Leonardo DRS Announces Financial Results for Fourth Quarter and Fiscal Year 2022

  • Revenue: $820 million for the fourth quarter and $2.7 billion for the year
  • Net Earnings: $65 million for the fourth quarter and $405 million for the year
  • Adjusted EBITDA: $120 million for the fourth quarter and $318 million for the year
  • Diluted EPS: $0.28 for the fourth quarter and $1.88 for the year
  • Adjusted Diluted EPS: $0.35 for the fourth quarter and $0.83 for the year
  • Bookings: $852 million for the fourth quarter and $3.2 billion for the year (book-to-bill ratio of 1.2)
  • Backlog: A record $4.3 billion, up 49% as result of a multi-boat Columbia Class electric power and propulsion contract
  • Initiates solid 2023 guidance

Leonardo DRS (Nasdaq and TASE: DRS), a leading provider of advanced defense technologies, today reported financial results for the fourth quarter and year ended December 31, 2022.

CEO Commentary

“2022 was a transformative year for Leonardo DRS. We executed on several strategic actions to strengthen our position in core technology markets. The team delivered solid results in a dynamic operating environment particularly with respect to a challenging supply chain, persisting inflation and tight labor availability. We continue to see strong demand for our innovative technologies and differentiated capabilities providing a path for long-term growth acceleration. In 2023, our steadfast focus is on operational execution to meet our commitments and deliver value for our customers and shareholders,” said Bill Lynn, Chairman and CEO of Leonardo DRS.

Summary Financial Results

(In millions, except per share amounts)

Fourth Quarter

 

Full Year

2022

 

2021

 

Change

 

2022

 

2021

 

Change

Revenues

$820

 

$820

 

—%

 

$2,693

 

$2,879

 

(6%)

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings

$65

 

$58

 

12%

 

$405

 

$154

 

163%

Diluted WASO

229.045

 

210.445

 

 

 

215.133

 

210.445

 

 

Diluted Earnings Per Share (EPS)

$0.28

 

$0.28

 

3%

 

$1.88

 

$0.73

 

157%

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Financial Measures (1)

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

$120

 

$100

 

21%

 

$318

 

$310

 

3%

Adjusted EBITDA Margin

14.7%

 

12.1%

 

260 bps

 

11.8%

 

10.8%

 

100 bps

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Earnings (2)

$81

 

$63

 

28%

 

$179

 

$174

 

3%

Adjusted Diluted EPS (2)

$0.35

 

$0.30

 

17%

 

$0.83

 

$0.83

 

1%

(1) Information about the company’s use of non-GAAP financial measures, including a reconciliation of the non-GAAP financial measures to the most comparable financial measures calculated and presented in accordance with U.S. GAAP, is provided under "Non-GAAP Financial Measures."

 

(2) The company changed its definitions for adjusted net earnings and adjusted diluted EPS from its latest form 10-Q filing. The revised methodology now mirrors the same adjustments made to adjusted EBITDA with the exception of interest, taxes and depreciation and now is also tax effecting all adjustments made to adjusted net earnings and adjusted diluted EPS. Supplemental quarterly 2022 data for both metrics have been included in the “Non-GAAP Financial Measures” section for reference.

Revenues for the quarter were flat as greater demand in our Advanced Sensing and Computing (ASC) segment outweighed reductions in our Integrated Mission Systems (IMS) segment. For the year, revenues declined largely due to the contribution differences resulting from the timing and relative size of our divestiture of our Global Enterprise Solutions (GES) business versus our acquisition of RADA Electronic Industries (RADA) (collectively referred to as the “net divestiture impact”) as well as the supply chain disruptions that continued to limit the availability and delivery lead times of electronic components.

Adjusted EBITDA growth and adjusted EBITDA margin expansion for the quarter and full year were driven by improved program performance, the strength of which was partly offset by unfavorable volume, inflation and the net divestiture impact.

For the quarter, strong operating performance and a favorable tax rate drove net earnings growth. The gain on the divestitures of GES and our Advanced Acoustic Concepts Joint Venture positively impacted net earnings and diluted earnings per share for the year. The increase in adjusted net earnings for the quarter and year were driven by solid operating performance. Additionally, the increase in share count resulting from our all-stock merger with RADA was a headwind to the year-over-year comparisons for diluted EPS and for adjusted diluted EPS.

