Greetings. Welcome to LIDO's fourth quarter fiscal year 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Stuart Davis from Investor Relations. Stuart, you may begin.

Thank you, Operator, and good morning, everyone. I'd like to welcome you to our fourth quarter and fiscal year 2025 earnings conference call. Joining me today are Tom Bell, our CEO, and Chris Cage, our CFO. Today's call is being webcast on the Investor Relations portion of our website, where you'll also find the earnings release and supplemental financial presentation slides that we're using today. Turning to slide two of the presentation, 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, as shown on slide three, 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, let me turn the call over to Tom Bell. We'll begin on slide four.

Thank you, Stuart, and good morning, everyone. I'm pleased you've been able to join us to discuss another strong quarter for Leidos, capping off an outstanding 2025. Of course, 2025 was a very dynamic year. the complexities of Doge early, and the longest U.S. government shutdown toward the end. But despite these challenges, we were able to deliver on our promises, importantly, first to our customers, and as a result, to our shareholders. We're pleased to have recorded 2025 revenue toward the top of our guidance, and earnings in cash ended the year above our guidance. 2025 adjusted EBITDA margin was 14.1 percent, a year-over-year increase of 120 basis points. Non-GAAP diluted earnings per share grew by 17 percent, and free cash flow grew by 26 percent. Q4 revenue was $4.2 billion, a year-over-year decrease of 3.6 percent, but normalized for the extra week in our fourth quarter of 2024 and the six-week government shutdown in 2025, Q4 revenue would have grown approximately 4%. Chris will give you all the details on our financials later on this call. In addition to those financials, another significant highlight of our fourth quarter was net bookings of $5.6 billion, delivering a book-to-bill ratio of 1.3 times. This matched the 1.3 book-to-bill ratio we also delivered in the third quarter of 2025, and our year-over-year funded backlog is up 15%. This momentum illustrates our North Star strategy's strong alignment with administration priorities and enduring trends. Let me mention a few of our key awards in the quarter. The Air Force awarded us a five-year $2.2 billion contract to deploy Leidos' passive radar systems for base defense against fixed and rotary wing aircraft and cruise missiles. This award validates years of investment in our Alps and Marauder systems that detect threats without emitting a signal. Our continued IRAD investment in this powerful technology is precisely what the administration is asking for, and Leidos is pleased that the U.S. Air Force has recognized our capabilities with this order. Leidos also won a new six-year, $455 million Air Force Cloud One Next Architecture and Common Shared Services Program. Leveraging our experience in zero-trust automation and multi-cloud brokering, we will deliver the the ubiquitous, secure, commercial-grade technology the Department of War requires across the globe, wherever the mission calls. And we secured positions on two key 10-year IDIQs. The Missile Defense Agency's $151 billion shield program supporting Golden Dome, and the Defense Microelectronics Activities, $25 billion program to modernize military technology through advanced engineering and prototyping. Though neither of these IDIQs are counted in our backlog numbers, both vehicles provide streamlined access for Leidos to bring innovative solutions to top-priority national security missions. I'm also especially pleased with the building blocks of profitable growth we are assembling. We are maintaining a productive working relationship with this administration, increasing the rate of investment in our growth pillars, and realigning our organization to best implement our North Star 2030 strategy. 2025 has proven that our efforts to anticipate the uniquely challenging national security environment we are in were spot on. our customers need a new kind of national security company that delivers cutting-edge hardware and software combined to tackle challenges quickly and at scale they need the best commercial tech integrated into those solutions from undersea to space to cyber and they need industry partners that can secure the homeland while enabling global operations to secure the peace. Leidos brings the speed, scale, security, and portfolio that uniquely responds to today's environment. We are redefining what it means to be a national security company and we are excited to be accelerating outcomes. So we are now firmly in strategy execution mode for our North Star 2030 strategy with a strong bias for velocity and a strong productive sense of urgency as evidence of this let me recap a couple of the bigger steps we've taken in line with our North Star 2030 strategy in May we acquired kudu dynamics bringing exquisite cyber capabilities to our cyber growth pillar and providing deep differentiators across the company kudu represents a highly focused technology rich company through which we had a clear strategy to drive increased Leidos value. The acquisition is already performing exceptionally well, generating rapid growth, providing entry into new markets, and sustaining robust profitability. And we have taken steps to tightly align our business around our energy growth pillar. In October, we divested Varic, a non-core legacy energy asset. And last month, we agreed to acquire and trust solutions group and trust is a top energy engineering firm with a consistent track record of growth and strong profitability together we have the scale to be a power engineering and design leader in the u.s. and with the deals clear cross-sell revenue opportunities and cost synergies along with the deployment of our powerful AI enabled tools we will increase our competitiveness in this high growth market these actions improve our business mix while maintaining our strong balance sheet and in keeping with our strategy