Force Protection Inc., a small company in Ladson, became the darling of the defense industry by building a truck that could save soldiers’ lives in Iraq.
Now, facing competition from bigger companies and saddled with a business plan focused on a single product, the Lowcountry company is struggling to save itself.
“Force Protection bet early and won,” said Dakota Wood, a senior fellow at the Center for Strategic and Budgetary Assessment, a nonprofit, nonpartisan organization that analyzes defense spending. “It was a case of a little guy being there first, but they didn’t have the capacity to fill the orders.
“It’s like you built a better mousetrap and the world now wants a million of them. You just can’t respond to that.”
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As Force Protection searches for a way out of its year of bad news, its executives are re-evaluating its entire business, including its future in South Carolina.
In a state with few publicly traded companies and high unemployment, Force Protection has stood out as a success story. Employing 1,500, it has been one of the state’s largest, fastest-growing publicly traded companies.
This time of year, publicly traded companies, including Force Protection, normally release their financial reports and invite shareholders to annual meetings to talk about their future plans.
Force Protection, however, last filed an earnings report with the Securities and Exchange Commission in August. It hasn’t set a date for its next, long-overdue report.
Force Protection’s failure to report its financial results - its profits or losses - in the required, timely manner led the NASDAQ stock exchange in March to threaten to remove the company from its stock listing. The company is appealing.
But that’s just the latest of Force Protection’s problems.
In March, large, established defense contractors gobbled up the lion’s share of a $1 billion contract for armored trucks for the Pentagon’s Mine Resistant Ambush Protected - or MRAP - vehicles program. Force Protection landed less than 2 percent of that work, a major hit for a company that once was the military’s sole provider of roadside-bomb resistant trucks.
Force Protection also is the subject of a class-action lawsuit, alleging securities fraud. And last fall, it underwent a shake-up in its senior management.
In March, Force Protection chief executive Michael Moody held a conference call with defense industry analysts to try to soothe investors’ fears over the company’s future. In that call, Moody acknowledged his company was not set up to manufacture the large number of vehicles the Pentagon wanted.
“We were a development-stage company, and although we were increasing our production, our capability did not match the growth of the demand that developed for these vehicles,” Moody told analysts.
This year, Force Protection expects to build 1,134 armored vehicles, bringing in revenues of about $580 million, he said.
The company estimates its 2007 revenue was $875 million, producing a profit of about $17 million. Production numbers for 2007 were not available.
In 2006, Force Protection built 285 vehicles, bringing in revenue of $196 million and producing a profit of about $18 million.
The big question, however, is what Force Protection will do to earn money in 2009, once the military’s lucrative MRAP program runs its course.
“The reality of the world tactical vehicle market continues to be fluid,” Moody said.
A GAMBLE PAYS OFF
Force Protection was started in 1996 in California as Sonic Jet, a boat manufacturer. After a year, the company changed its name, moved to Ladson and shifted its focus to making heavily armored vehicles built to withstand land mine explosions.
It was a gamble.
Force Protection’s founders speculated the vehicles would be in demand because countries across the globe are littered with land mines.
The company toiled in obscurity and lost money, unable to sell its vehicles to the U.S. military. In part, the U.S. Department of Defense was unwilling to invest billions in a large, chunky truck that’s heavy to transport and gets poor gas mileage.
Then, the United States went to war in 2003 in Iraq.
By 2005, roadside bombs had become the No. 1 killer of U.S. troops in Iraq.
But Force Protection had an answer.
With the help of U.S. Sen. Lindsey Graham, R-S.C., who sits on the Senate’s Armed Services Committee, the little company in Ladson got the military’s attention.
Soldiers reported the company’s vehicle - given a tryout in Iraq - saved lives on the battlefield.
“They may not be the vehicle of choice in the future, but it’s a godsend in this war,” Graham said.
Sales took off.
The U.S. Marine Corps began ordering vehicles for its troops through the MRAP program. The Army followed the Marine Corps’ lead.
By 2006, Force Protection had turned its first profit - $18.2 million - after losing $13.5 million the year before.
Force Protection’s vehicles were featured in front-page stories in national newspapers. Its Buffalo model starred in the science fiction movie “Transformers.”
Investors noticed, too, sending Force Protection’s stock to a peak of almost $31 a share last May.
However, if there’s such a thing as too much success, Force Protection had it. The company wasn’t big enough to produce the large number of vehicles that the military needed.
“We went from no one to everybody wanting one,” Graham said. “They wanted them all over there overnight.”
Other defense manufacturers took notice of Force Protection’s success. They, too, wanted a piece of the MRAP market, said Wood, the defense analyst.
