- Revenue: $703 million
- Net Earnings: $47 million
- Adjusted EBITDA: $82 million
- Diluted EPS: $0.18
- Adjusted Diluted EPS: $0.20
- Bookings: $1.1 billion (book-to-bill ratio of 1.5x)
- Backlog: $4.7 billion
- Subsequent to Q3, the company was awarded an over $3 billion
contract for the electric power and propulsion system on the
remaining seven Columbia Class submarines
- Updates 2023 guidance to narrow the ranges for revenue and
adjusted EBITDA and raise the range for adjusted diluted
EPS
Leonardo DRS, Inc. (Nasdaq and TASE: DRS), a leading provider of
advanced defense technologies, today reported financial results for
the third quarter 2023, which ended September 30, 2023.
CEO Commentary
“Leonardo DRS delivered another quarter of excellent results as
evidenced by our accelerating organic growth, robust bookings and
solid profit generation. The strength of our diverse and
differentiated technology, customer and program portfolio is
clearly reflected in our financial results. Furthermore, our
consistent execution throughout the year positions us well to meet
our full year commitments,” said Bill Lynn, Chairman and CEO of
Leonardo DRS.
Summary Financial Results
(In millions, except per share
amounts)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
Change
2023
2022
Change
Revenues
$703
$634
11%
$1,900
$1,873
1%
Net Earnings
$47
$279
(83%)
$94
$340
(72%)
Diluted WASO
265.000
210.445
263.675
210.445
Diluted Earnings Per Share (EPS)
$0.18
$1.33
(87%)
$0.36
$1.62
(78%)
Non-GAAP
Financial Measures (1)
Adjusted EBITDA
$82
$58
41%
$193
$198
(3%)
Adjusted EBITDA Margin
11.7%
9.2%
250 bps
10.2%
10.6%
(40) bps
Adjusted Net Earnings
$53
$25
112%
$111
$98
13%
Adjusted Diluted EPS
$0.20
$0.12
67%
$0.42
$0.47
(11%)
(1) The company reports its financials in
accordance with U.S. generally accepted accounting principles
(“GAAP”). Information about the company’s use of non-GAAP financial
measures, including a reconciliation of the non-GAAP financial
measures to the most comparable financial measures calculated and
presented in accordance with U.S. GAAP, is provided under "Non-GAAP
Financial Measures."
Revenue growth accelerated to 11% for the third quarter compared
to last year. Strong performance on naval power and computing
programs bolstered Q3 revenues. Additionally, quarterly revenue
growth benefited from a small inorganic tailwind from RADA which
added one point to the year-over-year compare.
Better program execution, favorable mix and higher volumes were
all key drivers in the robust year-over-year adjusted EBITDA growth
and adjusted EBITDA margin expansion for the third quarter.
Quarterly net earnings and diluted EPS were down compared to
last year due to an unfavorable compare. Recall that Q3 2022 net
earnings and diluted EPS contained a one-time net (after tax) gain
of approximately $270 million related to the divestitures of our
Global Enterprise Solutions (GES) business and our Advanced
Acoustic Concepts Joint Venture.
Strong operational performance coupled with a tax tailwind
related to research and development credits drove increases to
adjusted net earnings and adjusted diluted EPS in the quarter.
Both diluted EPS and adjusted diluted EPS year-over-year
compares continue to reflect a significantly higher share count
that resulted from our all stock merger with RADA in November
2022.
Cash Flow and Balance Sheet
Net cash flow generated by operating activities was $36 million
for the third quarter. The company's free cash flow generation was
$21 million in the quarter.
At quarter end, the balance sheet had $47 million of cash and
$327 million of outstanding borrowings under the company’s credit
facility, which still leaves the company with sufficient financial
capacity to deploy capital for growth, while maintaining a healthy
balance sheet.
Bookings and Backlog
(Dollars in millions)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
Bookings
$1,055
$874
$2,502
$2,304
Book-to-Bill
1.5x
1.4x
1.3x
1.2x
Backlog
$4,719
$3,138
$4,719
$3,138
The company received $1.1 billion in new funded awards during
the quarter. Robust bookings were driven by the increased demand
for the company’s ground vehicle and dismounted soldier sensing,
force protection, tactical communications and naval computing
solutions. At quarter end, backlog stood at a record level of $4.7
billion, representing a 50% increase year-over-year.