Cash Flow, Balance Sheet and Strategic Actions

Net cash flow provided by operating activities was $279 million for the fourth quarter and $33 million for the full year. For both the quarter and full year, both cash outflows for tax payments on disposals and payments related to our M&A activities have been recorded in operating activities, while the related cash inflows from the proceeds from sales of businesses are categorized in investing activities and the subsequent dividend of net proceeds issued to US Holdings is shown in financing activities.

Consistent with the historical patterns of the business, the company generated strong free cash flow in the fourth quarter of $336 million. Full year free cash flow was $74 million, which was hampered by supply chain disruptions that led to less working capital efficiency.

In conjunction with the company’s public listing in November 2022, it entered into a $500 million credit agreement comprised of a $225 million five-year term loan A facility and a five-year $275 million revolving credit facility. At year end, the balance sheet had $306 million of cash and $225 million of outstanding borrowings under its credit facility, which still leaves the company with ample financial capacity to deploy capital for growth, while maintaining a strong balance sheet.

During the fiscal year, Leonardo DRS completed two divestitures and a strategic acquisition to reshape the future growth trajectory of the company. On November 28, 2022, the company completed its all-stock combination with RADA. On August 1, 2022, the company completed its divestiture of its Global Enterprise Solutions business to SES Government Solutions for $427 million (net of working capital adjustments). On July 8, 2022, the company completed its divestiture of its 51% stake in the Advanced Acoustic Concepts Joint Venture to Thales Defense & Security for $56 million. The company issued a dividend for the net divestiture proceeds to its sole shareholder (at the time) in the third quarter of 2022.

Bookings and Backlog

(Dollars in millions)

Fourth Quarter

 

Full Year

 

2022

 

2021

 

2022

 

2021

Bookings

$852

 

$676

 

$3,156

 

$2,595

Book-to-Bill

1.0x

 

0.8x

 

1.2x

 

0.9x

Backlog

$4,269

 

$2,861

 

$4,269

 

$2,861

The company received $852 million in new funded awards during the quarter and $3.2 billion for the year. Strong bookings were driven by the increased demand for the company’s solutions across its four key technology areas of advanced sensing, network computing, force protection and electric power and propulsion. As a result of the strong bookings across the company and the multi-boat contract for our Columbia Class electric power and propulsion system valued at approximately $1 billion, backlog increased by 49% to a record $4.3 billion.

Segment Results

Advanced Sensing and Computing (“ASC”) Segment

(Dollars in millions)

Fourth Quarter

 

Full Year

2022

 

2021

 

Change

 

2022

 

2021

 

Change

Revenues

$485

 

$452

 

7%

 

$1,733

 

$1,940

 

(11%)

Adjusted EBITDA

$74

 

$49

 

50%

 

$199

 

$220

 

(10%)

Adjusted EBITDA Margin

15.3%

 

10.9%

 

440 bps

 

11.5%

 

11.3%

 

20 bps

Bookings

$402

 

$332

 

 

 

$1,975

 

$1,691

 

 

Book-to-Bill

0.8x

 

0.7x

 

 

 

1.1x

 

0.9x

 

 

Fourth quarter ASC revenues were up despite the unfavorable net divestiture impact due to increased demand for our sensing capabilities and a stabilization in the timing of electronic component availability. Full year revenues in the segment declined due to the net divestiture headwind as well as the continued impact of supply chain disruptions.

In the fourth quarter, Adjusted EBITDA and adjusted EBITDA margins increased with improved program efficiencies and better volumes as the primary driving factors. For the full year, adjusted EBITDA declined on lower volumes driven but program efficiencies helped drive a slight increase in adjusted EBITDA margins.

The increased demand for advanced battle management systems, ground vehicle sensing and dismounted sensing systems drove growth in bookings for ASC in the quarter and the full year.

Integrated Mission Systems (“IMS”) Segment

(Dollars in millions)

Fourth Quarter

 

Full Year

2022

 

2021

 

Change

 

2022

 

2021

 

Change

Revenues

$349

 

$375

 

(7%)

 

$983

 

$959

 

3%

Adjusted EBITDA

$46

 

$51

 

(10%)

 

$119

 

$90

 

32%

Adjusted EBITDA Margin

13.2%

 

13.6%

 

(40) bps

 

12.1%

 

9.4%

 

270 bps

Bookings

$450

 

$344

 

 

 

$1,181

 

$904

 

 

Book-to-Bill

1.3x

 

0.9x

 

 

 

1.2x

 

0.9x

 

 

Program delays slipped revenue into Q4 2021, elevating the prior period and made for a tough compare. Revenues for the full year increased due to greater contribution from electric power and propulsion and force protection programs.

