Leonardo DRS Inc (DRS) 2022 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the RADA Electronic Industries Second Quarter 2022 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact RADA's Investor Relations team at GK Global Investor Relations at 1(212)378-8040 or view it in the news section of the company's website, www.rada.com.

女士們，先生們，謝謝你們的支持。歡迎參加 RADA 電子工業 2022 年第二季度業績電話會議。 （操作員說明）提醒一下，正在錄製此會議。你們現在應該都收到了公司的新聞稿。如果您還沒有收到，請致電 1(212)378-8040 聯繫 GK Global Investor Relations 的 RADA 投資者關係團隊，或在公司網站 www.rada.com 的新聞部分查看。

I would now like to hand over the call to Mr. Ehud Helft of GK Global Investor Relations. Mr. Helft, would you like to begin, please?

我現在想把電話轉給 GK 全球投資者關係部的 Ehud Helft 先生。赫爾夫特先生，請問您要開始了嗎？

Yes. Thank you. Operator. I would like to welcome all of you to this conference call to discuss RADA's second quarter 2022 with us. I would like to thank the management for hosting this call. With us today on the call are: Mr. Dov Sella, Chief Executive Officer of RADA; Mr. Avi Israel, Chief Financial Officer of RADA; and Mr. Michael Dippold, Chief Financial Officer of Leonardo DRS. Dov will summarize the key highlights of the quarter, followed by Avi who will provide a summary of the financials. We will then open the call for the questions and answer session whereby Mr. Dippold will address any questions related to the DRS and the announced merger between DRS and RADA.

是的。謝謝你。操作員。歡迎大家參加本次電話會議，與我們討論 RADA 的 2022 年第二季度。我要感謝管理層主持這次電話會議。今天與我們通話的有：RADA 首席執行官 Dov Sella 先生； RADA首席財務官Avi Israel先生； Leonardo DRS 首席財務官 Michael Dippold 先生。 Dov 將總結本季度的主要亮點，隨後 Avi 將提供財務摘要。然後，我們將開啟問答環節，Dippold 先生將回答與 DRS 以及 DRS 和 RADA 宣布的合併相關的任何問題。

Before we start, I'd like to point out that the safe harbor published in today's press release also pertains to the content of this conference call. And with that, I would now like to introduce RADA's CEO, Mr. Dov Sella. Dubi, go ahead, please.

在我們開始之前，我想指出今天新聞稿中發布的安全港也與本次電話會議的內容有關。因此，我現在想介紹 RADA 的首席執行官 Dov Sella 先生。杜比，請繼續。

Thank you, and good day to all our call participants. Let's start with an overall summary. As we announced in early July, we experienced another quarter in the United States where our revenues mainly remained paused. The lag in U.S. DoD spending of the fiscal year 2022 appropriation has been a material headwind for the entire U.S. defense sector, including ourselves by extension. While we had hoped that others would resume fairly quickly once the CR, the Continuing Resolution was concluded by the end of March, it has taken time to really start impacting spending across the entire industry and us as well.

謝謝，祝我們所有的通話參與者美好的一天。讓我們從總體總結開始。正如我們在 7 月初宣布的那樣，我們在美國經歷了另一個季度，我們的收入主要保持暫停狀態。美國國防部 2022 財年撥款支出的滯後一直是整個美國國防部門的重大阻力，包括我們自己。雖然我們曾希望其他人在 CR 後能夠很快恢復，但持續決議在 3 月底結束，但真正開始影響整個行業和我們的支出需要時間。

The shortfall in revenues impacted our profitability. We have not reduced our expenses as we expected the orders and revenues will come to us eventually. Once we are back to our expected revenue level, our profitability will also be at the expected range. We are seeing the order from the U.S. starting to resume, and we do expect the second half of the year to be better than the first. While this short-term bump in our road is frustrating, and we do every -- and we do very much see it as a bump in our long-term growth path, we remind that it has always been a risk we live with, as part of the fast growing package that comes with being a small defense player providing technology by short-term orders rather than via backlog.

