Leonardo DRS(DRS) - 2025 Q1 - Quarterly Results

First Quarter 2025 Financial Highlights Leonardo DRS reported strong Q1 2025 results, exceeding expectations with robust revenue growth, improved profitability, and reduced cash flow usage, alongside record backlog CEO Commentary CEO Bill Lynn reported that Leonardo DRS's first quarter 2025 financial results exceeded expectations, reflecting a strong start to the year with robust customer demand, healthy organic revenue growth, improved profitability, and reduced free cash flow usage - Q1 2025 financial results exceeded expectations, indicating a solid start to the year[3] - The company's differentiated portfolio continues to exhibit strong customer demand, translating into healthy organic revenue growth[3] - Improved profitability and reduced free cash flow usage were achieved compared to the previous year[3] - Management remains focused on maintaining sharp execution throughout 2025 to meet commitments to shareholders and customers[3] Summary Financial Performance Leonardo DRS reported strong Q1 2025 financial results with significant year-over-year growth across key metrics, including a 16% increase in revenues and a 72% rise in net earnings, driven by key programs and improved operational performance Q1 2025 Summary Financial Results (YoY Change) | Metric | Q1 2025 (Millions) | Q1 2024 (Millions) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $799 | $688 | 16 % | | Net Earnings | $50 | $29 | 72 % | | Diluted EPS | $0.19 | $0.11 | 73 % | | Adjusted EBITDA | $82 | $70 | 17 % | | Adjusted EBITDA Margin | 10.3 % | 10.2 % | 10 bps | | Adjusted Net Earnings | $54 | $38 | 42 % | | Adjusted Diluted EPS | $0.20 | $0.14 | 43 % | - Revenue growth was principally catalyzed by programs related to ground and naval network computing, tactical radars, and electric power and propulsion[4] - Adjusted EBITDA growth stemmed from increased volume, and margin expansion resulted from favorable net contract adjustments and higher volume[6] - Bottom-line metrics (net earnings, adjusted net earnings, diluted EPS, and adjusted diluted EPS) were higher due to strong operational performance, reduced interest, and a lower effective tax rate[6] Cash Flow Leonardo DRS significantly reduced its net cash flow used in operating activities and free cash flow usage in Q1 2025 compared to the prior year, primarily due to increased profitability and improved working capital efficiency Q1 Cash Flow Summary | Metric | Q1 2025 (Millions) | Q1 2024 (Millions) | | :--- | :--- | :--- | | Net cash flow used in operating activities | ($138) | ($265) | | Free cash flow use | ($170) | ($275) | - Both operating and free cash flow uses were significantly smaller year-over-year, driven by increased profitability and better working capital efficiency, partly aided by favorable timing of cash receipts from customers[7] Dividends and Stock Repurchases During Q1 2025, Leonardo DRS paid $24 million in dividends ($0.09 per common share) and declared another $0.09 dividend payable in June 2025, while also repurchasing 88,050 shares of common stock for approximately $3 million - Paid dividends totaling approximately $24 million, or $0.09 per common share, during the first quarter[8] - Declared a cash dividend of $0.09 per common share payable on June 5, 2025[8] - Repurchased 88,050 shares of common stock for approximately $3 million in Q1[8] Balance Sheet Overview As of March 31, 2025, Leonardo DRS maintained a healthy balance sheet with $380 million in cash and $200 million in outstanding borrowings, providing ample financial capacity for strategic investments and shareholder returns - Cash and cash equivalents at quarter end: $380 million[9][28] - Outstanding borrowings under the company's credit facility: $200 million[9] - The balance sheet provides sufficient financial capacity to deploy capital for growth and return capital to shareholders[9] Bookings and Backlog Leonardo DRS achieved approximately $1 billion in new funded bookings in Q1 2025, resulting in a 1.2x book-to-bill ratio, with total backlog reaching a new company record of $8.6 billion, marking a 10% year-over-year increase Q1 Bookings and Backlog | (Dollars in millions) | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Bookings | $991 | $815 | | Book-to-Bill | 1.2x | 1.2x | | Backlog | $8,612 | $7,845 | - Robust bookings were driven by steadfast customer demand for advanced infrared sensing, electric power and propulsion, tactical radars, laser systems, and force protection technologies[10] - Total backlog at quarter end reached