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Public Sector Quarterly Performance Review Webinar

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Please visit www.tbri.com for more information …

Please visit www.tbri.com for more information

The TBR Professional Services research team recorded a webinar on Nov. 6, 2012 recapping vendor performance reported in TBR's 2Q12 Public Sector IT Services Benchmark with a focus on how specific vendor, go-to-market and resource management strategies impact financial performance. TBR Senior Analyst John Caucis shared their perspective on the results and provided additional insight into the performance and future of the public sector services market.

Questions John addressed include:

•How are ongoing challenges in the federal IT services market reflected in TBR's 2Q12 Public Sector IT Services Benchmark and in individual vendor fiscal performance (leaders, laggards and the drivers of their performance)?
•What actions are vendors taking to navigate the turbulent federal IT market?
•What is the outlook for the remainder of 2012 and for 2013?


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  • 1. TBR’s 2Q12 Public Sector BenchmarkResearch Highlights and OutlookTechnology Business Research (TBR) Quarterly Webinar SeriesNov. 6, 2012 TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .
  • 2. Professional Services Business Quarterly Research Highlights & Outlook: Webinar Presenter TBR John Caucis Senior Analyst/Public Sector Practice Manager Analyst Photo Email: john.caucis@tbri.com Twitter: @jcaucistbr2 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 3. Public Sector IT Services Benchmark: Webinar Overview TBR TBR’s Public Sector IT Services Benchmark report delivers unique insight and value through in-depth analysis in a concise, consumable format• On an ongoing basis TBR covers nine “government- centric” IT services vendors (i.e., firms whose primary customers are government or noncommercial entities) with its syndicated reports.• TBR also follows the public sector activities of seven leading, commercially centric IT services vendors.• The benchmark report also includes analysis of four additional government-centric firms for a total of 20 public sector IT services vendors.• TBR reports are unique due to their deep, holistic analysis of leading vendor businesses. TBR Professional Services Business Quarterly Public Sector IT Services Benchmark• Financial modeling and TBR insights help customers build a better understanding of vendor business models.• TBR reports and webinars are designed to be responsive to client timelines, to be clear and concise, and to provide insights across multiple layers of an organization.• TBR’s strategic assessment provides an impartial reality check on how vendors are performing regarding their strategic objectives and the overall market. 3 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 4. PSBQ Public Sector Benchmark Research Highlights and 2013 Outlook TBRDifficulty projecting long-term federal budget and procurement needs isdriving public sector IT vendors to prepare for long-term market austerityPublic Sector IT Services Vendor Trends for 2012 Budget turmoil, longer sales cycles and defense cuts continue to hamstring public sector IT services vendors. In lieu of growth, most vendors are focused on maximizing margin performance and aligning portfolios to federal spending priorities and new growth markets. The outlook for the remainder of 2012 is for continued turbulence in the federal IT space, with expectations for 2013 clouded by the potential for sequestration. SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES4 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 5. PSBQ Public Sector Benchmark Research Highlights and 2013 Outlook TBRConstrained federal IT spending and a prolonged award processrestrained growth for most vendors in 2Q12Public Sector IT Services Vendor Trends for 2012 Budget turmoil, longer sales cycles and defense cuts continue to hamstring public sector IT services vendors. In lieu of growth, most vendors are focused on maximizing margin performance and aligning portfolios to federal spending priorities and new growth markets. The outlook for the remainder of 2012 is for continued turbulence in the federal IT space, with expectations for 2013 clouded by the potential for sequestration. SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES5 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 6. Public Sector IT Services Benchmark 2Q12 Research Highlights: Key Trends TBRBudget uncertainty, steep defense cuts and overall austerity in new