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PROFESSIONAL SERVICES BUSINESS QUARTERLYSM

Public Sector IT Services Benchmark
Second Calendar Quarter 2013

Publish Date...
Contents

T BR

Key Findings & Trends

PSBQ Benchmark Metrics

3

Executive Summary

23 Market Strategy Metrics

4

Scorin...
Executive Summary

T BR

Many public sector contractors insist sequestration has yielded minimal
fallout, despite key metr...
Scoring Summary

T BR

Firms with niche offerings or a strong focus on international and state &
local markets earned lead...
Strategic Actions/Key Developments

T BR

Leading federal IT contractors increasingly leverage healthcare
IT, cloud, cyber...
Strategic Actions/Key Developments

T BR

Companies are realigning operations to intensify focus on core
competencies and ...
Strategic Actions/Key Developments

T BR

Partnerships are increasingly attractive to companies seeking low-cost
methods o...
Strategic Actions/Key Developments

T BR

Expanding cloud capabilities offer commercial-centric firms an avenue to
expand ...
Strategic Actions/Key Developments

T BR

New service announcements utilizing analytics will generate growth
opportunities...
Market Overview

T BR

Contrary to vendor claims, sales declines suggest the sequester impeded
growth in 2Q13; projected c...
Revenue, Growth and Margin Leaders

T BR

Growth and margin leaders rely on differentiated and specialized service
provisi...
Revenue Leaders

T BR

Revenue leaders seize opportunities in cybersecurity, healthcare and
modernization engagements to g...
Growth Leaders

T BR

A strong portfolio of healthcare services, particularly for state & local
clients, is a common threa...
Margin Leaders

T BR

Margin leaders utilize scale and end-to-end service provision to
maintain profitability
2Q13 Total O...
Growth Trends and Drivers

T BR

Trailing 12-month revenue growth remained flat sequentially in 2Q13,
but will contract fu...
Growth Trends and Drivers

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Despite inorganic contributions, few companies realized revenue growth,
a trend that will...
M&A Trends

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Public sector companies will remain apprehensive about acquisitions in
3Q13, as financial flexibility re...
New Service Offerings

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Public sector companies are expanding their cybersecurity offerings to
enhance their end-to-e...
Contract Trends

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Public sector deal activity is pressured by budgetary constraints,
although demand for IT moderniza...
Resource Management

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The need for security clearances and highly specialized engineering and
cybertalent drives high...
Future Outlook

T BR

Regardless of a potential federal budget flush, the majority of public
sector players are poised for...
Contents

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Key Findings & Trends

PSBQ Benchmark Metrics

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Company Scores Over Previous Nine Quarters (Government-centric Firms)

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Company Scores Over Previous Nine Quarters (Government-centric Firms)

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Company Scores Over Previous Nine Quarters (Commercial-centric Firms)
IBM Global Services

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Revenue, Growth and Margin Leaders

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Public Sector IT Services Revenue and Growth Leaders
2Q13 Public Sector Revenue ...
Revenue, Growth and Margin Leaders

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Public Sector IT Services Margin Leaders
COMPANY
Boeing GS&S
Accenture
CSC
Dell
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Announced Contracts

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Public Sector Contracts and Deals (2Q13)
2Q13 DEALS: VENDOR SHARE

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Estimated total contract...
Backlog

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Backlog contracted for the third consecutive quarter, brought on by
declining OCO funding and prolonged bus...
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Transcript of "Public Sector IT Services Benchmark"

