Ladies and gentlemen, good day and welcome to the Leonardo DRS Second Quarter Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen only mode. Following the company's prepared remarks, there will be an opportunity to ask questions and instructions will be given at that time. As a reminder, this event is being recorded. I would now like to turn the conference over to Steve Vather, Senior Vice President of Investor Relations and Corporate Finance. Please go ahead. Good morning and thanks for participating on today's quarterly earnings conference call. Joining me today are Bill Lynn, our Chairman and CEO, and Mike Dippold, our CFO. They will discuss our strategy, operational highlights, financial results and forward outlook. Today's call is being webcast on the Investor Relations portion of the website where you'll 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 the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward looking statements due to a variety of factors. For a full discussion of these risk factors, please refer to our latest Form 10-K and our other SEC filings. We undertake no obligation to update any of the forward looking statements made on this call. During this call, management will also discuss non-GAAP financial measures which we believe provide useful information for investors. These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures. You can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release. At this time, I'll turn the call over to Bill. Bill, thanks. Steve, good morning and welcome everyone to the DRS Q2 Earnings Call. Our second quarter results reflect sustained momentum in capturing customer demand, driving revenue growth and expanding both profitability and margin. In the quarter, we secured $853 million of bookings, which is a 1.0 book-to-bill ratio for the quarter. We saw particular strength for our electric power and propulsion, naval network computing, advanced infrared sensing and ground systems technologies, all of which contributed meaningfully to Q2 bookings. Our total backlog stood at $8.6 billion, rising 9% year-over-year. Also noteworthy was that our funded backlog maintained a healthy double digit growth rate in the quarter. We continue to expect a book-to-bill ratio greater than 1.0 for the full year thanks to strong performance in the first half and consistent customer demand across the portfolio. Diving deeper into our quarterly financial performance, we delivered double-digit organic revenue growth squarely in line with the framework shared on the last call. Furthermore, the foundation built in the year to date is leading us to increase our full year revenue growth expectations to 9%-11%. Our profit metrics also showed strong performance. Adjusted EBITDA was up 17%, corresponding margin increased by 70 basis points and adjusted diluted EPS was up 28%. In aggregate, our strong Q2 results position us well to meet our full year outlook. That said, the team and I remain focused on disciplined program execution, investing for future growth and navigating a complex operational environment. We continue to operate in a dynamic macro backlog, one that remains largely favorable to DRS, though not without its complexities. Let me begin with the positives. Earlier this month, the One Big Beautiful Bill Act was enacted, a sweeping tax reconciliation package that includes $150 billion in defense funding. With $113 billion front loaded into FY2026, this legislation represents significant opportunities and tailwinds for DRS. The funding emphasizes the shipbuilding and enhancing industrial base resiliency, layered strategic air and missile defense, including initial funding for the Golden Dome initiative, counter- UAS and unmanned systems, electronic warfare, missiles and munitions, and more broadly, greater investment in innovation to enhance asymmetric capabilities. Our portfolio is well aligned with these national priorities and we expect to benefit across the company as this funding is obligated over the coming years. Additionally, the administration's FY2026 defense budget request calls for $962 billion in total defense spending, including the reconciliation funding, which in total represents a 12% increase year-over-year. Beyond the U.S., global defense spending continues to rise amid ongoing geopolitical tensions. Notably, NATO members are now targeting 5% of GDP for national security, with 3.5% dedicated to defense, a sharp increase from the long-standing 2% benchmark. This trend is expected to support incremental international demand, particularly for our ready-now differentiated capabilities. The intensifying global threat landscape is especially acute for our operations and employees in Israel. We are grateful to report that all employees in the region are currently safe. We are closely monitoring the situation and are taking proactive steps to enhance employee safety and operational continuity. Shifting to supply chain, while our overall supply chain remains relatively healthy, germanium availability and pricing remain a thorny issue. Export restrictions have constrained the available global supply of this raw material. Unfortunately, new mining and refining capacity has also been slower to ramp. We are currently relying on our safety stock, which provides sufficient runway through most of the year. However, in order to sustain timely product deliveries, material flow must improve in the second half. We are actively mitigating the germanium availability challenge through a multi-pronged approach. We expect these mitigation efforts to offer more meaningful relief in 2026. On to