- Revenue: $569 million
- Net Earnings: $12 million
- Adjusted EBITDA: $49 million
- Diluted EPS: $0.05
- Adjusted Diluted EPS: $0.07
- Bookings: $749 million (book-to-bill ratio of 1.3x)
- Backlog: $4.3 billion
- Reaffirms 2023 guidance
Leonardo DRS, Inc. (Nasdaq and TASE: DRS), a leading provider of
advanced defense technologies, today reported financial results for
the first quarter 2023, which ended March 31, 2023.
CEO Commentary
“Leonardo DRS had a solid start to the year with the first
quarter coming in ahead of our expectations. We continue to
experience strong demand as evidenced by our healthy bookings. Our
differentiated technology portfolio is well positioned to drive
long-term growth. We remain focused on investing in next generation
technologies to meet the mission-critical needs for our national
security customers,” said Bill Lynn, Chairman and CEO of Leonardo
DRS.
Summary Financial Results
(In millions, except per share
amounts)
First Quarter
2023
2022
Change
Revenues
$569
$612
(7
%)
Net Earnings
$12
$36
(67
%)
Diluted Weighted Average Shares
Outstanding
262.378
210.445
Diluted Earnings Per Share (EPS)
$0.05
$0.17
(73
%)
Non-GAAP
Financial Measures (1)
Adjusted EBITDA
$49
$73
(33
%)
Adjusted EBITDA Margin
8.6
%
11.9
%
(330) bps
Adjusted Net Earnings
$19
$39
(52
%)
Adjusted Diluted EPS
$0.07
$0.19
(61
%)
(1) 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."
Quarterly revenues were down compared to last year. Q1 2022
benefited from revenue contribution from our divested Global
Enterprise Solutions (GES) business. In 2023, these divested
revenues were partially offset by our acquisition of RADA
Electronic Industries (RADA), collectively referred to as the “net
divestiture impact.” Additionally, first quarter 2022 revenues
benefited from a non-recurring $25 million step-up in profitability
on the Columbia-Class program.
The discrete Columbia Class item from Q1 2022 caused a greater
headwind to the year-over-year compare for adjusted EBITDA and
adjusted EBITDA margin. Furthermore, the impact was felt at the
bottom line and was also the primary driver for the year-over-year
decline in net earnings and adjusted net earnings. Diluted EPS and
adjusted diluted EPS faced an incremental headwind from the
increased share count resulting from our all stock merger with RADA
in the year-over-year compare.
Cash Flow, Balance Sheet and Strategic Actions
Net cash flow used in operating activities was $334 million for
the first quarter.
Consistent with the historical patterns of the business, the
company utilized free cash flow (which is a non-GAAP financial
measure) in the first quarter. The company's free cash flow use was
$346 million in the quarter.
At quarter end, the balance sheet had $174 million of cash and
$437 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 strong
balance sheet.
Bookings and Backlog
(Dollars in millions)
First Quarter
2023
2022
Bookings
$749
$747
Book-to-Bill
1.3x
1.2x
Backlog
$4,272
$2,995
The company received $749 million in new funded awards during
the quarter. Strong bookings were driven by the increased demand
for the company’s solutions in electric power and propulsion,
rotary-wing survivability, dismounted and ground vehicle sensing,
secure tactical terminals and network computing. At quarter end,
backlog stood at $4.3 billion, representing a 43% increase
year-over-year.
Segment Results
Advanced Sensing and Computing (“ASC”) Segment
(Dollars in millions)
First Quarter
2023
2022
Change
Revenues
$391
$396
(1
%)
Adjusted EBITDA
$37
$32
16
%
Adjusted EBITDA Margin
9.5
%
8.1
%
140 bps
Bookings
$404
$388
Book-to-Bill
1.0x
1.0x
First quarter ASC revenues were down primarily due to the net
divestiture impact. Adjusted EBITDA and adjusted EBITDA margins
increased over last year as a result of improved program execution
and mix. ASC bookings were ahead of expectations with demand
evident across advanced sensing and network computing areas,
specifically for the company’s rotary-wing survivability,
dismounted and ground vehicle sensing, secure tactical terminals
and advanced battle management technologies.
Integrated Mission Systems (“IMS”) Segment
(Dollars in millions)
First Quarter
2023
2022
Change
Revenues
$189
$218
(13
%)
Adjusted EBITDA
$12
$41
(71
%)
Adjusted EBITDA Margin
6.3
%
18.8
%
(1,250) bps
Bookings
$345
$359
Book-to-Bill
1.8x
1.6x
IMS revenues and adjusted EBITDA were impacted by the $25
million Columbia-Class profit step-up recognized in 2022. The
remaining decline in IMS adjusted EBITDA was driven by increased
internal research and development investments to further enhance
the company’s electric power and propulsion technologies. The
continued momentum in our electric power and propulsion drove
robust quarterly bookings.
