Greetings. Welcome to Leidos’ Third Quarter 2024 Earnings Call. At this time, all participants are in 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 call 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 third quarter fiscal year 2024 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 will also find the earnings release and supplemental financial presentation slides that we'll use during today's call. Turning to Slide 2 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 3, 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, who'll begin on Slide 4.

Thank you, Stuart, and good morning, everyone. As always, it's great to be with you all again today. This morning, I'm very happy to report our sixth straight quarter of excellent financial performance and I'm also very proud of the fact that the team has delivered high quality wins across the entire Leidos portfolio. As a result of this strong sustained financial performance, our growing business capture momentum and our increased clarity into important Leidos markets, we are again raising our forward guidance for 2024 across all metrics. Chris will provide full details regarding our outstanding financial performance and our improved 2024 guidance later on this call. This quarter's solid organic growth and industry leading margins enabled us to deliver substantial earnings growth and free cash flow. With record adjusted EBITDA margin of 14.2%, we've now achieved 12.9% EBITDA over the trailing 12 months. This excellent execution performance is the result of our robust portfolio of programs serving customer priority missions, our investments to drive efficiency and the team's embrace of a promises made, promises kept philosophy throughout our capability based organization. Our performance in this quarter reflects adjusted diluted EPS growth of 44% and free cash flow conversion of 159%. Our outstanding cash collections this quarter also enabled us to accelerate share repurchases. We purchased $200 million worth of shares on the open market, thereby clearing $450 million of our $500 million planned share repurchases for the year. As a result of our sustained performance and our conviction regarding our portfolio's ongoing earnings and cash profile, we have again increased our quarterly dividend. Shareholders of record on December 16 will receive a dividend of $0.40 a share, a 5.3% increase over our past dividend. The balance sheet strengthening we've undertaken over the past 18 months gives us excellent optionality.…

Thanks, Tom, and thanks to everyone for joining us today. Our third quarter results again showcase what is possible, as we lower performance risk focused on high-quality wins and drive efficiency through the organization. This team is laser focused on sustainably growing earnings and cash and then deploying them responsibly to grow shareholder value. Turning to the income statement on Slide 5. Revenues for the third quarter were $4.19 billion, up 7% year-over-year. Customer demand remains robust and employee retention remains historically high. Margin performance was once again a standout in the quarter. Adjusted EBITDA of $596 million was up 32% year-over-year and adjusted EBITDA margin increased 270 basis points to 14.2%, a new high watermark for Leidos. Program level execution was one catalyst for margin performance. EAC adjustments were a $30 million net positive, our best performance in nearly four years. Non-GAAP net income was $396 million and non-GAAP diluted EPS was $2.93 of 40% and 44%, respectively. On a year-over-year basis, our slightly higher tax rate in the quarter fully offset our slightly lower diluted share count and net interest expense. Looking at the non-GAAP reconciliation tables in the press release and presentation appendix, you'll see $6 million of GAAP impairment charges from exiting and consolidating underutilized lease basis and we expect another $15 million or so of charges associated with additional actions over the next five quarters. We're closely managing our corporate costs and lowering our real estate footprint improves our competitiveness and keeps corporate costs in check. The annualized savings from these actions will be in the neighborhood of $25 million to $30 million, which we'll see the full benefit of in 2026. Turning to the segment view on Slide 6. National Security and Digital revenues increased 1% year-over-year. We saw volumes grow broadly across our…

[Operator Instructions] Our first question coming from the line of Peter Arment with Baird.

Maybe just to highlight the -- you talked about $700 million plus in new takeaways and full spectrum cyber, it's super impressive. Obviously, you guys are really -- company's doing well on so many fronts. But maybe you could just talk about more color there and where this -- where we expect to see this kind of flow through the new takeaways?

