Good day, and welcome to SAIC's Third Quarter Fiscal Year 2025 Earnings Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Joseph DeNardi, Senior Vice President, Investor Relations, and Treasurer. Please go ahead.

Good morning, and thank you for joining SAIC's third quarter fiscal year 2025 earnings call. My name is Joe DeNardi, Senior Vice President of Investor Relations and Treasurer. And joining me today to discuss our business and financial results are Toni Townes-Whitley, our Chief Executive Officer; and Prabu Natarajan, our Chief Financial Officer. Today, we will discuss our results for the third quarter of fiscal year 2025 that ended November 1, 2024. Please note that we may make forward-looking statements on today's call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call. I refer you to our SEC filings for a discussion of these risks, including the risk factors section of our annual report on Form 10-K. In addition, the statements represent our views as of today, and subsequent events may cause our views to change. We may elect to update the forward-looking statements at some point in the future, but we specifically disclaim any obligation to do so. In addition, we will discuss non-GAAP financial measures and other metrics, which we believe provide useful information for investors, and both our press release and supplemental financial presentation slides include reconciliations to the most comparable GAAP measures. The non-GAAP measures should be considered in addition to and not a substitute for financial measures in accordance with GAAP. It is now my pleasure to introduce our CEO, Toni Townes-Whitley.

