Q3 2024 Leonardo DRS Inc Earnings Call
[inaudible]
Speaker Change: Ladies and gentlemen, good day and welcome to the Leonardo D.R.S. third quarter fiscal year 2024 earnings conference call.
Speaker Change: at this time, the participants are an additional mode. Follow the company's prepare-grim marks. There will be an opportunity to ask questions and instructions will be given at that time.
Speaker Change: As a reminder, this event is being recorded. I would now like to turn the conference over to Steve Vather. Senior Vice President of Investor Relations and Corporate Finance, please go ahead.
Steve Vather: Good morning and thanks for participating today's quarterly earnings conference call. Joining me today are Bill Lynn, our chairman and CEO and Mike Dippolder CFO. You know, discuss our strategy, operational highlights, financial results, and forward outlook.
Steve Vather: Today's call is being webcastly in best relations portion of the left-bed site, where you will also find the audience release and supplemental presentation.
Steve Vather: The Administrative May also may forward looking statements during the call regarding future events, anticipated future trends, and the anticipated future performance of the company.
Steve Vather: We caution you that such statements are not guaranteed to feature 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.
Steve Vather: For full discussion of these participants factors, please refer to our latest form 10K in our other SEC filings. We undertake no obligation to update any of the forward-looking statements made on this call.
Steve Vather: During this call, managed to also discuss non-gap financial measures which we believe provide useful information for investors. These non-gap measures should not be evaluated in isolation or as a substitute for gap performance measures.
Speaker Change: You can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release. At this time, I will turn the call over to Bill. Bill?
Bill Lynn: Thanks Steve. Good morning and welcome everyone to the DRS Q3 earnings call. We are pleased with our strong third quarter performance and the continued momentum in the year to date.
Bill Lynn: Our performance exemplifies the entire team's tenacity and dedication. Their steadfast focus in delivering critical technology for our customer is also translating into excellent outcomes for DRS shareholders.
Bill Lynn: I want to express my thanks to the team for their incredible efforts and commend them on their impressive accomplishments today.
Bill Lynn: Our quarterly results reflect steady customer orders, solid revenue growth, profit expansion exceeding our top line, and improved free cash flow generation.
Bill Lynn: Healthy customer appetite across our differentiated portfolio drove a book-to- bill ratio of 1.3 in the quarter.
Bill Lynn: As a result, backlog marched higher, both on a year-over-year and a sequential basis.
Bill Lynn: Quarterly revenue growth was 16% over last year.
Bill Lynn: We also grew our adjusted EBITDA by 22% and delivered margin expansion of 60 basis points in Q3.
Bill Lynn: Lastly, adjusted diluted EPS was similarly propelled by strong operational execution and up 20% year-over-year.
Bill Lynn: and others. Thank you. Thank you.
Bill Lynn: Shifting to the macro environment.
Bill Lynn: As we expected, our customers began FY25 under a short-term continuing resolution.
Bill Lynn: which currently lasts through December 20th.
Bill Lynn: We do not foresee much of an impact in 2024 from this CR. That said, we are hopeful that Congress passes appropriations in a timely manner to provide our customers with the necessary funding clarity, which is especially important in light of the increasingly complex and elevated global threat environment.
Bill Lynn: Irrespective of the outcome of the election next week, we believe that the robust threat environment will require higher and prolonged U.S. and allied defense investment.
Bill Lynn: Our diverse and platform-agnostic portfolio remains well-positioned to meet our customers' most challenging mission needs.
Bill Lynn: Shifting to operations, our business continues to enjoy broad-based success as evidenced by the healthy customer demand and innovation milestones achieved this quarter. Let me review a couple of noteworthy items.
Bill Lynn: First, our strategic rationale for acquiring RADA nearly two years ago continues to be validated and the business has performed well. The urgency and imperative to protect people and platforms from proliferated airborne threats has only increased.
Bill Lynn: Today, effective air defense is being achieved through a greater quantity of capable and distributed tactical radars versus the traditional, more centralized model.
Bill Lynn: This is similar to what is happening in space with the shift to low-Earth orbit satellites for missile tracking and detection missions. Our tactical radars are being deployed for a diversity of close-in and short-range air defense applications against drones, missiles, and other airborne threats.
Bill Lynn: The global threat environment has reinforced domestic and international interest for our multi-mission tactical radars, which is reflected in our bookings and growth.
