very much.

Sure.

The next question comes from the line of Noah Poponak with Goldman Sachs. Please proceed with your questions. Noah Poponak - Goldman Sachs & Co. LLC: Hey. Good morning, everyone.

Good morning, Noah.

Hey, good morning. Noah Poponak - Goldman Sachs & Co. LLC: Hey, just to follow-up on that revenue impact from less cost-plus revenue from the cost synergies. The half of the $350 million, on an annualized basis, did that mostly come in the fourth quarter because I just don't remember you guys talking about that before? And then also, did I hear you correctly that there was also, as a totally separate item, just some contract timing slippage out of the fourth quarter?

The first question, Noah, the impact on that roughly 1/2 of $350 million, that actually had been felt throughout the year. We hadn't been talking about it primarily because when we stepped back and took a look at our analysis of the year-over-year for the full year, it was clearly something we couldn't ignore and we wanted to get it to you guys.

And Noah, of course, that headwind is completely aligned with the rate of cost savings. Because we got off the TSA agreement in October because of the great work that our CAO and Jim and his team has done on our supplier management system and our accounting system, some of those cost reduction synergy benefits did occur in the second half of 2017 as we have talked about in our call. Noah Poponak - Goldman Sachs & Co. LLC: Okay. And was there also additionally a slippage of anything? It sounded like you're alluding to that in your prepared remarks. Just wanted to understand how big that was if that happened.

There was a little bit. I think that when we think about – I mean, overall, I think we felt pretty good about the Q4 bookings number compared to a typical Q4. We would have expected a little bit less, but we were able to pull some things in, actually, in the last month of the quarter. So we felt pretty good about that. The other thing that's probably notable relative to bookings, one thing that was a bit of a headwind for us in the full year number is that the amount of backlog that we had to adjust because of the change in rates. Because customers were going to take the savings that we were offering them on contracts in place, it required us to take that adjustment against the gross bookings number for the year. And when we look at the gross bookings number, new contract awards, we feel pretty good about that and it gives us some good momentum going into 2018. Noah Poponak - Goldman Sachs & Co. LLC: Okay. And then just last thing, Jim, on working capital, am I hearing you correctly that you're saying you – in your 2018 cash flow outlook, you're embedding a total working capital headwind year-over-year. Is that correct?

Yeah. And really, the headwind isn't DSO-focused as much it is that – with our view right now, the visibility we have in our revenue picture says that we're going to have year-over-year growth and sequential growth in the back end of the year. When you hold DSO constant, it does require you to put some of your cash into accounts receivable. And that's where that kind of headwind comes from. Noah Poponak - Goldman Sachs & Co. LLC: Do you not have the large tailwind from the reversal of the bill that was specific to the novation process from the IS&GS integration?

That's a great question, but we really saw that in Q3 and Q4. So if you take a look at where cash flow has been in 2017, the back end was a little bit stronger than we have previously indicated and guided, and that came from the novation process playing out. Noah Poponak - Goldman Sachs & Co. LLC: Okay. Okay, thanks very much guys.

Right. Thank you.

Our next question comes from the line of Jon Raviv with Citigroup. Please proceed with your questions.

Hey, good morning, everyone.

Good morning.

Roger, could you add a little more perspective on what you mentioned in terms of the potential to accelerate growth in the out years, just give us a sense for what you might be seeing? And then how does that interact with the long-term margin target which we're already running above? I guess, at the end of the day, the question is, do you see earnings growth coming mostly from sales or margin or both going forward?

Okay. Good. A couple of great questions, and as we have tried to say in the past few calls, those things are completely intertwined, right? And you all often ask, from an investment standpoint, which would we prefer? And I think our answer has consistently been, as it was on Investor Day, is that we want to operate that business in double-digit margins and we were fortunate that we achieved that, frankly, earlier than we had predicted in August of 2016. And I think we had been actually pretty clear that once we got there, that we would try to maintain that margin rate, plus or minus quarter to quarter, but we would take funds and use it to invest in growth. And quarter-by-quarter, we'll be a little high, a little low. We want to continue, as I think I said in my prepared comments, in that low-double digit, but we want to invest in technology new business funds, capital where it's appropriate and it fuels our competitiveness in programs going forward. Coming back to sort of the budget and the tailwind that we see, our early read of the appropriations bill and what we've seen already in the 2019, if you will, skinny budgets that are out and being analyzed is, there is a nice balance between capital acquisition of our customers and improvement in solutions and services. So, on one hand, we have a customer who needs to buy platforms, ships and tanks, and airplanes, but they also have mission-capable rates and readiness and soldier welfare, for instance, that have also become important, and we actually think we benefit from both, but we're very pleased that we see additional money for the VA, for instance, which we think will allow them to move forward more aggressively on their…

Got it. Thanks for that comprehensive answer. I'll hop back in the queue and give some other folks the change.

