Good afternoon, everyone. Welcome back to the Aerospace and Defense track at the 2026 JPMorgan Industrials Conference. I'm Seth Seifman, the A&D analyst, and we are very grateful to have with us Leidos. We have CFO Chris Cage, and we have Stuart Davis from Investor Relations, who I'm sure many of you know. I think we'll do some Q&A here with Chris.
Okay.
We'll ask for some questions from the audience as well. Feel free to raise your hands. Maybe we'll get started.
Well, great, Seth. Thanks for having us out. Great venue this year. A well-attended conference, so, you made it easy on us too in our neck of the woods. Thanks for that.
No, I like the change to Washington. Speaking of Washington, we're a little over a year into the administration, and you know, they've taken some different approaches. DOGE in the headlines, but maybe some other changes as well. What adaptations have you made in response to a changing landscape for Federal IT, and what have the changes under the new administration meant for the business?
Yeah, no doubt. It's been certainly an interesting, you know, 15 months or so under this administration. I think one of the first things it had us do last year was ensure that we could communicate the value that we brought to our customers. You know, it was really imperative that you understood, it's not just proposing on a particular contract, but really stepping back and being able to articulate and demonstrate the value you brought to their mission. I think that helped sharpen us. That was an exercise that we went through last year.
Now as we move forward, I think this administration, you know, they're eager to get things done to make an impact, and to that end, they wanna see, you know, contractors, partners that come to the table that demonstrate the capabilities that they are bringing to the table. Not so much on what's on a PowerPoint, but what's a live demonstration, what is a prototype product, what is something that's ready to be fielded, you know? And so that's different, right? Where it does require you to ensure you are looking ahead to what the demand signal is and what their needs are and have that unparalleled customer understanding and position yourself to anticipate those needs. It does require, in certain cases, investing-
Mm-hmm
Upfront a little bit more. Thankfully, Leidos is in a great position with the capacity to be able to do that, and the demand signal from the team for that funding is robust, and we're able to make great choices on the things that we wanna lean into.
Okay. I was gonna ask, I imagine, if you've been having meetings today, you've probably gotten a lot of practice answering this question, but I wanted to ask about the proliferation of AI. It seems hard to have a conversation with anyone these days without talking about AI. One of the concerns when people think about what that means and they think about federal services, you. How do you think about the impact, you know. Do you see. I think investors right now are just imagining what's the next thing that could be disrupted by AI or, you know, do you see a shifting landscape between, let's say, companies like Leidos, commercial software providers, and the AI labs?
Yeah, definitely the ecosystem continues to evolve and, you know, I think this is where Leidos is in a unique position given our size and scale and the position that we hold on so many of our customers' critical programs that, oftentimes we're looked to to be the orchestrator of how do we bring AI to bear to impact the mission. So you're right, AI is certainly disruptive. It's bringing efficiencies to the table that were unforeseen before. But, you know, it's like there's more, a lot more to the story than just having AI, you know, drive efficiencies into the code writing process or even the end-user interface. When you think about getting deeply into the customer mission, you know, you gotta understand that, you've got to be able to bring scale and security to the table.
You know, you've got to be able to. Actually, it brings the integration of these capabilities back into vogue, right? This integrator concept of how do you bring AI and connect it with, you know, the information, the mission outcomes, et cetera. I think Leidos is certainly finding that there's, they're there as it relates to AI being a tool that drives efficiency for us, but also generates a need for us to help our customers unlock the full value of that. To that end, we've again, another area of investment as we've looked over the past, you know, year to ensure we deepened our partnership with the leading AI labs and getting more of our Leidos employees' access to these tools and capabilities, whether it be ChatGPT or Claude or, you know, Gemini, what have you, right?
I mean, we're spending the money to make sure that we've got the expertise across the board there and that we know, you know, the best way to unlock the full value of that for our customers.
Mm-hmm.
I don't think that conversation's going away anytime soon, but again, that's the way we're navigating the landscape today.
Okay. I guess that's probably. Would it be safe to say that that is most relevant in the intelligence and digital segment?