Thank you, Joe, and good morning to everyone on our call. My remarks will focus on three areas: first, a review of our operating performance in the third quarter; second, an update on the execution of our enterprise growth strategy; and third, our perspective on the potential risks and opportunities from the incoming administration's focus on driving greater efficiency across the federal government. Our third quarter results reflect solid performance across the business and continued progress against our long-term strategy. We reported third quarter organic revenue growth of 4.3% as increases from new business and on-contract growth offset an approximately 5-point headwind from contract transitions. Adjusted EBITDA of $197 million and margin of 10% reflects solid program performance across our portfolio. Adjusted diluted earnings per share of $2.61 benefited from strong profitability and an approximately 16% effective tax rate in the quarter. Free cash flow of $9 million was somewhat softer than what we typically produce in the third quarter due in part to an additional payroll cycle and very strong collections in our second quarter. Overall, I'm pleased with the financial performance we delivered in the quarter, which allowed us to derisk the revenue challenge we highlighted last quarter, and we now expect full-year revenue growth of 3%, which is slightly ahead of the midpoint of our prior guidance. Prabu will discuss our updated guidance in greater detail in his prepared remarks. On our enterprise growth strategy to bid more, bid better, and win more, we're seeing improved progress on the first phase. With $22 billion in submitted bids through the third quarter, we now expect to submit more than $25 billion for the full year compared to our prior target of $22 billion. We expect this momentum to continue in fiscal year '26 and '27 and are increasing our targets for submits in both years. We now, in fact, see a pipeline to over $30 billion of submits in fiscal year '27. Our backlog of submitted bids increased to nearly $19 billion on a trailing 12-month basis in the third quarter and increased from $17 billion in the second quarter. While our bookings in the quarter of $1.5 billion resulted in our trailing 12 months book-to-bill moderating to 0.9, we continue to have good visibility into reaching our target of 1.2 by the first half of fiscal year '26. Importantly, as you can see on Slide 9, the quality of our pipeline and planned submits is improving as well and becoming more aligned with our growth vectors, most notably mission IT and enterprise IT. Now, regarding the recent emergence of plans from the incoming administration and the Department of Government Efficiency, let me first acknowledge the uncertainty this has created within the investment community. Given recent commentary from the incoming administration, we expect a renewed emphasis on increasing government efficiency focused on deregulation, privatization of governmental functions, emphasizing fixed and incentive-based contracts over cost-plus and certain program eliminations. While our current revenue with agencies under particular scrutiny by DOGE is immaterial, we are preparing for a broader push for efficiency across the government, which could result in lower funding in certain of our markets. However, we believe that it's important to differentiate this environment from prior downturns in spending such as those caused by the Budget Control Act and sequestration, which resulted in arbitrary across-the-board cuts to agency budgets. We expect the incoming administration's focus to be on driving efficiency through the deployment of technology, a very different approach than what drove sequestration. We believe we're well positioned for the government transition because we have invested in technology differentiation and commercial offerings that are deployed currently and available to our customers at scale via a wide variety of channels and commercial marketplaces. As I mentioned previously, our current strategy and pipeline will drive an acceleration in this portfolio shift, and we expect mission IT and enterprise IT to represent a greater portion of our revenue in the coming years. We believe this is relevant from a financial standpoint given the improved margin profile of mission and enterprise IT but also from a strategic perspective. In an environment where doing more with less is a priority, having scale and capabilities in mission and enterprise IT position us well to better weather potential budgetary pressures while enabling efficiency with as-a-service and fixed-price solutions. As shown on Slide 6, we believe our strategy and business model position us well to respond with agility to new priorities from the incoming administration and a potentially softer revenue environment. The enterprise operating model we've implemented over the past year will allow us to adjust and reallocate our investment budget to key focus areas and respond more quickly to changes in the market. We intend to manage our cost structure and investments to maximize long-term value while delivering earnings and cash flow durability, which our business model affords. We absolutely believe that our capabilities, expertise, and value proposition position us well to partner with our government customers to drive transformation through the adoption of technology. Our strategy and the investments we're making this year are focused on capabilities and solutions that enable our customers to perform their missions better, faster, and more efficiently. For example, SAIC is the prime mission integrator for the Air Force on a program called Cloud-based Command and Control, or CBC2, where we partner with commercial companies and cloud services providers to deliver the best possible technology to our customers. The CBC2 system distills data from over 750 sensors into a single user interface to drive a more efficient and effective C2 kill chain. This program is viewed as one of the Air Force's most successful C2 modernization programs in decades. Similarly, SAIC has partnered with the Office of the Secretary of Defense as the lead integrator on the Joint Fires network program, which is transitioning from a rapid development program as INDOPAC's long-range kill chain command and control capability to a formal program of record based on its proven field success. This program is also an example where SAIC leverages the best available commercial technology and quickly integrates that technology into an effective mission solution. Most recently, this capability was integrated in record time to support Valiant Shield, an annual multinational, multi-domain war game exercise conducted this past June. We have many other examples such as this across the enterprise where our value proposition to the customer is clear, and the capability we enable is impactful. This is particularly so in our civilian business, where, as you can see on Slide 7, the majority of our revenue comes from five agencies, which support some of our country's most essential functions, including secure borders, safe airspace, support for our veterans, financial operations, and diplomacy. As a result, under an administration prioritizing efficiency, we would expect customer adoption of these types of programs to accelerate and help offset potential funding pressures elsewhere. Prabu will provide some details on how we are scenario planning from a cost standpoint, but I wanted to be very clear that SAIC's purpose is to enable our customers to operate more efficiently and effectively through the use of technology. We believe that demand for this value proposition is significant and enduring. In closing, I want to thank the team at SAIC for their dedication and commitment to executing our strategy and delivering for our customers. The work we have done this year positions us well to both navigate the nearer-term uncertainty and strengthen our place in the market longer term. I'll now turn the call over to Prabu.

