TBR
T EC H N O LO G Y B U S I N ES S R ES EAR C H , I N C .
2013 closed on a low note, setting the stage for a difficult 2014 in federal IT Insights from TBR’s 4Q13 Public Sector IT Services Benchmark
May 7, 2014
TBR
2 TBR Quarterly Benchmark Readout | 4.21.14 | 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 Three years of experience
Email: [email protected]
Twitter: @SLaganaTBR
John Caucis
Senior Analyst and Practice Manager, Public Sector and Health 12 years of experience
Email: [email protected]
Twitter: @jcaucistbr
TBR
3 TBR Quarterly Benchmark Readout | 4.21.14 | 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 ten 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, Leidos, 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 three government-centric firms for a total of 20 public sector IT services vendors: Boeing GS&S, Exelis and Harris.
• 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 that 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 | 4.21.14 | 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 4Q13 benchmark
2. Strategic actions to adapt to the market
3. 2014 outlook
4. Q&A
TBR
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2013 ended much like the way it began for federal IT contractors, with all facing pervasive budget turmoil and uncertainty
4Q13 PSBQ Public Sector IT Services Benchmark Research Highlights
Public sector IT services vendor trends for 4Q13
SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES
SOURCE: HTTP://ALLFACEBOOK.COM/FILES/2014/01/FOURTHQUARTERKEY650.JPG
SOURCE: HTTP://GOO.GL/6XPUZP
SOURCE: HTTPS://ENCRYPTED-TBN0.GSTATIC.COM/IMAGES?Q=TBN:AND9GCSFO42RIT3-XRTABS-CL1NKQNF5MDZ0KGRAGBO1RNSF7KPO6QNA
There was no fourth quarter comeback for government IT
contractors in 2013; budget outlays continued to lag behind
appropriations as agencies delayed procurements and held
off spending, despite the kickoff of a new federal fiscal year.
Difficult market conditions from 2013 will continue, driving
revenue contractions for many public sector IT services
contractors in 2014.
Vendors pushed hard in 2013 to improve cost structures,
enhance operations and maximize contract execution to
drive margin performance; strategic actions, alliances and
M&A also focused on advancing up the value chain.
TBR
6 TBR Quarterly Benchmark Readout | 4.21.14 | www.tbri.com | ©2014 Technology Business Research Inc.
The budget agreement injected stability into the market but failed to keep growth rates from contracting for a third straight quarter in 4Q13
4Q13 PSBQ Public Sector IT Services Benchmark Research Highlights
Budget constraints, a trickle of task orders from many large-scale ID/IQ contracts, program delays and terminations and award protests on new and rebid work continue to impede contractors’ revenue growth
TBR
7 TBR Quarterly Benchmark Readout | 4.21.14 | www.tbri.com | ©2014 Technology Business Research Inc.
Backlog contracted for most federal contractors in 4Q13, consistent with seasonal patterns but to a magnitude not observed in recent memory
4Q13 PSBQ Public Sector IT Services Benchmark Research Highlights
Aggregate backlog reported by the 13 government-centric contractors was $112.7 billion in 4Q13, down 3% from $116.2 billion in 3Q13; 10 of 13 benchmark firms saw sequential backlog contraction in 4Q13
TBR
8 TBR Quarterly Benchmark Readout | 4.21.14 | www.tbri.com | ©2014 Technology Business Research Inc.
The volume of year-end budget flush fell sharply as federal FY13 closed and backlogs slid further as FY14 began, heralding a grim 2014 for most firms
4Q13 PSBQ Public Sector IT Services Benchmark Research Highlights
The aggregate backlog for the 13 government-centric firms in the 4Q13 benchmark study declined nearly 10%, or almost $12 billion, since the previous year (4Q12)
TBR
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Growth leaders have limited exposure to the defense market; margin leaders leverage multipoint solutions and delivery automation
4Q13 PSBQ Public Sector IT Services Benchmark Research Highlights
Outperforming vendors in growth and margin performance are investing in international markets, high-growth verticals and cost-takeout technology while minimizing contract risk to best their peers
Outperformers
Laggards
TBR
10 TBR Quarterly Benchmark Readout | 4.21.14 | www.tbri.com | ©2014 Technology Business Research Inc.
Reductions in federal IT spending will fall mostly on the DOD in federal FY14 and FY15, but civilian agency IT spending will be more stable
4Q13 PSBQ Public Sector IT Services Benchmark Research Highlights
Public sector IT services vendor trends for 4Q13
SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES
There was no fourth quarter comeback for government IT
contractors in 2013; budget outlays continued to lag behind
appropriations as agencies delayed procurements and held
off spending, despite the kickoff of a new federal fiscal year. SOURCE: HTTP://ALLFACEBOOK.COM/FILES/2014/01/FOURTHQUARTERKEY650.JPG
SOURCE: HTTP://GOO.GL/6XPUZP
Difficult market conditions from 2013 will continue, driving
revenue contractions for many public sector IT services
contractors in 2014.