Segment Results
Advanced Sensing and Computing (“ASC”) Segment
(Dollars in millions)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
Change
2023
2022
Change
Revenues
$431
$408
6%
$1,226
$1,248
(2%)
Adjusted EBITDA
$48
$36
33%
$121
$125
(3%)
Adjusted EBITDA Margin
11.1
%
8.8
%
230 bps
9.9
%
10.0
%
(10) bps
Bookings
$820
$700
$1,693
$1,573
Book-to-Bill
1.9x
1.7x
1.4x
1.3x
ASC bookings were meaningfully ahead of expectations with clear
demand for the company’s ground and dismounted soldier sensing,
tactical communications as well as naval and ground network
computing technologies. The majority of the year-over-year increase
in ASC revenues were attributable to growth on naval and ground
network computing as well as tactical communications programs. Net
inorganic contribution from RADA was incremental to the solid
organic performance of the segment. Adjusted EBITDA and adjusted
EBITDA margin for the third quarter increased compared to last year
as a result of better program execution, favorable mix and slightly
higher volume.
Integrated Mission Systems (“IMS”) Segment
(Dollars in millions)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
Change
2023
2022
Change
Revenues
$277
$229
21%
$692
$634
9%
Adjusted EBITDA
$34
$22
55%
$72
$73
(1%)
Adjusted EBITDA Margin
12.3
%
9.6
%
270 bps
10.4
%
11.5
%
(110) bps
Bookings
$235
$174
$809
$731
Book-to-Bill
0.8x
0.8x
1.2x
1.2x
IMS bookings were propelled by demand for our force protection
solutions. Strong execution in our naval power and propulsion
business drove the revenue growth for the segment. Additionally,
the increases in adjusted EBITDA and adjusted EBITDA margin for the
third quarter were driven by better program execution and higher
volume coming particularly from our Columbia Class and other naval
power programs.
2023 Guidance
Leonardo DRS is updating its 2023 guidance as specified in the
table below:
Measure
Current
2023 Guidance
Prior
2023 Guidance
Revenue
$2,735 million - $2,785
million
$2,725 million - $2,800
million
Adjusted EBITDA
$319 million - $325 million
$318 million - $328 million
Tax Rate
13%
19%
Diluted Shares Outstanding
266 million
266 million
Adjusted Diluted EPS
$0.70 - $0.72
$0.66 - $0.69
The company does not provide a reconciliation of forward-looking
adjusted EBITDA and adjusted diluted EPS, due to inherent
difficulty in forecasting and quantifying the adjustments that are
necessary to calculate such non-GAAP measures without unreasonable
effort. Material changes to any one of these items could have a
significant effect on future GAAP results.
Conference Call
Leonardo DRS management will host a conference call beginning at
10:00 a.m. ET on November 2, 2023 to discuss the financial results
for its third quarter 2023.
A live audio broadcast of the conference call along with a
supplemental presentation will be available to the public through
links on the Leonardo DRS Investor Relations website
(https://investors.leonardodrs.com).
A replay of the conference call will be available on the
Leonardo DRS website approximately 2 hours after the conclusion of
the conference call.
About Leonardo DRS
Headquartered in Arlington, VA, Leonardo DRS, Inc. is an
innovative and agile provider of advanced defense technology to
U.S. national security customers and allies around the world. We
specialize in the design, development and manufacture of advanced
sensing, network computing, force protection, and electric power
and propulsion, and other leading mission-critical technologies.
Our innovative people are leading the way in developing disruptive
technologies for autonomous, dynamic, interconnected, and
multi-domain capabilities to defend against new and emerging
threats. For more information and to learn more about our full
range of capabilities, visit www.LeonardoDRS.com.
Forward-Looking Statements
In this press release, when using the terms the “company”,
“DRS”, “we”, “us” and “our,” unless otherwise indicated or the
context otherwise requires, we are referring to Leonardo DRS, Inc.
