SRA International, Inc.

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SRA International, Inc.

4300 Fair Lakes Court
Fairfax, Virginia 22033
U.S.A.
Telephone: (703) 803-1500
Fax: (703) 803-1509
Web site: http://www.sra.com

Public Company
Incorporated: 1976 as Systems Research and Applications Corp.
Employees: 4,800
Sales: $881.8 million (2005)
Stock Exchanges: New York
Ticker Symbol: SRX
NAIC: 511210 Software Publishers; 541511 Custom Computer Programming Services; 541512 Computer Systems Design Services

SRA International, Inc. offers information technology (IT) services to clients in three principal markets: national security, civil government, and healthcare and public health. Its services, which span the IT life cycle, include: strategic consulting; systems design, development, and integration; and outsourcing and managed services. The company offers text mining, data mining, and warehousing software to enable clients to sort through growing data collections. The company primarily serves the U.S. government, with customers including the Departments of the Army, Navy, and Air Force; the Joint Chiefs of Staff; the Department of the Treasury; the Federal Emergency Management Agency; the Department of Defense, the Food and Drug Administration, the Internal Revenue Service, and the Federal Deposit Insurance Company, among others.

1978–95: STEADY GROWTH IN RELATIVE OBSCURITY

Ernst Volgenau started Systems Research and Applications Corp. (SRA) in the basement of his Reston, Virginia, home. Because venture capitalists were not investing heavily in Washington's government-oriented businesses at that time, Volgenau funded his start-up, which was incorporated in 1976 and began operations in 1978, with money he had saved and loans he took out against his family home. Prior to founding SRA, Volgenau had completed a 20-year career in the Air Force, during which time he earned a doctorate in electrical engineering. He had also worked for several years during the 1960s under Robert S. McNamara and his team of tech-savvy "whiz kid" aides on computer applications that would maximize the use of the nation's military dollars. Later, he worked for two years directing the inspection and enforcement activities of the Nuclear Regulatory Commission.

SRA started out as a subcontractor, offering consulting services as a means of building its track record as an IT services provider. Recalled Volgenau in a 2004 Washington Post article: "My contracts were small contracts of $10,000 to $20,000 each. Our objective was to do a good job on a little job and then maybe the customer would give us some more." SRA's first contract was with American Management Services, Inc., a company founded by members of McNamara's old team. Its first year, SRA had six employees.

By the mid-1980s, SRA was bidding on and winning its own contracts with the U.S. government. But for SRA, as for much of the defense-contracting industry, these were lean times. The Cold War and the Persian Gulf War had ended, and military spending had fallen off. Still, SRA continued to grow, as Volgenau worked for civilian as well as government agencies. Keeping its focus on technology, the company went from installing early computer systems in the 1980s to developing data-mining software by the mid-1990s. According to company management, by 1995, 85 percent of SRA's 1,000 employees were information technology professionals whose job it was to customize systems for clients.

Volgenau first began thinking of taking the company public in 1996, but Wall Street was not interested in the company at the time. "We valued our shares pretty highly," recalled Volgenau in the Washington Post, "so we decided against it." As a result, SRA continued to grow in relative obscurity. During the second half of the 1990s, it developed retrieval software for corporate intranets. With its NameTag and NetOwl, companies and government offices could index, find, and distribute internal documents, photos, stock quotes, and incoming news feeds as well as limit access to sensitive documents. Intermezzo, another SRA product, also allowed NetOwl users to conduct searches through other types of search engines. SRA's Photofile software employed deep linguistic knowledge and artificial intelligence techniques to analyze users' natural language queries and search through, for example, captions written years ago. In so doing, it avoided the "brittleness" or narrowness of key word searches.

The Smithsonian began using Intermezzo, which had the capacity of polling the various databases to which it was connected, to catalog its extensive collection of related artifacts and documents. Publishing house Simon & Schuster hired SRA to build its Corporate Digital Archive, a single, integrated archive to serve all 30 of its business units. In 1996, the company formed a subsidiary called IsoQuest Inc. to handle its data retrieval software.

Two years later, in 1998, SRA branched off into a slightly new direction with Assentor, the first automated e-mail message screening system designed for the financial services industry. Using a sophisticated, linguistics-based natural language pattern matching system and highly refined compliance patterns, Assentor evaluated not just specific words but the context in which they were used. It ensured broker compliance with regulatory guidelines in written communications with clients. Also in 1998, the United States Postal Service awarded a contract jointly to SRA and partner Unisys for year 2000 verification and validation services.

1999–2003: EXTERNAL EVENTS LEADING TO INCREASED DEMAND FOR SERVICES

The end of the 1990s was a busy time for companies involved in technology and computer applications. As the Internet frenzy climaxed, many of SRA's younger employees left to join dot.com start-ups. However, times changed with the bursting of the dot.com bubble and the terrorist attacks of September 11, 2001. Encouraged by prospects of growth, in 2001, SRA and Safeguard Scientifics, a holding company, launched SRA Ventures to act as an incubator for technology start-ups. SRA Ventures' goal was to bring the technology SRA had developed to market, building companies from scratch to meet proven technology needs.

With greater demand for technology in the defense, intelligence, and homeland security markets, SRA chose this period to hold its initial public offering, and, in 2002, raised $103.5 million in sales of stock. Also that year, it purchased Marasco Newton Group, gaining services and capabilities in the environmental area, and adding the EPA as a client. It sold its Assentor division so that it could concentrate in the areas of national security, civil government, and healthcare and public health.

