Leonardo DRS, Inc.

Ladies and gentlemen, good day and welcome to the Leonardo DRS first quarter fiscal year 2025 earnings conference call. At this time, all participants are in a listen-only mode. Following the company's prepared remarks, there will be an opportunity to ask questions and instructions will be given at that time. As a reminder, this event is being recorded. I would like to now turn the conference over to Steve Vather, Senior Vice President of Investor Relations and Corporate Finance. Please go ahead.

Good morning, and thanks for participating on today's quarterly earnings conference call. Joining me today are Bill Lynn, our chairman and CEO, and Mike DePolder, CFO. They'll discuss our strategy, operational highlights, financial results, and forward outlook. Today's call is being webcast on the investor relations portion of the website, where you will also find the earnings release and supplemental presentation. Management may also make forward-looking statements during the call regarding future events, anticipated future trends, and anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. For a full discussion of these risk factors, please refer to our latest Form 10-K and our other SEC filings. We undertake no obligation to update any of the forward-looking statements made on this call. During this call, management will also discuss non-GAAP financial measures, which we believe provide useful information for investors. These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures. You can find a reconciliation in the non-GAAP measures discussed on this call in our earnings release. At this time, I'll turn the call over to Bill. Bill? Thanks, Steve.

Good morning and welcome, everyone, to the DRS Q1 earnings call. Our first quarter results reflect a solid start to the year. and meaningfully surpassed our expectations. Strong, steadfast customer demand continued to materialize across our broad and differentiated portfolio. We secured a healthy level of bookings that totaled nearly a billion dollars in the quarter, which translated to a 1.2 book-to-bill ratio. Demand remains well diversified throughout the business. In Q1, we saw particular order strength for advanced infrared sensing, electric power and propulsion, tactical radars, laser systems, and force protection technologies. It's also worth noting that this marks the 13th consecutive quarter with a book to bill above one, a trend that has resulted in our backlog pushing to new company records. As a result, that backlog increased to $8.6 billion, which is up on both a year-over-year basis and a sequential basis. Furthermore, In Q1, we saw remarkable organic growth of 16%, profit expansion, and improved cash flow. Material receipts pulled into the quarter to drive revenue growth well above our forecast. Overall, we anticipate this will translate into better quarterly linearity for the year on revenue and profit. As you know, we have been focused on driving more balanced quarterly distribution and achieving our full-year financial results. In addition to solid operational performance, we commenced execution of our capital return initiatives with the payment of our first dividend and initial stock repurchases against the authorization announced last quarter. All in all, our strong results in Q1 laid a nice foundation for the year, but we are maintaining a vigilant posture amidst a more dynamic operating environment that has emerged over the past few months. Let me share some more color on our perspectives with respect to the macro conditions. We are in a unique situation as our customers are now operating under a full year continuing resolution for FY25. What is different from prior CRs is the DoD's ability to initiate new program starts. Congress also provided greater funding execution flexibility and a higher reprogramming authority threshold. As of now, we have not seen any significant changes to customer procurement behavior, and the leading indicators reinforce the durability of demand. Additionally, we are still targeting a total company booked a bill above one in 2025. Looking ahead, we are expecting that the FY26 President's Budget Request will likely be released over the next month or so. As I've mentioned on prior calls, Historically, the most relevant and predictive variable for future U.S. defense spending growth is the global threat environment. Unfortunately, it remains elevated and largely unchanged, which will maintain pressure on the need for higher investment for the foreseeable future. We also anticipate that the FY26 request will provide incremental clarity and the funding allocations for the administration's key priorities. DRS continues to be well positioned and closely aligned to important national defense initiatives focused on enhancing the lethality, effectiveness, and affordability of critical capabilities. Our customers are expanding their investments in layered air defense and counter UAS, improving shipbuilding throughput, and more broadly modernizing technology embedded on combat platforms to deter and contest near peers. We are leveraging our core strengths to actively address each of these secular themes. Next, while the implementation for most of the tariffs announced last month have been temporarily postponed, I still want to discuss the potential implications. Overall, as