Leidos Holdings, Inc. (LDOS) Earnings Call Transcript & Summary

Good morning, and welcome to the Leidos 2021 Annual Meeting of Stockholders. I would now like to introduce Roger Krone, Chairman of the Leidos Board of Directors and Chief Executive Officer. Mr. Krone, you may begin.

Thank you. On behalf of the Board of Directors and Leidos management team, I would also like to welcome you to this Annual Meeting of Stockholders, and thank you for your interest in the company and for your participation today. We're holding this year's annual meeting in a virtual-only format via the Internet due to the continued public health impact of the COVID-19 pandemic, to comply with government advisories limiting public gatherings and to support the health and well-being of our stockholders and employees. I will be acting as Chair of this meeting. Ben Winter, the company's corporate Secretary, will be acting as Secretary. Stephen Theuer from Deloitte & Touche, the company's auditor, is available to answer appropriate questions. I also welcome the members of the Board who are joining us today: Greg Dahlberg; David Fubini; Miriam John; Frank Kendall; Bob Kovarik; Harry Kraemer; Gary May; Surya Mohapatra; Bob Shapard, who is our independent lead Director; Susan Stalnecker; and Noel Williams. Finally, also with us is Jim Raitt from American Election Services. Mr. Raitt was previously appointed by our Board of Directors as the independent -- excuse me, as the inspector of elections and delivered an oath to that effect that will be filed with the meeting -- the minutes of this meeting. Today's meeting agenda is posted on the meeting site. While today's meeting is virtual only, we welcome questions from our stockholders that pertain to the proposals being voted on. Stockholders may submit questions at any time during the meeting in the Q&A space provided on the meeting site. In the interest of ensuring that our meeting is efficient, and we provide stockholders with the opportunity to have their questions addressed, we intend to respond to as many questions as we can during the Q&A session at the end of this meeting. Please remember that you may vote your shares online at any time during this meeting prior to the closing of the polls. Please note that we rigorously observe the rules of conduct that are posted on the meeting site. Specific questions about the company's current business results, trends or current year outlook will be deferred to our upcoming earnings announcement on May 4. At this time, I would like to call the Annual Meeting of Stockholders to order. Mr. Secretary, was the notice of this meeting properly sent and is a quorum now present?

Yes. Broadridge Financial Solutions has delivered an affidavit stating that on March 19, 2021, the notice of this meeting, along with related proxy and annual report materials, was mailed or made available to the company's stockholders of record as of March 10, 2021, the record date for this meeting. The affidavit will be filed with the minutes of this meeting. A majority of the shares outstanding as of the record date is represented at this meeting, a quorum is present for the conduct of business. A list of the stockholders of record as of the record date is available for inspection during this meeting by any stockholder using the registered shareholder list link on the website they use to access this meeting.

Thank you. The Annual Meeting of Stockholders is now officially convened. The polls are open, and all Leidos' stockholders entitled to vote at this meeting have the ability to do so online. If you are a stockholder entitled to vote and have not yet voted or if you want to change your previously cast vote, please do so via the website used to access this meeting. Please remember that if you have already voted by proxy, it is not necessary to vote again. After voting has been completed on all matters on the agenda, we will close the polls, and the inspector of election will provide his preliminary report. We'll move now to a review of the proposals. The first item is a proposal to elect 12 directors to serve 1-year terms ending in 2022. The nominees are: Greg Dahlberg, David Fubini, Miriam John, Frank Kendall, Bob Kovarik, Harry Kraemer, Roger Krone, Gary May, Surya Mohapatra, Bob Shapard, Susan Stalnecker and Noel Williams. Information concerning their principal occupations, service as Leidos Board members, skills and qualifications and other matters that may be of interest are contained in the proxy statement. No other nominations were received pursuant to the procedures established in the company's bylaws. Therefore, no additional nominations may be made at this meeting, and I declare the nominations to be closed. The second item is a proposal to approve executive compensation by an advisory vote. The third item is a proposal to ratify the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for the year ending December 31, 2021. A description of each item, the Board's recommendation and its rationale for the recommendation are set forth in detail in the proxy statement. [Voting]

Thank you. Since everyone has had the opportunity to vote, It is now 9:11 a.m., and the polls are closed. I will now ask our inspector of elections to report on the preliminary results of the voting on the proposals. Please go ahead.

Thank you, Mr. Chairman. On the first item, each of the director nominees has received the necessary votes for election as director. On the second item, the stockholders voted on a nonbinding basis to approve the compensation of the executive officers as described in the proxy statement. And finally, on the third item, stockholders voted to ratify the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for the year ending December 31, 2021. And that is all, Mr. Chairman.

