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Greetings. Welcome to Leidos Holdings, Inc. Fourth Quarter Fiscal Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *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 Thomas A. Bell, our CEO, and Christopher R. Cage, our CFO. Today's call is being webcast on the Investor Relations portion of our website where you will also find the earnings release and supplemental financial presentation slides that we are using today. Turning to Slide 2 of the presentation, today's discussion contains forward-looking statements based on the environment as we currently see it, and as such 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 3, we will 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 Thomas A. Bell, who will begin on Slide 4. Thank you, Stuart, and good morning, everyone. I am pleased you have been able to join us to discuss another strong quarter for Leidos Holdings, Inc. 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. Despite these challenges, we were able to deliver on our promises. Importantly, first, to our customers, and as a result, to our shareholders. We are pleased to have recorded 2025 revenue toward the top of our guidance. And earnings and cash ended the year above our guidance. 2025 adjusted EBITDA margin was 14.1%, a year-over-year increase of 120 basis points. Non-GAAP diluted earnings per share grew by 17%, and free cash flow grew by 26%. Q4 revenue was $4,200,000,000, a year-over-year decrease of 3.6%. But normalized for the extra week in our 2024 and the six-week government shutdown in 2025 Q4 revenue would have grown approximately 4%. Later on this call, Chris will give you all the details on our financials. In addition to those financials, another significant highlight of our fourth quarter was net bookings of $5,600,000,000 delivering a book-to-bill ratio of 1.3 times. This matched the 1.3 book-to-bill ratio we also delivered in the 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 $2,200,000,000 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 Marado 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 $455,000,000 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 ubiquitous secure, commercial-grade technology that Department of War requires across the globe wherever the mission calls. And we secured positions on two key ten-year IDIQs, the Missile Defense Agency's $151,000,000,000 SHIELD program supporting Golden Dome, and the Defense Microelectronic Activities $25,000,000,000 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 am 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 have 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 Barrick, a noncore legacy energy asset, and last month, we agreed to acquire Entrust Solutions Group. Entrust 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 deal's 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 $312,000,000 in IRAD and capital expenditures to fund amazing innovations and develop radical solutions. 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 have 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 warfighting 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 $350,000,000. 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 our customers that we expect to accelerate our growth in the near term. And we will accomplish all this while holding on to the profitability that we have 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. Our capital management strategy. Also, I am 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 Grunsfelder, 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 formerly in our National Security sector. This will better enable Cindy to prosecute integrated defense efforts like Golden Dome, and C5ISR. This segment will continue to house our space and maritime growth pillar. Homeland brings together all Leidos 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 Shemansky 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. Smartest government on the face of the earth serving our intelligence agencies and making sure that we have the 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 stand-alone growth pillar delivering IT modernization services and solutions for all customers, while also providing CIO and CSO functions for Leidos. Steve and his team are embracing our AI-first to exploit AI for a more efficient Leidos, 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 to rural care, and growing our health footprint with both the Department of War and the Veterans Administration. I have 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 are building our robust future. I have asked Jim to remain at Leidos as a special adviser 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 am charging Will with driving significant out in workplace efficiency through business process reengineering, 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 is past is prologue, I am 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, 2024, and 2025. 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 will pass the call over to Chris for a deeper look at our 2025 results and our financial guidance for 2026. Chris? Good morning, everyone.

Thanks, Tom.