we are also investing organically in support of our national security priorities in 2025 we invested 312 million dollars in IRAD and capital expenditures to fund amazing innovations and develop radical solutions as a As a result, programs like IFPIC, Wide Field of View, and Maritime Autonomy are ready to scale up to meet customer demand. In fact, we've increased our investments in solutions in each of the last three years, and that will continue in 2026. As I said earlier regarding the U.S. Air Force Award, the administration is looking to partner with firms that are willing and able to lean into innovation and put their money behind their technical prowess. We are currently negotiating several important exciting co-investment opportunities with this administration around critical war fighting and national needs where we have unique capabilities in the defense tech and mission system space. So to continue to seize on the opportunities in front of us we will triple our capital expenditure investments this year to 350 million dollars. This will be used to make key capitalized investments, expand production capacity, and expand and upgrade our classified facilities. These investments are for key national priority high return projects for our customers that we expect to accelerate our growth in the near term. We will accomplish all this while holding on to the profitability that we've proven for this business over the recent years. With our North Star 2030 strategy in place and gaining traction, organic and inorganic investments will become more prevalent in our capital management strategy. Also, I'm pleased to advise that I have realigned our organization to best execute our growth strategy. Form follows function. We will continue to operate in five sectors that roll up into four reporting segments. And we believe this North Star 2030 organizational construct will best align how we report financial performance in line with our North Star strategy and business priorities. Defense, led by Cindy Grunzfelder, takes our portfolio of defense tech programs and adds department of war programs in the areas of force protection mission software and logistics that were formally in our national security sector this will better enable cindy to prosecute integrated defense efforts like golden dome and c5 isr this segment will continue to house our space and maritime growth pillar homeland brings together all light osis business that play a key role in securing the homeland the number one priority of this administration it combines our commercial and international business with our homeland security work and air traffic management portfolio previously in national security and health and civil respectively this segment also includes our energy infrastructure growth pillar for a more resilient American energy infrastructure and our mission software for key customers like the FAA. With Vicki Schemansky retiring, Roy Stevens will lead Homeland. Intelligence sharpens our focus on innovative technologies and services for the U.S. intelligence community. This sector leads full-spectrum cyber growth pillar and aggressively advances mission software for our IC customers. Serving our intelligence agencies and making sure that we have the smartest government on the face of the earth is a real passion for me. And that passion is shared by Jason O'Connor, a longtime Leidosian who also spearheaded the Kudu acquisition and has stepped up to lead our intelligence sector. Digital modernization, led by Steve Hull, continues as a standalone growth pillar delivering IT modernization services and solutions for all customers, while also providing CIO and CISO functions for Leidos. Steve and his team are embracing our AI-first philosophy to exploit AI for a more efficient Leidos and for more effective solutions to our customers. For financial reporting, the intelligence and digital modernization sectors roll up into the intelligence and digital segment. And last but certainly not least, Health is led by Liz Porter. Liz is sharpening our focus on accelerating our Managed Health Services growth pillar. Managed Health is of keen importance to Leidos and the nation and we are positioning to expand this business by improved access to rural care and growing our health footprint with both the Department of War and the Veterans Administration. I've also made two other changes to our leadership team. First, Ted Tanner has joined us to be our new chief technology officer. A veteran of multiple Silicon Valley startups, Ted brings a proven track record of bold innovation. He has led the development of AI and machine learning capabilities for the Department of War, intelligence, and civilian agencies. Ted embraces the hardest problems, brings clarity to complexity, elevates the teams around him, and delivers outcomes that matter. TED succeeds Jim Carlini, whose leadership laid the technical foundation on which we're building our robust future. I've asked Jim to remain at Leidos as a special advisor to me on national security and other matters. Will Johnson, another longtime Leidosian, has taken on a new role as our enterprise transformation leader. I'm charging Will with driving significant outcomes in workplace efficiency through business process re-engineering unlocked via the power of technology, particularly AI. Will's mission is to deliver measurable transformational cost reduction outcomes for us and then help transfer them into our customer solutions. So in summary, 2025 was another very positive year for Leidos, and given that what's past is prologue, I'm convinced that 2026 will be a year that traction from our strategic action becomes even more evident. We will lock in the cultural and financial gains from 2023, 24, and 25, demonstrate the power of North Star 2030 strategy, its growth pillars, and our alignment with this administration's priorities, and propel ourselves into 2027 with even stronger success and momentum. With that, now I'll pass the call over to Chris for a deeper look at our 2025 results and our financial guidance for 2026. Chris?

