Public Sector Quarterly Performance Review Webinar

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T EC H N O LO G Y B U S I N ES S R ES EAR C H , I N C .

TBR’s 2Q12 Public Sector Benchmark Research Highlights and Outlook

Technology Business Research (TBR) Quarterly Webinar Series

Nov. 6, 2012

TBR

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Professional Services Business Quarterly Research Highlights & Outlook: Webinar Presenter

John Caucis

Senior Analyst/Public Sector Practice Manager

Email: [email protected]

Twitter: @jcaucistbr

Analyst

Photo

TBR


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

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

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

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

Public Sector IT Services Benchmark: Webinar Overview

TBR Professional Services Business Quarterly Public Sector IT Services Benchmark

• 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 across multiple layers of an organization.

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

TBR


In lieu of growth, most vendors are focused on maximizing

margin performance and aligning portfolios to federal

spending priorities and new growth markets.

Difficulty projecting long-term federal budget and procurement needs is driving public sector IT vendors to prepare for long-term market austerity

PSBQ Public Sector Benchmark Research Highlights and 2013 Outlook

Public Sector IT Services Vendor Trends for 2012

Budget turmoil, longer sales cycles and defense cuts continue

to hamstring public sector IT services vendors.

SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES

The outlook for the remainder of 2012 is for continued

turbulence in the federal IT space, with expectations for

2013 clouded by the potential for sequestration.

TBR


Constrained federal IT spending and a prolonged award process restrained growth for most vendors in 2Q12


Budget turmoil, longer sales cycles and defense cuts

continue to hamstring public sector IT services vendors.









TBR


Budget uncertainty, steep defense cuts and overall austerity in new IT spend are the primary headwinds to growth for federal IT contractors

Average growth for the 20 firms in the PSBQ Public Sector IT Services Benchmark decelerated for the sixth straight quarter as the pullback in overall IT spending that began in 2011, especially in defense-related IT outlays, continued in 2012.

3.3%

-0.1%

-1.9%-2.4%

-5.4%

10.3%

5.7%

1.0%

-0.5%

-2.6%

-8%

-4%

0%

4%

8%

12%

2Q11 3Q11 4Q11 1Q12 2Q12

Gro

wth

%

Calendar Quarter

AVERAGE GROWTH (YTY TTM REVENUE & YTY QUARTERLY REVENUE): PUBLIC SECTOR IT SERVICES FIRMS

Average YTY Growth Average TTM Growth YTY

SOURCE: TBR ESTIMATES AND COMPANY DATA. AVERAGES ARE BASED ON THE 20 COMPANIES IN THE PSBQ PUBLIC SECTOR BENCHMARK.

TBR

Public Sector IT Services Benchmark 2Q12 Research Highlights: Key Trends

TBR


The continued contraction in federal IT and defense spending was reflected in top-line contractions for most vendors in the benchmark Government-centric contractors suffered a range of top-line declines, but most cited budget uncertainty and defense cuts as the primary culprits.

Public Sector IT Services 2Q12 Research Outlook: Macro Impact

Raytheon IT Services Raytheon IT Services’ revenue fell 7.5% year-to-year in 2Q12, as lower volumes and contract ramp downs in two of its three business units (Network Centric Systems and Technical Services) offset the addition of new classified awards in cybersecurity and intelligence.

ManTech ManTech’s top-line revenue fell 15.1% from 2Q11 to 2Q12 as sharp volume declines in in-theater mission support and logistics offset growth in intelligence, cybersecurity and healthcare IT as well as the inorganic impact of the company’s aggressive acquisition activity in 2011.

Booz Allen Hamilton (BAH) BAH saw sales fall 1% year-to-year in 2Q12, the most modest decline among the government-centric firms. The contraction was due to the 2011 divestiture of its transportation business, which offset marginal growth across the firm’s defense, intelligence and civilian units. TBR also believes BAH’s commercial and international expansion efforts have yet to gain traction.


TBR


With the environment hostile to growth, most public sector IT firms are focusing on margin preservation and mining growth in new markets












TBR


SAIC

Northrop Grumman IS&TS

HP

Raytheon IT Services

General Dynamics IS&TLockheed Martin IS&GS

IBM Global Services Boeing GS&S

L-3 Communications

Booz Allen Hamilton

HarrisITT Exelis

CSC

ACS/Xerox Services

CACI

Dell

Accenture

ManTechUnisys

0.0%

5.0%

10.0%

15.0%

20.0%

-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

2Q

12

Op

era

tin

g M

argi

n

2Q12 Public Sector Y/Y Growth

2Q12 PUBLIC SECTOR REVENUE, GROWTH & OPERATING MARGINS TBR

9.3% Avg. Operating Margin

LEGEND: SIZE OF BUBBLE = PUBLIC SECTOR SERVICES REVENUE. SOURCE: TBR ESTIMATES AND COMPANY DATA

-5.4% Avg. Y/Y Growth

-43.4%≈NCI

Healthcare IT and outsourcing drive revenue growth leaders, while high-value cyber and analytics services result in higher margins

Public Sector IT Services Benchmark 2Q12 Research Highlights: Key Trends

Growth leaders are winning in the healthcare IT space, acquiring capabilities in growth areas and expanding in adjacent international and commercial markets.

Margin outperformers are succeeding with contract performance, cost-containment initiatives and offerings in high-value service areas.

