the ‘perfect storm’ of uncertainty continues to plague the federal it contracting environment...

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TECHNOLOGY BUSINESS RESEARCH, INC.

Pockets of opportunity in the turbulent public sector IT services space: Insights from TBR’s 4Q12 Public Sector Benchmark

Technology Business Research Quarterly Webinar Series

May 15, 2013

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2 TBR Quarterly Webinar Series | 5.15.13 | www.tbri.com | ©2013 Technology Business Research Inc.

Professional Services Business Quarterly Research Highlights and Outlook: Webinar Presenter

John CaucisPublic Sector Practice Manager

Email: [email protected]: @jcaucistbr

Analyst Photo

Sebastian LaganaLead Analyst, Public Sector Practice

Email: [email protected]: @slaganatbr

mailto:[email protected]


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TBR’s Public Sector IT Services Benchmark report delivers unique insight and value through in-depth analysis in a concise, consumable format

Public Sector IT Services Benchmark: Webinar Overview

• TBR covers nine “government-centric” IT services vendors (i.e., firms whose primary customers are government or noncommercial entities) on an ongoing basis with its syndicated reports.

• TBR also follows the public sector activities of seven leading, commercial-centric IT services vendors.

• The benchmark report includes analysis of four additional government-centric firms for a total of 20 public sector IT services vendors.

• TBR reports are unique due to their deep, holistic analysis of leading vendor businesses.

• Financial modeling and TBR insights help customers build a better understanding of vendor business models.

• TBR reports and webinars are designed to be responsive to client timelines, to be clear and concise, and to provide insights regarding multiple layers of an organization.

• TBR’s strategic assessment provides an impartial reality check on how vendors are performing, relative to their strategic objectives and the overall market.

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The challenging environment is driving vendors to branch out from their core federal space to new markets, enhance operational efficiencies & optimize contract execution

The challenges in 2012 compelled public sector IT firms to prospect outside core markets, though most will not see growth return in 2013

PSBQ Public Sector Benchmark Research Highlights and 2013 Outlook

Public Sector IT Services Vendor Trends for 4Q12

2012 saw unprecedented turmoil in the federal IT market, inhibiting company’s fiscal performance and leaving vendors clamoring for clarity about the market’s direction in 2013

SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES

Vendor guidance shows that despite efforts to diversify into new markets, 2013 is expected to be another difficult year characterized by declining revenue and downward pressure on margins

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Average growth rates leveled off in 4Q12 after a period of steady decline but remained solidly negative as federal IT spending continued to contract

Public Sector IT Services Benchmark 4Q12 Research Highlights: Key Trends

Average revenue growth for the 20 firms in the PSBQ Public Sector IT Services Benchmark ticked up for the 1st time since the beginning of 2012, though mostly due to seasonal factors as IT spending in the federal space remained constrained.

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Lower IT spending: declining IT spending volumes across federal agencies & many state governments

Vendors were impacted by the ongoing federal budget chaos, declining IT spending and the drawdown of operations in Iraq & Afghanistan


Primary Market Headwinds for Public Sector IT Services Vendors in 4Q12


Iraq/Afghanistan: reduction in Overseas Contingency Operations (OCO) funding

Budget turmoil: IT program delays & terminations and elongated sales cycles

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Realigning portfolios and market focus to growth areas in the U.S. federal, commercial and foreign markets was the mantra in 4Q12 & 2012







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8 TBR Quarterly Webinar Series | 5.15.13 | www.tbri.com | ©2013 Technology Business Research Inc. SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES

Public Sector IT Services Benchmark 4Q12 Research Highlights: Key Trends

Healthcare IT and overseas expansion drive revenues for growth leaders, while margin leaders focus on operating and contract performanceLeading growth firms are expanding in healthcare IT and international markets, and/or leveraging recent acquisitions.

Margin leaders are generally achieving strong contract execution while reducing their expense structure.

