Q2 2025 Performance Highlights - The company's organic revenue grew by 10%, indicating strong alignment with customer priorities[8] - Adjusted EBITDA increased by 17%, reaching $96 million, driven by higher volume and improved Columbia Class profitability[8, 10] - Adjusted EBITDA margin expanded by 70 bps to 11.6%[8, 10] - Quarterly bookings totaled $853 million, exceeding revenue and demonstrating strong customer demand[8] - Total backlog increased by 9% to $8607 million, reflecting consistent customer demand[10] - Adjusted Diluted EPS increased by 28% from $0.18 to $0.23[10] Segment Results - Advanced Sensing and Computing (ASC) revenue increased by 10% to $542 million, with Adjusted EBITDA increasing by 41% to $38 million[13] - Integrated Mission Systems (IMS) revenue increased by 9% to $290 million, with Adjusted EBITDA increasing by 5% to $58 million[13] Revised 2025 Guidance - The company increased its full-year revenue growth expectation to 9%-11%[8, 15]

Core Viewpoint - Leonardo DRS, Inc. reported quarterly earnings of $0.23 per share, exceeding the Zacks Consensus Estimate of $0.22 per share, and showing an increase from $0.18 per share a year ago, indicating a positive earnings surprise of +4.55% [1] Group 1: Earnings Performance - The company has surpassed consensus EPS estimates for four consecutive quarters [2] - Quarterly revenues reached $829 million, surpassing the Zacks Consensus Estimate by 0.30%, and up from $753 million year-over-year [2] - The company has consistently exceeded consensus revenue estimates over the last four quarters [2] Group 2: Stock Performance - Leonardo DRS, Inc. shares have increased approximately 49.2% since the beginning of the year, significantly outperforming the S&P 500's gain of 8.3% [3] Group 3: Future Outlook - The company's earnings outlook will be crucial for assessing future stock performance, including current consensus earnings expectations for upcoming quarters [4] - The current consensus EPS estimate for the next quarter is $0.29 on revenues of $887.41 million, and for the current fiscal year, it is $1.08 on revenues of $3.52 billion [7] Group 4: Industry Context - The Aerospace - Defense Equipment industry is currently ranked in the bottom 37% of over 250 Zacks industries, which may impact stock performance [8]

[Executive Summary](index=1&type=section&id=Executive%20Summary) [CEO Commentary](index=1&type=section&id=CEO%20Commentary) Leonardo DRS's CEO highlighted strong Q2 2025 financial results, characterized by healthy bookings, solid organic revenue growth, and continued profit and margin expansion, driven by sustained customer demand for innovative defense technologies amidst heightened global threats - Leonardo DRS delivered **strong financial results in Q2 2025**, marked by **healthy bookings**, **solid organic revenue growth**, and **continued profit and margin expansion**[3](index=3&type=chunk) - Customer demand for the company's innovative, high-performance technologies is bolstered by the need to deter and contest heightened global threats[3](index=3&type=chunk) [Summary Financial Highlights](index=1&type=section&id=Summary%20Financial%20Highlights) Leonardo DRS reported significant year-over-year growth in Q2 2025, with revenues increasing by 10% to $829 million, net earnings by 42% to $54 million, and diluted EPS by 43% to $0.20, alongside a 17% rise in Adjusted EBITDA to $96 million and a declared $0.09 cash dividend per share | (In millions, except per share amounts) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :------------------------------------ | :------------------------------- | :------------------------------- | :----- | :------------------------------- | :------------------------------- | :----- | | Revenues | $829 | $753 | 10% | $1,628 | $1,441 | 13% | | Net Earnings | $54 | $38 | 42% | $104 | $67 | 55% | | Diluted WASO | 269.025 | 267.457 | | 268.802 | 266.906 | | | Diluted Earnings Per Share (EPS) | $0.20 | $0.14 | 43% | $0.39 | $0.25 | 56% | | Adjusted EBITDA | $96 | $82 | 17% | $178 | $152 | 17% | | Adjusted EBITDA Margin | 11.6% | 10.9% | 70 bps | 10.9% | 10.5% | 40 bps | | Adjusted Net Earnings | $62 | $47 | 32% | $116 | $85 | 36% | | Adjusted Diluted EPS | $0.23 | $0.18 | 28% | $0.43 | $0.32 | 34% | - Key Q2 2025 highlights include: - Revenue: **$829 million**, up **10% year-over-year** - Net Earnings: **$54 million**, up **42% year-over-year** - Adjusted EBITDA: **$96 million**, up **17% year-over-year** - Diluted EPS: **$0.20**, up **43% year-over-year** - Adjusted Diluted EPS: **$0.23**, up **28% year-over-year** - Bookings: **$853 million** (book-to-bill ratio of **1.0x**) - Backlog: **$8.6 billion**, up **9% year-over-year** - Revises 2025 guidance across all metrics - Dividend: Company declares **$0.09 cash dividend per share** to be paid on September 3, 2025[5](index=5&type=chunk) [Financial Performance Overview](index=2&type=section&id=Financial%20Performance%20Overview) [Revenue and Profitability Drivers](index=2&type=section&id=Revenue%20and%20Profitability%20Drivers) Q2 2025 revenue growth of 10% was primarily fueled by programs in electric power and propulsion, advanced infrared sensing, and ground network computing, with increased volume and higher profitability, particularly from Columbia Class electric power and propulsion programs, significantly boosting Adjusted EBITDA and margin, while reduced interest expense further strengthened bottom-line profitability - Q2 2025 revenue growth of **10%** was primarily driven by programs related to electric power and propulsion, advanced infrared sensing, and ground network computing[6](index=6&type=chunk) - Increased volume and higher profitability on electric power and propulsion programs, notably Columbia Class, led to **healthy Adjusted EBITDA growth and margin expansion**[7](index=7&type=chunk) - **Strong operational performance** combined with **reduced interest expense** enhanced **bottom-line profitability**, resulting in year-over-year growth across net earnings, adjusted net earnings, diluted EPS, and adjusted diluted EPS[7](index=7&type=chunk) [Cash Flow](index=2&type=section&id=Cash%20Flow) In Q2 2025, net cash flow used in operating activities was $28 million, and free cash flow use was $56 million, both higher year-over-year due to increased working capital investment for growth, though for the first six months of 2025, higher profitability and improved working capital efficiency led to reduced free cash flow usage compared to the prior year - Net cash flow used in operating activities was **$28 million** for Q2 2025, with free cash flow use at **$56 million**[8](index=8&type=chunk) - Operating and free cash flow uses were greater than the prior year's second quarter due to higher working capital investment to fund continued growth[8](index=8&type=chunk) - Despite increased capital expenditure for a new South Carolina facility, **higher profitability** and **improved working capital efficiency** in the first six months of 2025 resulted in **reduced free cash flow usage** and **better linearity**[8](index=8&type=chunk) [Capital Allocation](index=2&type=section&id=Capital%20Allocation) During Q2 2025, Leonardo DRS paid $24 million in dividends ($0.09 per common share) and declared another $0.09 cash dividend payable in September 2025, while also repurchasing 265,120 shares of its common stock for approximately $11 million - The company paid approximately **$24 million in dividends** to shareholders, or **$0.09 per common share**, during Q2 2025[9](index=9&type=chunk) - A cash dividend of **$0.09 per common share** was declared, payable on September 3, 2025[9](index=9&type=chunk) - Leonardo DRS repurchased **265,120 shares** of its common stock for approximately **$11 million** in Q2 2025[9](index=9&type=chunk) [Balance Sheet Snapshot](index=2&type=section&id=Balance%20Sheet%20Snapshot) At the end of Q2 2025, Leonardo DRS maintained a strong financial position with $278 million in cash and $197 million in outstanding borrowings under its credit facility, providing sufficient capacity for growth investments and shareholder returns - At quarter end, the balance sheet showed **$278 million of cash** and **$197 million of outstanding borrowings** under the company's credit facility[10](index=10&type=chunk) - The company possesses **sufficient financial capacity** to deploy capital for growth and return capital to shareholders, while maintaining a **healthy balance sheet**[10](index=10&type=chunk) [Bookings and Backlog](index=2&type=section&id=Bookings%20and%20Backlog) Leonardo DRS secured $853 million in new funded bookings in Q2 2025, achieving a book-to-bill ratio of 