Leonardo DRS Inc
NASDAQ:DRS
Earnings Call Analysis
Q4-2023 Analysis
Leonardo DRS Inc
The company experienced revenue growth of 5%, reaching 7% on an organic basis after adjusting for net divestiture impact. The demand for their solutions in naval and ground network computing, electric power, propulsion, and multi-mission advanced sensing led to a book-to-bill ratio of 1.2, propelling their backlog by a staggering 82% to a new record of $7.8 billion.
Adjusted EBITDA grew by 9% and 2% for the fourth quarter and the full year respectively, reaching $131 million for the quarter and $324 million for the full year. Operations translated into a net earnings growth of 14% for the fourth quarter, although there was a decline for the full year. Adjusted net earnings showed a 2% and 8% increase for the quarter and the full year respectively.
The commitment to long-term growth was further demonstrated by the allocation of approximately $120 million over the next three years towards a new facility in South Carolina, intended to support their expanding electric power and propulsion business. While assessing the macro environment and despite some quarterly uncertainties, the company is forecasting growth and margin expansion for the next financial year, with revenue projections between $2.925 billion and $3.025 billion, and an adjusted EBITDA estimate of $365 million to $390 million.
The global threats and need for integrated battlefields suggest continued demand for the company's product lines, such as their advanced sensing space. While the company normally doesn't guide to bookings, there is confidence within the company of achieving a book-to-bill ratio higher than 1:1 for 2024. The company has witnessed its international revenue increase to 10% over the past few years and anticipates further growth as product programs transition from development to production.
Investments are geared towards driving efficiencies, particularly in the Columbia program, where the company is focused on maximizing margins with the new South Carolina facility. The expectation is that this approach will enhance returns on the Columbia program once the facility is operational.
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Ladies and gentlemen, good day, and welcome to the Leonardo DRS Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator instruction] As a reminder, this event is being recorded.I would like to now turn the conference over to Steve Vather, Vice President of Investor Relations and Corporate Finance. Please go ahead.
Good morning, and welcome, everyone. Thanks for participating on today's quarterly earnings conference call. With me today are Bill Lynn, our Chairman and CEO; and Mike Dippold, our CFO. They 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, where you will also find the earnings release and supplemental presentation. Management may also make forward-looking statements during the call regarding future events and anticipated future trends and anticipated future performance of the company. We caution you that such statements are not guarantees of future performance that 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. 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. 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 Bill. Bill?
Thanks, Steve, and thank you all for tuning in and your interest in Leonardo DRS. I'd like to start by expressing my sincere gratitude to the entire DRS team for their incredible contributions in delivering for both our customers and our shareholders. We continue to build on our execution track record and ended the year on solid footing, resulting in exceptional financial results for 2023. For the year, our revenue growth accelerated to 5%. And when adjusting for the net divestiture impact, we grew approximately 7% on an organic basis. Additionally, we excelled at capturing bookings and achieved a 1.2 book-to-bill ratio for the year. We saw impressive demand for our solutions in naval and ground network computing, electric power and propulsion and multi-mission advanced sensing. Our total backlog grew by 82% to a new company record of $7.8 billion. This reflects the over $3 billion contract for the rest of Columbia class electric power and propulsion systems that I briefly mentioned last quarter and also a diverse set of contract awards secured throughout the year.In 2023, we also delivered adjusted EBITDA growth but at a slightly lower pace than our top line. We managed through peak inflationary headwinds and had increased G&A from greater investment in internal R&D and higher public company costs. Lastly, 2023 free cash flow was robust at $159 million and was a result of significantly stronger-than-expected fourth quarter collections.Moving to the budget and market environment. We are closely monitoring the progress of FY '24 appropriations. And at this time, we are cautiously optimistic on its timely passage. The need to deter and counter growing and more sophisticated threats across increasingly connected and contested domains is prompting our customers to accelerate investment and to modernize capabilities. Furthermore, the dynamic global