Okay. Great. Thanks, Jon.

Our next question comes from the line of Krishna Sinha with Vertical Research. Please proceed with your questions.

Hi. Thanks for taking the questions. So, just a quick housekeeping one. I don't know if you mentioned this in the prepared remarks, but what was the increase in corporate expense in the quarter?

The increase – well, we had a pretty significant – I'm not sure which one you're talking about, but there was a pretty significant increase in the corporate numbers related to – we took an impairment charge on a note receivable. That was primarily because of the underlying collateral related to that has been impaired. So we needed to take that charge and that's related to some assets that we disposed of a couple of years ago.

Okay.

That was the single biggest driver there.

Okay. And then just to elaborate on your earlier comments around the DSOs, obviously they're lumpy, so I don't expect much clarity on just individual quarters, but you have talked about an ability to reduce the DSOs by, I think, something like five to seven days to get it back down into the low 60s. Is that still the goal and can you outline a timeline for that?

Yeah. So our goal is always to continue to extract and get non-cash working capital off the balance sheet as a result of improving our billing processes, and today we've cut over to a single billing platform that we run the whole business on and it's one that our customers are very familiar with. I would say that we aspire to numbers that are significant improvements over even what we've guided to, but at this point, the number that we're guiding to is the one that we are confident as being pretty solid in terms of where DSO is going to the end of the year. The way I think that we look to be able to continue driving that better into the future is coming up and actually putting all of our major programs on singular billing processes that, as we look to how it was being done in the legacy IS&GS Business, they were really done program-by-program. They were all done differently. And we have, I think, a significant opportunity to both improve the speed at which we get bills out and therefore get them collected and also the cost at which we do those billing processes. So I think that the answer is I think that there is opportunity. It's just a question of when.

Okay. And then one final one. You talked about $24 billion in proposals awaiting decision. I guess one question there is does that include any factored VA contract or even the NGEN contract that I know you announced your team for recently? And then just a broader question. There are some sizable contract opportunities out there. It sounds like the government is consolidating contracts to have larger contracts. I know GD certainly cited that as a reason to buy CSRA. So can you just talk about what you're seeing in terms of government prioritization on making contracts larger and awarding them to larger fed IT companies such as yourself?

Let me take part of that and I'll give part of that to Jim. By the way, a lot of questions in there. First of all, is the Navy Next-Gen or the VA EHR/EMR in the $24 billion? Neither of those programs have gone to the bid stage, so they wouldn't be in what we track as our submits. They are in our pipeline. They only go too far off into pipeline discussions, but we have obviously a pipeline that we maintain of prospective bids and our pipeline number is significantly larger than the $24 billion. And then you had sort of a general question about do we see customers opting for larger companies? Are they aggregating more? First, let me say I don't think the trend is significantly different than it has been in the past and I think all customers kind of go through a cycle. If they start out and maybe go with smaller contractors, they find the administration cost of that can be expensive. We in the lifecycle of any kind of a technology with a customer at some point they do start aggregating contracts because it's simpler for them to execute. But at any – one of our customers, any one of our – those agencies within the customers, we see all kinds of behaviors. We do see some contracts being consolidated and they do look for larger firms to compete against those. But many of the customers are looking for innovation and they write smaller contracts and they could take more risk with those. And I think it's important for a company like Leidos at our size to be able to, yes indeed, compete on the large programs and have the people and the cost structure to do that, but also to invest in R&D and innovation, and to do things like watching an information assurance and artificial intelligence and machine learning, all those kind of things, they will be the large programs in the future. And our thesis is that we can provide a broader spectrum of solutions to our customers with a company the size of Leidos. And, Jim, do you want to add...?

Yeah. Just the only other thing I think is worth adding to that, Krishna, is that while many contracts are getting larger, there is an increasing tendency, and we talked about this before, toward moving away from the big, full and open contracts to IDIQ-type contracts that allow the procurement process to be on the government side and quite honestly, with the contractors, more efficient. And what that means for us is that we will participate in a big IDIQ or even a single award IDIQ and then we get task orders that we add to backlog as the task orders are received rather than putting a big contract value into backlog.

Our next question is from the line of Rob Spingarn with Credit Suisse. Please proceed with your questions. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Good morning.

Good morning.

Hey, Rob. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: So, Roger, on the back of that, consolidation was brought up. What do you make of the latest consolidation efforts in the industry and the fact that there will now be two of you roughly the same size out there?

