Leonardo Drs, Inc. · NASDAQ:DRS
Leonardo Drs — Investor Day (March 2024)
67 slides from Leonardo Drs's investor day presentation, Mar 14, 2024
Slide 1: Investor Day March 14, 2024
*€ LEONARDO ORS INVESTOR DAY March 14, 2024
Slide 2: Disclaimers
Disclaimers Forward-Looking Statements In this presentation, when using the terms the “company,” “DRS,” “we,” “us” and “our,” unless otherwise indicated or the context otherwise requires, we are referring to Leonardo DRS, Inc. This presentation contains forward-looking statements and cautionary stat
Slide 3: Speaker Background
Speaker Background Bill Lynn John Baylouny Mike Dippold Chairman & Chief Operating Officer Chief Financial Officer Chief Executive Officer • Appointed to current position in 2012 • Appointed to current position in 2018 • Appointed to current position in 2017 • ~35 years of industry experience • 35+
Slide 4: Investor Day Agenda
Investor Day Agenda Welcome Steve Vather DRS Strategic Overview Bill Lynn 9:00 am – 10:15 am Agile Operations John Baylouny Persistent Innovation Dr. Phil Perconti 10:15 am – 10:30 am Break Naval Electrification Jon Miller Financial Overview Mike Dippold 10:30 am – 11:45 am Closing Remarks Bill Lynn
Slide 5: Key Investor Day Messages
Key Investor Day Messages DRS is a unique story amidst a scarce We have significant backlog visibility 1 SMID cap defense universe 4 and a multi-pronged growth strategy Our agility, technology differentiation We have a diverse, platform-agnostic and steadfast customer focus have 2 business aligned t
Slide 6: Leonardo DRS
(Za w LEONARDO DRS
Slide 7: DRS Strategic Overview
DRS Strategic Overview Bill Lynn Chairman and Chief Executive Officer 7
Slide 8: A Rich Legacy Built Over 55 Years
A Rich Legacy Built Over 55 Years Company founded by Mark Newman appointed CEO Leonard Newman and with company revenues of David Gross as ~$50 million and moves public DRS acquired by Completes all stock combination Diagnostic/Retrieval listing to New York Stock Finmeccanica Bill Lynn appointed as C
Slide 9: Significant Transformation Since Leonardo's Acquisition
Significant Transformation Since Leonardo’s Acquisition 2008 2023 Largest Customer ~60% Diversify the Portfolio ~40% Army Navy “Supplemental” Budget Exposure >35% Focus on Enduring Programs <1% Largest Program 12% Strategic R&D and Repositioning ~10% Rapid Response Columbia Class (Army Technical Ser
Slide 10: Leonardo DRS at a Glance
Leonardo DRS at a Glance Trusted Systems Integrator and Innovative Critical Defense Technology Supplier Headquarters: Employees: Revenue: Adj. EBITDA: Total Backlog: Ticker: DRS Arlington, VA ~6,600 $2.8 billion $324 million $7.8 billion Key Technology Advanced Network Force Electric Power & Areas S
Slide 11: Since Our Listing in November 2022
Since Our Listing in November 2022 Successful first year as a public company as we delivered on our financial commitments in 2023 Accelerated organic revenue growth to 7% in 2023 and targeting solid mid-single digit growth through 2026 Grew total backlog by 2.5x to ~$8 billion while simultaneously e
Slide 12: Strong Culture and Exceptional People Enable Our Success
Strong Culture and Exceptional People Enable Our Success ~6,600 <10% Total Employees Voluntary Turnover 6 1 ~1,800 ~25% Engineers Cleared Personnel Diversity Agility 5 2 ~15% ~45% Veterans Women & Minority 4 3 Notable Accolades Organizations We Support 12
Slide 13: Relationship with Leonardo and Proxy Security Structure
Relationship with Leonardo and Proxy Security Structure Cooperation and proxy agreements govern Leonardo S.p.A. Ownership % of DRS Leonardo ownership of DRS • Enter into transactions typically afforded to Maintain Majority (controlling) shareholders Publicly stated desire • Oversight on M&A transact
Slide 14: An Experienced, Independent and Diverse Board of Directors
An Experienced, Independent and Diverse Board of Directors Board Statistics and Select Expertise Lead Independent Chairman 89% 100% Bill Lynn Frances Townsend Gail Baker Independent Directors Defense / Govt. Experience 8 100% Dr. Louis R. Brothers David Carey Gen. George Casey Jr. Average Tenure (Ye
Slide 15: An Evolving Operating Environment
An Evolving Operating Environment Department of Defense (DoD) Discretionary Budget Key Macro Considerations (Dollars in billions) Complex and elevated global threat environment spurring continued (base budget, supplemental and international) investment $816 $842 $850 Capability modernization and adv
Slide 16: Key Defense Customer Trends and Priorities
Key Defense Customer Trends and Priorities Driving Macro Forces Deter and contest Contested and Adversaries near-peer threats from denied domains advancing capabilities China and Russia Strong alignment between DRS Persistence of Operating capabilities and global insurgent evolving customer threats
