Tom Bell: So she – I’m sorry Mariana, I think you’re asking about hypersonics and customer demand for hypersonics and then international. The hypersonics is a good news story. And as Chris alluded to in his comments, we saw a pull in to ‘23 of work we thought was going to be in the first half of 2024 of our customer demand signal for hypersonics. We’re in deep dialogue with the customers about how we continue to accelerate that business, because that is a capability that the United States needs to deploy robustly. So again, it’s kind of like I answered Sheila, I don’t know how high is high, but there is very, very strong demand for the United States to field hypersonic capabilities that are in the world class range and obviously we are in a very good position to be a key component of those hypersonic systems going forward.
So, I think you’re going to continue to see pull through there and focus. I think on the international side one of the most exciting things we have going for us is the strong footprint we have organically and already, obviously in the United States, but also in the UK and Australia. And there is great customer interest in what Leidos can do around AUKUS, not in Pillar 1. I mean, I have no interest in building nuclear submarines, but I really am interested in helping those customers in what they call Pillar 1 and Pillar 3, which are in the Intel data and digital systems worlds. So very much in our wheeled house for what we do here in the United States and in the UK and Australia, and very much a growth engine for us should be how we leverage AUKUS going forward.
Chris, anything you’d like to add?
Chris Cage: Well, one more point Mariana, back to the Defense Systems. We talked about hypersonics, but in addition to that, the force protection work that we talked about in the past. The team has been working hard on the IFPC Enduring program and we’re excited about the fact that we delivered some of the first fieldable prototype launchers in December. That will transition into a phase here early in the year, but we’re looking forward to a potential award in that particular area on LRIP [ph] and then full rate production later in the year and that also is a growth catalyst that we see. So when you start to look at that CAGR over a multi-year time horizon, our expectations is those businesses will be accelerating, and Tom talked to a couple of key points there that we see driving that activity.
Mariana Perez Mora: Thanks so much. And if I may, more of a program related question. Do you have an update on how CHS-6 is trending and how much do you expect the program to contribute into 2024?
Tom Bell: Yeah Mariana, let me start and then I’ll hand it over to Chris also. Obviously CHS-6, a major franchise win for Leidos in the fourth quarter of last year, one we’re very proud of the team for. And it’s a model that we expect to deploy going forward where we bring customers a value proposition that is compelling to them, both in the delivery we can give them and the speed with which we can spool up to solve their problems. But, one of the things that is not understood about CHS-6 is it’s actually a very broad mandate for the customer and it’s not just IT, it’s the whole C-5 ISR domain. And so not only is it broad in what the customer can procure through CHS-6, but it’s also a great example of how we can use the breadth and scale of Leidos to solve problems for customers.
So not only is that home-roomed in one sector, but the Dynetics business is going to be a key part of helping it deliver for our customers. So we’re very happy about that and the basic catalog is being built out and the orders are starting to come in, but Chris will give you some more details on that.
Chris Cage: Yeah, just to add some color and I will stay away from specifics, but obviously this is a program we expect that will build in revenue and profitability over the life of the contract and a long contract like this does have a ramp up period. Tom’s right, and we were encouraged by the order activity, some long lead items that will actually contribute to revenue in ‘25 even, but we’re rounding it out. The profile is going to depend greatly upon what those particular technical solutions, but we’re leveraging our vendor network, we’re leveraging AI, we’ve got a great team. There are some activity that we’re not interested in low margin work, so some of the pass through will not show up as revenue for Leidos, but overall you can expect this to be an accretive margin program to Leidos overall and with a ramping revenue profile probably more later in the year.
Mariana Perez Mora : Thank you so much.
Operator: One moment for our next question. Our next question comes from David Strauss with Barclays your line is open.
Unidentified Analyst : Hi, good morning. This is actually Josh calling on for David.
Tom Bell: Hey, Josh.
Unidentified Analyst : So hi. I wanted to ask about the revenue guidance for next year. What when you have as you just discussed CHS-6 and ramping and some of the Health care programs really strong. What are some of the – are there any offsets to get to the only 2% to 4% growth next year?
