DRS - Earnings call 1 2023 | Leonardo DRS, Inc.

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Operator

Ladies and gentlemen, good day, and welcome to the Leonardo DRS First Quarter Fiscal Year 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this event is being recorded. I would like to now turn the conference over to Steve Vather, Vice President of Investor Relations and Corporate Finance. Please go ahead.

Steve Vather

Good afternoon, and welcome, everyone. today's conference on participating for quarterly call. earnings Thanks Lynn, and CEO; me today Mike Chairman Bill are CFO. With and our Dippold, our discuss highlights, operational our and will outlook. financial forward He results strategy, Investor is Relations you webcast also earnings presentation. the and find call Today's on will portion the website being of where supplemental release the and statements performance future of company. Management forward-looking call future anticipated during may also events, the regarding this make anticipated future trends the uncertainties that such and statements are are of guarantees predict. performance and you not involve future risks caution that to difficult We

results forward-looking may variety differ in Actual materially from statements of projected those the a due to factors.

full statements and factors, please our made on a any no refer XX-K filings. of SEC update Form undertake this We call. latest For these other obligation discussion forward-looking to the risk to our of

call, or non-GAAP should for non-GAAP a These which will financial for useful isolation this measures GAAP provide measures. management discuss in measures, as information evaluated also believe we investors. performance substitute not be During

of discussed You is a non-GAAP release. turn pleasure this time, Bill. on our in the can earnings to Bill? reconciliation this my over it call to At find the call measures

William Lynn

Steve, this afternoon. joining and for us thank Thanks, you all

marked Our surpassed results our XXXX. expectations solid first start to and quarter a

than adjusted on and metrics diluted Although our adjusted onetime EPS year. in when the the down last were net impact margins normalize year-over-year, in as-reported were key an those basis we divestiture for revenue, stronger largely metrics items, EBITDA, quarter our

stands This up billion, evident a $X.X the is funded the XX% of of discussed translated and As $XXX call, last is quarter. backlog which year-over-year. and expect a book-to-bill in accelerate on our from to the that X.Xx bookings year, to at we that foundation growth throughout million

healthy and our customer We mission-critical technologies. continued for to demand enjoy broad-based

signs the environment. tactical threat in not management. in and and high macro vehicle Shifting to near secure electric In do demand the of we rotary our be dismounted survivability, easing ground particularly appear strong propulsion, sensing, Global and power in in any advanced terminals wing saw to capabilities the environment for tensions remain showing the quarter, battle term.

the there 'XX we billion over budget. further we sensing integrated portfolio. to think in 'XX Since to FY supports for roughly thesis for call, result, on in well validation increases contains position released, offers deter core this advance confidence for the details which requests market our DRS The the budget the $XXX threats. have growing market X% request The supports FY our were need additional request enacted a This to the our for initiative the of and are As placed defense President's investment a strong of Furthermore, last DRS is and levels the accounts. investment request with positioning. delighted further programs see continued is counter-pacing rate. DRS. we long-term clear acquisition

to Now the quarter. operational the highlights in

perform drive system. electric expansion pleased of ships as the propel the our to and and importance demonstrates that continue Long-term recently combatant, it We're was to across power next-generation the becoming seeing and technology an are electric strength business. DDG(X) drive will this that surface with and business. well announced has visible in opportunities It Navy We propulsion are more the market determined power have submarines. new development electric

a the Our as key differentiator. in class serves demonstrated capability area on this submarine Columbia

defense domestic Navy to for throughput in expand Additionally, to the support we capacity base strategic international requirements. seeing are industrial submarine the order initiatives of the from and increased

work expansion DRS. suppliers to to by We achieve this like trusted shifting are with of partnering objective our customers

innovation work of in Shifting advanced the Herschel is at and our in I reflection This culture fifth infrared to DRS award applications. that Herschel for used sensing of XXXX am of detectors XXXX a has innovation. humbled is prestigious award the DRS. ground our development the received strong