ITspend are the primary headwinds to growth for federal IT contractorsAverage growth for the 20 firms in the PSBQ Public Sector IT Services Benchmarkdecelerated for the sixth straight quarter as the pullback in overall IT spending thatbegan in 2011, especially in defense-related IT outlays, continued in 2012. AVERAGE GROWTH (YTY TTM REVENUE & YTY QUARTERLY REVENUE):TBR PUBLIC SECTOR IT SERVICES FIRMS 12% 10.3% 8% 5.7% 4%Growth % 3.3% 1.0% -0.5% 0% -0.1% -2.6% -1.9% -2.4% -4% -5.4% -8% 2Q11 3Q11 4Q11 1Q12 2Q12 Calendar Quarter Average YTY Growth Average TTM Growth YTYSOURCE: TBR ESTIMATES AND COMPANY DATA. AVERAGES ARE BASED ON THE 20 COMPANIES IN THE PSBQ PUBLIC SECTOR BENCHMARK.6 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 7. Public Sector IT Services 2Q12 Research Outlook: Macro Impact TBRThe continued contraction in federal IT and defense spending wasreflected in top-line contractions for most vendors in the benchmarkGovernment-centric contractors suffered a range of top-line declines, but most citedbudget uncertainty and defense cuts as the primary culprits. Booz Allen Hamilton (BAH) BAH saw sales fall 1% year-to-year in 2Q12, the most modest decline among the government- centric firms. The contraction was due to the 2011 divestiture of its transportation business, which offset marginal growth across the firm’s defense, intelligence and civilian units. TBR also believes BAH’s commercial and international expansion efforts have yet to gain traction. Raytheon IT Services Raytheon IT Services’ revenue fell 7.5% year-to- year in 2Q12, as lower volumes and contract ramp downs in two of its three business units (Network Centric Systems and Technical Services) offset the addition of new classified awards in cybersecurity and intelligence. ManTech ManTech’s top-line revenue fell 15.1% from 2Q11 to 2Q12 as sharp volume declines in in-theater mission support and logistics offset growth in intelligence, cybersecurity and healthcare IT as well as the inorganic impact of the company’s aggressive SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES acquisition activity in 2011.7 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 8. PSBQ Public Sector Benchmark Research Highlights and 2013 Outlook TBRWith the environment hostile to growth, most public sector IT firms arefocusing on margin preservation and mining growth in new marketsPublic Sector IT Services Vendor Trends for 2012 Budget turmoil, longer sales cycles and defense cuts continue to hamstring public sector IT services vendors. In lieu of growth, most vendors are focused on maximizing margin performance and aligning portfolios to federal spending priorities and new growth markets. The outlook for the remainder of 2012 is for continued turbulence in the federal IT space, with expectations for 2013 clouded by the potential for sequestration. SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES8 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 9. Public Sector IT Services Benchmark 2Q12 Research Highlights: Key Trends TBR Healthcare IT and outsourcing drive revenue growth leaders, while high- value cyber and analytics services result in higher margins Growth leaders are winning in the healthcare IT space, acquiring capabilities in growth areas and expanding in adjacent international and commercial markets. TBR 2Q12 PUBLIC SECTOR REVENUE, GROWTH & OPERATING MARGINS 20.0% Raytheon IT Services Northrop Grumman IS&TS 15.0% ITT Exelis IBM Global Services Boeing GS&S 2Q12 Operating Margin Harris L-3 Communications Dell ACS/Xerox Services 9.3% Avg. Accenture 10.0% Operating Margin HP 5.0% Unisys CACI ManTech CSC Lockheed Martin IS&GS Booz Allen Hamilton General Dynamics IS&T SAIC NCI -5.4% Avg. Y/Y Growth 0.0% ≈ -43.4% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 2Q12 Public Sector Y/Y GrowthLEGEND: SIZE OF BUBBLE = PUBLIC SECTOR SERVICES REVENUE. SOURCE: TBR ESTIMATES AND COMPANY DATA Margin outperformers are succeeding with contract performance, cost-containment initiatives and offerings in high-value service areas. 