  1. 1. PROFESSIONAL SERVICES BUSINESS QUARTERLYSM Public Sector IT Services Benchmark Second Calendar Quarter 2013 Publish Date: Sept. 24, 2013 Authors: Sebastian Lagana (sebastian.lagana@tbri.com), Public Sector Analyst; Jacob Gordon and Harry Norton, Professional Services Practice Research Analysts Content Editor: John Caucis, Senior Analyst/Public Sector Practice Manager 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. 2. Contents T BR Key Findings & Trends PSBQ Benchmark Metrics 3 Executive Summary 23 Market Strategy Metrics 4 Scoring Summary 5 Strategic Actions/Key Developments 28 Resource Management Strategy Metrics 10 Market Overview 11 Revenue, Growth and Margin Leaders 12 Revenue Leaders 13 Growth Leaders 14 Margin Leaders 15 Growth Trends and Drivers 17 M&A Trends 35 Financial Strategy Metrics 44 Company Scores Over Previous Nine Quarters 52 Revenue, Growth and Margin Leaders Tables 54 Announced Contracts and Backlog Appendix 56 About TBR 18 New Service Offerings 19 Contract Trends 20 Resource Management 21 Future Outlook 2 TBR offers this benchmark data in an XLS format. For further information, contact your TBR account executive. Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  3. 3. Executive Summary T BR Many public sector contractors insist sequestration has yielded minimal fallout, despite key metrics indicating otherwise • • While many companies indicated they have not experienced any major impact from the sequester, revenue and backlog metrics indicate persistent market pressure continues to weigh on results • • • 3 Fourteen of the 20 companies in the PSBQ Public Sector IT Services Benchmark realized year-to-year revenue contractions in 2Q13. Only Boeing GS&S (3%), L-3 Communication (1.3%), General Dynamics IS&T (0.9%) and Harris (0.8%) generated growth among the public sector-focused companies while Xerox (7.1%) and Accenture (3.3%) were the only commercial-centric companies to generate public sector revenue growth. Average weighted revenue growth for the 20 companies covered in the benchmark was -4.2% in 2Q13, up 30 basis points from -4.5% in 2Q12, but down 80 basis points from -3.4% in 1Q13. The 2Q13 revenue contraction is also the eighth consecutive quarter of year-to-year contractions among the competitive set. Average organic growth was -4.7% in 2Q13, declining year-to-year for the eighth consecutive quarter and declining 90 basis points compared to 1Q13. For a second consecutive quarter, federally focused companies did not hesitate to revise guidance, with L-3 (down $50 to $150 million), Northrop Grumman IS&TS (down $100 million) and ManTech (down $200 million) all lowering expectations for the remainder of the year. Raytheon II&S represented the only guidance increase (up $100 million) among its peer group, however this followed a $300 million guidance reduction in 1Q13, netting out to a $200 million reduction from initial guidance projections at the start of the calendar year. Companies that outperformed their guidance so far this year, such as General Dynamics, generally maintained initial guidance ranges for 2013. This behavior indicates corporate expectations for sharp revenue contractions during 2H13, which would be necessary to meet initial guidance. 2Q13 aggregate backlog for the 13 federally focused contractors in the benchmark was down 3.7% from 1Q13, the third consecutive and sixth of past seven quarters with aggregate backlog contraction. Additionally, average backlog of $8.8 billion was the lowest figure realized since TBR began tracking backlog metrics for the current set of companies in 1Q10. This performance correlates strongly with guidance reductions over the first half and, ultimately, expectations for accelerating revenue contractions during the second half of the year. Based on updated guidance, continued backlog contraction and the likely prospect of a federal FY14 budget based on a continuing resolution, TBR is projecting a weighted average revenue contraction among the 20 benchmark firms of -5.9% during 3Q13, absent a major budget flush from U.S. federal agencies to close FY13. However, we believe this to be an unlikely outcome given the general tenor of the U.S. federal market over the past six months. Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  4. 4. Scoring Summary T BR Firms with niche offerings or a strong focus on international and state & local markets earned leadership positions in TBR’s scoring metrics 2Q13 PSBQ Public Sector Scoring Summary Company Boeing GS&S Total Average PSBQ Public Total Average PSBQ Public Resource Management Financial Management Market Strategy Score Strategy Score Strategy Score Sector Score (1Q13) Sector Score (2Q13) 5.94 6.32 7.31 5.20 6.27 Accenture 6.02 IBM Global Services 5.88 Xerox 5.55 Harris 5.25 Booz Allen Hamilton 5.31 L-3 Communications 5.03 Raytheon II&S 5.30 CACI 5.39 Northrop Grumman IS&TS 5.37 Lockheed Martin IS&GS 5.38 CSC 5.31 HP 5.07 ITT Exelis 4.51 Dell 4.81 ManTech 4.76 General Dynamics IS&T 4.53 SAIC 4.94 Unisys 3.80 NCI 3.87 5.87 5.80 5.78 5.32 5.27 5.24 5.19 5.14 5.12 5.11 5.10 5.10 4.84 4.80 4.66 4.58 4.53 3.90 3.65 5.95 5.31 6.35 5.25 6.12 6.04 7.12 4.76 5.46 5.24 5.43 5.30 5.29 5.10 5.42 4.55 5.65 5.52 4.57 5.99 5.02 4.52 5.79 5.12 4.55 5.53 5.30 4.39 5.82 5.11 4.77 5.32 5.22 6.47 4.14 4.69 4.10 4.98 5.44 4.51 4.99 4.90 4.37 4.72 4.89 5.57 4.17 4.02 4.09 4.82 4.67 3.85 3.47 4.39 3.48 3.11 4.35 SOURCE: TBR SCORING METHODOLOGY Key Represents an area where company is challenged versus peers (score is <4.50) Represents an area where company is outperforming peers (score is >5.50) Represents an area where company is neither significantly outperforming nor underperforming peers (score is between 4.50 and 5.50) 4 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  5. 5. Strategic Actions/Key Developments T BR Leading federal IT contractors increasingly leverage healthcare IT, cloud, cyber and analytics to mitigate legacy defense business cutbacks Strategic Actions/Key Developments for Government-centric IT Services Firms in 2Q13 Company Action/Event General Dynamics IS&T IS&T is ramping up its call center headcount to deliver customer service support for the Centers for Medicaid & Medicare Services. Lockheed Martin IS&GS Lockheed Martin received FedRAMP certification as an authorized secure cloud solution provider. Northrop Grumman IS&TS Northrop Grumman was included as a participant in the Department of Homeland Security’s Enhanced Cybersecurity Services program. Raytheon II&S Raytheon acquired Visual Analytics Inc., a provider of analytics services related to fraud and security. Key: 5 TBR Assessment TBR Analysis  IS&T plans to hire individuals primarily in low-cost, onshore locations to maintain profitability on the engagement. This will include 1,600 people in Sandy, Utah; 1,600 in Lynn Haven, Fla.; 1,300 in London, Ky.; 1,000 in Hattiesburg, Miss.; 120 in Coralville, Iowa; and 100 in Bogalusa, La.  TBR believes the FedRAMP authorization will eventually provide sales momentum for IS&GS’ secure cloud solutions offerings due to increased credibility and the simplification of the sales process, as it is now preauthorized to sell to any of the U.S. government markets.  Northrop Grumman continues to pursue low-cost R&D methods as it expands its cybersecurity portfolio. Gaining access to classified network intrusion information will further enhance the security of its clients’ and its own information networks.  Visual Analytics’ experience delivering solutions to domestic and international public sector agencies, as well as enterprise-level commercial businesses, will enhance existing solution delivery and expand opportunities in adjacent commercial and international markets.  Positive short-term impact expected on bottom line/top line Negative short-term impact expected on bottom line/top line  Too soon to tell Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  6. 6. Strategic Actions/Key Developments T BR Companies are realigning operations to intensify focus on core competencies and related business development efforts Strategic Actions/Key Developments for Government-centric IT Services Firms in 2Q13 Company Action/Event SAIC SAIC divested noncore businesses from the National Security Solutions (NSS) segment. L-3 Communications ManTech Key: 6 L-3 rebranded its Aircraft Modernization & Maintenance (AM&M) segment as Platform & Logistics Services (P&LS). ManTech, via its HBGary subsidiary, released new iterations of its Responder Pro and Active Defense cyber solutions. TBR Assessment  TBR Analysis SAIC deemed the business, which was related to technology used to detect concealed explosives or weapons, outside the scope of NSS’ core competencies. We expect additional divestiture of noncore assets and operations will continue up to and through the split coming at the end of 3Q13.  