Leidos Holdings Inc (LDOS) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Leidos third-quarter fiscal-year 2014 earnings conference call.

(Operator Instructions)

As a reminder, today's call is being recorded.

I would now like to turn the conference over to John Sweeney, Senior Vice President of Investor Relations for Leidos.

Thank you.

Good morning.

I'd like to welcome you to our third-quarter fiscal-year 2014 earnings conference call.

Joining me today are John Jumper, our Chairman and CEO; Stu Shea, our COO; and Mark Sopp, our CFO; and other members of our Leadership Team.

During the call, we will make forward-looking statements to assist you in understanding the Company and our expectations about its future financial and operating performance.

These statements are subject to a number of risks that could cause actual events to differ materially, and I refer you to our SEC filings for a discussion of these risks.

In addition, the statements represent our views as of today.

We anticipate subsequent events and developments will 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.

I'd now like to turn the call over to John Jumper, our Chairman and CEO.

Thank you, John, and welcome everyone.

On December 3, we provided third-quarter fiscal-year 2014 data that included revised earnings guidance.

All of the information we are providing you today is consistent with that data.

We have recently encountered a range of additional challenges that severely impacted our quarterly performance and our outlook for the remainder of the fiscal year.

Stu and Mark will discuss the specifics, but let me provide an overview.

We previously told you about the overall impact of the sequester.

The negative impact intensified in the quarter, exacerbated by the government shutdown.

The increasing impact of the sequester, which includes reductions in duration and scope of programs, is now starting to impact intelligence programs, which we previously believed to be less vulnerable to sequestration cuts.

In addition, we continue to see a high level of protests affecting both a third and fourth quarters.

In Health and Engineering, we had anticipated sequential flat performance in commercial health through FY14.

We are now experiencing hospital IT budgets being further pressured by continuing declines in Medicaid and Medicare reimbursements, and intensified by general turbulence associated with the standup of the Affordable Care Act registration process in October.

The combined impacts resulted in a lowering of our forecast in November and triggered a writedown of intangible assets at the end of the quarter.

Two of our energy-related design-build projects, Plainfield and Gradient, had unanticipated bad debt charges.

In October, we experienced a significant decline in collections from the government, driven by government shutdown, our own planned IT shutdown to enable our separation, and customer confusion driven by our name change.

The combination of these factors resulted in a substantial change in our working capital usage, adversely impacting our operating cash flow in Q3, and extends into our forecast for the fourth quarter.

The guidance reductions provided in our preliminary release were driven by several factors that Mark will discuss.

We develop our guidance to a diligent and rigorous process based on the best information available to us at the time, recognizing that our business and the markets in which we operate are fluid and often difficult to predict.

Unfortunately, several of the factors we did not expect to affect our financial performance did in fact have a negative impact.

We have also announced Joe Craver is stepping aside as President of Our Health and Engineering business sector.

The Board and I agree that this sector will benefit from new leadership.

I will be stepping in immediately as acting head of the sector while we launch a search for a new leader.

We thank Joe for his 24 years of dedicated service to the Company and wish him the best as he moves forward.

Let me finish by providing a longer-term perspective.

We serve markets that are large and critical to our nation and its way of life.

Our 23,000-employee workforce dutifully serves the most demanding customers with innovative solutions and services with a strong reputation for delivery in our three markets.

We remain confident in the potential of our three core businesses, and that is supported by our strong bookings in the quarter.

Our Management Team recently presented our Board of Directors with a thorough review of our performance as well as an update on our strategy.

We are pleased to announced to our Board of Directors approved a 20-million share buyback authorization, representing almost 25% of our share count, to facilitate the capital deployment strategy and priorities we discussed back in September.

At this time, I'd like to turn the floor over to our President and COO, Stu Shea, for an update on our operational objectives and the strategies we're employing to achieve them.

Thanks, John, and good morning, everyone.

In our Q2 call, I shared with you our operating philosophies that we would be rolling out over the coming quarters to improve our performance.

In short, they are first to assure you that we are going to stay laser focused on our core businesses.

Second, that we would also be more active in the divestiture of non-strategic or non-performing businesses.

Third, that we would balance our historical emphasis on top-line growth with a future focus on year-over-year improvement of economic profit.

Fourth, that we would expand our culture of continuous improvement and operational efficiencies to continue to drive out costs.

And finally, that we would be much more focused on deploying our excess cash to benefit our shareholders.

