SDM 2017 Top Systems Integrators Report: Tested, Integrators Display Big Gains

Security systems integrators have faced some major challenges the past few years, including fending off new forms of competition on all sides, fighting the effects of price erosion and margin loss, and keeping up-to-date with some quickly developing technologies that hold promise for end user customers as well as sales potential for integrators themselves. Coming on the heels of a 1 percent decline in systems integration revenue in 2015, integrator companies bounced back in a big way amidst these factors.

Companies ranked on SDM’s Top Systems Integrators Report collectively recorded 14 percent growth in 2016. The Report ranks companies by their North American systems integration revenue, which includes solutions such as design, project management, product, installation, programming, start-up, and training sold directly to an end-user customer or through a tier of contractors. Total North American systems integration revenue,  which is different from total annual gross revenue, reached $6.42 billion in 2016, up 14 percent from $5.63 billion in 2015 for the 100 companies ranked. Several of the largest systems integrators that did not participate in 2016 are now ranked in 2017, including Securitas Electronic Security (formerly ranked as Diebold Security in 2015), ADT, and the combined entity of Johnson Controls/Tyco Integrated Security. However, when they are removed from the calculation and one looks only at those companies for which a year-over-year comparison can be measured, the 14 percent growth rate is present among the remaining integrators.

For top systems integrators, 2016 was a banner year, marked not only by double-digit increases, but by 7 percent more system starts in 2016 over 2015, an increase in full-time employees and business locations operated, and a general optimism that seems permanent — for at least as long as permanent can be in the security industry.

“We see 2016 trends continuing into 2017 in increasing magnitude,” notes A3 Communications Inc., based in Irmo, S.C., and ranked No. 50 on the Report. “On the national level, we have experienced a heightened level of security awareness due to terrorism and increased concern of domestic instability. This has resulted in continued prioritization of physical security systems and related technologies in both the public and private arenas.

Commenting further about technology trends that A3 Communications finds are having an impact on its business, the company says, “We expect that physical security technologies in the high-end space will accelerate their transformation into intelligent systems with both a security function and a data collection/analytic function. The increased technological complexity of these systems necessitates a higher level of engineering and post-deployment support services to be provided by the integrator. Cloud-based solutions will also continue to have an increasing impact on our industry as more ‘as-a-service’ offerings are being requested by customers and made available by system integrators,” A3 Communications describes.

Hosted and managed services, many of which are provided through a cloud, comprise just 3 percent of an integrator’s revenue, on average — a figure that only gained one percentage point year-over-year. But because such services represent an integrator’s response to price erosion and decreased profit margins, they will continue to be developed and become part of their offerings. There is no doubt profit was squeezed last year. Slightly fewer systems integrators saw their net profit improve (52 percent in 2016 compared with 58 percent in 2015).

“Our belief is that ‘cloud’ based services will start to figure more prominently in our business as well as the industry as a whole. This will likely have a negative impact to revenue numbers, but an aggressively positive impact on margins,” notes Integrated Security Technologies, Herndon, Va., ranked No. 30. This company also reports, “A focus on recurring revenue from hosted/managed services is starting to take hold.”

Salt Lake City-based Stone Security concurs. “Cloud hosted services for video and access control will continue to change the conversation, and possibly even start to change the way systems are designed and sold to our customers. If not 2017, then it’s looking like 2018 for sure.”

Integrators can see both sides of the coin in the trend of industry convergence. Outside trades such as structured cabling/networking, HVAC, AV and electrical “will continue to spill into the security market driving down margins,” according to Norcross, Ga.-based Southeastern Security Professionals. By the same token, as larger companies continue to acquire, it “releases sales/installation talent that will become available to smaller integrators — we need it — allowing us to grow faster,” the company remarks.

As systems integrators are increasingly finding themselves on the world stage, they intersect with the issues of the commercial Internet of Things (IoT), cybercrime/cybersecurity, and terrorism more and more often.

“Cybersecurity will certainly be the largest ‘buzz word’ in 2017.  Also, it seems the procurement landscapes have changed significantly over the past year and [we] expect them to continue to continue to provide downward pressure on margins,” notes CGL Electronic Security Inc., Westwood, Mass., ranked No. 65.

