General Dynamics leans on synergy in $7.9B Army IT recompete
GD's CFO and Technologies segment leader Jason Aiken gives a glimpse at the company's gameplan to keep its incumbency on this large Army program. Courtesy of General Dynamics.
By
Ross Wilkers
Wall Street sees the upcoming award as a checkpoint for how General Dynamics' Technologies business units can work closer together, especially considering how GD has been the prime for two decades.
Any day now: General Dynamics will find out whether its bid to keep a multibillion-dollar Army technology hardware program that the company has held over two decades is a success or not.
Iteration number six of the Common Hardware Systems contract will have a $7.9 billion ceiling over up to 10 years and continue the Army's ongoing acquisitions of commercial IT products and services for multi-domain networks.
As one analyst pointed out during GD's second quarter earnings call with investors Wednesday, the company is taking a slightly different approach for its push to win the CHS-6 recompete.
GD's Mission Systems business has been the longtime incumbent, but this time around the GDIT services unit is positioned as the prime contractor with Mission Systems as a major subcontractor. The two business comprise GD Technologies sector.
"We've seen that program migrate over time from one that was traditionally very much focused on high-end, customized, ruggedized hardened-type defense hardware to one that is a combination of that type of capability as well as a more traditional, sort of off-the-shelf catalog-type product," GD's chief financial officer Jason Aiken told analysts. "We believe that having the attributes of both GDIT and Mission Systems involved in that program would be the best suited to serve our customer there."
It's worth noting that Aiken also addressed CHS-6 with his dual hat on as executive vice president for the Technologies segment, not just as a CFO. For financial reporting purposes, the Mission Systems and GDIT businesses have rolled up into the Technologies segment for the past two years.
When GD put together those two segments on paper, the company touted the move as a natural evolution of how the teams work together on several programs to begin with and are seeing more of those opportunities to collaborate on bids.
CHS-6 represents the current and certainly largest example of how GD believes they will find more success in the overall government technology market with respect to products and services such as system integration.
It makes sense that investors have some curiosity about that particular competition, given its size and specs, and how these two particular businesses are looking to align where they see fit. GD naturally wants to present as complete a proposal as possible to retain that program.
But Aiken also pointed out on the call that CHS-6 is one example of how the company sees Mission Systems and GDIT working together. Aiken said more government customer requirements are emerging where software, services and hardware elements are bundled into agency purchasing activities.
"We're seeing the peer group migrate that way with some of their M&A activities that you've seen in the market," Aiken added.
Second quarter Technologies revenue of $3.2 billion was 6.7% higher over the prior year period, while operating earnings of $283 million were down approximately 6.9% year-over-year on new start programs that Aiken said are driving the sales growth trajectory.
GD nudged up its 2023 outlook for Technologies to $12.7 billion in sales on an operating margin of 9.4%.