Good morning and welcome, everyone. Thank you for joining today's quarterly earnings conference call.

With me today are John Baylouny, our President and CEO, and Mike Dippold, our CFO. They will discuss our strategy, operational highlights, financial results and outlook.

Today's call is being webcast on the Investor Relations section of the website, where you can find the earnings release and supplemental presentation. Management may also make forward-looking statements during the call regarding future events, 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.

These statements including those relating to the pending acquisition of Raft LLC, including the expected timing of completion of the transaction, the satisfaction of closing conditions, the receipt of regulatory approvals and the anticipated benefits of the transaction and plans for the integration of the acquired business. For a full discussion of the risk factors, please refer to our latest Form 10-K and our other SEC filings.

We undertake no obligation, other than as may be required by law, to update any of the forward-looking statements made on this call. During the call, management will also discuss non-GAAP financial measures, which we believe provide useful information for investors.

These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures. You can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release.

With that, I will turn the call over to John. John?

Thank you, Steve, and good morning, everyone. We appreciate you joining us for a review of our second quarter 2026 results.

Q2 was another strong quarter that builds directly on the foundation that we've laid over the past several years. Organic revenue growth accelerated to 10% year-over-year.

Bookings exceeded a billion dollars, driving book-to-bill to 1.2 times for the quarter. Demand was apparent throughout the portfolio, and our Q2 book-to-bill extended our streak of 18 quarters with book-to-bill at or above 1.0.

Furthermore, we exited the quarter with record funded backlog, and given our conservative bookings and backlog methodology, this provides meaningful visibility into future growth. The highlight of the quarter was the 33% year-over-year growth in adjusted EBITDA and 240 basis points of margin expansion.

Execution, favorable program mix, and the retirement of program risk were the lynchpins of our success. Mike will expand on the drivers later.

These strong results once again demonstrate the benefits of DRS's diverse portfolio and platform agnostic approach. The top and bottom line outperformance further validates our strategy and is a direct result of the sound execution across the portfolio.

Additionally, I'm pleased to highlight that we announced an agreement to acquire Raft, expanding our multi-domain AI, data fusion, and mission software capabilities. This $450 million all-cash acquisition reflects a disciplined deployment of capital in line with our strategy and supportive of continued long-term growth.

Overall, the solid first half trajectory reinforces our confidence in raising our full-year profit outlook. I want to thank the entire DRS team for the relentless effort and unwavering focus on execution to convert demand into these outstanding results.

Let me offer some framing comments with respect to the macro and operating backdrop. The global threat environment remains elevated, and demand fundamentals remain supportive across our diverse portfolio.

Customers are prioritizing modernization and the procurement of production-ready capabilities, and those demand signals are clearly evident in our book-to-bill. On the U.S.

budget, Congress is working through the fiscal '27 funding, and we expect a continuing resolution to govern the calendar fourth quarter. I won't speculate on the timing or final level of fiscal '27 defense appropriations, and we recognize the path may not be linear.

What we are confident in is that the threat environment warrants continued and growing defense investment. Beyond the near-term funding mechanics and the record base budget request and the reconciliation dollars flowing to priority programs reinforce a durable demand signal for exactly the capabilities that we provide.

Top line and timing alone does not determine the opportunity set for DRS. What matters more are the underlying priorities and the thematics where we remain closely aligned.

Customer priorities are increasingly shaped by operational lessons from recent and ongoing conflicts in the Middle East and in Eastern Europe. These structural trends are the ones I discussed last quarter, and to refresh, they are: first, the necessity of layered and effective air defense and counter-UAS; second, the shift towards proliferated, resilient sensing across domains; third, the depth and cost asymmetry of effectors to counter growing threats.

We saw each of these trends further manifest in our business this quarter. With that, let me discuss how these trends as well as other customer priorities are materializing in our results.

As the DRS portfolio is diverse, platform agnostic, and benefits from a number of different defense thematics. Starting with air defense and counter-UAS, the proliferation of unmanned threats keeps accelerating the adoption of counter-UAS technologies, and the customer pull is evident in our results.

Our tactical radars are an essential enabling technology embedded in counter-UAS systems fielded around the globe, and order flow continues to run ahead of supply. We are aggressively adding capacity.

We also continue to see robust global appetite as international allies quickly work to fill air defense gaps highlighted by recent conflicts. We think we are in the early innings of tactical radar proliferation not only for counter-UAS missions, but more broadly.

Staying ahead of the sensing only matters if you can turn it into decisions. Our advantage is combining sensing, computing, and networking to act on that data across a connected force, not just deliver a stand-alone component.

That is exactly the capability we're expanding on with our acquisition of Raft. A recent example of this is what we saw first-hand in Operation Jailbreak, and I want to spend a moment on it because I was there on the ground.

Operation Jailbreak was the Army's first industry hackathon, a live effort to get systems to talk to one another. It brought roughly 20 companies together to break down the barriers between systems that are not originally designed to connect.

