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

Good afternoon, everyone. Thanks very much for joining us here in the room and online. I'm Seth Seifman, the U.S. aerospace and defense analyst here at JPMorgan. And we're wrapping up the second day of the JPMorgan Industrials Conference, but our A&D companies are focused more on the second and third day. And so we're very happy to have Roger Krone here from Leidos to kick things off with us on the A&D track this year. Roger is the CEO of Leidos. And thanks very much for joining us.

Great. Well, it's great to be here. And I feel sorry for the people who are not here because it's an unbelievable day in New York, and somebody is building a huge building right next door, whoever that could be.

That's right. Maybe 3-ish years or so.

Yes. Okay. And there's the over/under on when you're going to move in.

Exactly. Exactly. Cool. Well, maybe we'll just do kind of a fireside chat. I'll ask some questions. You guys, I'm sure, know I could sit here and ask questions forever, but I would also like to go out to room and see what questions people want to ask as well. Maybe just before we dive into anything specific, Roger, if you just want to give us a quick thought on where the business is, kind of how you're feeling about things, including since the release of the budget last week/earlier this week?

Yes. I think there's always a lot of noise and there's noise around the budget and the debt ceiling, and the presidential and the right-wing budget hawks and -- so we spend a lot of time on those kind of things. And I've come to learn that I think they unfairly dominate the conversation. We've got -- depending upon how you read it, $840 billion president's budget. It's the largest defense budget in the history of the country by far. And then now we argue about, well, okay, it was only 3.8%. We were hoping it was 5%. It hits $840 billion. And Civil is going to move with it. So I think from a budget standpoint, there's a lot. And if you live in D.C., this is all we do. We debate the budget, we debate the civil spending, and we argue of our priorities. The fact is for a company like Leidos, which does primarily business with the federal government, all of our customers have more money to spend than they've ever had. And with perhaps some uncertainty over debt limits and whether it'll be in a CR and -- we now have customers that are motivated to spend. They've got their '23 numbers. They want to get that spend. They want to get those dollars committed. Before you go into the typical seasonal uncertainty that we've had in the industry -- and what we have been doing at Leidos, and we've talked about this very consistently, is continue to try to shape our portfolio. So we offer products and services where our customers have needs. I mean, it's -- we're trying to keep it simple. We want to develop differentiated capability that meets the need -- the future needs of our customers and deemphasize those areas where our customer is deemphasizing. So low margin maintenance and operations business. We have some of that. We're going to have less of it in the future. We want more products because we see shifting in the product portfolio to those products that are relevant in a big power competition. So we've done that. In our IT transformation business, there's still a lot of cloud transformation, but we now talk about things like multi-cloud and physical cyber and virtualization and software-as-a-service. And so we've shifted in areas where we see the federal government shifting. And -- so we're very, very bullish. We think '24 is going to be particularly strong because we've now won a significant backlog of businesses that are ramping and will ramp even more next year, like our Defense Enclave Services and our Reserve Health Readiness Program, and it just goes on and on. Navy NextGen, there's just a lot of good news for Leidos, '23, and we've got a guide out there. We -- our confidence in that guide continues to grow. And then we expect to see even a better year in '24. Those of you who were at our Investor Day down in Huntsville got to see early production of hardware and with our IFPC [indiscernible], some of the weapons programs that we've got. And those programs will be fully ramped next year. So I know we'll probably talk about the leadership change at Leidos, my retirement. But I feel really good in handing the business over to Tom Bell with the backlog and the management team that we've got. So I think it's a great story. The -- we had a -- I thought a very, very strong fourth quarter, which is the only quarter I can really talk about. But -- great top line, really solid margin and pretty good cash generation. So overall, I'm really pleased with what we have been able to do with the company and handing it over to Tom. And seeing what he'll do with it when he gets it. So...

Yes. Yes. I mean you mentioned the transition. And so in terms of thinking about kind of why this is a good time, and what gives you confidence that this is the right time for a change, what would you kind of reinforce on that topic?

