Q1 2025 Leonardo DRS Inc Earnings Call

May 1, 2025

It 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 out there senior Vice President of Investor Relations and corporate Finance. Please go ahead.

Speaker Change: Good morning, and thanks for participating on today's quarterly earnings Conference call. Joining me today are bill <unk>, our chairman and CEO and Mike Dippold, Our CFO, who will discuss our strategy operational highlights financial results and forward outlook today's call is being webcast on the Investor Relations portion of our website, where you will also find the earnings.

Release and supplemental presentation.

Speaker Change: 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.

Speaker Change: Due to a variety of factors.

Speaker Change: 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 forward looking statements made on this call.

Speaker Change: 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.

Speaker Change: You can find a reconciliation of the non-GAAP measures discussed on this call and our earnings release at this time I will turn the call over to Bill Bill.

Bill: Thanks, Steve Good morning, and welcome everyone to the Drs Q1 earnings call.

Speaker Change: 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.

Speaker Change: We secured a healthy level of bookings that totaled nearly $1 billion in the quarter, which translated to a one two book to bill ratio.

Speaker Change: 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.

Speaker Change: It's also worth noting that this marks the 13th consecutive quarter with a book to bill above one <unk>.

Speaker Change: A trend that has resulted in our backlog pushing to new company Records.

Speaker Change: As a result that backlog increased to $8 6 billion.

Speaker Change: Which is up on both a year over year basis, and a sequential basis.

Operator: 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.

While our bookings that totaled nearly $1 billion in the quarter, which translated to a one two book to bill ratio.

Speaker Change: Furthermore, in Q1, we saw remarkable organic growth of 16% profit expansion and improved cash flow.

Demand remains well diversified throughout the business in Q1, we saw particular order strength for advanced infrared sensing electric power and propulsion.

Stephen Vather: I would like to now turn the conference over to Steve Vather, Senior Vice President of Investor Relations and Corporate Finance. Please go ahead.

Speaker Change: Material receipts pulled into the quarter to drive revenue growth well above our forecast.

Speaker Change: Overall, we anticipate this will translate into better quarterly linearity for the year on revenue and profit.

Technical radars laser systems and force protection technologies.

Stephen Vather: Good morning, and thanks for participating on today's quarterly earnings conference call. Joining me today are Bill Lane, our chairman and CEO, and Mike Dippold, our CFO. He'll discuss our strategy, operational highlights, financial results, and forward outlook.

Worth, noting that this marks the 13th consecutive quarter with a book to bill above one.

Speaker Change: As you know we have been focused on driving more balanced quarterly distributions and achieving our full year financial results.

Trend that has resulted in our backlog pushing to new company Records.

Speaker Change: In addition to solid operational performance, we commenced execution of our capital return initiatives with the payment of our first dividend in initial stock repurchases against the authorization announced last quarter.

Stephen Vather: 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.

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.

Speaker Change: All in all our strong results in Q1 later, 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.

Material receipts pulled into the quarter to drive revenue growth well above our forecast.

Speaker Change: Let me share some more color on our perspective with respect to the macro conditions.

Overall, we anticipate this will translate into better quarterly linearity for the year on revenue and profit.

Speaker Change: We are in a unique situation as our customers are now operating under a full year continuing resolution for FY 'twenty five.

Stephen Vather: 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.

As you know we have been focused on driving more balanced quarterly distributions and achieving our full year financial results.

Speaker Change: What is different from prior Crs is the Dod's <unk> ability to initiate new program starts.

In addition to solid operational performance, we commenced execution of our capital return initiatives with the payment of our first dividend at initial stock repurchases against the authorization announced last quarter.

Stephen Vather: During this call, management will also discuss non-GAAP financial measures, which we believe provide useful information for investors. These non-GAP measures should not be evaluated in isolation or as a substitute for GAP performance measures. You can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release.

Speaker Change: Congress also provided greater funding execution flexibility and a higher reprogramming authority threshold.

Speaker Change: As of now we have not seen any significant changes to customer procurement behavior, and the leading indicators reinforce the durability of demand.

All in all our strong results in Q1 late 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.

Stephen Vather: At this time, I'll turn the call over to Bill. Thanks, Steve.

Speaker Change: Additionally, we are still targeting a total company book to bill above 1% in 2025.

Bill Lane: 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 both 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. Q1, we saw particular order strength for advanced infrared sensing, electric power and propulsion, tactical radars, laser systems, and force protection technology. 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.

Let me share some more color on our perspective with respect to the macro conditions.

Speaker Change: Looking ahead, we are expecting that the FY 'twenty six President's budget request will likely be released over the next month or so.

We are in a unique situation as our customers are now operating under a full year continuing resolution for FY 'twenty five.

Speaker Change: 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.

What is different from prior Crs is the dod's ability to initiate new program starts.

Speaker Change: Unfortunately, it remains elevated and largely unchanged, which will maintain pressure on the need for higher investment for the foreseeable future.

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.

Speaker Change: We also anticipate that the FY 'twenty six request will provide incremental clarity and the funding allocations for the administration's key priorities.

Additionally, we are still targeting a total company book to Bill above one and 2025.

Speaker Change: Drs continues to be well positioned and closely aligned to important national defense initiatives focused on enhancing the <unk> effectiveness and affordability of critical capabilities.

Looking ahead, we are expecting that the FY 'twenty six President's budget request will likely be released over the next month or so.

Speaker Change: Our customers are expanding their investments in layered air defense and counter UAS.

Bill Lane: 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.

As I have 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.

Speaker Change: Improving shipbuilding throughput and more broadly modernizing technology embedded on combat platforms to detour and contests near peers.

Speaker Change: We are leveraging our core strengths to actively address each of these secular themes.

Speaker Change: Next while the implementation for most of the tariffs announced last month have been temporarily postponed.

We also anticipate that the FY 'twenty six request will provide incremental clarity and the funding allocations for the administration's key priorities.

Speaker Change: 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.

Drs continues to be well positioned and closely aligned to important national defense initiatives focused on enhancing the la <unk> effectiveness and affordability of critical capabilities.

Bill Lane: 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.

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 detour and can test near peers.

Speaker Change: Our geographic footprint is principally in the U S with the exception of operations in Canada, and Israel and lastly, our direct supply chain is predominantly comprised of U S 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 needs emerge.

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 custom.

Bill Lane: Let me share some more color on our perspectives with respect to the macro. 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 programs. 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 Additionally, we are still targeting a total company booked to 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.

Speaker Change: Secondly, China's increasing restriction on export of rare Earth minerals to the U S. Also has limited impact on Drs.

Speaker Change: For us the key rare Earth reliance's under mania as it is an important element in our infrared sensing products.

Base is largely U S defense in nature or.

Our geographic footprint is principally in the U S with the exception of operations in Canada, and Israel and lastly, our direct supply chain is predominantly comprised of U S based companies.

Speaker Change: Since the initial restrictions went into effect in mid 2023, we've taken mitigating actions to ensure our raw material suppliers had diverse sources.

Speaker Change: However, in the quarter, we discovered that a sole source optics supplier on an international program was unable to execute on our existing purchase orders.

Speaker Change: Placed us in an unfavorable position of absorbing increased costs as we rectified the issue with alternative germanium sources.

Secondly, China's increasing restriction on export of rare Earth minerals to the U S. Also has limited impact on Drs.

Speaker Change: 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.

Bill Lane: 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.

For us the key rare Earth reliance's under mania as it is an important element in our infrared sensing products.

Speaker Change: 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.

Since the initial restrictions went into effect in mid 2023, we've taken mitigating actions to ensure our raw material suppliers had diverse sources.

Speaker Change: 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.

However, in the quarter, we discovered that a sole source optics 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.

Speaker Change: Shifting to operations, we're making steady progress on several key areas first improving and expanding shipbuilding is a key national priority our customers behaviour reflects an incredible urgency.

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.

Bill Lane: 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.

Speaker Change: We are working to expedite the completion of our Charleston, South Carolina facility as well as rapidly deployed a 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.

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.

Bill Lane: 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 U.S. with the exception of operations in Canada and Israel. And lastly, our direct supply chain is predominantly comprised of U.S.-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.

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.

Speaker Change: Overall throughput.

Speaker Change: Separately, but related we're seeing new incremental domestic opportunities emerge for our electric power and propulsion technologies.

Shifting to operations, we're making steady progress in several key areas first improving and expanding shipbuilding is a key national priority our customers behaviour reflects an incredible urgency we are working to expedite the completion of our Charleston, South Carolina facility as well as rapidly deploy.

Speaker Change: We won't disclose the specific program names for competitive reasons, but nonetheless. This is an exciting development should these opportunities come to fruition.

Speaker Change: 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.

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.

Speaker Change: Not a counter UAS, we are maturing the previously discussed directed energy capability through rigorous customer testing.

Bill Lane: Secondly, China's increasing restriction on export of rare earth minerals to the U.S. 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 product. 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 optics supplier on an international program was unable to execute on our existing purchase order. That placed us in an unfavorable position of absorbing increased cost as we rectify the issue with alternative germanium sources.

Speaker Change: The multiple rounds of results support the feasibility of near term operational deployment to augment existing air defense systems.

Separately, but related we're seeing new incremental domestic opportunities emerge for our electric power and propulsion technologies we.

Speaker Change: Additionally, we are actively working with partners to explore the integration of our counter UAS technologies into other dominions and platforms, including the maritime arena to generate incremental growth.

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.

Speaker Change: Next in the quarter in partnership with best in Class commercial Technology partners, we announced the release of our AI processor.

Speaker Change: This AI processor is designed to quickly deliver real time threat detection situational awareness and advanced mission processing in the combat vehicles.

Not a counter UAS, we are maturing the previously discussed directed energy capability through rigorous customer testing multiple.

Speaker Change: 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.

Rounds of results support the feasibility of near term operational deployment to augment existing air defense systems.

Bill Lane: 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.

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.

Speaker Change: 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.

Next in the quarter in partnership with best in Class commercial Technology partners, we announced the release of our AI processor.

Speaker Change: Similarly, we predict that AI and other intensive applications will only drive growth of shipboard processing requirements.

Speaker Change: As a result, we are seeing customer appetite build for our advanced cooling techniques that enable greater computing density.

This AI processor is designed to quickly deliver real time threat detection situational awareness and advanced mission processing in the combat vehicles.

Speaker Change: Last but certainly not least our infrared sensing remains in high demand across domains from the dismounted ground combat vehicles to missiles.

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.

Bill Lane: 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 urge. 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 through. Separately, but related, we are seeing new incremental domestic opportunities emerge for our electric power and propulsion technology. We won't disclose the specific program names for competitive.

Speaker Change: On the latter we are being designed into a number of next generation missile systems to provide our differentiated infrared capability.

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.

Speaker Change: The diversity and breadth of our technology portfolio is a distinguishing characteristic of Drs and is facilitating multiple avenues for future growth.

Similarly, we predict that AI and other intensive applications will only drive growth of shipboard processing requirements.

Speaker Change: As I mentioned at the outset I am pleased with the nice start to the year. Our Q1 financial performance provides us confidence in executing on our 2025 outlook.

As a result, we are seeing customer appetite build for our advanced cooling techniques that enable greater computing density.

Speaker Change: Nearly 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.

Last but certainly not least our infrared sensing remains in high demand across domains from the dismounted ground combat vehicles to missiles.

Bill Lane: 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.

Speaker Change: That said Drs remains well position to enduring defense priorities, we are maintaining a sharp focus on delivering critical innovation at speed efficiently and in an affordable manner.

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.

Speaker Change: With that let me turn the call over to Mike, who will walk you through our financials in further detail.

Thanks, Bill I would echo that we are off to a solid start to the year across our key financial metrics overall, the quarter was well ahead of our expectation.

