Leonardo DRS, Inc. Q4 FY2025 earnings call

• John Baylouny thanked Bill Lynn and discussed his priorities as CEO: build on success, accelerate operating cadence, empower people. • Macro environment: dynamic with global threats, defense spending increasing, company's book-to-bill ratio 1.2 or better for 4th consecutive year. • 2025 investment: R&D up 40%, CapEx up over 60%, 2026 CapEx expected to trend to ~5% of revenue, ramping operations in Charleston, investing in various product areas. • Fourth quarter highlights: space market win, infrared sensing growth, tactical radars demand, Columbia Class program execution, Sally Wallace's new role as COO.

Advanced Sensing and Computing segment: Q4 revenue growth 9%, full year 11%. Integrated Mission Systems segment: Q4 year-over-year growth 5%, full year 15% driven by electric power and propulsion and counter UAS programs. Full year 2025 had record bookings, 13% organic revenue growth, year-end backlog $8.7 billion, adjusted EBITDA growth tracked with revenue, margins flat due to increased R&D, supply chain issues, and unusual items.

• Revenue range 2026: $3.85 billion to $3.95 billion, 6%-8% organic growth. • Adjusted EBITDA range 2026: $505 million to $525 million, margin improvement 70-90 basis points. • Adjusted diluted EPS range 2026: $1.20 to $1.26 per share. • Q1 2026 revenue low 800s, adjusted EBITDA margin low 11% range, second half of year contributes more than half of revenue and adjusted EBITDA.

Q: Robert Stallard asked about potential upside from reconciliation bill and book-to-bill suggesting revenue growth.

A: John Baylouny said some alignment with priority areas but early days; John Baylouny said optimistic on growth but diverse portfolio has elongated conversion cycle.

Q: Michael Ciarmoli asked about ground revenue program winding down and cap structure.

A: Michael Dippold said portfolio has elements growing at different rates; John Baylouny said top priority organic investments first then inorganic.

Q: Seth Seifman asked about IMS profitability and Charleston capacity.

A: Michael Dippold said margin from volume leverage and Columbia being tailwind; John Baylouny said Charleston capacity for modular electric architecture applicable to different ship sizes.

Q: Austin Moeller asked about Tranche 3 award and Charleston capacity for new ships.

A: John Baylouny said can't comment on award size, focused on execution; John Baylouny said Navy likely to buy different size ships and Charleston capacity applicable.

Q: Jonathan Tanwanteng asked about quantum laser license and CapEx.

A: John Baylouny said quantum cascade laser technology used, look for noncore licensing opportunities; Michael Dippold said CapEx for capacity in naval and tactical radars areas.

Q: Andre Madrid asked about EBITDA margin and book-to-bill softening.

A: Michael Dippold said business structured for mid-teens margins, John Baylouny said focus on portfolio to increase growth speed.

Q: Ronald Epstein asked about Europe opportunities and laser IP licensing.

A: John Baylouny said collaboration with Leonardo for European and US markets, laser IP licensed out to focus on defense; Michael Dippold said laser IP has nondefense utility but focus on defense.