Welcome back to halftime. It's time for [music] final trades. Rob, you're up first.Vista Corp, BST, it's pulled back 25% over the last few months. We continue to be overweight based on the great secular growth opportunity in data center and our view is the biggest bottleneck in the ecosystems energy. >> Weiss, you're up next.>> What was that. What was that accent. Ver.What was the accent. >> It's a Pittsburgh accent. A city of winners.>> I'm going with Lidos. >> Lidos. haven't talked about for a while, but ...

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Core Insights - Starlab is positioned as the leading contender to replace the International Space Station (ISS), which is set for disposal after 2030, with significant international support and a strong coalition of partners [2][10] Company Overview - Starlab is led by Voyager Technologies and includes partners such as Hilton Worldwide, Northrop Grumman, Palantir, MDA Space, Airbus, and Mitsubishi, showcasing a diverse and robust coalition [3][4] - Recently, Leidos joined the Starlab team, bringing extensive experience in civil space and defense integration, which will enhance Starlab's capabilities in assembling and integrating the space station [4] Financial Backing - The coalition supporting Starlab boasts a total market capitalization of approximately $890.9 billion and annual revenue of about $250.5 billion, indicating substantial financial resources [7] - Key partners include: - Voyager Space: Market Cap $1.4 billion, Revenue $158 million - MDA Space: Market Cap $2.1 billion, Revenue $965 million - Hilton Worldwide: Market Cap $63.8 billion, Revenue $4.9 billion - Northrop Grumman: Market Cap $80.3 billion, Revenue $40.9 billion - Mitsubishi Corporation: Market Cap $89.3 billion, Revenue $116.3 billion - Airbus: Market Cap $192.5 billion, Revenue $83.4 billion - Palantir Technologies: Market Cap $461.5 billion, Revenue $3.9 billion [7] Competitive Landscape - Starlab faces competition from other coalitions, including Blue Origin's Orbital Reef, which is financially supported by Jeff Bezos but currently unprofitable [6][8] - Starlab's financial strength and broad coalition make it a strong candidate to secure NASA contracts and complete the next ISS [9][10]

Core Insights - Leidos (LDOS) stock has increased by over 33% since June, marking it as one of the best investment ideas for the year [1] Company Performance - The third quarter performance of Leidos has been highlighted, indicating strong growth and positive market reception [1]

Core Insights - Leidos (LDOS) stock has increased by over 33% since June, marking it as one of the best investment ideas for the year [1] Company Performance - The third quarter performance of Leidos has been highlighted, indicating strong growth and positive market reception [1]

Core Viewpoint - The stock of Leos has reached a record high following a strong earnings report, with both top and bottom line beats, and an increase in full-year guidance [1][4]. Company Performance - Leos reported earnings of $35 per share, a 7% increase compared to the estimated $2.68, and an increase from last year's earnings of $2.93 [4]. - Sales rose by 7.1% to $4.5 billion, up from $4.41 billion [4]. - The company raised its dividend from $0.40 to $0.43, indicating confidence in future progress [5]. Market Context - There is a notable influx of capital into the defense sector, particularly benefiting companies like Leos that focus on software and cybersecurity [1][2]. - Approximately 87% of Leos' sales are derived from the Department of Defense, NASA, and AFAA, highlighting its strong government ties [2]. Industry Dynamics - The defense sector is experiencing a divergence between hardware-based contractors and those focused on consulting services, with companies like Leos positioned uniquely due to their proprietary technology [8][9]. - The recovery of technologically innovative companies in the defense sector is evident, as they begin to catch up after earlier setbacks due to budget cutbacks [3][10]. Analyst Insights - Analysts note an improvement in cash flow for Leos and suggest that concerns regarding defense contractor cutbacks were overstated, indicating a resumption of positive trends for the company [11].