I'd say certainly. Yes, most relevant there for sure. More on, probably on the digital side. Although the intel side, I mean, there's still these tools and techniques, and I've seen some powerful ways that our teams are leveraging these AI to help the analysts in the ops center understand, you know, how to make the most of the information that's available to them, you know, the intelligence you can glean from that, the robustness of where you can, you know, dig deeper into your analysis and targeting, what have you. On the digital side, as it relates to being in the customer's IT environment and how do you use these tools and techniques to drive efficiencies into the delivery model? Yes. That's our largest segment of the business, as you well know, intelligence and digital.
You know, it's kinda was the area, certainly on the digital side last year, that was kinda most in the eye of DOGE, and we've come through that successfully, and now we're looking for that business to continue to get back onto a nice growth trajectory for us.
Right. You mentioned that. I think the guidance for this year in intelligence and digital is mid- to high-single- digits. I think last year the segment grew about 2%. Is that acceleration coming mainly on the digital side from decline to growth? Or are there other drivers? What gives you the confidence?
Yeah
in that acceleration?
Well, I'd say most of the near term growth that we feel confident in is more on the intelligence side. We did win a couple very nice large programs, middle-ish of last year that are ramping up and accelerating. We see, again, that demand signal with our intelligence customers growing. Cyber is a capability that fits into that part of the business, and that's an area of growth and expansion with our Kudu Dynamics acquisition from last year and helping our customers with more full spectrum cyber capabilities. Obviously, what's going on today in Iran, you know, drives even more need for mission support activities to our intelligence customers. In the near term, you know, that's what we see as a catalyst for growth looking ahead to 2026.
As we, you know, move to the back half of the year, I mean, the pipeline in the digital side of the business has filled back up. Again, it was probably a little bit more muted the first half of 2025 as customers were kinda reassessing how they were moving forward with larger procurements. Now we've seen, you know, that pace pick back up, and so we're seeing a lot of activity that could hopefully lead to some nice wins here in 2026 to propel the digital side to growth as we look to 2027 and beyond.
That growth rate for the whole business implies that the intelligence part of it is actually growing quite robustly.
Yes.
Yeah.
That business this year probably is a double digit grower.
Yeah.
Modest growth, some growth in digital this year.
Mm-hmm
blending to that mid- to high single digits%, yeah.
Yeah. Excellent. Okay. Moving on to health. I mean, I think the medical exam business has been a key driver of the company's financial performance in recent years. Maybe if you could talk about where that goes going forward, how you're thinking about the recompete there and the potential to sustain both the level of the business as well as the profitability.
Well, it's been an excellent business for Leidos that's been very well run by the team and delivering a critical mission in support of our veterans. We're proud to have done that work for decades now, right? It's not new to us, and just all we've seen over the last number of years is the demand signal to serve veterans has increased. Leidos plays an important role in that ecosystem. I would say, you know, in 2026, we've signaled that that business coming off of two excellent years is modestly down on the top line in the margin, but still a very important part of the portfolio. We're looking ahead, have been looking ahead, for the last year plus on the recompete that's on the horizon for us there.
That's, you know, sometime before the end of the year, the customer needs to reaward that program for a number of years. We stand ready to do that. I think we've certainly had our eye on continuing to advance the technology differentiation aspects of how we go about that mission, and I think the team has leaned into that, and we've got some compelling capabilities. But we also, you know, pride ourselves on the level of service that we perform, the throughput, the capacity that we've built, all things about how that program runs. Our expectation is we, of course, secure our position on the recompete.
I do think there's more that we can do to help that particular customer, on the end-to-end equation of how a life cycle of disability exams works, not just doing the examination, but there's more that we can bring to bear there. There's also disruptive technology that can help, you know, streamline when and where examinations are even needed. All that's part of the equation, things we think about all the time. We've got a, you know, great health business writ large. It's not just what we do at the VA, but clearly looking ahead to opportunities on the Reserve Health Readiness Program, you know, life after DHMSM, expanding our mission support in other parts of the VA and the HHS.
The team's got a robust set of opportunities that they're going after, but our focus is on behavioral and rural, kind of expanding that platform into those clearly unmet mission needs for the customer.
What was set aside for that in the reconciliation bill last year? You know, to what extent have you seen activity there in terms of RFPs, or any indication that there might be some awards coming? You know, is there a familiarity in that customer community with the work that you've done at the VA.