Thank you, Toni, and good morning to everyone on our call. I'll focus my remarks today on an updated view of our fiscal year 2025 guidance. I'll then discuss some illustrative scenario planning to highlight the earnings and cash flow durability of this business. I'll conclude with our approach to capital deployment, including the new $1.2 billion share repurchase authorization approved by our Board. On guidance, we are increasing revenue to a range of $7.425 billion to $7.475 billion, representing organic growth of approximately 3% for the year. The improvement versus our prior guidance is largely due to improved on-contract revenue trends and a focus to deliver on our commitments. As we have said previously, we continue to see FY '26 revenue growth in a range of 2% to 4%, and our expectation is for slower growth in the first half of the year, improving to the 5% range by the end of the year as new business pursuits, which are being submitted this year, convert into revenue next year. Our focus will be to continue driving on-contract growth on our existing programs even as we anticipate growth from new business to inflect next year. We are reiterating our prior guidance for adjusted EBITDA and free cash flow and increasing our adjusted diluted earnings per share guidance by approximately $0.40, largely due to a lower effective tax rate and modestly lower share count. I would now like to discuss Slide 6 and our preparations for a renewed focus on efficiency from the incoming administration. We are preparing for potential changes to the market because it is the prudent thing to do for shareholders and better positions the company to capitalize on opportunities as they materialize. As we illustrate on Slide 8, we have a highly variable cost structure, a discretionary and flexible budget of indirect investments, and very low capital intensity, all of which contribute to our ability to remain agile and produce durable earnings and cash flow through various cycles. The scenarios on Slide 8 are designed to only be illustrative and provide investors with a perspective on how we could adapt to different revenue environments. To be clear, at this point, we have seen no indication from our customers or the broader market that these scenarios will occur, and we believe our current level of investment is appropriate for the opportunities we have in front of us. Additionally, if an element of the administration's efficiency efforts is increasing the usage of fixed-price contracts and a transition away from cost-plus work, we believe our track record of delivering healthy margins on this contract type indicates our ability to deliver savings for the customer and strong returns for shareholders. In fact, more than two-thirds of the $25 billion to $30 billion we plan to submit next year is in enterprise and mission IT work, which produces higher margins than our engineering and professional service portfolios. Finally, delivering on our free cash flow and free cash flow per share commitment is a top priority for the company. Our ability to adapt our cost structure to the revenue environment without impacting our ability to respond on the upside and deploying our balance sheet prudently, but more aggressively are two key levers we have to hit our free cash flow per share target of $11 and $12 in FY '26 and '27, respectively, even with softer revenue trends. This durability of cash flows gives us confidence that focusing our capital deployment efforts on our share repurchase program is the right strategy to maximize long-term shareholder value. We now expect to repurchase approximately $500 million of shares this year and will begin executing against our new $1.2 billion authorization in our fiscal fourth quarter, representing approximately 20% of our diluted shares outstanding. We continue to target repurchases of $350 million to $400 million annually in the coming years, with the option of being opportunistic based on market conditions while maintaining capacity for capability-focused M&A and holding leverage at around 3.0. Lastly, as you all know, aligning incentive compensation with long-term shareholder value is an area of focus at SAIC. We will continue to evaluate our compensation strategy to ensure that the targets we establish are metrics that maximize our team's focus on creating long-term value for our shareholders. As Toni indicated, we are preparing to navigate the uncertainty in front of us while remaining focused on executing for our customers, investing in our employees, and delivering for our shareholders. I will now turn the call over for Q&A.

Our first question comes from Matt Akers with Wells Fargo. Your line is open.

Good morning, everyone. Thank you for the question. I wanted to ask about the AAV contract resolution mentioned in the press release. Could you please clarify the impact of that this quarter?

Hey, Matt, good morning. Prabu here. It contributed less than 1% to revenue for the quarter, amounting to about $13 million to $14 million.

Okay. Got it. And then on the '25 guidance, it looks like you're expecting about 3% kind of at the midpoint here. I think you've talked about something closer to kind of mid-single-digits as long as the recompetes sort of don't go against you. I guess anything else that's big that you're sort of holding back next year that you see as a recompete risk or just kind of how you're thinking about maybe potential upside to that number next year?

Hey Matt, it's Toni. Good morning. We've mentioned in previous quarters that we expect to exceed a book-to-bill ratio of 1.0 in the first half of fiscal year 2026, and aim for mid-single-digit growth by the second half. Our backlog of submitted bids and historic win rates support this expectation for FY 2026. While we've acknowledged some headwinds from recompetes and started this year with significant challenges, we anticipate entering next year with fewer obstacles. Overall, we believe all indicators point towards achieving mid-single-digit growth by the latter half of next year.