As Tom highlighted, 2025 was an outstanding year for Leidos Holdings, Inc. 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, the precision of our North Star 2030 strategy, and the discipline and agility of our entire team. Please turn to Slide 5. For the year, revenues of $17,200,000,000 were up 3.1%. For the quarter, revenues of $4,200,000,000 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, $0.24 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 $0.50 to EPS. Turning now to an overview of our segment results on Slide 6. I am 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 work week and shutdown had roughly the same impact on the sector as the company as a whole. With one exception. Commercial and International was unaffected by the shutdown. And the extra work week 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 DHMSM 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 work week, 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 Barrick 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 remains aligned with administration priorities and sustained robust revenue growth throughout 2025. Q4 performance was bolstered by accelerated production of small glide yacht emissions and IFPIC 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 and 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 $495,000,000 and $1,750,000,000 respectively. Outperforming our cash flow guidance by $100,000,000 reflects our commitment to profitable growth, and $150,000,000 in cumulative Section 174 cash tax savings, of which $75,000,000 was realized in Q4. Netting out capital expenditures, free cash flow for the quarter was $452,000,000 or 127% of non-GAAP net income. For the year, free cash flow was $1,630,000,000, a 104% conversion rate. In the fourth quarter, we repurchased $305,000,000 worth of shares and paid $55,000,000 in dividends to end the year with $1,100,000,000 in cash and cash equivalents, $4,600,000,000 in debt, and a leverage ratio of 1.9 times gross debt to adjusted EBITDA. As Tom mentioned, we are excited to take advantage of our balance sheet to further the strategy through the acquisition of Entrust. We plan to pay the all-cash purchase price of $2,400,000,000 with $500,000,000 of cash on hand, $500,000,000 in commercial paper, that we will pay down during 2026, and $1,400,000,000 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 North Star 2030. Now on to the forward outlook on Slide 8. 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 dividend 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 $17,500,000,000 and $17,900,000,000. 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 are guiding to mid-13s adjusted EBITDA margin in 2026. This level normalizes some of the onetime benefits of 2025, and secures a sustainable baseline. We expect to continue to invest to accelerate our growth pillars, 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 $200,000,000 and an effective tax rate of about 24%. We are also assuming a weighted average share count of approximately 129,000,000. We expect another robust year of operating cash flow at $1,750,000,000 despite a $90,000,000 year-over-year headwind from 174 timing. Free cash flow will be down a bit as we triple our CapEx spend to $350,000,000. 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 will 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 $5,700,000,000 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 opportunities for margin improvement. Last year, the Health segment generated $4,700,000,000 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 VBAMDE work and continued transition on DHMSM. Beyond 2026, we see Health inflecting to growth and sustaining robust profitability above 20% as administration priorities to unlock make opportunities in rural and behavioral health as well as enhanced automation to deliver better, faster, and cheaper solutions for our veterans. Homeland delivered $3,100,000,000 in revenues, with non-GAAP operating income margins of 9.2% in 2025. 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 $3,700,000,000 of revenues, with non-GAAP operating income margin of 10.1%. We anticipate revenue growth above our corporate range in 2026, 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 are ready for questions.

Thank you. To ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Please stand by while we. Our first question will come from the line of Seth Michael Seifman with JPMorgan. Your line is open. Please go ahead.

Hey, Lisa. Hey. I wanted to ask start

starting off, do you could talk a little bit about the the investment areas that you are expecting to put additional CapEx in and the way that that supports and 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 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 is not exclusively with the Department of War. The Department of Transportation, the FAA has significant program opportunities as I am sure you are aware. And, we are very keen on investing in our health business to ensure that we continue to accelerate away from the pack 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 is not where all of that CapEx and all of that investment is going. We are 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 and just to

dive a little deeper and certainly in the defense area, that is the area that over the last few years, we have continued to ramp up our level of

you are seeing the results of that with the increasing growth rates. Looking ahead to 2026 certainly, our Maritime Growth Builder is an area where you will see an expansion of some of our facility space there. What we are doing in integrated air defense the awards is, again, a reinforcement that we have products that the government wants and how do we ramp up our production capacity hypersonics, etcetera. So there is a number of programs there that we will support that investment, and we are 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 double digit, so strong exit rate. But I guess the implication is, 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, Seth. 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 have been talking about over the last several quarters we have not seen you know, any significant money yet put towards some of the Golden Dome initiatives the FAA modernization, etcetera, those are catalysts that can help propel the second half. We have got some new program wins that we will be starting up Tom talked about a couple of those, so you will see that pattern increase in the back half of the year. And then, you know, we have got a very robust business development pipeline. Obviously, we are pleased with the 1.3 in Q4. Back-to-back quarters of 1.3 book-to-bill, and the team, that is despite the fact that we saw a lot of slippage into 2026 from the award. So you will see some of those across a number of the business segments drive growth in the second half of next year. Yes. And just to put a little added context on that, Seth, we saw about $7,000,000,000 in awards slip