Yes, we're very excited about the National Security and Digital segment. As I think about that segment and Leidos, it really is the core of the core of the core of what Leidos has always been and has always done extremely well. And we've got a fantastic history in that segment of winning big franchise programs, multibillion-dollar franchise programs. And so we like that business. We've put a leadership team in that business that we trust. And you're already starting to see in this third quarter, the beginning of us getting our chutzpah back in our winning ways in that business. So very excited about that, and we look forward to more conversations about cyber wins going forward. At the same time, cyber has been one of the golden bolts that we've been investing in as a core competency of Leidos for our whole history. And so not only are we very proud of the team that's leveraging our cyber chops for cyber wins, especially for our very, very important in the intelligence community customer. But we're also very proud of the fact that our cyber capabilities and our zero trust gravitas is frequently commented on by customers as a reason we win in other markets also. So we're very proud of the return on investment we're getting in our cyber security business and as an underlying capability of everything Leidos does. Obviously, these are customers where we can't really say too much more than we already have about where we win and what those programs are, but we're very excited about it and we're very, very committed to expanding our capability to help our government be the smartest government on the face of the earth.

Yes, Peter, obviously, [ Aegon ] was certainly something that fits into that arena, but as Tom talks about a lot of classified work there that we can't get too much color on. But clearly, the team has been focused on differentiation and the investments that we've been making and we'll continue to make really positions us well to grow that area of the business more robustly as we head into '25 and beyond.

And our next question coming from the line of Sheila Kahyaoglu with Jefferies.

Thanks for the script as well, Tom that was super helpful honing in on one segment. So I'm going to ask about Health & Civil, of course. So maybe if we could talk about where you are, just given the significant growth with the VA funding? There can it -- it seems like it's still outstanding from my understanding, but if you could give us some timing on that and how you're thinking about positioning there and potential risks and how we should think about Health & Civil EBIT as we head into next year?

Yes. So as I tried to highlight in my prepared remarks, we've had a fantastic third quarter in our Health & Civil business. And before I get into managed health services, I want to, again, broadly overview the fact that, that business is much more than just back. We serve a variety of customers, everything from NASA and making sure that the logistics to the space station are maintained. We do critical work for our customers at the National Institute of Health and the National Science Foundation. We do exams for the FBI, the secret service and the Department of Labor. So it really is a broad segment of our business and it's a business that is outperforming in all of those facets. On the VA and on the VBA since I appreciate the fact that, that's your question. We had a great quarter that helped us clear the air. Kind of the fog of war has been lifted and now we see our way through for not only the next year or two, but much longer into the future. As I mentioned, the customer has currently extended the current contract we have them with the option year that they had. We expect them to formally contract for the next two years, along essentially the same terms as the business we have today. We're very confident in the fact that we'll be able to maintain our volume, our throughput and our profitability of that business over that contract. And as I suggested in my prepared remarks, Sheila, we also are very excited about what the VBA is setting up for the terms of the next competition. It incents innovation, it incents technology. And when you talk about critical customer missions with deep technology needs, you're talking Leidos. So we're very excited about that business. We're currently continuing to invest in it. We're making sure we don't wait for the RFP to innovate and bring even more efficient and effective solutions forward for our customers. And so we're very bullish on the long-term business we're in for Health & Civil. And in fact, spoil alert, when you come to March, you'll see that growing this business is a core of our growth strategy going forward. So far from us seeing it as a business that is sun setting or at its apex, we see it as only a business that's just begun to be a growth engine for Leidos. Chris, do you have anything you'd like to add?

A couple of additional points, Sheila. Clearly, again, our third quarter performance, part of that was the incentives related to doing great work with high customer satisfaction, with differentiation. Those are the things that will compel us to be a prominent provider in this space for the foreseeable future. The other thing that you might have seen, it's not done yet. We don't count our chickens, but the customer and the military health side put out a justification authorization to extend our current work on the DHMSM program for an additional three years. That would -- should hopefully sort itself out middle of next year. But that's another strong indication of where customers really want to see the value that Leidos brings and they want to continue that relationship with us. Now as it relates to looking ahead to 2025, that's what we gave our color commentary. This business has outperformed everybody's expectations for this year. Health & Civil has had a fantastic year. Our goal in the near-term is to sustain that level of performance and that's what gives us confidence in our ability to keep margins solidly in the 12% range for the corporation. Growing off of that base will be an area of focus certainly for the intermediate to longer term horizon and we're very confident we'll be able to do that.

Your next question coming from the line of Tobey Sommer with Truist Securities.

I wonder if you could give us an update on a smallish program that we haven't talked about on these calls in a while. Sort of your capabilities for unclassified data collection in the BuckEye program and others. I'm curious what the utilization of those company-owned assets is like and what the prospects for growth is like?

