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LD

Leonardo DRS, Inc. (DRS)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue was $799M (+16% YoY) and adjusted EBITDA was $82M (+17% YoY), with adjusted diluted EPS of $0.20 (+43% YoY); bookings were $991M (book-to-bill 1.2x) and backlog reached a record $8.6B .
  • Results were well ahead of internal expectations, aided by favorable timing of material receipts late in the quarter; management maintained full-year 2025 guidance across all metrics .
  • Versus Street: DRS delivered a broad beat—Revenue $799M vs $736.7M consensus*, Adjusted EPS $0.20 vs $0.165*; EBITDA $82M vs $78.1M*; management guided Q2 revenue “around $825M” and margin “mid‑11%,” supporting improved linearity into H2 .
  • Catalysts: sustained demand in electric power & propulsion (Columbia program), counter‑UAS directed energy demonstrations, AI processor launch, and backlog strength; near-term watch items include ASC margin pressure from germanium costs and tariff-related volatility .

What Went Well and What Went Wrong

What Went Well

  • Organic demand and execution: “Our first quarter results meaningfully surpassed our expectations… robust bookings… backlog increased to $8.6 billion” .
  • IMS margin expansion: IMS adjusted EBITDA grew 38% with 260 bps margin expansion on favorable contract adjustments and Columbia Class risk retirements .
  • Capital return and outlook: Initiated dividend and buybacks; management reaffirmed 2025 guidance and added Q2 color (revenue ~$825M; margin mid‑11%) supporting improved quarterly linearity .

What Went Wrong

  • ASC margin pressure: ASC margin fell 130 bps YoY to 8.2% due to a sole‑source optics supplier disruption and higher germanium costs; backlog was reset, with margin “pop back” expected but at a lower baseline .
  • Cash usage still negative: Net cash used in operating activities was ($138M) and free cash flow was ($170M), though materially improved YoY due to collections timing and profitability .
  • International timing headwind: Management noted a Q1 dip in international revenue due to delivery timing; Q1 growth skewed domestic .

Financial Results

Quarterly Trend (actuals)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$812 $981 $799
Net Earnings ($USD Millions)$57 $89 $50
Diluted EPS ($USD)$0.21 $0.33 $0.19
Adjusted EBITDA ($USD Millions)$100 $148 $82
Adjusted Diluted EPS ($USD)$0.24 $0.38 $0.20
Adjusted EBITDA Margin (%)12.3% 15.1% 10.3%

Year-over-Year Comparison (Q1)

MetricQ1 2024Q1 2025
Revenue ($USD Millions)$688 $799 (+16%)
Net Earnings ($USD Millions)$29 $50 (+72%)
Diluted EPS ($USD)$0.11 $0.19 (+73%)
Adjusted EBITDA ($USD Millions)$70 $82 (+17%)
Adjusted Diluted EPS ($USD)$0.14 $0.20 (+43%)
Adjusted EBITDA Margin (%)10.2% 10.3% (+10 bps)

Actual vs Consensus (selected quarters)

MetricQ1 2024 ActualQ1 2024 Consensus*Q4 2024 ActualQ4 2024 Consensus*Q1 2025 ActualQ1 2025 Consensus*
Revenue ($USD Millions)688 645.6*981 942.2*799 736.7*
Adjusted EBITDA ($USD Millions)69 66.15*146 143.35*82 78.09*
Adjusted Diluted EPS ($USD)0.14 0.117*0.38 0.353*0.20 0.165*

Values retrieved from S&P Global.*

Segment Breakdown (Q1)

SegmentQ1 2024 Revenue ($M)Q1 2025 Revenue ($M)Q1 2024 Adj. EBITDA ($M)Q1 2025 Adj. EBITDA ($M)Q1 2024 Adj. EBITDA Margin (%)Q1 2025 Adj. EBITDA Margin (%)
Advanced Sensing & Computing (ASC)$433 $511 $41 $42 9.5% 8.2%
Integrated Mission Systems (IMS)$261 $291 $29 $40 11.1% 13.7%

KPIs and Operating Metrics (Q1)