from Q4 into this quarter. And our we have now $20,000,000,000 of pending awards and a $49,000,000,000 of backlog. So we have a high proposal activity,

yes. There is a lag probably because of that long government shutdown we

in the in the fourth quarter. But we expect those awards to start coming in, and that will feed growth through the end of the year as those programs get on to execution. Thanks, Jeff.

Great. Thank you. Thank you. And one moment for our next question.

Our next question comes from the line of Kenneth George Herbert with RBC Capital Markets. Your line is open. Please go ahead.

I wanted to pick up on those last comments that I am

book-to-bill. When I think of what we have seen from other services players, we have seen a dip and then an

expectation of a bounce in book-to-bill. You guys have performed very well. So there is no there is no dip. But despite that, it sounds like you still think that the award activity

and and the bookings backdrop is gonna accelerate from here based on what you just said. And and I was just hoping you can maybe elaborate on that and and shed some additional color on what the shape of that might be through the year.

Thanks, John. Certainly. Well, first of all, let us put this in context.

We have 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 have been investing in in this function. We have 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 is no it is not happenstance. It is the it is 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 are very happy with both our recompete win rate and our takeaway win rate. And so we feel very good about, capacity we have built in our 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 the next twelve month pipeline of submittal activity is the highest point of the year in the fourth quarter. So we have seen that Crexendo, and looking at the percentage of activity, we expect the bulk of that, three quarters of that to be geared towards new business and takeaway. So there is know, some recompete turf to protect, but that is, 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 are pursuing. Thanks, John.

That is fantastic. Thank you.

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

Yes. Thanks. Good morning, guys.

Good morning. 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 recompetes, you know, gotta sharpen the pencil. And and any view on, you know, timing,

any updates on that?

Thank you. Sure. Well, first of all, we are very proud of Liz and Larry and the LQTC and Health business that we run. We have got a fantastic, machine there that has helped our customer decrease backlog of veterans awaiting exams by almost 60%. And so

we are very proud of what we have 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 to seed this market space despite, as Chris mentioned in his commentary, the entry of the fourth fender 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

to continue to serve our customers best and the this nation's veterans best. We have, as we have said, a two prime focuses for how we are gonna grow our Health business. One is rural health transformation, and the other is behavioral and integrated health exams and and and services.

But on your specific,

question on the medical disability exams. We we do see that in the middle of this year, we expect an RF and a bid for the the the next phase of that program. Details at this point are pretty light about exactly what customer is looking for, but we are actively engaged with them as we speak. And as we have 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, are done less expensively for the Veterans Administration. And we expect those will be the three things that, the the Veteran Benefit Agency wants to see.

They wanna see cost come down. They wanna see the number of, veterans that get services go up, and they wanna see the efficiency and effectiveness of those exams be

less mistake prone. And so that is everything we are focused on, and and what we expect to see. We will we will update you as the year goes on. As we say, we expect a a a a recompete and a bid somewhere in the summer.

And we will keep you very well informed on that. Chris, anything to add? Just two quick points, Gautam, I would add. Number one, we just recompeted the program and look at our performance. Right? So we have we have proven that every time we can sharpen the pencil, we can deliver for the customer and and for Leidos and our shareholders. Number two, if you go back to my prepared remarks, you know, we kinda gave a horizon view in looking at Health beyond 2026, robust profitability above 20%. That certainly contemplates how we envision this recompete unfolding over time. Right? This is an area that we can sustain very attractive returns in, and we are excited to demonstrate that.

Thank you, Gautam. Thank you.