The repositioning reflects the firm’s heightened focus on ground-based maintenance and logistics service provision. We believe P&LS’ expanded presence in logistics presents L-3 with an opportunity to grow revenues once OCO funding reductions subside, as the space is far less saturated than more common growth areas, such as cyber or healthcare IT.  The Responder Pro and Active Defense suites are designed to detect malware in physical memory and virtual desktop environments. We believe the products have application for public sector as well as commercial markets — particularly Active Defense, as cloud adoption and desktop virtualization increase in both segments.  Positive short-term impact expected on bottom line/top line Negative short-term impact expected on bottom line/top line  Too soon to tell Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  7. 7. Strategic Actions/Key Developments T BR Partnerships are increasingly attractive to companies seeking low-cost methods of expanding capabilities and geographical penetration Strategic Actions/Key Developments for Government-centric IT Services Firms in 2Q13 Company CACI announced, in collaboration with Netherlandsbased semantic business solution provider Be Informed, the development of a Software as a Service-based customizable application platform. CACI Booz Allen Hamilton Key: 7 Action/Event BAH announced a partnership with Turkey-based HAVELSAN to provide technical and professional services to public sector and commercial clients. TBR Assessment TBR Analysis  The expansion of CACI’s business systems solution aligns with the firm’s recent acquisition activity in the area and increasing shift in client mix toward federal civilian agencies. The addition of a semantic-engineered, customizable application model allows for the most cost- and time-effective development and deployment of application derivations, eliminating the need for customized application development each time a given agency’s requirements change.  The partnership with HAVELSAN strongly supports BAH’s focus on expanding its operations in Gulf Cooperation Council, U.S. friendly Middle Eastern nations and delivery of Foreign Military Sales (FMS) through NATO-led programs. We anticipate the partnership will initially focus on services such as cyber, critical infrastructure, border security and training.  Positive short-term impact expected on bottom line/top line Negative short-term impact expected on bottom line/top line  Too soon to tell Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  8. 8. Strategic Actions/Key Developments T BR Expanding cloud capabilities offer commercial-centric firms an avenue to expand respective portfolios for public and commercial clients Strategic Actions/Key Developments for Commercial IT Services Firms in the Public Sector in 2Q13 Company Action/Event IBM Global Services IBM acquired SoftLayer Technologies for $2 billion to expand its public cloud capabilities. HP HP laid off 150 public sectorfocused employees following the finalization of a North Carolina Health and Human Services contract. CSC partnered with AT&T, expanding their respective cloud infrastructure and service capabilities. CSC Accenture Key: 8 Accenture launched an Oracle Engineered Systems Center of Excellence during 2Q13. TBR Assessment TBR Analysis  As a result of the acquisition, IBM created IBM Cloud Services, a dedicated cloud unit expected to meld SoftLayer’s portfolio with IBM’s SmartCloud solutions. We believe this will boost the firm’s cloud capabilities in the commercial and public sectors, enhancing IBM’s position against cloud providers such as Amazon and Rackspace.  HP is in the process of laying off approximately 29,000 employees before the end of its FY14 in October 2014. We expect public sector-focused employees to be more likely targets for layoffs despite recent federal deal wins.  We believe many systems integrators and IT service providers will seek to partner with infrastructure and data hosting providers as a cost-effective way of expanding portfolio reach and competing with public sector cloud providers such as Amazon Web Services (AWS).  Enhanced Oracle system design, client collaboration and service delivery capabilities will drive increased traction among Federal Civilian Agencies that are seeking to build improved business systems capabilities.  Positive short-term impact expected on bottom line/top line Negative short-term impact expected on bottom line/top line  Too soon to tell Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  9. 9. Strategic Actions/Key Developments T BR New service announcements utilizing analytics will generate growth opportunities in the healthcare and transportation verticals Strategic Actions/Key Developments for Commercial IT Services Firms in the Public Sector in 2Q13 Company Action/Event Dell Dell announced an alliance with Apixio that is designed to cultivate connected healthcarefocused information management and analytics capabilities. Xerox Xerox introduced Merge, a centralized, analytics-based parking system for local governments. Unisys In 2Q13 Unisys released its Stealth Solution for AWS, which provides added security for AWS customers moving data to the cloud. Key: 9 TBR Assessment TBR Analysis  With Dell leveraging Apixio’s big data analytics and machine learning capabilities, TBR expects the partnership to expand Dell’s portfolio of high-margin offerings for the healthcare sector. We expect Dell to continue favoring alliances over acquisitions as the company proceeds with its corporate privatization.  Xerox’s ability to leverage its clients’ own data to generate revenue through demand-based rate adjustments and parking enforcement will allow it to capture demand from municipalities seeking to maximize the value of its parking systems. The improved efficiency will enhance the company’s value proposition during the bidding process, particularly to municipalities working under considerable budgetary constraints.  Unisys is positioning to capitalize on the growing demand for cloud security as clients increasingly shift mission-critical data and processes to the cloud. Given AWS’ increasing penetration of the public sector cloud market, Unisys’ ability to piggyback off its partner provides the firm with a new avenue for revenue generation.  Positive short-term impact expected on bottom line/top line Negative short-term impact expected on bottom line/top line  Too soon to tell Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  10. 10. Market Overview T BR Contrary to vendor claims, sales declines suggest the sequester impeded growth in 2Q13; projected contraction for 3Q13 supports this assertion Aggregate average quarterly year-to-year growth rates contracted sharply during 2Q13, down 80 basis points from the previous quarter, tracking below average trailing 12-month growth over the same period. The revenue contraction drivers that have impeded market growth in the federal space since 2011 remain in place: federal budget constraints, long-term budget contractions, program delays and terminations, elongated business development and task order provision cycles, and tightening IT spending in key U.S. and western European markets. • IT contractors with a primary focus on the federal space continued to either sustain or reduce guidance for the remainder of CY13, with the majority of companies positioned for mid- to high-single-digit losses through the end of the year. Even firms that fared comparatively well, such as General Dynamics IS&T (0.3% and 0.9% revenue growth year-to-year in 1Q13 and 2Q13, respectively), maintained guidance for full-year revenue contractions, which demands revenue contractions in the high-single to low double-digits through the end of the year if they are to meet expectations. • 10 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  11. 11. Revenue, Growth and Margin Leaders T BR Growth and margin leaders rely on differentiated and specialized service provision to outperform their peer group Outperformers Laggards Outperformers’ Key Characteristics Boeing GS&S, L-3 Communications, General Dynamics IS&T and Harris were the only government-centric companies to post positive, albeit modest, growth in 2Q13. The companies posted year-to-year expansion of 3%, 1.3%, 0.9% and 0.8% respectively, fueled by lower-margin, healthcare IT-based call center engagements, network communications work, and task order activity on maintenance and upgrade contracts. • Healthcare IT system design and implementation, particularly at the state and local level, remains a key driver of revenue growth and above-average margins for Accenture and Xerox, with the latter capturing strong demand for transportationrelated and document outsourcing solutions. • Laggards’ Key Characteristics Laggards such as Unisys and NCI remain in their market-trailing positions in margins and revenue growth during 2Q13, as the firms’ limited portfolio and scale continue to increase the degree of difficulty in adjusting to higher-demand services. SAIC’s year-to-year revenue contraction was also significant, as the firm suffered due to the loss of revenues associated with the $4.6 billion DISA contract taken over by Lockheed Martin and the ramp down of its Joint Logistics Integration contract with the U.S. Army. 11 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  12. 