This press release contains forward-looking statements and
cautionary statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Some of the forward-looking
statements can be identified by the use of forward-looking terms
such as “believes,” “expects,” “may,” “will,” “shall,” “should,”
“would,” “could,” “seeks,” “aims,” “strives,” “targets,”
“projects,” “guidance,” “intends,” “plans,” “estimates,”
“anticipates” or other comparable terms. Forward-looking statements
include, without limitation, all matters that are not historical
facts. They appear in a number of places throughout this press
release and include, without limitation, statements regarding our
intentions, beliefs, assumptions or current expectations
concerning, among other things, financial goals, financial
position, results of operations, cash flows, prospects, strategies
or expectations, and the impact of prevailing economic
conditions.
Forward-looking statements are subject to known and unknown
risks and uncertainties, many of which may be beyond our control.
We caution you that forward-looking statements are not guarantees
of future performance or outcomes and that actual performance and
outcomes may differ materially from those made in or suggested by
the forward-looking statements contained in this press release. In
addition, even if future performance and outcomes are consistent
with the forward-looking statements contained in this press
release, those results or developments may not be indicative of
results or developments in subsequent periods. New factors emerge
from time to time that may cause our business not to develop as we
expect, and it is not possible for us to predict all of them.
Factors that could cause actual results and outcomes to differ from
those reflected in forward-looking statements include, without
limitation: disruptions or deteriorations in our relationship with
the relevant agencies of the U.S. government, as well as any
failure to pass routine audits or otherwise comply with
governmental requirements including those related to security
clearance or procurement rules, including the False Claims Act;
significant delays or reductions in appropriations for our programs
and changes in U.S. government priorities and spending levels more
broadly; any failure to comply with the proxy agreement with the
U.S. Department of Defense; failure to properly contain a global
pandemic in a timely manner could materially affect how we and our
business partners operate; the effect of inflation on our supply
chain and/or our labor costs; our mix of fixed-price, cost-plus and
time-and-material type contracts and any resulting impact on our
cash flows due to cost overruns; failure to properly comply with
various covenants of the agreements governing our debt could
negatively impact our business; our dependence on U.S. government
contracts, which often are only partially funded and are subject to
immediate termination, some of which are classified, and the
concentration of our customer base in the U.S. defense industry;
our use of estimates in pricing and accounting for many of our
programs that are inherently uncertain and which may not prove to
be accurate; our ability to realize the full value of our backlog;
our ability to predict future capital needs or to obtain additional
financing if we need it; our ability to respond to the rapid
technological changes in the markets in which we compete; the
effect of global and regional economic downturns and rising
interest rates; our ability to meet the requirements of being a
public company; our ability to maintain an effective system of
internal control over financial reporting; our inability to
appropriately manage our inventory; our inability to fully realize
the value of our total estimated contract value or bookings; our
ability to compete efficiently, including due to U.S. government
organizational conflict of interest rules which may limit new
contract opportunities or require us to wind down existing
contracts; our relationships with other industry participants,
including any contractual disputes or the inability of our key
suppliers to timely deliver our components, parts or services;
preferences for set-asides for minority-owned, small and small
disadvantaged businesses could impact our ability to be a prime
contractor; any failure to meet our contractual obligations
including due to potential impacts to our business from supply
chain risks, such as longer lead times and shortages of electronics
and other components; any security breach, including any
cyber-attack, cyber intrusion, insider threat, or other significant
disruption of our IT networks and related systems as well as any
act of terrorism or other threat to our physical security and
