Q4 2023 Leonardo DRS Inc Earnings Call
Participants
Steve Vather; VP, IR & Corporate Finance; Leonardo DRS Inc
William Lynn; Chief Executive Officer; Leonardo DRS Inc
Michael Dippold; Chief Financial Officer, Executive Vice President; Leonardo DRS Inc
Robert Stallard; Analyst; Vertical Research Partners
Seth Seifman; Analyst; JPMorgan
Peter Arment; Analyst; Robert W. Baird & Co., Inc.
Ronald Epstein; Analyst; Bank of America
Michael Ciarmoli; Analyst; Truist Securities
Jon Tanwanteng; Analyst; CJS Securities
Presentation
Operator
Ladies and gentlemen, good day, and welcome to the Leonardo DRS Fourth Quarter and Full Year 2023 earnings conference call. (Operator Instructions) 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.v
Steve Vather
Good morning, and welcome, everyone. Thanks for participating on today's quarterly earnings conference call. With me today are Bill Lyons, our Chairman and CEO, and Mike Devine, our CFO, who 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'll also find the earnings release and supplemental presentation. Management may also make forward-looking statements during the call regarding future events, anticipated future trends, an 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 under take no obligation to update any 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 so 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 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 accelerated capturing bookings and achieved a 1.2 book-to-bill ratio for the year, we saw impressive demand for our solutions enable 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 market environment, we are closely monitoring the progress of FY24 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 for them.
More of the dynamic global threat environment is palpable, and it is also spurring increased defense spending by our allies. Our portfolios closely aligned to these well-funded priorities. And this is evidence that our growing backlog and multiple years of robust bookings for our advanced technologies and 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 enabled 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 contract 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 three 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 over match potential near-peer adversaries, alternative technologies to electric power and propulsion are inadequate and 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 Allied 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 technology. Our uncooled infrared sensors, tactical radars, high-frequency and software defined radios stand out in particular.
Some of these increasing missions include applications and 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 callout 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 invest. 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.
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 three brand new radars for new applications in force protection and longer range. Air Defense.
Overall, our tactical radar program 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 why these new lasers are critical to helping solve the foundational problems in advancing defense and commercial, quantum computing and sensing challenge.
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 now 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.
Michael Dippold
Thank 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 of 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.
Our advanced sensing and computing segment revenue growth for the year was driven by strength in naval network computing and multi-mission advanced sensing programs, particularly leveraging our tactical radars, lasers, tactical communications and electronic warfare technology. Our Integrated Mission 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, due to the 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 comparisons 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 Radha 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, dividend, year-end strength and was $494 million in Q4, reflecting robust collection and 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 continue 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 or presented 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's 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 that are 2024 guidance. We'd 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 assumed in our guidance.
If there is a reasonable and timely passage of 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 continue 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 impacts on our portfolio.
Finally, as you may recall, recall, we period expense our G&A best greater revenue volume typically drops to adjusted EBITDA. Given my comments on our quarterly revenue trajectory, is you 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 to 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 1st year costs associated with the new coastal facility project, our ability to generate strong cash flow remains unchanged. Separately, while there is some optimism optimism about lead modification of section one 74 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 may have 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 14th.
We are ready to take your questions.
Question and Answer Session
Operator
(Operator Instructions) Robert Stallard, Vertical Research.
Robert Stallard
Good morning, Lorraine, I'll start with Bill on this whole budget situation in DC, have you actually seen any impact on your business from this uncertainty as yet under what sort of contingencies are you building in case we don't you get it, but.
William Lynn
Yes, thanks, Rob. I mean, unfortunately, short term CRs and even shorts, but shutdowns and become a little bit to standard. So that those right right now wouldn't show an impact on us a longer term CR, we still see as unlikely.
And that's because in order there's still strong bipartisan support for defense given the threat, Ukraine, the longer-term threat in China. So that the only way you see a long-term CRs that the whole budget process fails, and we think that that's unlikely. But in any event, the low end of our guidance range caps captures that downside risks.
Robert Stallard
Okay. And then secondly, you finished 2023 with a net cash on the balance sheet. You made a couple of comments about some M&A still being some of your strength. But given the cash situation here, do you think it's feasible to start thinking about paying dividends Well, Robert, at this point, our priorities continue to be the organic investment.
