Science Applications International Corporation (SAIC) Earnings Call Transcript & Summary

All right. Good morning, everybody. Welcome to Day 3 of the Goldman Sachs Industrials Conference. I'm pleased to have SAIC with us today, Prabu Natarajan, CFO; and Joe DeNardi, IR. Thanks for joining us.

Good morning.

Thanks, Gavin.

Maybe just jump in straight into the weeds, and I'll come back to some high-level questions. 1Q has been a little mixed across your peers. We still had some of the lagging effects of the continuing resolution, the Omicron surge. So can you give us an update just kind of on what you've seen, whether it be from either of those or Ukraine or budget spending?

First of all, Gavin, I appreciate you having us here at your conference. I think the best thing to do right now is point to, I'd say, the results we've delivered over the past few quarters, where despite some of the dynamics you mentioned, we've actually delivered on the financial commitments we made to our investors. And our focus candidly is to keep working and keep getting better. We'll obviously provide a fuller update when we report on June 6. But I characterize the operating environment as largely unchanged over the past few months. We've seen timing on things shift a little more to the right, but that seems to be the normal course of how things are working. We're really proud of the results we delivered over the last several quarters. And we know we have some work to do to overcome some pressure related to contract transitions, as we mentioned on prior calls, and that's really where the focus is. But I'd say environment is largely unchanged. And we're just working our way through that environment right now.

Got it. And maybe in terms of the fiscal '22 on the -- fiscal '23 budget, what have you seen there? Are the omnibus funds flowing through?

Yes. So we're starting to see some of it. We're seeing the reports come out for April on funding for L&M specifically. And we're not seeing a sizable uptick in the funding environment. Having said that, qualitatively, it appears to have gotten a little bit better in our expectation. And candidly, what was built into our guidance at the start of the year was that it continues to get better in the second half of this year, and that's still our expectation. But I'd say modest improvements but not a material change, I wouldn't think in the funding environment right now.

Got it. Is there a use it or lose it dynamic, where that needs to go on contract by fiscal year-end?

There certainly is for parts of it, and I think the teams are actively engaged having that discussion. And we know where the department wants to be by the end of July in terms of having funds committed and obligated. And so we're working with our customers to ensure that we're a company with a significant amount of backlog, $24 billion, I would remind you at year-end. We have the potential to continue to place things on contracts. So we can actually get things started a little bit sooner in a tougher operating environment. So really, again, it's sort of a ground game ensuring that we're doing all the things we need to do to ensure that we can capitalize on the backlog that we have here.

Got it. So maybe you can tie that back into guidance for this year. What are the things that kind of take you to the high end or the low end of the range?

Yes. So in terms of the guidance itself, we said to $7.35 billion to $7.55 billion. And I think the development that we're doing kind of the business development work, I would say, probably has a sizable impact. The way we sort of laid the year out and our view of it hasn't really changed. We said we expect low single-digit growth in the first and the fourth quarters. And we said low single-digit declines in 2Q and 3Q. And this was sort of our view when we did our March guidance call. I'd say we're very comfortable with the view that we presented back at the time in March. In terms of what will cause our performance to be closer to the higher end of the guidance range, I would say, continued progress on the business development side. We had indicated that there were some new business opportunities out there that will cause us to be towards the higher end of it. So I'd say it really becomes a function of how effectively we can convert the backlog into revenue in the first half of the year and then obviously winning our share of new business in the second half of the year, recognizing in a sort of an environment, where there are more active protests right now. That's obviously causing some impact on the new business for at least some of our peers as we've seen. And we've sort of taken into account all of that. But I'd say continued improvement on the business development front will help us get to the higher end of that guide range. But we're very comfortable with the initial guide that we provided. And as I've always said, there's plenty of opportunity for us to sort of pick up the game as it were over the course of the year. And I'd say we're well on our way there.

Got it. So maybe if I could peel back that cadence for the year just a little bit. I imagine that's a little timing of the AEGIS contract and then the extra working days in the fourth quarter. If you were to strip those out, there's a progression throughout the year a little bit more linear. I mean is it improving? Is it pretty steady? How do you think about that?