Yeah. Let's see, Rob. Not surprised, right. I think we have been pretty transparent all along that we expected further consolidation in the industry. We have always said – you say there are two of us our size, and I think we have tried to indicate – depending upon how you define the industry, there are already big players. There's AECOM and IBM and DXC. And so there's – depending upon where we're bidding, we see big companies and small companies. Our deal thesis as we put forward was there are benefits to being bigger, the investments you can make, the strength of your balance sheet, and what we view the latest consolidations is other people must believe that as well. And as I think we've said on prior calls, Rob, we don't think it's over, right. I think there's opportunity for more consolidation because of the value capture, the synergies we're able to create when you put two smaller entities together. Not to be said there won't be some very strong players who are, if you will, more nichey, who decide that being at $5 billion, for instance, is where they want to be and then that's fine with them. We look at the market differently. We made a different choice. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Okay. And then, just on the – maybe this is for Jim, but on the revenue guide, looks like about 1% to 5%, depending on how things play out, what are the major swing factors there? And is that growth concentrated in one business segment or another? How do we think about it that way?

Yeah. So, Rob, we're kind of trying to avoid being in the business of guiding these kind of numbers to specific segments. I would tell you that it is broad based across all of our business segments. And there really isn't any single big contract award upon which that revenue guide sits. I think that we're confident that the number will be consistent with our guidance that's based on what our win rate trends have been and what's the size of the pipeline is against which we're executing, and the size of bids that are in evaluation with customers today. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Is it fair to say that you expect the legacy Leidos businesses to start to reaccelerate along with IS&GS, which I think was the growth engine in 2017?

Today, they're so fully integrated that we don't even analyze and think about there being a legacy Leidos win rate or a legacy Leidos book-to-bill and a legacy IS&GS book-to-bill. The systems are managed on one accounting system and one business development system, and we have stopped looking at the business that way. I do think that when – without looking at the numbers that way, I would say that the whole business is performing with the same kind of strength as opposed to thinking about it as legacy Leidos or legacy IS&GS. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Okay. Okay, thank you.

Thanks, Rob.

Thanks, Rob.

The next question is from the line of Greg Konrad with Jefferies. Please proceed with your questions.

Good morning. I just wanted to come at the revenue synergy question in a different way. I mean when we look at that $24 billion bid pipeline outstanding, is there any way to quantify maybe how many of those opportunities you wouldn't have been able to bid on prior versus as the merger happened that you're able to bid on today?

Not with any kind of precision to be honest with you, Greg. What we can tell you, though, is that there are things that show up when Roger and I do a bid review that we can point to as saying, okay, well, this wouldn't have been something we could be executing on had it not been for either technical capabilities that we acquired in the deal or customer intimacy that we acquired in the deal. And we're confident that the numbers are consistent with – or better than the numbers we previewed you before.

Thanks. And then just a follow-up on the cash flow number. I mean it includes $75 million cash impact of transaction and integration costs. Just to clarify, I mean, so do those costs complete in 2018? And is there kind of any update to maybe the synergy potential versus the $350 million that you said you generated in 2017?

Yeah. Just to make sure that, for the benefit of clarity, the number we've previewed for 2018 does include a roughly $25 million cost relative to resolution of a matter on purchase price adjustment with Lockheed Martin and we took that to the P&L because it was outside of the one-year purchase accounting window. So, that's really 1/3 of the $75 million that you see there. There is a small amount of trailing costs that we're expecting in 2019 that is not related to systems or other integration things. It really has to do with consolidation of our real estate footprint, which is expected to end in 2019.

And just on the synergy number, I mean are any of those synergy-producing when we think about kind of the $350 million that you ended 2017 at?

Yeah. Of the $50 million, they definitely are associated with producing not just the $350 million, but we've indicated that the run rate will go up to $400 million, and to close on that, we do have some remaining acquisition and synergy-related investments that we have to make. That's the $50 million that relates to closing up the systems migration, there's been a significant amount of cost in the first quarter on that, and then there's also some significant investment in severance and other similar costs.

Thank you.

Thanks.

Thank you. We have time for one additional question this morning. It's coming from the line of Brian Ruttenbur with Drexel Hamilton.

Yeah. Thank you very much. Just a couple of quick housekeeping questions. So IS&GS, it is done in the first half. We shouldn't see any additional charges beyond that. Is that correct? Is that what you mean?

You mean additional charges related to the acquisition? I mean...

Right.

...other than what we've previewed.

That's right.

Yes, that's correct.

Okay. And so you're 80% done right now just as – or 90% in your opinion?

Yeah. I mean when we think about the percentage of costs that we're expecting to incur relative to acquisition and integration costs, that's a fair estimate.

Okay. And then a couple other little housekeeping. The share count that you've assumed for 2018, have you assumed any buyback in that or any of your projection in terms of interest or cash flows?

Our guidance assumes that the buyback at this point will take care of any kind of additional share issuances in connection with our employee benefit programs.

Okay. So you basically assume just flattish going forward. So if you make a big purchase, that should be accretive to your guidance or move guidance from the lower to the higher?

That is true.

Okay. Great. Thank you very much.

All right. Thank you.

Thank you. I now turn the floor back to Kelly Freeman for closing remarks.

Thanks, Rob, and thank you, all, for your participation in the call today. Have a good day.