Bill Lynn: We are also experiencing robust customer demand, which is reflected across our portfolio.
Bill Lynn: In the quarter, we continued to build on our multi-domain positions in the advanced infrared sensing and network computing markets with several sole-source contract awards for follow-on work.
Bill Lynn: One of these contracts includes a 235 million dollar production contract award for naval radars deployed on U.S. surface combatants.
Bill Lynn: In addition to fortifying our leading market positions, we are successfully penetrating logical market adjacencies. I am pleased to report that we secured new contract awards to provide customers with our cutting-edge, over-the-horizon radar technology.
Bill Lynn: This marks an expansion of our radar portfolio into new sensing modalities for more long-range and sophisticated threats. Additionally, we are seeing our infrared sensing capability expand into small tactical drone applications.
Bill Lynn: We look forward to further building on these initial footholds and others in the years to come.
Bill Lynn: This striker-based solution adds to our suite of force protection solutions and integrates a new threat-defeat mechanism to our proven portfolio.
Bill Lynn: I am incredibly proud to note that in as few as eight months, DRS and its team designed, developed, and tested this capability to successfully down Class I, II, and III drone threats at a distance.
Bill Lynn: Our ability to address challenging customer mission requirements and go from concept to operational and production ready capabilities in a rapid manner sets us apart from the competition.
Bill Lynn: Sticking with innovation, we are advancing the integration of AI into our sensing solutions.
Bill Lynn: In close collaboration with our partners and customers, we recently developed and tested an AI-aided target recognition capability on multiple platforms.
Bill Lynn: Lastly, in our electric power and propulsion business, we remain on track and are making steady progress on the new facility down in Charleston, South Carolina.
Bill Lynn: We are delivering to our customers with quality and on schedule. From a financial perspective, we are also seeing the incremental benefit of shifting further into production and executing out of the more attractively priced ship sets.
Bill Lynn: Overall, we are pleased with the strong momentum evident in our year-to-date results, which lays a strong foundation to close out the year.
Bill Lynn: Disciplined adherence to our strategy and rigorous operational execution are fundamental to our long-term success. As I look forward, I'm excited that our agility, innovation, and talented people are sharpening our market-leading positions.
Speaker Change: With that, let me turn the call over to Mike, who will walk you through our financials in greater detail.
Mike Dippolder: Thanks Bill. Let me also offer my congratulations to the broader team in delivering another solid quarter. Revenue growth in a quarter was 16% and completely organic.
Mike Dippolder: Impressive customer demand and favorable timing and material receipts pushed revenue above our expectations.
Mike Dippolder: Our programs related to advanced infrared sensing, force protection, and tactical radars were key tailwinds to growth in the quarter. From a segment perspective, ASC revenue was up 24% year-over-year, bolstered by growth from programs in advanced infrared sensing and tactical radars.
Mike Dippolder: IMS revenue was up modestly at 3% aided by increases to our force protection programs.
Mike Dippolder: Now to Adjusted EBITDA. Adjusted EBITDA in the quarter was $100 million, representing 22% growth from last year. Increased volume was the primary driver for the 60 basis points of margin expansion generated in the quarter. Shifting to the segment view.
Mike Dippolder: AFC adjusted EBITDA increased 33% with margin of 90 basis points due to favorable program mix, more efficient program execution, and higher volume.
Mike Dippolder: IMS adjusted EBITDA was up 6% and margin expanded by 30 basis points on higher volume and slightly improved net program execution across the segment.
Mike Dippolder: Onto the bottom line metrics, third quarter net earnings were $57 million and diluted EPS was $0.21 a share of 21% and 17% respectively.
Mike Dippolder: Our adjusted net earnings of $64 million and adjusted diluted EPS of $0.24 a share were up 21% and 20% respectively. Crisp operational execution eclipsed the higher tax rate and expense in the year-over-year compare.
Mike Dippolder: Moving to free cash flow, cash collections were significantly higher than last year fueled by increased net profitability and more efficient working capital.
Mike Dippolder: Next, let me review our increased 2024 guidance. Our remarkable year-to-date performance has unlocked a path for higher annual growth across all of our key metrics. Starting with revenue, we are now anticipating 11 to 13 percent year-over-year growth, which is reflected in the revised $3.15 to $3.20 billion range. With one quarter remaining in the year, we have fairly clear visibility on the drivers and sources of revenue.