Yes. So if you stripped out AEGIS and you stripped out kind of the extra working days in the last quarterly year. I would say we're going to be comfortably kind of in that low single-digit growth rate in 1Q as we indicated on the March call. And then if you stripped out AEGIS, I think we start to be flatter to maybe slightly up, slightly down, is sort of how we see the cadence to be. And I think as I've repeatedly said, we lost a big contract. We're moving on. We're challenging the teams to deliver growth in spite of the loss. And frankly, that's where the focus is internally to ensure that we continue to deliver growth here. If we deliver low single-digit growth rates at Q1, that 6 straight quarters of organic growth at SAIC, something we haven't done in the past. And so I think focus is really just ensuring that we are doing the things we need to do, recognizing we've got some near-term headwinds. But we've got to work our way through it to ensure we continue to deliver good, solid, organic growth here over the course of the year.

Got it. One thing that you mentioned was the first half of the year will grow at a backlog. And I can't help but notice your funded bookings last year weren't quite strong. Does that give you a good amount of visibility going forward this year? Or is there still some variability in timing of funded bookings?

Yes. So we -- I think it's a good observation. We've delivered very strong backlog growth over the last several quarters. I think some of that has obviously been the success we've had in retaining key programs, franchise programs within the company and also winning new work. And some of it has actually increased the duration of the backlog, which we actually shared on our March earnings call. And the duration now stands at roughly 4.5 years. And the other thing I've shared previously is if I look at the pipeline of opportunities that we have out there, they tend to be greater than 60 months at a time. So I suspect we will continue to see the duration of the backlog, increasing here. And that's where the team's efforts are focused to ensure that we have that stability in the portfolio to continue to grow on a year-over-year basis. Now the increased duration actually provides us also some improved visibility over a multiyear period but not necessarily a 1-year thing. So I'd say our visibility for this year is fairly similar to where it's been in terms of the contribution we expect from backlog and programs up for recompete and of course, new business. But I would say we are positioned well. We've got to do the work on the business development front to ensure we keep winning our share of new work. And obviously, keeping the franchise programs are critical to our success over a multiyear period. So I mean that's where the effort is going right now.

Yes. That makes a lot of sense. So I mean the backlog is extended, a pretty good deal. It sounds like you can continue to extend that a bit. And does that just consistently reduce your recompete risk each year going forward?

That's right. And I think the other important aspect on the recompete side is, look, we went through the recompete on the NASA NEX program. We went through a very active recompete cycle on the S3I portfolio. We are going through a recompete cycle on Vanguard and the PVMRO. If you look at the 4 large sort of big contracts that came over at the time of the split, all 4 of them are going through an active recompete cycle right now. So I'd say, in some ways, and I've shared this phrase before, it's a super cycle recompete for SAIC. And I really do expect us to be strong there once the recompete cycles end hopefully sometime this year or next year. And I think what you'll also see us do is share a greater deal -- detail around the quality of the pipeline. And I think the pipeline starts to inflect towards a greater proportion of opportunities in the new business area as opposed to the recompete area. So to me, I think you'll see that continued progress, and we'll share our progress as we go forward.

Is your recompete rate lower next year? Or do you still have some elevated part of that cycle?

I think it's fairly typical to have recompetes in that 10% to 20% range. I think the reality would be that once we're past the super cycle for recompete, I think the size of the individual programs that are being recompeted gets smaller. And I think, candidly, that actually is good because it allows us to sort of move past big stuff and actually then also start to focus on the takeaway opportunities and no single win or loss is that impactful to the portfolio, especially on the loss side. But I think it really does give us the ability to go after some work more aggressively. But I think in terms of the percentage, think it's going to be always in that 10% to 20% range.

Got it. You mentioned some of the contracts that are headwinds and tailwinds. Can you maybe just run through an update on those -- on the headwind side? Vanguard and I think PVMRO is still unclear whether or not that's actually upsize or downsize, mentioned S3I and the tailwind side. But could we just maybe run through a list of key drivers?