Sign sensing our warfare enable we missions. market for fusion are business, these as the of in receiver Elin technologies great the electronic seeing in new Additionally, and our technologies traction

We value tracking are increased Tranche being momentum build DRS energized by to opportunities the The that market sensing that is SDA layer, space. the bringing X is program space continues recognized in to our through in business.

mentioned We now that are an clear successes. had remarkable satellite. LEO call, am quickly imagery. technology returning have pleased differentiation, respect demonstrable With building through I launched differentiation to on past established a payload sensor uncooled to sensor announce and performance is program last technology our we I briefly that

In any in patented This target that demonstrated Distributed In success protection market, countermeasure demonstrates system tested next-gen we technology our share protection, single UAS MHR. of counter stabilization helicopters. our enhance of upgraded the Radar infrared uncooled multi-service factor strong provide in seeing Also important and this space you aircraft the I'm and and vehicle force market. is Aperture force of key excited based system. effectiveness, We QX, resolution, is multi-mission mobility UAS or contract are the we multi-vehicle current step survivability success forward force will counter this believe to recently This vehicle broadly, affordability or This the Stryker solutions radar our system. the a imaging image of on with to of thermal significantly adoption more providing as viability were protection that for an critical Hemispheric which awarded range single solution. to a site. and a either solution fixed are is we enhance

aircraft unmanned fixed our we from requirements emerge for seeing Additionally, and markets the wing survivability solutions. are

have we technology strategic on also initiatives. accelerate accelerating to focused have innovation key to our we with develop driving been working partners While R&D through expenditures, relationships been

sensing we and across are partners capabilities machine our apply efforts with working respect with business. to learning integrated conversations intelligence artificial to and customer advancing are our result, a As

customers next-generation from our agility critical demand innovation Our capabilities needed prime pushing is for for and to DRS government operations. and both

the and providing primes for battle in of we We one to that about excited on around content requirements the electronic continue business. operations will an Navy demand the connected related autonomy space. partnership let more have and growing example, network strength strategic a drive increased interconnected we integrated our are the enable As systems believe for and sensors long-term sensing with JADCX through we are to me a shown efforts the across computing technologies. Overall, that reiterate

agility, and customers' to our their effectively allowing meet innovation us want and Our the focus technology deliver requirements. rapidly fighters. team to thank continued their our and to DRS for I demanding on best is entire excellence to remarkable war efforts the focus

turn now over in the to Mike through the take detail. to Let me greater you numbers call

Michael Dippold

strong our the quarter I'm pleased Bill. meet quarterly commitments The Thanks, execution expectations. increases to to shareholders. the results were our ahead confidence of in in that ability our our

item QX earlier, a the of of of have Radar year. discussed numbers Throughout discrete reported class noise impacting acquisition GES, Bill As the our Columbia the with bit divestiture program last of and to my by some revenue remarks, compared X% QX offer as factors year. trend. was to year. I drove commentary help directional with will last this lower to Several more a comparison last normalized

the for our acquisition First, GES divestiture Arada headwind. a contribution business difference between impact, the was net is divested which

in recall an program of $XX Second, that we to million Columbia to QX impact related that XXXX, had profit revenue. our recognized equal discrete step-up class a

year. factors, up low these of been revenues prior digits otherwise have the over single both would excluding When

due Integrated the to decreased class the net segment were have Systems to to down Absent primarily the the this, impact. item. and divestiture In emission segment due would segment, trends. grown Moving Computing revenues Advanced Columbia our segment revenues Sensing organically.

have segment revenues declined Excluding this item, slightly. would

Now points year. adjusted of million, Adjusted quarter from XXX EBITDA. last were the XXXX. to EBITDA decrease $XX representing adjusted EBITDA QX XX% was basis margins in a from down Resulting X.X%,

adjusted despite with a and costs more operating had item class up trend Columbia flat have a When discrete public would would and investments EBITDA line. year-over-year increased low EBITDA adjusted meaningful digits as this the item, expected, associated for single been As development. the research at been in and the internal the company the have impact margin normalizing

