CSRA CEO: $498M Defense Contract Makes Company An Industry Leader In Cloud And Military IT

CSRA CEO Larry Prior said his company helped the Defense Department overcome its concerns around the cloud through an approach that prioritized security above anything else.

The Falls Church-Va.-based company, No. 14 on the 2017 CRN Solution Provider 500, was awarded a $498 million, eight-year contract to provide the Department of Defense (DoD) with robust and resilient private cloud infrastructure for highly-protected workloads.

The deal will enable the Defense Department to consolidate its computing infrastructure by moving to an "as-a-Service model," which Prior said will substantially lower the DoD's total cost of ownership. CSRA's private cloud platform will streamline the onboarding of Defense Department customers, Prior said, thus reducing costs, boosting efficiency, and improving the government's overall security posture.

[Related: CSRA Creates New Cyber Leadership Role To Keep Government Agencies Secure In Moving To Cloud]

"We're now positioned as the industry leader for cloud and military IT," Prior told Wall Street analysts Wednesday. "With stringent security concerns, the Defense Department has lagged a bit behind other government organizations in the movement to the cloud. Now, the department is ready to take the next step in IT transformation."

CSRA has an open environment in the software stack of its private cloud thanks to a partnership with Red Hat, Prior said, meaning that government forensics experts would have 100 percent access and visibility anywhere within CSRA's stack in the event of a security breach.

The public sector solution provider would both welcome government forensics experts below the control plane – which is responsible for routing – as well as provide them with unfettered access to CSRA's cloud inside the federal government's firewall, Prior said.

"The barrier to adoption was the commitment and recognition that security was the first and foremost requirement," Prior said. "It's an inflection point for how they think about cloud."

CSRA hopes to extend their authorization on this contract to cover the Microsoft Azure and Amazon Web Services public clouds, Prior said, as well as the ability to add both compute and storage capabilities. Expanding the contract beyond private cloud infrastructure to cover options around public cloud, storage or databases could increase the value of the deal beyond $750 million, according to Prior.

(Editor's note: CSRA followed up with a statement to clarify that its DoD contract "is currently capped by the $498 million ceiling price." The company noted that its CEO was being aspirational with the statement above. "CSRA always strives to demonstrate its value, with hopes that, in time, our customers will see fit to expand our work," the statement said.)

Prior said CSRA's challenge is to align its business model with how Azure and AWS think about the future, while at the same time keeping cloud easy and palatable for a DoD customer.

"If you don't have that private cloud focused on security inside the deck, you'll never expand that ATO [authority to operate] to cover the wonderful public cloud work that AWS or Azure are doing," Prior said.

The initial efforts around the Defense Department contract will focus on installing cloud infrastructure at data centers in Alabama and Oklahoma and obtaining the authority to operate from the agency. Beginning in April 2018, Prior said CSRA hopes to ramp the program up aggressively and begin moving Defense Department workloads to the company's private cloud.

"We don't want to rush out of the gate with this customer," Prior said. "We're going to take the time and do this one really right."

Revenue for CSRA dipped to $1.23 billion, down 2 percent from $1.25 billion the year prior. That misses Seeking Alpha's projection of $1.25 billion.

Net income, meanwhile, jumped to $77 million, or 47 cents per share, up 18.5 percent from $65 million, or 39 cents per share, the year prior. On a non-GAAP basis, net income for the quarter held steady at $79 million, or 48 cents per share. That beat Seeking Alpha's projection of 46 cents per share.

CSRA's stock climbed 31 cents (0.96%) in after-hours trading Wednesday to $32.50 per share. Earnings were announced after the market closed.

Revenue from CSRA's defense and intelligence segments during the quarter tumbled to $525 million, down 7.6 percent from $568 million the year prior due to declines in the Army Logistics Modernization Program and the U.S. Strategic Command Information Technology Capabilities Contract.

Meanwhile, civil segment revenues – which include the Health and Homeland Security departments – climbed to $704 million, up 2.6 percent from $686 million last year thanks to the expansion of several recent program wins.

For the entire 2018 fiscal year, which ends in March 2018, the company is projecting earnings of $1.88 to $2 per share, on sales of $5 billion to $5.2 billion.