Leidos Holdings, Inc. (LDOS) September 2026 Conference Transcript

Good morning, everyone. My name is Sheila Kayalu with the Jefferies Airspace Defense and Airlines Equity Research Team for those on the webcast. And we have Chris Cage here, who's Executive VP and CFO of Leidos. So Chris, thank you. And Stuart, of course, Stuart Davis, who runs the IR practice at Leidos. Chris, maybe just to start off for, you know, there's been a lot of news around IT services. The stock prices have been volatile. I think Leidos is successful in a lot of elements. What do you think makes Leidos successful, and how do you think the company succeeds from here?

Yeah, definitely. Well, thanks, Sheila. It's always great to be here with you and the conference you guys put on, first-class job. Leidos, I mean, IT services is just one of the dimensions of what we do, and I think it's really our deep mission understanding with our customers. We're in the center of the action across so many different customers, and what we bring to bear is the expertise to ensure that their mission success is paramount. We've demonstrated that time and time again, which is why Leidos is positioned with some of the biggest programs on the digital side in the federal government domain, and then helping them manage their environments has led to how we can help them in other ways now as we talk about software modernization, now branching into what we're doing in the defense side on the products, hardware arena. Leidos is touching so many aspects of making their mission outcomes successful, and that's the key to our success.

Maybe can you talk about the five growth pillars and what North Star 2030 means?

Sure. Well, you know, Tom Bell came on board a little over three years ago now, and one of the first things, you know, we did under his leadership was refresh the strategy. Out of that process came North Star 2030, and we've identified five key growth pillars that have actually you know more slightly as we've fast forwarded and got into execution mode just quickly those are defense tech you know a lot of great things going on our defense tech portfolio the demand signal from the customer is very robust our energy infrastructure growth pillar we did a major acquisition earlier this year to add to that capability very excited about the demand signals in that domain as well cyber clearly both on the offensive and defensive side cyber is you know it's it's not getting any safer out there the risk posture is is highly elevated customers are demanding more capabilities mission and digital and again we talked a little bit about that you know some of the IT digital services that we perform mission software services we perform and then finally manage health services so we've got these five growth pillars we're seeing you know several of them that are really showing acceleration from growth and momentum perspective. Love to see that. And we put our money where our mouth is on the investment side, as I mentioned, energy infrastructure. And before that, we added capabilities in the cyber domain. So that's the guiding Leidos' investment decisions is where we're going to put both our internal resources and inorganic plays to ensure that these five growth pillars achieve their full potential.

As we think about, you know, your organic growth, I think you grew 4% organically in the second quarter, 5% in the first half. Your guidance implies, as you raised it, 8% in the second half. Can you walk us through some of the drivers of that ramp?

Well, certainly some of the, as I mentioned, in the defense tech arena, we're seeing some of those programs. We've been carefully curating these contract vehicles and demonstrating our capability, and the demand signal continues to grow. So some of the areas you'll see increased output would be in our integrated air defense arena. I think our IFPIC program, our, you know, counter UAS with some of our passive radar detection capabilities under the ABADS program. Hopefully we'll see a successful outcome of our maritime autonomy testing. You know, we're in the thick of that right now with our Navy customer, and that could lead to some acceleration here in the fourth quarter if we're one of the awardees there. So we have a lot going on in that part of the business that will be catalyst for some second-half growth. I mentioned earlier the energy business. You know, we had acquired interest. That is continuing to be a growth catalyst for us in the energy infrastructure side. And then there's just any number of other programs. The FAA has been on a nice run this year. You know, there's a demand signal to accelerate some of the programs that we have been operating on for them. They're looking to modernize the air traffic control experience. And so in addition to some of the legacy programs that we're executing and accelerating, we're in the heat of the battle and a competitive process for a position on the common automation platform of the future. And, you know, Leidos feels like we're very well positioned to be a key player in that regard. So most of the things that are going to lead to second half acceleration are already kind of in the bag and backlog and execution. But there are a few things from an award perspective that we believe will play out, and those could provide some additional momentum heading into 27.

I want to follow up on two items you mentioned. FAA was very contentious this time last year. Can you let us know what you do on FAA, how big of a revenue stream it is for you, and what sort of the common automation platform opportunity includes and how it could expand the business?

