Good morning. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the SAIC Fiscal Year 2024 Third Quarter Earnings Conference Call [Operator Instructions]. I would now like to turn the conference over to Joe DeNardi, Vice President of Investor Relations. Joe, you may begin.

Good morning. And thank you for joining SAIC's third quarter fiscal year 2024 earnings call. My name is Joe DeNardi, Vice President of Investor Relations and Strategic Ventures, and joining me today to discuss our business and financial results are Toni Townes-Whitley, our Chief Executive Officer; and Prabu Natarajan, our Chief Financial Officer. Today, we will discuss our results for the third quarter of fiscal year 2024 that ended August 4, 2023. Earlier this morning, we issued our earnings release, which can be found at investors.saic.com where you will also find supplemental financial presentation slides to be utilized in conjunction with today's call and a copy of management's prepared remarks. These documents, in addition to our Form 10-Q to be filed later today, 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, including the Risk Factors section of our annual report on Form 10-K. In addition, the statements represent our views as of today, 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 to the most comparable GAAP measures. The non-GAAP measures should be considered in addition to and not a substitute for financial measures in accordance with GAAP. It is now my pleasure to introduce our CEO, Toni Townes-Whitley. Toni Townes-Whitley: Thank you, Joe, and good morning to everyone on our call. I want to start by thanking my colleagues at SAIC for the warm welcome I've received over the past several months and for their level of engagement and enthusiasm towards creating the very best future we can for SAIC. In particular, I want to express my appreciation to Nazzic. The strength of our culture, our commitment to inclusivity and the focus on our customers' missions are true differentiators for our company and they exist in large part because of Nazzic's efforts in recent years. And as I've already discussed with many of you, SAIC's progress during her tenure has set the table for this leadership team to do exceptional things for our employees, customers and shareholders. I've spent much of my time since becoming CEO, listening and learning and then forming and testing certain hypotheses to solidify a growth strategy for the company going forward. While this process will continue, I want to share some early observations related to four strategic pivots our leadership team is focused on, specifically our solutions portfolio, our go-to-market, our culture and our brand. Since my announcement as CEO, I've come to understand the value of SAIC's brand. Over the past five months, I've received congratulatory phone calls from senior government, military and business leaders as well as SAIC alumni, many characterized SAIC as a national asset, and informed me of the company's deep legacy of tackling complex, large scale national security challenges. As the threats and opportunities for our country have evolved over the decades and will continue to, we at SAIC must ensure that our customers appreciate the breadth of our capabilities so that we can capitalize on the value of our brand. On culture, we will operationalize an enterprise-first mindset while driving a stronger sense of entrepreneurial execution. While we're still finalizing how best to implement our plan, I would expect it to include additional changes to the design and execution of our incentive compensation model to further a culture of accountability and align our objectives with shareholder value. On innovation and solutions, I believe the capital light business model we have committed to is the right one. However, this increases the importance to SAIC of differentiating itself in the market with the best solutions, solving for where our customers are today and where they will be in the future. We must ensure that our portfolio is mission relevant, scalable, differentiated and aligned with our strategy to drive sustainable organic growth in our key markets. This view drove the decision to hire Lauren Knausenberger as SAIC's first Chief Innovation Officer, where Lauren will be responsible for operating our innovation factories, managing our technology roadmap and ensuring that the investments we make maximize differentiation and long term value. Lauren joins SAIC from the United States Air Force where she served as the Department CIO. This role combined with prior commercial and private equity experience makes Lauren a true triple threat and I am thrilled to have her on our team. In my first month as CEO, I have been impressed by the degree to which our innovation factories differentiate SAIC in the market as evidenced by specific customer feedback on competitive procurements in recent years. I am confident that under Lauren's leadership, SAIC can further develop our portfolio of solutions and increase pull through of these differentiators across our business lines. On go-to-market, I see opportunities across the lifespan of business development and capture from early stage shaping through leveraging of our factory differentiators to premium proposal submission and impactful customer program execution. In order to prioritize the quality and pace at which we execute these opportunities, we will be establishing a new enterprise business development function, responsible for standardizing and optimizing our go-to-market strategy across our sectors. This function will be centralized and report into our new EVP of Enterprise Operations, Tim Torito, who previously led the creation of the Microsoft federal entity and their business development and capture organization. Tim will be responsible for instituting enterprise guardrails to drive greater rigor in our sales and delivery processes in conjunction with our sector leaders. Given the audience, I will provide my initial perspective on what all of this means for our financial strategy and performance in the coming years. I believe the framework that was provided at our April Investor Day is appropriate and one that I support. However, as Prabu has mentioned previously, our internal aspiration is to do better. We, as a leadership team, are aligned with the goal to establish a new normal for SAIC's sustainable organic growth rate above the 2% to 4% framework we provided in April, while delivering increased earnings and free cash flow. We will share more detail as to how and when we get there at our 2024 Investor Day, but it will be a multi-horizon approach with an initial focus on enterprise wide mechanisms and processes to drive improved business development and capture execution, as well as an increased focus on quantifying, targeting and prosecuting on contract growth. Finally, on my view of M&A, it is my belief that in order to be an effective acquirer and create true long term shareholder value, a company must have a proven track record of maximizing organic growth from its own portfolio. As we demonstrate success against this goal going forward, our capital deployment philosophy remains open to additional M&A and with a healthy skepticism towards larger transactions and a focus on shoring up our solutions portfolio with new technology as well as maximizing long term returns. I am incredibly excited to be a part of the SAIC leadership team, and I take great pride in the opportunity to lead such a storied company. I now turn the call over to Prabu to discuss our financial results and updated outlook.