The increased and trends. strong due remaining The propulsion due Moving segment the IMS QX, down item to program is mix. to our bottom Columbia decline segment, primarily profit the and technologies. investments enhance research execution segment down discrete EBITDA EBITDA internal to driven the electric well. class as adjusted margins margins metrics and ASC by were further expanded the power and item. to line In development the increased flowed to At EBITDA and adjusted adjusted

As all-stock decline is the expense remaining headwind combination earnings have by and relative the the excluding lower were interest Both by declined, EPS metrics XX% less XX%. Rada. with on caused share number. but declined impact of earnings still stable would net a operating significantly. The Diluted faced net smaller item, adjusted largely from of count increased and EPS earnings adjusted incremental the anticipated, Columbia class diluted

diluted diluted down a XX% XX%. As EPS was result, adjusted and EPS decreased

to Moving cash free flow.

in quarter capital cash the of QX XXXX. prior last a to As lower R&D year the to expected Section used capitalization year trends, quarter. first usage flow of earnings. the million requirements and with significant This incremental tied in in The totaled working the relative taxes higher and result overall through experienced $XXX XXX consistent we for net was payment compared cash

guidance. Now to our

little We month ago. that a we are provided over a guidance reaffirming the

growth $X.X and and $X.X an billion, As a total to range reminder, billion a represents X%. to up basis expecting a organic are compared X.X% X% we revenue implies on between XXXX which between and growth

between $X.XX diluted adjusted million per share. million. to EBITDA is and range The We $X.XX are $XXX EPS adjusted for expecting $XXX

expecting with a remain shares Our the for and revenues cadence and assumptions Consistent progress remaining to fully stair-stepped for profit our still diluted tax rate steeper metrics. our be commentary, million at as slightly prior year are the XX% throughout of we for we $XXX.X quarters unchanged.

wrap on employees long-term we drive take With questions, to up remains we the our that, Before execution are stating our questions. me open for to your value that let and focus shareholders. for line by ready customers,

Operator

Robert Thank Instructions] from line from or first the Research. of comment comes you. question Vertical Our [Operator Stallard

Robert Stallard

I'll couple the of for on numbers. Mike a questions kick off with

what's is of will to here? your the And ASC. that but margins good also X you quarters? divisional move in year-on-year, in how a expectation theoretically, next that it's If particularly then you you here? down a for year? everything rest know weighting, flat do of on the First to that QX be cash result, from be I all, are the expecting Obviously, said from on then flow, expect what free going

Michael Dippold

Yes, sure.

guide the So we know, to let the me as segments. start margins. with And you don't segment

in the type segments not with compare the So the mentioned to we're can when we where like with the that margin and challenges But prior visibility we overall the see quarter both impact think first range flattish you we those that the is quarter. of ASC kind IMS positioned. in started, MTD. terms that expect of we the segment to of in. happy that tough that the in and for impact, a of we're we are And well comparative with onetime do But can dealing We segment in commitments. the They're performance giving inflation previous be year. the in hit confident we're

On the cash for is again we see on impacted the cash a to quarters we've trend improvements in progress past the QX.Obviously, that throughout the payment. flow have QX typical expect usage in us of a was side, We in the this to too cash we tax with emphasis do by seen dissimilar kind what XXX do lot remaining significant years. not as a of generation, that

Robert Stallard

Bill, then And for couple if I Okay. may. a

First Are particular deployment booking we could the there months that And on on on over secondly, impact on be of for M&A all, Colombia. XX environment. looking your should that have capital or the an then rate? milestones so next any

best he said environment the was the One could perspective the moment. government's deals regulatory you actually I what whether seeing and can environments wondering slow one your remember if of your that things was pipeline of counterparts on is the here for Honeywell down? at at