Sure. Of course. S3I, the recompetes were a big deal. That portfolio, the Army account is growing very, very nicely for us. So we are continuing to see growth in that portfolio. The risk contract, we had flagged the second half of last year and the first half of this year as continuing to be a growth engine for the Army business. So that program is doing really well. We're continuing to ramp up on the space side. We want a really important foundational kind of space opportunity in the second quarter of last year. And that program is actually starting to ramp up. It's restricted, but it is starting to ramp up. And we've flagged that as a potential area for growth for us. And of course, the core of the S3I portfolio is growing nicely as well. So I think if I put all of that together, that's sort of on the tailwind side. And then on the headwind side, I think it really is NASA NEX at this point fundamentally. And we'll always have some puts and takes as we go through the cycle here. But I'd say that's probably the single largest headwind. But again, the focus for us, the incentive comp changes we've made, all of them are targeting continued sustained organic growth rates. And we've got the backlog to go convert into revenue opportunities here. So instead of looking for new business opportunities that have return, I think we're really reinforcing the focus internally to ensure we can actually convert the backlog into revenue. In an environment where things are getting protested, where there's potentially another CR coming at the end of the year, it really is important to focus on the things that we can control as opposed to the things we cannot control. And that's where the focus is right now.

Great. That's helpful. One of the big recompete wins that you had was AMCOM. I think that potentially had some upsides to the ceiling. Is that right? And how is that progressing? And then did that see some long contract growth?

Yes. So that program is doing really well. And you are exactly right. There was some extra ceiling there. And look, our Army team is doing a fantastic job of working with the customer, working with the Army labs, convincing the customers' customers to ensure that we can bring more work to that vehicle because there is a significant amount of ceiling out there over the next, let's call it, 5 to 8 years. So to me, I think that has been a growth engine for us the last year plus. And I expect that that will remain that way. And the team there is intensely committed to ensuring that we can convert every dollar of that backlog into revenue here. And not a lot of companies in our space get to say that. So I'm really proud of how much work we're doing in that part of the portfolio to make sure that we are delivering value on a day-in day-out basis.

So if I wrap all that up, extending backlog, longer contract duration, lower recompete, how do you think about the multiyear growth outlook? And I know you haven't given a target, but -- and another budget is moving around a lot right now. How do you think about the multiyear?

Yes. So I'll start by saying, look we recognize investors want to hear more from us in terms of our multiyear financial targets and our long-term strategy, and we plan to communicate that at some point. The bottom line is there is a significant amount of focus internally, level of intensity that I have not seen previously on positioning the business to drive sustained, profitable organic growth. Now we've backed that up candidly with changes we made to the leadership team, to the incentive comp metrics here. And we recognize that profitable growth is an important aspect of how we can create value. In terms of providing the framework for expectations, I perhaps offer a couple of qualitative ways to think about it. We always ask the question, if -- are we the best owners of any business we have. And this I think is an analysis every good company should be regularly performing. So we're actively engaged thinking about the portfolio. I think we're going to share more detail of that over the upcoming quarters. And given some of the changes we've made. So it's really something that we want to solidify prior to providing long-term strategy and targets. We routinely see what our peers have done in terms of communicating their longer-term financial targets. I think what I will share with you is our incentive comp metrics are always tied to how we perform relative to our peers. So even though we've not put publicly financial targets out there, multiyear targets, and we will do that at some point, the reality is we are measuring ourselves against our peer set. And to me, that's an important element of change in thinking we've gone through over the last 12 to 15 months here, and I'm proud of the changes we've made. But we will, at the appropriate time, clearly share a multiyear growth outlook here. I'd say that's important on the topline. On the margin front, the multiyear view we've actually shared is we see potentially ways for us to organically improve margin in the business. And obviously, I'd be remiss if I didn't mention that cash is one area where there's an intense amount of focus in the organization. And we've actually publicly committed to growing our free cash flow by at least 10% over the next few years. So to me, I think we're well on our way in terms of our multiyear outlook there.

