Q1 2024 Leonardo DRS Inc Earnings Call

Participants

Steve Vather; IR and Corporate Finance; Leonardo DRS Inc

William Lynn; Chief Executive Officer; Leonardo DRS Inc

Michael Dippold; Chief Financial Officer, Executive Vice President; Leonardo DRS Inc

Peter Arment; Analyst; Baird

Robert Stallard; Analyst; Vertical Research

Seth Seifman; Analyst; JPMorgan

Mariana Perez Mora; Analyst; Bank of America

Sandy Draper; Analyst; Truist Securities

Jon Tanwanteng; Analyst; CJS Securities

Presentation

Operator

Ladies and gentlemen, good day, and welcome to Leonardo DRS First Quarter Fiscal Year 2024 earnings conference call. At this time, all participants are in listen only mode following the Company's prepared remarks, there will be an opportunity to ask questions and instructions will be given at that time. As a reminder, this event is being recorded. I would now like to turn the conference over to Steve Butler, Senior Vice President of Investor Relations and Corporate Finance. Please go ahead.

Steve Vather

Good morning, and welcome, everyone. Thanks for participating on today's quarterly earnings conference call with me today are building our Chairman and CEO, and Mike polled, our CFO, 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 this call regarding future events, anticipated future trends and the anticipated future performance of the Company. We caution you that such statements are not guarantees of future performance and 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?

