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

We're going to move on. We're delighted to have with us our next company is Leidos. And from Leidos, we have to my right, Tom Bell, our CEO; and to his right, Chris Cage, who is the CFO.

So Tom, you're a little bit new to Leidos. You've been there about 9 months. So what are your biggest takeaway from that period, what this Leidos need to do to succeed?

Thanks, Cai. And it's great to be with you all today and appreciate your interest in Leidos and being here with us. My biggest takeaway from the first 9 months is the opportunity that exists within Leidos and the fact that -- the team rose to the challenge of our first quarter miss with robust performance through the rest of the year. That speaks well to the culture of Leidos, the ability of the team to focus with firm resolve on what's important and to satisfy our customers differentially and therefore, our commitments to our investors and analysts. Obviously, we achieved a lot in the first 9 months of my tenure here at this company. We've reset the organization to a more efficient capability-based organization. We've beat all of our numbers. So while we raised and -- beat and raised a couple of times through the year, we actually beat the end guidance by a sizable margin and we returned significant shareholder value and return capital to shareholders. So very proud of the team's focus on those things. And what was underpinning of all that was discipline, focus a new level of understanding about how we need to be not only revenue accretive but margin accretive also, and that's really resonating within Leidos. So learning a lot, learning a lot about the culture of Leidos and very happy with what I see.

So you really reshuffled the cards in terms of the organizational structure. Walk us through like what are the advantages you have a lot of disparate businesses in each of the 4 organizations you now have? What are the advantages of what you did? And what do you hope to accomplish from it?

Thanks, Cai. Yes, we did realign the organization. That's the term I'd like to use because it wasn't a massive reshuffling. It was more aligning colors on a Rubik's cube, if you will. So we had parts of the business with the same capabilities serving the same types of missions in different parts of the organization. I think that was brought about by inorganic acquisitions that were made during COVID and when you're making inorganic plays during a global pandemic, you just tuck businesses in where they make sense at the time. Well, 2023 was a good year to sort all that out. We went to a very focused capability-based organization. So the 5 sectors that I now lead have very specific capability sets and customers that they serve. What will the benefit of that be better efficiency in terms of serving customers with repeatable solutions and better efficacy, able to solve customer problems faster with reuse of products, reuse of tools that have been tried and [ through ] elsewhere and better customer solutions. Ultimately, in the 5 sectors that we've set up, we have 3 services businesses that are 2 tech-enabled services and Mission Solutions businesses and 1 digital modernization business. And then we have 2 platform businesses, our commercial and international and our Defense Systems businesses. And so they are very specific around a specific set of customers, a specific set of competitors, different market dynamics, different capital structures that they all require, different investments and different aspects of what success looks like. But one thing that is true through all of them is cybersecurity, software, artificial intelligence that are key enablers to making them all as successful as they can be. So while they are specific around capabilities, they also have lots of pull-through in terms of the corporate board competencies or what I like to call golden bolts that are resident in all of our solutions.

Got it. So you instituted something called Leidos next to allow faster decision-making and more tightly align the businesses around key technology discriminators. Like what financial -- can you sort of directly relate that to financial impact?

We can. Chris, why don't you jump in?

So I mean first of all, the foundation is the organization structure that Tom just described, right? And as we started to think about what those new organizations are capable of we communicated expectations for '24. And we already see opportunities to drive margin uplift in certain parts of the portfolio, our commercial and international organization, in our Defense Systems organization. So those putting those pieces together the way we have with an org structure that's tailored to those lines of businesses or unlocking some potential margin expansion opportunity. Likewise, the other parts of the business, we feel like are better positioned in the near-term to be our growth catalysts. Health and civil organization has been growing well, and we see more runway there in our national security and digital sector segment, is also positioned for a nice growth year in '24. Then we're looking to the future. There's a big strategy process that will unfold to unlock the next year as it relates to growth. Other aspects of Leidos next outside of just those lines of business get to the functional areas. And we've got ambitions as it relates to driving further efficiency inside of Leidos, how we're organized from a spans of control and organizational dynamics and how we deliver the internal capabilities around IT and security and real estate with maximum efficiency. So Leidos next also gets to unlocking value in that part of the portfolio as well.