Thanks, Tom, and good morning, everyone. As Tom highlighted, 2025 was an outstanding year for Leidos, marking the third straight year of double-digit non-GAAP earnings and cash flow growth. We are focused on and delivering sustainable growth over the long term. Also, as Tom mentioned, despite external market pressures, performance exceeded initial projections across nearly all key metrics, enabling us to raise guidance twice this year and exceed the top end of our margin, earnings, and cash flow ranges this quarter. Our performance stands as a testament to the strength of our differentiated portfolio, value, the precision of our North Star 2030 strategy, and the discipline and agility of our entire team. Please turn to slide five. For the year, revenues of $17.2 billion were up 3.1%. For the quarter, revenues of $4.2 billion were down 3.6%. Year-over-year comparisons include the impact of two major factors, the six-week government shutdown in 2025, and an extra work week in 2024 as part of our 4-4-5 financial calendar. These impacts were concentrated in the fourth quarters, and the extra work week is about twice as impactful as the shutdown. Together, these two factors decreased revenue growth by about seven percentage points for the quarter and two percentage points for the year. The underlying business grew strongly across the entire portfolio, with especially robust demand in integrated air defense, intelligence community mission support, energy infrastructure, and full-spectrum cyber. Adjusted EBITDA margin for the fourth quarter was 13.2%, up 160 basis points year-over-year. On a full-year basis, adjusted EBITDA margin increased 120 basis points to 14.1%, exceeding the top end of our high 13s guidance from the last call. Our margin expansion journey has meaningfully changed how we view what is possible, and that change permeates the entire company. The sectors are more focused on program execution, with six consecutive quarters of positive net EACs, and all of our functional organizations are continually pursuing operating efficiencies. Non-GAAP diluted EPS was $2.76 for the quarter and $11.99 for the year. In 2025, non-GAAP diluted EPS was up 17%, $1.78 above 2024 and 24 cents above the high end of our prior guidance range. The primary driver of the robust EPS growth was consistently strong EBITDA. Growth was propelled further by accretive capital deployment. We retired 4.4% of our diluted share count over the year, which contributed about 50 cents to EPS. Turning now to an overview of our segment results on slide 6, I'm proud that all four segments contributed to our strong results. Every segment grew revenues for the year and improved margins for the quarter and the year. Looking at the year-over-year revenue comparison, the extra workweek and shutdown had roughly the same impact on the sector as the company as a whole, with one exception. Commercial International was unaffected by the shutdown, and the extra workweek lowered growth by about five points for the quarter and one point for the year. National security and digital showed strong and consistent underlying growth. In addition to contributions from KUDU, we had sustained uplift from the robust business development results over the past year. Segment non-GAAP operating income margins rose 160 basis points in the quarter and 20 basis points for the year, reflecting a more profitable business mix and excellent execution. Health and civil revenues were up a bit for the year and down a bit for the quarter absent the extra work week and shutdown. The managed health services business was a moderate headwind in the quarter and a moderate tailwind for the full year, and volumes on dim sum were lower as the electronic health record transitioned to a sustainment phase. Health and civil non-GAAP operating margins increased 80 basis points in the quarter and 170 basis points for the year as the result of strong program and cost management as well as technology-driven efficiencies. Accounting for the extra workweek, commercial and international revenues grew nicely in the quarter and the year. Segment growth was led by improved performance in the UK and increased engineering support for commercial utilities, which offset the Varric divestiture. Segment non-GAAP operating margins jumped 180 basis points in the quarter and 230 basis points for the year with better performance across the C&I portfolio, driven by strong execution and business mix in the UK and Australia, operational gains in SES, and increased use of AI to accelerate grid engineering execution within commercial energy. Lastly, defense systems remained aligned with administration priorities and sustained robust revenue growth throughout 2025. Q4 performance was bolstered by accelerated production of small glide biotic munitions and IPPIC increment 2 systems, as well as preparing for 2026 production on a range of systems. Segment non-GAAP operating margins rose 680 basis points in the quarter and 160 basis points for the year as we moved into the production phase on several key programs. Turning now to cash flow in the balance sheet on slide 7. Cash generation is a hallmark of Leidos, and we generated record fourth quarter and full year operating cash flows of $495 million and $1.75 billion, respectively. Outperforming our cash flow guidance by $100 million reflects our commitment to profitable growth and $150 million in cumulative Section 174 cash tax savings, of which $75 million was realized in Q4. Netting out capital expenditures, free cash flow for the quarter was $452 million, or 127% of non-GAAP net income. For the year, free cash flow was $1.63 billion, for a 104% conversion rate. In the fourth quarter, we repurchased $305 million worth of shares and paid $55 million in dividends to end the year with $1.1 billion in cash and cash equivalents, $4.6 billion in debt, and a leverage ratio of 1.9 times gross debt to adjusted EBITDA. As Tom mentioned, we're excited to take advantage of our balance sheet to further the strategy through the acquisition of interest. We plan to pay the all-cash purchase price of $2.4 billion with $500 million of cash on hand, $500 million in commercial paper that we will pay down during 2026, and $1.4 billion in new bonds. We expect the transaction to close in Q2, subject to regulatory approval and other customary closing conditions. At the time of close, our pro forma gross leverage will be 2.6 times, comfortably below our three times target, affording us the capacity to capitalize on organic growth and potential future M&A opportunities in line with Northstar 2030. Now on to the forward outlook on slide eight. In 2025, our diversified portfolio proved resilient in evolving market conditions. As Tom said, 2026 will be the year that the impact of concentrating corporate investments and shaping the portfolio towards the growth pillars shows clear dividends as we accelerate growth throughout the year and further separate from the pack in 2027. Getting to the specifics, for 2026, we expect revenues between $17.5 and $17.9 billion, reflecting growth of up to 4% over 2025. We expect revenue growth will build throughout the year, ending with sustained momentum approaching double digits. We're guiding to mid-13s adjusted EBITDA margin in 2026. This level normalizes some of the one-time benefits of 2025 and secures a sustainable baseline. We expect to continue to invest to accelerate our growth pillars, stakeholders, uphold our high level of program execution, maintain strong cost management, and drive indirect cost efficiencies through the Enterprise Transformation Initiative. We expect non-GAAP diluted earnings per share between $12.05 and $12.45, which assumes interest expense of approximately $200 million and an effective tax rate of about 24%. We're also assuming a weighted average share count of approximately $129 million. We expect another robust year of operating cash flow at $1.75 billion, despite a $90 million year-over-year headwind from Section 174 timing. Free cash flow will be down a bit as we triple our CapEx spend to $350 million. This guidance does not include any accommodation for the entrust acquisition. We plan to update the guidance post-close, likely on our first quarter call. In 2026, we'll be operating in our new segment structure. And to help your modeling, we recast 2024 and 2025 financials in the new structure and filed them with our press release. Let me spend a few minutes outlining these segments and how we see them performing in 2026. The largest, intelligence and digital, was $5.7 billion in revenues in 2025 at 10.1% non-GAAP operating income margin. In 2026, we see mid to high single-digit revenue growth at steady margins. This trajectory is supported by a full year of KUDU, the continued phase-in of several large cyber and IT awards, and an increasing velocity in our bid pipeline. Longer term, we expect to sustain mid-single-digit growth with opportunities for margin improvement. Last year, the health segment generated $4.7 billion in revenues with non-GAAP operating income margin of 25.5%. In 2026, we expect modestly lower revenue and margin from the additional vendor on the VBA MDE work and continued transition on dim sum. Beyond 26, we see health inflecting to growth and sustaining robust profitability above 20% as administration priorities to unlock make-market opportunities in rural and behavioral health as well as enhanced automation to deliver better, faster, and cheaper solutions for Homeland delivered $3.1 billion in revenues, with non-GAAP operating margins of 9.2% in We expect growth to track the corporate average and keep that pace through the decade as global imperatives unfold. While margins are likely to be relatively stable in 2026, this portfolio's blend of fixed price work and commercial exposure provides a clear opportunity for margin expansion over the longer term. In 2025, defense accounted for $3.7 billion of revenues with non-GAAP operating income margin of 10.1%. We anticipate revenue growth above our corporate range in 26, with a modest decline in margins as some high-margin airborne programs ebb. Looking further out, this segment, with its more robust investment profile, offers significant opportunity for growth and margin expansion through 2030 as increased homeland defense opportunities come online. With that, operator, we're ready for questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Please limit yourselves to one question before getting back into the queue. At this time, we will pause momentarily to assemble our Q&A roster. Our first question will come from the line of Seth Feithman with J.P. Morgan. Your line is open. Please go ahead.

