DRS 10-Q Quarterly Report Sept. 30, 2025 | Alphaminr
ALPHAMINR

DRS 10-Q Quarter ended Sept. 30, 2025

Balance Sheet
Cash Flow
Income Statement
Debt
drs-20250930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2025
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 001-41565
Leonardo DRS, Inc.
(Exact name of registrant as specified in its charter)

Delaware
13-2632319
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
2345 Crystal Drive
Suite 1000
Arlington , Virginia 22202
( 703 ) 416-8000
(Address of principal executive offices, including zip code, and registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $0.01 par value DRS
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 28, 2025, there were 266,026,725 shares of the registrant’s common stock, par value of $0.01 per share, outstanding.


TABLE OF CONTENTS
Page
i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION
In this quarterly report on Form 10-Q (this “Quarterly Report”), when using the terms the “Company,” “DRS,” “we,” “us” and “our,” unless otherwise indicated or the context otherwise requires, we are referring to Leonardo DRS, Inc. This Quarterly Report contains forward-looking statements and cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “strives,” “targets,” “projects,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. Forward-looking statements include, without limitation, all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report and include, without limitation, statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, financial goals, financial position, results of operations, cash flows, prospects, strategies or expectations, and the impact of prevailing economic conditions.
Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if future performance and outcomes are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods. New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:
• Disruptions or deteriorations in our relationship with the relevant agencies of the U.S. government, as well as any failure to pass routine audits or otherwise comply with governmental requirements including those related to security clearance or procurement rules, including the False Claims Act;
• Significant delays or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly;
• Any failure to comply with the proxy agreement with the U.S. Department of Defense (the “DoD”);
• Failure to properly contain a global pandemic in a timely manner could materially affect how we and our business partners operate;
• The effect of inflation on our supply chain and/or our labor costs;
• Our mix of fixed-price, cost-plus and time-and-materials type contracts and any resulting impact on our cash flows due to cost overruns;
• Failure to properly comply with various covenants of the agreements governing our debt could negatively impact our business;
• Our dependence on U.S. government contracts, which often are only partially funded and are subject to immediate termination, some of which are classified, and the concentration of our customer base in the U.S. defense industry;
• Our use of estimates in pricing and accounting for many of our programs that are inherently uncertain and which may not prove to be accurate;
• Our ability to realize the full value of our backlog;
• Our ability to predict future capital needs or to obtain additional financing if we need it;
ii

• Our ability to respond to the rapid technological changes in the markets in which we compete;
• The effect of global and regional economic downturns and rising interest rates;
• Our ability to meet the requirements of being a public company;
• Our ability to maintain an effective system of internal control over financial reporting;
• Our inability to appropriately manage our inventory;
• Our inability to fully realize the value of our total estimated contract value or bookings;
• Our ability to compete efficiently, including due to U.S. government organizational conflict of interest rules which may limit new contract opportunities or require us to wind down existing contracts;
• Our relationships with other industry participants, including any contractual disputes or the inability of our key suppliers to timely deliver our components, parts or services;
• Preferences for set-asides for minority-owned, small and small disadvantaged businesses could impact our ability to be a prime contractor;
• Any failure to meet our contractual obligations including due to potential impacts to our business from supply chain risks, such as longer lead times and shortages of electronics and other components;
• Any security breach, including any cyber-attack, cyber intrusion, insider threat, or other significant disruption of our IT networks and related systems, as well as any act of terrorism or other threat to our physical security and personnel;
• Our ability to fully exploit or obtain patents or other intellectual property protections necessary to secure our proprietary technology, including our ability to avoid infringing upon the intellectual property of third parties or prevent third parties from infringing upon our own intellectual property;
• The conduct of our employees, agents, affiliates, subcontractors, suppliers, business partners or joint ventures in which we participate which may impact our reputation and ability to do business;
• The outcome of litigation, arbitration, investigations, claims, disputes, enforcement actions and other legal proceedings in which we are involved;
• Various geopolitical and economic factors, laws and regulations including the Foreign Corrupt Practices Act, the Export Control Act, the International Traffic in Arms Regulations, the Export Administration Regulations, recent U.S. tariffs imposed or threatened to be imposed on other countries and any related retaliatory actions taken by such countries and those that we are exposed to as a result of our international business;
• Our ability to obtain export licenses necessary to conduct certain operations abroad, including any attempts by Congress to prevent proposed sales to certain foreign governments;
• Our ability to attract and retain technical and other key personnel;
• The occurrence of prolonged work stoppages;
• The unavailability or inadequacy of our insurance coverage, customer indemnifications or other liability protections to cover all of our significant risks or to pay for material losses we incur;
• Future changes in U.S. tax laws and regulations or interpretations thereof;
• Future changes in the DoD’s budget;
iii

