Q1 2024 Leonardo DRS Inc Earnings Call

May 1, 2024

Yeah.

Speaker Change: Ladies and gentlemen, good day and welcome to Leonardo Drs first quarter of fiscal year 2024 earnings Conference call.

Operator: Ladies and gentlemen, good day and welcome to Leonardo DRS's first quarter fiscal year 2024 earnings conference. At this time, all participants are in listen-only mode.

Speaker Change: At this time all participants are in a listen only mode. Following.

Following the Companys prepared remarks, there will be an opportunity to ask questions and instructions will be given at that time. As a reminder, this event is being recorded I would now like to turn the conference over to Steve Baxter Senior Vice President of Investor Relations and corporate Finance. Please go ahead.

Operator: Following the company's prepared remarks, there will be an opportunity to ask questions, and instructions will be given at that time. As a reminder, this event is being recorded. I would now like to turn the conference over to Steve Vather, Senior Vice President of Investment Relations and Corporate Finance. Please go ahead.

Steve Baxter: Good morning, and welcome everyone. Thanks for participating on today's quarterly earnings Conference call with me today are Bill <unk>, our chairman and CEO and Mike <unk>, Our CFO, who will discuss our strategy operational highlights financial results and forward outlook today's call is being webcast on the investor relation.

Steve Vather: Good morning and welcome, everyone. Thanks for participating in today's quarterly earnings conference call. With me today are Bill Lynn, our chairman and CEO, and Mike Dippold, our CFO. They'll discuss our strategy, operational highlights, financial results, and forward outlook. Today's call is being webcast on the investor relations portion of the website, where you will also find the earnings release and supplemental presentation.

Steve Vather: Management may also make forward-looking statements during the call regarding future events, anticipated future trends, and the anticipated future performance of the company. However, we caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. For a full discussion of these risk factors, please refer to our latest Form 10-K and our other SEC filings.

A portion of the website, where you will also find the earnings release and supplemental presentation.

Steve Vather: We undertake no obligation to update any of the forward-looking statements made on this call. During this call, management will also discuss non-GAAP financial measures, which we believe provide useful information for investors. However, these non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures.

Speaker Change: Management May also make forward looking statements during the call regarding future events anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict actual results may differ materially from those projected in the forward looking statement.

Due to a variety of factors.

Speaker Change: For a full discussion of these risk factors. Please refer to our latest Form 10-K, and our other SEC filings, we undertake no obligation to update any of the forward looking statements made on this call.

Speaker Change: During this call management will also discuss non-GAAP financial measures, which we believe provide useful information for investors. These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures you can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release at this time I'll turn the call over to <unk>.

Steve Vather: You can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release. At this time, I'll turn the call over to Bill. Okay?

Speaker Change: Bill Bill.

William J. Lynn: Thanks, Steve, and thank you all for joining us this morning. It was great connecting with many of you at our recent Investor Day in New York. Just as a quick recap, we laid out a compelling investment case for DRS. And as many of you know, we are a unique story amidst a very scarce universe of SMIDTAP defense technology.

Bill: Thanks, Steve and thank you all for joining US. This morning, it was great connecting with many of you at our recent Investor Day in New York.

Bill: Just as a quick recap we laid out a compelling investment case for Drs and as many of you know we are a unique story amidst a very scarce universe smid cap defense technology companies.

William J. Lynn: Our diverse and platform-agnostic portfolio is well aligned to customer priorities in areas of healthy demand. This is apparent in the steady pace of booking, including the $815 million secured. As a result, our backward visibility continues to build, and this, combined with our multi-pronged growth strategy, demonstrates a clear path to mid-single-digit organic growth over the next few years. Our Q1 results, 2024 guidance, and multi-year targets all reflect the solid confidence we have in our portfolio and competitive position. I want to reiterate that foundational to DRS's strong market position are people, innovation, and the technological differentiation we have built over five decades.

Our diverse and platform agnostic portfolio is well aligned to customer priorities and areas of healthy demand.

Bill: This is apparent in the steady pace of bookings, including the $815 million secured this quarter.

As a result, our backlog visibility continues to build and this combined with our multi pronged growth strategy is demonstrating a clear path to mid single digit organic growth over the next few years.

Bill: Our Q1 results 2020 for guidance and multiyear targets all reflect the solid confidence we have in our portfolio and competitive positioning.

Speaker Change: I want to reiterate that foundational to Drs as strong market positioning.

Our people innovation and the technology differentiation, we have built over five decades.

We continue to sharpen our investments in R&D and Capex to increase our distinct edge and that of our customers we remain.

William J. Lynn: We continue to sharpen our investments in R&D and CapEx to increase our distinct edge and that of our customers. We remain focused on executing on our strategy to drive outcomes for our customers and our shareholders. This focus is evident in our exceptional quarterly results, which were all well ahead of our expectations for the quarter.

Speaker Change: Focused on executing on our strategy to drive outcomes for our customers and our shareholders.

Speaker Change: This focus is evident in our exceptional quarterly results.

Speaker Change: These results were all well ahead of our expectations for the quarter.

William J. Lynn: Our strong Q1 financial performance is a direct outcome of an initiative to drive incrementally better quarterly linearity. I'm pleased with the solid start to the year as it places us on a nice path to deliver on our 2020 board commitment. Let me review a couple of specifics. Our revenue growth was entirely organic and accelerated to 21% year-over-year.

Speaker Change: Our strong Q1 financial performance is a direct outcome of it.

Speaker Change: An initiative to drive incrementally better quarterly linearity.

Speaker Change: I am pleased with the solid start to the year as it places us on a nice path to deliver on our 2024 commitments.

Speaker Change: Let me review a couple of specifics our revenue growth was entirely organic and accelerated to 21% year over year.

Speaker Change: We continued to convert strong customer demand in the bookings and drove a one two book to bill ratio in Q1.

William J. Lynn: We continued to convert strong customer demand into bookings and drove a 1.2 book-to-bill ratio in Q1. Customer demand continues to be evident and well distributed throughout our diverse portfolio. This quarter, we saw robust bookings from international customers seeking our solutions in advanced infrared sensing, tactical radars, and air defense. Furthermore, with respect to domestic customers, we saw clear demand for our naval network computing and our electric power and propulsion technology. We delivered another consecutive quarter of healthy booking, which pushed our backlog to a new company record of $7.8 billion, up 84% year-over-year and also up sequentially.

Customer demand continues to be evident with well distributed throughout our diverse portfolio. This quarter, we saw robust bookings from international customers seeking our solutions and advanced infrared sensing tactical radars and air Defense systems.

Speaker Change: Furthermore, with respect to domestic customers, we saw clear demand for our enabled network computing and our electric power and propulsion technologies.

We delivered another consecutive quarter of healthy bookings, which pushed our backlog to a new company record of $7 8 billion.

Speaker Change: Up 84% year over year and also up sequentially.

Speaker Change: In addition to our robust backlog and contract awards, we are continuing to position ourselves to capture adjacent market opportunities to further solidify and accelerate our future growth.

William J. Lynn: In addition to our robust backlog and contract awards, we are continuing to position ourselves to capture adjacent market opportunities to further solidify and accelerate our future growth. Last but not least, we delivered impressive profit growth in Cuba; adjusted EBITDA was up 43%, and margin expanded by 160 basis points. We also saw both adjusted net earnings and adjusted diluted EPS increase by 100% over last year. There's no question that our extraordinary people are responsible for these spectacular results.

Speaker Change: Last but not least we delivered impressive profit growth in Q1, adjusted EBITDA was up 43% and margin expanded by 160 basis points. We also saw both adjusted net earnings and adjusted diluted EPS increased by 100% over last year.

Speaker Change: There is no question that our extraordinary people are responsible for these spectacular results.

William J. Lynn: Their steadfast focus on our customers and their critical missions is demonstrated in our Q1 financing. Moving to an update on the operating environment, we are pleased to see the passage of FY 24 Defense Appropriations, which gives our customers the necessary funding clarity to execute their mission. Additionally, the President's FY25 budget request called for $850 billion for defense.

Speaker Change: Their steadfast focus on our customers and their critical missions are demonstrated in our Q1 financials.

Speaker Change: Moving to an update on the operating environment.

Speaker Change: We're pleased to see the passage of FY 'twenty for defense Appropriations, which gives our customers the necessary funding clarity to execute their missions. Additionally, the president's FY 'twenty five budget request calls for $850 billion for defense.

William J. Lynn: This represents 1% growth over an active FY24 and is in line with previously agreed upon levels. We are pleased to see bipartisan action on supporting our allies in Ukraine, Israel, and Taiwan via the recent passage of the $95 billion defense supplemental. Again, while we have limited direct sales into either ongoing, the passage of a defense supplemental should serve as a tailwind to our customers and their modernization efforts, which presents a long-term opportunity for DRS.

Speaker Change: This represents a 1% growth over enacted FY 'twenty four and is in line with previously agreed upon levels.

Speaker Change: We are pleased to see bipartisan action on supporting our allies in Ukraine, Israel in Taiwan via the recent passage of the 95 billion defense supplemental.

Speaker Change: Again, while we have limited direct sales into either ongoing conflict. The passage of a defense supplemental should serve as a tailwind to our customers and their modernization efforts, which presents a long term opportunity for Drs.

William J. Lynn: As a reminder, our three-year targets offered at our Investor Day already incorporate the budget environment I just described. Overall, our portfolio continues to be well funded. We are closely aligned to areas of customer priority, and our capabilities in advanced sensing, network computing, force protection, and electric power and propulsion continue to be critical in supporting their important mission. Over the past year, I have consistently highlighted the broad-based strength coming from across our portfolio. Sources of our growth and opportunity continue to be well diversified.

Speaker Change: As a reminder, our three year targets offered at our Investor day already incorporate the budget environment I just discussed.

Speaker Change: Overall, our portfolio continues to be well funded.

Speaker Change: Were closely aligned to areas of customer priority and our capabilities in advanced sensing network Computing Force protection and electric power and propulsion continue to be critical in supporting their important missions.

Speaker Change: Over the past year I have consistently highlighted the broad based strength coming from across our portfolio. The sources of our growth and opportunity continue to be well diversified.

William J. Lynn: Our customers are focused on maintaining a capability advantage over adversaries, and we are pleased to partner with them to enhance their competitive edge. Let me spotlight a couple of notable items. In the sensing arena, we are experiencing strong demand for our capabilities in advanced infrared across mission applications, and we are finding some early success in implementing our technology into missiles.

Speaker Change: Customers are focused on maintaining capability advantage over adversaries, and we are pleased to partner with them to enhance their competitive edge.

Speaker Change: Let me spotlight a couple of notable items this quarter.

Speaker Change: And the sensing arena, we are experiencing strong demand for our capabilities in advanced infrared across mission applications and we are finding some early success in implementing our technology into missiles.

Speaker Change: Additionally, we are seeing expansion opportunities both from domestic and international customers for our best of breed electronic warfare solutions, particularly as the importance of multi mission EW capabilities grows.

William J. Lynn: Additionally, we are seeing expansion opportunities, both from domestic and international customers, for our Best-of-Breed Electronic Warfare, particularly as the importance of multi-mission EW capabilities grows. Additionally, our radar business continues to evolve into new domains and mission applications. I am pleased to announce that we recently won an expanded role as a design agent on a shipboard X-band radar. Furthermore, our tactical radar business is experiencing steady demand for a variety of missions spanning air defense, counter UAS, and active protection.

Speaker Change: Next our radar business continues to evolve into new domains and mission applications.

Speaker Change: I am pleased to announce that we recently won an expanded role as a design agent on a shipboard X band radar.

Speaker Change: Furthermore, our tactical radar business is experiencing steady demand for a variety of missions spanning air defense counter UAS and active protection.

William J. Lynn: We are proud that our tactical radars were a critical component in the missile defense capabilities deployed in Israel against recent Iranian hostile actions. Global conflicts continue to reinforce the growing and evolving threats facing our platforms and our people. Force protection is not an option; it is an imperative.

Speaker Change: We are proud that our tactical radars were a critical component in the missile defense capabilities deployed in Israel against recent Iranian hostile actions.

Speaker Change: The global conflicts continue to reinforce the growing and evolving threats facing our platforms and our people.

Speaker Change: Forest protection is not an option it is an imperative.

William J. Lynn: As a result, and in addition to what I just mentioned about tactical radars, we are seeing heightened global demand for our infrared countermeasures to protect rotary and fixed-wing aircraft from surface-to-air missiles, as well as other emerging threats. The expansion of our force protection business is also evident in the Army's desired growth from four to nine short-range air defense battalions. In the face of evolving threats, agility is invaluable, and the ability to scale and modify capabilities rapidly and efficiently is critical. We recognize this need in our network computing business. We recently unveiled a new mounted form factor mission to address the Army's initiative focused on open standards.

Speaker Change: As a result, and in addition to what I just mentioned not tactical radars were seeing heightened global demand for our infrared countermeasures to protect rotary and fixed wing aircraft from surface to air missiles as well as other emerging threats.

Speaker Change: The expansion of our Forest protection business is also evident in the Army's desire growth from four to nine short range Air Defense battalions.

Speaker Change: In the face of evolving threats agility is invaluable and the ability to scale and modify capabilities rapidly and efficiently is critical.

Speaker Change: We recognized this need and in our network computing business. We recently unveiled a new mounted form factor mission system to address the Army's initiative focused on open standards are.

William J. Lynn: Our new network compute offering is fully compliant with these standards and will enable our customers to continuously field future capabilities. We're excited to have a compelling solution that supports the Army's modernization. Lastly, I wanted to briefly touch on our electric power and propulsion. Recently, the Secretary of the Navy ordered a 45-day shipbuilding review. The findings from this analysis indicated multi-year delays for several shipbuilding programs. However, we are not the source of these.