It's the first step in what the Army calls right to integrate and the foundation for the next-generation command and control system. I'm pleased to report that our team had a meaningful role in that exercise, and that our technologies demonstrated interoperability seamlessly and quickly in a matter of a few hours.

Modularity, open standards, platform agnostic approach, and scalability are designed into the entirety of our technology portfolio, and is just one of the latest proof of that point. Next-generation command and control is among the Army's top modernization priorities.

Customers are managing growing volumes of data from distributed sensors and systems with fragmented architectures that slow decision-making. As such, there's a need for a resilient network and a unified data layer that turns that data into decisions.

This is also what's driving our customers towards integrated hardware and software capabilities. That's why we announced an agreement to acquire Raft earlier this week.

Raft is a provider of open architecture, mission software for multi-domain data fusion and AI, supporting real-time situational awareness and faster decision-making for national security customers. Importantly, Raft was selected by the Army's next-generation C2 software architecture, the very priority I just described.

Additionally, the company expands our customer footprint within the Air Force, Space Force, Special Operations, and the intelligence community. We have long said that we apply the same open and modular philosophy to software as we do hardware, giving customers the flexibility to deploy the best-of-breed solutions without being locked into a single provider.

Raft advances that approach and checks the boxes that matter to us most: outstanding people, a mission-first culture, and a proven open architecture technology. Raft's software, AI, and data fusion are complementary to our core strengths in sensing, computing, and mission systems.

Combining those franchises is expected to open growth avenues not available to either company on a stand-alone basis. It also accelerates our R&D emphasis on platform AI, autonomy, and extending our platform agnostic capabilities to new missions.

Put simply, Raft helps us own the edge, putting sensing, computing, and integration where the decision gets made, reducing the cognitive burden on operators and improving decision speed. Coming back to counter-UAS, we continue to see adversaries target high-value assets to degrade sensing and defensive capability.

This only reinforces the need for proliferated and resilient sensing architectures. It also puts a premium on the open software and data layer that sits one level up from those sensors, and that is what Raft provides.

It unifies fragmented data into a single common operating picture so the force keeps a coherent view even when individual nodes are degraded or lost. Our counter-UAS work extends into systems and platform integration.

As unmanned threats evolve, we expect the technologies and systems used to neutralize them to also evolve rapidly. Customers increasingly seek counter-UAS solutions that are platform and vehicle agnostic.

For example, the Army is iterating on its approach for the next tranche of ground-based air defense capabilities. To that end, we are maturing our palletized counter-UAS offerings by incorporating different effectors and technologies that will broaden the flexibility of capability development.

Given our enabling technologies are modular and integrated across vehicles, we are not tied to any single platform or procurement line, we stay aligned as mission needs evolve across configurations. Last quarter, I mentioned that we received a $533 million production IDIQ contract for the Distributed Aperture Infrared Countermeasure system, or DAIRCM, for aircraft survivability.

Demand for aircraft protection remains elevated across infrared countermeasure programs, and order flow is accelerating given how critical these systems are to airborne platform survivability. Recent conflicts have put these systems to the test, and they delivered, pushing the urgency to field more of these systems quickly.

I am proud of our work to help ensure the safety of airmen. Beyond protecting our soldiers and platforms, we're also growing on the munitions side.

Equally important as sensing and countermeasure systems are effectors. While our footprint today in this area is modest, our involvement is expanding meaningfully.

This is similar to how you saw DRS take the predominantly weather satellite position in space and leverage that pedigree to drive adjacent growth into missile tracking and warning via the SDA Tranche 3 contract. That same sensing pedigree positions us for homeland defense, where investments in infrared space-based interception are directly poised to support missile defense mission.

Our exposure to missiles and effectors spans tactical to strategic, balanced between existing platforms seeing urgent multifold increases in demand, and next-generation systems that will see growth for years to come. Today, we're providing essential components to platforms such as THAAD and Patriot, and as a qualified supplier on those platforms, we're leaning in to add capacity and depth.

As the primes scale these programs under the multi-year munitions frameworks, we're leaning in right alongside them and investing and ramping capacity to support higher-level production of our content. As I've mentioned before, we're also being designed in as the advanced sensing provider for future missile platforms.

What is also exciting is that our infrared capabilities are starting to see notable traction in low-cost drone platforms. Our investments in size, weight, power, and cost optimized uncooled long-wave infrared detection are paying off.

As the Department of War prioritizes affordable drones, fielding at higher volume, the sensing payload is increasingly what differentiates one platform from the next, and our infrared pedigree plays directly into that need. In the quarter, we secured a contract with a leading low-cost drone manufacturer for high-volume production of camera cores with an initial order of 50,000 units.

We're seeing appetite and interest from additional drone OEMs given our quality, capability, and ability to deliver at significant scale. Turning from sensing to effectors to the maritime domain and naval power, expanding shipbuilding capacities to grow the nation's naval fleet of operational surface and subsurface platforms remains an important priority.

