Jason Aiken: I think bottom line, the short answer to that is no. We don’t see any fundamental change, as we’ve talked about. You’re going to see some level of aggregate margin perturbation between the two businesses, the IT services side being somewhat lower obviously than the hardware side. I think in this quarter, we saw it a little more pronounced because as we’re seeing this turn for the group to a stronger growth level, a lot of that is driven by not only new starts, but it’s actually replacement contracts, or I should say, recompetes that we’ve won. So, you had in the prior year the trailing off of very mature-level legacy contracts that were closing out at higher margin rates as compared to the entry-level margin rates we’re seeing now.
So, that’s sort of the driver of the year-over-year delta that you’re seeing. But barring any major structural shift between the percentage contributions of the IT services versus defense hardware parts of the business, we continue to expect this to be a low double-digit margin business over time.
Operator: Your next question comes from the line of Ron Epstein from Bank of America.
Ron Epstein: Yes. Hey. Good morning. And ditto Cai’s remarks, Howard, you will be missed. It’s been a pleasure working with you. So quickly, a couple of questions. On Technologies, what should we be looking for? I mean, sometimes the contracts there aren’t as obvious in the horizon. So, Jason, what should we be looking out for in the second half of the year as potential things you guys could win?
Jason Aiken: Ron, it’s always tough in this business to point to a singular event or a contract that is going to drive the overall business. As you know, it’s a wide portfolio of literally thousands of contracts. I think — the thing I would tell you is, when you look at Mission Systems on the one hand, they are really seeing strong support in their — what I’d call, their Navy platform support businesses, whether it’s the strategic side or the mission computing side. They’re also seeing really great support in their cyber portfolio. So, those are two areas I would expect to see continued growth in particular out of that business. When you look at GDIT, they’re seeing strength in all three of their customer segments: the defense, the intelligence community and the Fed SIV side.
So, really good across-the-board support in GDIT. And I think if I could point to any one thing in particular on that side of the portfolio, we’ve talked for the past few weeks, a couple of months about some selective technology investments they’ve been making to accelerate their growth, and we’re seeing that really start to take hold. And of course, we’re talking about things like artificial intelligence, machine learning, hybrid cloud, Zero Trust and so on. And that’s really starting to bear fruit. We’ve seen already several hundred million dollars worth of award wins as well as organic growth on existing contracts that’s resulting directly from those investments. They’ve got some $7 billion in change in post-submittal submissions that are awaiting award decisions.
And they’ve got another 20-plus, I think, between $20 billion, $25 billion of opportunities in the pipeline that are directly tied to those targeted investments. So, I think some really intelligent capital allocation over there at GDIT to try and drive that growth, and we’d expect to see the results of that continue in the second half of the year and beyond.
Ron Epstein: Okay, great. And then maybe one follow-on for Phebe. When we think about Aero, when things start to normalize, right, supply chain kind of gets back to a normal cadence and all that, what should we be thinking about broadly as like a realistic margin target?
Phebe Novakovic: We’re thinking in the higher teens when we get on a steady state with upside potential.