SOURCE: HTTPS://ENCRYPTED-TBN0.GSTATIC.COM/IMAGES?Q=TBN:AND9GCSFO42RIT3-XRTABS-CL1NKQNF5MDZ0KGRAGBO1RNSF7KPO6QNA
Vendors pushed hard in 2013 to improve cost structures,
enhance operations and maximize contract execution to
drive margin performance; strategic actions, alliances and
M&A also focused on advancing up the value chain.
TBR
11 TBR Quarterly Benchmark Readout | 4.21.14 | www.tbri.com | ©2014 Technology Business Research Inc.
The federal IT market environment has compelled firms to focus on margin preservation in lieu of top-line growth since 2012, but the effort stalled in 2013 and only a marketwide recovery will help avert further erosion
Contractors focused on cost controls through 2013, but systemic top-line contraction nullified the impact on margins
4Q13 PSBQ Public Sector IT Services Benchmark Research Highlights
SOURCE: HTTP://3.BP.BLOGSPOT.COM/-6XAPYN0E32E/TKF00D3ZNGI/AAAAAAAAAFS/VFVCANCYAF4/S1600/CEILING.PNG
TBR
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Margin-leading federal contractors enhanced program performance and operational efficiency while advancing their portfolios up the value chain
Top federally focused operating margin performers in 4Q13
SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES
• Restructuring of contracts and operations in NPS
• Divestitures of less-profitable operations
• Strong growth in lucrative cybersecurity and cloud solutions
4Q13 PSBQ Public Sector IT Services Benchmark Research Highlights
• Strong program execution
• Shifting sales mix; more classified and intelligence work
• 2013 restructuring efforts offsetting higher R&D and sales outlays
• Internal programs to cut costs and enhance contract margins
• Traction in shared services, digital, cloud, mobility and analytics
• Management consulting-led federal engagements
11.7% in 4Q13
11.9% in 4Q13
13.9% in 4Q13
• Continued rollout of “market-based affordability” initiative
• “Partnering for Success” supply-chain efficiency program
• Growth in higher-margin maintenance and training programs
11.7% in 4Q13
Other vendor margins in 4Q13: Exelis (11.5%), IBM Federal (10.3%), Northrop Grumman IS&TS (9.5%), Lockheed Martin IS&GS (9%), CGI (8.9%), Xerox (8.6%), Unisys (8.3%), Raytheon II&S (8.3%), L-3 (8.3%), Booz Allen Hamilton (7.6%), CACI (7.4%), General Dynamics IS&T (7.3%), Leidos (6.3%), SAIC (6%), HP (4.4%) and ManTech (-17.3%)
CSC
Boeing GS&S
Harris
Accenture
TBR
13 TBR Quarterly Benchmark Readout | 4.21.14 | www.tbri.com | ©2014 Technology Business Research Inc.
Companies are acquiring niche firms to augment cybersecurity and analytics portfolios for addressable nondefense public sector markets
Key acquisitions by public sector IT services vendors in 4Q13
SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES
4Q13 PSBQ Public Sector IT Services Benchmark Research Highlights
Industrial Defender: Enhances IS&GS’ energy and chemical
offerings; verticals increasingly demanding cybersecurity
solutions in the face of growing cyber threats
Data Tactics Corp.: Expands L-3’s analytics portfolio and its
addressable markets in cybersecurity, public safety and law
enforcement; adds 200 staff and approximately $50 million in
2014 revenue
Allied Technology Group: A $45 million acquisition
enhances engineering and information management
solutions in ManTech’s Mission Solutions and Services Group
and provides ManTech a position on large-scale DHS IDIQ
contract vehicles.
ManTech
L-3
Communications
Lockheed Martin
IS&GS
TBR
14 TBR Quarterly Benchmark Readout | 4.21.14 | www.tbri.com | ©2014 Technology Business Research Inc.
Alliance activity in 4Q13 focused on portfolio enhancements in cloud, mobility and virtualization as well as gaining access to new markets
Key alliances and partnerships for public sector IT services vendors in 4Q13
SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES
4Q13 PSBQ Public Sector IT Services Benchmark Research Highlights
Hitachi Data Systems Federal: SAIC and HDS Federal will
collaborate to develop Desktop as a Service for federal clients.
CA Technologies and Cirque Energy: Enhances IS&TS’ cloud-
based security and cost-saving energy solutions with broad
applicability across current clients
Colt Canada and Samtel Avionics: Both alliances will advance
IS&T’s efforts to expand outside the U.S. and enhance IS&T’s
networking, mobility and communications capabilities.
