Leidos Holdings, Inc. (NYSE:LDOS) Q4 2022 Earnings Call Transcript

Operator: Next question is from the line of Peter Arment with Baird. Please proceed you’re your questions.

Peter Arment: Yeah. Good morning, Roger, Chris.

Roger Krone: Hey. Good morning, Peter.

Peter Arment: Maybe you can just update us on how NGEN is doing. I think we are kind of expected to hit kind of a steady state in 2023 in terms of a ramp. What’s your thoughts on that?

Roger Krone: NGEN?

Peter Arment: Yeah.

Roger Krone: Well, it’s pretty much fully ramped. And you’re really doing well. We’re in full possession of the network Peter, I know you know the program well, but our first task was to take the custodianship of the Asure Network, okay? So we’ve done that. Now the challenge is to transform that network to modern technology. And we’re in the process of keeping the call center up, maintaining the network, trying to get the quality of service up while we move to the new environment. And there is opportunity, we believe, this year for additional scope through special projects and on-contract growth in task orders. And we are starting to see some of that. I think we have talked in prior calls that was a little slow in coming. But we have talked to the Navy and frankly, I’ve talked to our program manager, and we’re starting to see some of that break free.

We see lots of opportunities where technology can add value to the user experience in the Navy. And so we’re constantly making suggestions to the customer about things that can be done to improve the network and which would end up in growth for us, but more importantly, would end up in better quality of service for the user. I don’t know, Chris, do you want to add?

Chris Cage: No. I mean, first of all, we’ve got an outstanding team running that program. And it’s our largest program, as you can imagine, and we’re only a year, 18 months into this thing. So the best days are ahead of it. To Roger’s point, we’re clearly identifying areas where there we can help support the mission and the customer better and that would lead to contractual actions and modifications. And let’s just say, of course, we’re interested in pursuing that, but at the pace that makes sense for the customer. So we’re hopeful that there’s — we’ll continue to see growth and margin improvement around that program as it moves into next year and the year after.

Peter Arment: I appreciate that color. Hey, Roger, you mentioned technology kind of insertions and things that AI has obviously gained a lot in the press here recently with chat GPT (ph) and other things. Are you seeing opportunities to really automate some parts of your business where you can really potentially improve margins?

Roger Krone: Absolutely. And Peter, we’re all smiling because we actually do have chat GPT in our environment, and we debated whether we ought to talk about it. And it seems such a popular term now and I guess Microsoft is going to put it under being and really make a super search engine out of it. But I think what everyone needs to understand is those technologies are available to anyone who wants to use them. And I think the benefit goes to those people who capitalize on not only the money we spend internally, but the billions of technology money that’s spent outside the company. And so we are very aggressively using things like chat GPT and other modern language AI platforms. And we’ve deployed robotic process automation in accounting, like in Chris’ area.

I mean we don’t talk much about that. We’re certainly doing it for customers. We’re using it. I like to analyze images and all the applications that you can imagine. But we’re also using it internally in our functions to be able to, if you will, use computers to do what we call the dull, the dirty and the dangerous, right, and free up the human, whether that be a financial analyst or an accountant or an imagery analyst or even a linguist, right, in our linguistic. Program do what the human does best, which is to add that cognitive discernment and then let the computers crunch through the gigabytes and petabytes and terabytes of data that we now collect.

Peter Arment: Appreciate the details. Thanks, Roger.

Roger Krone: Thanks, Peter.

Operator: The next question is from the line of Seth Seifman with JPMorgan. Please proceed with your questions.

Seth Seifman: Hey. Thanks very much. Good morning, everyone.

Roger Krone: Good morning.