Yes, so BuckEye continues to be a very strong business within our Defense segment, where the assets we have deployed for that mission are I'll call it, fully utilized and we're sweating the assets very well. And in fact, expansions of those missions are part of what we're using some of the capital we have in this fourth quarter for down payments for further growth in the coming years. Personally, I expect that sometime in the next decade or two, manned ISR assets are probably going to be replaced by other capabilities. But in the here and now, these are critical capabilities that our war fighters rely on and we're proud to serve very specific focused niche of those customer capabilities that they need and want. So BuckEye and other programs like it remain a part of Cindy's business and it's a part of the business we're very happy with.

And Tobey, I'd just add, I mean, to Tom's point, we're seeing, even though there's been some programs that we haven't won, we actually are still a strong provider in the ecosystem of airborne ISR support to our customer missions. And to Tom's point, we'll continue to see select opportunities to increase investment. Those are high return on investment types of plays when we make them and so we'll look for those when they make sense.

And our next question coming from the line of Mariana Perez Mora with Bank of America.

So Chris, you said you're not ready to talk about FY'25, but you mentioned the low-single-digit growth. And as you mentioned, DHMSM or MHS GENESIS is already expected to be extended, so that side the risk. Then I see a lot of opportunities coming from August. And at USA, everyone was really enthusiastic about the defense portfolio actually getting some traction, missile, ammunitions, counter missile, hypersonics, all those things. What are the areas that are actually not growing or that you are conservative going into next year to actually think it's going to be the transition year in terms of growth?

You're right, there are a number of things across the portfolio that we're very excited about. But what we've also learned is some of those things take a longer gestation period to manifest themselves like we're seeing in the defense systems business today. Growth has been nice and a good upward momentum, but it took some time to get there. As we look ahead to 25, we do like our position. We feel really good about how the company is stacking up. But clearly, Health & Civil off of this substantially elevated level of performance is going to be in a more muted growth posture in the near-term, accelerating away. We did talk about some of the wins in national security and digital, we see growth momentum accelerating there. But you look at the backdrop, we're clearly in an election year. There is a risk of potential of there's an extended CR and some disruption. We've seen that play out in the past. So as we see the landscape here today, we're going to be cautious about those things. And if we get more clarity in the several months ahead, we'll be in a better position to refine that point of view going into the early part of next year.

Mariana, I might add, I really appreciate your enthusiasm for the business, too, and optimism. I share it. I think there is tremendous growth available for Leidos. And that will be the feature of our March 2025 Investors Day, focusing on those engines of growth we see within the portfolio that have been clearly identified as a result of our year of deep strategic thinking. So we're very excited about it. But I cannot remind investors and analysts who attended our 2021 Investors Day that in -- then we promised profitability of 10.5% in 2024. And so here we are committing to guidance this year of 12.9%. And the fact is, even with next year and the solid 12s, we're streets ahead of where this portfolio was envisioned to be just three years ago. We will not be resting on our laurels there. This is just an indication of the kind of pivot year that 2025 brings, but a pivot year is just that. It's a pivot year to greater growth and continued growth for a great portfolio of critical needs that our customers reward us for. So that's the focus over the next coming months. We look forward to having that conversation with you in March, and we're very bullish about the future of Leidos.

And if I may, just a quick follow-up. On the $29 billion that you have of like submitted bids in the pipeline, how much of those are new businesses versus recompetes?

Well, the $29 billion, I can't give you that, but I can tell you that when we look ahead to next year's portfolio, almost 70% of what is in the 2025 portfolio is new business and takeaway. So I don't have the exact point on the $29 billion, but a high percentage of that would also be new business and takeaway, Mariana. The recompete landscape is quite modest. We've talked obviously about the VBA business and have clarity here on the next two years of that here soon, if the military health system DHMSM program does play out the way we hope. We're really not talking about any substantial recompete. So that's a great position to be in for our BD team to really be attacking new work with vigor next year.

And our next question coming from the line of Cai von Rumohr with TD Cowen.

