Leonardo DRS, Inc. Q3 FY2024 earnings call

• Strong third quarter performance with 16% quarterly revenue growth, 22% adjusted EBITDA growth, and 60 basis points margin expansion. Book-to-bill ratio of 1.3 in the quarter. • Acquisition of RADA validated with tactical radars in demand for air defense. • Innovation in advanced infrared sensing, network computing, and directed energy counter-drone capability. • Progress on Columbia-class program and new facility in Charleston, South Carolina.

ASC revenue was up 24% year-over-year, bolstered by growth from programs in advanced infrared sensing and tactical radars. IMS revenue was up modestly at 3%, aided by increases to our force protection programs. ASC adjusted EBITDA increased 33% with margin of 90 basis points, due to favorable program mix, more efficient program execution and higher volume. IMS adjusted EBITDA was up 6% and margin expanded by 30 basis points on higher volume and slightly improved net program execution across the segment.

• 2024 revenue now anticipated 11% to 13% year-over-year growth, revised range $3.15 billion to $3.20 billion. • Adjusted EBITDA range revised to $387 million to $397 million. • Adjusted diluted EPS range revised to $0.88 to $0.91 a share. • 2025 preliminary guidance: 5% to 8% revenue growth off of 2024 midpoint with adjusted EBITDA margin at approximately 13%.

• Global threat environment and complex geopolitical situation. • Uncertainty around timing of material receipts and labor inputs affecting revenue. • Impact of election outcomes on defense funding clarity.

Q: Peter Arment asked about force protection demand, supply chain in naval shipyards, and 2025 guidance.

A: Bill Lynn discussed force protection demand driven by peer competitor focus and drone threats, supply chain in Columbia program is more in-sourcing, and 2025 guidance is based on backlog and program continuation.

Q: Robert Stallard asked about Columbia-class program risk and 2025 revenue growth range drivers.

A: Bill Lynn said Columbia program is insulated from schedule variability, and 2025 range is moderated by supply chain material availability and award timing.

Q: Michael Ciarmoli asked about 2025 growth and counter UAS in Replicator 2.

A: Bill Lynn said Ukraine has limited impact, 2025 growth is on higher base, and Replicator 2 isn't directly tied to counter UAS efforts yet.

Q: Seth Seifman asked about EBITDA margin step up and M&A.

A: Bill Lynn said margin step up is from mix and Columbia program mix change, and M&A is priority but other cash return options considered.

Q: Ron Epstein asked about M&A sourcing strategy.

A: Bill Lynn said dedicated team reviews teasers from banks and focuses on core mission areas, and Mike Dippold added on IMS segment's role in identifying up-and-coming technologies.

Q: Unidentified Analyst asked about duration to revenue for new orders.

A: Mike Dippold said conversion of booking to revenue is longer than pre-COVID but stable compared to recent timeframe.

Q: Unidentified Analyst asked about CapEx in South Carolina facility.

A: Mike Dippold said likely tick-up in Q4 CapEx, with CapEx as % of revenue mid to high-3's.