Operator: Your next question comes from the line of Seth Seifman from JPMorgan.
Seth Seifman: 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.
Prabu Natarajan: 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.
Seth Seifman: 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?
Prabu Natarajan: 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.
Operator: Your next question comes from Sheila Kahyaoglu from Jefferies.
Sheila Kahyaoglu: 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.
Sheila Kahyaoglu: 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.
