By Wayne Heilman
Vectrus announced a third quarter revenue surge Tuesday as the Colorado Springs-based defense contractor scored new contracts and garnered work orders on existing contracts.
The company’s sales for the July-to-September period jumped 16.8% from a year earlier as it added $180 million in new work, including additional contracts with the Air Force and Navy. Vectrus said much of its revenue growth came from work in the Middle East and Europe and from its July acquisition of electronic security contractor Advantor for $44 million.
“As expected, revenue growth is accelerating in the second half of the year, with our continued phase-in of new contracts diversifying our revenue base, increasing our market share with the Navy and Air Force and driving organic (new work) growth of 13% year-over-year,” Vectrus CEO Chuck Prow said Tuesday in a news release.
Despite the revenue gains, profits for the quarter fell 4.9% to $9.38 million, or 80 cents a share, as a result of costs related to the Advantor acquisition and legal costs from a challenge to the company’s biggest contract win in its six-year history. Vectrus also said it faced a higher-than-expected federal tax rate.
Dyncorp International, a losing bidder in an $82 billion contract to provide logistics and other services to regional military commands, is protesting awards to Vectrus and three other companies with the Court of Federal Claims. Vectrus said in a conference call with stock analysts that it expects a decision on the protest by Dec. 4.
Earnings for the first three quarters of the year were off 4.3% from the same period last year to $24.1 million, or $2.08 a share, while revenue rose 7.1% to $1.02 billion. Vectrus didn’t change its revenue or earnings forecast for the year for revenue of $1.37 billion to $1.39 billion and profits of $2.82 to $3.05 a share.
The company said it has a contract backlog of $3 billion, has submitted another $2.2 billion in bids this year and is planning to submit another $7.1 billion in bids.
Vectrus shares have surged 56.1% to a record $46.42 since winning $1.38 billion in work in the Middle East and Asia under a contract from the Army’s Logistics Civil Augmentation Program.
By William McCormick
Vectrus, Inc. announced on Thursday that the company has been recognized as a 2020 Military Friendly Employer by VIQTORY for the sixth time since 2003.
“We are pleased to be recognized again for our success as a top employer to our veterans and their spouses,” said Frank Peloso, Vectrus senior vice president and chief human resources officer. “Military veterans bring leadership experience, specialized skills, and an instant knowledge of, and appreciation for, our clients’ missions. Veterans add to the diversity of our culture and Vectrus is better positioned to deliver on our commitments to our employees, clients, and shareholders because of it.”
This prestigious list provides a comprehensive guide for veterans and their families using data sources through continuously improved methodology, criteria, and weightings developed with the help of an independent research firm, and proprietary survey information from participating organizations.
Vectrus’ pair of acquisitions within the past two years have had a common thread of finding companies that provide specialized technology to help secure and manage facilities, all in the name of helping clients move toward a more converged infrastructure.
Deals are not the only tool Vectrus has at its disposal to bring emerging innovations to its government customers that want to use those digital tools as a lever for running their physical assets.
As Vectrus Chief Growth Officer Sue Deagle described to me recently, the company is also on a similar kind of continuous tech scouting mission that many federal systems integrators have embraced. But Vectrus is focused on its core business: supporting the military’s bases, supply chains and IT networks often in overseas and austere locations.
“There are people out there who are inventing cool things: new water purification methods, new solar methods, and so we actually have a component of our business that is out shopping for solutions that resonate with our bases,” Deagle said.
“We bring those partners to the table and they either do a pilot or they talk about the customer about what they have to offer, and then we can fold them into our contracts through different contracting mechanisms going forward.”
Through that setup, Vectrus essentially wants to be a channel through which creators can get their latest tools to the government customer. But as Deagle pointed out, the kind of environments that Vectrus typically works in is a factor to consider regarding when a base eyes integrating a new technology.
