Leonardo DRS(US:DRS)2019-11-19 15:41Financial Data and Key Metrics Changes - Q3 2019 revenues reached $11.3 million, representing a 60% increase year-over-year, marking the highest revenue in the company's history [4][9] - Gross margin remained stable at 36%, consistent with the previous year and recent quarters [9] - The company expects 2019 revenues to exceed $43 million, indicating a sequential growth of at least 15% in Q4 [5][12] Business Line Data and Key Metrics Changes - Significant investments in R&D were made, with expenses increasing to $1.9 million from $0.8 million in Q3 2018 [10] - Sales and marketing expenses were $0.9 million, slightly below the previous quarter [11] - General and administrative expenses rose to $1.8 million, reflecting the establishment of a U.S. presence [11] Market Data and Key Metrics Changes - The market for radar technology is shifting towards long-term programs, particularly in the U.S. and Israel, which is expected to establish a backlog for future orders [6][7] - The total addressable market for the company's products is estimated to be at least $5 billion, indicating substantial growth potential [19] Company Strategy and Development Direction - The company is focusing on counter-drone technology and the development of Active Protection systems, anticipating a sustained growth period [6][8] - Investments are being made in production infrastructure in both the U.S. and Israel to support future growth [8] - The company aims to stabilize operating expenses and reach profitability in 2020 [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory, citing a strong pipeline of potential orders, particularly in the U.S. market [7][19] - The company is preparing for significant growth, with expectations of revenue contributions from various contracts materializing mainly in 2021 [14][16] Other Important Information - As of September 30, 2019, the company had $16.7 million in cash and no financial debt, with inventory increasing to $17.3 million to support expected product deliveries [12] - The U.S. production facility is set to begin operations by the end of December 2019 [36] Q&A Session Summary Question: Impact of BAE contract with Dutch Army - Management expects the contract to be awarded in the first half of 2020, with no revenue impact anticipated for 2019 [14][15] Question: Timeline for U.S. Bradley contract - Revenue from this contract is expected to materialize mainly in 2021, with testing and validation occurring in 2020 [16] Question: Pipeline of contracts - The pipeline includes several large opportunities, but specific quantification was not provided [17] Question: Sustainability of growth rates - Management believes the market's total addressable size supports continued growth, despite potential tough comparisons [18][19] Question: Competitive landscape - The company acknowledges competition but maintains a performance-over-price advantage [20] Question: IM-SHORAD program timeline - Revenue from the IM-SHORAD program is expected to start in 2021, with significant testing and validation required [23][24] Question: Cash usage and future cash balance - The company is comfortable with its cash position and does not foresee issues supporting growth [29] Question: Inventory management - Inventory levels are expected to increase gradually to meet demand, but not significantly [31][32] Question: CAPEX and infrastructure expansion - CAPEX investments will be adjusted based on market growth and production needs [33] Question: Readiness of U.S. production facility - The facility is nearly ready, with the first assembled radar expected by the end of December [36][37]