So I'll be 67 when I leave. Of course, I'll tell you, I think I'm not going to retire until I'm 80. But in corporate America public companies, after you hit 65, the Board starts to ask hard questions like how healthy is he? What's his tenure? How long is he going to stay? When I hit 65, we then had COVID. And no CEO is going to exit in COVID. And then we had 1 year of COVID and then we had 2 years of COVID, and we still have a little bit of that. And my goal was to get the company through COVID, stabilize in the post-COVID world. And a lot of things changed in the way you run a company in a post-COVID world, and workforce mobility and flexibility, workforce attrition. And you kind of want to manage through that. And so now -- we've done that, stable. We've got, I think, the largest backlog we've ever had. We've -- we're on track to meet our 3-year goals. So it's a good time to transition. And then the specifics of what day and what quarter, it really has to do with annual meetings and proxies and trying to get -- we think it was much more elegant to have Tom elected to the Board. And in order to do that, you've got to make an announcement. Our proxy will come out, I think, tonight or tomorrow -- today or tomorrow. And so we had to get -- in order to get Tom into the proxy, you [ set ] back from that. And there are just some corporate governance artifacts that have to happen so that Tom could be elected to the Board. And so he will be elected to the Board in April or May, whenever our annual meeting is. And then I'll stay on as CEO. I'll do the call for first quarter because it's my quarter, and then we'll transition the CEO responsibilities after that. And then I'm around. I'm around through the end of July, and I'll be associated with the company through probably March of next year. So -- and I have pages of bucket list things that I've been putting off for years. In fact, we were -- when you came by, I was talking to somebody who had gone through the transition and getting advice from what he had done. And I'm looking forward to doing other things and spreading my time in different ways. And I know Tom is really excited about coming in and being the CEO of a public company. And he's a business development person, he's a great person to work with. And I'm going to sit back and see how he drives us to the next level. We're -- our guide, I think, is [ centerline 14.9 ], but call it 15. And the conversation that we'll have with Tom is how do you get it to 20? And we'll add new markets and growing international -- Tom has got a really solid background internationally. So I suspect we'll do more there. There's white space that we haven't gone after. And then frankly, for the '23 and '24, he needs to execute the backlog. So he gets that while he gets to put his own spin on the strategy. So I'm really excited about the future of the company. I think Tom will do a great job.

That's a good point you made about '24. And maybe if we dig in a little deeper on the topic of the CAGR that you put out, I think it was towards the end of '21, looking at '22 to '24, having a 3-year CAGR in the 5% to 6% range, and that kind of implies an inflection in '24 from where we are now. And it sounds like you still have -- the company still has a lot of confidence in that inflection coming. And maybe if you could talk about the degree to which that comes from Dynetics and the programs there, including hypersonics, the degree to which it comes maybe from some other products on the Civil side, including the scanners, and the degree to which it comes from different pieces of the services portfolio?

Yes, actually, you've done a great job of answering the question. So -- but I'll go back and review that. We'll start with Dynetics because, again, those people who are able to make the trip know that we're moving from development into production on a variety of programs. And that provides a really, really nice ramp. Wide field of view, IFPC, [ Enduring ] Fires Protection program, enduring IFPC, High Energy Laser, a potential weapons program that we didn't spend much time on when we were down there. So -- and then not in our forecast would be if we want a Human Lander contract, which is not in our forecast because it's just too hard to handicap. But across the portfolio, we've got programs that are growing. I talked about the Reserve Health Readiness Program. In Health, we are finally going to be doing exam events with reservists, starting, I think, later this month. Our Military and Family Life Counseling program, which is we have half of the mental health counselors for the active military and their families. That business continues to grow, be unfortunately. I mean, fortunately, for us and the company, but unfortunately, because the need for mental health counseling in the military continues to be high, almost more than can be satisfied. So we've been asked on a couple of occasions to add increments of 100 counselors to a base that's about 1,000 counselors. So that program has done well. We have talked in the past about the presumptive cases in the VA that we have referred to it as the PACT Act, but the P stands for expanding the presumptive cases that would be eligible for a benefit. And we're always asked, have we seen the ramp from the PACT Act which adds a couple hundred thousand more backlog cases to our exam business? And the answer is we're just barely starting to see that. So that means next year will be a full year as were this year is probably only 6 months of PACT Act. So that's going to be growth. The Security and Detection business, we call it SES now, we are starting to see the international volumes in air traffic increase. And there is a lag -- we're at Manchester, we're at Frankfurt. I think there's a procurement now in Hong Kong that has come back. The history there was there's a big procurement in Hong Kong, because of COVID, it all got shut down. The expansion at the airport got delayed. Now they're back. So we're starting to see the early indications of RFPs and bidding that would allow us to take the SES business to the pre-COVID level, which will look like growth from '23 to '24. And then the businesses in -- Gerry Fasano's defense business -- we talked about DES, the Defense Enclave Services, tremendous growth opportunity there. But the Navy NextGen program has potential to grow through what we call on-contract growth in special projects. And the airborne business has continued to be strong, and there's just a whole variety of other programs that have the opportunity to grow in '24. So it's a balanced story across the portfolio. But first of mind is, I think what everybody saw when they were in Huntsville is we've got this huge facility, what we call the Chase facility where we did [ launch ], that we're going to fill up with production programs, and that will -- that's probably the most visible.

