DOGE Federal IT Vendor Impact Series: General Dynamics Technologies

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The Trump administration and its Department of Government Efficiency (DOGE) have generated massive upheaval across the board in federal operations, including in the federal IT segment. As of March 2025, thousands of contracts described by DOGE as “non-mission critical” have been canceled, including some across the federal IT and professional services landscape. TBR’s DOGE Federal IT Vendor Impact Series explores vendor-specific DOGE-related developments and impacts on earnings performance. Click here to receive upcoming series blogs in your inbox as soon as they’ve published.

 

Demand for digital accelerators grows despite federal IT market uncertainty

Although the Department of Government Efficiency (DOGE) claims to have canceled at least six of General Dynamics’ contracts during 1Q25 and the U.S. General Services Administration (GSA) has instructed agencies to scrutinize their work with General Dynamics Information Technology (GDIT) to determine whether it is truly essential, General Dynamics Technologies (GDT) posted better numbers than expected. When General Dynamics released its 1Q25 fiscal results on April 23, it revealed that GDT’s quarterly revenue was $3.4 billion, up 6.8% year-to-year and 5.9% sequentially.
 
GDIT drove this expansion, with its revenue of $2.36 billion surging 9.2% year-to-year and 7.2% sequentially. While the acquisition of Iron EagleX in 3Q24 provided mild inorganic revenue contributions, demand increased rapidly for its growing portfolio of digital accelerators: Comet 5G, Coral Software Factory, Cove AI Operations, Eclipse Defensive Cyber, Ember Digital Engineering, Everest Zero Trust, Hive Hybrid Multicloud, Luna AI and Tidal Post-Quantum Cryptography.
 
GDT’s operating margin also benefited from this uptick in volume for GDIT as well as General Dynamics Mission Systems offerings, improving 40 basis points year-to-year to 9.6% in 1Q25. However, GDT’s operating margin declined 20 basis points on a sequential basis as IT services are becoming a more prominent component of its portfolio mix, rather than high-margin defense electronics, as Mission Systems continues to reshuffle its portfolio mix.
 
While General Dynamics’ backlog decreased on a sequential and year-to-year basis, GDT’s backlog of $14.4 billion was actually up 6.7% year-to-year and 1.8% sequentially. GDT’s bookings were notably robust, with the segment achieving a book-to-bill ratio of 1.1:1, indicating that disruptions to its $120 billion pipeline of opportunities have been minimal despite the new headwinds. While GDT flagged its win and captures rate as being in the 80% range, its leadership highlighted that the solicitation, proposal and award process have been slowing down across the market as the Trump administration refines its long-term goals.

How GDT will navigate 2025

Since GDIT secured two wins in the federal health market worth approximately $3 billion in the second half of 2023, the segment has continued to ramp up its efforts to diversify its non-DOD (Department of Defense) revenue base. For example, GDIT secured a contract worth up to $286 million in 4Q24 to keep enhancing the Centers for Medicare & Medicaid Services’ (CMS) Benefits Coordination & Recovery Center by weaving in emerging technologies like AI to streamline the center’s operations.
 
GDIT formally established a Federal Health practice toward the end of 2024, signaling its intent to create deeper ties to agencies within the Department of Health and Human Services (HHS). Although GDT’s non-DOD revenue growth has gained momentum, expanding 8.8% year-to-year in 4Q24 and 5.3% year-to-year in 1Q25, DOGE’s actions may complicate things, given that the bulk of GDT’s canceled contracts thus far have been tied to HHS.
 
Additionally, GDIT’s consulting services have drawn the ire of the GSA. GDIT is one of the 10 vendors the GSA has identified as being set to receive more than $65 billion in 2025 and beyond. The GSA has requested that agencies go through their contracts with these vendors and outline which are mission critical and why. GDIT has been actively working with clients to identify ways to reduce costs and enable efficiencies through technology. Although consulting offers a lucrative avenue for GDIT to expand its margins and build upon its existing relationships with clients, the vendor still prioritizes delivering solutions and IT services in its go-to-market strategy.
 
