Earnings Call: Q2 2022

Sep 2, 2021

Good day, and welcome to the SAIC's 2nd Quarter Fiscal Year 2022 Earnings Call. At this time, I would like to turn the conference over to Shane Kanetra, SAIC's Vice President of Investor Relations. Please go ahead, sir. Good afternoon and thank you for joining SAIC's 2nd Quarter Fiscal Year 2022 Earnings Call. My name is Shane Canestra, Vice President of Investor Relations, And joining me today to discuss our business and financial results are Nazzic Keene, SAIC's Chief Executive Officer and Prabhu Natarajan, our Chief Financial Officer. Today, we will discuss our results for the Q2 of fiscal year 2022 that ended July 30, 2021. This afternoon, we issued our earnings release, which can be found at investors. Saic.com, where you'll also find supplemental financial presentation slides to be utilized in conjunction with today's call. These documents, in addition to our Form 10 Q to be filed soon, should be utilized in evaluating our results and outlook along with information provided on today's call. Please note that we may make forward looking statements on today's call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call. I refer you to our SEC filings for a discussion of these risks, call, including the Risk Factors section of our annual report on Form 10 ks and quarterly reports on Form 10 Q. In addition, the statements represent our views as of today, users and subsequent events may cause our views to change. We may elect to update the forward looking statements at some point in the future, but we specifically disclaim any obligation to do so. In addition, we will discuss non GAAP financial measures and other metrics, which we believe provide useful information for investors, and both our press release and supplemental financial presentation slides include reconciliations Q and A session. It is now my pleasure to introduce our CEO, Nazzic Keene. Thank you, Shane, and good afternoon. Thank you all for joining us today. Before I begin our quarterly update, I would like to take a moment to share some great news on the leadership transition of an exceptional individual that many of you know very well. Those of you in the investment community have worked closely with Shane Canestra over the past several years. Shane will be transitioning into a new assignment within the company, leading our corporate social responsibility and public relations function. I'm excited for Shane's continued growth in SAIC. This is a real time example of our focus and investment in talent development. Joe DeNardi, who many of you also know, Will be joining us to lead our Investor Relations function, bringing a wealth of experience from his prior role as a sell side analyst. Joe and Shane will work closely over the next few weeks to ensure smooth and seamless transition with our investment community. Now on to the business at hand. We are excited to discuss our quarterly results and updated outlook for the rest of fiscal year 2022. Strategy for long term shareholder value creation. During our Q2, the team delivered strong revenue, increased organic growth and outstanding profitability. Organic growth for the quarter was approximately 4%, our 3rd consecutive quarter of organic revenue growth. Adjusted EBITDA margin was 10.1%, another all time high after producing record margins last quarter. Free cash flow generation continued to be strong and in line with normal second quarter seasonality. We continue to allocate capital for long term value creation through a balanced mix of accretive M and A, share repurchases and dividends. We are proud of our accomplishment While remaining ever vigilant in driving performance into the future, SAIC is in a strong position as we focus on our tomorrow. We are strategically positioned with a balanced portfolio of business and capabilities. We have accelerated our investment in technology, talent and solution development in critical areas, including digital transformation, artificial intelligence and engineering innovation, while also enabling our customers to procure these solutions and services in newer acquisition and delivery models. For example, last quarter we discussed our acquisition of Coverst, a key step in creating the artificial intelligence platform for our solutions. Our efforts with Coverst are off to a great start as we have seen an encouraging number of important new business opportunities. We are excited about the differentiation we can bring to our customers through the combination of our deep mission understanding and Coverse's unique technology platform Utilizing artificial intelligence and machine learning on complex sensitive data. This quarter, we launched another suite of technology solutions in Cloud Send, our end to end suite of integrated cloud and digital tools. With Cloud Send, we are able to systematically modernize customers' legacy systems with proven and repeatable processes and tools immediately unlocking the value of the cloud. We're already seeing success from CloudSend in our