Speaker Change: Our new network compute offering is fully compliant with these standards and will enable our customers to continuously feel future capabilities.

Speaker Change: We're excited to have a compelling solution that supports the army's modernization vision.

Speaker Change: Lastly, I wanted to briefly touch on our electric power and propulsion business.

Speaker Change: Recently, the secretary of the Navy ordered a 45 day shipbuilding Ruby Ecu <unk>.

Speaker Change: Finding from this analysis indicated multiyear delays for several shipbuilding programs.

Speaker Change: While we are not the source of these delays I want to highlight that we are focused on supporting our customers by maintaining schedule and quality for our content.

William J. Lynn: I want to highlight that we are focused on supporting our customers by maintaining schedule and quality for our customers, as well as positioning to take on more scope, as appropriate, to help address these challenges over the long term. As previously discussed, our future facility in South Carolina affords us the ability to execute the Columbia-class program more efficiently, but also sets up to support shipbuilding capacity. Additionally, we would expect that some portion of the robust funding and investment for the submarine industrial base in the recent defense supplemental could be made available to us as we look to support the Navy in this key initiative.

Speaker Change: As well as positioning to take on more scope as appropriate to help address these challenges over the long term.

Speaker Change: As previously discussed our future facility in South Carolina affords us the ability to execute the Columbia class program more efficiently, but also sets up to support ship building capacity expansion.

Speaker Change: Additionally, we would expect that some portion of the robust funding and investment for the submarine industrial base and the recent defense supplemental can be made available to us as we look to support the Navy in this key initiative.

Speaker Change: While the delays on current production programs have pressured the timing of future platforms, such as <unk> and <unk> is worth reminding you that both of those platforms represent long term opportunity for Drs, but do not impact our near or medium term growth prospects.

William J. Lynn: While the delays on current production programs have pressured the timing of future platforms such as DDGX and SSNX, it is worth reminding you that both of those platforms represent long-term opportunities for DRS but do not impact our near or medium-term growth processes. We believe that our electric power and propulsion technology provides multifaceted strategic advantages to customers, particularly given growing power platform requirements and the need to operate discreetly around the globe.

Speaker Change: We believe that our electric power and propulsion technology provides multifaceted strategic advantages to customers.

Speaker Change: Particularly given.

Speaker Change: Growing power platform requirements and the need to operate discretely around the globe.

Speaker Change: In that context, I am pleased to report that we continue to expand our naval propulsion content and we're recently awarded follow on work to provide our hybrid electric solution for U S Coast Guard offshore patrol cutters.

William J. Lynn: In that context, I am pleased to report that we continue to expand our naval propulsion content and were recently awarded follow-on work to provide our hybrid electric solution for U.S. Coast Guard offshore patrol cutters. We are continuing to see opportunities with navies and our Coast Guards around the world as they modernize their fleets with next-generation platforms. Overall, I am quite pleased with DRS's market position and the growth prospects that lie ahead for the business.

Speaker Change: We are continuing to see opportunities with navies and coast guards around the world as they modernize their fleets with next generation platforms.

Speaker Change: Overall, I am quite pleased with Drs as market position and its growth prospects that lie ahead for the business.

Speaker Change: Our team continues to execute well and that is clearly represented in the quarterly results.

William J. Lynn: Our team continues to execute well, and that is clearly represented in the quarterly results. That said, we remain focused on driving value creation over the long term for our customers, shareholders, and employees. Now, I'd like to turn the call over to Mike so that he can walk you through our financials in more detail. Thanks, Phil.

Speaker Change: That said, we remain focused on driving value creation over the long term for our customers shareholders and employees.

Speaker Change: Now I'd like to turn the call over to Mike. So that he can walk you through our financials in more detail.

Mike: Thanks, Bill I'm excited to discuss our financial results in greater detail before I get to that let me Express my heartfelt thanks to the team for helping execute another remarkable quarter.

Michael D. Dippold: I'm excited to discuss our financial results in greater detail, but before I get to that, let me express my heartfelt thanks to the team for helping execute another remarkable quarter. As Bill mentioned, we are working to make progress towards better linearity in our financial performance, and that is certainly evident in our Q1 results. In the quarter, we experienced year-over-year growth of 21%, again, all organic.

Mike: As Bill mentioned, we are working to make progress towards better linearity in our financial performance and that is certainly evident in our Q1 results.

Mike: In the quarter, we experienced year over year growth of 21% again all organic.

Michael D. Dippold: A significant portion of the growth was driven by our naval power programs, namely Columbia-class, but momentum for our ground systems integration, advanced sensing, and naval network computing efforts were also strong contributors to the performance in the quarter. Moving to the segment view, ASC segment revenues were up 11% due to growth in programs related to advanced infrared sensing, naval and ground network computing, as well as tactical radar. Our IMS segment revenues were up an impressive 38% year over year, with strong performance apparent across the segment, but growth of our Columbia class program was certainly a key driver. Now to Adjusted EBITDA. Adjusted EBITDA in the quarter was $70 million, representing significant growth of 43% from last year.

Speaker Change: A significant portion of the growth was driven by our naval power programs, namely Columbia class, but momentum for our ground systems integration advanced sensing and Naval network computing efforts were also strong contributors to the performance in the quarter.

Speaker Change: Moving to the segment view.

Speaker Change: Segment revenues were up 11% due to growth in programs related to advanced infrared sensing naval and ground network computing as well as tactical radars.

Speaker Change: IMS segment revenues were up an impressive 38% year over year with strong performance apparent across the segment the growth of our Columbia Class program was certainly a key driver.

Speaker Change: Now to adjusted EBITDA adjusted EBITDA in the quarter was $70 million, representing significant growth of 43% from last year.

Michael D. Dippold: As previously discussed, our period expensing of GNA means incremental volume typically drops to the bottom line, and in Q1, this definitely rang true. The increased volume also translated to an adjusted EBITDA margin expansion of 160 basis points, taking margin to 10.2% in Q1. On a segment basis, ASC segment-adjusted EBITDA increased by 11%, but margin was flat due to less favorable program mix offsetting the higher volume. IMS segment adjusted EBITDA was up 142%, and margin was 480 basis points higher than last year due to continued momentum on naval power programs led by the Columbia class.

Speaker Change: As previously discussed our period expensing of G&A. It means incremental volume typically drops to the bottom line and in Q1 this definitely rang true.

Speaker Change: The increased volume also translated to adjusted EBITDA margin expansion of 160 basis points, taking margin to 10, 2% in Q1.

Speaker Change: On a segment basis ASC segment, adjusted EBITDA increased by 11%, but margin was flat due to less favorable program mix offsetting the higher volume.

Speaker Change: IMS segment, adjusted EBITDA was up 142% and margin was 480 basis points higher than last year due to continued momentum unable powered programs led by the Columbia class.

Speaker Change: Moving to the bottom line metrics first quarter net earnings were 29 million and diluted EPS was <unk> 11, a share up 142% at 120% respectively.

Michael D. Dippold: Moving to the bottom line metrics, first quarter net earnings were $29 million, and diluted EPS was $0.11 a share, 142% and 120% respectively. Our adjusted net earnings of $38 million and adjusted diluted EPS of $0.14 a share were both up 100%.

Speaker Change: Our adjusted net earnings of $38 million and adjusted diluted EPS of <unk> 14 cents a share we're bolt up 100%.

Speaker Change: The overwhelming driver of the increases came from strong operational execution, however, lower interest expense and a lower effective tax rate were also slight tailwind.

Michael D. Dippold: The overwhelming driver of the increases came from strong operational execution; however, lower interest expense and a lower effective tax rate were also slight tailwinds. Moving to free cash flow, cash collections followed historical Q1 trends with an outflow in the quarter. That said, we saw favorable year-over-year trending with a significantly smaller free cash flow use of $275 million compared to Q1 2023. The narrowed cash usage was driven by more efficient working capital, improved net profitability, and reduced capital expenditure.

Speaker Change: Moving to free cash flow cash collection, followed historical Q1 trends with an outflow in the quarter that said, we saw favorable year over year trending with a significantly smaller free cash flow use of $275 million compared to Q1 2023.

Speaker Change: The narrowed cash usage was driven by more efficient working capital improved net profitability and reduced capital expenditures.

Michael D. Dippold: Note that favorable timing of cash receipts from customers aided our working capital position in the quarter, but this will revert some in Q2. As discussed last quarter, we are embarking on a $120 million new facility investment in South Carolina. This will result in elevated CapEx compared to historical norms in 2024 and for the next few years. That said, despite a lighter capex outlay in Q1, I would expect the remaining quarters to tick up considerably from Q2. Additionally, similar to prior years, we expect that free cash generation will build throughout the year, with the bulk of collections coming in the fourth quarter.

Speaker Change: Note that favorable timing of cash receipts from customers aided our working capital position in the quarter, but this will revert in Q2.

Speaker Change: As discussed last quarter, we are embarking on a $120 million new facility investment in South Carolina.

Speaker Change: This will result in elevated capex compared to historical norms in 2024 and for the next few years.

Speaker Change: That said, despite a lighter capex outlay in Q1, I would expect the remaining quarters to tick up considerably from here.

Speaker Change: Additionally, similar to prior years, we expect that free cash generation will build throughout the year with the bulk of collections coming in the fourth quarter.

Speaker Change: Now a few comments on our 2020 for outlook.

Michael D. Dippold: Now to a few comments on our 2024 outlook. We are reiterating the strong view issued on our last call. Let me quickly review our expectations across metrics. Revenue will be between $2.925 and $3.025 billion, which represents 4% to 7% growth, all of which is organic. The primary factors driving variability in the range are the timing of material receipts, progress of labor input, as well as the level and pacing of customer orders for adjusted EBITDA. The range is between 365 and 390 million.

Speaker Change: We are reiterating our strong view issued on our last call let.

Michael D. Dippold: We continue to expect healthy margin improvement year over year as we transition our development programs to production, which includes the Columbia class, among others. Adjusted diluted EPS remains between $0.74 and $0.82 per share. Embedded in this range are a tax rate of 22.5% and 268 million fully diluted shares. Depreciation should be 2.4% of revenue, and CAPEX should approach 4% of revenue. Lastly, we are targeting an 80% free cash flow conversion of adjusted net earnings for the year.

Speaker Change: Let me quickly review our expectations across metrics.

Speaker Change: Revenue will be between $2 95, and $3 85 billion, which represents a 4% to 7% growth all of which is organic.

Speaker Change: The primary factors driving variability in the range are the timing of material receipts.

Speaker Change: The aggressive labor input as well as the level and pacing of customer orders.

Speaker Change: For adjusted EBITDA. The range is between 365 million to $390 million. We continue to expect healthy margin improvement year over year as we transition our development programs to production, which includes the Columbia class among others.

Speaker Change: Adjusted diluted EPS remains between <unk> 74.

Speaker Change: <unk> 82 per share embedded in this range, our tax rate of 22, 5% and 268 million fully diluted shares.

Speaker Change: Depreciation should be two 4% of revenue and Capex should approach 4% of sales.

Speaker Change: Lastly, we are targeting 80% free cash flow conversion of adjusted net earnings for the year.

Michael D. Dippold: We are pleased with the Q1 momentum but want to reiterate that a significant portion of the outperformance was attributable to favorable timing. Right now, Q2 is shaping up to look a lot like our Q1 actuals, with revenue in the high 600s and adjusted EBITDA profitability in the low 10% range. Additionally, we are expecting a modest free cash outflow as some of the favorable cash receipt timing reverses from here.

Speaker Change: We are pleased with the Q1 momentum I want to reiterate that a significant portion of the outperformance was attributable to favorable timing.

Speaker Change: Right now Q2 is shaping up to look a lot like our Q1 actuals with revenue in the high six hundreds and adjusted EBITDA profitability and a low 10% range.

Speaker Change: Additionally, we are expecting a modest free cash outflow at some of the favorable cash receipt timing reverses from this quarter.

Speaker Change: Let me wrap up with a few quick closing thoughts were.

Michael D. Dippold: Let me wrap up with a few quick closing thoughts. We are pleased with our year-to-date performance and commend the broader team for achieving these results. That said, we are maintaining a steadfast focus on driving execution to meet our commitments to our customers and shareholders. With that said, we are ready to take your questions. Thank you. At this time, we will begin the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker Change: We are pleased with our year to date performance and commend the broader team in achieving these results.

Speaker Change: We are maintaining a steadfast focus on driving execution to meet our commitments to our customers and shareholders.

Speaker Change: With that we're ready to take your questions.

Speaker Change: Thank you at this time, we will begin the question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby will be compile the Q&A roster.

Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Peter Arment with Baird. Please proceed with your question. Hey, good morning, Bill, Mike, Steve; nice results. Thanks, Peter.

Speaker Change: Our first question comes from the line of Peter Arment with Baird. Please proceed with your question.

Peter J. Arment: Hey, Good morning, Bill, Mike Steve Nice results.

Peter J. Arment: Thanks Peter.

Peter J. Arment: Hey, Bill, you touched upon force protection, and the demand signals there obviously are very strong. Can you maybe talk about if you're seeing an increased amount of, you know, development opportunities for DRS, and just how do we think about maybe the current pipeline for force protection work? And then, related to that, maybe you could touch upon just the force structure, the pick-up that the Army is doing, a doubling of short-range air defense vehicles, and the opportunity for DRS. Yeah, thanks, Peter.

Peter J. Arment: Bill you touched upon force protection and demand signals. There obviously are very strong.

Peter J. Arment: Could you maybe talk about if youre seeing an increased amount of <unk>.