Well, we're a big player in the FAA, have been for decades. and they look to us to run several of components of the air traffic management system, certain software applications that support that. Our ERAM program, we have other programs, TFDM, et cetera. So through a variety of programs, we're a critical provider to them. And some of those are sustaining legacy systems. Some of those are helping them modernize the experience, you know, pre-flight, in-air, in route, air traffic management, et cetera. So it's a sizable piece of the business for us today. I won't put specifics on that because I don't think we've called that out. But it's also, you know, an attractive margin profile. So, you know, we do good work and we're well treated to do that good work for them. The common automation platform, again, is the future of that in-flight air traffic management. And, you know, there's multiple pieces of software that exist today that they're bringing together under this future program. It'll help them modernize and simplify how they manage air traffic and make it safer and better for everybody involved. And safety is a critical aspect of this. One of the reasons why we're one of the finalists in this process is because of our track record, understanding where they operate, the criticality of it, and our team with their expertise, it's second to none. So we are going through this down select phase process, you know, wanting to see increased capability demonstrations along the way. And like I said, we had hoped that there would be a decision process that would be happening sometime soon. It's a little bit unclear when the finish line is, but we do expect them wanting to move forward and get this thing going. When that happens, you know, you've got a big development modernization effort over the next few years and then a sustainment tail to that beyond. You know, it will become the new standard and some of the legacy programs that we support will go away and others will still be part of that future ecosystem.

And is this part of the $12 billion modernization program?

It's part of that. You know, there's a subset of that funding, multiple billion dollars associated with this effort in all likelihood to modernize the software.

You mentioned IFPIC as one of the catalysts for growth drivers in the second half. Can you remind us where we are on that program in terms of delivery?

Sure. So we've been scaling up our production capability, and today we're manufacturing about four units per month. But by the end of the year, given the investments we've made in tooling and the demand signal, we expect to be at about double that rate of quantity. So you'll see that program, you know, take a nice step function forward in 2027 over what it's contributing to Leidos in 26. And so the team's just done great work under the leadership of our defense president and her team. So very pleased with that. And that's, you know, whether it was defense of Guam or, you know, Korea, they're seeing more and more capabilities to field IFPIC as a part of the integrated air defense solution. It's a very affordable system. beyond that we're looking at you know how do we um look at the all-up round magazine and so there's more opportunities for leidos to take some of that uh manufacturing in-house to further you know increase our competitiveness on the program and affordability and then position ultimately for a potential second interceptor capability which the government's looking at too so i think we're we've demonstrated that we're a critical part of this this solution and you know there was a $4 billion IDIQ vehicle put in place about over a year ago, and they've consistently now issued task orders against that. So we're seeing that program ramp up nicely because of that.

That's great to hear. Maybe switching to health for a little bit. It's been the most contentious program you have, which is VBA. Can you talk about, you know, sizing that business and just level set us on what the VBA medical disability exam looks like from a revenue and profit perspective. And I don't think the RFP is out. I was refreshing the website every day since mid-June and I got tired eventually. So just update us on where we are on that program.

Well, it's interesting. I mean, not to disagree with you, you characterize it as the most contentious program that we have. I'd characterize it as the most successful program that we have. And, you know, this is the fruits of our success. The team has done an outstanding job being a critical provider to the VA, done everything we've asked them to do. And, you know, the result of that has been a very well-run program that's delivered exceptional profitability. But like all things, there's the next iteration of what this program is going to become. And people are eagerly awaiting, as are we, on what that future looks like, right? So what do we know today? The RFP for the future procurement is not yet out. The expectation is that we will see an RFP in the fall, maybe in October. We have seen a draft performance work statement that gave us an indication of where we think they're going with this. There's no big surprises in there. I think the one thing of note is their expectation to consolidate kind of all six regions of performance into this new future contract. Our read on that is, hey, Leidos is one of the only two providers that operate in all six places today. So from a risk and, you know, credibility perspective of being able to execute and hit the ground running, I think we're well positioned in that regard to demonstrate that we're going to be an important partner, should be an important partner because of one of the best performing partners. But there's other changes that have gone on that we talked about in our last call. In the near term, we did adjust some of our pricing on a few of the programs. they've paused the incentive part of the program for the for the next six months to the end of the year you know so we expect that to come back in this future contract but we'll have to wait and see the specificity of that our goal and our job is to re-secure this franchise and that's what we plan to do now you know competitively what do we need to do to make that so you know that we'll know more as we unpack the recompete i have every expectation that when we get to the other side of that that our health business will still be the most profitable segment in our portfolio you know the variables could be does the VBA continue to award this to four different providers or did they decide that now is the time to consolidate back to three or even two you know I think those things are all in play they've got to assess you know what do they want to accomplish and you know we're you know we value our relationship in the meantime continuing to deliver excellent performance between now and that recompete decision is job number one.