tariffs, the temporary reprieve granted by the administration is set to expire later this week. As previously discussed, we expect to be largely insulated from direct impacts, particularly for inputs where cost increases can be clearly tied to tariffs. However, second order risks persist, including the potential for retaliatory trade restrictions on items such as critical minerals. Despite the complexities of the macro environment, DRS continues to innovate and deliver cutting edge technologies to meet the evolving needs of our customers. This quarter we delivered advanced infrared sensing content for the Next Generation Short Range Interceptor or Stinger replacement as well as other future missile systems. These sensors provide a distinct operational advantage, offering higher resolution, improved countermeasure resilience, lower cost, and enhanced overall performance. We're also seeing growing opportunities to integrate our mobile power generation solutions into new missile systems. Overall, I am pleased with our ability to broaden the applicability of our infrared sensing expertise into this logical adjacency. Amid rising strategic and tactical threats, there is heightened focus on building resilient multilayered air defense architectures. Golden Dome is a critical part of this effort. Our portfolio, including our Over-the-Horizon radar and tactical radar technologies as well as counter- UAS capabilities, is highly relevant and well positioned to support this demand. Additionally, some of our increased internal research and development investment is being directed toward further demonstrating and maturing our space sensing capabilities. We believe we have a highly differentiated offering that can provide customers added capability in space based missile tracking and intercept. We are committed to securing competitive successes in this domain. The persistent threat environment is driving escalation in customer interest and an expansion of existing contracts across each of the capability areas. I noted earlier, our tactical radar offering has maintained strong international demand as allied nations look to reinforce their short range air defense posture. At the same time, we're seeing rapid expansion in Counter-UAS opportunities across the company. DRS not only offers industry leading tactical radars for these missions, but also a comprehensive technology suite including infrared sensors, laser and RF systems along with platform integration expertise to deliver best of breed solutions. Customer focus on Counter-UAS is here to stay and its importance is only growing as evidenced by the recent launch of a joint interagency task force to tackle this ongoing threat. Beyond sensing and force protection, our network computing business plays a critical role in enabling next generation shipboard computing, supporting both U.S. and allied naval modernization initiatives. Our proprietary IcePiercer cooling technology is starting to gain traction especially as customers seek to increase computing density and system performance in constrained platforms. Lastly, to round up my operational updates, I want to briefly touch on our electric power and propulsion business. This part of DRS continues to perform exceptionally well, serving as a consistent financial tailwind propelling both top line growth and margin expansion. We are well positioned to capitalize on medium and long term opportunities tied to next generation platforms and to expand platform content in support of the priority to improve shipbuilding throughput. Our Q2 financial results reflect the strength of our portfolio and growing demand for our differentiated capabilities in a rapidly evolving threat environment. We have solid momentum in bookings and a remarkable backlog that provides ample runway visibility into enhanced revenue growth. That said, we remain rigorously focused on execution to continue delivering for our customers. Our success to date is a testament to the hard work of our team and we are committed to building on this foundation in the second half of the year. Let me now turn the call over to Mike, who will review the second quarter and our revised 2025 guidance in greater detail. Thanks Bill. I am pleased with our year to date performance. We had a solid quarter, but we are keeping focus on consistent execution to deliver against our full year financial objectives. Let me begin by reviewing Q2 performance. Revenue for the quarter was $829 million, 10% higher year-over-year. The strong continued organic growth is fueling our ability to raise our guidance for the full year which I will discuss shortly. Both segments had relatively balanced contribution to our increased quarterly revenue. The IMS segment and the company in total benefited from greater revenues from electric power and propulsion programs. Advanced infrared sensing and naval network computing programs bolstered growth at ASC as well as at DRS at large. Moving now to Adjusted EBITDA. Adjusted EBITDA in the quarter was $96 million, up 17% from last year. Adjusted EBITDA margin in Q2 was 11.6% representing 70 basis points of margin expansion compared to last year. The increased margin was from higher volume and improved profitability at our electric power and propulsion business, most notably on our Columbia- class submarine program. Shifting to the segment view, ASC Adjusted EBITDA increased by 5% but margin contracted by 50 basis points due to greater internal research and development investment along with less favorable program mix and less efficient program execution caused by rising raw material