Core Insights - Leidos Holdings, Inc. (LDOS) reported third-quarter 2025 adjusted earnings of $3.05 per share, exceeding the Zacks Consensus Estimate of $2.61 by 16.9% and improving 4.1% from $2.93 in the prior-year quarter [1] - Total revenues reached $4.47 billion, surpassing the Zacks Consensus Estimate of $4.27 billion by 4.8% and reflecting a year-over-year growth of 6.7% driven by increased demand across all customer segments, particularly in Defense Systems [2] - The company’s total backlog increased to $47.66 billion from $45.51 billion at the end of the first quarter of 2025, with $9.06 billion of this amount being funded [3] Financial Performance - The cost of revenues rose 6.4% year over year to $3.65 billion, while adjusted operating income improved to $535 million from $516 million in the year-ago quarter [4] - Interest expenses increased to $51 million from $46 million in the previous year [4] - Cash and cash equivalents totaled $974 million as of October 3, 2025, compared to $849 million as of January 3, 2025, while long-term debt rose to $4.63 billion from $4.05 billion [9] Segment Performance - National Security and Digital segment revenues increased 8% year over year to $2.02 billion, with adjusted operating income rising to $191 million [5] - Health & Civil segment revenues reached $1.30 billion, up 6.2% year over year, with adjusted operating income totaling $328 million [6] - Commercial & International segment revenues decreased by 1.2% to $571 million, while Defense Systems segment revenues increased by 11.5% to $582 million [7][8] Guidance - Leidos has raised its 2025 adjusted earnings guidance to a range of $11.45-$11.75 per share, up from the previous projection of $10.15-$10.45, with the Zacks Consensus Estimate for earnings at $11.41 per share [10] - The revenue outlook for 2025 remains steady at $17.00-$17.25 billion, with the Zacks Consensus Estimate for revenues at $17.15 billion [11]

Financial Performance - Revenues for the three months ended October 3, 2025, were $4,469 million, a 6.7% increase from $4,190 million for the same period in 2024[8] - Operating income for the three months ended October 3, 2025, was $535 million, compared to $516 million for the same period in 2024, reflecting a 3.7% increase[8] - Net income attributable to Leidos common stockholders for the three months ended October 3, 2025, was $367 million, up from $364 million in the same period of 2024, representing a 0.8% increase[8] - Earnings per share (EPS) for the three months ended October 3, 2025, were $2.87 (basic) and $2.82 (diluted), compared to $2.72 and $2.68, respectively, for the same period in 2024[8] - Total revenue for the three months ended October 3, 2025, was $4.449 billion, compared to $4.169 billion for the three months ended September 27, 2024, reflecting an increase of 6.7%[41] - Total revenues for the three months ended October 3, 2025, were $4,469 million, an increase from $4,190 million in the same period last year, representing a growth of 6.7%[81] - For the nine months ended October 3, 2025, total revenues reached $12,967 million, up from $12,297 million in the prior year, marking a year-over-year increase of 5.4%[82] - Total revenue for the nine months ended October 3, 2025, was $12,910 million, an increase from $12,227 million for the same period in 2024, representing a growth of 5.6%[43] Expenses and Costs - The company reported a total cost of revenues of $3,648 million for the three months ended October 3, 2025, compared to $3,428 million for the same period in 2024, indicating a 6.4% increase[8] - Selling, general and administrative expenses for the three months ended October 3, 2025, were $286 million, an increase of 15.8% from $247 million in the same period of 2024[8] - The company incurred acquisition, integration, and restructuring costs of $4 million for the three months ended October 3, 2025, compared to $3 million in the same period of 2024[8] - Interest expense for the three months ended October 3, 2025, was $51 million, compared to $46 million for the same period in 2024, reflecting an increase of 10.9%[8] - Direct labor costs for the three months ended October 3, 2025, amounted to $968 million, compared to $921 million for the same period last year, reflecting an increase of 5.1%[81] - The Corporate expense for the three months ended October 3, 2025, was $59 million, compared to $36 million in the same period last year, indicating a significant rise of 63.9%[82] Income and Cash Flow - Net income for the nine months ended October 3, 2025, was $1,127 million, an increase from $969 million for the same period in 2024, representing a growth of approximately 16.3%[16] - Cash flows from operating activities provided $1,255 million, compared to $1,141 million in the prior year, indicating an increase of about 10%[16] - The company reported a net increase in cash, cash equivalents, and restricted cash of $106 million for the nine months ended October 3, 2025[16] Assets and Liabilities - Total cash and cash equivalents at the end of the period was $974 million, down from $1,097 million at the end of September 27, 2024[16] - Contract assets increased to $949 million as of October 3, 2025, compared to $842 million at the beginning of the year, primarily due to revenue recognized on certain contracts[47] - Contract liabilities increased to $396 million as of October 3, 2025, from $333 million at January 3, 2025, mainly due to advanced payments from customers[47] - The company reported restricted cash balances of $123 million as of October 3, 2025[38] - The balance of stockholders' equity at September 27, 2024, was $4,667 million, reflecting a decrease from $4,710 million at the end of the previous fiscal year[16] Investments and Acquisitions - The company utilized $292 million for the acquisition of a business, net of cash acquired, during the nine months ended October 3, 2025[16] - The acquisition of Kudu Dynamics was completed for a total consideration of $293 million, with $26 million and $38 million of revenues recognized from this acquisition in the three and nine months ended October 3, 2025, respectively[49][50] Tax and Compliance - The effective tax rate for the three months ended October 3, 2025, was 23.8%, an increase from 23.0% for the same period in 2024[78] - The company was in compliance with all financial covenants as of October 3, 2025, maintaining a ratio of adjusted consolidated total debt to consolidated EBITDA of not more than 3.75 to 1.00[71] - The company is currently cooperating with investigations by the Department of Justice and the SEC regarding international operations, which may have potential implications for its financial position[89] Future Outlook - As of October 3, 2025, the company had $17 billion of remaining performance obligations (RPO), expecting to recognize approximately 64% over the next 12 months and 82% over the next 24 months[40] - Estimated annual amortization expense for fiscal year 2026 is projected to be $111 million[55] Other - The company completed the divestiture of an immaterial business on October 31, 2025, which was not aligned with its long-term strategy[93] - Active indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2023 and subsequent years, which may impact future profitability[88]