Well, certainly, 'cause VA will play a role too. I mean, you're right. In the One Big Beautiful Bill, there was $50 billion identified to support rural care and, you know, just like other parts of the One Big Beautiful Bill, a little slow to see that flowing into contractual opportunities. We do think there's a there there ultimately. Our focus, you know, immediately is the adjacencies within VA and expanding into how they support their veterans and, you know, beyond the VA, active duty service members and their dependents with care in the community network and, you know, things like that. We've got a pipeline of things we're going after.
Rural clearly is an area that we've demonstrated we can reach the hard-to-reach veteran as it relates to disability examinations, invested in a fleet of mobile clinics to have that impact. They're getting well-utilized and, you know, continuing to look at what's the next step to make sure we're supporting our veteran community and other service members in those hard-to-reach communities. I think time will tell. I think that, again, looking ahead over the next couple years, I see this as a growth catalyst for us. It's probably not something that moves the needle for us on 2026.
Right.
You know, we're playing the long game here on this particular growth vector.
When you think about kind of the core VA work, you know, do you see more companies showing up for the recompete, or do you expect it to be mostly the folks who are there now?
Yeah, I mean, it's hard for me to predict. I do think the VA understands they've got the right capacity in place.
Right
to serve the mission need. You know, and they've spent some time over the last few years adding some capacity to the equation. You don't need to overcapacitate it. There's inefficiencies that get created for them and for the contractor community, right? Too much of a good thing. I think they've got the right capacity. You know, this isn't one that is. You know, they have a number of factors that they look at to determine how do they wanna meet this need and, you know, doing it with, like I said, timeliness, quality, customer satisfaction, throughput. Those are all important criteria in making those determinations. Our expectation, just like anything that we go after, there's always competition. We've gotta be on our A game, gotta be sharp, and I expect that we will.
Yeah. Excellent. When we look out kind of beyond this year and we think about the health business.
Yeah
you think about the opportunity set out there, that's a segment that should be growing as we think about, you know, going into the last few years.
Our expectation is definitely that business is a growth business for us. It's a growth pillar. I do think that, you know, it's a very large business for us, a very profitable business for us. You know, the growth rate might be a little bit more modest there than other parts of the portfolio. Yes, my expectation sitting here today is 2027 and beyond are growth years for that part of the portfolio.
Okay. Another one of the new segments, Homeland. A couple of topics to touch on there. First of all, just maybe most immediately, DHS still no appropriations for fiscal 2026. Is that affecting the company in the near term?
Well, first of all, Seth, you know, we've got to re-segment every so often to keep you and Rocco on your toes.
That's right.
Getting your question at hand on the DHS, you know, obviously, we would love for there to be funding for that customer set. It's disappointing that there's not. I would say as it relates to broad impacts for Leidos, you know, very modest. You know, of course, we feel for a couple of the programs that are impacted and, you know, some employees that aren't able to serve the mission, but it won't move the needle writ large for us as it relates to our Q1 results. Now, there's some, you know, award decision, things like that we'd love to see moving forward, and they're not right now, so we'll have to wait that out. The hope is we get back to ordinary course of business here pretty soon.
Are some of those decisions related to scanning products? Or is that something that can move ahead separately with reconciliation funding?
Yeah. Not so much on the scanning products. CBP's funded and borders and port security equipment, you know, some of those things are moving forward. On the scanner side, certainly we're servicing our installed base. You know, there's some potential funding available if they're buying new equipment. We're not seeing a lot of that on the airport side right now. What we are doing is working with the TSA on piloting, you know, a new modernized throughput experience. We think there's a lot of efficiencies that can be brought to bear there, you know, and some of that with Leidos equipment, but not necessarily just with Leidos equipment, with other equipment in the ecosystem. You know, kind of certainly software and how much labor it really takes to provide a secure, high throughput experience.
Those are the kinds of things that we need to get through, you know, get the DHS back to business completely. Obviously, there's a new administrator coming on board there, too, secretary, I should say, that will, you know, ultimately help break some of those logjams.
Right. Not to put you on the spot too much, but is that a business that you see as core to the portfolio long term?
the security detection side of the portfolio?
Yeah.
I would say it's a business that we know well because, you know, we invented some of the technology that's on the ports and border side. We've augmented that. I wanna make sure that business can be unlocked to see its full potential. I do think that there is some benefit that Leidos brings certainly on the software side 'cause some of the core algorithm detection, the software capabilities, and how we network that together, and visualize, you know, the ecosystem of your security footprint for the customer. Leidos helps bring that secret sauce together. The key is making sure it can reach its full potential. Today we think that's part of Leidos, and excited to continue to help realize that vision.