The companies that entered the competition were established defense contractors with assembly lines ready to mass-produce vehicles. Force Protection, on the other hand, already had been criticized in a Defense Department report for missing production deadlines.
“I’m proud of what they’ve done. This small company in Ladson was at the forefront of this technology, producing a good product,” Graham said. “Now, other people are playing. They’re competing with some big companies.”
Force Protection recognizes the problem.
“While we continue to believe that we build the best vehicles in the category, other companies were viewed as better positioned to fill delivery requirements,” said Moody, the CEO.
Unfortunately, that’s what happens in business, Graham said. The senator said he cannot influence the Pentagon to choose Force Protection.
“It’s not my job to tell the Pentagon which company to buy from,” he said.
As competition heated up, Force Protection’s stock began falling. Shares tumbled in March to a low of $1.37, when the company’s three largest competitors won the bulk of the latest MRAP contract.
Now, Force Protection’s stock trades at about $3 a share, rallying after the company landed some foreign military contracts.
Amid growing competition, in January Force Protection forced out CEO Gordon McGilton, who had been its head since 2005.
McGilton cashed out his Force Protection stock before the company hit hard times.
LOOKING FOR FUTURE REVENUE
For now, Force Protection has plenty of work to keep its 1,500 employees busy.
In March, the company had a backlog of 870 vehicles to build for the military this year.
But another hazard looms.
The MRAP program ends this year, and Force Protection desperately needs other business to sustain it.
“If you’re a single-product company and the market is capped, that’s not good for a business plan,” said Wood, the defense spending analyst.
The company is banking on foreign military sales and contracts to service its vehicles already in the U.S. military fleet.
“There’s a good market opportunity for additional foreign military customers for our fleet of vehicles,” CEO Moody said.
On Friday, the company announced it will sell 157 of its Cougar vehicles to the United Kingdom for $94 million, said Tommy Pruitt, Force Protection’s spokesman.
“That puts a little business out into 2009,” he said.
Force Protection also expects the military to request an overhaul of its vehicles now being used in combat, Pruitt said.
That should generate servicing income.
“We’ve put them in a pretty punishing environment in Iraq and Afghanistan,” Pruitt said. “The attacks they have gone through have done things that cause them to need to be overhauled.”
In April, the company landed $28 million in contracts to supply parts and employ technicians to service its vehicles stationed overseas.
But that’s a small amount compared to the billions that can be earned by building new trucks from scratch.
ANOTHER DEFENSE COMPETITION
Force Protection wants to build more trucks, particularly another armored vehicle called the Cheetah.
Company officials hope the Cheetah is their entry into another Pentagon program, bigger than their MRAP orders. The military wants to replace the Humvee that it uses as the standard truck for troops and has requested prototypes to test.
Force Protection has entered the contest. But even if the company were to be selected, production isn’t scheduled to begin for another two to four years, Wood said.
“There’s a gap for Force Protection and anybody else building these things between now and 2012,” Wood said. “If this is their primary or only thing, each of their vehicles carries a larger fixed cost. Other companies could better weather the storm.”
That outlook didn’t stop Force Protection from spending about $20 million to buy and upgrade a former auto manufacturing facility in Roxboro, N.C. The company invested in its second plant to build its Cheetahs even though no one has placed an order.
“We took a little bit of risk,” spokesman Pruitt said.
SEARCHING FOR STABILITY
As Force Protection charts its future, it’s reviewing all of its facilities, including the plants in Roxboro and Ladson, Pruitt said. The company also has locations in Summerville and Edgefield.
“We’re still evaluating all of the facilities,” he said. “What does the business require and which building is best for the plan?”
Options include closing the Ladson plant and moving production to Roxboro.
“That will be one option,” Pruitt said. “There are probably a dozen others being reviewed as well.”
Ladson has attractive features. Force Protection already has a trained work force in the Lowcountry. And all MRAPs, no matter where they are built, are shipped to the Navy’s SPAWAR center in Charleston to be outfitted with electronics before being shipped to combat zones by the C-17 airplanes, flying out of Charleston Air Force Base.
Many factors will be in play as the company decides which facilities to operate over the next two to three months, Pruitt said.
“Who knows where it may go from here with mine-protected armored vehicles?” Pruitt said. “We’re going to keep plugging ahead.”
Graham doesn’t think Force Protection will leave South Carolina and move its production North.
The biggest threat is its own financial problems. During World War II, Graham noted, hundreds of companies sprang up to build ships and tanks for the military. When the war ended, not as many of the companies’ products were needed, and many failed.
The same scenario could happen with companies that have capitalized on the military’s latest needs.
“When this war ends, some companies may not make it,” Graham said.