Financial Data and Key Metrics Changes - The company reported a top-line growth of 7% for the quarter, with revenue reaching $4.47 billion, and a year-to-date revenue growth of 5% [4][20] - Adjusted EBITDA margin was 13.8%, with adjusted EBITDA of $616 million, reflecting a 3% year-over-year increase [21] - Non-GAAP diluted EPS grew 4% to $3.05, supported by a lower share count [21] - Operating cash flow for the quarter was $711 million, contributing to a free cash flow of $680 million, resulting in a free cash flow conversion ratio of 171% [25] Business Line Data and Key Metrics Changes - National Security and Digital revenues increased by 8% year-over-year, driven by contract awards and increased volumes for defense IT and mission support [22] - Health and Civil revenues grew by 6% year-over-year, with a record non-GAAP operating income margin of 25.7% due to high volumes in managed health services [23] - Defense Systems segment grew by 11% year-over-year, marking its seventh consecutive period of high single to low double-digit growth [24] Market Data and Key Metrics Changes - The company experienced a 27% sequential increase in funded backlog, indicating strong customer demand [16] - The U.S. utilities are expected to invest over $1 trillion in energy infrastructure over the next decade, presenting significant growth opportunities for the company [10] Company Strategy and Development Direction - The North Star 2030 strategy focuses on five growth pillars: space and maritime, energy infrastructure, digital modernization and cyber, mission software, and managed health services [8] - The company is committed to investing in innovation and technology to enhance customer outcomes and drive down costs [6][7] - The divestiture of Varik, a non-core legacy asset, aligns with the sharpened strategic focus of the company [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current government shutdown, noting that most programs remain unaffected [4] - The company raised its guidance for 2025, reaffirming revenue guidance of $17 billion to $17.25 billion and increasing adjusted EBITDA margin guidance [18][26] - Management highlighted a robust pipeline of near-term opportunities valued at $69 billion, with $24 billion in bids awaiting adjudication [16][54] Other Important Information - The company repurchased $100 million worth of shares and accelerated the payoff of $450 million on its term loan [17] - The company plans to continue investing in growth pillars while returning capital to shareholders [18] Q&A Session Summary Question: Thoughts on M&A in the current environment - Management indicated a shareholder-friendly approach to capital deployment, focusing on both organic and inorganic growth opportunities [31] Question: Growth outlook for defense systems - Management highlighted tracking 10 franchise programs expected to deliver about $15 billion in potential value over the next five years [36] Question: Sustainability of health and civil segment margins - Management expressed confidence in sustaining high margins through innovation and investment in technology [45][48] Question: Bid expectations for next year - Management expects a significant increase in bid submissions next year, with a strong pipeline of opportunities [54][55] Question: Impact of the government shutdown on Q4 - Management acknowledged potential risks from the shutdown but remained optimistic about returning to normal operations quickly [70] Question: Recompete contracts for next year - Management noted that it is too early to specify growth expectations for 2026, but several programs are expected to drive growth momentum [86]

