TBR Webinar: Struggling to Navigate the Stormy Waters of Sequestration
 

TBR Webinar: Struggling to Navigate the Stormy Waters of Sequestration

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The TBR Professional Services research team invites you to an invitation-only webinar on Wednesday, March 5, 2014, for a guided recap and analysis of vendor performance as reported in TBR’s Public ...

The TBR Professional Services research team invites you to an invitation-only webinar on Wednesday, March 5, 2014, for a guided recap and analysis of vendor performance as reported in TBR’s Public Sector IT Services Benchmark.

Uncertainty is the new normal in the federal IT market, and the government contracting community continues to face a federal budget atmosphere beset by ongoing resolutions, debt ceiling battles and partisan bickering. The federal government closed out its 2013 fiscal year in 3Q13, and vendors scrambled to capture last-minute awards doled out as part of the seasonal “budget flush” that coincide with the fiscal year end. A handful of contractors delivered better-than-expected fiscal performances in this environment in 3Q13, but TBR believes this is not the long-awaited inflection point preceding a rebound in the overall market in 2014. Data from the Public Sector IT Services Benchmark indicates significant headwinds to growth and margin performance persist and will likely remain throughout much of the upcoming year.

Public Sector Practice Manager and Senior Analyst John Caucis and Analyst Sebastian Lagana will share their perspectives on the results and provide additional insights into vendors’ performances and the future of the public sector IT services market.

Questions for discussion will include:

• How were the market conditions in the federal IT services sector, in particular the ongoing budget turmoil, reflected in TBR’s Public Sector IT Services Benchmark?
• Who are the growth and margin leaders, and why?
• How are public sector IT services vendors adjusting their strategies to adapt to market conditions?
• How are these companies adjusting their portfolios, go-to-market strategies or vertical and geographic market focus?
• What’s new in service and solution introductions, acquisitions and alliances?
• What is the outlook for 2014?

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TBR Webinar: Struggling to Navigate the Stormy Waters of Sequestration TBR Webinar: Struggling to Navigate the Stormy Waters of Sequestration Presentation Transcript