Chris Cage: Yeah David, let me start and Tom can make some bigger picture and comments. I mean we’ve talked in the past about Health has been great, but the DHMSM program as an example, we’re through the deployment phase essentially and so even though we’ve won some additional work there with Digital First, there is a step down in volumes on that particular program. There was a National Security Intel program that transitioned away from us earlier last year, so that’s a little bit of a headwind. So there’s always some puts and takes in the portfolio, but more big picture, we’re focused on – there’s some budget uncertainty. Customer demand has been very strong in Q3 and Q4 and that led to our performance. But as we look ahead to early parts of the year, a lot of the activity will need to transition into Q3 and Q4. So it all depends upon how quickly get certainty in our budget environment and make sure customer demands remain robust. Tom, anything you’d add to that?
Tom Bell: Well, I would just add Josh, there’s two macro headwinds that informed the conservative end of our range. One was the over performance in 2023 that makes year-on-year comparators difficult, and in this case challenging. We are very proud of our performance in ‘23, but that creates a headwind for ‘24 year-on-year revenue growth, against also the backdrop of the budget situation that is not yet crystal clear here in Washington, DC. And so while the 2% provisions against the worst case scenario in that, we will be working with the team to meet or exceed the high end of that range as we prosecute the year. So you can be sure we won’t be satisfied if we just hit the bottom end of that range.
Unidentified Analyst: Great, thank you.
Operator: One moment for our next question. Our next question comes from Louie DiPalma with William Blair. Your line is open.
Louie DiPalma : Tom, Chris and Stuart, good morning.
Tom Bell: Good morning.
Chris Cage: Good morning.
Louie DiPalma : Tom, you discussed how you believe Leidos can increase its business capture. Does Leidos consider its Gremlins Air Vehicle a viable candidate for the emerging high profile drone replicator program?
Tom Bell: The Gremlins program was a fantastic demonstration of our prowess in aerospace. For those that don’t know it, it was a remotely piloted vehicle that was also recaptured and then brought on board another manned aircraft. So a fantastic capability. But at this point, no. No, there’s no discussions going on with the customers around that program going forward, although it has spawned other unmanned capabilities that we are talking to customers about, that help inform possible growth aspects for our Defense Systems business.
Louie DiPalma : Great. So is there a possibility that some of the dynamics drone assets can be involved in replicator.
Tom Bell: There is certainly a possibility, yes.
Louie DiPalma : Great. And a follow-up on the international opportunity. You referenced how there is demand on the international front for the Leidos data and digital services. It would seem that allies have similar IT Cloud networking and zero trust ambitions as the U.S. and you are obviously the largest provider of these types of mega projects. And I was wondering, can you bring variance of IT mega projects such as the navy NGEN the NASA AEGIS and Enclave to allies or are there security restrictions as it relates to personnel. And are you focusing more on IT services or hardware as it relates to the international opportunity. Thanks.
Tom Bell: Thanks. Thanks, Louis. Yes, so the beauty of Pillar 2 of AUKUS is not only our presence in the U.S., the UK and Australia. But the fact that the work that is being done in those countries right now in the area that you referenced, is to a large degree already a place that we’re playing in. So the beauty of AUKUS is an incentive for the nations to collaborate. We are very excited about the opportunities that gives us to lower the thresholds of sharing data. And obviously there’s also big parts of the AUKUS legislation that lower those trade barriers, lower the ITAR restrictions and allow greater data sharing. So we see it as an open door for us to promulgate Leidos capabilities that hereto for Louis, kind of to your question, have been so piped in one country or the other across all those countries, and allow these great allies to punch above their weight collectively.
Louie DiPalma: Great. That’s it for me. Thanks everyone.
Tom Bell: Thanks, Louis.
Chris Cage: Thank you.
Operator: One moment for our next question. Our next question comes from Peter Arment with Baird. Your line is open.
Peter Arment : Thanks. Good morning, Tom and Chris. Excellent results.
Tom Bell: Thank you.
Peter Arment : Hey, a quick one on just maybe an update on DES and how that’s kind of projected for the year. And then Tom just more of a bigger picture question on kind of a capital deployment versus M&A. You’ve done – made just a tremendous amount of progress realigning the businesses and you’ve turned over I think, what you said, 75% I think of your executive leadership team I see there in new roles or has been replaced. Just how are you thinking, is ‘24 more of a year where you’re just going to continue to be internally focused and kind of showing the progress versus how do we think about that versus M&A and just regarding you know buybacks as a preference. Thanks.
