Boardroom
Anteon

In the Boardroom With...
Joseph M. Kampf
President and CEO,
Anteon International Corporation

president of Anteon interview1. SSW: Joe, you became President and Chief Executive Officer of Anteon in April 1996. Since then Anteon has grown from $109 million in revenue to over $1 billion. Would you kindly summarize the major factors resulting in this growth?

Kampf: I’m from the “old school.” I believe that long term success comes from strategic positioning in a growing marketplace; incentivizing employees; and building a consistent track record of performance excellence. We have done all three and achieved and sustained a double-digit organic growth rate.

First and foremost, we are a full-service provider offering a broad range of capabilities in IT services and engineering solutions. Being a pure-play services provider, i.e., not connected to any hardware product, enables us to offer “best of breed” systems integration solutions to our customers.

Secondly, exceptional positioning within the marketplace is a key pillar of Anteon’s success. Our marketplace is strong, and because our focus has been on mission critical programs supporting national security priorities, we have been, and continue to be, ideally positioned for growth. Our seven customer focus areas, often referred to as “verticals,” are: Intelligence Systems; Missile Defense; Weapons Systems Modernization; Secure Identification and Access Management Solutions; Logistics Systems; Training and Simulation; and Emergency Response. Each of these areas is a national priority and each is expected to be a fast current over the next several years.

Although large national deficits are expected for the next few years we expect minimal, if any, impact on the national priority efforts on which we focus. We are on the ground floor in supporting DoD transformation efforts and initiatives to address the national security requirements of the 21st century. We have a strong footprint in the credential card and border security markets. Over 90% of our efforts are in support of the DoD, Department of Homeland Security and the intelligence community. We have a well crafted team of personnel providing critical services and innovative solutions to our customers worldwide.

A third pillar of our success is “Team” Anteon, a leadership culture embraced by our 7,600 employees. We hire outstanding individuals and provide them an exceptional working environment. Teamwork is the foundation of our corporate culture. Everyday I learn of another outstanding example of professionalism and “going that extra mile” by Anteon professionals supporting our customers worldwide. I am very proud of their accomplishments and also proud that our personnel retention rate of almost 88% is one of the highest in the sector.

We have a sound business development strategy; we have the people to execute that strategy; and we have a track record of outstanding performance. We have proven expertise in supporting customers who are critical to national defense and homeland security. Our experience base has made Anteon one of the key “go to” contractors. In that regard, we have spent the last eight years building mission-critical, enterprise-type IT systems and a lot of those play directly into the path of where the nation is going with homeland security.

As you can imagine, we have achieved strong consistent financial performance in going from $100 million to over $1 billion in annual revenue. For example, we achieved revenue growth of over 33 per cent (CAGR) and operating income growth (CAGR) of over 50 per cent. Since going public a little over two years ago, we have delivered for our shareholders, approximately 37 per cent CAGR EPS growth and 29 per cent return on equity.

2. SSW: Since 1997, Anteon has completed six acquisitions. What is Anteon’s acquisition strategy?

Kampf: We employ a disciplined methodology to evaluate and select acquisition candidates. I want to emphasize that each of our acquisitions has been fully integrated within the corporate structure. I might add that we have honed our integration process into a fine art. For example, we acquired Information Spectrum Inc (ISI) in late May 2003. We completed the integration process by the end of the year.

Anteon has averaged about one acquisition per year with our focus being on selected companies having annual revenues in the range of $50 to $150 million. Our industry remains highly fragmented and we believe the changing government procurement environment will continue to provide additional opportunities for industry consolidation. We will continue to selectively review acquisition candidates with a focus on companies with complementary skills or market focus.

3. SSW: Congratulations on Anteon’s recent announcement on being awarded a five-year Blanket Purchase Agreement to provide information technology services to the U.S. Coast Guard. Anteon has a large “footprint” in Homeland Security. Can you give us an overview of the solutions Anteon provides to the Coast Guard and the other agencies now included in Homeland Security?

Kampf: Anteon has been a trusted solutions provider to the US Coast Guard for years. Our most recent BPA win adds to the range of tools available for Anteon to continue to provide growing support for the total life cycle of Coast Guard programs and projects. We’re very proud of this most recent BPA as it allows us to provide expertise in our core business area of IT and communications support. Overall, Anteon provides Policy and Strategy, Program Office Support, Research and Development, Intelligence, and Engineering and Systems excellence to a myriad of Coast Guard customers providing end to end service wherever the Coast Guard needs us. Our Coast Guard veterans bring a deep understanding of the Coast Guard’s needs, and provide value based services to maximize existing systems and programs while seamlessly preparing the way for Next Generation investments like the Integrated Deepwater Project and Rescue 21.

The Coast Guard is very important but just one of our many important government partners in the Department of Homeland Security. Anteon has supported Emergency Preparedness and Response (FEMA) for years in providing their National Emergency Management Information System (NEMIS) for disaster grant processing. Over $8 billion in grants have been distributed since its inception. Anteon also provides the Bureau of Customs and Border Protection with optical card scanners and technology today to read the almost 20 million Border Crossing Cards and Permanent Resident Cards that Anteon has issued on behalf of DHS. This technology enhances security for the nation while insuring the identity and protecting the privacy of the individuals concerned. Some other DHS agencies supported by Anteon include the Bureau of Citizenship and Immigration Services, TSA, and the Bureau of Immigration and Customs Enforcement. We’re proud of our many efforts to date and look forward to continuing to assist the Department of Homeland Security in its very important work.