personnel; our ability to fully exploit or obtain patents or other
intellectual property protections necessary to secure our
proprietary technology, including our ability to avoid infringing
upon the intellectual property of third parties or prevent third
parties from infringing upon our own intellectual property; the
conduct of our employees, agents, affiliates, subcontractors,
suppliers, business partners or joint ventures in which we
participate which may impact our reputation and ability to do
business; our compliance with environmental laws and regulations,
and any environmental liabilities that may affect our reputation or
financial position; the outcome of litigation, arbitration,
investigations, claims, disputes, enforcement actions and other
legal proceedings in which we are involved; various geopolitical
and economic factors, laws and regulations including the Foreign
Corrupt Practices Act, the Export Control Act, the International
Traffic in Arms Regulations, the Export Administration Regulations,
and those that we are exposed to as a result of our international
business; geopolitical conflicts, including the war in Israel have
the potential to evolve quickly creating uncertainty in the world
and broader Middle East region specifically, along with the
potential for disruptions to our Israeli operations including but
not limited to workforce calls for duty, transportation and other
logistical impacts and reduced customer confidence; our ability to
obtain export licenses necessary to conduct certain operations
abroad, including any attempts by Congress to prevent proposed
sales to certain foreign governments; our ability to attract and
retain technical and other key personnel; the occurrence of
prolonged work stoppages; the unavailability or inadequacy of our
insurance coverage, customer indemnifications or other liability
protections to cover all of our significant risks or to pay for
material losses we incur; future changes in U.S. tax laws and
regulations or interpretations thereof; certain limitations on our
ability to use our net operating losses to offset future taxable
income; termination of our leases or our inability to renew our
leases on acceptable terms; changes in estimates used in accounting
for our pension plans, including in respect of the funding status
thereof; changes in future business or other market conditions that
could cause business investments and/or recorded goodwill or other
long-term assets to become impaired; adverse consequences from any
acquisitions such as operating difficulties, dilution and other
harmful consequences or any modification, delay or prevention of
any future acquisition or investment activity by the Committee on
Foreign Investment in the United States; natural disasters or other
significant disruptions; or any conflict of interest that may arise
because Leonardo US Holding, LLC, our majority stockholder, or
Leonardo S.p.A., our ultimate majority stockholder, may have
interests that are different from, or conflict with, those of our
other stockholders, including as a result of any ongoing business
relationships Leonardo S.p.A. may have with us, and their
significant ownership in us may discourage change of control
transactions (our amended and restated certificate of incorporation
provides that we waive any interest or expectancy in corporate
opportunities presented to Leonardo S.p.A); or our obligations to
provide certain services to Leonardo S.p.A., which may divert human
and financial resources from our business.
You should read this press release completely and with the
understanding that actual future results may be materially
different from expectations. All forward-looking statements made in
this press release are qualified by these cautionary statements.
These forward-looking statements are made only as of the date of
this filing, and we do not undertake any obligation, other than as
may be required by law, to update or revise any forward-looking or
cautionary statements to reflect changes in assumptions, the
occurrence of events, unanticipated or otherwise, and changes in
future operating results over time or otherwise.
Other risks, uncertainties and factors, including those
discussed in our latest SEC filings under “Risk Factors” of our
latest Annual Report on Form 10-K and Quarterly Reports on Form
10-Q, all of which may be viewed or obtained through the investor
relations section of our website https://www.leonardodrs.com, could
cause our actual results to differ materially from those projected
in any forward-looking statements we make. Readers should read
carefully the discussion of these factors to better understand the
risks and uncertainties inherent in our business and underlying any
forward-looking statements.
