General Dynamics’ big investment two years ago – which roughly doubled the size of its information technology business – appears to be paying hefty dividends based on a recent string of prominent Federal government contract wins, and a look into financial results the company released late last month.
The parent company of General Dynamics Information Technology (GDIT) paid $9.7 billion in 2018 for CSRA, approximately doubling the size of the company and expanding GDIT’s technology portfolio. The thinking behind the deal, said General Dynamics CEO Phebe Novakovic at the time, was to pursue a larger share of the Federal IT services market at the civilian agency level, but also with the Defense Department (DoD) and intelligence agencies – where size can make a big difference on large contracts.
Based on recent news, the timing and purpose of the GDIT expansion appears to be right on the money.
New Business Strength
On October 30, GDIT won the $4.4 billion Defense Enterprise Office Solutions (DEOS) contract with DoD and the General Services Administration (GSA). That deal – which took 18 months to finalize because of protests and amendments not uncommon to big government contracts – will streamline DoD’s office operations through cloud-based Microsoft 365 capabilities for unclassified and classified applications, as well as provide overseas support.
The DEOS win, along with GDIT’s existing milCloud 2.0 services, puts GDIT in the driver’s seat for two pillars of the DoD’s enterprise cloud strategy.
Other recent GDIT contract wins – totaling about $1.5 billion in revenue – include a $761 million deal with U.S. Southern Command for cyber modernization, and digital modernization deals with the Department of Veterans Affairs (VA), GSA, and the Defense Intelligence Agency.
COVID Impact Lessening
A look at General Dynamics’ third quarter earnings statement tells another part of the GDIT business performance story, reflecting both the recent downside impact of the coronavirus pandemic, along with longer-term upside potential.
The parent company posted a 3 percent year-over-year revenue decline for the third quarter, to $9.4 billion, while GDIT’s quarterly revenue slipped by about 2 percent, to $2.03 billion, with steady year-over-year operating income.
The GDIT third quarter numbers continued to reflect the impact of the COVID-19 pandemic – which has kept some of the company’s teams away from government work sites and delayed business awards.
But those numbers may also provide an indication that it has crossed the deepest business trough of the public health crisis: second quarter 2020 GDIT revenue fell by 12 percent on a year-over-year basis, while third quarter revenue rose about 8 percent.
On the company’s third quarter earnings call with Wall Street analysts, a day before the DEOS award announcement, CEO Novakovic said the third quarter marked GDIT’s largest new contract award quarter of this year – with about $1.45 billion of new business coming in the door, boosting GDIT’s backlog to about $9 billion. The CEO also explained that half of the awards won in the third quarter were for “competitive new work” that she called an “important indicator of this business to go forward.”
GDIT reshaped its portfolio following the CSRA acquisition through several divestures, a decision that seems to be paying off for the company. Novakovic added, “GDIT’s wins demonstrate that GDIT is gaining traction and expanding their footprint in key technology focus areas, such as cloud computing, cybersecurity, artificial intelligence and digital modernization.”
Tech Pandemic Cure
While there are no crystal balls to determine the eventual outcome of the COVID-19 pandemic, there is plenty of evidence that the Federal government has battled its way through the crisis with help from one big weapon: technology.
From the earliest days of the pandemic, the government has worked without respite on overlaying and overhauling pre-COVID IT systems. This modernization empowers the Federal workforce to do their jobs remotely and improves digital delivery of services to citizens and businesses.
The net effect, say many Federal CIOs, is that the pandemic has jumpstarted Federal IT modernization across the board – with many reporting progress in recent months that would have taken years in normal business circumstances. With the CSRA integration behind them, GDIT appears to be well positioned to thrive in a government world with a huge appetite for innovative IT modernization playbooks and partners.