a new company record of $8.6 billion, representing a 10% increase year-over-year and also up sequentially[10] Segment Results Leonardo DRS's segments demonstrated varied performance in Q1 2025, with ASC achieving strong revenue growth but margin contraction, while IMS saw significant revenue and Adjusted EBITDA expansion Advanced Sensing and Computing (ASC) Segment The ASC segment reported an 18% revenue increase to $511 million in Q1 2025, primarily driven by tactical radars and ground and naval network computing programs, though Adjusted EBITDA margin contracted by 130 basis points due to cost growth from raw material price increases in infrared sensing programs ASC Segment Q1 Financials (YoY Change) | (Dollars in millions) | March 31, 2025 | March 31, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $511 | $433 | 18 % | | Adjusted EBITDA | $42 | $41 | 2 % | | Adjusted EBITDA Margin | 8.2 % | 9.5 % | (130) bps | | Bookings | $669 | $587 | - | | Book-to-Bill | 1.3x | 1.4x | - | - Revenue growth was most prominent for programs related to tactical radars and ground and naval network computing[12] - Adjusted EBITDA margin contraction was due to cost growth in infrared sensing related programs from price increases of certain raw materials, leading to unfavorable contract adjustments[12] Integrated Mission Systems (IMS) Segment The IMS segment experienced solid customer demand in Q1 2025, leading to an 11% revenue increase to $291 million and a 38% rise in Adjusted EBITDA, with a significant margin expansion of 260 basis points, driven by strong contributions from electric power and propulsion and force protection programs IMS Segment Q1 Financials (YoY Change) | (Dollars in millions) | March 31, 2025 | March 31, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $291 | $261 | 11 % | | Adjusted EBITDA | $40 | $29 | 38 % | | Adjusted EBITDA Margin | 13.7 % | 11.1 % | 260 bps | | Bookings | $322 | $228 | - | | Book-to-Bill | 1.1x | 0.9x | - | - Strong bookings and broad-based revenue growth were evident across the segment, with healthy demand for electric power and propulsion and force protection capabilities[13] - The year-over-year increase to Adjusted EBITDA and margin expansion resulted from favorable contract adjustments, improved program execution, and higher volume[13] 2025 Financial Guidance Leonardo DRS reaffirmed its full-year 2025 financial guidance, projecting strong revenues and Adjusted EBITDA, while monitoring potential tariff impacts 2025 Guidance Details Leonardo DRS confirmed its full-year 2025 guidance, projecting revenues between $3,425 million and $3,525 million and Adjusted EBITDA between $435 million and $455 million, while closely evaluating potential tariff impacts on its primarily US-based supply chain 2025 Full-Year Guidance | Measure | 2025 Guidance | | :--- | :--- | | Revenue | $3,425 million - $3,525 million | | Adjusted EBITDA | $435 million - $455 million | | Tax Rate | 19.0% | | Diluted WASO | 270.0 million | | Adjusted Diluted EPS | $1.02 - $1.08 | - The company's direct supply chain is primarily US-based, but it is closely evaluating any indirect impacts from potential tariffs and related policies[14] - A reconciliation of forward-looking adjusted EBITDA and adjusted diluted EPS is not provided due to the inherent difficulty in forecasting and quantifying necessary adjustments without unreasonable effort[15] Company Information & Disclosures This section provides details on the Q1 2025 conference call, an overview of Leonardo DRS's defense technology focus, and important forward-looking statement disclaimers Conference Call Details Leonardo DRS will host a conference call on May 1, 2025, at 10:00 a.m. ET to discuss its Q1 2025 financial results, with a live audio broadcast and supplemental presentation available on the company's investor relations website, and a replay accessible afterward - Conference call to discuss Q1 2025 financial results will be held on May 1, 2025, at 10:00 a.m. ET[16] - A live audio broadcast and supplemental presentation will be available on the Leonardo DRS Investor Relations website[16] - A replay of the conference call will be available on the website approximately 2 hours after its conclusion[17] About Leonardo DRS Leonardo DRS, headquartered in Arlington, VA, is an innovative provider of advanced defense technology to U.S. national security customers and allies, specializing in designing, developing, and manufacturing advanced sensing, network computing, force protection, and electric power and propulsion technologies, focusing