costs, namely germanium. IMS Adjusted EBITDA was up 41% and margin expanded by 290 basis points thanks to improved profitability on our Columbia-class submarine program and across the rest of the electric power and propulsion business. Onto the bottom line metrics. Second quarter net earnings were $54 million and diluted EPS was $0.20 a share, up 42% and 43% respectively. Our adjusted net earnings of $62 million and adjusted diluted EPS of $0.23 a share were up 32% and 28% respectively. Solid core operating performance coupled with reduced interest expense led to favorable year-over-year comparisons. Moving to free cash flow. Although our quarterly cash usage was higher than this time last year, it was in line with our expectations as we anticipated increased working capital levels to fuel growth in the second half of the year. Despite higher capital expenditure investments in 2025, our first half free cash outflow shows a clear year-over-year improvement that reflects enhanced profitability and a more efficient working capital position. Halfway through the year we are revising our full year 2025 guidance across our key metrics. We are increasing the range of revenue to $3.525 billion-$3.6 billion, implying a 9%-11% year-over-year growth. We have solid backlog visibility for the balance of the year with a modest portion of our revenue coming from book-to-bill programs. Approximately 90% of our full year revenue has been realized or is in backlog. Given the healthy visibility, the timing of material receipts will be the most important factor in determining the level of our revenue output. We are also narrowing the range of Adjusted EBITDA. The revised range is expected to be between $437 million and $453 million. At this time we expect IMS to offer more growth and margin improvement opportunity relative to ASC. The guidance adjustments to revenue and Adjusted EBITDA result in a reduced implied margin expansion for the year. This is due to two factors. One, we are increasing R&D investment well above plan and two, we are seeing increased raw material input costs, namely related to germanium. Our revised adjusted diluted EPS range incorporates the tailwinds from increased core profitability, lower net interest expense and a reduced diluted share count. We now expect adjusted diluted EPS between $1.06 and $1.11 a share. Assumed in these figures is a tax rate of 19% which is unchanged from our prior guide and a 269 million fully diluted share count, lower than our prior guide. As we factor in the impact of stock repurchases with respect to free cash flow conversion, we still anticipate approximately 80% conversion of our adjusted net earnings for the full year. The recently enacted tax legislation is expected to offer limited benefit to our 2025 free cash flow, but it will be a modest tailwind in 2026 and beyond. That said, we are still working to quantify this specific impact. Now let me offer up our framework. For the third quarter, we expect revenue in the neighborhood of approximately $925 million, Adjusted EBITDA margin in the mid 12% range, and free cash flow generation comparable to Q3 of 2024. Please note the timing of material receipts will weigh heavily on how the second half is allocated on a quarterly basis. Let me offer some closing thoughts before we take questions. I want to extend my gratitude to the broader DRS team. Our financial success is a direct result of their incredible efforts and unwavering commitment. As we navigate an increasingly complex global environment. We remain consistently focused on delivering exceptional technology to our customers, executing with excellence and driving sustainable long-term growth. With that, we are ready to take your questions. Thank you. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, press star one one. Again, due to time restraints, we ask that you please limit yourself to one question and one follow up question. Please stand by while we compile the Q & A roster and our first question will come from the line of Peter Arment with Baird. Your line is open. Yeah. Hey, good morning, Bill, Mike, Steve. Nice results. Bill. Thanks for the color on kind of Golden Dome and how your position. Maybe if I could just ask when you expect. I know the architecture hasn't been fully laid out with General [Gluteline] just getting the assignment, but how do you expect it to kind of roll out in terms of impacting your backlog? When should we start to see kind of some of the programs that you might be well positioned on? Yeah, thanks, Peter. As you said, they're just organizing themselves on the architecture. There are industry meetings starting and the department has an internal effort to lay out an architecture. I think that means you won't see much in the way of bookings or orders this year in calendar 2025. I think given that they're trying to really focus on doing things in this presidential term, you'll start to see orders roll out in the 2026 time frame. Okay, appreciate that. Just as my follow up, just could you talk maybe a little bit about the M & A environment? I know you've had interest there in the. Just. Are you seeing more deals just given where funding is and any update there? Yeah, I mean, as you know, we're in the market, we're looking, we're doing diligence, we're seeing a continual flow of things in those four core markets where we're focused we have been active. I'd say the only change we're seeing is given the interest in the sector. I think prices are pushing up. I think that's been a factor here. We're having to assess our financial criteria, which are relatively strict. Although