Thank you. And one moment for our next question. Our next question comes from the line of Colin Michael Canfield with Cantor. Your line is open. Please go ahead.

Hey. Thank you so much for the question. Maybe turning to the FY 2026 growth guidance as well as margin. Perhaps if you could talk us through where you are forecasting the greatest degree of

in order to lift both

conservatism and what are the key milestones that you need to see

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 onetime 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 frame that. I mean, there is certainly a lot of irons in the and a lot of make market opportunities that we are chasing. Clearly, Defense has demonstrated a robust track record. That is probably the area that you know, some decisions get made, if, beautiful bill funding rolls out, Golden Dome activities accelerate. Especially in Maritime, you could see that growth trend pick up more quickly. So there is some opportunities there that we are just monitoring. And then the FAA one, as Tom mentioned, you know, the teams are ready to execute. We have put in very compelling offers to the customer. We you know, built demonstration-ready capabilities. We are ready to go. So those things could be pulled forward, and we could see some uplift. On the margin front, I think, you know, the commentary we just had on on Health certainly is the area that we, you know, 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, you know, we think we factored all that in as it relates to one-timers. None of those are contemplated in this guide that we have rolled out. So, you know, as we deliver over the course of the year, I do believe that points the direction of how the momentum will carry into 2027 and beyond for North Star 2030. That is great, Chris. Thank you.

Thanks.

You. And one moment for our next question. Our next question is going to come from the line of Tobey O'Brien Sommer with Tru. 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 in areas that

are are still developing that may that may demonstrate some progress here in 2026 in that direction. Thank you.

Yeah. Sure. Thank you, Toby. Let us see. Well, first, let us start with Ipiq. You know, we were awarded a $4,100,000,000 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 the readying of the defense industrial base FMS, possibilities, and, of course, Golden Dome, that is a, a very good bet for us to continue to grow. So we are very bullish on IFPIC. You see the customer investing in a second interceptor. That that solidifies their seriousness of the system as a whole.

And as the lead systems integrator for that

we sit in in service to our customer to make sure that that system is all that they want it to be. Hypersonics was mentioned earlier. Obviously, we the the Department of War is fast tracking some six tech priorities to include scaled hypersonics. So that shows you that they are serious about it. And our recent awards of, Slickham N and Jahato OTAs, those those mirror the Army's success of the the Dark Eagle program. And so we are very happy with where that program is going from here. I mentioned in my prepared remarks the ABADS award, although we cannot 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. You know, we we are we are very bullish on our opportunities to serve, the Space Force's needs there. They are they have a budget climbing toward $40,000,000,000, and we are a vital partner for the technical contributions across the Space Development Agency and all their tranches to date. So we have been in accelerating internal investment there. The FDA's Tranche 0 mission has been successful, and we are a key part of that. We have delivered two Tranche 1 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 are positioning for growth with 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 am not talking about is that two IDIQ I mentioned, the SHIELD IDIQ where we have been investing in. The Microelectronics IDIQ. Again, these are areas. Us being in those IDIQs gives us the opportunity to help the customer serve the nation through task orders therein, and we we are very bullish about that. And so we are we are 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 are very bullish on being a defense tech company. And we are very excited about the opportunities for us to continue to grow that business under Cindy's leadership.

Yeah. Toby, I would only add, you know, Tom had a robust list there, and there is others. Maritime certainly is one of those areas with our SEDAR product, ADC Mark 5, what we are 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 Kenneth George Herbert with RBC Capital Markets. Your line is open. Please go ahead.

Yes. Thank you. Good morning, Tom and Chris.

Good morning, Ken. Yeah. Maybe if you could address

capital allocation. I think you said you will be gross, 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 have, 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, North Star 2030 strategy, in hand and we have been 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 have discussed. So

we have

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 how we deploy our capital in the near term. That being said, we will continue to our our dividend program, and we will look opportunistically for other shareholder friendly deployments of capital as the as the need arises.

