Falls Church, Virginia-based CSRA made its highly-anticipated entry into the government contracting market Nov. 30 and in conjunction started trading on the New York Stock Exchange as a public company listed in both the S&P 500 composite index and Executive Mosaic’s GovCon Index of 30 contractor stocks.
CSRA formed through a merger of the former Computer Sciences Corp. North American public sector business with SRA International to become one of the GovCon market’s three largest pure-play services providers at $5.5 billion in projected annual revenue.
In this conversation with ExecutiveBiz, CSRA Chief Financial Officer David Keffer gives an update on CSRA’s business strategy as a public company for nearly four months and its approach to shareholder return in the initial year of activity. Keffer also describes his visit to the New York Stock Exchange on the date of CSRA’s launch and what financial leaders should focus on when they help take a company public.
ExecutiveBiz: What two things have you learned in helping to start up CSRA as a publicly-traded company?
David Keffer: The process of spinning out one very large company and merging it with another has been an incredible learning experience for all of us. One thing I have learned is that the concurrent spinoff and merger process often feels more like a startup environment than two established companies coming together.
This is a good thing because it makes everything more exciting. It gives us a fresh start going forward with everything we do — from bidding on a new contract, to promoting an employee, to closing the books. Each challenge requires new and creative thinking since it is the first time it has been done by the new company.
We are fortunate to have a great team of experienced, quality people in place to help us navigate through the process. Another lesson I have learned in terms of CSRA stock trading on the open market is that it typically takes a few quarters for a spin-off to establish its own long-term investor base, and these early months can be volatile for the stock.
We have to take a long-term view and recognize that if we perform well as a company and communicate transparently with Wall Street, our stock price will take care of itself over time.
ExecutiveBiz: Describe the experience of CSRA and CSC executives visiting the New York Stock Exchange and ringing the opening bell.
David Keffer: The moment itself is a great privilege given the history of the exchange and all the incredible business leaders who have rung that bell before. It is fun to have all the traders looking up and cheering on what is an exciting day for CSRA. What made it so special for us was the knowledge that so much work had gone into the process leading up to that day.
For CSRA, it was the culmination of many months of preparation for both the spin-off and the merger by teams of people at both CSC and SRA International. The people on the platform were just standard-bearers for many more who had worked so hard to make it happen.
(Keffer standing second from right in the video below)
ExecutiveBiz: How is CSRA approaching its business strategy on public fronts, particularly on shareholder return in the first year of trade?
David Keffer: As a public company, we are in business to create value for our shareholders first and foremost. We're also passionate about solving our customers’ biggest mission challenges and creating an environment in which our employees want to be their best.
We've given our investors multi-year growth and profitability targets, to which they can hold us accountable and track our performance over time.
Our board has also authorized a quarterly dividend of 10 cents per share and a $400 million share repurchase program through 2019. We also intend to deploy about 40 percent of our free cash flow to shareholder returns over time as evidenced by the $66 million in share repurchase and dividends paid out within our first two months as a public company.
ExecutiveBiz: Where do recompete awards fit into CSRA's growth strategy?
David Keffer: Recompetes as well as contract extensions are a critical piece of our growth strategy. Our average contract length is about five years, so around 20 percent of our work is up for recompete in a typical year. Winning the vast majority of our recompetes is a key element of our plan to achieve our 2-3 percent annual revenue growth target over the next few years and something our team focuses on every day.
We recognize that winning recompetes has as much to do with delighting our customers during a contract’s execution phase as it does with submitting the best proposal in response to the RFP. Our project managers and their teams strive to provide innovative and efficient solutions that make our customers our strongest advocates when it is time for a recompete.
ExecutiveBiz: What advice do you have for other financial leaders that are helping their companies go public?
David Keffer: My first piece of advice for a financial leader is to surround himself or herself with a great team. A public company CFO will need to spend a lot of time with investors, board members and other key external stakeholders. It is critical to have a team in place that you trust to take on a leadership role in closing the books, developing key models and analyses and driving business performance.
In terms of interaction with Wall Street bankers, analysts and investors, my advice is to build credibility from the start. Investors want to go to sleep each night knowing they don't have to worry about your performance, so it is critical for any new public company to promote transparency with the Wall Street community and to deliver on financial commitments.
Finally, culture is critical. Bringing two large companies together successfully depends on good cultural integration and that takes time and effort. The importance of understanding and respecting cultures of the past to build a new culture for the future cannot be overstated.