How Huntington Ingalls integrated a $1B services business with its shipbuilding roots

Integrating one acquisition is a big effort for a government contractor and then there is what the Newport News, Va.-based shipbuilding giant Huntington Ingalls Industries has undertaken over the past year.

Huntington Ingalls acquired Huntsville, Ala.-based government services Camber last year for $372 million to add new IT and systems engineering work for military and some civilian agencies.

But that was merely one step for Huntington Ingalls as it subsequently moved Camber along with six other businesses into a standalone, independent segment called Technical Solutions. That is one of three segments in the company alongside the two shipbuilding divisions in Newport News Shipbuilding and Ingalls Shipbuilding.

“Over the past year, we’ve been going through a pretty intensive process around integrating these businesses,” Technical Solutions President Andy Green told me. “Where they used to be fairly independent and stove piped, now they’re all operating as Technical Solutions.”

Approaching $1 billion in annual revenue, Technical Solutions was formed through a realignment of the six services businesses excluding Camber that had previously been distributed across Huntington Ingalls’ other two shipbuilding segments.

The services segment has almost 5,000 people combined across 35 U.S. states and 11 countries that offer IT and professional services such as systems engineering, logistics, program management, cybersecurity and data analytics.

The Navy remains a major customer of the Technical Solutions business but Camber also brought work with civilian agencies. This mix has lower capital investment requirements and more contracts across different agencies and represents a stark contrast to how the shipbuilding segments work, Green said.

“Shipbuilding is a very long-term business (and) executing one contract can take years, it’s a very long-cycled business,” Green said. “It’s all about executing on the existing contract.”

The Navy shipbuilding market is largely dominated by Huntington Ingalls and General Dynamics. Technical Solutions by comparison has a “big number of small contracts (and) such a shorter cycle” with many more competitors, Green said.

What Huntington Ingalls likes about services is the lower amount of upfront investment capital required to run the business, Green said.

“We invest in pockets where it makes sense but it’s not at the same level of magnitude that you would invest in a large manufacturing facility like a shipyard,” Green added.

Moving the services businesses out of the shipyards is aimed at unlocking a new growth engine for Huntington Ingalls, according to Green.

“When you have a relatively small services business embedded in a large shipyard, it’s harder for that business to operate with the agility that a customer who’s buying those services needs,” Green said.

“By moving these out and combining them, we get that increased ability but they also bring to bear all the capabilities of the division as opposed to those that might reside in their piece of the business before they stood up the division.”

The services business and L3 Technologies are major partners to Boeing in the Navy’s “Orca” Extra Large Unmanned Undersea Vehicle program competition. Boeing is pitching its Echo Voyager unmanned submarine against a Lockheed Martin vehicle for the competition.

A Navy downselect for the Orca program is anticipated by the end of next year and the winner will build up to five vehicles. Orca and other unmanned programs like it are part of a broader effort to extend the reach of forces and gain more leverage in mission with less manpower.

“In the broader sense, unmanned systems of all types are clearly going to play a much bigger role in our nation’s defense going forward,” Green said.

Huntington Ingalls is one of two major nuclear-powered submarine manufacturers, one of several attributes Green said makes the unmanned undersea domain a “natural place for us to participate.”

At its Newport News shipyard, for example, Green said the company has made submarines for almost six decades.

“We bring (to Boeing) a lot of undersea systems design and engineering capability but also that manufacturing expertise,” Green said. “The combination of our experience building and constructing undersea vehicles… coupled with Boeing’s experience specifically around UUVs like Echo Voyager was the perfect combination.”

While Huntington Ingalls does not give official financial guidance to investors, Chief Financial Officer Chris Kastner said in their third quarter earnings call Nov. 8 the company expects “closer to $900 million” in sales for Technical Solutions this year.

The company has targeted organic services revenue growth in the low single digits initially and then a progression to 5 percent-to-7 percent by 2020.

So how does a services business -- with its different cost model and multiple contracts on shorter cycles -- work with the longer-cycled and more capital intensive shipyards to create growth and opportunity across Huntington Ingalls?

One answer lies in the concept of digital shipbuilding, which incorporates three-dimensional modeling and augmented reality technologies among others into the ship construction process. The heritage Camber business performs this work in support of the company’s Newport News Shipbuilding segment for example to create an “integrated digital shipyard,” Green said.

“Now we can take people from (Camber) and bring in systems engineers and software developers who contribute to the transition to the digital shipyard at Newport News,” Green said. “Then as you continue to develop and strengthen that skill set within the business, then we can take that strengthened capability and take that to our external customers.”

Those types of services would previously have to be subcontracted out to an industry partner, Green said.

“It gives us a place to not only help ourselves without having to go outside but it also gives us the ability to continue developing that pipeline of talent internally and take those skill sets and capabilities and be able to broaden the potential solution sets we offer our external customers as well,” he added.

The operating groups within Technical Solutions are fleet support, integrated mission solutions, nuclear and environmental, and oil and gas. Huntington Ingalls has spread out the heritage businesses across those groups as part of the integration and transition to the Technical Solutions brand.

Fleet support inherits work from AMSEC, Continental Maritime of San Diego and Undersea Solutions Group.

Nuclear and environmental draws its heritage from Newport News Industrial and SN3, which is partnering with Honeywell on the $5 billion Nevada National Security Test Site management contract.

Integrated mission solutions takes on services performed by Camber, while the oil and gas group traces to UniversalPegasus International. The oil and gas group’s customer base is primarily in the energy sector and the other three Technical Solutions groups are predominately focused on the government market.