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Leonardo DRS Inc (DRS) (Q1 2024) Earnings Call Transcript Highlights: Record Growth and ...

GuruFocus Research
·4-min read

  • Revenue Growth: 21% year-over-year increase, all organic.

  • Book-to-Bill Ratio: 1.2 in Q1.

  • Backlog: Reached a new record of $7.8 billion, up 84% year-over-year.

  • Adjusted EBITDA: Grew 43%, with margin expansion of 160 basis points.

  • Adjusted Net Earnings and Adjusted Diluted EPS: Both increased by 100% over the previous year.

  • Free Cash Flow: Usage of $275 million, improved year-over-year.

  • 2024 Revenue Outlook: Expected to be between $2.925 billion and $3.025 billion.

  • 2024 Adjusted EBITDA Outlook: Projected between $365 million and $390 million.

  • 2024 Adjusted Diluted EPS Outlook: Anticipated to be between $0.74 and $0.82 per share.

Release Date: May 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Leonardo DRS Inc reported a robust 21% year-over-year organic revenue growth, demonstrating strong market demand.

  • The company achieved a record backlog of $7.8 billion, up 84% year-over-year, indicating sustained future revenues.

  • Adjusted EBITDA increased by 43%, with margins expanding by 160 basis points, reflecting improved operational efficiency.

  • Leonardo DRS Inc secured significant bookings from international and domestic customers, highlighting the global appeal and competitiveness of their technology solutions.

  • The company is well-aligned with customer priorities in defense, with capabilities in advanced sensing, network computing, force protection, and electric power and propulsion.

Negative Points

  • Despite strong quarterly performance, there are concerns about the sustainability of growth, particularly with potential variability in customer order pacing and material receipts.

  • Leonardo DRS Inc faces challenges from ongoing global supply chain issues, which could affect production timelines and cost efficiency.

  • The company's significant investments in R&D and CapEx to maintain competitive edge and customer satisfaction could strain short-term financials if not managed carefully.

  • While the company has a robust M&A pipeline, there is uncertainty about the strategic and financial impacts of potential acquisitions.

  • Delays in major shipbuilding programs like the Columbia-class could impact expected revenue streams from these projects, despite the company not being the source of delays.

Q & A Highlights

Q: Can you discuss the increased development opportunities for DRS in Force Protection, and how the pipeline looks for this work? A: (William Lynn - CEO) Yes, the Army's commitment to force protection has more than doubled, reflecting lessons from Ukraine and longer-term trends. DRS is actively developing newer versions and different types of systems, including the M-LIDS counter-UAS system. The company is well-positioned to capitalize on these trends with its portfolio of Force Protection Solutions.

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Q: How is the tactical radar business performing, especially given the conflict in Israel? A: (William Lynn - CEO) The demand for tactical radars is very high, leading DRS to operate this segment 24/7. The global conflicts have highlighted the need for organic unit protection, not just perimeter defense, which has significantly increased the demand for DRS's leading solutions in tactical radars.

Q: Could you provide insights into the working capital trends for the rest of the year, especially with the ramp-up of the Columbia program? A: (Michael Dippold - CFO) The working capital trends are expected to follow historical patterns, with significant cash generation anticipated in the fourth quarter. The capital outlays for the South Carolina facility will offset some of the improvements seen in Q1.

Q: With the DoD budget cuts and focus on trimming lower priority areas, is there any risk of a knock-on impact on DRS? A: (William Lynn - CEO) The budget levels have aligned with expectations, confirming DRS's strategy of being platform agnostic. The focus on upgrades rather than new platforms, due to budget constraints, fits well with DRSs capabilities, allowing flexibility and maintaining opportunities.

Q: Can you elaborate on the restructuring charges related to the Canadian facility reorganization? A: (Michael Dippold - CFO) The restructuring charges are part of an ongoing process from last year, primarily related to severance accruals as part of the facility consolidation. This move is expected to bring future savings.

Q: What is the status and future expectations for the South Carolina facility, especially in terms of contributing to shipbuilding capacity expansion? A: (William Lynn - CEO) The facility is in the early stages of development, focusing initially on the Columbia-class submarine program. Discussions with the Navy are ongoing about expanding the facility's role to support broader shipbuilding efforts, which could significantly enhance DRSs revenue opportunities in the medium term.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.