12. Revenue Leaders T BR Revenue leaders seize opportunities in cybersecurity, healthcare and modernization engagements to generate sales Public Sector IT/Professional Services Revenue Leaders 2Q13 (In $ Millions) Leaders SAIC Northrop Grumman IS&TS Boeing GS&S 12 Drivers and Changes $2,550 Reorganize U.K. leadership team to revive flagging international operations and diversify revenue mix away from U.S. markets. General Dynamics U.K. captured two key deals during the quarter, one as a supplier for the U.K.’s G-Cloud iii program and another to develop a quality control system for the National Health Service. No. 3 Pursue state and local healthcare deals, in the U.S. and foreign markets, related to cloud and infrastructure support services. HP won three Medicare/Medicaid deals driven by the upcoming Affordable Care Act and ICD-10 regulation compliance as well as a deal with the government of Catalonia in Spain. No. 2 $2,474 HP Key Strategies $2,489 General Dynamics IS&T Revenue Previous Quarter Rank Leverage cyber and healthcare services to win deals and rebound from year-to-year revenue contraction of 12.5%, the largest decline among benchmark vendors. SAIC won several cyber-related deals, such as capturing one of 17 prime contractor positions on the $6 billion DHS Continuous Monitoring as a Service contract. No. 1 $2,411 Augment core systems integration and logistics work with traditionally underserviced state-level healthcare engagements. IS&TS grew healthcare revenue, leveraging its Avance Web-based insurance eligibility and enrollment solution to support Tennessee and Wyoming as they strive to meet new requirements under the Affordable Care Act. No. 4 $2,248 Target opportunities related to Maintenance, Modification and Upgrade (MM&U) programs. In 2Q13, lower revenue in Integrated Logistics was offset by task orders on MM&U programs, including the C-17 Globemaster III Integrated Sustainment program. No. 6 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  13. 13. Growth Leaders T BR A strong portfolio of healthcare services, particularly for state & local clients, is a common thread among growth leaders Public Sector IT/Professional Services Year-to-Year TTM Growth Leaders 2Q13 Leaders Xerox Accenture SAIC 6.2% 5.5% -0.8% Harris Booz Allen Hamilton 13 YTY TTM Growth -1.1% -1.6% Previous Quarter Rank Key Strategies Drivers and Changes Leverage portfolio of transportation and healthcare IT services to drive growth, largely from the state & local government sector. Xerox is leveraging engagements providing managed services, such as virtualization, for the Mississippi Department of Human Services in 4Q12 and New Jersey FamilyCare in 1Q13 to capture revenues. No. 2 Accenture’s revenue was driven by statelevel signings in the U.S. and India for solutions such as eligibility systems. No. 1 SAIC remains adversely affected by significant contract losses, such as the $4.6 billion DISA GIGN contract loss to Lockheed Martin in 2012. No. 3 Harris’ steady revenues from the NCMI IT infrastructure contract were a key driver of the company’s revenue growth in the IT Services segment over the past year. No. 12 The acquisitions of SDI and ARINC’s DSES division, both completed in the past 12 months, helped buoy the company’s revenues despite continued pressure from the U.S. public sector, which accounts for 98% of corporate revenues. No. 5 Capture demand, particularly in the U.S., for C&SI engagements related to federally driven healthcare requirement compliance. Prepare for the upcoming corporate split, which will result in the spin out of SAIC’s current Health & Engineering segment, the company’s primary growth engine. Counter the loss of the Navy Marine Corps Intranet (NCMI) contract, which was won by HP in 2H12 and is currently under protest. Continue to leverage healthcare, cybersecurity and intelligence work to generate revenues while simultaneously expanding its Middle East footprint. Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  14. 14. Margin Leaders T BR Margin leaders utilize scale and end-to-end service provision to maintain profitability 2Q13 Total Operating Margin for Public Sector Leaders Leaders Previous Quarter Rank Accenture Key Strategies Drivers and Changes 11.8% Leverage proprietary platforms and related existing inventory to deliver integrated logistics, modernization and upgrade support at low cost. Boeing’s operating margin of 11.8% represents a decrease of 10 basis points from the year-ago quarter; however, strong contract performance and tight control of sales-related expenses position the company ahead of its peer group. No. 4 11.7% Leverage consulting capabilities and modular platform-based solutions to deliver high-value, replicable, yet still customizable options to state and local government clients. Accenture’s ability to engage clients from consulting and design through implementation, particularly at the state & local level, is a key driver of its consistently strong margins. No. 1 11.5% Boeing GS&S CSC Operating Margin Divest noncore business units to shift portfolio mix toward highervalue services. CSC scaled down its portfolio from more than 2,000 offerings to 312 during FY2013, enabling the firm to focus on its technology solutions portfolio that covers cloud, big data, analytics and cybersecurity. No. 6 Among other government-centric IT services vendors, ITT Exelis led in operating margin (10.2%), followed by Booz Allen Hamilton (9.7%), Lockheed Martin IS&GS (9.2%), Northrop Grumman IS&TS (8.7%), Raytheon II&S (8.3%), General Dynamics IS&T (7.8%), CACI (7.4%), L-3 Communications (7.3%), ManTech (6.4%), Harris (4.2%), NCI (4%) and SAIC (3%). 14 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  15. 15. Growth Trends and Drivers T BR Trailing 12-month revenue growth remained flat sequentially in 2Q13, but will contract further in 3Q13 as federal budget pressure intensifies COMPANY General Dynamics IS&T HP SAIC Northrop Grumman IS&TS Boeing GS&S Lockheed Martin IS&GS IBM Global Services Raytheon II&S Xerox Booz Allen Hamilton ITT Exelis L-3 Communications CSC CACI Harris Dell Accenture ManTech Unisys NCI Average Public Sector TTM Growth YTY (2Q13 vs. 1Q13) 2Q13 PUBLIC SECTOR REVENUE 1Q13 PUBLIC REVENUE (In $ Millions) GROWTH TTM YTY $ 2,550 -7.6% $ 2,489 -2.1% $ 2,474 4.6% $ 2,411 -6.3% $ 2,248 -0.9% $ 2,101 -4.9% $ 2,022 -3.1% $ 1,570 -2.2% $ 1,469 6.1% $ 1,428 -1.7% $ 1,251 -10.6% $ 1,215 -12.2% $ 1,053 -8.7% $ 913 -1.9% $ 884 -6.1% $ 812 -6.1% $ 738 6.7% $ 605 -10.3% $ 303 -13.3% $ 83 -28.8% $ 1,431 -3.8% 2Q13 PUBLIC REVENUE GROWTH TTM YTY -4.9% -3.6% -0.8% -6.9% -2.5% -5.7% -5.0% -2.5% 6.2% -1.6% -11.2% -2.2% -6.0% -2.5% -1.1% -6.0% 5.5% -7.8% -12.2% -19.3% -3.8% CHANGE IN 2Q13 FROM 1Q13 (Basis Points) 270 (150) (540) (60) (160) (80) (190) (30) 10 10 (60) 1,000 270 (60) 500 10 (120) 250 110 950 0 SOURCE: TB R A ND COM P A NY DA TA TTM = Trailing 1 mo nths. Gro wth is co mpared between 3Q1 2 2-2Q1 and 3Q1 -2lQ1 perio ds. 3 1 2 LEGEND Green 15 Above Public Sector Average White Below Public Sector Average Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  16. 16. Growth Trends and Drivers T BR Despite inorganic contributions, few companies realized revenue growth, a trend that will persist in 3Q13 2Q13 Public Sector Total Growth vs. Organic Growth COMPANY General Dynamics IS&T HP SAIC Northrop Grumman IS&TS Boeing GS&S Lockheed Martin IS&GS IBM Global Services Raytheon II&S Xerox Booz Allen Hamilton ITT Exelis L-3 Communications CSC CACI Harris Dell Accenture ManTech Unisys NCI Average 2Q13 PUBLIC SECTOR REVENUE (In $ Millions) $ 2,550 $ 2,489 $ 2,474 $ 2,411 $ 2,248 $ 2,101 $ 2,022 $ 1,570 $ 1,469 $ 1,428 $ 1,251 $ 1,215 $ 1,053 $ 913 $ 884 $ 812 $ 738 $ 605 $ 303 $ 83 $ 1,431 2Q13 YEAR-TO-YEAR TOTAL GROWTH 0.9% -5.0% -12.5% -8.6% 3.0% -7.2% -8.0% -1.7% 7.1% -0.3% -9.3% 1.3% -11.0% -3.8% 0.8% -3.5% 3.3% -5.3% -7.1% -9.0% -4.2% 2Q13 YEAR-TO-YEAR ORGANIC GROWTH 0.2% -5.0% -14.1% -8.6% 3.0% -7.2% -8.0% -1.7% 7.1% -2.3% -9.3% 1.3% -11.0% -6.8% 0.8% -7.0% 3.3% -5.3% -7.1% -9.0% -4.7% SOURCE: TB R A ND COM P A NY DA TA LEGEND Green White 16 Above Public Sector Average Below Public Sector Average Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  17. 17. M&A Trends T BR Public sector companies will remain apprehensive about acquisitions in 3Q13, as financial flexibility remains a higher priority Public sector firms remained cautious in pursuing acquisitions during 2Q13 for many of the same reasons that persisted over the past 12 months: the ongoing uncertainty in public sector spending, a lack of corporate appetite for introducing additional risk associated with M&A and difficulty in valuating future revenue contributions from prospective targets. We believe public sector firms will continue to focus on alliances, IP development and corporate restructuring to better align portfolios with the current market environment. Should firms choose to seek M&A opportunities, we expect cybersecurity, mobility, analytics, and healthcare IT to remain high priorities. Public Sector Related Acquisitions Completed in 2Q13 by IT/Professional Services Vendors Acquired Firm Service Focus Headcount, Revenue, Purchase Price Lockheed Martin IS&GS Amor Group IT Services — the U.K.