Raytheon services biz continues shift beyond traditional defense

Raytheon’s government services business has been in a transition of sorts in recent years to become less of a traditional defense unit and more of a high-end technology integrator heavily influenced by what is happening in the commercial world.

But a major acquisition to move the needle on scale has never been in the cards for the Dulles, Virginia-based Intelligence, Information and Services segment as part of their reinvention includes partnerships with commercial tech firms and venture capital investments in others.

IIS is betting on organic growth in four key domains they see as tightly stitched to the corporation’s core: space, cybersecurity, command-and-control and a mission readiness that includes “sustainment through modernization” to extend and upgrade legacy platforms.

During Raytheon’s first quarter earnings call with investors Thursday, executives pointed to cyber, space and international as the books of business that will shape IIS as the segment further winds down its role this year on the Army’s “Warfighter Focus” program for training and related professional services.

Raytheon expects IIS revenue of $6.7 billion-$6.9 billion this year, largely steady with last year. Chief Financial Officer Toby O’Brien told analysts that excluding Warfighter, Raytheon sees IIS “growing at around 10 percent for the year” on the top line.

IIS’ revenue grew 9 percent last year to $6.7 billion on classified cyber and space work, plus activities on the Homeland Security Department’s $1.5 billion “Domino” cyber services contract to help design and architect a complex firewall to protect civilian networks.

First quarter sales for this year hit $1.8 billion, up 12 percent from the same period last year -- again on classified cyber and space work.

Including its franchise win of Domino, the IIS business has strung together a series of wins in the past two years that they see as in the company’s core of high-end, complex technology integration work involving algorithms and software.

After a protest battle, IIS secured its role early last year on a $575 million task order to update software for missile defense and other weapons systems for the Army.

The business also views partnerships with companies outside of the traditional government ecosystem as core to winning future business. Last year, Raytheon announced a partnership with Pivotal focused on agile software development and another with Virsec to bring new computer network defense tools into government and critical infrastructure customers.

Raytheon unveiled a series of new collaborations with commercial cybersecurity companies in October of last year and is working with MetTel to support pursuits of opportunities on the General Services Administration’s $50 billion “EIS” telecommunications solutions contract.

Those collaborations illustrate IIS’ emphasis on bundling advanced artificial intelligence, automation and other commercial tools with Raytheon’s in-house creations.

This is one prism to look through as companies like Raytheon pursue market share in government technology modernization -- but in their case what that looks like in the national security domain.

One topic that did not get an analyst question: Raytheon's ongoing competition with Palantir for orders on the Army's "DCGS-A" intelligence gathering system.