And if you don't mind, I'm going to pile on a little bit, Cai. We're already seeing financial benefits in '24, but we expect even more in '25 and '26. What I'm -- how I know that to be the case is like all companies that are properly run. We run a multiyear strategy and a nominal annual operating plan a year ahead. And so we had run the numbers for what the business would organically create in '24 to the old structure. And then we ran it again in the new structure. And happily, the numbers that we are committing to ourselves and the external market are better in the new structure than the old structures that already tells us that it's paying dividends, but then there's extra excitement about the entitlement and the enablement that this is giving leaders to become their biggest, best form of themselves [indiscernible].

So you inherited a lot of different businesses. One of them, the medical exams business is kind of like basically done really, really well, very profitable, but as you look at it, I mean, like it isn't a bunch of docs in a room. And so it's essentially like a glorified call center with higher margins. I mean, I'm being kind of joking a little bit there, but is there a real technology input. You did great, I guess, what the VA volume was up 34% something in the fourth quarter. But is that a business where you can get sustainable competitive advantage?

I think so, and I appreciate the provocative way with which you asked the question. Yes. No, this isn't just a bunch of docs in a clinic around the nation. This is about clinics that serve veterans, but the real enabler and the real moniker of success is how efficiently and effectively you serve those veterans. A little known fact is that when a veteran leaves our clinic, they do a survey on us. They tell the veterans administration how well they felt served by the Leidos QTC clinic. So what is it that a veteran wants? He wants to get -- he or she wants to get the health care she deserves. But also, she wants to do it speedily and with accurate results. So not only have we deployed technology when it comes to process automation, and ensuring that the speed of the service we provide, the whole scheduling of the cacophony of specialists that a veteran might have to see is an algorithm that we run for them and artificial intelligence. The results that our tests are getting are better because we're matching the personal -- person who is analyzing the tests with artificial intelligence and the marriage of the 2 is getting better clinical results faster with better repeatability and it's more than just a bunch of doctors in a clinic.

Great. Great answer. So how are you doing share-wise? Because at one point, the PACT Act came and then it looked like they're going to bring some more folks in. How are you doing share-wise?

I'd say that obviously, the business has been a standout performer. And absolutely right. I mean the Veterans Benefits Administration had the foresight of the demand was going to rise. And so they did recalibrate to make sure they felt that they had enough providers in the market to meet that demand. And Leidos has always been, we believe, one of the better performers as it relates to time, when it's throughput, customer satisfaction. Things have recalibrated. Our share gains have been strong. Our performance has been strong. We have not yet reached our full potential internationally. That was a new market that we were not in previously. So again, you've got a demand signal that continues to rise. You've got some market expansion possibility as it relates to international, and you've got an incentive structure that our teams are working hard to optimize because ultimately, it's about meeting the needs of the veterans and getting more of them seem timely. And if you do that successfully, it's a win-win for everybody involved. So I think the organization is set up for another good year in '24 in that line of business. We're excited about it.

And I would just add, it's because of the technology that we've deployed into the Leidos clinics, that the throughput can be faster and we can take more volume in and satisfy more veterans.

So obviously, PACT Act was a big plus, but is this sort of like a bubble or a wave that goes for 2 years? Or how do you think about like where is this business going to be through?

Yes. Well, I mean there was always a steady business before the PACT Act came on. So if you recall, if you go back and look at our financial performance, in '21 and '22, predating PACT Act. There was a demand signal here, and this business has only continued to invest in capabilities. And quite honestly, we're looking at how do we extend this capability and these technology innovations to other care delivery opportunity. And the teams have been thinking about that for some time, and that will be a big part of our strategy dialogue this year too.

So turning to Dynetics. You got a company with a really unique capability. But ex hypersonics, I mean, it looks like they're -- they're more of a brides made than a bride. They just haven't really crossed over despite all that great capability. Any thoughts as to why and do you need to be a big prime to kind of win that just because you're called Lockheed or something else?

