Core Viewpoint - Leonardo DRS, Inc. is positioned as a strong investment opportunity in the Aerospace Defense Equipment industry due to its robust backlog, rising earnings estimates, efficient debt management, and strong liquidity [1] Group 1: Growth Forecast - The Zacks Consensus Estimate for DRS' 2025 earnings per share (EPS) has increased by 0.9% to $1.08 per share over the past 30 days [2] - The total revenue estimate for DRS in 2025 is $3.52 billion, indicating a year-over-year growth of 9% [2] - The company's long-term earnings growth rate is projected at 14.6%, with an average earnings surprise of 20.42% over the last four quarters [3] Group 2: Liquidity and Debt Management - DRS' current ratio at the end of Q1 2025 was 2.02, surpassing the industry average of 1.79, indicating strong short-term liability management [4] - The total debt to capital ratio for DRS is 12.34%, significantly better than the industry average of 52.52% [5] - The times interest earned (TIE) ratio for DRS was 17.8, suggesting the company can comfortably meet its interest obligations [5] Group 3: Backlog and Stock Performance - DRS' total backlog as of March 31, 2025, increased by 9.8% to $8.61 billion, driven by new awards in the Advanced Sensing and Computing segment [6] - Over the past six months, DRS shares have increased by 14.6%, outperforming the industry average rise of 2.5% [7]

Core Insights - The article emphasizes the importance of data-driven analysis in identifying investment opportunities within the aerospace, defense, and airline sectors [2]. Group 1: Investment Opportunities - The Aerospace Forum aims to uncover investment prospects in the aerospace, defense, and airline industries, highlighting significant growth potential in these sectors [2]. - The analysis provided by the forum is informed by data analytics, which helps contextualize industry developments and their potential impact on investment strategies [2]. Group 2: Analyst Background - The lead analyst, Dhierin, possesses a background in aerospace engineering, which enhances the depth of analysis in a complex industry [2]. - The forum offers direct access to data analytics monitors, providing members with valuable insights for investment decisions [2].

Core Viewpoint - Momentum investing focuses on following a stock's recent price trends, aiming to buy high and sell higher, with the expectation that established trends will continue [1] Company Overview: Leonardo DRS, Inc. (DRS) - DRS currently holds a Momentum Style Score of A, indicating strong momentum characteristics [2] - The company has a Zacks Rank of 2 (Buy), suggesting it is positioned for potential outperformance [3] Price Performance - DRS shares have increased by 12.75% over the past week, outperforming the Zacks Aerospace - Defense Equipment industry, which rose by 4.95% [5] - Over the past month, DRS shares have risen by 31.85%, compared to the industry's 15.75% [5] - In the last quarter, DRS shares increased by 20.33%, and over the past year, they have gained 91.23%, while the S&P 500 has moved -7.56% and 9.65% respectively [6] Trading Volume - DRS has an average 20-day trading volume of 1,064,790 shares, which is a useful indicator for assessing price movements [7] Earnings Outlook - In the past two months, two earnings estimates for DRS have been revised upwards, with the consensus estimate increasing from $1.07 to $1.08 [9] - For the next fiscal year, two estimates have also moved higher, with no downward revisions [9] Conclusion - Given the strong momentum indicators and positive earnings outlook, DRS is positioned as a solid momentum pick with a 2 (Buy) rating and a Momentum Score of A [11]

[PART I. Financial Information](index=6&type=section&id=PART%20I%2E%20Financial%20Information) This section presents the unaudited financial statements and management's discussion and analysis for the quarter ended March 31, 2025, detailing the company's financial performance, position, and cash flows [ITEM 1. Financial Statements (Unaudited)](index=6&type=section&id=ITEM%201%2E%20Financial%20Statements%20(Unaudited)) The unaudited consolidated financial statements for Q1 2025 reveal significant year-over-year growth in revenue and net earnings, a solid balance sheet, and improved operating cash flow [Consolidated Statements of Earnings](index=6&type=section&id=Consolidated%20Statements%20of%20Earnings) Q1 2025 consolidated earnings show revenues of **$799 million**, a **16.1% increase**, and net earnings of **$50 million**, up **72.4%** year-over-year Consolidated Earnings Summary (Q1 2025 vs Q1 2024) | Metric (in millions, except per share) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | **Revenues** | $799 | $688 | | **Gross Profit** | $181 | $153 | | **Operating Earnings** | $59 | $43 | | **Net Earnings** | $50 | $29 | | **Basic EPS** | $0.19 | $0.11 | | **Diluted EPS** | $0.19 | $0.11 | [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2025, total assets were **$4.096 billion**, with a decrease in cash, while total liabilities decreased and shareholders' equity increased Balance Sheet Summary | Metric (in millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $2,070 | $2,163 | | Cash and cash equivalents | $380 | $598 | | **Total Assets** | **$4,096** | **$4,184** | | **Total Current Liabilities** | $1,027 | $1,116 | | **Total Liabilities** | **$1,525** | **$1,627** | | **Total Shareholders' Equity** | **$2,571** | **$2,557** | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Q1 2025 cash flow shows net cash used in operating activities improved to **$138 million**, with investing and financing activities also using cash, resulting in a **$218 million** net decrease Cash Flow Summary (Q1 2025 vs Q1 2024) | Activity (in millions) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(138) | $(265) | | Net cash used in investing activities | $(32) | $(10) | | Net cash used in financing activities | $(48) | $(32) | | **Net decrease in cash** | **$(218)** | **$(307)** | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, segment performance, **78%** revenue reliance on DoD, **$8.6 billion** backlog, and