“Cyber will continue to be a high priority in both private and public sectors. Government funding will be a real question as the new administration takes shape. There is still instability throughout the world and that will affect global markets and Main Street,” according to Engineered Security Systems, Towaco, N.J., ranked No. 73.

“Cybersecurity and IoT are the largest trends. I believe the market is looking for services, not just traditional security. They want to interact and have some control. Balancing the end user’s need to consume information with our industry’s expertise in managing facilities security and access will be our greatest challenge in 2017,” explains Kimberlite Corp., Fresno, Calif., No. 96.

“The key issue will be change and obtaining higher levels of security. We expect to begin replacing the older 125KHz reader technology with more secure solutions,” describes Genesis Security Systems LLC, Germantown, Md.

“With a Republican majority in Congress, the consensus is Trump will use the next two years to focus on domestic issues that may ramp up building and infrastructure improvements. If so, those initiatives could translate into additional business opportunities for security firms. We are seeing a shift to cloud-based video storage and from up-front charges to a recurring revenue model for our customers,” notes Red Hawk Fire & Security, Boca Raton, Fla., No. 7.

With all of these trends potentially creating revenue opportunities for security systems integrators — including some that are more profitable than the current business model — the future seems very promising. Even the end user segment is holding up with positive news on the funding front.

Top systems integrators were asked, “Do you think funding for security projects was generally better, worse, or about the same in 2016 as it was in 2015?” Just about half (51 percent) of integrators said it was better, while 37 percent said the funding environment was about the same.

Nearly nine of 10 top systems integrators (86 percent) expect their 2017 revenues to exceed 2016’s. They know their challenges and are turning them into opportunities. Integrators are back on track and will only get stronger as they overlay their current skills on top of newer technologies and today’s threats.

“If the new administration delivers its campaign promises of lowering corporate taxes and increased spending on infrastructure projects, we can expect to see increased demand for larger and more advanced physical security systems. Many of the infrastructure projects in question are classified as ‘critical infrastructure.’ Robust physical security systems and intelligent technology will be a sizeable component of many of those projects,” says A3 Communications.

How to Use the Top Systems Integrators Report

The 2017 Top Systems Integrators Report ranks North American companies by their security systems integration revenue. This ranking is based on data provided to or, in a few cases, estimated by SDM. Ranked companies were asked to submit either an audited or reviewed financial statement, or a copy of their income tax return showing total gross receipts for the stated period. The vast majority of the firms ranked are privately held.

The main table, which begins on page 50, ranks 100 companies by their North American revenue in 2016 from their security system integration projects. Integration includes solutions such as design, project management, product, installation, programming, start-up, training, and time-and-materials-based service sold directly to an end-user customer or through a tier of contractors. This includes revenue related to security, such as: access control, ID/badging, video surveillance/analytics, intrusion alarms, perimeter security, electronic gate entry, intercom/communications, fire protection, etc. It does not include recurring revenue, as that is counted towards ranking on the SDM 100 (www.SDMmag.com/SDM100Report).

Note: an e following the figure indicates it is an SDM estimate.

22nd ANNUAL REPORT

View Footnotes

KEY:

e = SDM estimate. na = not available. Abbreviations to markets: airport = airports; corp = corporate office space; correctional = correctional; education = education/campuses; entertainment = entertainment/sports venues; financial = financial/banking; gaming = casinos/gaming; govt = government; health = healthcare; hotel = hotels/hospitality; industrial = industrial; law = law enforcement; retail = retail/restaurants; transport = transportation/distribution; utilities = utilities/critical infrastructure.

Largest Project in 2016: $17 Million

These 83 security systems integrators reported having the highest-value security projects started in 2016. Note: Five of the top 10 companies did not report their largest project size, as requested by SDM. Projects below $100,000 are not ranked here.

Source: SDM Top Systems Integrators Report, July 2017

Largest Project Winner: Johnson Controls

Alphabetical Index to Companies

More from the Report

To gain additional information beyond that published in this issue and online, the complete SDM Top Systems Integrators Report and Database is available in Excel format. Included are mailing addresses, telephone numbers, website URLs, targeted vertical markets, branch office locations, and much more. SDM’s Top Systems Integrators Report and Database contains the information needed to target products and services to the systems integration market.

The cost of the report is $595. It may be ordered by contacting Heidi Fusaro at 630-518-5470 or by emailing fusaroh@bnpmedia.com.