Hey, thanks very much, and good morning. I wanted to ask, starting off, you could talk a little bit about the investment areas that you're expecting to put additional CAPEX in and the way that that supports, I assume, supports some of the ramp in the defense business and to the extent that that may or may not be related to the co-investment opportunities you talked about with DOD?

Sure. Let me start by saying yes and. We are investing in potential co-development opportunities with the Department of War, but it's not exclusively with the Department of War. The Department of Transportation, the FAA, has significant program opportunities, as I'm sure you are aware, and we're very keen on investing in our health business to ensure that we continue to accelerate away from the PAC in that important business to Leidos. So yes, as I said in my prepared remarks, Seth, We are negotiating several framework agreements with the Department of War when it comes to co-investment opportunities for exciting franchise programs for Leidos going forward, but that's not where all of that CapEx and all of that investment is going. We're investing in all the growth pillars now that we have a sound key strategy to grow this company into the future.

Yeah, Seth, I mean, just to dive a little deeper, and certainly in the defense area, that is the area that over the last few years we've continued to ramp up our level of investment, and you're seeing the results of that with the increasing growth rates. Looking ahead to 26, certainly our maritime growth builder is an area where you'll see an expansion of some of our facility space there. What we're doing in integrated air defense, the ABADS award is, again, a reinforcement that we have products that the government wants, and how do we ramp up our production capacity, hypersonics, et cetera. So there's a number of programs there that will support that investment, and we're looking forward to realizing the returns on those.