GDT is not going to give up on the federal health market or on consulting, but TBR anticipates the vendor will increasingly prioritize defense opportunities in the interim, such as a recently awarded contract worth up to $5.6 billion to manage the DOD’s Mission Partner Environment. The DOD has historically been GDT’s largest client and was responsible for more than 58% of its revenue in 1Q25.
 
While the Trump administration is asking for a 23% reduction in nondefense discretionary funding in its FFY26 budget proposal, it wants to keep the DOD’s discretionary spending roughly on par with the $892.5 billion stopgap for FFY25. GDIT is well positioned to capitalize on the DOD becoming increasingly interested in emerging technologies, given its experience with fixed-price and outcome-based contracting. Additionally, GDIT can offer defense and intelligence clients its array of digital accelerators to help offset the disruptions in the federal civilian market.
 
These digital accelerators were responsible for more than $2 billion of the total contracts that GDIT won during 2023. In 2024 GDIT continued to build out its array of digital accelerators and generated nearly $7.5 billion in awards from them. GDIT’s go-to-market strategy is reliant on these digital accelerators.
 
To continue gaining traction with defense as well as civilian clients, GDIT will need to keep leveraging its partners to enhance these solutions and make inroads in these markets. GDIT suddenly began ramping up its alliance activity during 2H24 and has continued to do so. For example, GDIT is augmenting its Cove AI Ops Digital Accelerator with ServiceNow’s AI and machine learning platform to make agencies’ systems more efficient.

TBR’s outlook for GDT

At the end of 4Q24, GDT tendered full-year revenue guidance for 2025 sales of $13.5 billion, implying growth of approximately 2.8% over 2024 sales of $13.1 billion. As is tradition, General Dynamics did not update its guidance for GDT this early in the fiscal year.
 
TBR remains skeptical of GDT’s guidance, given the lack of synergy between GDIT and MS. The latter will continue to transition its portfolio mix from legacy programs to newer initiatives after starting this arduous process in 2024, and GDIT is tasked with driving revenue expansion during this process.
 
Although GDIT is leveraging the demand for AI and other emerging technologies, the uncertainty in the federal IT market and the segment’s own small-scale portfolio transition could impede the growth needed to offset Mission Systems’ performance. The impact of the Trump administration’s sudden and aggressive adoption of tariffs also increases the likelihood of supply chain bottlenecks and significant program delays.
 
For these reasons, TBR believes that GDT’s guidance for an operating margin of 9.2% could be too lofty, and we anticipate its operating margin could decline from 9.6% in 2024 to 8.9% in 2025. TBR conservatively believes that GDT’s revenue will expand approximately 2% over 2024 sales of $13.1 billion in 2025.

 

TBR’s DOGE Federal IT Impact Series will include analysis of Accenture Federal Services, General Dynamics Technologies, CACI, IBM, CGI, Leidos, IFC International, Maximus, Booz Allen Hamilton and SAIC. Click here to download a preview of our federal IT research and receive upcoming series blogs in your inbox as soon as they’ve published.

 

DOGE Federal IT Vendor Impact Series: IBM Federal

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The Trump administration and its Department of Government Efficiency (DOGE) have generated massive upheaval across the board in federal operations, including in the federal IT segment. As of March 2025, thousands of contracts described by DOGE as “non-mission critical” have been canceled, including some across the federal IT and professional services landscape. TBR’s DOGE Federal IT Vendor Impact Series explores vendor-specific DOGE-related developments and impacts on earnings performance. Click here to receive upcoming series blogs in your inbox as soon as they’ve published.

 

DOGE’s aggressive cost-cutting activities impacted IBM-Fed* in 1Q25

IBM tendered its 1Q25 earnings on April 23, and while the company does not disclose fiscal data about the federal operations of IBM Consulting, IBM’s executives did provide useful color on IBM-Fed and the impact of DOGE. Not surprisingly, IBM-Fed’s contracts with the U.S. Agency for International Development (USAID), much maligned by the Trump administration, suffered cancellations and drawdowns.
 