threat environment is palpable, and it is also spurring increased defense spending by our allies.Our portfolio is closely aligned to these well-funded priorities, and this is evidenced in our growing backlog and multiple years of robust bookings for our advanced technologies in sensing, network computing, force protection and electric power and propulsion. The confidence we have in our ability to drive long-term growth is backstopped by strong continued customer demand and our healthy opportunity pipeline.Shifting now to operational highlights. I'm pleased with the broad strength evident across our business. Throughout the year, we continued to expand our well-fortified market positions, secured new business wins and sharpened our differentiation through R&D investments. Our long-term strategy to drive a growing resilient and diverse business is reflected in our evolving mix.First, growth in our electric power and propulsion and naval network computing businesses drove the Navy to become our largest end customer, which is a first for us in several decades. The Navy now represents nearly 40% of revenue today and an even greater percentage of our total backlog given the recent Columbia class contracts secured in the last 18 months.The importance of the Navy and the long-term growth opportunity we see with this customer is driving capital investment in the form of a new facility in South Carolina. This new investment is approximately $120 million over the next 3 years, with the goal of initial occupancy by 2026. There is a clear long-term fast-growing addressable opportunity set for DRS given our customers' need for next-generation capabilities to overmatch potential near peer adversaries.Alternative technologies to electric power and propulsion are inadequate in their ability to scale to the power requirements needed for the future. We fundamentally believe that it is a question of when, not if, this technology is adopted for next-generation destroyers as well as other platforms.Secondly, strong global demand from allies for our ground network computing and advanced sensing technologies resulted in a meaningful increase in international revenues. Our international customer exposure grew 10% of revenue for the year. While customer demand was most evident for technologies residing in our ASC segment, we believe there are clear international growth opportunities across our business.In addition to a shift in customer mix, we are continuing to see new and growing addressable missions emerge for our technologies. Our uncooled infrared sensors, tactical radars, high frequency and software defined radios stand out in particular. Some of these increasing missions include applications in signals intelligence, secure communications, missiles and also both ground and airborne force protection.I'm pleased to report that we also continued to make progress in the space market through wins on next-generation civilian weather satellites in 2023. That said, in the missile defense arena, we saw solid customer interest in our technology, but that interest has been slower to translate into contract awards. We are maintaining a long-term focus on growing our share in the space defense market.Earlier, I mentioned that one of the drivers for increased G&A costs in 2023 was an uptick in internal R&D investment. As you know, this was a conscious decision to invest in expanding our differentiation and propelling future growth. Our internal R&D as a percentage of revenue approached 3% in 2023, which is consistent with peers operating comparable business models.On prior calls, I have detailed some of our investment initiatives, including integrated sensing, cyber hardened and assured PNT capabilities for network computing, increased mobility for counter UAS solutions, among other technology advancements. Today, I wanted to highlight that throughout the year, we debuted 3 brand-new radars for new applications in force protection and longer-range air defense.Overall, our tactical radar portfolio has been incredibly well received as we continue to generate strong customer demand across active protection, air defense and force protection markets. Secondly, we recently unveiled a new family of lasers that cover a wider spectrum of light. These new lasers are critical to helping solve the foundational problems in advancing defense and commercial quantum computing and sensing challenges.Shifting to program execution. We made significant progress in 2023 to advance our development programs into sustainable production efforts across the portfolio. The team has done a remarkable job in improving execution. We will maintain though a consistent focus on this front to maximize outcomes for our customers and our shareholders alike.Before I turn the call over to Mike, let me wrap up my remarks by underscoring that our strategy is creating value for our customers, employees and shareholders. I'm proud of what we have achieved. Our focus remains on continuing to execute our strategy to accelerate growth, drive margin expansion and generate consistent cash flow.Mike, over to you to review our financial performance and 2024 outlook.