收入不足影響了我們的盈利能力。我們沒有減少開支，因為我們預計訂單和收入最終會來到我們這裡。一旦我們回到預期的收入水平，我們的盈利能力也將在預期範圍內。我們看到來自美國的訂單開始恢復，我們確實預計今年下半年會好於上半年。雖然我們道路上的這種短期顛簸令人沮喪，而且我們竭盡全力 - 我們確實將其視為我們長期增長道路上的顛簸，但我們提醒我們，這一直是我們面臨的風險，因為作為一家小型國防企業，通過短期訂單而不是通過積壓提供技術，這是快速增長的一攬子計劃的一部分。

Next topic is our merger with Leonardo DRS. The most important event for RADA, however, is our announced in pending merger with a leading mid-tier U.S. defense technology company, Leonardo DRS, which is a subsidiary of the Italian defense company, Leonardo, just to remind and update any new listeners. DRS will acquire 100% of the shares of RADA in exchange of 19.5% equity ownership in the combined company allocated to RADA shareholders. Pending a shareholder vote in the coming month, we expect the merger to close in the fourth quarter. The combined company will maintain the name Leonardo DRS, and will trade on NASDAQ and TASE, and the ticker symbol will change from RADA to DRS. We are working closely with DRS for almost a decade now, and DRS has been a significant contributor to RADA's successful penetration into the U.S. market over this period. This merger takes our collaboration with DRS to the next stage.

下一個主題是我們與 Leonardo DRS 的合併。然而，對 RADA 來說最重要的事件是我們宣布即將與一家領先的美國中型國防技術公司 Leonardo DRS 合併，該公司是意大利國防公司 Leonardo 的子公司，只是為了提醒和更新任何新的聽眾。 DRS 將收購 RADA 100% 的股份，以換取分配給 RADA 股東的合併後公司 19.5% 的股權。在下個月進行股東投票之前，我們預計合併將在第四季度完成。合併後的公司將保留 Leonardo DRS 的名稱，並將在納斯達克和 TASE 進行交易，股票代碼將從 RADA 更改為 DRS。近十年來，我們與 DRS 密切合作，在此期間，DRS 一直是 RADA 成功打入美國市場的重要貢獻者。此次合併使我們與 DRS 的合作更上一層樓。

Our advanced Tactical Radars strongly improved DRS's position in air defense, counter-UAS, and vehicle protection market segments, accelerating its transformation into a provider of integrated sensor systems, and leader in advanced sensing and Force protection markets. It also increases RADA's addressable markets on one hand, and de-risks RADA's position as a small player in our high growth but increasingly competitive market space where we are indeed seeing many of the major defense players starting to join this market, and putting pressure on small players, together with DRS, the leading mid-tier defense electronic company addressing high growth markets with a formidable competitive force.

我們先進的戰術雷達有力地提升了 DRS 在防空、反無人機和車輛保護市場領域的地位，加速其轉型為集成傳感器系統供應商，以及先進傳感和部隊保護市場的領導者。一方面，它也增加了 RADA 的可尋址市場，並降低了 RADA 在我們高速增長但競爭日益激烈的市場空間中作為小參與者的地位的風險，我們確實看到許多主要的國防參與者開始加入這個市場，並對小型企業，包括領先的中端國防電子公司 DRS，以強大的競爭力應對高增長市場。

Let's have a view of our markets. I want to highlight the key points that, despite the short-term U.S. lockdown, the fundamentals of our markets have not changed, and on the contrary, is only strengthened in the past half year. Following the invasion of Russia to Ukraine, western countries throughout the world realize the need to provide the best and most advanced active defense solutions for their maneuverable military assets and, ultimately, their troops.

讓我們來看看我們的市場。我想強調的重點是，儘管美國短期封鎖，但我們市場的基本面沒有改變，相反，只是在過去半年有所加強。在俄羅斯入侵烏克蘭之後，世界各地的西方國家意識到有必要為其機動軍事資產以及最終為其軍隊提供最好、最先進的主動防禦解決方案。

Our software-defined and mobile radars are in the heart of modern warfare protection needs like short range air defense, counter-UAS, active protection on armored vehicles, counter rocket, artillery and motor and similar.

