Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Leonardo DRS Inc (DRS, Financial) reported a strong third quarter with a 16% increase in revenue compared to the previous year.
- The company achieved a book-to-bill ratio of 1.3, driven by strong demand for its naval network computing, electric power and propulsion, force protection, and advanced infrared sensing technologies.
- Adjusted EBITDA grew by 22%, with a margin expansion of 60 basis points, reflecting efficient operational execution.
- The company secured significant contract awards, including a $235 million production contract for naval radars, showcasing its strong market position.
- Leonardo DRS Inc (DRS) is advancing its AI integration into sensing solutions and has developed a directed energy counter-drone capability, highlighting its innovation and agility.
Negative Points
- The macro environment includes uncertainties such as a short-term continuing resolution affecting customer funding, although the company does not foresee a significant impact in 2024.
- The supply chain remains a concern, with elongated lead times affecting the conversion of bookings to revenue.
- The variability in revenue growth projections for 2025 is influenced by the timing of material receipts and labor inputs.
- The company faces potential risks from broader defense industry challenges, such as those highlighted by General Dynamics regarding submarine programs.
- Despite strong performance, the company has not announced any new M&A activity, although it remains a priority for future growth.
Q & A Highlights
Q: How has the demand for force protection changed, and will it require more CapEx in the future?
A: William Lynn, CEO: The demand for force protection has increased due to the US focusing on peer competitors like Russia and China, and the growing drone threat. This has led to an expansion in force protection needs. However, we built a new facility in St. Louis a couple of years ago, so we do not foresee a need for additional CapEx in this area.
Q: What is the current status of the supply chain for naval shipyards, and how does the new Charleston facility fit into this?
A: William Lynn, CEO: Our efforts on the Columbia-class program involve in-sourcing rather than outsourcing. The new facility in South Carolina is designed to create a more efficient production line and higher margins by bringing work in-house.
Q: Can you elaborate on the 5% to 8% revenue growth projection for 2025 and any factors that might affect this range?
A: Michael Dippold, CFO: The growth projection assumes a continuing resolution (CR) is resolved. The range is influenced by supply chain variability and the timing of awards. Most revenue is expected from backlog and program continuation, minimizing CR impact.
Q: Are there any indirect risks to the Columbia-class program due to issues in other submarine programs?
A: William Lynn, CEO: Currently, there are no indirect risks to our schedule and financials for the Columbia-class program. Our contract for the propulsion system is insulated from variability in other components.
Q: What is the company's approach to M&A, and are there any current opportunities?
A: William Lynn, CEO: M&A remains a priority, and we are seeing an uptick in actionable opportunities in our core markets. We have a dedicated team reviewing potential deals, focusing on properties that meet our financial criteria and strategic goals.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
