MTC Technologies Inc. (MTCT)
Interview with:
David Gutridge, CEO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their
sophisticated systems engineering, information technology, telecommunications, intelligence operations and program management services focusing primarily on U.S. defense, intelligence and civilian federal government agencies.

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MTC Technologies has begun to augment their outstanding history of organic growth with some very selective and strategic acquisitions

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Business Services

MTC Technologies Inc.

4032 Linden Avenue
Dayton, OH 45432
Phone: 937-252-9199

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David Gutridge
Chief Executive Officer

Interview conducted by:
Lynn Fosse
Senior Editor
May 2004

David S. Gutridge serves as Chief Executive Officer and Director. Mr. Gutridge joined MTC in 1993 and served as a Group President and Chief Operating Officer for the non-DoD businesses that have now been spun out of MTC. Mr. Gutridge has also been responsible for financial and acquisition activities for the company since 1993. Prior to joining MTC, Mr. Gutridge owned his own firm and prior to that served as a Director and the CFO and later as the COO for DAY International, a publicly traded, Fortune 500 company which was sold to the M.A. Hanna Company in 1987. Mr. Gutridge also served in a senior managment position and was on the Board of the M.A. Hanna Company.

Company Profile:
MTC Technologies, Inc., (Nasdaq: MTCT), founded in 1984 and headquartered in Dayton, OH, and with its wholly-owned subsidiaries, is a leading provider of sophisticated systems engineering, information technology, telecommunications, intelligence operations and program management services focusing primarily on U.S. defense, intelligence and civilian federal government agencies. Over 95% of the Company’s revenue is derived from our customers in the Department of Defense and the intelligence community, including the U.S. Air Force, U.S. Army and joint military commands.

MTC Technologies employs over 1,500 people in more than 25 locations. Over 70% of the Company’s personnel are located at customer facilities and they deliver approximately 80% of their services directly to their customers as a prime contractor, delivering many mission critical services. Serving as a prime contractor in close proximity to customers has allowed MTC Technologies to maintain long-standing relationships that have been important to Company growth. MTC has provided services to the U.S. Air Force since it was founded, the U.S. Army for 15 years and NASA for 10 years.

Solutions include:
Systems Engineering

The Company’s specialists provide a full range of support to Air Force Special Operations Forces (SOF) programs to modify and upgrade aircraft and helicopters designed for highly specialized missions. Other Air Force projects at Air Logistics Centers (ALCs) include engineering and avionics support for over 500 individual C-130 cargo aircraft; electronic warfare logistics and technical support; manufacturing, financial, and engineering management for aircraft subsystems and weapon loaders; oversight of planning, finances, and processing for Foreign Military Sales of F-15 fighter aircraft; and support to depot maintenance accounting and production systems. MTC's Army focus is on providing systems architecture development and engineering skills for the National Missile defense program and various Army aviation, space, and missile programs. Other Army support includes sustainment and systems engineering to the Tank-automotive and Armaments Command and Army Watercraft Sustainment operations.

Information Technology
The Company’s IT skills encompass many platforms, current programming languages, and database management systems. MTC people possess extensive experience and expertise in IT software design and development integration, reengineering configuration management, documentation, and quality assurance services. Services also include security engineering, network design, enterprise application integration, database development, test and evaluation, training and implementation support. Many of MTC’s engagements include the web-enablement and integration of legacy business systems, allowing our customer to benefit from their prior investments.

The Company’s engineering and technical people provide telecommunication processing, site surveys, configuration management, engineering and installation support, local metropolitan and wide area networks, telephone switches, cable plants, and radio frequency communications systems for customers throughout a broad geographical region.

Intelligence Operations
MTC provides leading-edge services in Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR). MTC's areas of expertise include program support to U-2 and RC-135 aircraft; Predator and other Unmanned Aeronautical Vehicles (UAVs); space systems; foreign military sales programs for F-15 and F-16 aircraft; and ground ISR systems. The Company maintains fully accredited Sensitive Compartmented Information (SCI) facilities, communications, and processing capabilities in specific localities where quality end-to-end technical support is necessary for specialized systems and sensitive technologies. Such specialized programs include strategic warfare planning; airborne, space, and sensor activities; and ISR ground segments for Government customers. MTC also supplies services for non-military activities, which include counter-drug, counter-terror, and counter-economic espionage programs.

Program management
Many of the MTC services are in direct support of System Program Offices (SPOs) within the DoD to acquire aircraft (B-2, B-1B, F-22, F-15, F-16, & C-130). Services include development planning, project management, financial management, test and evaluation, management operations, program analysis, and systems integration. MTC’s people are exceptionally qualified in acquisition of major weapons systems and subsystems for DoD military programs and in providing breadth and depth of knowledge of NASA space projects.