我們的軟件定義和移動雷達是現代戰爭防護需求的核心，例如近程防空、反無人機、裝甲車輛主動防護、反火箭、火砲和發動機等。

Our U.S. market is now moving from the JUN phase, meaning Joint Urgent Need statements into the programs of record phase. The switch of -- the switch to programs of record is another contributing factor to the current short-term U.S. orders resumption. This trend will enable us as part of DRS, to build many more products over a longer period based on an order backlog generating long-term revenue visibility and long-term stable and profitable growth.

我們的美國市場現在正從 JUN 階段，這意味著聯合緊急需求聲明進入記錄階段的計劃。切換到記錄程序是當前美國短期訂單恢復的另一個促成因素。作為 DRS 的一部分，這一趨勢將使我們能夠根據積壓的訂單在更長的時間內構建更多的產品，從而產生長期的收入可見性和長期穩定的盈利增長。

In the early years of our penetration and growth into the U.S. market, to capitalize on our market position, we produce radars to stock and apply a book and ship commercial approach. This unique approach not only made us attractive to our U.S. customers, but because it relied on high level -- high levels of inventory and components, it shielded us from much of the negative impacts and challenges that COVID placed on us over the past 2 years, including what is now the continued supply chain constraints that everybody faces.

在我們滲透和發展到美國市場的早期，為了利用我們的市場地位，我們生產雷達以備庫存，並採用預定和發貨的商業方法。這種獨特的方法不僅使我們對我們的美國客戶具有吸引力，而且因為它依賴於高水平——高水平的庫存和組件，它使我們免受 COVID 在過去兩年中給我們帶來的許多負面影響和挑戰，包括現在每個人都面臨的持續供應鏈限制。

Globally, the Europe and NATO countries are typically following the doctrine and solutions of the U.S. military and the need for short range air defense or point defense is becoming widely recognized. We have already initial engagements with prominent European weapon system providers, and our radars are integrated and continuously being tested as part of their solutions.

在全球範圍內，歐洲和北約國家通常遵循美國軍方的條令和解決方案，短程防空或點防禦的需求正得到廣泛認可。我們已經與著名的歐洲武器系統供應商進行了初步接觸，我們的雷達已集成並作為他們解決方案的一部分不斷進行測試。

The New East and Indian markets are both waking up around the need to mitigate the counter-UAS threats -- the UAS threats and counter-UAS solutions. This is even more prominent given the multiple armed drone attacks, for instance, the last -- this Monday -- the last Monday, against U.S. led coalition forces in Syria.

新東方和印度市場都意識到需要減輕反無人機威脅——無人機威脅和反無人機解決方案。考慮到多次武裝無人機襲擊，例如最近一次——本週一——上週一，針對美國領導的駐敘利亞聯軍，這一點更加突出。

And in summary, obviously we are not thrilled with our results in the last 2 quarters which were impacted by external factors that are beyond our control and have impacted the entire U.S. related defense sector, not just us. I can say though, that we have not lost any opportunity, and expect our business to come through eventually either in the second half of this year or next year. Looking ahead to the merger with DRS, and will put us -- that will put us in a stronger position to continue our long term growth path.

總而言之，顯然我們對過去兩個季度的業績並不感到興奮，這些業績受到我們無法控制的外部因素的影響，並影響了整個美國相關的國防部門，而不僅僅是我們。不過我可以說，我們沒有失去任何機會，並希望我們的業務最終能在今年下半年或明年完成。展望與 DRS 的合併，將使我們——這將使我們處於更有利的地位，以繼續我們的長期增長道路。

At this point I'd like to hand over the discussion to Avi, CFO. Avi, Please go ahead.

在這一點上，我想將討論交給首席財務官 Avi。阿維，請繼續。

Thank you, Dubi. Good day to all of our participants. You can find our results on the press release we issued earlier today. And I'll provide short summary of the second quarter results.