That's great detail. And I want to come back to margins and to cash. But maybe just in terms of the business, maybe on look back, where have you kind of repositioned the business? And what have you done organically and inorganically to reposition the business over the last few years to set you up for that multiyear outlook you're talking about?

Yes. There's a lot to that question, and I'm going to try and unpack that a little bit. I mean I think we own the fact internally. And Joe hears this from me all the time, but our financial performance the last few years [Technical Difficulty] of peers and that we have real opportunities to improve the performance from the business. I think the results we delivered in the past few quarters and other changes we've implemented, some of which I've even referred to today, I'm encouraged by the buy-in we're seeing. I see this as a multiyear journey, and I'm encouraged by the results we're starting to see. And I think they are speaking, I think, to the traction we're getting from the changes we've made. Now the other point I'd make is we see plenty of opportunities for continued improvement over the next 5 years. And so I'd see potentially both organic improvements to the performance of the portfolio as well as aligning our portfolio, I believe, to maximize shareholder value. So if I just think about stepping back and saying all the changes we've made, I think we're exactly on the path we want to be on. It is going to take a period of time for us, and we recognize our own history here in terms of not making our financial commitments, and we're committed in fixing it. And Nazzic and I talk about it all the time. And we are very encouraged by the progress we made last year. But we've recognized it's 4 quarters. And we've got more work to do, and we're well on our way, and the team is fully committed and bought in.

Got it. Any key areas where you're emphasizing investments? Obviously, space and hypersonics and AI, there are a lot of buckets that are very fast growing, maybe aren't necessarily that needle moving just yet, but where do you think some of the biggest opportunities are where you're emphasizing your investment?

Yes. So we've taken a twofold approach to it. One is sort of an organic view of where the investment dollars need to go. And we've seen a fair amount of investment in sort of the Air Force portfolio, in the Army portfolio, maybe starting to grow nicely again with the Mark 48 win earlier -- late last year, actually. And so to me, I think we're seeing some real benefits from that investment. I think we've also inorganically added Koverse, which is sort of foundational to our AI efforts. And we're starting to see some real pull-through from having Koverse integrated into the broader SAIC portfolio. We won a Department of Justice, a smaller deal, relatively speaking, but an important one because it allowed us to sort of view Koverse as a way to integrate as an offering into a traditional defense procurement. To me, I think we're also making some progress on the business model question to ensure that we can actually deliver our higher-quality solutions to customers, even in a traditional defense acquisition process. So to me, I think we're seeing some investments going into the AI, machine learning and cloud secure areas. And cloud center is obviously a very important investment for the company. So I'd sort of parse this between the organic stuff that we do for the core business and then sort of some of the other organic and inorganic efforts we've made, specifically AI, ML, cloud security. And we're starting to see some real traction from the innovation factory investments we're making. And I think we -- as I step back and I say, where do I see the big picture opportunities, I think what we're also foundationally trying to do is to leverage sort of common process and solutions. And so we're actually putting in a fair amount of investment there to ensure that -- software development being a good example of that. We're wanting to make sure that we are developing enterprise scale solutions. So we're not as siloed within each of the business units or the sectors so that we're seeing continued investment in those areas.

I think Unisys Federal added some of those capabilities you're talking about. Have you been able to kind of leverage that across the broader portfolio and kind of bid and enjoying awards with those capabilities? How do you think about -- how that's working?

Yes. It really has been very transformative for the business especially kind of in the area of digital, digital engineering. And obviously, they came with their version of a cloud product. And we've integrated that very nicely with our organic sort of cloud end solution. And so together, I think it's a very effective go-to-market. Obviously, we've had some big wins in the cloud area, including Cloud One. Obviously, the OTA enterprise, IT as a service for the Air Force. So we've got some things here in the pipeline that are potentially transformative in terms of opportunities. So Unisys Federal has been a really good add to the portfolio. The other thing that we've really picked out from the Unisys Federal acquisition is they were really good executing on fixed price programs. And I think for a predominantly cost plus organization, that ability to manage through fixed price development programs, I think that's really good learnings for the rest of SAIC, and we really nicely leverage that sort of very instructive learnings from Unisys Federal as well. So the business is doing really well. The integration obviously has done well. It's something that this company has actually really done well over the last decade. And so we're just very proud of the work the teams have done. And as I said, there's really potentially more opportunity here.

