Deltek Clarity AE Industry Study - Stambaugh Ness

www.StambaughNess.com

Scott Hursh, CPA, CCIFP, CDA – Managing Principal – Architectural and Engineering GroupSusan Patrick – Director of Client Solutions, Deltek

Deltek Clarity AE Industry Study


Managing Principal – Architectural and Engineering Group

Scott Hursh, CPA, CCIFP, CDAScott is recognized as an authority in financial management, tax and government contract consulting for architectural and engineering firms. His advanced experience in the application and interpretation of the Federal Acquisition Regulation (FAR), AASHTO Audit Guide, Cost Accounting Standards, and AE tax issues guides firms towards minimizing tax obligations and boosting profitability.

An avid outdoorsman, Scott is equally at home on the front lines with his clients, discovering the distinct characteristics that make their company tick. His passion for the AE industry is well known and often showcased at trade organization conferences and events where he is a frequent presenter on AE related topics.

Education

• BS degree in Accounting from West Chester State University

Professional and Community Highlights

• Certified Construction Industry Financial Professional (CCIFP)

• Certified Design Accountant (CDA)

• ACEC/PA CFO Roundtable, Member

• ACEC/MD Business and Finance Committee, Member

• ACEC Tax & Regulatory Affairs Committee, Member

• ACEC AASHTO Audit Subcommittee, Member

• PSMJ National Conference, Presenter

• ACEC Webinar Series, Presenter

• Insider’s Guide to Ownership and Succession Planning, Published by ZweigWhite

• Is Company Structure Costing You at Tax Time?, Published by PSMJ


Director of Client Solutions, Deltek

Susan PatrickAs the Director of Client Solutions, Susan leads our team and clients through the software/solution evaluation process. Working diligently to fully understand the needs and requirements of each client, she identifies the ideal solution to help them achieve their goals. Susan has more than 25 years of accounting and technical expertise including valuable experience as a financial controller in the architecture and engineering industry. She has been instrumental in assisting project-based clients with improving their accounting processes, becoming more efficient, and ultimately more successful.

Passionate about delivering an exceptional client experience, Susan consistently brings a high level of enthusiasm and commitment to each client that she has the privilege to serve.


Metrics courtesy of ©Deltek, Inc., 2018 Deltek Clarity|Architecture & Engineering Industry Study

About the Survey450 companies participating in the study.

Firm Size and Region - When looking at the size of the participating firms, Deltek defines small, medium,andlarge firms in the following way:

• • Small: 1–50 employees (39% of participants)

• • Medium: 51–250 employees (41% of participants)

• • Large: 251+ employees (19% of participants)

Firms in this study are headquartered across the United States and Canada.

• Of all firms, 12% are in the Northeast, 34% the West, 26% the Midwest, 20% the

• South, 1% the Pacific, 5% the Washington, DC area, and 1% in Canada.

High-performing firms have:

• a Net Labor Multiplier of 3.0or higher

• an Operating Profit of 15% or higher (pre-tax, pre-bonus on net revenues).

• High performers constitute 23% of all participants


Financial StatementsPresented By: Scott Hursh, CPA, CCIFP, CDA



13.2% +0.2

Operating Profit on Net Revenue

• High Performers Outpacing All Others

• Pace of Increase is Slowing

• Efficiency is Declining

TEN-YEAR TREND

HOW FIRMS COMPARE

2017 2016 2015 2014

Top Quarter 19.2% 25.8% 27.4% 18.7%

Median 13.2% 13.0% 12.8% 11.8%

Bottom Quarter 4.3% 4.4% 7.2% 6.2%

*Calculated by dividing pre-tax, pre-distribution profit by net revenue (total revenue minus consultants and other direct expenses).



59.4% -0.7%

Utilization Rate

• Impact of “War for Talent”

• Impact of Growth

• Onboarding & Retaining Talent

• Need for well developed Onboarding Process

TEN-YEAR TREND

HOW FIRMS COMPARE

*Calculated by dividing cost of labor charged to projects by the total cost of the firm.