we're open to things, the closer they are strategically to our main areas of focus, the more we're willing to extend on financial criteria. That's what's going on right now. Is that strategic focus. We are seeing properties that would be interesting there. The prices are relatively high. Got it. I'll jump back in the queue. Thanks, Bill. One moment for our next question. That will come from the line of Robert Stallard with Vertical Research. Your line is open. Thanks very much. Good morning. Couple for you. First of all, I was wondering if we could dig into this whole germanium. Thing and what's going on there. How much of a headwind has it been so far this year? What are you expecting in the second half? What is this metal used for in terms of your products? Secondly, maybe following up on. Peter's question, I was wondering if you. Could you elaborate on this flexibility on looking? At M&A. Does this mean you might be open to using equity? For example, are you looking at a. Different return metric in terms of when. A deal might pay off? That would be helpful. Thank you. Yeah. Peter, let me. Sorry, Rob, let me start on germanium and then let Mike expand on germanium. What's happened is, given the tension with China, the source of most of the germanium in the world is the supply has reduced to a trickle. We anticipated this in the sense that we built up a safety stock and we're now having to utilize that safety stock. That has been effective for us, but it has caused prices to increase and it's also caused us to seek other sources of germanium outside China. So we're looking at other countries' sources of germanium, we're looking at other customers. There is an ability to recycle out of existing products, and then there are opportunities on some products. We could use something other than germanium, although that requires at least a couple of months' work in terms of redesign, requalifying. It's not overly taxing, but there is a time lag. We're pursuing all of those with a target of 2026 to bring some or all of those online. Let me let Mike address your question on the fiscal impacts. Yes. Rob, first you had a question in terms of what products are these used for? This is going through our infrared product line. In our advanced sensing business, but more focused on our infrared sensing capabilities. That's where you see this metal being used for the impacts. We spoke a little bit about last quarter in terms of the price shock that we saw because of the supply and demand elements that were in play. We made the comment that the germanium impact, that the margins of ASC would have been in line in Q1 with expectations. We looked into Q2 here and the prices remained fairly stable. What we're seeing is as that availability becomes a concern later in the year, we've had some absorption issues and some overhead rates that have impacted a little bit more than we had anticipated in Q1. That's what we're looking at from an impact perspective. All of that's now incorporated into the revised guide that we put forth. Rob, I'm going to come back on your M&A question. The financial, we have three financial metrics, EPS, ROIC and then our overall margin. Growth on EPS. We expect it to be accretive in the first year. There's a little flex there, but probably not. We will look at ROIC, we're looking at a multi-year return. I think there we would have flex. I think things that would take maybe a little bit longer to bring a positive contribution to ROC, we're willing to kind of go along beyond our notional three-year window, looking four years, five years. I think that would be well within something we'd find acceptable. The other is more general. We have, I think, a very strong, you know, right now double-digit growth story. We have a margin enhancement story. I don't think we are now changing our approach there. We don't want to undercut that story with a significant acquisition. That really hasn't changed. The change is, I think we'll be more flexible in ROIC. Okay, that's great. Thank you very much. One moment for our next question. That will come from the line of Michael Ciarmoli with Truist Securities. Your line is open. Hey, good morning guys. Thanks for taking the question, Bill. Maybe just a little bit more clarification. On what Pete was asking about Golden Dome. I mean, you know, thinking about timing of order flow. Does that kind of stand for already deployed existing systems or is this kind of, are you talking architecture for some of the newer kind of systems and capabilities that might be deployed? It's a little hard to be specific because they don't even have a program yet. I think, you know, directionally, I think the first orders would have to be on existing systems just given the timing and I. You're going to have to develop. It will take longer time to develop first the requirements and then the RFP and then the competition for future oriented. I think what's behind your question is right. The early orders are likely to come from something that has some maturity, that's already something that can be produced. Got it. Okay. And then just if I may, just. Because you used to be in the building, you know, this is obviously a unique and dynamic budget environment. We're getting a big bump up in front end load here with reconciliation, but we don't have a fight if yet. How are you guys thinking about you? Know, just budget and trajectory longer term. Maybe, you know, kind of like. I said, just drawing on your experience from being in the building. Yeah, it's actually not unusual at this point not to have a FYDP up. Usually a new administration