Computer Data Systems, Inc.
Computer Data Systems, Inc.
1 Curie Court
Rockville, Maryland 20850
Fax: (301) 948-9328
Sales: $205.9 million
Stock Exchanges: NASDAQ
SICs: 7374 Data Processing & Preparation; 7372
Prepackaged Software; 5045 Computers, Peripherals &
Computer Data Systems, Inc. does 90 percent of its computer service business with federal and state governments, primarily in setting up and operating data processing systems for its client agencies and selling its own prepackaged software to them. Computer Data Systems (CDSI) grew from humble beginnings in 1968 with four employees to become one of the nation’s top 25 government contractors in 1995 with a staff of 3,400 at 22 locations across the United States. In the 1990s, the company ranked among Forbes magazine’s 200 best small U.S. companies for four years in a row.
In providing computer systems, products, and expertise to its clients, CDSI contracts for the establishment and day-to-day operation of data processing systems. Projects range from developing a prototype online fingerprint identification system for the U.S. Immigration and Naturalization Service, to implementing and operating the Federal Direct Student Loan Program for the U.S. Department of Education, to developing a computer system for the state of Georgia that responds to 25,000 calls a month from travelers seeking information.
In an industry where the people change almost as fast as the technology, most of CDSFs respected senior management has been with the company for more than ten years, and its top executives have been at CDSI for decades. Clifford M. Kendall, one of the four CDSI founders in 1968 and the company’s first vice-president of finance, served as president and chief executive officer for 20 years before moving to chairman of the board. Gordon S. Glenn, his successor as president and CEO, joined the company back in 1971 as a computer programmer for a U.S. Navy contract and worked his way up to the company’s top operating position. Glenn took pride in the continuity of senior management. “We like to get them, work with them and promote from within,” he told Washington Technology in 1995. By that year, all 25 of the company’s officers had been promoted from within its ranks.
In the brutally competitive government contracting arena, CDSI achieved strong revenue and earnings growth over the years by sticking close to its target markets and leveraging its expertise in financial and management computer systems from one project to another.
CDSI was founded and incorporated in 1968, in Rockville, Maryland, just outside of Washington, D.C. One year after its founding, it became the first Washington, D.C, -area company to be listed on the National Stock Exchange. In 1970, the young firm opened its first regional office in Florida and formed a subsidiary, Computer Data Systems International, Ltd., to support its new clients in Western Europe. The following year, CDSI developed automatic information management systems for the state of Florida, the U.S. Navy, and the National Science Foundation.
By 1971, the staff had grown to 100 and profits exceeded $9,000. And the following year, with new clients that included the U.S. Environmental Protection Agency, the U.S. Department of Health and Human Services, and several labor unions, revenues were up 27 percent and profits tenfold, to $98,000.
New clients in 1973 included the World Bank and the U.S. Department of Agriculture. Revenues reached $2.3 million and the company formed another subsidiary, the National Institute for Public Services, Inc., to focus on the information-processing requirements of credit unions. The next year, revenues were up by 40 percent and the project backlog exceeded $3.8 million. In 1975, CDSI acquired Electronic Composition, Inc., an automated typesetting and photocomposition firm.
The company paid its first cash dividend in 1976, as its business volume increased for the eighth consecutive year, and it established a full-service corporate data center. In 1977 CDSI acquired Forlines and Associates, a firm specializing in financial systems, and its software products that included the Builders Information System, the Law Firm Accounting System and the Financial Accounting and Reporting System (FARS) which became one of CDSI’s mainstay software offerings in the years ahead. The company celebrated its tenth anniversary in 1978 with 100 clients and a nine percent rise in revenues.
CDSI began its second decade by adding two mainframe computers to its corporate data center, as revenues again increased to more than $8 million. In 1980, the company tailored its FARS accounting software so that it could be used by federal government agencies and recorded its best year in its history, with revenues up 71 percent to $14.8 million.
CDSI won a three-year, $40-million contract with the General Services Administration (GSA) in 1983 and formed Computer Data Systems Sales, Inc., to compete in the expanding turnkey systems marketplace. Its Debt Management and Collection System software was implemented for the Department of Housing and Urban Development’s Title 1 program. In its 15th consecutive year of revenue increases and 13th of profitability, CDSI had 1,500 employees supporting 200 clients at 29 sites around the world.
In 1984, CDSI completed construction of a new corporate headquarters in Rockville. Other major projects included the operation of a 70,000-square-foot fulfillment warehouse for the Federal Emergency Management Agency. The next year, CDSI signed two new GS A contracts with a total value of $54 million over four years. In 1986, it licensed its FARS accounting software to the Interstate Conference of Employment Security Agencies. In 1987, it won a $22.8-million Navy project and a $11-million project for the Department of the Interior, both lasting three years.
During its early years, CDSI focused primarily on the professional services side of its business—providing technological expertise and specialized software to its clients, mostly in the area of financial management and accounting. In 1987, the fast-growing company set up a new division to pursue larger projects in which it would integrate its own software and services with hardware and software from other vendors.
The company marked its 20th anniversary in 1988. That year it acquired Group Operations, Inc., in a deal that added a suite of software “productivity tools” to CDSFs offerings. The so-called tools—actually specialized software for analyzing and writing computer programs—were used to re-engineer and restructure old programs, making them more efficient and easier to keep current.