Okay. I guess elsewhere in the homeland business, FAA is a customer.
Mm-hmm
I think a place where there's some opportunity. You know, people traveling often get confronted with some of the challenges at the FAA. What's the opportunity there? You know, what are the contracts specifically that Leidos is pursuing?
Well, I mean, Leidos is an important partner and supplier to the FAA today, and has been for almost 50 years. It's just been a long-standing customer. Some of the most critical air traffic management software systems are Leidos, you know, developed products. We expect to be an important mission partner with them into the future. You think about, you know, this goal of modernizing the air traffic experience, and there's a lot to that. You know, so far the FAA has named a prime integrator.
Yeah
... to play a role to help them oversee and orchestrate this. You know, that's not a role that Leidos was suited to play well. But where we do think we should play a role is on the new modern software capabilities. We've already demonstrated that we've got a lot of that that we've been working on, and we have sold elements of that to other countries. We've got a demonstration center, you know, down here downtown that we've had that customer in to showcase what Leidos has to offer. Yes, we expect that, you know, ultimately we'll play a role in that of some kind. It's still a little bit unclear how they're gonna go about procuring that. We've all been waiting.
Again, one of these things where, just like with, you know, other aspects with all this funding, it's hard to predict exactly what form it will take. We have taken every opportunity to make sure they understand, you know, how we can be a new modern provider of state-of-the-art software, but also somebody that has intimate knowledge of the FAA and the mission and take that and understand the safety and security and everything that goes along with, you know, software that is so critical. I do expect that it will be something here in the next, you know, quarter or two that we'll have line of sight on and clarity. I do think we need to get after it. This administration wants to, you know, clearly put some points on the board.
Yeah
with some wins, this would be one of the big areas that they're focused on. To get to done, you've gotta get the contract let, and therefore, you know, we're eager to get to that point.
Yeah. It was just something people would certainly notice.
Mm-hmm.
The energy business is something that is relatively, as an A&D analyst, something that I've been learning a little bit more about over the past few months, since you announced the ENTRUST acquisition.
Yeah.
I guess that's up to about $1.3 billion or so this year for the energy business. Maybe talk about what drives growth in your energy business and why you see it as you know a good place for Leidos to be-
Yeah
allocating capital.
Absolutely. Well, first of all, the $1.3, just for clarity, is a pro forma.
Pro forma. Yeah.
With ENTRUST closed on a full year basis.
Yeah.
Right? You know, that won't be the results this year, but that is the trajectory that our combined business will be on. We're very excited about it. We've got a business that, you know, Leidos has grown internally over the last, you know, decade or so, and the team has done a really nice job of serving, you know, an important customer need. This is one where you gotta earn that customer trust doing work for publicly traded utilities. You know, there is a customer relationship aspect to that you've got to earn your way in, and once you do, you know, you're a trusted provider to them. What they've seen is, you know, the demand signal continues to ratchet up, right?
Whether it's just the ordinary course development and expansion infrastructure projects, whether it's responding to natural disasters, whether it's hardening and modernizing the grid, securing power lines underground in California because wildfire risk, or now the explosion of new energy demand coming from data centers. There's you know a robust appetite for engineering projects to help them do all of that to bring power online, to do it in a way that's reliable, secure, predictable, et cetera. We've been serving that mission. ENTRUST helps us expand our reach. It broadens our geographical footprint, gets us access to even more blue chip utility customers. It brings us access to the gas market, which we weren't in.
We did not previously serve gas utilities, so, you know, those transmission and distribution aspects to supporting them as well, so similar capabilities for a different client set. All of that together just says this is an area we really like, and we like it because low capital intensity, right? This is a business that doesn't take a tremendous amount of investment. You know, it takes playing the long game and earning your way in and then being able to do that efficiently.
You know, what makes it a little bit unique for us is since this business has grown up out of, you know, an A&D contractor for the large part, that we have had a robust amount of investment that we've been able to put behind our technology and AI tools, et cetera, for deployment into the federal government. It was easy to find applications of those tools and techniques to this customer set in this market. You know, it has the benefit of that technology backing that we're now able to leverage into the Entrust accounts and profiles. I think it's gonna be an excellent marriage. I'm excited about getting to close. That date is still uncertain, but very near term. I would expect that hopefully within the next 30 days, and yeah.