William Lynn

Thank Steve, and thank you all for joining us this morning. It was great connecting with many of you at our recent Investor Day in New York. Just as a quick recap, we laid out a compelling investment case for DRS. and as many of you know, we are a unique story amidst a very scarce universes, smid cap defense technology companies.
Our diverse and platform-agnostic portfolio is well aligned to customer priorities and areas of healthy demand. This is apparent in the steady pace of bookings, including the $815 million secured this quarter. As a result, our backlog visibility continues to build and this combined with our multi-pronged growth strategy, is demonstrating a clear path to mid-single digit organic growth over the next few years.
Our Q1 results 2024 guidance and multiyear targets all reflect the solid confidence we have in our portfolio and competitive position. I want to reiterate that foundational to DRS's strong market positioning, our people, innovation and the technology differentiation we have built over five decades.
We continue to sharpen our investments in R&D and CapEx to increase our distinct edge and that of our customers. We remain focused on executing on our strategy to drive outcomes for our customers and our shareholders. This focus is evident in our exceptional quarterly results.
These results were all well ahead of our expectations for the quarter our strong Q1 financial performance is a direct outcome of an initiative to drive incrementally better quarterly linearity. I'm pleased with the solid start to the year as it places us on a nice path to deliver on our 2024 commitments.
Let me review a couple of specifics. Our revenue growth was entirely organic and accelerated to 21% year over year, we continued to convert strong customer demand and the bookings and drove a 1.2 book-to-bill ratio in Q1. Customer demand continues to be evident of well distributed throughout our diverse portfolio.
This quarter, we saw robust bookings from international customers seeking our solutions and advanced infrared, say, sensing, tactical radars and air defense systems. Furthermore, with respect to domestic customers, we saw clear demand for our naval network computing and our electric power and propulsion technologies.
We delivered another consecutive quarter of healthy bookings, which pushed our backlog to a new company record of 7.8 billion, up 84% year over year and also up sequentially. In addition to our robust backlog and contract awards, we are continuing to position ourselves to capture adjacent market opportunities to further solidify and accelerate our future growth.
Last but not least, we delivered impressive profit growth in Q4. Adjusted EBITDA was up 43% and margin expanded by 160 basis points. We also saw both adjusted net earnings and adjusted diluted EPS increased by 100% over last year. There's no question that are extraordinary people are responsible for these spectacular results. Their steadfast focus on our customers and their critical missions are demonstrated in our Q1 financials.
Moving to an update on the operating environment we are pleased to see the passage of FY. 20 for defense appropriations, which gives our customers the necessary funding clarity to execute their missions. Additionally, the president's FY25 budget request call for $850 billion for defense. This represents a 1% growth over enacted FY24 and is in line with previously agreed-upon levels. We are pleased to see bipartisan action on supporting our allies in Ukraine, Israel and Taiwan via the recent passage of the $95 billion defense supplemental.
Again, while we have limited direct sales into either ongoing conflict. The passage of a defense supplemental should serve as a tailwind to our customers and their modernization efforts, which presents a long-term opportunity for DRFRS. As a reminder, our three year targets offered at our Investor Day already incorporate the budget environment I just discussed.
Overall, our portfolio continues to be well-funded. We are closely aligned to areas of customer priority and our capabilities in advanced sensing, Network Computing Force Protection and electric power and propulsion continue to be critical in supporting their important missions over the past year. I have consistently highlighted the broad-based strength coming from across our portfolio. The sources of our growth and opportunity continue to be well diversified. Our customers are focused on maintaining capability advantage over adversaries, and we are pleased to partner with them to enhance their competitive edge.
Let me spotlight a couple of notable items this quarter. In the sensing arena, we are experiencing strong demand for our capabilities in advanced infrared across mission applications, and we are finding some early success in implementing our technology at the missiles. Additionally, we are seeing expansion opportunities both from domestic and international customers for our best-of-breed electronic warfare solutions, particularly as the importance of multi-mission EW capabilities growth.
Next, our radar business continues to evolve into new domains and mission applications. I am pleased to announce that we recently won an expanded role as a design agent on a shipboard X-band radar. Furthermore, our tactical radar business, he's experiencing steady demand for a variety of missions spanning air defense, counter-UAS and active protection.
We are proud that our tactical radars were a critical component in the missile defense capabilities deployed in Israel against recent Arabian hostile actions. The global conflicts continue to reinforce the growing and evolving threats facing our platforms and our people Force Protection is not an option. It is an imperative as a result.
And in addition to what I just mentioned on tactical radars, we are seeing heightened global demand for our infrared countermeasures to protect rotary and fixed wing aircraft from surface to air missiles as well as other emerging threats.
The expansion of our Force Protection business is also evident in the Army's desired growth from four to nine short-range air defense battalion in the face of evolving threats. Agility is invaluable and the ability to scale and modify capabilities rapidly and efficiently is critical. We recognize this need and in our IT network computing business.
We recently unveiled a new mounted form factor mission system to address the Army's initiative focused on open standards. Our new network compute offering is fully compliant with these standards and will enable our customers to continuously field future capabilities. We're excited that we have a compelling solution that supports the Army's modernization base.
Lastly, I wanted to briefly touch on our electric power and propulsion business. Recently, the Secretary of the Navy ordered a 45 day shipbuilding review. The findings from this analysis indicated multiyear delays for several shipbuilding programs. While we are not the source of these delays.
I want to highlight that we are focused on supporting our customers by maintaining schedule and quality for our content as well as positioning to take on more scope as appropriate to help address these challenges over the long term.
As previously discussed, our future facility in South Carolina affords us the ability to execute the Columbia-class program more efficiently, but also sets up to support shipbuilding capacity expansion. Additionally, we would expect that some portion of the robust funding and investment for the submarine industrial base in the recent defense supplemental could be made available to us as we look to support the Navy in this key initiative.
While the delays on current production programs have pressured the timing of future platforms such as DDGX. and SSX. is worth reminding you that both of those platforms represent long-term opportunity for DRS, but do not impact our near or medium term growth prospects. We believe that our electric power and propulsion technology provides multifaceted strategic advantages to customers, particularly given growing power platform requirements and the need to operate discreetly around the globe.
In that context, I am pleased to report that we continue to expand our naval propulsion content, and we were recently awarded follow-on work to provide our hybrid electric solution for U.S. Coast Guard offshore patrol cutters. We are continuing to see opportunities with navies and Coast Guard around the world as they modernize their fleets with next-generation platforms.
Overall, I am quite pleased with DRS's market position and its growth prospects that lie ahead for the business. Our team continues to execute well and that is clearly represented in the quarterly results that said, we remain focused on driving value creation over the long term for our customers, shareholders and employees.
Now I'd like to turn the call over to Mike so that he can walk you through our financials in more detail.