Okay. That's great. And maybe coming to margin on all of that. How do you think about balancing your margin in terms of driving revenue growth versus higher investment? If I adjust out the supply chain business, your margin is relatively close to that of peers. So how do you think about ability to expand that over the longer term?

Right. So on margin, I would say, we've said this for a couple of quarters now. I really do see opportunities to increase margin over time. There is no single silver bullet. There are lots of things that we actually have in place. And I'm not going to hit all of them. But here's maybe a few to think about. Fundamentally improving program performance, creating a healthy sense of urgency is one that Nazzic and I preach all the time in the organization. A healthy sense of urgency and an intensity to do better. Take it a month at a time and a quarter at a time to operate the business like we are owners of the business. I think this is a really important change for the organization. We do see opportunities to better leverage common processes and solutions across the enterprise software development. Case in point, I think we're actually making a good deal of investment there to ensure that we're building the muscles and the framework here inside the organization to be able to do that. We're actually talking about our innovation factories over the last couple of calls and the investments we're making in the innovation factories aimed to do just that. Investing in capabilities and solutions that will allow us to differentiate. This is a hard business to differentiate ourselves in sometimes. And so I think it really is figuring out the balance between the right level of investment that will allow you to be differentiated and yet recognize the fact that it is very hard to differentiate yourselves in the market. And how do you invest to earn an appropriate return on that investment, that's an active debate we have. And obviously, any investments that we make to drive growth, we expect that to materialize. I think we have very high expectations from the team. And as we shared on our earnings call even in March, we won't even get paid at target, the leadership team, unless we hit the top end of our revenue guidance. So to me, there's a level of intensity and focus we're placing on ensuring that we continue to do that. So to me, as I unpack the question, I really think there's potentially good opportunities to improve margin here over the course of time. And there's no single tool here. It's a combination of things we're at. And we will be pleased to report private share over the next several quarters.

Got it. So it sounds like ability to expand margin while also accelerating growth...

I think we can do that. I really do think that we can do this in this business.

Great. It doesn't seem like we've seen it flow through in the margins. But a few of your contracts and margin structures that have changed, I think, less favorably. Is that a consistent trend? I think we've seen it at a couple of contracts. Or is that something you've been able to work with the customer on and make sure it doesn't continue?

Yes. So there's sort of a structural element to it. And then there's sort of a tactical element to it. I'd say on the structural element, I don't think we've seen anything structurally change in that regard. I don't think I'm seeing a greater inclination or predilection to going to less favorable contract structures. Obviously, tactically, the S3I and company compete actually flipped into more of a cost-plus construct. And perhaps that's what's guiding the question here. But to me, I think that's fairly tactical at this point. Obviously, if there are structural changes to it, we would expect that to impact margins here. And -- but candidly, I think part of how we're thinking about it -- because I really think it's important to explain, there will be changes in contract structures all the time. As you come up from recompete cycles, you'll get cost-plus programs going into cost-plus incentive fee program. Sometimes they go into fixed price. So fixed price become cost plus. So it really is working with the customers, shaping the procurement such that we're able to communicate the value proposition, we're able to afford and, candidly, with the changes we made in the portfolio specifically, I talked about Unisys Federal. We really have the ability to be able to pivot and execute on a fixed price basis. We've got the common tools and standards inside the portfolio to be able to do that effectively. So I'd say nothing structural. And we're obviously dealing with the tactics should if and when those things happen. But I sort of view those as largely one-offs right now.

Great. Got it. Maybe last one on margins. Just in terms of what you're seeing on inflation, what you're seeing in terms of wage inflation and whether or not that could have any impact to longer-term margins?