a pure play defense technology company, we expect relative insulation from direct impacts related to tariffs. As a reminder, our customer base is largely U.S. defense in nature. Our geographic footprint is principally in the US, with the exception of operations in Canada and Israel. And lastly, our direct supply chain is predominantly comprised of US-based companies. That said, we are keeping a watchful eye on any derivative impacts on the business and are instructing our suppliers to identify any tariff-related costs so that we can pursue remedies from our customers should the need emerge. Secondly, China's increasing restriction on export of rare earth minerals to the US also has limited impact on DRS. For us, the key rare earth reliance is on germanium, as it is an important element in our infrared sensing products. Since the initial restrictions went into effect in mid 2023, we have taken mitigating actions to ensure our raw material suppliers had diverse sources. However, in the quarter, we discovered that a sole source optic supplier on an international program was unable to execute on our existing purchase orders. That placed us in an unfavorable position of absorbing increased cost as we rectified the issue with alternative germanium sources. Outside of this discrete supplier issue, there have not been significant challenges with respect to supply to date, but pricing has certainly become more volatile. This supplier challenge that emerged in Q1, combined with the incremental cost escalation of germanium, have been incorporated into our forward estimates and pressured quarterly ASC profitability. We have a steadfast priority on continuously enhancing program execution resilience across the business and are broadening the scope of our focus amidst the more dynamic backdrop. Shifting to operations, we are making steady progress in several key areas. First, improving and expanding shipbuilding is a key national priority. Our customers' behavior reflects an incredible urgency. We are working to expedite the completion of our Charleston, South Carolina facility, as well as rapidly deploy the submarine industrial base investment announced last quarter to reinvigorate our steam turbine capability. Additionally, we are in ongoing conversations with customers on how to expand our role in supporting better overall throughput. Separately but related, we are seeing new incremental domestic opportunities emerge for our electric power and propulsion technologies. We won't disclose the specific program names for competitive reasons, but nonetheless, this is an exciting development should these opportunities come to fruition. In the quarter, we also successfully demonstrated our electric propulsion capability on a medium unmanned surface vessel, proving the versatility of our technology as the Navy potentially considers a higher mix of unmanned naval platforms moving forward. Now to counter UAS. We are maturing the previously discussed directed energy capability through rigorous customer testing. The multiple rounds of results support the feasibility of near-term operational deployment to augment existing air defense systems. Additionally, we are actively working with partners to explore the integration of our counter-UAS technologies into other domains and platforms, including the maritime arena, to generate incremental growth. Next in the quarter, in partnership with best-in-class commercial technology partners, we announced the release of our AI processors. This AI processor is designed to quickly deliver real-time threat detection, situational awareness, and advanced mission processing into combat vehicles. This processor integrates with AI algorithms and is engineered to process massive amounts of battlefield data to deliver actionable intelligence and also enable AI-aided target recognition. We are also investing to advance our own software offering that will serve as an open operating system architecture to enable the management and fusion of multiple sensing modalities. Similarly, we predict that AI and other intensive applications will only drive growth of shipboard processing requirements. As a result, we are seeing customer appetite build for our advanced cooling techniques that enable greater computing density. Last but certainly not least, Our infrared sensing remains in high demand across domains from dismounted to ground combat vehicles to missiles. On the latter, we are being designed into a number of next-generation missile systems to provide our differentiated infrared capability. The diversity and breadth of our technology portfolio is a distinguishing characteristic of DRS and is facilitating multiple avenues for future growth. As I mentioned at the outset, I'm pleased with the nice start to the year. Our Q1 financial performance provides us confidence in executing on our 2025 outlook. Clearly, the operating environment is significantly more dynamic compared to last year, and this has required us to leverage our agility to navigate through new complexities. That said, DRS remains well-positioned to enduring defense priorities. We are maintaining a sharp focus on delivering critical innovation at speed, efficiently, and in an affordable manner. With that, let me turn the call over to Mike, who will walk you through our financials in further detail.