Michael Dippold

Thanks, Bill. I'm excited to discuss our financial results in greater detail. Before I get to that, let me express my heartfelt thanks to the team for helping execute another remarkable quarter.
As Bill mentioned, we are working to make progress towards better linearity in our financial performance, and that is certainly evident in our Q1 results. In the quarter, we experienced year-over-year growth of 21%. Again, all organic, a significant portion of the growth was driven by our naval power programs, namely Columbia-class, but momentum for our ground systems integration, advanced sensing and naval network computing efforts were also strong contributors to the performance in the quarter.
Moving to the segment view, PSC segment revenues were up 11% due to growth in programs related to advanced infrared sensing, naval and ground network computing as well as tactical radars.
Our IMS segment revenues were up an impressive 38% year over year with strong performance apparent across the segment. But growth of our Columbia-class program was certainly a key driver now to adjusted EBITDA. Adjusted EBITDA in the quarter was $70 million, representing significant growth of 43% from last year.
As previously discussed, our period expensing of G. and A. means incremental volume typically drops to the bottom line and in Q1, this definitely ran through the increased volume also translated to adjusted EBITDA margin expansion of 160 basis points, taking margin to 10.2% in Q1.
On a segment basis, ASCX. segment adjusted EBITDA increased by 11%, but margin was flat due to less favorable program mix. Offsetting the higher volume IMS segment adjusted EBITDA was up 142% and margin was 480 basis points higher than last year due to continued momentum on naval power programs led by the Columbia class.
Moving to the bottom line metrics, first quarter net earnings were $29 million and diluted EPS was $0.11, a share of 142% and 120% respectively. Our adjusted net earnings of $38 million and adjusted diluted EPS of $0.14 a share were both up 100%. The overwhelming driver of the increases came from strong operational execution. However, lower interest expense and a lower effective tax rate were also slight tailwinds.
Moving to free cash flow, cash collections solid historical Q1 trends with an outflow in the quarter. That said, we saw favorable year-over-year trending with a significantly smaller free cash flow use of $275 million compared to Q1 2023. Narrowed cash usage was driven by more efficient working capital, improved net profitability and reduced capital expenditures.
Note that favorable timing of cash receipts from customers aided our working capital position in the quarter, but this will revert some in Q2. As discussed last quarter, we are embarking on $120 million new facility investment in South Carolina. This will result in elevated CapEx compared to historical norms in 2024 and for the next few years.
That said, despite a lighter CapEx outlay in Q1. I would expect that remaining quarters to tick up considerably from here. Additionally, similar to prior years, we expect that free cash generation will build throughout the year with the bulk of collections coming in the fourth quarter.
Now to a few comments on our 2024 outlook, we are reiterating the strong view issued on our last call. Let me quickly review our expectations across metrics. Revenue will be between $2.925 billion and $3.025 billion, which represents a 4% to 7% growth. All of which is organic.
The primary factors driving variability in the range or the timing of material receipts, progress of labor inputs as well as the level and pacing of customer orders our adjusted EBITDA range is between $365 million and $390 million. We continue to expect healthy margin improvement year over year as we transition our development programs to production, which includes the Columbia-class among others.
Adjusted diluted EPS remains between $0.74 and $0.82 per share. Embedded in this range, our tax rate of 22.5% and $268 million fully diluted shares. Depreciation should be 2.4% of revenue, and CapEx should approach 4% of sales. Lastly, we are targeting 80% free cash flow conversion of adjusted net earnings for the year. We are pleased with Q1 momentum.
I want to reiterate that a significant portion of the outperformance was attributable to favorable timing right now, Q2 is shaping up to look a lot like our Q1 actuals with revenue in the high six hundreds and adjusted EBITDA profitability in a low 10% range. Additionally, we are expecting a modest free cash outflow as some of the favorable cash receipt timing reverses from this quarter.
Let me wrap up with a few quick closing thoughts. We are pleased with our year-to-date performance and commend the broader team in achieving these results. That said, we are maintaining a steadfast focus on driving execution to meet our commitments to our customers and shareholders. With that, we are ready to take your questions.

Question and Answer Session

Operator

(Operator Instructions) Peter Arment, Baird.

Peter Arment

Yes, hey, good morning, Bill, Mike, Steve, nice results.
Thanks, Peter.
A Bill, you touched upon Force Protection and demand signals there obviously are very strong. Can you maybe talk about if you're seeing an increased amount of development opportunities for four DRS.? And just how do we think about maybe the current pipeline of Force Protection work? And then I guess related to that, is maybe you could touch upon just the force structure. You know, the the pickup that the Army is doing a doubling of short short short range are defensive vehicles and the opportunity for DRS?

