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David S. Gutridge is chief executive officer of MTC Technologies (MTCT
), No. 11 on BusinessWeek's new annual list of Hot Growth Companies. MTC provides engineering support and other services to the Pentagon and U.S. intelligence agencies, a business that's booming due to the conflicts in Afghanistan and Iraq. MTC's ties to the war efforts have paid off. Sales have grown 34.7% annually over the last three years, to $212.5 million, while net income during that period has jumped 27.1% annually, to $13.9 million. And MTC's average return on invested capital during that three-year period is 32.5%, among the highest on our Hot Growth list.
Gutridge recently spoke with BusinessWeek Philadelphia Bureau Chief Amy Barrett about what's propelling MTC's recent success. Edited excerpts of their conversation follow:
Q: Military spending has been growing rapidly due to the war on terror and the war in Iraq. Has that been driving MTC's strong performance over the last three years?
A: We do about 95% of our business with the Department of Defense or the U.S. intelligence agencies. We divide our business into three groups. Our legacy business is the Air Force customers. More recently we've developed a strong business with the Army and Marine Corps. And we have national-security [customers] such as the U.S. intelligence agencies and U.S. Strategic Command.
We provide engineering support and other services, everything from defining requirements for weapons systems to helping [those customers] with the acquisition of those systems to actually getting those weapons systems into the hands of the fighting force.
Q: Have you had any big contract wins in particular?
A: The number of programs we're doing with aircraft modernization efforts has really driven our growth. We're a systems integrator for various programs. In 2001, we were 1 of 6 winners of a $7.2 billion [aircraft modernization] contract. It was a very strategic win. They [the Air Force] are saying "there isn't as much money around for us to buy new things, so we want to be able to inject current technologies on the existing platforms."
Q: What other important contracts have you won?
A: We've won contracts to put on the latest Identify Friend or Foe capability on National Guard aircraft.
Q: That helps pilots figure out if another aircraft is an enemy plane?
A: Right. This is important because the National Guard is assisting in more civil air patrols over our nation's cities. So it's important that they have the latest technology to identify which aircraft is friend or foe. We're managing the program. So we define what needs to be done, acquire the equipment, supervise the installation and testing.
Another example is something for the Air Force in Afghanistan. They found with the variable terrain there that communications were difficult. They needed communications between planes and people on the ground and ships nearby. We designed with our subcontractors a communications suite that they can roll onto a tanker plane. Those are large planes that refuel the aircraft in the area that are performing missions. So that tanker is hovering around the combat site but is out of harm's way. The communications suite on that tanker links people by radio and is used by troops on the ground, in tanks, or on ships.
Q: Is your growth simply driven by the fact that there's more defense spending?
A: If we look at the industry, most of our peer companies seem to be growing organically in the range of 10% to 15%. Part of that is driven by increases in the defense budget in the last few years. But it's also being driven by how the defense budget is being spent. There isn't a lot of increase in internal manpower in the [armed] services. But they've had to take people who may have been doing service roles and put them into combat roles. That has helped create a need for additional contractor services.