Bill Lane: Not a counter UAS. We are maturing the previously discussed directed energy capability through rigorous customer test 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.

As I mentioned at the outset I am pleased with the nice start to the year. Our Q1 financial performance provides us confidence in executing on our 2025 outlook.

Speaker Change: In Q1 revenue growth of 16% and ended up being meaningfully above the framework, we laid out on our last call.

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.

Speaker Change: This was mostly due to the favorable timing of material receipts late.

Speaker Change: Late in the quarter, we saw some supplier deliveries pull left by just a few days, which materialized at the sizable tailwind to Q1, let me reiterate this will mostly helped drive improved quarterly linearity in 2025, taking.

Bill Lane: Next in the quarter, in partnership with best-in-class commercial technology partners, we announce the release of our AI process. 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.

Speaker Change: Taking a closer look at the quarter. The most notable drivers of growth were programs related to ground enable network computing as well as offerings in tactical radars in electric power and propulsion from.

And affordable manner.

With that let me turn the call over to Mike, who will walk you through our financials in further detail.

Speaker Change: From a segment perspective, the programmatic increases to network computing and tactical radars spurred quarterly ASC revenue growth of 18%.

Speaker Change: Thanks, Bill I would echo that we are off to a solid start to the year across our key financial metrics overall, the quarter was well ahead of our expectation.

Speaker Change: <unk> revenue was also up nicely at 11% with growth evident across the segment.

Speaker Change: In Q1 revenue growth of 16% and ended up being meaningfully above the framework, we laid out on our last call.

Strong contribution from bolt electric power propulsion as well as force protection programs were visible in the quarterly IMS revenue output.

This was mostly due to the favorable timing of material receipts.

Speaker Change: Late in the quarter, we saw some supplier deliveries pull left by just a few days, which materialized at the sizable tailwind Q1, let me reiterate this will mostly helped drive improved quarterly linearity in 2025, taking.

Bill Lane: 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 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.

Speaker Change: Now to adjusted EBITDA adjusted EBITDA in the quarter was $82 million, representing 17% growth in the last year.

Speaker Change: Adjusted EBITDA margin in Q1 was 10, 3%, which represents 10 basis points of year over year margin expansion.

Speaker Change: The slight margin expansion was primarily as a result of favorable net contract adjustments and higher volume.

Speaker Change: From a segment perspective, the programmatic increases to network computing and tactical radar spurred quarterly ASC revenue growth of 18%.

Speaker Change: Shifting to the segment view.

Speaker Change: Adjusted EBITDA increased by 2%, but margin declined by 130 basis points, primarily due to negative contract adjustments in this segment.

Speaker Change: <unk> revenue was also up nicely at 11% with growth evident across the segment.

Speaker Change: As Bill mentioned earlier, the discrete cost growth from the sole source supplier on the <unk> incentive program as well as the broader impact of greater germanium costs on our remaining backlog hampered profitability in the quarter.

Speaker Change: Strong contribution from both electric power and propulsion as well as force protection programs are visible in our quarterly IMS revenue output.

Speaker Change: Now to adjusted EBITDA adjusted EBITDA in the quarter was $82 million, representing 17% growth in the last year.

Bill Lane: The diversity and breadth of our technology portfolio is a distinguishing characteristic of DRS and is facilitating multiple avenues for future growth.

Speaker Change: IMS adjusted EBITDA was up 38% and margin expanded by 260 basis points, which was well beyond what we anticipated.

Speaker Change: Adjusted EBITDA margin in Q1 was 10, 3%, which represents 10 basis points of year over year margin expansion.

Speaker Change: Embedded in our baseline plan for the segment with the continued progression of Columbia class and some operational benefit from increased volume, which both occurred in the quarter.

Bill Lane: 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 complex. 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.

Speaker Change: The slight margin expansion was primarily as a result of favorable net contract adjustments and higher volume.

Speaker Change: However, incremental to our expectations was the recognition of favorable contract adjustments as a result of risk retirement milestones reached on Columbia class.

Speaker Change: Shifting to the segment view.

Speaker Change: Adjusted EBITDA increased by 2%, but margin declined by 130 basis points, primarily due to negative contract adjustments in this segment.

Speaker Change: Onto the bottom line metrics first quarter net earnings were $50 million and diluted EPS was <unk> 19, a share up 72% and 73% respectively.

Speaker Change: As Bill mentioned earlier, the discrete cost growth from the sole source supplier on the infra incentive program as well as the broader impact of greater germanium costs on our remaining backlog hampered profitability in the quarter.

Speaker Change: Our adjusted net earnings of $54 million and adjusted diluted EPS of <unk> 20, a share were up 42% and 43% respectively.

Michael Dippold: With that, let me turn the call over to Mike, who will walk you through our financials in further detail. Thanks, Bill. I would echo that we are off to a solid start to the year across our key financial metrics. Overall, the quarter was well ahead of our expectations. In Q1, revenue growth was 16% and ended up being meaningfully above the framework we laid out on the last call. This was mostly due to the favorable timing of material receipts. Late in the quarter, we saw some supplier deliveries pull left by just a few days, which materialized at the sizable tailwind of Q1.

Speaker Change: IMS adjusted EBITDA was up 38% and margin expanded by 260 basis points, which was well beyond what we anticipated.

Speaker Change: Strong organic operational performance combined with a reduced effective tax rate and a lower interest burden drove the favorable year over year compare.

Speaker Change: Embedded in our baseline plan for the segment with the continued progression of Columbia class and some operational benefits from increased volume, which both occurred in the quarter.

Speaker Change: While the Q1 tax rate was lower due to excess tax benefits on equity compensation, we still anticipate a normalized full year tax rate of 19%.

Speaker Change: However, incremental to our expectations was the recognition of favorable contract adjustments as a result of risk retirement milestones reached on Columbia class.

Speaker Change: Moving to free cash flow, our cash usage in the quarter was significantly lower than this time last year. Thanks to increased net profitability and enhanced working capital efficiency, partly aided by favorable timing in quarterly cash collections from customers.

Speaker Change: On to the bottom line metrics first quarter net earnings were $50 million and diluted EPS was <unk> 19, a share up 72% and 73% respectively.

Michael Dippold: Let me reiterate, this will mostly help drive improved quarterly linearity in 2025. Taking a closer look at the quarter, the most notable drivers of growth were programs related to ground and naval network computing, as well as offerings in tactical radars and electric power propulsion. From a segment perspective, the programmatic increases to network computing and tactical radars spurred quarterly ASC revenue growth of 18%. IMS revenue was also up nicely at 11%, with growth evident across the segment. Strong contribution from both electric power and propulsion, as well as force protection programs were visible in the quarterly IMS revenue output.

Speaker Change: Our capital expenditures in the quarter were approximately 4% of revenue in line with our expectations discussed on the last call.

Speaker Change: Our adjusted net earnings of $54 million and adjusted diluted EPS of <unk> 20, a share were up 42% and 43% respectively.

Speaker Change: Overall, the year over year free cash flow improvement and Q1 supports better line of sight into achieving our full year outlook.

Speaker Change: Strong organic operational performance combined with a reduced effective tax rate and a lower interest burden drove the favorable year over year compare.

Speaker Change: With only one quarter behind us we are maintaining our 2025 guidance across our metrics, we delivered a solid Q1, but the more dynamic operating backdrop offers both puts and takes that we are still evaluating.

Speaker Change: While the Q1 tax rate was lower due to excess tax benefits on equity compensation, we still anticipate a normalized full year tax rate of 19%.

Speaker Change: As a quick refresher we expect the following for the full year revenue in the range of $3 45 to $3 55 billion, implying a 6% to 9% year over year growth.

Michael Dippold: Now to Adjusted EBITDA. Adjusted EBITDA in the quarter was $82 million, representing 17% growth from the last year. Adjusted EBITDA margin in Q1 was 10.3%, which represents 10 basis points of year-over-year margin expansion. The slight margin expansion was primarily as a result of favorable net contract adjustments and higher volume. Shifting to the segment view, ASC adjusted EBITDA increased by 2% but margin declined by 130 basis points, primarily due to negative contract adjustments in the segment. As Bill mentioned earlier, the discrete cost growth from the sole source supplier on the infrared sensing program, as well as the broader impact of greater germanium costs on our remaining backlog, hampered profitability in the quarter.

Speaker Change: Material receipts will continue to be the biggest factor influencing revenue output.

Speaker Change: Our capital expenditures in the quarter were approximately 4% of revenue in line with our expectations discussed on the last call.

Speaker Change: We are operating with significant backlog visibility, but a small portion of book to Bill revenue still remains.

Speaker Change: Our adjusted EBITDA range is expected to be between $435 and $455 million.

Speaker Change: Overall, the year over year free cash flow improvement and Q1 supports better line of sight into achieving our full year outlook.

Speaker Change: At this time, we expect IMS to offer more growth and margin improvement opportunity relative to ASC.

Speaker Change: Adjusted diluted EPS remains in the $1 to $2 eight per share range.

Speaker Change: Underlying assumptions on tax rate and fully diluted share count remained consistent at 19% and 270 million shares respectively.

Speaker Change: As a quick refresher we expect the following for the full year revenue in the range of $3 45 to $3 55 billion, implying a 6% to 9% year over year growth.

Speaker Change: Also we are still targeting 80% free cash flow conversion of adjusted net earnings for the year.

Michael Dippold: IMS-adjusted EBITDA was up 38% and margin expanded by 260 basis points, which was well beyond what we anticipated. Embedded in our baseline, the plan for this segment was the continued progression of Columbia class and some operational benefit from increased volume, which both occurred in the quarter. However, incremental to our expectations was the recognition of favorable contract adjustments as a result of risk retirement milestones reached on Columbia class.

Speaker Change: Material receipts will continue to be the biggest factor influencing revenue output.

Speaker Change: Lastly, let me frame up what we're seeing for the second quarter.

Speaker Change: At this time, we are expecting revenue to trend around $825 million with adjusted EBITDA margin likely in the mid 11% range.

Speaker Change: Our operating with significant backlog visibility, but a small portion of book to Bill revenue still remains.

Speaker Change: Our adjusted EBITDA range is expected to be between $435 and $455 million.

Speaker Change: I'll wrap up with some quick thoughts.

Speaker Change: We have an exceptional team our strategy is sound and we are well positioned for long term success.

At this time, we expect IMS to offer more growth and margin improvement opportunity relative to ASC.

Speaker Change: We are focused on capturing and converting significant demand into strong continued organic growth.

Speaker Change: Adjusted diluted EPS remains in the $1 to $2 eight per share range.

Speaker Change: Additionally, we are keeping a steadfast focus on program execution to deliver value for our customers and our commitments to shareholders.

Michael Dippold: Onto the bottom line metrics, first quarter net earnings were $50 million and diluted EPS was $0.19 a share, up 72% and 73% respectively. Our adjusted net earnings of $54 million and adjusted diluted EPS of 20 cents a share were up 42% and 43% respectively. Strong organic operational performance combined with a reduced effective tax rate and a lower interest burden drove the favorable year-over-year comparison. While the Q1 tax rate was lower due to excess tax benefits on equity compensation, we still anticipate a normalized full-year tax rate of 19%. Moving to free cash flow, our cash usage in the quarter was significantly lower than this time last year, thanks to increased net profitability and enhanced working capital efficiency, partly aided by favorable timing in quarterly cash collections from customers.

Speaker Change: The underlying assumptions on tax rate and fully diluted share count remained consistent at 19% and 270 million shares respectively.

Speaker Change: With that we're ready to take your questions.

Speaker Change: Also we are still targeting 80% free cash flow conversion of adjusted net earnings for the year.

Speaker Change: Thank you at this time, we will begin the question answer session. As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.