The year 1989 was a blockbuster for CDSI. Contract awards totaled $500 million, paced by a $158-million, five-year contract to support the Department of Energy’s Office of Information Technology Services and Operations. Company revenues were up by 59 percent to more than $105 million.
In 1990, CDSI demonstrated its capability to handle large, multidisciplined projects with the addition of the Defense Department’s civilian medical claims processing system, which would grow in three years to encompass 55 separate computer systems running on a network that linked six regional data centers which processed more than 18 million health claims a year. Another contract win involved work for the U.S. Naval Weapons Center, and the company’s Transportation Management System was deployed during Operation Desert Storm in the Persian Gulf.
By 1991, CDSI had become GSA’s largest information services contractor, and its financial and management offerings supported 20 federal and 24 state government agencies. That year, the company centralized its sales and marketing efforts previously handled by senior managers in each of its specialized areas, into a single business development group.
CDSI celebrated its 25th anniversary in 1993, its best year yet with record revenues of $180.9 million, up 27.7 percent, and net income of $5.5 million, an increase of 56.8 percent. More than 3,600 CDSI employees supported 185 contracts in 42 states.
In December of that year, CDSI won its largest contract ever, a $376 million project to handle the data processing for the Education Department’s Federal Direct Student Loan program.
Although the profitability of the contract got off to a slow start because of up-front investments in hardware, it began to improve as the number of schools participating in the loan program headed upwards from 105 to a projected 1,500. And as the volume of student loans increased, so did CDSI’s revenue and profit from the program.
Other new business in 1993 included contacts with the Justice and Housing and Urban Development departments totaling $28.1 million. And the company sustained its excellent record in recompeting for its contracts that re-opened to bidding as their terms expired, winning awards from the Defense, Justice, Transportation and Army departments.
As the company moved into its second quarter century, it entered a pivotal period in the evolution of its technology, its marketplace and its business. In terms of technology, the large, expensive mainframe and midrange computers that had dominated government data processing operations since the 1960s were being challenged by networks of low-cost personal computers that could perform many of the same tasks. The software for mainframe computers, in which federal automation contractors like CDSI had invested so much effort and money over the years, had to be adapted to run on the new “client/server” local area networks of personal computers. The new PC networks were very attractive to government agencies because they cost less than the big mainframes and were easier to use and maintain.
The government contracting marketplace of the early 1990s, meantime, was in turmoil. Defense expenditures flattened in the post-Cold War period as the armed services downsized ranks, triggering consolidations in the defense aerospace industry. And political, fiscal and downsizing pressures constrained spending by civilian agencies, as well.
CDSI sustained some short-term business setbacks itself in 1994, losing its bids to continue servicing three contracts that it originally had won in 1988 when its competitors in the new bidding cut their profit margins to wrest the projects away. But the company regarded these as the normal ups and downs of the government contracting business, and CDSFs net income for 1994 was a record $7.73 million, an increase of 40.3 percent over the previous year on revenue of $205.9 million.
Despite cost pressures on government, the outlook for the federal automation industry was healthy in the early 1990s, according to computer industry analyst William Loomis, who followed CDSI. “If the government is going to cut back employees, the thinking is that they’ll need more computers to increase productivity,” he told Warfield’s Business Record, noting that “If so, growth in that area will continue, even if the government does downsize.”
Changing times provide profitable opportunities for businesses able to exploit them, and in the early 1990s CDSI began positioning itself to capitalize on the downsizing trends in computer technology and government by aggressively investing for the future.
The company revamped its proprietary FARS financial software, which was originally developed in the 1980s for big IBM mainframe computers, to run on the client/server networks of the 1990s that typically mixed hardware from different manufacturers. The new version was designed to be portable between different brands of hardware and easily tailored to different computing environments.
It upgraded its corporate data processing facility to increase its capacity to handle the processing work from clients. It established internal research and development organizations, called “centers for excellence” to focus on its core technologies of financial management, networking, quality, software development methodology and imaging technology.
Like other government contractors, CDSI sought to broaden its services to other markets, but the federal government continued to be its bread-and-butter business. “We want to expand in the commercial state and local markets,” Glenn told Washington Technology in 1995, adding, “we don’t want to rely on the federal government too much, but it still will be the biggest player in information technology.”
Computer Systems Data Sales, Inc.
Day, Kathleen, “Computer Data Systems Loses a GSA Contract, Washington Post, August 2, 1994, p. D4.
Endoso, Joyce, “CDSI Looks Ahead and Keeps Its Eyes on the Prize,” Washington Technology, February 9, 1995.
Hosinki, Joan M., “System Integration’s Big Leagues Beckon CDSI,” Government Computer News, November 6, 1987, p. 114.
Kerber, Ross, “On Computer Data’s 25th Anniversary, a Bid to Be Stronger,” Washington Post, July 26, 1993, p. E11.
McCarthy, Shawn P., “Give Up Your Mainframes, Financial Systems Vendors Say,” Government Computer News, March 6, 1995, p. 46.
Monroe, John Stein, “CDSI Retools for High-Tech Services,” Federal Computer Week, July 26, 1993, p. 32.
Myers, Randy, “Surviving the Whims of Government Contracting,” Warfield’s Business Journal, July 2, 1993 p. 1.
—David M. Linton