1.0x, with total backlog reaching $8.6 billion, marking a 9% year-over-year increase, driven by robust customer demand for key defense technologies | (Dollars in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Bookings | $853 | $941 | $1,844 | $1,756 | | Book-to-Bill | 1.0x | 1.2x | 1.1x | 1.2x | | Backlog | $8,607 | $7,925 | $8,607 | $7,925 | - The company secured **$853 million in new funded bookings** in Q2 2025, resulting in a **book-to-bill ratio of 1.0x**[11](index=11&type=chunk) - Total backlog stood at **$8.6 billion** in Q2 2025, representing a year-over-year increase of **9%**, driven by **strong customer demand** for key defense technologies[11](index=11&type=chunk) [Segment Results](index=3&type=section&id=Segment%20Results) [Advanced Sensing and Computing (ASC) Segment](index=3&type=section&id=Advanced%20Sensing%20and%20Computing%20(ASC)%20Segment) The ASC segment reported 10% revenue growth to $542 million in Q2 2025, primarily from advanced infrared sensing and ground network computing programs, with Adjusted EBITDA increasing by 5% to $58 million, but margin contracting by 50 bps to 10.7% due to higher internal R&D investment, less favorable mix, and less efficient program execution, alongside bookings of $559 million with a 1.0x book-to-bill ratio | (Dollars in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :-------------------- | :------------------------------- | :------------------------------- | :----- | :------------------------------- | :------------------------------- | :----- | | Revenues | $542 | $492 | 10% | $1,053 | $925 | 14% | | Adjusted EBITDA | $58 | $55 | 5% | $100 | $96 | 4% | | Adjusted EBITDA Margin| 10.7% | 11.2% | (50) bps | 9.5% | 10.4% | (90) bps | | Bookings | $559 | $616 | | $1,228 | $1,203 | | | Book-to-Bill | 1.0x | 1.3x | | 1.2x | 1.3x | | - Revenue growth in the ASC segment was most prominent in advanced infrared sensing and ground network computing programs[12](index=12&type=chunk) - Adjusted EBITDA growth was supported by higher volume, but margin contracted due to **higher internal research and development investment**, **less favorable mix**, and **less efficient program execution**[12](index=12&type=chunk) [Integrated Mission Systems (IMS) Segment](index=3&type=section&id=Integrated%20Mission%20Systems%20(IMS)%20Segment) The IMS segment achieved 9% revenue growth to $290 million in Q2 2025, with Adjusted EBITDA significantly increasing by 41% to $38 million and margin expanding by 290 bps to 13.1%, driven by electric power and propulsion programs and force protection technologies, which also contributed to $294 million in bookings | (Dollars in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :-------------------- | :------------------------------- | :------------------------------- | :----- | :------------------------------- | :------------------------------- | :----- | | Revenues | $290 | $266 | 9% | $581 | $527 | 10% | | Adjusted EBITDA | $38 | $27 | 41% | $78 | $56 | 39% | | Adjusted EBITDA Margin| 13.1% | 10.2% | 290 bps | 13.4% | 10.6% | 280 bps | | Bookings | $294 | $325 | | $616 | $553 | | | Book-to-Bill | 1.0x | 1.2x | | 1.1x | 1.0x | | - **Strong customer demand** across the IMS segment, particularly for electric power and propulsion and force protection technologies, bolstered Q2 bookings[13](index=13&type=chunk) - Electric power and propulsion programs significantly contributed to **revenue growth**, **increased adjusted EBITDA**, and **margin expansion** for the quarter[13](index=13&type=chunk) [Outlook and Guidance](index=3&type=section&id=Outlook%20and%20Guidance) [2025 Guidance Revision](index=3&type=section&id=2025%20Guidance%20Revision) Leonardo DRS has revised its 2025 guidance, increasing the lower end of its revenue range to $3,525 million - $3,600 million and adjusting Adjusted EBITDA to $437 million - $453 million, while also raising the Adjusted Diluted EPS guidance to $1.06 - $1.11 | Measure | Current 2025 Guidance | Prior 2025 Guidance | | :---------------- | :----------------------------- | :----------------------------- | | Revenue | $3,525 million - $3,600 million | $3,425 million - $3,525 million | | Adjusted EBITDA | $437 million - $453 million | $435 million - $455 million | | Tax Rate | 19% | 19% | | Diluted WASO | 269 million | 270 million | | Adjusted Diluted EPS | $1.06 - $1.11 | $1.02 - $1.08 | [Additional Information](index=4&type=section&id=Additional%20Information) [Conference Call Details](index=4&type=section&id=Conference%20Call%20Details) Leonardo DRS management will host a conference call on July 30, 2025, at 10:00 a.m. ET to discuss the Q2 2025 financial results, with a live audio broadcast and supplemental presentation available on the company's Investor Relations website, and a replay accessible approximately two hours after the call - Leonardo DRS management will host a conference call on July 30, 2025, at **10:00 a.m. ET** to discuss Q2 2025 financial results[15](index=15&type=chunk) - A live audio broadcast and supplemental presentation will be available on the Leonardo DRS Investor Relations website[15](index=15&type=chunk) - A replay of the conference call will be available on the company's website approximately 2 hours after its conclusion[16](index=16&type=chunk) [About Leonardo DRS](index=4&type=section&id=About%20Leonardo%20DRS) Headquartered in Arlington, VA, Leonardo DRS, Inc. 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 autonomous, dynamic, interconnected, and multi-domain capabilities - Leonardo DRS, Inc. is an **innovative and agile provider of advanced defense technology** to U.S. national security customers and allies globally[17](index=17&type=chunk) - The company specializes in the design, development, and manufacture of advanced sensing, network computing, force protection, and electric power and propulsion, among other mission-critical technologies[17](index=17&type=chunk) - Leonardo DRS focuses on developing **disruptive technologies** for autonomous, dynamic, interconnected, and multi-domain capabilities to counter new and emerging threats[17](index=17&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This press release contains forward-looking statements that are subject to known and unknown risks and uncertainties, many of which are beyond the company's control, and are not guarantees of future performance, with actual outcomes potentially differing materially due to various factors including government relations, appropriations, compliance, economic conditions, supply chain, and technological changes, and the company explicitly states it does not undertake any obligation to update or revise these statements, except as required by law - The press release contains forward-looking statements and cautionary statements, which are **not guarantees of future performance** and are subject to **known and unknown risks and uncertainties**[18](index=18&type=chunk)[19](index=19&type=chunk) - Factors that could cause actual results to differ materially include disruptions in U.S. government relations, delays in program appropriations, compliance failures, economic downturns, supply chain issues, and rapid technological changes[19](index=19&type=chunk)[20](index=20&type=chunk) - The company does not undertake any obligation to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, events, or future operating results, other than as may be required by law[21](index=21&type=chunk) [Unaudited Financial Statements](index=6&type=section&id=Unaudited%20Financial%20Statements) [Consolidated Statements of Earnings](index=6&type=section&id=Consolidated%20Statements%20of%20Earnings) The consolidated statements of earnings show Q2 2025 revenues of $829 million, gross profit of $197 million, and net earnings of $54 million, with revenues for the six months ended June 30, 2025, at $1,628 million and net earnings at $104 million, reflecting strong year-over-year growth in profitability | (Dollars in millions, except per share amounts) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Revenues | 829 | 753 | 1,628 | 1,441 | | Cost of revenues | (632) | (584) | (1,250) | (1,119) | | Gross profit | 197 | 169 | 378 | 322 | | General and administrative expenses | (121) | (107) | (238) | (208) | | Amortization of intangibles | (6) | (6) | (11) | (11) | | Other operating expenses, net | — | (1) | — | (5) | | Operating earnings | 70 | 55 | 129 | 98 | | Interest expense, net | (2) | (7) | (3) | (12) | | Other, net | (1) | (1) | (1) | (2) | | Earnings before taxes | 67 | 47 | 125 | 84 | | Income tax provision | 13 | 9 | 21 | 17 | | Net earnings | $54 | $38 | $104 | $67 | | Net earnings per share from common stock: | | | | | | Basic