Hey, Matt, one other data point here. On the recompete headwinds heading into next year, we expect that to be a little over 2% and of course, that does not include headwinds from walking away from the compute and store part of Cloud One, which could be an incremental 2% to 3% but not a recompete headwind, but just a transition headwind, if you will. So a little over 2% is still where the recompete headwind is, which is obviously, as Toni said, a lot better than where we were this time last year.

Great. Thank you very much.

Thank you. Our next question comes from David Strauss with Barclays. Your line is open.

Hi, good morning. This is Josh Korn filling in for David. I noticed in the slide deck that the win rate for recompetes this year is still below the target. I wanted to ask about the current win rate on recompetes, the progress being made towards the target, and any measures being implemented to enhance it. Thanks.

Hey, Josh. Toni. Thanks for joining the call. Yeah. Look, the recompete win rate, we came in with recompetes a number that had an overhang into this year that affects us throughout the year in terms of that win rate, in terms of the dollar amount, when we lose larger deals, they have a lingering effect on that win rate. As we just responded to the last question, we're going into next year, we believe, with something closer to a 2.5% impact of recompetes going into the next year. We are still working through a new centralized business development process that we put into place this fiscal year. And as we can see, we see some early success in terms of submissions and a better, higher quality bid. We've identified a couple of the key recompetes that have affected the number this year, and we feel better about where we are going into next year.

Josh, one additional data point is that our recompete win rates have been below our target of 90%, specifically less than 90%. On the new business front, our win rate is higher than the industry average, which is around 30%. We focus on submit volume because we see the relationship between recompetes and new business as a blend. This allows us to calculate a blended win rate at various submission levels, leading us to an updated submission perspective for FY '27 exceeding $30 billion. You can analyze that against blended win rates of 30%, 40%, or 50% between recompetes and new business. I hope this explanation helps.

Great. Thank you very much. I’ll pass it along.

Thank you. Our next question comes from Seth Seifman with JPMorgan. Your line is open.

Hey, thanks very much and good morning. Wanted to ask, starting off about, I guess, you mentioned the ability to shift more to fixed-price contracts. And I think that it seems like that's helpful in this environment. SAIC, like all of the peers, still has a sizable amount of cost-plus work. I guess maybe if you could help people think about in this environment where there's this idea of shift to fixed price. What's really realistic? Why is it a decent amount of the work in the sector cost-plus? And what are the benefits for the customer in terms of having certain types of work be cost-plus as well?

I'll start with that one, Seth. Big picture, the majority of our mix is cost-plus, roughly four-fifths. Part of our success in transitioning from cost-plus to fixed price is that fixed-price service offerings are inherently more efficient for the government and generate good returns for companies like SAIC. We have a history of converting cost-plus programs into fixed price, with two examples: the GMS program, which we took over from one of the primes, and the Mark 48 program in our Navy business that started as cost-plus and is now fully in production as fixed-price. We have a proven track record of providing efficiency to our customers. Additionally, we offer several software sprints that are fixed-priced within our cost-plus programs. By providing fixed-price options, we can stay ahead of cost curves over several years and offer top-notch solutions to our customers as a systems-agnostic tech integrator. Toni?

And, Seth, I would just add that if we look at the overall strategy, we are measuring our transition from cost-plus contracts to fixed-price agreements. This is a key element of our strategy as we shift our portfolio from professional services and engineering towards mission and enterprise IT. A significant portion of our civilian business operates under fixed-price contracts, and we understand how beneficial that business can be. We have experience managing both enterprise IT and mission IT in a fixed-price setting, which has been central to our strategy even before any administrative changes. This has been part of our plan for the coming years, as outlined in our growth strategy. At the top line, this approach is not only more advantageous and beneficial for the government, but we are also learning how to incorporate fixed-price elements and commercial solutions into our offerings, starting from a cost-plus base.