Peter J. Arment: <unk> opportunities for for Drs, and just how do we think about maybe the current pipeline of Forest protection work and then I guess related to that is maybe you could touch upon.

Peter J. Arment: Just the force structure.

Peter J. Arment: <unk>.

Peter J. Arment: The pickup that the army is doing a doubling of short short short range Air defense vehicles and the opportunity for Drs.

Speaker Change: Yeah. Thanks, Peter on the last point, we were pleased to see that as the army did its biannual review of its four structure, even though the overall force structure contracted the end strength went down they have more than doubled the commitment to force protection, particularly short.

William J. Lynn: On the last point, we were pleased to see that as the Army did its biannual review of its force structure, even though the overall force structure contracted, and the end strength went down, they more than doubled the commitment to force protection, particularly short-range air defense. We think that that reflects, I think, the immediate lessons of Ukraine but the longer-term trends that have been going on the last few years that led them to contract with us to make the MSHOR ad. To begin with, as you indicated, there are still development opportunities for newer versions and different types of systems. The one that we're working most actively on now is called MLIDS, which is the counter-UAS system.

Speaker Change: Range Eric.

Speaker Change: Air Defense. So we think that that reflects I think the immediate lessons of Ukraine, but the longer term trends that have been going on in the last few years that led them to contract with us to do with the <unk>.

Peter J. Arment: To begin with.

Peter J. Arment: As you indicated there are still.

Peter J. Arment: Development opportunities forward.

Peter J. Arment: For newer versions.

Peter J. Arment: Different types of systems. The one that we're working most actively now is called <unk>, which is the counter UAS system. So a little bit more targeted version of a short range Air defense.

William J. Lynn: It's a little bit more targeted version of a short-range air defense system. We put the first version out, and the Army is buying it. The second version, which will take a two-vehicle solution and combine it into a single-vehicle solution, is we're just finishing the development of that now, and the Army is going to – they like that enough that they're going to cut over their existing buy into that. And so we think that this is going to continue to progress down the line, and we think DRS, with its portfolio of force protection solutions, is very well positioned to ride this trend.

Peter J. Arment: System we're in.

Peter J. Arment: Put the first version out and the army is buying it.

Peter J. Arment: The second version, which will take <unk>.

Peter J. Arment: <unk> vehicle to vehicle solution and combine it into a single vehicle solution is we're just finishing the development of that now in the army has been there.

Peter J. Arment: They like that enough that they're going to cut over their existing buy.

Peter J. Arment: Into that and so we think that this is going to continue to progress down a line and we think Drs with its portfolio of force protection solutions is very well positioned to ride this trend yes.

William J. Lynn: Yeah, and can you talk, I guess, a little bit about the RADA business? I mean, tactical radars, obviously, are probably insatiable, I'm sure off the charts. Can you maybe just talk about how that business is doing just given the conflict? Yeah, we don't give guidance at the business level.

Peter J. Arment: And can you talk I guess, a little bit about the router business.

Peter J. Arment: Tactical radars, obviously era, probably the demand is insatiable I'm sure are off the charts can you maybe just talk about how that business is doing just given the conflict of Israel.

Peter J. Arment: Yes, we don't we don't give guidance at the business level, but youre right that we are we are running that business 24, seven at this point given the demand not only in Israel in Ukraine, but.

William J. Lynn: But you're you're right that we are running that business 24 hours a day at this point, given the demand, not only in Israel and Ukraine but what that's triggered in militaries around the world is exposed force protection vulnerability to organic units. You've reached a point now where you can't just protect forces at the edge of the battlefield; it's kind of a perimeter defense; you have to have defense that's organic to units I think that's what Ukraine in particular has shown, and a key element of that force protection is tactical radars, and Rada has a leading, and not necessarily the best, solution, and we are seeing increasing demand.

Peter J. Arment: What that's triggered and militaries around the world is exposed force protection vulnerability to organic unit.

Peter J. Arment: Reached a point now where you can't just protect forces at the edge of the battlefield that kind of a perimeter defense you have to have defense organic units I think thats, what Ukraine in particular has shown and Thats a key element of that force protection as tactical radars and Rada has a leading them.

Peter J. Arment: The leading solution and we are seeing increasing demand. So we're pleased with the acquisition, we made 18 months ago.

William J. Lynn: So we're pleased with the acquisition we made 18 months ago. And just lastly, a quick one for Mike, could you maybe talk a little bit about working capital trends for the rest of the year? I know as Columbia 3 ramps up and just, you know, kind of the cadence of the year, which is obviously seasonal and picks up in the back half of the year. Yeah, I don't think you're going to see too much dissimilarity to what you've seen in the prior years.

Peter J. Arment: And just lastly, a quick one for Mike just could you maybe talk a little bit about working capital trends. The rest of the year I know is Columbia, <unk> III ramps up and just.

Mike: Kind of the cadence of the year, which is obviously seasonal picks up into the back half of the year.

Mike: Yes, I don't think youre going to see too much dissimilarity to what you've seen in the prior year. So I think that trend is going to be pretty.

Michael D. Dippold: I think the trend is going to be pretty much the same. Obviously, we got out to a little better start here in Q1, but I'll remind you that that's going to be a little bit offset as we progress here because of the capital outlays for the South Carolina facility. So I would still expect a lot of the cash generation to occur in the fourth quarter, albeit hopefully at a little better linearity than we've seen in the past.

Mike: Pretty much the same obviously, we've got out there a little better start here in Q1.

Mike: But I'll remind you that that's going to be a little bit offset as we progress here because of the capital outlays for the South Carolina facility. So I would still expect a lot of the cash generation to occur in the fourth quarter, albeit hopefully at a little better linearity than we've seen in the past.

Speaker Change: I appreciate it thanks guys.

Robert Alan Stallard: Thanks, guys. Thank you. One moment for our next question. Our next question comes from the line of Robert Stallard with Vertical Research. Please proceed with your question. Thanks so much.

Speaker Change: Thank you gentlemen for next question.

Speaker Change: Our next question comes from the line of Robert Stallard with vertical research.

Robert Alan Stallard: Please proceed with your question.

Robert Alan Stallard: Thanks, so much good morning.

Robert Alan Stallard: Good morning. Good morning, Bill. Maybe I'll start with you.

Robert Alan Stallard: Good morning.

Robert Alan Stallard: Bill Let me just start with you couple of questions vessel on the Dod budget outlook on FY 'twenty five already starting to see the military doing some trimming of perhaps what you might say lower priority areas is there any risk of a knock on impact on Drs from any of these changes.

William J. Lynn: First of all, on the DoD Budget Outlook and FY25, we've already started... doing some trimming. Yeah, Rob, I think the budget has come out about where we expected. It took a long time and multiple CRs, but the FY24 budget finally emerged, and it emerged at the level that President Biden and then Speaker McCarthy agreed to last summer.

Robert Alan Stallard: Yes, Rob I think the budget has come out about where we expected. It took a long time in multiple <unk>, but the 24 budget.

William J. Lynn: And on top of that, the supplemental was passed at the expected level, the requested level, and then the 25 budget came out again at the expected and agreed upon level. So, the expectations we had in building our plan, I think, were fulfilled. To your kind of broader point, is that forcing tradeoffs? Yeah, it clearly is.

Robert Alan Stallard: Finally emerged.

Robert Alan Stallard: Merged at the level that President Biden, and then speaker Mccarthy agreed to.

Robert Alan Stallard: Yes.

Robert Alan Stallard: Last summer.

Robert Alan Stallard: On top of that the supplemental.

Robert Alan Stallard: Was passed at the at the expected level the requested level and then the 25 budget came out again at the expected and the agreed upon level. So the expectations. We had in building our plan I think were fulfilled.

Robert Alan Stallard: To your kind of broader point is that forcing tradeoffs, yes. It clearly is.

William J. Lynn: And I think it's gone down the path that we've predicted, which is that those tradeoffs start with platforms, whether it's the Virginia-class submarine or the cancellation of the FARA helicopter. That's where the services have gone, and that kind of confirms our philosophy of being platform agnostic, so that when platforms are delayed or canceled and upgrades replace them, we're positioned to move on those upgrades just as easily as we were positioned to put our electronics and sensing and other equipment on new platforms.

Robert Alan Stallard: And I think it has gone down the path that we've <unk>.

Robert Alan Stallard: Predicted which is those those tradeoffs start with platforms, whether it's the Virginia class submarine or the cancellation of the far a helicopter that's where the services are gone and that kind of confirmed our philosophy of being platform agnostic. So that when platforms are delayed or canceled.

Robert Alan Stallard: Upgrades replace them.

Robert Alan Stallard: Positioned to move on those upgrades just as easily as we were positioned to put our electronics and sensing.

Robert Alan Stallard: Other equipment on new platform. So we think that dexterity of the agility to move between upgrades and platforms has been confirmed by the recent budget decisions.

William J. Lynn: So, we think that dexterity, the agility to move between upgrades and platforms has been confirmed by the recent budget decision and follow-up. I mean, has there been any and the M&A? Nothing that I can report in terms of specifics.

Robert Alan Stallard: Then.

Speaker Change: Just a follow up I mean has there been any changes on the M&A pipeline at this stage.

Speaker Change: Nothing that I can report.

Speaker Change: Of specifics, we have a robust pipeline we are actively engaged in.

William J. Lynn: We have a robust pipeline. We're actively engaged in reviewing those opportunities. Our criteria remain the same. We want, and think we are seeing opportunities that are a strategic fit to our core market. They need to be financially EPS accretive. They need to have returns above our weighted average cost of capital, at least over three or four years.

Speaker Change: Reviewing those those opportunities are criteria remain the same we want.

Speaker Change: And we think we are seeing.

Speaker Change: Opportunities that are a strategic fit to our core market.

Speaker Change: Need financially to be EPS accretive they.

Speaker Change: They need to have returns above our weighted average cost of capital at least over three or four years.

William J. Lynn: And they need to support our strategic growth and margin expansion path. So we're continuing to review them against those criteria. We are finding opportunities, but we don't have anything that we have gotten to the decision stage and are ready to announce yet. Yeah, this is actually just a continuation, Rob, of what we announced last year with the Canadian facility reorganization. It's really just the accounting treatment in that you kind of have to accrue for the severance when the commitment date for the employees is reached.

Speaker Change: They need to support our strategic growth and margin expansion path. So we're continuing to review against those criteria. We are finding opportunities, but we don't have anything that we got into the decision stage and are ready to announce yet.

Speaker Change: Alright, and then just finally, one for Mike.

Speaker Change: $4 million of restructuring in the quarter I mean, if you could elaborate almost behind them.

William J. Lynn: So we're kind of accruing it over time. But this is the effort that we put forth last year where we detailed the savings associated with this facility consolidation. And this is just the kind of tail end of that.

Mike: Yes. This is actually just a continuation of what we announced.

Speaker Change: Last year with the Canadian facility reorganization.

Mike: It really just the accounting treatment and that you kind of add that to accrue.

Mike: Accrue for a severance when the.

Speaker Change: And then David the employees was reached so we're kind of accruing it overtime, but this is that effort that we put forth last year, where we detailed the savings associated with this facility consolidation and this is just the kind of tail end of that.

Speaker Change: Yeah makes sense, okay. Thanks, so much.

Speaker Change: Thank you ma'am for next question.

William J. Lynn: Thank you. One moment for the next question. Our next question comes from the line of Seth Seifman with JP Morgan. Please proceed with your question. Thanks very much, and good morning, everyone. Good morning, Seth.

Mike: Our next question comes from the line of Seth Sigman with Jpmorgan. Please proceed with your question.

Seth Michael Seifman: Morning. I wanted to just dig in on the sales outlook for the rest of the year. It seems that, you know, if Q2 kind of looks like Q1, then the implication is really not very much growth at all in the back half of the year. And I know that the comps get tougher, so that, you know, makes sense on some level, but also we see the growth in the backlog, and we see the demand environment.

Seth Michael Seifman: Thanks, very much John and good morning, everyone.

Seth Michael Seifman: Good morning, Seth.

Seth Michael Seifman: Wanted to just to dig in on the.

Seth Michael Seifman: Sales outlook for the rest of the year.

Seth Michael Seifman: It seems that.

Seth Michael Seifman: Q2 kind of looks like Q1.

Seth Michael Seifman: Then the implication is really not very much growth at all in the back half of the year.

Seth Michael Seifman: And I know that the comps get tougher so that.

Seth Michael Seifman: It makes sense on some level, but also we see the growth in the backlog and where we see the demand environment and so I mean, it would seem after this performance at the first quarter in the first quarter that the.

Seth Michael Seifman: And so, I mean, it would seem after this performance in the first quarter that the balance of risk in the sales outlook is, you know, pretty clearly to the upside. Yeah, I would take that to say that I think a lot of the performance and overperformance was a little bit of a pull forward.

Seth Michael Seifman: The balance of risk and the sales outlook is.

Seth Michael Seifman: Pretty clearly to the upside.

Speaker Change: Yes, I would take that to say that I think a lot of the the.

Seth Michael Seifman: And as we improve the linearity, I think that's a piece of it. And we still want to see how the cadence of the orders plays out for the rest of the year. Certainly pleased about where we are in Q1. Certainly think that we are positioned to execute within the guide range that we put forth. And that's kind of where we are today, Seth.

Seth Michael Seifman: Our performance and over performance was a little bit of a pull forward and as we improve the linearity I think thats a piece of it.

Seth Michael Seifman: And we still want to see how the cadence of the orders play out for the rest of the year.

Seth Michael Seifman: Certainly pleased about where we are in Q1.

Seth Michael Seifman: Certainly think that we are positioned to execute within the guide range that we put forth and that's kind of where we are today.

Speaker Change: Right Okay. Okay.