recent share repurchase and dividend activities - The Department of Defense (DoD) is the largest customer, accounting for approximately **78%** of total revenues for the three months ended March 31, 2025[32](index=32&type=chunk) - Total backlog as of March 31, 2025, was **$8.612 billion** Approximately **27%** is expected to be recognized as revenue over the next nine months[45](index=45&type=chunk) - On February 20, 2025, the Board approved a share repurchase program of up to **$75 million** As of March 31, 2025, approximately **$3 million** had been repurchased[75](index=75&type=chunk) - A quarterly dividend of **$0.09 per share** was declared and paid during the first quarter of 2025[76](index=76&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=ITEM%202%2E%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q1 2025 performance to backlog growth and execution across ASC and IMS segments, with revenue up **16.1%** and operating earnings up **37.2%**, maintaining strong liquidity [Business Overview and Considerations](index=28&type=section&id=Business%20Overview%20and%20Considerations) DRS operates two defense technology segments, ASC and IMS, with **78%** of Q1 2025 revenue from DoD, influenced by global conflicts and the **$850 billion** FY 2025 U.S. defense budget - The company operates through two technology-driven segments: Advanced Sensing and Computing (ASC) and Integrated Mission Systems (IMS)[102](index=102&type=chunk)[106](index=106&type=chunk) - The DoD accounted for **78%** of revenue in Q1 2025, with the U.S. Navy (**38%**) and U.S. Army (**32%**) being the primary end-users[100](index=100&type=chunk) - The FY 2025 National Defense Authorization Act (NDAA) authorizes **$850 billion** in defense spending, largely flat over prior year levels but with increases in procurement and R&D[118](index=118&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Q1 2025 revenue grew **16.1%** to **$799 million**, with operating earnings up **37.2%** and net earnings up **72.4%**, driven by backlog growth and improved margins Q1 2025 vs Q1 2024 Performance | Metric (in millions) | Q1 2025 | Q1 2024 | Change (%) | | :--- | :--- | :--- | :--- | | **Total Revenues** | $799 | $688 | 16.1% | | **Gross Profit** | $181 | $153 | 18.3% | | **Operating Earnings** | $59 | $43 | 37.2% | | **Net Earnings** | $50 | $29 | 72.4% | | **Bookings** | $991 | $815 | 21.6% | | **Backlog** | $8,612 | $7,845 | 9.8% | - G&A expenses increased by **15.8%** primarily due to higher internal R&D spending and bid and proposal efforts[135](index=135&type=chunk) - Net interest expense decreased by **$4 million** due to higher interest income from larger cash balances and reduced borrowings[139](index=139&type=chunk) [Review of Operating Segments](index=39&type=section&id=Review%20of%20Operating%20Segments) Both ASC and IMS segments contributed to Q1 2025 growth, with ASC revenue up **18.0%** and IMS revenue up **11.5%**, driven by strong bookings across programs Segment Performance (Q1 2025 vs Q1 2024) | Segment (in millions) | Metric | Q1 2025 | Q1 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **ASC** | Revenues | $511 | $433 | 18.0% | | | Operating Earnings | $25 | $19 | 31.6% | | | Bookings | $669 | $587 | 14.0% | | **IMS** | Revenues | $291 | $261 | 11.5% | | | Operating Earnings | $34 | $25 | 36.0% | | | Bookings | $322 | $228 | 41.2% | [Advanced Sensing and Computing (ASC)](index=39&type=section&id=Advanced%20Sensing%20and%20Computing%20(ASC)) ASC revenue grew **18.0%** to **$511 million** in Q1 2025, with operating earnings up **31.6%** and margin improving to **4.9%**, driven by tactical computing and C-UAS radars - Revenue growth was driven by advanced sensing and force protection programs, specifically tactical computing and C-UAS tactical radars[165](index=165&type=chunk) - Operating margin increased to **4.9%** due to higher revenue and reduced restructuring, despite increased germanium costs and R&D spending[166](index=166&type=chunk)[167](index=167&type=chunk) [Integrated Mission Systems (IMS)](index=40&type=section&id=Integrated%20Mission%20Systems%20(IMS)) IMS revenue increased **11.5%** to **$291 million** in Q1 2025, with operating earnings up **36.0%** and margin expanding to **11.7%**, driven by naval power programs - Revenue growth was attributed to naval power programs (submarine and surface ship) and short-range air defense programs[169](index=169&type=chunk) - Operating margin increased to **11.7%** from **9.6%**, driven by operational leverage and continued program improvement on the Columbia Class submarine program[170](index=170&type=chunk) - Bookings increased significantly due to funding for the next tranche of the Columbia Class program and additional short-range air defense vehicle awards[171](index=171&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) Q1 2025 ended with **$380 million** cash, with net cash used in operating activities improving to **$138 million** due to working capital management, despite increased investing and financing outflows Cash Flow Summary (Q1 2025 vs Q1 2024) | Activity (in millions) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(138) | $(265) | | Net cash used in investing activities | $(32) | $(10) | | Net cash used in financing activities | $(48) | $(32) | | **Net decrease in cash** | **$(218)** | **$(307)** | - The improvement in operating cash flow was driven by customer advances on electric propulsion and tactical radar programs, and lower cash outflow for accounts payable[174](index=174&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=ITEM%203%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risks include interest rate risk on variable-rate debt, limited foreign currency exposure, and inflationary pressures on supply chain costs impacting profitability - The company is exposed to interest rate risk on its **$200 million** outstanding variable-rate 2022 Term Loan A A **0.5%** change in rates would alter annual interest expense by about **$1 million**[179](index=179&type=chunk) - Foreign currency risk is limited, with primary exposure to the Canadian dollar on