Yes. The Chase facility, we like that name here.

Yes, that's good. What we named it after one of our most favorite banks.

So I think you mentioned DES. And I think it was probably about a year ago when we were sitting here and just had the award. And I kind of talked about, I think, wanted to sort of manage people's expectations about the way that was going to ramp up because these things don't get turned on immediately. But as you look back now over a year and you think about what that's contributed so far and the path forward, is it kind of what you imagined? Is it different? If it is different, how is it different?

I think the work is exactly what we thought it would be. So the first thing we had to do under DES, I'll explain the program a little bit for those who are not familiar with it. It's under DISA, it's called Defense Enclave Services. And our job is to define a common network architecture, which we call DoD net, right? We picked that over from a prior contractor. We've enhanced it and then to move 22 non-combat government DoD agencies to DoD net. And we started small, we started with little agencies. We started with DISA itself. And then we move to a big tens of thousands, hundreds of thousands of users like DLA, Defense Logistics Agency; DHA, the Defense Health Agency. And so here a year ago, we needed to take over DoD net. We needed to codify a document and get it ready for transformation. And here we are a year later, and we have been working on [ for ] transformation. So [ for ] organizations, relatively small, which is the way you want to do this. and migrating users in the thousands, but not in the tens of thousands or the hundreds of thousands. And so that has gone really well. And I was with the customer, the 3-Star General at DISA, General Skinner. And he's frustrated we're not going faster. And I'm frustrated we're not going faster because I know when we won, the IDIQ value was like $11 billion, and it was a 10-year program, and so everybody wants to know when we're going to get to a $1 billion run rate. And we're very, very, I think, vocal, this has a, we may never hit ceiling on the program; and b, we won't get to a sizable run rate for years. And it's a little bit like the DHMSM program, where we did a lot of upfront planning and a lot of configuration management and then we did an IOC site, and then we did lessons learned from the IOC site. And we didn't get to 2 deployments a quarter for probably 4 or 5 years on DHMSM. I think we'll be a little bit faster on DES, but we will double or triple the revenue from '22 into '23 and maybe still not get to 3 digits, and then '24 will be 3 digits, and then we've got to ramp up from there. And so we're just trying to manage expectations so that in the models that you all have, you don't put too much in, but we'll see ramping in '24. It's one of the programs that's going to drive our growth. But it probably won't be fully ramped until '25, '26. And some of that will be dependent upon the other agencies agreeing to being moved to DoD net. And so there's a bit of inside the department selling that has to go on. And the easiest way for us to accelerate migrations is to prove to these [ non-combat ] agencies that it is faster, better, cheaper and more secure from a cyber resiliency standpoint to transition to DoD net. Then I think we'll be able to do that. It's a crawl, walk, run type program now.

Okay. Okay. If we think about the Defense Solutions segment, and this maybe is kind of a -- I don't know if you guys might not look at it this way. But if we think about it as kind of you've got the Dynetics piece, which is a little bit more product-oriented -- or it is product oriented. And then you've got the...

I'll just pause -- first of all, Dynetics started as a services company. And if you look at -- if -- the company that we bought, right, because we've added some things to it, but it's still 40%. I hate the word services, solutions, right? It's -- 40% of Dynetics is not selling hardware, right? But we bought it for both. We like the services, the work that they do. They do a lot of analysis. They do -- well, they do analysis for undisclosed customers, and they investigate things. But they do have a nice hardware component, and we're excited about growing the hardware side. But I don't want people to think of it as only a hardware business. Sorry. Go ahead.

Yes. Yes. It's an important distinction. I guess thinking about the -- then about the legacy Defense Solutions business, which has been kind of eight point something kind of EBIT margin business over time, some year, it might be 8.3 or 8.5 or something like that. When you think over time -- and let's put the product growth aside because I would assume that the product growth is going to be accretive to the margin rate over time. But in that kind of legacy services-oriented piece, when you think about the mix and you think about the competitive landscape, is that kind of a steady type of business? Is it a place where there's pressure over time? Is there opportunity to kind of expand that margin rate?

