Bad timing: Public GovCon firms will have to report on shutdown's impact

A calendar clash of the ongoing partial government shutdown now in its fourth week and expectations of it to keep going on means many of the market’s publicly-held companies will have to talk about it.

But don’t take it just from me, take it from a research note that analysts at investment bank Cowen & Company sent to investors Friday that keeps things simple: “Because the shutdown is extending into January, we expect all companies to address it on their upcoming (earnings) calls.”

Major aerospace-and-defense primes report their fourth quarter and year-end financial results the week of Jan. 28, while some large government services companies will detail their numbers that week and throughout February.

Roughly three-fourths of the fiscal year 2019 discretionary budget is fully funded, including Defense Department and many intelligence agencies plus Veterans Affairs. But A&D primes still have civilian customers that are shut down. For example, these companies have large cyber and space portfolios at affected agencies such as the Homeland Security Department, Federal Aviation Administration and NASA.

The publicly-traded government services companies also have significant profiles in the civilian side of the market, even if defense and intelligence agencies are their primary customers. These companies can have anywhere between 20 percent and 35 percent of their annual revenue in the federal civilian arena but most are indicating less than 10 percent of their sales are from impacted agencies and other components, Cowen’s analysts wrote.

Because of the Engility Corp. acquisition, Science Applications International Corp. had the fortune -- or misfortune -- of having to give a glimpse of what the shutdown is doing to their business.

SAIC Chief Financial Officer Charles Mathis said at their Jan. 7 investor day presentation that revenue losses were $10 million per week at the time, with a total cash flow hit of $40 million-$50 million due to delayed payments from agencies. The company’s fiscal year also ends Feb. 1 so this could also impact their financial results and outlook for next fiscal year, especially if the shutdown is even more prolonged.

Those numbers may not seem significant in the context of a now $6.5 billion-revenue company such as SAIC or its peers in the multi-billion dollar category of publicly-held firms. But SAIC's disclosure illustrates the pinch every contractor feels in not being able to collect revenue from what traditionally is thought of as a reliable bill-payer.

The cash flow hits are causing small businesses to get “super-creative” with their resources, as Citizant CEO Alba Aleman described to me earlier this week. Mid-tier companies are no exception either, and HumanTouch CEO Moe Jafari has taken that creative tack up a notch by forgoing his entire salary until the shutdown ends.