I'm pleased to report that we saw steadfast demand materialize in the quarter, not only for propulsion content, but also for our naval network computing capabilities. While many know DRS for its innovative full electric propulsion work on Columbia class, we offer naval propulsion capabilities that include traditional and hybrid electric approaches.

In the quarter, we booked orders for content across power capabilities for a diversity of subsurface and surface platforms including Columbia class, Virginia class, DDG 51, and LPD. Additionally, existing naval platforms still require regular network computing modernization to enhance and scale processing at the edge.

We're supporting these initiatives through our delivery of advanced platform-based processing solutions critical to onboard sensing, combat weapons, communications, and other mission systems. While executing on this demand is driving near- and mid-term growth, we continue to progress efforts to expand our involvement in steam turbines, as well as grow our sensing footprint and content more broadly on unmanned surface vessels.

Stepping back from the individual mission areas, our results reinforce our strategy. Delivering differentiated capability to help our customers maintain overmatch is core to DRS.

We are capturing growth through consistent delivery and disciplined investment. We have proactively and methodically stepped up organic investment over the past few years and are doing so year to date.

Investment in internal research and development was up 16% year-over-year in the first half and approached 4% of revenue. Our increased investment is going towards innovation in initiatives such as infrared sensing technologies for space-based interception, further evolving our platform agnostic and modular counter-UAS solutions, enhancing our tactical radars, and expanding naval propulsion capabilities.

Similarly, we are stepping up capital investment to further expand capacity across the board: scaling tactical radar production, revitalizing our foundry to drive next-generation infrared sensors and detectors, and of course, deepening our naval propulsion and shipbuilding presence in Charleston. These investments position us well to address the mission-critical needs of our customers, capture market share, and drive growth.

Raft is the same strategy at work through M&A, adding to an already strong organic growth profile. To bring it together, we delivered a robust second quarter with growth accelerating, margins expanding, and steady execution across the portfolio.

That combination is what compounds over time and gives us confidence in the year ahead. These results rest on the trust of our customers place in us, trust earned the same way every quarter by delivering mission-critical capabilities at speed, with quality, and at scale.

With that, I'll turn it over to Mike to walk through the financials.

Thanks, John, and good morning, everyone. As John noted, the second quarter was a strong one for DRS, with standout performance evident across our financial metrics.

At a high level, our strong execution drove us to exceed the framework we set last quarter. Revenue came in ahead of our expectations, and even more notably, we posted significant outperformance across our profit metrics.

Importantly, we delivered these results while continuing to invest organically in R&D and capacity to fuel future growth. Let me walk through our Q2 performance in greater detail, and then I'll turn to our revised 2026 outlook and offer a few thoughts on Q3.

We generated $913 million of revenue in the quarter, up 10% year-over-year. Our growth rate accelerated from Q1, and the solid first half reinforces our confidence in achieving the full-year revenue outlook.

Growth in the quarter was led by programs related to tactical radars, electric power and propulsion, infrared sensing, and force protection. The IMS segment led the way with 15% growth, while ASC contributed a healthy 8% increase.

At IMS, the gains were broad-based with contributions spread across the segment. At ASC, programs related to tactical radars and infrared sensing bolstered the top-line growth.

When evaluating the half-year results, you could see that both segments are contributing evenly to growth, underscoring the momentum we see across the business. As I noted at the outset, our quarterly profit metrics were outstanding.

Overall, we expect that outperformance to carry through to our full-year 2026 outlook. In Q2, adjusted EBITDA was $128 million, up 33% year-over-year and meaningfully outpacing the top line.

Adjusted EBITDA margin was 14%, up 240 basis points versus the prior year. The increased adjusted EBITDA and margin expansion reflected disciplined program execution across the portfolio, favorable program mix, and operating leverage on higher volume.

It's also worth noting that part of this operational execution drove program risk retirement, which acted as a tailwind to profitability given the cumulative catch-up nature of fixed-price contract accounting. Breaking it down by segment, as with revenue, IMS paced our year-over-year adjusted EBITDA growth in the quarter.

IMS adjusted EBITDA rose 55% over the prior year Q2, translating to 460 basis points of margin expansion. Higher volume, together with broad-based execution and program risk retirement, propelled that margin.

In ASC, adjusted EBITDA increased 19% and margin expanded 110 basis points as sound program execution, favorable mix, and operational leverage from higher volume more than offset increased investment in research and development versus Q2 2025. Again, on a first-half basis, the two segments' growth and margin gains were far more balanced than the quarterly figures alone suggest.

Turning to earnings for the quarter, our operational strength flows straight to the bottom line. Net earnings were $86 million, up 59%, and diluted EPS was 32 cents a share, up 60% year-over-year.

Adjusted net earnings were $94 million, up 52%, and adjusted diluted EPS was 35 cents a share, up 52% year-over-year. These gains were driven primarily by stronger operating performance and aided by a lower net interest expense and lower tax rate.