-based Amor Group provides IT solutions for the public, energy and transportation verticals. It offers a range of vertical-focused managed services, consulting and software development. Headcount: 500 Rev. Contribution: $105 million (est.) Purchase Price: Undisclosed Accenture Federal Services ASM Research IT Services — ASM provides the Department of Defense and Veterans Affairs with a range of healthcare and human capital-focused ITO, cloud and analytics services. Headcount: 480 Rev. Contribution: $72 million (est.) Purchase Price: Undisclosed Visual Analytics Analytics — provides a range of analytics and big data products for the intelligence, law enforcement and commercial segments; the company’s core product is its Visualinks software that shows data graphically to enable users to spot patterns and trends Headcount: 30 Rev. Contribution: $15 million (est.) Purchase Price: $14 million Trusteer Cybersecurity — provides a range of security software for enterprises with a primary focus on financial systems; its solutions include endpoint protection, fraud detection, mobile security and malware prevention Headcount: 300 Rev. Contribution: $100 million (est.) Purchase Price: Undisclosed Acquirer Raytheon IBM 17 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  18. 18. New Service Offerings T BR Public sector companies are expanding their cybersecurity offerings to enhance their end-to-end cyber solutions capabilities New Service Offerings Announced in 2Q13 by Professional Services Vendors Serving the Public Sector Firm Service/Solution Description TBR Assessment Increased awareness of the need for This update to the Responder Pro suite leverages security solutions, especially within analytics capabilities to detect malware and other Responder Pro cloud and virtualized environments, viruses embedded in physical memory on Windows 2.1 will drive adoption of ManTech’s computers, allowing incident responders to product-based solution set by both safeguard computing infrastructures. ManTech public sector and commercial clients. The new iteration of Active Defense 1.3 is designed Additional product-centered to provide similar memory malware and virus cybersecurity solutions also provide Active Defense detection as Responder Pro, but in virtualized ManTech with the opportunity to 1.3 desktop environments where runtime memory grow profitability in a high-value analysis is more applicable. segment. The GDNexus solution enables IS&T to IS&T introduced the GDNexus platform, a collaborate with innovative companies collaborative cybersecurity service broker solution and locate potential alliance partners managed by General Dynamics aimed at reducing GD Nexus for the delivery of cybersecurity acquisition risk for buyers, accelerating delivery and General solutions to its federal clients. The connecting public sector and commercial buyers Dynamics expansion of the company’s productwith integrated solutions from vendors. IS&T based cybersecurity portfolio also IS&T’s Fidelis unit released a product-based positions IS&T to more easily Fidelis XPS cybersecurity solution that provides intrusion penetrate the commercial Vector detection and prevention from inbound malware. cybersecurity market. Xerox released a central management solution for The Merge offering positions Xerox municipal parking operations that integrates Services to become a leading provider hardware and software to provide real-time of end-to-end parking solutions and Xerox Merge information about coin collections, meter will allow Xerox to remain a leading maintenance, enforcement and occupancy to provider of transportation services to enhance municipal parking revenues. public sector clients. 18 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  19. 19. Contract Trends T BR Public sector deal activity is pressured by budgetary constraints, although demand for IT modernization and healthcare remains Key Deals in 2Q13 by Professional Services Vendors Serving the Public Sector Firm Contract/Description SAIC SAIC won a single award ID/IQ contract from NASA to provide a range of scientific, health, engineering, operational and technical support services to the agency's Johnson Space Center Human Health and Performance directorate and the Human Exploration and Operations Mission Directorate Human Research Program. 10 years $1.8 Billion TPV* Lockheed Martin IS&GS Lockheed won a contract from the U.S. Air Force to run the Network Command Center, which supports the National Capital Region. Lockheed will provide several services, including desktop support, enterprise applications, planning, project and engineering services, and National Military Command Center support. 10 years $320 Million TPV Northrop Grumman IS&TS Northrop’s IS division was awarded a task order under the Solutions for Information Technology Enterprise contract by the Defense Intelligence Agency to support the full software development life cycle of DIA’s IT systems. 4 years $318 Million TPV 6.5 years $220 Million TPV 5 years $96 Million TPV HP Services ManTech 19 Duration HP Enterprise Services was awarded a deal by the Indiana Department of Administration to construct and implement Indiana’s new Medicaid Management Information System (MMIS). HP will deploy its Medical Assistance Provider Incentive Repository application and will provide additional services and support. ManTech won a single-award blanket purchase agreement under a GSA Schedule contract from the Customs and Border Protection Agency (CBP) to provide training services for information technology systems, wireless and voice communications equipment, and enforcement technology to all CBP personnel as well as other federal, state and local law enforcement agencies. Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly Price * TPV = Total potential value for all awardees ©2013 Technology Business Research, Inc.
  20. 20. Resource Management T BR The need for security clearances and highly specialized engineering and cybertalent drives high productivity metrics for government-led companies • Government-centric companies continue to lead in resource productivity metrics, with Boeing GS&S far outpacing its competitive set, followed by Raytheon II&S, L-3 Communications and Lockheed Martin IS&GS. Government-focused vendors traditionally lead their commercial counterparts in employee productivity metrics due to the higher value and more sensitive nature of the services provided, particularly in federal defense, intelligence and classified agencies. This value is largely established due to the high level of security clearances required for a large cross-section of these companies’ employees. Companies engaging federal defense, intelligence and classified agencies are able to bill clients at higher rates than in the federal civilian or commercial markets as a result of the highly specialized skills and top-level security clearances required to bid and perform work on particular projects. Some federal contractors, such as Raytheon, Lockheed Martin and Northrop Grumman augment larger-scale engagements with smaller, extremely high-margin niche R&D work for agencies such as DARPA (Defense Advanced Research Projects Agency) and IARPA (Intelligence Advanced Research Projects Agency). • Among the commercial players, companies with strong end-to-end consulting, design and implementation capabilities or easily replicable services delivered via modular platforms, such as CSC, IBM and Accenture, are able to bill at a higher rate than more technically oriented competitors. Firms that are able to replicate commercial capabilities in the public space, such as with healthcare IT, are able to drive down cost of sales due to the portability of solutions related to EHR or analytics, particularly to clients in the state & local segment. • 20 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  21. 21. Future Outlook T BR Regardless of a potential federal budget flush, the majority of public sector players are poised for further revenue contraction in 3Q13 The FY14 federal IT budget request totals approximately $82 billion, an increase of 1.8% from the projected FY13 figure of $80.6 billion (under continuing resolution) and up 2.1% from the FY12 budget of $80.3 billion. These figures considered, the federal IT budget has grown by a CAGR of 0.8% since FY2009, down from a CAGR of 7.1% between FY01 and FY09, indicative of long-term spending constraints, regardless of sequestration impact. • Of note in the FY14 budget request is a slight resurgence in defense spending, which is essentially flat from 2012 levels (up $10 million) and up roughly 2% from 2013. Federal civilian agencies will continue to reap the majority of the budget expansion, with FY14 aggregate spending projected to be up 4.1% over 2012 and 1.5% over FY13. • The following federal agencies are realizing the largest budget adjustments between 2013 and 2014: Department of Veterans Affairs (19.1%, $623 million), Department of Homeland Security (7%, $398 million), Department of State (4.3%, $59 million), Social Security Administration (-6.3%, -$101 million), General Services Administration (-11.5%, -$63 million) and the Department of Urban Development (-36.2%, -$167 million). • 21 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  22. 