Well, so we're very proud to be the owners of Dynetics, a company with rich heritage in a very important ecosystem of our customers. One of the things that our leader down there, Steve Cook has done is really partnered with Chris and I to focus Dynetics on specific sub elements of capabilities that present challenges for our customers, but are not crowded space that bigger primes might be interested in. So you mentioned hypersonics. Obviously, IFPC Enduring Shield is a key part of that. We are in the small satellite payload business there. And those are several of the areas that we think we have unique scientific technical advantage that we can add value to the primes and to the customers who need those solutions. So we're not out for Dynetics to be -- we're not going to open up an F-35 line there anytime soon. We don't want that capital structure. But we've got unique capabilities, wicked smart people, wonderful technology. And we're reshaping that business to be a value add to the ecosystem of the primes in a unique way. So I'm feeling very bullish about it. Yes. The initial business case for the acquisition hasn't quite panned out the way we expected. It's been a little delayed because of you do hard things, things take longer. But we're getting traction. We've got the talent down there. We've flooded the zone with really great people, and we're very high on its prospects for the future.

So hypersonics enduring fires, SDA work, the payload, which of these things has the best chance of a win? I mean with decisions coming up this year, so we could really maybe see...

Yes, I'd say that what's -- we have most line of sight to as far as something that could ramp up more significantly is probably in the IFPC Enduring Shield arena, we're pleased with the team's progress. A lot of hard work went into delivering the first of the development systems, prototype systems end of last year.

And a successful test.

A successful test that accompany that, right? So those are precursors to getting those now for the Army to execute their testing plan on those vehicles. And so that's going to play out over the next few quarters, but we're very excited and optimistic and have been working back and forth with the customer to position for what is that low rate and full rate production follow-on contract look like. And that's something we hope to be able to talk about later this year about the magnitude of what that volume could look like.

Part of the uplift in '23 was a pull forward of hypersonic needs into last year that would have been something we would have been [ crowing ] about in the next months. So we've done that early. Now there's a build-out of that and an expectation for successful tests with the Army and LRIP decision for that.

So when could we actually see so an LRIP decision on hypersonics, maybe an LRIP decision on enduring fires? Like when could we -- is that second half event?

Yes, I think both of those, the hypersonics follow-on vehicle for common hypersonic glide body and thermal protection system could be Q2, could be Q3, probably the budget process needs to play out successfully. You keep those things on track, but definitely this year and similar timeline for Enduring Shield as a testing plan goes successfully. It could be as early as the second quarter, but we're well prepared for that to take a little bit longer in the year. But the main goal is to position that as a program that could be ramping for us in '25.

And the third one, so SDA payloads, -- is that -- I assume that's sort of the tracking layer. So we just had Rocket Lab, and they make satellites and they won transport, and I said you're going after tracking, and they say, yes, well, we need a payload provider Sierra Space, kind of one of those, but they need a payload. So is that -- is your strategy to basically team up with someone? Or are you going to go for the whole ball of wax?

We plan to be a merchant supplier of the sensors and the payloads to the industry. Right now, we're on orbit in 2 tranches with different primes at the satellite level. And I think that's the right model for us. We've done great technology in the asset itself. We don't want to be beholden to a specific prime when the customer is still, let's call it, shopping their options. And so that's going to be our strategy going forward, all...

Got it. So Roger bought the airport security business from LHX. And I mean his argument when I talked with them about it was like we either had to get bigger or get out and the timing kind of didn't really work out. But does this business really fit with Leidos longer-term? Or -- and also now that you kind of paired some of its products, what's the outlook for this?

I'll go first, and then I'm going to ask you to chime in, Chris. I think the -- I think it does fit. And what Roger was referring to, and I think correctly is, look, we were in the ports and border security business. Airport security is an adjacency of the same type of technology. And so yes, it makes sense to double down in that space because show me a border or an airport that is less -- wants to be less secured tomorrow than it is today. Very few. So the logic makes sense. Obviously, the timing was poor through nobody's fault. And yes, we had to take a write-down of some of that business. But we've now got a place to grow from. We've got a new management team in place. They're very excited about infrastructure security and border security. So we're expanding our thoughts about that business from just airport security to infrastructure security because sadly, almost every place you go into now wants to also be secure and wants to know what's coming in and going out. And so the seed corn that exists, both from the big ports and border security products we make and the smaller personal and baggage security products we make is there for us to position Leidos to be a provider of security solutions for infrastructure, and we're very excited about that. You want to add to that.