Chris? Yeah. I mean, Ken, to get to your specific question on the repos, we have not baked any into the guide that we gave you for this year. I mean, you can see that with interest coming online, there is a lot of capital going to that. But we have more capacity, and the priorities are what Tom laid out. And we will monitor things as the year unfolds.

Thank you.

Thank you. You. And one moment for our next question. Our next question comes from the line of Scott Mikus with Melius Research. Your line is open. Please go ahead.

Morning, Tom and Chris.

Morning, Scott. Tom, we have seen a lot of software stocks come under pressure year to date. Because of concerns that AI could drive down the cost for companies

develop software internally. 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 I

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 is not a threat. It is a force multiplier for everything we have always wanted to do. So we continue to lean into all commercial technologies. It is

part of the business model that has made Leidos successful, we do not 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, they want to embrace.

That is why Will Johnson and, our our Digimon business embrace AI internally. We are very keen to make sure that

we are 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 are in. Making their their outcomes smarter and more efficient. I hope that helps, Scott.

Yeah. It does. And then a quick question. You noted the backlog figures do 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 would, convert to revenue, or is that purely upside to the guide?

Yeah. We we we do not 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 is that is 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 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 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 is a ton of opportunities out there where we are 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 Siegmann with Stifel. Your line is open. Please go ahead.

Good morning, Tom, Chris and Stuart. Thanks for taking my question. Good morning, you you highlighted Maritime as an area that could be potential for this year incrementally. Can you talk a little bit about where the government is and the progress in the in identifying programs and when we might expect to actually hear something on some of these? Thank you. 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 NATO department of the Navy and INDOPACOM, the 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 have 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 is not hard. The hard part is how do you make those vessels effective in the battle of the future? What INDOPACOM and other combatant commanders are are anxious about. And that is where Leidos' long term investments in our our

our R&D

in C4 C5ISR, in space, really give us a differentiator in terms of how that vessel becomes effective for the combatant commander. Now 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 are we are 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. One moment for our next question. Our next question comes from the line of Gavin Eric Parsons with UBS. Your line is open. Please go ahead. Thank you. Good morning.

Hey, Gavin. I really appreciate all the guidance by segment. If I wrap all that up, can you hold and expand the mid-thirteen percent 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. I mean, you know, clearly, we have talked a lot about Health today and the work that they have done, the great work that they have done to demonstrate the value they are bringing to the Veterans Agency. So the expectation is, yeah, we are not done with margins, but consolidate the gains we have made reprioritize. Fund the critical investments for growth, and then deliver exceptional results on that in 2027 and beyond. And do not, and and do not negate the

effects of our transformation office. We are 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 are very excited about portfolio that is laying out for the year to come. Operator, 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 Jefferies. Your line is open. Please go ahead.

Good morning. Just wanted to follow-up on the investment conversation. I mean, you talked about 3x CapEx in 2026 and continuing to increase investment. I mean, how do you think about that stepping up, you know, beyond this year. How much of that is kind of in backlog and scaling versus future decisions? And then you know, with that, you know, how do you think about cash on cash returns? Because

you know, with some of these deals, we have seen better working capital offset those investments.

Thanks.

Yeah, Greg. So, I mean, we have not

you know, mapped out the the 2027 and beyond yet. I mean, clearly, the items we are investing in this year are to scale up, for the most part, scale up capabilities that are in programs that we are executing on or see clear line of sight demand for expansion. We are, you know, we are finding ways to accommodate a higher ramp up on those than perhaps was previously contemplated. And you are 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, interest 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. I think that is a a strength of Leidos, an an area that Tom alluded to, our transformation office, one of the initial things they are gonna 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 are gonna be focused on that heavily. We are gonna be looking to realize attractive returns on all the investments we make. But I do not I do not think that you would say the $350,000,000 of CapEx is the new normal you know, going beyond this year. It was situation dependent, we have the capacity to do that if if the business case is there, but not necessarily what we see on 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 you all for tuning in this morning and your interest in Leidos Holdings, Inc. We look forward to updating you again soon. Have a great day.