Vectrus looks ahead and up after clearing big hurdle

Vectrus has done its part in clearing the company's largest recompete and is already looking ahead on continuing its turnaround from a much different and difficult place a few years ago.

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.”