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CSRA CEO: Cloud, Big Data Adoption in U.S. Government Set to Climb

Federal budget stability and ambitious IT goals laid out by President Barack Obama earlier this week will mint sales opportunities for newly-formed CSRA.

Federal budget stability and ambitious IT goals laid out by President Barack Obama earlier this week will mint sales opportunities for newly-formed CSRA.

That was the upbeat outlook by CSRA executives Wednesday as the solution provider reported financial results for the quarter ended Jan. 1 -- the company's first since its creation in November. CSRA is the combination of CSC's public sector business, which was spun off and merged with SRA International to create an IT services powerhouse in the U.S. government sector.

Pro forma revenue for the Falls Church, Va.-based company was $1.27 billion in the period, officially the company's third fiscal quarter, down 5.1 percent from $1.34 billion in the same quarter one year before. The company reported pro forma results, saying they provided a more accurate picture of the company's performance by excluding costs associated with the separation from CSC, the merger with SRA and the integration of the two companies.

[RELATED: New Day Dawns: CSC Split, SRA Merger Done, Spawning $8.1B Commercial, $5.5B Public Sector Powerhouses]

The revenue numbers were short of Seeking Alpha's revenue estimate of $1.32 billion. But pro forma earnings came in at $80 million, or 48 cents per share, crushing Seeking Alpha projections of 42 cents per share. The company did not report year-over-year net income comparisons.

’We think the pivot to [revenue] growth is on our horizon,’ CSRA CEO Larry Prior said during the company’s earnings call, which comes two and a half months after the CSC split and SRA merger closed. ’I just can’t pick out the quarter that it will happen.’

In the long-run, CSRA expects to grow sales by 2 percent to 3 percent annually and earnings per share by 8 percent to 10 percent annually.

Investors were elated with the recent results, sending CSRA’s stock soaring 9.7 percent in after-hours trading Wednesday to $24.50 per share. Earnings were released after the market closed Wednesday.

Given that more than three-quarters of CSRA’s work is in IT, Prior said the solution provider is in an outstanding position to lead federal government customers into the digital future. Prior expects cloud and big data to deliver double-digit growth over the next couple of years as the U.S. government mandates data center consolidation and a cloud-first strategy to increase efficiency and lower expenses.

Federal CIOs are slashing hardware spending and expecting to fill the gap through virtualization and cloud capabilities, Prior said. Other greenfield opportunities in the federal space include cybersecurity, data analytics and modernization applications for an as-a-service delivery model, he said.

Prior was also pleasantly surprised by the money allocated for cybersecurity and repairing IT infrastructure in President Barack Obama’s proposed 2017 budget presented on Tuesday.

’The budget picture is very positive,’ he said.

Prior cautioned, though, that federal customers are much more cautious than commercial ones and will likely ’measure twice, cut once, and put their toe in the water’ when it comes to adopting emerging technologies.

The demand generation side of CSRA has been extremely busy over the past couple of months across every agency of government, Prior said, thanks to relative federal budget stability following years of turmoil.

’The palpable relief of a two-year budget agreement gives them all [the salespeople] a hall pass to go to work and be on top of their game,’ Prior said.

Additionally, Prior isn’t sure that military IT spending will continue to be a headwind for growth since the size of the American force in Afghanistan has stabilized and the U.S. has increased its presence in allied countries in the Persian Gulf.

Sales for CSRA’s civil division improved by 1.6 percent on a pro forma basis from $716 million last year to $727 million this year thanks to new and expanded programs in health. The growth was tempered by reduced material purchases on several federal civilian contracts.

CSRA’s defense and intelligence division saw revenue sink by 12.8 percent on a pro forma basis from $625 million last year to $545 million this year due to the Army Logistics Modernization Program transitioning to a maintenance phase and the wind down of work tapping into the Army’s emergency war-time fund. That was partially offset by the ramping up of new intelligence programs.

For the current quarter, CSRA projects earnings of 45 cents to 49 cents per share on sales of $1.28 billion to $1.33 billion.

On a GAAP basis, revenue for the quarter was $1.03 billion, up more than 3 percent from $999.0 million in the same quarter one year before. Net income was $51.4 million, down nearly 9 percent from $56.4 million one year before.

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