Sheila Kahyaoglu: Good morning, guys. Thank you for the time. So, I wanted to ask about Dynetics and just how comfortable you guys feel with the development programs there, and what sort of hurdles you’re looking to get through to sort of get through the development stage into production on those.
Tom Bell: Yes, thanks Sheila, and good to speak to you again. On Dynetics, I’m convinced and we are convinced that the best days are still ahead of us. We’ve got a great management team down there. And as I alluded to in my comments, we’re adding technical and financial expertise to Dynetics to ensure its success going forward. So, feel really good about the team and feel really good about the people who are eager to go help us find success and be successful at Dynetics and in our Defense business. The team down there is really focused on those three major markets that I have spoken to now for four, five months, which is small satellite payloads, hypersonics, and force protection. And on each of them, we are tracking, Sheila, biweekly the actual burn-down plan and the tasks that we have to hit to find success, not only as we turn the page from 2023 into 2024, but through 2024.
So, we’ve got a complete roadmap that the team is knocking down purposefully one by one. Are there challenges? Always. Supply chain challenges, testing challenges, customer-focused challenges? There’s all sorts of challenges that the team is having to wrestle to ground, but they’re on it. We’re engaged, both at the Pentagon and at the operational level. The customer demand for the solutions in those three spaces is acute, and frankly, world events that are happening right now only heighten their desire for these solutions that we’re providing. So, we feel very good about them, and I think that Dynetics is going to benefit from being a part of this new figure Defense business in the organization of 2024, where even more broad engineering program management and technology capabilities will be brought to bear for the benefit of Dynetics and in our Huntsville teammates.
Chris Cage: Yes, Sheila, I mean, obviously, it’s a high priority item. We’re putting all the right resources on it and very excited about the long-term prospects there. In any event, Dynetics will be a growing business for us in 2024. The higher, steeper ramp, the inflection point on related to IFPC moving to fuller volumes could be later in the year, could trend to 2025. But all signs point to that continuing to be the capability the Army’s focused on deploying.
Sheila Kahyaoglu: Okay. I’ll follow up on that later, but on the backlog, Tom, I wanted to ask about this since you mentioned it in your prepared remarks. I think you said it grew $4 billion, and the last time we chatted, you mentioned you added a criteria about EBITDA margins to potential wins. So, can you talk about how you think EBITDA margins should be on some of these new wins that you have in the pipeline now?
Tom Bell: Well, you’re right, Sheila. What I am doing as we talk about the pipeline for business development opportunities across all the businesses is, we’re adding the criteria of, well, what is the expected margin? And that’s why in my comment, I talked about not only the increase in the backlog, but that increase supporting our margin and cash expectations for Leidos. So, you could assume that the general health of the pipeline has increased in – has been accretive in the margin potential, and is very much on track with helping us stay a very profitable, cash-accretive business in the future.
Sheila Kahyaoglu: Great. Thank you.
Operator: Our next question comes from the line of Tobey Sommer with Truist. Please proceed with your questions.
Jack Wilson: Yes. Good morning, this is Jack Wilson on vent, Tobey. Could you dig down a little bit more into that reallocation of business development resources sort of in light of pursuing that higher margin work?
Tom Bell: Sure. I mean, it’s not really rocket science. It’s simply looking at the pipeline, Jack, and making sure that where we are spending the talents of our people are on the opportunities with the highest P win and the highest benefit to Leidos. It was that each business area in Leidos was given a general growth target, which was generally the same for each businesses, and that’s not my philosophy. My philosophy is, we’re running one company called Leidos. We’re trying to grow the topline and bottom line of Leidos. And as opportunities ebb and flow between the five businesses that we have today, or the five businesses that we’ll have in 2024, the key is that we aggregate business development resources and talent to those areas that are going to have the biggest bang for the buck.
And so, that’s really all it is. Instead of trading resources chasing low margin work, because each business was incentivized to grow no matter what, I am interested in growing Leidos as a whole. And sometimes that means some businesses will grow disproportionately to others. Chris kind of touched on this a little bit. In the future, not all five businesses for Leidos will have the same topline and bottom-line goals. I’ll be measuring those and putting them out there for the team, commensurate with the market that they’re in, the potential of that market, and the competitions and the opportunities that present themselves in that market for the next year, two years, three years, four years. And that’s the whole philosophy of redeploying the business development time and talent to those areas of greatest return for Leidos, therefore, our customers, and by extension our shareholders.
Jack Wilson: Thank you very much.
Operator: Our next question comes from the line of Seth Seifman with J.P. Morgan. Please proceed with your question.
Seth Seifman: Hey thanks very much and good morning, everyone. Just maybe to follow up a little bit on that question about relative growth rates and kind of the new sectors that you laid out. Not expecting any kind of numerical targets or anything like that, but just in a relative sense, how should we think about the growth rates in those different sectors that you laid out relative to each other and also how it fits in, Tom, with your internal capital deployment plans?
Tom Bell: Yes, thank you, Seth. Great question, and you’re right. I’m not going to get to specifics because frankly, we don’t have them yet, but I have hypotheses. And so, the hypotheses is, if you look at the five businesses, some of them are positioned for topline growth because of customer demand and interest in solutions that they can provide. Other businesses, we’re going to be calling them sectors going forward, they are more and aggregation of programs so as to bring better bottom-line results. My hope is that in time, each business over time, over five, six years, topline growth and bottom-line growth may be countercyclical in businesses, but that doesn’t mean I ever think any business is not also a topline growth story, and also a bottom-line growth story.
So, we’ll be using 2024 to have a very purposeful strategic planning exercise around, what is the full potential of each business? Where are they in the customer’s ecosystem? How does the customer’s buying behaviors, how do we predict they’ll unfold in the coming year? And therefore, what are the goals and objectives for that business in the near term and the long term? And business development resources, technology resources, will be deployed according to those plans. It’s simply going to be, the money is going to follow the plans that have survived the scrutiny of the strategic planning process, and therefore have the most merit for investment of our capital. That’s it in a nutshell. And as Chris suggested, we’re excited about 2024 and going through that strategic planning process and sharing more results with you over time as those come to fruition.
Seth Seifman: Great. Thanks, Tom. Thanks very much. And maybe just for a quick follow-up, a little more model-focused. As we think out and we think about uses of cash and capital deployment other than – I would assume that there would be an intention to repay the $500 million that’s due in 2025, just given that it’s a pretty low coupon and would probably need to be replaced with something higher. And other than that, should we think about the potential for most cash to be returned?