Great, great. And then maybe just as a quick follow-up, a little bit more model-oriented, you talked about growth accelerating through the year, exiting double-digit, or approaching a double-digit, so strong exit rate. But I guess the implication is, you know, much softer growth in the beginning of the year. Kind of how should we think about the early part of the year and which of the segments is seeing that weakness?

Yes, so, I mean, I think the pattern is right. I mean, lower growth in the first half of the year, acceleration in the back half of the year. Some of the things that we've been talking about over the last several quarters, we haven't seen, you know, any significant money yet put towards some of the Golden Dome initiatives, the FAA modernization, et cetera. those are catalysts that can help propel the second half. We've got some new program wins that we'll be starting up. Tom talked about a couple of those. So you'll see that pattern increase in the back half of the year. And then we've got a very robust business development pipeline. Obviously, we're pleased with the 1.3 in Q4, back-to-back quarters of 1.3 book-to-bill and the team. That's despite the fact that we saw a lot of slippage into 2026 from the award pipeline. So you'll see some of those across a number of the business segments drive growth in the second half of next year.

Yeah, and just to put a little added context on that, Seth, you know, we saw about $7 billion in awards slip from Q4 into this quarter, and we have now $20 billion of pending awards and a $49 billion of backlog. So we have high proposal activity. Yes, there is a lag, probably because of that long government shutdown we discussed in the fourth quarter. But we expect those awards to start coming in, and that'll feed growth through the end of the year as those programs get onto execution. Thanks, Seth. Great. Thank you.

Thank you. And one moment for our next question. Our next question comes from the line of John Godden with Citi. Your line is open. Please go ahead.

Hey, guys. Thanks for taking my question. I wanted to pick up on those last comments on book-to-bill. When I think of what we've seen from other services players, we've seen a dip and then an expectation of a bounce in book-to-bill. You guys have performed very well, so there's no dip. But despite that, it sounds like you still think that the award activity and the bookings backdrop is going to accelerate from here based on what you just said. And I was just hoping you can maybe elaborate on that and shed some additional color on what the shape of that might be through the year.

Thanks, John. Certainly. Well, first of all, let's put this in context. We've been investing in our growth segment and our growth function for the better part of two and a half, three years now. We recognize that this was an area where we needed to make sure we had the best-in-class capabilities to help our customers understand how Leidos can make their solutions better, faster, and cheaper. And so we've been investing in this function. We've brought in a lot of new leadership. And so the 1.3 book-to-bill ratio in both the third and fourth quarters of last year is no accident. It's not happenstantial. It's the purposeful effect of a purposeful plan to invest in our growth function and then the manifestation of those efforts coming through to pass. Yes, as I just said to Seth, we still see a robust pipeline, an order backlog, and we expect those orders to continue. We're very happy with both our recompete win rate and our takeaway win rate. And so we feel very good about the capacity we have built in our growth function, and we expect that to continue to pay dividends.

Yeah, John, I would only add that, I mean, looking at the trends here, the next 12-month pipeline of submittal activity is the highest point of the year in the fourth quarter. So we've seen that crescendo. And looking at the percentage of activity, we expect the bulk of that, three quarters of that to be geared towards new business and takeaways. So there is, you know, some re-compete turf to protect, but that's, again, like we like to see a smaller percentage in next year's bid pipeline, and all of our segments have a robust number of opportunities that they're pursuing. Thank you, John. That's fantastic. Thank you.

One moment for our next question. Our next question comes from the line of Gautam Khanna with TD Cowan. Your line is open. Please go ahead.

Yeah, thanks. Good morning, guys.

Good morning.

I wanted to just ask you about the VA medical exam recompete, what your expectations are for, you know, how the terms might change, what you guys are doing to maybe, you know, sustain the profitability of it, because typically recompete's, you know, got to sharpen the pencil. And any view on, you know, timing, any updates on that?

