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

Good morning. Again, I'm Jason Gursky, the Citigroup's aerospace and defense analyst. I'd like to welcome those in the room as well as those on the webcast to the next presentation slot, which includes the CEO and CFO of Leidos. Let's see here. Why don't we start with the recent goings on for you, Tom, over the weekend. I understand you were over in Europe, kind of right in the center of the Munich conference. So why don't we start with your kind of general impressions of what you heard there and kind of what you're going to bring back to the way you think about the company maybe.

Sure. Thank you, Jason, and thanks Citi for hosting this conference and having us for this fireside chat. As you suggest, I was at the Munich Security Conference this weekend. And it was a sobering affair, not sobering for what most people came into the conference thinking it would be sobering about. Frankly, I think most pre-conference conversation was about the presidential election in the United States. But that changed very quickly with the death of the Russian opposition leader Navalny and the very sobering spell that cast over the whole conference. You have in Europe, 18 of the 32 NATO nations now spending at 2% of their GDP on National Defense. And you have broad, not just verbiage, commitments but serious plans for the rest of the 32 to get to 2%. And you have many countries Finland, Estonia that are already spending well ahead of the 2% goal. So you've got, unfortunately, an uptick in European spending on national defense very much commitment to NATO. I mean think about it. Sweden, independent for 200 years suddenly in a matter of days joining NATO from that 200-year history of neutrality and appeasement. And you've got a very sobering view. I mentioned, Jason, that the theme of the conference, unfortunately, was lose-lose question mark. So the European mentality as it looks to the future post Ukraine is very sobering very much of a mind that Vladimir Putin won't be appeased no matter what happens in Ukraine. Very much looking at the war footing that he's put his economy on and the spending that's going into defense in Russia and projecting forward with analysis that says it's only a matter of 2, 3 years before he's got his military capability not only rebuilt to pre-Ukranian investment days but surpassing pre-Ukrainian investment days and what does he plan to do with that? He probably plan -- doesn't plan to go back to the Garrisons and do exercises. So there's great anxiety frankly in Russia -- excuse me, in Europe about Russia and obviously, with Finland and Sweden joining a big, long barrier with no buffer countries.

Yes. So maybe bringing that back to Leidos, just talk a little bit about the company's exposure in Europe today and maybe some of the opportunities that you see. Obviously, the budget here is going to grow, but probably at a slower rate than what we have going on in Europe. So is there an opportunity here for the company to participate in some of that growth?

I think so. A, we just resegmented the company and for those watching closely, one of our segments is Commercial and International. Heretofore at Leidos, we did internationally sprinkled in all the divisions. And so as a result, you had various levels of understanding of how to prosecute international. We've aggregated that into 1 business with 2 primary goals. One, we have a major footprint, obviously, in the United States, a major footprint in the U.K. and a major footprint in Australia. So let's get all that in one place and focus on Pillar 2 of AUKUS. For those that may not be watching closely, Pillar 2 of AUKUS is not the nuclear submarines. That's what they call Pillar 1. Pillar 2 is all about digital, cyber and information sharing, intelligence community type of stuff, lowering the threshold for collaboration between those countries in that area and doing a better job of bringing these NATO allies along for that. So very focused on that. But with my trip to Munich and the conversations that I held with most Baltic states and the Nordic states around security, they too are not so much focused on tanks and airplanes, frankly, NATO feels like they have enough tanks and airplanes. What they need more of is smart systems, interoperability and logistics interoperability. So a lot of the conversations with those countries and with the NATO leadership that I held over the weekend was about how does NATO prepare itself better as the a fighting force to prosecute any future mission as opposed to 32 or 33 individual fighting forces. And so that bodes well for Leidos because we do a lot of work in the digital modernization space. We do a lot in the command and control space. We do a lot in the ISR space both terrain and undersea and sea understanding of ISR. And we do, obviously, a lot of work in the cyber, intel, artificial intelligence space. So frankly, it was very fulfilling to see these countries eager to talk to Leidos about what can we do for them and their industries to help them be plug into NATO in a more effective way. So I think there's a there for us that we're going to be exploring through the year.