Michael D. Dippold: Right. Okay. And I know that you guys don't have segment guidance, but maybe at a qualitative level, you know, if we think about Q2 sales and EBITDA kind of looking like, is that similar across the segments? Or were there certain pieces of goodness on Columbia, for example, in the first quarter that helped out there that aren't necessarily recurring? And then maybe there's some opportunity for some kind of gradual improvement through the year in advanced sensing and communication. Yeah, good question.

Speaker Change: And I know that you don't.

Speaker Change: You guys don't have segment guidance, but maybe at a qualitative level.

Speaker Change: If we think about Q2 sales and EBITDA kind of looking like.

Speaker Change: Q1 is that.

Speaker Change: Is that is that similar in the segments or were there certain pieces of goodness on Colombia for example in.

Speaker Change: In the first quarter that helped out there that arent necessarily recurring and then maybe there is some opportunity for kind of gradual improvement through the year and an advanced sensing and computing.

Speaker Change: Yes, good question and you've got it pretty much nailed so what we saw in the ASC segment in Q1 was a little bit of more revenue contribution from the development type programs and what we expect to see is that to move more towards production as the year progresses. So youll see a little tick up in the advanced sensing.

Michael D. Dippold: And you've got it pretty much nailed. So what we saw in the ASC segment in Q1 was a little bit of more revenue contribution from development-type programs. And what we expect to see is that move more towards production as the year progresses. So you'll see a little tick up in the advanced sensing segment in terms of profitability. On the IMF side, they were the ones that benefited from some of the pull forward, if you will, from later quarters in 2024.

Speaker Change: <unk>.

Speaker Change: Segment in terms of other profit profitability perspective on the IMS side.

Speaker Change: We're the ones that benefited from some of the pull forward. If you will from later quarters in 2024, so that absorption of the fixed costs really helped that segment margin. So I would think as you look to Q2 and beyond Youll start to see kind of a pull.

Michael D. Dippold: So that absorption of the fixed costs really helped that segment margin. So I would think as you look to Q2 and beyond, you'll start to see kind of a pullback, if you will, a little bit on IMS and an acceleration of ASC. And at the end of the day, I do believe both segments will contribute fairly equally to revenue growth for the year as well as margin expansion. Okay, okay, excellent. Thanks very much.

Speaker Change: Pullback, if you will a little bit on IMS, and an acceleration of ASC and at the end of the day I do believe both segments will contribute fairly equally to the revenue growth for the year as well as the margin expansion.

Speaker Change: Okay. Okay. Okay excellent thanks very much.

Speaker Change: Thank you Juan for next question.

Seth Michael Seifman: Thank you. One moment for the next question. Our next question comes from the line of Mariana Perez Moro with Bank of America. Please proceed with your question. Good morning, everyone.

Speaker Change: Our next question comes from the line of Mariana Perez Mora with Bank of America. Please proceed with your question.

Speaker Change: Good morning, everyone and thank you.

Mariana Perez Moro: Thank you. So first one, the South Carolina facility, can you please give us some color on how the development is going, what we should expect in the near term, or what kind of milestones we could be looking at? Is that South Carolina? Yeah, it is.

Speaker Change: So first one in South Carolina facility could you. Please give us some color on how that development is go in.

Speaker Change: What's your grid specs in the near term what kind of milestones we could be looking at.

Speaker Change: South Carolina South Carolina.

Speaker Change: Yes.

William J. Lynn: Yeah, we've signed the lease now. We're just starting the work. Mike indicated that the capex will start to increase now as the work starts. This is a two to three year development. As we've said, the focus of this phase is on Columbia and improving the profitability and efficiency of the Columbia work. We're in discussions now with the Navy and the shipyards about how we could use an expansion of this facility to pull more work in our direction in a way that would allow them to increase the submarine production rate, as is the national goal, particularly for the Virginia class, but overall increase the submarine industrial base by redistributing the work between yards and suppliers

Speaker Change: We signed the lease now we're just starting the work as Mike indicated that the.

Speaker Change: The Capex will start to increase now as the work starts.

Speaker Change: This is.

Speaker Change: Two to three year development.

Speaker Change: As we've said this the focus of this phase is on Columbia, and improving the profitability and the efficiency of the Columbia work.

Speaker Change: And we're in discussions now with the Navy and the shipyard about how we could use it as an expansion of this facility to pull more work.

Speaker Change: Towards our direction in a way that would allow them to increase the submarine production rate as is the national goal, particularly on the Virginia class.

Speaker Change: But overall increase the submarine industrial base by redistributing the work between yards and suppliers. This facility could play a key role in that at that submarine industrial base funding that was passed in the supplemental could be a part of that equation as well.

William J. Lynn: This facility could play a key role in that. That submarine industrial base funding that was passed in the supplemental could be a part of that equation as well. Yeah, and that was where my question was pointed next, like considering that to shape such a long-cycle development effort.

Speaker Change: Yes.

Speaker Change: Where my question was fine at Max light considering that.

Speaker Change: The shipyards are shipbuilding is such a long cycle development effort how.

William J. Lynn: How soon could we see some like firm commitment from these parties for this facility to play a role in accelerating and making it more robust, building production in the U.S., even supporting it? Yeah, it's a multi-stage answer, I guess. I mean, right now, we're building the facility. So that will, you know, that'll take 18 months, two years. The negotiations with the Navy are ongoing.

Speaker Change: Soon could we see sound like firm commitment from these parties for this facility to play a role in accelerating I'm, making it more robust.

Speaker Change: <unk> production in the U S or.

Speaker Change: Even supporting Argos.

Speaker Change: Yes.

Speaker Change: Multi stage and.

Speaker Change: Or I guess is.

Speaker Change: I mean right now we're building the facility so that will that will take 18 months two years.

Speaker Change: The negotiations with the Navy are ongoing.

William J. Lynn: In terms of support for an expansion, I think you could see some results, you know, in a matter of months or a year or so, but then you would have to then turn that funding into an expansion of the facility, which would, you know, come at the end of the initial build that we're doing. So it's a multi-year midterm prospect in terms of expanding that revenue base, and that's the overall goal. Thank you. And last one from me on NMNA.

Speaker Change: In terms of support for an expansion.

Speaker Change: You could see some results in a matter of months or a year or so but then you would have to then turn that that funding into an expansion of the facility, which would come at the end of the.

Speaker Change: Initial build that we're doing so.

Speaker Change: It's a multi year mid term prospect in terms of.

Speaker Change: Expanding that revenue base.

Speaker Change: So thats the overall goal.

Speaker Change: Thank you and last one from me on M&A.

Mariana Perez Moro: You mentioned you're looking at some companies. I'm curious, like, if you could give us some color on how robust that pipeline is? Is it just like a couple of companies, a handful of companies, or doses of them? And then when you analyze those companies, your criteria, how many of those deals actually fire or die when you do your duty. It's hard to give you precise numbers.

Speaker Change: You mentioned you are looking at some.

Speaker Change: Companies like I'm curious like if you could give us some color on how robust is that pipeline is just Blake cabos companies a handful of companies our doses of them.

Speaker Change: When when you analyze those companies to your criteria of how many of those deals add Tony like just like expire or die when you get to Q2.

Speaker Change: Religions.

Speaker Change: It's hard to give you a precise numbers I would say over the course of the year, we look at it carefully at dozens of companies.

William J. Lynn: I would say over the course of a year, we look carefully at dozens of companies. And then, you know, a modest number of those we go into diligence on. And if and then if that works out, you would only end up with one or two where you get into the offer stage over the course of a year.

Speaker Change: And then a.

Speaker Change: A modest number of those we go into into diligence and if and then.

Speaker Change: If that works out you would only end up with with one or two where you get into the offer stage over the course of the year.

Speaker Change: Perfect. Thank you so much for the color.

William J. Lynn: Thank you so much. Thank you. One moment for our next question. Our next question comes from the line of Sam Strasaker with Truist Securities. Please proceed with your question. Hi, good morning guys. I'm on behalf of Mike Ciarmoli.

Speaker Change: Thank you gentlemen for next question.

Sam Stressacre: Our next question comes from the line of Sam stress acre with Tuohy Securities. Please proceed with your question.

Sam Strasaker: Congratulations on a pretty nice quarter here. Kind of just building on the prior line of questioning a little bit regarding these kind of delays in the submarine pipeline. Do you guys see any maybe more near-term opportunities kind of before that South Carolina facility is done where you guys might be able to take on a little bit more work in addition to what's already been, you know, what's already happened? That might kind of be some more near-term opportunities there? Or would we really just kind of be looking for what you guys just discussed on a slightly longer term basis?

Sam Stressacre: Hi, Good morning, guys on for Mike Congrats on a pretty nice quarter here.

Sam Stressacre: Colin just building on the prior line of questioning a little bit.

Sam Stressacre: Regarding these kind of delays.

Sam Stressacre: Submarine pipeline did you see any maybe more near term opportunities kind of before that South Carolina facility is done where you guys might be able to take on a little bit more work. In addition to what's already been with article have happened to the modular because the more near term opportunities there or would you really just kind of be looking for what you guys are discussing a slightly longer term basis.

Sam Stressacre: Terms of.

William J. Lynn: In terms of the larger opportunities, which would be new classes of ships, DGX, and SSNX, those are several years away in terms of real revenue. The international opportunities are a little bit closer in. And the real revenue increase in the immediate term for us is the growth in the Columbia-class submarines as we move up the curve, ship set by ship set. Right, I guess what I was kind of getting at more so is, do you guys see any opportunity where some more work might be able to be passed on to you guys within the existing programs that you're on to kind of try and help aid with, you know, these issues getting up to speed by the broader industry?

Sam Stressacre: The larger opportunities, which would be new classes of ships.

Sam Stressacre: <unk>.

Sam Stressacre: Those those are several years away.

Sam Stressacre: In terms of real revenue.

Sam Stressacre: The international opportunities are a little bit claw.

Sam Stressacre: Closer in.

Sam Stressacre: And the real revenue increase in the immediate term for US is is the growth in the Columbia class submarine as we move up the curve.

Sam Stressacre: Ship set by ship set.

Speaker Change: Right I guess, what I was kind of a good amount more so as you guys see any opportunity where it can have some more work might be able to be passed on to you guys within the existing programs withdrawn to kind of try to help aid with this.

Speaker Change: Is this just didn't operate by the broader industry.

Speaker Change: Yes, that's what I was talking about with the South Carolina facility is that if you redistribute.

Speaker Change: The work.

Speaker Change: Some of the work that's done now at the yards.

Speaker Change: Into our South Carolina facility to allow a higher throughput.

Speaker Change: At the yards that would be certainly an expansion of our revenue base.

Speaker Change: Got it and then one more here kind of on the fiscal year 'twenty five budgeted you guys have any kind of opinions there on how that's looking for you guys with some data.

Sam Strasaker: And then one more here, kind of on the fiscal year 25 budget. Do you guys have any kind of opinions on how that's looking for you guys? Push and take. Yeah, the $25 budget that dropped, again, I think it's still kind of alluded to earlier, is that it wasn't really a surprise. And as we look through the funding line items, we feel our programs were pretty well fed. I think that goes to the platform agnostic approach that we've had and where we align with the modernization priorities, both with the Navy and the Army, the greater Defense Department as a whole.

Speaker Change: Yes, the 25 budget that dropped again, I think it's still kind of alluded to earlier.

Sam Strasaker: So we feel pretty good about where we landed in our first kind of glimpse at the budget of $25. Got it. Thank you. Thank you. One moment for the next question. Again, as a reminder to ask a question, you will need to press star 11 on your telephone.

Speaker Change: Is that.

Speaker Change: It wasn't really a surprise and as we look through the funding line items, we feel our programs are pretty well fed I think that goes to the platform agnostic approach that we've had and where we align with the modernization.

Speaker Change: Both with the Navy and Army Greater Defense Department out of the hole.

Speaker Change: So we feel pretty good about where we landed.

Speaker Change: Our first glimpse at the at the 25 budget.

Speaker Change: Got it.

Speaker Change: Thank you one moment for next question.

Speaker Change: Again as a reminder to ask a question you will need to press star one on your telephone.

Speaker Change: Our next question comes from the line of John <unk> with CJS Securities. Please proceed with your question.

William J. Lynn: Our next question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question. Hi, good morning.

John: Hi, Good morning. Thank you for taking my questions I just wanted to post the guidance from a different angle last quarter. I think you mentioned that the lower end of the range was predicated on maybe more extended spending and budgetary issues given that we've seen both the passage of.

Jonathan E. Tanwanteng: Thank you for taking my questions. I just wanted to approach the guidance from a different angle. Last quarter, I think you mentioned that the lower end of the range was predicated on maybe more extended spending and budgetary issues. Given that, you know, we've seen both the passage of the spending bill and the Ukraine bill, would you expect to be more of the midpoint or the upper half of the range now? Just how are you thinking about that?

John: The spending Bill and Ukraine, Bill would you expect to be more at the midpoint or the upper half of the range now just how are you thinking about that.

John: Just given the updates to our <unk> spending is going to play out this year.

Michael D. Dippold: You know, just given the updates to how spending is, Yeah, I think the budget passage and the supplementals are certainly a nice occurrence to happen as early as they did. We're going to see how those outlays flow in terms of when you're going to start to see the order flow because of those passages. And if the trends continue in a positive way, that could be a nice tailwind. But right now, we're still targeting the midpoint of the guide and are going to see how this plays out for the next quarter or two. Okay, fair enough.

Speaker Change: Yes, I think the budget passage and a supplemental or certainly a nice.

Speaker Change: Our current that happened as early as they did.

Speaker Change: See how those outlets low in terms of what youre going to start to see the order flow because of the those packages.