work with an army customer where SAIC assessed, modernized and migrated 90 applications to a cloud environment by leveraging CloudSend. By migrating and rebuilding application components in the cloud and for the cloud, we strengthened cybersecurity, improved application performance And delivered a lower total cost of ownership to our customer. Combined with our continued investments in areas such as 0 Trust and digital innovation, We are delivering significant value to our customers. Our solution focused investments and tools continue to accelerate, user. Secure and deliver our customers' mission needs through greater adoption of emerging technology. We've also made significant strides in the Q2 by expanding our presence in growing markets, specifically federal health. Our acquisition of Half Acre and Associates is off to a good start, performing well and providing immediate access to strategic health sector customers. Early successes are being driven by the strategic intersection of the customer and contract vehicle access brought by Half Acre combined with market leading offerings and capabilities leveraged from the entire enterprise. With the full scale and breadth of SAIC now available to Half Acre, We are investing in further accelerating new business opportunities as one fully integrated team in the federal health market. It is also important to note the accomplishments we have made in our commitment to cultivating and attracting industry leading talent, one of our strategic priorities. We recently announced the hiring of a Chief Climate Scientist to advance SAIC's leadership, capabilities and solutions in support of our customers as they address climate related missions, a critically important priority for this administration. We remain committed to a culture that promotes the hiring, retention and development of our largest asset, our exceptional talent. Talent is a critical element of our strategy and I'm pleased with our ability to differentiate ourselves in a tight labor market, Allowing SAIC to deliver the strongest teams to the most pressing customer challenges. Our continued investment in talent is a key differentiator and enabler of profitable growth in the market. The actions taken in the Q2 underscores our commitment to investing in mission critical emerging technologies, users expanding our customer base and securing key talent. We will continue to share important technology and mission updates as we make progress in these areas. Let me now turn to what we're seeing in the market as we enter the last month of government fiscal year 2021. Our customers continue planning for the future and making award decisions. While it is very likely that the government fiscal year 2022 will start under a continuing resolution, Our country's leaders are working through the budgeting process with indications that appropriations could be in place by the end of the calendar year. While not optimal, it is also not unusual and SAIC knows how to successfully navigate this environment. We believe that federal budgets are shaping largely in line with the President's request and perhaps a bit more favorable than initially requested for the Department of Defense. While the process is still unfolding, we are encouraged by the recognition from our country's leaders on the importance of continued technological investment. Of course, the pandemic continues to be at the forefront of everyone's thoughts. The emergence of the Delta variant and a surge in cases has resulted in continued caution. SAIC continues to operate well, navigating the environment, but also looking forward to an eventual return to a new normal. Our plan is to continue in a hybrid work environment, recognizing some employees are required to be at SAIC or customer site, while others can work partially or fully remote. This approach aligns well with our objective to attract and retain high quality talent by providing flexibility for our workforce. This will continue to open our aperture for talent as we recruit from a wider geographical area. Prabhu will now discuss the details of our Q2 results and financial outlook for the rest of the year. Thank you, Nazzic and good afternoon everyone. SAIC delivered another quarter of strong performance across a variety of financial measures. We continue to deliver in the near term for our shareholders, While continuing to make the necessary investments to align to our long term future. Let me start with our business development results. Net bookings for the Q2 were approximately $1,600,000,000 translating to a quarterly book to bill of 0.9 In a trailing 12 month book to bill of 1.6, the larger contributions to our quarterly bookings are disclosed in our press release today. At the end of the Q2 SAIC's total contract backlog stood at over $24,000,000,000 up 25% from a year ago. At the end of the Q2, the value of submitted proposals was nearly $20,000,000,000 up from last quarter by $1,700,000,000 Reflecting a continued healthy pipeline and strong demand for our solutions. Just over half of the value of submitter proposals uses for new business opportunities. Let me now turn to financial results for the quarter. Our 2nd quarter revenues users of approximately $1,840,000,000 reflect growth of 4.1% as compared to the Q2 of last fiscal year Due to ramp up on new and existing contracts, net favorable changes in contract estimates and partially offset by contract completions, Half Acre and Associates, which closed early in July contributed a modest amount of revenues for the quarter. Excluding the impact of the acquisition and divested revenues, 2nd quarter revenues grew organically by 3.8%. 