Leonardo DRS(US:DRS)2025-10-29 20:05Revenue and Financial Performance - For the nine months ended September 30, 2025, approximately 81% of the company's business was derived from the Department of Defense (DoD), with revenues from the U.S. Navy and U.S. Army accounting for 38% and 36% of total revenues, respectively [110]. - Revenue for the nine months ended September 30, 2025, consisted of 94% product-related revenue, with 88% of total revenue coming from firm-fixed price contracts [136]. - Total revenues for the three months ended September 30, 2025, increased by $148 million, or 18.2%, to $960 million compared to the same period in 2024 [144]. - Total revenues for the three months ended September 30, 2025, increased by 18.2% to $960 million compared to $812 million for the same period in 2024 [182]. - Total revenues for the nine months ended September 30, 2025, increased by 14.9% to $2,588 million compared to $2,253 million in 2024 [182]. - International revenue accounted for approximately 9% of total revenue for the nine months ended September 30, 2025, down from 13% in 2024, primarily due to timing of sales [177]. Profitability and Earnings - Gross profit for the three months ended September 30, 2025, increased by $43 million, or 24.0%, to $222 million, resulting in a gross margin expansion of 110 basis points [149]. - Operating earnings for the three months ended September 30, 2025, increased by $18 million to $93 million, driven by gross profit impacts [155]. - Net earnings for the three months ended September 30, 2025, increased by $15 million to $72 million, attributed to higher earnings before taxes and changes in the effective tax rate [160]. - Total operating earnings for the three months ended September 30, 2025, rose by 24.0% to $93 million compared to $75 million in 2024 [182]. Backlog and Bookings - Total backlog increased by $645 million to $8,909 million as of September 30, 2025, from $8,264 million as of September 30, 2024 [162]. - Bookings for the three months ended September 30, 2025, increased to $1,307 million compared to $1,051 million for the same period in 2024, reflecting strong demand across segments [164]. - Bookings for the three months ended September 30, 2025, increased by 24.4% to $1,307 million from $1,051 million in 2024 [182]. Segment Performance - ASC segment revenue for the three months ended September 30, 2025, was $580 million, an increase of 8.8% from $533 million in 2024, driven by advanced sensing programs [183]. - IMS segment revenue for the three months ended September 30, 2025, increased by 34.4% to $383 million from $285 million in 2024, attributed to force protection programs [191]. - ASC segment operating margin for the three months ended September 30, 2025, decreased to 7.8% from 8.4% in 2024, attributed to increased R&D and G&A expenditures [187]. - IMS segment operating margin for the three months ended September 30, 2025, increased to 12.5% from 10.9% in 2024, driven by operational leverage from increased revenue [194]. Operational and Strategic Initiatives - The company is focused on continuous improvement through its APEX program, which aims to enhance efficiency and customer satisfaction [124]. - The company is exploring acquisitions to expand its portfolio and may consider divestitures of non-strategic businesses [179]. - The company has received orders from the U.S. and allies to provide equipment in support of military aid efforts due to ongoing global conflicts, including the situation in Ukraine [125]. Cash Flow and Financial Position - As of September 30, 2025, the company's cash balance was $309 million, a decrease from $598 million as of December 31, 2024 [198]. - Net cash used in operating activities decreased by $113 million to $59 million for the nine months ended September 30, 2025, compared to $172 million for the same period in 2024 [200]. - Net cash used in investing activities increased by $50 million to $105 million for the nine months ended September 30, 2025, primarily due to higher capital expenditures for a naval expansion project and a $15 million investment in Hoverfly Technologies [201]. - Net cash used in financing activities rose to $125 million for the nine months ended September 30, 2025, compared to $42 million for the same period in 2024, driven by dividends, employee tax payments, and share buybacks [202]. Risks and External Factors - The U.S. government shutdown on October 1, 2025, could lead to programmatic and funding impacts, including delayed billing and restrictions on new contract awards [128]. - Approximately 6% of the company's workforce is located in Israel, which poses potential risks due to ongoing regional conflicts, although there has been no material impact on operations to date [126]. - The company’s revenue is highly correlated to changes in U.S. government spending levels, particularly within the DoD, which has the largest defense budget globally [127]. - Inflationary pressures have affected supply chain costs, particularly in micro-electronics and commodities, potentially impacting future profitability [207]. - The company has limited exposure to equity risk, primarily holding overnight money market accounts [204]. - The outstanding balance of variable rate borrowings under the 2022 Term Loan A was $194 million as of September 30, 2025, with a potential annual interest expense fluctuation of approximately $1 million for a 0.5% change in interest rates [205]. - The company has limited foreign currency exposure, primarily related to immaterial receivables in Canadian dollars, with a 10% fluctuation in exchange rates not expected to materially impact financial statements [206].