KPIQ1 2024Q1 2025
Bookings ($USD Millions)$815 $991
Book-to-Bill (x)1.2x 1.2x
Backlog ($USD Millions)$7,845 $8,612
Net Cash Used in Operating Activities ($M)($265) ($138)
Free Cash Flow ($M)($275) ($170)
Cash & Cash Equivalents ($M)$160 $380
Diluted WASO (M)266.443 268.775
Dividends/Buybacks— / — $24M dividends; 88,050 shares repurchased ($3M)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$3,425M–$3,525M $3,425M–$3,525M Maintained
Adjusted EBITDAFY 2025$435M–$455M $435M–$455M Maintained
Adjusted Diluted EPSFY 2025$1.02–$1.08 $1.02–$1.08 Maintained
Tax RateFY 202519.0% 19.0% Maintained
Diluted WASOFY 2025270.0M 270.0M Maintained
Near-term OutlookQ2 2025—Revenue ~$825M; Adj. EBITDA margin mid-11% Introduced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
AI/Processing at the edgeTesting AI-aided target recognition; open standards computing; strong radar demand Launched rugged AI Processor for threat detection and situational awareness (AIP) Up
Supply chain & material receiptsLead times elongated but stabilizing; Q3 revenue aided by timing Material receipts pulled left by days, boosting Q1; supports improved linearity Improving
Tariffs/rare earthsMonitoring raw material access; germanium risk noted (Q4) Limited direct tariff impact; germanium pricing volatility; supplier issue hit ASC margins Mixed risk
Shipbuilding (Columbia & Charleston facility)Columbia profitability improving; Navy SIB investment $45M; DDG(X) electric prospects Risk retirements on Columbia; accelerating Charleston build; potential expanded Navy role Positive
Counter‑UAS (directed energy)Demonstrated Stryker-based directed energy; single‑vehicle solution for exportability “Maturing… through rigorous testing”; feasible near-term deployment; maritime integration explored Up
International demandInternational revenue rising to 13% in 2024; outpacing US budgets Q1 saw international dip on timing; sustained opportunities in Europe/Korea Near-term dip; medium-term positive
Capital allocation & M&ABalanced capital returns; buyback authorization; active pipeline Priority remains M&A; initiated dividend/buybacks; interest expense tailwind likely Continuing

Management Commentary

  • “Strong steadfast customer demand continued… bookings totaled nearly $1 billion… backlog increased to $8.6 billion” .
  • On tariffs and germanium: “We expect relative insulation… key rare earth reliance is on germanium… a sole source optics supplier… unable to execute… absorbing increased costs… pressured quarterly ASC profitability” .
  • Strategic progress: “Successfully demonstrated our electric propulsion capability on a medium unmanned surface vessel… maturing directed energy capability through rigorous customer testing” .
  • Outlook: “We are maintaining our 2025 guidance… expect revenue around $825M in Q2 with adjusted EBITDA margin likely mid‑11%” .

Q&A Highlights

  • Material receipts/linearity: Late‑quarter deliveries “pulled forward a week or so” drove Q1 overperformance; management expects better quarterly linearity in 2025 .
  • ASC margin path: Backlog reset in Q1; margins should “pop back,” albeit at a lower baseline; economic price adjustment clauses being added to mitigate future volatility .
  • Shipbuilding capacity: Navy investment in Charleston to add steam turbine generator capability; potential expanded role supporting Virginia-class throughput .
  • Cash cadence: Q2 cash likely slightly negative, giving back some Q1 overperformance; trend similar to prior years with big Q4 .
  • Interest/tax: Lower interest burden expected YoY; normalized full-year tax rate remains 19% .

Estimates Context

  • Q1 2025 delivered a comprehensive beat: Revenue $799M vs $736.7M*, Adjusted EBITDA $82M vs $78.1M*, Adjusted EPS $0.20 vs $0.165*—all above consensus; Q4 2024 and Q1 2024 similarly exceeded consensus across revenue and adjusted EPS .
    Values retrieved from S&P Global.*

Where estimates may adjust:

  • ASC margin expectations likely drift lower near-term due to germanium costs/backlog reset; IMS margin trajectory likely raised on Columbia risk retirements and execution beat .

Key Takeaways for Investors

  • Broad beat with record backlog and maintained FY25 guide indicates durable demand; Q2 outlook supports improved linearity—constructive for sentiment and positioning around prints .
  • IMS is the margin engine in 2025; Columbia milestones and favorable mix underpin EBITDA expansion; ASC margins should recover from Q1 shock but at a lower baseline .
  • Near‑term watch: germanium pricing and supplier stability; management moving to include EPAs in contracts to mitigate price volatility .
  • Structural growth vectors: counter‑UAS directed energy demonstrations, AI processor launch, and electric propulsion for unmanned platforms broaden optionality and TAM .
  • Cash cadence remains seasonally back‑half weighted; improved working capital execution reduced Q1 cash use YoY, but investors should expect continued variability intra‑year .
  • Capital returns initiated without compromising M&A capacity; lower interest expense tailwind likely in 2025 .
  • Position sizing considerations: backlog and segment mix favor steady revenue growth; headline risks from tariffs/rare earths and macro budget reshuffles bear monitoring but appear manageable under current assumptions .