Thank you, and welcome, Toni, and good morning to everyone on the call. Let me start by saying how excited we all are to have you leading the team. Your vision for SAIC, your experience and strong leadership skills will no doubt contribute to a stronger SAIC for all our stakeholders. Now on to a review of our performance and increased guidance. We reported strong fiscal third quarter results with revenue of $1.90 billion, an increase of nearly 11% when excluding FSA and supply chain revenue from the prior year. Revenue growth in the quarter was driven primarily by the ramp-up of work on new and existing programs, improved labor productivity and favorable timing of material sales. I am very proud of the focus our team has shown in recent quarters to deliver value to our customers and exceed the commitments made to our investors. Adjusted EBITDA margin in the quarter was 9.4%, an increase of 50 basis points year-over-year driven by strong program performance, the impact of our previously discussed portfolio actions and cost efficiency initiatives. Adjusted diluted earnings per share of $2.27 represents an increase of 19% year-over-year, driven primarily by the strong operating performance in the quarter, a lower tax rate and a roughly 4% decline in our diluted weighted average share count. Free cash flow adjusted for transaction fees and other costs related to the sale of our supply chain business was $148 million in the quarter and $367 million year-to-date as we continue to see good traction on our working capital improvement efforts. Net bookings of $2.5 billion resulted in a book-to-bill of 1.3x in the quarter and roughly 1x on a trailing 12 month basis. I'll now discuss our updated guidance for fiscal year 2024 and increased financial targets for fiscal year 2025 and 2026. We are increasing our FY24 revenue guidance at the midpoint by roughly 2% to a range of $7.325 billion to $7.35 billion, which represents pro forma organic growth of approximately 6%. This increase reflects our stronger operating performance in fiscal third quarter and captures pressures related to previously discussed contract transitions and the potential for a short lived, but disruptive government funding environment. We're also increasing our FY25 and FY26 targets for revenue to reflect favorable recent momentum while factoring in some degree of risk that budgetary disruptions and our year-to-date outperformance in FY24 may create more challenging year-over-year comparisons in FY25. We are maintaining our adjusted EBITDA margin guidance for FY24 in a range of 9.3% to 9.4%. However, if our stronger than expected financial performance continues through the remainder of the year, we could see higher incentive compensation accruals in our fiscal fourth quarter, which may result in full year margins at or slightly below the low end of our guidance range. As I have discussed with many of you, aligning our incentive compensation structure with increasing shareholder value has been an important part of our strategy to drive change. Adjusting for these potential costs, we expect our full year EBITDA margin to be within our guidance range for the year. Rewarding strong performance with increasing pay is an important part of our philosophy, and I believe our results year-to-date reflect this. Rest assured that our Board and executive leadership team is focused on raising the bar going forward so that incentive compensation plays an important role in the evolution of our strategy, which Toni discussed. Notwithstanding this potential for Q4 margin pressure, we continue to expect margins in the mid-9% range in FY25. We are increasing FY24 adjusted EPS guidance to a range of $7.70 to $7.90, driven mainly by improved operating results, lower interest expense and a lower planned effective tax rate. We are maintaining our free cash flow guidance of $460 million to $480 million and the strength of our earnings growth and the robustness of our cash collections provides us with increased confidence in our path to at least $11 per share in FY26. Importantly, as we've communicated, our plan to increase free cash flow per share by approximately 10% annually for the next three years assumes that the company's cash taxes, excluding Section 174 payments, increase from approximately 0 in FY23 to approximately $100 million in FY26. Notwithstanding this planned increase in cash taxes, we continue to expect double digit free cash flow per share growth in the coming years, driven by strong earnings growth, continued rigor in managing working capital and prudent capital deployment, focused on our share repurchase program and M&A posture informed by capability based tuck-ins. We are encouraged by the strong financial results we've delivered in recent quarters. Our updated FY26 targets for revenue and adjusted EBITDA are already 2% higher and adjusted EPS 5% higher than the original targets provided at Investor Day eight months ago, and position us well to create additional value for our shareholders. With that, I'll now turn the call back over to Toni. Toni Townes-Whitley: Thank you, Prabu. Before we begin Q&A, I want to reemphasize how excited I am to be leading SAIC, a company whose combination of mission knowledge, domain expertise and legacy of problem solving is a remarkable national asset. As I mentioned, the table has been set and my focus going forward will be accelerating our growth through strategic pivots in four areas. Our solutions portfolio, go-to-market, culture and brand. Each pivot has the potential to create significant value for our shareholders, customers and employees. Collectively, if well executed, these pivots will position SAIC as a market leader in every dimension. Consistent with our focus on a culture of transparency and accountability, I look forward to sharing updates on key milestones as we progress in the coming quarters and years. Now let's open the call for Q&A.