謝謝你，杜比。祝我們所有的參與者美好的一天。您可以在我們今天早些時候發布的新聞稿中找到我們的結果。我將提供第二季度業績的簡短摘要。

Second quarter revenues were $23 million versus $28.3 million in the second quarter of last year. Our gross margin in the quarter was 35%. I note that our gross margin is the level of fixed cost within them, so they were impacted by the lower level of revenues. Operating loss was $3 million versus $4.5 million of income in the second quarter of 2021. I note that we had about $2.6 million of merger-related expenses. Net loss was $4.4 million versus $10.4 million of net income in the second quarter of last year, which included a one-time tax income of $6 million. We reported an adjusted EBITDA for the quarter of $1.8 million versus EBITDA of $6.3 million in the second quarter of last year.

第二季度收入為 2300 萬美元，而去年第二季度為 2830 萬美元。我們本季度的毛利率為 35%。我注意到我們的毛利率是其中的固定成本水平，因此它們受到較低收入水平的影響。 2021 年第二季度營業虧損為 300 萬美元，而收入為 450 萬美元。我注意到我們有大約 260 萬美元的合併相關費用。淨虧損為 440 萬美元，而去年第二季度的淨收入為 1040 萬美元，其中包括 600 萬美元的一次性稅收。我們報告本季度調整後的 EBITDA 為 180 萬美元，而去年第二季度的 EBITDA 為 630 萬美元。

I'd also like to summarize and point out some highlights from our balance sheet. As of June 30th, 2022, we had $55.6 million in net cash and no financial debt at all. I note that as of Q2 end, all our needs for cash investments in working capital and inventories have been made, and we are -- and are all behind us. We expect the cash revenue to increase and revenues to -- as revenues ramp up again. As of quarter end, our shareholders' equity stood at $152.8 million, financing 78% of our balance sheet.

我還想總結並指出我們資產負債表中的一些亮點。截至 2022 年 6 月 30 日，我們擁有 5560 萬美元的淨現金，完全沒有金融債務。我注意到，截至第二季度末，我們對營運資金和庫存的現金投資的所有需求都已經完成，而且我們已經 - 並且都在我們身後。我們預計隨著收入再次增加，現金收入將增加，收入將增加。截至季度末，我們的股東權益為 1.528 億美元，佔資產負債表的 78%。

In summary, as Dov indicated, looking ahead to the second half of this year, and expected to show an increase in revenues, and as a result, an improvement in profitability. That ends my summary.

總而言之，正如 Dov 所指出的，展望今年下半年，預計收入將有所增加，從而提高盈利能力。我的總結到此結束。

We shall now open the call for questions. Operator, please.

我們現在開始提問。接線員，請說。

(Operator Instructions) The first question is from Ellen Page of Jefferies.

（操作員說明）第一個問題來自 Jefferies 的 Ellen Page。

The revenue outlook and the order environment. What's improved in the past few months? And how much visibility do you have to return to growth for the top line?

收入前景和訂單環境。過去幾個月有什麼進步？您需要多大的知名度才能恢復收入增長？

Yes. We start to see the momentum. We are still in the book and ship mode of operation. But based on our estimations, we can return to the levels that we had last year, or end of last year, or even in the coming quarter or so. So we are optimistic about the continuation of the growth of our business, except the last 2, 3 quarters that kind of posed up from this.

是的。我們開始看到勢頭。我們仍處於賬簿和船舶的運營模式。但根據我們的估計，我們可以恢復到去年、去年年底，甚至下個季度左右的水平。因此，我們對業務的持續增長持樂觀態度，除了最近 2、3 個季度之外。

And just can you talk about some of the larger opportunities that you called out, such as M-SHORAD, CV90 or ATON or ABAD? Just how are you thinking about those opportunities and any time when you can share?

您能否談談您提到的一些更大的機會，例如 M-SHORAD、CV90 或 ATON 或 ABAD？您如何看待這些機會以及您可以分享的任何時間？

Yes. The growth that we expect is coming from these programs. We have 4 major programs and some still urgent needs that pop up, by the way, also around Ukraine. But the air base, air defense and SOCOM SIP are producing inputs of orders. SHORAD is always there. We may expect even things to come forward around SHORAD. And the Marine Corp GBAD is in the background progressing as planned, and we expect that it will affect our revenues mainly next year and onwards.