Slide 17: DRS is Well Positioned to Address Evolving Customer Requirements
DRS is Well Positioned to Address Evolving Customer Requirements Customer Requirements Enhanced Effectiveness (Distance, Speed, Power, Precision, Advanced Information, Stealth & Lethality) Sensing Integrated Systems and Platforms Network Computing DRS capabilities and Platform and Personnel Resilien
Slide 18: How We are Leveraging Our Strong Mid-Tier Position
How We are Leveraging Our Strong Mid-Tier Position Greater agility Our Mid-Tier Key Advantages Consistent consolidation has resulted in a scarce Stronger customer intimacy and field of remaining mid-tier engagement defense players Critical and differentiated technology offering sought out by custome
Slide 19: Our Multi-Year Strategic Focus
Our Multi-Year Strategic Focus Build on our core market Increase organic investment in positions by further penetration of R&D and capital expenditures to domestic and international unlock incremental long-term customers and platforms growth and margin Leverage our strengths to Execute bolt-on M&A E
Slide 20: How We Expect to Drive Relative Outperformance
How We Expect to Drive Relative Outperformance Differentiated market Platform agnostic Competitive Strong alignment approach insulates leadership in Seasoned team Advantages to long-term four core markets with a clear execution from single program growth currents driven by rich IP and track record i
Slide 21: Agile Operations
Agile Operations John Baylouny Chief Operating Officer 21
Slide 22: Our Agile Organizational Structure
Our Agile Organizational Structure Purpose-built organization designed to enable rapid decision making, increase accountability and drive better outcomes for customers Advanced Sensing & Computing Integrated Mission Systems Daylight Airborne & Land Electro-Optical & Naval RADA Land Naval Power Solut
Slide 23: Key Segment Statistics
Key Segment Statistics Revenue Adj. EBITDA Book-to-Bill Total Backlog Business Cycle Employees Locations Advanced Sensing & Computing (ASC) $1.8B $215M 1.3x $2.4B Medium 3,800 14 Other 8% Advanced Sensing Force 42% Protection 15% Prime Sole Source Fixed Price Network ~48% ~50% ~84% 34% 26% 10% Compu
Slide 24: Our Market Outlook for DRS Core Technology Areas
Our Market Outlook for DRS Core Technology Areas Addressable Domains Dismounted Subsurface Unmanned Relative Airborne 2023 Surface Ground Vehicle Space Cyber Naval Naval Expected Revenue % Growth Rate Advanced Sensing 28% ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Network Computing 22% ✓ ✓ ✓ ✓ Force Protection 18% ✓ ✓ ✓ ✓ Ele
Slide 25: DRS Formula for Success
DRS Formula for Success A successful formula that has led to entrenched market Limited Competition Across leadership positions with >60% of DRS content as sole source Our Core Technology Areas Customer Intimacy Strong customer relationships built upon Advanced Sensing deep mission understanding. Our
Slide 26: Select Manufacturing and Engineering Sites of Excellence
Select Manufacturing and Engineering Sites of Excellence Melbourne, FL Dallas, TX Johnstown, PA Fitchburg, MA Menomonee Falls, WI St. Louis, MO Rugged Computing and Infrared Foundry Computing Electronics Electric and Hybrid Electric Drives and Land Systems Engineering Sensors Manufacturing and Senso
Slide 27: Focus on Business Excellence to Enhance Value for Stakeholders
Focus on Business Excellence to Enhance Value for Stakeholders Framework Operational Priorities Key Outcomes Strategy Alignment Driving alignment across the organization to create value through unity of purpose and action Proliferate use of model- Engineering based design and 1 Innovation Evolution
Slide 28: Strengthening Our Supply Chain
Strengthening Our Supply Chain Tactical Strategic Supply Chain Supply Chain Limited availability ✓ Maintain strategic reserves Elevated lead times ✓ Communicating demand visibility and advanced ordering Increased cost ✓ Increase strategic supplier relationships Inconsistent supplier quality
Slide 29: A Diverse Portfolio of Critical Capabilities
A Diverse Portfolio of Critical Capabilities • Multi-Mission Electro-Optic • Multi-Domain Platform Infrared (EOIR) Sensing Computing • Precision Targeting and • Combat Systems Computing Surveillance Sensors • Tactical Networks • Electronic Warfare Advanced Network • Software Defined Radios • Intelli
Slide 30: Representative Platforms with DRS Content
Representative Platforms with DRS Content Naval Columbia Virginia Arleigh Burke Ticonderoga LCS CVN LPD LHA Ground Bradley AMPV Abrams Stryker Dismounted Patriot XM-30 MPF Airborne & Space Weather Apache Seahawk Reaper Sea Stallion Tanker F-35 Satellites F-18 Hornet 30