4. SSW: Do you expect the US Government to be a larger customer in 2005 than in 2004?

Kampf: Over 98% of Anteon’s revenues come from federal government customers, with over 90% being from the Department of Defense and the Department of Homeland Security. We expect the percentages will remain approximately the same however there is still a lot of government business to be captured and we are confident in our ability to increase our market share. We plan to further build upon work being performed for current customers and to expand our market share by capturing work with new customers and accomplishing selective strategic acquisitions.

5. SSW: What about Anteon’s work with City and State governments?

Kampf:: Traditionally, we have focused almost exclusively on the federal government sector however we do review selective sate and local government opportunities. These selective opportunities are usually homeland security related and this is an area in which we have considerable expertise.

Each business market is different. The commercial sector is considerably different from the government contracting market and the same is true in comparing product-based companies with firms like Anteon that specialize in providing services. There are also differences in the federal government and state/local sectors. I have long felt that it is best to focus on what you do and know best. For Anteon, that is the federal government services sector and that will continue to be our primary focus.

6. SSW: Anteon has been described as having a low-risk business model. What do you mean by that?

Kampf: While Anteon’s work is concentrated in defense and intelligence agencies, our contracts are spread among many agencies, thus we have a very diverse customer base. Under approximately 500 active contracts and over 3,000 active task orders, we currently support over 1,000 customers in over 50 government agencies. Our largest contract for example, amounts to a little over seven percent of our annual revenue which means that we have low concentration risk. Also, capital expenditures total three tents of one per cent of annual revenue, thus allowing for a strong free cash flow and high returns. In sum, our risk profile is low.

7. SSW: Anteon has delivered significant margin improvement. How has that been achieved and do you expect further margin improvement?

Kampf: We basically used a two-pronged approach. First, we migrated our contract mix from cost-plus contracts to more time and materials and fixed price work which typically have higher margins. We have also done an excellent job of controlling our indirect cost structure by making sure it does not grow as fast as our top line revenues.

Yes, we will continue to use both methods to improve our margins over time.

8. SSW: Regarding the secure ID market and the use of biometrics for authentication…What is Anteon’s position in this market and do you expect this market to continue its rapid growth?

Kampf: Anteon is a market leader in providing biometrically enabled secure Id’s for physical and logical access systems. The Company expects dramatic growth in the use of credential cards based on secure identification technology border management as well as access control systems throughout the government community. We also expect increased use of biometrics and PKI as major security features of these technologies. We perceive the demand to be pervasive throughout the government communities federal, state and local (and foreign governments as well), and we expect to be a leader in these secure identification technology solutions.

Anteon is the prime contractor for the Department of Homeland Security and Department of State in providing the Border Crossing Card/Laser Visas and Permanent Resident card used by foreign nationals at 66% of all border crossings.

We have delivered 1,000 optical drives and biometric verification systems for the U.S. Visitor and Immigration Status Indication Technology (U.S. VISIT) Program Office. These systems will enable the DHS to read the encoded data on any of the more than 20 million Permanent Resident and Border Crossing Cards issued by the U.S. government.

In addition to serving as a primary provider of the Department of Defense Common Access Card, Anteon is continuing to develop new approaches to border control and transportation security. As you can see from these examples I have cited, Anteon has a considerable footprint in the critical area of credential card technology solutions.

9. SSW: What is Anteon’s backlog and how does it compare to the prior year?

Kampf: Total remaining contract value, previously referred to as “backlog,” is a metric that is a leading indicator of future revenue growth. At the end of 2003, Anteon’s total remaining contract value was $5.6 billion dollars. This total represents approximately 5 times our 2003 revenue. Including ISI, which we acquired in May 2003, our total remaining contract value increased $1.3 billion dollars, or 31 percent during 2003.

Proposals under evaluation by customers is another indicator of future growth and with a company record $3.5 billion at the end of 2003, Anteon is primed for continued strong growth.

10. SSW: What is the company’s Financial Guidance for 2004?

Kampf: Anteon expects full year 2004 revenues of between 1.22 and 1.25 billion dollars, reflecting a total revenue growth rate exceeding 17 percent. The company expects full year 2004 earnings per share to meet or exceed one dollar and fifty cents, reflecting an EPS growth rate of at least 28 percent over 2003 pro forma earnings per share of one dollar and seventeen cents.

11. SSW: Thank you for time, Joe, is there anything else you would like to talk about?

Kampf: I always take every opportunity to personally thank the 7,600 members of “Team” Anteon for they are truly, the heart and soul of the company. They have generated our success and positioned Anteon to become the first Tier 1 pure-play services company in the government contracting industry.

I am proud of our achievements and the fact that we are ideally positioned to continue our track record of strong growth. Our foundation is solid as we employ our low risk business model to: focus on mission critical/national priority programs; pursue and complete strategic acquisitions; and build shareholder value.

Personally, I am just as excited about leading the company as I was eight years ago when I came aboard. Excitement translates into energy and the entire Anteon team is energized to continue as a recognized industry leader.