是的。我們預期的增長來自這些計劃。我們有 4 個主要計劃和一些仍然緊急的需求，順便說一句，也在烏克蘭附近。但是空軍基地、防空部隊和 SOCOM SIP 正在生產訂單輸入。 SHORAD 始終存在。我們甚至可以期待圍繞 SHORAD 出現的事情。 Marine Corp GBAD 正在按計劃進行，我們預計它將主要影響我們明年及以後的收入。

The next question is from Jeff Bernstein of Cowen.

下一個問題來自 Cowen 的 Jeff Bernstein。

Just a real quick question, just reading about this U.K. Serpens Program, this ultra compact multi-mission radar. And I was just wondering, does that compare at all with any of your products? Or is that a different class of radar?

只是一個真正的快速問題，剛剛閱讀了這個 U.K. Serpens 計劃，這個超緊湊的多任務雷達。我只是想知道，這能與你們的任何產品相比嗎？或者那是不同類別的雷達？

It depends. The Serpens program, first of all, it's a long-term share program, and it's in incubation phase. It will take a few years until it becomes a program. But it is an end-to-end comprehensive solution to the U.K. military or Army, and it includes a variety of radars. We are tracking it. We are operating with additional companies in the -- while currently, we cannot address the high end, but the bigger radars, we do believe that what we have is very relevant. And also, we're teaming with the right partners, we can come as part of an end-to-end solution.

這取決於。 Serpens計劃，首先，它是一個長期的共享計劃，目前處於孵化階段。它需要幾年時間才能成為一個程序。但它是英國軍隊或陸軍的端到端綜合解決方案，它包括各種雷達。我們正在跟踪它。我們正在與其他公司合作——雖然目前我們無法解決高端問題，但更大的雷達，我們確實相信我們擁有的是非常相關的。而且，我們正在與合適的合作夥伴合作，我們可以作為端到端解決方案的一部分。

The next question is from Austin Moeller from Canaccord.

下一個問題來自 Canaccord 的 Austin Moeller。

My first question here. Last week, I heard DRS's management discuss using your radars, which we traditionally think about an air defense application, for disseminating comms and also being -- uses in the electronic warfare system. So can you just expand on this a little bit?

我的第一個問題在這裡。上週，我聽到 DRS 的管理層討論了使用你們的雷達，我們傳統上認為這是一種防空應用，用於傳播通信，也用於電子戰系統。那麼你能稍微擴展一下嗎？

I would like to defer these questions to later stages. This is really in the heart of our strategy going forward, and I don't think it's mature enough to give further details as of now.

我想將這些問題推遲到以後的階段。這確實是我們未來戰略的核心，我認為目前還不夠成熟，無法提供更多細節。

And then, as far as the ATON program goes, are we expecting work for that to start ramping in the second half of this year? Or will we not see that until 2023?

然後，就 ATON 計劃而言，我們是否預計該項目的工作會在今年下半年開始增加？還是我們要到 2023 年才能看到？

We will see initial sales towards the end of this year, but mainly it's 2023 and onwards, yes.

我們將在今年年底看到初步銷售，但主要是 2023 年及以後，是的。

Okay. And then, what do we think about timing for the army making a decision on the directed energy SHORAD, and who might be the radar supplier for that?

好的。然後，我們如何看待軍隊對定向能 SHORAD 做出決定的時間，以及誰可能是雷達供應商？

To our best knowledge, as of now, it should be completed on the laser next year. So probably it will become a program in 2024. Currently, there are 4 prototypes that are being delivered to Europe, that were developed by the RCCTO arm of the Army, rapid capabilities Force. And we are already engaging in that to a certain extent, but it should be completed probably next year. We do hope and believe that our radars will stay the incumbent radars because we are kind of effect or agnostic.

據我們所知，截至目前，它應該在明年用激光完成。所以它可能會在 2024 年成為一個項目。目前，有 4 個原型正在交付給歐洲，它們是由陸軍 RCCTO 部門開發的，即快速能力部隊。我們已經在一定程度上參與其中，但應該會在明年完成。我們確實希望並相信我們的雷達將保留現有的雷達，因為我們是一種效果或不可知論者。

The next question is from Scott Huntington of Brighton Securities.

下一個問題來自布萊頓證券的斯科特亨廷頓。

Combine kind of questions. First of all, was your bookings amounted for the second quarter in net...