Speaker Change: And if the trends continue in a positive way that could be a nice tailwind, but right now we're still targeting towards the midpoint of the guide and are going to see how this plays out for the next quarter or two.

Speaker Change: Okay Fair enough and then just regarding the push outs of these of Theres more.

Jonathan E. Tanwanteng: And then just regarding the pushouts of these more newer platforms and the Navy ships, you know, maybe beyond the end of the decade. Can you just tell us maybe what the net change in your opportunity set is, you know, through the latter half of the decade? You've obviously seen more demand flowing to enforce protection and other things that are going on. Maybe the Navy, you know, will start to spend more, as you've indicated, on production of what they have in hand.

Speaker Change: The newer platforms in the Navy ships.

Speaker Change: Maybe beyond that in a decade.

Speaker Change: Can you just tell us maybe what the net change in your.

Speaker Change: <unk> opportunity set as you know through the latter half of the decade, you've obviously seen more.

Speaker Change: <unk> and force protection and other other things that are going on.

Speaker Change: Maybe the navy start to spend more as we've indicated on production of what they have in hand.

Jonathan E. Tanwanteng: Is that a net decrease in your opportunity, you know, through 2030, or is that pretty much static, just given the puts and takes? The DDGX and SSNX were always at the end of the planning period.

Speaker Change: Is that a net decrease in opportunity through 2030 is pretty much static just given the puts and takes.

Speaker Change: Okay.

Speaker Change: <unk>, we're always at the at the end of the planning period, so it hasnt really changed.

William J. Lynn: So it hasn't really changed our opportunity set. The more immediate opportunities are growth in Colombia, the opportunities provided by the submarine industrial base, and international opportunities. So those are the things that are in the next three, four years. Those are what's going to drive growth. Okay, and so basically, the overall opportunity set hasn't changed even with the push-ups and stuff.

Speaker Change: Our opportunity set the more immediate opportunities are the growth in Colombia, the opportunities provided by the submarine industrial base and the international opportunities.

Speaker Change: Those are the things that are in.

Speaker Change: Next three to four years, those are what's going to drive growth.

Speaker Change: Okay. So basically the overall opportunities that hasnt changed even with the push outs in some places.

Speaker Change: Exactly.

Speaker Change: Okay understood. Thank you.

Speaker Change: Thanks, John.

Speaker Change: Thank you. This concludes the question and answer session. At this time I will turn the floor back to Steve <unk> for closing remarks.

Steve Baxter: Thank you all for your time this morning, and your interest in Drs of course, if you have follow up questions. Please don't hesitate to call or email me.

Steve Baxter: We look forward to speaking with all of you again soon enjoy the rest of your day.

Speaker Change: Thank you. This concludes today's conference you may now disconnect. Thank you for your participation.

Speaker Change: Okay.

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Steve Baxter: [music].

Steve Baxter: Yes.

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Steve Baxter: [music].

Steve Baxter: Yes.

Steve Baxter: Okay.

Steve Baxter: Yes.

Steve Baxter: [music].

Steve Baxter: Okay.

Steve Baxter: [music].

Steve Baxter: Yes.

Steve Baxter: Yeah.

Steve Baxter: [music].

Steve Baxter: Sure.

Steve Baxter: Okay.

Steve Baxter: Yes.

Steve Baxter: [music].

Jonathan E. Tanwanteng: Okay, understood. Thank you. Thanks, John. Thank you. This concludes the question and answer session. At this time, I will turn the floor back to Steve Vather for closing remarks. Thank you all for your time this morning and your interest in DRS. Of course, if you have follow-up questions, please don't hesitate to call or email me. We look forward to speaking with all of you again soon. Enjoy the rest of your day.

Steve Baxter: [music].

Speaker Change: Ladies and gentlemen, good day and welcome to Leonardo Drs first quarter of fiscal year 2024 earnings Conference call.

Steve Baxter: At this time all participants are in a listen only mode.

Steve Baxter: Following the company's prepared remarks, there will be an opportunity to ask questions and instructions will be given at that time.

Steve Baxter: This event is being recorded I would now like to turn the conference over to Steve <unk> Senior Vice President of Investor Relations and corporate Finance. Please go ahead.

Steve Vather: Thank you. This concludes today's conference. You may now disconnect.

Steve Baxter: Okay.

Steve Baxter: Good morning, and welcome everyone. Thanks for participating on today's quarterly earnings Conference call with me today are Bill Lane, our chairman and CEO and Mike pulled our CFO, who will discuss our strategy operational highlights financial results and forward outlook today's call is being webcast on the Investor relations portion of the website.

Operator: Thank you for your participation. [inaudible] ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Ladies and gentlemen, good day and welcome to Leonardo DRS first quarter fiscal year 2024 earnings conference. This time, all participants are in listen-only mode.

Steve Baxter: You will also find the earnings release and supplemental presentation.

Steve Baxter: Management May also make forward looking statements during the call regarding future events anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict actual results may differ materially from those projected in the forward looking.

Steve Baxter: <unk> due to a variety of factors.

Steve Baxter: For a full discussion of these risk factors. Please refer to our latest Form 10-K, and our other SEC filings, we undertake no obligation to update any of the forward looking statements made on this call.

Steve Baxter: During this call management will also discuss non-GAAP financial measures, which we believe provide useful information for investors. These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures you can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release.

William J. Lynn: At this time I'll turn the call over to Bill Bill.

Bill: Thanks, Steve and thank you all for joining US. This morning, it was great connecting with many of you at our recent Investor Day in New York.

William J. Lynn: Just as a quick recap we laid out a compelling investment case for Drs.

Bill: And as many of you know we are a unique story amidst a very scarce universe smid cap defense technology companies.

Steve Baxter: Our diverse and platform agnostic portfolio is well aligned the customer priorities and areas of healthy demand.

Steve Baxter: This is apparent in the steady pace of bookings, including the $815 million secured this quarter.

Steve Baxter: As a result, our backlog visibility continues to build and this combined with our multi pronged growth strategy is demonstrating a clear path to mid single digit organic growth over the next few years.

Steve Baxter: Our Q1 results 2020 for guidance and multiyear targets all reflect the solid confidence we have in our portfolio and competitive positioning.

Steve Baxter: I want to reiterate that foundational to Drs as strong market positioning.

Steve Vather: You can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release. At this time, I'll turn the call over to Bill. Okay?

Steve Baxter: Our people innovation and the technology differentiation, we have built over five decades.

William J. Lynn: Thanks, Steve. And thank you all for joining us this morning. It was great connecting with many of you at our recent Investor Day in New York. Just as a quick recap, we laid out a compelling investment case for DRS. And as many of you know, we are a unique story amidst a very scarce universe of SMIDTCAP defense technology.

Steve Baxter: We continue to sharpen our investments in R&D and Capex to increase our distinct edge and that of our customers we remain.

William J. Lynn: Our diverse and platform agnostic portfolio is well aligned to customer priorities in areas of healthy demand. This is apparent in the steady pace of booking, including the $815 million secured dis- As a result, our backward visibility continues to build, and this, combined with our multi-pronged growth strategy, demonstrates a clear path to mid-single-digit organic growth over the next few years. Our Q1 results, 2024 guidance, and multi-year targets all reflect the solid confidence we have in our portfolio and competitive position. I want to reiterate that foundational to DRS's strong market position are people, innovation, and the technology differentiation we have built over five decades.

Steve Baxter: Focused on executing on our strategy to drive outcomes for our customers and our shareholders.

Steve Baxter: This focus is evident in our exceptional quarterly results.

Steve Baxter: These results were all well ahead of our expectations for the quarter.

Steve Baxter: Our strong Q1 financial performance is a direct outcome of an initiative to drive incrementally better quarterly linearity.

Steve Baxter: I'm pleased with the solid start to the year as it places us on a nice path to deliver on our 2024 commitments.

Steve Baxter: Let me review a couple of specifics our revenue growth was entirely organic and accelerated to 21% year over year.

William J. Lynn: We continue to convert strong customer demand into bookings and drove a 1.2 book-to-bill ratio in Q1. Customer demand continues to be evident and well distributed throughout our diverse portfolio. This quarter, we saw robust bookings from international customers seeking our solutions in advanced infrared sensing, tactical radars, and air defense. Furthermore, with respect to domestic customers, we saw clear demand for our naval network computing and our electric power and propulsion technology. We delivered another consecutive quarter of healthy bookings, which pushed our backlog to a new company record of $7.8 billion, up 84% year-over-year and also up 6.5% year-over-year.

Steve Baxter: We continue to convert strong customer demand in the bookings and drove a one two book to bill ratio in Q1.

Steve Baxter: Customer demand continues to be evident well distributed throughout our diverse portfolio. This quarter, we saw robust bookings from international customers seeking our solutions and advanced infrared sensing tactical radars and air Defense systems.

Steve Baxter: More with respect to domestic customers, we saw clear demand for our naval network computing, and our electric power and propulsion technologies.

Steve Baxter: We delivered another consecutive quarter of healthy bookings, which pushed our backlog to a new company record of $7 $8 billion.

Steve Baxter: Up 84% year over year and also up sequentially.

Steve Baxter: In addition to our robust backlog and contract awards, we are continuing to position ourselves to capture adjacent market opportunities to further solidify and accelerate our future growth.

Steve Baxter: Last but not least we delivered impressive profit growth in Q1, adjusted EBITDA was up 43% and margin expanded by 160 basis points. We also saw both adjusted net earnings and adjusted diluted EPS increased by 100% over last year.

Steve Baxter: There is no question that our extraordinary people are responsible for these spectacular results.

William J. Lynn: Their steadfast focus on our customers and their critical missions is demonstrated in our Q1 financing. Moving to an update on the operating environment, we are pleased to see the passage of FY 24 Defense Appropriations, which gives our customers the necessary funding clarity to execute their mission. Additionally, the president's FY25 budget request called for $850 billion for defense.

Steve Baxter: Their steadfast focus on our customers and their critical missions are demonstrated in our Q1 financials.

Steve Baxter: Moving to an update on the operating environment. We are pleased to see the passage of FY 'twenty for defense appropriations, which gives our customers the necessary funding clarity to execute their missions. Additionally, the president's FY 'twenty five budget request calls for $850 billion for <unk>.

Steve Baxter: This represents a 1% growth over enacted FY 'twenty four and is in line with previously agreed upon levels.

William J. Lynn: This represents 1% growth over an active FY24 and is in line with previously agreed upon levels. We are pleased to see bipartisan action on supporting our allies in Ukraine, Israel, and Taiwan via the recent passage of the $95 billion defense supplemental. Again, while we have limited direct sales into either ongoing comp... The passage of a defense supplemental should serve as a tailwind to our customers and their modernization efforts, which presents a long-term opportunity for DRS.

Steve Baxter: We are pleased to see bipartisan action on supporting our allies in Ukraine, Israel in Taiwan.

Steve Baxter: The recent passage of the $95 billion defense supplemental.

Steve Baxter: Again, while we have limited direct sales into either ongoing conflict. The passage of a defense supplemental should serve as a tailwind to our customers and their modernization efforts, which presents a long term opportunity for Drs.

Steve Baxter: As a reminder, our three year targets offered at our Investor day already incorporate the budget environment I just discussed.

Steve Baxter: Overall, our portfolio continues to be well funded.

Steve Baxter: Closely aligned to areas of customer priority and our capabilities in advanced sensing network Computing Force protection and electric power and propulsion continue to be critical in supporting their important missions.

Steve Baxter: Over the past year I have consistently highlighted the broad based strength coming from across our portfolio. The sources of our growth and opportunity continued to be well diversified.

William J. Lynn: The sources of our growth and opportunity continue to be well diversified. Our customers are focused on maintaining a capability advantage over adversaries, and we are pleased to partner with them to enhance their competitive edge. Let me spotlight a couple of notable items. In the sensing arena, we are experiencing strong demand for our capabilities in advanced infrared across mission applications, and we are finding some early success in implementing our technology into missile defense.

Steve Baxter: Our customers are focused on maintaining capability advantage over adversaries, and we are pleased to partner with them to enhance their competitive edge let.

Speaker Change: Let me spotlight a couple of notable items this quarter.

Steve Baxter: And the sensing arena, we are experiencing strong demand for our capabilities in advanced infrared across mission applications and we are finding some early success in implementing our technology into missiles.

Steve Baxter: Additionally, we are seeing expansion opportunities both from domestic and international customers for our best of breed electronic warfare solutions, particularly as the importance of multi mission EW capabilities grows.

William J. Lynn: Additionally, we are seeing expansion opportunities, both from domestic and international customers, for our best-of-breed electronic warfare, particularly as the importance of multi-mission EW capabilities grows. Finally, our radar business continues to evolve into new domains and mission applications. I am pleased to announce that we recently won an expanded role as a design agent on a shipboard X-band radar. Furthermore, our tactical radar is experiencing steady demand for a variety of missions spanning air defense, counter UAS, and active protection.

Steve Baxter: Next our radar business continues to do evolve into new domains and mission applications.

Steve Baxter: I am pleased to announce that we recently won an expanded role as a design agent on a shipboard X band radar.

Steve Baxter: Furthermore, our tactical radar business is experiencing steady demand for a variety of missions spanning air defense counter UAS and active protection.

William J. Lynn: We are proud that our tactical radars were a critical component in the missile defense capabilities deployed in Israel against recent Iranian hostile actors. Global conflicts continue to reinforce the growing and evolving threats facing our platforms and our forces. Force protection is not an option; it is an imperative. As a result, and in addition to what I just mentioned about tactical radars, we are seeing heightened global demand for our infrared countermeasures to protect rotary and fixed-wing aircraft from surface-to-air missiles, as well as other emerging threats.

