By Sebastian Lagana, Senior Analyst
General Dynamics IS&T’s first quarter results leave the business well positioned to meet annual top-line growth and profitability objectives
General Dynamics Information Systems & Technology’s (IS&T) first-quarter performance represented a solid start to 2016, supporting projected growth during the year. The top line was down a modest 1.6% against a strong 1Q15 compare, while operating margin of 10.6% represented out-performance of expectations during the quarter. A continued sales-mix shift for IS&T from increasingly commoditized IT and professional services provision toward more lucrative C4ISR and tactical communications work supports top-line and profitability goals in 2016.
Although the company did not generate year-to-year revenue growth during the quarter, strong bookings, led by the Mission Systems business, support TBR’s projections for consistent improvement in growth rates through 2016. We project this trend culminating with the recapture of year-to-year growth during the second half of the year, if not as soon as 2Q16.
A new Solutions Engineering Organization will drive GDIT’s push into next-generation enterprise IT services
General Dynamics is investing to retain its enterprise IT market share amid rapid transformation of the federal services vendor landscape. To keep pace in a market shifting more toward cloud, analytics and digital transformation, IS&T is developing a Solutions Engineering Organization (SEO) within GDIT led by recent hire Pat Blevins. The organization focuses on providing next-generation IT in areas of traditional strength for GDIT, including contact centers, indicated by the recent release of its Customer Experience Platform to help guide clients’ contact center IT modernization efforts. Blevins formerly led strategic growth and solutions engineering at InfoZen, a specialist in cloud computing, agile and DevOps methodologies, and risk analytics, areas of increasing demand among GDIT’s clients.
As traditional competitors exit the rapidly evolving enterprise IT space, GDIT will increasingly compete in a landscape reshaped by commercially led companies such as Accenture or pure plays such as CSRA — vendors with strong pedigrees in next-generation IT provision and that tout significant domain expertise. GDIT can leverage the SEO to set itself apart by developing niche next-generation cloud and agile development IT solutions that also layer in high-end cyber services, as assuaging security concerns remains critical to driving next-generation technology adoption among core federal clients.
Acquiring Bluefin Robotics enhances IS&T’s portfolio in the high-growth undersea drone market
In February Mission Systems announced its acquisition of the unmanned underwater vehicle (UUV) manufacturer Bluefin Robotics. The acquisition augments Mission Systems’ systems integration portfolio for undersea platforms by adding design and manufacture capabilities for UUVs, indicating IS&T is emphasizing an increased platform component to support new business capture for UUVs among core defense clients while simultaneously driving margin expansion. We believe familiarity with the asset and market were key drivers of the acquisition; notably, Bluefin Robotics was a partner of General Dynamics on the Knifefish unmanned underwater mine countermeasure vehicle program with the U.S. Navy Naval Sea Systems Command, which was awarded in 2011.
We believe Bluefin Robotics was an opportunistic acquisition for IS&T given the timing coinciding with news the U.S. Navy is suspending purchases of Lockheed Martin’s drone minisubs, presenting opportunity for General Dynamics to provide Knifefish as an alternative. Beyond just the near-term Navy implications, projections indicate the global UUV market will grow at a double-digit CAGR through 2020, with demand from both government and commercial markets, presenting significant opportunity for Mission Systems to gain traction in a relatively nascent market for the business.
Please feel free to use this content with TBR and analyst attributions. Contact Sebastian Lagana at +1 603.929.1166 or via email at sebastian.lagana@tbri.com for additional analysis.