just puts out a first year budget and is in the middle as they are of their kind of their strategic plan. Obviously what they have done so far they really inherited from Biden. It takes some months to develop that strategic plan which they're doing. I wouldn't expect to see a FYDP up until the next budget, which is February. That's not unusual in terms of what to expect. I mean there's lots of puts and takes in the reconciliation bill. I think, you know, if you look at just general historical trends and tendencies when you move from a Democratic to a Republican administration, normally what you see is a modest, at least bump up in the overall defense spending generally. Politically, a Republican administration sees itself as stronger on defense, wants to show that in the, in the budget. Second, they have more initiatives. Multiple questioners have mentioned Golden Dome, but there's force protection, there's shipbuilding. There are programmatic reasons to increase the budget. I think at the end of the day when the smoke clears, you'll see a Trump budget that over time is moderately higher than its Biden predecessor. Got it. Okay. Good color, Bill. I'll jump back in the queue here. One moment for our next question and that will come from the line of Seth Seifman with JPMorgan. Your line is open. Thanks very much and good morning. Wanted to ask the, you know, you talked about performance, good performance in electric power and propulsion and about the opportunities. There that maybe to capitalize on what's coming into the resources coming into the industrial base. I wonder if you could be more specific around kind of where you see opportunities. Do those opportunities come out of the new facility in Charleston, primarily? And what the timeline for capitalizing on some of those opportunities might be. Sure. Seth and I'll start and then let Mike add some more color. I mean, first of all, the core program, of course, in our naval power is Columbia, which is secured through the middle of the next decade and is on a steady increase. We are using that South Carolina facility to execute that program with greater and greater efficiency, which should be a tailwind on margins. Beyond that, which is really what I think you're asking, is we see that facility and our overall capabilities generally as well positioned to help the Navy surge content into the industrial base, with the goal of particularly increasing the throughput of submarines where we have important content beyond just Columbia. In particular, I would say the first of those opportunities is in the area of steam turbine generators. The Navy has now given us $50 million of that industrial base money to build a test capacity in South Carolina for that. What should follow on is another contract to design a new steam turbine generator with production to follow. The problem that's addressing is that there's only one producer of steam turbine generators, which makes it something of a choke point in submarine production. The Navy is interested in a. Second source to address that choke point. I think we're a principal part of the avenue to address that challenge. Beyond that, I think there's a more general view, and we're talking to the Navy in the future about can we use our capacity as a supplier to take on more work and allow the yards to dedicate their resources to producing submarines faster. That's still sort of an early stage discussion, but I think there's real potential for additional content to move to suppliers such as DRS, with, again, the goal of increasing that submarine throughput. Yeah. The only thing I'll add, Seth, is from a timing perspective, we do expect the Columbia portion of the building to begin to come on in 2026 and late 2026 and actually begin to pull the work in. That Columbia piece of the investment will not only cover Columbia, but also if we have some successes in new platforms that will help from a capacity perspective and ability to execute what Bill was mentioning in terms of the steam turbine efforts. That funding is now flowing, and we're starting those exercises that will come on from a timing perspective a little later, outside of 2026, as we create that test capabilities and start to move forward on the steam initiatives. From there, you can start to see that extra tool that we're putting in the toolbox from a steam turbine generator perspective start to be an impact of revenue outside of that 2027 timeframe as we begin to execute development work with the anticipation of hopefully having production thereafter. Great, thank you. Maybe just as a quick follow. Up, do you expect, how do you? Look at the bookings environment for the second half. Do you expect to exit the year? With the backlog higher than it was at June 30? Yes, we do, but let me, let Mike address it. Yes, I think the bookings for the quarter of the kind of one to one ratio, I wouldn't put too much stock into that. We're continuing to see strong demand across all elements of the business. For the six month period, we're still sitting above the one to one ratio and we expect that to continue throughout the second half of the year. Still a lot of confidence. The macro tailwinds and the threat environment is still there, the budget alignment is there and we feel good about our ability to continue to see strong bookings throughout the remainder of the year. Great, thank you very much. One moment for our next question. A nd. That will come from the line of Andre Madrid with BTIG. Your line is open. Good morning everyone. Thanks for taking my question. You previously disclosed international