We got an integration plan ready to go, and I expect this to be a nice tailwind on our growth story and our margin story in the years ahead.
Yeah. That business has been growing relatively quickly, in recent years. How fast has it been growing?
It's been a double digit grower for us, you know, for the last several years.
Okay
Inside Leidos. You know, definitely happy with that. Now, we sold a small piece of it last year called Varec, and, you know, we're really trying to hone that part of the portfolio to the core piece of where we wanna take this business. But it's really done well for us over the last several years. Like I said, we've only seen the customer demand signal continue to ratchet up.
Do you see it as a place that's ripe for incremental M&A in the future?
I think that'll depend. I certainly would say our near term focus, you know, the next 12 months, let's call it, is integrate this business well, get it operating seamlessly together, you know, delight our current customers, leverage technology. You gotta stand back and maybe understand geographically, are there areas in the market that you're still not, you know, in where you need to be, especially as you look at where some of the new capacity will be coming online, you know? Through that lens, we'll pay attention to it, but I wouldn't say there's any near term expectation that we need to add more to what we've got.
Okay. When you look at the competitive landscape in this-
Mm-hmm
business, are you the biggest player or one of the biggest players?
Yeah, one of the biggest players. I mean, when we did this pro forma, we were saying, "Hey, top three, top four in the transition distribution market." You know, clearly have been moving up the ranks here. There's a few large, but I'd say from a pure engineering perspective, you know, we're getting to be to the top of the list. Some of the larger providers also do, you know, construction projects, and that's not,
Right
in Leidos' bailiwick. Obviously, a material player and certainly somebody that you know continues to command our customers' respect and attention.
Okay. I wanna make sure we have time to get to the defense segment.
Yeah, okay.
Since that's something that I would imagine should be the fastest growing segment within the company over the next few years.
Yeah. Save the best for last, Seth. Very excited about the defense piece of the business. I know that, you know, you've been on this journey with us for a while. You've been down and you've seen Huntsville in its earlier days, and I was just down there a couple weeks ago and, you know, it's night and day from what you saw, too, as far as furthering our capability, building out, our production lines, really ratcheting up things for, more high volume output. Very excited about the defense business. You know, we put more together with that. As we entered into 2026-
Mm-hmm
We combined our defense systems business with other parts of our defense portfolio to kind of have a holistic, you know, customer concentration and access to that, to the Department of War. You know, thinking about some of the stuff we do on the software and the logistics side as it fits in with some of the product ecosystem. We've got a number of things now that are already accelerating or on the cusp of accelerating.
Okay
in that portfolio.
Yeah. Maybe we can talk about some of those things. I guess, first of all, if we take defense, I think it's about a $4 billion dollar-
Mm-hmm
segment. Should we think about something in the twos as kind of what you might think of as, like, products with
Yeah
potentially fast growth?
Yeah, that's the round numbers, two and growing. That'll be the faster growth, although there's still plenty of other important opportunities on some of the more services-oriented stuff. The product side of the business and again, more of these have been several years in the maturation process, getting to the point where quantities are going up and profitability should therefore go up. 'Cause we've kind of passed the early phases of where you've had to prove through the development phase that you can get something to the capability that you needed. I think we've matured that in most of the things that we're manufacturing now. There'll always be some new emerging capabilities that we're focused on next, excited about that.
What would you highlight as kind of the top two or three growth drivers within that portion of defense?
Yes. I mean, the two most significant programs in the near term, one would be our indirect fire protection program. You know, we were able to secure a $4 billion IDIQ on that last year. Now we've seen the Army customer order a number of lots underneath that IDIQ. You know, defense of Guam, Korea, now, fiscal year 2025, talking now fiscal year 2026. The order quantities are ratcheting up, and we've expanded our capacity to meet those quantities. That's program number one. Late last year, we won a program called ABADS, Air Base Air Defense, you know, this is our passive radar detection system. Those products, a couple different product lines there that, you know, we're excited about scaling up the manufacturing of those units, too, to support our Air Force customer.