Turning to free cash flow, we are seeing improved quarterly linearity relative to last year. Free cash flow was positive in the quarter, supported by higher profitability and greater working capital efficiency.

Furthermore, we delivered this while maintaining our planned level of capital investment to support future growth. More broadly, our strong balance sheet and cash flow generation let us deploy capital across both organic and inorganic growth.

The pending all-cash acquisition of Raft embodies that go-forward strategy, reflects disciplined capital deployment, and is being funded from a position of financial strength. Given the momentum in our business and solid first-half performance, we are raising our 2026 outlook across profit metrics.

We still expect healthy full-year revenue performance and are maintaining the range of $3.9 billion to $3.975 billion, which implies a 7% to 9% organic growth year-over-year. Guidance reflects a balanced view of second-half revenue shaped by the timing and level of material receipts and achievement of programmatic milestones.

If you look back at 2024 and 2025, you will see that we generated approximately 45% of full-year revenue in the first half. Our revenue outlook assumes a similar first-half versus second-half cadence in 2026.

Our record funded backlog gives us tremendous visibility and confidence in delivering on that outlook. We now expect adjusted EBITDA of $525 to $540 million, up from $515 to $530 million previously.

This increased adjusted EBITDA outlook implies a path to greater margin expansion for the year. Disciplined operational execution, favorable program mix, and leverage from higher volume are all contributing to that improved profitability and margin.

Consistent with what we shared last quarter, we still expect revenue and adjusted EBITDA growth to be visible at both segments. The margin expansion will come primarily from IMS.

That stronger profitability carries through to our improved bottom-line outlook. We now expect adjusted diluted EPS of $1.34 to $1.39 a share, and we have updated our full-year tax rate assumption to 16.5%.

Our diluted share count assumption is unchanged at 269 million shares. Please note that our guidance excludes any contribution from the pending acquisition of Raft.

We do not anticipate a meaningful contribution in 2026 given the expected fourth-quarter close. However, we expect the acquisition to be accretive to adjusted diluted EPS in the first full year of ownership.

Lastly, the implied EBITDA multiple being paid, net of the tax assets acquired, is in line with our own and reflects a disciplined deployment of capital. We are maintaining a 75% conversion of adjusted net earnings into free cash flow for the full year.

You should assume that the increased adjusted diluted EPS implies a modest uplift to free cash flow as well. That said, we still expect high capital expenditures in the second half, with full-year CapEx running likely in the mid 4% range of revenue.

Broadly, we expect the second half to drive a greater contribution across key metrics, and as we've consistently said, we are working to drive better linearity on profit and cash. Finally, a quick view on the third quarter.

We expect revenue to be above a billion, and adjusted EBITDA margin should be in the mid 13% range. The sequential step-down in margin simply reflects the non-recurring program risk retirement gain that lifted Q2, not any change in underlying execution.

Additionally, we expect free cash flow to be modestly positive and above our Q2 level. Let me turn the call back over to John for closing remarks.

Thanks, Mike. Before we take your questions, I want to close on what this quarter reaffirms about our strategy.

We continue to execute with strength quarter after quarter. In Q2, we delivered double-digit revenue growth, profitability that significantly outpaced the top line, and bookings that once again exceeded revenue.

We're deploying capital with discipline organically and through M&A, investing ahead of the shifts that we see coming. This quarter, we agreed to acquire Raft, extending our platform agnostic approach into multi-domain software and AI as customers increasingly demand integrated hardware and software.

Our portfolio is differentiated, and throughout our business, we are well aligned to enduring customer demand signals as evidenced in our multi-year book-to-bill trends. Thanks to our talented people, strong execution, strategic investments, and differentiated portfolio, DRS is well positioned to deliver durable, profitable growth.

We will keep delivering with the speed, quality, and scale that our customers demand. With that, we are happy to take your questions.

Hey, good morning, John, Mike, Steve. Nice results.

Mike, this question may first be for you on IMS. The margin performance, obviously, excellent.

You mentioned volume execution and then the program risk retirement. Could you either size that for us or give us some more color on what that specifically was and if you could kind of give us an update on where things stand on Columbia in terms of shipset volume where you are?

Sure. Thanks, Peter.

Margins were strong really on improved execution across the entire segment. It is led by the naval propulsion business, but the execution gains are really more broad-based than just Columbia.

The favorable programmatic risk retirement that did occur in the naval business is on a surface ship. We also saw some real good execution across our counter-UAS portfolio really highlighting this kind of portfolio-wide execution improvements.

If I take out the risk retirement, I would think of the IMS margin kind of closer to the 15% range for the quarter, so that's the magnitude there, Peter. From a Columbia perspective, things continue to go very well.

We're seeing the benefits of the long-term contract and the procurements of the materials that we front-end loaded. The team's executing well.

Charleston is on pace, things are really hitting on all cylinders within the segment.

Let me just add to that real quickly, Peter. I just wanted to highlight the fact that, yeah, as we're very optimistic about the budget environment for the Navy.