Thanks, Bill, and thank you to the entire team for their remarkable efforts throughout the year to deliver the excellent financial results for 2023. Revenue was $926 million for the fourth quarter, accelerating total growth to 13% and 11% on an organic basis. For the year, revenue was $2.8 billion, representing a 5% total growth and 7% organic growth from 2022. We saw broad-based demand drive growth in both Q4 and 2023 full year. In our Advanced Sensing and Computing segment, revenue growth for the year was driven by strength in naval network computing and multimission advanced sensing programs, particularly leveraging our tactical radars, lasers, tactical communications and electronic warfare technology. In our Integrated Emission Systems segment, revenues benefited from strong contribution from electric power and propulsion programs to drive growth for the year.Now to adjusted EBITDA. Adjusted EBITDA was $131 million for the fourth quarter and $324 million for the full year, representing year-over-year growth of 9% and 2%, respectively. Resulting margins were 14.1% for the fourth quarter and 11.5% for the full year, a decline of 60 and 30 basis points, respectively. Higher volume at the top line resulted in adjusted EBITDA growth, but we faced headwinds to adjusted EBITDA margin primarily from higher G&A due to greater investments in internal R&D and an uptick in public company costs.Moving to the segment trends. ASC segment adjusted EBITDA increased and margin expanded for the year, mostly on better volume and better mix. IMS segment adjusted EBITDA and margin were down due to unfavorable mix and higher G&A spend for the year. These headwinds masked the strong execution on our Columbia class program, which is progressing favorably towards higher margins in 2024 and beyond.Now to the bottom line metrics. Solid operational execution translated to net earnings growth of 14% to $74 million for the fourth quarter, but declined for the full year. As a reminder, the compare for the full year net earnings is skewed given the sizable net gain on the divestitures recorded in 2022.Adjusted net earnings were $83 million for the fourth quarter and $194 million for the full year, demonstrating a growth of 2% and 8% versus the prior year. The compares for both diluted EPS and adjusted diluted EPS in the quarter and full year continued to be impacted by the diluted share count growth from the all-stock combination with RADA. Exiting the year, our fully diluted share count should have more stability, making the comparisons moving forward hopefully cleaner.Moving to free cash flow. Consistent with historical trends, free cash flow exhibited year-end strength and was $494 million in Q4, reflecting robust collections and a benefit from favorable timing that accelerated cash into the quarter. As a result, full year free cash flow was significantly ahead of our expectations at $159 million. We continued to strengthen our balance sheet and have expanded capacity for value-enhancing capital deployment.As discussed, our capital deployment strategy is focused on both organic and inorganic growth. While we continue to evaluate bolt-on M&A opportunities that fit our strategy and show potential of being value additive to our business, we remain disciplined and to date have not found compelling opportunities to transact on.Organic investments in the near term are presenting greater long-term value to our business. As Bill briefly mentioned earlier, we are embarking on building a new coastal facility in South Carolina to support our fast-growing electric power and propulsion business. This investment will increase our capital expenditures over the next few years. But even with that uptick in CapEx, we expect to maintain solid free cash flow conversion.We have rigorously evaluated the merits of this capital project and have determined there is an overwhelming reason to proceed and have a clear path to delivering returns in excess of our return on invested capital targets over the long term. This organic investment has not changed our active interest in pursuing M&A targets aligned to our strategic and financial criteria.Now to our 2024 guidance. We expect to capitalize on the momentum built throughout 2023 into strong organic growth and margin expansion this year. We are initiating a revenue range between $2.925 billion and $3.025 billion, representing a 4% to 7% growth, all of which is organic. Assuming that our guidance has a reasonable and timely passage at the FY 2024 appropriations, we expect the quarterly cadence to be less pronounced compared to 2023, but we are still anticipating the same general trend where revenues will build throughout the year with comparable statements on average to what we saw in years prior to 2023. Lastly, for revenue, I would condition you to expect Q1 revenue just shy of $650 million.Moving to adjusted EBITDA. We are expecting between $365 million and $390 million for 2024. The implied year-over-year margin improvement is in the range of 100 to 140 basis points. The transition of our development programs to production, namely Columbia Class, but others as well, are the primary drivers for this significant margin expansion. Additionally, we expect stability in our G&A costs as a percentage of revenue and an easing of the inflation impact on our portfolio.Finally, as you may recall, we period expense our G&A, thus, greater revenue volume typically drops to adjusted EBITDA. Given my comments on our quarterly revenue trajectory, you should calibrate your models accordingly.Now to adjusted diluted EPS. We are initiating a range between $0.74 and $0.82 a share. Embedded in this guidance is the tax rate of 22.5%. We are assuming a fully diluted share count of 268 million. And I would also note that we expect depreciation to trend towards 2.4% of revenue.Lastly, with respect to free cash flow conversion, we are adjusting the conversion from our previously communicated target of 90% to approximately 80% for the year. This adjustment is entirely due to the first year costs associated with the new costal facility project. Our ability to generate strong cash flow remains unchanged. Separately, while there is some optimism on the modification of Section 174 provisions, we believe it's premature to incorporate this into our outlook.Let me wrap up with a couple of thoughts before we move to questions. Our 2023 results and business momentum are evident and speak for themselves. While the macro environment remains dynamic, there is consistency in our customer demand, our backlog is growing, and we have demonstrated a clear ability to execute. As a team, we are focused on leveraging our strong market position to drive long-term value for our customers, for our shareholders and employees.We look forward to seeing many of you in a few weeks at our upcoming Investor Day in New York on March 14. With that, we are ready to take your questions.