Let me give you a quick summary of how we're doing against these five objectives.

To start, we have placed a lot of emphasis on expanding our business pipeline and in bidding and winning new work in our core markets.

Despite the broader market challenges, our qualified pipeline currently stands at about $80 billion, much of it in the areas recently opened up through the removal of organizational conflict of interest and by aggressively positioning for work in our core markets.

Our business development results in the quarter were significantly improved, delivering $3.1 billion in gross bookings; however, it's important to note that we are starting to see these new programs start slower and at a lower level than originally anticipated.

In our National Security segment, our largest single new award was a $467-million classified cyber intelligence program that we originally won back in Q2 but was protested by the incumbent.

That protest was denied, and the contract reawarded to Leidos.

The second major new award was a $440-million TSA integrated logistics support contract.

Both of these awards were new wins for us in our core markets.

We also won a $108-million extension of an existing classified cyber intelligence program.

In addition, our in-theatre airborne ISR business continues to prove its value to war fighters, with a follow-on $195 million award for continued support of our Buckeye platform.

In the engineering segment, we booked a $118-million cost reimbursable contract from LSB Industries to provide engineering procurement and construction services for the relocation of an ammonia plant and associated facilities.

We are not involved in any financing elements of that contract.

In the health business, we booked a $178-million prime contract from the defense health agency to implement a nurse advice line supporting the military health system.

Despite these and many other wins that led to strong quarter but bookings performance, the quarter also experienced significant debookings of $700 million, most of which have a more immediate impact to near-term revenues.

Decisions by our customers to shorten multi-year programs, reduce FTEs on labor contracts, reduce product purchases, and curtail or outright cancel programs contributed to that significant reduction in bookings.

This led to a net bookings total of $2.4 billion in the quarter, which still produced a strong book-to-bill of 1.7.

This brings our year-to-date book-to-bill rate to 1.0.

We ended the quarter with almost $10 billion in total backlog, $3 billion of which is funded.

As we noted in our Q2 call, we did not expect any major year-end flush of awards.

Well there wasn't.

Unfortunately, several of our current programs that we fully expected to be extended at the turn of the government fiscal year were cut dramatically with little advanced notice.

For example, the funding on one of our larger US Army analytic programs, the distributed pet initiative, was cut by $92 million and reduced by 120 FTEs, where we expected continued staffing levels and associated revenues.

This is the nature of today's uncertain national security market.

The combination of all these factors has resulted in lower expected revenue in our fourth quarter.

At the end of the quarter, we had over $14 billion in outstanding bids.

That includes $8.5 billion in IDIQ bids and $5.6 billion in definite delivery bids.

During the quarter, we won eight programs valued at more than $100 million each.

In Q4, we've added another -- an $800-million IDIQ win at the Defense Threat Reduction Agency, and currently have over 150 opportunities in our pipeline with over $100 million in contract value each.

With the average time from submission to award for the $100-million programs averaging nearly twice as long as just a year a ago, we are, however, realistic in our view of their potential contribution to our FY14 revenues.

As we've noted to you before, protests continue to dominate the acquisition process.

We currently have 19 programs under protest with a combined award value of almost $1.3 billion.

On the second philosophy noted above, divestitures we have continued a deliberate strategic review of our business portfolio.

As part of that portfolio-shaping effort we are focusing on our competitive position, the importance of the business area to our over-arching strategy and the profit opportunity each business area contributes to our economic profit goals.

In the quarter, we have made some small divestitures.

We sold our Global Anti-Terrorism Assistance or GATA contract.

We sold our stake in BPL Global, and we sold our commercial machine language translation business.

These divestitures in aggregate had a small cash and net non-operating P&L gain in the quarter.

And finally, we have begun to look at strategic options for at least one other product line that is not core to our future.

We expect that decision to be reflected in Q4.

These portfolio-shaping efforts are not large, but like several other similar businesses retained by Leidos in the split, they were a Management distraction and/or a dilution to our earnings.

Bottom line, this is a journey, and we have begun in earnest the process of honing our portfolio for the future.

The third operational philosophy, improving profit focus, is underway, and we have started our economic profit initiative across the Company.

While still in early stages, we believe this is focusing the Company on value creation as we move forward.

As you know, our focus on cost reduction has yielded over $200 million of improvement in annualized overhead and G&A costs.

This has proven to be vitally important this year as we are operating well within our indirect pricing rates despite our labor base being down more significantly than we forecast.