We're looking at a 50% increase. Obviously, the Navy needs a second source for critical components like the steam turbine generator, and we're investing in that capability to bring that to the Navy.

They deserve it. We're investing in that as well.

Just wanted to add that point.

Appreciate that. Just as my follow-up, John, could you give us maybe an update on kind of how things are progressing in your counter-unmanned area?

I know you guys have made some investments there. Over-the-horizon radar seems like a great opportunity for the Golden Dome.

Maybe if you could just touch upon both of those. Thanks.

Sure, Peter. Certainly in the short-range air defense and counter-UAS area, there's a lot of change.

We're seeing from Ukraine lessons learned and changes in capability almost on a weekly basis. We expect that market to continue to evolve and we've got to evolve with it.

We're investing ahead of need on a lot of capabilities. We're bringing new technologies to the play.

We've kind of moved our counter-UAS program onto a sled so it could be platform agnostic like the rest of our business. We're moving forward on that.

On the over-the-horizon radar that could apply through to Golden Dome, we're seeing some great positive movement there as well. I won't get into the specifics, but we're definitely moving forward, and we're looking at as a nice growth factor for us.

Appreciate the color. I'll jump back in the queue.

Great results.

Thanks so much. Good morning.

Morning. Morning.

John, you mentioned that you're seeing strong demand coming out of Europe for a range of your different products. I was wondering if there's an opportunity for you to in some way pool forces with your parent to get some of these deals over the line and potentially grow your market share into the European region.

Absolutely, Robert. We're actually doing a lot of that right now.

It's a push for us to do more and more together with Leonardo. As the macro environment is ripe for this.

The U.S. is on a wartime footing, and the demand is high, and urgency is high.

Same thing is happening in Europe. In Europe, they want to have some internal capabilities, sovereign capabilities, and there are gaps.

We're looking at pulling and pushing technology in both directions together with our parent.

That's great. Then follow-up for Mike on the Raft acquisition.

I was wondering if you could give us some idea of what sort of revenues this business could generate on an annual basis, and how its margin maybe compares to the overall EBITDA margin of DRS.

We're not going to comment on the sizing of the revenue yet. We'll kind of come out with that with our 2027 guidance given the late fourth quarter close.

What we will say to kind of give you some direction is as was in the prepared remarks, that the EBITDA multiple paid is going to be kind of inside of DRS's current trading multiple. When you think about the financial profile of the business, it's going to be accretive to DRS from a growth profile and from a margin perspective.

As we've been very disciplined in our approach towards M&A. We've been looking for the right target both strategically and financially, and that's the shot we took here.

We feel real confident about this deal.

One of the things, Rob, I'll just add on to that to say that we really think about this strategically. Think about the gaps that we're filling here.

If you think about DRS as a business, we've been really focused on sensing and computing and communications and force protection, and those sensors that we created and have in the marketplace really need to have that intelligence. As Raft likes to say, sensors need a brain, and in the future, autonomous platforms are going to increasingly need to sense the battle space, make sense out of that battle space, and do something about it and act.

We've been working really on the front end of that, providing the sensors and the computing infrastructure. Raft fills that slot of the thinking part of what's actually happening on the battlefield.

They've been focused on the edge. We've been focused on the edge with our hardware.

They're focused on it with the software. This a really nice synergistic play for us.

That's great. Thanks, John.

Hey, this is actually Ned Morgan on for Andre this morning. I just wanted to build on that.

Could you provide some specific examples of programs where combining your guys' hardware with Raft software capabilities creates new opportunities and when we could expect those opportunities to begin contributing?

Thanks, Ned. Let me start by saying the U.S.

Army has selected Raft for their data layer. What that means is that data would be converted in a way that the AI algorithms can read it across the enterprise.

Starting at the edge and moving to the enterprise. This is an area where, obviously, we're already playing from a computing standpoint, from a sensing standpoint, and now Raft has been selected for the data layer.

This is a big step forward. I think it's an area where we immediately have synergies.

I also want to point out the customer profile here, because when we talked about filling gaps with M&A, we talked about filling technical gaps, customer gaps, and geographic gaps. This acquisition really fills two of those.

It fills the technology gap and the intelligence piece that I just spoke to, but also expanding our customer base. They've got a large presence in the Air Force.

They've got a large presence with Special Operations, Space Force, as well as in the intelligence community. It opens up a lot of doors for us, and of course, we're going to be opening doors for them.

There's going to be a lot of synergies between the two businesses.

Great. Then just a follow-up another one.

You guys have highlighted space as a big opportunity and growth driver. I know you guys won work on the Tranche 3 tracking layer, but any opportunities you're pursuing right now and where you're seeing the strongest demand there?

Ned, I would tell you that there's a lot of opportunity going on in space right now. We're looking at different sensing, different communication opportunities across the board.