According to the DOGE-Terminated Contracts Tracker on the GX2 website, which tracks developments in federal contracting, IBM-Fed has had a total of $40.1 million in contracts terminated by DOGE as of the publication of this blog. Cancellations included awards with the Department of the Treasury ($17.5 million in TCV), the Department of Health & Human Services ($3.4 million in TCV), the Commerce Department ($1.3 million in TCV), and the Department of Education ($18 million in TCV). Without disclosing specific revenue data for IBM-Fed, IBM noted that its federal business accounts for less than 5% of IBM’s total corporate revenue and less than 10% of IBM Consulting sales, or, according to TBR estimates, about $490 million in 1Q25, up 3% year-to-year.
 
We note that none of the USAID awards terminated or scaled back by DOGE were listed on the GX2 website. IBM CFO Jim Kavanaugh indicated during the 1Q25 earnings call that IBM-Fed had a “handful of contracts” canceled by DOGE, affecting about $100 million worth of contracts in IBM Consulting’s $30 billion (on an annualized basis) backlog.

The advisory business within IBM-Fed bore the brunt of DOGE-based pressures; the company’s core technology operations may have largely been spared

IBM indicated during the earnings call that 40% of IBM-Fed’s revenue stems from technology-focused work described as “high-value annuitized revenue under contract” and, by implication, is so far unscathed by DOGE. IBM-Fed blends its hybrid cloud, AI and security technologies to offer federal agencies a suite of transformative solutions that are very technology-centric and mission-enabling by nature. Conversely, 60% of IBM-Fed’s sales derive from advisory-based work, which company executives noted during the earnings call would be “more susceptible to discretionary efficiency-type programs.”
 
Based on data about IBM-Fed’s canceled contracts on the GX2 website, we believe the advisory work affected by DOGE included cloud transition and support services, data standards testing and implementation, data quality support services, the acquisition and implementation of integrated workplace management system licenses, and “data at rest” support services (i.e., data that is stored and not being actively used or transmitted). Other contracts were “terminated for convenience,” according to the GX2 website, which did not provide a specific description of the canceled services.
 
IBM-Fed, according to IBM CEO Arvind Krishna, processes claims for veterans, provides procurement services to the General Services Administration (GSA), and has implemented and is currently operating payroll systems for several federal agencies. Krishna acknowledged that “some areas around the edges” of this work “could be viewed as discretionary” by DOGE, but that the bulk of IBM-Fed’s services are mission critical and technology focused.

IBM-Fed will double down on its core cloud, security and AI capabilities to successfully traverse the DOGE-disrupted federal IT space in 2025

According to TBR’s 1Q25 IBM Consulting Earnings Response, “IBM Consulting could experience variability in revenue growth in 2025, and IBM is cautious about the revenue contribution from the business to total corporate revenue due to possible further tightening of discretionary spending driven by macroeconomic uncertainty and the U.S. Department of Government Efficiency’s (DOGE) activities.
 
However, IBM Consulting will continue to gain ground in areas such as generative AI (GenAI) due to IBM’s early advances in the segment, diversifying revenues through new areas of expansion.” To buffer its 2025 sales growth against DOGE’s cost-rationalization efforts and offset revenue losses from the cancellation of advisory work deemed discretionary (and thus expendable) by DOGE, IBM-Fed must play to its strengths in AI- and security-infused hybrid cloud solutions and emphasize how well its offerings align with DOGE’s efficiency agenda.
 
IBM-Fed won large-scale programs with civilian and defense agencies in 2024, thanks to the additional delivery and offerings scale in digital transformation it obtained by acquiring Octo Consulting in late 2022, another advantage and a key selling point for IBM-Fed when advising or coaching the DOGE advisory board. While Octo’s pure play advisory capabilities expose IBM-Fed to DOGE’s federal spending cuts in traditional consulting services, Octo’s oLabs center of excellence showcases IBM-Fed’s acquisition-enhanced cloud, security, data science and DevSecOps capabilities that sync well with the IT priorities of the Trump administration.

IBM-Fed must accelerate its expansion within the DOD and among national security agencies, particularly by emphasizing its strengths in cloud

Octo’s oLabs also serves national security and defense agencies. The Trump administration has indicated national security will be an overarching budget priority during its term and has hinted at a federal fiscal year 2026 (FFY26) defense budget surpassing $1 trillion for the first time, underscoring the urgency for IBM-Fed to accelerate its expansion with the Pentagon, where it has been gaining traction since acquiring Octo.
 