TBR


A focus on the healthcare space and on areas such as cybersecurity, C4ISR and IT modernization drove expansion for growth leaders

SAIC SAIC achieved 9.7% growth in public sector revenue in 2Q12, owing its agility at the outset of the downturn in its sector when it quickly realigned its portfolio to C4ISR, cybersecurity, logistics, energy and healthcare IT.

Xerox Services Xerox Services, up 5% in 2Q12, continues to grow its presence in U.S. healthcare, state and local markets through high-profile deal wins. Its recent acquisition of electronic health records (EHR) training provider The Breakaway Group also provided an inorganic boost to its top-line growth, primarily in the healthcare space.

Accenture Accenture’s 11.3% public sector growth in 2Q12 was driven primarily by gains in the healthcare IT space domestically and abroad. This supplemented a handful of new awards with the federal government for modernization, cybersecurity and operations support.

Public Sector IT Services 2Q12 Research Outlook: Growth Leaders

Accenture, SAIC and Xerox Services realized positive public sector growth in 2Q12, but were among only a handful of vendors to do so.


TBR


Strong contract execution, expense discipline and a focus on higher-value service areas elevated profitability for the margin leaders

IBM Global Services IBM Global Services realized an estimated public sector operating margin of 12% in 2Q12 by successfully acquiring and integrating companies with intellectual property and solutions that enhance its portfolio with high-value services. This will augment IBM’s increased focus on productivity, efficiency and automation and sustain IBM’s margin performance through 2H12.

Northrop Grumman IS&TS Northrop Grumman IS&TS reported an operating margin of 10.5% in 2Q12, among the top performers within the government-centric group of companies. The addition of high-margin offerings in C4ISR, cybersecurity and training will complement the margin impact of increased execution of a growing number of fixed-price contracts in its order book and will sustain leading margin performance in 2H12.

Accenture Accenture estimated public sector operating margin of 10.6% as the firm curbed payroll and operating costs to offset the impact of a recent litigation provision. Margins will improve in 2013 as Accenture continues to trim its expense structure.

Public Sector IT Services 2Q12 Research Outlook: Margin Leaders

IBM Global Services, Accenture and Northrop Grumman IS&TS


TBR


Vendors share a dismal outlook for 2H12, which for many will be a third consecutive year of elongated sales cycles and contracting revenue












TBR

13 TBR Quarterly Webinar Series | 11.06.12 | www.tbri.com | ©2012 Technology Business Research Inc. SOURCE: TBR RESEARCH, COMPANY GUIDANCE AND ESTIMATES

Public Sector IT Services Benchmark 2Q12 Research Highlights: 2012 Growth Outlook

While top-line revenue contraction will slow during 3Q12, budgetary constraints will drag down most firms’ overall 2012 revenue growth

The majority of vendors expect sales to decline in 2012 — some for the 2nd year in a row.

TBR


Vendors standing by their projections for top-line growth in 2012 are gaining traction in niche areas such as healthcare, the state/local space, C4ISR and/or cybersecurity.

A handful of vendors will generate top-line growth in 2012 due to their success due to their success aligning their portfolios with demand trends

Xerox Services Xerox Services will ramp up recent wins and drive signings and revenue growth in U.S. healthcare, state and local markets to maintain high-single-digit growth in 2012. TBR believes Xerox Services’ portfolio of low-cost, niche outsourcing solutions aligns well with the cost and efficiency goals of U.S. state and local healthcare clients.

SAIC SAIC will continue to derive growth from the C4ISR, logistics, cybersecurity, energy and healthcare sectors in 2H12. Despite closing 2012 as one of the government-centric growth leaders, SAIC still plans to split into two independent, publically traded business units in 2013 to avoid organizational conflict of interest entanglements.

Accenture Accenture’s momentum in the healthcare IT space is expected to continue through 2H12, supplemented by recent wins in the federal health and civilian sectors and by overseas healthcare IT awards. Acquiring Octagon Research will expand Accenture’s reach in the pharmaceutical sector.

Public Sector IT Services 2Q12 Research Outlook: 2012 Growth Outlook


TBR


Vendor pessimism about 2013 is fueled by contract trends and projected federal IT spend, and is being blurred by possible sequestration

Public Sector IT Services Vendor Outlook for 2013

Specific revenue and margin guidance for 2013 has not been

tendered by vendors as of 2Q12, but most expect 2013 will be

as challenging as 2012.



The challenges in 2013 will force vendors to focus on

meeting customer’s mission requirements, operational and

contract excellence, alliances and acquisitions, portfolio

alignment and diversification.

Federal IT spending is expected to contract from $79.7

billion in 2012 to $78.9 billion in 2013, mostly on the

Department of Defense (DOD) side. Sequestration could

potentially lower IT spend another 7% to 8% to $73B.

TBR


Public Sector Research Current Topics 3Q12 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:

o IBM Global Services o HP Services o CSC o Accenture o Dell Services o Unisys o 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 & Acquisitions

Resource Management

Growth & 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 McIlroy Director, Professional Services Practice Vice President, Sales [email protected] [email protected]

John Caucis

Senior Analyst/Public Sector Practice Manager

Email: [email protected]

Twitter: @jcaucistbr, @TBRinc

Analyst

Photo

Professional Services Business Quarterly Research Highlights & Outlook: Webinar Presenter

mailto:[email protected]


TBR

T EC H N O LO G Y B U S I N ES S R ES EAR C H , I N C .

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. 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.

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