[Operator instruction] Our first question comes from the line of Robert Stallard with Vertical Research.
I'll start with Bill. On this whole budget situation in D.C., have you actually seen any impact on your business from this uncertainty as yet? And what sort of contingency you're building in, in case we don't actually get a budget?
Yes. I mean, unfortunately, short-term CRs and even short shutdowns have become a little bit too standard. So those right now wouldn't show an impact on us. Longer-term CR, we still see as unlikely, and that's because in order -- there's still a strong bipartisan support for defense given the threat in Ukraine, the longer-term threat in China. So the only way you see a long-term CR is if the whole budget process fails. And we think that's unlikely. But in any event, the low end of our guidance range captures that downside risk.
Okay. And then secondly, you finished 2023 with a net cash on the balance sheet, and you made a couple of comments about M&A still being something you're interested in. But given the cash situation here, do you think it's feasible to start thinking about paying a dividend?
Rob, at this point, our priorities continue to be organic investment. And we announced the maritime facility, so we're moving forward on that. And we're actively looking for M&A in our 4 core markets. We have a good pipeline. We do have strict financial criteria. But we are seeing opportunities that we think might be attractive. We have nothing to announce at this point, but we're actively looking for M&A. And so that remains the priority, M&A and organic investment.
Okay. And then just finally, one for Mike on the South Carolina investment. I was wondering, do you have any sort of government support or contracts lined up in relation to this investment? And how do you expect the CapEx profile on this facility to pan out over the next couple of years?
Sure. I'll start with the latter part of that first, which is we're just commencing this initiative. So the spend profile will be relatively linear between where we are today through the 2026 occupancy date that Bill alluded to. So think of it kind of that way, Rob, in your model. In terms of this investment, this investment is really geared towards the Columbia class and the rest of class program, and that's really where we're expected to make a return on this investment. So therefore, that's -- so the $120 million we referenced is really DRS's investment. What it does do, though, is it enables us to be part of the conversations for the industrial base initiatives to increase throughput prospectively. And that's how we're viewing this, Rob.
Our next question comes from the line of Seth Seifman with JPMorgan.
Wanted to, I guess, start off asking a little bit about the growth and kind of given the strong results that we saw in ASC in the fourth quarter, I mean, I know there's a quarterly profile here, and so we'll see that step down sequentially in Q1. But just given the level of growth that we saw and thinking about the growth that you're looking for overall as a company, I mean, it would seem that the advanced sensing and computing business should grow significantly faster than the average level of company growth that you're forecasting for 2024. I guess, first of all, is that a fair assumption to make? And if so, is there something in particular that kind of weighs down the growth at IMS to get to that average level that you're forecasting?
I'll take that one. I wouldn't necessarily view the segment growth as being differentiated between ASD and IMS. And really, where I'm looking at there when I make that comment is the bookings profile and the book-to-bill ratio that we had and the growth in backlog, both of those segments had kind of proportional growth on the backlog, excluding the unfunded piece for Colombia at IMS. And we do expect both the segment to contribute to the growth that we outlined in the 2014 guide pretty proportionately.
But I guess in terms of the -- then, is there some reason to think about -- was there something really outsized about 4Q '23 in advanced sensing and computing that wouldn't suggest that this kind of -- I understand it's not a quarterly run rate, but at least from a seasonally adjusted quarterly run rate? Do you see Q4 results to go up to a seasonally adjusted quarterly run rate?
Yes. No, a good question. I get where you're going now. So I think the -- one of the contributing factors to the Q4 contribution from ASC was that we started to see the supply chain stabilization. And as we alluded to on previous calls, we started setting up kind of advanced procurements and other mitigations to really stabilize our supply chain and make sure that we can have the output that we predicted for that Q4 ramp. So we knew that there was going to be a little bit of a bow wave that created this anomaly in ASC in Q4 because of what we've seen in supply chain and the proactive mitigations we took to secure our confidence in being able to deliver that ramp in Q4. I don't think you're going to see that quite as pronounced in the 2024 for you. So I think that's adding to the disconnected in Q4.