In addition in September, we noted we were planning to continue to reduce our indirect costs across the enterprise by an additional $50 million to $100 million by actions we plan to take this and next fiscal year.

We have been very aggressive in that process, and since the creation of Leidos a little over two months ago, we have defined specific cost-reduction opportunities in that range.

These items include elimination and consolidation of positions at the corporate and sector levels, further consolidation of services into our enterprise shared services, renegotiation of an extensive number of our third-party service contracts, consolidation or elimination of unneeded or underutilized IT services, and centralization of travel and material purchases, just to name a few.

Our success here will have lasting impact on our financial performance.

The final area of operational focus was our desire to return significant value to our shareholders by more aggressively deploying excess cash.

The announcement today of a broad stock buyback authorization for approximately 25% of our outstanding shares reaffirms our previously-stated capital allocation priorities.

With that, I will turn the call over to Mark who will discuss the financials for the quarter.

Thanks very much, Stu.

I'll turn your attention to the earnings presentation that you can find on our website to complement these remarks.

Revenues for the third quarter of FY14 were $1.42 billion, down 15% compared to prior year.

On a sequential basis, revenues were down $46 million compared to the second quarter of this year, with the most significant delta being the ongoing adverse effects from contract reductions like the joint logistics contract, the broad impacts from sequestration, and reductions to commercial health revenues.

As you might recall, we took down guidance on our second-quarter earnings report on September 4 to reflect our latest views on the business conditions at that time.

As a result of our experience in the third quarter and what we now see and how our customers are responding to the budget and market conditions that they face, on December 3, we reduced expectations further for the year.

We are now seeing more impacts from sequestration, including cuts and parts of our intelligence business which we previously thought were less vulnerable.

In addition, market conditions for our commercial health business are softer than expected.

Uncertainties have been introduced by concerns over the Affordable Care Act rollout, and just last week, another delay was announced for the deadlines on Meaningful Use stage 2 criteria.

While we believe health IT will be a longer-term growth market, we've seen these uncertainties delaying hospital IT investments such as EHR projects and related enhancements.

Our updated guidance reflects these recent developments.

On the profitability side, we had a number of specific items significantly impacting our third-quarter results.

Operating loss for the third quarter of fiscal 2014 was $7 million, down from operating income of $100 million in the third quarter of last year.

The reduction in operating income was primarily attributable to $42 million of bad debt expense for receivables related to the Plainfield and Gradient energy and construction projects, $25 million of planned separation transaction and restructuring expenses, $11 million in IT infrastructure costs to enable our separation, $19 million of intangible asset impairment charges related to our commercial health business, and $5 million in legal and regulatory expenses.

Diluted loss per share from continuing operations was $0.11, down from diluted income per share of $0.66 in the third quarter of FY13, driven by the operating income decline.

The diluted share count was 84 million, up 1% from the 83 million in the third quarter of last year.

Moving on to cash flow.

Operating cash flow was $48 million and $77 million through the 3 and 9 months ended October 31 respectively.

This is below our expectations.

In the press release last week, we reduced our cash flow guidance by $175 million, reflecting a reduction from $325 million to a new, revised guidance of $150 million.

This reduction is primarily due to a projected unfavorable variance in use of working capital, coupled with a reduction in net income as compared to our previous forecast.

Specifically, our revised forecast uses $145 million more in working capital versus our previous forecast.

Most of this increased use is in receivables.

The bottom end of our EPS guidance range reflects about a $90-million reduction in net income, about $60 million of which is non-cash from charges in Q3.

Thus, $30 million of the reduction is real cash earnings.

The $145 million increase in working capital plus the $30 million reduction in lower cash earnings constitutes a $175 million reduction in projected operating cash flow.

Here is why we are seeing increased uses of working capital.

First, as planned, we've shutdown our systems during Q3 for about 10 days to enable our separation and to set up the two companies.

Our recovery in catching up on the billings is taking some time, and we project that some of the ensuing collections are likely to spill over into next year.

Second, we experienced payment delays from some customers due to the confusion over our name change from SAIC to Leidos.

We're managing this on a day-to-day basis, but consequently, some collections have shifted out in time.

And third, since the government shutdown in mid October, we have seen a slower pace in collections from our US government customer.

In the current environment, we can't be sure the speed of collections will catch up in the remaining month and a half we have left in our fiscal year, and that revised our cash flow estimates accordingly.