“For big-ticket bases, they need to know that the technology works,” Deagle said. “We do pilots with them to show through metrics how things could improve. So they’re interested and engaged in the conversation, but they’re probably not the ones leading the way.
“But that’s our job to come to them as a vendor… and say ‘Here’s a better way to do things, here’s another way to think about it. What do you think (and) what are the risks involved?’”
A possible second component of that broader solutions-oriented push by Vectrus is in the works, whereby the company would have more formalized statuses with commercial technology providers just like the aforementioned group of federal IT systems integrators do.
“When we think out to the future, we would see on our website in the future ‘solutions that are powered by Vectrus,’” Deagle said.
The story of Vectrus’ converged infrastructure push cannot be told without mentioning that four senior leaders including Deagle are all former IBM executives.
CEO Chuck Prow is a former general manager of global government for IBM, where he spent 12 years, and joined Vectrus in December 2016. Six months on, Deagle followed after a 13-year career at Big Blue that included a sales leadership role in IBM’s federal and government industries division.
David Hathaway was hired in the fall of last year as Vectrus’ senior vice president of programs after 15 years at IBM. Corinne Minton-Package, vice president of solutions and alliances, joined around the same timeframe as Hathaway and spent 18 years at IBM.
“We learned at IBM how to operate really big programs,” Deagle said, pointing to enterprise resource planning systems that Big Blue supports for federal agencies.
“We’re able to come here with these operators who are so skilled and gifted at what they do, and apply similar principles but learn from them, and then bring the layer of technology into that,” Deagle added. “These technology brains that we brought from IBM are combined with our base operators on the ground, and that creates this converged platform that we’re pushing towards in the future.”
By Ross Wilkers
A final outcome on a large contract key to Vectrus’ future is still to come from a federal judge, but the wait for that has not completely stopped the company from looking back on its five-year journey as a turnaround story in the making.
Vectrus faced a different future three years ago when the government services contractor had lost both that program but also its second-largest contract at the time that added up to half of its revenue.
The Colorado Springs-based company has since not just won back its largest contract with an expanded footing (more later), but strung together a series of other wins and made a pair of acquisitions to grow in new customer sets.
“We’ve really turned the corner in understanding the real fundamentals of our business,” Vectrus Chief Growth Officer Sue Deagle told me. “It took us a while to really understand what a pure play we are, what a simple business we are at heart.”
“We operate military bases, we operate military IT networks, and we operate military supply chains. So it’s very straight forward what we do, and we’re not trying to really go outside that capability set,” Deagle added in an interview at Vectrus’ Alexandria, Virginia office.
Colorado Springs-based Vectrus sees this year as one of growth from the $1.3 billion in revenue it posted last year. Vectrus will likely report third quarter results sometime in November, but said in its second quarter statement that it sees a 7-to-9 percent sales increase this year.
Deagle told me Vectrus has grown its backlog 120 percent in the past two years — an indication that future growth is on the horizon. The three prongs Deagle mentioned in describing Vectrus’ market proposition are at the core of its push to be a leader in converged infrastructure that sees IT used as a lever to support functions like base operations and supply chain management.
She pointed to how Amazon manages its headquarters as a prime example of where “those same ideas apply in the government space.” That includes the use of sensors and how energy usage is measured there, plus predictive maintenance functions and work order management systems.
“It’s just the evolution of everything that technology comes into play more than it did before, and we want to take that technology and apply it,” Deagle said.
Part of that push includes acquisitions. Deal number one for Vectrus was last year’s buy of technology and logistics services firm SENTEL Corp., whose customers include intelligence and civilian agencies. Transaction number two came earlier this year in Advantor Systems, an electronic security technology provider.
One of Advantor’s flagship offerings is a solution designed to help clients gain real-time monitoring and control functions for physical facilities. That plays into the converged infrastructure push this way, as Deagle described.
“Something that a human did before, now a product and software solution can do, and you can sit in a room and monitor from afar,” Deagle said.