2017 2016 2015 2014

Top Quarter 66.4% 67.2% 68.3% 65.4%

Median 59.4% 59.9% 61.0% 60.0%

Bottom Quarter 64.9% 56.3% 55.4% 55.8%



2.96% -0.6

Net Labor Multiplier

• Returned to the Mean

• Increased use of Subconsultants

• Staff Turnover on Projects

• Need to improve project management

TEN-YEAR TREND

HOW FIRMS COMPARE

*Calculated by dividing net revenue by direct labor, the cost of labor charged to projects.

2017 2016 2015 2014

Top Quarter 3.26% 3.32% 3.32% 3.31%

Median 2.96% 3.02% 2.96% 2.97%

Bottom Quarter 2.56% 2.74% 2.65% 2.73%



1.74% -0.05

Total Payroll Multiplier

• Driven by Decline in Utilization and Effective Multiplier

TEN-YEAR TREND

HOW FIRMS COMPARE

*Calculated by dividing net revenue or utilization rate times net labor multiplier.

2017 2016 2015 2014

Top Quarter 1.87% 2.03% 2.03% 1.93%

Median 1.74% 1.79% 1.79% 1.77%

Bottom Quarter 1.59% 1.61% 1.63% 1.63%



155% +1

Overhead Rate

• End of 5 year Downward Trend

• Small firm had largest drop

• High performers had largest increase

• Not statistically significant

TEN-YEAR TREND

HOW FIRMS COMPARE

*Calculated by dividing total overhead (before distributions) by total direct labor expense.

2017 2016 2015 2014

Top Quarter 180% 183% 187% 185%

Median 155% 154% 155% 160%

Bottom Quarter 129% 124% 121% 134%



$132,731 -$7,458

Net Revenue per Employee

• Potential Causes

• Large scale hiring (4.3% staff growth)

• Need for improved PM discipline

• Improve training and onboardingTEN-YEAR TREND

HOW FIRMS COMPARE

*Calculated by dividing net revenues by average total staff during the year, including principals.

2017 2016 2015 2014

Top Quarter $152,796 $157,796 $156,079 $149,705

Median $132,731 $140,189 $139,042 $129,689

Bottom Quarter $115,125 $118,430 $117,841 $113,682



$94,497 +$753

Total Employee Cost

• Increases leveled off

• Cost Corrections among High Performers & all others

• Firms offering more benefits have higher costs and Higher Retention Rates

HOW FIRMS COMPARE

*The sum of total labor and other labor related expenses (taxes, insurance, etc.) divided by the average number of employees during the year. Excluded bonuses.

2017 2016 2015 2014

Top Quarter $108,806 $105,881 $101,846 $98,345

Median $94,497 $93,744 $91,225 $88,001

Bottom Quarter $82,520 $80,855 $82,237 $78,781



71-1

Average Collection Period

Continuing downward trend

Small firms trend to have greater challenges

TEN-YEAR TREND

HOW FIRMS COMPARE

*Calculated by dividing accounts receivable by annual total revenue, times 365.

2017 2016 2015 2014

Top Quarter 94 92 97 98

Median 71 72 73 75

Bottom Quarter 56 54 55 58



Top Challenges Facing Financial Leaders• Growth is the driver

• Growth may be negatively impacting profitability

• Need to improve onboarding of new staff

• Improve PM skills

• Ownership transition is a hard trend

TOP FINANCIAL CHALLENGES

Increasingprofitability

Managinggrowth

Successionplanning and ownershiptransition

Cashflow

Organictoplinegrowth

Alignmentwith executivemanagement

Managingmerger andaquisitionactivity

Decreasing and/orunpredictablespendingenvironment

First

Second

Third



Top Initiatives to Address Financial Challenges• Impact of Growth

• Initiatives will increase costs and reduce utilization on the short-term basis

• Outside assistance may be necessary

Organizational changes/realignment

Completingorpreparing foramerger/acquisition

Streamlining billingprocesses

Othernewsystem implementation

Newfinancialsystem implementation

First

Second

Third

Businessprocess improvement

Betterforecasting

Bettermanaginggrowth

TOP FINANCIAL INITIATIVES



Polling

What is the primary approach you are taking to accomplish your top financial initiatives?• Business and Project manager training