Slide 31: Illustrative DRS Content Across Platforms
Illustrative DRS Content Across Platforms • Targeting and Pilotage • Missile Warning • 2nd and 3rd Generation HTI • In-Situ Testing Infrared Sights • IR Countermeasures Sensors • Rugged Computing • Degraded Visual • Joint Tactical Terminal • Drivers View Enhancement • Active Protection Environment S
Slide 32: Our Focused Growth Strategy
Our Focused Growth Strategy Base Growth Further Penetrate Execute in Our Core Expand Scope Evolve Technology Base Markets Leverage DRS positions Utilize strong customer Expand DRS presence Continue to strategically in attractive and growing intimacy and extensive across relevant invest organically i
Slide 33: Growth Opportunities for DRS are Abundant and Diverse
Growth Opportunities for DRS are Abundant and Diverse DRS Addressable DRS Differentiated Domain, Customer and Platform Penetration Growth Market Technology Areas Offering Space International Sensing Autonomy Low Expansion Sensors and integrated Integrated Solutions solutions Unmanned Missiles & Inte
Slide 34: Persistent Innovation
Persistent Innovation Dr. Phil Perconti Chief Technology Officer 34
Slide 35: Our Framework for Addressing Evolving Customer Requirements
Our Framework for Addressing Evolving Customer Requirements Customer Objectives Key Enablers Competitive Advantages Deterrence Further Distance Sense Everything Faster Speed Information Speed & Accuracy Protect What Matters Most Connect Everything Better Precision More Power Better Concealment Effec
Slide 36: Strategic Approach to Research and Development
Strategic Approach to Research and Development R&D Philosophy $82M Strategically focused on initiatives that maximize 2023 company impact to our customers and our business funded R&D ~$275M 2023 customer funded R&D Leverage collaborative R&D investment approach ~80% in partnership with customers, in
Slide 37: Our Engineering Agility and Philosophy
Our Engineering Agility and Philosophy Rapid Capability Deployment Modular Systems and Open Standards Platform Agnostic Approach >105K Mounted Family of Computer Systems (MFoCS) Striving to provide seamless units fielded interoperability that is flexible, extensible and upgradeable 19 months Concept
Slide 38: DRS Capabilities are Well Positioned to Enable Emerging Customer Missions
DRS Capabilities are Well Positioned to Enable Emerging Customer Missions Quantum Information Autonomy Counter-UAS Joint All Domain C2 Naval Power Projection Technology • Convergence of • Active radars and • Digital architecture • Better and more • Quantum cascade sensors and passive RF sensors for
Slide 39: Our Broad Portfolio of Technology Differentiators
Our Broad Portfolio of Technology Differentiators High Performance High Bandwidth Software Best-in-Class Uncooled Medium and Long RF Receivers and Defined EOIR Sensors Wavelength Cooled Transceivers Radios IR Sensors Multi-Function Cyber Resilience Compute and Sensor Assured PNT Advanced and Data Fu
Slide 40: Our Capabilities and Investments are Aligned to Address Customer Requirements
Our Capabilities and Investments are Aligned to Address Customer Requirements Across Domains and Platforms Competitive Advantages Provided Domains Info. Speed & Concealment Faster Speed More Power Precision Accuracy Distance Airborne Lethality Ground Greater Further Space Better Better Cyber Naval S
Slide 41: Capability Evolution: The Future of Sensing
Capability Evolution to Address Next Generation Requirements: The Future of Sensing • Improving performance, resolution and situational awareness for persistent surveillance • Convergence of sensing and computing with embedded AI • Faster, more accurate decisions at the tactical edge • Open, scalabl
Slide 42: 15 Minute Break
15 MINUTE BREAK 42
Slide 43: Naval Electrification
Naval Electrification Jon Miller General Manager – Naval Power Systems 43
Slide 44: Naval Power Systems Business Overview
Naval Power Systems Business Overview Legacy Acquisitions Notable Customers Select Platforms Navy Controls Electromagnetics Division Development Center (2002) (2003) Columbia Power Technology, Inc. Virginia (2003) (2006) Key Capabilities Employees Propulsion Arleigh Burke Turbine Packaging & Permane
Slide 45: Illustrative Propulsion System Comparison
Illustrative Propulsion System Comparison Integrated Electric Propulsion Traditional / Mechanical Diesel GEN Engine Power Ship’s Propulsion Diesel Conversion Power Engine GEN and Gas Turbine Distribution Reduction Diesel GEN Gear Engine Gas Power Gas GEN Turbine Turbine Motor Diesel M GEN Conversion
Slide 46: Why are Integrated Electric Propulsion Systems Compelling?