Steve Baxter: We are proud that our tactical radars were a critical component in the missile defense capabilities deployed in Israel against recent Iranian hostile actions.

Steve Baxter: The global conflicts continue to reinforce the growing and evolving threats facing our platforms and our people.

Steve Baxter: Forest protection is not an option it is an imperative as.

Steve Baxter: As a result, and in addition to what I just mentioned not tactical radars were seeing heightened global demand for our infrared countermeasures to protect rotary and fixed wing aircraft from surface to air missiles as well as other emerging threats.

William J. Lynn: The expansion of our force protection business is also evident in the Army's desired growth from four to nine short-range air defense battalions. In the face of evolving threats, agility is invaluable, and the ability to scale and modify capabilities rapidly and efficiently is critical. We recognize this need in our network computing business. We recently unveiled a new mounted form factor mission computer to address the Army's initiative focused on open standards. Our new network compute offering is fully compliant with these standards and will enable our customers to continuously field future capabilities.

Steve Baxter: The expansion of our force protection business is also evident in the army's desired growth from four to nine short range Air Defense battalions.

Steve Baxter: In the face of evolving threats agility is invaluable and the ability to scale and modify capabilities rapidly and efficiently is critical.

Steve Baxter: We recognized this need and an in network computing business. We recently unveiled a new mounted form factor mission system to address the Army's initiative focused on open standards.

Steve Baxter: Our new network compute offering is fully compliant with these standards and will enable our customers to continuously feel future capabilities.

William J. Lynn: We're excited to have a compelling solution that supports the Army's modernization. Lastly, I wanted to briefly touch on our electric power and propulsion. Recently, the Secretary of the Navy ordered a 45-day shipbuilding review. The findings from this analysis indicated multi-year delays for several shipbuilding programs. Well, we are not the source of those delays.

Steve Baxter: We're excited to have a compelling solution that supports the army's modernization vision.

Speaker Change: Lastly, I wanted to briefly touch on our electric power and propulsion business.

Speaker Change: Recently, the secretary of the Navy ordered a 45 day shipbuilding Ruby.

Speaker Change: The findings from this analysis indicated multiyear delays for several shipbuilding programs.

Speaker Change: While we are not the source of these delays I want to highlight that we are focused on supporting our customers by maintaining schedule and quality for our content.

William J. Lynn: I want to highlight that we are focused on supporting our customers by maintaining schedule and quality for our customers, as well as positioning to take on more scope, as appropriate, to help address these challenges over the long term. As previously discussed, our future facility in South Carolina affords us the ability to execute the Columbia-class program more efficiently, but also sets up to support shipbuilding capacities. Additionally, we would expect that some portion of the robust funding and investment for the submarine industrial base in the recent defense supplemental could be made available to us as we look to support the Navy in this key event.

Speaker Change: As well as positioning to take on more scope as appropriate to help address these challenges over the long term.

Speaker Change: While the delays on current production programs have pressured the timing of future platforms, such as <unk> and Fedex is worth reminding you that both of those platforms represent long term opportunity for Drs, but do not impact our near or medium term growth prospects.

Speaker Change: We believe that our electric power and propulsion technology provides multifaceted strategic advantages to customers.

Speaker Change: Particularly given.

Speaker Change: Growing power platform requirements and the need to operate discretely around the globe.

Speaker Change: We are continuing to see opportunities with navies and coast guards around the world as they modernize their fleets with next generation platforms.

Speaker Change: Overall, I am quite pleased with Drs, its market position and its growth prospects that lie ahead for the business.

Speaker Change: Our team continues to execute well and that is clearly represented in the quarterly results.

William J. Lynn: That said, we remain focused on driving value creation over the long term for our customers shareholders and employees.

Bill Lynn: Now I'd like to turn the call over to Mike. So that he can walk you through our financials in more detail.

Michael Frank Ciarmoli: Thanks, Bill I am excited to discuss our financial results in greater detail before I get to that let me Express my heartfelt thanks to the team for helping execute another remarkable quarter.

Michael Frank Ciarmoli: As Bill mentioned, we are working to make progress towards better linearity in our financial performance and that is certainly evident in our Q1 results in.

Michael D. Dippold: In the quarter, we experienced year over year growth of 21% again all organic.

Michael D. Dippold: A significant portion of the growth was driven by our naval power programs, namely Columbia-class, but momentum for our ground systems integration, advanced sensing, and naval network computing efforts were also strong contributors to the performance in the quarter. Moving to the segment view, ASC segment revenues were up 11% due to growth in programs related to advanced infrared sensing, naval and ground network computing, as well as tactical radars. Our IMS segment revenues were up an impressive 38% year over year, with strong performance apparent across the segment, but growth of our Columbia class program was certainly a key driver. Now to Adjusted EBITDA. Adjusted EBITDA in the quarter was $70 million, representing significant growth of 43% from last year.

Michael Frank Ciarmoli: <unk> portion of the growth was driven by our naval power programs, namely Columbia class, but momentum for our ground systems integration advanced sensing and enable network computing efforts were also strong contributors to the performance in the quarter.

Michael Frank Ciarmoli: Moving to the segment view.

Michael D. Dippold: ASC segment revenues were up 11% due to growth in programs related to advanced infrared sensing naval and ground network computing as well as tactical radars.

Michael Frank Ciarmoli: Our IMS segment revenues were up an impressive 38% year over year with strong performance apparent across the segment the growth of our Columbia Class program was certainly a key driver.

Michael Frank Ciarmoli: Now to adjusted EBITDA adjusted EBITDA in the quarter was $70 million, representing significant growth of 43% from last year as.

Michael Frank Ciarmoli: As previously discussed our period expensing of G&A means incremental volume typically drops to the bottom line and in Q1 this definitely rang true.

Michael Frank Ciarmoli: The increased volume also translated to adjusted EBITDA margin expansion of 160 basis points, taking margin to 10, 2% in Q1.

Michael Frank Ciarmoli: On a segment basis ASC segment, adjusted EBITDA increased by 11%, but margin was flat due to less favorable program mix offsetting the higher volume.

Michael Frank Ciarmoli: IMS segment, adjusted EBITDA was up 142% and margin was 480 basis points higher than last year due to continued momentum on naval power programs led by the Columbia class.

Michael Frank Ciarmoli: Moving to the bottom line metrics first quarter net earnings were 29 million and diluted EPS was <unk> 11, a share of a 142% and 120% respectively.

Michael D. Dippold: Moving to the bottom line metrics, first quarter net earnings were $29 million, and diluted EPS was $0.11 a share, 142% and 120%, respectively. Our adjusted net earnings of $38 million and adjusted diluted EPS of $0.14 a share were both up 100%.

Michael Frank Ciarmoli: Our adjusted net earnings of $38 million and adjusted diluted EPS of <unk> 14 cents a share were both up 100%.

Michael D. Dippold: The overwhelming driver of the increases came from strong operational execution, however, lower interest expense and a lower effective tax rate were also a slight tailwind.

Michael D. Dippold: The overwhelming driver of the increases came from strong operational execution; however, lower interest expense and a lower effective tax rate were also slight tailwinds. Moving to free cash flow, cash collection followed historical Q1 trends with an outflow in the quarter. That said, we saw favorable year-over-year trending with a significantly smaller free cash flow use of $275 million compared to Q1 2023. The narrowed cash usage was driven by more efficient working capital, improved net profitability, and reduced capital expenditure.

Michael Frank Ciarmoli: Moving to free cash flow cash collection, followed historical Q1 trends with an outflow in the quarter.

Michael D. Dippold: We saw favorable year over year trending with a significantly smaller free cash flow use of $275 million compared to Q1 2023.

Michael Frank Ciarmoli: The narrowed cash usage was driven by more efficient working capital improved net profitability and reduced capital expenditures.

Michael D. Dippold: Note that favorable timing of cash receipts from customers aided our working capital position in the quarter, but this will revert some in Q2. As discussed last quarter, we are embarking on a $120 million new facility investment in South Carolina. This will result in elevated CAPEX compared to historical norms in 2024 and for the next few years. That said, despite a lighter CAPEX outlay in Q1, I would expect the remaining quarters to tick up considerably from Q2.

Michael D. Dippold: Note that favorable timing of cash receipts from customers aided our working capital position in the quarter, but this will revert some in Q2.

Michael Frank Ciarmoli: As discussed last quarter, we are embarking on a $120 million new facility investment in South Carolina.

Michael Frank Ciarmoli: This will result in elevated capex compared to historical norms in 2024 and for the next few years.

Michael Frank Ciarmoli: That said, despite a lighter capex outlay in Q1, I would expect the remaining quarters to tick up considerably from here.

Michael Frank Ciarmoli: Additionally, similar to prior years, we expect that free cash generation will build throughout the year with the bulk of collections coming in the fourth quarter.

Michael D. Dippold: Additionally, similar to prior years, we expect that free cash generation will build throughout the year with the bulk of collections coming in the fourth quarter. Now, to a few comments on our 2024 outlook. We are reiterating the strong view issued on our last call. Let me quickly review our expectations across metrics. Revenue will be between $2.925 and $3.025 billion, which represents a 4% to 7% growth, all of which is organic. The primary factors driving variability in the range are the timing of material receipts, the progress of labor input, as well as the level and pacing of customer orders for adjusted EBITDA.

Seth Michael Seifman: Now a few comments on our 2020 for outlook.

Michael D. Dippold: The range is between $365 and $390 million. We continue to expect healthy margin improvement year over year as we transition our development programs to production, which includes the Columbia class, among others. Adjusted diluted EPS remains between $0.74 and $0.82 per share. Embedded in this range are a tax rate of 22.5% and 268 million fully diluted shares.

Michael D. Dippold: We are reiterating our strong view issued on our last call let.

Michael D. Dippold: Depreciation should be 2.4% of revenue, and CapEx should approach 4% of sales. Lastly, we are targeting an 80% free cash flow conversion of adjusted net earnings for the year. We are pleased with the Q1 momentum but want to reiterate that a significant portion of the outperformance was attributable to favorable timing. Right now, Q2 is shaping up to look a lot like our Q1 actuals, with revenue in the high 600s and adjusted EBITDA profitability in the low 10% range. Additionally, we are expecting a modest free cash outflow as some of the favorable cash receipt timing reverses from this.

Michael D. Dippold: Let me quickly review our expectations across metrics.

Steve Vather: Revenue will be between $2 95, and $3 85 billion, which represents a 4% to 7% growth all of which is organic.

Michael Frank Ciarmoli: The primary factors driving variability in the range are the timing of material receipts.

Michael Frank Ciarmoli: Progress of labor input as well as the level and painting of customer orders.

Michael Frank Ciarmoli: Our adjusted EBITDA. The range is between 365 million to $390 million, we continue to expect healthy margin improvement year over year as we transition our development programs to production, which includes the Columbia class among others.

Michael Frank Ciarmoli: Adjusted diluted EPS remains between <unk> 74.

Michael D. Dippold: <unk> 82 per share embedded in this range, our tax rate of 22, 5% and 268 million fully diluted shares.

Michael Frank Ciarmoli: Depreciation should be two 4% of revenue and Capex should approach 4% of sales.

Michael Frank Ciarmoli: Lastly, we are targeting 80% free cash flow conversion of adjusted net earnings for the year.

Michael D. Dippold: We are pleased with the Q1 momentum I want to reiterate that a significant portion of the outperformance was attributable to favorable timing.

Michael D. Dippold: Right now Q2 is shaping up to look a lot like our Q1 actuals with revenue in the high six hundreds and adjusted EBITDA profitability and a low 10% range. Additionally.

Michael Frank Ciarmoli: Additionally, we are expecting a modest free cash outflow at some of the favorable cash receipt timing reverses from this quarter.

Speaker Change: Let me wrap up with a few quick closing thoughts.

Michael D. Dippold: Let me wrap up with a few quick closing thoughts. We are pleased with our year-to-date performance and commend the broader team for achieving these results. That said, we are maintaining a steadfast focus on driving execution to meet our commitments to our customers and shareholders. With that said, we are ready to take your questions. Thank you. At this time, we will begin the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced.

Speaker Change: We are pleased with our year to date performance and commend the broader team in achieving these results that said, we are maintaining a steadfast focus on driving execution to meet our commitments to our customers and shareholders.

Speaker Change: With that we're ready to take your questions.

Operator: To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Peter Arment with Baird. Please proceed with your question. Hey, good morning, Bill, Mike, Steve. Nice results. Thanks, Peter.

Speaker Change: Our first question comes from the line of Peter Arment with Baird. Please proceed with your question.

Peter J. Arment: Hey, Bill, you touched upon force protection, and the demand signals there obviously are very strong. Can you maybe talk about if you're seeing an increased amount of, you know, development opportunities for DRS, and just how do we think about maybe the current pipeline for force protection work? And then, related to that, maybe you could touch upon just the force structure, the pick-up that the Army is doing, a doubling of short-range air defense and vehicles, and the opportunity for DRS. Yeah, thanks, Peter.

Speaker Change: Hey, Good morning, Bill, Mike Steve Nice results.

Speaker Change: Thanks Peter.

Peter J. Arment: Bill you touched upon force protection of demand signals. There, obviously are very strong could.

Peter J. Arment: Could you maybe talk about if youre seeing an increased amount of.

Peter J. Arment: Development opportunities for for Drs, and just how do we think about maybe the current pipeline of Forest protection work and then I guess related to that if maybe you could touch upon just the force structure.

Peter J. Arment: The pickup that the army is doing a doubling of short short short range Air defense vehicles and the opportunity for Drs.

Speaker Change: Yes, Thanks Peter.