receivables of **$26 million** as of March 31, 2025[181](index=181&type=chunk) - The company has experienced inflationary pressures on supply chain costs for micro-electronics and metals, which have impacted profitability[182](index=182&type=chunk) [ITEM 4. Controls and Procedures](index=42&type=section&id=ITEM%204%2E%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of the end of the quarter[183](index=183&type=chunk) - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[185](index=185&type=chunk) [PART II. Other Information](index=43&type=section&id=PART%20II%2E%20Other%20Information) This section provides updates on legal proceedings, risk factors, equity security sales, and other general information for the reporting period [ITEM 1. Legal Proceedings](index=43&type=section&id=ITEM%201%2E%20Legal%20Proceedings) The company is subject to ordinary course legal proceedings and claims, with details provided in Note 12 of the Consolidated Financial Statements - Information regarding legal proceedings is detailed in Note 12: Commitments and Contingencies to the Consolidated Financial Statements[187](index=187&type=chunk) [ITEM 1A. Risk Factors](index=43&type=section&id=ITEM%201A%2E%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes have occurred to the risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2024[188](index=188&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=ITEM%202%2E%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **88,050 shares** for approximately **$3 million** under its **$75 million** share repurchase program during Q1 2025 Share Repurchase Activity (Q1 2025) | Period | Shares Purchased | Average Price Paid | Value (in millions) | Remaining Authorization (in millions) | | :--- | :--- | :--- | :--- | :--- | | March 2025 | 88,050 | $32.46 | ~$2.9 | $72 | - The Board approved a share repurchase program on February 20, 2025, authorizing the purchase of up to **$75 million** of common stock through March 4, 2027[189](index=189&type=chunk) [ITEM 5. Other Information](index=43&type=section&id=ITEM%205%2E%20Other%20Information) No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2025 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2025[194](index=194&type=chunk)

Financial Data and Key Metrics Changes - The company reported a revenue growth of 16% in Q1, significantly exceeding expectations, primarily due to favorable timing of material receipts [21][28] - Adjusted EBITDA for the quarter was $82 million, representing a 17% increase year-over-year, with an adjusted EBITDA margin of 10.3%, reflecting a slight margin expansion of 10 basis points [23][24] - Net earnings for Q1 were $50 million, with diluted EPS of $0.19, marking a 7273% increase, while adjusted net earnings were $54 million, with adjusted diluted EPS of $0.20, up 42% [26][27] Business Line Data and Key Metrics Changes - The Advanced Sensing and Computing (ASC) segment saw an 18% revenue growth, while the Integrated Mission Systems (IMS) segment's revenue increased by 11% [22][24] - ASC adjusted EBITDA increased by 2%, but the margin declined by 130 basis points due to negative contract adjustments and increased costs from a sole source supplier [24][26] - IMS adjusted EBITDA rose by 38%, with margin expansion of 260 basis points, driven by favorable contract adjustments and increased volume from the Columbia Class program [25][26] Market Data and Key Metrics Changes - The company secured nearly $1 billion in bookings during the quarter, resulting in a book-to-bill ratio of 1.2, marking the thirteenth consecutive quarter with a book-to-bill above one [6][7] - The backlog increased to $8.6 billion, reflecting growth on both a year-over-year and sequential basis [7][28] - Domestic growth was highlighted, while international growth faced headwinds due to timing issues related to deliveries supporting Ukraine [35] Company Strategy and Development Direction - The company is focused on enhancing its capabilities in layered air defense, counter UAS, and shipbuilding, aligning with national defense initiatives [10][11] - The company is investing in AI technologies and electric propulsion systems, aiming to capture significant demand in these areas [18][19] - The strategic emphasis is on maintaining a strong position in defense priorities while ensuring efficient program execution and innovation [20][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the durability of demand despite a dynamic operating environment, with expectations for continued growth in defense spending [9][10] - The company anticipates a revenue range of $3.425 billion to $3.525 billion for the full year, implying a 6% to 9% year-over-year growth [28][29] - Management noted that the operating environment is more dynamic compared to the previous year, requiring agility to navigate complexities [20] Other Important Information - The company initiated a dividend payment and stock repurchase program, reflecting a commitment to returning capital to shareholders [8] - The management is actively engaged in M&A opportunities, viewing it as a top priority for capital allocation [76] Q&A Session Summary Question: Can you discuss the impact of material receipts on revenue? - The material acceleration impacted revenue holistically across the board, with improved supplier deliveries contributing positively [33][34] Question: What are the expectations for ASC margins going forward? - The adjustments made in Q1 are expected to reset the backlog, leading to a lower gross margin prospectively, but a recovery is anticipated [38] Question: How does the company view the potential defense budget increase? - The company is well-positioned to grow ahead of the defense budget, aligning with core markets in shipbuilding and force protection [55] Question: What is the company's strategy regarding international opportunities? - There is a substantial near-term opportunity in Europe, particularly in counter-drone and advanced sensing programs [63] Question: How is the company addressing supply chain challenges? - The company is including economic price adjustment clauses in future contracts to mitigate risks associated with price volatility [78]

