With New Board in Place, STG Continues Primary Focus on Customer Missions

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Phil Lacombe, President & COO of STG, Inc.

Phil Lacombe, president & CEO of STG, Inc.

It’s business as usual at STG, Inc.

That may not sound like big news, but when your company has recently been the subject of media speculation about a routine SEC filing made by the publicly traded company, sometimes you have to state the obvious. That’s been Phil Lacombe’s focus these past few weeks.

“We’ve had to talk to customers, employees and partners to make sure everybody understands what the real story is,” says Lacombe, president and CEO of the Reston, Virginia-based company that provides solutions to more than 50 U.S. agencies nationwide.

The misunderstanding, Lacombe notes, started when STG’s direct parent, STG Group Holdings, Inc. appointed a new board of directors. The new board was appointed by the company’s creditors in November. That was supposed to be the full story.

Subsequent reports, however, interpreted an SEC filing by STGH’s direct parent, STG Group, Inc., which is a publicly traded company, in ways neither STG’s executive leadership nor its creditors ever intended, inaccurately suggesting STG leadership had resigned and the company’s creditor, MC Credit, now ran the day-to-day operations of STG.  Neither statement is accurate, Lacombe says.

“From the STG perspective, nothing has changed,” he says. “STG has not changed; STG’s senior management, employees and mission have not changed — nor has there been any change in our commitment to our customers’ mission, our employees, our communities, or our shareholders and creditors,” Lacombe says.

The same holds true, Lacombe adds, on the performance front.

“With regard to STG’s ability to deliver, there has been no change either — our colleagues are bringing their professional and technical capabilities to bear in support of critical government missions like cybersecurity and development of mission-critical systems,” Lacombe says.

So what triggered all the misinformation in the first place?

To understand that, you have to have to understand this maxim: Sometimes, complex company structures (and restructures) don’t necessarily signal cataclysmic corporate events. They can simply be the result of indirect changes in control, but not changes in overall company mission and focus.

In STG’s case, STG, the operating company federal customers rely on for their mission-critical needs, is owned by STGH, which, in turn, is owned by the publicly traded STGG. Both STGH and STGG are shell holding companies with no operations. All assets, people, contracts and so forth are held at the STG level.

As Lacombe notes, the event that triggered the STGH board reorganization, was based on a loan agreement. (Since STGG’s inception as a public company in November 2015, STG has carried a loan. The original amount was for $82 million; today, the unpaid balance stands at $73 million.)

“The loan agreement contains financial covenants that require STGG to maintain certain ratios-of-earnings to debt,” Lacombe explains. “STGG did not meet some financial covenants — you could call it a technical covenant default — but STG, as borrower, was not in default of our payment and we expect to make all required payments.”

In November, that technical covenant default prompted STG’s lenders to implement one of the remedies contained in the loan agreement, exercising voting rights over STGG’s shares of STGH. The agent for the lenders, MC Credit, established a new STGH board of directors, which now controls STGH and is tasked with maintaining and providing value to all STG stakeholders, customers and employees (roughly 750, in all).

In the past, Lacombe served as president and chief operating officer of all three companies, while industry colleague Chuck Cosgrove served as chief financial officer of all three. However, to better align with the new board that had been established at the STGH level, Lacombe and Cosgrove recently resigned from STGG, while retaining their STGH and STG positions.

Meanwhile, the new STGH board of directors now includes Lacombe and two outside directors, each with extensive experience in the finance and commercial markets: Robert Warshauer, managing director of the investment banking company Imperial Capital; and Jarlath Johnston, managing director of the investment management services company Bentley LLP.

The reshuffle has only solidified creditor confidence, Lacombe adds.

“I think we have a very healthy relationship with our creditor; more healthy than it’s ever been,” he says. MC Credit’s chief investment officer, Ashok Nayyar, recently echoed that view, stating, “With the new STGH board in place, we can continue to underwrite STG’s liquidity and build an increasingly healthy company.”

That increasingly healthy company, Lacombe says, is already eying new opportunities, just as it deepens company operations across two principal areas: cybersecurity (including network operations) on behalf of customers such as the U.S. Army, U.S. Air Force, and the Homeland Security Department; and software and systems development for customers such as the State Department. The new STGH board organization, Lacombe adds, will only enhance STG’s capabilities.

“I think it is actually going to enable us to perform even more agilely and capably,” Lacombe says.

STG already has a significant foothold with its recent win of the GSA Alliant II contract, a potential 10-year, $50 billion indefinite delivery/indefinite quantity vehicle, as well as with vehicles such as NETCENTS and CIO-SP3.

STG’s pursuit of new growth opportunities like these speaks to more than bottom-line growth, Lacombe adds.

“New growth opportunities are just as important for our current employees as they are for our shareholders — new work gives our employees [the ability]to grow in new mission areas and customer sets,” Lacombe says. That focus also speaks to the larger STG vision: “being the best, most trusted, most agile and most dependable mission partner for critical government missions,” as Lacombe puts it.

“Our commitment for 2018 is to continue to grow in that direction – and to add additional customers and capabilities – to expand our support of the customer mission,” he says.

So if there’s any news, Lacombe says, it’s no news. Except to say, STG is here to stay.

 

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