Thank you, Inspector. The final voting results of today's meeting will be filed with the records of this meeting and reported on a Form 8-K filed within 4 business days of the meeting. That concludes the formal business, and I now declare the meeting adjourned. We will now conduct a Q&A session where we will address the questions that we have received from our stockholders through the virtual meeting platform. I invite you to continue to submit any questions you may have regarding the company and its business. Please follow the instructions provided on the virtual meeting screen. As a reminder of the rules of conduct, each stockholder is limited to 2 questions. In the interest of time, we may summarize the question, and we'll also group together questions that cover the same topic. If we do not get to your question before we run out of time or you have additional questions after this session, please feel free to reach out to our Investor Relations group. Their contact information is on our website.

Great. The first question that we have is from Patrick Wilby, who is affiliated with the Carpenters Union Pension Funds. So Mr. Wilby, thank you for your interest in the company, and thank you for your question. If I can summarize the question, it concerns part of our executive compensation. We have a what's called a short-term plan and a long-term plan. And a portion of our long-term plan has, if you will, stock and stock options. And the question is really around the period of time that the stock and the stock options vest. And as I understand the question -- by the way, our options have a 4-year vesting period. I think our stock has a 3-year vesting period. And the question is, is our vesting period long enough? And Mr. Wilby, as I understand the way your question is proposed, I think it's asking if our vesting period is short and should it be longer or could it be longer? How we establish our -- both our short-term incentive plan or our long-term incentive plan, and frankly, all of our executive compensation is we benchmark our peers in our sector. We look at trends for public companies, and we use an outside compensation consultant, FW Cook, and we tried to stay abreast of trends in the field of compensation. And by the way, we review this almost at every Human Relations and Compensation committee meeting, which occurs 4 times a year. We believe, and I think our data would show that we are actually very much in line with other corporations relative to the vesting period. And in fact, it's my belief that the average, I think, is probably closer to 3 years and 4 years for stock options is actually probably longer than the mean. And I am really not personally aware of other corporations that have a vesting period, frankly, that is longer than 4 years. So we believe we are right in the middle of the market relative to our vesting period. But I will also assure you that we review this on an annual basis. We look for trends in compensation. We want to make sure that our executives' compensation is aligned with the interests of our stockholders. And again, we're very diligent and very thoughtful in this, and we view it on an annual basis. And we will do that again as we set up compensation for 2022. But again, I think the answer to your question is, we believe, and I think our compensation consultant would confirm that we're probably at the mean of companies relative to vesting period. Again, thank you for your question. Okay. Let's go to the next question. This is also a question from Mr. Wilby. And again, I'll try to summarize the question. It is on the topic of stakeholder capitalism. And again, it's something as a Board and as a corporation that we follow quite closely. And the question, I think, specifically says how is the Board balancing the interest of the various stakeholders as it develops and implements the company's long-term business strategy. So -- and again, Mr. Wilby, thank you for your question, and thank you for your interest in the company. At Leidos, we consider the interest of all of our stakeholders, our employees, our customers, our suppliers, the communities in which we operate and, of course, our shareholders. There has been, as of late, significant debate around the role of the corporation. At Leidos, we are a member of the Business Roundtable, which is an organization of CEOs of some of the largest companies in the United States. I actually participate on the Business Roundtable. And over the past couple of years, we have actively debated the role of the corporation. And we, as a business roundtable, rewrote the Business Roundtable's statement of corporate purpose. And then we asked member companies if they would sign the revised statement of corporate purpose. At Leidos, we were one of the first signatories to the revised statement of corporate purpose, which is available, by the way, on the Business Roundtable homepage, which I think is brt.com. And in that revised statement of corporate purpose, which by the way, we believe, is absolutely consistent with Delaware law, the state in which we're incorporated. It is the duty of the corporation to balance the interest of all of the stakeholders. And at Leidos, given our background as an employee-owned company, at one time in our history, we believe we have always done a great job of balancing the interests of everyone who has a stake in the success and the growth of the corporation. And I can assure you within the Board of Directors, we have very active and robust discussions about balancing the interest of our stakeholders in all of the actions that we take. The company on its web page, we actually have what I would -- a section around corporate responsibility. If you haven't visited our web page, I would encourage you to do so because there is a lot of information on all the things that we do in the community, that we do relative to a green planet and all those great programs that we have. Again, thank you for your question, Mr. Wilby. Are there additional questions? Okay. Thank you for your questions and your continued interest in Leidos. Operator, You may conclude the call. Ladies and gentlemen, that concludes our Q&A session. I thank you for attending today's meeting. You all may now hang up. Thank you.