Again, these are some capabilities that you could imagine in a future world with Golden Dome. You know, like how do you have the architecture to protect the United States? These are some of the capabilities that we would point to. Those are some things that are ratcheting up there. We've obviously got aspirations in the maritime arenas and space. Those are two of our. That's part of our growth pillars.
Space in particular right now, it's smaller, but, you know, it's got, you know, a lot of growth potential there as we've positioned ourselves on the missile warning, missile track, satellite, payload detection capability there and have been a player on the first few tranches, and look for other ways to proliferate that capability with our, you know, SDA and the Space Force writ large.
You guys have been a payload provider for Tracking Layer.
Mm-hmm.
I forget. Have you disclosed who, which of the primes that you work with?
I don't know that we have consistently. Okay, Northrop Grumman, SpaceX on Tranche 0, Sierra Space. We've had a variety of providers. The SDA's seen us in action on a couple different fronts here. You're right, you know, being the payload provider's the place that we wanna be.
Mm-hmm.
again, that's an area that we've expanded our capacity both in San Diego and in Huntsville to you know build larger amount of quantities there.
Right. I guess, you know, there's what SDA is doing in Tracking Layer. There's Golden Dome where there was a bunch of separate money.
Mm-hmm
directed at missile warning, missile tracking satellites. Do you see those efforts emerging at some point since they're kind of headed in the sa-
Yeah
It's the same goal?
It seems inevitable that they collide at some point and get wrapped, you know, with that overall umbrella. I mean, they're for the same intention of, you know, missile warning, missile tracking, you know, defending our nation against hypersonic threats. That's. The space layer has gotta be part of the Golden Dome architecture. Ultimately I would expect that those will converge, and that just brings a, you know, a bigger tailwind and probably more urgency to move at pace, would be my expectation once we really start to see the Golden Dome money flowing with intention on the architecture that they're working towards.
Yeah. Okay. On maritime, what made you focus on maritime as a growth pillar?
Yeah.
That's a market that's fairly nascent. I guess, you know, you've got a few different players looking to grow in that market. How do you think about your competitive advantage?
Yeah, I mean, maritime, you know, it's interesting because, you know, I think many people would say, I mean, it's obvious that the Navy, you know, in the future fight needs more capability, can't afford to have all manned platforms. Autonomy's gotta have a role to play. Leidos has long had a maritime business, long had an autonomy capability, have demonstrated that robustly to the Navy, so that's exciting. We've got proven chops there. A few years ago, actually almost five years ago now, we acquired a company called Gibbs & Cox. We did make an inorganic move into this arena to acquire naval architecture and engineering capability, so as a leading designer. We've got the chops for design, got the chops for the autonomy.
Increasingly now, the other secret sauce that I would say we bring to the party is it's the payload. You know, so you think about the autonomous mission. Okay, it's not just having a boat that can be unmanned, it's like, well, what capability can you deliver? Increasingly you're seeing the customer interest level peaking as you're talking about, you know, the payloads, and that's back to what Leidos can bring out of our defense business, back to what Leidos can bring out of our cyber capabilities. There's real mission impact that we can have on the payload side of that equation too. We think there'll be ultimately a lot of dollars flowing here, and we think we're well positioned in the portfolio to take advantage of that.
Okay. Maybe we're at time here, but maybe just as a last one I wanted to check on. You know, we spent a lot of time yesterday. We had some folks from DoD and from think tanks talking about increasing missile production. I recall being in Huntsville and talking about launchers.
Mm-hmm
The degree to which maybe your defense business has exposure to missile launchers and to that kind of ramp up?
Yeah. Munitions. I mean, yes, we are a part of the critical supply chain for, you know, a major manufacturer in that regard today. I think therefore you will see some appetite for us to scale up our capability to support their ability to scale up as it relates to, you know, a portion of that weapon platform. We also have, you know, today we've got a small glide munition that had a role to play for the special forces. We've developed a derivative of small cruise missile capability that's been in advanced flight testing, and now there's interest from the customer in yet, you know, even more impactful, affordable, low cost containerized munition that we're in advanced discussions with the customer on.
Look for us to play a role in that ecosystem too, and clearly there's a lot of appetite and need to, you know, get more capacity in the supply base there.
Yep. Excellent.
Great.
Chris, thank you very much.
Thanks, Seth.
Appreciate it.