Absolutely. So when I sit down and talk to Steve Cook and Gerry Fasano and Roy Stevens, we talk about getting to double digits, right? And Gerry clearly feels the need to grow margin in his business. And there are 2 ways -- there are 2 -- kind of 2 levers that he has to do that. He's got some early-stage programs, DES, even GSM-O, Navy NextGen, that the margin of those programs will grow over time as they mature as we get expansion, we get special project work. But the real kicker for Gerry will be as he evolves his portfolio. So we bought some airplanes, we bought 8 King Airs a couple of years ago, we bought 2 CL-650s. We bought a couple of 6500s. He's going to have to shift his mix to more as-a-service, more products and either exit low-margin service business or find a different business model to execute those programs. And we've talked a little bit about that at some conferences and on the earnings call is doing maintenance and operations of government facilities is inherently single-digit businesses. And our interest in adding to that portfolio in that business model is just not there. So one of our largest programs, which isn't in that segment, it's in the Civil segment, is the Hanford facility. And it's -- Hanford will never be [ a 10% ] business. And Gerry has some of those in his logistics business. And the fellow who runs it has a plan to exit and/or shift to more of an as-a-service business model. We actually had success. We build trainers for sonar operator, right? It's kind of an esoteric part of that business. And our business model was we build trainers, we give them to the Navy, the Navy trains people. The margin on that was kind of mid-single digits. We went to the Navy and said, what if we build the trainer, put the trainer in a trailer and we charge by the student to go through the training. And because it's in a trailer when your cruiser comes in, in your dock side, we'll put the trainer on the dock right next to the ship. So we'll bring the classroom to the ship and then we'll charge per student, right? We've been successful in doing that. We built a couple of trailers. We're dock side today. The margin that we're able -- because we take risk, we invest in capital. We made it easier and simpler for the Navy to do sonar crew training. And so that's an example of where we've been able to reengineer the business model and capture some growth in margin. And Gerry has plans pretty much across his portfolio to do more of that.

Yes. This is not necessarily in training, but the recent Cobham Australia deal, is that -- does that fit into the kind of as-a-service mentality in the business?

Yes. Well, it does. I mean, it's a little bit more complicated. It is a -- it's not quite an as-a-service model. Like, we have 2 aircraft they fly in the Ukraine theater of operations under the title Artemis. I think there are like 5 programs called Artemis. That is a pure as-a-service model, right? The 2 programs we have in Australia, one where we do search and rescue, one that we do littoral water surveillance are in a more traditional model. There's potential maybe to convert those as-a-service. I think we're a bit of a way away from doing that. Right now, we're in a -- you may get to a capital question, our capital number in our guide is a little bit higher this year. And that's because the aircraft that we bought in Australia are in the middle of a retrofit. And so we've got -- we want to get that fully integrated, get them on our accounting system, on our HR system, get the aircraft upgraded, perform exceedingly well against the contracts that we have today. And then we can think about can we evolve the business model there. But we're not quite there yet. I think, on Australia, we're still in the -- yes, we've only owned the business for 4 months.

Right. Okay. Okay. Maybe -- I've got a bunch more questions, but maybe I'll just pause for a second and see if there's anybody in the room -- we've got a microphone if anybody wants to ask a question. We can also keep going. I was going to ask about upcoming pursuits. And I think this year, in the Civil business, company is pursuing the FENS program with the FAA. And just looking for an update there and maybe you can explain to people the background, but also thinking about it, the FAA has been in the headlines a lot lately, and not always for great reasons. And there's been some challenges, I think, with regard to perceptions of flight management and flight safety and things like that. So you think about something like that, and you say, okay, is the FAA -- their attention is elsewhere, and so FENS slips out? Or is it okay, they know that they really need to improve things and therefore, there's more focus on things like FENS?

