Leonardo DRS, Inc. Q3 FY2025 earnings call

• Third quarter secured $1.3 billion of bookings with a 1.4x book-to-bill ratio, year-to-date book-to-bill ratio at 1.2x. Backlog at $8.9 billion, up 8% year-over-year. • Year-to-date revenue growth expectations increased to 10%-11%. Adjusted EBITDA up 17%, adjusted diluted EPS up 21%, free cash flow significantly surpassed prior year levels. • Strengthening germanium supply chain through recycling initiatives and strategic agreements with partners. • Bill Lynn retiring as Chairman and CEO on January 1, John Baylouny named new CEO, Fran Townsend elected Chair.

Quarterly revenue grew 18% year-over-year to $960 million. IMS was the growth engine, with quarterly revenue up 34%, driven by counter UAS and electric power propulsion programs. ASC saw a healthy upper single-digit increase of 9% due to growth from naval network computing, advanced infrared sensing and tactical radar programs.

• Revised full year 2025 revenue to range $3.55 billion to $3.6 billion, 10%-11% growth. • Adjusted EBITDA range $437 million to $453 million. • Adjusted diluted EPS range $1.07 to $1.12 per share. • Targeting approximately 80% free cash flow conversion of adjusted net earnings. • 2026 budgeting in normal process, formal guidance to be provided in late February with fourth quarter call.

• Prolonged U.S. government shutdown could impact awards and payments if extended further. • Germanium supply chain challenges remain, though initiatives in recycling and partnerships are in place to address.

Q: About IRAD spending trend.

A: Michael Dippold expects internal research and development investment to stay around mid-3% of revenues to maintain growth.

Q: Updates on foreign military sales.

A: William Lynn expects ramp-up in foreign military sales opportunity, particularly in force protection, counter UAS, sensors, EO/IR sensors and network computing.

Q: Germanium pricing and supply.

A: Michael Dippold says 2025 germanium pricing lined out, making progress in solidifying supply into 2026; William Lynn mentions recycling and diversifying supply base away from China.

Q: Impact of government shutdown.

A: William Lynn says moderate impact if shutdown short, but historic length needed for significant impact.

Q: Payback on R&D investments.

A: Michael Dippold says R&D investments position to attack adjacent markets and growth opportunities, like in counter UAS and unmanned surface vessels.

Q: Counter UAS revenue exposure.

A: Michael Dippold says force protection, including counter UAS, is ~20% of revenues; John Baylouny adds DRS is approved provider for U.S. Army counter UAS with battle-proven solutions.

Q: Germanium sourcing strategy.

A: William Lynn says bought buffer stock, recycling from older optics, and developing partnerships outside China for long-term supply.

Q: Investment in Hoverfly.

A: Michael Dippold says Hoverfly investment fits M&A criteria, assisting in elevated sensing and network solutions.

Q: Margin profile of C-UAS work.

A: Michael Dippold says no anomalies from drag or tailwind perspective, in line with portfolio.

Q: Germanium alternative materials.

A: William Lynn says looking at alternative materials like BlackDiamond glass for smaller optics, in early stages.

Q: Golden Dome timing and counter UAS activity.

A: John Baylouny says Golden Dome activity moving quickly, SHIELD RFP bid by DRS, and counter UAS demand from various U.S. military branches and international.