Leonardo DRS Q2 2025: Key Contradictions in Germanium Supply, M&A Strategy, and International Growth

Germanium supply and alternatives, M&A strategy and activity, naval radars production and backlog growth, impact of germanium supply constraints, and international sales and growth opportunities are the key contradictions discussed in Leonardo DRS's latest 2025Q2 earnings call.



Strong Financial Performance and Revenue Growth:
- Leonardo DRS reported a 10% increase in revenue to $829 million for Q2, with a double-digit organic growth that exceeds expectations.
- The growth was driven by sustained customer demand, particularly in areas such as electric power and propulsion, naval network computing, advanced infrared sensing, and ground systems technologies.

Increased Profitability and Backlog:
- Adjusted EBITDA increased by 17%, with adjusted diluted EPS rising by 28% and an adjusted EBITDA margin expansion of 70 basis points.
- The increase in profitability was attributed to higher volume, approved profitability in the Electric Power Propulsion business, and a healthy double-digit growth rate in the funded backlog.

Defense Spending and Strategic Alignments:
- The enacted One Big Beautiful Bill Act includes $150 billion in defense spending, emphasizing areas like shipbuilding and strategic air and missile defense, with $113 billion front-loaded into FY '26.
- Leonardo DRS aligns with these national priorities, expecting significant opportunities and increased demand for its capabilities in these areas.

Challenges with Material Supply and Pricing:
- Germanium availability and pricing have constrained the company's ability to meet global supply demands, impacting the infrared sensing product line.
- The company is actively mitigating this issue through efforts to recycle materials, diversify supply sources, and explore alternative materials, with relief expected in 2026.