sales would outpace the broader sales growth for this year with the new NATO commitments. Again, that's not instantaneous. It's over a decade. Could we see upside to what you initially thought international would be through the out years? Yes, I think a couple of things are happening in the international space right now. First off, what will drive a little bit of the international is what happens with Ukraine. I think first and foremost that's going to be an indicator of where our international sales go. So far that demand has continued. From a NATO perspective, we are seeing consistent demand signals across some of the Eastern European members of NATO and are focused on being able to execute there. The question in the long term will be what does that mean from a European industrial base investment versus buying American? We continue to see the elements moving towards the ready now capabilities are still important. We see that in the tailwind to kind of U.S. domestic opportunities to sell abroad. I expect to see that trend continuing. We still view the international market as a growth engine because of NATO, but also just because of the other macro trends and the hot global conflicts that are emerging. Got it, got it. Maybe a follow up to that. I mean, so long as they fit into the criteria that you've outlined already, would you be especially interested in acquiring anything over in Europe? I guess following on to that, given that valuations have been a little high right now. A little rich. What's your attitude towards forging partnerships with defense tech names? I mean, this seems to become more prevalent in the current threat and demand environment. Curious to hear your thoughts there. We have a global focus on our M&A. Obviously we demonstrated that when we acquired RADA in the triangular merger that brought us public. RADA, an Israeli company. We have looked in Europe and Asia as well. We have an international focus. We're not limited just to the U.S. in terms of partnerships. That too is on the table. We have had discussions with different companies about arrangements we might make that will increase our mutual competitiveness. That would be on the table as well. Got it, got it. I'll jump back in the queue, thanks. One moment for our next question. That will come from the line of Kristine Liwag with Morgan Stanley. Your line is open. Hey, good morning, everyone. Bill, you've kind of talked a lot about the germanium risks here. I was wondering, are there other rare earth metals that you're watching? It sounds like 2026, you'll see some improvement. If you have, I guess what we're seeing in the industry is everybody else is also trying to figure out their supply. If things don't necessarily pan out as you expect for 2026, how could this shortage of germanium or higher cost affect operating performance? Thanks, Kristine. We do look at other. I would say the biggest other material we think about is permanent magnets because that's a part of the electric drive system in Columbia and any other. We are pretty well protected right now in that we have the supply for all of our existing programs. As we look at it, it's more protecting against future programs. We're looking at what steps we would need to do to do that. In terms of germanium on 2026, as I said, we have multiple paths in terms of recycling, other sources, other materials. We think that through the course of 2025, those are going to come online and allow us to start, begin, back up the ramp again in terms of germanium and protect the 2026 program. I see. Thank you. That's really helpful. Following up on the opportunity in European NATO. Even though NATO in Europe wants to spend more money on defense, there's also concerted effort to focus more on indigenous capabilities. I mean, you guys are largely an American company, but your ownership is also with a European parent. Do you have any indication in terms of how these governments view you? Do they view you as an American company or do they view you as a hybrid because of your European parent ownership? How does that work and does that change the opportunity for Europe for you regarding their higher spend? I think we're in a proxy. We're most definitely a U.S. company. I think that's how we're viewed both in the U.S. and in Europe. I think, though, the angle towards which you're headed is right, is where we have opportunity, which is maybe unique given our ownership structure, is we have the opportunity to team with and collaborate with Leonardo because of our closeness. That allows us then to go into Europe as a home team and to use the good offices and the teaming arrangements with Leonardo. We're seeing opportunities in the U.K. and elsewhere where we can execute on that partnership. It's that partnership rather than just being seen as a. It's not how we're seen as our country origin, it's how we partner with our 70% shareholder. Great. Thank you. One moment for our next question. That will come from the line of Austin Moeller with Canaccord Genuity. Your line is open. Hi, good morning. Just my first question here. If we look at the House Appropriations Committee's draft of the defense bill, there's. A 57% +, up to about $5.27 billion for the Columbia -class program. I was wondering if you could. Just comment on that and the reported. 