Leidos Holdings, Inc. (NYSE:LDOS) Q2 2023 Earnings Call Transcript

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And we’ll just have to see how that goes. Obviously, the caseload volume from the PACT Act is still settling in. And the other thing that’s settling in is us earning more than our fair share, if you will, of the work share, because our performance has been so strong. So, some of those variables will impact that as well. But we’re optimistic that that should create some sustainable upside. And then on DHMSM, obviously this is a little bit of a headwind on the growth side, and we’ll see a bit of a moderation in Q4 and more so in 2024. But from a margin perspective, I mean, it’s a quality program, well run, but it is not one of the highest margin programs within the Health portfolio. So, I don’t think that’s a negative as it relates to Health margin.

And the team is working hard and has a number of high-profile opportunities that they’re pursuing right now that’ll help offset the revenue piece as we move forward. And we talked about RHRP as another example of a program ramping that’ll help offset that a little bit too. So, a few dynamics going on there, but don’t look at DHMSM as a margin headwind for us.

Tom Bell: Yes, and just not to let that go without my commentary too. I just want to say that we couldn’t be more proud of Liz and the team there in Health because they are earning great margins because they have a differentiated offering that is serving our veterans and our customer in a differentiated way. So, it’s really a joy to see that ecosystem come together.

Sheila Kahyaoglu: Great. Thank you.

Operator: Our next question comes from the line of Seth Seifman with J.P. Morgan. Pleased to proceed with your questions.

Seth Seifman: Hey, thanks very much. Good morning and welcome, Tom. I just wanted to follow up. I think there was an earlier question asking about Dynetics and the inflection that was expected there next year. I wonder, maybe zooming out to the whole business, there are some standing three-year targets out there in terms of organic growth that would point to some acceleration in 2024. I guess, Tom, in the spirit of promises made, promises kept, should we should we still consider those targets to be operative?

Tom Bell: Yes. Well, I’ll start and let Chris fill in some blanks. I certainly am very aware of the Investor Day we held a couple of years back and the view toward 2024 that we gave at the time. I’ve started staring at 2024 lightly, but in all brutal honesty, Seth, I’m very focused on finishing 2023 strong and laying a strong foundation for Leidos over the next 3, 5, 10 years. So, I actually haven’t done my own diagnostics of how achievable the 2024 targets are. But obviously, if we do hit the objectives in 2023, we’re a step closer to achieving those objectives that we laid out in that industry day a couple of years ago. Chris, you want to?

Chris Cage: Yes. Seth, the only thing I’d add, obviously, Tom coming on board, we’ve got to get him even more deep into our detailed plans as we look ahead to 2024. And one of the things that is a change condition is ensuring that we are optimizing for the best bottom line in cash performance and the selectivity that’ll come with that. So, really being thoughtful around how our resources get allocated to pursue opportunities in technical investment and differentiation as we pivot into 2024. And some of those things will have near term paybacks and some of those things will have longer term paybacks. So, more to say on 2024 as we progress through the year, but everybody’s heads down on delivering this year as strong as we can and putting some wins on the board and positioning for the future.

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