Of course, Raft is going to play into some of that as well. I'm not going to be at liberty to talk about any particular opportunity that we're focused on, but there's a lot of opportunity there.

Space, as you're probably aware, in the president's budget request, the '27 budget request, is growing 100%. There's a lot of opportunities, a big market.

Thank you.

Hi, good morning, and thank you for taking my questions, and congrats on a nice quarter and outlook. I was wondering if you could drill a little bit more into the drones and munitions business, John, that you mentioned in the prepared remarks.

How big is that business today, number one? Number two, how should we think of growth going forward?

Especially focused on the capacity side, just because I know you've had issues with germanium in the past, and I'm wondering what happens when you start putting on these higher-volume programs like the Patriot and munitions, and if that strains your ability to grow there?

All right. Thanks, John.

Appreciate the question. Obviously, the munition business is growing very, very quickly.

You're seeing some of the primes print some very incredible growth numbers because of that. We've got exposure across the board from THAAD sensing, Patriot components all the way down to low-cost drones, and there's a few elements in between.

We see this core capability that we have in infrared sensing as applicable to a lot of different of these effectors and missiles. You're also going to see that missiles and effectors, one-way drones, if you will, are going to start fusing together.

You're going to start seeing all of these different types of capabilities between the two capabilities. We're on a number of different platforms, number of different missile platforms, through the primes.

We see this as a growth path, but obviously, a small part of our business today.

Can you frame the relative size and the growth rates that you're seeing there?

I'm not going to put the relative size. It is a small part of our business today, but it is going to be growing.

It's going to outpace the growth of the company. I'll just leave it there.

Great. Then, second, I think you mentioned you're increasing your R&D and CapEx fully.

Were there any specific numbers attached to that, and kind of what programs are they associated with?

There's a couple numbers attached that, John. We had mentioned that R&D is going to approach 4% of sales during the course of the year here, and from a CapEx perspective, we're looking in the mid 4% range.

We continue to invest heavily in the growth given the demand signals that we're seeing. I'll let John elaborate on the R&D projects, but it's not going to be a surprise that we're looking in areas like space and counter-drone and continuing to affect our tactical radars as well as the investments we're making in the power and propulsion domain.

John, do you want to add?

Let me just add one point to that, and I'm just going to point out, space-based interceptions is an area that we're investing in. It's aligned to our core competency and core capabilities in infrared sensing.

It is a national need to have a low-cost interceptor, we're focused on our investment there to try to bring that cost down. That's just an example, John, that we're working on.

Got it. Thank you.

Hey, thanks very much, and good morning, and good results. Wanted to ask about the booking environment from here, the fact that there's still a bunch of money that hasn't been on contract yet from last year's reconciliation bill.

Do you expect a significant order activity and backlog growth coming up here in the third quarter? If so, does that create some potential revenue upside for the year?

Or is the top line really about the supply side of the business right now, given how much demand is out there?

I think from a bookings perspective, we continue to be confident in the trajectory just holistically because of the threat environment and where we are aligned. Hopefully, that will result in some awards here in the second half as they start to let some of the OBO money out as you alluded to.

From a revenue perspective, however, I wouldn't assume that the bookings cadence is going to impact the revenue for '26 significantly. I would think of it more as we talk about our record backlog, that we are moving up the value chain and the value stack from the solutions that we're providing.

We're really in the midst of that transition from components to solutions, which is going to elongate that conversion of backlog into revenue. What I would say is that record backlog that we talked about, record funded backlog, is the indication that we have a platform for sustained success.

That's the way I would look at that, not so much a '26 item, but continued confidence into '27 and beyond.

I'll just add, Seth, that we are seeing the money from the reconciliation bill flowing in core areas of our growth. That money is actually flowing now.

Right. Excellent.

Excellent. Okay.

Maybe to follow up, if you talk a little bit more maybe about naval computing, I know you highlighted it as a growth driver, and just as we think about that environment, the potential for further growth there and kind of how that stacks up within the company. Maybe just a little bit more about how that market works.

Is that mainly associated with mods and upgrades on existing ships and submarines? Is it tied more to new builds?

How should we think about it?

Seth, it's both. The traditional approach here is weapon system by weapon system compute capabilities for new ships and backfits.

We get incremental awards for those capabilities. What the future looks like is quite a bit different.

What we believe is going to happen on board ship is you're going to see central computing, more like a cloud computing architecture, and so you're going to process sensors and weapon systems centrally, virtually on the edge on the ship. We're preparing for that.

We're investing in areas that allow the Navy to go off and move in that direction so that they can have cloud computing and AI on the edge on the ship, and so that's what we think the future holds.

Great. That's very helpful.

Thanks very much.

Hey, good morning, guys. It's been a lot of questions so far on Raft.

Maybe just one more. Does that signal that you guys want to move more into AI-enabled mission software?

Given software tends to have a different margin structure, on and so forth, or is this just more of a strategic enabler for your hardware? How are you thinking about that?

Thanks, Ron. Let me take that.

Acquisition reform has, I think, been very successful in one thing: it's moving the customer away from buying components and subsystems to solutions. We've been investing in capability that provides solutions to our customers for a while.

This was one of the missing pieces that we needed to fill to get to that level. Our customer is now saying, 'Hey, can you solve the problem for me with a solution that includes a lot of our components, our core capabilities, whether it's sensing, computing, communications, and power propulsion and force protection.'

This gives us the ability to address those kinds of needs. We're kind of heading off at the pass where the customers are moving.

That's a big structural change in both the way that the customers are buying and what we're selling and how we're selling.

Got it. Got it.

Got it. Then, I didn't think anybody's asked this yet, but I think it's an important one, how's your supply chain doing given the increase in demand?

You've had some issues a little while back on critical minerals. How are we doing there?

Just kind of broadly, are there any pinch points and how's it going?

We've strengthened our supply chain pretty significantly since we had some trouble with the germanium, as you alluded to. We've got a regular cadence of detection, mitigation, that's deeper and faster than it's ever been.

We manage a couple of areas of risk at all times, and we're willing to accept a little bit less efficient working capital to secure the critical material so we don't run out of them. The germanium picture is a positive story.

We've got a great flow of germanium. We're not going to run out, even with the areas that we're chasing in missiles and other places.

In terms of magnet material, I think we're in a good shape. We talked about memory devices, and we're in good shape there.

I think across the board, the availability of materials in the right place. The cost is sometimes a little bit variable, and we'll deal with that.

The process that we put in place now is very robust, and has been successful at mitigating these risks.

Great. Thank you very much.

Hey, good morning, everyone.

Morning.

Morning.

Is DRS taking market share, or is there more kind of opportunity in the forward here to take market share? I guess in a world where your customers are potentially looking to grow faster than they had for a bit, and then also I guess specifically in a world where your customers are maybe signing contracts that put schedule risk on them more than it has in the past, that would make me think they would maybe want more sourcing of given components or more reliable sourcing, which DRS is.

Has that been happening recently? Is that an opportunity going forward?

Should we think of that as a growth kicker, or should we just be thinking you're in markets and your positions in them drive your growth?

Noah, I would say both of those avenues are areas of growth for us. I wouldn't lean on market share as the predominant element of our growth.

I would say that the market itself is growing considerably. I do think that the point that you made about schedule risk and really the idea of second sources is helping us.

It is an element of our growth, but I would say that the market itself is growing fast, and that's the predominant part of our growth.

Let me just add on to that real quick. I think the other thing that you touched on is a reliable provider.

These opportunities that are emerging, I think are in part because of our execution and what we've been able to demonstrate. That's why the Navy's lining up to see us as a second source on the steam turbine generators.

I think that's why we were successful in getting the camera cores for the attritable drones that John talked about in the prepared remarks. It's because of the ability to ramp, the ability to scale, and to do that effectively and predictably.

Okay. Appreciate that.

Then, I also wanted to just try to get a little bit more of a sense for I guess how big a piece of the strategy M&A could become for DRS over the medium term now, with Raft, I guess the business was not super acquisitive prior to that for a little bit of a window of time. Is there a lot to do?

Is there a little to do? Obviously, your balance sheet has a lot of capacity, and maybe it's a little bit too early for this, but we've had this kind of violent derating of the broader DefenseTech landscape.

Your stock price and multiple, on a relative basis, have been more spared from that, your kind of relative buying power would be arguably greater from that. Maybe that's too soon or too short term, but how would you frame how acquisitive we should expect the business to be over the next two or three years?

Noah, I would repeat what we've said in the past. I think our primary focus is on organic investment, IR&D, CapEx.

We are going to be looking for and have continued to look for key capabilities outside inorganically that would fill gaps. We're going to continue to be picky about it, and make sure that we are really filling gaps and that we get the value out of that.

Raft is an outstanding example of kind of a disciplined approach to M&A, finding the right product capability that fills our gaps from a technology standpoint and from a customer access standpoint. I think you can count on us continuing that approach.

Okay. Thanks very much.

Hi. This is Justin on for Kristine this morning.

Thanks for taking the questions.

Hey, Justin. Mike,

hey, Mike. You mentioned the Charleston facility earlier.

I was hoping maybe you could provide a little more of an update on the facility build-out, and you've talked about taking on incremental marine industrial base work on top of the Columbia class sub work at the facility. Just curious if you could update us on that front and any potential margin implications for IMS.

Thanks.

Phase one of the Charleston facility is getting towards completion. We're starting to put the equipment in and take possession and occupy the facility.

The phase one was always geared towards driving the insourcing of Columbia. That's the margin opportunity.

We had kind of put that out as a second half of 2027, we'll start to see some of the uplift from that insourcing. That's still on track and going well.

The phase two, which was, when we announced the investment, was always kind of the upside opportunity, which was further expansion of the facility to take on new scopes of work, things like the steam turbine generator. That funding continues to flow.

We're moving in the right direction there both from a capacity build-out and also getting the design for the second source opportunity under our belt. Things are moving at or maybe even a little better than the pace we had initially laid out, and we're still very optimistic on the outlook for that facility.

Great. The Navy just yesterday announced, I think it was $77 billion worth of submarine contracts, including about $30 billion for Columbia.

Curious for any color there. Does that change the profile for DRS on the program at all, or are you contracted separately?

We're contracted separately, we were able to negotiate the long-term contract for the multibuild buy a while back. We've been in that luxurious position of having the full contract already, and I think the rest of the shipyards here are catching up to where we are.

I would just add that the Virginia part of that will flow down to us, because we don't have a multi-year for Virginia, but we'll see the flow down from the Virginia part of that order to us over time.

Great. If I could sneak maybe one more in, the Navy is moving out on the new battle ship class.

I guess the designation is BBG(X). Just curious how you think about addressability there, and you flagged DDG(X) in the past as a good opportunity, and just wondering if you think the customer can sustain both programs in tandem.

Thanks.

Thanks, Justin. I think that we view BBGN as an opportunity in the following way: we believe that the Navy should be focused on a modular architecture that allows them to design a ship that's applicable to whatever size ship they want to build, whether it's a battleship or a cruiser or destroyer or frigate.

We believe that architecture needs to be electric. Those ideas are getting some traction, and so we believe that the battleship is an opportunity not just for the industry and us, but also for the Navy to make sure that they can shorten the amount of time it takes to design a new ship.

Got it. Great color.

Thanks.

Hi, nice results, and thanks for taking my question. Following up on the earlier bookings question, do you see any headwinds for the remainder of the year, including maybe a potential continuing resolution that may impact the booking cadence?

I think we're pretty confident. We don't lay out a bookings guidance, but we've kind of said we're going to continue to print a bookings better than one-to-one.

I think we're on a good start to the year in what we've shown for the first half. Obviously, a CR can impact on the fringes, but I don't see it having a material impact to our bookings trajectory.

We're likely to see a CR here, as we said in the opening remarks. The effect on us is really minimal.

It's really kind of normal for us to see that. Even if it's an extended CR, we don't see a lot of impact.

If there is an extended CR, we do expect the Hill to provide some flexibility in the CR that would give the department the ability to move forward with new starts and things like that. I don't see that as a risk to DRS.

Great. Then I guess given these long-term contracts for missiles including THAAD, as you mentioned, what are your margin expectations on missiles, and what is the potential there as these long-term contracts ramp?

I would say we're still approaching the missiles and the seekers here as a new market for us. What it's born off of is our indigenous capabilities in the infrared spectrum.

We are expecting that these products, because they're mature in the detector and the sensor, to carry a margin consistent with what we see in our legacy profile.

Great. Thank you.

Hi, good morning, John and Mike. Nice quarter.

Recently, you had a great program win on the tracking layer Tranche 3 program, and more recently, there've been some contract awards that have gone out for the AMDT3 program. Would it be good intuition to think that there could be some contracts coming associated with the sensor payload for that?

I don't want to guess as to what the SDA is going to do. We believe that that second award that you just described is an acceleration or an increase on Tranche 2 award.

We're moving forward on Tranche 3, we're making great progress. We believe that that capability is useful in the end architecture, and, I think we're going to be successful there.

Okay.

On the ground component of Golden Dome, we're starting to see some contracts come out for that as well. What's the latest you've heard from Space Force or General Guetlein about potentially deploying Stout Strikers or multi-hemispheric radars at various bases around the country or overseas?

They're already talking about such a capability in Grand Forks, for example.

This is definitely an area that we're focusing a lot of attention on, and General Guetlein is moving ahead with his program as you indicated. We're definitely chasing this on multiple different vectors.

We spoke about OTHR, over-the-horizon radar, as an opportunity for us, the MHR and our radar infrastructure, like we see in Ukraine, is an area that we've been discussing with that office. Just to reiterate what we've done in Ukraine is with thousands of radars all networked together to supplement or even replace the big radars.

You saw that in Bahrain, we lost a big TPY-2 radar, which is a very expensive radar. The approach that we have in other places of the world is a distributed, proliferated sensing architecture.

We think that's a structural change in the marketplace, and I think that the department sees it that way as well.

Excellent. Thanks for all the color there.

Thanks, everyone, for joining us today and for the great discussion. Our second quarter results reflect a strong market position, solid execution, and overall momentum we have in our business: robust bookings, accelerating organic growth, and expanding margins and profitability.

It rounds out a strong first half, and that performance, coupled with a funded backlog that will keep us pushing to new records, provides us with solid visibility into the year ahead and the confidence to raise our full-year profit outlook. We continue to invest in innovation and capacity to execute on the demand ahead.

If you have any follow-up questions, Steve and the team will be available after the call. We appreciate your time and continued interest in DRS.

We look forward to updating you again in the next quarter.