2nd quarter adjusted EBITDA was $185,000,000 An $18,000,000 increase from prior year. Adjusted EBITDA margin was 10.1% After adjusting for $14,000,000 of acquisition and integration costs, 2nd quarter margin performance was very strong across the business And the quarter favorably benefited from solid profitability across the portfolio, net favorable changes in contract estimates and the accelerated amortization on certain off market liability contracts. The acceleration of amortization of off market liability contracts and other contract adjustments totaled $17,000,000 for the quarter or about 80 basis points of profitability. Diluted earnings per share was $1.41 for the quarter, inclusive of the 2nd quarter acquisition and integration costs of $14,000,000 Excluding these costs, as well as amortization of intangibles and net of a tax rate of approximately 24% in the quarter, Our adjusted diluted earnings per share was $1.97 2nd quarter free cash flow was $85,000,000 A quarter of solid cash generation and day sales outstanding at the end of the quarter were approximately 60 days. Q2 generation was modestly below the prior year quarter. However, last year's generation benefited from about $40,000,000 of payroll tax session as afforded by the CARES Act. During the Q2, we deployed $310,000,000 of capital users. Towards the closing of the Covers and Half Acre acquisitions, share repurchases, dividends and capital expenditures. In addition, we continue to delever making mandatory debt repayments and ending the quarter with a net leverage ratio of just under 3.5 times. We are running modestly ahead of our internal targets on this front due to our favorable performance. We continue to prioritize share repurchases over voluntary debt repayment in the quarter, dollars 0.37 a share payable on October 29 to shareholders of record on October 15. Now turning to our forward outlook, as noted in our press release today and Slide 8 of the presentation slides. Based on performance through the Q2, the addition of Half Acre and Associates to the portfolio and our outlook for the rest of the year, we've updated our guidance to the following: revenue between $7,300,000,000 $7,400,000,000 raising the lower end of our previous range by $50,000,000 and adding approximately $100,000,000 of anticipated contribution from Half Acre and Associates. This reflects lower estimated full year COVID impacts of approximately $125,000,000 down from $150,000,000 and achieving ramp on new programs somewhat earlier than previously anticipated. Given recent COVID trends, We expect to see continued pressure in our supply chain portfolio over the next few quarters. However, we are challenging our team focus on growing adjusted EBITDA margins between 8.9% and 9%, raising the top and bottom end of our previous range, users. Reflecting our strong year to date performance, but continued anticipation of higher indirect costs and increased investments in the second half of the year. On EBITDA dollars, we continue to expect COVID to have up to $10,000,000 of impact in fiscal 'twenty two, unchanged from our prior estimate. Adjusted diluted earnings per share between $6.50 $6.70 raising both the top and bottom end of our previous range reflecting increased profitability from Half Acre and our strong first half performance. Free cash flow unchanged at between $430,000,000 $470,000,000 Summing up, we are pleased with our strong performance at Q2 and look forward to solid execution over the remainder of the year. Nazzic, back to you. Before taking your questions, I would like to highlight SAIC's recently published 2021 Corporate Responsibility Report. As you've heard from us in multiple venues, SAIC is very focused on creating a better tomorrow. From climate change, strong corporate governance To diversity, equity and inclusion, we are committed to making a difference for our stakeholders, environment and communities. It is core to who we are and is reflected in our purpose statement, to advance the power of technology and innovation to serve and protect Our World. Operator, we're now ready to take questions. To compile the Q and A roster. And your first question comes from the line of Cai von Rumohr from Cowen. Your line is business. Yes. Thank you very much. So first, your guide looks like it's essentially unchanged if we take out the COVID and we take out half acre. And your numbers imply