Right. A couple of follow-up questions to that. So the segment is commercial and international. Does that suggest then that most of the things that you would be doing internationally would be done on commercial terms and kind of direct sales as opposed to going through the FMS process. That would be question #1. Second, is there anything that you think will need to be done from a -- for lack of a better word a regulatory perspective to enable you to better engage over there. And then third part, and I'll try to keep track of these, just do you need to do this through partnerships? Or can you go over as a prime and start doing some of this work?

Yes. It's too early for a 3-part question, sorry. I would stay on the terms, yes. But -- so certainly, we're positioned today with contractual arrangements, again, with many countries, U.K., Australia and others on a commercial basis. Ultimately, as capabilities emerge through our defense systems segment, I know we'll probably explore a little bit more of our new lines of business segments here today as well, we could see opportunities for FMS emerging, but that's not the primary intent as we see it today, right? There's a lot of opportunities to prosecute in a traditional, commercial arrangement. You'll have to remind me on part 2 of that question already.

regulatory changes that need to happen potentially.

Yes. At this point in time, and those things will continue to evolve. I don't see that there's significant hurdles. AUKUS is a big one to unlock the ability to share information more freely. We'll need some of those types of things to prepare to share more information freely in some of the European countries that aren't part of that. But I mean AUKUS is a great opportunity for us to explore how that becomes more of a free trade zone space for us in the future.

I would just add, we do very little FMS business today and that's really not -- we don't have an F-35 line where selling FMS fighters is our jam, so to speak. So we'll probably do more commercially and locally. We sell into NATO now a lot of the things that help NATO be a cohesive fighting force. And so we have expertise and experience doing it. We're just going to have to expand that. Where do we do that from, do we open up an office in -- we have one in Amsterdam now that's probably close enough. And we'll see where the market takes us from there.

Yes. And then the go-to-market strategy, is there going to be kind of partnering you come in as a sub or you try to prime work over there?

One of the things that we are very proud of at Leidos is our unique partnering model. We think it is a differentiator for us in the ecosystem. We do not treat suppliers as suppliers. We treat them honestly as partners where unlike the Munich Security Conference of lose-lose, we've talked about win-win, really symbiotic relationships that help everybody win as a result of this relationship. So we feel as if that ports easily into Europe, we don't go to Finland or Sweden or an Estonia and say, we got to be the prime, we say how do we help. And if you've got a national champion that you want to be at the forefront of that, we're happy to plug in and help them be more effective.

I just want to make sure I get this right. So as we think about Leidos and growth in budgets in Europe, we think digital modernization, we're thinking about managing and analyzing large data sets. But maybe space, we could talk a little bit about because you guys had [indiscernible] called Dynetics. Will there be an opportunity there for a company like Dynetics, I mean we've obviously seen a lot of investment here in the United States into space. It's the ultimate high ground. It's where we can place sensors that will hopefully be relatively safe in anti-access/area denial environment, although the announcement that came out this last week about some of the capability sets that we may or may not have over in Russia maybe it will become contested sooner than we think. But I don't know, will there be an opportunity for you to participate in any investment that gets made in space.

I'll go first and then ask Chris to jump in. We do not want to become a satellite manufacturer. I don't want the capital intensity of that. I don't want to take on that crowded space. I'm very happy being a sensor and payload specialist in that space. In that regard, we do have some very unique capabilities about sensors and yes, there's opportunity for us to maybe with the U.S. government's help sell that into that space. More importantly to me though, is we're actually very adroit when it comes to ground stations and managing space-based assets and so there might be an opportunity for us with NATO and those countries to work a little bit closer on the how we track and how we manage the assets in space.