CEOCFOinterviews: Mr. Gutridge, what was your vision when you became CEO and how has that played out for you?

Mr. Gutridge: “My vision in many ways consists of continuing on the track that we have been on for many years. The company has an outstanding history of organic growth and we have just recently begun to augment that with some very selective and strategic acquisitions. My vision is to continue that strategy, pretty much intact, with a view toward accelerating the acquisition part of that strategy.”

CEOCFOinterviews: What does MTC do?

Mr. Gutridge: “If you want a real nutshell answer, I would say we provide engineering and other technical services to the department of defense. If you look at our business, about 95% of our revenue is derived from various DOD (Department of Defense) and intelligence agencies.”

CEOCFOinterviews: What is it that you are actually doing for them?

Mr. Gutridge: “In many cases they have found that it is advantageous for them to use contractors like ourselves to perform some of their tasks. We have been at war in Iraq now for over a year and you can go back before that to the Afghanistan conflict and see that the ops tempo for the Department of Defense is greatly accelerated since then. Many of the DOD personnel that perform operations we typically do, have been required to fly a plane, carry a rifle or otherwise be directly involved in the conflict. That means that they need contractors like us to do what soldiers and airmen may have been doing otherwise. Some of our services consist of managing various programs for the army or the air force.  By that, I mean we come in and help the government assess what needs to be done, such as a refurbishment of a tank or refurbishment of an aircraft. We can assemble the subcontract team necessary to take care of that refurbishment, and we can manage the final installation of that refurbishment or technology upgrade of the aircraft or tank. In addition to program management, there is quite a broad list of things that we do. We get involved with IT projects and Intelligence Analysis; we assist in operations management for some of the ISR activities (intelligence, surveillance, reconnaissance activity). We are involved in many aspects of the operations of U2 flights from helping to plan the missions, schedule the missions, and analyze the data that is collected during those intelligence missions. That is a brief list of some of the activities that we cover.”

CEOCFOinterviews: Are there segments of our services evenly divided?

Mr. Gutridge: “We have selected our areas strategically. We have tried to involve ourselves in areas that we think will have ongoing requirements for many years to come, and at the same time will be areas that congress will decide definitely need to be funded for many years to come. Those are a couple of the key criteria, which we would look at in determining where we want to focus our business. One example of an area meeting these requirements is one I mentioned before: the acquisition processes, where we have been involved in the aircraft acquisition process for many years. If you look at us for the last 18-20 years, we probably have been involved with the acquisition of every major Air Force airplane that has come along.    In the interim, we have leveraged that capability to build an aircraft modernization business with an emphasis on Special Operations Forces aircraft.

If you look at the army or land forces side of our business, we have been involved with mobile power generation for many years, including requirements definition, acquisition, logistics and research and development. We used to talk about an army marching on its stomach, but today an army marches on its power. Think about sending our troops off to fight in a foreign land and the tremendous amount of power that we have to take along for their vehicles, base camps, hospitals, kitchens etc. It is an incredible requirement.   In addition, have to consider the power requirements for individual soldiers.   Over the years there has been more and more powered equipment added to what a soldier carries. We are working with the DOD (Department of Defense) to reduce the size of the batteries and the amount of power that each of those items requires. Right now, we have several projects where we have managed to reduce power requirements for some of those items about 75-80%. It is ongoing work, and a continuous need, which should become even more important as the DOD changes the way it conducts warfare.”

CEOCFOinterviews: You have announced a couple of new contracts recently; will you tell us about them?

Mr. Gutridge: “The most recent win was a ten-million-dollar win by our Vitronics division, where they are involved in programming for army avionics.  They have been working on that contract for many years and the government has expanded that contract for another five years.

Another area where we have had some recent wins is some expanded business here at Wright-Patterson Air Force Base. These were spread over several of the programs that deal with air force acquisitions and involve an area of expertise that we have developed over many years.”

CEOCFOinterviews: Has there been much competition for you and why are you being chosen ?

Mr. Gutridge: “There is always a lot of competition; there always has been and as far as we can tell, always will be. The reason that we have been successful is that we always pay very careful attention to the needs of the customer. Our company vision and the training we provide our people are geared toward amazing the customer with the level of service that we give them. It starts with the selection of the people; we look hard to find the people that have the right background and qualifications for the job, and in many cases, that means a very particular type of expertise. For instance, in some cases, we may need somebody that has expertise with C-130 aircraft, or a particular expertise with H53 helicopters. We will go out and find the people that have that kind of expertise. We can’t do a lot of recruiting at colleges; we typically need somebody with years of experience working with the finer points of our customers’ mission. We go from there and give them additional training to be absolutely responsive to the customers needs, always looking to provide our customers with the highest level of customer service. We have enveloped that with our ISO 9001 System, which helps provide procedures to maintain our quality level at the highest levels of quality.”

