DOGE Federal IT Vendor Impact Series: General Dynamics Technologies

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.