that Looks like organic growth decelerates in the second half. Is that correct? And if so, why? Hi, Cai. It's Prabhu here. Thanks for the question. In terms of the guidance, maybe I'll just jump right to it. We're very pleased with our performance Good day for the 6 months of April. I think the second quarter followed a really good Q1 on both top line as well as bottom line. The newer balances balanced at this point of the year. We de risked what I would call risk to the top line in the first users. And that led us to increase the bottom end of the guide range. In addition, on session. And also continue to ensure we get the right talent on the restricted work we have out there. So I'd say on balance given A little more muted COVID impacts in the second quarter and adding half acre to it. We sort of upped the lower end by users. As you know, the seasonality in this business, we tend to see softer Q4s. If you actually run the math on the number of Active days in the first half versus the second half. We actually have 4 fewer working days in the second half than the first half. So if you sort of took the first half revenue number at 3.7%, and you sort of annualize that, get to about 7.4% a And the reality is that extra 4 days that we don't have in the second half is effectively about $120,000,000 to $130,000,000 But we do have users. So the ramp on S3I occurring, so that caused us our top end of the guide range to be approximately 74 years. So that's sort of the math. As session. As you know, growing the business on a consistent basis is really important to us. It is part of our incentive comp metric. And therefore, we know what the users. The team has in front of it over the next 6 months. We're obviously pleased with the performance in the 1st 6 months of the year, but we've got users. We'll get the remainder of what we need to go accomplish here. So we would hope that we continue to be able to Take a positive view of the performance as we go 1 quarter at a time here. Right. So I mean If I look at the one just last one. If I look at the Organic growth last year, it was negative. So it's not like you have a very difficult comp and COVID is down Year over year, so I still am a little bit mystified why given with basically a 1.5 plus trailing 12 book to bill. The organic growth in the second half would not at least equal the second quarter. And is there something else statement. Right. So we get the question, Kai. I think as I walk session. In the math, we're always seeking to offer a balanced sort of transparent view in the way we talk about the business. And we know what we have to go do in assessment. And I wouldn't quarrel with the math around what the implied run rate might be. But with COVID still being a dynamic in the second half of the year. There's sort of still a fair amount left in the year. And again, as I said, we'd hope to come back and have another conversation in December here after Q3, session. We've got some work to do in the remainder of 6 months. Yes. Cai, this is Nanda. Just to stop a couple of things that Prabhu said. So obviously, We are pleased, as he mentioned, with the accomplishments for the first half of the year. I believe we've got a good trajectory going and feel confident The top line, as Prabhu mentioned, incorporated half acre. But again, there is still half a year to go. So that's really how we think about it. And session. To Pravin's point, we're optimistic. We feel good about the business. But there's always elements of risk that come into play and we want to make sure And your next question comes from Greg Konrad from Jefferies. Your line is open. Good evening. And just wanted to congratulate Shane. Implied EBITDA at the midpoint goes down to 8%, you kind of called out higher investments. Can you maybe help bridge Where the opportunities are on the profit side given some of the one timers in H1 and even adjusted for those, I mean, I think you were still above 9% in Q2. Thanks for the question, Greg. As I mentioned in my prepared remarks, there were some favorable, I call it, maturity favorable items in the second Now the back half math would imply a low to mid 8% EBITDA margin rate users. We expect a couple of things to happen. 1, that we will continue to spend and invest in the business to sustain the growth rates we're starting to see in the business, And 2, I think we also have indirect costs that have under run-in the first half of the year relative to the second half and we are actually expecting Some ramp up in the indirect spend in the second half of the year relative to the first half. So again, I'd probably go back to the notion that session. If you sort of took the large adjustments, as I mentioned in the script, that drove second quarter profitability from 10.1, so we offered a bridge of quarter, but it gets you to about sort of a little over 9%. And then if you then add the couple of elements that I just pointed out in the additional investments, then it sort of implies a back half margin rate of sort of a low