Yes. I mean I would certainly say all those are possibilities, but there's plenty of opportunities we're focused on with our U.S. government customers in the space domain as kind of a primary objective for the Dynetics team and other parts of the portfolio. Clearly, we believe we've got some differentiators as it relates to the algorithms, the detection capabilities and really honing that for various missions would probably be the primary objective of our strategy at this point in time. But clearly, those are expansion opportunities that could present themselves as we look ahead to the back half of the decade, right?

Right, right. Shoot there was a follow-up question I was going to ask, but it just slipped my mind. So I'm going to move on to the next question here. You mentioned the segmentation and the changes that you've made there. I mean I know you've covered it well from exactly what you did. But anything you want to highlight there for -- particularly for generalists in the room might be helpful. And then I think most importantly, it's kind of the motivation behind doing it and how are you going to be measuring the success of that decision.

Why don't you take what we did and I'll do the why.

For investors out there and people that follow Leidos, we have introduced 4 new segments. Historically, we had 3 segments that we reported on and this year, we organized the business internally around capabilities and actually have 5 lines of business internally, which get reported out on a 4-segment basis. Let me cover those briefly for you. So we've got -- we talked already about our commercial and international business, and it was important that we bring together the pieces of the business that didn't need to follow the FAR and government regulations on a consistent basis and unlock their full potential and have a center of excellence as it relates to how we do business internationally. So we're excited about that part of the portfolio coming together. Next, the Defense Systems. So we had platform businesses in our heritage Dynetics work, but we also had a maritime and airborne ISR capability that we brought all together similar engineering discipline and technology investments that are pervasive across things. And then with the 2 remaining pieces are kind of more of the core of Leidos, we've got our Health and Civil business that have been brought together. Our Health business has been on an exceptional run, a lot of good prospects as we move forward. But there are some nice synergies that are emerging with the civil part of the portfolio on the science side that we believe will provide some additional -- unlock benefits to us. And then finally, the 2 that were brought together were our national security business, the work we do with the [indiscernible] agencies, some parts of the DoD, software development, logistics, mission support, data processing and brought that together with our digital modernization portfolio into the final segment that you'll see externally. We're really excited about the digital modernization piece of the portfolio because we've won a lot of franchise programs over the last 3 to 4 years. And those were sprinkled across the portfolio, and there's a lot of synergies around bringing those pieces of businesses together and unlocking their full potential with repeatability, common skill sets and there's a next gear, we believe we can find not only in growth but in margin improvement in those parts of the portfolio. So that's a little bit of what we brought together, and Tom can add some additional color on why.

Yes. And Chris used a couple of keywords there. He talked about capability-based. So through no fault of anybody, Leidos did several big acquisitions and several smaller bolt-on acquisitions during COVID and during COVID, you just bolted things on and left them alone and figured you'd catch up and figure out how they really integrated later. As a result of that, when I arrived on the scene, I saw a company with tremendous capabilities, but the capability is kind of scattered through the 5 operating businesses we had at the time and the 3 segments that we had at the time. And so this capability-based philosophy, there's multiple ways to organize any company, right, pick one. I assumed and asserted that at the time that we are at now, the best way to get more efficiency and more effectiveness in talking about how we're going to grow Leidos into the future was aligning around capabilities so that we didn't have 4 pieces of the business doing the same type of work, but rather one business doing that work so that we could get better at thinking about how do we become most efficient at it and most effective at serving customers and what's the pipeline of growth for all customers in this capability space. So it was a capability-based organization to align for efficiency internally and effectiveness externally, being better able to serve our customers. And the exciting thing about all that was it unlocks a more efficient 2024 than we had in the old organizational construct. I mentioned last week, that we had run the numbers preliminarily for 2024 in the old organizational structure and measured success for 2024 on did that number go up or down and it went up happily. So that means already just on the expectation of the new organization, leaders were able to lean in and say, I can be more efficient and be more effective. But then really, this measure of success longer term is what's full growth for each of these segments in each of these sectors. I've tasked each member of my team to bring forward today, forward 5-year view of their sector. Each now is set up to uniquely face a certain market with certain competitors and certain market dynamics and certain pipeline of opportunities. So I've said, look, you study your segment of this business and you tell me what best looks like over the next 3 to 5 years. Tell me what investments are necessarily, tell me what where you're going to take this. And then Chris and I will start to adjudicate between them as the year goes on to say, we like that bet, that bet and that bet, this bet, we're going to hold for a little while. So success in 2024 is meeting our numbers and coming forward with a robust growth strategy. Success for this in the longer term is, we're going to be able to talk about Leidos growth trajectory, top line and bottom line in 2025 that is more fulfilling than the growth trajectory we have between '23 and '24. That's what ultimate success looks like.

