Taking Stock: Uncle Sam Helps American Management Systems Through Slump - InformationWeek

InformationWeek is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

12:48 PM

Taking Stock: Uncle Sam Helps American Management Systems Through Slump

AMS's traditional focus kept it profitable in downturn.

Few technology companies are doing well these days. However, some are delivering results that show they're surviving the curtailment of IT spending better than others. Executives at American Management Systems (AMSY -- Nasdaq) have focused on remaining profitable and generating cash. And as my readers know, I love cash flow.

American Management Systems is a reasonably sized consulting firm in Fairfax, Va., with about 7,000 employees and $1.2 billion in revenue. AMS has grown steadily since its founding in 1970.

Unlike many other consulting firms, it didn't become overly involved in the E-business aspect of consulting but continued with its traditional focus, augmented with an Internet flavor. As a result, the decline in IT spending hasn't been as unkind to AMS as it has to many of its peers.

Following a recent restructuring and the arrival of a new CEO, Alfred Mockett, AMS is now focused on three vertical industries: new media and communications (27% of last year's revenue), financial services (14%), and the public sec-tor (54%).

The new media and communications unit provides systems consulting and integration to companies in the wireless, local, inter-exchange, and cable businesses. AMS offers these companies billing, operational support, customer-relationship management, and credit and collections management.

This segment has held up relatively well, considering the bloodbath that the telecom sector has experienced. At least it had until the just-reported quarter, which ended March 31, with the company's revenue shrinking 22% year to year and 18% sequentially.

AMS's financial-services unit also offers systems consulting and integration, in addition to application software products. The customers in this segment are primarily financial institutions and insurance companies. Financial-services revenue was flat this quarter relative to the previous quarter.

AMS's largest segment is the public sector--state and local governments, education, and federal agencies. AMS offers a variety of consulting services such as tax, public safety, and transportation, plus more customized services at the state and local level as well as to defense and civilian agencies. The federal part of the public sector segment increased 7% quarter over quarter, while the state and local section saw no increase in revenue.

Competition among consulting firms continues to be fierce. Overcapacity is a problem: Many consulting firms have too many employees generating too little revenue but still collecting a paycheck. As a result, pricing power remains weak as the underutilized consulting firms attempt to win contracts.

Despite generating nice cash flow, the consulting business offers little in terms of economies of scale. Once all a company's consultants are busy and it accepts another project, it's forced to hire a new consultant.

The key then becomes expense management, particularly in a downturn. AMS has done a solid job of reducing expenses dur-ing this downturn. In its most recent quarter, its operating margin remained steady at 7.4%, despite falling revenue.

AMS's quarterly earnings were slightly ahead of expectations. Revenue declined 3.3% quarter to quarter. The hardest-hit segment was new media and communications, which experienced an 18% revenue decline. Management expects that second-quarter revenue and earnings per share will be similar to the first quarter, while business will probably pick up in the second half of the year.

AMS has no long-term debt on the balance sheet, and it holds a good amount of cash.

With the extra cash it's generating from operations, one can only hope that the company starts buying back shares. Even though

AMS's stock price has rebounded from the lows it experienced last Septem-ber, there's probably still some upside in the stock to the mid-$20 range.

William Schaff is chief investment officer at Bay Isle Financial LLC, which manages the InformationWeek 100 Stock Index. Reach him at [email protected].

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
Comment  | 
Print  | 
More Insights
State of the Cloud
State of the Cloud
Cloud has drastically changed how IT organizations consume and deploy services in the digital age. This research report will delve into public, private and hybrid cloud adoption trends, with a special focus on infrastructure as a service and its role in the enterprise. Find out the challenges organizations are experiencing, and the technologies and strategies they are using to manage and mitigate those challenges today.
COVID-19: Using Data to Map Infections, Hospital Beds, and More
Jessica Davis, Senior Editor, Enterprise Apps,  3/25/2020
Enterprise Guide to Robotic Process Automation
Cathleen Gagne, Managing Editor, InformationWeek,  3/23/2020
How Startup Innovation Can Help Enterprises Face COVID-19
Joao-Pierre S. Ruth, Senior Writer,  3/24/2020
Register for InformationWeek Newsletters
Current Issue
IT Careers: Tech Drives Constant Change
Advances in information technology and management concepts mean that IT professionals must update their skill sets, even their career goals on an almost yearly basis. In this IT Trend Report, experts share advice on how IT pros can keep up with this every-changing job market. Read it today!
White Papers
Twitter Feed
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.
Sponsored Video
Flash Poll