to mid-eight percent. I'm going to go back and respond in the way I responded to the prior question, which is, look, we know what we have to do to profitably grow the system. We're going to take this 1 quarter at a time and make sure we're executing a quarter out while we're planning 3 years out for this business. So We understand the back half math. We know what the teams need to go do. It is an important part of the incentive metric for us to ensure that we're profitably growing the business. So I'm looking forward to having the conversation again, but those are the specific drivers and sort of broadly how we're thinking about EBITDA performance. Users. And then just quick follow-up to that. You raised top line and EBITDA. Is there an offset for why the cash unchanged or any kind of changes the fact given some of the acquisitions? So yes, on cash, look, we're proud of our execution year to session. On cash, some of the EBITDA adjustments we saw in the second quarter uses. What I would primarily term non cash. So they were earnings pickups without a corresponding cash element this year. Users. So that's in part why our cash guide hasn't changed. I think the second more important factor is a lot of cash gets collected in this business in the second And therefore, if you think about the seasonality of the cash flow, we know what we have to go do in the back half of the year around cash. And if you think about cash on a year to date basis comparing the first half of twenty twenty two versus the first half of twenty twenty one, and if you actually adjust it for the payroll deferral So I think we're off to a good start on cash. But we have a lot of cash to go collect over the rest of the year. And we're going to keep working really hard on cash. As I've always said, it's important to convert net income to cash on a really strong basis. And on a longer term basis, we really do believe that there is opportunity on converting EBITDA into cash here, again, in the form of DSO. So we're going to work this structurally over the long term and but for the moment, I'd say we're comfortable with where the guide is Thank you. Thank you. And your next question comes from Seth Seifman from JPMorgan. Your line is open. Thanks very much and good afternoon. I was wondering if you could talk about the NASA AAGES contract business. Is that how that factored into the view on the top line? And also whether to the extent that it did factor in, if that was accretive users to the margin rate. Hi, good afternoon. It's Nazzic. So, as you're likely aware, we did file a protest earlier this year. Test. So that's the status of where we are today. As it relates to and of course, we continue to perform the work for our government customer, continue to support their mission and we'll continue to do everything in our power to maintain that ability to do so. As it relates to our forecast and the guidance, as with any contract, we take a holistic view, we risk adjust The top line and the bottom line based on the knowledge that we have to date. And so there is an element of that that is factored in users. Based on the information that we have at this point. Okay. And then as you look at the logistics business, I guess if you could talk about how things have played out in the quarter, I must say this year. And then it sounded like there were maybe some challenges in that business still as a result of COVID and yet we saw expected impact of COVID on the top line fall. So maybe what the puts and takes are in that business and where it system. So with respect to the supply chain business, back in March, we signaled that business Tends to operate in the range of $10,000,000 to $15,000,000 a week. And where we're seeing volumes in that business is sort of We're in the midpoint of that range between $12,500,000 $13,000,000 a week. And I think when we start to see that business recovered to closer to 15%. I'd probably look back and say we're probably seeing the last waning effects But at this point, I'd say we're still sort of in the midpoint of that range. The business is not any better than it was in Q1, Certainly not any worse than it was in Q1. It's sort of maintaining a run rate here. I think we're sort of estimating what the COVID impacts are users. And as you can tell from some of the data we provided, we're running at about $20,000,000 to $35,000,000 of COVID impacts in a given quarter. And that's Anyways, just about the $125,000,000 that we offered in the script. So I'd say that's where we are. And obviously, it's a watch item for us. We spend a lot of time business, but I'd say it's fairly stable at this time. Okay, great. Thanks very much. Thank you. And your next question comes from Matthew Acres from Wells Fargo. Your line is open. Hi, yes, good afternoon. Good afternoon, Matt. Congrats, Vashane. Appreciate all your help. I wonder if you could touch on the hiring environment. I think hedge count was kind of flat sequentially based on the number in your release. And is that okay? Do you guys need to grow headcount and just sort of what are you seeing out there in the labor market? Yes. Thanks for the question. Yes, so we have about 26,500 employees right now and that includes the acquisition of Half And you're right, there is certainly some conversation around the tighter labor market for a couple of reasons. 