Great. That's very helpful. And then maybe as a follow-up, with regard to the book-to-bill target of 1.2, just from a timing perspective, independently, if anything the company does or doesn't do, should we think about some of the friction involved in an administration transition as posing some timing risk to reaching that 1.2 in terms of will contract awards potentially getting pushed out as new folks get placed in agencies?

Seth, that’s a valid question. We're observing the market trends, and there are mixed signals. Some areas are experiencing quick acquisitions while others are more cautious. This creates a balance between increased spending and potential slowdowns. I believe it’s important to focus on key metrics as we approach Q3, especially with a significant backlog and pending awards. We have around $0.5 billion in awarded contracts that are currently in protest. Additionally, we are still actively submitting contracts and plan to exceed our submission goals for the year. We intend to continue our submissions in Q4 to wrap up the year. All of this suggests we are on track to achieve our 1.2 target in the first half of fiscal year '26.

Great. Thanks very much.

Thank you, Seth.

Thank you. Our next question comes from Jason Gursky with Citi. Your line is open.

Hey, good morning. Just a quick question for you on the mix of the business. You've got a slide there that talks about your exposure to different agencies and communities within the federal government. It looks like the Intel community explicitly is pretty small as a percentage of the overall business at about 6% and DoD is at 71%. I'm just kind of curious though within DoD, whether some chunk of that business you would characterize as being more intelligence-focused within DoD. Just give us a little bit of flavor of what your intelligence business looks like holistically and whether you believe that you've got some advantages there, and that's a potential further growth vector for you.

Yeah. Fair question, Jason. I think the short answer is, yes, there are elements within our DoD business that have characteristics that you could fairly characterize as being Intel and frankly, that actually extends in nearly all of our business groups, whether it's Army Intel or Air Force Intel, there are elements that I think do link to the 6% that is showing up purely in the Intel bucket. I think one of the growth vectors for us has been kind of the C2 Intel market and being a system of systems integrator getting data across the forces JFN is an example we called out. Obviously, CBC2 is an Air Force program, but it has broader applicability. So there's a fair amount of the work that is overlapping. And one of the ways we're thinking about our investments across the enterprise is not just through the factory, but also investments we're making in areas where the mission shares commonality. And to me, that's the way we're bringing this together at the enterprise level. Toni?

No, I think that's absolutely right. And quite frankly, when we think about even tucked into our Air Force business right now is our combatant commands, which are really, in many ways, joint force, joint efforts and there is Intel behind, if you will, supporting all of those. And so that 6%, I think it's a fair thing to say that, that is sort of the discrete Intel business within Intel named agencies versus the military Intel that may be slightly comingled in the DoD number.

That's what I thought. You've mentioned this in various parts of your prepared remarks and in some answers to questions, but could we take a step back and look at the overall picture? The fact that you have more bids in the pipeline than you initially expected at the start of the year suggests that the volume of bids you'll be submitting over the next 24 months might exceed your initial expectations. I'm curious as to why this increase doesn't put upward pressure on your revenue growth targets. If you're submitting more bids, why wouldn't we see better growth from you in the coming years?

I would connect two important aspects here. First is the timeline of the acquisition process. Submitting more bids this fiscal year impacts when those bids are awarded, which typically leads to a protest environment before we can actually convert them to revenue. Consequently, we expect to start seeing the revenue effects of this year's submissions in the latter half of next fiscal year. Therefore, it's crucial for us to build up our backlog of pending awards, as evidenced by our data. We also need to address any challenges related to recompete losses or program transitions, aiming for an appropriate balancing act. We believe we are entering fiscal year '26 in a stronger position compared to fiscal year '25, having tackled many recompete issues. Nonetheless, we continuously have to account for potential losses in other business areas or shifts in the government's acquisition strategies. As a result, we are optimistic about achieving significant growth in the latter half of '26 and into '27, thanks to our current submission rate. We're encouraged by our progress and believe it's indicative of a streamlined operation focused on executing and converting revenue and margin from our efforts.