Mike Dippolder: The variability in the range will largely rest on the timing of material receipts and, to some extent, the progress of labor inputs. The implied fourth quarter revenue is a tough compare due to the fact that we anniversary the benefits from discrete improvements from our supply chain that began in Q4, 2023.
Mike Dippolder: Our increased adjusted EBITDA range is now 387 to 397 million. The revised range maintains healthy year-over-year margin expansion, driven by the Columbia class transition to production, as well as operational leverage from higher volumes.
Mike Dippolder: Additionally, we still anticipate both ASC and IMS segments to contribute to annual revenue growth and margin improvement.
Mike Dippolder: Next, our adjusted diluted EPS is now anticipated to be meaningfully higher with the revised range between 88 cents and 91 cents a share.
Mike Dippolder: The new range reflects a lower forecasted tax rate of 19%. However, our fully diluted share count is static from our prior guide at $268 million.
Mike Dippolder: Moving briefly to 2025, I want to offer a preliminary guidance framework to calibrate your thoughts with what we are seeing materialize in our internal forecast. Currently, we are projecting 5% to 8% revenue growth off of our revised 2024 midpoint with adjusted EBITDA margin at approximately 13%.
Mike Dippolder: Consistent with past practice, we plan to establish more formal guidance in conjunction with our fourth quarter and fiscal year 2024 call in February.
Mike Dippolder: Let me wrap up with some closing thoughts. As we quickly approach two years of being back in the public markets, we are pleased with the way the business has performed and our positioning for the future.
Mike Dippolder: The well-earned success we have enjoyed over the past few years is a direct result of the team's unwavering commitment in delivering excellence for customers and shareholders.
Mike Dippolder: We look forward to continue executing on our strategy to unlock incremental value.
Mike Dippolder: With that, we are ready to take your questions.
Speaker Change: Thank you. At this time, we will begin the question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster
Speaker Change: And our first question comes from the line of Peter Armond of Baird. Please proceed with your question.
Peter Armond: Hey Bill, maybe if you could just start week, we'd start with kind of the course protection demand, you know, how that has changed, it seems like it's materially ramping up and whether that's going to require more CapEx in the future, or whether you can handle it within your existing facilities.
Speaker Change: Yeah, thanks. Thanks, Peter.
Bill Lynn: Force protection is something that was
Bill Lynn: Driven as the U.S. changed its strategy in the latter part of the last decade to focus more on peer competitors.
Bill Lynn: So, we're now going against threats, Russia and China, that have obviously significant air forces. At the same time, the drone threat across the threat spectrum has grown. I think all of that started a move up in force protection, and frankly, we got ahead of that with SHORAD and Counter-UAS.
Bill Lynn: And then you had Ukraine, which highlighted on some dramatic YouTube videos.
Bill Lynn: just exactly what that need for organic forest protection was that you couldn't...
Bill Lynn: go with the old system of defending at the perimeter, each unit, even sometimes each vehicle.
Bill Lynn: needs force protection. So I think it's those overall trends.
Bill Lynn: In terms of facilitation, we built a new facility in St. Louis a couple of years ago as part of this force protection expansion. So we're not seeing right now a need for more CapEx in that area.
Speaker Change: I appreciate that. And then just on the naval shipyards, you know, what are you seeing in terms of the supply chain there? I know you're obviously going to benefit from setting up a facility in Charleston, but what's the latest on kind of the outsourcing or the efforts that are going on there?
Speaker Change: Well, our efforts on Columbia really have more to do with insourcing than outsourcing. Part of the reason to build Columbia is to pull, since we now have a contract that goes out more than a decade, it lets us...
Speaker Change: develop a more efficient delivery mechanism of that revenue, which involved pulling some of the work inside, and that was the whole reason to build that South Carolina facility. And that's going to drive a more efficient production line and higher margins.
Speaker Change: That assumes, you know, a CR gets resolved. And any other kind of key points that you want to highlight that underwrites the growth there?
Speaker Change: Yeah, I'll take that Peter. I think as we've discussed in the past, you know, SCR has become kind of commonplace here for the industry. That is pretty much baked into our guide. We have a lot of the revenue coming through in 2025 that's coming out of backlog.