CEOCFOinterviews: MTC is “linking imagination and innovation.” What does that mean for MTC and what does it mean for your customers?

Mr. Gutridge: “It goes back to the customer service aspect; most of the time when we are working on a problem for the government, they are looking for more than just a standard answer, they are looking for somebody that is going to look at all the contingent factors that might come into play involving a particular problem. For instance, we had a project from a customer involving what it would take to put additional gas tanks on a C-130 aircraft. The government was wowed by the response that we came back with.  Of course, we came up with the solution for how to best mount the tanks, but we also told them that when installing this solution it will be necessary to also think about different problems the tanks will cause on landing, on take off, and/or problems you might encounter if you are going to land in a jungle area. Our team imagined all of the types of issues that might be encountered by this modified aircraft and then came back with a very innovative solution to resolve all of those issues. That is a great example of where we took that slogan and put it into real life practice.”

CEOCFOinterviews: What do you need to do to be ready to do these projects and bid on these projects?

Mr. Gutridge: “Our biggest expense is people and our next biggest expense is places for people to work, although probably over 70% of the people work at our customers’ locations; they are typically co-located with the customer on the base. In some cases it is having people with the right backgrounds and in other cases, we need a certain level of security clearance. Other situations might require our lab facilities. It varies from customer to customer.”

CEOCFOinterviews: Is it difficult to recruit people?

Mr. Gutridge: “By and large, we have not had issues in recruiting folks. With the set of benefits and the corporate culture that we have, we have found that it is very conducive to finding good people. That is not to say that there aren’t pockets of difficulty from time-to-time; I think our Washington D.C. office has a little more difficulty finding people from time to time.”

CEOCFOinterviews: You mentioned strategic acquisitions; what kinds of things are you looking for and what would you like to add to MTC?

Mr. Gutridge: “If we look at the typical profile of a company that we would like to acquire, they will probably have revenues of $30 to $80 million, an outstanding track record, and a management team that made that track record happen that is going to continue with the company. We don’t have extra people waiting around to be parachuted into a company that isn’t doing well, so you won’t see us buy turn-arounds. We want strong companies with an established management team that is focused in one of the three major thrusts of our business: air forces, land forces or national security customers.

As you can see we are continuing to have a federal government emphasis in all three of those areas. Another important consideration in our type of service business is the corporate culture. The company needs to have a culture that is going to be consistent with our own corporate culture. Since our business is our people, we have to be sure that when we bring new people on, they are going to like the type of culture that we have; because all of our assets go home at five o’clock every night and we want them to come back the next morning. When we make an acquisition, we spend considerable time understanding what the people are like and what sort of corporate culture they experienced with the potential acquisition company.  Then we have to decide if it is going to be compatible with ours.”

CEOCFOinterviews: Does the change of administrations have any affect on you?

Mr. Gutridge: “One can never be sure about that; every administration likes to put its own imprint on DOD and other government programs. In our situation, it goes back to being involved in a lot of different programs and with many different customers. Last year, we had over 400 different task orders, and only one of those task orders was as much as 7% of our business, so we have a great deal of diversity in the business that we do, plus it is spread over a lot of different customers. Our view is that someone would have to come in and cut very broadly and deeply to have a material impact on our business. Having said that, we think it is a risky proposition for any president or any congress, given the state of affairs in the world right now and the threat of terrorism, to make significant cuts across the board.”

CEOCFOinterviews: In closing, what would you like to say to potential investors?

Mr. Gutridge: “People who follow the DOD space are frequently people who follow the large original equipment manufacturers and these companies have a history of years of feast or famine and a lot of fixed investment.  Our business model is much different from that and we have very little fixed investment. Most of our investment is working capital that tends to go up and down with the business.

The differences between our type of company and the type of DOD companies that people have traditionally thought of can best be summed up in our growth rate of over 14% per year from 1984 through 2001 (a period when the defense budget was being reduced) and an annual growth rate in excess of 40% since 2001. We anticipate an ongoing growth rate in excess of 25% per year. Much of our work involves the bread and butter operations of our customers that they need year in and year out. While more of the services we provide may be required during times of war, it looks, unfortunately, like we are going to be at war for the rest of the decade in one form or another.

Another factor that portends an increasing need to rely on contractors like us is the expectation that by 2006, 50% of the federal workforce will be eligible for retirement. Not everybody eligible to retire will retire, but the government has made a decision not to replace all retirees, and has decided instead to rely more on contractors. The reason this can be attractive for the customer is that the cost for a contractor ends when the job is done, but the cost for a federal employee doesn’t necessarily end when the job does.  The federal employee may continue in federal employment or may retire.   In either case, there are considerable ongoing costs for the government. Given our track record of strong growth and a favorable climate for continued growth, we expect to continue generating attractive returns for our shareholders.”


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