Cai, I mean as it relates to how does it fit in our portfolio? I mean the core of what this business is about is algorithms and software. I mean we wrap a package around that to facilitate scanning people or equipment, but that's what we're good at. We do those things elsewhere. We can do them well here. Now it's more complex than that because you have to manage the supply chain and other aspects to build the physical equipment. But ultimately, it's not a high-volume shop. It's manageable, and we just opened up our new Charleston facility to bring more of that control in-house to Leidos on the final assembly and some of the manufacturing aspects. So we believe it could be a successful part of the portfolio. We did reset expectations. We've taken some actions to rightsize the business. We've taken actions to focus geographically where we want to sell our product lines and we believe all those things will position us to -- this will be a transition year. It's not a growth year in '24 but it's a year that we would expect margins to improve and then ultimately inflect back to a growth posture as we progress into '25 and '26.

Got it. So how -- what are the -- who are the infrastructure targets? Are those sort of like the commercial energy business you have?

We'll keep our powder dry on that for right now.

But there's a couple of bits that are in the process right now, and we're excited about the prospects there.

Got it. So Gibbs & Cox unmanned naval programs. You clearly have a very competitive capability and area of great interest to DoD has yet to hit it big. Well, I mean -- but it takes time with things. So what's the plan?

So Leidos Gibbs & Cox is synonymous with naval architecture history and expertise. I mean it is the gold standard naval architecture. And so we're very proud that that's part of the Leidos portfolio. Before it was in a business that didn't have as much synergy as now the sector that is defense solutions. So we've put together all our defense products and solutions area into 1 leadership team and Gibbs & Cox as part of that. So just some months ago, flotilla of 4 autonomous vessels, surface vessels went from San Diego to Sydney and back. Two of those were designed by Gibbs & Cox from the ground up, the autonomy in them, the artificial intelligence in them was all Leidos. And frankly, that went beyond just navigation. It went to maintenance. It went to overhaul. It was an autonomous system built from the ground up to demonstrate that autonomy can be real. The Navy was very happy with that. In fact, just this morning, it was featured in a picture and defense news or Defense One or one of those. And we're very proud of that. They're very engaged on international frigate programs. I won't mention the country or the name, but big production runs of new frigate programs. And here in the United States, they are, again, the gold standard for naval design for every naval vessel that is being designed. So yes, we're very proud to own it. Now it's in the right homeroom with the whole system of capabilities, and we look for great things as undersea and above-sea naval warfare takes a next turn.

So no, I appreciate all of that. But -- so like with Dynetics, do we have any visible targets where we could get a $1 billion contract or $250 million contract, some contract of size and people could say now, it's really taken off.

Yes. I don't think there's as much clarity on anything of that size and magnitude in the near-term pipeline. I mean we've seen medium unmanned surface vessel opportunities, and there's been some challenges there. We've got an unmanned undersea vehicle contract that we're procuring right now working on and -- but I wouldn't say the pipeline looks like there's anything of the multibillion dollar range, tie in the near-term.

And when we do it won't be Gibbs & Cox wins that. You'll see our defense system with this and Gibbs & Cox as an enabler of that naval architecture. I kind of see it as the same we see as AI. We don't see AI as a market specifically. We don't have customers who want to buy AI from Leidos. But AI is in everything that we do. And Gibbs & Cox, the gold standard of naval architecture is a core enabler to give us bonafides when it comes to designing and fielding future subsurface and surface naval vessels, and we're very proud to own it.

So you used to mention commercial energy, that's in your commercial business. How is that doing? Is that really still growing a lot?

It's been an excellent performer. And you're right. We talked about it at times. And when we don't, it doesn't mean that it's not having success, it just keeps plugging away. That's another area we're really excited about being fully -- and they're very excited about being fully unlocked under the commercial international umbrella, right? So double-digit growth last year, double-digit margin performer, room to run and potential to extend. We've got leading experts in their field as it relates to some renewable energy capability, energy efficiency programs. We can extend some of that potentially some of our international arena but there's a lot of growth still with utilities that we've been doing work for here in the States, obviously, protecting our critical infrastructures a priority for the nation and they play right in that sweet spot.

