General Dynamics sees the COVID-impacted IT segment regaining traction

By nature, General Dynamics’ IT services business is the company’s shortest-cycled segment of its five and so the coronavirus pandemic’s business impacts there are magnified to a certain extent.

No change on that front for the just-ended third quarter that saw GDIT be the “most directly impacted” segment over that period, General Dynamics CEO Phebe Novakovic said in an earnings call with investors Wednesday.

The slowdown was less pronounced in the third quarter, where GDIT posted a 2-percent revenue decline over the same period last year to around $2 billion. GDIT reported a $237 million revenue impact in the quarter from COVID-19, including $149 million in sales covered by the CARES Act but not yet reimbursed. This largely covers worksites closed off to contractor personnel.

But the third quarter also registered an 8-percent revenue climb over the second quarter to indicate the declines are stabilizing somewhat.

Novakovic told analysts in July that 10 percent of GDIT’s nearly 30,000 employees have effectively been benched during the pandemic and particularly at classified facilities where in-person attendance is a must to work.

Reimbursable costs under the CARES Act do not include the fee companies traditionally charge to agencies that becomes profit, which makes it essentially revenue without earnings. That figure has totaled $342 million for GDIT so far this year, while the overall revenue impact has been $522 million.

Against that backdrop, Novakovic touted GDIT’s roughly $9 billion backlog and that half of the awards won in the third quarter were for “competitive new work” she said is an “important indicator of this business to go forward.”

Coinciding with the federal fiscal year’s end, the third quarter saw GDIT post what she called its “largest award quarter this year” that included $1.45 billion in defense and civilian awards.

“GDIT is gaining traction and expanding their footprint in key technology focus areas such as cloud computing, cybersecurity, artificial intelligence and digital modernization,” Novakovic said. “COVID-19 has accelerated trends in technology that began before the pandemic, including the speed at which technology is being developed and deployed to meet emerging mission requirements.”

More awards are waiting to be decided upon that GDIT and its competitors are involved in, but those adjudications have evidently been pushed back even as proposal activity apparently has been robust.

According to Novakovic, further bookings depend heavily on this: “When the customers start deciding all this pent up backlog of proposals they’ve got in front of them.

“The velocity at which these contracting decisions are made on the part of the customers has been slowed down by COVID.”

GDIT also went through a transition and realignment of responsibilities in its leadership ranks at the end of September, as confirmed by a spokesman.

Bernie Guerry retired after 11 years at GDIT that included the last three as chief operating officer and head of the intelligence and homeland security division. Kelly Ferrell, former chief growth officer, has shifted over to lead that division.

GDIT’s new chief growth officer is John Slota, who joined on Sept. 28 after four years in business development roles at Leidos. Slota spent 25 years at Lockheed Martin before he joined Leidos through the IS&GS merger in 2016.

Across the corporation, Novakovic also told analysts on Wednesday that around 1,800 of GD’s nearly 100,000 employees have contracted the COVID-19 virus. About 1,500 are “fully recovered and back to work” with the other 300 “working at home during quarantine,” she said.

GD’s overall outlook for this year remains unchanged at $38.4 billion in revenue and $4.2 billion in operating profit. Guidance for GDIT stays at $8.1 billion in revenue on a 6.3-percent margin, while the mission systems hardware segment was left at $4.9 billion in sales and a 14.5-percent margin.

Total backlog as of Sept. 30 was $81.5 billion, up 21 percent from the same period last year.