Core Insights - Leonardo DRS, Inc. reported $799 million in revenue for Q1 2025, a 16.1% year-over-year increase, with an EPS of $0.20 compared to $0.14 a year ago, exceeding both revenue and EPS estimates [1] - The revenue surpassed the Zacks Consensus Estimate of $744.53 million by 7.32%, while the EPS exceeded the consensus estimate of $0.17 by 17.65% [1] Financial Performance - Revenue from IMS was $291 million, exceeding the average estimate of $278.69 million from three analysts [4] - Revenue from ASC was $511 million, surpassing the average estimate of $470.52 million from three analysts [4] - Adjusted EBITDA for IMS was $40 million, above the estimated $32.14 million [4] - Adjusted EBITDA for ASC was $42 million, below the estimated $47.04 million [4] Market Performance - Shares of Leonardo DRS, Inc. have returned +9% over the past month, contrasting with the Zacks S&P 500 composite's -0.7% change [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Financial Data and Key Metrics Changes - The company reported a revenue growth of 16% in Q1, significantly above expectations, primarily due to favorable timing of material receipts [22][24] - Adjusted EBITDA for the quarter was $82 million, representing a 17% growth year-over-year, with an adjusted EBITDA margin of 10.3%, reflecting a slight year-over-year margin expansion of 10 basis points [24][26] - First quarter net earnings were $50 million, with diluted EPS of $0.19, marking a 7273% increase, while adjusted net earnings were $54 million, with adjusted diluted EPS of $0.20, up 42% [26][30] Business Line Data and Key Metrics Changes - The Advanced Sensing and Computing (ASC) segment saw a revenue growth of 18%, while the Integrated Mission Systems (IMS) segment's revenue increased by 11% [23][24] - ASC adjusted EBITDA increased by 2%, but the margin declined by 130 basis points due to negative contract adjustments and increased costs from a sole source supplier [25][26] - IMS adjusted EBITDA rose by 38%, with margin expansion of 260 basis points, driven by favorable contract adjustments and increased volume from the Columbia Class program [25][26] Market Data and Key Metrics Changes - The company secured nearly $1 billion in bookings during the quarter, resulting in a book-to-bill ratio of 1.2, marking the thirteenth consecutive quarter with a book-to-bill above one [6][20] - The backlog increased to $8.6 billion, reflecting growth on both a year-over-year and sequential basis [7][20] - Domestic growth was highlighted, while international growth faced some headwinds due to timing of deliveries [35][36] Company Strategy and Development Direction - The company is focused on enhancing its role in national defense initiatives, particularly in layered air defense, counter UAS, and shipbuilding [11][12] - The company is investing in its Charleston facility to support shipbuilding and is exploring opportunities in electric propulsion and unmanned naval platforms [17][18] - The company is also advancing its AI capabilities to enhance threat detection and situational awareness in combat vehicles [18][19] Management's Comments on Operating Environment and Future Outlook - Management noted a dynamic operating environment but expressed confidence in maintaining a book-to-bill ratio above one for 2025 [10][11] - The global threat environment remains elevated, which is expected to sustain demand for defense spending [11][12] - The company anticipates the FY '26 President's Budget Request will provide clarity on funding allocations for key priorities [11][12] Other Important Information - The company initiated a dividend payment and stock repurchases as part of its capital return initiatives [8][20] - The company is actively engaged in M&A opportunities, viewing them as a top priority for capital allocation [78][79] - The company has implemented economic price adjustment clauses in contracts to mitigate risks associated with price volatility of raw materials [81][82] Q&A Session Summary Question: Can you talk about material receipts and international growth? - The material acceleration impacted revenue holistically across the board, with domestic growth being the primary contributor while international growth faced some headwinds [35][36] Question: What are the margin expectations for ASC? - The ASC segment is expected to have a lower gross margin prospectively, but adjustments made in Q1 should mitigate some impacts moving forward [41] Question: How do you see your share of the defense budget evolving? - The company expects to grow ahead of the defense budget, aligning with the administration's priorities in shipbuilding and force protection [56][58] Question: What is the opportunity in the European defense market? - There is a substantial near-term opportunity in areas like counter-drone systems and advanced sensing programs, although competition may evolve over time [66] Question: How is the company positioned for Navy opportunities? - The company is engaged in discussions to increase its role in shipbuilding and is positioned to support the Navy's increased throughput needs [70][71] Question: What is the outlook for interest expense? - The company anticipates a lower interest burden for the full year due to improved cash position and linearity [111]