Speaker Change: The last point, we were pleased to see that as the army did its biannual review that sports structure, even though the overall force structure contracted the end strength went down they have more than doubled the.

Speaker Change: To force protection Brickley short range.

Bill Lynn: Air Defense, we think that that reflects I think the immediate lessons of Ukraine, but the longer term trends that have been going on the last few years that led them to contract with us to do with the <unk>.

Speaker Change: To begin with.

William J. Lynn: As you indicated there are still.

Speaker Change: <unk>.

William J. Lynn: Development opportunities.

William J. Lynn: Newer versions.

William J. Lynn: Different types of systems. The one that we're working most actively now is called <unk>, which is the counter UAS system. So a little bit more targeted version of a short range Air defense.

William J. Lynn: It's a little bit more targeted version of a short-range air defense system. We put the first version out, and the Army is buying it. The second version, which will take a two-vehicle solution and combine it into a single-vehicle solution, is we're just finishing the development of that now, and they like that enough that they're going to cut over their existing buy into that. We think that this is going to continue to progress down the line, and we think DRS, with its portfolio of force protection solutions, is very well positioned to ride this trend.

Speaker Change: Our system, where we put the first version out the army is buying at the.

Speaker Change: The second version, which will take <unk>.

Speaker Change: <unk> vehicle to vehicle solution and combine it into a single vehicle solution is we're just finishing the development of that now in the army is going to <unk>.

William J. Lynn: They like that enough that they're going to cut over their existing buy.

William J. Lynn: Into that and so we think that this is going to continue to progress down a line and we think Drs with its portfolio of force protection solutions is very well positioned to ride this trend.

Speaker Change: And can you talk I guess, a little bit about the router business I mean tactical radars, obviously, Eric probably the demand is insatiable I'm sure are off the charts can you maybe just talk about how that business is doing just given the conflict of Israel.

Speaker Change: Yes, we don't we don't give guidance at the business level, but youre right that we are we are running that business $24 seven at this point given the demand not only in Israel in Ukraine, but.

William J. Lynn: But you're you're right that we are running that business 24 hours a day at this point, given the demand, not only in Israel and Ukraine but what that's triggered in militaries around the world is an exposed force protection vulnerability to organic units. You reach the point now where you can't just protect forces at the edge of the battlefield; it's kind of a perimeter defense; you have to have a defense that's organic to units I think that's what Ukraine in particular has shown, and a key element of that force protection is tactical radars, and Rada has a leading, if not the leading, solution, and we are seeing increasing demand.

Speaker Change: What that's triggered and militaries around the world is exposed.

William J. Lynn: <unk> protection vulnerability to organic unit.

William J. Lynn: Reached a point now where you can't just protect forces at the edge of the battlefield, it's kind of a perimeter defense you have to have defense organic to units I think thats, what Ukraine in particular has shown and Thats a key element of that force protection as tactical radars and Rada has a leading them.

William J. Lynn: The leading solution and we are seeing increasing demand. So we're pleased with the acquisition, we made 18 months ago.

William J. Lynn: And just lastly, a quick one for Mike just could you maybe talk a little bit about working capital trends the rest of the year.

William J. Lynn: Columbia, <unk> III ramps up and just.

William J. Lynn: Kind of the cadence of the year, which is obviously seasonal picks up into the back half of the year.

William J. Lynn: I don't think youre going to see too much dissimilarity to what you've seen in the prior year. So I think that trend is going to be pretty.

Michael D. Dippold: I think the trend is going to be pretty much the same. Obviously, we've got to have a little better start here in Q1, but I'll remind you that that's going to be a little bit offset as we progress here because of the capital outlays for the South Carolina facility. So I would still expect a lot of the cash generation to occur in the fourth quarter, albeit hopefully at a little better linearity than we've seen in the past.

Michael D. Dippold: Pretty much the same obviously, we've got a little better start here in Q1.

Michael D. Dippold: I'll remind you that that's going to be a little bit offset as we progressed here because of the capital outlay for the South Carolina facility. So I would still expect a lot of the cash generation to occur in the fourth quarter, albeit hopefully at a little better linearity than we've seen in the past.

Speaker Change: I appreciate it thanks guys.

Operator: Thanks, guys. Thank you. One moment for our next question. Our next question comes from the line of Robert Stallard with Vertical Research. Please proceed with your question. [inaudible] Bill, maybe I'll start with you.

Robert Alan Stallard: Thank you Amit for next question.

Operator: Our next question comes from the line of Robert Stallard with vertical research.

Robert Alan Stallard: Please proceed with your question.

Robert Alan Stallard: Thanks, so much good morning.

Robert Alan Stallard: Good morning.

Robert Alan Stallard: Bill Let me just start with you couple of questions first of all.

Robert Alan Stallard: First of all, on the DoD Budget Outlook and FY25, we've already started... doing some trimming. Is there any risk of... Yeah, Rob, I think the budget has come out about what we expected. It took a long time and multiple CRs, but the FY24 budget finally emerged, and it emerged at the level that President Biden and then Speaker McCarthy agreed to last summer.

Robert Alan Stallard: On the Dod budget outlook in FY 'twenty and what are you starting to see the military doing some trimming of perhaps what you might say lower priority areas is there any risk of a knock on impact on Drs from any of these changes.

Speaker Change: Yes, Rob I think the budget has come out about where we expected. It took a long time in multiple <unk>, but the <unk>.

William J. Lynn: And on top of that, the supplemental was passed at the expected level, the requested level, and then the 25 budget came out again at the expected and agreed upon level. So the expectations we had in building our plan were fulfilled. To your kind of broader point, is that forcing tradeoffs? Yeah, it clearly is.

William J. Lynn: 24 budget.

William J. Lynn: Finally emerged emerged at the level that President Biden, and then speaker Mccarthy agreed to.

William J. Lynn: Last last summer.

William J. Lynn: On top of that the supplemental.

William J. Lynn: Was passed at the at the expected level the requested level and then the 25 budget came out.

William J. Lynn: At the expected and the agreed upon level. So the expectations. We had in building our plan I think were fulfilled.

William J. Lynn: To your kind of broader point is that forcing trade offs, yes. It clearly is.

William J. Lynn: And I think it's gone down the path that we've <unk>.

William J. Lynn: Predicted which is those those tradeoffs start with platforms, whether it's the Virginia class submarine or the cancellation of the far a helicopter that's where the services are gone and that kind of confirmed our philosophy of being platform agnostic. So that when platforms are delayed or canceled.

William J. Lynn: Upgrades replace them.

William J. Lynn: Positioned to move on those upgrades just as easily as we were positioned to put our electronics and sensing.

William J. Lynn: Other equipment on new platform. So we think that dexterity of the agility to move between upgrades and platforms has been confirmed by the recent budget decisions.

William J. Lynn: Then.

Speaker Change: Just a follow up I mean has there been any changes on the M&A pipeline at this stage.

William J. Lynn: Nothing that I can report in terms of specifics we have a robust pipeline we are actively engaged in <unk>.

William J. Lynn: Reviewing those those opportunities are criteria remain the same we want.

William J. Lynn: And we think we are seeing opt.

William J. Lynn: Opportunities that are a strategic fit to our core market.

William J. Lynn: Financially to be EPS accretive they.

William J. Lynn: They need to have returns above our weighted average cost of capital at least over three years or four years.

William J. Lynn: And they need to support our strategic growth and margin expansion path. So we're continuing to review them against those criteria. We are finding opportunities, but we don't have anything that we have gotten to the decision stage and are ready to announce yet. Yeah, this is actually just a continuation, Rob, of what we announced last year with the Canadian facility reorganization. It's really just the accounting treatment in that you kind of have to accrue for severance when the commitment date for the employees is reached.

William J. Lynn: They need to support our strategic growth and margin expansion path. So we're continuing to review against those criteria. We are finding opportunities, but we don't have anything that we got into the decision stage and are ready to announce yet.

Speaker Change: Alright, and then just finally, one for Mike.

William J. Lynn: $4 million of restructuring in the quarter I mean, if you could elaborate almost behind that.

William J. Lynn: Yes. This is actually just a continuation of what we announced last year with the Canadian facility reorganization.

William J. Lynn: It's really just the accounting treatment and that you kind of add that accrue.

William J. Lynn: Our crew for a severance when the.

William J. Lynn: Commitment David the employees was reached so we're kind of accruing it over time, but this is that effort that we put forth last year, where we detailed the savings associated with this facility consolidation and this is just the kind of tail end of that.

Rob: Yeah makes sense, okay. Thanks, so much.

Speaker Change: Thank you ma'am for next question.

Operator: Thank you. One moment for the next question. Our next question comes from the line of Seth Seifman with JP Morgan. Please proceed with your question. Thanks very much, and good morning, everyone. Good morning, Seth.

Seth Michael Seifman: Our next question comes from the line of Seth Sigman with Jpmorgan. Please proceed with your question.

Seth Michael Seifman: Morning. I wanted to just dig in on the sales outlook for the rest of the year. It seems that if Q2 kind of looks like Q1, then the implication is really not very much growth at all in the back half of the year. And I know that the comps get tougher, so that makes sense on some level, but also, we see the growth in the backlog, and we see the demand environment.

Seth Michael Seifman: Thanks, very much John and good morning, everyone.

Speaker Change: Good morning.

Seth Michael Seifman: Good morning wanted to just to dig in on the.

Seth Michael Seifman: Sales outlook for the rest of the year.

Seth Michael Seifman: It seems that.

Seth Michael Seifman: Q2 kind of looks like Q1.

Seth Michael Seifman: Then the implication is really not very much growth at all in the back half of the year.

Seth Michael Seifman: And I know that the comps get tougher so that.

Seth Michael Seifman: It makes sense on some level, but also we see the growth in the backlog and we see the demand environment and so I mean, it would seem after this performance at the first quarter in the first quarter that the the balance of risk and the sales outlook is.

Seth Michael Seifman: And so, I mean, it would seem after this performance in the first quarter that the balance of risk in the sales outlook is pretty clearly to the upside. Yeah, I would take that to say that I think a lot of the, you know, the performance and overperformance was a little bit of a pull forward.

Seth Michael Seifman: Pretty clearly to the upside.

Speaker Change: Yes, I would take that to say that I think a lot of the.

Seth Michael Seifman: Performance and over performance was a little bit of a pull forward and as we improve the linearity I think thats a piece of it and.

Seth Michael Seifman: And we still want to see how the cadence of the orders play out for the rest of the year certainly pleased about where we are in Q1.

Seth Michael Seifman: Certainly think that we are positioned to execute within the guide range that we put forth and thats kind of where we are today.

Seth: Okay. Okay. Okay.

Seth Michael Seifman: Right, okay. And I know that you guys don't have segment guidance, but maybe at a qualitative level, you know, if we think about Q2 sales and EBITDA kind of looking like Q1, is that, you know, is that similar across the segments? Or were there certain pieces of goodness on Columbia, for example, in the first quarter, that helped out there that aren't necessarily recurring? And then maybe there's some opportunity for kind of, you know, gradual improvement through the year in advanced sensing and, Yeah, good question. And you've got it pretty much nailed.

Seth: And I know that you don't you guys don't have segment guidance, but maybe at a qualitative level.

Seth Michael Seifman: If we think about Q2 sales and EBITDA kind of looking like.

Speaker Change: Q1 is that.

Seth Michael Seifman: Is that is that similar in the segments or were there certain pieces of goodness on Colombia for example in.

Seth Michael Seifman: In the first quarter that helped out there that arent necessarily recurring and then maybe there is some opportunity for kind of gradual improvement through the year and an advanced sensing and computing.

Speaker Change: Yes. Good question and you have got it pretty much nailed so what we saw in the ASC segment in Q1 was a little bit of more revenue contribution from the development type programs and what we expect to see is that to move more towards production as the year progresses. So youll see a little tick up in the advanced sensing.

Michael D. Dippold: So what we saw in the ASE segment in Q1 was a little bit of more revenue contribution from development-type programs, and what we expect to see is that move more towards production as the year progresses. So you'll see a little tick up in the advanced fencing segment in terms of profitability. On the IMF side, you know, they were the ones that benefited from some of the pull forward, if you will, from later quarters in 2024. So the absorption of the fixed costs really helped that segment margin.

Michael D. Dippold: <unk>.

Michael D. Dippold: Segment in terms of other profit profitability perspective on the IMS side.

Michael D. Dippold: We're the ones that benefited from some of the pull forward. If you will from later quarters in 2024, so that absorption of the fixed costs really helped that segment margin. So I would think as you look to Q2 and beyond Youll start to see kind of a.

Michael D. Dippold: So I would think as you look to Q2 and beyond, you'll start to see kind of a pullback, if you will, a little bit on IMS and an acceleration of ASC. And at the end of the day, I do believe both segments will contribute fairly equally to the revenue growth for the year as well as the margin expansion. Okay, okay. Thanks very much.

Michael D. Dippold: Pull back if you will a little bit on IMS and an acceleration of ASC and at the end of the day I do believe both segments will contribute fairly equally to the revenue growth for the year as well as the margin expansion.

Speaker Change: Okay. Okay. Okay excellent thanks very much.

Speaker Change: Thank you Juan for next question.

Seth Michael Seifman: Thank you. One moment for the next question. Our next question comes from the line of Mariana Perez Mora with Bank of America. Please proceed with your question. Good morning, everyone.

Speaker Change: Our next question comes from the line of Mariana Perez Mora with Bank of America. Please proceed with your question.

Speaker Change: Good morning, everyone and thank you.

Speaker Change: So first one in South Carolina facility.

Mariana Perez Moro: Thank you. Good morning. Good morning, everyone. So, first one, the South Carolina facility, could you please give us some color on how the development is going, what we should expect in the near term, or what kind of milestones we could be looking at? South Carolina. Yeah.

