One Year Later at Deltek: More of the Same (And Then Some More) - Part I

Time and again during my decade or so of covering the enterprise applications market as an industry analyst I have witnessed what difference a year can make. And boy, would 2008 be such a year!

A year ago or so, I concluded an in-depth four-part series on Deltek (NASDAQ: PROJ), whose executives were recently happy to tell me that 2008 was not that terrible a year for the company. Quite the contrary, Deltek feels comfortable as a company even in these troubled economic times.

This comfort persists because the company’s balance sheet is remarkably healthy, and even with software license revenues less than the company expected in the last reported fiscal quarter (Q3 2008), Deltek remains profitable and generates cash. Maintenance renewal rates remain high, and profit margins have remained strong across the business.

The other reason Deltek feels comfortable is because it is one of the best-positioned enterprise software companies to weather this economy from a vertical industry focus perspective. Government contracting investment is going at full speed ahead because the budgets that were set during the Bush administration will be spent in 2009. It won’t be until 2010 and beyond that the vendor might feel major effects from the changing US administration, and the changes it expects to see are positive for the company as well.

Ready for Both "Old" and "New" Deals

Namely, government spending will likely increase on President Obama’s watch, and even if he invests more in domestic projects than in defense, there will still be contractors that need well-tuned project accounting software to remain compliant with a growing set of stringent requirements.

All in all, Deltek’s GovCon line of business (which stands for government contractors; more details on Deltek’s major product lines will come later) should be strong. Sales of Deltek GCS Premier [evaluate this product] and Deltek Costpoint [evaluate this product] were strong last quarter and are expected to remain so going forward.

The Deltek EPM (Enterprise Project Management) suite [evaluate this product set] led by earned value management (EVM) applications Deltek Cobra and Deltek MPM (recently acquired from Planview) should also be a big seller given the expected strong government spending. In this tight environment, the US government has increased the number of auditors looking into programs' performances making the EPM suite even more important in this day and age.

On the professional services side, where Deltek Vision [evaluate this product] is the flagship solution, there is certainly some near-term weakness, and we could see that reflected in Deltek’s license revenue numbers. The blessing in disguise might be that the weakness should be a postponement of certain deals rather than their cancellation.

Some Architecture, Engineering & Construction (A/E/C) and associated consulting firms are a bit conservative at the moment and are not investing in their businesses in the near-term until they see how the credit markets shake out. However, these companies need software and will be buyers in the future.

Within the A/E/C customer base, Deltek fortunately has minimal exposure to the embattled residential real-estate market as well. Many of Deltek’s A/E/C customers design things like roads, bridges, and hospitals; i.e. infrastructure projects that tend not to be de-prioritized even in tough times. Indeed, if Obama comes through on his promise to invest in the crumbling US infrastructure because he believes it is in need of a major overhaul (which it is!), Deltek seems to be well positioned to support those A/E/C firms that will no doubt get pulled into helping with those major programs across the US.

Thus, Deltek gladly joins Agresso, Meridian Systems, and Skire in their belief that this new “New Deal” of sorts should drive a lot of new business for project-based software companies. And, since Deltek is an established US-based company with a large presence across the US (in terms of sales offices and reseller partners, especially within the “DC beltway”), I’d expect it to fare even better than, say, Agresso in its core vertical markets as the new “New Deal” takes shape.

Furthermore, Deltek made no dramatic cost-cutting statements as did many other vendors. The company has never been about making earth-shattering moves in either direction, but rather remaining on the course of measured growth and profitability, and on protecting its market share in the project-based industry segments. Deltek has always run a lean operation and that seems to be serving it well in the “stick to your knitting” times that we are in right now.

Latest News from Each of Deltek’s Lines of Business

During the Deltek Insight 2008 annual user conference in May 2008, the vendor made a number of product-related announcements. Hardly anything there was jawdropping, but then again, Deltek is not about making tectonic moves. The challenges, as mentioned in my abovementioned blog series still exist, especially with the soft A/E/C market (which represents a sizable proportion of Deltek's revenues).

On the other hand, the vendor can counter this market softness with growth opportunities including penetrating existing verticals, cross-selling and up-selling in existing accounts, expanding its product portfolio, entering new project-based vertical market segments (like management consulting, business consulting, and IT service consulting), and international expansion. One thing is for sure: Deltek remains committed to its products' enhancements and is prudently keeping abreast of the technical developments.

Professional Services Market

The current Deltek Vision 5.1 product release focuses largely on business performance management (BPM) and localization capabilities. It features Microsoft SQL Server Analysis Services (SSAS) online analytic processing (OLAP) cubes for Microsoft Excel-based analytics, the ability to produce global and local financial statements, and mobile customer relationship management (CRM) capabilities. Currently, the most important new development in the Vision world was the Consulting Edition that Deltek released around the time of the Insight 2008 conference.