Is it fair to say the business is about $2 billion of revenue and represents 45% of your earnings?

It's not 45% of Leidos' earnings. It's a meaningful share of Leidos' earnings. $2 billion is probably not out of the range when you consider all six of the contract vehicles in there, maybe a little bit less than that, because we do other things for within that LQTC business of Leidos too. But yeah, it's It's certainly north of a billion dollars worth of activity, and it's been a highly profitable program.

And you mentioned, you know, what does the VBA do in terms of consolidating? And Stuart has been super helpful in having me understand this in some of the channel checks, because I think most people don't understand. I think you have 40 percent share of the VBA program. I might be wrong there, but you have an all-encompassing coverage program, which I think differentiates Leidos more than the competitors. How would an RFP that consolidates from four vendors to work, in your view?

Well, again, that's speculation whether that'll happen or not. But we certainly, you know, I think the customer had been there previously. They scaled up capacity, I believe, in their minds because the demand signal was elevated and it was going to continue to stay elevated. And that's our expectation is the volume that we're operating at today is going to persist. So it starts there. There's a lot of activity, a lot of veterans that need to be served. It's an important mission. The question is, do you need, are you more efficient if you have more vendors? you know, supplying capacity to the ecosystem? Or do you look at fewer vendors and decide, boy, they had access to an ample provider network, they had unused appointment availability in all their clinics, and why would I need to manage four different providers when I can get the job done with three or two? I think that's all part of the evaluation trade space. And so we'll see what their receptivity is to keeping it status quo or rethinking what the ultimate need is to serve the mission.

How do we think about exam volumes? I think you mentioned in the first half of the year they were at 2.8 million per quarter or annually. How do we think about normalized volumes post-PACT Act here?

Well, clearly the PACT Act created this elevated demand signal. There was an increase in age claims. We've worked through that now, industry has, and the VA, and they've done a good job because they prioritized, you know, getting that back down to a more normative level. And I think that's actually what we're seeing is actually in just in August, the, you know, the claims volume increased 6% and the total claims completed increased 1%. So there's still a, you know, heavy demand signal that's coming, and, you know, industry is generally able to meet that, but there are months where, you know, you're not able to meet this elevated demand. That's why we think the 2.8 is here to stay, right? That's indicative of where this should be, and we expect will be as we kind of fast forward here over the duration of this next program. And, you know, the number of age inventory of claims has come down to a level that's about where it was pre-PACT Act. So I think we've kind of hit this nice equilibrium where we can count on the sustained, consistent volume demand signal that's been coming at us and we've been stepping up to.

Maybe one more on health. Can you update us on MHS Genesis, where you are on that program, and now we should think about it going forward?

Yeah, well, I mean, again, starting with really proud of the success of that program, delivering this electronic health record system to the Department of War on time and under budget program, highly successful. Since that time, we've been continuing to support that customer with enhancements and O&M capabilities, and now they're looking ahead to what the next support needs to look like in the future. And as of today, we're negotiating a one-year extension with them to continue that support as it looks like today. But they want to give themselves the optionality, it's unclear whether they will do so, to perhaps pull out the software licenses that are kind of this bundled offering and perhaps go directly to whether it's an Oracle or a Philips, whoever, to procure those software licenses direct. Like I said, that may happen. They may not happen. uh structuring the arrangement such that if they do we can just pull that work scope away and adjust the price accordingly but we stand ready to support them in whatever capacity that they need i would tell you that that's never been where we've made you know our returns i mean it's a very modest return reselling a third-party software solution we do it if they ask us to but if they pull that scope away and buy that directly you know it changes the top line on the program a little bit, but not meaningfully the bottom line contribution.

So as we think about that program, you know, is it fair to say it's a $350 million contributor today, and it'll transition in next year and could be going to zero with no software and 50 to 100 if there's a software element?

I don't see a scenario where it's zero. I mean, there's a need for sustainment and support, and they're looking for that, right? So there's absolutely work scope where they're going to need a key provider, supplier by their side to help them sustain it, modernize it, upgrade it, patch it, what have you. So, you know, that's a meaningful amount of activity in some future scenario. Now, whether that is something we have to compete competitively for or what have you, that's unknown. But so there's always, there's a work, there's a role to play here supporting this customer in this mission, and we expect to be part of that. Yes, if they do pull some of the software into a direct procurement model. That puts some downside pressure on the number that you cited, which is not far off. And, you know, whether that's 100 million, 150 million, TBD, depending upon who they can negotiate with directly, right? Not everybody's going to want to play ball that way and what terms and conditions they get and what time they pull that out. But I think the main thing to focus on is there's still a substantial role to play supporting the software application and being part of the modernization of it into the future. And that's Leidos' sweet spot.