And then maybe one more kind of top line related is just when you think about the bookings opportunities for this year and think about the potential book-to-bill for 2024, how are you thinking about that, including the opportunities relative to what you picked up in 2023, understanding that there aren't the kind of giant Columbia contracts out there.
Yes. So first, I'll say from a 2023 perspective, when we do our book-to-bill ratio, we don't include the unfunded piece. So the book-to-bill, the 1.2 book-to-bill in 2023 was not dominated by Colombia. It was actually a holistic demand that we saw from really stemming from these evolving threats that Bill alluded to in his speech just a moment ago. We don't guide to bookings, so we don't put out a number, but we do kind of target to make sure that our bookings are exceeding that 1:1 book-to-bill ratio. And as we look into '24, we have confidence that we're going to be able to execute and continue to grow backlog.
Our next question comes from the line of Peter Arment with Baird.
Mike, you called out the Colombia as being a big piece of the adjusted EBITDA margin expansion of 100 to 140 basis points. But you said there were others. Maybe you could just give us a little more color about some of the other programs that are helping you on the expansion side.
Yes. So there's a couple of programs. I think as we kind of showed this margin expansion historically over the past couple of years, it's been as we've been moving these next-generation programs into a larger production base. Colombia has been to highlight on that, but there's been others particularly in our kind of ground-based and dismounted sensing programs. We're seeing that transition out of our ASC segment. And then you've got the Columbia piece on the IMS. So is the real headline is that you're going to see move and continue to drive this positive margin occurrence that we're anticipating.
Okay. And then just circling back to the CapEx in South Carolina. So this -- it sounds like it's all for supporting Colombia and then eventually being part of the conversation to help throughput at the yards and so that picks up incremental business. How do we think about other opportunities for electronic propulsion on surface ships? And would that require a lot more CapEx, just maybe high-level thoughts, Bill?
Yes. No, Peter, you've got it right. The business case for the facility, the $120 million investment is based on that large multiyear Columbia award. That gave us the assurance to go forward this facility and it's going to drive additional capability capacity that will drive higher margins. But it also gives us the ability and the capacity to go after future work on new platforms. And that's a key part – that's basically upside to the initial investment but it does position us for that kind of expansion. And then in parallel, it positions us, as Mike was talking about, to participate in the general expansion of the submarine industrial base that Congress is funding and the Navy is pursuing. And we're in active discussions with the Navy and the yards as to how you align work between the yards and the suppliers to drive that increased throughput and the facility is a key part of that conversation.
Our next question comes from the line of Ronald -- Ronald Epstein with Bank of America.
This is Jordan Lyonnais on for Ron. Could you guys talk about the opportunities you're seeing in space? Do you think there's an opportunity in the SDA for the prosylarated war fighter or what those opportunities look like?
Yes. No, thanks for the question, Jordan. As we've talked about, space is a long-term play for us. What we're really focused on doing is try and move from what we really have now with just a niche capability and move that to really a core part of our new base. We have had early success as we talked about in weather satellites. And on the missile defense, where your question is focused, we've seen strong customer interest in our payloads. We have some unique capabilities in the low earth orbit area. That did translate into a tranche 1 tracking layer award. But that -- that's just the first step, and we need to have more awards. That's a longer-term play. But we do think we have customer receptivity, and we're going to continue to pursue this over the next 18 to 24 months.
Our next question comes from the line of Michael Ciarmoli with Truist Securities.
Maybe just a couple of quick ones first. I guess, Mike, in terms of bookings, do you guys think you can have -- maybe I missed it, but do you think you can have a book-to-bill greater than 1 in '24? I know we've got some budget uncertainty. It sounds like the low end of the range kind of captures that. But how are you thinking about the bookings outlook?
Yes. That's -- as I said earlier, I don't think we guide to bookings, but we don't get the bookings. But I'm going to answer your question a little differently. I think that the threat evolution that we're seeing and that's being highlighted by the conflicts that we're seeing around the globe is certainly continuing to drive demand to our product set. So although we don't guide to bookings, we're confident that we can push higher than a 1:1 book-to-bill ratio for 2024.