[Operator Instructions] Your first question comes from the line of Jason Gursky from Citi.

Let’s see here [Multiple Speakers] a bigger picture question to start. So I'm just kind of curious what you saw coming in here at the outset that gives you confidence in a higher growth outlook for the company, maybe starting with the customer set and the demand signals that you're seeing, and how you think you're going to -- what you're seeing and kind of what pockets you're seeing the demand signals coming in that align well with the solutions that you have and the technology that you have? I just want to get a sense of where you initially saw some of the opportunities here that are giving you some confidence in leaning forward on the growth? Toni Townes-Whitley: I came in with a hypothesis around four strategic areas, which I mentioned in my prepared comments there. The hypothesis was around our solutions portfolio, our go-to-market strategy, our culture and our brand. And I've been testing whether there have been opportunities to accelerate shift or change in any or all of those areas. And let me give you an example in terms of our solutions portfolio where what I've learned over the first 60 days here. I have four questions coming in around whether our portfolio was at enterprise scale, whether it was innovative, differentiated and mission relevant, whether in our portfolio, we would be able to evolve our solutions to greater profitability and value for our customers and then finally, were those solutions and differentiators systematically deployed across our various sectors. Here's what I've learned. I've learned that the portfolio is majority at enterprise scale, we have a few gaps to close, that's been very promising. Recent investments have been made in digital engineering, secure data analytics, operational AI, multilevel security, different forms of technology differentiation combined with the way we deliver in an open systems architecture with various approaches have yielded differentiation and mission relevant integrated solutions. And what's been most promising is that our customers have cited these solutions in many of our recent bids and recompete efforts. While we understand, I think, the profitability of our solutions within our portfolio, we do have to improve on value creation processes within once we've gotten into a contract with the customer, do we know how to increase value, both on the profitability side for our company as well as for the customer itself, and whether our differentiators are systematically deployed across our enterprise, which we still have some room to grow there. But overall, I've been super pleased to find out the resiliency, the robustness of our portfolio and the fact that our customers are now able to identify our differentiators in our bid activity.

If I can maybe add to the question on growth rates. Look, at Investor Day earlier this year, we shared that the 2% to 4% that we put out there that our internal aspirations are higher. And I think we are demonstrating rather convincingly this year, especially Q2 and Q3 that structurally that we can grow this business at clips that are consistently above that, let's call it, mid-single digit growth rate. So to me, I think I think our increased confidence is primarily faith in the team that we are actually capable of delivering these growth rates. And we are committing to driving a little bit harder on growth and that's what you're hearing in our prepared remarks.