This increased use of working capital is timing related, and we believe it is recoverable in the next fiscal year or possibly even sooner.

Let me reframe FY14 under more normal circumstances.

This year's operating cash flow guidance is $150 million, which is depressed by the estimated working capital outflows of $140 million for the full year.

Working capital flows should generally be zero or better in a revenue down year such as this year.

With no changes in working capital, this year's operating cash flow would have been up $290 million.

We've also had a number of discrete cash items this year that are non-recurring.

I'll just name a couple.

About $20 million of cash losses related to Plainfield, including the accelerated interest -- that I'll cover in a moment -- and $10 million in after-tax costs related to the separation.

All of that would net to about $320 million, more indicative of normal cash flows.

Despite the issues we've seen this year, our business model still has strong cash flow dynamics.

We have low capital intensity, with capital expenditures normally at or below 1% of revenues.

We have no material pension obligations.

And finally, Plainfield and Gradient are the last projects where we are involved in the financing.

We ceased that activity well over a year ago.

The current capital structure of future operating cash flow should generally run 1.2 to 1.3 times net income, plus or minus working capital changes or special items like asset sales.

Now let me move over to some of the details on our operating segments' performance in the third quarter.

Health and Engineering revenues decreased $100 million, or 20% year-over-year, primarily due to declining commercial health and in engineering services.

We also experienced decreased unit deliveries and related maintenance of our non-intrusive inspection engineering products.

Health and Engineering operating loss was $30 million for the quarter, driven by bad debt expense of a total of $43 million and an intangible impairment of $19 million.

National Security Solutions revenues decreased $152 million, or 13% year over year, with an associated decrease in operating income of $12 million.

The Corporate Operating segment had a loss of $42 million, which included planned separation, transaction, and restructuring expenses of $25 million, $11 million to set up IT infrastructures of the 2 new companies, and the remainder being normal unallocable corporate costs.

Now let's shift gears to Plainfield for a couple of updates.

In early October, we made the decision to proceed with a consensual foreclosure after the developer failed to meet its obligations in late September.

We then commissioned a valuation study to determine the fair market value of the asset.

At the same time, we had some cost overruns on the project and incremental closing costs related to the foreclosure.

The value of the receivable adjusted for these additional costs was less than the estimated fair market value coming out of the valuation, resulting in the $33 million bad debt expense related to this project in the third quarter.

In taking ownership of the plant, we assumed $150 million of high-interest-rate debt that is due in the first half of next year.

The debt includes a make-whole interest provision.

We have negotiated an early payment and a discount to the make whole, and as a result, plan to pay that debt off this month, December.

This will be a use of cash of about $165 million in December in our fourth quarter, which includes interest otherwise payable next fiscal year.

Although uncertainty has remained, we still believe we will reach substantial completion of the Plainfield plant by December 31 of this year, less than a month from now.

We have produced power at the designed level, and we have successfully connected to the grid.

We expect to complete the final environmental test this week, which is the last item necessary to demonstrate substantial completion.

Finishing up, as of November 1, the Company had $814 million of cash on the balance sheet, significantly above our minimum desired level of $250 million, enabling the capacity to announce the capital deployment authorization today.

With that, I'll turn it back over to John.

Ladies and gentlemen, despite the challenging environment in our ongoing transition, we remain confident in our business that serves three enduring markets, and confident in our employees who are dedicated to making Leidos a success.

We've built a strong cash-flow-generating business which we will continue to improve and optimize.

Our capital deployment initiatives underscore the confidence we have and our firm commitment to drive shareholder value as we move forward.

John?

Thank you.

We'd now like to open up for Q & A.

Thank you.

(Operator Instructions)

Our first question is from Cai von Rumohr of Cowen and Company.

You may begin.

Yes, thank you very much.

So can you give us a little more detail on Plainfield?

You expected to turn on by year end and your efforts to sell the plant.

This is Mark.

Thanks for calling in today.

We do plan to complete in December, and as I just said, we're concurrently planning the materials that are appropriate for a selling process.

As we indicated back in October, we plan to run the plant successfully for some period of time to demonstrate its success, after which we expect to engage and hopefully complete in the selling process at some time in the near future.

Okay, and it's basically producing or expected still to produce 37 megawatts?

Cai, this is John Jumper.

Yes, we've had it connected.

We've had it up to speed producing full power.

As Stu mentioned in his remarks, we'll be doing the environmental test here in the next several days and hope to have that environmental testing complete the end of the week, which is the last -- the last test we hurdle we have to pass.

