Thomas A. Bell
Chief Executive Officer at Leidos
Thank you, Stuart, and good morning, everyone.
It's great to be with you all again today to report a record quarter for Leidos. In this quarter, organic growth remained strong, achieving a record adjusted EBITDA margin of 13.5%. Year-to-date, we've delivered industry-leading profitable growth with adjusted diluted EPS 50% higher than last year. The team is doing an excellent job converting our earnings into cash. In turn, this has allowed us to continue to deploy capital to grow shareholder value per our plan. We're now halfway through our commitment to repurchase $500 million worth of shares this year. I'm also proud of the fact that this robust first half of 2024 allows us to once again raise guidance for the full year. Chris will give you a complete update on our financials and our guidance later in the call.
One year ago, on my first call with you all, I laid out four focus areas to begin Leidos' journey to best-in-class performance. Instilling in Leidos a Promises Made, Promises Kept culture, sharpening our strategy, improving the performance of previous acquisitions, and enhancing our ability to win new business. I'd like to take this opportunity to update you on the meaningful progress we're making in these areas. I see this progress as foundational to putting ourselves in a great position to execute our forthcoming Leidos North Star strategy. First, our team has fully embraced a Promises Made, Promises Kept philosophy. As part of this, we've made a firm commitment to each other to drive operational improvement, profitable growth and robust cash conversion. The evidence of this culture taking hold is clearly visible in the 12-month trend of our results, and our second quarter results summarized earlier that are simply our best yet.
Our currently strong and strengthening balance sheet puts us in an excellent position to continue to allocate capital prudently over time to grow shareholder value. Further share repurchases this year are possible. But at the same time, I must say that our new North Star strategy work is beginning to bring into focus exciting and compelling growth opportunities potentially worthy of investment. This brings me to that second focus area, creating our new North Star strategy. While we continue to deliver robust in-year program execution, we are also aggressively prosecuting our year of deep strategic thinking. And the energy and insights that are beginning to come into focus because of our purposeful strategy process are very intriguing.
We've now completed work on the Leidos proprietary hypothesis of the future, our own exclusive prediction of the challenges our customers will face, the solutions those challenges will require, and the technologies we must create and harnessed to best differentiate our solutions for our customers. Informed by our hypothesis of the future, we're now halfway through crafting a new business strategy for Leidos. This strategy will both leverage and enhance our current core businesses and uniquely position us for outstanding success in the future we foresee. One clear component of our strategy will remain our focus on technical differentiators, our golden bolts.
Technological innovation is and will remain a cornerstone of Leidos. And our enterprise-wide technology investments are now more than 1% of total revenue and growing. At our recent Investor Technology Day, we went in-depth on one of those golden bolts, Trusted Mission AI. Those of you who were able to join us witnessed firsthand our brilliant team in action, demonstrating how we use Trusted Mission AI to drive productive disruption across our customers' missions. We believe that when it comes to AI, the mission is the market. So everything we do as the number one provider of IT to the federal government and the number eight US defense contractor is an opportunity to exploit and deploy Trusted Mission AI for our customers' mission benefit. Another area of proactive investment for us remains cybersecurity.
For instance, we've been investing in Zero Trust for years before there was a requirement for it to be adopted by federal agencies. As a result, over the last three years, we've received more than $5 billion of awards that cite our Zero Trust methodology as a differentiated strength. We're currently pioneering the application of quantum technologies to enable highly secure networks. We're executing contract R&D for DARPA in this area and investing in post-quantum encryption technologies and solutions. These will ensure our customers can rapidly respond to future developments in quantum computing. These examples give you some understanding of our forward-looking approach to the market and our track record of investing ahead of demand. Third, we're on track to unlock the strategic value from the large acquisitions we made in 2020 and 2021, specifically Dynetics in security, detection and automation.
On Dynetics, we have doubled down on three specific areas, each of these now on a robust positive trajectory. In satellite payloads, we're a key supplier to the Space Development Agency's Wide-field of View sensor program within its proliferated warfighting space architecture. We have delivered all our payloads for Tranche 0 and those payloads were the first ones in low-earth orbit providing SDA actual on-orbit imagery. In addition, we remain on track to deliver our Tranche 1 payloads in early 2025. And we are teamed with Sierra Space to be their payload provider on their Tranche 2 birds. The Space Development Agency has recently issued their RFI for Tranche 3. So in sum, we believe our current comprehensive role on all three existing tranches and our current actual mission performance in space position us well to continue to deliver for this critical and expanding mission.