Adjusted EBITDA and adjusted EBITDA margin declined in the quarter due to lower volume. For the full year, adjusted EBITDA was up and adjusted EBITDA margins expanded due to stronger program execution efficiency and slightly better volume.

The positive momentum in shipbuilding is adding to our electric power and propulsion programs and increased demand related to C-UAS and air defense systems drove IMS segment bookings for the quarter and year.

2023 Guidance

Leonardo DRS is initiating 2023 guidance as specified in the table below:

Measure

2023 Guidance

Revenue

$2.7 billion - $2.8 billion

Adjusted EBITDA

$315 million - $330 million

Adjusted Diluted EPS

$0.64 - $0.69

The company does not provide a reconciliation of forward-looking adjusted EBITDA and adjusted diluted EPS, due to inherent difficulty in forecasting and quantifying the adjustments that are necessary to calculate such non-GAAP measures without unreasonable efforts. Material changes to any one of these items could have a significant effect on future GAAP results.

Conference Call

Leonardo DRS management will host a conference call beginning at 10:30 a.m. ET on March 28, 2023 to discuss the financial results for its fourth quarter and fiscal year 2022.

A live audio broadcast of the conference call along with a supplemental presentation will be available to the public through links on the Leonardo DRS Investor Relations website (https://investors.leonardodrs.com).

A replay of the conference call will be available on the Leonardo DRS website approximately 2 hours after the conclusion of the conference call.

About Leonardo DRS

Headquartered in Arlington, VA, Leonardo DRS, Inc. is an innovative and agile provider of advanced defense technology to U.S. national security customers and allies around the world. We specialize in the design, development and manufacture of advanced sensing, network computing, force protection, and electric power and propulsion, and other leading mission-critical technologies. Our innovative people are leading the way in developing disruptive technologies for autonomous, dynamic, interconnected, and multi-domain capabilities to defend against new and emerging threats. For more information and to learn more about our full range of capabilities, visit www.LeonardoDRS.com.