Financial Data and Key Metrics Changes - The company reported a revenue of $4.47 billion, reflecting a 7% increase year-over-year and a 6% organic growth [20][21] - Adjusted EBITDA for the quarter was $616 million, up 3% year-over-year, resulting in an adjusted EBITDA margin of 13.8% [21][25] - Earnings per share (EPS) grew 4% to $3.05, supported by a lower share count [21][25] - Operating cash flow reached $711 million, with a free cash flow conversion ratio of 171% [25] Business Line Data and Key Metrics Changes - National security and digital revenues increased by 8% year-over-year, with 7% coming from organic growth, driven by contract awards and increased volumes [22] - Health and civil revenues rose by 6% year-over-year, with a record non-GAAP operating income margin of 25.7% [23] - Defense systems grew by 11% year-over-year, marking its seventh consecutive period of high single to low double-digit growth [24] Market Data and Key Metrics Changes - The company experienced a 27% sequential increase in funded backlog, indicating strong customer demand [16] - The energy infrastructure business has grown significantly, now representing over $600 million in annual revenues [9] Company Strategy and Development Direction - The company is focused on its North Star 2030 strategy, which includes growth pillars such as space and maritime, energy infrastructure, digital modernization and cyber, mission software, and managed health services [8][12] - The company is investing in AI and automation to enhance operational efficiency and customer outcomes [7][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current government shutdown, noting that most programs remain unaffected [4][19] - The company raised its guidance for 2025, reaffirming revenue guidance of $17 billion to $17.25 billion and increasing EBITDA and EPS guidance [18][26] Other Important Information - The company repurchased $100 million worth of shares and accelerated the payoff of $450 million on its term loan [17] - A dividend of $0.43 per share was announced, marking a 7.5% increase [17] Q&A Session Summary Question: Thoughts on M&A in the current environment - Management indicated a shareholder-friendly approach to capital deployment, focusing on both organic growth and selective M&A opportunities [30][31] Question: Growth in defense systems segment - Management highlighted tracking 10 franchise programs expected to deliver about $15 billion in potential value over the next five years [36] Question: Sustainability of health and civil segment margins - Management expressed confidence in sustaining high margins through innovation and technology investments [45][49] Question: Bid expectations for next year - Management expects a significant increase in bid submissions next year, with a robust pipeline of $69 billion in near-term opportunities [55][58] Question: Impact of the government shutdown on Q4 - Management acknowledged potential risks from the shutdown but remained optimistic about returning to normal operations quickly [74][75] Question: International business performance - Management expressed confidence in growing the international business, particularly in Australia and the U.K., aligned with growth pillars [100] Question: Potential spin-off of Dynetics - Management emphasized the value of Dynetics within the Leidos portfolio and plans to invest in it rather than consider a spin-off [106][108] Question: Recompete contracts for next year - Management noted that it is too early to specify recompete contracts but highlighted several areas with growth momentum [90][92]