Okay. I mean could you give us any color? I mean, are you seeing growth in your overall pipeline of opportunities across the range of capabilities? Is one area becoming stronger than others? Any kind of color you could give us there?
Yes. I think, as Bill kind of alluded to, what we're seeing with these conflicts abroad, although we don't have a lot of direct sales to Ukraine or to Israel at this point in time. They have certainly highlighted a capability that you need a more integrated and communicated battlefield. And we're starting to see the demand from that in our advanced Sensicspace in particular. That is where we're seeing a lot of those. The Force Protection business, the tactical radars, that is where we're seeing a lot of demand really stemming from what became apparent with the conflicts that we're seeing both in Israel and Ukraine.
And then you talked about the international revenues. I mean do you guys have sort of a target of where you think international? I mean you just said you don't have a lot into Ukraine or Israel, but do you kind of have a goal or a target as to where you think you can get international revenues as a percent of total?
We haven't set a specific target. As we said, we've moved up to 10%, that over the last 5 or 6 years, that represents a doubling of our proportion. And as we move programs from development to production, as we've talked about, we have a kind of a bubble of programs that are moving in both the sensing and propulsion area from development to production. It's when those programs hit production as you see international opportunities. So we think we're going to see more international opportunities. And as we refine those, we may set a target. But right now, we're looking to have a steady increase, but we haven't named a specific target.
And then last one for me. Just on the Columbia program itself. Can you just give us a general update? I think you're currently working shipset 2. I think maybe you kind of said you were starting shipset 3, and I think that program was expected to be pretty positive for margins. So do we have that right? Are you guys kind of sort of marching along to your stated path there?
Basically, you have -- we're actually still finishing the initial contract, which goes back to that one -- we are working on shipset 2, which is better margins, and we've just started shipset 3, which had still better margins because it's part of the contract that was negotiated with the new higher inflation assumption. So that stair step that as we go up each ship set, at least for the initial ones, we'll see that kind of step up in margins each year.
[Operator instruction] Our next question comes from the line of John Tanwanteng with CJS Securities.
I was wondering about the new facility. You mentioned it mostly for Colombia. What does that do for your Columbia program economics on a per boat basis or a consolidated basis to the company when it comes online?
Sure, John. So yes, this investment is really geared towards driving efficiencies, looking at complex builds on the Columbia and figure now what we can take inside here and make sure that we maximize our efficiencies, maximize our margins. And from that, with this new facility, we believe we've got a good path to increase the returns on that program as we start executing when this facility goes by.
Okay. And then do you still expect to participate in Navy or government-funded expansion in the industrial base versus self-funding in the future?
That's the goal, John. We think that as Mike said, the business case for the facilities based on the Columbia class and that analysis compares well to an acquisition. It would give you -- it would give you did it in that kind of analysis, you'd have a sub-10 multiple comparing to an acquisition. So financially, this was a very strong move. But also it positions us, as you're suggesting, to be a part of that submarine industrial base expansion and by extension, part of the Navy investment in that. So we would look as we go forward for some Navy investment if we were to expand this facility to improve the throughput at the yards by moving work to their suppliers.
And then Mike, if you could just talk about your cash flow in '24 and the cadence. Is that expected to be normal from a seasonal basis? Or are there any puts and takes versus how you've seen that slow in historical versus your historical performance?
Yes. I think it's going to be kind of typically as we've seen in terms of that same quarterly trend and that seasonality skewing towards the fourth quarter. I think the linearity will be a bit improved. But I still think the large majority of the cash will reside in Q4.
Is there any way you can help us ballpark work where the trough level of cash will be as you go through Q1?
Yes. It typically kind of goes along with what we see from kind of the revenue output. So as we start really liquidating and pushing up the revenues towards Q4, although we mentioned we're going to be a bit better this year from a linearity perspective. That additional revenue and the way we kind of have a fixed G&A rate, if you will, that's pretty linear, you'll see that profit tick up. And with that profit will come to working capital liquidations of cash. So I just start modeling out the revenue, you kind of look at that to be the impetus to really drive the cash into the Q4 brand, if you will.
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 e-mail me. We look forward to speaking with all of you again soon. Have a great day.
Thank you. This concludes today's conference. You may disconnect now. Thank you all for participating.