Forward-Looking Statements

In this press release, 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 press release contains forward-looking statements and cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “strives,” “targets,” “projects,” “guidance,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. Forward-looking statements include, without limitation, all matters that are not historical facts. They appear in a number of places throughout this press release and include, without limitation, statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, financial goals, financial position, results of operations, cash flows, prospects, strategies or expectations, and the impact of prevailing economic conditions.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes may differ materially from those made in or suggested by the forward-looking statements contained in this press release. In addition, even if future performance and outcomes are consistent with the forward-looking statements contained in this press release, those results or developments may not be indicative of results or developments in subsequent periods. New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation: disruptions or deteriorations in our relationship with the relevant agencies of the U.S. government, as well as any failure to pass routine audits or otherwise comply with governmental requirements including those related to security clearance or procurement rules, including the False Claims Act; significant delays or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly; any failure to comply with the proxy agreement with the U.S. Department of Defense (the “DoD”); failure to properly contain a global pandemic in a timely manner could materially affect how we and our business partners operate; the effect of inflation on our supply chain and/or our labor costs; our mix of fixed-price, cost-plus and time-and-material type contracts and any resulting impact on our cash flows due to cost overruns; failure to properly comply with various covenants of the agreements governing our debt could negatively impact our business; our dependence on U.S. government contracts, which often are only partially funded and are subject to immediate termination, some of which are classified, and the concentration of our customer base in the U.S. defense industry; our use of estimates in pricing and accounting for many of our programs that are inherently uncertain and which may not prove to be accurate; our ability to realize the full value of our backlog; our ability to predict future capital needs or to obtain additional financing if we need it; our ability to respond to the rapid technological changes in the markets in which we compete; the effect of global and regional economic downturns and rising interest rates; our ability to meet the requirements of being a public company; our ability to maintain an effective system of internal control over financial reporting; our inability to appropriately manage our inventory; our inability to fully realize the value of our total estimated contract value or bookings; our ability to compete efficiently, including due to U.S. government organizational conflict of interest rules which may limit new contract opportunities or require us to wind down existing contracts; our relationships with other industry participants, including any contractual disputes or the inability of our key suppliers to timely deliver our components, parts or services; preferences for set-asides for minority-owned, small and small disadvantaged businesses could impact our ability to be a prime contractor; any failure to meet our contractual obligations including due to potential impacts to our business from supply chain risks, such as longer lead times and shortages of electronics and other components; any security breach, including any cyber-attack, cyber intrusion, insider threat, or other significant disruption of our IT networks and related systems as well as any act of terrorism or other threat to our physical security and personnel; our ability to fully exploit or obtain patents or other intellectual property protections necessary to secure our proprietary technology, including our ability to avoid infringing upon the intellectual property of third parties or prevent third parties from infringing upon our own intellectual property; the conduct of our employees, agents, affiliates, subcontractors, suppliers, business partners or joint ventures in which we participate which may impact our reputation and ability to do business; our compliance with environmental laws and regulations, and any environmental liabilities that may affect our reputation or financial position; the outcome of litigation, arbitration, investigations, claims, disputes, enforcement actions and other legal proceedings in which we are involved; various geopolitical and economic factors, laws and regulations including the Foreign Corrupt Practices Act (“FCPA”), the Export Control Act, the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”), and those that we are exposed to as a result of our international business; our ability to obtain export licenses necessary to conduct certain operations abroad, including any attempts by Congress to prevent proposed sales to certain foreign governments; our ability to attract and retain technical and other key personnel; the occurrence of prolonged work stoppages; the unavailability or inadequacy of our insurance coverage, customer indemnifications or other liability protections to cover all of our significant risks or to pay for material losses we incur; future changes in U.S. tax laws and regulations or interpretations thereof; certain limitations on our ability to use our net operating losses to offset future taxable income; termination of our leases or our inability to renew our leases on acceptable terms; changes in estimates used in accounting for our pension plans, including in respect of the funding status thereof; changes in future business or other market conditions that could cause business investments and/or recorded goodwill or other long-term assets to become impaired; adverse consequences from any acquisitions such as operating difficulties, dilution and other harmful consequences or any modification, delay or prevention of any future acquisition or investment activity by the Committee on Foreign Investment in the United States (“CFIUS”); natural disasters or other significant disruptions; or any conflict of interest that may arise because Leonardo US Holding, LLC (“US Holding”), our majority stockholder, or Leonardo S.p.A., our ultimate majority stockholder, may have interests that are different from, or conflict with, those of our other stockholders, including as a result of any ongoing business relationships Leonardo S.p.A. may have with us, and their significant ownership in us may discourage change of control transactions (our amended and restated certificate of incorporation provides that we waive any interest or expectancy in corporate opportunities presented to Leonardo S.p.A); or our obligations to provide certain services to Leonardo S.p.A., which may divert human and financial resources from our business.

You should read this press release completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this press release are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this filing, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise.

Other risks, uncertainties and factors, including those discussed in our latest SEC filings under “Risk Factors” of our latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, all of which may be viewed or obtained through the investor relations section of our website https://www.leonardodrs.com, could cause our actual results to differ materially from those projected in any forward-looking statements we make. Readers should read carefully the discussion of these factors to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements.

Consolidated Statement of Earnings (Unaudited)

(Dollars in millions, except per share amounts)

Three Months Ended

 

Twelve Months Ended

 

December 31,

 

December 31,

 

2022

 

2021

 

2022

 

2021

Revenues

 

 

 

 

 

 

 

Products

$773

 

 

$767

 

 

$2,443

 

 

$2,505

 

Services

47

 

 

53

 

 

250

 

 

374

 

Total revenues

820

 

 

820

 

 

2,693

 

 

2,879

 

Cost of revenues

 

 

 

 

 

 

 

Products

(600

)

 

(642

)

 

(1,928

)

 

(2,067

)

Services

(36

)

 

(25

)

 

(190

)

 

(265

)

Total cost of revenues

(636

)

 

(667

)

 

(2,118

)

 

(2,332

)

Gross profit

184

 

 

153

 

 

575

 

 

547

 

General and administrative expenses

(96

)

 

(68

)

 

(357

)

 

(293

)

Amortization of intangibles

(3

)

 

(2

)

 

(10

)

 