So everything seems to be on track for right now.

Yes, Cai, Stu.

We also have an experienced team overseeing the operation of the plant on an ongoing basis, so we've contracted with [Nase] Corporation to run the plant's daily operations.

They are a highly respected experienced operator with 30 years experience doing these kinds of programs.

They have a broad range of renewable technology projects, and they run 14 biomass plants, generating about 450 megawatts of power currently.

Okay, thank you.

And then a quick one on the commercial health IT.

How much were the sales down sequentially, and maybe how large were they?

The size of the loss -- and other companies in this space are not seeing the similar problems.

Are you losing share?

Because Epic and Cerner have been gaining share in this space.

Do you feel you're maintaining your share?

I think in the health, we have experienced a decline, and we did say earlier that we expected a sequentially flat performance.

The headwinds that we are experiencing are part of a market trend.

We look at the competition.

We see them, our direct competition, taking a similar hit to ours, but we were complicated by our own internal events, Cai, and that includes the melding of these two companies, maxIT and Vitalize, putting these two teams together, and that was going on during the very worst of our impact from the market.

So while we see our direct competitors suffering somewhat from the same market trends, we, I think, were impacted more because of the things that are now behind us that had to do with melding the two companies.

Of note, we're looking at our new opportunity bookings for November, which are significantly up, and continuing an upward trend in December.

We're not ready to say this is an inflection point.

We continue to anticipate headwinds in commercial health, but I think that we have gotten our own internal melding problems behind us.

Cai, Stu.

One of the other things we have to realize also is we're very different from companies like Cerner.

They sell software.

We do a lot of the post-sale integration, so our business is going to be a little bit following them.

Great.

Thank you very much.

Thank you.

Our next question is from Jason Kupferberg of Jefferies.

Hello.

Thanks guys.

Just wanted to start with a high-level question.

If we get a budget deal done in D.C. before the holidays, how much do you expect that would help the award and the funding environment and the whole condition of sequestration for the duration of the government fiscal year?

This is John Jumper.

First of all, it's hard to believe that we're going to see such a thing, but if we did, I think it would just provide a general lift and less confusion about the contracting situation we're in right now.

Without the guidance that the government gives with these kinds of budget decisions, we're seeing, as Stu mentioned, our contracts being cut short, being reduced, being cancelled altogether, so total unexplainable behavior and unprecedented behavior we're seeing in contracting.

So I think anything we would do, that we would see, that stabilizes the environment is going to help everyone and certainly help us out as well.

Okay, and just a couple of questions regarding the upcoming year building on some comments you've made in the past.

First of all, with regard to the cash flow, Mark, all that detail was helpful.

It sounds like what you're setting up for potentially is a very strong cash-flow year in your FY15 just given the push-out of some of the collections, so if you can comment on that.

And then also, just comment on the 8% plus operating margin target for FY15 that I think you outlined at the analyst meeting a few months ago.

Has anything changed to make you feel differently about that target?

Thanks.

Sure, Jason.

First, we're going to be providing our views on FY15 in our March conference call, so that's still ahead of us, and we're not going to provide any real quantitative numbers today with respect to that year, and it will be interesting to see how the cards unfold in Washington in December and January to build that case.

I will say, however, that when -- if our forecast is correct, that's quite a bit of drift up in day sales outstanding this year and in working capital, and we have every intention of restoring that to normative levels.

And because of that, you're right, all other things being equal, it should be a strong cash-flow next year as we revert to the norm in working capital uses.

So answer to that is correct, and that is excluding extra things, like should we have asset sales and so forth, but a pure operating cash flow, you would generally lead to that conclusion.

With respect to the 8%, again, not to give FY15 forward views, but the elements that we described, the major elements in that bill [about September 11] are still intact.

Okay, thanks for the color guys.

Thank you.

Our next question is from Joe Nadol of JPMorgan.

You may begin.

Hello.

Good morning, guys.

It's actually Chris Sands on for Joe.

Just general question about how we should think about the broad outlook for revenue in the context of what you're expecting in Q4.

Is it prudent to assume that could possibly be a run rate, or can you point to discrete things that might improve that going forward?

I'll start, and I think others may want to chime in.

But first, Q4 is the one quarter in the year where we have less working days in our calendaring, plus we have more holidays, so that tends to be our lowest seasonal quarter of the year.

So I would make an adjustment for that, and you can look at our history to probably get a pretty good ballpark of what that should be.