22. Contents T BR Key Findings & Trends PSBQ Benchmark Metrics 3 Executive Summary 23 Market Strategy Metrics 4 Scoring Summary 5 Strategic Actions/Key Developments 28 Resource Management Strategy Metrics 10 Market Overview 11 Revenue, Growth and Margin Leaders 12 Revenue Leaders 13 Growth Leaders 14 Margin Leaders 15 Growth Trends and Drivers 17 M&A Trends 35 Financial Strategy Metrics 44 Company Scores Over Previous Nine Quarters 52 Revenue, Growth and Margin Leaders Tables 54 Contracts and Backlog Appendix 56 About TBR 18 New Service Offerings 19 Contract Trends 20 Resource Management 21 Future Outlook 22 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  23. 23. PSBQ Benchmark Metrics T BR Market Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 7.70 7.55 7.52 7.36 6.95 6.59 6.39 5.27 5.02 4.92 4.48 4.39 3.99 3.64 3.57 3.39 3.21 2.87 2.12 1.58 COMPANY General Dynamics IS&T HP SAIC Northrop Grumman IS&TS Boeing GS&S Lockheed Martin IS&GS IBM Global Services Raytheon II&S Xerox Booz Allen Hamilton ITT Exelis L-3 Communications CSC CACI Harris Dell Accenture ManTech Unisys NCI Note: Revenue represented in the above table reflects either reported total public sector services revenue or TBR estimates of total public sector services revenue. 23 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  24. 24. PSBQ Benchmark Metrics T BR Market Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 7.41 6.57 6.51 6.12 6.03 6.02 5.76 5.46 5.06 4.99 4.72 4.66 4.27 4.24 4.05 3.91 3.83 3.77 3.39 3.06 COMPANY Xerox Accenture Boeing GS&S L-3 Communications General Dynamics IS&T Harris Booz Allen Hamilton Raytheon II&S Dell CACI HP ManTech Unisys Lockheed Martin IS&GS IBM Global Services Northrop Grumman IS&TS NCI ITT Exelis CSC SAIC Note: Revenue growth represented in the above tables is based on either reported total public sector revenue growth or TBR estimates of public sector revenue. 24 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  25. 25. PSBQ Benchmark Metrics T BR Market Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 7.51 6.69 6.63 6.26 6.16 6.01 5.62 5.48 4.89 4.84 4.51 4.46 4.46 4.43 4.24 4.12 4.04 3.98 3.61 2.94 COMPANY Xerox Accenture Boeing GS&S L-3 Communications Harris General Dynamics IS&T Raytheon II&S Booz Allen Hamilton HP ManTech CACI Dell Unisys Lockheed Martin IS&GS IBM Global Services Northrop Grumman IS&TS NCI ITT Exelis CSC SAIC Note: Organic revenue growth represented in the above tables is estimated by TBR based on total public sector growth net or our assessment of the revenue impact of acquisitions made by the companies over the last four quarters. 25 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  26. 26. PSBQ Benchmark Metrics T BR Market Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 9.25 9.01 8.59 6.49 6.12 5.33 5.24 5.11 4.84 4.64 4.51 4.36 4.27 3.91 3.61 2.57 2.37 2.31 2.17 1.99 COMPANY HP CSC Xerox Accenture IBM Global Services Harris ManTech Booz Allen Hamilton Dell CACI ITT Exelis NCI Boeing GS&S Unisys SAIC L-3 Communications Northrop Grumman IS&TS General Dynamics IS&T Raytheon II&S Lockheed Martin IS&GS Note: Backlog/revenue ratio is estimated for commercial-centric companies in the above graphic and based on total services backlog. 26 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  27. 27. PSBQ Benchmark Metrics T BR Market Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 27 TBR SCORE TOP 3 COMPANIES 8.79 7.04 6.84 6.76 6.46 6.30 6.10 5.74 5.03 4.99 4.75 4.74 3.84 3.69 3.45 3.30 3.27 2.96 2.89 0.13 COMPANY Boeing GS&S Accenture IBM Global Services Northrop Grumman IS&TS HP General Dynamics IS&T Xerox Lockheed Martin IS&GS Dell CACI Booz Allen Hamilton Unisys Harris SAIC ITT Exelis Raytheon II&S ManTech NCI CSC L-3 Communications Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  28. 28. PSBQ Benchmark Metrics T BR Resource Management Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 8.64 8.62 8.08 6.83 6.47 6.33 5.83 5.70 5.64 5.55 4.98 4.41 4.36 4.28 3.94 3.85 2.97 2.67 2.56 1.61 COMPANY IBM Global Services CACI Harris Xerox Accenture Dell Booz Allen Hamilton Boeing GS&S L-3 Communications ITT Exelis CSC General Dynamics IS&T HP Lockheed Martin IS&GS Northrop Grumman IS&TS Raytheon II&S Unisys ManTech NCI SAIC Public sector-centric vendors tend to realize lower gross margins than commercial-centric companies (see following slide). Note: Margins represented in the above tables reflect either reported total services margins or TBR estimates of total services margins. 28 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  29. 29. PSBQ Benchmark Metrics T BR Resource Management Strategy Metrics Vendors focused primarily on the public sector tend to realize lower gross margins than their commercially oriented counterparts, as business acquisition, bid and proposal, and various engagement costs (such as contract-centered R&D) are bucketed within cost of sales under federal guidelines. Some government-centric vendors, such as Harris, drive higher gross margins by maintaining a product component within service lines. Often, these firms realize higher opex levels as a result of their elevated internal R&D expenses or preferred cost allocation structure, such as CACI’s preference to realize subcontractor costs as an operating expense rather than cost of sales (see slide 31). 29 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  30. 30. PSBQ Benchmark Metrics T BR Resource Management Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 6.53 6.17 5.96 5.94 5.91 5.88 5.87 5.71 5.65 5.61 5.46 5.32 5.28 5.27 5.26 5.08 5.00 4.48 3.72 3.48 COMPANY SAIC ManTech Northrop Grumman IS&TS Raytheon II&S CSC Lockheed Martin IS&GS NCI IBM Global Services Boeing GS&S General Dynamics IS&T ITT Exelis Unisys Accenture Booz Allen Hamilton Dell HP L-3 Communications Xerox CACI Harris Public sector-centric vendors tend to have lower opex as a percentage of sales than commercial-centric companies (see following slide). Note: Operating expenses represented in the above tables reflect either reported total services operating expenses or TBR estimates of total services operating expenses. 30 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  31. 31. PSBQ Benchmark Metrics T BR Resource Management Strategy Metrics Government-centric IT services vendors tend to realize lower operating expenses as a percentage of revenues as traditional operating activities, such as R&D, are often expensed to a given government contract; however, there are some exceptions. During the quarter, Harris’ operating expenses increased sequentially by nearly $100 million to $300.7 million. The increase was due to a $127 million expense associated with restructuring, debt asset impairment and debt repayment costs. Commercial providers tend to realize greater operating expenses than many of their government-centric counterparts given the higher level of R&D costs related to product development, and increased bid and proposal costs related to smaller state and local deals. 31 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  32. 32. PSBQ Benchmark Metrics T BR Resource Management Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 10.00 7.62 6.71 6.59 5.99 5.76 5.68 5.41 5.15 5.12 4.97 4.91 4.67 3.82 3.81 3.35 2.95 2.91 2.58 1.61 COMPANY Boeing GS&S Raytheon II&S L-3 Communications Lockheed Martin IS&GS SAIC Northrop Grumman IS&TS ManTech ITT Exelis CACI General Dynamics IS&T Booz Allen Hamilton CSC Harris Accenture IBM Global Services Dell Xerox HP NCI Unisys Note: Revenue per employee represented in the above tables reflects either reported total services revenue per services employee or TBR estimates of total services revenue per services employee. 32 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  33. 33. PSBQ Benchmark Metrics T BR Resource Management Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 9.19 6.61 6.24 6.16 6.10 5.99 5.89 3.19 5.60 5.52 5.37 5.29 5.14 4.97 4.93 4.74 4.27 3.68 0.00 0.00 COMPANY Boeing GS&S IBM Global Services Raytheon II&S Lockheed Martin IS&GS CSC L-3 Communications Northrop Grumman IS&TS ITT Exelis Harris Accenture Dell Booz Allen Hamilton CACI ManTech Xerox SAIC HP Unisys General Dynamics IS&T NCI Note: Operating income per employee represented in the above tables reflects either reported total services operating income per services employee or TBR estimates of total services operating income per services employee. 