William Lynn

buy think environment where still a somewhat ships on on think at consolidation about to announce to Navy just we mid-tier. bulk the the we're I better the point anything to still Colombia, that we're we we're -- this but I Yes. The would X and kind position negotiate And we're regulatory together we On with customer prices to seeing Thanks, stability is, I somewhat in in the I although elevated. And in X -- continuing to think more for government several regard like we top our future see I transactions Rob. in to get had are environment, think, ships the that stricter, tier With announced. a vein don't M&A have at think of better that. is bundle the pricing, among that focused primes. they the would stronger

rather So than competition to that I us think sector as gives really transactions pursue reduce leverage it some M&A the it. strengthen in would the

Operator

of Jon line comment from from Our comes Tanwanteng CGS. next question the

Jonathan Tanwanteng

The came first that cushion one understand to getting guidance? give does you bit quarters? for that for the actually full that the is year future coming you just from. outperformed in QX. -- more Was a me Or little where Help from

Michael Dippold

the that Sure. one, take I'll and question. thanks for

So why I'll start in confidence we the full reaffirm of that year kind saying guide. have by we here. that That's

kind it in of looked know, of that the coming step we and back our half, in a at the as we you As stair lot of output. weighting, kind have

has So we're of terms little the execution the but still that a half derisked focused commitments. in meet QX on back to weighting,

Jonathan Tanwanteng

that Understood. inflation you Okay. current availability want? to a And your and #X, you then seeing as what perspective be, you getting you trend the both and #X? in supply margin that orders an where And pricing of chain bids? and pricing then in you how are your from Are inflation from today, wanted are

William Lynn

On Let looking seeing me for the call, what said we chain, in turn supply Mike. is start and as to we're and last stability. then

in haven't commitments. until real improvements stability in but that's maybe times need is And we XXXX not We lead supply projected our really revenue meet the chain to XXXX, what contracts. times. inflation is not through we're future seeing on increased lead price it way quarter, handling seeing. the -- inflation, And to that's the into first we're then what We're our but

have X-year on every next X the about contracts. on In renegotiate other turn so words, We or tranche average. years those we a

about X/X we're our contract And so a way of year inflation with the having bank. the ago, through started maybe

last inflation off to we XXXX. seeing, add think, to new in Mike, drop said And we we the call, in so I from year, do as are contracts And the it substantially that? through -- those think renegotiated headwinds will still we some get you we're as want in XXXX. fairly

Michael Dippold

the investments the to particularly only is that make procurements last to some and the we're add alluded some we're back call, kind as We're that view chain thing investing bit those on supply is of given pull in at pockets lead see castings. and still pressure The of a left capital the in right that the stabilize, in the that on part and that's the chain in making perspective end Yes. in we're of working And times sure some in order to derisk of the uncertainty revenue moment. capital electronics a that we little still there supply working see from of still. that kind to holding front the I'll but going we bottlenecks

Jonathan Tanwanteng

economics you give Got it. understand to And was replaced. then, us I frame could and opportunity little Bill, if of a hundreds more decaying sensors us what orbit the potentially could, scale wondering could be? theoretical are if they that it and Help satellites lower be up that and having potentially of time your have bit of the in you on

William Lynn

Yes, in sure. payloads. I had mean capability we've a always the smaller

for a power, and shows those size, niche to Our in is really used capability be satellites that in orbit. flew really those technological That earth payloads. like things low weight smaller advantage which itself weather

things layer. satellite We've potential space more about, with -- position we've a really as just moving where of like is much the earth in We that orbits, into our a niche turn of a a and core on faster smaller a satellites one they won you're capability the space tracking move tracking imagery. and more us talking Now to for And payloads to a layer with already what markets. time. a that was it's of as think demonstrated NASA market low has proliferation terms

you're time, direction things think I timing of And our movement X-, think X-, see we're up to our asking, fill for substantial terms a these some pretty that X-year out. we are products. timing it's over constellations going moving in as So in the

