[Management View]
Leonardo DRS management reported strong revenue and profitability growth across both business segments in Q2 2025, driven by ongoing program execution and robust U.S. and international demand. Key metrics included $853 million in bookings, a total backlog of $8.6 billion, and $829 million in revenue, representing 10% year-over-year growth. Strategic priorities focused on electric power and propulsion, naval network computing, advanced infrared sensing, and ground systems.

[Outlook]
Management raised FY2025 revenue guidance to $3.525-$3.6 billion (9%-11% growth) and adjusted EBITDA to $437-$453 million. Adjusted diluted EPS is expected to be between $1.06-$1.11. Q3 revenue is forecasted near $925 million, with adjusted EBITDA margin targeted in the mid-12% range. Future plans include mitigating germanium availability challenges and capitalizing on increased U.S. defense funding and NATO commitments.

[Financial Performance]
Revenue for Q2 2025 was $829 million, up 10% YoY. Adjusted EBITDA was $96 million, a 17% increase, yielding a margin of 11.6%, up 70 basis points YoY. Net earnings (GAAP) were $54 million, with diluted EPS of $0.20, up 42% and 43%, respectively, compared to Q2 FY2024. Adjusted net earnings were $62 million, with adjusted diluted EPS of $0.23, increasing 32% and 28%, respectively.

[Q&A Highlights]
Question 1: When do you expect Golden Dome to impact your backlog?
Answer: Industry meetings and internal efforts to lay out the architecture are starting. Orders are expected to roll out in the '26 timeframe.

Question 2: Can you elaborate on the M&A environment?
Answer: We are seeing a continual flow of opportunities in our core markets. Prices are relatively high due to heightened sector interest, but we are assessing our financial criteria and strategic focus.

Question 3: Can you dig into the germanium issue and its impact?
Answer: The supply has reduced to a trickle due to tension with China. We built up a safety stock and are seeking other sources and recycling options. The impact is incorporated into the revised guide.

Question 4: How flexible are you on M&A financial metrics?
Answer: We expect EPS to be accretive in the first year, with flexibility on ROIC for longer-term returns. We aim to maintain our growth and margin enhancement story.

Question 5: Clarification on Golden Dome timing and architecture?
Answer: Early orders are likely to come from existing systems due to timing. Future-oriented systems will take longer to develop.

Question 6: Thoughts on budget trajectory longer term?
Answer: A modest bump up in overall defense spending is expected with the new administration. Programmatic reasons to increase the budget include force protection and shipbuilding.

Question 7: Opportunities in electric power and propulsion?
Answer: Columbia program is secured through the mid-2030s. Steam turbine generator test capacity in South Carolina is being built, with production to follow.

Question 8: Bookings environment for the second half?
Answer: Strong demand across all elements of the business. Expect to exit the year with a higher backlog than June 30.

Question 9: International sales growth with new NATO commitments?
Answer: Consistent demand signals from East European NATO members. International market is a growth engine due to NATO and global conflicts.

Question 10: Interest in acquiring in Europe and forging partnerships?
Answer: We have a global focus on M&A and are open to partnerships to increase mutual competitiveness.

Question 11: Other rare earth metals and impact on operating performance?
Answer: Permanent magnets are another focus. We are protected for current programs and taking steps for future disruptions.

Question 12: European NATO spending and indigenous capabilities?
Answer: We are seen as a US company but can partner with Leonardo for home team advantage in Europe.

Question 13: House Appropriation Committee's defense bill impact on Columbia Class program?
Answer: We are insulated from budget changes due to contract structure. No impact from the budget increase.

Question 14: Force protection and counter UAS demand due to Ukraine war?
Answer: Growing international demand for counter UAS systems driven by trends in warfare and urgency from Putin's actions.

Question 15: Components of new guidance range?
Answer: Driven by continued demand, strong bookings, and stable supply base.

Question 16: R&D intensity and operating leverage?
Answer: Increased IRAD to mid-threes percent of revenue to accelerate competitive positioning in growing markets.

Question 17: Margins on products containing germanium or alternatives?
Answer: Pricing fluctuations are realized in results. Contract modifications are being pursued to derisk from price volatility.

Question 18: Fiscal '27 budget process expectations?
Answer: Sustained and predictable increase in defense budget to meet growing threats from China and Russia.

[Sentiment Analysis]
Analysts expressed positive sentiment regarding the company's strategic positioning and growth prospects. Management maintained a confident tone, emphasizing strong demand, program execution, and proactive measures to address supply chain challenges.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 | YoY Change |
|-----------------------|---------|---------|------------|
| Revenue | $829M | $753M | +10% |
| Adjusted EBITDA | $96M | $82M | +17% |
| Adjusted EBITDA Margin| 11.6% | 10.9% | +70 bps |
| Net Earnings (GAAP) | $54M | $38M | +42% |
| Diluted EPS (GAAP) | $0.20 | $0.14 | +43% |
| Adjusted Net Earnings | $62M | $47M | +32% |
| Adjusted Diluted EPS | $0.23 | $0.18 | +28% |

[Risks and Concerns]
Management cited germanium availability and pricing as a significant issue, with export restrictions constraining supply and increasing costs. Reliance on safety stock is required to sustain product deliveries. Adjusted EBITDA margin expansion guidance for FY2025 was reduced due to elevated R&D investment and increased raw material input costs related to germanium. The company expects more meaningful relief in 2026, signaling continued near-term operational risk.

[Final Takeaway]
Leonardo DRS demonstrated strong performance in Q2 2025, with notable revenue and profitability growth driven by robust demand and effective program execution. Management raised full-year guidance, reflecting confidence in sustained growth despite near-term cost headwinds. Strategic initiatives, including increased R&D investment and proactive supply chain measures, position the company well for future opportunities. Analysts and management maintained a positive outlook, emphasizing the company's alignment with national defense priorities and international demand.