Speaker Change: Lastly, let me frame up what we're seeing for the second quarter.

Speaker Change: At this time, we are expecting revenue to trend around $825 million with adjusted EBITDA margin likely in the mid 11% range.

Michael: Our first question comes from Michael <unk> with <unk> Securities You May proceed.

Speaker Change: I'll wrap up with some quick thoughts.

Speaker Change: We have an exceptional team our strategy is sound and we are well positioned for long term success.

Michael: Hey, good morning, guys. Thanks for taking the call or a question nice results.

Speaker Change: We are focused on capturing and converting significant demand into strong continued organic growth.

Michael: Hey.

Speaker Change: Mike or Bill I guess, you talked about.

Speaker Change: Additionally, we are keeping a steadfast focus on program execution to deliver value for our customers and our commitments to shareholders.

Speaker Change: Material receipts and pulling some some work left can you maybe talk specifically to what programs with that more on the shipbuilding. The propulsion side and then any color you can give on an international growth in the quarter was that a contributor.

Speaker Change: With that we're ready to take your questions.

Michael Dippold: Our capital expenditures in the quarter were approximately 4% of revenue, in line with our expectations discussed on the last call. Overall, the year-over-year free cash flow improvement in Q1 supports better line-of-sight into achieving our full year outlook. With only one quarter behind us, we are maintaining our 2025 guidance across our metro.

Mike: So I'll take that one Mike.

Speaker Change: I appreciate the question.

Speaker Change: The material acceleration in the impact of the revenue was really more holistic across the board we've seen some good.

Michael: Our first question comes from Michael <unk> with <unk> Securities You May proceed.

Michael Dippold: We delivered a solid Q1, but the more dynamic operating backdrop offers both puts and takes that we are still evaluating.

Speaker Change: Supplier deliveries are on time deliveries have been improving.

Michael: Hey, good morning, guys. Thanks for taking the call or questions nice results.

Michael Dippold: As a quick refresher, we expect the following for the full year. Revenue in the range of $3.425 to $3.525 billion, implying a 6% to 9% year-over-year growth. Material receipts will continue to be the biggest factor influencing revenue output. We are operating with significant backlog visibility, but a small portion of book-to-bill revenue still remains. Our adjusted EBITDA range is expected to be between $435 million and $455 million. At this time, we expect IMS to offer more growth and margin improvement opportunity relative to ASX. Adjusted diluted EPS remains in the $1.02 to $1.08 per share range. The underlying assumptions on tax rate and fully diluted share count remain consistent at 19% and 270 million shares respectively.

Speaker Change: We saw some acceleration again, not a lot a port forward.

Michael: Hey.

Michael: Mike or Bill I guess, you talked about.

Speaker Change: A week or so and that really impacted the revenue for the quarter.

Speaker Change: So a good result there.

Speaker Change: Good competence in the supply chain right now so that's what drove the over performance on that side.

Speaker Change: The increase from year over year revenue has really been actually on the domestic side the international as you'll see when the Q is released is actually a little bit for the quarter just from the some of the timing.

Bill: Bill I'll take that one.

Speaker Change: From certain deliveries to actually to support Ukraine.

Speaker Change: I appreciate the question.

Speaker Change: The material acceleration in the impact of the revenue was really more holistic across the board we've seen some good.

Speaker Change: So the international a little headwind for the quarter I don't anticipate that prospectively, but for Q1. It was a domestic growth story.

Speaker Change: Supplier deliveries are on time deliveries have been improving.

Speaker Change: Okay got it and then.

Speaker Change: Then just piece.

Speaker Change: Piecing. This together quickly here on the fly I think you just said $825 million of revenue <unk>.

Speaker Change: We saw some acceleration again, not a lot a port forward.

Speaker Change: A week or so and that really impacted the revenue for the quarter.

Michael Dippold: Also, we are still targeting 80% free cash flow conversion of adjusted net earnings for the year.

Speaker Change: The low end of the guidance.

Speaker Change: So a good result there.

Speaker Change: That would imply second half maybe flat almost down I think year over year. I mean is that just is there anything you talked about supply chain. We've got the good kind of demand backdrop bookings above one.

Speaker Change: Good confidence in the supply chain right now so that's what drove the over performance on that side the increase from the year over year revenue has really been actually on the domestic side the international as you'll see when the Q is released is actually a little bit for the quarter just from the some of the timing.

Michael Dippold: Lastly, let me frame up what we are seeing for the second quarter. At this time, we are expecting revenue to trend around $825 million with adjusted EBITDA margin likely in the mid-11% range.

Michael Dippold: I'll wrap up with some quick thoughts. We have an exceptional team. Our strategy is sound, and we are well-positioned for long-term success. We are focused on capturing and converting significant demand into strong, continued organic growth. Additionally, we are keeping a steadfast focus on program execution to deliver value for customers and our commitment to shareholders.

Speaker Change: The thing we should read into just kind of leaving the door open for for maybe the unknown on tariff trade.

Speaker Change: From certain deliveries to actually two.

Speaker Change: <unk> support Ukraine.

Speaker Change: So the international a little headwind for the quarter I don't anticipate that prospectively, but for Q1. It was a domestic growth story.

Speaker Change: At all anything materialize it there.

Speaker Change: I think you should think about it a little differently I would say that we're continuing to push and improved linearity across the business.

Speaker Change: Okay got it and then just piece.

Speaker Change: Piecing. This together quickly here on the fly I think you just said $825 million revenue <unk>.

Speaker Change: And I think youre seeing that materialized. So even if you kind of throw the Q1 results in the Q2 framework.

Operator: With that, we are ready to take your questions. Thank you. At this time, we will begin the question-and-answer session. As a reminder, to ask a question, please press star-one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star-one-one. One moment for questions.

Speaker Change: The low end of the guidance.

Speaker Change: Our H two guide would then say we're going to be somewhere between flat to up 6% on the top line and still showing a margin expansion in the 50 to 80 basis point range.

That would imply second half maybe flat almost down I think year over year. I mean is that just is there anything you talked about supply chain. We've got the good kind of demand backdrop bookings above one.

Speaker Change: If you look back into 24, it's relatively consistent with what we started to see in Q4 of 24 right. You saw the acceleration of revenue growth pull in as we improved our linearity and then on the back end you started to see the quarter has not had the same robust growth I think youre going to see that trend materialize here in 2025.

Michael Ciarmoli: Our first question comes from Michael Ciarmoli with Truist Securities. He may proceed. Hey, good morning, guys. Thanks for taking the call or questions. Nice results.

Speaker Change: Anything we should read into just kind of leaving the door open for for maybe the unknowns on tariff trade.

Speaker Change: At all anything materializes there.

Bill Lane: Hey, Mike or Bill, I guess you talked about And then, any color you can give on international growth in the quarter, was that a contributor I'll take that one, Mike, and appreciate the question. So the material acceleration and the impact of the revenue was really more holistic across the board. We've seen some good supplier deliveries, our on-time deliveries have been improving. We saw some acceleration, again, not a lot, it pulled forward, you know, a week or so, and that really impacted the revenue for the quarter. So a good result there, good confidence in the supply chain right now.

Speaker Change: I think you should think about it a little differently I would say that we're continuing to push and improved linearity across the business.

Speaker Change: Okay perfect last one for me just any any concern going forward on that ASC margin should we expect a snapback or is that program now going to be running it.

Speaker Change: And I think youre seeing that materialized. So even if you kind of throw the Q1 results in the Q2 framework.

Speaker Change: At a lower margin given given the measures you have to take with that challenge supplier.

Speaker Change: Our H two guide would then say we're going to be somewhere between flat to up 6% on the top line and still showing a margin expansion 50 to 80 basis point range.

Speaker Change: Yes, good question and yes. So what we did here is as we took the adjustment in Q1 to kind of reset the backlog for the remainder of the program. So the lion's share of the impact is going to be in Q1 and.

Speaker Change: If you look back into 24, it's relatively consistent with what we started to see in Q4 of 24 right. You saw the acceleration of revenue growth pull in as we improved our linearity and then on the back end you start to see the quarter has not had the same robust growth I think youre going to see that trend materialize here in 2025.

Speaker Change: And then you'll have a obviously at a lower gross margin prospectively, but that will be mitigated and youll see a pop back.

Speaker Change: Okay, perfect I'll jump back in the queue. Thanks, guys.

Speaker Change: Thank you.

Seth: Our next question comes from Seth <unk> with Jpmorgan you May proceed.

Speaker Change: Okay Perfect last one for me just.

Speaker Change: Any any concern going forward on that ASC margin should we expect a snapback or is that program now going to be running it.

Seth: Yeah, Hey, guys. Thanks for the question. This is Ali Kahn for SaaS.

Bill Lane: So that's what drove the overperformance on that side. The increase from the year-over-year revenue has really been actually on the domestic side. The international, as you'll see when the Q is released, is actually a little dip for the quarter, just from some of the timing from certain deliveries to actually to support Ukraine. So the international, a little headwind for the quarter. I don't anticipate that prospectively, but for Q1, it was a domestic growth story.

Seth: Maybe I wanted to kind of ask at a higher level in terms of the margin expectations for this year.

Speaker Change: At a lower margin given given the measures you have to take with that challenge supplier.

Seth: Obviously Q1 came in a little bit lower at 10, 3% versus full.

Seth: Full year guide implies 8% margin I understand last year, we kind of similar dynamic where the margins start at lower before I kind of increasing as the year went on.

Speaker Change: And then you'll have a obviously a lower growth market prospectively, but that will be mitigated and youll see a pop back.

Seth: Curious kind of if you guys could help us walk through that.

Michael Ciarmoli: Okay, got it. And then just together quickly here on the fly. I think you just said $825 million revenue 2Q. I mean, the low end of the guidance, I mean, that would imply second half.

Seth: Puts and takes here I imagine, Colombia is a pretty big driver.

Speaker Change: Okay, perfect I'll jump back in the queue. Thanks, guys.

Speaker Change: Thank you.

Seth: The expected margin expansion. So maybe if you could kind of put a finer point on and help us understand that bridge a little bit better.

Seth: Our next question comes from Seth <unk> with Jpmorgan you May proceed.

Speaker Change: Yeah, Hey, guys. Thanks for the question. This is Ali Kahn for SaaS.

Alex: Yeah, Alex the bridge is going to be a little more simple than that what youre going to see it because we period expense our G&A the.

Michael Dippold: I mean, is that just, is there anything, you talked about supply chain, we've got the good kind of demand backdrop, looking to above one, you know, anything we should read into just kind of leaving the door open for maybe the unknowns on tariff trade, if at all anything materializes there? I think you should think about it a little differently. I would say that we're continuing to push and improve linearity across the business. And I think you're seeing that materialize. So even if you kind of throw the Q1 results in, the Q2 framework, our H2 guide would then say we're going to be somewhere between flat to up 6% on the top line, and still showing a margin expansion in the 50 to 80 basis point range.

Speaker Change: Maybe I wanted to kind of ask at a higher level in terms of the margin expectations for this year.

Alex: The volume matters in terms of the drop through on the EBITDA margin percentage, so as our revenue increasing quarter over quarter.

Speaker Change: Obviously Q1 came in a little bit lower at 10, 3% versus.

Speaker Change: Full year guide implies that 8% margin.

Alex: Youll start to see the margin have that impact of that additional operational leverage. So that's what's really going to drive it in terms of if youre looking at the sequential quarter.

Speaker Change: And last year, we kind of a similar dynamic where that margin started lower.

Speaker Change: What kind of increasing as the year went on.

Alex: Protections.

Speaker Change: Curious kind of if you guys could help us walk through the.

Speaker Change: Got it Okay. That's helpful and then maybe as a.

