Guidance and Growth Outlook
Q: Can you opine on bookings this year and growth reacceleration in '26 and beyond?
A: Management is very proud of the recent performance, noting a 1.7 book-to-bill ratio in Q4 and 1.4 for the full year, their best since 2020. They have retooled their business development team, incorporating AI into proposal activities. Despite current challenges like the continuing resolution, they are confident about future growth due to quality wins and programs with long-term potential. They anticipate momentum accelerating over the next four years, supported by ample cash generation and a strong balance sheet.

VBA Contract Impact
Q: How will the VBA recompete affect top and bottom line, considering a new provider?
A: Management is excited about securing the substantial award and is confident they can execute it profitably as previously communicated. They acknowledge a new entrant in some regions but believe their scope, scale, and technology will maintain volume and profitability. They emphasize that their growth pillars are not solely reliant on the medical exam business but focus on areas with strong customer demand, robust profitability, and clear Leidos differentiation.

Earnings Guidance and EPS Growth
Q: Does guidance imply minimal EPS growth; is that due to conservatism?
A: Management acknowledges the observations but explains that they want to invest in the pivot year for the future while delivering strong performance. They mention higher interest rates leading to a small headwind on interest and taxes affecting EPS guidance. They had an excellent year on EACs and aim to continue that trend, though variability exists.

Impact of New Administration
Q: Have you seen any disruption from the new administration's efforts?
A: Management reports that they've not seen significant disruptions. There were minor perturbations as customers adjusted to the new environment, causing brief pauses in contracting, but activities have picked back up. They are ready to maneuver in this environment with a prepared playbook if disruptions persist.

Competition and Profitable Growth
Q: How do you plan to achieve profitable growth amid new competitors with low cost of capital?
A: Management is aware of new entrants and sometimes works with them as part of the ecosystem. Their growth pillars focus on areas where they have differentiated capabilities and can accelerate ahead. They are confident in their ability to outperform in markets where they offer something unique and remain open to partnerships to solve customer problems.

Pivot from Low-Margin Work
Q: What does pivoting away from low-margin work entail?
A: Management plans a gradual shift by not investing further in areas without technical differentiation or robust margins. Over time, they will allow such work to attrit and focus on growth areas that offer better top-line and bottom-line growth. Examples include moving away from infrastructure support services and big O&M jobs.

VBA Transition and EBITDA Growth
Q: Will you grow EBITDA and free cash flow during the VBA contract transition?
A: Absolutely; management is building momentum in other areas to complement the VBA. They expect opportunities to innovate, driving efficiency and automation through the delivery chain. Their growth pillars are robust, and they anticipate growth in health and civil businesses along with other segments.

Fixed Price Contract Opportunities
Q: How do you view growing fixed price mix in defense segments?
A: Management is eager to expand outcome-based contracting, including fixed price models. They believe they excel in this area, providing cost reductions for customers and profitability for shareholders. They see opportunities in defense, though currently less than desired, and are investing in program execution capabilities to support this direction.

Classified Contract Under Protest
Q: Has the multibillion-dollar classified contract under protest been adjudicated?
A: Management prefers not to discuss the amount under protest but confirms that the specific contract has not been adjudicated. Contracts under protest are not included in the backlog and remain in abeyance.

IRON DOME and Border Security
Q: What opportunities do you see in IRON DOME and border security projects?
A: Management states that these areas are right in their wheelhouse. They have prepared big ideas and are engaging with stakeholders. They feel their capabilities align with the needs in space surveillance, countering cruise missiles, hypersonic weapons, and detecting low-altitude UAVs. They are optimistic about growth opportunities given the administration's priorities.