Jason, I would add that we are guiding for about a 5% growth rate in fiscal year '27. We expect this business to grow at a mid-single-digit rate, and we achieved 7.5% growth last year in fiscal '24 organically. There are no structural barriers preventing this growth. We need to address some headwinds, which is what is pushing us toward approximately 5% growth by the end of fiscal '26. I believe the submit volumes are strong, and if the blended win rate remains consistent, there's no reason we shouldn't grow. I want to emphasize that we are seeking vitamins, not calories. By stepping away from a Cloud One compute in-store contract, which mainly represents calories, we're signaling our focus on increasing EBITDA dollars and converting those into cash. Our confidence is reflected in the repurchase program, as we believe we can achieve the same growth rate we had last year with better margins.

Okay, great. Thanks everybody.

Thank you. Our next question comes from Cai von Rumohr with TD Cowen. Your line is open.

Yes. Thank you so much. So my understanding is you have two quite large recompetes coming up, Evolve, the State Department contract that was Vanguard and then S1 which together, they're clearly over 2% of annual revenues. Could you give us some update on the status of those recompetes and when you expect decisions?

Hey, Cai. It’s Toni. How are you?

Good. Thank you.

We are focused on the State Department side and are continuously tracking its progress. This contract is moving in a positive direction from our perspective, and we are delivering well on it. We are doing everything possible to meet and exceed customer expectations, but we have not received any signals regarding changes or new milestones related to acquisitions. Therefore, we anticipate that this trend will continue through fiscal year '26. Our strong program performance and delivery are key indicators of our ability to win similar work in the future. Regarding the S1, which is actually referred to as S3I, we feel optimistic about our position. The team is actively engaged with this effort, and we expect it could lead to an award by the end of the fiscal year. We are receiving positive indications at this point but are monitoring the situation closely, as it might extend into the next fiscal year. However, we view this as an effort aimed at concluding within the current fiscal year.

And is that bigger? I mean, you mentioned about 5% this year. That's a very large, large number, isn't it? If you win it…

Yes.

I mean because you're bidding all the pieces. Okay. Thank you. And the last one is go ahead.

No, Cai, I just want to clarify that S3I consists of four different programs. The first program is coming up for recompete and will close soon. Overall, it is indeed a very large program, but I want to emphasize that there are four distinct procurements involved, with the expectation that the first one will close by the end of this fiscal year.

And the first one, Cai, Prabu here, is the first one is expected to be north of $1 billion when awarded.

Got it. Okay. And then the last one is protest. Can you update us on where you are with protests that might impact your business, Cloud One and any others that would be relevant?

So, hey Cai, on protests, I think as we noted, there's about $0.5 billion of work that we've won that is currently in protest or reprocurement as the case may be. We are cautiously optimistic that we will have those protests adjudicated, and they were both procurements that went in our favor, either new or takeaways. And we are expecting in the next couple of quarters to get some adjudication run rate revenue, big picture, one way to think about it, run rate revenue would be an incremental 1% from the two programs as we start out. And that's really all that's open right now on the protest front. We are not currently anything that we protested that we've lost that we're waiting for adjudication on. So…

Got it. Thank you very much.

Thank you. Our next question comes from Ellen Page with Jefferies. Your line is open.

Hi, guys. Thanks for the question. Looking at margins, it looks like Federal Civil contracted about 80 bps quarter-over-quarter, and it looks more in line with Defense and Intel in the quarter. How do we think about the trajectory of margins across the two segments? And what drove that contraction at Civil in the quarter?

You want to start and I'll finish?

