OKLAHOMA CITY -- Ceradyne ( CRDN) pulled a lot of triple shifts -- with its engineers sleeping in their cars -- on its way to becoming an "overnight sensation." To outsiders, Ceradyne seemed to burst out of nowhere to become the newest maker of mine-resistant ambush-protected vehicles. Best known as a supplier of body armor, the company made headlines last month when it secured a coveted award under the multibillion-dollar MRAP II program. Ceradyne beat out five other bidders -- including MRAP heavyweights Navistar ( NAVZ) and Force Protection ( FRPT) -- to declare victory. Only BAE Systems, an established MRAP player, managed a similar award. "We weren't surprised at all," says Marc King, vice president of armor operations for Ceradyne. "We knew we had a system that would meet all of the requirements ... I don't want to come across as cocky, but as the old saying in the Army goes, 'It ain't bragging if you know you can back it up." Together with its partners, Oshkosh ( OSK) and closely held Ideal Innovations, Ceradyne created a next-generation MRAP, known as the Bull, that can withstand hits from even powerful "explosively formed penetrators." The military responded with an $18.1 million award calling for six more test Bulls, which could open the door for a full-blown production order down the road. The stakes look downright astronomical. Ceradyne currently relies on body armor for most of its $750 million in annual revenue, with vehicle-related supplies accounting for just $10 million or so of that total. But Ceradyne has estimated that future orders for its Bulls could bring in another $287 million -- and potentially four times that amount -- going forward.
All told, in its bid to the government, Ceradyne has offered to supply some 41,000 Bulls valued at more than $50 billion. After giving its partners their share, Ceradyne would take home roughly half of that amount. For comparison's sake, at current revenue-generation rates, Ceradyne would need more than three decades to bring in that kind of money. To be sure, the U.S. military has no plans to spend that much on MRAPs right now. After all, experts estimate, the military ordered only 12,000 of the vehicles -- worth about $7.2 billion -- when violence in Iraq was at its peak last year. The military has since backed away from its aggressive push for more of the vehicles, signaling a likely end to at least the original MRAP program. Still, MRAP II promises another major opportunity. This year, experts predict, the military could order about 3,000 of the next-generation vehicles under an MRAP II program that boasts some $12.5 billion in earmarked funding. Without any Bull orders, Ceradyne expects to deliver minor growth this year, with sales of $780 million and earnings of $5.60 a share. With just a 550-Bull order, however, those numbers should jump by 37% and 19%, respectively, as the company hits the high end of its range. "In the 40 years since I was involved in the founding of Ceradyne in August of 1967," CEO Joel Moskowitz told investors last October, "the company has never had a program as exciting -- and with the financial potential as large as -- our involvement with what we've now called the Bull."
Kocher settled on Ceradyne by the fall of 2006. Less than six months later, I3 and Ceradyne had delivered their vehicle to the military's official testing site in Aberdeen, Md., and showed that EFPs could in fact be defeated. Meanwhile, military interest in EFP protection -- and the Bull, in particular -- continued to escalate. In fact, a cover story last fall by USA Today reported that even the Secretary of Defense fielded pleas to review the vehicle. "Although we do not currently have orders for the Bull, we believe there is substantial congressional and military interest in this unique vehicle," Ceradyne noted in its second-quarter conference call last July. "We know that they will meet the performance that we anticipate will be asked for in MRAP II. And it is just a matter of getting through all of the government's wickets in order to start building those vehicles." By then, other companies had started expressing similar confidence in next-generation vehicles of their own. When the military issued its formal request for proposals late that month, at least half a dozen companies rushed to respond. They had reason to hurry. The companies had just two months to submit their proposals. Moreover, unlike MRAP I, those proposals had to include two representative vehicles for testing. I3 and Ceradyne only added an actual truck maker to "Team Bull" just days before that RFP. They selected Oshkosh, which fared poorly during MRAP I but offered a proven chassis -- already in wide use by the military -- that looked ideal for MRAP II.
Unlike most military trucks, King says, the OshKosh vehicle was primarily designed for off-road missions like those that have proven especially vulnerable to EFP blasts. In addition, the truck features an independent suspension system and the weight-carrying capacity necessary for heavy armored protection. Finally, he adds, the truck has a proven reputation and comprehensive support -- including maintenance crews, spare parts and instruction manuals -- already in the field. Thus, Team Bull felt that it had a much-needed head-start. "We didn't have anything ready other than the previous concept for the armor," King stresses. And "we had just 50 days to build the two vehicles." Nevertheless, he adds, "we said that we were not only going to be on time but we were going to beat the clock" as well.
Indeed, during a late-November teleconference that attracted a record audience, Ceradyne portrayed the Bull as the best MRAP II entrant of all. "We believe that our vehicle is the only one that will stop the most major threat in the theater," Moskowitz stressed once again. "And we further believe that it's very difficult to even retrofit any of the MRAP Is to be able to do that to the full extent that our vehicle does it. "So if someone really decides that they need this protection, we think our vehicle is the only way to go." Still, even Ceradyne sensed that the military might favor its established MRAP suppliers with awards. Thus, Ceradyne was a little surprised when the military bypassed two of those companies -- with only foreign-owned BAE surviving -- in the end. But Ceradyne actually won the largest MRAP II contract of all, picking up millions of extra dollars for offerings beyond the vehicles themselves. So the company is now back in overdrive, working round-the-clock shifts, to satisfy a speedy deadline once again. Even with violence in Iraq reportedly dropping -- and potentially threatening demand for MRAP vehicles -- Ceradyne feels compelled to chase a dream that it still believes that it can capture in the end. "The Internet (featuring instructions for EFPs) has assured that -- no matter where we go -- if the enemy wishes to kill us, they will have a very inexpensive way to go about doing it," insists King, who ended his military career as a lieutenant colonel in the Army. "We have the solution. "So," he adds, "we should never have to hear a Secretary of Defense say at a press conference again: "You go to war with the army you have -- not with the army you wish you had.'"