1, obviously, Coming out of the pandemic, we're seeing attrition slightly tick up and that's across our industry for certain and probably most industries as well as the opportunity to grow. Now with that being said, we performed very well during the height of the pandemic. We had As we went into the pandemic situation, we had already mobilized the ability to interview, hire, recruit In an offline manner and able to do so remotely and that served us exceptionally well during that time. So we continue to use that. We also, as a result of our own flexibility as well as increased government customer flexibility, have the opportunity to hire talent from lots of geographies. And so that's opened the aperture for us. And then we continue to focus on investments inside the company to drive ourselves to be an employer of choice and to differentiate ourselves in the market By doing by leveraging, whether it's flexibility, obviously, comp benefits the traditional methods. And So all of those things certainly go into play. We believe we can hold our own and have held our own as it relates to hiring and retention But there certainly is a tighter market and we're very cognizant of that and reacting as well as being proactive to ensure that we can set ourselves Smart Network Market. Great. Thank you. Thank you. Thank you. Star one on your telephone keypad. Your next question comes from Gavin Parsons from Goldman Sachs. Your line is open. Guys, on the implied deceleration in growth in the back half, just wanted to touch on the elements of risk Is on how fast you can ramp up offsetting wins or offsetting revenue to grow? Or is the risk that users. You don't necessarily have visible headwinds. You have visible growth, but you're being cautious about unknown headwinds, If that makes sense. So, hey, Evan, Pablo here. I'll take the question. We have visibility into the growth session. In the Q2, we said the Amcom S3i portfolio will ramp in the second half and all indications are we're Well on track to ramping up on SBI. So certainly from the standpoint of visibility, I think we have good visibility. I think what we don't have and most people don't is the dynamics around COVID and specifically the impacts that you can see system. We do see the ramp, but it is also a tight labor market where we have to go get the headcount in place for us to start ramping on these programs. So it's probably a combination of those things that causes us at Q2 to be perhaps cautious around the way we're thinking about the back half of the year, Given what we experienced, which was severe deceleration at Q4 of last year. So having lived that painful lesson, we want to make sure we're cautious about how we think about the And again, as I said at the top of the call, we're hoping to have better results on top line growth at users. Q3 call, but that means we have to actually go get some of the fixed income. Okay. That makes sense. That sounds well on this contract specific detail as well. This might be difficult to do, but if you were to just strip out the COVID impact entirely from this year and last year, what's the business Growing and is that kind of the right near term run rates or do you still have the impact of your Trailing bookings to accelerate that or how do we think about that going forward? Yes, got it. There are a couple of ways to think about this session. I think one, you could certainly add the COVID impact of the Q2 of this year to the 3.8% organically and say here is the business growing at I think there's probably just another fair way to think about this, which is you think about the COVID impacts from Q2 of last year and then Sort of eliminate that in the comparison to say organically apples to apples, what is this business growing at? And I'd say that math will get you to a number that's in the low 2% range on an apples to apples basis. But here's where I think there's an important lesson. That 2% is before the S3I program start to ramp and that's inherently I'd encourage you to wait to think about this business as business. Got it. And then maybe last question on cash flow. Obviously, again, COVID created a lot of lumpiness there too, but you're still on track for the original $1,000,000,000 target for 2021 2022. If you were to roll that forward to include 2023, realizing there's still some COVID impact there, I think around the repayment of the deferred payroll taxes, should session. So I've always said that business. This business is a strong generator of cash. I've also said that there is opportunity in DSO that will allow us to get better If we make some structural changes to the way we're delivering product. So we're on our way to getting better on cash. We're