And then just a quick follow-up on the balance sheet. Toni, I'd love to just get your initial thoughts on the balance sheet itself and how willing you're going to be to use it to drive growth? You mentioned M&A in some of your prepared remarks and just curious what your general philosophy is around the balance sheet and leverage metrics? Toni Townes-Whitley: Listen, I have tried to make it very clear that my perspective, particularly on M&A is that organizations that can show a track record of organic growth with their own portfolio tend to do better over time in terms of being able to identify targets and do successful inorganic activity. And so when I look at the history of SAIC and the various acquisitions it's done, we are going to be focused in the short term on tightening all forms of our internal processes, making sure our portfolio is fully at enterprise scale and capable with whatever investments are needed to get there, and that would be our priority for the short term. We are open to and we'll always be open to excellent M&A but a little more skeptical on the large scale at this point more towards our portfolio needs, differentiation, focused on our growth vectors and making sure we're fully aware of our integration capacity. So that's where we are for the short term as we look forward, very focused on organic growth over the next 12 to 24 months.

Your next question comes from the line of Bert Subin from Stifel.

So back in April, when you hosted your Investor Day, you highlighted an expectation for $7.60 to $7.80 in earnings next year. You're already pacing ahead of that range this year and raised your expectation for FY25. It seems partly on better below the line items but also improvement to EBITDA. With your book-to-bill at 0.9 times over the last 12 months, what happens from here to keep the earnings trajectory you've been seeing going? Toni Townes-Whitley: Well, look, we've been focused significantly on our book-to-bill, mostly in the context of our business development capture function. As you heard me announce during the prepared comments, we are centralizing that function to an enterprise [BD] capability to make sure that we're driving more rigor, a standardized process and we get back to the win rates, if you will, recompete and new business win rates that we have had historically. And that's one of the first organizational structural changes I've made to drive, again, more rigor, increase the velocity and volume and quality of our bids and enhance our program execution in that direction. So that's going to be a specific focus. Look, as we look forward, our expectation is that our growth rate moderates next year based on our view of the market and some elevated headwinds from, as you know, the major recompete losses we've discussed previously. So we've got a continued ramp on recent contract wins, which is moving us in the right direction but will not fully offset some of the revenue impact of the recompete losses that materialize in H1 of next year. But even with that said, the combination of the ramp of our current work that we've been winning as well as our focus on our business development and capture function with a centralized capability, we feel confident and fairly bullish about our ability to grow next year.

And Bert, maybe as a follow-up to that on the specific EBITDA and EPS questions from Investor Day, look, we're performing really well on top line. I think we are demonstrating that we can convert top line into good quality EBITDA, and our conversion rate from EBITDA to cash is best-in-class, I think. And therefore, we are demonstrating we can convert nearly every dollar of EBITDA into a dollar of cash. When you put those three things together in a single year, you get the sort of compelling operating performance that we have delivered this year. Now fast forward, what does this look like next year? I think we're going to be going back to basics, Q1 of next year and say, here's what the revenue and EBITDA rhythm looks like for a year or inside of a year within a quarter, and then we have to make sure that we are delivering just as effectively next year as we are delivering this year. So I don't want to get too far ahead of sort of our current view of FY25 or FY26, but trust that Toni and the leadership team here is just singularly focused on making sure we're putting metrics out there and we are outlining a path internally for the team to deliver outsized EBITDA growth and cash from there. So to me, that's where the focus is. And we happen to be having, I think, a phenomenal year this year. But it's really important to make sure that we don't get too far ahead of ourselves for next year, and I want the teams internally to hear that as well. So I think next year is a new year and we're going to have to start all over again. Thank you, Bert.

Just a follow-up question as you think about '25, maybe more on the contract side, NASA NCAP is looking to be a pretty competitive bid, and it’s type of contract that would seem to put you on the positive end of your organic growth targets as we head into FY25 and26 if you secure it. What are you watching on that contract? And if it were to not pan out how do you feel about growth potential in the fiscal year where outlays are likely to slow down quite a bit? Toni Townes-Whitley: Well, Bert, let me give you a few couple of responses here, and then I'll let Prabu add to that. Look, we're performing well on this program and we've got those inputs that we are performing well. The potential for this program is to double. We pulled about $100 million a year on this program, it may double with the new procurement up to as much as $200 million per year. We're expecting an award to be announced in roughly six months and we're going to continue that solid program execution through that time. It's a significant program that we know could be super accretive as we look forward to an award statement positive for SAIC. You mentioned what's the downside. Obviously, the downside is the $100 million annual hold that it would produce if we were not successful. Prabu any other thoughts?