12-16 month delay in boat. Construction for Columbia -class and how that affects the one versus two production rate for Columbia and Virginia-c lass and how. We should think about that. Yeah. On Columbia, the Navy working with the yards has intentionally put us in a relatively segregated position. We have, as I said, the contracts on Columbia for the shipsets all the way through shipset 12, which takes you into the mid-2030s. The purpose of that was to insulate this critical component from the ups and downs of the program itself. The reason to do that is you do not want to lose. This is a complex program. You do not want to lose the learning. You do not want to lose the expertise of the workforce by having gaps and having down cycles and then forced to retrain. That will cause schedule and budget issues in the Navy and nor are we looking for that. We are not really affected by that. Budget increase that you talked about. We have our budget set by contract all the way through the 2030s. The intent of setting that contract out was not to change the motor schedule, the drive schedule, based on relatively modest changes in the ship delivery schedule, the submarine delivery schedule. Okay. If we think about the force. Protection Counter-UAS side of the equation, if we do see the Ukraine war continue. I think you had talked about this a little bit already, but presumably that's incrementally positive for sales into U.S., NATO, allies, etc. I think more generally the threat that Putin posed through by attacking Ukraine is what's driving Europe to higher defense budgets. They're seeing that concrete threat that Putin is prepared to cross borders in a way that we haven't seen in 80 or 90 years. That is then driving programmatic implications. Prominent among them is force protection, the advent of drones, the importance of having not just kind of perimeter protection around your formations, but really organic protection inside those formations. Programs like our M-LIDS, that Counter-UAS system, become critical. What we're seeing is a growing international demand for that kind of system, partly driven by Ukraine, but more generally driven by the trends in warfare that you're seeing in Ukraine, you're seeing in Israel. How do you bring on systems that counter that? With some urgency, given what Putin's doing in Ukraine and the future implications of that. Great. Thanks for all the details there. One moment for our next question. That will come from the line of John Tan wan teng with CJS Securities. Your line is open. Hi, good morning and thank you for taking my questions. I was wondering if you could break down the new guidance range and just the components of it, especially the revenue line. What's driving that? Is it stronger demand or contract modifications? Maybe just more confidence in the ability to work down the backlog with improved supplier execution. Is there something else that's going on? Just a little help there would be helpful. Thank you. Yeah. From the guidance on the revenue side here, the uplift is certainly driven just by the continued demand that we're seeing. We got out of the gate really hot a bookings perspective in Q1. That confidence, coupled with the consistency of the supply base and the material receipts germanium with the asterisks there, continues to perform well. That gave us the confidence to increase the guide for the full year. At the half, from a revenue perspective, we're up 13% year-over-year. The bookings demand, where we are with the backlog year-over-year, what we've executed to date through the six months, and the stability of the supply base gave us the confidence to increase the revenue guide. John. Okay, great. How should we think about the R&D intensity going forward over the next three to five years and how that affects operating leverage, especially as you chase these new programs in the new DoD budgets and increase NATO spending. I'm sorry, I didn't catch the end of that. I lost you. Can you repeat that question again? Yeah. How should we think about R&D intensity and the operating leverage that you have, especially with the new DoD budgets and with the higher NATO commitments? From an R & D budget perspective, I'm assuming you're talking about our internal R& D spend, correct? Yeah. Ultimately what we wanted to do and what we've made a priority of is there is certainly an emphasis within the administration to get products to the war fighter quicker and therefore they're trying to accelerate procurements. We wanted to ensure that we have ready now solutions and ready now capabilities and are investing increased IRAD in order to make that a reality. We've taken up our IRAD from about 2.8% in 2024 to an area where we're sitting at the mid-3s here at the half year point. That's a sizable headwind from a margin perspective. We do believe we're investing in areas that are getting a lot of enthusiasm surrounding. When you talk about the counter drone capabilities, when you talk about space missile seekers, as Bill mentioned in the prepared remarks, these are the areas we're investing in. The markets are growing and we thought it would be prudent to continue to invest heavily in there to facilitate our continued growth. Okay, great. If I could sneak one more in there. Just when do you think you can get margins on products containing germanium or alternatives back to the normalized range? Whether that's through pricing or improved supply or going to some of these alternative, I guess, technology to do so. Yeah. I think the first challenge we have is to execute against the backlog. Right now we're in a position where we're a predominantly fixed price shop. So the pricing fluctuations are being realized in our results and that's what's realized in our guide. Prospectively, we are looking at contract modifications that allow some flexibility in terms of the recovery. When you have the volatility in