• Certain limitations on our ability to use our net operating losses to offset future taxable income;
• Termination of our leases or our inability to renew our leases on acceptable terms;
• Changes in estimates used in accounting for our pension plans, including with respect to the funding status thereof;
• Changes in future business or other market conditions that could cause business investments and/or recorded goodwill or other long-term assets to become impaired;
• Adverse consequences from any acquisitions such as operating difficulties, dilution and other harmful consequences or any modification, delay or prevention of any future acquisition or investment activity by the Committee on Foreign Investment in the United States;
• Natural disasters or other significant disruptions;
• Our compliance with environmental laws and regulations, and any environmental liabilities that may affect our reputation or financial position;
• Any conflict of interest that may arise because Leonardo US Holding, LLC, our majority stockholder, or Leonardo S.p.A., our indirect majority stockholder, may have interests that are different from, or conflict with, those of our other stockholders, including as a result of any ongoing business relationships Leonardo S.p.A. may have with us, and their significant ownership in us may discourage change of control transactions (our amended and restated certificate of incorporation provides that we waive any interest or expectancy in corporate opportunities presented to Leonardo S.p.A); or
• Our obligations to provide certain services to Leonardo S.p.A., which may divert human and financial resources from our business.
You should read this Quarterly Report completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this Quarterly Report are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this filing, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise.
Other risks, uncertainties and factors, including those discussed under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, and those discussed under “ Risk Factors ” in Part II, Item 1A of this Quarterly Report, could cause our actual results to differ materially from those projected in any forward-looking statements we make. Readers should read the discussion of these factors carefully to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements.
iv

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
LEONARDO DRS, INC.
Consolidated Statements of Earnings (Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions, except per share amounts) 2025 2024 2025 2024
Revenues $ 960 $ 812 $ 2,588 $ 2,253
Cost of revenues ( 738 ) ( 633 ) ( 1,988 ) ( 1,752 )
Gross profit
222 179 600 501
General and administrative expenses ( 123 ) ( 98 ) ( 361 ) ( 306 )
Amortization of intangibles ( 5 ) ( 6 ) ( 16 ) ( 17 )
Other operating expenses, net
( 1 ) — ( 1 ) ( 5 )
Operating earnings 93 75 222 173
Interest expense, net ( 4 ) ( 5 ) ( 7 ) ( 17 )
Other, net ( 2 ) ( 1 ) ( 3 ) ( 3 )
Earnings before taxes 87 69 212 153
Income tax provision 15 12 36 29
Net earnings $ 72 $ 57 $ 176 $ 124
Net earnings per share from common stock:
Basic earnings per share $ 0.27 $ 0.22 $ 0.66 $ 0.47
Diluted earnings per share
$ 0.26 $ 0.21 $ 0.65 $ 0.46
See accompanying Notes to Consolidated Financial Statements.
1

LEONARDO DRS, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 2025 2024
Net earnings $ 72 $ 57 $ 176 $ 124
Other comprehensive (loss) income, net of income taxes:
Foreign currency translation gain (loss)
— — — ( 1 )
Pension and other postretirement benefit plan adjustments
— — — 1
Net unrealized (loss) gain on derivative instruments
( 1 ) — 4 —
Other comprehensive (loss) income, net of income taxes
( 1 ) — 4 —
Total comprehensive income $ 71 $ 57 $ 180 $ 124
See accompanying Notes to Consolidated Financial Statements.
2

LEONARDO DRS, INC.
Consolidated Balance Sheets
(Unaudited)
(Dollars in millions, except per share amounts) September 30, 2025 December 31, 2024
ASSETS
Current assets:
Cash and cash equivalents $ 309 $ 598
Accounts receivable, net 327 253
Contract assets 1,054 872
Inventories 404 358
Prepaid expenses 32 27
Other current assets 40 55
Total current assets 2,166 2,163
Noncurrent assets:
Property, plant and equipment, net
477 440
Intangible assets, net 114 132
Goodwill 1,238 1,238
Deferred tax assets 118 120
Other noncurrent assets 132 91
Total noncurrent assets 2,079 2,021
Total assets $ 4,245 $ 4,184
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt $ 24 $ 25
Accounts payable 342 426
Contract liabilities 440 399
Other current liabilities 276 266
Total current liabilities 1,082 1,116
Noncurrent liabilities:
Long-term debt 326 340
Pension and other postretirement benefit plan liabilities 28 34
Deferred tax liabilities 5 7
Other noncurrent liabilities 156 130
Total noncurrent liabilities 515 511
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock, $ 0.01 par value: 10,000,000 shares authorized; none issued
— —
Common stock, $ 0.01 par value: 350,000,000 shares authorized; 266,098,028 and 265,064,755 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively
3 3
Additional paid-in capital 5,105 5,194
Accumulated deficit ( 2,417 ) ( 2,593 )
Accumulated other comprehensive loss ( 43 ) ( 47 )
Total stockholders' equity 2,648 2,557
Total liabilities and stockholders' equity $ 4,245 $ 4,184
See accompanying Notes to Consolidated Financial Statements.
3