William Lynn

Yes.
Thanks, Peter. On the last point, we were pleased to see that as the Army did its biannual review of its force structure, even though the overall force structure contracted. The end strength went down.
They more than doubled the commitment to force protection, basically short range, air defense.
We think that that reflects, I think, the immediate lessons of Ukraine, but the longer-term trends that have been going on the last few years that led them to contract with us to do with the MCR add to begin with, as you indicated, there are still our development opportunities for newer versions and different types of systems. The one that we're working most actively now is called M. Lids, which is the counter-UAS system so a little bit more targeted version of a short range.
Air Defense, the US is still more and we put the first version out and the Army is buying it. The second version, which will take two vehicle to vehicle solution and combine it into a single vehicle solution is we're just finishing the development of that now and the Army is going to they like that enough that they're going to cut over their existing buy in to that. And so we think that this is going to continue to progress down a line and we think IDRS. with its portfolio of Force Protection Solutions is very well positioned to ride this trend.

Peter Arment

And can you talk, I guess, a little bit about the route of business. I mean, tactical radars obviously are probably the demand is insatiable. I'm sure off the charts. Can you maybe just talk about how that business is doing? Just given the conflict in Israel?

William Lynn

Yes, we don't we don't give guidance at the business level, but you're right that we are we are running that business 24 seven at this point, given the demand not only in Israel and Ukraine, but the what that's triggered in militaries around the world is exposed a Force Protection vulnerability to organic units. You've reached a point now where you can't just protect forces at the edge of the battlefield, but kind of a perimeter defense, you have to have defense that's organic to units.
I think that's what Ukraine in particular has shown. And a key element of that force protection is tactical radars and Rod has a leading among the leading solution, and we are seeing increasing demand so we're pleased with the acquisition we made 18 months ago.

Peter Arment

And just lastly, a quick one for Mike. Just could you maybe talk a little bit about working capital trends? The rest of the year. I know as Colombia three ramps up and just P&L kind of the cadence of the year, which is obviously seasonal and picks up into the back half of the year?

Michael Dippold

Yes, I don't think you're going to see too much similarity to what you've seen in the prior years. I think that trend is going to be pretty pretty much the same. Obviously, we got a little better start here in Q1, but I'll remind you that that's going to be a little bit offset as we progress here because of the capital outlays for the South Carolina facility. So I would still expect a lot of the cash generation to occur in the fourth quarter, albeit hopefully a little better linearity than we've seen in the past.

Peter Arment

Appreciate it. Thanks, guys.

Operator

Robert Stallard, Vertical Research.

Robert Stallard

Thanks so much. Good morning. Morning, Bill. Let me start with you a couple of questions. First of all, on the DoD budget outlook and FY 25 already started to see the military doing some trimming of perhaps what you might say, lower priority areas. Is there any risk of a knock-on impact on DRS from any of these changes?

William Lynn

Yes, Rob, I think the budget has come out about where we expected it. It took a long time and multiple CRs, but the 24 budget finally emerged and it emerged at the level that President Biden and then speaker McCarthy agreed to last last summer and that on top of that, the supplemental it was passed at the at the expected level, the requested level. And then the 25 budget came out again at the expected and the agreed-upon level.

Robert Stallard

So the expectations we had in building our plan, I think, were fulfilled to your kind of broader point? Is that forcing trade-offs?

William Lynn

Yes. Yes, clearly, and I think it's gone down the path that we've predicted, which is those those trade-offs start with platforms, whether it's the Virginia-class submarine or the cancellation of the FAR a helicopter. That's where the services have gone. And that kind of confirms our philosophy of being platform agnostic so that when platforms are delayed or canceled and upgrades replace them.
We're positioned to move on those upgrades just as easily as we were positioned to put our electronics and sensing and other equipment on new platforms. So we think that dexterity, the agility to move between upgrades and platforms has been confirmed by the recent budget decisions. No.

Robert Stallard

And just a follow-up. I mean, has there been any changes on the M&A pipeline at this stage?

William Lynn

Nothing that I can report in terms of specifics. We have a robust product pipeline. We're actively engaged in reviewing those those opportunities. Our criteria remain the same. We want and we think we are seeing opportunities that are a strategic fit to our core markets. They need financially to be EPS accretive.
They need to have returns above our weighted average cost of capital at least over three or four years, and they need to support our strategic growth and margin expansion path. So we're continuing to review against those criteria. We are finding opportunities, but we don't have anything that we have gotten to the decision stage and are ready to announce yet.

Robert Stallard

And then just finally, one for Mike, on the $4 million of restructuring in the quarter. If you could elaborate on what's behind?