on disruptive solutions for emerging threats - Headquartered in Arlington, VA, Leonardo DRS is a provider of advanced defense technology to U.S. national security customers and allies[18] - Specializes in the design, development, and manufacture of advanced sensing, network computing, force protection, and electric power and propulsion, and other mission-critical technologies[18] - Focused on developing disruptive technologies for autonomous, dynamic, interconnected, and multi-domain capabilities to defend against new and emerging threats[18] Forward-Looking Statements This press release contains forward-looking statements regarding future performance, financial goals, and strategies, which are subject to numerous known and unknown risks and uncertainties that could cause actual results to differ materially from expectations, and the company does not undertake to update these statements unless legally required - Forward-looking statements include intentions, beliefs, assumptions, or current expectations concerning financial goals, position, results of operations, cash flows, prospects, strategies, or expectations, and the impact of prevailing economic conditions[19] - These statements are subject to known and unknown risks and uncertainties, many beyond the company's control, which could cause actual performance and outcomes to differ materially[20] - Key risk factors include disruptions with U.S. government agencies, funding delays, compliance issues, inflation, contract types, debt covenants, technological changes, economic downturns, supply chain risks, cybersecurity threats, intellectual property, geopolitical factors, and more[20][21] - The company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions or events, other than as may be required by law[22] Unaudited Consolidated Financial Statements The unaudited financial statements for Q1 2025 present the company's earnings, balance sheet, and cash flow, reflecting strong operational improvements Consolidated Statements of Earnings (Unaudited) The unaudited consolidated statements of earnings for the three months ended March 31, 2025, show a significant increase in net earnings to $50 million from $29 million in the prior year, driven by higher revenues and improved operating earnings Consolidated Statements of Earnings (Unaudited) | (Dollars in millions, except per share amounts) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenues | $799 | $688 | | Cost of revenues | ($618) | ($535) | | Gross profit | $181 | $153 | | General and administrative expenses | ($117) | ($101) | | Amortization of intangibles | ($5) | ($5) | | Other operating expenses, net | — | ($4) | | Operating earnings | $59 | $43 | | Interest expense | ($1) | ($5) | | Other, net | — | ($1) | | Earnings before taxes | $58 | $37 | | Income tax provision | $8 | $8 | | Net earnings | $50 | $29 | | Basic earnings per share | $0.19 | $0.11 | | Diluted earnings per share | $0.19 | $0.11 | Consolidated Balance Sheets (Unaudited) The unaudited consolidated balance sheets as of March 31, 2025, report total assets of $4,096 million, a slight decrease from December 31, 2024, with total liabilities at $1,525 million and total shareholders' equity increasing to $2,571 million Consolidated Balance Sheets (Unaudited) | (Dollars in millions, except per share amounts) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | ASSETS | | | | Current assets: | | | | Cash and cash equivalents | $380 | $598 | | Accounts receivable, net | 254 | 253 | | Contract assets | 982 | 872 | | Inventories | 385 | 358 | | Prepaid expenses | 28 | 27 | | Other current assets | 41 | 55 | | Total current assets | 2,070 | 2,163 | | Noncurrent assets: | | | | Property, plant and equipment, net | 455 | 440 | | Intangible assets, net | 126 | 132 | | Goodwill | 1,238 | 1,238 | | Deferred tax assets | 119 | 120 | | Other noncurrent assets | 88 | 91 | | Total noncurrent assets | 2,026 | 2,021 | | Total assets | $4,096 | $4,184 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Current liabilities: | | | | Short-term borrowings and current portion of long-term debt | $27 | $25 | | Accounts payable | 299 | 426 | | Contract liabilities | 467 | 399 | | Other current liabilities | 234 | 266 | | Total current liabilities | 1,027 | 1,116 | | Noncurrent liabilities: | | | | Long-term debt | 335 | 340 | | Pension and other postretirement benefit plan liabilities | 29 | 34 | | Deferred tax liabilities | 7 | 7 | | Other noncurrent liabilities | 127 | 130 | | Total noncurrent liabilities | 498 | 511 | | Shareholders' equity: | | | | Common stock | 3 | 3 | | Additional paid-in capital | 5,158 | 5,194 | | Accumulated deficit | (2,543) | (2,593) | | Accumulated other comprehensive loss | (47) | (47) | | Total shareholders' equity | 2,571 | 2,557 | | Total liabilities and shareholders' equity | $4,096 | $4,184 | Consolidated Statements of Cash Flows (Unaudited) The unaudited consolidated statements of cash flows for Q1 2025 show a significant improvement in operating activities, with net cash used decreasing to $138 million from $265 million in the prior year, while net cash used in investing activities was $32 million and in financing activities was $48 million Consolidated Statements of Cash Flows (Unaudited) | (Dollars in millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Operating activities | | | | Net earnings | $50 | $29 | | Net cash used in operating activities | ($138) | ($265) | | Investing activities | | | | Capital expenditures | ($32) | ($10) | | Net cash used in investing activities | ($32) | ($10) | | Financing activities | | | | Net increase (decrease) in third party borrowings | $2 | ($26) | | Repayment of third party debt | ($3) | ($38) | | Borrowings of third party debt | — | $35 | | Repurchases of common stock | ($3) | — | | Dividends paid | ($7) | — | | Dividends paid to related party | ($17) | — | | Net cash used in financing activities | ($48) | ($32) | | Net decrease in cash and cash equivalents | ($218) | ($307) | | Cash and cash equivalents at end of period | $380 | $160 | Non-GAAP Financial Measures Reconciliation This section reconciles non-GAAP financial measures like Adjusted EBITDA, Adjusted Net Earnings, Adjusted Diluted EPS, and Free Cash Flow to their most directly comparable GAAP measures, providing additional insights into performance Adjusted EBITDA Reconciliation Leonardo DRS provides Adjusted EBITDA as a non-GAAP measure to offer a clearer understanding of its financial condition and operating results by excluding unusual, non-recurring, or non-cash items, with Q1 2025 Adjusted EBITDA increasing to $82 million from $70 million in Q1 2024 - Adjusted EBITDA is 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[34] - These non-GAAP measures help investors understand financial condition and operating results by excluding items unrelated to ongoing operations, providing a baseline for analyzing trends[32] Adjusted EBITDA Reconciliation | (Dollars in millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net earnings | $50 | $29 | | Income tax provision | 8 | 8 | | Interest expense | 1 | 5 | | Amortization of intangibles | 5 | 5 | | Depreciation | 18 | 17 | | Deal-related transaction costs | — | 1 | | Restructuring costs | — | 4 | | Other one-time non-operational events | — | 1 | | Adjusted EBITDA | $82 | $70 | | Adjusted EBITDA Margin | 10.3 % | 10.2 % | Adjusted Net Earnings and Diluted EPS Reconciliation Adjusted Net Earnings and Adjusted Diluted EPS are presented as non-GAAP measures, excluding specific non-cash and one-time operational events and their related tax impacts, with Q1 2025 Adjusted Net Earnings at $54 million and Adjusted Diluted EPS at $0.20 - Adjusted Net Earnings and Adjusted Diluted EPS exclude amortization of acquired intangible assets, deal-related transaction costs, restructuring costs, other one-time non-operational events, and their related tax impacts[36] Adjusted Net Earnings and Diluted EPS Reconciliation | (In millions, except per share amounts) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net earnings | $50 | $29 | | Amortization of intangibles | 5 | 5 | | Deal-related transaction costs | — | 1 | | Restructuring costs | — | 4 | | Other one-time non-operational events | — | 1 | | Tax effect of adjustments | (1) | (2) | | Adjusted Net Earnings | $54 | $38 | | Per share information | | | | Diluted WASO | 268.775 | 266.443 | | Diluted EPS | $0.19 | $0.11 | | Adjusted Diluted EPS | $0.20 | $0.14 | Free Cash Flow Reconciliation Free Cash Flow, a non-GAAP measure, is calculated as net cash flow from operating activities minus capital expenditures, with Q1 2025 free cash flow usage significantly improving to $170 million, compared to $275 million in Q1 2024 - Free Cash Flow is defined as the sum of cash flows provided by (used in) operating activities, transaction-related expenditures (net of tax), capital expenditures, and proceeds from sale of assets[38] Free Cash Flow Reconciliation | (Dollars in millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($138) | ($265) | | Capital expenditures | ($32) | ($10) | | Free Cash Flow | ($170) | ($275) |