Well, first of all, we're very proud of Liz and Larry and the LQTC and health business that we run. We've got a fantastic execution machine there that has helped our customer decrease backlog of veterans awaiting exams by almost 60%. And so we're very proud of what we've been able to do to serve that customer and serve this nation. Certainly, as we announced health as being one of our growth pillars, we have no intention to seed this market space, despite, as Chris mentioned in his commentary, the entry of the fourth vendor and the possibility of a work share reallocation. That being said, we see volume continuing to go up, and therefore, we think we have everything to compete and win for to continue to serve our customers best. and this nation's veterans' best. We have, as we've said, two prime focuses for how we're going to grow our health business. One is rural health transformation, and the other is behavioral and integrated health exams and services. But on your specific question on the medical disability exams, we do see that in the middle of this year, we expect an RFP and a bid for the next phase of that program. Details at this point are pretty light about exactly what the customer is looking for, but we're actively engaged with them as we speak. And as we've been saying for a number of years now, we continue to invest differentially in our medical disability exam business to make sure that we can make sure veteran exams are done better, are done faster, and are done less expensively for the Veterans Administration. And we expect those will be the three things that the Veteran Benefit Agency wants to see. They want to see costs come down. They want to see the number of veterans that get services go up. And they want to see the efficiency and effectiveness of those exams be less mistake prone. And so that's everything we're focused on and what we expect to see. We'll update you as the year goes on. As we say, we expect a recompete and a bid somewhere in the summer, and we'll keep you very well informed on that. Chris, anything to add? Just two quick points, Gotham, I'd add.

Number one, we just recompeted the program and look at our performance, right? So we've proven that every time we can sharpen the pencil, we can deliver for the customer and for leidos and our shareholders number two if you go back to my repair remarks you know we kind of gave our horizon view and looking at health beyond 26 robust profitability above 20 that certainly contemplates how we envision this recompete unfolding over time right this is an area that we can sustain uh very attractive returns in and we're excited to demonstrate that thank you gotham thank you thank you thank you and one moment for our next question.

Our next question comes from the line of Colin Canfield with Cantor. Your line is open. Please go ahead.

Hey, thank you so much for the question. Maybe turning to the FY26 growth guidance as well as margin, perhaps if you could talk us through where you are forecasting the greatest degree of conservatism and what are the key milestones that you need to see in order to lift both growth and margin guidance. And then essentially, as we think of that bridging into next year, is it fair to assume any outperformance of this year's guidance is a higher basis for next year? Or are there any kind of one-time things in nature that might pull in this year versus next year? Thank you.

Yeah. Hey, Colin, this is Chris. You know, the conservatism, I like the way you framed that. I mean, there's certainly a lot of irons in the fire and a lot of make-market opportunities that we're chasing. Clearly, defense has demonstrated a robust track record. That's probably the area that, you know, some decisions get made, if a beautiful bill funding rolls out, Golden Dome activities accelerate, especially in maritime, you could see that growth trend pick up more quickly. So there's some opportunities there that we're just monitoring. And then the FAA one, as Tom mentioned, you know, the teams are ready to execute. We've put in very compelling offers to the customer. We've, you know, built demonstration-ready capabilities. We're ready to go. So those things could be pulled forward and we could see some uplift. On the margin front, I think the commentary we just had on health certainly is the area that we built into what we believe that the business will be running at from a reduced volume and accommodated that. If that plays out a little differently, there could be some upside there. So I think we factored all that in. As it relates to one-timers, none of those are contemplated in this guide that we've rolled out. So as we deliver over the course of the year, I do believe that points the direction of how the momentum will carry into 27 and beyond for North Star 2030. That's great, Chris. Thank you.

Thanks. Thank you. And one moment for our next question. Our next question is going to come from the line of Toby Sommer with Truist. Your line is open. Please go ahead.

Thank you. In the sort of product and defense tech area, I was wondering if you could give us an update on the areas that you think have hit their stride with sort of programs of record and areas that are still developing that may demonstrate some progress here in 26 in that direction.

Yeah, sure. Thank you, Toby. Let's see. Well, first, let's start with IFPIC. You know, we were awarded a $4.1 billion IDIQ to ramp production, and that is going well. We have a target procurement of some 317 systems to be delivered by 2030, and we think that with the readying of the Defense Industrial Base, FMS possibilities, and, of course, Golden Dome, that is a very good bet for us to continue to grow. So we're very bullish on IFPIC. You see the customer investing in a second interceptor. That solidifies their seriousness of the system as a whole. And as the lead systems integrator for that, we sit in service to our customer to make sure that that system is all that they want it to be. Hypersonics was mentioned earlier. Obviously, the Department of War is fast-tracking some six tech priorities to include scaled hypersonics, so that shows you that they're serious about it. And our recent awards of Slickham N and Jihato OTAs, those mirror the Army's success of the Dark Eagle program. And so we're very happy with where that program is going from here. I mentioned in my prepared remarks the ABADS award, although we can't say much more about that. Again, Homeland Security and Base Defense are where those programs excel, and both of those things are very high priorities for the Department of War. Wide field of view in the space area. We are very bullish on our opportunities to serve the Space Force's needs there. They have a budget climbing toward $40 billion dollars, and we are a vital partner for the technical contributions across the Space Development Agency and all their tranches to date. So we've been accelerating internal investment there. The SDA's Tranche Zero mission has been successful, and we are a key part of that. We've delivered two Tranche One payloads to Northrop, with the remaining ones coming this year. Following a successful critical design review, which we published in the press, we remain on track to deliver 18 satellites for the SDA for Tranche 2 by the end of the year, and we're positioning for growth for Tranche 3 and for Tranche 4 to make sure that our payloads that are serving this nation now in space continue to do so into the future. What I'm not talking about is the two IDIQs I mentioned, the Shield IDIQ and the Microelectronics IDIQ. Again, these are areas where we've been investing in. Us being in those IDIQs gives us the opportunity to help the customer serve the nation through task orders therein, and we are very bullish about that. And so we're very excited about several of the framework agreements that we have in negotiation and conversation with the Department of War to, as I said earlier, continue to build programs of records for our defense business. So we're very bullish on being a defense tech company, and we're very excited about the opportunities for us to continue to grow that business under Cindy's leadership.