certainly not going to guide to FY 'twenty three cash session. At this point, but suffice it to say that it is a really important metric for us. In fact, we've given it higher weightings in our long term incentive comp plan starting users. So we know what we have to go through on cash. And look, we are going to solid generation of cash and we're going to users. Got it. Thanks, Bhavan. Yes. I think the one thing I can add there is this is an area where users. You probably hear the passion in his voice when he talks about it, but it's an area that is, as he noted, is Incredibly important to us from an overall metrics and compensation and one in which you've put a lot of attention and focus. And I know that we'll see the benefits of that. Thanks. Thanks. And your next question comes from Tobey Sommer from Truist Securities. Your line is open. Thank you. And Shane, congratulations. You But from a longer term perspective and maybe stepping back, are there material changes that You're seeing now that we've been dealing with this from a long term perspective and it looks like we will be for the foreseeable future. Their customers are kind of really studying making different changes in the way they Procure services and the way they allow work to be done and then internally from your perspective, your ability to Staff projects and fulfill your clients' needs in a more diverse fashion that perhaps isn't as D. C. Centric. Thanks, Tobey. Absolutely. I think we are seeing a pretty substantial change in a few areas and let me touch on those. You talked about one of them or you asked about one of them as it relates to our customers' willingness and ability to either work differently themselves or certainly engage with us And how they work and we're seeing that across the board. It has been probably more common in some of the commercial industries to have workforce Working in different fashion, whether it's remote, whether it's offshore. But for the federal government, it has been it's certainly been part of the way they do business, but nothing like users. So I do believe that we are seeing a, I'll say permanent, I don't know what permanent means, but a change that will endure past This particular pandemic stage as many of our customers are allowing for geographic flexibility, whether it's an office in a different city, whether it's remote users. And they're doing so both with their own employees as well as with their partners. And so I do believe that that is enduring and users. We'll be able to continue to operate that way. There are some positives that come with that, as I mentioned earlier. It does allow more flexibility in our ability to hire recruit, hire and retain individuals in different parts of the country. It allows in some cases, the ability to reduce the cost of labor, being able to hire in some areas in which there The labor market tends to be tighter, just the greater access to talent. And so I think that's enduring. We're seeing that as enduring. And many of our customers, I think, will create this opportunity as a permanent way to do business. Now the other part of that is obviously, and you've heard some of our users. Competitors talk about the ability to potentially reduce the real estate footprint. And certainly, that's something we're looking at, and We continue to work through that and provide guidance and insights as we make decisions there, but that will also allow for a lower cost structure. Obviously, 50% of our portfolio being cost plus. The government benefits from that as well. And then it just gives us different opportunities users from an investment standpoint. So we believe that that will be something that is enduring as well as we look forward. Thanks. And you went into financial implications, which is going to be my follow-up. On an aggregate basis, We're not looking at real estate in isolation. Are you able to discern at this point whether the net impact of These changes both at the customer level and within the company are accretive to profitability or dilutive? I'll take that one. I would say on balance, given the predominant cost plus mix in this portfolio right now, The ability to take some cost out and reinvest in parts of the business that need that investment is a really important way to think about this. So we're session. On balance, we'll see some cost reduction, but we are likely going to want to reinvest that in the business to continue to business. So I'd say from a margin rate perspective, I'd say probably will not be a significant driver to over the long term, but you should think about this as financial flexibility for the company to invest in the areas that need additional Investor. Understood. Thank you very much. Thank you very much. And there are no further questions at this time. I will now turn back the call to Shane Canestra for closing remarks. Thank you very much for your participation in Second Quarter Fiscal Year 2022 Earnings Call. This concludes the call, and we thank you for your continued interest in SAIC.