And that adjudication process that you're going to go through with the teams, just maybe help me or help those in the room and on the webcast kind of understand the context that the 2 of you will bring to that and some of the experts that you'll kind of pull on, kind of some of the assumptions that you are going to kind of bring into that construct as it relates to your customers here, your customers internationally.

Sure. Well, I mean I'll get started. Obviously, there's -- we've got processes about which we evaluate business cases. And it always comes down to risk and probability of success, right? So really trying to calibrate on those, and you mentioned experts, and that will involve some external perspectives of the world certainly, and we're taking those on board now. We'll take more of those on board as the year unfolds. Our Board will be very involved in our strategy process. We've got a lot of expertise that the Board brings to bear, and so they'll be engaged heavily in helping us understand those things. But really, it's -- Tom can talk about selecting people based on track records of success. So this comes down to betting on teams and who has proven that has the ability to deliver on a consistent basis, but calibrating that risk/reward profile appropriately is part of our job, and we'll be very involved in that.

Yes. And I would just add, Jason, so the business cases will be pressure tested to say do we believe them. But then 2 other lenses that will be put on them is, yes, this is consultant speak. Do we have a right to win in that market, do I believe that credibly we can grow in that way in that market, do we have a track record of doing those things that I can push the I believe button. And two, I'm not a far adjacency lever. We're not going to take Leidos off onto a tangent that doesn't make sense to people who watch Leidos and know what we're good at. I'm into core businesses, minding the core. I'm into slight adjacencies, a couple of degrees off that expand the pie but not radical 90-degree turns or 180-degree turns.

Yes. And speaking of kind of widening out and maybe looking at a bigger set of opportunities. Maybe you could talk a little bit about the current pipeline, how that maybe compares on a year-over-year basis. And kind of what your track record on win rates have been over the trailing 12 months or so?

Yes, I'll start and then ask Chris to jump in. So 2024 is a kind of funny year right now. We're still operating under a continuing resolution. Most people in Washington, D.C. are -- have 3 dates in early March circled on their calendar, March 1, is the first penny to drop. March 8 is the second penny to drop, but in between is a State of the Union address. So I don't need to tell people about politics in Washington, D.C. But most people are looking at those 3 dates in early March and saying, well, we'll know what 2024 holds from a budget standpoint then, right? Are we continuing on a year-long continuing resolution? Does sequestration drop in? I say that, Jason, because it's actually got most of our customers in a little bit of a quandary. They're proceeding as if it's a normal year. But those could be suppressed in the early part of March. And as everybody knows who watches this business, if we are operating on a year-long continuing resolution that means new starts can't happen. Now that's fine. We've got a good book of business, and we've got good opportunities for on contract growth. So we're not panicked if that happens. But that's again why we put out guidance for our revenue that said 2% to 4% growth on 2023, 2 reasons -- 3 reasons for that. One, we had a very, very good 2023. So we overshot our expectations there. So that makes the comparator tougher. Two, we want to be conservative about the political and budgetary environment in Washington, D.C. and just be realist about it. And then three, as we refine Leidos for the future, we're giving our leaders head space to say, "Hey, that's really not good business for Leidos." I have this philosophy, not all business is good business. It may be good business for somebody else in the ecosystem, but it's not a business that's good for Leidos. And therefore, I want to give them the space to say, I'm not going to continue to do that work. I'm going to take my assets, my capabilities, my people and my money and apply them to things that are more worthy of what Leidos does and how we bring value to our customers. So those are the kind of things that kind of talk to the year in front of us.