9 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 10. Public Sector IT Services 2Q12 Research Outlook: Growth Leaders TBRA focus on the healthcare space and on areas such as cybersecurity, C4ISRand IT modernization drove expansion for growth leadersAccenture, SAIC and Xerox Services realized positive public sector growth in 2Q12, butwere among only a handful of vendors to do so. Accenture Accenture’s 11.3% public sector growth in 2Q12 was driven primarily by gains in the healthcare IT space domestically and abroad. This supplemented a handful of new awards with the federal government for modernization, cybersecurity and operations support. SAIC SAIC achieved 9.7% growth in public sector revenue in 2Q12, owing its agility at the outset of the downturn in its sector when it quickly realigned its portfolio to C4ISR, cybersecurity, logistics, energy and healthcare IT. Xerox Services Xerox Services, up 5% in 2Q12, continues to grow its presence in U.S. healthcare, state and local markets through high-profile deal wins. Its recent acquisition of electronic health records (EHR) training provider The Breakaway Group also provided an inorganic boost to its top-line growth, primarily in the healthcare space. SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES10 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 11. Public Sector IT Services 2Q12 Research Outlook: Margin Leaders TBRStrong contract execution, expense discipline and a focus on higher-valueservice areas elevated profitability for the margin leadersIBM Global Services, Accenture and Northrop Grumman IS&TS IBM Global Services IBM Global Services realized an estimated public sector operating margin of 12% in 2Q12 by successfully acquiring and integrating companies with intellectual property and solutions that enhance its portfolio with high-value services. This will augment IBM’s increased focus on productivity, efficiency and automation and sustain IBM’s margin performance through 2H12. Accenture Accenture estimated public sector operating margin of 10.6% as the firm curbed payroll and operating costs to offset the impact of a recent litigation provision. Margins will improve in 2013 as Accenture continues to trim its expense structure. Northrop Grumman IS&TS Northrop Grumman IS&TS reported an operating margin of 10.5% in 2Q12, among the top performers within the government-centric group of companies. The addition of high-margin offerings in C4ISR, cybersecurity and training will complement the margin impact of increased execution of a growing number of fixed-price contracts in its order book and SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES will sustain leading margin performance in 2H12.11 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 12. PSBQ Public Sector Benchmark Research Highlights and 2013 Outlook TBRVendors share a dismal outlook for 2H12, which for many will be a thirdconsecutive year of elongated sales cycles and contracting revenuePublic Sector IT Services Vendor Trends for 2012 Budget turmoil, longer sales cycles and defense cuts continue to hamstring public sector IT services vendors. In lieu of growth, most vendors are focused on maximizing margin performance and aligning portfolios to federal spending priorities and new growth markets. The outlook for the remainder of 2012 is for continued turbulence in the federal IT space, with expectations for 2013 clouded by the potential for sequestration. SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES12 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 13. Public Sector IT Services Benchmark 2Q12 Research Highlights: 2012 Growth Outlook TBRWhile top-line revenue contraction will slow during 3Q12, budgetaryconstraints will drag down most firms’ overall 2012 revenue growthThe majority of vendors expect sales to decline in 2012 — some for the 2nd year in a row. SOURCE: TBR RESEARCH, COMPANY GUIDANCE AND ESTIMATES13 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 14. Public Sector IT Services 2Q12 Research Outlook: 2012 Growth OutlookTBRA handful of vendors will generate top-line growth in 2012 due to theirsuccess due to their success aligning their portfolios with demand trendsVendors standing by their projections for top-line growth in 2012 are gaining traction in nicheareas such as healthcare, the state/local space, C4ISR and/or cybersecurity. Accenture Accenture’s momentum in the healthcare IT space is expected to continue through 2H12, supplemented by recent wins in the federal health and civilian sectors and by overseas healthcare IT awards. Acquiring Octagon Research will expand Accenture’s reach in the pharmaceutical sector. Xerox Services Xerox Services will ramp up recent wins and drive signings and revenue growth in U.S. healthcare, state and local markets to maintain high-single-digit growth in 2012. TBR believes Xerox Services’ portfolio of low-cost, niche outsourcing solutions aligns well with the cost and efficiency goals of U.S. state and local healthcare clients. SAIC SAIC will continue to derive growth from the C4ISR, logistics, cybersecurity, energy and healthcare sectors in 2H12. Despite closing 2012 as one of the government-centric growth leaders, SAIC still plans to split