Yeah, Toby, I'd only add, you know, Tom had a robust list there, and there's others. Maritime certainly is one of those areas with our CDAR product, ADC Mark V, what we're talking about with medium unmanned surface vessels, those are the ones that, you know, have more runway and variants for the UK and Australia customer as well. So excited about the prospects in our maritime part of the portfolio there too. Thank you very much. Thank you.

Thank you. And one moment for our next question. Our next question will come from the line of Ken Herbert with RBC Capital Markets. Your line is open. Please go ahead.

Yes, thank you. Good morning, Tom and Chris. Morning, Ken. Yeah, maybe if you could address capital allocation. I think you said you'll be gross levered about 2.6 times on a pro forma basis after Entrust. How are you thinking about incremental M&A opportunities this year? Where are your priorities and what does the guidance imply for buybacks this year?

Yeah, thanks. So first of all, again, this is a long arc that I think if you go back to the earnings calls past, I've transmitted pretty clearly that while we were searching for our growth strategy, we would have a capital deployment strategy that was very shareholder friendly. We still have a rigorous return on investment capital analysis for any investment and any outflow of Leidos dollars, and we will continue to do that. But now with our Northstar 2030 strategy in hand, and we being firmly in strategy execution mode, meeting the moment also of this administration, we are very well poised to deliver on and invest in those growth pillars that we've discussed. So we've increased investment over the last three years. We will continue to increase investment. And yes, inorganic and organic investments will be the lion's share of how we deploy our capital in the near term. That being said, we will continue our dividend program and we will look opportunistically for other shareholder-friendly deployments of capital as the need arises.

Chris? Yeah, I mean, Ken, to get to your specific question on the repos, we haven't baked any into the guide that we gave you for this year. I mean, you can see that with Entrust coming online, there's a lot of capital going to that, but we have more capacity, and the priorities are what Tom laid out, and we'll monitor things as the year unfolds. Thank you.

Thank you.

Thank you, and one moment for our next question. Our next question comes from the line of Scott Mika-Swiss, Milius Research. Your line is open. Please go ahead.

Morning, Tom and Chris. Morning, Scott. Tom, we've seen a lot of software stocks come under pressure here to date because of concerns that AI could drive down the cost for companies to develop software internally. We also hear from defense companies that AI will accelerate the shift towards outcome-based contracting. But are you concerned that AI could cause a race to the bottom on price, particularly for digital modernization programs?

Thanks. Yes, Scott, I see and hear and certainly see the stock market effect of the fear of AI overtaking the world and understand why some people might say that. But for us, the proliferation of AI isn't a threat. It's a force multiplier for everything we've always wanted to do. So we continue to lean into all commercial technologies It is part of the business model that has made Lido successful, and we don't see AI as being any different. We want to look at it, understand it, exploit it, and be able to serve our customers with it, no matter which model of AI they want to embrace. That is why Will Johnson and our DigMod business embrace AI internally. We're very keen to make sure that we're the beta tester of how AI makes organizations faster and more efficient. And we expect that beta testing AI internally to Leidos will not only deliver bottom line results for us, but also help us prototype and then deliver top line benefits for our customers as they seek to exploit AI to make their operations more efficient. So, ultimately, we see AI as an opportunity to help our customers shift budgets away from maintenance and into high-value mission outcomes, which is, of course, the business we're in, making their outcomes smarter and more efficient. I hope that helps, Scott.

Yeah, it does. And then a quick question. You noted the backlog figures did not include anything from the Golden Dome IDIQ or the microelectronics IDIQ. but does the guide assume that you will receive task orders this year that will convert to revenue, or is that purely upside to the guide?

Yeah, we don't ever include IDIQs. We only include the task orders when they come in. Of course, our business development and our sectors all want to assume that they get task orders that deliver revenue and profit in the year, and that's that's what they hunt for every year.

And Scott, just, I mean, as with any annual guide that we put out, there always is some element of new business that has to be won throughout the year, whether that comes from Golden Dome or comes from the robust number of other submittals that we have in the pipeline, you know, it can be any number of those sources. But yeah, if Golden Dome ramps up in any material way, we see upside from that.