I'll start, Toni. Thank you for the question, Ellen. I'm hopeful that our civilian leaders are paying attention to this. It's a topic we frequently discuss internally. Last year, we experienced several nonrecurring positive outcomes that significantly improved our margins. We expect civilian margins to hit their lowest point this year, projecting around 12% by year-end in the civilian segment, largely due to the absence of those exceptional items from last year. Moving forward, we anticipate our Civil business will become more profitable, and we aim to increase margins in that sector. Since this business primarily involves time and materials as well as fixed-price work, we are hopeful to enhance margins by 100 to 150 basis points over the next few years. That's my perspective.

And I think that's reflective of the submissions from civilian in terms of our pipeline, we're seeing more accretive submissions coming out of civilian business. So that further supports our expectation that 12% is our low point, and we're moving forward from that and up from that on the civilian business.

Yes, Ellen, the reason they converged significantly this quarter was that the AAV settlement clearly had a positive impact on Defense and Intel.

Thanks. That's helpful. And just on your fiscal '26 expectations. What are you baking in for on-contract growth next year? And how are you thinking about the ability to push that in a potentially more difficult budget environment?

Well, we've had an excellent year this year in terms of on-contract growth, and as Prabu indicated, we have grown 5%, 6% on on-contract growth this year and have some similar expectations, if you will, for next year. And so one of the things that has been part of the strategy has been the ability to pivot not only in our pipeline but in our contracts, in our current programs to embed more technology, more commercial capability disrupting in some areas of our own labor-based contracts to bring more commercial solutions and where we've been able to introduce fixed price into cost-plus. That we're starting to see some lift as well as obviously being able to just meet the needs of our customer in a much more holistic way. And so we fully expect to rely on on-contract growth to at least the same extent that we have this year and possibly some lift depending on where we see unique opportunities next year.

Thank you. I’ll leave it there.

Thank you.

Thank you. Our next question comes from Tobey Sommer with Truist Securities. Your line is open.

Hi, good morning. This is Sid on for Toby. Curious if you could potentially quantify how the margin profile of your backlog might be different than your reported margins today and just how we should think about layering that in as growth from new business potentially inflects?

Yeah, I'll start with that one first. I think big picture over the last couple of years, we've consistently expected more from our bid thresholds. And that is for every contract type, cost-plus, fixed-price, and T&M. And we've moved internal hurdle rails up I would say, between 50 and 150 basis points depending on the contract type. We've also put a lot of emphasis on ensuring that I'm going to call our D students are getting the right message in terms of moving up their own operating margin performance on every recompete cycle. So we're moving the common base of programs and that is starting to reflect itself in the backlog of submissions we have where, in general, as we've shared on prior earnings calls, we are seeing higher margins come through. One way to think about it is if you ran the blend between defense and civil together, you can see sort of, if you will, segment operating margin sort of at a blended 9%. Our objective is to move that 10, 20, 30 bps over the course of the year, but balancing against the investments we're making in the company to ensure we can drive EBITDA dollar growth over the next several years. So it's a little bit of a balance. No reason we couldn't get to 10%, but I think we're trying to calibrate between investing in the business capabilities as well as generating more returns from the business.

Yeah, no. And I think as Prabu talks about the hurdle rates, that also goes to deal selection, bid selection. So we're making conscious decisions if we can't get to that hurdle rate to no-bid and as well to make sure that our execution expectations on margin are monitored and met and incentivized where necessary against what was bid. And so I think it's all of that discipline that Prabu speaks to that helps us see not only a slight increase in the accretive nature of our submissions, but the expected revenue that would follow in the P&L going forward.

We are not hesitant to challenge cash terms and conditions that we deem inappropriate. It’s crucial to evaluate whether we can sustain this contract over the next five years, particularly in an uncertain environment. Our priority is to ensure we create the right value for our shareholders, and that’s our current focus.

All right. Thank you.

Thank you. There are no further questions. This does conclude the question-and-answer session. You may now disconnect. Everyone, have a great day.