William Lynn
We announced the maritime facilities are moving forward on that, and we're actively looking for M&A in our four 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 that remains the priority, M&A and organic investment.
Robert Stallard
Okay. And then just finally, one for Michael. On the South Carolina investment, I was wondering, do you have any sort of government support or contracts lineup 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?
Michael Dippold
Sure. I'll start with the latter part of that first, which is we are just commencing this initiative. Still the spend profile would 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, Robert, 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 expecting 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. That's our view on this, Rob.
Operator
Seth Seifman, JPMorgan.
Seth Seifman
Hi. Thanks very much and good morning on all of Exsa. Morning. I wanted to, I guess start off asking a little bit about the growth and kind of given the if given the strong results that we saw in ASIC. 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 at the Company, I mean, it would seem that the the advanced sensing and computing business should grow significantly faster than the average level of company growth that you're forecasting for for 2024.
I guess first of all, is that is that a fair assumption to make on? And if so, is there is there something in particular that kind of weighs down the growth at IMS. to get to that average level that you're forecasting? Thanks.
Michael Dippold
Ed. 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 on the backlog, excluding the unfunded piece for Colombia at IMS., and we do expect both of the segments to contribute to the growth that we outlaid in a 24 guide. 40 proportionately. Okay.
Seth Seifman
Okay. And but I guess in terms of the then on, is there some reason to think about it? Was there something really outsized about 4Q 23 in advanced sensing and computing on that wouldn't suggest that there's kind of I understand it's on a quarterly run rate, but at least from a seasonally adjusted quarterly run rate? And do you know the Q4 results to give up to a seasonally adjusted quarterly run rate?
Michael Dippold
Yes, it's a good question. I get where you're going now so I think that one of the contributing factors to the Q4 contribution from AFC was that we started to see supply chain stabilization. And as we alluded to on previous calls, we started setting up kind of advanced procurement and other mitigations to really stabilize our supply chain and make sure that we can have the output that we predicted for the Q4 ramp.
So we knew that there was going to be a little bit about wave that created this anomaly in ASC in Q4 because of what we've seen in the 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 disconnect in Q4.
Seth Seifman
Got it. Got it. Thanks. Okay. And then on maybe one more kind of top line related is just on when you think about the bookings opportunities for this year and think about the potential book to bill for 2024 on how are you thinking about that including the opportunities relative to what you picked up in 2023, understanding that there aren't that kind of giant Colombia contracts out there?
Michael Dippold
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 at 1.2 book to bill in 2023 was not dominated by Columbia was actually a holistic of demand that we saw from really stemming from these evolving threats. As Bill alluded to in his speech just a moment ago, we don't guide to bookings, but we don't put out a number, but we do kind of target to make sure that our bookings are exceeding that one to one 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 for a credit card.
Operator
Peter Arment, Baird.
Peter Arment
Yes, good morning, Bill. Mike Steib from a mike, you called out the on the Columbia as being a big piece of the adjusted EBITDA margin expansion of 100 to 100, 40 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 that are helping you on the on the expansion side?
Michael Dippold
Yes. So there's a couple of programs. I think as we kind of show 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 a highlight on that, but there's been others, particularly in Orcutt, ground-based and dismounted sensing programs. We're seeing that transition out of our ASC segment. And then you've got the Colombia piece on the IMS. So those are the real headlines that you're going to see move and continue to drive this positive margin occurrence that we're anticipating.
Peter Arment
Okay. And then just circling back to the CapEx in South Carolina. So this it sounds like it's all for supporting Columbia 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 about other opportunities for electronic propulsion on surface ships? And would that require a lot more CapEx on it and just maybe high-level thoughts, Bill, thanks.
William Lynn
Yes, not to Peter, you've got to write the business case for the facility. The $120 million investment is based on that large multiyear Colombia award that that gave us the assurance to go forward this facility and it's going to drive additional capability capacity that will drive higher margin. But it also gives us the ability and the capacity to go after future work on new on new platforms.
And that's a key part of especially upside to the initial investments. 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. The Congress's funding and the Navy is pursuing. And we're in active discussions with the Navy in the yards as to how you'd align work between the yards and the suppliers to drive that increased throughput and the facilities, a key part of that conversation. Appreciate the color.
Operator
Ronald Epstein, Bank of America. on.
