TOP 100: Leidos enters post-integration phase to focus on growth

Leidos may have dropped a single spot to No. 2 for this year's Washington Technology Top 100 rankings, but the company sees the past year as nothing but a success.

And 2018 will be even better, company executives said.

“We spent 2017 with one hand tied behind our back,” said Gerry Fasano, chief of business development and strategy for Leidos.

Much of the year was spent integrating the Lockheed Martin Information Systems & Global Solutions business into Leidos. The merger closed in August 2016 and combined two businesses of roughly $5 billion in revenue each.

“We’ve been doing integration, building organizations and new processes, training people,” Fasano said. “We had multiple HR systems, multiple ledgers, but all of that is behind us now.”

While its prime contract revenue dropped slightly as measured by our Top 100 analysis, Fasano said that 2018 will show a payoff for all of that work.

The company believes it now has a better cost structure that will help competitiveness and that its broad set of capabilities have been integrated.

“We redefined our processes, our go to market strategies, our pipeline, our culture. Nothing was off the table,” he said. “All that happened in ’17 and at the end of the year, the numbers were still super solid.”

The company booked $6.8 billion in prime contracts for fiscal year 2017, according to our analysis.

Leidos also captured several important wins during FY 2017:

• A $988 million contract with the National Geospatial-Intelligence Agency for enterprise IT.
• A $239.5 million Army Corps of Engineers task order for IT support.
• A $472 million Veterans Affairs contract for infrastructure modernization.
• A $728 million Army contract to support the Afghanistan air force.
• A $102 million Army contract for an advanced fire control system.

But the big win in that period was a recompete that Leidos won to continue its 28-year relationship with the Social Security Administration.

“Linda Gooden won that a long time ago,” Fasano said, referring to the long-time Lockheed executive who led IS&GS.

Leidos is one of three recipients on that $7.8 billion SSA contract and the company's ceiling for it is $2.3 billion.

For some of these wins like the NGA award and the Army fire control contract, Leidos and IS&GS might not have won them as independent businesses. “It’s not obvious that we’d be as successful separately,” Fasano said.

Part of it is scale but there also is the company’s new cost structure and technical capabilities. “We can bring innovations, past performance, and talent that we didn’t have separately,” he said.

Leidos is looking for more large wins and currently has six proposals in the works for contracts worth more than $1 billion each.

One of those is the Navy Next Generation Enterprise Network. That contract known as NGEN is held by Perspecta, which was created in a three-way merger involving DXC Technology’s U.S. public sector business, Vencore and KeyPoint.

Fasano declined to talk about Leidos' strategy for NGEN. But Leidos has previously announced that it is teaming with IBM, Unisys and Verizon to pursue NGEN.

Another major contract on the horizon is an incumbent contract with the Defense Department worth $4.6 billion to manage operations for the Global Information Grid, known as GIG Services Management Operations or GSMO.

Ironically, Leidos (then Science Applications International Corp.) protested Lockheed's victory in 2012, then inherited GSMO through the merger with IS&GS.

"I don't think we've publicly announced it but anyone can figure out we'll bid on that again," he said.

The timing of Leidos completing its integration process is fortuitous because the government also is in the process of revving up its procurement engine now that there is a two-year budget agreement, which brings increased spending for defense and civilian agencies.

“Our submittals are up 50 percent from the same time last year,” Fasano said.

The company has $18 billion worth of submitted proposals right now. Awards are a bit slow, however. “There is an acquisition backlog that we hope will begin to unwind itself,” he said.

Leidos was able to increase its submitted bids so substantially in part because the integration is completed but also because of internal investments in bid and proposal processes and resources, he said.

Moving forward, Leidos’ scale will be important and particularly for the heritage Leidos part of the business.

“Lockheed didn’t have a scale challenge for bidding large jobs,” Fasano said. “But on the flip side, the passion for innovation and technology investment on the part of legacy Leidos is welcomed.”

Leidos sees its scale being differentiator as IT modernization trends move forward and agencies look to migrate applications to new systems, consolidate data centers, and improve networks.

“However you want to segment it, we have the breadth and scale to support it,” he said. “Customers want past performance with size. You want a service desk that can handle half a million calls. You want to be able to demonstrate that you can consolidate hundreds of data centers down to a handful.”

And Leidos has those qualifications, he said.

In the defense area, Fasano said Leidos is focused on helping the Defense Department regain technological superiority, maintain operational readiness and modernize its IT infrastructure.

“Those are three areas we see getting hot in the market,” he said. “Traditional adversaries are back and the rogue regimes are still there.”

While the company is very satisfied with where it is, it isn’t taking a victory lap, Fasano said.

“If you think we collaborated decently in 2017, you’ll see us do that an order of magnitude better going forward.”

Mergers and acquisitions also are part of the company’s strategy but they will be smaller, tuck-in type of deals, he said.

“We constantly look at our portfolio of capabilities. We look at where we are and where do we need to get stronger,” he said. “We are looking to add differentiation and bring new capabilities.”

The company recently acquired Aranea Solutions, which holds a spot on the Army’s $34 billion Responsive Strategic Sourcing for Services multiple award contract. Aranea brings capabilities in information management in the C4ISR domain.

“You’ll see us continue to look for ways to add value to our customers,” Fasano said. “2018 is all about positioning to accelerate growth.”