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)** |

Core Viewpoint - The comparison between Leonardo DRS, Inc. and Heico Corporation indicates that DRS presents a better value opportunity for investors based on various valuation metrics [1][6]. Valuation Metrics - Both Leonardo DRS, Inc. and Heico Corporation currently hold a Zacks Rank of 2 (Buy), indicating positive earnings estimate revisions [3]. - DRS has a forward P/E ratio of 33.85, while HEI has a higher forward P/E of 57.12, suggesting DRS is more attractively priced [5]. - The PEG ratio for DRS is 2.32, compared to HEI's PEG ratio of 3.35, indicating DRS may offer better value relative to its expected earnings growth [5]. - DRS has a P/B ratio of 3.75, significantly lower than HEI's P/B ratio of 9.15, further supporting DRS's position as the superior value option [6]. - DRS's Value grade is B, while HEI's Value grade is D, highlighting the relative undervaluation of DRS [6].

Core Viewpoint - Leonardo DRS, Inc. has received an upgrade to a Zacks Rank 2 (Buy), indicating a positive trend in earnings estimates which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Movement - The Zacks rating system is based on changes in a company's earnings picture, which is crucial for predicting near-term stock price movements [2][4]. - An increase in earnings estimates typically leads to higher fair value calculations by institutional investors, resulting in stock price movements [4]. Company Performance Indicators - The upgrade for Leonardo DRS, Inc. suggests an improvement in the company's underlying business, which should encourage investors to drive the stock price higher [5]. - The Zacks Consensus Estimate indicates that Leonardo DRS, Inc. is expected to earn $1.07 per share for the fiscal year ending December 2025, reflecting a year-over-year increase of 15.1% [8]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with a strong historical performance, particularly for Zacks Rank 1 stocks which have averaged a +25% annual return since 1988 [7]. - The upgrade to Zacks Rank 2 places Leonardo DRS, Inc. in the top 20% of Zacks-covered stocks, suggesting potential for market-beating returns in the near term [10].

Company Overview - Leonardo DRS, Inc. (DRS) shares increased by 9% to close at $34.26, with trading volume significantly higher than usual, contrasting with a 0.5% loss over the past four weeks [1][2] - The recent rise in DRS' share price is linked to the U.S. President's announcement of a substantial increase in defense spending, with approximately $1 trillion allocated to defense in the upcoming fiscal 2026 budget [2] Earnings Expectations - DRS is projected to report quarterly earnings of $0.17 per share, reflecting a year-over-year increase of 21.4%, with revenues expected to reach $744.53 million, an 8.2% increase from the previous year [3] - The consensus EPS estimate for DRS has remained stable over the last 30 days, indicating that stock price movements may not sustain without changes in earnings estimate revisions [4] Industry Context - DRS operates within the Zacks Aerospace - Defense Equipment industry, where another company, Teledyne Technologies (TDY), saw a 7.6% increase in its stock price, closing at $468.69, despite a -10.8% return over the past month [4] - Teledyne's consensus EPS estimate has decreased by 1.8% over the past month to $4.92, which still represents an 8.1% increase compared to the previous year [5]

Core Viewpoint - Leonardo DRS, Inc. has received a Zacks Rank 2 (Buy) upgrade, indicating a positive outlook on its earnings potential, which is expected to positively influence its stock price [1][3]. Earnings Estimates and Revisions - The Zacks Consensus Estimate for Leonardo DRS, Inc. for the fiscal year ending December 2025 is projected at $1.07 per share, reflecting a 15.1% increase from the previous year's reported figure [8]. - Over the past three months, analysts have raised their earnings estimates for Leonardo DRS, with a 0.2% increase in the Zacks Consensus Estimate [8]. Impact of Institutional Investors - Changes in earnings estimates are strongly correlated with stock price movements, largely due to institutional investors who adjust their valuations based on these estimates [4]. - An increase in earnings estimates typically leads to higher fair value calculations for stocks, prompting institutional buying or selling actions that affect stock prices [4]. Zacks Rating System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 (Strong Buy) stocks historically generating an average annual return of +25% since 1988 [7]. - The upgrade of Leonardo DRS to a Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, indicating strong potential for market-beating returns in the near term [10].

Revenue Sources - The U.S. government accounted for 79% of total revenues in 2024, with the Department of Defense (DoD) representing 37% of total revenues[33]. - Approximately 63% of revenue in 2024 was derived from subcontractor positions, indicating a reliance on partnerships for contract fulfillment[36]. - The company generated $2.710 billion from firm-fixed price contracts in 2024, an increase from $2.373 billion in 2023[38]. - The company’s total revenues for 2024 were significantly supported by long-term programs and incumbent supplier relationships[37]. Backlog and Contracts - Total backlog increased to $8.509 billion in 2024, up from $7.751 billion in 2023, with funded backlog at $4.177 billion and unfunded backlog at $4.332 billion[42]. - The DoD's fiscal year 2025 budget request includes $850 billion for national defense programs, remaining largely flat compared to prior year levels[32]. - The company has a diverse business mix, with no single contract representing more than 10% of revenues for 2024[37]. Research and Development - Company-funded R&D expenses rose to $92 million in 2024, compared to $82 million in 2023 and $58 million in 2022[46]. - Leonardo S.p.A., the company's indirect majority stockholder, reported preliminary consolidated revenues of €17.8 billion and invested €2.5 billion in R&D in 2024[69]. Workforce and Employee Relations - The workforce included approximately 7,000 employees as of December 31, 2024, with 7% represented by labor unions[49]. - The company maintains a strong commitment to employee development and community support, emphasizing ethical business practices and safety in the workplace[55]. Financial Performance and Risks - The company generated a significant portion of its revenue, profit, and cash flows in the fourth quarter of its fiscal year, influenced by the U.S. federal government's budget cycle[60]. - The company reported an outstanding balance of $203 million under its 2022 Term Loan A, with a potential annual interest expense fluctuation of approximately $1 million for a 0.5% change in interest rates[399]. - The company has limited foreign currency exposure, primarily with receivables of $27 million in Canadian dollars, where a 10% fluctuation in exchange rates would not materially impact financial statements[400]. - The company experienced inflationary pressures affecting supply chain costs, particularly in micro-electronics and commodities, which could negatively impact future financial results[401]. - The company is subject to various procurement regulations and legal requirements, which could increase costs and risks, potentially affecting profitability[62]. Mergers and Acquisitions - The company completed the merger with RADA Electronic Industries Ltd. on November 28, 2022, resulting in RADA becoming a wholly-owned subsidiary and providing a 10% interest in RadSee Technologies Ltd.[57]. - The divestiture of the Global Enterprise Solutions business to SES Government Solutions, Inc. was completed on August 1, 2022, generating net cash proceeds of $427 million after adjustments[58]. - The company divested its equity investment in Advanced Acoustic Concepts LLC to Thales Defense & Security, Inc., resulting in proceeds of $56 million[59].

Group 1 - Aerospace and defense stocks are experiencing a sell-off due to potential reductions in defense budgets, impacting companies like Leonardo DRS, which has seen a 22% decline in stock value since November [1] - The Aerospace Forum aims to identify investment opportunities within the aerospace, defense, and airline sectors, leveraging data analytics for informed analysis [1] - The analyst behind the report has a background in aerospace engineering, providing context to industry developments and their potential effects on investment strategies [1] Group 2 - The article emphasizes that past performance does not guarantee future results, and no specific investment recommendations are provided [2] - It is noted that the analysts contributing to the platform may not be licensed or certified by any regulatory body, indicating a diverse range of perspectives [2]