According to TBR’s 1H25 IBM Federal Vendor Profile, “Some federal IT industry observers believe the Trump administration’s DOGE will accelerate cloud investment as federal agencies may be forced to outsource more operations deemed outside ‘Inherently Governmental Functions (IGF).’ Cloud adoption in the Department of Defense (DOD) continues to far exceed civilian cloud investment, which the GSA’s Federal IT Dashboard (FITD) estimated to be $8.2 billion in FFY24, up from $5.5 billion in FFY23.”
 
IBM-Fed could leverage IBM’s 1Q25 $6.4 billion acquisition of HashiCorp to accelerate DOD-based expansion, as HashiCorp has helped the DOD migrate more than 3,000 applications to the cloud with its Terraform (Infrastructure as Code software) and Vault (identity-based security) tools designed to facilitate migrations to multicloud architectures. The DOD has clearly indicated it favors a multicloud approach for implementing cloud-based edge computing solutions.
 
*TBR refers to IBM Consulting’s federal IT operations as IBM-Fed. IBM-Fed is not an official business line title used by IBM or IBM Consulting. The business defined by TBR as IBM-Fed resides within IBM Consulting’s U.S. Public and Federal Market group.

 

TBR’s DOGE Federal IT Impact Series will include analysis of Accenture Federal Services, General Dynamics Technologies, CACI, IBM, CGI, Leidos, IFC International, Maximus, Booz Allen Hamilton and SAIC. Click here to download a preview of our federal IT research and receive upcoming series blogs in your inbox as soon as they’ve published.

 

DOGE Federal IT Vendor Impact Series: CACI

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The Trump administration and its Department of Government Efficiency (DOGE) have generated massive upheaval across the board in federal operations, including in the federal IT segment. As of March 2025, thousands of contracts described by DOGE as “non-mission critical” have been canceled, including some across the federal IT and professional services landscape. TBR’s DOGE Federal IT Vendor Impact Series explores vendor-specific DOGE-related developments and impacts on earnings performance. Click here to receive upcoming series blogs in your inbox as soon as they’ve published.

 

CACI spared from major DOGE disruptions: Growth and profitability on track for FY25 goals

CACI tendered its 1Q25 earnings on April 23, and TBR did not discern any material impact from DOGE on the company’s business during the quarter, the third fiscal quarter of CACI’s FY25 (ending June 30). The company posted sales of $2.17 billion in 1Q25, up 11.8% year-to-year on a statutory basis and up 5.6% on an organic basis. CACI’s gross margin of 33.8% in 1Q25 was up sequentially from 33.2% in 4Q24, while its operating margin of 9.1% in 1Q25 was up 50 basis points sequentially from 8.6% in 4Q24. The company’s adjusted EBITDA margin was 11.7% in 1Q25, up from 11.1% in 4Q24.
 
CACI believes demand will remain strong through the remainder of its FY25 and into its FY26 for technologies and capabilities at the core of the company’s portfolio: AI-enhanced and commercially honed software-defined solutions delivered with Agile development methodologies; signals intelligence (SIGINT) and electronic warfare (EW) technologies for warfighters, defense vehicles and platforms, and IC applications; and AI-infused financial management offerings.
 
Uninterrupted sales growth and consistent margin performance indicate CACI’s offerings remain well aligned to the Trump administration’s IT investment priorities, particularly as the new administration prepares to expand investment in cybersecurity, national security and national defense, and advanced space-based communications systems for defense, intelligence and civil applications. CACI executives also noted that the federal budget environment is slowly becoming more constructive and more transparent, a positive harbinger for CACI and its fellow federal IT contractors.

CACI’s order book was essentially immune to DOGE-related turmoil in the federal IT market

TBR did not observe any impact from DOGE activities on CACI’s book of business. CACI’s backlog fell 1.3% sequentially, from $31.8 billion to $31.4 billion in 1Q25, but his kind of decline is typical in the company’s third fiscal quarter. CACI’s trailing 12-month (TTM) book-to-bill ratio was 1.5 in 1Q25, down from 1.7 in 4Q24. However, a sequential decline from the second to third fiscal quarter is not unusual for the company. In 1Q25, both the TTM book-to-bill ratio of 1.5 and the quarterly ratio of 1.2 were consistent with figures from the same period last year.
 