Consolidated Statements of
Earnings (Unaudited)
(Dollars in millions, except per share
amounts)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
Revenues:
Products
$651
$580
$1,761
$1,670
Services
52
54
139
203
Total revenues
703
634
1,900
1,873
Cost of revenues:
Products
(504
)
(461
)
(1,365
)
(1,328
)
Services
(37
)
(43
)
(97
)
(154
)
Total cost of revenues
(541
)
(504
)
(1,462
)
(1,482
)
Gross profit
162
130
438
391
General and administrative expenses
(96
)
(101
)
(286
)
(261
)
Amortization of intangibles
(5
)
(3
)
(16
)
(7
)
Other operating (expenses) income, net
(2
)
350
(10
)
351
Operating earnings
59
376
126
474
Interest expense
(10
)
(9
)
(27
)
(27
)
Other, net
(1
)
—
(2
)
—
Earnings before taxes
48
367
97
447
Income tax provision
1
88
3
107
Net earnings
$47
$279
$94
$340
Net earnings per share from common
stock:
Basic earnings per share
$0.18
$1.33
$0.36
$1.62
Diluted earnings per share
$0.18
$1.33
$0.36
$1.62
Consolidated Balance Sheets
(Unaudited)
(Dollars in millions)
September 30,
December 31,
2023
2022
ASSETS
Current assets:
Cash and cash equivalents
$47
$306
Accounts receivable, net
200
166
Contract assets
1,061
872
Inventories
383
319
Prepaid expenses
17
20
Other current assets
32
24
Total current assets
1,740
1,707
Noncurrent assets:
Property, plant and equipment, net
399
404
Intangible assets, net
156
172
Goodwill
1,236
1,236
Deferred tax assets
87
66
Other noncurrent assets
95
92
Total noncurrent assets
1,973
1,970
Total assets
$3,713
$3,677
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings and current portion
of long-term debt
$132
$29
Accounts payable
328
457
Contract liabilities
258
233
Other current liabilities
233
323
Total current liabilities
951
1,042
Noncurrent liabilities:
Long-term debt
351
365
Pension and other postretirement benefit
plan liabilities
35
45
Deferred tax liabilities
8
—
Other noncurrent liabilities
126
98
Total noncurrent liabilities
$520
$508
Shareholders' equity:
Preferred stock, $0.01 par value:
10,000,000 shares authorized; none issued
$—
$—
Common stock, $0.01 par value: 350,000,000
shares authorized; 262,039,337 shares issued
3
3
Additional paid-in capital
5,166
5,147
Accumulated deficit
(2,880
)
(2,974
)
Accumulated other comprehensive loss
(47
)
(49
)
Total shareholders' equity
2,242
2,127
Total liabilities and shareholders'
equity
$3,713
$3,677
Consolidated Statements of
Cash Flows (Unaudited)
(Dollars in millions)
Nine Months Ended
September 30,
2023
2022
Operating activities
Net earnings
$94
$340
Adjustments to reconcile net earnings to
net cash used in operating activities:
Depreciation and amortization
63
48
Deferred income taxes
(13
)
10
Gain from sale of business
—
(350
)
Other
13
—
Changes in assets and liabilities:
Accounts receivable
(34
)
(17
)
Contract assets
(189
)
(174
)
Inventories
(64
)
(43
)
Prepaid expenses
3
—
Other current assets
(8
)
(2
)
Other noncurrent assets
13
10
Defined benefit obligations
(8
)
(4
)
Other current liabilities
(82
)
83
Other noncurrent liabilities
6
(3
)
Accounts payable
(129
)
(180
)
Contract liabilities
25
36
Net cash used in operating
activities
($310
)
($246
)
Investing activities
Capital expenditures
(42
)
(35
)
Proceeds from sales of businesses
—
483
Net cash (used in) provided by
investing activities
($42
)
$448
Financing activities
Net decrease in third party borrowings
(maturities of 90 days or less)
(11
)
(12
)
Repayment of third party debt
(454
)
—
Borrowings of third party debt
555
—
Repayment of related party debt
—
(640
)
Borrowings from related parties
—
675
Dividend to US Holding
—
(396
)
Proceeds from stock issuance
8
—
Cash outlay to reacquire equity
instruments
(1
)
—
Other
(4
)
(6
)
Net cash provided by (used in)
financing activities
$93
($379
)
Net decrease in cash and cash
equivalents
($259
)
($177
)
Cash and cash equivalents at beginning of
year
306
240
Cash and cash equivalents at end of
period
47
63
Non-GAAP Financial Measures (Unaudited)
In addition to the results reported in accordance with U.S. GAAP
included throughout this document, the company has provided
information regarding “Adjusted EBITDA,” “Adjusted EBITDA Margin,”
“Adjusted Net Earnings,” “Adjusted Diluted Earnings Per Share” and
“Free Cash Flow” (each, a non-GAAP financial measure).