  • TBRT ECH N O LO G Y B U SIN ESS RESEARCH , IN C. Navigating Headwinds and Increased Competitiveness in the Federal Marketplace Insights from TBR’s 3Q13 Public Sector IT Services Benchmark March 5, 2014
  • TBR 2 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Today’s Presenters TBR Public Sector IT Services Benchmark Readout: Presenter Bios Sebastian Lagana Lead Analyst, Public Sector Practice 3 years of experience Email: sebastian.lagana@tbri.com Twitter: @SLaganaTBR John Caucis Senior Analyst and Practice Manager, Public Sector and Health 12 years of experience Email: john.caucis@tbri.com Twitter: @jcaucistbr
  • TBR 3 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. TBR’s Public Sector IT Services Benchmark report delivers unique insight and value through in-depth analysis in a concise, consumable format TBR Public Sector IT Services Practice Overview • TBR's syndicated reports provide ongoing coverage of nine “government-centric” IT services vendors (i.e., firms whose primary customers are government or noncommercial entities): Booz Allen Hamilton, CACI, General Dynamics IS&T, L-3 Communications, Lockheed Martin IS&GS, ManTech, Northrop Grumman IS&TS, Raytheon IIS and SAIC. • TBR also follows the public sector activities of seven leading commercial-centric IT services vendors: Accenture, CGI, CSC, HP Services, IBM Global Services, Unisys and Xerox. • The benchmark includes analysis of four government-centric firms for a total of 20 public sector IT services vendors: Boeing GS&S, Exelis, Harris and NCI. • TBR reports are unique due to their deep, holistic analysis of leading vendor businesses. • Financial modeling and TBR insights help customers build a better understanding of vendor business models. • TBR designs reports and webinars that are clear, concise and responsive to client timelines and provide insight into multiple layers of an organization. • TBR’s strategic assessment provides an impartial reality check on vendors’ performance relative to their strategic objectives and the overall market.
  • TBR 4 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. TBR Public Sector IT Services Benchmark Readout: Agenda and Format Today’s Agenda 1. Key fiscal results from the 3Q13 benchmark 2. Strategic actions to adapt to the market 3. Preliminary 4Q13 data and 2014 outlook 4. Q&A
  • TBR 5 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Focusing on operations to sustain margins was the mantra for federal contractors in 2013; some also forged alliances or acquired capabilities, and one (CACI) made a big splash in the M&A market. Federal budget turmoil continues to define the industry, creating growth and margin headwinds and elevating competition in the federal sector 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights Public sector IT services vendor trends for 3Q13 SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES Preliminary data suggests 4Q13 will be another difficult quarter for most federal contractors, capping off a grueling 2013 and fueling pessimism for 2014. Sales continued to fall in 3Q13, and despite federal year-end budget flush, company backlogs have contracted to the lowest levels in recent years — a grim omen for 2014.
  • TBR 6 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Aggregate average quarterly year-to-year growth rates contracted for a second consecutive quarter during 3Q13 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights The barriers to federal IT market growth remain: budget uncertainty, program delays and terminations, elongated business development and task order provision cycles and tightening short-cycle IT spending SOURCE: TBR ESTIMATES AND COMPANY DATA. AVERAGES ARE BASED ON THE 20 COMPANIES IN THE PSBQ PUBLIC SECTOR IT SERVICES BENCHMARK.
  • TBR 7 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Aggregate backlog grew 3Q13 due to the seasonal increase in award activity coinciding with the end of the federal fiscal year in September 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights Aggregate backlog reported by the 13 government-centric contractors was $106.8 billion in 3Q13, up 1.4% sequentially from $105.3 billion in 2Q13 but down 8.7% from $117.1 billion in the year-ago quarter (3Q12)
  • TBR 8 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. The volume of year-end budget flush fell sharply, causing a precipitous decline in the pace of sequential backlog growth in 3Q13 from 3Q12 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights The aggregate backlog for the 13 government-centric firms in the benchmark study has declined nearly 9%, or more than $10 billion since 3Q12; the seasonal sequential rise was modest compared to 2012 and prior years
  • TBR 9 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. The federal IT environment favors specialization and operational proficiency, but vendors may not realize the rewards in the near term 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights Public sector IT services vendor trends for 3Q13 SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES Preliminary data suggests 4Q13 will be another difficult quarter for most federal contractors, capping off a grueling 2013 and fueling pessimism for 2014. Sales continued to fall in 3Q13, and despite federal year-end budget flush, company backlogs have contracted to the lowest levels in recent years — a grim omen for 2014. Focusing on operations to sustain margins was the mantra for federal contractors in 2013; some also forged alliances or acquired capabilities, and one (CACI) made a big splash in the M&A market.
  • TBR 10 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Contractors sustained sharp focus on cost in 3Q13, but continued top-line contraction in 2013 has neutralized the impact on margin performance 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights Est.