Yes. So this one's a little harder to quantify. Clearly, inflation has been a factor here. And I would say, structurally, if inflation persists for, let's say, another 12 or 18 months, you could see some impact on margins. I would remind you we are predominantly cost plus portfolio. So the way we're managing through the inflation dynamic right now is actively thinking about our labor curves and making sure that if you have real inflation, is that in the cost plus part of the portfolio or the fixed price part of the portfolio? On the fixed price side, we are actively thinking about how we're performing relative to the requirements in the contract and actively managing labor curves on our fixed-price programs. So to me, I think at this point, I would say it's probably not a material driver. We understand. We've seen the math from our peers around how they think about sort of inflation impacts on revenue, et cetera. I would just fairly state that we run a bunch of scenarios on inflation and potentially impacts to cost-plus and the fixed price programs and obviously impact on margins for FY '23 this year. And the reality is we think we're sufficiently encapsulated in terms of the potential ranges of impacts from inflation on labor curves, et cetera, in the guidance that we provided. So I'm pretty comfortable that we've done what we need to do. Structurally, if it doesn't go away in 12-plus months, then I'd say we probably have at the margin some impacts. But again, we're challenging the teams to think about how to overcome these things, build a little more resiliency in the organization as opposed to necessarily believing that higher inflation is going to translate into lower margins. And it's our management team's job to ensure that we can actually manage through a very dynamic operating environment right now.

Yes. And it feels like the customer is aware of the inflation environment. Is that a safe statement?

They are, they are. And it certainly impacts O&M funding decisions, fuel costs have an impact as well. So they recognize it. And we're starting to see clearly some bipartisan support around inflation conversation as well and just actively participating in those conversations. They recognize it. And impact to purchasing power is important for them as it is for us. And we're helping them as appropriate and working our way through it right now.

Great. So how about the hiring environment? Have you been able to hire or you have to offer higher wages? I guess you just touched on that. But maybe how is that hiring environment? How is that progressing for you?

Yes. So we are having good success in the hiring environment. And it's a tough market. I'm not going to sugarcoat this. And having said that, last year was pretty tough as well and the company hired thousands of new employees into SAIC. So to me, I think we're making progress there. We recognize it's hard for us as it is hard for them. That's why Nazzic has gone out of her way to talk about the value of the SAIC experience. And I think we have some great employers out there, especially in this area. And we want to make sure that people see us as differentiated in terms of the quality of the employment opportunities we can provide, the balance we give folks, sort of a hybrid work environment where we've got the flexibility to be able to do what we need to do. I think those are all critical ingredients to building a healthy work environment. And we're just committed to doing that on a day in and day out basis. So I'd say it's a pretty dynamic hiring environment. Attrition, because it's important to think about the other side of the equation, it's a little more elevated then I'd say than a pre COVID environment. But I'd say not a materially different sort of retention problem. So retention -- attrition rather is higher but not materially higher than pre-COVID environment. But it is challenging, certainly. And you've got to get more people into the doors. And it is harder to hold on to them because it's a fantastic labor market still.

Got it. Great. Well, maybe coming back to cash flow. Some lumpiness this year, you mentioned double-digit growth next year. Kind of what are the drivers behind free cash flow here? And what's a normalized targeted conversion rate?