Yes, that was perfect, Toni. The only thing, Bert, I would add to that is, as Toni said, we're performing really well on the current program. And I would remind you and everybody else listening that our backlog is sitting at right now about $23 billion, $24 billion. And therefore, we'll have our work cut out for us on contract growth to make sure we feel whatever deficit we have if we have a deficit on NCAPs. But as Toni said, we're probably about six months away from a decision it sounds like. The proposals is in, there's nothing we can do about it right now other than watch the space right now. But our commitment is making sure we're dialed up on contract growth to offset any pressures we may see, but we're cautiously optimistic.

Your next question comes from the line of Cai von Rumohr from TD Cowen.

So Toni, now you talked about major focus on accelerating growth and mentioned some changes in incentive comp to sort of encourage that. Can you talk a little bit about what sort of changes do you intend on incentive comp? I mean you may not have all the specifics, but any color you could give would be terrific. Toni Townes-Whitley: Well, I can talk about it in terms of -- and thanks for the question, Cai. I could talk about it in terms of both the design and execution of incentive compensation for specific audiences. We're focused, particularly, let me give you an example for -- within our business development function, which I've mentioned has been a priority, ensuring that we've got the incentive compensation lined up both in the short and long term, that incents our capture and business development leaders to bring the very best performance and hold them accountable for their bid volume, the quality of the bids that are in our pipeline, the way that we progress back to the appropriate win rates. Right now, we've got incentives in place. We're going to look at future and increased incentives to ensure that they get to participate in the upside for the short and long term. So that would be one audience that we're looking at. Similarly, for our program managers on contract growth is a critical part of how we grow this business and making sure they are also incentivized for growing their contracts beyond the initial scope and contract metrics. And so that's another area, that's another audience that I'm looking at for tightening up and increasing sort of our incentive opportunities for that population.

And Cai, to me, the other part of the philosophy around incentive comp is, for a couple of years now, we've made a set of changes that have effectively created more skin in the game for the management team. I think what you're hearing from Toni and the leadership team is that, that trend is likely to continue. That means more upside for good performance and just as importantly, downside for poor performance. That philosophy is unlikely to change. So for example, this year's performance graded on next year's curve is unlikely to yield this year's score on incentive comp. That to me is about as simple as it gets on the design of the incentive comp plan. Obviously, as you know, Cai, we're going to have those discussions. Toni will, with the comp committee here, over the course of the next couple of months. So we don't want to get ahead of those discussions other than to reiterate that, pay for performance and making sure we have skin in the game, to make it just uncomfortable enough for people to not stay in the same place. I think those are key design elements. And I think we're going to keep reiterating it and maybe even up the ante a little.

And then I don't know who this is for, but unlike many other companies, in your presentation, you have forecasted Q4 awards, looks like it's $2.3 billion, which based on your revenue guide would work out to like 1.3 to 1.4 in terms of book-to-bill, and your fourth quarter historically has been kind of all over the place. And you also have a value of contract submissions with sort of a light gray area kind of suggesting contracts that have moved into '25. Give us some color on how do we get to such good numbers and also have submissions that move out into next year?

We have a chart in our earnings package where we are signaling potentially up to in contract awards, somewhere between circa $2 billion and $2.5 billion in Q4. I think as you exactly correctly pointed out, Q4 book-to-bill trends are hard to predict. It is historically at least the slowest book-to-bill quarter to begin the government's fiscal year in Q4. I think we're actually in the chart demonstrating that there is a shift between blue to gray in Q4, representing awards that could slip out of Q4 into our Q1 FY25. So we're signaling a possibility that while we'd love for awards to be in that circa 2.3 range for Q4, there is a good likelihood that some of it may be even up to 40% to 50% of that might slip from Q4 of this year into Q1. Now this is contract awards. Separate from that, we have IDIQs that come in and get booked by the drink, if you will, on a quarterly basis. To me, that's not represented on the chart. But I think your skepticism is well founded. I think we're not suggesting book-to-bill is going to be well over 1.0 in Q4. I think we're simply signaling that we're seeing some slowness and that trend is likely to continue from Q4 into Q1. So hopefully that was helpful.

