How did DRS manage to grow its operating income in Q4 2024 despite rising expenses?

Leonardo DRS achieved a notable increase in operating income in Q4 2024, despite rising expenses, primarily due to strategic growth focus and operational efficiency improvements: 1. **Revenue Growth Drivers**: The most significant revenue growth was driven by programs in Ground and Naval Network Computing, Tactical Radars, and Electric Power and Propulsion. These programs contributed to an 18% increase in ASC (Advanced Sensing and Computing) revenue and an 11% increase in IMS (Integrated Mission Systems) revenue. 2. **Adjusted EBITDA Improvement**: The company's Adjusted EBITDA margin expanded by 10 basis points year-over-year, reaching 15.1% in Q4 2024, primarily due to favorable net contract adjustments and higher volume. This indicates improved profitability from ongoing contracts and increased operational efficiency. 3. **Segmental Performance**: Within the ASC segment, although adjusted EBITDA increased by 2%, margin declined due to negative contract adjustments and increased costs from a sole-source supplier. However, the IMS segment showed stronger performance, with a 38% increase in adjusted EBITDA and a significant 260 basis points margin expansion. This was driven by favorable contract adjustments, risk retirement milestones, and increased volume. 4. **Net Earnings and EPS Growth**: The company reported a net earnings of $50 million and a diluted EPS of $0.19, marking a 72% and 73% increase respectively, compared to the same period last year. This demonstrates the effectiveness of DRS's cost management and operational improvements in translating revenue growth into net income. In summary, DRS's focus on strategic growth areas, operational efficiency improvements, and segment-specific cost management strategies, have collectively enabled the company to grow its operating income despite rising expenses.