Yes. So here, here's what I would say. So back in December of last year and in March, we said we're going to offer multiyear free cash flow guidance. And we said we could grow the free cash flow of this company by at least 10% for each of the next few years. And that in spite of the fact that we've got the payroll deferral, the second chunk of that payroll deferral tax going out this year. We think we can grow free cash flow. Obviously, that headwind dissipates next year. So I think we're very comfortable with the prognosis we have provided around our ability to grow free cash flow. The other thing we are doing internally, and it's really important for people to understand this. We've sort of dissected our working capital to ensure that we understand what the drivers are at the program level, at the business unit level, at the sector level. And then each of the teams that are in these levels are spending a fair amount of time working with the customer to improve working capital on a day in, day out basis. Nothing gratifies me more than to see one of our program managers talk about working capital because it means it is really working. The conversation we're having internally is really working. So to me, I think it is about consistently improving our working capital performance. We've previously shared $20 million as a day of DSO. Our DSO is about 60 days. Just do the math on it. If you improve your DSO by 5 days, then I don't think it's out of the reach, you basically get to a place where that alone generates an incremental $100 million. And so to me, I think it's just working on all of the facets of the DSO equation. We're looking at all of our payables, subcontractors and making sure that we are thinking about this picture holistically to ensure that we can execute on multiple facets on working capital. So instead of putting a conversion number there, we aim to be the very best free cash flow converter in this business. It is part of the metrics we have. It is part of the peer comps we do. And we will expect to see continued improvement in our ability to generate more cash out of this business. And as we think about a growth environment where we are expecting to consistently grow the business profitably, it will have some impact on working capital. But I think there's enough opportunity on the table right now where we can sustainably improve the cash performance out of the business.

Can you give us a sense of quantification on how much you can improve DSOs relative to where they are today?

As I said, I think we could very reasonably get to about, let's call it, 3- to 5-day improvement to our DSO over the next year or two. That is on top of all other things we're doing to improve cash. And again, we've been very comfortable communicating a 10%-plus improvement of our free cash flow. So to me, I think it is always going to be a critical part of our value proposition for our investors. Our investors like us for the strong cash we generate. And we are actively thinking about how to deploy -- generate more cash and deploy the cash in ways that are value accretive to our shareholders.

On that front, you've committed to $300 million of buybacks this year. I think you were also paying down a little bit of debt. But what's your balance sheet capacity, appetite for M&A versus preference for buybacks? So you remind us how you're thinking about that?

Yes. So -- and this has been sort of an evolution. Last year, FY '22 was the first year where we inflected to a good amount of buybacks. We had $250 million or so on the Halfaker deal, but we actually also spent about $210 million in buybacks. This year is a little more of a pivot in favor of buybacks and we've communicated that. So our preference is to deploy capital always in ways to maximize value for shareholders. I think philosophically, M&A can work. But I really would want to just be clear about the risks would come -- which come with M&A deals. And I think if I were to juxtapose M&A with buybacks, I think if we can deliver sustained profitable growth and effectively deploy capital, then our valuation, our earnings power can improve. And our current valuation suggests there is a great deal of skepticism from the market regarding our ability to do just that. We have confidence in the plan. We look back the last 4 quarters and say we've delivered really good organic growth rates relative to our peers. And we expect that trend to continue. So I think that translates into an attractive ROI for our buyback program. So we said we are biased towards our buybacks this year. Having said that, we have a very active corporate development function. And we are actively looking at ways to enhance our strategy and ability to deliver profitable growth. So we're trying to be very clear about the risks that come with M&A. We're biased towards buybacks because we think at $81, our shares offer really good value and we're just investing in our cash flow as I see it.

Got it. Great. I think we're coming up close on time here. I think those a pretty good recap of there. But if you want to leave us with anything before we wrap up?

Yes. So maybe the one thing I would say is on the March call, we said we expect to grow low single-digit growth rates in Q1, some contraction in Q2 and Q3 and then growth again in Q4. And I think we're very comfortable with our view of that. And we look forward to the next set of conversations in June. I think SAIC remains committed, I think, to improving the quality of the cash flow, growing the business sustainably and importantly, allocating capital in ways that maximize shareholder value. To me, I think that's where our value proposition lies. And the team is fully committed with the leadership changes we made, with the incentive comp changes we've made. We -- the team is fully committed to ensuring that we do better over the next several years here. And I think that's what we're committed to. And as I said previously, we're seeing great deal of traction. In terms of the day-to-day improvement that I want to see, in terms of the improvement and, the intensity of the execution itself. And I think we're committed to doing our very, very best for our shareholders. So I'm just going to pause there.

Great. Thank you very much, Prabu and Joe.

Thanks a lot again, and thanks for having us.