Leonardo DRS(DRS) - 2025 Q2 - Quarterly Results

Executive Summary CEO Commentary 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] - Customer demand for the company's innovative, high-performance technologies is bolstered by the need to deter and contest heightened global threats[3] Summary Financial Highlights 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] Financial Performance Overview Revenue and Profitability Drivers 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] - Increased volume and higher profitability on electric power and propulsion programs, notably Columbia Class, led to healthy Adjusted EBITDA growth and margin expansion[7] - 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] Cash Flow 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] - 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] - 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] Capital Allocation 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] - A cash dividend of $0.09 per common share was declared, payable on September 3, 2025[9] - Leonardo DRS repurchased 265,120 shares of its common stock for approximately $11 million in Q2 2025[9] Balance Sheet Snapshot 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] - The company possesses sufficient financial capacity to deploy capital for growth and return capital to shareholders, while maintaining a healthy balance sheet[10] Bookings and Backlog 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] - 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] Segment Results Advanced Sensing and Computing (ASC) Segment 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] - 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] Integrated Mission Systems (IMS) Segment 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] - Electric power and propulsion programs significantly contributed to revenue growth, increased adjusted EBITDA, and margin expansion for the quarter[13] Outlook and Guidance 2025 Guidance Revision 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 Conference Call Details 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] - A live audio broadcast and supplemental presentation will be available on the Leonardo DRS Investor Relations website[15] - A replay of the conference call will be available on the company's website approximately 2 hours after its conclusion[16] About Leonardo DRS 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] - 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] - Leonardo DRS focuses on developing disruptive technologies for autonomous, dynamic, interconnected, and multi-domain capabilities to counter new and emerging threats[17] Forward-Looking Statements 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][19] - 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][20] - 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] Unaudited Financial Statements Consolidated Statements of Earnings 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 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 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 Introduction and Rationale 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][30] - These measures exclude unusual, non-recurring, or non-cash items to provide a baseline for analyzing trends and aid management decisions[30] - 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] Adjusted EBITDA and Adjusted EBITDA Margin Reconciliation 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] | (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 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] | (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 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] | (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) |