Well, probably the answer is probably yes to both. I'll talk a little bit about the FAA. The FAA does not have a presidential appointed administrator, right? That's not good for any agency. And they have an acting, I think he's doing a relatively good job. Buttigieg often will step in front of the microphone like on the NOTAMs issue. By the way -- we don't do anything with NOTAMs. The contracts that we have, our installed base is doing fine. We are part of the transformation moving to the new generation of air traffic management. I will acknowledge the FAA had a safety stand-down. I think it might have actually been today or maybe it's tomorrow. With their organization and with many members of the industry, right? And there have been -- I was on the treadmill this morning and I watched the news and there was another near miss somewhere. I don't remember where it was. And so I think they're trying to do both. They realize they need to modernize and that means their network, and that's where the FENS program is. The FENS is to take essentially the IT and communications network in the FAA and to upgrade it to the latest standards. I mean, it's -- and it is an antiquated network and there's technical debt there that they need to resolve. Parts of L3Harris are the incumbent. But we have a bid in. We think we have a very competitive bid. But -- we never know exactly, but we think there were many bids. So as excited as we are about our offering, it is kind of in our space, we often get 4 or 5 bidders. And I suspect on FENS, there are 4 or 5 bidders, probably 3 or 4 of which will be evaluated high, and we expect to be evaluated high. Upgrading their network and their communications is a long, multiyear program. I suspect coming out of the safety stand-down and some of the prioritization by the administration, there will be other programs and additions to other programs that will address some of the near-term safety issues. We -- and I'm sure other contractors have come forward and said like on the notice to air mission issue that shut down the air traffic control system for a couple of hours a couple of months ago or a month ago, we could do some of that work in other -- on other contract vehicles that are already in place. So that was a legacy system on a very, very old database and the database got refreshed and there was a -- some contamination of a database. And in an overwhelming move to safety, Buttigieg says, if we're not sure that the NOTAM database is accurate, we ought to shut down the air traffic control network until we do. We can provide that service through our automated flight services system if they decide to go that way. And so we've had conferences with the FAA. And I know in other areas, ourselves and other contractors have said, hey, the issue around taxing and who's on the runway or not, there's programs in place that could be enhanced to address that. So I think there will be some near-term opportunity not associated with FENS to grow the FAA business and then FENS will address some long needed infrastructure investment that the FAA needs to do.

Okay. Maybe we'll talk about the Health business for a second. And the Health business has done really well over the last several years. And I think you remember over the course of my career, some of the different solutions oriented businesses in defense looking to make the leap into Health, and I think you distinguish this business as being the one that's actually done at the most successfully. I guess, what do you think has made that business successful? And what are the next steps for the Health segment?

Yes. Well, I would first say -- like when I took the job in summer of '14, one of the skill sets that I didn't bring with me was knowledge of the government health care market. And so I'm not sure I can take a lot of credit for what happened. But -- and what has been really fun for me is learning about what drives the DHA, the Defense Health Agency, what drives the VA. And then we adjusted the portfolio. We were in commercial electronic health care records implementation, Epic and Cerner and MEDITECH. And we actually got out of that business. But I think the overall success, first of all, Jon Scholl ran the business for years, Liz Porter runs it now. The exciting thing about Liz is Liz is a military spouse. So she is in the government health care ecosystem every day. And she is -- and Adam, her husband, is in the Navy. And she is unbelievably passionate about the business, about taking care of active military, taking care of our veterans. And she understands the system. And she brings from a leadership standpoint, a perspective that has helped us to continue to drive growth. And when she meets with customers, she's a user, right? So her husband is in DHMSM, right, and will soon be in the VA system. And she gets her health -- she has TRICARE and TRICARE Advantage. And so she really, really, really gets it. And then she has attracted a terrific team underneath her, that is, by the way, the most diverse organization in the company. We are, I think, over 50% women in that organization. Our diversity -- our ethnic diversity in that organization is the highest in the company. And then we have done well because we've executed on our commitments. And the DHMSM program, and Seth, I don't want to bore you, we talked about this in the past, was sort of the first big win that happened after I joined the company. And we were $5 billion then, and it was a very, very important program. Everyone participated in the proposal. I wrote sections in the proposal. And Frank Kendall was an acquisition at the time. And I had known Frank because of Army things and acquisition things. And I went to Frank, and I said if you award it to us, we're going to meet our commitments on the program. And I do -- I used to get it weekly up until about a year ago on DHMSM and I still do a monthly review on the program. And Frank -- things evolved, he joined our Board. And we're still on cost and on schedule on the DHMSM program 8 years into the program. And that's-- it's not -- that doesn't always happen in our industry. And so our growth is attributed to our ability to execute and provide value to our customers, our exam business. We are measured on a service level agreement. So from the time a veteran calls, says I think I have a disability, to the time we submit a report to the VA to be adjudicated, that's a time frame, kind of like around 21 days. We make money if we do it in less than 21 days. And if we do it in less than 21 days, our share of the case work goes up. And in that business, we have used natural language processing, AI/ML. We have used chat bots in the call centers. And our ability to drive technology into the exam business has been amazing. And so we're now performing better than our service level agreements, and we're getting in general, more than our allocated share of cases. And that's driven top line and that is a business because think of the exam business as sort of being a factory, if you can run it with more volume, the gross margin on the incremental cases drives up margin. And so we've been able to do that. And we don't -- the DHMSM program is ramping down. I think everybody knows that -- you have that in your model, but we have all these other programs that are ramping up. So we're pretty -- we're still very bullish about the health care business. There was a COVID catch up, which increased the margin in the health care business. And we have guided and said we expect to more normative levels, but the normative levels will be very accretive to the corporate average on margin.