Your next question comes from the line of Seth Seifman from JPMorgan.

I wanted to ask a little bit about growth. And you talk about having an aspiration to deliver growth ahead of what's in the forecast here, and so when you think about what keeps you from raising the forecast now for growth in '25 and '26. How much of that is based on kind of external budget environment type of questions versus more of the internal dynamics that you can see inside the company in terms of what you're going after? Toni Townes-Whitley: Look, I think when you think about fiscal year '25, particularly, not the out years for a moment, the fiscal year '25, we have signaled that we've got headwinds, both market headwinds as well as in our own digging out of some of the revenue impacts of the recompete losses that we've discussed previously. So I would say it's a balance of external headwinds and the realities of the recompete financial implications. That said, as we look forward, we are making these pivots in these areas that we believe collectively set us up for a much stronger growth profile going forward. Now there's still headwinds in fiscal year '26, '27, of course, there will be. But we're getting, if you will, leaning into the confidence of having demonstrated that we can grow at beyond mid-single digit. Even this year we've got confidence around and leaning into even with the recompete challenges we have of next year that we're building a systematic way to grow, and we're focusing on those functions that drive that growth, primarily in business development, on-contract growth and program execution and ensuring that our portfolio is differentiated and mission relevant. In those areas, we feel like we've got a much more positive outlook in the out years. Again, balanced to market and I think probably you've got some perspectives on maybe the market challenge.

The only thing I would add to Toni's comments would be, we are cognizant of the fact that outlays have been very strong. We've all seen the data and we are assuming for now that outlays will start to moderate in terms of pace, just reflecting the budgetary environment that we are going to find ourselves in, in the Q4, Q1, Q2 time frame. So that's sort of the baseline assumption to the extent that the budgetary environment starts to inflect to less uncertainty, then I think we'll start to develop additional confidence around converting outlays into revenue growth. To me, I think that's a really important takeaway. I think the second thing we're assuming right now is, and we've been signaling this for a few quarters, we do expect the second half of this year, we said the back end of this year, starting early next year into Q1, is going to be more challenging just from a hill legislative perspective. And therefore, we're just waiting to see how that plays out to the extent that we get to the right place from a funding and a budget perspective, then I suspect you'll start to see us convert outlays into revenues, but we're not going to get ahead of that trend. And our customers need the certainty and the clarity that comes from a clean legislative environment and we are not living in it right now. And hopefully, that starts to clarify itself over the course of the next quarter. And we're happy to share additional color on our Q1 or even our year-end earnings call, depending on how things progress. Hopefully, that was responsive, Seth.

And maybe a smaller follow-up here. Just on tax, it seems even to get to the new lower tax rate guidance you have to be a pretty big tax rate in Q4. And maybe even less concerned about Q4, but just going forward based on the history here, it would seem that kind of this 23-ish type tax rate, it seems like you guys can maybe do better than that on a consistent basis. How would you think about that going forward?

I appreciate the question, Seth, and I hope my tax guy is listening to the question. Look, I think we've done remarkably well this year. And just as important as effective tax rate is the way our team is managing our cash tax rate. And look, I think we've got our work cut out in terms of the year-over-year comp. And as I said, skin on the game and incentive comp that applies to the functions as well. And look, we just have to do this one year at a time. And hopefully, we're able to do a little bit better than what our initial view perhaps might be implied for either year end or next year, and so we've got our work cut out for us. So a fair observation. We just have to get through the quarter here.

Your next question comes from Sheila Kahyaoglu from Jefferies.