But the biggest boon for Vectrus this year was the April news that it won two out of six awards on the Army’s potential 15-year, $82 billion LOGCAP V global logistics contract. The company was able to make an incumbent bid as its current base operations contract in Kuwait was rolled into LOGCAP V’s Central Command region award, which Vectrus won in addition to the seat for Indo-Pacific Command that is new work.
LOGCAP V remains under protest at the U.S. Court of Federal Claims, but Vectrus is performing the incumbent work and getting ready for if and when the Army clears the new contract to go forward. Vectrus is also putting that pursuit in the rear view mirror to some extent, according to Deagle.
“It’s all about in business development, what have you done for me lately, and that was a big campaign winning and securing what we did on LOGCAP,” Deagle told me. “But parallel to that, that’s how we like to look at our business in a campaign kind of structure.”
Deagle told me the company is now “looking at the Navy in the same way,” where the company has submitted bids and is waiting on award decisions for.
One such campaign paid off for Vectrus in June, when it won one of 11 seats on a potential $6 billion State Department global logistics contract that includes services in the Central Command region. Recall the company already has a presence there with LOGCAP V and the incumbent job.
“Some of these large projects that are coming out are in our Centcom wheelhouse,” Deagle said. “LOGCAP changed our view of the world, now we have a solid beachhead for the next 10 years in the Centcom AOR (area of responsibility), that’s a very different calculation, and then the same in Indopacom.”
Alongside revenue, a second metric key to Vectrus’ turnaround story is its bottom line — or in this case adjusted earnings before interest, taxes, depreciation and amortization expenses.
The company’s most recent guidance sees adjusted EBITDA margin at 4.2 percent for this year. Vectrus’ long-term financial goals are to hit $2.5 billion in revenue and 7 percent adjusted EBITDA margin by 2023.
Gauging from this conversation with Deagle, setting goals like that would not have been possible without a near-complete reset when Vectrus was in a different place.
“We had the benefit of needing to do a transformation,” Deagle said. “We had to reflect, we had to step back and take a look at what Vectrus wanted to be in the future.”
Senior Vice President and Chief Human Resources Officer, Vectrus
Frank Peloso has served as the chief human resources officer for Vectrus since 2010, charged with all HR activities and strategies. Previously, he was the vice president and director of HR for the Exelis Mission Systems business, the predecessor company to Vectrus.
Vectrus recently celebrated its 5-year anniversary as a publicly traded, government services contractor. Despite its relative youth, the company has a long 75-plus-year legacy of providing maintenance sustainment and operations support for U.S. government facilities, vehicles, equipment, ranges, networks and systems.
The challenge as Vectrus spun off from its parent company, Exelis (formerly ITT) was to build on the company’s rich history to define a new culture that aligns its roughly 7,000 global employees. A key differentiator for Vectrus is that its employees and the culture they embody are the company’s chief asset.
Under the current President and CEO Chuck Prow, Vectrus has embarked on a journey of cultural transformation to move from a siloed, command and control environment to one that fosters agility, collaboration and accountability. This ongoing transformation supports Vectrus’ strategic objectives of growth and margin expansion over the next five years.
With a relentless focus on employee engagement, Vectrus conducted an all-employee survey in 2017 — the results of which provided insights into areas for improvement. Vectrus then developed customized training modules and platforms to achieve these improvements.
In 2017, the transformation focused on transparency, collaboration and courageous communication. In 2018-2019, it focused on the company’s cultural imperatives of agility, accountability and engagement.
The training — which targeted leaders at all levels across 18 countries — focused on these culture imperatives and featured a mix of classroom training and “leader-led” training. This design ensured every leader at Vectrus not only understood each of these imperatives but also taught and modeled the way for his or her employees.
To round out this holistic approach to cultural transformation, Vectrus aligned its performance management system to set employee expectations regarding cultural imperatives and to assess individual competence in those areas.