Turning to your defense business, it represents 22% of sales, $3.6 billion of revenue. You grew 6% in the quarter, 2.2 times book-to-bill. How do we think about your defense? First of all, I guess, what helped drive that 2.2 times book-to-bill outside of IFPIC? And how do we think about this business going forward?

Well, first of all, Sheila, I mean, you're just a wizard with the facts and figures there. I'm uber impressed by all this, what you've got at your fingertips here.

I have an iPad.

All right. Well, you've done your homework. And so, yeah, the defense business, everything you cited there, we're proud of.

And you have a good IR guy.

Well, he helps too. He's helpful. So, you know, this is what we love about the business. It's been hitting on all cylinders, and whether it's, you know, a nice award that we secured in the space domain to continue that franchise of what we're doing with the Wide Field of View family of programs. You're right, IFPIC and follow-on orders to expand that capability. ABADS, you know, the customer's talking about they gave us a nice award. They're already talking about increasing the scope and scale on that particular program. And so there's been any number of things. But the big activity in Q2 specifically for that book-to-bill was tied to the IFPIC volume, and so the integrated air defense demand signal continues to be robust. It does not yet include, you know, what we're expecting to see ultimately in our munitions franchise, right? The framework agreement that we've talked about for our low-cost containerized munitions, none of that's in a book-to-bill number yet. None of that's in backlog yet. And that's, you know, potentially north of a billion dollars type of activities that we ultimately expect to realize. So the defense team has got a lot of great things going on. There's several areas of that that are continuing to accelerate. And, you know, most near term that we're excited about and hopefully maybe have something to celebrate if we're successful in Q3 is on the maritime side. You know, can we secure a position on the maritime unmanned surface vessel opportunity that we're auditioning for as we speak?

Do you mind if I ask you, if you're sounding ignorant, what is that program? And it kind of came about from nowhere. So how do we think about that opportunity?

Yeah, well, I mean, so we've, you know, we've talked about maritime clearly as an area where the Leidos has robust capabilities. And we've got a nice, you know, set of capabilities in the undersea domain. We obviously many years ago bought kind of the premier architecture engineering firm in Gibbs and Cox, so our ability to design, you know, the vessels and whether it's the Trump class battleship or what have you, you know, second to none. But also Leidos has invested for decades in the autonomy arena, right? And we knew that, you know, that was where this was going. That's what we needed the position for. And so, you know, Leidos has been invited to this competition. The Navy is looking to, you know, procure hopefully up to 30 medium-sized unmanned surface vessels. We were one of seven people invited to the competition, and those trials are ongoing as we speak. and you know the expectation is the navy's got money that they want to obligate here before the end of the government fiscal year that's not to say it'll definitely happen but you know they are up against the clock and stand to potentially lose a portion of that if they don't get that under contract so there's a there's an urgency to move there's a competitive process going on right now to demonstrate that you've got the goods we've partnered with the shipbuilder because that's not that's not what we do but we bring so much else to the table here and and like i said you know we're hopeful no guarantees that we will be one of the awardees there'll be multiple awardees as part of this to for this first set of opportunity of vessels that they procure but it really kind of paves the way for a future franchise position and then you think about the o&m that goes around with this too there's a you know a real potential here for the long game to increase the scale and of what we do in the maritime domain. So I think that's something that bears watching here, certainly at the end of the government fiscal year, you know, worst case into the early part of our fourth quarter.

And can you update us on the 869 million Army macro award that you won? What is that and how does that drive the long-term profile of the segment?

Yeah, I mean, that gives us an opportunity to compete in an area, you know, probably more in the software domain than anything else than we haven't in the past. So it does, it creates new capacity for us what that vehicle does i wouldn't say it came with any immediate you know work that we're turning on day one but i'd say it's a very important positioning you know with uh with our customers to to demonstrate slidas as bona fides and you know what we can do in the command and control uh c5 irsr domain um you know where we've got some real expertise so you know that's what i I would view macro, too, as it's one more important vehicle that gives us, you know, access to a customer area for work that we should be able to scale up into 27. I don't view it as a significant catalyst for us in the near term, but one of many areas that will provide a modest tailwind into next year.

