• Revenue: $981 million for Q4, up 6% year over year; $3.2 billion for the full year, representing 14% organic growth over 2023.
• Adjusted EBITDA: $148 million for Q4, $400 million for the full year, with year-over-year growth of 13% and 23% respectively.
• Adjusted EBITDA Margin: 15.1% for Q4 and 12.4% for the full year, expanding 100 basis points and 90 basis points year over year respectively.
• Free Cash Flow: $416 million in Q4, $190 million for the full year, with an 80% conversion of adjusted net earnings.
• International Revenue: 13% of total revenue in 2024, marking the fourth consecutive year of increased international business.
• Dividend: Cash dividend of $0.09 per share, payable March 27, 2025.
• Share Buyback Program: Authorization of $75 million over the next two years.
• 2025 Revenue Guidance: Expected to range between $3.425 billion and $3.525 billion, implying 6% to 9% organic growth.
• 2025 Adjusted EBITDA Guidance: Expected between $435 million and $455 million, with margin improvement of 30 to 50 basis points.
• 2025 Adjusted Diluted EPS Guidance: Range of $1.02 to $1.08 per share.

• Warning! GuruFocus has detected 3 Warning Sign with DRS.

Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Leonardo DRS Inc (NASDAQ:DRS) achieved record bookings and mid-teens organic revenue growth in 2024.
• The company reported a 23% increase in adjusted EBITDA with a 90 basis point margin expansion.
• DRS secured over $4 billion in contract awards, resulting in a 1.3% book-to-bill ratio.
• The company increased its investment in internal R&D and capital expenditures by approximately 25% year over year.
• DRS generated $190 million in free cash flow, aligning with their targeted conversion of approximately 80% of adjusted net earnings.

Negative Points

• The company faces risks and uncertainties that could impact future performance, as highlighted in their forward-looking statements.
• There is potential volatility in the supply chain, particularly concerning the availability and pricing of germanium.
• The new administration's budget priorities and potential shifts toward fixed-price contracts could pose challenges.
• DRS's revenue growth is partially dependent on the timing and level of customer orders, which can be unpredictable.
• The company anticipates increased investment in R&D, which may impact short-term profitability.

Q & A Highlights

Q: Have you seen any impact from the new administration's efforts, or is everything still focused on the Department of Defense? A: William Lynn, CEO: The new administration hasn't significantly impacted the Department of Defense yet. Our focus is on understanding their strategic priorities and the 2026 budget.

Q: Can you elaborate on the one-off items in the fourth quarter and any further adjustments anticipated in 2025 guidance? A: Michael Dippold, CFO: The adjustments mainly relate to currency shifts affecting our balance sheet. There are no significant changes from previous quarters.

Q: What areas, besides the Columbia program, are contributing to margin progression? A: William Lynn, CEO: Smaller sensing and force protection programs are transitioning from development to production, contributing to margin improvement alongside Columbia.

Q: How do you see the fixed-price contract environment evolving with the new administration? A: William Lynn, CEO: We are already operating in a fixed-price environment, with about 85% of our contracts being fixed-price. The rest of the industry will likely need to adapt to this model.

Q: Is the Navy's latest DDGX rendering factored into the 2025 outlook, and what about KDDX? A: William Lynn, CEO: DDGX is not factored into 2025 as it's a 2030 ship. KDDX remains unchanged; we are engaged with the Korean customer but await a decision.

Q: Are there any concerns about raw material supply, particularly germanium? A: Michael Dippold, CFO: Germanium remains a focus, but we have safety stock. Supply chain predictability is strong, with no major concerns outside of germanium.

Q: How might the 8% budget reallocation impact your business? A: William Lynn, CEO: The reallocation is still being assessed, but we see opportunities in missile defense and Indo-Pak region priorities, which align with our capabilities.

Q: What is the opportunity with the Navy's investment in Charleston, and how does it affect margins? A: William Lynn, CEO: The Navy's $45 million investment in Charleston supports submarine industrial base expansion, particularly steam turbines, which is a significant future program for us.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.