Terrific results in Health. The recompete, the profitability is so good. Usually, when you see markets with that kind of profitability, you tend to attract more entrants. Now I know that the entry barriers are pretty high and that's been a plus. But you mentioned incentive improvements. Can you give us any color about the upcoming recompete, and do you expect that the profitability opportunity will be comparable? Or will there be more competitors or a different structure so that they get a good result, and you make good money, but not quite as much as you're making today.

I appreciate the sense of your question. But of course, there's some questions I really can't answer in there. And at the same time, I can say that we're very confident in the continued profitability of this business over the next couple of years and we look forward to the recompete because, as I suggested, it incents the very things that we're excellent at. So there is, for us, confidence that we'll be able to lean into the business to help the VA get what they want, which is customer satisfaction and volume. At the same time, we feel very good about how we've been able to weave into our solutions in this space Trusted Mission AI and other innovative processes that allowed us to bring down our costs and sweat the fixed assets that we have. And so as a result, the profitability of this business and the opportunity for us to expand it are core parts of our strategy for growth for Leidos. So we don't see it as a net negative, but rather an area where we're going to be able to hold on to the profitability and expand the top line.

I just would remind you, I mean, we did get the option your exercise. So we have clarity on the contract we're performing under right now, the recompete to Tom's point, we can't give a lot of detail there. But again, our team really focused on how do we maintain a competitive position and work with our customers. But at the same time, get a return on the investments we've made. And it's not just the work going on in the VA. Tom spotlighted there's much more going on in managed health services with other customers that we're doing work for. So the expansion of that entire portfolio enables us to have visibility and the confidence in the ability to retain a high level of margin performance there.

And if I may one more, Dynetics. For years, it's basically had lots of potential and has had trouble really fully converting that. When you talk of low-single-digit growth next year and then better growth as we move further out, is Dynetics in that bucket?

Dynetics is definitely in that bucket. I mean, again, Tom featured -- think about the BD results they had this quarter is eye watering, excellent book-to-bill, programs that are moving forward to a low rate and then accelerating away. It will take a couple of years to get into a full rate production type mode and those are the kinds of things that give us confidence on the uplift. We still don't have full clarity on how quickly the customer will ramp up our hypersonics work. We're ready. We're ready to scale. We're dependent upon industry partners. So there are some things there that definitely are exciting for the future and we expect that growth momentum to continue, but the best years for that business is still ahead of it.

In fact, Cai, I'll just add on. Chris talks about an excellent book-to-bill. Just to put a little context on that, that's greater than a 3x book-to-bill just for our Defense segment. So that's the kind of quarter they had. And what we're starting to see, Cindy and the leadership team there are starting to really focus from that kaleidoscope of opportunities and the potential that's always been there, to focus on the things that are really important to our DoD customers now to fight for the future. So one of the things we talked about was the SOCOM customer restarting a production line for small glide munitions. In fact that's huge because that line had gone dormant and the customer has come back to Leidos and said, we need more of that product. And that has spawned the ability for us now to prototype and start to test this small cruise missile, Black Arrow that I referenced. That's a direct result of not only our prowess on small glide munitions. But also remember the Gremlin program, bringing those two capabilities together has put us in a position to test is small cruise missile. And frankly, that's exactly what our war fighters need. The rapid prototyping, rapid production at scale and affordable capability for standoff weapons. So we're very bullish, as Chris says, about the future of Dynetics and the ability for the current management team to take all of that potential and make diamonds out of it.

And our next question coming from the line of Scott Mikus with Melius Research.

Tom, Chris, a little over a year ago, you guys won CHS-6. I was wondering if you could talk about how that's ramped so far? And are the margins for that program accretive to the overall business? Or are they still dilutive as you're making the investments to ramp up?

Yes, Scott, I'd say the team has done a great job of getting that program ramped up in the year one. As you can imagine, both programs in the early phases aren't reaching their full potential and the same is true on CHS-6. We saw an early flurry of buying activity for longer lead things that will help increase revenue volume in '25 and beyond. So I would say the margins aren't where we expect them to be for the long haul as of yet. But -- and despite that, look at the great performance we're seeing in national security and digital. So the team is in a good spot there and CHS-6 will be a nice contributor to the portfolio over time, but it certainly hasn't reached its full potential yet.