Yes. And I'm going to have to bang on this also, Cai. Sorry. Show me a government that isn't talking about energy and energy security. So I love the fact that we're in this business. And I love the fact that we've got a little bit of a jewel here that is in a very key place of the value system of how we help governments make sure their energy grid and their energy security is more secure. For me, though, it's not about paint the world with our energy solutions. It's about a more purposeful approach to what this full growth look like, how do we expand from where we are. And as Chris just alluded to, we've launched this strategy thrust in 2024, where each sector is being asked to come to Chris and I and say, what is the full potential of your business? And what's happening is little businesses like energy that used to be tucked away and had to do with as much as they could with what they had suddenly have much greater assets at their disposal. And so the excitement is, okay, I have this little jewel, but now I've got the resources of Leidos to really come to heal to help me fulfill my ambition. I have customer pull because governments are spending more on energy security and energy solutions. And now I've got opportunity to really rethink what my adjacencies are and how I grow this more aggressively. So very excited about having this little corner of the universe and the opportunities to grow it.

So if we move to core services on our quarterly call, Booz and CACI both talk of defense and intel customers, moving aggressively ahead on programs, CACI raised their guide. Parsons came out today, big numbers. So beyond the Q4 vigor, I mean, you had good numbers, but I mean, you had great numbers, but the guide was sort of more or less down the fairway. So yes, so what are you seeing in these areas? You mentioned the word conservative that always makes me want to -- so what's conservative?

I'll go first and then kick it to you, Chris. so first of all, 2 of the businesses we've stood up, we're going to report in 1 segment called national security and digital. That's on purpose because if you think about the question you just asked, we are very capable in the national security space. But we aren't penetrated to the greatest extent in every agency. And while we had digital modernization programs sprinkled around Leidos, we've aggregated them into 1 business unit, so that we can have better replication, better efficiency and better efficacy of the solutions we're bringing forward. So the combination of those 2 things and serving our intel community is going to be very powerful as we try to take solutions we're doing for intel agencies here and span them to other intel agencies. We feel as if there's wonderful scope opportunity for us and be of service to more customers in the intel space. And we think we can do it at a cost structure that is more advantageous to ourselves and our customers. Chris?

Yes. And Cai, I mean, obviously, you alluded to it. We were proud of both the third and fourth quarter growth momentum that we saw for us, it was ahead of expectations and a lot of that was expanding activity within our customers on contract growth, we call it pivoting to '24. I mean we took a point of view that there's risk in the near-term until we have some more certainty on the budget. So things line up well, we'll see that level of activity and pace continue. But also our guide this year allows for flexibility for our business leaders to make sure they're focused on the opportunities that have the best bang for the buck for Leidos. Just tweaking the portfolio a little bit, right? We -- a large company have grown and expanded in certain areas and some of those were more attractive programs than others. And so we just want to make sure that we're keeping an equal focus on the bottom line, and the margin targets. And so that allows for some degrees of freedom to not pursue all of the work potentially that might have led to a more robust growth number. But position that for '25 as we unveil the strategy process and really more intentionality around where we're going next.

So you mentioned the word conservative, which makes me want to say, like, what's conservative? Where -- if you basically -- I assume whether is it basically promises made, promises kept. If you meet or beat if you beat your guy, what do you think -- who are the guys that are going to basically do better than your initial commentary was because you didn't give specific numbers, but just trends who are the guys who are going to really do better and who are the guys who maybe have to struggle to kind of get home?

Within my portfolio or...

Yes.

Well, I expect everybody in my portfolio to meet their commitments. So promises made, promises kept isn't a philosophy we have at Leidos for just Chris and I. It goes down to each individual accountability. And I mentioned on our call yesterday that the Board -- I recommended and the Board approved a new incentive compensation scheme that more tightly aligns our leadership around their personal accountabilities and the company's success. That aligns them to our customers' wants and needs, and our shareholders wants and needs. So the expectation is -- you've made a commitment to Chris and I about what you're going to deliver when it comes to cash, revenue and profit. And so you're going to meet those. But then as the budget situation clarifies itself and the year unfolds, if election year, Mayhem doesn't ensue and we have a clear sale to a more normal budget year, then we could see upside. And I would hope that some of those would overperform. Which ones are those I couldn't tell you right now.

