Leidos wants to be at the nexus of digital transformation
- By Ross Wilkers
- May 15, 2019
Leidos is not just talking up its capacity for acquisitions now that the integration of the former Lockheed Martin IT services business is in the rear view mirror.
The last investor day Leidos held three years ago, the purpose was to discuss the increased market opportunity that laid before the combined Leidos-Lockheed Martin IS&GS entity.
Fast forward to Tuesday, the purpose of that investor day was for Leidos to tout its enhanced organic growth expectations -- between 3 percent and 5 percent through 2021 -- in an environment with elevated budgets and a government customer wanting to move on IT modernization and other digital transformation efforts.
Merging with the Lockheed IS&GS entity three years ago gave Leidos an increased footprint in technology services and other systems integration work just as agencies began to move more dollars and policy energy in the direction of modernization, particularly in cybersecurity and cloud computing migrations.
“Our customers are having a fit with it. They do not have the capability internally… whether it’s the Department of Defense, intelligence, the (Department of Veterans Affairs), (Federal Aviation Administration)… to adequately address the available technology being thrust upon them,” Krone told attendees at the conference in New York City.
A key aspect of that broader innovation challenge includes how agencies handle their information, as Krone pointed out, given they “have never thrown away a piece of data from the beginning of that agency’s history.”
That means large amounts of paper-based or other analog data needing to be converted into digital formats and also tagged so it can be organized and applied.
Then there is putting that data in a commercial cloud infrastructure -- whether that be provided by Amazon, Microsoft or IBM: or even Cerner for health care programs.
“Navigating the cloud, the transition and migration of apps and data to the cloud is an area all of our customers are looking for help to do,” Krone said. “Once they get that data and processing in the cloud, now they need to (take) action on that data.”
In a May 7 research note, analysts at credit ratings agency Moody's Investors Service pointed out that capabilities in the digital and virtual domain are of equal importance for the U.S. military compared to physical platforms.
"Within this environment, contractors who can lead digital transformation projects gain prominence, differentiation and qualifications that ultimately drive a lot of follow-on software development and system implementation work," the Moody's analysts wrote.
Analysts at Wells Fargo Securities also see government agencies moving more toward "broad-based digital strategies" given the emergence of cloud infrastructures, they wrote in a May 3 report for clients.
Growth markets for systems integrators like Leidos "are all about deploying the new technology" and their knowledge of agency's missions "to bridge Silicon Valley into the end market is critical," that report says.
The overall thirst for innovation across agencies and elevated spending environments means not just an upgrade to Leidos’ growth expectations but also its addressable market -- reflected in the bids it has planned and awaiting an award decision.
Roy Stevens, Leidos’ chief of business development and strategy, said the company submitted $46 billion in bids last year and believes this year it will “exceed that again.” The company has $30 billion in bids in the source selection process, including two major contracts at the core of its technology modernization focus.
One is a $3.5 billion recompete of the Navy’s “NGEN” contract for broad integration and migration services to support its global intranet. Leidos identified that as a takeaway opportunity over incumbent Perspecta. General Dynamics’ IT services business is also pursuing that contract thanks to its acquisition of CSRA.
A second is in Leidos’ defense of its $4.6 billion contract to run the Defense Information Systems Agency’s global information grid. Analysts have ironically cited Perspecta and GDIT as competitors for that contract.
But those two examples may only capture a snapshot of what is to come for the next time Leidos holds another investor day.
“We could be here in two years from now talking about quantum computing. We may be talking about new domains that we don’t understand today. Our role is to not be static and say yeah, everybody’s going to catch up. What we’re talking about is how do we get to the next place,” Krone said.
Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at firstname.lastname@example.org. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.