Financial Data and Key Metrics Changes - The company reported a revenue growth of 16% in Q1, significantly above previous expectations, primarily due to favorable timing of material receipts [22][24] - Adjusted EBITDA for the quarter was $82 million, representing a 17% increase year-over-year, with an adjusted EBITDA margin of 10.3%, reflecting a slight margin expansion of 10 basis points [24][25] - First quarter net earnings were $50 million, with diluted EPS of $0.19, marking a 7273% increase, while adjusted net earnings were $54 million, with adjusted diluted EPS of $0.20, up 42% [27][28] Business Line Data and Key Metrics Changes - The Advanced Sensing and Computing (ASC) segment saw a revenue growth of 18%, while the Integrated Mission Systems (IMS) segment's revenue increased by 11% [23][24] - ASC adjusted EBITDA increased by 2%, but the margin declined by 130 basis points due to negative contract adjustments and increased costs from a sole source supplier [25][26] - IMS adjusted EBITDA rose by 38%, with margin expansion of 260 basis points, driven by favorable contract adjustments and increased volume from the Columbia Class program [26] Market Data and Key Metrics Changes - The company secured nearly $1 billion in bookings during the quarter, resulting in a book-to-bill ratio of 1.2, marking the thirteenth consecutive quarter with a book-to-bill above one [7][8] - The backlog increased to $8.6 billion, reflecting growth on both a year-over-year and sequential basis [9] - Domestic growth was highlighted as a key driver, while international growth faced headwinds due to timing issues related to support for Ukraine [35] Company Strategy and Development Direction - The company is focused on enhancing its capabilities in layered air defense, counter UAS, and shipbuilding, aligning with national defense initiatives [12][13] - The company is investing in AI technologies and electric propulsion systems, aiming to capture significant demand in these areas [19][20] - The strategic emphasis is on maintaining a strong operational performance while navigating a dynamic operating environment [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the durability of demand despite a more dynamic operating backdrop, with expectations for continued growth in defense spending driven by global threats [11][12] - The company anticipates a revenue range of $3.425 billion to $3.525 billion for the full year, implying a 6% to 9% year-over-year growth [29] - Management noted that the operating environment is more complex than in previous years, requiring agility to adapt to new challenges [21] Other Important Information - The company initiated a dividend payment and stock repurchase program as part of its capital return initiatives [10] - The management is actively engaged in M&A opportunities, viewing it as a top priority for capital allocation [76][77] Q&A Session Summary Question: Can you discuss the impact of material receipts on revenue? - The material acceleration impacted revenue holistically across the board, with improved supplier deliveries contributing positively [34][35] Question: What are the expectations for second half revenue? - The guidance suggests a flat to 6% growth in the second half, with continued improvements in linearity expected [38][39] Question: How will ASC margins be affected going forward? - The adjustments made in Q1 are expected to lead to a lower gross margin prospectively, but a recovery is anticipated [39] Question: What are the margin expectations for the year? - The margin is expected to improve as revenue increases, driven by operational leverage [44] Question: How is the company positioned for the upcoming defense budget? - The company is well-positioned to capture growth aligned with defense priorities, particularly in shipbuilding and force protection [55][56] Question: What is the company's approach to M&A? - The company remains focused on M&A as a priority, with a robust pipeline of strategically attractive opportunities [76][77]

INVESTOR PRESENTATION May 2025 Disclaimers Forward-Looking Statements In this presentation, when using the terms the "company," "DRS," "we," "us" and "our," unless otherwise indicated or the context otherwise requires, we are referring to Leonardo DRS, Inc. This presentation contains forward-looking statements and cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of forward-looking terms such ...

[First Quarter 2025 Financial Highlights](index=1&type=section&id=First%20Quarter%202025%20Financial%20Highlights) Leonardo DRS reported strong Q1 2025 results, exceeding expectations with robust revenue growth, improved profitability, and reduced cash flow usage, alongside record backlog [CEO Commentary](index=1&type=section&id=CEO%20Commentary) CEO Bill Lynn reported that Leonardo DRS's first quarter 2025 financial results exceeded expectations, reflecting a strong start to the year with robust customer demand, healthy organic revenue growth, improved profitability, and reduced free cash flow usage - Q1 2025 financial results **exceeded expectations**, indicating a solid start to the year[3](index=3&type=chunk) - The company's differentiated portfolio continues to exhibit **strong customer demand**, translating into healthy organic revenue growth[3](index=3&type=chunk) - **Improved profitability** and **reduced free cash flow usage** were achieved compared to the previous year[3](index=3&type=chunk) - Management remains focused on maintaining **sharp execution** throughout 2025 to meet commitments to shareholders and customers[3](index=3&type=chunk) [Summary Financial Performance](index=1&type=section&id=Summary%20Financial%20Results) Leonardo DRS reported strong Q1 2025 financial results with significant year-over-year growth across key metrics, including a **16% increase in revenues** and a **72% rise in net earnings**, driven by key programs and improved operational performance Q1 2025 Summary Financial Results (YoY Change) | Metric | Q1 2025 (Millions) | Q1 2024 (Millions) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $799 | $688 | 16 % | | Net Earnings | $50 | $29 | 72 % | | Diluted EPS | $0.19 | $0.11 | 73 % | | Adjusted EBITDA | $82 | $70 | 17 % | | Adjusted EBITDA Margin | 10.3 % | 10.2 % | 10 bps | | Adjusted Net Earnings | $54 | $38 | 42 % | | Adjusted Diluted EPS | $0.20 | $0.14 | 43 % | - Revenue growth was principally catalyzed by programs related to ground and naval network computing, tactical radars, and electric power and propulsion[4](index=4&type=chunk) - Adjusted EBITDA growth stemmed from increased volume, and margin expansion resulted from favorable net contract adjustments and higher volume[6](index=6&type=chunk) - Bottom-line metrics (net earnings, adjusted net earnings, diluted EPS, and adjusted diluted EPS) were higher due to **strong operational performance**, reduced interest, and a lower effective tax rate[6](index=6&type=chunk) [Cash Flow](index=2&type=section&id=Cash%20Flow) Leonardo DRS significantly reduced its net cash flow used in operating activities and free cash flow usage in Q1 2025 compared to the prior year, primarily due to increased profitability and improved working capital efficiency Q1 Cash Flow Summary | Metric | Q1 2025 (Millions) | Q1 2024 (Millions) | | :--- | :--- | :--- | | Net cash flow used in operating activities | ($138) | ($265) | | Free cash flow use | ($170) | ($275) | - Both operating and free cash flow uses were significantly smaller year-over-year, driven by **increased profitability** and **better working capital efficiency**, partly aided by favorable timing of cash receipts from customers[7](index=7&type=chunk) [Dividends and Stock Repurchases](index=2&type=section&id=Dividends%20and%20Stock%20Repurchases) During Q1 2025, Leonardo DRS paid **$24 million in dividends** ($0.09 per common share) and declared another $0.09 dividend payable in June 2025, while also repurchasing **88,050 shares** of common stock for approximately **$3 million** - Paid dividends totaling approximately **$24 million**, or **$0.09 per common share**, during the first quarter[8](index=8&type=chunk) - Declared a cash dividend of **$0.09 per common share** payable on June 5, 2025[8](index=8&type=chunk) - Repurchased **88,050 shares** of common stock for approximately **$3 million** in Q1[8](index=8&type=chunk) [Balance Sheet Overview](index=2&type=section&id=Balance%20Sheet%20Overview) As of March 31, 2025, Leonardo DRS maintained a healthy balance sheet with **$380 million in cash** and **$200 million in outstanding borrowings**, providing ample financial capacity for strategic investments and shareholder returns - Cash and cash equivalents at quarter end: **$380 million**[9](index=9&type=chunk)[28](index=28&type=chunk) - Outstanding borrowings under the company's credit facility: **$200 million**[9](index=9&type=chunk) - The balance sheet provides sufficient financial capacity to deploy capital for growth and return capital to shareholders[9](index=9&type=chunk) [Bookings and Backlog](index=2&type=section&id=Bookings%20and%20Backlog) Leonardo DRS achieved approximately **$1 billion in new funded bookings** in Q1 2025, resulting in a **1.2x book-to-bill ratio**, with total backlog reaching a new company record of **$8.6 billion**, marking a **10% year-over-year increase** Q1 Bookings and Backlog | (Dollars in millions) | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Bookings | $991 | $815 | | Book-to-Bill | 1.2x | 1.2x | | Backlog | $8,612 | $7,845 | - Robust bookings were driven by steadfast customer demand for advanced infrared sensing, electric power and propulsion, tactical radars, laser systems, and force protection technologies[10](index=10&type=chunk) - Total backlog at quarter end reached a new company record of **$8.6 billion**, representing a **10% increase year-over-year** and also up sequentially[10](index=10&type=chunk) [Segment Results](index=2&type=section&id=Segment%20Results) Leonardo DRS's segments demonstrated varied performance in Q1 2025, with ASC achieving strong revenue growth but margin contraction, while IMS saw significant revenue and Adjusted EBITDA expansion [Advanced Sensing and Computing (ASC) Segment](index=2&type=section&id=Advanced%20Sensing%20and%20Computing%20(ASC)%20Segment) The ASC segment reported an **18% revenue increase to $511 million** in Q1 2025, primarily driven by tactical radars and ground and naval network computing programs, though Adjusted EBITDA margin contracted by **130 basis points** due to cost growth from raw material price increases in infrared sensing programs ASC Segment Q1 Financials (YoY Change) | (Dollars in millions) | March 31, 2025 | March 31, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $511 | $433 | 18 % | | Adjusted EBITDA | $42 | $41 | 2 % | | Adjusted EBITDA Margin | 8.2 % | 9.5 % | (130) bps | | Bookings | $669 | $587 | - | | Book-to-Bill | 1.3x | 1.4x | - | - Revenue growth was most prominent for programs related to tactical radars and ground and naval network computing[12](index=12&type=chunk) - Adjusted EBITDA margin contraction was due to cost growth in infrared sensing related programs from price increases of certain raw materials, leading to unfavorable contract adjustments[12](index=12&type=chunk) [Integrated Mission Systems (IMS) Segment](index=3&type=section&id=Integrated%20Mission%20Systems%20(IMS)%20Segment) The IMS segment experienced solid customer demand in Q1 2025, leading to an **11% revenue increase to $291 million** and a **38% rise in Adjusted EBITDA**, with a significant margin expansion of **260 basis points**, driven by strong contributions from electric power and propulsion and force protection programs IMS Segment Q1 Financials (YoY Change) | (Dollars in millions) | March 31, 2025 | March 31, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $291 | $261 | 11 % | | Adjusted EBITDA | $40 | $29 | 38 % | | Adjusted EBITDA Margin | 13.7 % | 11.1 % | 260 bps | | Bookings | $322 | $228 | - | | Book-to-Bill | 1.1x | 0.9x | - | - Strong bookings and broad-based revenue growth were evident across the segment, with healthy demand for electric power and propulsion and force protection capabilities[13](index=13&type=chunk) - The year-over-year increase to Adjusted EBITDA and margin expansion resulted from favorable contract adjustments, improved program execution, and higher volume[13](index=13&type=chunk) [2025 Financial Guidance](index=3&type=section&id=2025%20Guidance) Leonardo DRS reaffirmed its full-year 2025 financial guidance, projecting strong revenues and Adjusted EBITDA, while monitoring potential tariff impacts [2025 Guidance Details](index=3&type=section&id=2025%20Guidance%20Details) Leonardo DRS confirmed its full-year 2025 guidance, projecting revenues between **$3,425 million and $3,525 million** and Adjusted EBITDA between **$435 million and $455 million**, while closely evaluating potential tariff impacts on its primarily US-based supply chain 2025 Full-Year Guidance | Measure | 2025 Guidance | | :--- | :--- | | Revenue | $3,425 million - $3,525 million | | Adjusted EBITDA | $435 million - $455 million | | Tax Rate | 19.0% | | Diluted WASO | 270.0 million | | Adjusted Diluted EPS | $1.02 - $1.08 | - The company's direct supply chain is primarily US-based, but it is closely evaluating any indirect impacts from potential tariffs and related policies[14](index=14&type=chunk) - A reconciliation of forward-looking adjusted EBITDA and adjusted diluted EPS is not provided due to the inherent difficulty in forecasting and quantifying necessary adjustments without unreasonable effort[15](index=15&type=chunk) [Company Information & Disclosures](index=3&type=section&id=Company%20Information%20%26%20Disclosures) This section provides details on the Q1 2025 conference call, an overview of Leonardo DRS's defense technology focus, and important forward-looking statement disclaimers [Conference Call Details](index=3&type=section&id=Conference%20Call) Leonardo DRS will host a conference call on **May 1, 2025, at 10:00 a.m. ET** to discuss its Q1 2025 financial results, with a live audio broadcast and supplemental presentation available on the company's investor relations website, and a replay accessible afterward - Conference call to discuss Q1 2025 financial results will be held on **May 1, 2025, at 10:00 a.m. ET**[16](index=16&type=chunk) - A live audio broadcast and supplemental presentation will be available on the Leonardo DRS Investor Relations website[16](index=16&type=chunk) - A replay of the conference call will be available on the website approximately 2 hours after its conclusion[17](index=17&type=chunk) [About Leonardo DRS](index=4&type=section&id=About%20Leonardo%20DRS) Leonardo DRS, headquartered in Arlington, VA, is an innovative provider of advanced defense technology to U.S. national security customers and allies, specializing in designing, developing, and manufacturing advanced sensing, network computing, force protection, and electric power and propulsion technologies, focusing on disruptive solutions for emerging threats - Headquartered in Arlington, VA, Leonardo DRS is a provider of advanced defense technology to U.S. national security customers and allies[18](index=18&type=chunk) - Specializes in the design, development, and manufacture of advanced sensing, network computing, force protection, and electric power and propulsion, and other mission-critical technologies[18](index=18&type=chunk) - Focused on developing disruptive technologies for autonomous, dynamic, interconnected, and multi-domain capabilities to defend against new and emerging threats[18](index=18&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This press release contains forward-looking statements regarding future performance, financial goals, and strategies, which are subject to numerous known and unknown risks and uncertainties that could cause actual results to differ materially from expectations, and the company does not undertake to update these statements unless legally required - Forward-looking statements include intentions, beliefs, assumptions, or current expectations concerning financial goals, position, results of operations, cash flows, prospects, strategies, or expectations, and the impact of prevailing economic conditions[19](index=19&type=chunk) - These statements are subject to known and unknown risks and uncertainties, many beyond the company's control, which could cause actual performance and outcomes to differ materially[20](index=20&type=chunk) - Key risk factors include disruptions with U.S. government agencies, funding delays, compliance issues, inflation, contract types, debt covenants, technological changes, economic downturns, supply chain risks, cybersecurity threats, intellectual property, geopolitical factors, and more[20](index=20&type=chunk)[21](index=21&type=chunk) - The company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions or events, other than as may be required by law[22](index=22&type=chunk) [Unaudited Consolidated Financial Statements](index=7&type=section&id=Unaudited%20Consolidated%20Financial%20Statements) The unaudited financial statements for Q1 2025 present the company's earnings, balance sheet, and cash flow, reflecting strong operational improvements [Consolidated Statements of Earnings (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Earnings%20(Unaudited)) The unaudited consolidated statements of earnings for the three months ended March 31, 2025, show a significant increase in net earnings to **$50 million** from **$29 million** in the prior year, driven by higher revenues and improved operating earnings Consolidated Statements of Earnings (Unaudited) | (Dollars in millions, except per share amounts) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenues | $799 | $688 | | Cost of revenues | ($618) | ($535) | | Gross profit | $181 | $153 | | General and administrative expenses | ($117) | ($101) | | Amortization of intangibles | ($5) | ($5) | | Other operating expenses, net | — | ($4) | | Operating earnings | $59 | $43 | | Interest expense | ($1) | ($5) | | Other, net | — | ($1) | | Earnings before taxes | $58 | $37 | | Income tax provision | $8 | $8 | | Net earnings | $50 | $29 | | Basic earnings per share | $0.19 | $0.11 | | Diluted earnings per share | $0.19 | $0.11 | [Consolidated Balance Sheets (Unaudited)](index=8&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) The unaudited consolidated balance sheets as of March 31, 2025, report total assets of **$4,096 million**, a slight decrease from December 31, 2024, with total liabilities at **$1,525 million** and total shareholders' equity increasing to **$2,571 million** Consolidated Balance Sheets (Unaudited) | (Dollars in millions, except per share amounts) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **ASSETS** | | | | Current assets: | | | | Cash and cash equivalents | $380 | $598 | | Accounts receivable, net | 254 | 253 | | Contract assets | 982 | 872 | | Inventories | 385 | 358 | | Prepaid expenses | 28 | 27 | | Other current assets | 41 | 55 | | Total current assets | 2,070 | 2,163 | | Noncurrent assets: | | | | Property, plant