Golden Dome, FAA, the microelectronics, all of them. There's a ton of opportunities out there where we're poised to exploit over the coming months. Thank you.

Thank you. One moment for our next question. Our next question will be from the line of Jonathan Siegman with Stiefel. Your line is open. Please go ahead.

Good morning, Tom. Kirsten Stewart. Thanks for taking my question.

You've highlighted maritime as an area that could be potential for this year incrementally. Just can you talk a little bit about where the government is in the progress in identifying programs and when we might expect to actually hear something on some of these?

Yeah, thank you. Yes, the Department of Navy has a well-understood and publicized MUSV program for a large quantity of medium unmanned surface vehicles. We have had robust dialogue with the Department of the Navy. and INDOPACOM, the combatant commanders who want to have this capability. And what we are actually talking about, Jonathan, is not only how we can help make sure that there are vessels built, but the critical key sauce for Leidos that we've been talking and has been exciting customers greatly is the payload and mission packages that makes those vessels effective in a war scenario. And so what our secret sauce is, is not only how we can partner with private equity and shipyards around the United States to either retrofit or new build unmanned surface vessels. Frankly, that's not hard. The hard part is how do you make those vessels effective in the battle of the future? What Indo-PACOM and other combatant commanders are anxious about. And that's where Leidos' long-term investments in our R&D, in C-5ISR, in space, really give us a differentiator in terms of how that vessel becomes effective for the combatant commander. Now, as far as timing, we are eager also. The dialogue in the Department of Navy is robust. We expect them to come forward with their firm plans soon, but we're still waiting. I hope that helps, Jonathan. Thank you very much. Good luck for the year. Thank you.

Thank you. And as a reminder, if you would like to ask a question, please press star one one. One moment for our next question. Our next question comes from the line of Gavin Parsons with UBS. Your line is open. Please go ahead.

Thank you. Morning. Hey, Gavin.

I really appreciate all the guidance by segment.

If I wrap all that up, can you hold and expand the mid-13% EBITDA margin beyond 26?

Yeah, I think we dropped some breadcrumbs for you there, Gavin, to see that the best is yet to come on margins in our newly formed homeland segment and certainly with additional upside in defense. So those are the areas that I would point to on a longer-term horizon where we would expect some additional margin expansion opportunities. And, you know, clearly we've talked a lot about health today and the work that they've done, the great work that they've done to demonstrate, you know, the value they're bringing to the Veterans Agency. So the expectation is, yeah, we're not done with margins, but consolidate the gains we've made, reprioritize, fund the critical investments for growth, and then deliver exceptional results on that in 27 and beyond.

And don't negate the effects of our transformation office. We're very bullish about that being able to help Leidos become more efficient. And as a result, obviously, there could be some margin uplift there as our overheads come down. And as the year goes on, as we bring in Entrust, we expect that to be margin accretive. So we're very excited about the portfolio that's laying out for the year to come.

Operator, it looks like we have time for one more question.

One moment for our last question. Our last question will come from the line of Craig Conrad with Jeffries. Your line is open. Please go ahead.

Good morning. I just wanted to follow up on the investment conversation. I mean, you talked about 3X, CapEx, and 26 and continuing to increase investment. I mean, how do you think about that stepping up beyond this year? How much of that's kind of in backlog and scaling versus future decisions? And then with that, how do you think about cash on cash returns? Because with some of these deals, we've seen better working capital offset those investments. Thanks.

Yeah, Greg. So, I mean, we haven't mapped out the 27 and beyond yet. I mean, clearly the items we're investing in this year are to scale up, for the most part, scale up capabilities that are in hand, programs that we're executing on or see clear line of sight demand for expansion, and we're finding ways to accommodate a higher ramp up on those than perhaps was previously contemplated. And you're right, as you think about, you know, with any investment outlay that we make, clearly, how do we get cash back in the door to make the cash on cash return more attractive? You know, Entrust will be an example of that. How do we bring cash in from that business more rapidly, find ways to optimize their working capital performance? You know, I think that's a strength of Leidos and an area that Tom alluded to our transformation office. One of the initial things they're going to be taking on are ways that we can look to even streamline our DSO process. And if we could take a day or two out of there, that really moves the needle for Leidos. So we're going to be focused on that heavily. We're going to be looking to realize attractive returns on all the investments we make. But I don't think that you would say the $350 of CapEx is the new normal going beyond this year. It was situation dependent. We have the capacity to do that if the business case is there. but not necessarily what we see on an enduring basis. Thank you. Thank you.

Thank you. And I would now like to hand the conference back over to Stuart Davis for closing remarks.

Operator, appreciate your assistance on this morning's call, and thank you all for tuning in this morning and your interest in Leidos. We look forward to updating you again soon. Have a great day.

This concludes today's conference call. Thank you for participating and you may now disconnect.