  • TBR 11 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Margin-leading federal contractors commonly restructured business units and companywide to preserve margins Top federally focused operating margin performers in 3Q13 SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES • LOB and portfolio restructuring • Push to higher-value solutions • Revamping of pricing models 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights • Strong contract performance • Shifting sales mix; more classified and intelligence work • Operational restructuring offsetting higher R&D investments • 2013 restructuring paying off; favorable contract adjustments • Facilities consolidation; 1+ million square-foot reduction • Expanding use of shared services 14.9% in 3Q13 11.9% in 3Q13 13.9% in 3Q13* • Corporatewide and sector restructuring and workforce rebalancing • Cost containment and reduced discretionary spending • Increasing automation in solution delivery *ESTIMATED GLOBAL PUBLIC SECTOR MARGIN 11.7% in 3Q13 Other vendor operating margins in 3Q13: Boeing GS&S (11.4%), Booz Allen Hamilton (9.8%), Northrop Grumman IS&TS (9.8%), Lockheed Martin IS&GS (9.1%), Raytheon II&S (9%), L-3 Communications (8.5%), General Dynamics IS&T (8.4%), CACI (7.1%), ManTech (5.6%), NCI (4.4%) and SAIC (3.7%) CSC IBM Harris Exelis
  • TBR 12 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. BAH effectively managed billable headcount costs and aggressively reduced its fixed cost structure through 2012 and 2013. Vendor spotlight — Booz Allen Hamilton margin performance SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES BAH is increasingly reinvesting profit into its operations. • Organic portfolio investment: predictive intelligence, cloud, engineering services, rapid prototyping and cyber • M&A: ARINC’s DSES division and SDI Corp. in late 2012 • Increase volume and breadth of thought leadership • Expand in overseas markets: Middle East/GCC, Africa, APAC BAH successfully elevated its operating margins from the mid-5% range after its late-2010 IPO to almost 10% in 3Q13, despite the turbulent market environment. 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights TBR Position A steadily increasing flow of profit dollars enables Booz Allen Hamilton (BAH) to ramp up organic and inorganic investments in its portfolio and geographic footprint.Booz Allen Hamilton
  • TBR 13 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Federal contractors continue to expand alliance ecosystems to augment capabilities and extend geographic reach Key alliances and partnerships for public sector IT services vendors in 3Q13 SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights FireEye, Red Hat and Splunk: Expands Cyber Security Alliance network to 20 partners, adding machine-based security platforms, open-source solutions and big data indexing No Magic and Be Informed: Enhance CACI’s cloud and integration capabilities in integrated modeling, simulation and analysis and business process platforms Havelsan: Will enable BAH to drive deeper into new markets in MEA, jointly delivering cyber, simulation and training, e- government and border security solutions HP: Access to HP’s R&D and support resources; integrates HP ArcSight security, information and event management (SIEM) technology to enhance the flexibility of CSC’s security tools Booz Allen Hamilton CACI CSC Lockheed Martin IS&GS
  • TBR 14 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. CACI’s largest acquisition ever was an anomaly in 3Q13, a quarter during which the pace of M&A activity was light Key acquisitions by public sector IT services vendors in 3Q13 SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights ServiceMesh: Enterprise cloud management solution (Agility Platform) automating the orchestration of applications across multiple cloud environments Six3 Systems: Broad range of C4ISR, intelligence and cybersecurity solutions; will add 1,600 employees and $275 million to $325 million in sales in FY14 Qantas Defence Services: Logistics, sustainment and modernization services in Australia and southeast APAC CPAS Systems: Toronto-based provider of pension administration software, including defined benefit, defined contribution and hybrid retirement plans Northrop Grumman IS&TS CACI CSC Xerox
  • TBR 15 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Vendor Spotlight — CACI and Six3 Systems M&A SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights Six3 Systems will augment CACI’s operating margin (historically between 7% and 8%). If Six3 maintains an operating margin near analyst estimates of 14%, it would significantly boost CACI’s long-term profitability. The Six3 acquisition was aggressive with limited short-term potential, given lingering uncertainty in the DOD and intel markets. • Customer mix: 70% to 75% intelligence; 20% to 25% DOD; <5% civilian • Contract mix: 50% fixed-price • Service mix: 80% C5ISR; 20% cyber-related Six3 is CACI’s largest-ever acquisition at $820 million, a multiplier of roughly 1.75 on estimated 2013 sales of $470 million; CACI guided for inorganic revenue to rise $275M to $325M in FY14 (ending June 30). TBR Position Six3 is a short-term risk as the DOD and intel space offers limited near-term upside; Six3 is CACI’s vista of the future, subject to the long-term endurance of the C5ISR market.CACI & Six3 Systems
  • TBR 16 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Early 4Q13 data indicates federal contractors continued to struggle as 2013 closed; cynicism pervades the consensus outlook for 2014 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights Public sector IT services vendor trends for 3Q13 SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES Preliminary data suggests 4Q13 will be another difficult quarter for most federal contractors, capping off a grueling 2013 and fueling pessimism for 2014. Sales continued to fall in 3Q13, and despite federal year-end budget flush, company backlogs have contracted to the lowest levels in recent years — a grim omen for 2014. Focusing on operations to sustain margins was the mantra for federal contractors in 2013; some also forged alliances or acquired capabilities, and one (CACI) made a big splash in the M&A market.
  • TBR 17 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. The convergence of lower funding levels, sequestration and the 16-day government shutdown impacted preliminary 4Q13 top-line growth results 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights The government shutdown was moderately disruptive for most contractors, impeding the pace of contract awards and creating resource management and business development challenges. SOURCE: TBR ESTIMATES AND COMPANY DATA. AVERAGES ARE BASED ON THE 20 COMPANIES IN THE PSBQ PUBLIC SECTOR IT SERVICES BENCHMARK.
