Five Challenges For GTSI's New CEO

GTSI, number 82 on this year's VAR 500, had its federal contracting ability suspended by the Small Business Administration in early October, alleging that the reseller had violated rules intended to benefit small businesses. The SBA lifted the suspension three weeks later with one of the stipulations being that Scott Friedlander had to voluntarily resign as president, CEO and director.

Since 2007, Phillips has been a venture partner at FirstMark Capital, formerly Pequot Ventures. Prior to that, he served six years as chairman and CEO of Analex, a publicly traded federal professional services firm that was acquired in 2007 by QinetiQ North America. Analex grew from a $20 million company to $180 million under Phillips' tenure, according to GTSI. He also was previously a senior vice president at Federal Data Corporation, now part of Northrop Grumman, and worked many years for IBM's federal systems division and CSC's federal business development division.

“Sterling is a proven leader with a track record of growth in the government contracting industry,” said John Toups, chairman of GTSI’s board of directors, in a statement.

Taking the reins at GTSI, Phillips faces several challenges. Here's a look at some of them.

1. Winning Back Wall Street

GTSI's stock price closed Nov. 30 at $4.77 per share. That's up significantly from a $3.55 close on Oct. 8, a week after the SBA suspension was announced, but it's still far off the $7.25 close on Oct. 1 before that news came out.

2. Winning Back Federal Customers

GTSI's third-quarter sales increased 13 percent to $237.4 million, compared to the year-ago quarter, but the suspension wasn't announced until after the third quarter closed. It's still not known how much the suspension impacted GTSI's business both for the current quarter, but also long term.

3. Make Sure It Doesn't Happen Again

Friedlander took the big fall for the SBA suspension, but several other high-ranking employees were also suspended and GTSI had to establish the position of an internal ethics officer that reports directly to the board's audit committee. Philllips must remain vigilant in helping GTSI eliminate any lingering unethical processes that could prevent the company from conducting business after future investigations.

4. To Sell Or Not To Sell?

In September, Eyak Technology, an Alaska Native-owned federal contractor with executives that have ties to GTSI, made two offers to buy GTSI for $7 and $7.50 per share that were rejected by GTSI's board of directors. With the SBA crisis now seemingly behind it, GTSI may face pressure from shareholders to accept a sale at a premium much higher than the company's shares are now trading for.

5. Winning Back SMB Partners

Larger contractors like GTSI often partner with and subcontract to small businesses, which themselves can win deals thanks to special federal regulations geared to help SMB companies. With its hand slapped by the SBA for allegedly violating those rules intended to help small businesses, it may be harder for GTSI to find partners willing to do business with it.