Is that kind of 15-ish type of percent?

Yes. Yes.

Okay. We've got about 2 minutes left. So one thing I wanted to make sure to ask you, if you don't mind, maybe stepping back a little bit from the company and thinking about -- you started working in Fort Worth, I think, at the beginning of your career...

I did.

And it was -- at that time, it was General Dynamics, but that's where they build the F-16 and the F-35...

Yes, I worked on the F-111, if you want to go that far back.

Okay. Yes. Excellent. Excellent. And so when you look at the industry now and you think about the important -- I guess the important ways that the industry is going to evolve in the future. You saw it consolidate down into a small number of key companies as the threat environment changed and now the threat environment is changing again. And so 90 seconds here, you can...

Right. Okay. But Okay. My 90-second answer. We saw a lot of consolidation, both at the big A&D prime and even in our industry, the Last Supper, the meeting with Secretary Perry because we were building heavy platforms, big machines, tanks and ships. And the cost of maintaining the infrastructure to have 3 competitors in the tank business was bankrupting the department. So there was this dinner called the Last Supper and he said, "I don't want to pay for 2 tank plants and 5 shipyards and 6 jet fire plants when I only need 2." And so that spurned a lot of consolidation to where there's only one tank manufacturer. There are really only 2 people who can build jet fighters. And so we would kind of be done if the next war was going to be fought with tanks, right? And big aircraft carriers [indiscernible] and trucks and things like that. And it's -- I look at the analogy in the auto. So we saw all this consolidation down to really 2 or 3 major players in the U.S. in auto. And then what happened is the world changed, the need changed, what we buy changed. And you saw somebody with a complete disruptor mentality come into the auto and -- Tesla is going to sell 400,000 vehicles, right? I mean, they -- we all thought, well, it's never going to happen. There couldn't be a disruptor, right? Tesla is -- they're here. They're not going to go anywhere. They're going to be part of -- and they were able to come in and be more fast and more agile and address this new emerging need. And in the defense market, I see that the big primes, if I'm going to buy an aerial refueling tanker, there's only a couple of companies I'm going to go to. But if I'm going to buy a hypersonic weapon or a wide field-of-view payload or I'm going to do cyber or physical cyber or some Electronic Warfare, then that opens up room for companies like Leidos who can be disruptors. In our own industry, we have been a consolidator. We're now up to $15 billion. I think there could be another move in our industry where #2 and #5 get together, or #3 and #8, because scale works up to a point, but we now see at Leidos the opportunity to win major programs of record that in the past might have only been available to the top 4 or the top 5. And if you talk to Chris Kubasik at L3, I know Chris feels that way. And he's a little bit more vocal about it than we are, but he's had great success in winning major new systems contracts against the majors, and we feel the same way. We don't feel constrained. Now we're not going to build an aircraft carrier, but we'll build a Sea Hunter. I was down in Australia 2 weeks ago, a lot of interest in autonomy to do littoral protection in Australia because it's so much cheaper to do some of these missions without a human involved. So I don't expect a big consolidation, but I expect a kind of scrappy, agile companies like ourselves and what SpaceX did to ULA, right? I mean, so we've seen this happen, that there is a room for these agile kind of disruptive companies to win major programs of records and to provide new needed capabilities to the department. So I'm really excited about being connected with one of those.

Cool. Excellent. That was a great answer, and thanks for the insight and thanks very much for joining us. And we'll wrap up here.

Great. Thank you. Seth, thank you. Thanks so much.