  • TBR 18 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. The government shutdown extended receivables collection cycles for federally focused contractors in 4Q13 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights Aside from sales growth, the shutdown also had a tangible impact on company receivables and days sales outstanding ledger line items and metrics.
  • TBR 19 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. However, most contractors remain apprehensive about long- term budget uncertainty and anticipate the market environment will remain challenging through 2014. The shutdown exacerbated difficult federal IT market conditions, though December’s budget deal gave a (minor) boost to vendor confidence 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights Contractors expect the budget agreement will provide a stable budget for the next two years, giving the industry some much desired clarity. Vendors welcomed the temporary sequestration relief and near-term planning horizon the budget deal established.
  • TBR 20 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Limited growth opportunities in the federal market in 2014 will force vendors to look to foreign markets and commercializing select offerings 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights Contractors will continue to target markets outside of their core U.S. federal sector, focusing on public sector opportunities in the Middle East, Asia Pacific and Europe. The FY14 federal IT budget request shows a modest increase of 1.8% over FY13, largely driven by demand for mobility, big data and cloud solutions that boost operational efficiencies. Vendors will continue to repurpose offerings in cybersecurity, communications and analytics for applications in nongovernment/DOD sectors (health, public safety, energy).
  • TBR 21 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Vendors expect 2014 to essentially be a repeat of 2013, though there are signs of reaching the low-water mark in the first half of the year SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES 3Q13 PSBQ Public Sector IT Services Benchmark Research Highlights Note: Two-tone bars are TBR estimates, as these companies have yet to release 4Q13 earnings as of Feb. 12, 2014.
  • TBR 22 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Public Sector Research Current Topics 2014 Report Key Themes • Vendor Reports: o Northrop Grumman IS&TS o Lockheed Martin IS&GS o General Dynamics IS&T o Raytheon IT Services o SAIC o L-3 Communications* o ManTech* o CACI** o Booz Allen Hamilton** o Public sector practices of:  IBM Global Services  HP Services  CSC  Accenture  Dell Services  Unisys  Xerox Services • Vendor Benchmark • Benchmark Webinar  How does vendor fiscal performance reflect the overall federal IT services market landscape?  What strategic actions are vendors taking to adjust to market conditions or better position themselves against the competition?  How are public sector IT services vendors leveraging partnerships? Are they forming new alliances? How are they leveraging M&As?  How are vendors managing human capital in the environment?  Where are vendors capitalizing on new adjacent market opportunities? What new markets — domestic, international or commercial — are public sector IT services vendors eyeing to generate revenue? High-growth Segments Strategic Actions Alliances and Acquisitions Resource Management Growth and Margin Performance TBR’s Public Sector practice will continue tracking the activities of the leading federal IT services contractors and their commercial counterparts Public Sector IT Services Practice Research Outlook: 3Q13 Research Highlights *SEMIANNUAL: REPORTS PUBLISH IN CALENDAR 2Q/4Q. ** SEMIANNUAL: REPORTS PUBLISH IN CALENDAR 1Q/3Q.
  • TBR 23 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. Questions? Public Sector IT Services Practice Research Outlook: Questions
  • TBR 24 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. John Caucis Senior Analyst & Practice Manager, Public Sector and Health Email: john.caucis@tbri.com Twitter: @jcaucistbr Telephone: 603.758.1836 Professional Services Business Quarterly Research Highlights and Outlook: Contact Information Sebastian Lagana Lead Analyst, Public Sector Practice Email: sebastian.lagana@tbri.com Twitter: @slaganatbr Telephone: 603.758.1857 James McIlroy Vice President of Sales Email: mcilroy@tbri.com Telephone: 603.929.1166 Twitter: @TBRinc SlideShare: www.slideshare.net/TBR_Market_Insight YouTube: www.youtube.com/user/TBRIChannel
  • TBR 25 TBR Quarterly Benchmark Readout | 3.5.14 | www.tbri.com | ©2014 Technology Business Research Inc. PSP Syndicated Research Coverage IT Services Vendors Public Sector Vendors Benchmarks (Benchmark XLS data also available) • Accenture • Atos • Capgemini • CGI* • Cisco Services • Cognizant • CSC • Dell Services • Fujitsu • Genpact* • HCL Technologies • HP Services • IBM Global Services • Infosys • KPN Corporate Market* • Tata Consultancy Services • T-Systems • Unisys • Wipro IT Services • Xerox Services • Booz Allen Hamilton* • CACI International* • General Dynamics IS&T* • L3 Communications* • Lockheed Martin IS&GS* • ManTech* • Northrop Grumman IS&TS* • Raytheon Intelligence, Information & Services* • Global Delivery Market Landscape • Healthcare IT Services Vendor Benchmark • IT Services Vendor Benchmark • Management Consulting Benchmark • Public Sector IT Services Vendor Benchmark • Software Alliance Benchmark Healthcare IT Services Vendors • Accenture HITS* • CSC HITS* • Dell HITS* • HP HITS* • IBM HITS* Management Consulting Vendors • Bain & Company* • Booz & Company* • Boston Consulting Group* • Deloitte Consulting* • McKinsey & Co.* TBR Professional Services Practice Syndicated Coverage *Semiannual publication
  • TBRT ECH N O LO G Y B U SIN ESS RESEARCH , IN C. About TBR 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. 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. Contact Us 1.603.929.1166 info@tbri.com www.tbri.com 11 Merrill Drive Hampton, NH 03842 USA 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.