Why are Integrated Electric Propulsion Systems Compelling? Electric Power Capacity Enables Customers to Operate at Further Distance with Better Capability Integrated Electric Propulsion Traditional / Mechanical Greater flexibility given engines and Rigid because traditional systems require Ship Arch
Slide 47: What is DRS Doing on Columbia Class?
What is DRS Doing on Columbia Class? Integrated Propulsion Switchboard Computing Electrical Conversion Motor Controllers System Components Infrastructure Electric Propulsor Motor Turbine Nuclear Reactor Diagrams sourced from GAO reports 47
Slide 48: Strong Visibility on the Navy's Most Important Program: Columbia Class
Strong Visibility on the Navy’s Most Important Program: Columbia Class DRS Fiscal Year '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '31 '32 '33 '34 '35 Development Contract Fixed price development contract requiring significant DRS investment above customer funding SS 1 SS 2 S
Slide 49: Columbia Class Financial Contribution to DRS
Columbia Class Financial Contribution to DRS “Same Shipset Content” Driving Significant Revenue Growth and Margin Improvement Fiscal Year 2014 - 2022 2023 2024E - 2026E 2027E+ Primary Revenue Development – Shipsets 1 – 2 Shipsets 3 – 5 Shipsets 6 – 12 Drivers Shipset 1 Average Annual Revenue ~$100M
Slide 50: Coastal Facility Investment Project to Position for Long-Term Opportunities
Coastal Facility Investment Project to Position for Long-Term Opportunities Target Net Investment Location: Sq. Ft. Completion ~$120M Charleston, SC ~140K 2026 Investment Return Rationale / Opportunity Set • Clear path to delivering compelling return on invested capital over the life of Investment D
Slide 51: Electric Power & Propulsion Growth Opportunity Set
Electric Power & Propulsion Growth Opportunity Set Imperative to Modernize is Inevitable U.S. Submarine Demand Growth and Upside Potential Illustrative surface ship power capacity in megawatts • New platforms domestic and Long-Term international 100+ Upside Potential • Expanded content ~100 on exist
Slide 52: Financial Overview
Financial Overview Mike Dippold Chief Financial Officer 52
Slide 53: Demonstrated Ability to Execute
Demonstrated Ability to Execute Revenue Adjusted EBITDA and Margin (1) (Dollars in millions) (Dollars in millions) CAGR: 12% Total CAGR: 4% (Organic: 5%) $318 $324 $2,879 $310 Organic growth accelerating as supply $2,714 $2,778 $2,826 $2,693 $268 chain headwinds dissipate $2,333 $234 11.8% 11.5% $18
Slide 54: Broad Based Demand Driving Healthy Bookings and Solid Backlog Growth
Broad Based Demand Driving Healthy Bookings and Solid Backlog Growth Strong Revenue Visibility 1.2x 1.2x 1.2x 1.1x 1.1x Sizeable total and funded backlog 0.9x Book-to-Bill >1x book-to-bill underpins Limited near-term recompete risk revenue growth targets Significant sole source positioning 2018 2019
Slide 55: Key Financial Metrics We are Prioritizing to Maximize Shareholder Value
Key Financial Metrics We are Prioritizing to Maximize Shareholder Value Return on Invested Capital Bookings 6 1 Adjusted 5 Annual and long-term Earnings Maximizing compensation aligned to 2 Per Share Revenue financial metrics that Shareholder Value Growth maximize shareholder value 4 3 Free Cash Adj
Slide 56: 3-Year (2024E - 2026E) Financial Targets
3-Year (2024E - 2026E) Financial Targets 4% to 7% ~14% 80% to 90% 2026E Organic Free Cash Flow Adjusted EBITDA Revenue Growth Conversion Margin Note: Adjusted EBITDA Margin and Free Cash Flow Conversion are non-GAAP financial measures. The company does not provide a reconciliation of forward-looking