2023 Guidance
Leonardo DRS is reaffirming 2023 guidance as specified in the
table below:
Measure
2023
Guidance
Revenue
$2.7 billion - $2.8 billion
Adjusted EBITDA
$315 million - $330 million
Adjusted Diluted EPS
$0.64 - $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
5:00 p.m. ET on May 3, 2023 to discuss the financial results for
its first 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 (the “DoD”); 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 (“FCPA”), the Export Control Act, the
International Traffic in Arms Regulations (“ITAR”), the Export
Administration Regulations (“EAR”), and those that we are exposed
to as a result of our international business; 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 (“CFIUS”); natural
disasters or other significant disruptions; or any conflict of
interest that may arise because Leonardo US Holding, LLC (“US
Holding”), 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 Statement of
Earnings (Unaudited)
(Dollars in millions, except per share
amounts)
Three Months Ended
March 31,
2023
2022
Revenues:
Products
$520
$541
Services
49
71
Total revenues
569
612
Cost of revenues:
Products
(403
)
(422
)
Services
(35
)
(56
)
Total cost of revenues
(438
)
(478
)
Gross profit
131
134
General and administrative expenses
(100
)
(76
)
Amortization of intangibles
(6
)
(2
)
Other operating expenses, net
—
—
Operating earnings
25
56
Interest expense
(8
)
(8
)
Other, net
(1
)
—
Earnings before taxes
16
48
Income tax provision
4
12
Net earnings
$12
$36
Net earnings per share from common
stock
Basic earnings per share:
$0.05
$0.17
Diluted earnings per share:
$0.05
$0.17
Consolidated Balance Sheets
(Unaudited)
(Dollars in millions)
March 31,
December 31,
2023
2022
ASSETS
Current assets:
Cash and cash equivalents
$174
$306
Accounts receivable, net
158
166
Contract assets
968
872
Inventories
364
319
Prepaid expenses
19
20
Other current assets
29
24
Total current assets
1,712
1,707
Noncurrent assets:
Property plant and equipment, net
402
404
Intangible assets, net
167
172
Goodwill
1,236
1,236
Deferred tax assets
72
66
Other noncurrent assets
92
92
Total noncurrent assets
1,969
1,970
Total assets
$3,681
$3,677
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings and current portion
of long-term debt
$250
$29
Accounts payable
258
457
Contract liabilities
247
233
Other current liabilities
264
323
Total current liabilities
1,019
1,042
Noncurrent liabilities:
Long-term debt
360
365
Pension and other postretirement benefit
plan liabilities
42
45
Deferred tax liabilities
6
—
Other noncurrent liabilities
111
98
Total noncurrent liabilities
$519
$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; 260,553,101 shares issued
3
3
Additional paid-in capital
5,151
5,147
Accumulated deficit
(2,962
)
(2,974
)
Accumulated other comprehensive loss
(49
)
(49
)
Total shareholders' equity
2,143
2,127
Total liabilities and shareholders'
equity
$3,681
$3,677
Consolidated Statement of Cash
Flows (Unaudited)
(Dollars in millions)
Three Months Ended
March 31,
2023
2022
Operating activities
Net earnings
$12
$36
Adjustments to reconcile net earnings to
net cash used in operating activities:
Depreciation and amortization
22
15
Deferred income taxes
—
11
Other
4
—
Changes in assets and liabilities:
Accounts receivable
8
13
Contract assets
(96
)
(80
)
Inventories
(45
)
(30
)
Prepaid expenses
1
(1
)
Other current assets
(5
)
(3
)
Other noncurrent assets
5
21
Defined benefit obligations
(3
)
1
Other current liabilities
(59
)
(14
)
Other noncurrent liabilities
7
(21
)
Accounts payable
(199
)
(215
)
Contract liabilities
14
12
Net cash used in operating
activities
($334
)
($255
)
Investing activities
Capital expenditures
(15
)
(13
)
Proceeds from sales of assets
1
—
Net cash used in investing
activities
($14
)
($13
)
Financing activities
Net (decrease) increase in third party
borrowings (maturities of 90 days or less)
6
(9
)
Repayment of third party debt
(128
)
—
Borrowings of third party debt
340
—
Repayment of related party debt
—
(135
)
Borrowings from related parties
—
285
Proceeds from stock issuance
1
—
Cash outlay to reacquire equity
instruments
(1
)
—
Other
(2
)
—
Net cash provided by financing
activities
216
141
Effect of exchange rate changes on cash
and cash equivalents
—
—
Net decrease in cash and cash
equivalents
($132
)
($127
)
Cash and cash equivalents at beginning of
year
306
240
Cash and cash equivalents at end of
period
174
113
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, other non-operating
expense (which includes non-service pension expense, 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
March 31,
2023
2022
Net earnings
$12
$36
Income tax provision
4
12
Interest expense
8
8
Amortization of intangibles
6
2
Depreciation
16
13
Deal related transaction costs
2
2
Restructuring costs
—
—
Other non-operating expense
1
—
Gain on sale of dispositions
—
—
Adjusted EBITDA
$49
$73
Adjusted EBITDA Margin
8.6
%
11.9
%
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 non-operating expense (which includes non-service
pension expense, COVID-19 response costs, 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
March 31,
2023
2022
Net earnings
$12
$36
Amortization of intangibles
6
2
Deal related transaction costs
2
2
Restructuring costs
—
—
Other non-operating expense
1
—
Gain on sale of dispositions, net of
taxes
—
—
Tax effect of adjustments (1)
(2
)
(1
)
Adjusted Net Earnings
$19
$39
Per share
information
Diluted weighted average common shares
262.378
210.445
Diluted earnings per share
$0.05
$0.17
Adjusted Diluted EPS
$0.07
$0.19
(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), tax payments on disposals, capital
expenditures, proceeds from sale of assets and dividends from
investments.
(Dollars in millions)
Three Months Ended
March 31,
2023
2022
Net cash provided by operating
activities
($334
)
($255
)
Transaction related expenditures, net of
tax
2
2
Tax payments on disposals
—
—
Capital expenditures
(15
)
(13
)
Proceeds from sales of assets
1
—
Dividends from investments
—
—
Free Cash Flow
($346
)
($266
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230503005215/en/
Leonardo DRS Contacts 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
Leonardo DRS (NASDAQ:DRS)
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Leonardo DRS (NASDAQ:DRS)
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