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Public Sector IT Services 4Q12 Research Outlook: Growth Leaders

Traction in government-related healthcare was the common and primary driver of top-line expansion for the growth leaders

SAIC, Xerox Services & Accenture were the top growth firms in 4Q12, owing mostly to their continued growth in the healthcare and state/local government markets


20%

Year

-to-

Year

Gro

wth

%

Top-Three Growth Leaders

15%

10%

5%

6.5%8%

9.7%

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Public Sector IT Services 4Q12 Research Outlook: Growth Leaders

Margin leaders posted higher profitability via traction in high-value portfolio offerings, strong program execution & operational enhancement

Harris, IBM Global Services and Boeing GS&S leveraged more lucrative solutions, strong contract delivery and restructuring efforts to realize leading margins


20%

Ope

ratin

g M

argi

n %

Top-Three Margin Leaders

15%

10%

5%

13.1% 13.1%

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17.7%

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Vendors will continue to reshape portfolios and target non-core markets for new revenues, but most expect 2013 to be another down year







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While several vendors saw the pace of sales growth accelerate in 4Q12, most are projecting contracting revenue for full-year 2013


Public Sector IT Services Benchmark 4Q12 Research Highlights: 2013 Projection

The majority of vendors expect sales to decline in 2013 — some for the 3rd year in a row.

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Public Sector IT Services 4Q12 Research Outlook: 2012 Projection

Top-line growth in 2013 will be limited to a handful of commercially-centric vendors, who will leverage continued expansion in healthcare IT


Projected Calendar 2013 Revenue Growth %

10%

9.5%

8%

1.4%

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7.5%5%2.5%

Accenture, Xerox Services and CSC expect healthcare IT in federal, state/local and international public sector markets to be growth drivers in 2013

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Public Sector IT Services 4Q12 Research Outlook: 2012 Projection

CACI and ManTech are expecting similarly modest growth in 2013, also owing to their efforts to expand healthcare IT sales


2%

0.7%

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1.5%1%0.5%

CACI and ManTech are positioned for marginally positive revenue expansion in 2013, owing to recent acquisitions and health IT growth

0.7%

Projected Calendar 2013 Revenue Growth %

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Vendors will focus on cost and operational discipline while chasing a limited number of opportunities


SOURCE: BREAKINGGOV.COM

While the FY13 federal IT budget request is down from FY12, there will still be growth opportunities for IT services providers within as well as outside the federal space.

4Q12 TBR Public Sector IT Services Benchmark: Outlook Summary

• Big data•Data center consolidation•Mobility• Cybersecurity• Cloud computing•Health IT

TBR


Public Sector Research Current Topics 4Q12 Report Key Themes• Vendor Reports:o Northrop Grumman IS&TSo Lockheed Martin IS&GSo General Dynamics IS&To Raytheon IT Serviceso SAICo 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 existing partnerships? Are they forming new alliances? How are they leveraging M&As?

How are vendors managing their human capital in the current 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 streams?

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: 3Q12 Research Highlights

*SEMIANNUAL: REPORTS PUBLISH IN CALENDAR 2Q/4Q. ** SEMIANNUAL: REPORTS PUBLISH IN CALENDAR 1Q/3Q.

TBR


Questions?

Public Sector IT Services Practice Research Outlook: Questions

TBR


For further information, please contact:

Lindy Hanson James McIlroyDirector, Professional Services Practice Vice President, [email protected] [email protected]

John CaucisPublic Sector Practice Manager

Email: [email protected]: @jcaucistbr, @TBRInc

Professional Services Business Quarterly Research Highlights & Outlook: Webinar Presenters

Sebastian LaganaLead Analyst, Public Sector Practice

Email: [email protected]: @slaganatbr

Twitter: @TBRincSlideShare: www.slideshare.net/TBR_Market_InsightYouTube: www.youtube.com/user/TBRIChannel





TBR

TECHNOLOGY BUSINESS RESEARCH, INC.

About TBR

Technology Business Research (TBR) is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, networking equipment, wireless, portal and professional services vendors.

Serving a global clientele, TBR provides timely and accurate 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.

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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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