into two independent, publically traded business units in 2013 to avoid organizational SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES conflict of interest entanglements.14 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 15. PSBQ Public Sector Benchmark Research Highlights and 2013 OutlookTBRVendor pessimism about 2013 is fueled by contract trends and projectedfederal IT spend, and is being blurred by possible sequestrationPublic Sector IT Services Vendor Outlook for 2013 Specific revenue and margin guidance for 2013 has not been tendered by vendors as of 2Q12, but most expect 2013 will be as challenging as 2012. Federal IT spending is expected to contract from $79.7 billion in 2012 to $78.9 billion in 2013, mostly on the Department of Defense (DOD) side. Sequestration could potentially lower IT spend another 7% to 8% to $73B. The challenges in 2013 will force vendors to focus on meeting customer’s mission requirements, operational and contract excellence, alliances and acquisitions, portfolio alignment and diversification. SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES15 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 16. Public Sector IT Services Practice Research Outlook: 3Q12 Research Highlights TBRTBR’s Public Sector practice will continue tracking the activities of theleading federal IT services contractors and their commercial counterparts Public Sector Research Current Topics 3Q12 Report Key Themes • Vendor Reports: Growth & How does vendor fiscal performance reflect the o Northrop Grumman IS&TS Margin  overall federal IT services market landscape? Performance o Lockheed Martin IS&GS o General Dynamics IS&T What strategic actions are vendors taking to adjust o Raytheon IT Services Strategic o SAIC Actions  to market conditions or better position themselves against the competition? o L-3 Communications* o ManTech* How are public sector IT services vendors o CACI** Alliances & Acquisitions  leveraging existing partnerships? Are they forming o Booz Allen Hamilton** new alliances? How are they leveraging M&As? o Public sector practices of: o IBM Global Services How are vendors managing their human capital in o HP Services Resource Management  the current environment? o CSC o Accenture o Dell Services Where are vendors capitalizing on new adjacent o Unisys market opportunities? What new markets, High-growth o Xerox Services Segments  domestic, international or commercial, are public • VendorBenchmark sector IT services vendors eyeing to generate • Benchmark Webinar revenue streams? *SEMIANNUAL: REPORTS PUBLISH IN CALENDAR 2Q/4Q. ** SEMIANNUAL: REPORTS PUBLISH IN CALENDAR 1Q/3Q.16 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 17. Public Sector IT Services Practice Research Outlook: Questions TBR Questions?17 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 18. Professional Services Business Quarterly Research Highlights & Outlook: Webinar Presenter TBR John Caucis Senior Analyst/Public Sector Practice Manager Analyst Photo Email: john.caucis@tbri.com Twitter: @jcaucistbr, @TBRinc For further information, please contact: Lindy Hanson James McIlroy Director, Professional Services Practice Vice President, Sales lindy.hanson@tbri.com mcilroy@tbri.com18 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc.
  • 19. About TBR Contact Us Technology Business Research (TBR) is a leading independent technology 1.603.929.1166 market research and consulting firm specializing in the business and financial analyses of hardware, software, networking equipment, wireless, portal and info@tbri.com professional services vendors. www.tbri.com 11 Merrill Drive Serving a global clientele, TBR provides timely and accurate market research Hampton, NH 03842 and business intelligence in formats that are tailored to clients’ needs. Our analysts are available to further address client-specific issues or information USA needs on an inquiry or proprietary consulting basis. TBR has been empowering corporate decision makers since 1996. To learn how our analysts can address your unique business needs, please visit our website or contact us today. TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. TechnologyBusiness Research will not be held liable or responsible for any decisions that are made based on this information. The information contained in this report and all other TBR products is notand should not be construed to be investment advice. TBR does not make any recommendations or provide any advice regarding the value, purchase, sale or retention of securities. This reportis copyright-protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce.