Leonardo DRS, Inc.

Ladies and gentlemen, good day and welcome to the Leonardo DRS fourth quarter and four-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 provided at that time. As a reminder, this event is being recorded. I would now like to turn the conference over to Steve Bathurst, Senior Vice President, Corporate Development and Investor Relations. Please go ahead.

Good morning and welcome, everyone. Thank you for joining today's quarterly earnings conference call. With me today are John Belluni, our president and CEO, and Mike DeFold, our CFO. They will discuss our strategy, operational highlights, financial results, and outlook. Today's call is being webcast on the investor relations section of the website, where you can also find the earnings release and supplemental presentations. Management may also make forward-looking statements during the call regarding future events, anticipated future trends, and the 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 other than as may be required by law 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 of the non-GAAP measures discussed on this call in our earnings release. With that, I will turn the call over to John. John?

Thanks, Steve, and thank you all for joining us today to discuss our fourth quarter and full year 2025 results. I want to begin by thanking Bill Lin for his leadership and commitment to DRS. Over the past 14 years as chairman and CEO, the company is stronger because of his impact. We're grateful for his contributions. I am honored to step into the role of chief executive officer. It could not be more excited to lead the next chapter for DRS. I joined the company nearly 40 years ago as a staff engineer. And over the course of my career, I've had the privilege of serving in operational leadership roles across each of our incredible businesses. That frontline perspective combined with my experience over the past decade as Chief Technology Officer and most recently Chief Operating Officer has given me a deep appreciation for our leading market positions, our balanced and diverse portfolio, truly differentiated technologies, and above all, our exceptionally talented people. As I look ahead, my priorities as CEO are clear. Build on our foundation of success. We have a remarkable business with distinctive differentiation that is well positioned for long-term growth. Accelerate our operating cadence. Our goal is to put innovation capabilities into the hands of our customers even faster without compromising the quality, reliability, and affordability that they expect. This is precisely what the Department of War is asking of industry. While we've already been operating at speed and investing in innovation for years, we are encouraged by this call to action and are accelerating even further. And three, continue to empower, invest in, and reward our people. There is no question that our talented employees are the bedrock of our success. My formula is straightforward. Maintain a sharp focus on meeting and exceeding customer needs, and that will propel growth for the years to come. Turning to the macro environment, the operating backdrop remains dynamic. Global threats persist, and the nature of warfare continues to evolve rapidly. Our customers require next-generation capabilities to maintain the decisive advantage over adversaries. They need them delivered at speed, at scale, and with uncompromising quality. Against that backdrop, our nation and our allies are investing in these capabilities as demonstrated by significant recent and projected increases in defense spending. We are encouraged by the enactment of the fiscal 26 defense appropriations, early signals for a fiscal 27, and supplemental funding, including in last summer's tax reconciliation package. In aggregate, these indicators support our confidence in sustained demand. A relentless customer focus, disciplined investment, and advanced capabilities and consistent execution has positioned us well for growth. The results of that strategy are demonstrated by the fourth consecutive year of a book-to-bill ratio of 1.2 or better. Equally important, customer demand is well balanced throughout our portfolio, validating the strength of our technology-led, platform-agnostic approach. That consistent customer demand combined with our strong financial position has enabled significant multi-year increases in both research and development and capital investment. Let me frame the magnitude of investment growth. In 2025, we increased the internal R&D investment by 40% and capital expenditures rose more than 60%. Our R&D investment is focused on expanding our footprint in high growth markets, including airborne, missiles, space, and unmanned markets, while continuing to build share in our core ground and naval domains. Additionally, the emphasis of our R&D initiatives is on advancing platform AI and enabling platform autonomy, stronger security and modularity, and extending our platform agnostic capabilities to new missions and platforms. With respect to CapEx, our 2025 investments were focused on progressing our new naval power facility in Charleston, South Carolina, along with targeted growth initiatives across the portfolio. In 2026, we expect CapEx to increase even further and trend toward approximately 5% of revenue. We are ramping operations in Charleston, as well as expanding production capacity and modernizing facilities to deliver enhanced capability across the business. Key areas seeing upsized investment include our tactical radars, air defense products, and advanced infrared sensing. Additionally, some of the increased CapEx supports dedicated germanium processing capacity with suppliers, an important part of ensuring stable supply going forward. In summary, we intend to maintain our approach of innovating, executing at speed, and investing ahead of demand to support customers and drive long-term growth. Let me briefly highlight our full year 2025 financial performance. We delivered another year of record bookings, and that was accompanied by robust organic revenue growth of 13%, marking back-to-back years of double-digit growth. Year-end backlog stood at $8.7 billion, providing clear visibility into 2026 growth. Full year adjusted EBITDA growth tracked closely with revenue. While margins were flat, performance was shaped by several factors. First, we intentionally increased our internal R&D investment substantially. Second, we managed supply chain complexity related to shortages in critical raw materials, most notably