33 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  34. 34. PSBQ Benchmark Metrics T BR Resource Management Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 7.88 7.83 7.73 7.63 7.11 6.76 6.16 5.39 5.28 4.88 4.88 4.42 3.96 3.61 3.61 3.51 3.30 3.20 3.10 1.67 COMPANY Raytheon II&S Northrop Grumman IS&TS Lockheed Martin IS&GS General Dynamics IS&T CACI SAIC NCI Accenture ITT Exelis Boeing GS&S Harris IBM Global Services Unisys Xerox L-3 Communications HP CSC Dell ManTech Booz Allen Hamilton Note: Turnover rate represented in the above tables reflects either reported total services employees turnover rate or TBR estimates of total services employees turnover rate. 34 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  35. 35. PSBQ Benchmark Metrics T BR Financial Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 5.97 5.94 5.92 5.86 5.75 5.72 5.66 5.59 5.58 5.51 5.46 5.37 5.32 5.30 5.17 5.14 4.85 4.82 4.73 4.68 COMPANY Boeing GS&S Accenture CSC Dell IBM Global Services ITT Exelis Booz Allen Hamilton Lockheed Martin IS&GS Xerox Northrop Grumman IS&TS Raytheon II&S General Dynamics IS&T CACI L-3 Communications ManTech HP Harris NCI Unisys SAIC Note: Margins represented in the above tables reflect either reported total services margins or TBR estimates of total services margins. 35 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  36. 36. PSBQ Benchmark Metrics T BR Financial Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 10.00 8.26 7.01 6.70 6.67 6.66 6.00 5.78 5.66 5.14 4.91 4.62 4.32 3.62 3.59 2.64 2.58 2.54 1.90 1.08 COMPANY ManTech L-3 Communications CSC Raytheon II&S SAIC Northrop Grumman IS&TS NCI Accenture Booz Allen Hamilton Harris ITT Exelis Unisys General Dynamics IS&T Boeing GS&S Xerox Dell Lockheed Martin IS&GS IBM Global Services HP CACI Note: Current ratio represented in the above tables reflects either reported total company current ratio or TBR estimates of total company current ratio. 36 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  37. 37. PSBQ Benchmark Metrics T BR Financial Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 7.12 6.36 6.11 6.07 6.04 5.78 5.77 5.73 5.69 5.65 5.50 5.31 5.28 5.27 4.92 4.64 4.61 4.32 1.28 0.00 COMPANY ManTech CACI SAIC Xerox L-3 Communications Accenture Northrop Grumman IS&TS General Dynamics IS&T Raytheon II&S Harris CSC ITT Exelis HP Dell IBM Global Services Booz Allen Hamilton Boeing GS&S Lockheed Martin IS&GS Unisys NCI Note: Debt-to-asset ratio represented in the above table reflects either reported total company debt-to-asset ratio or TBR estimates of total company debt-to-asset ratio. 37 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  38. 38. PSBQ Benchmark Metrics T BR Financial Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 8.38 7.07 6.02 5.73 5.72 5.71 5.67 5.65 5.42 5.34 5.28 5.13 5.12 4.95 4.71 4.65 4.37 3.87 3.53 3.42 COMPANY Accenture IBM Global Services CSC Northrop Grumman IS&TS Lockheed Martin IS&GS Raytheon II&S Booz Allen Hamilton SAIC CACI ITT Exelis L-3 Communications Boeing GS&S ManTech Xerox Dell Unisys NCI General Dynamics IS&T Harris HP Note: Return on assets ratio represented in the above tables reflects either reported total company return on assets ratio or TBR estimates of total company return on assets ratio. 38 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  39. 39. PSBQ Benchmark Metrics T BR Financial Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 10.00 7.28 6.45 6.44 6.43 5.25 5.01 4.83 4.78 4.72 4.48 4.45 4.43 4.32 4.22 4.01 3.81 3.74 3.61 3.37 COMPANY Lockheed Martin IS&GS IBM Global Services Booz Allen Hamilton Accenture Boeing GS&S CSC ITT Exelis Raytheon II&S SAIC Northrop Grumman IS&TS L-3 Communications CACI Dell Xerox ManTech NCI General Dynamics IS&T Unisys Harris HP Note: Return on equity ratio represented in the above tables reflects either reported total company return on assets ratio or TBR estimates of total company return on equity ratio. 39 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  40. 40. PSBQ Benchmark Metrics T BR Financial Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 6.69 6.65 6.49 6.41 5.98 5.91 5.74 5.61 5.48 5.38 5.37 5.28 5.20 5.19 5.19 4.73 4.38 0.90 0.66 0.00 COMPANY CACI Unisys Dell Lockheed Martin IS&GS Xerox Boeing GS&S Booz Allen Hamilton ITT Exelis L-3 Communications ManTech Accenture Raytheon II&S IBM Global Services CSC Northrop Grumman IS&TS SAIC NCI HP Harris General Dynamics IS&T Note: Operating cash flow to net income ratio represented in the above tables reflects average reported cash from operations over average corporate net income for the trailing 12 months. 40 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  41. 41. PSBQ Benchmark Metrics T BR Financial Strategy Metrics RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 10.00 7.70 7.50 6.81 6.21 5.67 5.22 4.95 4.63 4.43 4.40 4.38 4.31 3.95 3.81 3.71 3.51 3.15 2.46 2.43 COMPANY SOURCE: TBR ESTIMATES AND COMPANY DATA TBR Harris IBM Global Services HP Accenture Xerox Boeing GS&S ITT Exelis L-3 Communications Northrop Grumman IS&TS General Dynamics IS&T Booz Allen Hamilton CSC Dell CACI Lockheed Martin IS&GS Unisys NCI SAIC Raytheon II&S ManTech Note: Operating cash flow margin represented in the above tables reflects average reported cash from operations over average corporate revenue for the trailing 12 months. 41 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  42. 42. PSBQ Benchmark Metrics T BR Financial Strategy Metrics TBR RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 7.32 6.72 5.84 5.76 5.74 5.70 5.38 5.27 5.26 5.14 5.12 4.77 4.72 4.41 4.19 3.91 3.36 3.20 3.15 3.14 COMPANY Harris Accenture L-3 Communications Booz Allen Hamilton CACI Xerox ITT Exelis Raytheon II&S IBM Global Services NCI HP Northrop Grumman IS&TS SAIC ManTech CSC Dell Lockheed Martin IS&GS Unisys General Dynamics IS&T Boeing GS&S Note: Operating cash flow coverage ratio represented in the above tables reflects average reported cash from operations over average current liabilities for the trailing 12 months. 42 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  43. 43. PSBQ Benchmark Metrics T BR Financial Strategy Metrics RANKING 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TBR SCORE TOP 3 COMPANIES 6.85 6.53 5.94 5.92 5.87 5.83 5.59 5.50 5.37 5.35 5.34 5.31 5.20 5.08 4.96 4.82 4.73 4.68 4.65 3.62 COMPANY IBM Global Services Accenture General Dynamics IS&T Raytheon II&S Northrop Grumman IS&TS Lockheed Martin IS&GS ITT Exelis L-3 Communications HP Boeing GS&S Booz Allen Hamilton CSC CACI ManTech Unisys NCI SAIC Dell Xerox Harris SOURCE: TBR ESTIMATES AND COMPANY DATA TBR Note: Net margin represented in the above tables reflects reported corporate net margin. 43 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  44. 44. PSBQ Benchmark Metrics T BR Company Scores Over Previous Nine Quarters (Government-centric Firms) Key Represents an area where company is challenged versus peers (score is <4.50) Represents an area where company is outperforming peers (score is >5.50) Represents an area where company is neither significantly outperforming nor underperforming peers (score is between 4.50 and 5.50) 44 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  45. 45. PSBQ Benchmark Metrics T BR Company Scores Over Previous Nine Quarters (Government-centric Firms) Key Represents an area where company is challenged versus peers (score is <4.50) Represents an area where company is outperforming peers (score is >5.50) Represents an area where company is neither significantly outperforming nor underperforming peers (score is between 4.50 and 5.50) 45 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  46. 46. PSBQ Benchmark Metrics T BR Company Scores Over Previous Nine Quarters (Government-centric Firms) Key Represents an area where company is challenged versus peers (score is <4.50) Represents an area where company is outperforming peers (score is >5.50) Represents an area where company is neither significantly outperforming nor underperforming peers (score is between 4.50 and 5.50) 46 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  47. 47. PSBQ Benchmark Metrics T BR Company Scores Over Previous Nine Quarters (Government-centric Firms) Key Represents an area where company is challenged versus peers (score is <4.50) Represents an area where company is outperforming peers (score is >5.50) Represents an area where company is neither significantly outperforming nor underperforming peers (score is between 4.50 and 5.50) 47 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  48. 48. PSBQ Benchmark Metrics T BR Company Scores Over Previous Nine Quarters (Government-centric Firms) Key Represents an area where company is challenged versus peers (score is <4.50) Represents an area where company is outperforming peers (score is >5.50) Represents an area where company is neither significantly outperforming nor underperforming peers (score is between 4.50 and 5.50) 48 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  49. 