Michael Dippold

Yes, this is actually just the continuation of Robert. What we announced last year with the Canadian facility reorganization, that's really just the accounting treatment and that you kind of add that to accrual for severance when the commitment date for the employees was breached. So we're kind of accruing it over time. But this is that effort that we put forth last year where we detailed the savings associated with this facility consolidation and this is just the kind of tail end of that completions.

Operator

Seth Seifman, JPMorgan.

Seth Seifman

And thanks very much and good morning, everyone. On my investment. Brian, I wanted to just to dig in on the sales outlook for the for the rest of the year on it seems if Q2 kind of looks like q. one, then the implication is really not very much growth at all in the back half of the year. And I know that the comps get tougher. So that makes sense on some level.
But also we see the growth in the backlog and we see the demand environment and so I mean, it would seem after this performance of the first quarter in the first quarter that the the balance of risk and the sales outlook is uniform pretty clearly to the upside?

Michael Dippold

Yes, I would take that and say that I think a lot of the performance and our performance was a little bit of a pull forward is as we improve the linearity. I think I think that's a piece of it, and we still want to see how the cadence of the orders play out for the rest of the year. Certainly pleased about where we are in Q1. I certainly think that we are positioned to execute within the guide range that we put forth, and that's kind of where we are today.

Seth Seifman

Right. Okay. Okay. And I know that you don't you guys don't have segment guidance, but maybe at a qualitative level and if we think about Q to sales and EBITDA kind of looking like q. one, is that on is that is that similar in the segments or were there certain pieces of goodness on Colombia, for example, in the first quarter that helped out there that aren't necessarily recurring. And then maybe there's some opportunity for kind of gradual improvement through the year in advanced sensing and computing.

Michael Dippold

And good question, and you've got it pretty much nailed. So what we saw in the ASC segment in Q1 was a little bit of more revenue contribution from the development type programs and what we expect to see is that to move more towards production as the year progresses.
So you'll see a little tick-up in the advanced sensing segment in terms of a profit profitability perspective on the IMS side as they were the ones that benefited from some of the pull-forward, if you will, from later quarters in 2024. So that absorption of the fixed costs really helped that segment margin.
So I would think as you look to Q2 and beyond, you'll you'll start to see kind of a pullback, if you will, a little bit on IMS and an acceleration of ASC. And at the end of the day, I do believe both segments will contribute fairly equally to the revenue growth for the year as well as a margin expansion for us.

Operator

Mariana Perez Mora, Bank of America.

Mariana Perez Mora

Good morning, everyone. Thank you. So first one in the South Carolina facility, you please like give us some color on how that development is going. What should we expect in the near term? Or what kind of miles and we could be looking at, but telco and.

Michael Dippold

Yes, okay, Alex. Yes, yes, we've signed a lease now. We're just starting the work, as Mike indicated, that the CapEx will start to increase now as the work starts on this is two to three year development. The as we've said, this the focus of this phase is on Colombia and improving the profitability and the efficiency of the Colombia work.
And we're in discussions now with the Navy in the shipyard about how we could use as an expansion of this facility to pull more work it towards in our direction in a way that would allow them to increase the submarine production rate as is the national goal critically on the Virginia-class, but overall, the increase the submarine industrial base by redistributing the work between yards and suppliers.
This facility could play a key role in that and that submarine industrial base funding that was passed in the supplemental could be a part of that equation as well.

Mariana Perez Mora

And that was where my question was fine at max like considering that shipyards are simple, these such a long cycle development effort, how soon could we see sound like firm commitment from these parties for this facility to play a role on accelerating and making them more robust shipbuilding production in the US are I'm supporting August.

William Lynn

Yes, I had some buyouts of multi-stage. The answer, I guess is that I mean, right now we're building the facility. So that will that will take 18 months, two years on the negotiations with the Navy are ongoing in terms of support for an expansion, I think you could see some results in a matter of months or a year or so. But then you would have to then turn that that funding into an expansion of that facility which would come at the end of the the initial build that we're doing. So it's a multiyear mid-term prospect in terms of expanding that revenue base. But that's the overall goal Thank you.

Mariana Perez Mora

And last one from me and M&A, and you mentioned you are looking at some companies. I'm curious like if you could give us some color on how robust is that pipeline is just like couple of companies, a handful of companies or doses of them and then wins when you analyze those companies. So your criteria, how many of those deals actually like just buyer type. We used to do your diligence.

William Lynn

It's hard to give you precise numbers. I would say over the course of the year, we look at it carefully at it, dozens of companies and then a, you know, on a modest number of those we go into into diligence. And if and then if that works out, you would only end up with with one or two where you get into the offer stage over the course of the year.

Operator

Sandy Draper, Truist Securities.

Sandy Draper

Hi, good morning, guys. Onto my Tamale. Congrats on a nice quarter. Here, Cummins is building on off of the prior line of questioning a little bit, Tom, regarding these kind of delays and be a submarine pipeline, do you guys see any maybe more near term opportunities kind of before that Atlanta facility is done where you guys might be able to take on a little bit more work in addition to what's already been without was already kind of happened to my tenant. Is it more near term opportunities there?

William Lynn

Or would you really just kind of be looking for would you guys just discuss in a slightly longer term basis terms of the larger opportunities, which would be new classes of ships, ETIXSSNX., those those are several years away in terms of real revenue from the international opportunities are a little bit closer in and the real revenue increase in the immediate term for us is the growth in the Columbia class submarine as we move up the curve shipset by shipset.

Sandy Draper

Brian, I guess what I was kind of getting out more so is do you guys see any opportunity where kind of some more work might be able to be passed on to you guys within the existing programs that you're on to kind of trying to help aid with a keynote. Just you didn't upgrade for the broader industry?

William Lynn

Yes, that's what I was talking about with the South Carolina facility, is that if you redistribute the though the work or you move some of the work that's done now at the yards into our South Carolina facility to allow a higher throughput at the yard.

Sandy Draper

That would be certainly an expansion of our revenue base. Got it. And then one more here, kind of on the fiscal year 25 budget, if you guys have any kind of opinions there on how that's looking for, you guys puts and takes?

Michael Dippold

Yes, the 25 budget that dropped again, I think it's still kind of alluded to earlier, is that it wasn't really a surprise. And as we look through the funding line items, we feel are programs. We're pretty well fed. I think that goes to the platform agnostic approach that we've had and where we align with the modernization. Our priorities both with the Navy and the Army, the greater Defense Department as a whole. So we feel pretty good about where we landed in our first kind of glimpse at the at the 25 budget.

Operator

(Operator Instructions) Jon Tanwanteng, CJS Securities.

Jon Tanwanteng

Hi, good morning. Thank you for taking my questions. I just wanted to approach the guidance from a different angle. Last quarter, I think you mentioned that the lower end of the range was predicated on maybe more extended spending and budgetary issues, given that we've seen both the passage of the spending bill and the Ukraine Bill, would you expect to be more at the midpoint or the upper half of the range now just how are you thinking about that? And just given the updates to our and spending is going to play out this year?

Michael Dippold

Yes, I think the budget passage and supplementals are certainly a nice occurrence to happen as early as they did. We're going to see how those outlays flow in terms of what you're going to start to see the order flow because of those those passages. And if the trends continue in a positive way, that could be a nice tailwind. But right now, we're still targeting towards the midpoint of the guide and are going to see how this plays out for the next quarter or two.

Jon Tanwanteng

Okay, fair enough. And then just regarding the push outs of these of these more the newer platforms and the Navy ships on maybe beyond the end of the decade. Can you just tell us maybe what the net change in your opportunity set is seen on through the latter half of the decade, you've obviously seen more demand flowing through and force protection and other other things that are going on, maybe the Navy start to spend more, as you've indicated on production of what they have in hand, is that a net decreasing opportunity through 2013, pretty much static just given the puts and takes then CDG. X and S S and X were always at the at the end of the planning periods.

William Lynn

That hasn't really changed our opportunity set. The more immediate opportunities are the growth in Colombia. The opportunities provided by the submarine industrial base and the international opportunities. So those are the things that are in the next three, three, four years. Those are what's going to drive growth.

Jon Tanwanteng

Okay. So basically the overall opportunity set hasn't changed even with the pushouts in some places.

William Lynn

Exactly.

Operator

Thank you. This concludes the question and answer session. At this time, I will turn the floor back to Steve Vetter for closing remarks.

Steve Vather

And 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, and we look forward to speaking with all of you again soon. Enjoy the rest of your day.

Operator

Thank you. This concludes today's conference. You may now disconnect, and thank you for your participation.