Using the core Vision engine as a base, the edition was a configured version of the software that resonated with the consulting market right out of the box. The offering included features like an emphasis on resource management reporting (i.e., employee-centric metrics like utilization or quarterly revenue per partner), renamed fields to consulting-specific terminology (e.g., "engagements" versus "projects," "solutions" and "offerings" versus "regions" and "offices," "industries" versus "business units," or "methodologies" versus "project tasks"), and functionality enhancements for important areas like Human Capital Management (HCM).

Deltek offers quite a bit of HCM functionality in the current release of Deltek Vision, especially around resource management (i.e., staff management, salary history, and human resource [HR] reporting), career development, performance management (i.e. employee performance reviews), employee recruitment and on-boarding workflows, report generation for metrics like equal employment opportunity (EEO) reports, and recruitment. If the product doesn’t offer what a customer needs, the customer can always use the Vision Xtend framework (to be explained shortly) to build the desired functionality through user-defined fields.

As for future developments, while the Consulting Edition really helped to jumpstart Deltek’s focus on the consulting market (the vendor has always had clients therein, but this release showed a formal committment to the market), the most important initiative in the Vision world is the upcoming release of Deltek Vision 6.0. The product is slated for release around the March/April 2009 timeframe, and promises a number of important improvements that are hoped to really push Vision in a new direction along the technology, usability, and globalization lines. Two of the most notable enhancements are:

  1. Globalization improvements such as the automation of complex multinational tax calculations, localized reporting to meet international financial reporting standards (IFRS), and building a more secure environment for intercompany and multicurrency transactions. There will be support for multiple languages, while Microsoft SQL Server Reporting Services (SSRS) will be used for standard reporting (in previous versions reporting was provided via the partnership with Actuate Corporation). Thus, Vision 6.0 will set the stage for Deltek’s much needed international expansion efforts when the time is right; and

  2. Microsoft Smart Client and .NET Framework  improvements that should change the usability paradigm of the application (including Silverlight). Users will have much more flexibility to configure how they want to view application data through smart grids, integration with Microsoft Office Communicator , and interactive dashboards. Perhaps most importantly, the improvements make it even easier for partners to build on top of Vision and/or build extensions to it.

These capabilities might mean that Deltek Vision can become (should traditionally conservative Deltek choose to fully embrace this avant-garde strategy), a platform that others can build around. This would be similar to what (through its AppeXchange directory  that is built on the on-demand platform) and NetSuite’s SuiteFlex on-demand platform offer (of course, with the difference of Deltek Vision being a traditional on-premise platform).

The idea behind the “Smart Grids” feature is to empower the user as much as possible to take advantage of the vast data that resides inside the system. While Vision users have always been able to view data record by record or in tables, Smart Grids leverage Microsoft Smart Client technology (Deltek has reached the highest tier of Microsoft partners and is closely tied with the giant) to filter a grid of data in any manner required, and to directly export the filtered data to Excel for further analysis. The prior pedestrian way of getting information to Excel was to go into a report within Vision and then export to Excel from the list report.

Extending Deltek Vision

For its part, Vision Xtend, which was introduced back in 2005 within Deltek Vision 3.0, is an extensible technology foundation built using the Microsoft .NET framework. On top of a configurable Vision core, Xtend provides service-oriented architecture (SOA)  and Web Services capabilities for drag-and-drop-like customization, workflow configuration, and integration, with the intent to extend and adapt Vision to meet unique requirements. With added integration to Microsoft Office (to streamline processes) and with mobile devices (for anytime, anywhere access) users and partners are able to deliver tailored Vision-based solutions.

Although not a new concept, Deltek featured Vision Xtend in some Insight 2008 presentations mainly because its team used the tool to configure the aforementioned Vision Consulting Edition. Hence, the vendor could demonstrate the value of Xtend to customers. However, Deltek continues to add capabilities such as new application programming interfaces (API's) to the framework so that users can extend it further for a variety of functions. More will be added to Vision Xtend in Deltek Vision 6.0.

Future developments, beyond Vision 6.0, will revolve around business intelligence (BI) in terms of expanded role–based user interface (UI) and/or dashboards, and expanded Microsoft SharePoint integration. The HCM functionality will also be high on the priority list. As for functionality in the pipeline, more robust recruiting, employee-self service (ESS), and benefits administration functionalities are all on the roadmap.

The upcoming two parts of this blog series will analyze the recent developments (and anticipated future developments) at Deltek’s remaining lines of business. Your views, comments, opinions, etc. are welcome in the meantime.
comments powered by Disqus