Speaker Change: and the majority of the remainder that's not coming out of backlog is on program continuation. So, not too much in terms of a headwind from an extended CR, but that's how we're viewing the 2025 guide, Peter.
Peter Armond: I appreciate all the details. Thanks guys. I'll jump back in the queue.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Robert Fallard of Vertical Research. Please proceed with your question.
Robert Fallard: Thanks so much. Good morning.
Speaker Change: Morning. Morning, Rob.
Robert Fallard: Bill, I'll start with you. First of all, on the Columbia-class program, General Dynamics had some pretty conservative comments about submarines as a whole the other day, and I was wondering if you see any sort of indirect risk to your schedule and financials on the program due to problems elsewhere?
Bill Lynn: Not at this point, Rob. I mean, they've segregated out the contract we have for the propulsion system. And, you know, frankly, we now have a contract that goes out a decade. We're actually ahead of the shipyard in terms of the contracts they're getting for the Navy. And the intent there was to insulate that critical component from schedule variability based on other components and I think that is proving out at this point.
Speaker Change: And then to follow up on Peter's question about...
Speaker Change: your 2025 framework.
Speaker Change: The 5-8% range is fairly big. What might put you at the low end or the high end of that revenue growth range next year?
Speaker Change: Yeah, our range is always going to be moderated by the supply chain and the availability of material and when the material becomes, you know, kind of in our pocket in order to execute the program. So that's always the biggest driver of variability. The other will be some pacing of the timing of the awards.
Speaker Change: that we receive on the portion that is a book to bill, but those are the two things that typically will swing us within the range, Rob.
Speaker Change: Okay, and then just a final one from me again for Bill, on Capital Deployment, nothing to report since three months ago I suppose, but I was wondering if you are seeing anything of interest on the M&A front out there?
Bill Lynn: We are, Rob. M&A remains our priority and we have seen an uptick in volume. We are seeing actionable opportunities in those four core markets.
Bill Lynn: that we've we've talked about advanced sensing, naval power, force
Bill Lynn: and network computing. So we're very active in terms of diligence. As you said, nothing yet to announce, but we are seeing that uptick in volume and actionability.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Michael Cermoli of Truist Securities. Please proceed with your question.
Michael Cermoli: Hey, good morning guys. Thanks for taking the question. Real nice results here. Maybe just to kind of stay on Rob's line of questioning, I guess Bill or Mike, on the 25
Steve Vather: Vather, Michael Dippold, William Lynn
Steve Vather: 26 kind of implied target you put out there. But I guess, is there any reason we should think about any kind of material deceleration? Can you kind of
Speaker Change: You know, we're obviously seeing a lot of force protection demand. Can you frame up if any of this is, you know, a little bit shorter term in nature, maybe up-tempo driven from the Middle East or from Ukraine, if, you know, I know you...
Speaker Change: kind of went through the puts and takes on 25, but if these wars come to a close, does that have any implications on sort of this longer-term view?
Speaker Change: Ukraine has not been, in terms of direct sales to Ukraine, it hasn't been an overwhelming impact to us. So you're sitting there in 24, think about two to three percent of our sales is being...
Speaker Change: delivered to Ukraine. So I would say that that has a limited impact. I think more importantly as you as you look at is one we are increasing the growth from 25 from that four to seven to five to eight that we came out with. It is going to be on the higher base.
Speaker Change: from, you know, from the 24 results as we've picked up 24 as well. We feel good about that growth. I think the mid-single is still where we're going to be prospectively, but we feel good about that growth given the budget backdrop and where we are.
Speaker Change: Got it. Okay. And then just on the counter UAS systems, it sounds like I think you called out the striker option. Is there a potential opportunity for you guys to participate in the Replicator 2 initiative? You know, any, and is that sort of, you know, a target program for what you guys are working on?
Speaker Change: Replicator 2 hasn't quite gotten to our counter-UAS efforts. Yeah, I guess it's...
Speaker Change: you know, a big DOD initiative, it could move in different directions, but right now it was
Speaker Change: the drive, you know, the need driven by Ukraine and the force structure increases that the Army has been making, plus the technology development. We did just show the directed energy version.
Speaker Change: that we developed, I think as I said, in about eight months for the Army. I think it's those technological developments as well as the force structure increases and the threat that's driving it less than a specific department initiative through Replicator.