49. PSBQ Benchmark Metrics T BR Company Scores Over Previous Nine Quarters (Commercial-centric Firms) IBM Global Services Calendar Quarter 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Total Average PSBQ Public Sector Score 6.00 6.34 6.29 6.06 6.40 6.19 6.33 5.88 5.80 Market Strategy Resource Management Strategy Financial Management Strategy 5.55 5.61 5.57 5.27 5.90 5.47 6.20 5.37 5.25 6.16 6.06 5.93 6.09 5.95 6.15 6.05 6.02 6.12 6.30 7.35 7.36 6.83 7.35 6.94 6.72 6.25 6.04 SOURCE: COMPANY DATA & TBR SCORING METHODOLOGY HP Calendar Quarter 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Total Average PSBQ Public Sector Score 4.88 4.54 4.72 4.80 4.21 4.83 5.02 5.07 5.10 Market Strategy Resource Management Strategy Financial Management Strategy 6.29 6.50 6.63 6.82 6.95 6.58 6.65 6.63 6.47 3.60 3.70 3.76 3.88 3.67 4.08 3.93 4.05 4.14 4.76 3.40 3.76 3.70 2.02 3.82 4.47 4.52 4.69 SOURCE: COMPANY DATA & TBR SCORING METHODOLOGY Accenture Calendar Quarter 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Total Average PSBQ Public Sector Score 4.82 5.50 5.69 5.50 5.53 5.22 5.73 6.02 5.87 Market Strategy Resource Management Strategy Financial Management Strategy 4.78 5.62 5.87 5.78 6.17 5.62 5.94 6.35 5.95 4.05 4.45 4.68 4.58 4.77 4.45 5.15 5.36 5.31 5.63 6.41 6.51 6.13 5.67 5.58 6.11 6.35 6.35 SOURCE: COMPANY DATA & TBR SCORING METHODOLOGY Key Represents an area where company is challenged versus peers (score is <4.50) Represents an area where company is outperforming its peers (score is >5.50) Represents an area where company is neither significantly outperforming nor underperforming its peers (score is between 4.50 and 5.50) 49 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  50. 50. PSBQ Benchmark Metrics T BR Company Scores Over Previous Nine Quarters (Commercial-centric Firms) Key Represents an area where company is challenged versus peers (score is <4.50) Represents an area where company is outperforming peers (score is >5.50) Represents an area where company is neither significantly outperforming nor underperforming peers (score is between 4.50 and 5.50) 50 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  51. 51. PSBQ Benchmark Metrics T BR Company Scores Over Previous Nine Quarters (Commercial-centric Firms) Key Represents an area where company is challenged versus peers (score is <4.50) Represents an area where company is outperforming peers (score is >5.50) Represents an area where company is neither significantly outperforming nor underperforming peers (score is between 4.50 and 5.50) 51 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  52. 52. Revenue, Growth and Margin Leaders T BR Public Sector IT Services Revenue and Growth Leaders 2Q13 Public Sector Revenue & Growth COMPANY General Dynamics IS&T HP SAIC Northrop Grumman IS&TS Boeing GS&S Lockheed Martin IS&GS IBM Global Services Raytheon II&S Xerox Booz Allen Hamilton ITT Exelis L-3 Communications CSC CACI Harris Dell Accenture ManTech Unisys NCI 2Q13 PUBLIC SECTOR REVENUE (IN $ MILLIONS) $2,550 $2,489 $2,474 $2,411 $2,248 $2,101 $2,022 $1,570 $1,469 $1,428 $1,251 $1,215 $1,053 $913 $884 $812 $738 $605 $303 $83 2Q13 TTM REVENUE GROWTH YTY -4.9% -3.6% -0.8% -6.9% -2.5% -5.7% -5.0% -2.5% 6.2% -1.6% -11.2% -2.2% -6.0% -2.5% -1.1% -6.0% 5.5% -7.8% -12.2% -19.3% 2Q13 QUARTERLY REVENUE GROWTH YTY 0.9% -5.0% -12.5% -8.6% 3.0% -7.2% -8.0% -1.7% 7.1% -0.3% -9.3% 1.3% -11.0% -3.8% 0.8% -3.5% 3.3% -5.3% -7.1% -9.0% SOURCE: TB R A ND COM P A NY DA TA TTM = Trailing 1 mo nths. Gro wth is co mpared between 3Q1 2 2-2Q1 and 3Q1 -2Q1 perio ds. 3 1 2 LEGEND Green 52 Above Public Sector Average White Below Public Sector Average Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  53. 53. Revenue, Growth and Margin Leaders T BR Public Sector IT Services Margin Leaders COMPANY Boeing GS&S Accenture CSC Dell IBM Global Services ITT Exelis Booz Allen Hamilton Lockheed Martin IS&GS Xerox Northrop Grumman IS&TS Raytheon II&S General Dynamics IS&T CACI L-3 Communications ManTech HP Harris NCI Unisys SAIC 2Q13 Margin Performance 2Q13 GROSS MARGIN 2Q13 OPERATING MARGIN 22.6% 11.8% 24.9% 11.7% 20.4% 11.5% 24.5% 11.1% 31.4% 10.3% 22.1% 10.2% 23.0% 9.7% 18.4% 9.2% 26.0% 9.2% 17.4% 8.7% 17.1% 8.3% 18.8% 7.8% 31.3% 7.4% 22.4% 7.3% 13.6% 6.4% 18.6% 6.2% 29.7% 4.2% 13.2% 4.0% 14.4% 3.4% 10.4% 3.0% 2Q13 NET MARGIN (CORP.) 5.0% 11.3% 4.8% 1.4% 12.9% 6.2% 4.9% 7.5% 1.3% 7.8% 8.0% 8.1% 4.2% 5.8% 3.6% 5.1% -4.2% 2.2% 2.9% 1.7% SOURCE: TB R A ND COM P A NY DA TA GROSS M A RGIN ESTIM A TED FOR DELL, GENERA L DYNA M ICS, HP , IGS, ITT Exelis, L-3, LOCKHEED M A RTIN, NORTHROP GRUM M A N A ND RA YTHEON. OP ERA TING M A RGIN ESTIM A TED FOR DELL, HP , IGS. LEGEND Green 53 Above Public Sector Average White Below Public Sector Average Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  54. 54. Announced Contracts T BR Public Sector Contracts and Deals (2Q13) 2Q13 DEALS: VENDOR SHARE TBR Estimated total contract value for all IT-related or professional services (e.g., consulting) deals with the federal government disclosed in the Federal Procurement Data System for the companies in the PSBQ Public Sector Benchmark was $8,294 million in 2Q13. Booz Allen Hamilton, 6.7% CSC , 8.2% HP Services, 6.6% L-3 Communications, 5.5% CACI, 3.6% Northrop Grumman, 9.0% General Dynamics, 3.6% Raytheon IT Services, 10.9% Other, 13.9% SAIC, 13.3% SOURCE: FEDERAL PROCUREMENT DATA SYSTEM & TBR ANALYSIS Lockheed Martin IS&GS, 18.6% In 2Q13 aggregate deal value for contracts publically disclosed by the 20 firms in the benchmark rose by roughly $2.14 billion, resulting in a total contract value of $8.29 billion. We believe the uptick was in part due to agencies flushing budget before the end of the federal fiscal year. • Government-centric contractors Lockheed Martin IS&GS, Raytheon IT Services, Northrop Grumman IS&TS and SAIC remained the top contributors at $1.54 billion, $1.1 billion, $904 million and $748 million, respectively. The aforementioned vendors accounted for more than half of reported IT services awards from the federal government in 2Q13 (51.8%). • CSC led all commercial-centric IT service vendors during the quarter, with $679 million in reported deals, followed by HP Services at $303 million, IBM Global Services at $217 million and Accenture at $192 million. • 54 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  55. 55. Backlog T BR Backlog contracted for the third consecutive quarter, brought on by declining OCO funding and prolonged business development cycles TOTAL BACKLOG & SEQUENTIAL BACKLOG GROWTH (2Q13 vs. 1Q13) TBR $20 $15.9 Total Backlog (In $Billions) $15 55.0% $15.4 $14.9 40.0% $11.8 $11.3 $10.5 $10.8 $11.1 $10 25.0% $9.9 $9.7 $9.8 $9.1 $9.4 $7.8 $7.4 $5 -3.7% -3.6% 3.0% -4.7% 0.9% -10.6% 3.3% -5.1% $7.2 $6.9 $7.4 10.0% $6.8 $5.8 $5.8 $6.1 $5.3 -4.2% -8.3% -1.3% -5.0% 0.2% -13.1% $0.6 $0.6 $- -20.0% Sequential Backlog Growth 70.0% $16.5 -35.0% -50.0% 1Q13 Backlog 2Q13 Backlog Sequential Growth SOURCE: TBR ESTIMATES AND COMPANY DATA. GRAPHIC ONLY INCLUDES GOVERNMENT-CENTRIC IT VENDORS. HARRIS, CACI, MANTECH, ITT & NCI ONLY REPORT BACKLOG 0N AN ANNUAL BASIS, THEREFORE TBR ESTIMATES BACKLOG BASED ON COMPANY GUIDANCE OR STATEMENTS MADE ABOUT CONTRACT TRENDS. The aggregate backlog reported by the 13 government-centric contractors detailed in the graph above was $114.7 billion in 2Q13, down 3.7% sequentially from $119.1 billion, marking the third consecutive quarter backlog declined within TBR’s Public Sector IT Services Benchmark. Of the 13 contractors included above, ITT Exelis lead all vendors, with growth at 3.3%, followed by L-3 Communications at 3% in 2Q13. TBR believes contractors’ inability to restock with new deals at the same pace that awards are exiting backlog indicates accelerating year-to-year revenue declines through 2013. 55 Public Sector IT Services Benchmark 2Q13 | Professional Services Business Quarterly ©2013 Technology Business Research, Inc.
  56. 56. About Us Contact Us Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, telecom and enterprise network vendors, and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in formats that are tailored to clients’ needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis. 1.603.929.1166 info@tbri.com www.tbri.com 11 Merrill Drive Hampton, NH 03842 USA 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. All reports are available in PowerPoint and PDF. If you are viewing a PDF and require access to data, tables, etc. for use in internal documents, please visit www.tbri.com and download the PowerPoint version. 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. Technology Business 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 not and 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 report is copyright-protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce.
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