earnings per share | $0.20 | $0.14 | $0.39 | $0.25 | | Diluted earnings per share | $0.20 | $0.14 | $0.39 | $0.25 | [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets were $4,079 million, a decrease from $4,184 million at December 31, 2024, primarily due to a reduction in cash and cash equivalents, while total current liabilities decreased and total stockholders' equity increased to $2,600 million | (Dollars in millions, except per share amounts) | June 30, 2025 | December 31, 2024 | | :-------------------------------------------- | :------------ | :---------------- | | ASSETS | | | | Current assets: | | | | Cash and cash equivalents | $278 | $598 | | Accounts receivable, net | 265 | 253 | | Contract assets | 1,016 | 872 | | Inventories | 400 | 358 | | Prepaid expenses | 26 | 27 | | Other current assets | 40 | 55 | | Total current assets | 2,025 | 2,163 | | Noncurrent assets: | | | | Property, plant and equipment, net | 463 | 440 | | Intangible assets, net | 120 | 132 | | Goodwill | 1,238 | 1,238 | | Deferred tax assets | 118 | 120 | | Other noncurrent assets | 115 | 91 | | Total noncurrent assets | 2,054 | 2,021 | | Total assets | $4,079 | $4,184 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Current liabilities: | | | | Short-term borrowings and current portion of long-term debt | $22 | $25 | | Accounts payable | 265 | 426 | | Contract liabilities | 436 | 399 | | Other current liabilities | 235 | 266 | | Total current liabilities | 958 | 1,116 | | Noncurrent liabilities: | | | | Long-term debt | 331 | 340 | | Pension and other postretirement benefit plan liabilities | 29 | 34 | | Deferred tax liabilities | 6 | 7 | | Other noncurrent liabilities | 155 | 130 | | Total noncurrent liabilities | 521 | 511 | | Stockholders' equity: | | | | Common stock | 3 | 3 | | Additional paid-in capital | 5,128 | 5,194 | | Accumulated deficit | (2,489) | (2,593) | | Accumulated other comprehensive loss | (42) | (47) | | Total stockholders' equity | 2,600 | 2,557 | | Total liabilities and stockholders' equity | $4,079 | $4,184 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, net cash used in operating activities was $166 million, an improvement from $231 million used in the prior year period, with net cash used in investing activities at $60 million and net cash used in financing activities at $94 million, resulting in cash and cash equivalents of $278 million at period end | (Dollars in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Operating activities | | | | Net earnings | $104 | $67 | | Net cash used in operating activities | ($166) | ($231) | | Investing activities | | | | Capital expenditures | (60) | (44) | | Net cash used in investing activities | ($60) | ($44) | | Financing activities | | | | Net cash used in financing activities | ($94) | ($43) | | Net decrease in cash and cash equivalents | ($320) | ($318) | | Cash and cash equivalents at beginning of year | 598 | 467 | | Cash and cash equivalents at end of period | $278 | $149 | [Non-GAAP Financial Measures](index=9&type=section&id=Non-GAAP%20Financial%20Measures) [Introduction and Rationale](index=9&type=section&id=Introduction%20and%20Rationale) Leonardo DRS provides non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Earnings, and Free Cash Flow, to offer investors a clearer understanding of its financial condition and operating results by excluding unusual, non-recurring, or non-cash items to provide a more comparable baseline for analyzing underlying business trends, though they have limitations and should be considered alongside GAAP results - Non-GAAP financial measures like Adjusted EBITDA, Adjusted Net Earnings, and Free Cash Flow are provided to help investors understand financial condition and operating results[29](index=29&type=chunk)[30](index=30&type=chunk) - These measures exclude unusual, non-recurring, or non-cash items to provide a baseline for analyzing trends and aid management decisions[30](index=30&type=chunk) - The company acknowledges **limitations of non-GAAP measures**, including potential comparability issues with other companies, and advises against relying on them in isolation from GAAP results[31](index=31&type=chunk) [Adjusted EBITDA and Adjusted EBITDA Margin Reconciliation](index=9&type=section&id=Adjusted%20EBITDA%20and%20Adjusted%20EBITDA%20Margin%20Reconciliation) Adjusted