Scott just to pile on a little bit. One of the things we've been doing as we retool our business development approach is, we've also been ensuring we have the experts who can communicate to customers the art of the possible. One of the things we've discovered is that the tool that CHS-6 is, is not universally understood within the army and we have people out there right now, ensuring that our customer understands their ability to use CHS-6 to buy a wide variety of products and capabilities. And so we feel very good about that. And we're incentivizing our program managers to fill out the full potential of the IDIQ contracts that we have. So we feel very good about the fact that maybe we're a little slow out of the blocks on that program, and it hasn't hit its stride yet, but I'm convinced that the army, we and our business development team are going to be able to help us supercharge that program for part of our success going forward.

Our next question coming from the line of Noah Poponak with Goldman Sachs.

Just want to make sure I have the time line on the VBA work inside of Health & Civil correct. Because, Chris, I thought you referenced the one year extension from the VA, but then I heard you thought in the Q&A referencing, multiple years. So I guess, how much visibility do you have now on what funding mechanisms? And then whenever there is a recompete, when exactly are you now expecting the recompete and how much actual revenue is being recompeted? And then on the margins, am I hearing you correctly that you believe north of 20% adjusted segment operating margin is a reasonable medium- to long-term framework for this business?

No. Let me go first, and I'll give you some big tectonic plates and then Chris will fill in the details. First, as we said, we're currently on an option year to the current contract. So that's ongoing. Second, we expect a two year award to be made in the coming weeks. So let's call that November, sometime in November. The terms of that contract will be largely similar to what we have now. And then after that two year contract, the customer assumes they'll be awarding new multi-year contracts for the way forward at that point. So we're currently on an option year. As soon as the new award gets placed, that option year will seed and will be on the terms of the new two year contract. And then there'll be a multi-year contract beyond that.

Right. So that kind of gives you the lay down of the activity set. It's not the entirety of the work we do for the VA. It's four of the regions. There's other contracts as well. So -- but it's a substantial piece of business that, again, we've put forward a compelling bid for, we believe. Going forward as it relates to margins, yes, I think you're in the right zip code here, right? As far as 20-ish-plus percent for this segment going forward. We've outperformed that over the last two quarters. You've seen numbers in the 24% range. I feel like that is excellent results by the team. So north of 20% is certainly something that we see increased clarity on now and feel much more bullish about sustaining that performance going forward.

And we're going to achieve that, not only by doing more of what we do now by expanding the suite of services that we provide. More in March.

And our next question coming from Seth Seifman with JPMorgan.

This is [Rocco] on for Seth. Are there any notable factors that have been weighing on national security and digital growth? And what does the pathway look like to accelerate the growth in the segment moving forward?

Well, so National Security Digital, we featured in our call, there's been some shifting of budgets and priorities in some of our intelligence community customers, not tectonic shifts, but smaller shifts, focused more towards great power competition. Some inability to get the cleared personnel in the right spot that is always an inhibitor. Our team has managed around that very successfully and I think has positioned that business for increased growth going forward. A lot of the key wins that we featured in the call will show up as catalysts in national security and digital and some new work there. There's also been some protests, unfortunately, that's par for the course in this business area but some of those are substantial growth drivers for us ultimately, once they clear that process. So we're looking forward to a positive resolution there. But the team has been shifting the portfolio, pivoting a bit and we're seeing early returns on the digital side, the digital modernization part of that portfolio and expect even greater results there going forward.

[Rocco], I mentioned to an earlier question that we see our place in the universe as helping our government be the smartest government on the face of the earth. I would suggest that one challenge our customers have in helping us help them fulfill that mission is relatively stable budgets or when you price in inflation flat to declining budgets. And so I know no taxpayer wants to hear that. But our national security and intelligence community work really is challenged with limited top line growth against a threat environment that is incredibly diverse and not seeding. So I would love to see a little bit more top line growth and I know our customers would love to be able to do more things so as to help our government be the most brilliant government on the face of the earth.

Our next question coming from the line of Ken Herbert with RBC Capital Markets.

Tom and Chris, really nice results. Maybe, Chris the guide for -- the updated guide for '24 implies sort of a step down in top line in the fourth quarter, the sort of that 3% range with what sounds like really nice results again expected out of Health & Civil. How do we think about maybe the moving pieces within the segments in the fourth quarter? If you can give any granularity there. And I guess as part of that, is it fair to sort of look at maybe the top line parameters and the operating or adjusted EBITDA in the fourth quarter is maybe a good indicator of starting point or how '25 could look based upon some of your higher level comments earlier?