Speaker Change: Like give us some color on how that development is go in.

Speaker Change: What should we expect in the near term or what kind of milestones we could be looking at.

Mariana Perez Moro: South Carolina South kiosks.

William J. Lynn: Yeah, we've signed the lease now. We're just starting the work. As Mike indicated, the capex will start to increase now as the work starts. This is a two- to three-year development. As we've said, the focus of this phase is on Columbia and improving the profitability and efficiency of the Columbia work.

Mariana Perez Moro: Yes.

Speaker Change: We signed the lease now we're just starting the work as Mike indicated that the.

William J. Lynn: Capex will start to increase now as the work starts.

William J. Lynn: This is.

William J. Lynn: Two to three year development.

William J. Lynn: As we've said the focus of this phase is on Columbia, and improving the profitability and the efficiency of the Columbia work and we're in discussions now with the Navy and the shipyard about how we could use it as an expansion of this facility to pull more work towards.

William J. Lynn: We're in discussions now with the Navy and the shipyards about how we could use an expansion of this facility to pull more work in our direction in a way that would allow them to increase the submarine production rate, as is the national goal, particularly for the Virginia class, but overall increase the submarine industrial base by redistributing the work between yards and suppliers. This facility could play a key role in that. That submarine industrial base funding that was passed in the supplemental could be a part of that equation as well. Yeah, that was where my question was pointed next, like considering that shipyards or shipbuilding is such a long-cycle development effort. How?

William J. Lynn: In our direction in a way that would allow them to increase.

William J. Lynn: Submarine production rate as is the national goal, particularly on the Virginia class, but.

William J. Lynn: But overall increase the submarine industrial base by redistributing the work between yards and suppliers. This facility could play a key role in that and that submarine industrial base funding that was passed in the supplemental it could be a part of that equation as well.

William J. Lynn: Yes.

William J. Lynn: Where my question was fine it next like considering that.

William J. Lynn: The shipyards are shipped bullies, such a long cycle development efforts how.

William J. Lynn: Soon, could we see some firm commitment from these parties for this facility to play a role in accelerating and making it more robust, building production in the U.S., even supporting it? Yeah, it's a multi-stage answer, I guess. I mean, right now, we're building the facility, so that will, you know, that'll take 18 months, two years. Negotiations with the Navy are ongoing in terms of support for an expansion.

William J. Lynn: Soon could we see sound like firm commitment from these parties for this facility to play a role in accelerating them, making them more robust.

William J. Lynn: <unk> production in the U S or even so far in August.

William J. Lynn: Yes.

William J. Lynn: Multi stage.

William J. Lynn: The answer I guess.

William J. Lynn: I mean right now we're building the facility so that will that will take 18 months two years.

William J. Lynn: The negotiations with the Navy are ongoing.

William J. Lynn: In terms of support for an expansion I think you could see some results in a matter of months or a year or so but then you would have to then turn that that funding into an expansion of the facility, which would come at the end of the.

William J. Lynn: I think you could see some results, you know, in a matter of months or a year or so, but then you would have to then turn that funding into an expansion of the facility, which would come at the end of the initial build that we're doing. So it's a multi-year, mid-term prospect in terms of expanding that revenue base. That's the overall goal. Thank you. And last one from me on NMNA.

William J. Lynn: Initial build that we're doing so.

William J. Lynn: It's a multi year mid term prospect in terms of.

William J. Lynn: Expanding that revenue base.

William J. Lynn: That's the overall goal.

Speaker Change: Thank you and last one from me any money.

William J. Lynn: You mentioned you are looking at some.

Mariana Perez Moro: Companies like I'm curious like if you could give us some color on how robust is that pipeline is just like couples companies a handful of companies our doses of them and then when you analyze those companies to your criteria how many of those deals actually like just like expire or die when you too.

Mariana Perez Moro: Do your diligence.

Mariana Perez Moro: It's hard to give you precise numbers I would say over the course of the year, we look at it carefully at dozens of companies.

William J. Lynn: And then.

William J. Lynn: A.

William J. Lynn: A modest number of those we go into into diligence and if.

William J. Lynn: Then.

William J. Lynn: If that works out you would only end up with with one or two where you get into the offer stage over the course of the year.

Speaker Change: Perfect. Thank you so much for the color.

Operator: Thank you so much. Thank you. One moment for our next question. Our next question comes from the line of Sam Strasaker with Truist Securities. Please proceed with your question. Hi, good morning guys, on behalf of Mike Ciarmoli, congratulations on a pretty nice quarter here.

Sam Strasaker: Thank you gentlemen for next question.

Sam Strasaker: Our next question comes from the line of Sam stress acre with Tuohy Securities. Please proceed with your question.

Sam Strasaker: Hi, Good morning, guys on for Mike Congrats.

Sam Strasaker: Congrats on a pretty nice quarter here.

Sam Strasaker: Kind of just building on the prior line of questioning a little bit regarding these kinds of delays in the submarine pipeline. Do you guys see any maybe more near-term opportunities kind of before that South Carolina facility is done where you guys might be able to take on a little bit more work in addition to what's already been, you know, what's already happened? There might be some more near-term opportunities there.

Sam Strasaker: Colin just building on the prior line of questioning a little bit.

Sam Strasaker: Regarding these kind of delays.

Sam Strasaker: Submarine pipeline do you guys see any maybe more near term opportunities kind of before that South Carolina facility is done where you guys might be able to take on a little bit more work. In addition to what's already been what's already happened.

Sam Strasaker: Because the more near term opportunities there or would you really just kind of be looking for what you guys just discuss at a slightly longer term basis.

Sam Strasaker: Terms of.

Sam Strasaker: Or would we really just kind of be looking for what you guys just discussed on a slightly longer term basis? In terms of the larger opportunities, which would be new classes of ships, DGX, and SSNX, those are several years away in terms of real revenue.

Sam Strasaker: The larger opportunities, which would be new classes of ships DDG access nx.

Sam Strasaker: Those those are several years away.

Sam Strasaker: In terms of real revenue.

Sam Strasaker: The international opportunities are a little bit.

William J. Lynn: The international opportunities are a little bit closer, and the real revenue increase in the immediate term for us is the growth in the Columbia-class submarine as we move up the curve ship set by ship set. Right, I guess what I was kind of getting at more so is, do you guys see any opportunity where some more work might be able to be passed on to you guys within the existing programs that you're on to kind of try to help aid with, you know, these issues getting up to speed by the broader industry?

William J. Lynn: Closer in.

William J. Lynn: And the real revenue increase in the immediate term for US is is the growth in the Columbia class submarine as we move up the curve.

William J. Lynn: Chipset by ship set.

William J. Lynn: Right I guess, what I was kind of getting out more so as you guys see any opportunity where it can have some more work might be able to be passed on to you guys within the existing programs withdrawn to kind of try to help aid with.

William J. Lynn: We just didn't operate by the broader industry.

Speaker Change: Yes, that's what I was talking about with the South Carolina facility is that if you redistribute the.

William J. Lynn: Yeah, that's what I was talking about with the South Carolina facility: if you redistribute the work or move some of the work that's done now at the yards into our South Carolina facility to allow a higher throughput at the yards, that would certainly be an expansion of our revenue base. And then one more here, kind of on the fiscal year 25 budget. Do you guys have any kind of opinions on how that's looking for you guys? Push and take. Yeah, the $25 budget that dropped, again, I think it's still kind of alluded to earlier, is that it wasn't really a surprise.

William J. Lynn: The work.

William J. Lynn: Some of the work that's done now at the yards.

William J. Lynn: Into our South Carolina facility to allow a higher throughput.

William J. Lynn: At the yards that would be certainly an expansion of our revenue base.

William J. Lynn: Got it and then one more here kind of on the fiscal year 'twenty five budget you guys have any kind of opinions there on how that's looking for you guys with some banks.

William J. Lynn: Yes, the 25 budget that dropped again, I think it's still kind of alluded to earlier.

Sam Strasaker: And as we look through the funding line items, we feel our programs were pretty well fed. I think that goes to the platform agnostic approach that we've had and where we align with the modernization priorities, both with the Navy and the Army, the greater Defense Department as a whole. So we feel pretty good about where we landed in our first kind of glimpse at the 25 budget. Got it. Thank you. Thank you. One moment for the next question. Again, as a reminder to ask a question, you will need to press star 11 on your telephone.

Speaker Change: Is that.

Sam Strasaker: It wasn't really a surprise and as we look through the funding line items, we feel our programs are pretty well said I think that goes to the platform agnostic approach that we've had and where we align with the modernization.

Sam Strasaker: Both with the Navy and Army Greater Defense Department as a whole.

Sam Strasaker: So we feel pretty good about where we landed.

Sam Strasaker: Our first glimpse at the at the 25 budget.

Speaker Change: Got it thank you.

Speaker Change: Thank you one moment for our next question.

Sam Strasaker: Again as a reminder to ask a question you will need to press star one on your telephone.

Sam Strasaker: Our next question comes from the line of Jon <unk> with CJS Securities. Please proceed with your question.

Operator: Our next question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question. Hi, good morning.

Jonathan E. Tanwanteng: Hi, Good morning. Thank you for taking my questions I, just wanted to touch the guidance from a different angle.

Jonathan E. Tanwanteng: Thank you for taking my questions. I just wanted to approach the guidance from a different angle. Last quarter, I think you mentioned that the lower end of the range was predicated on maybe more extended spending and budgetary issues given that, you know, we've seen both the passage of the spending bill and the Ukraine bill. Would you expect to be more of the midpoint or the upper half of the range now? Just how are you thinking about that?

Jonathan E. Tanwanteng: Last quarter I think you mentioned that the lower end of the range was predicated on maybe more extended.

Jonathan E. Tanwanteng: Lending and budgetary issues given that we've seen both the passage of.

Jonathan E. Tanwanteng: The spending Bill and Ukraine, Bill would you expect to be more at the midpoint or the upper half of the range now just how are you thinking about that.

Michael D. Dippold: You know, just giving the updates on how spending is. Yeah, I think the budget passage and the supplementals are certainly a nice occurrence to happen as early as they did. We're going to see how those outlays flow in terms of when you're going to start to see the order flow because of those passages. And if the trends continue in a positive way, that could be a nice tailwind. But right now, we're still targeting the midpoint of the guide and are going to see how this plays out for the next quarter or two. Okay, fair enough.

Jonathan E. Tanwanteng: Just given the updates to our <unk> spending is going to play out this year.

Michael D. Dippold: Yes, I think the budget passage in the supplemental there certainly are nice.

Michael D. Dippold: Our current that happened as early as they did.

Michael D. Dippold: And see how those outlets low.

Michael D. Dippold: In terms of what Youre going to start to see the order flow because of those those pathogens.

Michael D. Dippold: And if the trends continue in a positive way that could be a nice tailwind, but right now we're still targeting towards the midpoint of the guide and are going to see how this plays out for the next quarter or two.

Speaker Change: Okay Fair enough and then just regarding the push outs of these other as more.

Jonathan E. Tanwanteng: And then just regarding the pushout of these more newer platforms and Navy ships, you know, maybe beyond the end of the decade. Can you just tell us maybe what the net change in your opportunity set is, you know, through the latter half of the decade? You've obviously seen more demand flowing to enforce protection and other things that are going on. Maybe the Navy will start to spend more, as you've indicated, on production of what they have in hand.

Jonathan E. Tanwanteng: The newer platforms in the Navy ships.

Jonathan E. Tanwanteng: Maybe beyond that in a decade.

Jonathan E. Tanwanteng: Can you just tell us maybe what the net change in your opportunity set is through the latter half of the decade, you've obviously seen more demand fluent to enforce protection and other other things that are going on.

Jonathan E. Tanwanteng: Maybe the navy start to spend more as you've indicated on production of what they have in hand.

Jonathan E. Tanwanteng: Is that a net decrease in an opportunity through 2030 is pretty much static just given the puts and takes.

Jonathan E. Tanwanteng: Okay.

Jonathan E. Tanwanteng: <unk> and <unk> were always at.

Jonathan E. Tanwanteng: The end of the planning period, so that Hasnt really changed.

William J. Lynn: Our opportunity set the more immediate opportunities or the growth in Colombia, the opportunities provided by the submarine industrial base and the international opportunities.

William J. Lynn: Those are the things that are in the next three to four years those are what's going to drive growth.

Jonathan E. Tanwanteng: Okay, and so basically, the overall opportunity set hasn't changed even with the push-ups and such. Exactly. Okay, understood. Thank you. Thanks, John.

William J. Lynn: Okay. So basically the overall opportunities that hasnt changed even with the push outs in some places.

Jonathan E. Tanwanteng: Exactly.

Steve Vather: Thank you. This concludes the question and answer session. At this time, I will turn the floor back to Steve Vather for closing remarks. Thank you all for your time this morning and your interest in DRS. Of course, if you have follow-up questions, please don't hesitate to call or email me. We look forward to speaking with you again soon. Enjoy the rest of your day. Thank you. This concludes today's conference. You may now disconnect. Thank you for your participation.

Jonathan E. Tanwanteng: Okay understood. Thank you.

Steve Vather: Thanks, John.

Steve Vather: Thank you. This concludes the question and answer session. At this time I will turn the floor back to Steve Matt There for closing remarks.

Steve Vather: Thank you all for your time this morning, and your interest in Drs of course, if you have follow up questions. Please don't hesitate to call or email me.

Steve Vather: We look forward to speaking with all of you again soon and enjoy the rest of your day.

Speaker Change: Thank you. This concludes today's conference you may now disconnect. Thank you for your participation.

Q1 2024 Leonardo DRS Inc Earnings Call

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