germanium like we've seen, which is largely due to some of the trade wars and other elements that are going on that are kind of outside of our control, we've seen mixed results from a customer receptive perspective on that, and we're continuing to push hard on that to make sure that we're de-risked from the price volatility. Okay. Any sense of timing of when that? Normalizes overall, it's going to be a program by program negotiation to be fair. It'll be on a contract by contract basis. Okay, great. Thank you. Thank you. As a reminder, if you would like to ask a question, please press star one one. Our next question will come from the line of Ronald Epstein with Bank of America. Your line is open. Hey, good morning. So germanium has been a bit of an issue for you guys. It really does not seem like it has been for anybody else. I am curious why that may be the case. And then two, are there any other rare earths that we should start worrying about for you or others, given what is going on broadly with trade, particularly with China? Ron? I think obviously we are a sensor house and it is an important piece of our product base. So germanium, I think, stands out for us. I do not know what is going on with others, but I am sure they are not getting germanium. The other one, and I mentioned it on an earlier question, I would say the principal other one we focus on is in the electric power area is permanent magnets. And there, I think currently we are in a strong position with holding what we need to execute our current programs. We are trying to anticipate, you know, future disruptions and trying to think about how do we, how do we. We are hopeful, of course, of winning future electric drive programs. So we need to think about how we protect future sources of supply. It is a high class problem, but we are anticipating winning other programs and we are taking steps now to protect against that future potential. If you could peel back, Daniel, a little bit on with the big investments that are being made into the naval industrial base, shipbuilding industrial base, what other opportunities are out there for you all? I mean, I would imagine there has got to be a whole bunch of them. If you could maybe mention a few. Are you talking shipbuilding or are you looking beyond shipbuilding? Shipbuilding. In shipbuilding, I think as we said, we have the current Columbia program. The biggest near term opportunity is the steam turbine generator that I talked about. Coming after that I think is just the general enhancement of Virginia- class and other industrial base programs and the realignment of the workload between yards and suppliers. The one I did not mention, but, well, two I did not mention. Beyond that, a little bit longer term out is future ship classes, we think will look to electric drive as the propulsion system because of the operational advantages in terms of cost, in terms of quietness and in terms of the power density. When you start to look at directed energy weapons, mechanical systems just cannot meet the needs. Even as you increase sensor demand, which is inevitable, mechanical systems will not meet the needs. We think the next generation destroyer, DDG, is a good candidate. The next generation submarine, the SSNX, probably an even better candidate. Internationally, international navies are looking at electric drive as well. We think over the next five to 10 years, there is going to be a shift into electric drive, and we think we stand to benefit from that. Got it. Got it. If I can ask you. Just one more sort of more macro question, again, given your experience kind of on the Hill and in the building, how would you expect fiscal 2027 to play out? Right. I mean, in terms of the budget process, this year was sort of bizarre, right? Do we get another reconciliation? I mean, how's it all going to go? I mean, it seems kind of likely that there's going to be another continuing resolution. I mean, I don't know. I mean, if you were to look in your crystal ball and take a swag at it, how would you guess fiscal 2027 plays out? I think, as I said, at the end of the day, it's hard. As you said, this has been a very unusual year, particularly with the very large increase in the reconciliation bill. And there's still, they allocated a lot of that to 2026, but not all of it. So there's still some reconciliation money out there that needs to be allocated. They have to make a decision on. What is the 27 base bill. As I said, in answer to an earlier question, I have a hard time believing a Republican president wants to be lower than his Democratic predecessor. I think that's going to drive some increase. I think what you want to see maybe is what you'd like to see is sustained and predictable increases in the defense budget that will let us meet the growing threats from China and Russia. That's, I think, the policy goal. I do think it's going to. It's the policy goal of this administration. I think they're going to have to find a way through reconciliation, maybe a second reconciliation bill, I don't know. The core budget bills to execute on that sustained, predictable growth, that should be their goal and I think it is their goal. Got it. All right. Thank you very much. Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Steve Vather for any closing remarks. Thanks for your time this morning and for your interest in DRS as usual. If you have any follow up questions, please call or email. We look forward to speaking with all of you again soon. Enjoy the rest of your day. This concludes today's program. 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