TOP 100: Exelis prepares for split to trigger growth

Exelis is a top 20 prime contractor, but it believes that its best shot at growth lies in splitting in two. What are its keys to success?

Following  a year of notable contract wins, Exelis announced plans to spin off a portion of its business operations. The move isn’t intended to mess with success, but rather to increase it.

This summer, Exelis’ Mission Systems business will become a stand-alone military and government services company called Vectrus, a move that will let the other sectors of the McLean, Va.-based company focus on command, control, communications, computers, intelligence, surveillance and reconnaissance; aerospace; and information solutions.

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“We believe that spinning off Vectrus will ultimately enable greater focus and agility for both Exelis and Vectrus,” said Bob Durbin, senior vice president for strategy and government relations at Exelis, which earned $4.8 billion in revenue in 2013. “Vectrus will concentrate on leveraging its efficient cost structure and decades of experience in logistics, network operations, and facilities management to provide a unique value proposition to customers in the services market.”

Based on 2014 forecasts, Exelis is expected to have about 10,000 employees and revenues of $3.3 billion to $3.4 billion, while Vectrus would employ about 7,000 people and have revenues in the $1.2 billion range, Durbin added.

But while they are still together, the company is ranked No. 17 on the 2014 Top 100 with $1.6 billion in prime contracts.

Reduced Defense Department spending and fewer troops in Afghanistan will likely present challenges for the newbie firm, but it’s already taking steps to diversify its customer base, he said.

For instance, although the business unit that will be Vectrus directly supports U.S. forces in Afghanistan via contract vehicles such as Logistics Civil Augmentation Program IV, it also provides facilities management for U.S. military hubs in Kuwait and Qatar in addition to shoring up operations and maintenance capabilities for Afghan forces.

Exelis overall won several contracts that contributed to its earnings. One was a $125 million contract from the Navy to provide a second production lot of the AN/ALQ-214 jammer, an electronic warfare subsystem on U.S. and Australian F/A-18 aircraft. In October, the Fleet Readiness Directorate of the U.S. Navy Space and Naval Warfare Systems Command awarded Exelis a five-year, $121.8 million contract for end-to-end systems engineering support for Navy C4ISR systems.

The U.S. Marine Corps Logistics Command named the company a prime contractor on the five-year, $854 million Marine Corps Logistics Support Services contracts program in July.

The company also met milestones on other work, including executing for the fifth consecutive year on building out the Federal Aviation Administration’s ADS-B ground network, which provides precision surveillance through Global Positioning System satellite signals.

Still, a year of declining government budgets punctuated by a shutdown and sequestration gave Exelis executives pause, Durbin said. To that end, they are focusing investment on areas ripe for growth: critical networks, ISR and analytics, electronic warfare, and aerostructures. The company has also expanded international market development.

“We’ve taken a number of steps to restructure and improve efficiency in our business in order to deliver greater value to both our customers and shareholders,” he said. “In 2013, we invested more than $70 million in restructuring to improve efficiencies, reorganize and scale our workforce to better reflect customer demand.”

The company consolidated several previously separate facilities to lower real estate costs, improved its ability to share best practices across its businesses, invested in new technologies like 3-D printing of components and instituted a companywide category management program to maximize the efficiency of its supply chain, Durbin said.

For Exelis and Vectrus, staying competitive in the current environment will mean pushing growth areas, recruiting and retaining talented employees, performing well on our existing contracts and actively managing portfolios to align with customers’ priorities.

“It’s also important to be agile and responsive to a complex customer, budget and market environment as it continues to evolve over the next several years,” Durbin added.

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