and equipment, net | 455 | 440 | | Intangible assets, net | 126 | 132 | | Goodwill | 1,238 | 1,238 | | Deferred tax assets | 119 | 120 | | Other noncurrent assets | 88 | 91 | | Total noncurrent assets | 2,026 | 2,021 | | Total assets | $4,096 | $4,184 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Current liabilities: | | | | Short-term borrowings and current portion of long-term debt | $27 | $25 | | Accounts payable | 299 | 426 | | Contract liabilities | 467 | 399 | | Other current liabilities | 234 | 266 | | Total current liabilities | 1,027 | 1,116 | | Noncurrent liabilities: | | | | Long-term debt | 335 | 340 | | Pension and other postretirement benefit plan liabilities | 29 | 34 | | Deferred tax liabilities | 7 | 7 | | Other noncurrent liabilities | 127 | 130 | | Total noncurrent liabilities | 498 | 511 | | Shareholders' equity: | | | | Common stock | 3 | 3 | | Additional paid-in capital | 5,158 | 5,194 | | Accumulated deficit | (2,543) | (2,593) | | Accumulated other comprehensive loss | (47) | (47) | | Total shareholders' equity | 2,571 | 2,557 | | Total liabilities and shareholders' equity | $4,096 | $4,184 | [Consolidated Statements of Cash Flows (Unaudited)](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) The unaudited consolidated statements of cash flows for Q1 2025 show a significant improvement in operating activities, with net cash used decreasing to **$138 million** from **$265 million** in the prior year, while net cash used in investing activities was **$32 million** and in financing activities was **$48 million** Consolidated Statements of Cash Flows (Unaudited) | (Dollars in millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Operating activities | | | | Net earnings | $50 | $29 | | Net cash used in operating activities | ($138) | ($265) | | Investing activities | | | | Capital expenditures | ($32) | ($10) | | Net cash used in investing activities | ($32) | ($10) | | Financing activities | | | | Net increase (decrease) in third party borrowings | $2 | ($26) | | Repayment of third party debt | ($3) | ($38) | | Borrowings of third party debt | — | $35 | | Repurchases of common stock | ($3) | — | | Dividends paid | ($7) | — | | Dividends paid to related party | ($17) | — | | Net cash used in financing activities | ($48) | ($32) | | Net decrease in cash and cash equivalents | ($218) | ($307) | | Cash and cash equivalents at end of period | $380 | $160 | [Non-GAAP Financial Measures Reconciliation](index=10&type=section&id=Non-GAAP%20Financial%20Measures%20Reconciliation) This section reconciles non-GAAP financial measures like Adjusted EBITDA, Adjusted Net Earnings, Adjusted Diluted EPS, and Free Cash Flow to their most directly comparable GAAP measures, providing additional insights into performance [Adjusted EBITDA Reconciliation](index=10&type=section&id=Adjusted%20EBITDA%20Reconciliation) Leonardo DRS provides Adjusted EBITDA as a non-GAAP measure to offer a clearer understanding of its financial condition and operating results by excluding unusual, non-recurring, or non-cash items, with Q1 2025 Adjusted EBITDA increasing to **$82 million** from **$70 million** in Q1 2024 - Adjusted EBITDA is defined as net earnings before income taxes, interest expense, amortization of acquired intangible assets, depreciation, deal-related transaction costs, restructuring costs, and other one-time non-operational events[34](index=34&type=chunk) - These non-GAAP measures help investors understand financial condition and operating results by excluding items unrelated to ongoing operations, providing a baseline for analyzing trends[32](index=32&type=chunk) Adjusted EBITDA Reconciliation | (Dollars in millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net earnings | $50 | $29 | | Income tax provision | 8 | 8 | | Interest expense | 1 | 5 | | Amortization of intangibles | 5 | 5 | | Depreciation | 18 | 17 | | Deal-related transaction costs | — | 1 | | Restructuring costs | — | 4 | | Other one-time non-operational events | — | 1 | | **Adjusted EBITDA** | **$82** | **$70** | | **Adjusted EBITDA Margin** | **10.3 %** | **10.2 %** | [Adjusted Net Earnings and Diluted EPS Reconciliation](index=11&type=section&id=Adjusted%20Net%20Earnings%20and%20Diluted%20EPS%20Reconciliation) Adjusted Net Earnings and Adjusted Diluted EPS are presented as non-GAAP measures, excluding specific non-cash and one-time operational events and their related tax impacts, with Q1 2025 Adjusted Net Earnings at **$54 million** and Adjusted Diluted EPS at **$0.20** - Adjusted Net Earnings and Adjusted Diluted EPS exclude amortization of acquired intangible assets, deal-related transaction costs, restructuring costs, other one-time non-operational events, and their related tax impacts[36](index=36&type=chunk) Adjusted Net Earnings and Diluted EPS Reconciliation | (In millions, except per share amounts) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net earnings | $50 | $29 | | Amortization of intangibles | 5 | 5 | | Deal-related transaction costs | — | 1 | | Restructuring costs | — | 4 | | Other one-time non-operational events | — | 1 | | Tax effect of adjustments | (1) | (2) | | **Adjusted Net Earnings** | **$54** | **$38** | | Per share information | | | | Diluted WASO | 268.775 | 266.443 | | Diluted EPS | $0.19 | $0.11 | | **Adjusted Diluted EPS** | **$0.20** | **$0.14** | [Free Cash Flow Reconciliation](index=11&type=section&id=Free%20Cash%20Flow%20Reconciliation) Free Cash Flow, a non-GAAP measure, is calculated as net cash flow from operating activities minus capital expenditures, with Q1 2025 free cash flow usage significantly improving to **$170 million**, compared to **$275 million** in Q1 2024 - Free Cash Flow is defined as the sum of cash flows provided by (used in) operating activities, transaction-related expenditures (net of tax), capital expenditures, and proceeds from sale of assets[38](index=38&type=chunk) Free Cash Flow Reconciliation | (Dollars in millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($138) | ($265) | | Capital expenditures | ($32) | ($10) | | **Free Cash Flow** | **($170)** | **($275)** |