Yes. So -- and I'd just add 1.1 book-to-bill last year, $37 billion in backlog, there's a lot of good things going on with the engine, right, of winning new business and protecting our turf, and our win rates, especially on recompetes have been strong. But we believe there is another gear. And Tom has talked a lot about reinvigorating that process, bringing back a leader in Gerry Fasano that's done that successfully for us in the past. And he always brings energy because of the job in his hand. And so he is. And so for us, it's really making sure on the new business and takeaway front, we're continuing to punch above our weight class. We're used to winning more than our fair share in those areas. And we expect that we've got all the capabilities to continue to do that again. So I'm excited about where that's going. The pipeline despite what Tom talked about and people being a little bit more selective on the better reward opportunities for Leidos is strong. There's been some pruning of that, but it's still in a healthy spot and the submittal engine will be strong again this year, a lot of activity going through and we're looking to just make sure that we can continue that momentum and winning more than our fair share.

Right, right. Okay. Great. You mentioned -- yes. So the changing in the segmentation. So maybe talk a little bit about the leadership team and any changes that have been made there. And I think in -- while talking about that, just talk about change management with people because at the end of the day, it's people running this business. And I think we all know humans are all that -- most humans are not all that enthusiastic about lots of change, so just kind of talk a little bit about how you're managing that.

Sure. Thank you. So I was very fortunate to learn when I arrived at Leidos, last year was our tenth anniversary as a separate company under the Leidos brand. Obviously, we have a 55-year heritage in SAIC, but it was 10 years this past fall that we were Leidos, purple company with a curious name, right? Well, I took advantage of that. And starting in the summer, we started talking about our heritage, celebrating the rich 55 years or 10 years that we had but also talking about something that we called Leidos Next. And I've noticed -- XYZ next is now very popular. I think I got there first. But in 2023, Leidos Next was the branding that we put the whole change management program underneath because you're absolutely right, Jason, people get scared if there's too much change and they think any change means job cuts. They always look for the bogeyman in any change. So I wanted to make it optimistic, and we involved our employees on what do you think is next for Leidos. And frankly that changed fear into energy. And at the same time, we, as an ELT huddled, talked about where we thought we needed to go with this company, the changes we could make incrementally that wouldn't scare, wouldn't spook the people but would be a better Leidos organizational construct for 2024 and beyond. That's how we came up with the sectors that we have now and the segments that we have now. And also, during 2024, I was watching and learning about the ELT. I said on the call, and it is factually correct, obviously, that 75% of my ELT is now new in new positions or have newly defined responsibilities on the ELT, which means only 3 people have the same job they had in 2023 as they're prosecuting today. Chris is one; Maureen, my HR lead, is a second; and my Head of Dynetics, Steve Cook is the third. Those 3 are in the exact same job they had in 2023. The other 8 -- excuse me, 9 are all -- are new -- in new positions or with newly refined responsibilities. What's that is bringing is energy and excitement. People are in the right place on the bus. They're excited about the recognition of the talents they have and the eagerness for me to let them lead. And I'm very, very encouraged by the fact that people are talking about empowerment and entrepreneurialism and agility. And they're bringing these conversations up about, hey, we've got the opportunity to define what the future of DigMod is for Leidos. How cool is that? And so it's been a journey. It's been -- we've tried to turn that anxiety into energy, and I think it has been largely successful.

Yes. Absolutely. I mean -- the team was ready for a little bit of a twist as it relates to the organizational structure. We've been thinking about that for some time. And I love how people are bringing passion to the new roles. And we've always had a great team that was capable of delivering. And at the core, it's a lot of the same people, but unlocked in a different way because they're highly motivated with the new responsibilities they're taking on. So I think we're off and running. We did a lot of work, lot of planning work went into hitting the ground running on January 1 in not just building the plan but going through the portfolio, thinking about the optimal organization structure, a level below that. And so the teams have found a lot of energy in the first 45 days of this year, kicking it off of the big leadership conference and some subconferences. And so we're really feeling the momentum building.