Slide 57: Strong and Visible Revenue Growth
Strong and Visible Revenue Growth Global threats increasing customer requirements Normal course inflation repricing $3.2B - $3.5B Limited recompetes permits $3.0B - $3.2B focus on growth $2.9B - $3.0B Supply chain normalization $2.8B Flattening overall defense budget growth Declining bipartisan 2023
Slide 58: Clear Path to Strong Adjusted EBITDA Margin Improvement
Clear Path to Strong Adjusted EBITDA Margin Improvement 60 bps ~14% 35 bps 155 bps Target margins consistent with 11.5% large defense primes with comparable business models 2023 Columbia Class Other Development Operational 2026E Transition to Programs Transitioning Growth Production to Production Le
Slide 59: Capital Deployment Optionality Enabled by Healthy Free Cash Flow Generation
Capital Deployment Optionality Enabled by Healthy Free Cash Flow Generation 1.1x ~2x 80 to 90% 75% - 100% (of Adjusted Net Earnings) Average 2023 Free Cash Flow (FCF) Target Capital Optimal Net Leverage Net Debt / EBITDA (1) Generation Deployment of FCF • Free Cash Flow seasonality • Intend to maint
Slide 60: Capital Allocation Framework
Capital Allocation Framework Accelerating profitable organic 1 growth is the most compelling avenue for value creation Organic M&A M&A Investments Internal investments and M&A 2 remain top priorities M&A M&A M&A Strong FCF generation and 3 prudent leverage foundational to disciplined capital deploym
Slide 61: Coastal Facility Investment Expected to Temporarily Elevate CapEx
Coastal Facility Investment Expected to Temporarily Elevate CapEx 4% Historical and long-term target 3% 70% / 30% mix of growth to 3% maintenance capex 2% 2% 2% 2% 2% 2% 2% 2018 2019 2020 2021 2022 2023 2024E 2025E 2026E 2027E+ Maintenance CapEx Growth CapEx Coastal Facility Investment CapEx % of Re
Slide 62: Disciplined M&A Approach
Disciplined M&A Approach Aligned to four core Sustainable long-term technology areas organic growth opportunity Strategic Financial High barriers to entry and Adjusted EBITDA Margin differentiated market position Fit Fit accretive Additive portfolio of IP, Adjusted Diluted EPS customer relationships
Slide 63: Compelling Investment Case vs. SMID Cap Defense Alternatives
Compelling Investment Case vs. SMID Cap Defense Alternatives Revenue CAGR and Visibility Adj. EBITDA CAGR vs. FCF Conversion ’25E EV / EBITDA Valuation Multiple 15% >4.5x E 20% E '23A - '25E Adj. EBITDA CAGR '23A - '25E Revenue CAGR A 15% 10% D D DRS >4.0x 10% DRS C 5% A B C 5% B 0% 0% 0.0x 0.5x
Slide 64: Closing Remarks
Closing Remarks Bill Lynn Chairman and Chief Executive Officer 64
Slide 65: We are Well Positioned to Drive Value for Our Stakeholders
We are Well Positioned to Drive Value for Our Stakeholders Attractive Experienced Unique, diverse and Strong and visible balance sheet management team with differentiated portfolio organic growth, margin offers significant a clear execution poised for durable, expansion and free cash capital deploym
Slide 66: Q&A
as LEONARDO DRS Q&A
Slide 67: Non-GAAP Financial Measures
Non-GAAP Financial Measures Definitions and Reconciliations In addition to the results reported in accordance with U.S. GAAP included throughout this presentation, the company has provided information regarding “Adjusted EBITDA,” “Adjusted EBITDA Margin,” “Adjusted Net Earnings,” “Adjusted Diluted E