For more than two decades, DLT Solutions has been known as a reseller of hardware and software to the federal government. But the company is increasingly expanding into professional services, seeking to find growth even as government spending shrinks.
The contractor is just one of many reshaping themselves in an effort to fight the ebbing tide of federal budgets. Some are selling off their services units, convinced that products and solutions provide better profit margins, while others are beefing up their services, concerned that simply reselling products won’t be enough to keep profits flowing.
At Herndon-based DLT, the company is expanding its professional services unit with more subject matter experts and engineers. DLT has hired Don Simpson, a forTransportation Department official, to lead the unit.
“As a company that is primarily a ... reseller, [services are] more profitable,” said Rick Marcotte, DLT’s president, chairman and chief executive. “It’s got a higher gross margin than our products business, it drives more solutions and customer satisfaction and we think that makes good sense for us.”
He said the company plans to bring on additional staff focused on providing professional services for DLT customers.
“I view this as a way for us to augment our core product business, as opposed to us trying to become some sort of major systems integrator,” Marcotte added.
DLT isn’t the only company remaking its work in the face of shrinking government spending. The same week, Fairfax-based Salient Federal Solutions said it would sell off a unit that provides support staff for Fannie Mae.
Brad Antle, Salient’s chief executive, said the staffing unit was not a good fit for the technology services-focused Salient.
The program is “just not the kind of work we do,” he said, noting that Salient is focused on technology and engineering services. “We don’t want to staff for other people.”
Orlando-based staffing company Kavaliro purchased the 58-employee business, which produces about $10 million in annual revenue.
Bob Kipps, managing director of the McLean-based investment firm KippsDeSanto, said companies are seeking to ensure that they can remain competitive. In some cases, that means separating two incongruous businesses, while in others that might mean ramping up services that can be added to existing sales.
For instance, in the reseller business, boosting services can improve a company’s “stickiness” with a particular agency, giving them more opportunities to work with and get to know an agency, he said.
“In a business that’s known for being commoditized, having services that go with your customers is another way of differentiating on items other than cost,” Kipps said.
DLT and Salient aren’t the only companies taking a hard look at their businesses after years of dramatic growth.
Another commercial reseller, Herndon-based GTSI, also sought to move into services, acquiring Fredericksburg-based Information Systems Consulting Group. GTSI has since been sold to Unicom Systems.
“By managing these two distinct businesses differently going forward, it enables significant operational efficiencies, produces more cost competitive offerings and unlocks the potential for increased revenue and margin performance,” said K. Stuart Shea, SAIC’s chief operating officer, speaking of the split in a call with investors last year.