Defense contractor must remain Dynamic

The Iraq war has been a boon to giant munitions makers. But for defense contractors that provide support services, such as Andover-based Dynamics Research Corp., the war has been something of a drag on earnings.

"The war has been a challenge for us and others because much of the [defense] money has been going for beans and bullets," said James P. Regan, 66, chief executive of Dynamics Research, an engineering and information-technology firm.

Regan also noted in an interview last week that the Pentagon has been setting aside more contract dollars for small businesses that are competing with medium-size companies like Dynamics.

A small business is defined as one that has fewer than 500 employees. The Andover public company has 1,520 employees, half of them in Massachusetts. Other facilities are in Vienna, Va., near Washington, and Fairborn, Ohio.

"So we have to be agile today in selectively picking our business targets," said Regan, a retired Navy captain and an Andover resident, whose company does much of its business with the military and federal and civilian agencies.

The company remains a major contractor to the Air Force, he said, adding that engineering and information-technology work for the Air Force accounts for "45.4 percent of our total annual business." The other percentages of the revenue pie are the Navy, 16.4 percent; civilian agencies, 11.8 percent; Army, 10.3 percent; federal agencies, 7.4 percent; state and local government, 5.9 percent; and commercial manufacturing, 2.8 percent.

Formed in 1955 as a spinoff of the Massachusetts Institute of Technology's Instrumentation Laboratory, Dynamics Research was awarded contracts initially by the Canadian Air Force and then the US Air Force for navigation systems. The company's offices were first in Bedford, then Wilmington, and have been in Andover since 1985.

Dynamics is now trying to do more with less, Regan said.

Last year, the company reported revenues of $259 million, down from $300.4 million in 2005, and net income of $4.1 million versus $11.4 million a year earlier. Regan's 2006 salary was $441,667.

For the first quarter ended March 31 of this year, revenues were $56.8 million, compared to $68.2 million for the same quarter in 2006, and net income was $1.1 million, a slight decline from the 2006 quarter's $1.4 million. Company shares are traded on Nasdaq.

"The company was impacted significantly, like many service providers to the military, but management recognizes that execution of business is key, such as cross-selling services to a mix of customers," said Michael Lewis, senior vice president of equity research for BB&T Capital Markets, Vienna, Va. His firm is a shareholder and customer of Dynamics Research.

Regan offered several examples of projects the company is doing for very different customers, including providing systems development for the Federal Deposit Insurance Corp., automated case management for the Ohio Department of Jobs and Family Services, and a variety of defense services for the Army Future Combat Systems, a mammoth program that Regan said has huge potential.

Regan said the future combat systems operation does about $100 billion in business and his company's potential share is $70 million, "for training people to operate these new systems."

Paul Deitz, a civilian Army official in Aberdeen, Md., said Dynamics Research has been a longtime contractor, notably in developing a universal task system for determining the value of various vehicles used in combat.

"The company understands the technologies associated with all vehicle platforms," said Deitz, acting director of the human research and engineering directorate of the Army Research Laboratory.

The military and the contributions of Massachusetts companies and academic institutions to national defense preparedness are always on Regan's mind.

He is a board member of the Massachusetts High Technology Council, which three years ago formed the Massachusetts Defense Technology Initiative when the Hanscom Air Force Base in Bedford and the Army's Soldier Systems Center in Natick were being considered for closing.

Thanks to the lobbying efforts of the defense technology initiative, which is now a permanent group, and others, the Hanscom base and the Army's Natick center were left off the base closing list in 2005. Regan is now also an officer of the defense technology initiative.

Regan "stepped right up and saw the value of the defense initiative," said Chris Anderson, president of the high technology council and an organizer of the defense initiative.

"He brings the same straightforward, no-nonsense commitment and results to Dynamics Research."

Regan said improved results will come to Dynamics because "we continue to be poised to make relevant engineering and IT contributions to our customers."