I think all of the rest is going to depend on the adjudication of our pipeline, which is significant in terms of outstanding awards and whether the sequestration and budgets stabilize or otherwise going forward.

Okay, thank you.

Thank you.

(Operator Instructions) Our next question comes from Bill Loomis of Stifel.

Hello.

Thank you.

Can you just give us an update on the Gradient plant, where that stands and -- over the next couple quarters, and I have a follow-up also.

This is Mark.

Gradient actually has two plants, as originally envisioned.

The first plant is very near completion and is expecting to produce power soon and provide revenues and cash flows soon; however, that plant, despite us delivering all of our deliverables as designed and on schedule, the geothermal production is not what was expected, which is more of an earth science issue, and because of that, the economics of that plant are not as robust as originally envisioned.

With respect to our situation, we have $37 million of remaining receivables outstanding.

We believe they are collectible.

They are backed up by a number of elements to include partial guarantees from the developer.

There's some money left on the construction loan, and we have some hard assets to sell related to the second plant, which was decided after buying some equipment on our side.

The developer decided to not proceed with that given the issues with the first plant, and so that's the part of the receivable that we expect to collect through those means over the course of the next few months and be done with this project.

Did you say $37 million?

Yes, sir.

And so that's all the -- in worst-case scenario.

I know you think you'll get -- collect some recovery, but in a worst-case scenario, was that your ultimate liability, or could it go further if --?

I believe that's our ultimate exposure, $37 million.

And who's -- in terms of the thermal work, was that your role to come up with that engineering and that science behind that, or is there any liability behind the company that performed that analysis?

It was another engineering company, not ours, not SAIC or Leidos, that performed that work, so we do not have exposure on that front.

Okay, and then that will be it with the Plainfield, Gradient, and that's the extent of the risk on the E&C business; correct?

Those are the two projects that had financing participation by us.

That we're not doing anymore.

Okay, and then the second thing, on the non-intrusive systems, was this because of [Reveal] or [Vakus], or can you just be a little more clear, and do you expect the big order?

I know sometimes in the past, you had a big quarter in the January quarter in that business.

Can you give us more details on that?

We had some product that we had intended to ship to TSA that slipped for a variety of contracting methods, but we believe -- or issue, but be believe that is indeed a slip, so that's more on the reveal side.

That is Reveal's main customer.

The rest of the Vakus business is pretty much tracking on schedule, and there are always episodic awards that we're working on to fuel the growth there, and there are a few in our pipeline today.

So the fourth quarter, they shipped it here in the fourth quarter, so we'll see better sequential performance here in the fourth quarter?

That is our forecast, though we have provided some risk in case that slips in our guidance.

Okay, thank you.

Thank you.

Our next question is from Arup Das of Loeb King Capital.

Hello, guys.

Good morning, and thanks for taking my question.

Can you talk a little bit about the opportunity in OCI de-conflicted markets?

When you've indicated in the past that the total size of this market was $25 billion, but I was hoping we could get some insight into when we can start seeing some revenue benefit and how to think about this from modeling perspective.

Thanks.

Yes, let me start on that.

We really expect to see most of that benefit FY17 and beyond.

What we're really focusing on today is identifying the opportunities, positioning for those opportunities through research and development and partnership, establishing our credentials and qualifications in doing so.

We have an ever-increasing pipeline; we're getting more and more involved in those bids; but given the time that it takes for the gestation of those bids, we're looking several years out.

I think we've been pretty consistent in saying that in the last few quarters.

We do have multiple billions of dollars in our funnel today, and we have one rather significant bid that we're positioning for next fiscal year.

Okay, thank you.

It's a multiple-billion-dollar bid also.

Got it.

Thanks.

Thank you.

Our next question is from Steve Searl of Conning Asset.

Yes, I was wondering, would you consider using additional debt to fund some of your shareholder return plans, or are you only going to use the cash that's on hand?

Our philosophy has been, and remains at this time, that we will use excess cash for deployments toward either buybacks and/or special dividends, so that is the case, and we do envision at this time using debt or incremental debt to fund that activity.

Okay, thanks.

Thank you.

I'm showing no further questions at this time.

I would now like to turn the conference back over to Mr. Sweeney for closing remarks.

Thank you everybody for joining us today, and we look forward to meeting with the investor community on our upcoming road shows, and we look forward to updating you soon.

Have a good day.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation, and have a wonderful day.