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Booz Allen Hamilton keeps winning, even when the government shuts down

TBR’s initial response to Booz Allen Hamilton’s (BAH’s) 1Q19 earnings published on Tuesday, and we expect another strong quarter from BAH to close out its FY19. BAH boasts a soundly differentiated market position and multilayered alignment of its technology and advisory portfolio with the primary objectives of its federal customers. Consulting-led offerings are increasingly interwoven with an innovative technical capacity designed to enable federal clients to meet operational challenges and security threats ever-increasing in sophistication and volume. BAH even emerged from the recent 35-day temporary government shutdown with minimal fiscal damage, further illustrating the resiliency of its solutions model and fueling its confidence about 2020. We further expect the company will issue strong guidance for its upcoming fiscal 2020, with revenue growth in the high single digits and margin performance sustained at current levels.

Read more of Senior Analyst John Caucis’ assessment of federal IT services vendors through the quarter and the upcoming quarterly benchmark.

Additional assessments publishing this week from our analyst teams

Tuesday

  • In our 1Q19 Hewlett Packard Enterprise Cloud Initial Response, we discuss how the company’s margin improvements resulted from a more software-defined portfolio and improved operating efficiency as the HPE Next initiative enters its final year. — Cassandra Mooshian, Senior Analyst

Wednesday

  • Cost-cutting initiatives including headcount reduction and deeper integration of digital sales and customer service channels enabled Sprint to reduce $1.2 billion in gross operating costs in FY18, but this was largely offset by reinvestments in network and other operational initiatives. Sprint’s financial position will remain challenged long term due to its high debt load and struggle to generate positive net income and free cash flow, highlighting why the T-Mobile merger is in the best interest of the company. — Steve Vachon, Analyst

Thursday

  • Now with its third CEO in two years, Rackspace rebrands Fanatical Support to Fanatical Experience as it commits to providing ‘unbiased expertise’ and a more total support system.      — Cassandra Mooshian, Senior Analyst

Friday

  • We expect VMware to report another quarter of strong, above-average growth in comparison to its software peers. Ongoing portfolio investments, partnerships and tuck-in acquisitions position the company for continued customer attraction and retention. — Cassandra Mooshian, Senior Analyst
  • Portfolio and talent developments equip HCL Technologies (HCLT) to sustain revenue growth through 2021. HCLT needs to quickly scale its investments and market presence to solidify growth. Kelly Lesiczka, Analyst
  • Despite enhanced efficiencies in traditional IT operations, T-Systems could not offset pressures on profitability from reorganization and adoption of IFRS 16. Expanding its portfolio in growth segments will enable T-Systems to benefit from a more flexible business model to adapt to and address client demands. Kelly Lesiczka, Analyst

And if you missed the May 22 webinar, Bringing the best: Talent and technology in management consulting, check out the replay here.

Don’t stop thinking about tomorrow: Amazon, RPA, AI and ethical IT in the federal sector

Notwithstanding the increased integration of artificial intelligence (AI) and process bots into government operations, the U.S. federal services sector decidedly remains a people business. At a recent Washington Technology Power Breakfast forum, industry leaders talked talent strategies and how they hope to succeed as digital transformation fundamentally changes the types of people sought for government work. A few key themes emerged as near-universal top-of-mind concerns for forum participants and audience members, such as the importance of developing a brand and messaging values that resonate with the emerging workforce; the criticality of public-private partnerships to develop talent in the greater Washington, D.C., area and beyond; and the concern and uncertainty about the human capital impact of Amazon’s (Nasdaq: AMZN) recent decision to become a much closer neighbor of Uncle Sam.

The trends and issues discussed often repeated themes TBR touches on regularly in its analysis of the IT industry, both within the federal market and across public and private sectors globally. While the perspectives shared were both validating and enlightening, there was just as much value in paying attention to what the panelists did not talk about at length. Today’s pressing HR demands leave little time for talent strategists to worry about the looming disruptive impacts of AI and robotic process automation (RPA), the fundamental changes in labor amid the rise of asset-based services, forward-thinking venture-capital-like approaches to partnerships, or the uncomfortable and growing issue of ethics conflicting with the eagerness to apply innovative IT to government missions. HR leaders and strategic decision makers at the leading services firms will need to grapple with these difficult topics today if they want to stay ahead of disruption that is just around the corner in the dynamic and rapidly changing IT industry.

 

 

Washington Technology Power Breakfast: TBR Public Sector Analyst Joey Cresta was recently invited to participate in a panel discussion on talent strategies of government contractors at a breakfast forum hosted by Washington Technology. The event provided an outlet for executives, HR experts and industry thought leaders to share how they intend to win talent in a competitive labor market while maintaining profitability and bracing for the impact of Amazon’s impending move into Crystal City.

Federal initiatives around IT modernization translate to revenue growth for public sector services providers

Growth opportunities across defense and civilian agencies uplift vendor performance

The results of TBR’s 2Q18 Public Sector IT Services Benchmark demonstrate clear top-line benefits for services providers as government agencies accelerate IT modernization initiatives. Revenue for the 16 benchmarked vendors improved 5.3% year-to-year, which does not even factor in General Dynamics IT essentially doubling in size through its acquisition of CSRA. Including the impact of the acquisition, revenue grew 13.5% from 2Q17.

Graph showing weighted average total year-to-year revenue growth versus organic year-to-year revenue growth for 2Q17 through estimated 3Q18

Industry consolidation remains a prevailing theme in the market as the near-term opportunities tied to U.S. federal budget growth and the pursuit of innovation create a sense of urgency for vendors to capitalize. Scale advantages, complementary capabilities and broadened customer relationships make consolidation a compelling tool to facilitate near-term deal capture. Consolidation will remain a prominent strategic concern, evidenced by the announcement after the close of 2Q18 that SAIC (NYSE: SAIC) plans to acquire Engility (NYSE: EGL). However, in the long run, TBR anticipates the importance of scale will diminish as rapid technological change disrupts legacy business models.

TBR believes that the door is open for industry stalwarts to be disrupted if they elect to ignore the prevailing signs that the federal government, in particular the U.S. Department of Defense, seeks change in how it procures and fields technology.

 

TBR’s Public Sector IT Services Benchmark examines the key strategies, investments and performance metrics of leading government consultants, systems integrators, and IT and professional services providers. The benchmark examines 16 vendors across three groups: services units of aerospace and defense firms, U.S. federal government pure play vendors, and public sector verticals of commercially led IT services companies. We mix qualitative analysis of key investments and strategic initiatives with quantitative analysis of financial performance to uncover the drivers of business success for vendors that offer services to government customers.

Booz Allen Hamilton targets Philippines for advisory around cyber and data privacy in APAC

When Booz Allen Hamilton (BAH; NYSE: BAH) separated its commercial practice from its U.S. federal government business in 2008, noncompete clauses restricted the federal practice’s ability to pursue opportunities outside the U.S. government. Since then, the commercial practice known as Booz & Co. joined PwC as Strategy& and the noncompete clauses expired, opening new markets to BAH. Global commercial expansion is an underpinning of BAH’s successful Vision 2020 strategy, which pairs a management consulting heritage with investment in technical skills around data science, cybersecurity, artificial intelligence and digital services.