You know, Homeland represents an equal size, about 21 percent of sales to defense. And you've actually grown quite a bit in that business. I think revenue growth of 32 percent, but organic of 15. You know, how do you think about outside of interest, what the drivers of that growth were in Homeland?

Well, some of it comes back to the conversation on the FAA side that we were having earlier. They have been looking to accelerate some programs that we had been executing on. And so they had some more funding. They were getting after it. And our team was stepping up and helping them accelerate mission outcomes. So that's certainly been going on. We've had good success. You know, part of Homeland includes the Homeland defense of some of our, you know, our critical partners in Australia and the U.K., and the Australia team in particular has seen some acceleration on the work they're doing. We had won a nice position in the counter UAS domain. We won an important contract in, you know, the health arena. So we're really expanding our presence beyond the legacy IT business in our Australian customer. And then there's the TSA, you know. So that's an important customer for us, too, and we do a lot of logistics support for the TSA today, even outside of what we do on manufacturing some of the equipment that's ultimately going to move to a joint venture. But the logistics side of the work stays with LIDO. So we've just seen some acceleration across several of those areas. Very pleased to see the Homeland Organization not just show that strong growth, but improvement in profitability. So the margins are ticking up, and we think there's more room to go up from here.

Can you talk about interest? What's kind of going on with the business today? What have you learned since the acquisition, and kind of what are revenue opportunities?

Yeah, so interest, I mean, this was a big move. We had built a very nice kind of organically grown energy infrastructure, energy transmission engineering distribution business, and, you know, it was performing exceptionally well. and Trust gave us an opportunity to basically double the size of that business and significantly scale up our capability. We're about five months into that acquisition, right? So, you know, right now the team is doing a great job on very detailed integration. And so by the end of the year, we'll have completed the kind of think of all the back office systems and put them on a common set of infrastructure, and that will help them gain some efficiencies in how they execute the business. before that in the near term you know really getting the combined organization aligned right the leadership the segments underneath that leadership uh sales go to market those kinds of things so we've you know rather than operating it as two complementary businesses have that fully aligned and that work will be done here uh in short order so great progress by the team on positioning that for future success what we're pleased with is first of all their receptivity an uptake on us bringing technology and training, you know, their engineers on the tools that we had built out that had proven to be significant efficiency drivers for Lido. So that's been very welcome and been well-received. And then, you know, our customers' acknowledgement, right? So getting invited to some larger opportunities. We had signaled, you know, an opportunity for Canadian presence and some, you know, bigger, more meaty things with some of our existing utility clients. You know, they were in the gas domain, which was not an area that we participated in the past, so, you know, there are some opportunities there with some of our legacy utility customers that also operated in the gas arena, you know, like, for example, Duke Energy, that we weren't participating in projects for them in that regard, and now we have an opportunity to bid on some of those. So I like what I'm seeing. I think the teams are highly aligned and motivated. We've expanded our addressable market collectively, probably by 3x from where it was with just the business that we were executing before. So no shortage of opportunities to pursue, and I expect that growth momentum to continue as we pivot into 27.

And just to – how do we, I guess, think about what Entrust offers? Is it just a complete software solution? Is there a product set aligned with it? And what's the growth rate of the business now that you 3X the addressable market?

Yeah, it's less about software or products. It's, you know, we are using our software proprietary tools to help our customers deliver engineering packages for major, you know, whether it's a modest upgrade or a new transmission line. You know, the engineering, design drawings, et cetera, that we have to deliver, that's still highly people-dependent but augmented by technology. And that's the work that we do as a trusted provider to the utilities and the demand signal, as you can imagine, right, trying to bring more power online, the boom that AIs and data centers are providing. It's like, how do you get the power to where it needs to be and how do you help them as a trusted provider that has this capacity to scale up for these mega engineering projects? And we've expanded our reach, too, into the, you know, the front end of that process with, you know, new generation assets and how do we play inside the fence on some of the engineering. So that's where we touch and the value that we bring to the table. Where does it go for here? I mean, again, I think that momentum, you know, taking 30 percent roughly is where we benchmarked it of the manpower out of the equation. given technology deployment allows us to operate more profitability and more competitively as we compete for, you know, a tremendous demand signal coming from utilities directly or some of the data center developers that are looking to make sure that they've got power to meet their needs.

Maybe one on margins before I forget. You know, you've talked about second half margins, at least in health, stepping down 200 bps as you have a suspension of incentive payments. I guess, how do we think about margins for the overall company as well in light of what happens with health?