Ronald Epstein
Your Board image with the goal of this is Julian on for Ron. Could you just talk about the opportunities you're seeing in space? Do you think there's an opportunity in SDA for the pros, Larry, the warfighter, what those opportunities look like?
William Lynn
Yes. No, thanks for the question from. As we've talked about, space is a long-term play for us. What we're really focused on doing is trying to move from what we really have now as a niche capability and move that to have really a core part of our of our new base.
We have had early success as we talked about in weather satellites and on the missile defense where your questions focus, we've seen strong customer interest in our payloads. We have some unique capabilities in the lower orbit area that did translate into a Toronto one 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. So 18 to 24 months.
Operator
Michael Ciarmoli, Truist Securities.
Michael Ciarmoli
Hey, good morning, guys. Thanks for taking the questions. Maybe just a couple of quick ones. First, I guess, Mike, on in terms of bookings, do you guys you can have a but I maybe I missed it. But do you think you could have a book-to-bill greater than one and '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?
Michael Dippold
Yes. That's what as I said earlier, I don't think we guide to bookings, but we don't guide to bookings. So 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 complex 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 one to one book-to-bill ratio for 2024.
Michael Ciarmoli
Okay. And if you could give us any color, I mean, are you seeing growth in your overall pipeline of opportunities, you know, across the range of capabilities is one area becoming stronger than others? Any kind of color you could give us there?
Michael Dippold
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 with or to Israel at this point in time, they have certainly highlighted a capability that you need a more integrated and communicated battlefields.
And we're starting to see the demands from that in our advanced sensing space in particular. And that is where we're seeing a lot of those. The port protection business, the tactical radars, that is where we're seeing a lot of demand really stemming from what became apparent with the complex that we're seeing, both in Israel and Ukraine.
Michael Ciarmoli
Got it. Got it. And then you talked about the on 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?
William Lynn
We haven't set a specific part target. As we said, we've moved up to 10%, but that over the last five or six years, that represents a doubling about 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 when those programs hit production as you see international opportunities. So we think we're going to see more international opportunities 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.
Michael Ciarmoli
Got it. Got it. And then a last one for me just on the the Columbia program itself. Can you just give us a general update?
William Lynn
I think you're currently working shipset to I think maybe you kind of said you were starting shipset three. And I think that program expect it to be pretty positive for margins. So do we have that right or 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 a shipset to which is better better margins. And we've just started chipset three, which had still better margins because it's part of the contract that was negotiated with new higher inflation assumptions. So with 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
(Operator Instructions) Jon Tanwanteng, CJS Securities.
Jon Tanwanteng
Hi, good morning. Thank you for taking my questions. I was wondering about the new facility you mentioned of mostly for the Columbia. What does that do for your Columbia program economics on a per Boe basis or a consolidated basis for a company? I'm wondering when it comes online.
Michael Dippold
Sure, John. So this investment is really geared towards driving efficiencies, looking at complex builds on the Columbia and figured out what we can. We can take an 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 live Okay.
Jon Tanwanteng
And then do you still expect to participate in Navy or government funded expansion in the industrial base versus self funding in the future?
Michael Dippold
That's that's the goal, John. We think that the as Mike said, the business case for the facilities are based on on the Columbia class. And that analysis compares well to an acquisition. It would just give you an idea it would give you a if 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 at it as we go forward for some Navy and investment if we were to expand this facility to improve the throughput at the yards by moving work to the suppliers.
Jon Tanwanteng
Got it. That's helpful. And then on, Mike, if you could just talk about your on 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 on phone historical versus your historical performance? Yes, I think it's going to be a path typically as we've seen in terms of that same quarterly trend and that seasonality skewing towards the fourth quarter?
Michael Dippold
I think the linearity we have improved, but I still think the large majority of the cash will reside in Q4. Is there any way you can numb you can help us ballpark what were the trough level of and free cash will be as you go through Q1, 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 pickup and with that profit will come to working capital liquidations of cash.
So I just are modeling out the revenue. You kind of look at that to be the impetus to really drive the cash into the Q4 ramp, if you will.
Operator
At this time I will turn the floor back to Steve either for closing remarks.
Steve Vather
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 look forward to speaking with all of you again soon. Have a great day. Thank you.
Operator
This concludes today's conference. You may disconnect now. Thank you all for participating.