• Upgrading / improving your ERP system

• Adding additional management level talent

• All of the Above

• None of the above



Polling

Has your firm been Valued in the last year?• Yes

• No• Not sure• Yes, but longer than 1 year ago

• No, but would like to



50%

Firm Valuation

• Annual Valuations are a key part of firm management

• Ownership Transition is driving increased need

FIRMS THAT PLAN TO COMPLETE A FIRM VALUATION IN 2018

FIRMS THAT HAVE COMPLETED A FIRM VALUATION



14.0%-10.8

Return on Equity

• Consistent or declining profit % combined with Increasing Equity are impacting this result.

• Impact of Growth

HOW FIRMS COMPARE

*Calculated by dividing pre-tax income (operating profit less bonuses, interest, and other income or expenses) by stockholders’ equity, times 100.

2017 2016 2015 2014

Top Quarter 35.6% 47.9% 51.7% 45.0%

Median 14.0% 24.8% 28.8% 19.6%

Bottom Quarter 0.2% 10.7% 11.1% 5.7%


Business DevelopmentPresented By: Susan Patrick



5.2%-0.1

Net Revenue Growth Forecast

• Growth remains steady at almost the exact same level as last year

• Other than the high performers and small firms the others are projecting ambitious goals

2018 NET REVENUE GROWTH FORECAST



Top Business Development Challenges



Top Three Business Development Initiatives



Polling

Who is responsible for Business Development in your firm?

• Executive Team• Project Managers• Dedicated Business Development Staff• Marketing Staff• Other



Business Development Staff

• High Performers more likely to use PM’s for Business development

• Relationships a one of the top challenges • “Who’s got the time?”

• Look at BD processes to optimize time

RESPONSIBILITY FOR BUSINESS DEVELOPMENT

Often Sometimes Rarely



Business Development Process• Formal BD Process =

• Higher win rate

• Higher Capture rate

• Formal BD Process =

• Less duplication of effort

• Everyone knows their role /responsibility =

• More TIME for other activities

FIRMS WITH FORMAL BUSINESS DEVELOPMENT PROCESS FOR STAFF

54 54%FormalBDProcess

46%NoFormalBDProcess



Polling

Do you have documented BD processes?

• We do!• We have them but they are not documented• We don’t but would like to• Don’t have them, don’t think we need them



67%-8

Formal Go/No Go Process

• Go after the right projects for your firm

• Things to consider:• Existing client

• Familiar with type of project

• Is the client’s budget realistic?

• Is it in geography we serve or want to pursue?

FIRMS WITH FORMAL GO/NO GO PROCESS

35 35%Yes, for all opportunities

24%Yes,forstrategic opportunities

8%Yes, fornewclients/prospects only

12%No,butweare consideringit

21%No



50.0%+9.8

Win Rate

• Teaming opportunities

• Using Go/No Go to help position your firm for success• Be more strategic on what you go after

• Repeat clients• Nurture the “right” relationships

HOW FIRMS COMPARE

*Calculated by proposals awarded divided by proposals submitted.

Increased Same Decreased DoNotTrack

WIN RATE CHANGE



44.6%

Capture Rate

HOW FIRMS COMPARE

*Calculated by total value of proposals awarded divided by total value of proposals submitted.



53%+17

Revenue from Top Three Clients

• #1 Challenge – Nurture client relationships!

• Lack of diversification = potential financial risk

• PM is key: quality of work, managing budget and scope and overall client satisfaction is key!

HOW FIRMS COMPARE

Client3

Client2

Client1



Market PositionPOSITION IN MARKET OVER NEXT 18 MONTHS

Questions

Documents

Deltek Clarity AE Industry Study - Stambaugh Ness