(9

)

Other operating income (expenses), net

2

 

 

(2

)

 

353

 

 

(9

)

Operating earnings

87

 

 

81

 

 

561

 

 

236

 

Interest expense

(7

)

 

(8

)

 

(34

)

 

(35

)

Other, net

(2

)

 

 

 

(2

)

 

(1

)

Earnings before taxes

78

 

 

73

 

 

525

 

 

200

 

Income tax provision

13

 

 

15

 

 

120

 

 

46

 

Net earnings

$65

 

 

$58

 

 

$405

 

 

$154

 

 

 

 

 

 

 

 

 

Net earnings per share from common stock

 

 

 

 

 

 

 

Basic earnings per share:

$0.28

 

 

$0.28

 

 

$1.88

 

 

$0.73

 

Diluted earnings per share:

$0.28

 

 

$0.28

 

 

$1.88

 

 

$0.73

 

Consolidated Balance Sheets (Unaudited)

(Dollars in millions)

 

 

 

 

December 31,

 

 

 

 

 

2022

 

2021

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$306

 

 

$240

 

Accounts receivable, net

 

166

 

 

156

 

Contract assets

 

872

 

 

743

 

Inventories

 

319

 

 

205

 

Related party note receivable

 

 

 

 

Prepaid expenses

 

20

 

 

23

 

Other current assets

 

24

 

 

22

 

Total current assets

 

1,707

 

 

1,389

 

Noncurrent assets:

 

 

 

 

Property plant and equipment, net

 

404

 

 

364

 

Intangible assets, net

 

172

 

 

52

 

Goodwill

 

1,236

 

 

1,071

 

Deferred tax assets

 

66

 

 

56

 

Other noncurrent assets

 

92

 

 

137

 

Total noncurrent assets

 

1,970

 

 

1,680

 

Total assets

 

$3,677

 

 

$3,069

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Short-term borrowings and current portion of long-term debt

 

$29

 

 

$41

 

Accounts payable

 

457

 

 

479

 

Contract liabilities

 

233

 

 

174

 

Other current liabilities

 

323

 

 

295

 

Total current liabilities

 

1,042

 

 

989

 

Noncurrent liabilities:

 

 

 

 

Long-term debt

 

365

 

 

352

 

Pension and other postretirement benefit plan liabilities

 

45

 

 

61

 

Other noncurrent liabilities

 

98

 

 

74

 

Total noncurrent liabilities

 

$508

 

 

$487

 

Shareholders' equity

 

 

 

 

Preferred stock, $0.01 par value: 10,000,000 shares authorized; none issued

 

$—

 

 

$—

 

Common stock, $0.01 par value: 350,000,000 shares authorized; 260,234,033 shares issued and outstanding

 

3

 

 

2

 

Additional paid-in capital

 

5,147

 

 

4,632

 

Accumulated deficit

 

(2,974

)

 

(2,983

)

Accumulated other comprehensive loss

 

(49

)

 

(58

)

Total shareholders' equity

 

2,127

 

 

1,593

 

Total liabilities and shareholders' equity

 

$3,677

 

 

$3,069

 

Consolidated Statement of Cash Flows (Unaudited)

(Dollars in millions)

 

 

 

 

Year Ended

 

 

 

 

 

December 31,

 

 

 

 

 

2022

 

2021

Operating activities

 

 

 

 

Net earnings

 

$405

 

 

$154

 

Adjustments to reconcile net earnings (loss) to net cash from operating activities:

 

 

 

 

Depreciation and amortization

 

65

 

 

58

 

Deferred income taxes

 

(6

)

 

31

 

Gain from divestitures

 

(354

)

 

 

Other

 

5

 

 

 

Changes in assets and liabilities:

 

 

 

 

Accounts receivable

 

(1

)

 

(54

)

Contract assets

 

(134

)

 

(71

)

Inventories

 

(33

)

 

42

 

Prepaid expenses

 

(1

)

 

10

 

Other current assets

 

3

 

 

12

 

Other noncurrent assets

 

24

 

 

19

 

Defined benefit obligations

 

(4

)

 

(13

)

Other current liabilities

 

14

 

 

28

 

Other noncurrent liabilities

 

(8

)

 

(36

)

Accounts payable

 

(14

)

 

1

 

Contract liabilities

 

72

 

 

(3

)