And so again, we've had a fantastic year and that fantastic year has positioned us to be even more intentional around some investments that we're making in the fourth quarter to position ourselves for the long-term, both on innovation and technology, but also on our employees and employee engagement. So you'll see some of those things manifest themselves in Q4. Q4 obviously does have a higher level of time off, right, vacation time that we're baking in. And just allowing for the potential risk around any disruptions in funding and those types of things following on from election. We hope we don't see any of those, but there's always that potential. I would look more to our comments for next year as it relates to margins, solidly in the 12%. So a modest step down in Q4 is not indicative of how we see the business running into next year. We see strong performance out of the gates there and so you should expect that. But revenue volumes, there are some puts and takes. There's probably flattish performance from Q3 into Q4 as we look at the disability exam work, timing of some materials that could ebb and flow. But as I mentioned, just cautionary note on what happens with the budget environment and vacation and leave for our employees because it's been well deserved.

And our next question coming from the line of Louie DiPalma with William Blair.

You discussed how the PACT Act is stimulating exam volumes. Based on your crystal ball, was the exam volume level in 2Q and 3Q, was that the peak in terms of exam volumes? Or should that continue to trend higher in the fourth quarter and 2025?

Yes. Go ahead, Chris. I'm sorry.

Louie, I mean as I just was saying to Ken, I don't see Q4 showing an uptick over what we've seen for Q2 and Q3 spectacular performance. But broadly, the demand signal is there to sustain that level of performance as we see it going forward. When you look at some of the stats on pending claims and backlog of claims, they remain substantially elevated from where they were a couple of years ago. So in that zone is probably the expectation that we see over the next several quarters and beyond, but not at an elevated level.

Yes, I agree.

And our next question coming from the line of David Strauss with Barclays.

This is Josh Corn on for David. I just wanted to ask, so now that you've done just about the full [500 million] of share repurchases that you had been talking about. I just wanted to ask about repurchases and capital deployment priorities in Q4 and going forward.

Yes, obviously, we will certainly complete the [50 million] outstanding, and we'll be evaluating uses of capital against alternate internal uses at the same time. But as I trailed in my formal comments, we'll continue for this year to be customer-friendly -- or excuse me, investor-friendly. And I think you should look at the increase in our dividend as a down payment on how we view that.

Yes. I mean we're in a great position, Josh, as you realize, with the strong cash position coming out of Q3. We still see value in the stock clearly. And with our best days ahead of us, we'll continue to be comfortable moving into the market when it makes sense.

We have time for just one more.

Our last questioner coming from the line of Matt Akers with Wells Fargo.

I wanted to comment, I guess, health margins help obviously, up a lot this quarter, but the other three margins -- other three segments have had pretty good uptake in profitability kind of over last. So I wonder if you could just talk about sort of what's driving that and kind of how much further there is to push margins higher in terms of those other segments.

We appreciate you recognizing that we're getting this done not just solely through the Health & Civil business, but our other leaders of really taking to hold the opportunities to drive increased profitability. Start with National Security and Digital. We featured repeatable offerings. Steve and that leadership team are really all in on practice areas and just kind of efficiencies that we can capitalize on through these franchise programs that we're already operating on. So we've seen some early returns there and we think there's more opportunities for how we do cloud migrations help us or you name it across our portfolio of contracts. In defense systems, again, just program execution discipline, better bidding discipline. The team has got a lot more rigors on their programs as they advance to -- beyond the initial prototype phases of some of those programs and that's showing up. And as I trailed in my prepared remarks, the EAC performance, the best in four years. So that gets to our program managers across the business, great work by them, great work on the program execution side. And so again, we're not done. I think there's more gas in the tank in the portfolio.

And all I'll add, Matt, is that while all our segments reflect different market realities of the potential profitability, all of our segment leaders are incentivized to be best-in-class profitability. So stand by for more.

I appreciate the question, Matt. And I just want to thank the operator for your assistance on today's call, and thank everybody that joined us here for your time this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and you may now disconnect.