Leidos eager for role in agencies' commercial cloud move

Commercial cloud providers are fighting hard to secure solid footing in the government market -- just look at the JEDI contract battle -- and federal systems integrators at the same time are working hard to cultivate partnerships with those companies.

Just about every large government IT contractor in fact has partnerships with and employees certified to work on cloud offerings from the likes of Amazon Web Services or Microsoft. Those two are neck-and-contenders for the Defense Department’s potential $10 billion JEDI contract to acquire a commercial cloud infrastructure.

During Leidos’ second quarter earnings call with investors Tuesday, CEO Roger Krone somewhat addressed JEDI with a prediction that it “will go forward and there will be an award made relatively soon.”

Krone was glad to tout Leidos’ chops as a key cog in the machine to help agencies migrate their IT assets into cloud environments. Leidos has employees with technical certifications to work with AWS and Microsoft Azure, and Krone also described “great relationships with all of the offerors and with the eventual customer.”

“All the competitors have reached out, they look for mission partners like us to come in and help the customer better utilize their cloud hosting capability,” Krone told analysts.

The slow trickle but now coming flood of commercial cloud and other technologies created outside the traditional government market is a welcome trend, according to Krone.

“We just see this as a way for our customers to reduce the cost of IT spend and be able to change the tooth-to-tail ratio of the amount of money that the customer spends to operate their back offices, (versus) providing mission-capable programs that further the goals and objectives of the agency,” Krone said.

Market analysts I have spoken with largely speak in the same tune: that the coming wave of commercial cloud in the government market is hardly a threat to the traditional players. Much of the government’s IT infrastructure is not in a cloud environment yet and any migration in that direction requires services wrapped around it.

DOD’s other big-ticket cloud contract -- the $8 billion Defense Enterprise Office Solutions -- can be held up as an example of the latter. This contract will see systems integrators bid for work to integrate commercial email, calendar and other collaboration and back-office tools into the larger DOD IT network.

Specifically to Leidos, they also reported some success on the hiring front in the same manner that Booz Allen Hamilton did during the its earnings call Monday.

Leidos said its headcount rose by 1,200 employees to more than 33,000 when factoring in both new hires and departures. That was helped by a pair of takeaway wins with NASA and the Air Force, plus other wins that included onboarding of staffers with clearances; a source of talent increasingly sought after amid the widely-reported backlog of applications for clearances.

Krone said the company is “encouraged by the progress made” and “is seeing early results” from the new National Background Investigations Bureau to take down the backlog. NBIB opened for business earlier this year as a new agency within the Defense Department to focus on background investigations for those seeking clearances.

Like its competitors, Leidos’ growth and overall health depends on its ability to hire as the company wins contracts. Second quarter revenue climbed 7.9 percent from the prior year period to $2.7 billion and full-year sales expectations were raised to $10.65 billion-$10.95 billion from the prior $10.5 billion-$10.9 billion outlook.

The government market’s health depends on what comes out of the budget negotiations on Capitol Hill. While a new two-year budget agreement is in place, appropriations bills to fund federal agencies still have to work through Congress and be signed by the president. Prospects of a government shutdown or continuing resolution cannot be discounted until those spending bills get done.

Having all of that funding in place has a natural knock-on effect throughout the market, according to Krone.

“I think we will get most of the bills done. The DHS bill may languish and may take a little longer but I think they will spike that out,” Krone said. “It encourages what we call normal order, which obviously has been anything but normal, and now people will spend money they have been obligated.”

“It lets us look at the election season with a lot more confidence,” Krone added. “The good news is we’ve taken budget battles off the table, and that’s great for our customers and their ability to do their mission and conduct the work of the nation.”

Leidos also had some personnel news to share with investors. The company has appointed Jim Carlini to chief technology officer and he succeeds Jim Cantor, who shifts to chief of performance excellence and strategic partnerships.