PEC Management Grabs Hold of Success

PEC Management Grabs Hold of Success

Last year's sour economy only helped to make success that much sweeter for PEC Solutions Inc.

The Fairfax, Va., company that specializes in Web-enabling government went public in April 2000, just about the time that Wall Street investors began bolting from the initial public offering market. After a good start, PEC's shares dropped from an IPO price of $9.50 to $4.37 in the fall.

Nevertheless, the company kept adding new government contracts and acquisitions, and its shares steadily climbed, reaching a high of $15.37 in early February and closing at $12.38 Feb. 20.

The stock market, it appears, was rewarding PEC's performance. The company Feb. 14 reported 2000 revenue of $68.3 million, a 28 percent increase over 1999 revenue of $53.2 million. In addition, the company earned $7.3 million in 2000, a 10.6 percent increase over 1999 earnings of $5.6 million.

PEC's success can be attributed in part to the unique working relationship of its senior management team ? three guys who in 1985 founded the company over breakfasts in restaurants scattered around Northern Virginia.

David Karlgaard, Paul Rice and Alan Harbitter started as friends and co-workers at Computer Sciences Corp. of El Segundo, Calif., in the mid-'80s. Now Karlgaard is chief executive officer, Rice is chief operating officer, and Harbitter is chief technology officer for their company, an enterprise specializing in the government information technology market. And they're still friends.

David Karlgaard, Paul Rice and Alan Harbitter founded PEC Solutions Inc. in 1985 over breakfasts in restaurants scattered around Northern Virginia.

"We hear a lot about partnerships that implode," Harbitter said. That's not an outcome that ever threatened the three men, he said.

"We've never had to vote on anything," Karlgaard said. "One person could never build a company like this. Two people probably couldn't. It takes a team; three is about the minimum."

The three founders have a vested interest in getting along. The company may have gone public, but they still own 86 percent of the shares, according to Securities and Exchange Commission filings.

"Sometimes it's been too exciting," Karlgaard said about the company. "The first few years were the hardest, [and] our expectations were a little higher than reality would allow."

"We've had to learn something different every year," Rice said. "Things changed just about every day. [We] just sort of bootstrapped it. The only one I had to answer to was my pregnant wife."

The difficult start-up days are long gone. PEC has developed a particular specialty in projects serving smaller and mid-sized agencies, such as the Internal Revenue Service, the Immigration and Naturalization Service, the Drug Enforcement Administration's Office of Diversion Control and the Administrative Office of the U.S. Courts. One hundred percent of PEC's business comes from government contracts, 95 percent of it from the federal government.

The company enhanced its state and local government opportunities with the August 2000 acquisition of Viking Technology Inc., based in Fairfax, Va., a software and solutions provider to state and local law enforcement, fire and emergency medical services agencies.

While PEC is a prime contractor for much of its business, it's a subcontractor for Electronic Data Systems Corp. on one of the $6.9 billion Navy-Marine Corps Intranet projects to provide a wide range of electronic applications to sailors and Marines across the globe. The company just signed a five-year subcontract with EDS of Plano, Texas, and is negotiating on several initial task orders, including network operations center and server farm transition, and messaging and database transition development and support, worth about $16 million in 2001.

"Here's the way I look at NMCI ? we're helping a big strong business build the infrastructure for the Navy," Rice said. There are forces in the government moving everything toward integrated online transactions, he said.

Tom Meagher, vice president of equity research, BB&T Capital Markets, Richmond, Va., said the NMCI contract is of major significance to PEC. "Past performance is as important as people say it is," he said. "They've kind of hit the mother lode with NMCI."

PEC has grown by leaps and bounds. Its 1995 revenue reached $11.1 million; in 1998 alone, the company grew 70 percent, and by the end of 2000, PEC's revenue topped the $68 million mark. PEC now employs about 570 people, occupies an entire building in a parklike setting in Fair Lakes, a light industrial and commercial development in Fairfax, and has plans to expand to three buildings over the next several years.

PEC has a number of strengths, according to Jack Andrews, a research analyst with the commercial and investment bank J.P. Morgan Chase of New York.

"They have what we consider a very strong management team. The company has been around for 15 years, so they have some really long-standing relationships with some key decision makers, so they often get a first call" on prospective projects, Andrews said.

"They also have a proven track record of doing really high-quality and difficult work," he said. "They're sort of focused on the advanced technology, Internet enablement work, and that focus allows them to earn higher margins than one would expect from government work."

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