Speaker Change: Puts and takes here I imagine, Colombia is a pretty big driver.

Alex: Second question.

Alex: Kind of a bigger picture question I know you guys talked about expediting the investments in the trials 10 facility and another thing we kind of saw related to shipbuilding.

Speaker Change: The expected margin expansion. So maybe if you could kind of put a finer point on it and help us understand that bridge a little bit better.

Speaker Change: Yeah, Alex the bridge is going to be a little more simple than that what youre going to see it because we period expense our G&A.

Alex: Earlier this week as these plans fair Thats reconciliation Bill and I think there is expected to be $34 billion of funding for shipbuilding.

Michael Dippold: If you look back into 24, it's relatively consistent with what we started to see in Q4 of 24, right? You saw the acceleration of revenue growth pull in as we improved our linearity. And then on the back end, you started to see the quarters not have the same robust growth. I think you're going to see that trend materialize here in 2025.

Speaker Change: Volume matters in terms of the drop through on the EBITDA margin percentage, so as our revenue increases quarter over quarter.

Alex: Just thinking about.

Alex: Is there any opportunity at least with the Charles town facility that may be.

Speaker Change: Youll start to see the margin have that impact of that additional operational leverage. So that's what's really going to drive it in terms of if youre looking at the sequential quarter.

Alex: Prs more involved on kind of the current classes of ships given all of this kind of funding going into them.

On to shipbuilding right now just kind of curious about maybe how drs can be involved in that as well.

Michael Ciarmoli: Okay, perfect.

Michael Ciarmoli: Last one for me.

Speaker Change: Protections.

Michael Ciarmoli: Just any concern going forward on that ASC margin?

Speaker Change: Got it Okay. That's helpful and then maybe as a second question kind of.

Alex: Yes.

Michael Dippold: Do you expect a snapback or is that program now going to be running at a lower margin given the measures you had to take with that challenge supplier? You know, good question. And yes, so what we did here is, is we took the adjustment in Q1 to kind of reset the backlog for the remainder of the program. So the lion's share of the impact is going to be in Q1. And then you'll have a obviously a lower growth market perspectively, but that will be mitigated. And you'll see a pop out. Okay, perfect.

Alex: Take that Alex.

The bigger picture question I know you guys talked about expediting.

Alex: Yes.

Alex: We do see opportunity there I mean, you should look at this as a stepped.

Speaker Change: And some of the trials 10 facility and another thing we kind of saw related to shipbuilding.

Alex: Got the Columbia Class program, which is the original justification for Charleston, and that continues to increase both in terms of volume and margin. We've also now have an investment from the Navy.

Speaker Change: Earlier this week as these plans fair Thats reconciliation Bill and I think there is expected to be $34 billion of funding for shipbuilding.

Speaker Change: Just thinking about.

Alex: To expand our content in particular to become a second source on the steam turbine generators.

Speaker Change: Is there any opportunity at least with the Charles town facility that may be.

Speaker Change: Prs more involved on kind of the current classes of ships given all of this kind of funding going into them.

Michael Ciarmoli: I'll jump back in the queue. Thanks, guys. Thank you.

Alex: We're just in the process now of developing the design for that and that will phase in over the next.

Speaker Change: On to shipbuilding right now just kind of curious about maybe how drs can be involved in that as well.

Alex: Our next question comes from Seth Seifman with J.P. Morgan. Yeah, hey guys, thanks for the question. This is Alex on for Seth. You know, maybe I wanted to kind of ask at a higher level in terms of, you know, the margin expectations for this year. Obviously, Q1, you know, came in a little bit lower at 10.3% versus, you know, like the full year guide implies a 12.8% margin. You know, I understand last year, we kind of saw a similar dynamic where the margin started lower before kind of increasing as the year went on. You know, curious kind of if you guys could help us walk through the, you know, puts and takes here.

Alex: Several years and then beyond that we're in discussion with the Navy about further investments they might make in further support we might give to the expanded throughput, particularly of Virginia class submarines, which has a lot of the focus of that reconciliation bill.

Speaker Change: Yes.

Speaker Change: Take that Alex.

Speaker Change: Yes.

Speaker Change: We do see opportunity there I mean, you should look at this as a stepped.

Speaker Change: Got the Columbia Class program, which is the original justification for Charleston, and that continues to increase both in terms of volume and margin. We've also now have an investment from the Navy.

Alex: All that you mentioned it as well as the administration's priorities. We think we're in negotiation to have a participation in that through a navy investment and much of that would come to Charleston.

Speaker Change: To expand our content in particular to become a second source on the steam turbine generators.

Alex: Got it that's super helpful. Thank you guys.

And we're just in the process now of developing the design for that and that will.

Michael Dippold: I imagine Columbia is a pretty big driver of the expected margin expansion. So, you know, maybe if you could kind of put a finer point on it and help us, you know, understand that bridge a little bit better. Yeah, Alex, the bridge is going to be a little more simple than that, what you're going to see it because we period expense our GNA, the volume matters in terms of the drop through on the EBIT margin percentage. So as our revenue increases quarter over quarter, you'll start to see the margin have that that impact of that additional operational leverage.

Alex: Yes.

Alex: Thank you.

Speaker Change: Our next question comes from Jon <unk> with CJS Securities You May proceed.

Phase in over the next.

Speaker Change: Several years and then beyond that we're in discussion with the Navy about further investments they might make in further support we might give to the expanded throughput, particularly of Virginia class submarines, which has a lot of the focus of that reconciliation bill.

Jon: Hi, Good morning, Thank you for taking my questions and really nice quarter.

Jon: I was wondering if you could just talk a little bit about the guidance you obviously did much better in Q1 some of that was pull in its obviously.

Jon: But the portfolio was unchanged I was wondering just.

Speaker Change: You mentioned it as well as the administration's priorities and we think we're in negotiation to have a participation in that through a navy investment and much of that would come to Charleston.

Jon: Does that give you more cushion for the year or is that really an offset.

Jon: From higher inputs and tariffs and things like that.

Alex: So that's what's really going to drive it in terms of if you're looking at the sequential quarter projection. Got it. Okay, that's helpful.

Jon: No John I would think of it as our continued throughout the net improved linearity. So I think that's what we're doing we're pulling some things left here.

Speaker Change: Got it that's super helpful. Thank you guys.

Bill Lane: And then, you know, maybe as a second question, kind of a bigger picture question, you know, I know you guys talked about expediting, you know, the investments in the Charleston facility. And, you know, another thing we kind of saw related to shipbuilding earlier this week is, you know, these plans for this reconciliation bill. And, you know, I think there's expected to be $34 billion of funding for shipbuilding, you know, kind of just thinking about, you know, is there any opportunity, at least with the Charleston facility to maybe, you know, get DRS more involved on kind of the current classes of ships, you know, given all this kind of funding going into them, going into shipbuilding right now, you know, just kind of curious about, you know, maybe how DRS could be involved in that as well.

Speaker Change: Yes.

Jon: Still have that as I mentioned early it's still have the kind of zero to 6% growth in the second half and still have the.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Jon <unk> with CJS Securities You May proceed.

Jon: The lion's share of the margin expansion on the back end. So it's I would say, it's less conservatism and more are continued through to have had more linear operations quarter over quarter.

Jon: Hi, Good morning, Thank you for taking my questions and really nice quarter.

Jon: I was wondering if you could just talk a little bit about the guidance you obviously did much better in Q1 some of that was pull in its obviously.

Jon: Got it understood.

As we hear rumors of.

Jon: Potentially up to or approaching a $100 million defense budget.

Jon: But the full year was unchanged I was wondering just.

Jon: How do you expect your share of that.

Jon: Does that give you more cushion for the year or is that really an offset.

Jon: To evolve I know you've previously said that you expect to grow ahead of the defense budget.

Jon: From higher inputs and tariffs and things like that.

Speaker Change: No John I would think of it as as our continued throughout the net improved linearity. So I think thats what were doing were pulling some some things left here.

Speaker Change: Wondering if that still holds true in the current environment given what priorities are.

Jon: At the deal with you today.

John: Yes, John.

Bill Lane: Yeah, I'll take that, Alex. We do see opportunity there. I mean, you should look at this as a stepped, we've got the Columbia class program, which is the original justification for Charleston. And that continues to increase both in terms of volume and margin. We've also now have an investment from the Navy to expand our content in particular to become a second source on the steam turbine generators. And we're just in the process now of developing the design for that. And that will phase in over the next several years. And then beyond that, we're in discussion with the Navy about further investments they might make and further support we might give to the expanded throughput, particularly of Virginia class submarines, which is a lot of focus of that reconciliation bill that you mentioned, as well as the administration's priorities.

John: Obviously, we don't have a budget, yet, but I think the trends are good.

Speaker Change: Still have that as I mentioned earlier, you still have the kind of zero to 6% growth in the second half and still have the.

John: As you say theyre talking about a trillion dollars I assume that means <unk>.

Speaker Change: The lion's share of the margin expansion on the back end. So it's I would say, it's less conservatism and more are continued through to have more linear operations quarter over quarter.

John: Defense, but that would still mean, a meaningful increase in the defense budget year over year and over the.

John: Original Biden program, that's reinforced by the talk about up to $150 billion of Frontloaded AD and the the reconciliation bill So I think that.

Speaker Change: Got it understood.

Speaker Change: As we hear rumors of.

Speaker Change: Potentially up to or approaching a $100 million defense budget.

Speaker Change: How do you expect your share of that.

Speaker Change: To evolve I know you've previously said that you expect to grow ahead of the defense budget.

John: The general trends are up.

John: And then we think the priorities of the New administration.

Speaker Change: Wondering if that still holds true in the current environment and given what priorities are at.

John: As they have been demonstrated in that reconciliation bill that was a congressional and then in the <unk> memo in other comments that are coming from the New administration I think they overlap strongly with our core markets in shipbuilding and force protection the nuclear triad represented by Columbia. So.

Speaker Change: <unk> today.

Speaker Change: Yes, John obviously, we don't have a budget yet, but I think the trends are good.

John: Did you say that they are talking about a trillion dollars I assume that means <unk> others beyond defense, but that would still mean, a meaningful increase in the defense budget year over year and over the.

John: We feel like we're well positioned.

John: Original Biden program, that's reinforced by the talk about up to $150 billion Frontloaded AD in the reconciliation Bill So I think.

John: For this growth and to take our share of it.

Bill Lane: And we think we're in negotiation to have a participation in that through a Navy investment. And much of that would come through Charleston. Got it. That's super helpful. Thank you, guys.

John: Okay great.

John: Last one I just wanted to focus on a comment you mentioned about being integrated into next generation missile systems is that a market that you traditionally had a lot of exposure to them.

John: The general trends are up.

John: And then we think the priorities of the New administration.

John: Can you just size the opportunity that's ahead of you.

Jon Tanwanteng: Our next question comes from Jon Tanwanteng with CJS Securities. He may. Hi, good morning. Thank you for taking my questions. A really nice quarter. I was wondering if you could just talk a little bit about the guidance. You obviously did much better in Q1. Some of that was pull-ins, obviously. But the full year was unchanged. I was wondering, does that give you more cushion for the year or is that really an offset from higher inputs and tariffs? No, John, I think of it as our continued thrust on that improved linearity. So I think that's what we're doing.

John: As they have been demonstrated in that reconciliation bill that was a congressional and then in the <unk> memo and other.

John: For us Thats, a little bit more of an adjacent market we bought.

John: We have a core capability and sensors were were world class in terms of sensors.

John: Comments that are coming from the New administration I think they overlap strongly with our core markets in shipbuilding and force protection. The nuclear triad represented by Colombia, So we feel like we're well positioned.

But moving that that capability in the missiles is something that we're we're in the midst of doing and we see it as sort of a new opportunity of Greenfield for us and as the the sensing capabilities missiles. The accuracy of missiles continues to increase we think that we can provide the technology.

John: For this growth and to take our share of it.

John: Okay great.

John: One I just wanted to focus on a comment you mentioned about being integrated into next generation missile systems is that a market that you traditionally had a lot of exposure to them.

John: To do that.

Speaker Change: Okay. So just to be clear. This is more of a greenfield opportunity for you and you do have design wins in this arena.

Michael Dippold: We're pulling some some things left here. Still have that, as I mentioned earlier, still have the the, you know, kind of zero to six percent growth on the second half and still have the the other line share of the margin expansion on the back end. So it's I would say it's less conservatism and more our continued thrust to have have more linear operations quarter over quarter. Got it.

John: Can you just size the opportunity that's ahead of you.

John: Yes exactly right.

John: Great. Thank you.

John: For us Thats, a little bit more of an adjacent market we bought.

John: Thank you.

Speaker Change: Our next question comes from Ron Epstein with Bank of America, You May proceed.

John: Have a core capability and sensors were world class in terms of sensors.

Mariano: Good morning, everyone. This is mariano on for Ron today.

John: But moving that that capability in the missiles is something that we're we're in the midst of doing and we see it as sort of a new opportunity a greenfield for us and as the the sensing capabilities of missiles. The accuracy of missiles continues to increase.

Jon Tanwanteng: And as we hear rumors of, you know, potentially up to or approaching a $1 trillion How do you expect your share of that to evolve? I know you've previously said that, you know, you expect to grow ahead of the defense budget. I'm wondering if that still holds true in the current environment and given what priorities are at the DOD. Yeah, I mean, John, obviously, we don't have a budget yet, but I think the trends are good. As you say, they're talking about a trillion dollars. I assume that means 050, even though it's beyond defense. But that would still mean a meaningful increase in the defense budget year over year and over the original Biden program.

Speaker Change: Good morning America.

Speaker Change: So my question is going to be the first one on Europe.

Speaker Change: These European countries build out their own like defenses and they try to do their own unlike.

John: Think that we can provide the technology to do that.

Speaker Change: Domestic systems hogs boats are you and how big is the opportunity for you at the sub system provider.

John: Okay. So just to be clear. This is more of a greenfield opportunity for you and you do have design wins in this arena.

Speaker Change: Yes.

Speaker Change: But I think there is a substantial near term opportunity alright.

John: Yes exactly right.

John: Okay, great. Thank you.

Speaker Change: In certain systems like counter drone force protection some of our advanced sensing programs. We're we're pretty far ahead, particularly when you are talking about production.

John: Thank you.

Speaker Change: Our next question comes from Ron Epstein with Bank of America, You May proceed.

John: Good morning, everyone. This is mariano on for Ron today.

Bill Lane: That's reinforced by the talk about a up to $150 billion front-loaded ad in the reconciliation bill. So I think the general trends are up. And then we think the priorities of the new administration, as they've been demonstrated in that reconciliation bill, that was a congressional, and then in the Hegseth memo and other comments that are coming from the new administration, I think they overlap strongly with our core markets in shipbuilding and in force protection, the nuclear triad represented by Columbia. So we feel like we are well positioned for this growth and to take our share of it.

Speaker Change: So I think that as they want to increase their capabilities and.

Speaker Change: Good morning America.

Speaker Change: So my question is going to be the first one on Europe.

Speaker Change: These European countries build out their own like defenses and they try to to do their own. Unlike.

Speaker Change: Their capacities in those areas, they're going to turn to companies like ours over time, I think that may evolve into a competition as they use some of their new resources to develop our organic capabilities.

Speaker Change: Domestic systems hogs boats are you and how big is the opportunity for you at this sub system provider.

Speaker Change: But I think that's down the road.

Yeah.

Speaker Change: But I think there is a substantial near term opportunity alright.

Speaker Change: Thank you and then a follow up on the Navy opportunity.

Speaker Change: SUV.

Speaker Change: In certain systems like counter drone force protection some of our advanced sensing programs. We're we're pretty far ahead, particularly when you are talking about production.

Speaker Change: Clear.

Speaker Change: <unk> like a clear alternative to obtain increase that throughput with more outsourcing with dual source alternatives, even with like opportunities for like higher volumes, we'd like commercial opportunities on some cases.

Speaker Change: So I think that as they want to increase their capabilities and.

Jon Tanwanteng: Okay, great.

Bill Lane: Last one, I just wanted to focus on a comment you mentioned about being integrated into next generation missile systems. Is that a market that you traditionally had a lot of exposure to? And can you just size the opportunity that's ahead of you? For us, that's a little bit more of an adjacent market. We've all we you know, we have a core capability in sensors. We're we're world class in terms of sensors. But moving that that capability into missiles is something that we're we're in the midst of doing, and we see it as sort of a new opportunity, a green field for us.

Speaker Change: How fast you could see those opportunities play out voice your sense of like the navy actually like or that <unk> down the supply chain.

Speaker Change: And then how much ahead or like how much involvement you should have as this administration as firsthand.

Speaker Change: But I think that's down the road.

Speaker Change: Thank you and then a follow up on the Navy opportunity.

Speaker Change: On the game.

Marshall terms.

Speaker Change: Are you thinking about like in.

Speaker Change: <unk>.

Speaker Change: Internal R&D to support and go forward and try to capture these opportunities.

Speaker Change: Clear.

Speaker Change: <unk> like a clear alternative to obtain increased their throughput with more outsourcing with dual source alternatives, even with like opportunities for like higher volumes with light commercial opportunities on some cases.

Bill Lane: And as the the sensing capabilities of missiles, the accuracy of missiles continues to increase. We think that we can provide the technology to do that. Okay, so just to be clear, this is more of a greenfield opportunity for you and you do have design wins. Yes, exactly right. Okay, great.

Speaker Change: It's a complex question.

Speaker Change: Very good.

Speaker Change: The last part there were already 85% fixed price.

Speaker Change: How fast you could see those opportunities play out what is your sense of like the navy actually like or that <unk> down the supply chain and then how much ahead or like how much involvement you should have.

Speaker Change: So.

Speaker Change: We are I think already much closer to the <unk>.

Speaker Change: Commercial model that they're talking about we know how to operate in that environment, we have been increasing our IRA our organic investment and we've been pushing it more towards things like <unk>.

Bill Lane: Thank you.

Ron Epstein: Our next question comes from Ron Epstein with Bank of America. Good morning, everyone.

Speaker Change: Suddenly illustration as first time skin on the game or commercial terms and.

Mariana: This is Mariana for RUN2D2. How you doing?

Speaker Change: Are you thinking about like.

Speaker Change: Developing prototypes.

Speaker Change: Internal R&D support and go forward and try to.

Speaker Change: Different capabilities. So I think we are already positioned in we're already do what they're talking about doing were less of a cost plus shop and less of a response just a pure response requirements.

Bill Lane: Morning, Mariana. So my question is going to be the first one on Europe. As these European countries build up their own defense and they tried to do their own like. domestic. How exposed are you and how big is the opportunity for you as a subsystem provider? I think there's a substantial near-term opportunity, Mariana. I think in certain systems like counter-drone, force protection, some of our advanced sensing programs, we're pretty far ahead, particularly when you're talking about production. So I think that as they want to increase their capabilities and their capacities in those areas, they're going to turn to companies like ours.

Speaker Change: Capturing these opportunities.

Speaker Change: Okay.

Speaker Change: It's a complex question.

Speaker Change: Very good.

Speaker Change: Yes.

Speaker Change: On the <unk>.

Speaker Change: The last part there were already 85% fixed price.

Speaker Change: With things like the directed energy capability for counter UAS, we try and be.

Speaker Change: So we were I think already much closer to the.

Speaker Change: Proactive and get ahead of customer needs.

Speaker Change: And demonstrate on the first part of your question in terms of the competition in the naval area.

Speaker Change: Youre, implying that thats going to be a threat to the shipyards and the Navy I don't think Thats right. I think this is an enabler for.

Speaker Change: Developing prototypes.

Speaker Change: For the shipyards, there are overwhelming desire and it's what the customer wants is to increase that throughput to do that they're going to have to diversify the work.

Speaker Change: Different capabilities.

Speaker Change: So I think we are already positioned in we're already do what they're talking about doing were less of a cost plus shop and less of a response just a pure response requirements.

Speaker Change: And pushed more into the <unk>.

Speaker Change: Suppliers like ourselves so that they can produce more more submarines faster rather than more content on each submarine.

Bill Lane: Over time, I think that may evolve into a competition as they use some of their new resources to develop more organic capabilities, but I think that's down the road.

Speaker Change: With things like the directed energy capability for counter UAS, we try and be proactive and get ahead of customer needs.

Speaker Change: So things like.

Speaker Change: US doing integration and testing more of it before we ship to the yards I think of the kind of.

Bill Lane: Thank you, and then a follow-up on the Navy. As you become a clear competitor or like a clear alternative to actually increase the throughput with more outsourcing, with dual source alternatives, even with like opportunities for like higher volumes with like commercial opportunities on some cases, like . How far... see those opportunities play out. What is your sense of like the Navy actually, like, or that money actually spreading down the supply? And then, how much ahead or like how much involvement you should have as this administration asks for some skin in the game or commercial terms?

Speaker Change: And demonstrate on.

Speaker Change: On the first part of your question in terms of the competition in the naval area.

Initiatives that the Navy is looking for and I think the the yard very much support. So I think this is a collaborative.

Speaker Change: If youre, implying that thats going to be a threat to the shipyards and the Navy I don't think Thats right. I think this is an enabler for.

Speaker Change: Enterprise, it's not something where we're trying to take share from the yards.

Speaker Change: With the shipyards that their overwhelming desire and it's what the customer wants is to increase that throughput to do that they're going to have to diversify the work.

Speaker Change: Great and just a quick follow up on that one.

Speaker Change: In the Investor Day, you guys share that you have exposure on your work with the Korean Navy.

Speaker Change: And pushed more into the <unk>.

Speaker Change: Suppliers like ourselves so that they can produce more more submarines faster rather than more content on each submarine.

Speaker Change: Through these like alternative.

I don't know shipyards or in a hub to for the Navy to have not only like March opened like improve the maintenance of current shapes on staff.

Speaker Change: So things like.

Speaker Change: US doing integration and testing more of it before we ship to the yards I think of the kind of.

Speaker Change: Do you have any exposure to those alternative channels.

Bill Lane: Are you thinking about like internal R&D, software support, and like go forward and try to capture this opportunity?

Speaker Change: Yes.

Speaker Change: The initiatives that the Navy is looking for and I think the the yard very much support. So I think this is a collaborative.

Speaker Change: Yes.

Speaker Change: We're engaged right now in supporting a new a new ship class for the Korean Navy and we're competing to put our.

Bill Lane: That's a complex question, Mariana. On the last part there, we're already 85% fixed price. So we're, I think, already much closer to the commercial model that they're talking about. We know how to operate in that environment. We have been increasing our IRAD, our organic investment, and we've been pushing it more towards things like developing prototypes of different capabilities. So I think we are already positioned in, we already do what they're talking about doing. We're less of a cost plus shop and less of a response, just a pure response to requirements. We, with things like the directed energy capability for counter UAS, we try and be proactive and get ahead of customer needs and demonstrate them.

Speaker Change: Enterprise, it's not something where we're trying to take share from the yards.

Speaker Change: Electric power on the next <unk>.

Speaker Change: Great and just a quick follow up on that one.

Class, we don't have to have a response to our proposal on that so yes, we're engaged with with the international customers, particularly in Korea.

Speaker Change: In the Investor Day, you guys share that you have exposure on your what would the Korean Navy.

Speaker Change: Through these like alternative.

Speaker Change: I don't know shipyards or in a hub to for the Navy to have not only like March opened like improve the maintenance of current shapes on staff.

Speaker Change: As you know.

Speaker Change: I don't know how this debate is going to go win and shipbuilding, but I think we do have that kind of knowledge and exposure of the international customer.

Do you have any exposure to those alternative channels.

Speaker Change: Thank you so much.

Speaker Change: Yeah.

Thank you.

Speaker Change: Yes.

Speaker Change: Sure.

Our next question comes from Andre Madrid with BTG you May proceed.

Speaker Change: Engaged right now in supporting a new a new ship class for the Korean Navy and.

Andre Madrid: Hey, good morning, everyone.

Andre Madrid: Good morning, Good morning wanted to ask.

Speaker Change: We're competing to put our.

Speaker Change: Electric power on the next.

Andre Madrid: I understand that you guys are kind of staying on with the.

Speaker Change: <unk> collapsed, we don't have be it ever response to our proposal on that so yes, we're engaged.

Andre Madrid: With the dividend and the buybacks as you had kind of signaled last quarter, but I wanted to revisit the M&A environment see what you guys are seeing there.

Speaker Change: With the international customers, particularly in Korea and.

Bill Lane: On the first part of your question in terms of the competition in the naval area, if you're implying that that's going to be a threat to the shipyards and the Navy, I don't think that's right. I think this is an enabler for the shipyards that, you know, their overwhelming desire and it's what their customer wants is to increase that throughput. To do that, they're going to have to diversify the work and push more into the suppliers like ourselves so that they can produce more, you know, more submarines faster rather than more content on each submarine.

Andre Madrid: Get your sense, if that's still on the table from a cap deployment perspective.

Speaker Change: As I.

Speaker Change: I don't know how this debate is going to go win in shipbuilding, but I think we do have that kind of knowledge and exposure of the international customer.

Andre Madrid: Yes, no Andre we did initiate the dividend and the buyback will continue through on that.

Speaker Change: Thank you so much.

Andre Madrid: But the priority is still for the balance sheet strength that we have is M&A.

Speaker Change: Thank you.

Moderator: Our next question comes from Andre Madrid with BTG you May proceed.

Andre Madrid: We.

Andre Madrid: Despite the kind of is a little bit of disruption in the market. We are still seeing a robust.

Speaker Change: Hey, good morning, everyone.

Speaker Change: Good morning. Good morning wanted to ask you know I understand that you guys are kind of staying on with the.

Andre Madrid: Our pipeline, we're seeing opportunities that are strategically attractive.

Andre Madrid: And we're in the process of doing diligence on those without anything at this point to announce but we are actively engaged.

Speaker Change: With the dividend and the buybacks as you had kind of signaled last quarter, but I wanted to revisit the M&A environment see what you guys are seeing there.

Bill Lane: And so things like us doing integration and testing more of it before we ship to the yards, I think are the kinds of initiatives that the Navy's looking for and I think the yard very much supports. So I think this is a collaborative enterprise. It's not something where we're trying to take share from the yard. Right.

Andre Madrid: In the in the process side and the diligence side.

Speaker Change: Get your sense, if that's still on the table from a cap deployment perspective.

Andre Madrid: And it remains the top priority we have for capital allocation.

Andre: Yes Andre.

Andre: Initiate the dividend and the buyback will continue through on that.

Got it got it and then I guess pivoting back now to.

Andre Madrid: Tag on another question here, but I can't help but ask given the adjustments this quarter I think that for the germanium impact on the sole source contract is there a point in time, where in this problem might creep up again, how much leeway does is provide us I think.

Andre: But the priority is still for the balance sheet strength that we have is M&A.

Andre: We.

Bill Lane: And just a quick follow up on that one. In the Investor Day, you guys shared that you have exposure and you work with the Korean Navy through these like alternative, I don't know, shipyards or like help to for the Navy to have not only like more throughput, but like improve the maintenance of current ships and stuff. Do you have any exposure through those alternative channels?

Andre: Despite the kind of a little bit of disruption in the market, we are still seeing a robust.

Andre: Our pipeline, we're seeing opportunities that are strategically attractive.

Andre Madrid: It seems like we're set for through the balance of the year, but is that a possibility that this might resurface beyond I know you have several years' worth of supply of germanium in inventory, but still.

Andre: And we're in the process of doing diligence on those without anything at this point to announce but we are actively engaged.

Andre Madrid: Yes, so the way I think I would look at this is what we did in Q1 was adjust for the new pricing mechanisms and getting the advanced germanium to this supplier.

Andre: In the in the process side and the diligence side.

Andre: And it remains the top priority we have for capital allocation.

Bill Lane: We're engaged right now in supporting a new ship class for the Korean Navy, and we're competing to put our electric power on the next frigate class. We don't yet have a response to our proposal on that. Yes, we're engaged with the international customers, particularly in Korea. I don't know how this debate's going to go in shipbuilding, but I think we do have that kind of knowledge and exposure of the international customers.

Andre: Got it got it and then I guess pivoting back not to.

Andre Madrid: And took that for our backlog I think the important thing to note is prospectively.

Andre: Tag on another question here, but I can't help but ask given the adjustment this quarter to reset for the germanium impact on a sole source contract is there a point in time, where in this problem might creep up again.

Andre Madrid: We have been doing is including.

Andre Madrid: Economic price adjustment clauses in our future contracts in order to.

Andre Madrid: Got to mitigate the risk here of price volatility. So the customer has been willing to have those conversations.

Andre: Leeway does is provide us I think it.

Andre: It seems like we're set for through the balance of the year, but is that a possibility that this might resurface beyond I know you have several years' worth of supply of germanium in inventory, but still.

Andre Madrid: Putting notice clauses in place so I think it becomes about backlog.

Andre Madrid: And I think we largely have it contained here.

Andre Madrid: Because we have pricing commitments now on those backlog, we have scheduled commitments and supply commitments for that so I think we largely have it if you coupled with the fact that we're going to be.

Andre: Yes, so the way I think I would look at this is what we did in Q1 was adjust for the new pricing mechanisms and getting the advanced germanium to this supplier.

Mariana: Thank you so much.

Andre Madrid: Including these causes prospectively to give us some reopener relief in case, there continues to be volatility in pricing.

Andre Madrid: Our next question comes from Andre Madrid with BTIG. Hey, good morning, everyone. Morning.

Andre: And took that with our backlog I think the important thing to note is prospectively.

Andre: We have been doing is including.

Michael Dippold: I want to ask, you know, I understand that you guys are kind of staying on with the with the dividend and the buybacks as you had kind of signaled last quarter, but I want to revisit the M&A environment, see what you guys are seeing there and get your sense of that still on the table from a cap deployment perspective. Yeah, no, Andre, we did initiate the dividend and the buyback, and we'll continue through on that. But the priority still for the balance sheet strength that we have is M&A. Despite the kind of a little bit of disruption in the market, we are still seeing a robust pipeline.

Andre Madrid: That's good to hear that's good to hear.

Andre: Economic price adjustment clauses in our future contracts in order to.

Speaker Change: How frequently are those repriced or I guess renegotiated.

Andre Madrid: Okay.

Andre Madrid: So what we're looking at right now is to start to include that in all of the programs that are beyond our funded backlog. So we're having conversations in real time to monetize anything options modify existing IV IQ placements that are coming prospectively. So were really taken an aggressive stance here to make sure we get that right.

Andre: Got to mitigate the risk here of price volatility. So the customer has been willing to have those conversations.

Andre: Putting those clauses in place so I think it becomes about backlog.

Andre: And I think we largely have it contained here.

Andre: Because we have pricing commitments now on those backlog, we have scheduled commitments on supply commitments for that so I think we largely have it if you're a couple in the fact that we're going to be.

Andre Madrid: <unk> ability and as quickly as possible.

Speaker Change: Got it got it Mike Bell appreciate it as always thanks.

Andre: Including these causes prospectively to give us some reopener.

Andre Madrid: Thanks.

Andre: Relief in case, there continues to be volatility in pricing.

Andre Madrid: Thank you.

Our next question comes from Carlos <unk> with vertical Research partners you May proceed.

Michael Dippold: We're seeing opportunities that are strategically attractive. And we're in the process of doing diligence on those without anything at this point to announce. But we're actively engaged in the process side and the diligence side, and it remains the top priority we have for capital allocation. Got it, got it.

Andre: That's good to hear that's good to hear how.

Andre: Are those repriced or I guess renegotiated.

Speaker Change: Thanks, guys.

Speaker Change: On and maybe this one is for Mike on this on ASC.

Andre: Okay.

Andre: So what we're looking at right now is to start to include that in all of the programs that are beyond our funded backlog. So we're having conversations in real time to modify existing options modify existing IV IQ placements that are coming prospectively. So were really taken an aggressive stance here to make sure we get that REO.

Speaker Change: This charge or the raw materials, I guess and you think you can work through it but has that.

Speaker Change: Sort of excluding that charge is there a new kind of a lower baseline expectation of margin there versus what you can.

Speaker Change: Thought going into the year.

Michael Dippold: And then I guess pivoting back now to, you know, tag on another question here, but I can't help but ask, given the adjusted restricted score to reset for the germanium impact on the sole source contract, is there a point in time where this problem might creep up again? How much leeway does this provide us? I.

Andre: <unk> ability and as quickly as possible.

Speaker Change: I think from if you are looking at our overall margin expansion for the year. We've always thought it was going to be skewed towards the IMS segment because of the strength of Columbia.

Speaker Change: Got it got it Mike Bell appreciate it as always thanks.

Andre: Thanks. Thanks.

Andre: Thank you.

Speaker Change: And I think that that remains I think youre going to see the overwhelming majority of that margin expansion coming out of the IMS segment.

Carlos <unk>: Our next question comes from Carlos <unk> with vertical Research partners you May proceed.

Michael Dippold: It seems like we're set through the balance of the year, but is there the possibility that this might resurface beyond? I know you have several years' worth of supply of germanium in inventory, but still. Yeah, so the way I think I would look at this is what we did in Q1 was adjust for the new pricing mechanisms and getting the advanced germanium to this supplier, and took that for our backlog. I think the important thing to note is, prospectively, what we have been doing is including economic price adjustment clauses in our future contracts in order to, you know, mitigate the risk here of price volatility.

Speaker Change: Thanks, guys.

Speaker Change: ASC segment, obviously this will be a headwind to the overall margin for the year.

On and maybe this one is for Mike on this on ASC.

Speaker Change: And if you think about where we were in our last call. We were talking about incremental investment on the <unk> front.

Speaker Change: This charge of the raw materials I guess.

Speaker Change: Thank you to work through it but has that.

Speaker Change: Overwhelming increase in the iron ore is also coming from ASC. So when you think about the kind of segment over segment outlook for 2025.

Speaker Change: Sort of excluding that charge is there a new kind of a lower baseline expectation of margin there versus what you kind of thought going into the year.

Speaker Change: I think that the IMS segment is going to be the driver in terms of the margin expansion, while ASC kind of hangs more in line with where they were last year.

Speaker Change: I think from if Youre looking at our overall margin expansion for the year. We've always thought it was going to be skewed towards the IMS segment because of the strength of Columbia.

Speaker Change: Okay.

Speaker Change: Okay and then just.

Speaker Change: And I think that that remains I think youre going to see the overwhelming majority of that margin expansion coming out of the IMS segment.

Speaker Change: Kind of follow up on.

Speaker Change: On cash I guess.

Michael Dippold: So the customer's been willing to have those conversations. We're putting those clauses in place. So I think it becomes about backlog, and I think we largely have it contained here because we have pricing commitments now on those backlogs. We have schedule commitments and supply commitments for that. So I think we largely have it if you couple in the fact that we're going to be including these clauses prospectively to give us some re-opener relief in case there continues to be volatility in pricing.

Speaker Change: Revenues than you did a good job of kind of improving the linearity.

Speaker Change: The AFC segment, obviously this will be a headwind to the overall margin for the year.

Speaker Change: And cash too was as bad as it had been in.

Speaker Change: And if you think about where we were in our last call. We were talking about incremental investment on the IRA front.

Speaker Change: Because of outflows you've had in the past in Q1 is Q2 and Q3 is going to be kind of similar to what you've had in the past. So it's sort of more of a breakeven and then a pretty big Q4.

Speaker Change: The overwhelming increasingly irate its also coming from ASC. So when you think about the kind of segment over segment outlook for 2025.

Speaker Change: Yes, so I think yes, the trend line is going to be similar we accelerated some cash into Q1.

Speaker Change: I think that the IMS segment is going to be the driver in terms of the margin expansion, while ASC kind of hangs more in line with where they were last year.

Speaker Change: Some of that Q1 over performance was some accelerated payments we received from certain customers. So I think when youre looking at Q2s cash, we probably won't get to that same breakeven level that we were in last year with that I'll have a little bit still on the negative side, just giving back a little bit of the over performance we had in Q1.

Michael Dippold: That's good to hear.

Michael Dippold: How frequently are those repriced or I guess renegotiated? So, what we're looking at right now is to start to include that in all of the programs that are beyond our funded backlog. So, we're having conversations in real time to modify existing options, modify existing IBIQ placements that are coming prospectively. So, we're really taking an aggressive stance here to make sure we get that re-opener ability in as quickly as possible. Got it, got it.

Speaker Change: Okay.

Speaker Change: Okay and then just.

Speaker Change: Kind of follow up on.

Speaker Change: <unk> and.

Speaker Change: On cash I guess.

Speaker Change: Revenues than you did a good job of kind of improving the linearity.

But trend lines, the same just making our incremental benefits in the overall linearity and I think you saw that in Q1.

Speaker Change: And cash too was as bad as it had been in.

Speaker Change: Because of outflows you've had in the past in Q1 is Q2 and Q3 is going to be kind of similar to what you've had in the past. So are sort of more of a breakeven and then a pretty big Q4.

Speaker Change: Okay and then.

Bill: Sure Bill.

Speaker Change: This $150 billion, that's getting talked about it.

Speaker Change: The shipbuilding angle was discussed a bit but.

Speaker Change: Maybe give a little bit more color on other opportunities within that Golden.

Speaker Change: Yes, so I think yes, the trend line is going to be similar we accelerated some cash into Q1.

Michael Dippold: Mike, Bill, appreciate it as always. Thanks.

Speaker Change: <unk> is a big portion.

Speaker Change: Some of that Q1 over performance was some accelerated payments we received from certain customer. So I think when youre looking at Q2s cash, we probably won't get to that same breakeven level that we were in last year, we probably have a little bit still on the negative side, just giving back a little bit of the over performance we had in Q1.

And when you think about that 150 do you think.

Karl Oeschlager: Our next question comes from Karl Oeschlager with Vertical Research Partners. He may proceed. Thanks, guys.

Speaker Change: I have a bigger share of that $1 50, then you do have the overall budget is it just kind of skew better.

Michael Dippold: on, maybe this one's for Mike, on this, on ASC. You had this discharge of the raw materials, I guess, and you think you've worked through it, but has that... sort of excluding that charge. Is there a new kind of lower baseline expectation of margin there versus what you kind of thought going into the year? I think from, if you're looking at our overall margin expansion for the year, we've always thought it was going to be skewed towards the IMS segment because of the strength of Columbia. And I think that that remains. I think you're going to see the overwhelming majority of the margin expansion coming out of the IMS segment.

George: George Drs, the kind of thing.

Speaker Change: Overall budget.

George: The U S.

George: Hard to say, because we haven't seen a new budget from the administration, but.

Speaker Change: But trend lines, the same just making our incremental benefits in the overall linearity and I think you saw that in Q1.

George: I think I said at the outset, we do think the broad priorities that are reflected in that that reconciliation bill.

Speaker Change: Okay and then.

Bill: Sure Bill.

This 150 billion Thats getting talked about it.

Bill: The shipbuilding angle was discussed a bit but.

George: <unk>.

Speaker Change: Toward Shipbuilding you mentioned towards force.

Bill: Maybe give a little bit more color on other opportunities within that disclosed in terms of big portion.

George: Protection counter UAS.

George: The support for.

Bill: And when you think about that 150 do you think.

George: The Golden Dome, where we think we have.

Bill: I have a bigger share of that $1 50, then you do have the overall budget is it just kind of skew better.

George: Multiple options.

Michael Dippold: The AFC segment, obviously this will be a headwind to the overall margin for the year. And if you think about where we were in our last call, we were talking about incremental investment on the IRAD front, the overwhelming increase in the IRAD is also coming from AFC. So when you think about the kind of segment over segment outlook for 2025, I think that the IMS segment is going to be the driver in terms of the margin expansion while AFC kind of hangs more in line with where they were last year.

George: The lower end and counter UAS and sensing and with things like over the horizon radar and then in the space.

Bill: Towards Drs, the kind of the overall budget that the U S.

Bill: Yes.

George: We're competing I think that the.

Bill: Hard to say, because we haven't seen a new budget from the administration, but.

George: <unk> three is going to be part of Golden dome, It looks that way anyway.

George: We're competing in that area with our space sensing capabilities. So we think we aligned with <unk>.

Bill: I think I said at the outset, we do think the broad priorities that are reflected in that that reconciliation bill.

George: <unk>.

George: Dimensions of this reconciliation bill.

Bill: <unk>.

Bill: Toward Shipbuilding you mentioned towards force.

Bill: Protection counter.

George: Okay. Thanks, guys.

Bill: Yes.

Michael Dippold: Okay and then just kind of follow up on on cash, I guess, you know, for revenues, and you did a good job of kind of improving the linearity. And cash too was as bad as it had been. because of the outflows you've had in the past in Q1. Is Q2 and Q3 going to be kind of similar to what you've had in the past, though, where it's sort of more of a break-even and then a pretty big Q4? Yeah, so I think, yes, the trend line is going to be similar. We accelerated some cash into Q1.

Bill: The support for.

George: Thank you.

Speaker Change: Our next question comes from Cristina <unk> with Morgan Stanley You May proceed.

Bill: The Golden Dome, where we think we have.

Bill: Multiple options at the lower end and counter UAS and the <unk>.

Justin: Yeah, Hey, this is Justin on for Kristine. This morning, thanks for taking the questions.

Speaker Change: Bill one for you it looks like the secretary of defense is pushing for a pretty big transformation of the army with new details trickling out. This week just wanted to ask to what extent you see any risks or opportunities.

Bill: Sensing and with things like over the Horizon radar and then in the space.

Bill: We're competing I think that the tranche three is going to be part of Golden dome, It looks that way anyway.

Bill: We're competing in that area with our space sensing capabilities. So.

Speaker Change: For some of the changes announced given the service accounts for about a third of your revenue base.

Bill: We think we align with.

Bill: Multiple demur.

Michael Dippold: I think some of that Q1 overperformance was some accelerated payments we received from certain customers. So I think when you're looking at Q2's cash, we probably won't get to that same break-even level that we were in last year. We probably have a little bit still on the negative side, just giving back a little bit of the overperformance we had in Q1. But trend line is the same, just making our incremental benefits and the overall linearity. And I think you saw that in Q1. Okay.

Speaker Change: Yes.

Bill: Dimensions of this reconciliation bill.

Speaker Change: We feel that.

Speaker Change: Sure.

Speaker Change: We're headed with the army as it is going to they're going to have to look at longer range sensors, given the threat given what you've seen them.

Bill: Okay. Thanks, guys.

Bill: Thank you.

Morgan Stanley: Our next question comes from Cristina <unk> with Morgan Stanley You May proceed.

Bill: Yeah, Hey, this is Justin on for Kristine. This morning, thanks for taking the questions.

Speaker Change: Ukraine.

Speaker Change: As you look at <unk> Pac Youre looking at longer ranges. So.

Morgan Stanley: Bill.

Speaker Change: So we think our core sensing capability is going to be even more valuable and then we think as they make adjustments.

Morgan Stanley: For you it looks like the <unk>.

Bill Lane: And then maybe this one's for Bill. This, you know, this $150 billion that's getting talked about, it was the shipbuilding angle was discussed a bit, but maybe give a little bit more color on other opportunities within that, like, you know, this Golden Dome's a big portion. And when you think about that 150, do you think you... have a bigger share of that 150 than you do of the overall budget? Is it just kind of skewed better towards DRS than kind of the overall budget that the US has? Hard to say because we haven't seen a new budget from the administration.

Morgan Stanley: Defense is pushing for a pretty big transformation of the army with new details trickling out this week.

Speaker Change: We feel good about the platform agnostic <unk>.

Morgan Stanley: Just wanted to ask to what extent, you see any risks or opportunities.

Speaker Change: Position, we have and they make adjustments the pullback on certain new platforms Theres still going to have to have improved sensing in computing that means legacy upgrades it means putting them in.

Morgan Stanley: For some of the changes announced given the service accounts for about a third of your revenue base.

Morgan Stanley: Yes.

Morgan Stanley: We feel the.

Morgan Stanley: Sure.

Morgan Stanley: We are headed with the army as is.

Speaker Change: Autonomous vehicles weaken we are it's easy for us to pivot to.

Morgan Stanley: <unk> is going to they're going to have to look at longer range sensors, given the threat given what you've seen them.

Speaker Change: To those new platforms and support putting the.

Speaker Change: Modern capabilities and those so we think we're well positioned.

Morgan Stanley: Ukraine.

Morgan Stanley: As you look at <unk> Pac Youre looking at longer ranges.

Bill Lane: But I think I said at the outset, we do think the broad priorities that are reflected in that reconciliation bill, you know, towards shipbuilding, you mentioned, towards force protection, counter UAS, the support for the Golden Dome, where we think we have, you know, multiple options at the at the lower end in counter UAS and the sensing end with things like over the horizon radar. And then in the space, we're competing, I think that, you know, the Tronch 3 is going to be part of Golden Dome, it looks that way anyway. And we're competing in that area with our space sensing capabilities.

Morgan Stanley: So we think our core sensing capability is going to be even more valuable and then we think as they make adjustments.

Speaker Change: Against those army priorities.

Speaker Change: Obviously, they've even as they reduce the board structure in the last administration. They increased the part of the <unk> structure that was dedicated to air defense and counter UAS systems. It's that kind of alignment. We think is going to continue in this administration that kind of priority is going to going to <unk>.

Morgan Stanley: We feel good about the platform agnostic.

Morgan Stanley: <unk>, we have that they make adjustments the pullback on certain new platforms theres still going to have to have improved sensing in computing that means legacy upgrades it means putting them in.

Speaker Change: Through as we see the new budget.

Morgan Stanley: Autonomous vehicles, we can we are it's easy for us to pivot.

Speaker Change: Got it Super helpful. And then maybe just another quick one couple of peers have called out.

Morgan Stanley: To those new platforms and support putting the.

Speaker Change: Really slower contracting activity in recent weeks and are you seeing any evidence of this in the press release called out sort of no change to customer behavior and bookings were quite healthy. So just trying to square some of the commentary we're seeing across the space. Thanks.

Morgan Stanley: Modern capabilities and those so we think we're well positioned.

Morgan Stanley: Against those army priorities.

Bill Lane: So we think we align with multiple dimensions of this reconciliation bill.