But I mean, you -- so you gave us qualitative, we should be up margins down. You didn't kind of give us what the numbers are. But as you look at what the commitments to you are because I assume that's what you aggregated in terms of the guide you gave to -- the Street, which are the areas where you feel there's the best opportunity to outperform and which are the ones that you think it's going to be an okay year, but just a rough sense, it's a qualitative question.

I would rather stay away from rough qualitative characterization.

I'll only add because I said it yesterday, so I could say it again. Our Health and Civil business would be the one that if we had expectations for upside, there's some potential there if it were to come to pass. But yes, we're getting these organizations stood up and up and running. And let's give some time to see what they are capable of.

I just want to say that if the rest of my leadership is listening, the other 4 of you don't get a pass.

So Rogers' strategy was to go after large enterprise IT jobs where scale was a discriminator and you had a couple of big wins. Is that something you intend to push with digital modernization? And does the strategy need to be tweaked?

That's exactly what we intend to push with the aggregation of things in the digital modernization business. I don't know the reasons for, but when I arrived on the pitch 9 months ago, those businesses had been won, but then instead of scale, you used the word scale, they had been put in different corners of Leidos. Well, the whole point is, Roger, was right. Bringing these in and using the scale and the scope and the expertise of Leidos to replicate solutions so that you're not inventing in different silos, the same thing you already have somewhere else is the key. So we brought these all in under 1 sector leader. He's very excited about the promise and the opportunity that we have here. The words I used yesterday was efficiency and effectivity for [ active ] that was it. And that's the key, right? We should be able to reuse and replicate solutions better. That should give us a distinct advantage in the marketplace because we're not inventing every time for every customer. We're reusing what we already can demonstrate works elsewhere. And therefore, we can have solutions that come to the market faster and serve our customers better. That's the whole core of what Roger had set up. That's the promise that we've aggregated now in the digital modernization business, and we have great expectation that our best days are not behind us in winning big gain in that part of the business.

Terrific. So one thing that I've noticed about you guys about the sector is that everybody is talking about higher I mean like 9, 12 months ago, tough to get people, they're all leaving. And now basically, everyone is talking about man hiring is really kicking it. Retention is looking better. Is that the same for you guys?

It is. We -- I like the whole industry, there's still challenges around the highly cleared individuals. That's it. Subsector of our employee population that is a challenge for everybody. Every trade association that we work with is working with us to work with the government to fix that or at least ease that challenge. But generally, attrition is down. Hiring is up. We're -- our headcount is up to 47,000 productive light oceans. And we're not having a challenge with that. At the same time, we almost have an insatiable appetite, right? If you go out on our website right now, there's still hundreds of job openings. We seek talent for. But we're -- also, I mentioned yesterday on our earnings call, I've challenged the HR team to step back and look at our total value proposition for us as an employer so that we can attract and retain the best of the best employees in the market. I want us to be the employer of choice for top talent, and I've challenged my HR team to show me the package that makes that so.

Got it. So if we look at your business, any particularly large upcoming bids, we should be on the watch out for. And about recompetes, do you have any big ones of coming up?

Good news, Cai, is there's not 1 of our top 20 programs that's going to end this year that we've got to fit. Now there are a couple in '25, but any given year, usually 25% -- 20% of the portfolio is in a recompete cycle. So this will be a lower than average year, which is great. It puts us more on the offensive. Our teams like to be on the offensive on how do we see our pipeline shaking up for takeaway opportunities and new business pursuits. So assuming we get the budget settled and there's -- the award schedule stays on task. There's a lot of exciting things to go after. Less in the multibillion dollar range, the headline numbers that we've talked about in the past, more that are in the multi-hundred million dollar and there's a few that are larger than that, but that's a good place to be because your eggs aren't all in 1 basket and there's plenty of fish to shoot at. So an exciting year ahead on the business development front.

