Leonardo DRS (DRS) Q3 Earnings call transcript Oct 30, 2024
2min read Leonardo DRS, a leading provider of critical technology solutions for defense and space markets, reported a strong third quarter performance in their fiscal year 2024 earnings call. The company's executives, including Chairman and CEO, William Lynn, and CFO, Mike Dippold, discussed the company's strategy, operational highlights, financial results, and forward outlook.
Financial Performance
The third quarter performance was marked by steady customer orders, solid revenue growth, profit expansion, and improved free cash flow generation. The company reported a 16% year-over-year increase in quarterly revenue, with adjusted EBITDA growing by 22% and adjusted diluted EPS up 20%. The company's focus on operational efficiency and execution has led to a margin expansion of 60 basis points in Q3.
Strategic Acquisitions and Innovation
Leonardo DRS' strategic acquisition of RADA nearly two years ago has proven to be a successful move, with the business performing well and meeting the increasing demand for air defense against proliferated airborne threats. The company's tactical radars are being deployed for a variety of close-in and short-range air defense applications, and the global threat environment has reinforced the importance of such capabilities.
The company has also seen robust customer demand across its portfolio, with several sole-source contract awards for follow-on work in advanced infrared sensing and network computing markets. These contracts include a $235 million production contract award for naval radars deployed on U.S. surface combatants.
Innovation and Strategic Partnerships
Leonardo DRS is not only fortifying its leading market positions but also successfully penetrating logical market adjacencies. The company recently secured new contract awards for its cutting-edge over-the-horizon radar technology, marking an expansion of its radar portfolio into new sensing modalities for more range and sophisticated threats. The company is also seeing its infrared sensing capability expand into small tactical drone applications.
Innovation is a key focus for the company, with the integration of AI into its sensing solutions being a recent achievement. Leonardo DRS has developed and tested an AI-aided target recognition capability on multiple platforms in collaboration with its partners and customers. The company's ability to address challenging customer mission requirements and go from concept to operational and production-ready capabilities in a rapid manner sets it apart from the competition.
Financial Perspective
From a financial perspective, Leonardo DRS is making steady progress on its electric power and propulsion business, with the new facility in Charleston, South Carolina, on track. The company is also performing well on its portion of the Columbia class program, delivering to its customers with quality and on schedule. The company's shift towards more attractively priced chipsets is also benefiting its financial performance.
Outlook
Looking ahead, Leonardo DRS is excited about its agility, innovation, and talented people, which are sharpening its market-leading positions. Despite the uncertainty caused by the ongoing continuing resolution, the company remains hopeful about the robust threat environment requiring higher and prolonged U.S. and allied defense investment. The diverse and platform-agnostic portfolio remains well-positioned to meet its customers' most challenging mission needs.
In conclusion, Leonardo DRS' strong third quarter performance and continued momentum in the year-to-date are indicative of its tenacity and dedication to delivering critical technology for its customers. The company's focus on innovation, strategic acquisitions, and operational execution is setting it apart from the competition and positioning it well for future growth.