Great. And I think along with some of these changes to the organizational structure, you made some tweaks on the incentive structure for the team as well. So maybe talk a little bit about how all of that change aligns and what exactly you did?

Sure. So again, I'm very much a fan of empowerment. I'm also very much a fan of very clear expectations and communications of clear expectations and then accountability. And so the incentive compensation scheme that we've revised for Leidos very much tracks what our investors would think we should be caring about revenue, profit, cash. It puts very specific individual contributions for those things into individual buckets. So it's not about I can fail but I'll still get a great IC because Leidos wins. No, you promised me, you'd deliver this that's your accountability with an overlay then of whether Leidos succeeds on the whole. But the primary focus is revenue, profit and cash at the individual level with an overarching does Leidos meet its goals also. On top of that, that's the what. I have what I call the how. So the what is do you deliver your numbers, and that's going to generate your bonus. And it's, again, very specific, very mathematical, very precise. And then there's the how you did it. I don't reward bullies. I like collaboration and cooperation. So there's an aspect that is a kicker, positive or negative around behaviors. And it's that simple. The what and the how.

And how -- what's the reaction been of the team thus far?

So we had a -- I think, positive some people -- this is where you really get people that say, I'm going to suspend my disbelief. We've run the numbers and help them understand that if we had this new model in 2023, what their bonus would have been. So everybody is very happy with the bonus that we're giving because we had a great 2023 for all of our shareholders. So the management team is also being recognized appropriately, but we've helped defang the new system by showing them what their numbers would have been in the new system. And most people are looking at that and saying, "Oh, okay, good. Now I feel better. And I'm talking about it's all in your control. You make your numbers, you deliver what you told me, promises made, promises kept. You're going to be just great. In fact, you can calculate it yourself. You don't need me. And so, it's all in your hands.

I think importantly to add to that, Jason, I mean, for our long-term comp, we'll still have TSR as a healthy, probably industry-leading component of that. So we do make sure our interests are aligned with our shareholder interest in that regard and just making sure the other elements of that are focused on growth and profitability as well in the future.

Good. This will be maybe another -- maybe it's a single-part question, but it is -- no, I see it's going to be a couple of parts. Capital deployment prospects potentially here for some excess cash. And then in the context of capital deployment, you've also talked about some contract pruning as well. Just kind of help us understand how you're thinking about organic, inorganic growth and how that all kind of ties into your capital deployment decisions?

Yes. So on the capital deployment side, we're obviously pleased that we closed that a year last year, beat our cash number by more than $400 million from the original guidance, right? So a huge year on cash, great performance by the team, allowed us to accomplish a couple of different things, successful year to delever, actually below our target ratio where we do a study every summer to make sure we're comfortable at the leverage target that we set and got there. So check that one off the box. We repurchased some shares in the fourth quarter. We talked about that. It was good to be able to step into the market and bet on our ourselves because we certainly saw a value opportunity there. And then we raised our dividend for the first time in a couple of years, so modest additional capital deployment, but making sure that stays relevant and interesting for our shareholders is also important to us. It puts us in a good position coming into this year, right? We've got more cash on the balance sheet than we had anticipated. And so usually, our cash flow profile, and it will continue to be is a little bit more back-end weighted. Our customers tend to pay heavily around their government fiscal year-end. But we entered the year with cash to deploy. And we've communicated for the first time an intention to repurchase $500 million of stock in 2024. So we're excited about and we'll execute on that. But that leaves us a lot of capacity in the back half of the year. And I think what Tom and I have talked about is we want to continue to invest in the business organically as a priority. We've got a capital expenditure program on the order of $200 million earmarked towards growth areas, right, whether it's key locations or certain capabilities on the product and manufacturing front. That leaves capacity as the teams go through their strategy work and identify early opportunities to make moves in that regard, we're happy to entertain those prospects. Absent that, again, whether it's delevering, whether it's additional share repurchases or just evaluating prospects into the future, we're happy to have those choices to be made in the back half of the year.