Net cash provided by operating activities

 

33

 

 

178

 

Investing activities

 

 

 

 

Capital expenditures

 

(65

)

 

(60

)

Business acquisitions, net of cash acquired

 

19

 

 

(14

)

Proceeds from sales of assets

 

 

 

 

Proceeds from sales of businesses

 

482

 

 

 

Net repayments received (advances) on related party note receivable

 

 

 

115

 

Cost method investment

 

 

 

(2

)

Net cash provided by (used in) investing activities

 

436

 

 

39

 

Financing activities

 

 

 

 

Net (decrease) increase in third party borrowings (maturities of 90 days or less)

 

(8

)

 

(18

)

Repayment of third party debt

 

 

 

 

Borrowings of third party debt

 

223

 

 

 

Repayment of related party debt

 

(992

)

 

(950

)

Borrowings from related parties

 

775

 

 

930

 

Dividend to US Holding

 

(396

)

 

 

Dividend from investment

 

3

 

 

 

Other

 

(8

)

 

 

Net cash used in financing activities

 

(403

)

 

(38

)

Effect of exchange rate changes on cash and cash equivalents

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

66

 

 

179

 

Cash and cash equivalents at beginning of year

 

240

 

 

61

 

Cash and cash equivalents at end of year

 

$306

 

 

$240

 

Non-GAAP Financial Measures (Unaudited)

In addition to the results reported in accordance with U.S. GAAP included throughout this document, the company has provided information regarding “Adjusted EBITDA,” “Adjusted EBITDA Margin,” “Adjusted Net Earnings,” “Adjusted Diluted Earnings Per Share,” and “Free Cash Flow” (each, a non-GAAP financial measure).

We believe the non-GAAP financial measures presented in this document will help investors understand our financial condition and operating results and assess our future prospects. We believe these non-GAAP financial measures, each of which is discussed in greater detail below, are important supplemental measures because they exclude unusual or non-recurring items as well as non-cash items that are unrelated to or may not be indicative of our ongoing operating results. Further, when read in conjunction with our GAAP results, these non-GAAP financial measures provide a baseline for analyzing trends in our underlying businesses and can be used by management as a tool to help make financial, operational and planning decisions. Finally, these measures are often used by analysts and other interested parties to evaluate companies in our industry by providing more comparable measures that are less affected by factors such as capital structure.

We recognize that these non-GAAP financial measures have limitations, including that they may be calculated differently by other companies or may be used under different circumstances or for different purposes, thereby affecting their comparability from company to company. In order to compensate for these and the other limitations discussed below, management does not consider these measures in isolation from or as alternatives to the comparable financial measures determined in accordance with U.S. GAAP. Readers should review the reconciliations below and should not rely on any single financial measure to evaluate our business.

We define these non-GAAP financial measures as follows:

Adjusted EBITDA and Adjusted EBITDA Margin are defined as net earnings before income taxes, interest expense, amortization of acquired intangible assets, depreciation, deal related transaction costs, restructuring costs, other non-operating expense (which includes non-service pension expense, COVID-19 response costs and foreign exchange impacts) and gain on sale of dispositions, then in the case of adjusted EBITDA margin dividing adjusted EBITDA by revenues.

(Dollars in millions)

Three Months Ended

 

Twelve Months Ended

 

December 31,

 

December 31,

 

2022

 

2021

 

2022

 

2021

Net earnings

$65

 

 

$58

 

 

$405

 

 

$154

 

Income tax provision

13

 

 

15

 

 

120

 

 

46

 

Interest expense

7

 

 

8

 

 

34

 

 

35

 

Amortization of intangibles

3

 

 

2

 

 

10

 

 

9

 

Depreciation

14

 

 

12

 

 

55

 

 

49

 

Deal related transaction costs

17

 

 

1

 

 

43

 

 

5

 

Restructuring costs

3

 

 

5

 

 

3

 

 

5

 

Other non-operating expense

2

 

 

(1

)

 

2

 

 

7

 

Gain on sale of dispositions

(4

)

 

 

 

(354

)

 

 

Adjusted EBITDA

$120

 

 

$100

 

 

$318

 

 

$310

 

Adjusted EBITDA Margin

14.7

%

 

12.1

%

 

11.8

%

 

10.8

%

Adjusted Net Earnings and Adjusted Diluted EPS are defined as net earnings excluding amortization of acquired intangible assets, deal related transaction costs, restructuring costs, other non-operating expense (which includes non-service pension expense, COVID-19 response costs, foreign exchange impacts), gain on sale of dispositions (net of taxes) and the related tax impact from net earnings, then in the case of adjusted diluted EPS dividing adjusted net earnings by the diluted weighted average shares outstanding.