Morgan Stanley: Obviously, they've even as they reduce the board structure in the last administration. They increased the part of the <unk> structure that was dedicated to air defense and counter UAS systems. It's that kind of alignment. We think is going to continue in this administration that kind of priority is going to going to <unk>.

Speaker Change: Yes, I really can't comment on other companies, we we obviously exceeded our expectations on bookings. So we did not see customer demand we.

Bill Lane: Okay, thanks, guys.

Speaker Change: We saw not only we not see a flag. This quarter. We saw increased we had nearly a $1 billion in bookings, which was higher than we had we had in our plan.

Justin: Our next question comes from Christine Liewag with Morgan Stanley, you may...

Morgan Stanley: Through as we see the new budget.

Bill Lane: Hey, this is Justin. I'm for Christine this morning. Thanks for taking the questions. Bill, one for you. It looks like the Secretary of Defense is pushing for a pretty big transformation of the Army with new details trickling out this week. Just wanted to ask, you know, to what extent you see any risks or opportunities here for some of the changes announced, you know, given the service accounts for about, you know, a third of your revenue base? Yeah, no, I mean, we feel that the, you know, where that we're headed with the Army is, is going to, they're going to have to look at longer range sensors, given the threat, given what you've seen in Ukraine, as you look at Indo-Pak, you're looking at longer ranges.

Speaker Change: Great I'll leave it there thanks.

Speaker Change: Got it Super helpful. And then maybe just another quick one a couple of peers have called out part of it.

Speaker Change: Thank you.

Speaker Change: Thank you and as a reminder to ask a question. Please press star one on your telephone. Our next question comes from Jane <unk> with Baird. You May proceed.

Speaker Change: Good morning, Bill, Mike and Steve Rattner, another good quarter.

Speaker Change: A lot has been talked obviously about the supplemental but.

Speaker Change: Yes, I really can't comment on other companies, we we obviously exceeded our expectations on bookings. So we did not see customer demand we.

Speaker Change: Funding and the strong expected 26 budget requests, but would you say that there's any increased confidence from your side.

Speaker Change: <unk> high growth opportunities and perhaps self fund product development, just given the signals that you've seen by the new administration in terms of hardware support in the areas that you're planning.

Speaker Change: We saw not only we not see a flag this quarter. We saw increased we had nearly a $1 billion.

Speaker Change: And bookings, which was higher than we had we had in our plan.

Speaker Change: Great I'll leave it there thanks.

Speaker Change: I think what we see is we want to continue.

Speaker Change: Thank you.

Speaker Change: Thank you and as a reminder to ask a question. Please press star one on your telephone. Our next question comes from Jim <unk> with Baird. You May proceed.

Bill Lane: So, we think our core sensing capability is going to be even more valuable. And then we think as they make adjustments, we feel good about the platform agnostic position we have. They make adjustments that pull back on certain new platforms, they're still going to have to have improved sensing and computing. That means legacy upgrades. It means putting them in autonomous vehicles. We can, we are, it's easy for us to pivot to those new platforms and support putting the modern capabilities in those. So, we think we're well positioned against those Army priorities. And obviously, they've, even as they reduced the force structure in the last administration, they increased the part of the force structure that was dedicated to air defense and counter UAS systems. It's that kind of alignment we think is going to continue in this administration.

Speaker Change: The path we were on we have been increasing our capex.

Speaker Change: We talked about on an earlier question the support that Gibbs.

Jim: Good morning, Bill, Mike and Steve Rattner, another good quarter.

Speaker Change: The submarine and the Navy shipbuilding industrial base, we want.

Speaker Change: A lot has been talked obviously about the supplemental but the.

Speaker Change: To increase our Iraq, and we try and translate that into <unk>.

Speaker Change: Funding and the strong expected 26 budget request.

Speaker Change: Proactive moves with the customers ordering for example, the directed energy capability.

Speaker Change: Would you say that there's any increased confidence from your side.

Speaker Change: <unk> high growth opportunities and perhaps self fund product development, just given the signals that you're seeing by the new administration.

Speaker Change: On counter UAS.

Speaker Change: We're already heavily fixed.

In terms of hardware support and just the areas that you're planning.

Speaker Change: Fixed price.

Speaker Change: I think in the kind of commercial terms that the new administration has talked about so we've been moving in that direction for a couple of years I think what we want to do is continue.

Speaker Change: I think what we see is we want to continue.

Speaker Change: The path we were on we have been increasing our capex.

Speaker Change: Steps down that same path.

Speaker Change: We talked about on an earlier question the support that Gibbs.

Speaker Change: I'll just add on to what bill, saying here.

Speaker Change: For the quarter, we increased our <unk> by about 40% compared to the prior year. So we are making the investments.

Speaker Change: The submarine and the Navy shipbuilding industrial base.

Speaker Change: To increase our IRA and we try and translate that into <unk>.

Speaker Change: In areas as we discussed on last call to get our mission equipment packages on unmanned surface vessels getting it on robotic combat vehicle. We do think we're going to have to be agile in terms of to fulfill the procurement desirous of getting things in the hands of the war fighters faster getting innovative tech quicker.

Bill Lane: That kind of priority is going to pass through as we see the new budget.

Speaker Change: Proactive moves with the customers supporting for example, the directed energy capability.

Speaker Change: On counter UAS.

Speaker Change: We're already heavily fixed.

Douglas Goldstein: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC.

Speaker Change: Fixed price.

Speaker Change: And we're making the investments to make that a reality.

Speaker Change: And you started to see that immediately here in the Q1 numbers with that uptick in our Iran spend.

Bill Lane: Member NYSE Yeah, I don't really can't comment on other companies. We, we obviously exceeded our expectations on booking. So we did not see customer demand. We saw not only we not see a flag this quarter, we saw it increased, we had nearly a billion dollars in bookings, which was higher than we had, we had in our plan.

Speaker Change: Great. Thanks.

Speaker Change: Steps down that same path.

Speaker Change: And then just Mike just a quick follow up perhaps an easy one just on interest expense just the cadence for the year. We obviously saw it looks like $1 million. This.

Speaker Change: I'll just add on to what bill, saying here.

For the quarter, we increased our <unk> by about 40% compared to the prior year. So we are making the investments.

Speaker Change: Quarter much lower than prior quarters, but just how should we think about that for the rest of the 25.

Speaker Change: In areas as we discussed on last call to get our mission equipment packages on unmanned surface vessels getting it on robotic combat vehicle. We do think we're going to have to be agile in terms of to fulfill that procurement desires of getting things in the hands of the war fighters faster getting innovative tech quicker.

Speaker Change: Yes, theres likely going to be a tailwind from lower interest expense. It carries into the full year, we wanted to see another quarter or sell play out before we took that to the to the event, but we do believe given our cash position what we've seen from an improved cash linearity perspective that even with the capital allocation, we implemented we probably will see a low.

Operator: Great. I'll leave it there. Thanks. Thank you.

Operator: And as a reminder, to ask a question, please press star 1 1 on your telephone.

Jan Engelbrecht: Our next question comes from Jan Engelbrecht with Spared. Good morning, Bill, Mike and Steve. Another good quarter. A lot has been talked, obviously, about the supplementals, but the funding and the strong expected 26 budget requests.

Speaker Change: And we're making the investments to make that a reality.

Speaker Change: Our interest burden than we did in the prior year.

Speaker Change: And you're starting to see that immediately here in the Q1 numbers with that uptick in our Iran spend.

Speaker Change: Great. Thanks, Mike I'll jump back in the queue I appreciate it.

Speaker Change: Thanks, Thank you.

Speaker Change: Alright. Thanks.

Speaker Change: Thank you at this time I will turn the floor back to Steve that there for any closing remarks.

Speaker Change: Mike and then Mike just a quick follow up perhaps an easy one just on interest expense just the cadence for the year. We obviously saw it looks like $1 million. This.

Bill Lane: But would you say that there's any increased confidence from your side to pursue high growth opportunities and perhaps self-fund product development, just given the signals that you've seen by the new administration in terms of hardware support and just the areas that you play in? I think what we see is we want to continue the path that we were on. We've been increasing our CapEx. We talked about on an earlier question the support that gives the submarine and the Navy a shipbuilding industrial base. We want to increase our IRAD, and we try and translate that into proactive moves with the customers supporting, for example, the directed energy capability on counter UAS.

Steve Rattner: Thank you all for your time this morning, and your interest in Drs. If of course, if you have any follow up questions. Please don't hesitate to contact me.

Speaker Change: Quarter much lower than prior quarters, but just how should we think about that for the rest of the 25.

Steve Rattner: We look forward to speaking to you all again soon enjoy the rest of your day.

Speaker Change: Yes, there is likely going to be a tailwind from lower interest expense that carries into the full year. We wanted to see another quarter or sell play out before we took that to the to the event, but we do believe given our cash position what we've seen from an improved cash linearity perspective that even with the capital allocation, we implemented we probably will see a low.

Speaker Change: Thank you. This concludes today's conference you may disconnect now thank you for your participation.

Speaker Change: Our interest burden than we did in the prior year.

Speaker Change: Okay. Thanks, Mike I'll jump back in the queue I appreciate it.

Speaker Change: Thanks, Thank you.

Speaker Change: Thank you at this time I will turn the floor back to Steve that there for any closing remarks.

Speaker Change: Thank you all for your time this morning, and your interest in Drs of course, if you have any follow up questions. Please don't hesitate to contact me.

Michael Dippold: We're already heavily fixed price. I think in the kind of commercial terms that the new administration has talked about. So we've been moving in that direction for a couple of years. I think what we want to do is continue steps down that same path. And I'll just add on to what Bill's saying here is for the quarter, we increased our IRAD by about 40% compared to the prior year. So we are making the investments in areas, as we discussed on last call, to get our mission equipment package on unmanned surface vessels, getting it on robotic combat vehicles.

Speaker Change: We look forward to speaking to you all again soon enjoy the rest of your day.

Speaker Change: Thank you. This concludes today's conference you may disconnect now thank you for your participation.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Michael Dippold: We do think we're going to have to be agile in terms of to fulfill the procurement desires of getting things in the hands of the warfighters faster, getting innovative tech quicker. And we're making the investments to make that a reality. And you started to see that immediately here in the Q1 numbers with that uptick in our IRAD spend. Great, thanks. Well, thanks, Mike.

Speaker Change: Okay.

Speaker Change: [music].

Michael Dippold: And then just, Mike, just a quick follow up, perhaps an easy one, just on interest expense, just the cadence for the year, we obviously saw it looks like 1 million for this quarter, much lower than prior quarters. But just how can we think about that for the rest of the 25? Yeah, there's likely going to be a tailwind from lower interest expense. It carries into the full year.

Michael Dippold: We wanted to see another quarter or so play out before we took that to the vent. But we do believe, given our cash position, what we've seen from an improved cash linearity perspective, that even with the capital allocation we implemented, we probably will see a lower interest burden than we did in the prior year.

Speaker Change: Yes.

Speaker Change: Hum.

Speaker Change: [music].

Michael Dippold: Great. Thanks, Mike. I'll jump back into the queue. Appreciate it. Thanks. Thank you.

Speaker Change: Yes.

Speaker Change: [music].

Stephen Vather: At this time, I will turn the floor back to Steve Vather for any closing remarks. Thank you all for your time this morning and your interest in DRS. Of course, if you have any follow-up questions, please don't hesitate to contact me. We look forward to speaking to you all again soon. Enjoy the rest of your day. Thank you.

Operator: This concludes today's conference. You may disconnect now. Thank you for your participation.

Speaker Change: Okay.

[music].

Speaker Change: Yes.

[music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Q1 2025 Leonardo DRS Inc Earnings Call

Request a DemoDemo

DRS

Leonardo DRS

Earnings