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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
TBR
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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
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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
PSBQ Public Sector Benchmark Research Highlights and 2013 Outlook
Primary Market Headwinds for Public Sector IT Services Vendors in 4Q12
SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES
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
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
The challenging environment is driving vendors to branch out from their core federal space to new markets, enhance operational efficiencies & optimize contract execution
TBR
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.
TBR
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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
SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES
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
SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES
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
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
The challenging environment is driving vendors to branch out from their core federal space to new markets, enhance operational efficiencies & optimize contract execution
TBR
12 TBR Quarterly Webinar Series | 5.15.13 | www.tbri.com | ©2013 Technology Business Research Inc.
While several vendors saw the pace of sales growth accelerate in 4Q12, most are projecting contracting revenue for full-year 2013
SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES
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
SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES
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
SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES
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
PSBQ Public Sector Benchmark Research Highlights and 2013 Outlook
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
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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.
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Questions?
Public Sector IT Services Practice Research Outlook: Questions
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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
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TECHNOLOGY BUSINESS RESEARCH, INC.
About TBR
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