Operator

question or RW Our next from comment Jan of Engebret from Baird. comes the line

Jan-Frans Engelbrecht

today. and Mike for Bill, Peter Steve. I'm on

So I Colombia. And million. through revenue you previously XXXX about the just had at question a $XXX mentioned opportunity on

the conversion content sort from to revenue your any given capabilities? that $XXX of Just boat given annual curious of add sort opportunity onwards million if year there's power is in there X a budget? And to XXXX this per an there's upside

William Lynn

the contract. see of to production going we're kind increase We're of some full as moving think still get we I level. off the in development Colombia to that

margins, already the going also that sort in of I improvement. all to move Navy, electric the the we've opportunity in going to use -- as I think as are for opportunities But game-changing of about to XXX the destroyers. I next decision drive The and of So for are The technology up, opportunities base as submarines. our fairly of it's that's likelihood larger the us, use going improve frankly, talked classes above there, So has I opening, into mentioned that think extensively. some content some gets revenue but are, future, made to this of think, ships technology they're new the class there's

than further quietness, same the they've premier II, opportunities, available operational the to are a a able at the put is money to track in submarine ultimately, it be get power Columbia, the more ships are the advantages that to of then on R&D record X package on of already we're they'll year the program, the down technology. opportunity and the Columbia, decision that the bit of -- a is but if would that's yet smaller, although There with probably but the order That's in and we Columbia. the same the buy the the propulsion of an next-generation DGX. little That scale then will the production kind per little And once flow based there of magnitude of the made win our initially initially, that as hasn't those the Navy road terms in a the same efficiency on bit submarine, SSN. kinds Columbia. density, power is

they'll do were see would hopeful with we're that clear next-generation scale. of attack the submarine, another be which that opportunity So it again to Columbia

Jan-Frans Engelbrecht

could follow-up. have quick then And Okay. Great. a if just I

the that the internal it How does sort would R&D. year margin? should impact mentioned of quarter. have on Just you Just IMS segment headwind rest the about of we and a this how the think that margin for since

could If the on year. you for rest that the comment just of

Michael Dippold

sure, Yes, sure.

of comment that little be into earnings in the the the in think spend, our R&D of what well made range. a and going our we -- progressing I point is kind of XX call bit to was to. still headwind that terms So last That desire in margin to basis increase a around we're as a

consistent the is the we So by the expectation end where year. trend quarter to in with project our and of be the

Operator

next a follow-up Our CGS. from is Tanwanteng question comment Mr. from or Jon

Jonathan Tanwanteng

you bit the and source around systems having advantage that just the to little in color generation. just Colombia incumbency more would risk source that next philosophy a more the have it A does possible well? they to maybe much electric want Or on give next go dual someone Is propulsion they these your with from you in for of as spread else could that around? the the an generation

Michael Dippold

I always Defense of likes competition. Department Well, the I mean, think

that. on as right in substantial hard the that made match So both of that the R&D is desirability about developing -- technology progress the the in But as same technology we you're paying we've terms this twice that of the made well bill. is a investment to

in also Columbia the the us real think any your to competitive competition. So I yes, yes, look question, of And competition. part gives they'll other think at advantage I a

Jonathan Tanwanteng

a you. just Mike, for Great. follow-up Okay.

you as more to by what mentioned and a little on meant having progress? Can of bit give the us that, as you're kind cadence a we year. over in of the steeper You what you thinking the earnings trajectory detail rest

Michael Dippold

Yes.

terms it's of with over think the the So profile being of revenue year, the G&A absorption as the would stair-stepped and our in really the costs. I the fixed about of of course it

as will an So that on way quarterly think course of enhances over the XXXX, that it the absorption margins that revenue basis. of follow

Operator

Vather turn closing remarks. the back time, for to floor Steve At you. Thank this will I

Steve Vather

DRS. all you interest in your Thank and for afternoon this your time

rest all have follow-up e-mail to forward please me, again call your don't day. look or If you speaking soon of to with and of hesitate we enjoy you the questions, and

Operator

thank concludes This Ladies conference. today's and you. gentlemen,

You may Thank now participation. your for you disconnect.

Leonardo DRS (DRS) 3 May 232023 Q1 Earnings call transcript