After refocusing, DynCorp International sees profits rise, weighs acquisitions

By Marjorie Censer  / May 29, 2018

An improving U.S. defense budget has led DynCorp International to return to its historical core markets, boosting profits and leaving the company weighing its acquisition options.

In an interview with Inside Defense earlier this month, George Krivo, who has served as the contractor’s chief executive for nearly a year, said the company started its reorientation in 2016, when he began serving as chief operating officer.

DynCorp flattened its internal structure and reshaped its business development to adapt to the environment.

"The company had a lot of growth back during the days when there were huge supplemental -- or [Overseas Contingency Operations] -- appropriations. The company grew to about $4 billion in revenue and then, as those appropriations subsided, went down to about $1.8 billion in revenue," Krivo said.

"However the cost structure . . . didn't shrink as quickly as the revenue did," he continued. "My mission was to try to align the resources and the strategy."

He said DynCorp cut out layers in the organization to become more efficient. It has also moved from three business areas to just two -- DynLogistics and DynAviation. While DynLogistics includes base operations and support, contingency operations and IT and intel work, DynAviation covers the company’s aviation maintenance and air operations work.

The company has also rebalanced its mix of work, Krivo said. While it began looking more to international sales as the U.S. government market declined, now he said DynCorp views its core U.S. markets -- working with the Army, the Navy, the Air Force and the Pentagon -- as "healthy again."

"We are more focused on our core markets now than we were two or three years ago," he said.

In 2017, DynCorp, which is owned by private-equity firm Cerberus Capital Management, reported sales of $2 billion, down from recent highs, but up from $1.8 billion in 2016. DynCorp's sales in 2012 were $4 billion.

The company in 2017 reported profit of $31 million, up significantly from a $54 million loss in 2016.

Bruce Herskovics, a senior analyst at Moody's Investor Service, told Inside Defense DynCorp is in a far better position than in previous years. Moody's this month boosted DynCorp’s credit rating, citing "solid contract execution scores from customers and a good degree of contract re-compete success of late."

Herskovics said the company is benefiting from several factors.

"The company's profitability has improved over the past few years, the backlog is stronger and the budgetary outlook is more favorable as well, so that's a really nice confluence of events for DynCorp," he said.

Krivo also said this month DynCorp has backed away from some markets, including security work.

"Certainly a lot of the work that we would have looked at and been interested in maybe three years ago today is less attractive to us because our core markets are so strong," he told Inside Defense. "We are looking for things overseas, but they would have to be less risky than perhaps things we would have considered long ago. In some respects, the company's transformed because we've put a lot of process and procedures in to really remediate risk."

"We've actually withdrawn from some major business areas that we used to be very active in, like security," he added. "Some of the private security sorts of contracts and missions that were available to companies like ours in the past are something that we generally don't take on now."

Krivo said the company expects consolidation in the services market and is "looking actively" for "opportunities to combine with other companies."

"It would be for us to acquire other companies with key capabilities that support our core," he said. "We think our core markets are healthy, and we think it's lower risk when you acquire a company if it's something you know really well, as opposed to a sort of diversification play."

For DynLogistics, Krivo said, IT and intel companies are of the most interest, while DynAviation could benefit from an acquisition related to certified parts.

Additionally, the company is weighing how best to optimize its capital structure after significantly lowering its debt, he said.

DynCorp is also zeroing in on the next version of the Logistics Civil Augmentation Program, dubbed LOGCAP V. An award is slated for the fall, and Krivo said he considers the program a must-win.

Herskovics told Inside Defense it's "hard to imagine" DynCorp wouldn't be selected in some way to support LOGCAP V.

"It's an important vehicle and program for DynCorp," he said. "They've supported the task orders that they've [been] awarded well, we think, so we'll see how they do."