We believe the non-GAAP financial measures presented in this
document will help investors understand our financial condition and
operating results and assess our future prospects. We believe these
non-GAAP financial measures, each of which is discussed in greater
detail below, are important supplemental measures because they
exclude unusual or non-recurring items as well as non-cash items
that are unrelated to or may not be indicative of our ongoing
operating results. Further, when read in conjunction with our GAAP
results, these non-GAAP financial measures provide a baseline for
analyzing trends in our underlying businesses and can be used by
management as a tool to help make financial, operational and
planning decisions. Finally, these measures are often used by
analysts and other interested parties to evaluate companies in our
industry by providing more comparable measures that are less
affected by factors such as capital structure.
We recognize that these non-GAAP financial measures have
limitations, including that they may be calculated differently by
other companies or may be used under different circumstances or for
different purposes, thereby affecting their comparability from
company to company. In order to compensate for these and the other
limitations discussed below, management does not consider these
measures in isolation from or as alternatives to the comparable
financial measures determined in accordance with U.S. GAAP. Readers
should review the reconciliations below and should not rely on any
single financial measure to evaluate our business.
We define these non-GAAP financial measures as:
Adjusted EBITDA and Adjusted EBITDA Margin are
defined as net earnings before income taxes, interest expense,
amortization of acquired intangible assets, depreciation, deal
related transaction costs, restructuring costs and other one-time
non-operational events (which include non-service pension expense,
legal liability accrual reversals, COVID-19 response costs and
foreign exchange impacts) and gain on sale of dispositions, then in
the case of adjusted EBITDA margin dividing adjusted EBITDA by
revenues.
(Dollars in millions)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
Net earnings
$47
$279
$94
$340
Income tax provision
1
88
3
107
Interest expense
10
9
27
27
Amortization of intangibles
5
3
16
7
Depreciation
16
14
47
41
Deal related transaction costs
1
16
4
26
Restructuring costs
2
—
10
—
Other one-time non-operational events
—
(1
)
(8
)
—
Gain on sale of dispositions
—
(350
)
—
(350
)
Adjusted EBITDA
$82
$58
$193
$198
Adjusted EBITDA Margin
11.7
%
9.2
%
10.2
%
10.6
%
Adjusted Net Earnings and Adjusted Diluted EPS are
defined as net earnings excluding amortization of acquired
intangible assets, deal related transaction costs, restructuring
costs, other one-time non-operational events (which include
non-service pension expense, legal liability accrual reversals,
COVID-19 response costs and foreign exchange impacts), gain on sale
of dispositions (net of taxes) and the related tax impact from net
earnings, then in the case of adjusted diluted EPS dividing
adjusted net earnings by the diluted weighted average shares
outstanding.
(In millions, except per share
amounts)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
Net earnings
$47
$279
$94
$340
Amortization of intangibles
5
3
16
7
Deal related transaction costs
1
16
4
26
Restructuring costs
2
—
10
—
Other one-time non-operational events
—
(1
)
(8
)
—
Gain on sale of dispositions, net of
taxes
—
(270
)
—
(270
)
Tax effect of adjustments (1)
(2
)
(2
)
(5
)
(5
)
Adjusted Net Earnings
$53
$25
$111
$98
Per share information
Diluted weighted average common shares
265.000
210.445
263.675
210.445
Diluted earnings per share
$0.18
$1.33
$0.36
$1.62
Adjusted Diluted EPS
$0.20
$0.12
$0.42
$0.47
(1) Calculation uses an estimated
statutory tax rate on non-GAAP adjustments.
Free Cash Flow is defined as the sum of the cash flows
provided by (used in) operating activities, transaction related
expenditures (net of tax), capital expenditures and proceeds from
sale of assets.
(Dollars in millions)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
Net cash provided by (used in) operating
activities
$36
($4
)
($310
)
($246
)
Transaction related expenditures, net of
tax
1
14
17
19
Capital expenditures
(15
)
(13
)
(42
)
(35
)
Proceeds from sales of assets
(1
)
—
—
—
Free Cash Flow
$21
($3
)
($335
)
($262
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231102427138/en/
Investors Steve Vather VP,
Investor Relations & Corporate Finance +1 703 409 2906
stephen.vather@drs.com
Media Michael Mount VP,
Communications & Public Affairs +1 571 447 4624
mmount@drs.com
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