On force protection, we've delivered 14 IFPC Enduring Shield prototypes, which are successfully working their way through government testing. The Army recognizes this system's unrivaled air defense capability, and we expect to receive awards soon to begin low-rate production in 2025 and full-rate production in 2026. And in hypersonics, the United States continues to progress in developing and fielding hypersonic weapons. Leidos is supporting this progress by developing -- excuse me, delivering technology advances through our Common Hypersonics Glide Body and MACH-TB programs. These programs play a critical role in accelerating the pace and scale at which we can produce, test, assess, advance and field our nation's hypersonic capabilities.
We remain on track for our Common Hypersonics Glide Body and thermal protection systems delivery. And all in all, we feel quite positive about this robust pipeline of opportunities in hypersonics. So 2024 maintains its promise to be a good year for the maturation of these programs. And we're also seeing our focus here translate into better financial performance. Our Defense Systems profitability was double-digits in the quarter, our first time at that level of performance from as far back as we recast financials in the new organizational structure.
Turning to security products, the SD&A acquisition is now fully integrated into our SES business area. Though challenges remain, SES is on sound footing because of the swift actions of our new management team that they took last year. We have focused our efforts and investments in product lines and geographies that make the most sense for Leidos and therefore, our shareholders. Our new Charleston manufacturing facility is up and operational, and we're performing better against our service-level agreements with our customers. We've had solid bookings this year and more consistent deliveries of large border solutions. As a result, SES is ahead of plan for revenue and earnings for the quarter and the year.
SES revenues are up 11% year-to-date and we've achieved almost 90% of last year's non-GAAP profit in the first two quarters of 2024 alone. A common theme of this improved acquisition performance is the new organizational structure, which brings better alignment of sector resources and new leadership with an increased emphasis on execution and Promises Made, Promises Kept. Fourth, we continue to make significant progress to enhance our business capture performance and backlog quality. We've achieved net bookings of $4 billion this quarter with a heavy emphasis on cyber and DigMod awards for a book-to-bill ratio of 1.0. We also have nearly $3 billion of awards currently under protest.
We ended the quarter with total backlog of $36.5 billion, including $8 billion of funded backlog. While this quarter's performance adequately supports our 2024 growth commitments, we are not at all satisfied and our growth teams have been working diligently to reignite our winning ways here at Leidos and do much better on top line growth soon. An element of this is strengthening our customer-centric framework of account management. Over the past six months, we've hired dozens of key account managers and frontline growth leaders, each with deep mission and customer expertise in areas of strategic importance. Each of our account managers have a frontline obsession and seamlessly integrate across both our P&Ls and our office of technology to ensure we couple best-in-class teams with best-in-class technical solutions.
Two examples which illustrate this point are our recent hires for INDOPACOM and AUKUS. Because of their respective hard work in very short order, we've won strategic awards to support military exercises that are fundamental to the US Pacific deterrent strategy. Maritime autonomy and undersea sensors work in Australia and hypersonics work in the UK that fit within AUKUS Pillar 2 and US Navy submarine trainer development efforts that fit within AUKUS Pillar 1. We've taken the further step of dedicating some 100 of our top engineers and solution architects to our frontline growth efforts.
Operating in full partnership with our account managers and capture teams, they are positioned to bring the best of the best of Leidos to our customer needs. With the improvements we're making in the growth value stream, we are getting set up for a much better business capture performance in the future. At quarter's end, we had $26 billion worth of bids awaiting adjudication. And more importantly, quality is improving dramatically. Our pursuits are more aligned with our strategic direction, our proposals demonstrate greater customer understanding, and we are doing better at pulling through enterprise-wide technical expertise into each customer solution.
So in summary, I'm very pleased with our financial results this quarter and the momentum that we're carrying into the back of the year. We're making great progress on our current four focus areas. This puts us in an excellent position to execute our emerging Leidos North Star strategy. I'm very proud of the 48,000 Leidos teammates who collectively every day ensure Leidos is making smart smarter for the benefit of our customers. And I'm honored that every day more and more of the best of the best wicked smart people in the nation join Leidos to break limits.
I'll now turn the call over to Chris to walk you through our financial results in detail. He'll also provide insight into our upgraded outlook for the year and then we'll be pleased to take your questions. Chris?