Toni, I wanted to ask, I know you were clearly brought in for growth. So I want to follow up on two growth oriented questions, if that's okay. First, I guess, you mentioned solutions as a clear focus item. Maybe great color at the Analyst Day. Can you revisit where you're finding the biggest strengths, whether that's from a specific service that you guys are providing or from a customer area? Toni Townes-Whitley: When I talked about solutions, particularly, I wanted to be aware of our solutions, the ability to scale the existing solutions in our portfolio and whether those solutions were, in fact, mission relevant and had sufficient innovation. And what I found and I'm particularly pleased to find that the investments that have been made prior to my arrival, particularly in digital engineering, in secure data analytics and some operational AI, multilevel security and recent investments even in Zero Trust architecture, that forms the basis of differentiation in our portfolio that is being called out and acknowledged, both in bids that we're making to customers and an on-contract growth where customers are engaging with us in these areas. I've also been super pleased to find out that we have engaged with innovation, with using a state-of-the-art innovative approaches, which include opportunities around agile capability as well as open system architecture. Why that's important is because that provides us the ability and provides our customers the ability for us to be agnostic to all of the various technology providers and become that critical sticky mission integrator that is plugging and playing from different technologies in the marketplace. So it's in the context of the quality of our solutions portfolio that I've been super encouraged as well as the customer feedback. And I've had a chance to be with customers in Huntsville, Alabama, with different customers and across our DoD, across our intel community and some civilian customers to hear that those investments are, in fact, paying off and day-to-day execution with them. So I'm encouraged for those reasons.

And then maybe one on the other side of the argument as well. Recompete losses have weighed on growth potentially over -- have weighed historically on the growth in near term. So any changes on the [growth] strategy there that you're [phasing] in, in terms of just improving the recompete win rate? Toni Townes-Whitley: Well, look, the recompete win rate, that's always a challenge that goes beyond a specific area. If you think about the pivots I've outlined, when you start talking about recompetes, it's a combination of the solutions that you're delivering and how differentiated they are, how program execution is occurring. So think about go-to-market, it's also the culture how we show up with our customers. And so what I think most about the recompete rate, I start off with some shifts in how we measure the differentiation in our programs that we are offering from day one of the program, that differentiation that creates value for our customer is also what creates, if you will, your best offense for a recompete. The second is how do we execute in our business development function, so that our recompete stand with the same attention, the same rigor and the same standard quality as we have in a new business opportunity. And then third, when we think about recompete, the idea here is that our lessons learned across our business in unique domains are applied, which is why we've gone to an enterprise business development function. So that we don't have unique pockets of knowledge but we have a standard higher quality of enterprise understanding of how to best win or recompete. Those are three of the areas that we are moving out on immediately to address the recompete rate.

Your next question comes from Matt Akers from Wells Fargo.

I wanted to ask, Toni -- I appreciate the comments on M&A. I guess on the flip side, are there any areas you're looking at potentially further divestitures or maybe areas you could de-emphasize, or are you pretty happy with kind of where the portfolio sits at this point? Toni Townes-Whitley: I don't have -- listen, in terms of our portfolio, I focused on and just recently responded on where I see differentiation in that portfolio. I've indicated that one of the areas I've been looking at is to ensure that we're enterprise scale across. Are there areas that we may need to invest to ensure that, that portfolio is enterprise scale? Absolutely. Are there areas that we invest in our organization that will be around our ability to take to market systematically our differentiation? Right now, I have no plans. It's not in line of sight for any significant divestitures at this time. We see the quality of this portfolio across the board, and much of our footprint that we have across various agencies where we have unique expertise and advisory capability, we think, is an asset that we can deploy further going forward. So at this point, no divestitures to announce.

And then I guess for Prabu, you mentioned kind of material sales timing in the introductory remarks. I guess, can you talk about how big that was and was there any impact to the margins? I guess margins have been a little bit better without that.

Look, we do have some amount of volume every quarter and every year that comes from material sales. And the team's done a remarkable job on the procurement side and making sure that things get delivered hopefully on time and hopefully even to the left of when it was scheduled to be delivered. And we saw that good performance continue at Q3. I would say it was not an outsized impact on revenue growth in the quarter. I'd say the material sales were right about in line with our prior year performance, our prior quarter performance, maybe a tad bit better than how we plan for it, but nothing outsized. And that's why we did not see the dilution from material sales impacting EBITDA margins in the quarter. So EBITDA margins were healthy and that's because we did not really see any outsized material inflows from Q4 into Q3, for example. Hopefully, that was responsive.

Your next question comes from the line of David Straus from Barclays.

This is actually Josh Korn on for David. Just a quick one. You raised the EPS guidance but didn't raise free cash flow guidance. So I just wanted to ask what, if anything, was the offset?