Speaker Change: Got it, got it. And last one, just on Columbia class, I think the plan was to start ship set three. Are you guys on to ship set three now?
Speaker Change: Yeah, yes we are and we're proceeding pretty much along that schedule that we laid out so everything's going on time and on schedule.
Speaker Change: Perfect. Thank you guys. I'll jump back into the queue here.
Speaker Change: and Michael Dippold. Thank you.
Speaker Change: Our next question comes from the line of Seth Seisman of JPMorgan. Please proceed with your question.
Seth Seisman: Yeah, thanks very much and good morning.
Speaker Change: Morning. Morning.
Seth Seisman: So I just wanted to ask the margin, EBITDA margin rate step up that's embedded in Q4.
Seth Seisman: I guess, you know, we'll see some of that, I assume, on
Seth Seisman: anything about the Columbia you know a step up or a milestone that's that's anticipated in the fourth quarter that kind of drives up the profitability?
Speaker Change: If you're talking from a profitability perspective, sequentially, if you look from Q3 to Q4 based on the revised guidance, you're right. We period expense G&A, the volume is going to drive the drop through, and that's what gives us confidence in the margin.
Speaker Change: If you're comparing to the to the prior year where we had a similar revenue output
Speaker Change: You're seeing about 100 basis points that tick up from a marginality perspective. That's really driven from two aspects. The first is mix, and when I say mix here on the ASC side, you're talking predominantly the tactical radars.
Speaker Change: and then maybe more importantly on the on the IMS side it is the Columbia where we're seeing not necessarily a milestone but you're seeing the revenue moving towards the later ship sets.
Speaker Change: and having a higher proportionality of the revenue coming from those newer price shift sets, and that's what's driving the profit expansion.
Speaker Change: Right, okay.
Speaker Change: And then maybe to follow up a little earlier about the M&A question.
Speaker Change: and just, you know, a lot of cash coming in in the fourth quarter, obviously.
Speaker Change: To the extent that there are opportunities out there, does it become time at some point to think about other options for the balance sheet?
Speaker Change: Yeah, I mean, our priority remains M&A, but it's, that's our highest priority, but it's not our only one. So we will look at other ways of returning cash to shareholders as well as M&A.
Speaker Change: Okay, very good. Thanks very much.
Speaker Change: Our next question comes from the line of John Tanlantang of CJS Securities. Please proceed with your question.
Speaker Change: Hi, this is Justin on for John. Good morning.
Speaker Change: Morning.
Speaker Change: I mean right now internationally overall the international markets are growing faster than the U.S. defense budget.
Speaker Change: And that's true in Europe. It's true in the Middle East and Asia as well. It's, I think, driven by the.
Speaker Change: the near term and geographically near threats with Putin.
Speaker Change: crossing borders in in Europe, Iran in the in the Middle East, and then the threats that China is posing by its increasingly aggressive behavior, all that's
Speaker Change: driving our allies to higher defense budgets. And we've seen that long-term trend in our revenue base.
Speaker Change: We've doubled our international revenue from about 5% to 10% over the last three or four years. And we expect to see that outpacing of international revenue to continue over the next couple of years at least.
Speaker Change: That's helpful, thanks. And then one more if I could. Can you talk about the duration and time to revenue for new orders? So has that remained the same, you know, gotten longer, contracted? Just any more color on that, that'd be helpful.
Speaker Change: Yeah, so the way we look at that is if you were rewinding the clock to a pre-COVID environment, our
Speaker Change: conversion of that booking and that backlog to revenue was much quicker than it is today. I think when Bill made the comments on
Speaker Change: some of the supply chain in the past quarters. It is stabilized, but the lead times are still elongated.
Speaker Change: So from our historical norms, the conversion is a little longer than we had seen, but from a comparison to, you know, kind of recent, it should be pretty stable if you're comparing to kind of the 23-24 time frame.
Speaker Change: All right, thanks so much for taking the questions.
Speaker Change: Thank you.
Speaker Change: and their families. Thank you. Thank you.
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Speaker Change: Our next question comes from the line of Ron Epstein with Bank of America.
Ron Epstein: Hey, good morning guys. Bill, can you kind of walk through, what's your M&A sourcing strategy? How are you finding deals? Are you guys doing it, you're just looking at it, but bankers bring in, just kind of broadly, how are you finding M&A?