Furthermore, CACI’s bookings of $2.2 billion in 4Q23 and $3.5 billion in 1Q24 came during a period of exceptionally robust Department of Defense and Intelligence Community-related award activity. CACI’s bookings were $2.75 billion in 1Q25, up from $1.2 billion in 4Q24, consistent with the seasonal, historical pattern of sequential bookings expansion in the company’s third and second fiscal quarters. CACI noted in its 1Q25 earnings discussion that DOGE examined seven contracts in the company’s order book, including one that had already been completed. The aggregate revenue impact of these awards being eliminated by DOGE would only be $3 million in TCV, though DOGE has only notified CACI that $1 million worth of this ongoing work is likely to be canceled.
 
The company acknowledged that its business development teams have experienced some deceleration in certain aspects of the sales cycle, such as invoice and funding approvals. CACI CFO Jeffrey MacLauchlan said during the earnings call that “things that used to take two or three days are taking four or five days.” CACI’s leadership expects the disruption, which according to the company has been “very manageable” to date, to wane during the second half of federal fiscal year 2025 (FFY25). If sales motions are being impeded by DOGE, TBR would expect to see this reflected in lower-than-expected margin performance by CACI, but we did not observe any DOGE-related margin erosion in CACI’s P&L in 1Q25.

Undeterred by the DOGE-disrupted environment, CACI elevates several elements of its FY25 guidance

CACI raised the low end of its FY25 sales guidance range in 1Q25 and is now calling for top-line revenue of between $8.55 billion and $8.65 billion, implying a growth range of between 11.6% and 12.9% over FY24 revenue of $7.66 billion. In 4Q24 the company forecasted $8.45 billion in revenue at the low end of its projected FY25 sales range, implying growth of 10.3% at the bottom of the range.
 
CACI also raised the low end of its guidance for FY25 adjusted net income* in 1Q25 and now expects at least $543 million in FY25, up from $537 million forecasted in 4Q24.
 
CACI elevated its outlook for non-GAAP adjusted diluted earnings per share (ADEPS) in 1Q25, and as of 1Q25 is projecting a range of between $24.24 and $24.87 per share for FY25, up from a previous ADEPS range of between $23.24 and $24.13 per share. Free cash flow guidance was also elevated from $450 million tendered in 4Q24 to $465 million in 1Q25.
 
TBR notes that CACI has twice raised guidance for FY25 sales, adjusted net income, ADEPS and free cash flow since initially tendering its FY25 outlook in 2Q24. CACI is still guiding for a FY25 EBITDA margin in the low 11% range, implying a potential improvement of 100 basis points over FY24’s EBITDA margin of 10.4%, but also suggesting CACI does not expect any DOGE-related margin headwinds through the remainder of FY25.

CACI will remain vigilant and maintain a constant dialogue with customers

During CACI’s 1Q25 earnings call, CEO John Mengucci described DOGE’s objectives as “peace through strength, secure borders, increased efficiency and technology modernization.” Mengucci and his executive team remain confident that CACI’s strategy and portfolio are and will remain in sync with DOGE’s goals and with the IT strategy of the Trump administration, a contention supported by the company’s 1Q25 fiscal results and its more optimistic FY25 outlook.
 
Irrespective, CACI recognizes that federal executives are under pressure to accelerate IT modernization, quickly achieve IT-driven operational efficiencies and curb spending according to DOGE directives. Procurement teams at federal agencies are struggling to keep bid review processes and proposal adjudications on schedule as the Trump administration executes large-scale furloughs across the federal workforce. As such, CACI will keep its executives, business line leaders and business development teams as close as possible to IT decision makers and procurement counterparts in federal agencies for as long as DOGE’s efficiency agenda is in effect.
 
*Adjusted net income: GAAP-compliant net income excluding intangible amortization expense and the related tax impact

 

TBR’s DOGE Federal IT Impact Series will include analysis of Accenture Federal Services, General Dynamics Technologies, CACI, IBM, CGI, Leidos, IFC International, Maximus, Booz Allen Hamilton and SAIC. Click here to download a preview of our federal IT research and receive upcoming series blogs in your inbox as soon as they’ve published.