About 60 percent of SRA's revenue came from defense-related programs in 2003, up from 43 percent in 1999; 15 to 20 percent came from healthcare and public sector health businesses or agencies. The remainder occurred in the area of civil government, such as its contract (with partner General Dynamics) to design and integrate command centers for the Pentagon, and to develop systems to improve the military's ability to track people and supplies.

COMPANY PERSPECTIVES

SRA aspires to be one of the best companies in the world, by any measure—a company that creates real value for its customers by providing high quality information technology services and solutions; employs the best people, nurtures them, and enables them to succeed; and steadfastly commits itself to an ethic of honesty and service.

The company won three government contracts worth more than $100 million in 2003, further expand-ing a well-diversified client base. In 2003, SRA had about 70 active contracts, and no single contract accounted for more than 4 percent of its total revenue. When, in January 2003, SRA purchased Adroit Systems, it opened the doors to the surveillance and reconnaissance realm of the Department of Defense and took a step toward its goal of ongoing, controlled growth through one acquisition each year. The rest of the company's growth would occur, according to management, organically.

Increasingly, SRA became known as a well-managed company. In 1999, and for each of the six years following, Fortune magazine named it one of the 100 best companies in the United States to work for. The company also began to make a name for itself in the workforce management realm after implementing its Nurse Advocacy Program. To offset increasing health insurance premiums, SRA instituted an in-house healthcare program with onsite clinic. The program managed to save nearly $1 million a year by proactively managing the cases of employees who sought care, regularly checking the blood pressure of employees with hypertension; suggesting diet, exercise, and lifestyle changes in response to other chronic conditions; working out on-the-job accommodations for injured employees who wished to return to work or for those caring for family members.

The clinic was just one instance of the ways in which SRA attempted to tap into the attitudes and values of workers. The company also responded to the basic desires and needs of workers through flextime, education reimbursements, and by ensuring that the nature of employees' work assignments suited their interests and capabilities. "People are motivated by an ideal. They want to have meaning in their lives, and they want to be part of an organization that's special," was the way Volgenau described his company's workforce ideal in a 2005 Newsbytes article.

Throughout the years 2003 to 2005, SRA's workforce grew steadily. By 2004, the company had 2,600 employees; the following year, it employed about 3,300, and by the end of the year, 4,800. This was in part because in 2004, although much of the tech world had not yet recovered from dot.com melt-down, Virginia was a hot bed for employment. The Federal government was looking for help in developing surveillance software, assistance in integrating agencies brought together to make the Department of Homeland Security, and aid in analyzing reams of foreign intelligence data. SRA had the tools to respond to these needs. According to DiPentima, who took over as head of the company from Volgenau in 2005, in a 2005 U.S. News & World Report article, "We are in an information-technology revolution, and in certain areas we are running out of knowledge workers."

SRA also grew in 2004 and 2005 through acquisitions. In 2004, it acquired ORION Scientific Systems, a leading provider of counterintelligence, counterterrorism, and law enforcement services and solutions. In 2005, it purchased Touchstone, a management company that helped senior government executives develop, launch, and manage strategies, and SRA's fourth government services acquisition. Touchstone's customers included the Department of Homeland Security and Defense, intelligence agencies, and the Office of Management and Budget. Also in 2005, in its largest acquisition yet, SRA purchased Galaxy, a provider of systems engineering, information technology, and tactical communications services and solutions to the federal government whose customers included the departments of Defense and Homeland Security and the Federal Aviation Administration.

All told, SRA served more than 250 government clients on more than 750 active contracts, a 32 percent increase from the year before. Revenues increased accordingly, jumping 43 percent to $882 million in 2005. The company had averaged organic growth of 15 percent annually since its start, with significantly higher increases of 25 percent in 2003, 37 percent in 2004, and 43 percent in 2005.

KEY DATES

1978:: After incorporating two years earlier, Ernst Volgenau starts operations at Systems Research and Applications Corp.
1996:: The company forms a subsidiary, called IsoQuest Inc.
2001:: SRA and Safeguard Scientifics launch SRA Ventures.
2002:: The company sells its Assentor division.
2003:: SRA acquires Adroit Systems, Inc.
2004:: SRA acquires ORION Scientific Systems.
2005:: The company acquires Touchstone Consulting Group and Spectrum Solutions Group.

Ernst Volgenau retired as CEO after 26 years heading the company in 2005, and Renny DiPentima assumed the responsibilities of CEO as well as president. Under DiPentima, SRA continued to strive "not just to build shareholder value, but to serve society," befitting its corporate culture of honesty and service, according to Volgenau in a 2005 Newsbytes article. Preparing itself for future growth, SRA implemented a new financial system for billing and collections in 2005. Others, outside the company, also seemed convinced that the company would continue to grow: BusinessWeek selected SRA as one of its Hot Growth companies for 2005, and GovernmentVAR named SRA the Government Solution Provider of the Year.

PRINCIPAL SUBSIDIARIES

SRA Technical Services Center, Inc.; SRA Ventures, LLC; Systems Research and Applications Corp.; The Marasco Newton Group Ltd.

PRINCIPAL COMPETITORS

Accenture Ltd.; Affiliated Computer Services Inc.; Anteon International Corporation; BearingPoint, Inc.; Booz Allen Hamilton Inc.; CACI International Inc.; Computer Sciences Corp.; Electronic Data Systems Corporation; General Dynamics Corporation; International Business Machines Corporation; Keane, Inc.; Lockheed Martin Corporation; The MITRE Corporation; Northrop Grumman Corporation; Raytheon Company; SAIC, Inc.; Unisys Corporation.