Got it. So turn to cash flow. What are the key drivers of your projected 2024 cash flow?

Well, I mean, first of all, really proud of the team, internal to Leidos and performance they delivered last year, we needed our original cash flow guidance by almost $500 million, right? And that was gains made on just the blocking and tackling of DSO performance days to invoice was down. Collections were accelerated with customers just working that every day. And then we made some gains on our supplier payment side, too. So for '24, it's sustaining those gains that we've made. We're not expecting another step function improvement per se, but that doesn't mean we're not challenging the team internally to look for those opportunities. It's a year that this whole Section 174 capitalization is still a net headwind. It's another $60 million of outflow programmed in for '24. There is some talk about potentially that getting repealed, we'll see. But our guidance assumes -- we stay the course there. And there is some modest investments in some new business growth opportunities. Nothing outsized, but really gives the team opportunity to go take on and win that next contract. So a lot of good blocking and tackling, sustaining our DSOs and that 56, 57 day range will be a great target for us and really continue to be a cash machine.

So we had Lockheed here before. And [indiscernible] asked him like what if the Section 74 -- 174 acts changes, so they push it out and you basically get the money back. How much of a benefit would that be for you?

Yes, there's a lot of layers to that. But headline, it's in the range of a $200 million benefit to us. We've got to get through -- is it going to be retroactive. So that assumes it is, and so we recover '22 and '23 cash tax payments. And then we need the state follow suit. But if all that lines up and then there's a clear path to go recovering money, we've already paid a couple of hundred million dollar benefit to Leidos. And plus we would avoid the $60 million outflow that we talked about in this year.

It's a $260 million net ish, right. Okay. And so then -- so Tom, now you got $260 million more. So you're going to buy $500 million in stock. So how should we think about how you think about capital deployment priorities?

Yes. Let's hope we have that problem of all that cash that comes in. At the same time, part of our promises made, promises kept is, obviously, we aren't assuming that in at this point. The plan we have in front of us as we laid it out to investors yesterday is even with the $500 million of share repurchases that we plan to do this year, we still have headroom in our budget for great ideas and great business bases. So while we are undertaking a year of strategy to figure out exactly where we're taking Leidos over the next 5 years, Chris has opened up headroom for us to deploy capital to great ideas that emerge more quickly. So we're very poised and eager to spend that money on great ideas that organically arise from the organization. I doubt that means we've got capacity to wisely spend hundreds of millions of dollars more. So in keeping with our expectation that we deploy capital responsibly, we won't see any knee jerk change in direction. Obviously, cash in the bank earns a little bit more interest than it once did. So it's not a terrible investment, but we'll look at that problem and solve it in line with what we've messaged as responsible capital deployment.

So what about M&A?

M&A remains not a focus for me right now. I've got a great business to run, a really good set of people who are excited about unlocking and understanding the organic growth capabilities that exist as part of the strategy process. I'm telling them not to -- not consider inorganic plays, but bring that forward in a comprehensive, cohesive conversation around where do you want to take this business, what does it take to get there? What's the size of the price, what's the investment and what's the how? Organic, inorganic, that will be in play in time, but not right here.

But that's because you basically -- these are new organizations. You want to see how they're functioning go through all of that. But if we look at the sector, I mean, basically, it's a history of M&A. I mean people grow to get access to a new customer, get a new technology. Most of that's been successful. So is this sort of just or hiatus for about a year until they kind of figure out who's doing well and what makes sense. And then you might raise the wick on that?

Yes. You never say it's a hiatus because you might want [ to say ] never, right? And so we haven't said we're not. We just said it's not a priority. It will remain not a priority until such time as we have clear strategies that we're invested in mentally and physically and then we'll invest accordingly.

So we're right at pretty much at the end of the hour. So any last thoughts you might want to leave with people about as they look at Leidos, what are the things they should take away?

Only to say, we've launched a new campaign around brand recognition, and it's all about making smart smarter. So we hope to help the world come to understand Leidos, not just as a funny little company that you struggle to pronounce the name of, but you see it as a company that constantly evolves and innovates to make smart solutions even smarter.

Terrific. Well, thank you for coming. That was terrific.

Thanks.