No. 1 Leidos keeps focus on growth
By
Nick Wakeman
James Reagan, Leidos' retiring chief financial officer, shares how the company has delivered strong growth by keeping its focus on the right opportunities and understanding what it does best.
James Reagan’s career at Leidos as its executive vice president and chief financial officer is coming to a close after six years and it has been a remarkable ride at the No. 1 company on the 2021 Washington Technology Top 100.
Reagan has been integral to many of the critical decisions that have shaped the biggest company in the federal market. He was there for the acquisition of Lockheed Martin’s IT services business in 2016 and has played a role in every other deal and integration that has followed. He's kept a steady hand on financial aspect of every move the company has made.
The Reston, Virginia-headquartered company has gone from $5 billion in revenue and 16,000 employees to roughly $14 billion and 41,000 employees during his tenure as CFO.
For the 2021 Top 100, Leidos had $9.2 billion in prime contracts during government fiscal year 2020 to solidify its hold on the top spot.
Leidos expects that number will be higher next year. Reagan said the company expects organic growth of between 10 percent and 12 percent. For its 2021 first quarter, Leidos reported 9-percent organic growth.
Reagan Ends Near His Beginning
James Reagan can look across the Reston skyline from his glass-walled office in Leidos’ new corporate headquarters building.
In the distance, he can see the Reston International Center: one of the tallest and earliest office buildings erected in the planned community.
When he was 15, Reagan got his first job at the hotel next door.
Since then, he went to college and earned an undergraduate degree from William and Mary and masters from Loyola College. He later became a certified public accountant.
He began his finance career at PricewaterhouseCoopers and since then he’s been a chief financial officer at several well-known government contracting firms -- Vencore, PAE, Vangent, Deltek, Aspect Communications and American Management Systems.
Now he is about to leave his last job, the irony is not lost on him that now 47 years later he has a view of his first job.
“I’ve come full circle,” he said.
“We’ll see some upward pressure as we shake off the COVID headwinds from the second quarter last year and we’ll start ramping up a couple of our key wins,” Reagan said.
Among those wins are two large takeaways: the $7.7 billion Navy Next Generation Enterprise Network contract that has finally cleared protest hurdles. Leidos wrestled that away from Perspecta. A second was the $2 billion Military & Family Life Counseling Program.
Even 9-percent organic growth means winning a lot of contracts when your top line is $14 billion, but Leidos isn’t using a shotgun approach to hit as many targets as possible.
“Bidding on everything you can is a recipe for failure,” Reagan said.
Even multi-billion dollar companies have to realize they have limitations including resources and hiring people.
“We want to remain focused on the kinds of work where we can differentiate ourselves,” Reagan said. “And where customers are willing to pay us for the good work we do.”
Leidos still has some lower-margin business it is moving away from.
“We don’t want to compete on the basis of price but on our ability to innovate,” he said.
Preparation is a key for winning that kind of work, Reagan said.
In the 2016-2017 time frame, Leidos revamped its business development processes.
“These are disciplined ways to go about capturing new business and making sure that if you are going after something big that you start years before the RFP (request for proposals) drops," Reagan said.
That means talking to the right people and understanding and shaping requirements to increase the probability of a win.
“You also have to have the ability to filter out the things that you don’t have a high probability of winning so you aren’t waiting money on it,” he said.
Leidos also has been building a library of repeatable and reusable proposal content.
“That enables us to be more judicious and efficient with how we allocate our resources,” Reagan said.
He declined to go into more detail because “I don’t want to give out too much of the special sauce here.”
Ever the CFO, Reagan said they apply a similar approach to their mergers and acquisition strategy.
“This is a really vibrant M&A market and we’ve had to pass on multiple things because they don’t fit our strategy and aren’t the best use of our capital,” he said.
Leidos wants to spend its M&A dollars on targets that generate the kind of return the company expects, he said.
In the last two years, Leidos has made a pair of large acquisitions such as Dynetics for $1.65 billion and an airport security business from L3Harris Technologies for $1 billion. Smaller deals have followed in the past year, including managed IT services provider 1901 Group for $215 million and naval design firm Gibbs & Cox for $380 million.
Each deal brought new customers and capabilities in areas that are expected to grow going forward. Dynetics brought manufacturing and prototyping capabilities around weapons platforms and space development work with NASA.
The 1901 Group brought automation capabilities around cloud migration. Gibbs & Cox brought maritime engineering and design capabilities that complement what Leidos is doing in the uncrewed vessel arena.
All three of those deals have brought positive financial results to Leidos. Because of COVID, the airport security business has been slower to grow because there has been less demand for screening equipment at airports.
“They have great products and capabilities but that was not the best-timed acquisition given COVID,” Reagan said.
Air travel has been off by more than 40 percent which delayed sales for that business but Reagan said “we’ll be in much better shape there" as air travel recovers.
In looking back at his six years at Leidos, Reagan said there are many things he looks back at with pride. The Lockheed transaction stands out to him because he still sees that deal paying dividends today five years on.
“To combine those two and see a business that’s growing at or above the market at higher margins and then being able to reinvest earnings to keep the business on that kind of growth trajectory, that’s probably among the things I look back on with the most pride,” he said.
He’s also proud of the team that he’s built.
“I’ve been mentoring my replacement for five years,” Reagan said of Chris Cage, Leidos' current chief accounting officer who will become CFO on July 5.
(A future episode of the Project 38 podcast will feature my full conversation with Reagan where he goes into more detail about Leidos’ strategy, its approach to diversity and inclusion, and his retirement.)