EBITDA is defined as net earnings before specific non-operational adjustments, and for Q2 2025, it was $96 million, a 17% increase year-over-year, with an Adjusted EBITDA Margin of 11.6%, up 70 bps, reflecting improved operational profitability - 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[32](index=32&type=chunk) | (Dollars in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net earnings | $54 | $38 | $104 | $67 | | Income tax provision | 13 | 9 | 21 | 17 | | Interest expense, net | 2 | 7 | 3 | 12 | | Amortization of intangibles | 6 | 6 | 11 | 11 | | Depreciation | 17 | 17 | 35 | 34 | | Deal-related transaction costs | — | 3 | — | 4 | | Restructuring costs | — | 1 | — | 5 | | Other one-time non-operational events | 4 | 1 | 4 | 2 | | Adjusted EBITDA | $96 | $82 | $178 | $152 | | Adjusted EBITDA Margin| 11.6 % | 10.9 % | 10.9 % | 10.5 % | [Adjusted Net Earnings and Adjusted Diluted EPS Reconciliation](index=10&type=section&id=Adjusted%20Net%20Earnings%20and%20Adjusted%20Diluted%20EPS%20Reconciliation) Adjusted Net Earnings and Adjusted Diluted EPS are calculated by excluding specific non-cash and one-time operational events and their tax impacts from net earnings, with Q2 2025 seeing Adjusted Net Earnings rise 32% to $62 million and Adjusted Diluted EPS increase 28% to $0.23, demonstrating enhanced underlying profitability - 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[34](index=34&type=chunk) | (In millions, except per share amounts) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net earnings | $54 | $38 | $104 | $67 | | Amortization of intangibles | 6 | 6 | 11 | 11 | | Deal-related transaction costs | — | 3 | — | 4 | | Restructuring costs | — | 1 | — | 5 | | Other one-time non-operational events | 4 | 1 | 4 | 2 | | (1) Tax effect of adjustments | (2) | (2) | (3) | (4) | | Adjusted Net Earnings | $62 | $47 | $116 | $85 | | Per share information | | | | | | Diluted WASO | 269.025 | 267.457 | 268.802 | 266.906 | | Diluted EPS | $0.20 | $0.14 | $0.39 | $0.25 | | Adjusted Diluted EPS | $0.23 | $0.18 | $0.43 | $0.32 | [Free Cash Flow Reconciliation](index=10&type=section&id=Free%20Cash%20Flow%20Reconciliation) Free Cash Flow is defined as cash flows from operating activities, transaction-related expenditures (net of tax), capital expenditures, and proceeds from asset sales, with Q2 2025 showing a free cash flow use of $56 million, and for the six months ended June 30, 2025, a use of $226 million, an improvement compared to the prior year period - 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[36](index=36&type=chunk) | (Dollars in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net cash (used in) provided by operating activities | ($28) | $34 | ($166) | ($231) | | Transaction-related expenditures, net of tax | — | 1 | — | 1 | | Capital expenditures | (28) | (34) | (60) | (44) | | Free Cash Flow | ($56) | $1 | ($226) | ($274) |

Group 1: Company Performance - Leonardo DRS, Inc. has returned 38.2% year-to-date, outperforming the average gain of 19.2% in the Aerospace group [4] - The Zacks Consensus Estimate for DRS' full-year earnings has increased by 0.7% over the past 90 days, indicating improved analyst sentiment [4] - DRS currently holds a Zacks Rank of 2 (Buy), suggesting a positive earnings outlook [3] Group 2: Industry Context - The Aerospace group is ranked 1 within the Zacks Sector Rank, which evaluates 16 different groups based on the average Zacks Rank of individual stocks [2] - Leonardo DRS is part of the Aerospace - Defense Equipment industry, which consists of 27 companies and is currently ranked 30 in the Zacks Industry Rank [6] - Stocks in the Aerospace - Defense Equipment industry have gained approximately 18.6% year-to-date, indicating that DRS is performing better than its peers in this specific industry [6] Group 3: Comparison with Peers - Elbit Systems, another stock in the Aerospace sector, has achieved a year-to-date return of 66.5% and has a Zacks Rank of 1 (Strong Buy) [5] - Over the past three months, Elbit Systems' consensus EPS estimate has increased by 22.6%, reflecting strong performance in the sector [5] - Both Leonardo DRS and Elbit Systems are highlighted as stocks to watch for continued solid performance in the Aerospace sector [7]

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]