Leidos CEO sheds light on GSA dialogue and the company's strategic priorities
Leidos CEO Tom Bell speaking to employees in person and via an internal telecast to the third quarter CEO Town Hall event in October 2024. Courtesy of Leidos
By
Ross Wilkers
In talking with Wall Street, CEO Tom Bell gave Leidos' perspective on conversations with the General Services Administration about the future of federal contracting. He also dove deeper into the company's NorthStar 2030 vision and provided (some) detail on its first acquisition in three years.
The General Services Administration’s aggressive asks for more savings from nearly a dozen companies it considers consultants has certainly gotten the attention of public sector observers and raises the question of what exactly is consulting.
Reston, Virginia-headquartered Leidos is one of the 10 firms GSA identified as the government’s largest consulting providers. GSA is pushing this group to provide more savings and other efficiencies, or face contract terminations or significant reductions in scope.
During Leidos’ first quarter earnings call with investors Tuesday, chief executive Tom Bell said his company has “actively engaged in both rounds… two letters and two back-and-forth between the GSA and we.”
“That's been supplemented with face-to-face meetings and an active e-dialogue in the margins,” Bell said. “Josh and Stephen are very, very passionate about their role in helping make this government smarter and more efficient, and I believe we're positioning ourselves to be part of the solution, not the problem in so doing.”
Bell referenced Josh Gruenbaum, commissioner of GSA’s Federal Acquisition Service; and Acting GSA Administrator Stephen Ehikian. They are helping lead efforts to make structural changes in how the federal government buys goods and services, which include making GSA more of a central buyer for other agencies and leaning on different methods of contracting.
The way Bell and Leidos see this current situation, words matter in its interactions with GSA and especially with the word *consulting.*
Bell told analysts Leidos has never used that word in its conversations with GSA about the future of their relationship, and in fact has “taken a little bit of an issue” with how the company has been lumped into an overall review of consulting contracts.
“Less than 1% of our revenue could generously be considered consulting revenue, and so all of what we do is mission-critical work that is key to our customers’ outcomes, the customers of GSA,” Bell said.
Saying the work is mission-critical is one thing, but explaining the how and why of it takes the conversation into a different area.
Bell said this about Leidos's talks with GSA about the future of their relationship, and federal contracting in general:
“Here's how we can make your customers the active agencies that use our products and solutions better, faster, cheaper by doing smarter things with technology, aggregating contracts, getting to commercial outcome terms and looking for more efficient ways to deliver services.”
As far as Leidos itself is concerned, the company has taken a break from acquiring other businesses over the past three years. Bell started as Leidos’ CEO in the spring of 2023 and indicated he wanted some time to look at the business as-is before restarting the acquisition engine.
That timeout is over. In its first quarter financial release, Leidos said it has agreed to pay $300 million for “a company that develops offensive and defensive cyber platforms and other solutions for the U.S. government.”
Leidos Bell did not name the to-be acquired company during the call, but said it focuses on work with defense and intelligence agencies including the Defense Advanced Research Projects Agency.
“Their expertise in vulnerability research, reverse engineering, exploit development and the converging cyber electronic warfare markets are squarely in line with our cyber strategy,” Bell said.
Cyber represents a key cog of Leidos’ NorthStar 2030 strategy that Bell unveiled more pieces of in the Tuesday call with analysts. He took the covers off NorthStar 2030 for the first time in a February earnings call with investors.
Digital modernization and cyber go together as one of Leidos’ new five growth pillars. The other four are space and maritime, energy infrastructure, highly-customized mission software, and managed services.
The highly customized pillar may sound like a direct contrast to the Trump administration’s efforts at ramping up more commercial-like approaches to technology purchasing and adoption.
On the other hand, Bell described it as not necessarily a one-or-the-other situation:
“Here, we turn our deep understanding of our customers' mission to translate vast amounts of customer data into actionable information. And we do this through best-in-class AI (artificial intelligence) deployment, integration, commercial development and productionized software offerings”
First quarter revenue of $4.25 billion was up 7% over the prior year period, while profit of $601 million represented a 23% year-over-year increase in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).
Leidos left its full-year financial outlook unchanged at $16.9 billion-to-$17.3 billion in sales on an adjusted EBITDA margin in the mid-to-high 12% range.