結合各種問題。首先，你們第二季度的淨預訂量是……

I'm sorry, you were not clear. Can you repeat your question?

對不起，你沒說清楚。你能重複你的問題嗎？

Yes. Was your bookings announced for the second quarter?

是的。您宣布了第二季度的預訂嗎？

No, we did not announce bookings for the second quarter as of now.

不，我們目前還沒有宣布第二季度的預訂。

Well, just -- it's kind of sad moment to miss a dynamic independent growing company that had been anticipating $250 million in sales in the next 3, 4 years, possible expansions in India and Europe. And last we heard was looking at making some small accretive acquisitions. And June 21st, we get this announcement as I suppose, 20% premium merger with a much larger Leonardo. And the next day, the shares closed below where they had announced the prior day before the announcement. And the valuation isn't quite a concern.

好吧，只是 - 錯過一家充滿活力的獨立成長型公司是一種悲傷的時刻，該公司曾預計未來 3、4 年的銷售額將達到 2.5 億美元，並可能在印度和歐洲擴張。最後我們聽說正在考慮進行一些小型的增值收購。 6 月 21 日，我們收到了這個公告，我想，20% 的溢價與更大的萊昂納多合併。第二天，股票收盤價低於他們在公告前一天公佈的價格。估值並不是一個問題。

I know that Mr. Lynn has stated that they used a conservative valuation that represented a 20% premium. And I think Mr. Lynn is thinking might be a little off because back in March of 2021, when they're looking to do an IPO, they said that the Street inadequately valued Leonardo, and they pulled their acquisition.

我知道 Lynn 先生曾表示，他們使用了代表 20% 溢價的保守估值。而且我認為 Lynn 先生的想法可能有點偏離，因為早在 2021 年 3 月，當他們打算進行 IPO 時，他們表示華爾街對萊昂納多的估值不足，因此他們取消了收購。

And I contend that the same type of valuation disconnect is right in the middle of Lynn's growth plans. And I don't know what the Board can do at this particular time, but I would consider this valuation coming off of Continuing Resolution, looking for substantial growth going up in the next 3, 4 years. I think it's just unacceptable. Do you have any comments that by the time that you're shopping the company and this was the best offer you could give. I don't understand this, but my ears are open.

我認為，同樣類型的估值脫節正處於 Lynn 增長計劃的中間。而且我不知道董事會在這個特定時間可以做什麼，但我認為這種估值來自持續決議，尋找未來 3、4 年的大幅增長。我認為這是不可接受的。當你購買這家公司時，你有什麼意見嗎？這是你能給出的最好的報價。我不明白這一點，但我的耳朵是敞開的。

I don't think this is the time and moment to comment on the merger. This is an earnings call. The merger was announced. We do believe this is the right strategic move for both companies going into the future, and we are confident that also the shareholders given a reasonable time will realize that.

我認為現在不是對合併發表評論的時候。這是財報電話會議。宣布合併。我們確實相信這是兩家公司走向未來的正確戰略舉措，我們相信股東在合理的時間內也會意識到這一點。

So, Dubi, that would be at any price you could agree on the merger?

那麼，Dubi，您同意以任何價格進行合併嗎？

The terms of the merger were already agreed and we are not going to change that.

合併的條款已經商定，我們不會改變它。

(Operator Instructions) There are no further questions at this time. Mr. Sella, would you like to make your concluding statement?

（操作員說明）目前沒有其他問題。 Sella 先生，您要作總結髮言嗎？

Yes. Thank you, operator. On behalf of RADA and DRS management, I would like to thank you all investors for your continuing interest in our business. We look forward to speaking with you soon again. Stay well and good day to all. Thank you.

是的。謝謝你，運營商。我謹代表 RADA 和 DRS 管理層，感謝所有投資者對我們業務的持續關注。我們期待很快再次與您交談。祝大家身體健康，美好的一天。謝謝你。

Thank you. This concludes the RADA Electronic Industries Second Quarter 2022 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

謝謝你。 RADA 電子工業 2022 年第二季度業績電話會議到此結束。感謝您的參與。您可以繼續並斷開連接。