(In millions, except per share amounts)

Three Months Ended

 

Twelve Months Ended

December 31,

 

December 31,

 

2022

 

2021

 

2022

 

2021

Net earnings

$65

 

 

$58

 

 

$405

 

 

$154

 

Amortization of intangibles

3

 

 

2

 

 

10

 

 

9

 

Deal related transaction costs

17

 

 

1

 

 

43

 

 

5

 

Restructuring costs

3

 

 

5

 

 

3

 

 

5

 

Other non-operating expense

2

 

 

(1

)

 

2

 

 

7

 

Gain on sale of dispositions, net of taxes

(5

)

 

 

 

(275

)

 

 

Tax effect of adjustments (1)

(4

)

 

(2

)

 

(9

)

 

(6

)

Adjusted Net Earnings

$81

 

 

$63

 

 

$179

 

 

$174

 

 

 

 

 

 

 

 

 

Per share information

 

 

 

 

 

 

 

Diluted weighted average common shares

229.045

 

 

210.445

 

 

215.133

 

 

210.445

 

 

 

 

 

 

 

 

 

Diluted earnings per share

$0.28

 

 

$0.28

 

 

$1.88

 

 

$0.73

 

Adjusted Diluted EPS

$0.35

 

 

$0.30

 

 

$0.83

 

 

$0.83

 

(In millions, except per share amounts)

2022 (Three Months Ended)

 

Mar 31

 

Jun 30

 

Sep 30

 

Dec 31

 

Q1

 

Q2

 

Q3

 

Q4

Net earnings

$36

 

 

$25

 

 

$279

 

 

$65

 

Amortization of intangibles

2

 

 

2

 

 

3

 

 

3

 

Deal related transaction costs

2

 

 

8

 

 

16

 

 

17

 

Restructuring costs

 

 

 

 

 

 

3

 

Other non-operating expense

 

 

1

 

 

(1

)

 

2

 

Gain on sale of dispositions, net of taxes

 

 

 

 

(270

)

 

(5

)

Tax effect of adjustments (1)

(1

)

 

(2

)

 

(2

)

 

(4

)

Adjusted Net Earnings

$39

 

 

$34

 

 

$25

 

 

$81

 

 

 

 

 

 

 

 

 

Per share information

 

 

 

 

 

 

 

Diluted weighted average common shares

210.445

 

 

210.445

 

 

210.445

 

 

229.045

 

 

 

 

 

 

 

 

 

Diluted earnings per share

$0.17

 

 

$0.12

 

 

$1.33

 

 

$0.28

 

Adjusted Diluted EPS

$0.19

 

 

$0.16

 

 

$0.12

 

 

$0.35

 

 

(1) Calculation uses an estimated statutory tax rate on non-GAAP adjustments.

Free Cash Flow is defined as the sum of the cash flows provided by (used in) operating activities, transaction related expenditures (net of tax), tax payments on disposals, capital expenditures, proceeds from sale of assets and dividends from investments.

(Dollars in millions)

Three Months Ended

 

Twelve Months Ended

 

December 31,

 

December 31,

 

2022

 

2021

 

2022

 

2021

Net cash provided by operating activities

$279

 

 

$289

 

 

$33

 

 

$178

 

Transaction related expenditures, net of tax

6

 

 

 

 

25

 

 

4

 

Tax payments on disposals

78

 

 

 

 

78

 

 

 

Capital expenditures

(30

)

 

(18

)

 

(65

)

 

(60

)

Proceeds from sales of assets

 

 

 

 

 

 

 

Dividends from investments

3

 

 

 

 

3

 

 

 

Free Cash Flow

$336

 

 

$271

 

 

$74

 

 

$122

 

Contacts

Leonardo DRS Contacts

Investors

Steve Vather

VP, Investor Relations & Corporate Finance

+1 703 409 2906

stephen.vather@drs.com

Media

Michael Mount

VP, Communications & Public Affairs

+1 571 447 4624

mmount@drs.com

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