Bill Lynn: Yeah, Ron, we have a dedicated team.
Bill Lynn: It reviews, it does what you just said, you know, we get teasers from all of the investment banks as they bring properties out. And we review those, particularly focused on those four core mission areas.
Bill Lynn: We also reach out to both financial and strategics
Bill Lynn: There might be, you know, as strategics have consolidated, there's been some moves to think about shaping that portfolio. I mean, financial buyers or financial owners are ultimately always going to be sellers over the long term. So sometimes we investigate, you know, what the timing is.
Bill Lynn: We pull all that together and as I said what we're looking for is actionable properties
Speaker Change: and the ROIC targets we have. And Rod, I'll just add one thing to Bill's comments is also
Speaker Change: If you think about, particularly in our IMS segment, we are bringing a coalition of the best-in-breed capabilities for different solutions. That gives us a nice insight to up-and-coming technologies.
Speaker Change: And we've had a lot of success in the past of cultivating that relationship and ultimately partnering or using that for an acquisition incubator, if you will.
Speaker Change: Got it, got it. And then, I mean, you probably can't answer this, but I'll ask it anyway. Is there anything in the Boeing defense portfolio that could be core to you guys that isn't necessarily core to them?
Speaker Change: It's always possible. I mean, I read the news too, but we don't have anything actionable at this point with Boeing.
Speaker Change: Yes, got it, got it. And then maybe just one more, if I may. With Replicator 2, I mean, just kind of going back on maybe some of the earlier questions, how are you thinking about demand for counter-UAS and directed energy? I mean, ultimately, how big could that market be?
Speaker Change: I think it's nine battalions of short-range air defense and a similar number in the
Speaker Change: in the counter drone.
Speaker Change: I think that'll take several years. I think beyond that, international sales, I think, are just at the launch point. It's once you've developed the system, which is where we are at this point, that then you're moving into production. That's where international sales become possible.
Speaker Change: In our initiative to take the counter-drone system from a two-vehicle system down to a one-vehicle, we did that really on our own R&D dime, and then the Army was...
Speaker Change: favorable enough I suppose to it to cut that in early in terms of the deployed units
Speaker Change: but that moving from two to a single vehicle solution makes it more affordable and easier to operate and both those things make it more attractive to international buyers. So I think that's kind of the next opening.
Speaker Change: Got it. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Kristen LeWag of Morgan Stanley. Please proceed with your question.
Speaker Change: Hey, this is Justin on for Christine. Thanks for taking the question.
Speaker Change: and Michael Dippold. Thank you.
Speaker Change: Just going back on the 25 outlook, I know we'll get more detail on the 4Q call. It's with a 5% to 8% growth guide. I was curious at this point if the growth profile looks similar across ASC and IMS next year, or are there factors we could...
Speaker Change: consider that might drive some variation in 25. Thanks.
Speaker Change: Yeah, I would say you can almost see it in the book to bill in the year-to-date period. We're getting pretty consistent demand across both segments, so I think from a
Speaker Change: From a trend perspective of where we're at, we would expect both of the segments to contribute to the growth rates that we're projecting out through 2025. I'll put the little asterisks where you get a little bit of an extra tailwind on the IMS side from the Columbia pricing that we talked about, which is also assisting in the margin expansion.
Speaker Change: and the rest of us. Thank you. Thank you.
Speaker Change: Okay, great, that's helpful. And then maybe just one quick one on CapEx. You just provide a little more color on the pace of the South Carolina facility build out from here and how we should think about the investment profile for the next few quarters. Thanks.
Speaker Change: Yeah, I would say that you'll likely see a little pickup in the CapEx into Q4.
Speaker Change: We do expect to land somewhere in the mid to high threes from a CapEx as a percentage of revenue. I think we initially had said that would be close to four. Obviously, the revenue guide has changed since then, pushing that percentage down.
Speaker Change: but the the project remains it was a little slower in the first half we've started to catch up here that's what I think you'll see the ramp in Q4 and nothing has really changed on the pacing for 2025
Speaker Change: and Michael Dippold. Thank you. Thank you.
Speaker Change: Got it. Thanks.
Speaker Change: Thank you. And as a reminder, if you have a question, please press star 11.
Speaker Change: At this time, I will turn the floor back to Steve Vather 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. Enjoy the rest of your day.
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