Yes. We are in the very envious position where we have lots of choice of how we prosecute this year. One thing we won't be doing is surprising people, right? We're -- we've got headroom in our budget to make important organic bets if as the strategy work we're undertaking uncovers great opportunities that won't wait until 2025, great. We've got levers we can pull there to invest in that. And if things go well, there's possible other things we can do with that capital for -- that are shareholder friendly. so it's a great problem to have. Again, what we won't be doing is making any knee-jerk surprises. I'm a firm believer that we owe ourselves and our investors a coherent strategy for where we're taking Leidos. And then all of our organic and inorganic plays from that point forward should tie in very carefully and clearly to that strategy. So as we do the strategy work that will set out the road map for both inorganic and organic plays in the future.

On the second part of your question, I'll come back to that, just a little bit more selectivity, don't overread it, right, there's some things that have crept into the portfolio over time, right? And as we have realigned a little bit and prioritized where we want to place bigger bets where we're truly differentiated and command better returns, we want to be selective with the resources that we've got to throw at those opportunities, especially on the capture and technology side, right? So it's just that. I mean there's a few things that we'll say we'll probably as they end we might choose not to recompete them. And there's been some other choices we've already made as it relates to looking at the pipeline and saying, "Let's deemphasize a couple of these areas" and in the short term, it's a modest impact on growth. We think in the long term, it will be an accelerator for us because we'll be really more focused in the areas that we can grow more rapidly and generate better returns.

It's all focused on building quality backlog over time, right? If you're spending all your time and your resources chasing not great work, you are not chasing quality backlog over time that's going to be top and bottom line accretive. And that's what we want to kind of reguide ourselves too.

You've got confidence that there's enough of that quality opportunity out there.

In some of the things that we were going at historically can be quality opportunities. It depends upon how you approach it, recognizing what value you bring and that might mean that your probability of winning goes down slightly, but in the grand scheme of things, you'll win enough to generate higher returns. So there's a little bit of that element to is what's an acceptable level of return even for the work that we're going after. But yes, I believe the team has line of sight on a pipeline that can support our growth objectives of quality.

Yes. And not to put too finer point on it. But as we went through the postmortem of some losses we had in the last 18 to 24 months, we realized that was great work and we didn't have the A team and enough of the A team on it and that's letting quality backlog not accrue. Why were those people not available? They were distracted because of the stuff. It also comes back to Gerry. Chris mentioned Gerry Fasano, he was our sales and marketing lead in the late 2010 when we kicked bu** in the marketplace. So we're looking -- we're very much looking forward to getting our mojo back in that area, right?

I see we're running out of time. I do want to ask just 1 last question because you mentioned the word investment a couple of times in the response to this. So just any particular areas or cadence or anything that you want to highlight to investors as you think about investments going forward?

Well, I mean, so again, to Tom's point, we'll communicate more clearly the areas that we believe will make bigger investments in. We've had a robust amount of spending on internal research and development and that actually has grown year-over-year as a percentage of revenue, and our CTO team is very thoughtful on how they're deploying that in near-term deployable capabilities and a little bit of that goes towards a little bit of the longer-term deployable capabilities where we think things are going. Not to mention investment in new business funds as it prosecutes, captures and building the pipeline and our account management capabilities. So you'll see our investments concentrated there for organic growth plays but up to the solution architect technical people to really make sure those are targeted in areas that have a big impact on our customers.

Software, Cyber, AI, autonomy.

Noted. And with that, I see the clock ticking up, which is never a good sign. I want to thank you very much for joining us today. I appreciate you for coming and spending the time with us.

Thank you, Jason. I appreciate you.

Thanks, Jason.