The government services ecosystem positioned itself in the fourth quarter of calendar year 2020 for the Biden administration’s key areas of focus—cyber, space, public health, technology-driven supply chains, the environment and sustainability goals.
Top executives in the industry discussed such opportunities and strategic initiatives in recent weeks during their Q4 earnings calls, transcripts of which were provided by Bloomberg. Specifically, the companies represented were ManTech International Corp. (MANT); Booz Allen Hamilton (BAH); Leidos Holdings (LDOS); ICF International (ICFI); Parsons Corp. (PSN); Pacific Architects and Engineers (PAE); Vectrus (VEC) and CACI International Inc. (CACI).
Across the earnings calls for these companies, five key themes emerged.
1. Recent attacks underscore the importance of cybersecurity.
Cyber has always been and will continue to be a focus of the federal government, especially considering geopolitical tensions and the expected increase in virtual activity and information sharing following the COVID-19 pandemic. The large cyberattack on federal agencies in 2020 stresses this priority and supports cybersecurity as a continued area of government investment for the foreseeable future.
ManTech International CEO Kevin Phillips noted: “As the administration evaluates and responds to the aftermath of this hack, a few points are clear: Cyber is a priority, and we expect that our national cyber posture, as well as our response, will be a big focus area.”
Similarly, Horacio Rozanski, president and CEO of Booz Allen Hamilton highlighted the opportunity this presents to his business saying, “The Biden administration is looking to make investments in cyber. We are talking to a lot of our clients about the remediation from [the hack]. And so we see a lot of opportunity in that space, and we’re pursuing that opportunity very aggressively.”
2. There is plenty of room for growth–in orbit.
Space is a high-growth area for both defense and civilian agency markets, and company executives are excited about the opportunities it provides. Parsons Chief Operating Officer Carey Smith specified that space is the company’s smallest but fastest-growing market.
Roger Krone, CEO of Leidos, expressed his enthusiasm about the Biden administration’s decision to keep the National Space Council and support for technology and innovation related to space. He also reminded listeners: “The space programs, both the military and NASA, have always been a source of innovation.”
While consensus is that the defense budget will remain flat or contract slightly, space is expected to receive a larger slice of the pie as warfare expands beyond Earth. Federal spend at NASA and other civilian agencies also provides opportunities for contractors, as space-driven technologies boost innovation and scientific research.
While consensus is that the defense budget will remain flat or contract slightly, space is expected to receive a larger slice of the pie as warfare expands beyond Earth. Federal spend at NASA and other civilian agencies also provides opportunities for contractors, as space-driven technologies boost innovation and scientific research.
3. Operations and supply chains need to be predictive and technology driven.
Federal agencies are looking to make their operations and supply chains more predictive and technology driven.
As Vectrus CEO Charles Prow explained, that means providing “industry leading inventory management, network security, robotic material moving and environmental sensing capabilities.” He also mentioned the rise of 5G-enabled smart warehouses and opportunities for IoT (internet of things) automation for bar code scanning, holographic augmentation and virtual reality applications.
If government services companies upgrade their operations and supply chains accordingly, the federal government could become more prognostic, prepared and efficient.
In addition, those advancements are also critical to national security. Smith, Parsons’ COO, highlighted the company’s “focus on cyber, space, critical infrastructure and supply chain security” that “correspond with the national security needs and the Biden administration’s plans for additional funding to protect America’s networks and infrastructure against sophisticated threats.”
4. Public health concerns aren’t going away.
COVID-19 response and recovery continue to generate significant opportunity for federal contractors. Many executives, including CACI President and CEO John Mengucci, expect public health spending to continue after the pandemic has subsided. He noted that the government fiscal year 2021 budget includes increased funding for the defense health program, calling that “a critical capability our government will continue to invest in to increase preparedness for the next potential crisis.”
Ledios CEO Roger Krone described health as having “above-average growth potential.” Rozanski of Booz Allen Hamilton expects the Obama-era investment in health to “reaccelerate” under the Biden administration.
5. It is time to focus on the environment and sustainability efforts.
Contractors are positioning their capabilities and operations to align with the Biden administration’s prioritization of environmental and sustainability issues as it relates to infrastructure, transportation, climate change and stewardship.
ICFI CEO John Wasson noted that the Biden administration signaled this by rejoining the Paris Climate Accord and “mandated that climate be considered in every major decision across the government.”
Smith, Parsons’ COO, discussed these topics from the perspective of infrastructure, touting the company’s capabilities in “environmental remediation, smart grid deployment, renewable wind and solar projects and LEED-certified transit systems.” Smith said she expects infrastructure investments to involve “smart, sustainable infrastructure priorities.”
Looking ahead
Company executives in the sector remain agile in an effort to anticipate future government spending trends and public health needs. We expect Q1 2021 earnings calls to center around pent up contract awards from COVID-19, additional fiscal stimulus, and continued positioning for federal dollars aligning with short- and long-term goals of the Biden administration.