germanium. As we enter 2026, These constraints are contained with remediation measures firmly in place and being executed throughout this year with confidence. Through a combination of recycling initiatives, strategic allocations from customers, and securing more reliable North American and European sources, we have adequate coverage for our demand in the short, medium, and long term. We've also entered into firm long-term supply agreements. And as I noted earlier, co-investing to secure dedicated refining capacity. While price volatility may persist in the near term, we will reprice contracts renewals on a rolling basis to reflect market conditions and incorporate contractual protections against future potential shocks. Third, as we close out the year, we have two unusual items with largely offsetting revenue and profit impacts. We entered into a 10-year, $100 million license agreement with a leading quantum technology company, enabling them to leverage certain laser intellectual property for quantum computing applications. This license agreement monetizes an exciting and attractive commercial opportunity, while allowing us to remain focused on capturing abundant growth in our core defense markets. We also executed a memorandum of understanding to jointly conclude legacy foreign ground surveillance program initiated more than a decade ago. Technology evolution and obsolescence issues caused the program to be no longer viable for either party. As a result, we recognize an unanticipated loss on the program. While disappointing, the circumstances surrounding this program were unusual and isolated within a portfolio. To be clear, don't see any other program with similar characteristics that would be expected to drive comparable impacts the conclusion of this legacy effort along with the ip license agreement clears the slate and allows us to focus on growth and execution across our core competencies finally despite materially higher CapEx investment, we delivered 19% growth and full year free cashflow in 2025, driven by higher profitability and improved working capital efficiency. On balance, 2025 was a strong year and we're focused on building on that momentum in 2026 and beyond. Turning to fourth quarter highlights. First, let me commend the team on a tremendous win in the space market. Space has been a multi-year growth initiative for DRS and I'm pleased that our persistence was validated with a landmark position on the SDA Tracking Layer Tranche 3 program. We're teamed with one of the prime awardees who will deliver a differentiated infrared sensing approach. This is an exciting opportunity, not only to showcase our innovation, but more importantly, to advance critical national defense capabilities against missile threats. Now that we've opened the door to this win, Our focus shifts to execution excellence to deliver on our commitments. Strong performance will position us for additional SDA opportunities and for other customers, including the potential to leverage our expertise in space-based sensing for the Golden Dome initiative. Also in space, we successfully demonstrated secure data transport using a next-generation crypto multi-channel software-defined radio. This innovative capability enables high-performance, secure satellite communications across multiple frequencies and networks simultaneously, and we look forward to delivering it to customers in the near term. In infrared sensing, we continue to grow in ground-based applications or seeing green shoots in adjacencies, particularly space and airborne, across both manned and unmanned platforms. Our high-performance cooled infrared sensors are being leveraged on advanced airborne platforms. Our uncool capabilities are being adopted on unmanned platforms as customers prioritize an assured electronic supply chain. Our advanced infrared gimbals are being used to designate and direct emissions to neutralize drone threats. We are engaged on multiple primes of several strategic missile programs, to provide next generation sensing capability and expand production capacity. We're also making capital investments to support this demand growth. We remain a market leader in counter UAS and are closely partnered with customers to field effective solutions. We're committed to a platform and effector agnostic approach, which is why we have demonstrated capabilities across multiple vehicle platforms, including the JLTV and unmanned ground vehicles. We're enhancing both kinetic and non-kinetic factors in our offerings, including cost-effective munitions and non-kinetic tools such as electronic warfare and direct energy. Turning to tactical radars, we continue to see immense global demand driven by an imperative to field counter UAS and air defense capabilities. Our radars are not only highly effective at tracking UAS threats, but also in supporting missile defense and active protection missions. We're also seeing increased demand and growing relevance in maritime-based counter-UAS applications alongside the continued momentum on ground-based platforms. More broadly, we're seeing increasing potential beyond tactical radars in the unmanned surface vessel market. Opportunities to pull through an integrated sensing and computing offering across leading platform providers are becoming a growth factor. While we're well positioned as the Navy crystallizes its USV strategy and begins deploying funding in this area. Staying with Naval, our Columbia-class program continues to execute exceptionally well. We're delivering on time and with quality, and our results reflect the financial benefits of that solid execution. As the Navy adjusts surface combat and modernization strategy, we remain engaged at the center of propulsion architecture discussions across platforms. Our electric power and propulsion solutions are modular and remain highly relevant to the power demands of next generation platforms. Finally, I want to congratulate Sally Wallace on her new role as Chief Operating Officer. Sally is a strong leader, a trusted partner, and a more than 20-year DRS veteran with deep understanding of customers and a strong track record of delivering mission-critical technology. We've made a few other changes to the team. As a result, we have an exceptional team, and many of those changes reflect expanded responsibilities for longstanding leaders who have delivered strong results. I'm confident each of them will be successful in expanding roles. Mike, over to you to walk through the details of our financial performance in the 2026 outlook.