Wave of successes

SI International stock rises on contract wins, financial performance

SI International

Headquarters: Reston, Va.

Chairman and CEO: Ray Oleson

Stock ticker: SINT (Nasdaq)

Employees: 1,900

2003 revenue: $168.3 million

2003 net earnings: $7.4 million

2004 revenue projection: $256 million-$258 million

2004 net earnings projection: $10.7 million-$11 million

What it does: Defines, designs, builds, deploys and operates mission-critical solutions for the Defense Department and federal civilian agencies

Most recent acquisition: Matcom International Corp. of Alexandria, Va., for $65.8 million in January 2004; announced Dec. 1 a definitive agreement to buy Bridge Technology Corp. of Columbia, Md., for $30 million in cash.

www.si-intl.com

Ray Oleson, SI International's chairman and CEO, said the company is aiming for 25 percent annual top-line growth.

Henrik G. de Gyor/WT

For Ray Oleson, chairman and chief executive of SI International Inc., the company's stellar financial performance blended with other major achievements to create "the perfect storm" that has boosted the company's stock 70 percent since mid-August.

In the past year, SI has completed a major acquisition, issued a secondary offering of stock, won two mammoth Air Force contracts and reported eye-popping revenue and earnings growth.

As a result, the company's stock has soared to nearly $30 per share Dec. 6 from $17.41 per share Aug. 13.

The Reston, Va., defense contractor, which went public in November 2002, reported revenue of $72.9 million for the third quarter of fiscal 2004 ended Sept. 25, a 73 percent increase from the same period a year earlier. Net income was $2.9 million, a 46 percent increase over the third quarter of 2003.

"Our performance is leading the sector," Oleson said, summing up the company's achievements.

The company got the ball rolling in March when it won a contract potentially worth $800 million, its largest contract to date, to provide engineering and technical support services to the Air Force Space Command. In October, the Air Force Space Command chose SI as one of four contractors to compete for task orders under a five-year, $610 million contract for engineering, consulting and technical services at Peterson Air Force Base in Colorado.

Also in October, the company issued a secondary share offering that eliminated its debt and left it with a $12 million surplus. The additional shares also made the company's stock more attractive to institutional investors, Oleson said.

For a company of its size, SI "has definitely raised eyebrows with big contract wins vs. a who's who of defense contractors," said Timothy Quillin, an industry analyst at Stephens Inc. of Little Rock, Ark.

But Quillin also said SI must increase the scope of work under its contracts to sustain growth because the government awards few large contracts worth several hundreds of millions of dollars.

Brian Kinstlinger, an IT services analyst at Sidoti & Co. in New York, said SI has not grown as rapidly as other defense contractors. Although SI is doing a fantastic job, he said, it has been growing at more than 10 percent annually during the last couple of years, while some of its peers, such as MTC Technologies Inc. of Dayton, Ohio, typically have produced 15 percent organic growth.

Like Quillin, Kinstlinger said the company must expand some of its business under existing programs to increase its organic growth.

Oleson said SI aspires to reach 25 percent annual top-line growth over the next several years, including organic growth of 10 percent to 15 percent.

In January, SI completed its purchase of Matcom International Corp., an Alexandria, Va., IT and engineering solutions provider, for $65.8 million as part of its strategy to expand into new vertical markets and enhance its offerings.

On Dec. 1, SI said it signed a definitive merger agreement to buy Bridge Technology Corp., a Columbia, Md., IT solutions company, for $30 million in cash.

Before the announcement about Bridge Technology, Oleson said SI was planning on more acquisitions, but he would not elaborate on prospective candidates. In addition to $12 million in cash on hand, the debt-free contractor has a $50 million credit line for another purchase.

Industry analysts had said SI over the next 12 months would acquire a company with revenue in the range of $50 million to $75 million. SI is looking closely at two to four firms but not to the point of doing due diligence, Quillin said.

Since 1998, SI International has supplied IT and network solutions to the federal government in four focus areas: federal IT modernization; defense transformation; homeland defense and mission-critical outsourcing. Ninety percent of its business is related to homeland defense, and most work is done for the Air Force, its largest client.

The company's top 20 contracts generate 61 percent of its revenue. At present, SI has $210 million in bids submitted and $167 million in bids being prepared, according to information from a company investor's briefing in November. About 81 percent of the company's revenue comes from prime contracts.

SI holds the upper hand over its peers with two characteristics that set it apart from the pack of defense contractors, analysts said. First, the company focuses more on business process outsourcing than its competitors and supplies more back-office IT support services, Kinstlinger said.

"A little less competition there should position [SI] for more work in this area," he said.

SI also has an "unusually experienced and strong management team" that "plays a critical role in determining corporate culture and setting the pace of development," Quillin said.

Oleson, for example, has 34 years of management experience, including nine years at CACI International Inc., where he completed stints as president and chief operating officer. S. Bradford Antle, president and chief operating officer, has 25 years of management experience.

Staff Writer Roseanne Gerin can be reached at rgerin@postnewsweektech.com.

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