HCL: The co-created CSC/HCL app modernization network will
accelerate client migration to cloud-enabled platforms, though
the initial vertical focus will be in the banking sector.
General
Dynamics
IS&T Northrop
Grumman
IS&TS
CSC
SAIC
TBR
15 TBR Quarterly Benchmark Readout | 4.21.14 | 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
4Q13 PSBQ Public Sector IT Services Benchmark Research Highlights
Public sector IT services vendor trends for 4Q13
SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES
SOURCE: HTTP://ALLFACEBOOK.COM/FILES/2014/01/FOURTHQUARTERKEY650.JPG
SOURCE: HTTP://GOO.GL/6XPUZP
There was no fourth quarter comeback for government IT
contractors in 2013; budget outlays continued to lag behind
appropriations as agencies delayed procurements and held
off spending, despite the kickoff of a new federal fiscal year.
Difficult market conditions from 2013 will continue, driving
revenue contractions for many public sector IT services
contractors in 2014.
SOURCE: HTTPS://ENCRYPTED-TBN0.GSTATIC.COM/IMAGES?Q=TBN:AND9GCSFO42RIT3-XRTABS-CL1NKQNF5MDZ0KGRAGBO1RNSF7KPO6QNA
Vendors pushed hard in 2013 to improve cost structures,
enhance operations and maximize contract execution to
drive margin performance; strategic actions, alliances and
M&A also focused on advancing up the value chain.
TBR
16 TBR Quarterly Benchmark Readout | 4.21.14 | www.tbri.com | ©2014 Technology Business Research Inc.
The 16-day government shutdown had minimal impact on vendors’ 4Q13 top-line growth results, though receivables collection was affected
4Q13 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: HTTP://BIT.LY/1HWRHDC
TBR
17 TBR Quarterly Benchmark Readout | 4.21.14 | www.tbri.com | ©2014 Technology Business Research Inc.
2014 will be another year of limited growth opportunities in the federal IT space, though the budget agreement is helping drive optimism for 2015
4Q13 PSBQ Public Sector IT Services Benchmark Research Highlights
Expected growth in global IT spending (2% to 3% in TBR
estimates) in 2014 is not expected to spill over to the federal
sector; the FY14 federal IT budget request shows a modest
increase of 1.8% over FY13.
Vendors are encouraged by the 2014 appropriation acts for the
increased stability and predictability they injected into the
planning process, though fully incorporating these measures
into programs will take some time.
SOURCE: HTTP://BIT.LY/1MDUBNA
SOURCE: HTTP://BIT.LY/1MDCORB
Contractors expect 2014 to be a transition year, perhaps the
trough in the beleaguered federal IT market, ahead of
improving conditions in 2015. SOURCE: HTTP://WWW.MARKETLEADER.COM/BLOG/WP-CONTENT/UPLOADS/2013/12/FOTOLIA_57684648_XS-300X200.JPG
TBR
18 TBR Quarterly Benchmark Readout | 4.21.14 | 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
4Q13 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
19 TBR Quarterly Benchmark Readout | 4.21.14 | www.tbri.com | ©2014 Technology Business Research Inc.
Questions?
Public Sector IT Services Practice Research Outlook: Questions
TBR
20 TBR Quarterly Benchmark Readout | 4.21.14 | www.tbri.com | ©2014 Technology Business Research Inc.
John Caucis
Senior Analyst and Practice Manager, Public Sector and Health
Email: [email protected]
Twitter: @jcaucistbr
Telephone: 603.758.1836
Professional Services Business Quarterly Research Highlights and Outlook: Contact Information
Sebastian Lagana
Lead Analyst, Public Sector Practice
Email: [email protected]
Twitter: @slaganatbr
Telephone: 603.758.1857
James McIlroy
Vice President of Sales Email: [email protected]
Telephone: 603.929.1166
Twitter: @TBRinc SlideShare: www.slideshare.net/TBR_Market_Insight YouTube: www.youtube.com/user/TBRIChannel LinkedIn: www.linkedin.com/company/technology-business-research
TBR 4Q13 Syndicated Research Topics | Confidential and Proprietary
TBR
©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 • HCL Technologies • HP Services • IBM Global Services • Infosys • T-Systems • Tata Consultancy Services • Unisys • Wipro IT Services • Xerox Services
• Booz Allen Hamilton* • CACI International* • General Dynamics IS&T* • L-3 Communications* • Leidos* • Lockheed Martin IS&GS* • ManTech* • Northrop Grumman IS&TS* • Raytheon Intelligence, Information &
Services* • SAIC*
• 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
21
*Semiannual publication
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