With the drawdown of the United States military in Afghanistan and constrained defense budgets overall, the services business of Exelis Inc. [XLS] that will be spun out into a separate company in a week will look to diversify its customer base, officials from the new company said on Friday.
Vectrus has identified $10 billion in solid opportunities over the next three years, with about 40 percent of the potential outside of the Defense Department, as “we look to balance out our customer set within our portfolio,” Janet Oliver, who will be senior vice president of Business Development at Vectrus, told investors.
The Mission Systems business of Exelis, the business that will become Vectrus did $1.5 billion in sales in 2013 and is expected to do between $1.1 billion and $1.2 billion this year, with most of the decline due to falling revenues from work in Afghanistan. That estimate is $100 million less than the company forecast last spring.
The vast majority of the company’s work is in support of the Army, with a small amount for the Air Force and an even narrower slice with the Navy.
In the future, Vectrus still expects its Army work to make up well more than half of the overall revenue pie but sees its Air Force and Navy business expanding as well as work for other customers, according to briefing slides the company presented. In the past month, Exelis has won a key contract that will aid its diversification plans. The award, worth up to $458 million over seven years, is in support of U.S. Air Force bases in Turkey and Spain.
Vectrus executives also said that they are striving for a more balanced customer base geographically, bringing its support of U.S. customers in the Middle East to about half of its overall business in the future versus the more than half that exists now. They also see large expansion of support for U.S. customers domestically and in Europe and the Pacific.
Vectrus will begin trading as a public company on the New York Stock Exchange on Sept. 29 under the stock ticker symbol VEC. The company will have a backlog of about $2.4 billion and expects order quantities this year greater than sales. Margins are expected to be in the 4 to 5 percent range.
Ken Hunzeker, who will be CEO of Vectrus, said the company will also look for growth through strategic acquisitions that strengthen its existing lines of business. Vectrus’ three service lines are infrastructure and asset management, information technology and network communications services, and logistics and supply chain management services.
Ted Wright, who will be the company’s chief operating officer, said Vectrus enjoys a worldwide addressable market that is over $100 billion. The largest piece of that market is in the infrastructure and asset management area and is valued at $48 billion. The IT and network communications services piece is worth $45 billion and logistics and supply chain management $18 billion, according to Wright’s presentation.