Look -- so the guide for free cash flow is $460 million to $480 million, that's a $20 million spread. And as I think about it, that's less than a single days DSO. And so as we think about the cadence of both collections and disbursements, we've got the guide currently pretty finely calibrated at $460 million to $480 million. The reality is, as we've disclosed, our performance through the first three quarters has been really strong on converting EBITDA into cash. And hopefully, we're sitting in a place at the end of January where our actual performance is a tad bit better than perhaps what's implied in the guide. But again, don't want to get too far ahead of the work that remains. And I would like to remind you that Q4 of last year was a really strong free cash flow quarter for us, but it was also climbing out of a hole that we created for ourselves. Thankfully, we don't have that dynamic this year. And so hopefully, we continue to do well on converting EBITDA into cash. And hopefully, that gives us some options down the road. But where we're sitting right now, I think we've got it pretty finely calibrated. And we're sitting at about four hours of DSO. If I actually did my math right, while I was pontificating here on the call, but we're tightly calibrated. And hopefully, again, gives us confidence about the out years more than it does about this year. And we've got some potential government funding issues to account for sometime mid-January. And so calibrating all that into the guide right now.

And then I just wanted to ask if you would provide the percentage of GTA in the bookings year-to-date?

So I would say we'll get back to you on that specific question, Josh. I don't have that number in front of me here?

Your next question comes from the line of Tobey Sommer from Truist Securities.

With respect to your comments about contract awards potentially pushing out of the current quarter. Is that a prospective view and sort of just caution about here as you exit the last two months of the quarter or is that something you're already seeing? And along with that, could you comment, is it in any particular bucket, will civil defense intel space, anything that's noteworthy there?

I would say it's more generalized than sort of occurring in specific buckets or specific domains or specific customers. I think we are simply cautious about the start of the fiscal year for the government, starting NSCR with some funding discussions yet to happen in the January to April time frame. So we're just cautious about what that means in terms of cadence for awards booked and specifically to book-to-bill for a given quarter. So I'd say pretty generalized observation and it's keeping one eye out on history, while we're looking at kind of our data in front of us here, but nothing too specific to call out.

And I wanted to ask a question about your potential deepening of the compensation changes. Clearly, you've been at this for a while, done an analysis and have a sort of philosophy. Would these -- if you do make another round of changes and sort of deepen that skin in the game. Does that bring you sort of on par with other players in your industry or do you think that, that stands out, and maybe you're modeling something that is from another industry rather than your own in terms of kind of what you're looking at as a nice benchmark? Toni Townes-Whitley: I'll let Prabu start and I'll wrap on that one relative to the industry…

I'd say -- look, I think we sit back and ask ourselves the question, what is next year's sort of behavior looks like. And so it's part economics and part behavior and just making sure that the focus on skin of the game continues, that was a really important message for us a couple of years ago when we made the change. And I dare say, we are seeing the benefit of that focus just in the performance we have delivered over the last couple of years. So to me, that's sort of what the focus is going to be. I think in terms of how do get calibrated? Look, we included TSR as a metric. You've heard from Toni now that ROIC is just as important a component of the way we think about returns from a long term perspective and we actually have a chart in the earnings package that talks to the progression we expect to see in ROIC. So you'll see a lot of different areas that we're focused on. But really around skin of the game and making sure that we are not just rewarding top line expansion, how do we get the balance right between top line growth and making sure that we are delivering more profitable, sustained EBITDA growth because we do know we can convert EBITDA into cash. So to me, I think that's where the effort is right now, and I'll defer to Toni on the industrial comment. Toni Townes-Whitley: No. Well, I was just going to say, Prabu, when you think about the guidepost here between -- we've been able to demonstrate that we can beat our call quarter-over-quarter over a sustained period of time we've been able to demonstrate conversion to cash. As we push the organization to accelerated growth, but accelerated growth without the deterioration of any margin that suggests, that we've got to have greater skin in the game for the upside as well as some very clear signals of what accountability looks like. We've gotten there, obviously, with our performance this year is indicative that, that message that was put in place and those measures put in place a couple of years ago are paying off. But we are now trying, if you will, move into the next iteration here. So we need to have a little more skin in the game and quite frankly, across more senior individuals in the organization. We're going to focus also on business development and on program management, and get targeted with those audiences based on driving the value that we need for our shareholders.

We have no further questions in our queue at this time. And with that, this concludes today's conference call. Thank you for your participation, and you may now disconnect.