Well, I mean, we're very proud of the margins that we've been delivering over the last several years. But, you know, we have signaled that even this year when we went into the year, they were a little bit elevated to where that they were going to settle in for the long haul. And now with the changes that we've faced in health, you know, we've signaled that those margins will moderate down, averaging about 20% for the health segment for the back half of the year. But you think about what's going on elsewhere in the portfolio, and I was very pleased to see, I mentioned Homeland earlier, doubling our energy presence. It's proving out that that's a margin accretive line of business, and you'll continue to see that show up in homelands results in the defense space where we're maturing, you know, our product offerings in quantities, the throughput is elevated. You'll continue to see that show up in, you know, nice margin improvement over time. And I think both of those businesses have good runway ahead of them to continue to grow margins into 27 and into 28. In the other part, you know, in digital and Intel, I mean, the team's doing great work. I would say there's a little bit more range bound on the margin potential in those businesses. We're harvesting what we can. The area that has potential to help margins over time there is if the customer does continue to shift to more fixed price outcome-based contracting. We've had some opportunities to have conversations with customers about converting programs from a cost plus arrangement to fixed price. Nobody's pulled trigger on anything substantial yet, but, you know, as those conversations take shape and more opportunities present themselves, there could be longer-term ways that we can drive margins higher in that part of the portfolio, too. So, you know, too soon to put specificity around what 27 looks like, given all the puts and takes. I think, obviously, with health moderating down a little bit, that will bring the enterprise margins down somewhat going into next year. You know, we're going to work hard to get uplift in other parts of the portfolio, but that's going to take a little bit more time to fully offset the health piece.

That makes sense. Maybe one on shifting gears to capital allocation. How do we think about, you know, interest was $2.4 billion acquisition, potentially higher CapEx needs. I think they're doubling year over year. What you're looking to spend your capital on and free cash flow conversion.

Well, thanks for that. I'd say that, first of all, yeah, we were well positioned. We did interest. We very quickly paid down some of the short-term borrowings that we took on as part of that. So, you know, exited Q2 with the leverage ratio that's, you know, at the low end or even below, you know, our comfort zone, right, and our target. So we've got capacity. But that being said, we're working hard to continue to be a great cash-generating business. Went into this year expecting that we would elevate our CapEx number. We signaled up as much as $350 million. Last quarter, we pulled that back to $250 million. So it's still up from where it was last year, but kind of more in the high end of a range that we've signaled that we're comfortable operating in. That gives us an opportunity to invest in a little bit more capacity to modernize some of our classified facility space because the demand signal that we're seeing with some of our intelligence customers and that business has grown nicely. uh you know it's it it's a good return on investment to position that part of the business to to grow and scale um you know heading into the future again the good news is our facility's footprint is largely in a good spot um there might be some opportunities to selectively scale up you know in in certain locations i mentioned you know on the maritime side you know there might be a bigger presence we need in our long reach mississippi facility for example, to execute on a program like that. Or in Huntsville, it's a high-class problem when you're potentially growing out of some of your production footprint. But we're in a good spot right now. It'll probably be at the margins, increased tooling, things like that to help ensure that we stay ahead of the game. I think cash flow conversion will continue to be a strength of the business. But meanwhile, we're putting our energy into optimizing some of our back-end processes. It's not glamorous, but our enterprise transformation office is helping us get after our billing cycle, as an example, and our payable cycle, deploying more technology and AI into the solution space. And ultimately, we'll see that take a day or so out of our DSO, which will be a nice cash conversion for us.

Last one, just to end. I think as we head towards Northstar 2030, what do you think investors underappreciate about Leidos here?

I think the power of the portfolio, again, you know, coming off of Q2 where you think about it, we signaled a couple headwinds in the health business that were outside of our control, pausing of incentives, et cetera. But we were able to raise guidance through all of that because of the strengths of other parts of the portfolio. So I think we've got a very robust defense business, a defense technology business within that that is underappreciated and accelerating. I think, you know, the beauty of the energy part of our portfolio, low capital intensity, low care and feeding, you know, high return are underappreciated. And Leidos has – and then on top of all that, our digital backbone where we're in the most impactful, most consequential missions that our customers have to execute on. And, you know, increasingly that cyber protectiveness, digital connectedness is going to be paramount to have them execute their mission successfully. and Leidos is positioned across all of those domains.

That's great to hear. Well, thank you so much, Chris, for being here.