LEONARDO DRS, INC.
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30,
(Dollars in millions) 2025 2024
Operating activities
Net earnings $ 176 $ 124
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 69 68
Deferred income taxes — 1
Share-based compensation expense 19 16
Other — 1
Changes in assets and liabilities:
Accounts receivable ( 74 ) ( 86 )
Contract assets ( 182 ) ( 89 )
Inventories ( 46 ) ( 34 )
Prepaid expenses ( 5 ) ( 8 )
Other current assets 19 6
Other noncurrent assets 13 14
Defined benefit obligations ( 6 ) ( 2 )
Accounts payable ( 80 ) ( 106 )
Contract liabilities 41 ( 20 )
Other current liabilities 9 ( 36 )
Other noncurrent liabilities ( 12 ) ( 21 )
Net cash used in operating activities ( 59 ) ( 172 )
Investing activities
Capital expenditures ( 90 ) ( 56 )
Proceeds from sales of assets — 1
Purchases of investments
( 15 ) —
Net cash used in investing activities ( 105 ) ( 55 )
Financing activities
Net decrease in third party borrowings (maturities of 90 days or less)
( 1 ) ( 35 )
Repayment of third party debt ( 9 ) ( 238 )
Borrowings of third party debt — 230
Proceeds from stock issuance 9 13
Repurchases of common stock ( 24 ) —
Payments of employee taxes withheld from share-based awards ( 21 ) ( 4 )
Dividends paid ( 21 ) —
Dividends paid to related party ( 51 ) —
Other ( 7 ) ( 8 )
Net cash used in financing activities ( 125 ) ( 42 )
Effect of exchange rate changes on cash and cash equivalents — —
Net decrease in cash and cash equivalents ( 289 ) ( 269 )
Cash and cash equivalents at beginning of year 598 467
Cash and cash equivalents at end of period $ 309 $ 198
See accompanying Notes to Consolidated Financial Statements.
4

LEONARDO DRS, INC.
Consolidated Statements of Stockholders’ Equity (Unaudited)
(Dollars in millions) Common stock
Additional paid-in capital
Accumulated other comprehensive loss Accumulated deficit Total
Balance as of June 30, 2024 $ 3 $ 5,189 $ ( 47 ) $ ( 2,739 ) $ 2,406
Total comprehensive income — — — 57 57
Share-based compensation activity — 11 — — 11
Balance as of September 30, 2024 $ 3 $ 5,200 $ ( 47 ) $ ( 2,682 ) $ 2,474
Balance as of June 30, 2025 $ 3 $ 5,128 $ ( 42 ) $ ( 2,489 ) $ 2,600
Total comprehensive income — — ( 1 ) 72 71
Share-based compensation activity — 6 — — 6
Issuances of stock under employee stock purchase plan — 5 — — 5
Cash dividends of $ 0.09 per share
— ( 24 ) — — ( 24 )
Repurchases of common stock — ( 10 ) — — ( 10 )
Balance as of September 30, 2025 $ 3 $ 5,105 $ ( 43 ) $ ( 2,417 ) $ 2,648
Balance as of December 31, 2023 $ 3 $ 5,175 $ ( 47 ) $ ( 2,806 ) $ 2,325
Total comprehensive income — — — 124 124
Share-based compensation activity — 25 — — 25
Balance as of September 30, 2024 $ 3 $ 5,200 $ ( 47 ) $ ( 2,682 ) $ 2,474
Balance as of December 31, 2024 $ 3 $ 5,194 $ ( 47 ) $ ( 2,593 ) $ 2,557
Total comprehensive income — — 4 176 180
Share-based compensation activity — 2 — — 2
Issuances of stock under employee stock purchase plan
— 5 — — 5
Cash dividends of $ 0.27 per share
— ( 72 ) — — ( 72 )
Repurchases of common stock — ( 24 ) — — ( 24 )
Balance as of September 30, 2025 $ 3 $ 5,105 $ ( 43 ) $ ( 2,417 ) $ 2,648
See accompanying Notes to Consolidated Financial Statements.
5

LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies
A. Organization
Leonardo DRS, Inc., together with its wholly owned subsidiaries (hereinafter, “DRS,” “the Company,” “us,” “our,” or “we”) is a supplier of defense electronics products, systems and military support services. The Company’s largest stockholder is Leonardo S.p.A, an Italian multi-national aerospace, defense and security company headquartered in Rome, Italy, through its ultimate sole ownership of Leonardo US Holding, LLC (“US Holding”). US Holding is the majority stockholder of the Company.
DRS is a provider of defense products and technologies that are used across land, air, sea, space and cyber domains. Our diverse array of defense systems and solutions are offered to all branches of the U.S. military, major aerospace and defense prime contractors, government intelligence agencies, international military customers and industrial markets for deployment on a wide range of military platforms. We focus our capabilities in areas of critical importance to the U.S. military, such as advanced sensing, network computing, force protection and electric power and propulsion.
These capabilities directly align with our two reportable operating segments: Advanced Sensing and Computing (“ASC”) and Integrated Mission Systems (“IMS”). The DoD is our largest customer and accounts for approximately 81 % of our total revenues as an end-user for the nine months ended September 30, 2025 and 2024. Specific international and commercial market opportunities exist within these segments and comprise approximately 19 % of our total revenues for the nine months ended September 30, 2025 and 2024. Our two reportable segments reflect the way performance is assessed and resources are allocated by our Chief Executive Officer, who is our chief operating decision maker (“CODM”).
B. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of DRS, its wholly owned subsidiaries and its controlling interests and contain all adjustments, which are of a normal and recurring nature, considered necessary by management to present fairly the financial position, results of operations and cash flows for the periods presented. Interests in ventures that are controlled by the Company, or for which the Company is otherwise deemed to be the primary beneficiary, are consolidated. For joint ventures in which the Company does not have a controlling interest, but exerts significant influence, the Company applies the equity method of accounting. All intercompany transactions and balances have been eliminated in consolidation.
Interim Financial Statements . The unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These rules and regulations permit some of the information and footnote disclosures included in financial statements prepared in accordance with U.S. GAAP to be condensed or omitted.
These unaudited Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2024.
C. New Accounting Pronouncements
Improvements to Income Tax Disclosures
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires additional disclosures regarding rate reconciliation, income taxes paid, and other income tax disclosures. The new standard is effective for fiscal years beginning after December 15,
6

LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2024, on a prospective basis. Retrospective application is permitted. We plan to adopt these amendments using the prospective approach for our annual income tax disclosures in fiscal year 2025.
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses , which requires disclosure of specified information about certain costs and expenses. The new standard is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, on a prospective basis. We are currently evaluating the impact of adopting this new pronouncement.
Targeted Improvements to the Accounting for Internal-Use Software
In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software , which removes references to project stages, requiring companies to capitalize internal-use software costs when management commits to funding the software project and it is probable the project will be completed. The new standard is effective for fiscal years beginning after December 15, 2027 and interim periods within those fiscal years, and may be applied on a prospective, modified transition, or retrospective transition basis. We are currently evaluating the impact of adopting this new pronouncement.
Note 2. Revenue from Contracts with Customers
Contract Estimates
Revenues for the majority of our contracts are measured using the over time, percentage of completion cost-to-cost method of accounting to calculate percentage of completion. We believe this is an appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately depicts the progress of our work and transfer of control to our customers. Due to the long-term nature of many of our contracts, developing the estimated transaction price and total cost at completion often requires judgment. The estimated transaction price may include variable consideration such as performance incentives, requests for equitable adjustment (“REAs”) and claims. Variable consideration is included in the estimated transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance.
After establishing the estimated total cost at completion, we follow a standard Estimate at Completion (“EAC”) process in which we review the progress and performance on our ongoing contracts on a routine basis. Adjustments to original estimates for a contract's revenue, estimated costs at completion and estimated profit or loss often are required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change and are also required if contract modifications occur. When adjustments in estimated total costs at completion are determined, the related impact on revenue and operating earnings are recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.
7

LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net EAC adjustments had the following impacts for the periods presented:
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions, except per share amounts)
2025 2024 2025 2024
Revenue and operating earnings
$ 5 $ ( 10 ) $ ( 4 ) $ ( 29 )
Total % of revenue 1 % 1 % — % 1 %
Net earnings $ 4 $ ( 8 ) $ ( 3 ) $ ( 23 )
Impact on diluted earnings per share $ 0.01 $ ( 0.03 ) $ ( 0.01 ) $ ( 0.09 )
The impacts noted above are attributed primarily to changes in our firm-fixed price development type programs. As changes happen in the design required to achieve contractual specifications, those changes often result in a change in the programs’ estimates and related profitability.
Contract Assets and Liabilities
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities. Contract assets and contract liabilities as of the dates presented were:
(Dollars in millions) September 30, 2025 December 31, 2024
Contract assets $ 1,054 $ 872
Contract liabilities 440 399
Revenue recognized in the nine months ended September 30, 2025 and 2024, that was included in the contract liability balance at the beginning of each period was $ 270 million and $ 275 million, respectively.
Value of Remaining Performance Obligations
The value of remaining performance obligations, which we also refer to as total backlog, includes the following components:
• Funded - Funded backlog represents the revenue value of orders for products and services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts.
• Unfunded - Unfunded backlog represents the revenue value of firm orders for products and services under existing contracts for which funding has not yet been appropriated less funding previously recognized on these contracts.
As of September 30, 2025, our total backlog was $ 8,909 million. We expect to recognize approximately 11 % of our September 30, 2025 backlog as revenue over the next three months , with the remainder to be recognized thereafter. Approximately 50 % of our total backlog relates to long-term contracts on electric power and propulsion programs with the U.S. Navy, which are expected to be recognized as revenue over a span of up to 15 years.
Disaggregation of Revenue
ASC : ASC revenue is primarily derived from U.S. government development and production contracts and is generally recognized using the over time, percentage of completion cost-to-cost method of
8

LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accounting. We disaggregate ASC revenue by geographical region, customer relationship and contract type. We believe these categories best depict how the nature, amount, timing and uncertainty of ASC revenue and cash flows are affected by economic factors.
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 2025 2024
Revenue by Geographical Region
United States $ 500 $ 426 $ 1,411 $ 1,159
International 77 101 213 282
Intersegment Sales 3 6 9 17
Total $ 580 $ 533 $ 1,633 $ 1,458
Revenue by Customer Relationship
Prime contractor $ 298 $ 200 $ 760 $ 616
Subcontractor 279 327 864 825
Intersegment Sales 3 6 9 17
Total $ 580 $ 533 $ 1,633 $ 1,458
Revenue by Contract Type
Firm-Fixed Price
$ 509 $ 446 $ 1,414 $ 1,198
Flexibly Priced (1)
68 81 210 243
Intersegment Sales 3 6 9 17
Total $ 580 $ 533 $ 1,633 $ 1,458
________________
(1) Includes revenue derived from cost-plus and time-and-materials contracts.
IMS : IMS revenue is primarily derived from U.S. government development and production contracts and is generally recognized using the over time, percentage of completion cost-to-cost method of accounting. We disaggregate IMS revenue by geographical region, customer relationship and contract
9

LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
type. We believe these categories best depict how the nature, amount, timing and uncertainty of IMS revenue and cash flows are affected by economic factors.
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 2025 2024
Revenue by Geographical Region
United States $ 366 $ 277 $ 956 $ 796
International 17 8 8 16
Intersegment Sales — — — —
Total $ 383 $ 285 $ 964 $ 812
Revenue by Customer Relationship
Prime contractor $ 136 $ 58 $ 236 $ 182
Subcontractor 247 227 728 630
Intersegment Sales — — — —
Total $ 383 $ 285 $ 964 $ 812
Revenue by Contract Type
Firm-Fixed Price
$ 359 $ 238 $ 855 $ 670
Flexibly Priced (1)
24 47 109 142
Intersegment Sales — — — —
Total $ 383 $ 285 $ 964 $ 812
________________
(1) Includes revenue derived from cost-plus and time-and-materials contracts.
Note 3. Accounts Receivable
Accounts receivable consist of the following:
(Dollars in millions) September 30, 2025 December 31, 2024
Accounts receivable $ 328 $ 254
Less allowance for credit losses ( 1 ) ( 1 )
Accounts receivable, net $ 327 $ 253
The Company maintains certain agreements with financial institutions to sell certain trade receivables. See Note 4: Sale of Receivables for more information.
Note 4. Sale of Receivables
The Company is party to factoring facilities with various financial institutions (the “purchasers”) with an aggregate capacity of $ 225 million as of September 30, 2025 and December 31, 2024.
During the nine months ended September 30, 2025 and 2024, the Company incurred immaterial purchase discount fees which are presented in general and administrative expenses on the Consolidated Statements of Earnings.
10

LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The table below summarizes the activity under the factoring facilities:
Nine Months Ended September 30,
(Dollars in millions) 2025 2024
Beginning balance $ 130 $ 192
Sales of receivables 60 60
Cash returned to purchasers
( 165 ) ( 241 )
Outstanding balance sold to purchasers
25 11
Cash collected, not remitted to purchasers (1)
— ( 1 )
Remaining sold receivables $ 25 $ 10
________________
(1) Represents cash collected on behalf of purchasers and not yet remitted. This balance is included within short-term borrowings and current portion of long-term debt in the Consolidated Balance Sheets.

Note 5. Inventories
Inventories consists of the following:
(Dollars in millions) September 30, 2025 December 31, 2024
Raw materials $ 120 $ 86
Work in progress 267 264
Finished goods 17 8
Total inventories $ 404 $ 358

Note 6. Property, Plant and Equipment
Property, plant and equipment by major asset class consists of the following:
(Dollars in millions) September 30, 2025 December 31, 2024
Land, buildings and improvements $ 389 $ 380
Plant and machinery 207 203
Equipment and other 453 382
Total property, plant and equipment, at cost 1,049 965
Less accumulated depreciation ( 572 ) ( 525 )
Total property, plant and equipment, net $ 477 $ 440
Depreciation expense related to property, plant and equipment was $ 18 million and $ 53 million for the three and nine months ended September 30, 2025, respectively, and $ 17 million and $ 51 million for the three and nine months ended September 30, 2024, respectively.
11

LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 7. Other Liabilities
A summary of significant other liabilities by balance sheet caption follows:
(Dollars in millions) September 30, 2025 December 31, 2024
Salaries, wages and accrued bonuses $ 81 $ 75
Fringe benefits 61 63
Provision for contract losses 39 43
Operating lease liabilities 28 27
Taxes payable 31 24
Warranty reserves 21 19
Other
15 15
Total other current liabilities $ 276 $ 266
Operating lease liabilities $ 93 $ 66
Unrecognized tax benefits 46 46
Warranty reserves 8 10
Other
9 8
Total other noncurrent liabilities $ 156 $ 130

Note 8. Intangible Assets
Intangible assets consists of the following:
September 30, 2025 December 31, 2024
(Dollars in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Acquired intangible assets $ 1,087 $ ( 978 ) $ 109 $ 1,087 $ ( 962 ) $ 125
Patents and licenses 14 ( 9 ) 5 14 ( 7 ) 7
Total intangible assets
$ 1,101 $ ( 987 ) $ 114 $ 1,101 $ ( 969 ) $ 132
Amortization expense related to acquired intangible assets was $ 5 million and $ 16 million for the three and nine months ended September 30, 2025, respectively, and $ 6 million and $ 17 million for the three and nine months ended September 30, 2024, respectively.
Note 9. Income Taxes
Our effective tax rate was 17.2 % and 17.0 % for the three and nine months ended September 30, 2025, respectively, and 17.4 % and 19.0 % for the three and nine months ended September 30, 2024, respectively. For the nine months ended September 30, 2025, the effective tax rate was lower than the statutory rate primarily due to the recognition of discrete tax benefits associated with vesting of share-based compensation.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “IRA”) which, among other items, allows a company to purchase transferable tax credits. During the three and nine months ended September 30, 2024, the Company purchased $ 25 million in tax credits for
12

LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
approximately $ 23 million in cash. These credits were used to offset the Company’s federal tax liability for 2023.
On July 4, 2025, the reconciliation bill, commonly referred to as the One Big Beautiful Bill Act (the "OBBBA"), was enacted, which includes a broad range of tax reform provisions. The OBBBA provides for an elective deduction for domestic research and development expenses starting in 2025, a reinstatement of elective 100% first-year bonus depreciation, and changes to existing international tax provisions. Due to the nature of the tax law changes, the Company has not realized a material impact in the Consolidated Statements of Earnings for the three and nine months ended September 30, 2025. We will continue to monitor the impact of the OBBBA and the range of potential outcomes, which will depend on our facts in each year and anticipated guidance from the U.S. Department of the Treasury.
Note 10. Debt
The Company’s debt consists of the following:
(Dollars in millions) September 30, 2025 December 31, 2024
2022 Term Loan A
$ 194 $ 203
Finance lease and other 154 159
Short-term borrowings related to factoring facilities (Note 4) 3 4
Total debt principal 351 366
Less unamortized debt issuance costs and discounts ( 1 ) ( 1 )
Total debt, net 350 365
Less short-term borrowings and current portion of long-term debt ( 24 ) ( 25 )
Total long-term debt $ 326 $ 340

Term Loan
In November 2022, the Company entered into a senior unsecured credit agreement with Bank of America in the amount of $ 500 million (the “2022 Credit Agreement”) with a maturity of November 29, 2027. The 2022 Credit Agreement provides for a term loan (the “2022 Term Loan A”) of $ 225 million bearing interest at a variable rate generally based on the Secured Overnight Financing Rate (“SOFR”), plus a spread ranging from 1.48 % to 2.10 % depending on the leverage ratio, as defined in the 2022 Credit Agreement, or an alternative variable rate based on the higher of the Bank of America prime rate, the federal funds rate, or a rate generally based on the SOFR, in each case subject to an additional basis point spread as defined in the 2022 Credit Agreement. Interest is payable quarterly in arrears. The outstanding balance of the 2022 Term Loan A at September 30, 2025 was $ 194 million. The fair value of the 2022 Term Loan A was approximately $ 192 million and $ 199 million at September 30, 2025 and December 31, 2024, respectively; however, the Company has the ability to prepay the outstanding principal balance without penalty. The fair value of the Company’s outstanding debt obligations is calculated using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements.
Credit Facilities
The 2022 Credit Agreement provides for a revolving credit facility available for the working capital needs of the Company (the “2022 Revolving Credit Facility”). As of September 30, 2025 and December 31, 2024, the 2022 Revolving Credit Facility had a limit of $ 275 million. Loans under the 2022 Revolving Credit Facility bear interest at a variable rate generally based on the SOFR, plus a spread ranging from 1.48 % to 2.10 % depending on the leverage ratio, as defined in the 2022 Credit Agreement, or an alternative variable rate based on the higher of the Bank of America prime rate, the federal funds rate, or a rate generally based on the SOFR, in each case subject to an additional basis point spread as defined in the 2022 Credit Agreement. The Company also pays a commitment fee ranging between
13

LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
0.20 % and 0.35 % depending on the Company’s leverage ratio applied to the unused balance of the 2022 Revolving Credit Facility. There was no outstanding balance on the 2022 Revolving Credit Facility as of September 30, 2025 and December 31, 2024.
The Company also maintains uncommitted working capital credit facilities with certain financial institutions in the aggregate of $ 105 million and $ 130 million at September 30, 2025 and December 31, 2024, respectively (the “Financial Institution Credit Facilities”). The sole purpose of the Financial Institution Credit Facilities is to support standby letter of credit issuances on contracts with customers. The Company had letters of credit outstanding of approximately $ 38 million and $ 36 million as of September 30, 2025 and December 31, 2024, respectively, which reduces the available capacity of the Financial Institution Credit Facilities by an equal amount.
Note 11. Derivative Instruments
Derivative instruments are recorded on the Consolidated Balance Sheets at fair value. Unrealized gains and losses on derivatives designated as cash flow hedges are reported in other comprehensive income (loss) and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions.
The Company enters into forward exchange contracts in order to limit the exposure to exchange rate fluctuations primarily associated with certain forecasted payroll expenses denominated in Israeli Shekels. The table below summarizes the Company’s forward exchange contracts accounted for as cash flow hedges at September 30, 2025:
(Dollars in millions)
Notional amount
Balance sheet location
Settlement and termination
Fair value
Forward exchange contracts
$ 36 Other current assets Monthly through 9/30/2026 $ 4
The fair value of the Company’s forward exchange contracts is calculated using Level 2 inputs.
The effect of the forward exchange contracts on earnings and cash flows for the periods presented was immaterial. The Company estimates that it will reclassify $ 4 million of unrealized gains from accumulated other comprehensive loss into earnings during the next 12 months.
Note 12. Earnings Per Share (“EPS”), Share Repurchases and Dividends
EPS
Three Months Ended September 30, Nine Months Ended September 30,
(In millions, except per share amounts) 2025 2024 2025 2024
Net earnings $ 72 $ 57 $ 176 $ 124
Basic weighted average number of shares outstanding 266.2 264.0 265.9 263.3
Impact of dilutive share-based awards 2.2 4.3 2.8 4.1
Diluted weighted average number of shares outstanding 268.4 268.3 268.7 267.4
Earnings per share attributable to common stockholders - basic
$ 0.27 $ 0.22 $ 0.66 $ 0.47
Earnings per share attributable to common stockholders - diluted
$ 0.26 $ 0.21 $ 0.65 $ 0.46
Basic EPS is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during each period. The computation of diluted EPS includes the dilutive
14

LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
effect of outstanding share-based compensation awards (which primarily consist of employee stock options, restricted stock units, and performance-based restricted stock units).
Share Repurchases
On February 20, 2025, the Company announced that its Board of Directors (the “Board”) approved a share repurchase program that allows the Company to purchase up to $ 75 million of its outstanding common stock through March 4, 2027, subject to market conditions. As of September 30, 2025, the Company has repurchased approximately $ 24 million under the program. The Company retires its common stock upon repurchase with the excess over par value allocated to additional paid-in capital.
Dividends
The Company declared and paid a quarterly dividend of $ .09 per share of its common stock during the three months ended September 30, 2025. Subsequent to quarter end, the Company’s Board declared a cash dividend of $ .09 per share of common stock payable on December 2, 2025 to stockholders of record as of the close of business on November 18, 2025.
Note 13. Commitments and Contingencies
Commitments
The Company’s commitments are primarily related to our lease agreements, purchase obligations, and credit agreements.
Contingencies
From time to time we are subject to certain legal proceedings and claims in the ordinary course of business. These matters are subject to many uncertainties and it is possible that some of these matters ultimately could be decided, resolved or settled in a manner adverse to us. Although the precise amount of liability that may result from these matters is not ascertainable, the Company believes that any amounts exceeding the Company's recorded accruals should not materially adversely affect the Company's financial condition or liquidity. It is possible, however, that the ultimate resolution of those matters could result in a material adverse effect on the Company's results of operations and/or cash flows from operating activities for a particular reporting period. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. The Company reviews the developments in contingencies that could affect the amount of the reserves that have been previously recorded. The Company adjusts provisions and changes to disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability and the estimated amount of any potential losses.
As a government contractor, with customers including the U.S. government as well as various state and local government entities, the Company may be subject to audits, investigations and claims with respect to its contract performance, pricing, costs, cost allocations and procurement practices. Additionally, amounts billed under such contracts, including direct and indirect costs, are subject to potential adjustments before final settlement.
Management believes that adequate provisions for such potential audits, investigations, claims and contract adjustments, if any, have been made in the financial statements.
Product Warranties
Product warranty costs generally are accrued in proportion to product revenue realized in conjunction with our over time revenue recognition policy. Product warranty expense is recognized based on the term of the product warranty, generally one year to three years , and the related estimated costs, considering historical claims expense. Accrued warranty costs are reduced as these costs are incurred and as the
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LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
warranty period expires, and otherwise may be modified as specific product performance issues are identified and resolved. The following is a summary of changes in the product warranty balances during the nine months ended September 30, 2025:
(Dollars in millions)
Balance at December 31, 2024 $ 29
Additional provision 17
Reversal and utilization ( 17 )
Balance at September 30, 2025 $ 29
Note 14. Related Party Transactions
The Company has related party sales and purchases with the indirect majority stockholder and its other affiliates that occur in the regular course of business. Related party sales are included in revenues and were $ 4 million and $ 11 million for the three and nine months ended September 30, 2025, respectively, and $ 6 million and $ 17 million for the three and nine months ended September 30, 2024, respectively. Related party purchases are included in cost of revenues and were $ 3 million and $ 5 million for the three and nine months ended September 30, 2025 and 2024. The receivables with the indirect majority stockholder and its other affiliates of $ 11 million and $ 19 million, respectively, and payables of $ 5 million and $ 4 million, respectively, as of September 30, 2025 and December 31, 2024, are included in accounts receivable, net and accounts payable in our Consolidated Balance Sheets. In addition, there were related party balances in contract assets of $ 4 million and $ 12 million at September 30, 2025 and December 31, 2024, respectively.
The Company has an equity investment of $ 21 million in a private company that is included in other noncurrent assets in our Consolidated Balance Sheets. As there is not a readily determinable fair value, the investment is measured at cost and will be adjusted if we identify an observable price change or an impairment. Additionally, the Company holds two board seats in the investee. Related party sales with this company were $ 5 million for the nine months ended September 30, 2025. We also had $ 6 million of related party balances in contract assets with this company at September 30, 2025.
Note 15. Segment Information
Operating segments represent components of an enterprise for which separate financial information is available that is regularly reviewed by the CODM in determining how to allocate resources and assess performance. The Company’s operating and reportable segments consist of ASC and IMS. All other operations, which consists primarily of DRS corporate headquarters and certain non-operating subsidiaries of the Company, are grouped in Corporate & Eliminations.
Effective for the fourth quarter of 2024, the CODM primarily uses operating earnings to manage the Company and allocate resources. Operating earnings is used to facilitate a comparison of the ordinary, ongoing and customary course of our operations on a consistent basis from period to period and provide an additional understanding of factors and trends affecting our business segments. Prior year information was revised to reflect operating earnings as the segment profit measure.
Certain information related to our segments for the periods ended September 30, 2025 and 2024 is presented in the following tables. Consistent accounting policies have been applied by all segments within the Company, within all reporting periods. Intersegment sales are generally transferred at cost to the buying segment, and the sourcing segment does not recognize a profit. Such intercompany operating income is eliminated in consolidation, so that the Company’s total revenues and operating earnings reflect only those transactions with external customers.
Revenues, expenses, and operating earnings by segment and the reconciliation to earnings before taxes for the periods ended September 30, 2025 and 2024 consists of the following:
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LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 2025 2024
Revenues
ASC $ 580 $ 533 $ 1,633 $ 1,458
IMS 383 285 964 812
Corporate & Eliminations ( 3 ) ( 6 ) ( 9 ) ( 17 )
Total revenues $ 960 $ 812 $ 2,588 $ 2,253
Cost of revenues
ASC $ 437 $ 411 $ 1,237 $ 1,111
IMS 304 228 760 658
Corporate & Eliminations ( 3 ) ( 6 ) ( 9 ) ( 17 )
Total cost of revenues $ 738 $ 633 $ 1,988 $ 1,752
General and administrative
ASC $ 63 $ 52 $ 196 $ 173
IMS 24 22 71 64
Corporate & Eliminations — 1 — 5
Total general and administrative $ 87 $ 75 $ 267 $ 242
Company-funded research and development
ASC $ 29 $ 19 $ 76 $ 51
IMS 7 4 18 13
Corporate & Eliminations — — — —
Total company-funded research and development $ 36 $ 23 $ 94 $ 64
Amortization of intangibles
ASC $ 5 $ 6 $ 16 $ 17
IMS — — — —
Corporate & Eliminations — — — —
Total amortization of intangibles $ 5 $ 6 $ 16 $ 17
Other segment items
ASC $ 1 $ — $ 1 $ 5
IMS — — — —
Corporate & Eliminations — — — —
Total other segment items (1)
$ 1 $ — $ 1 $ 5
Operating earnings
ASC $ 45 $ 45 $ 107 $ 101
IMS 48 31 115 77
Corporate & Eliminations — ( 1 ) — ( 5 )
Total operating earnings $ 93 $ 75 $ 222 $ 173
Interest expense, net ( 4 ) ( 5 ) ( 7 ) ( 17 )
Other, net ( 2 ) ( 1 ) ( 3 ) ( 3 )
Earnings before taxes $ 87 $ 69 $ 212 $ 153
________________
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LEONARDO DRS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) Includes ASC restructuring costs for the periods presented.
Total intersegment revenues by segment for the periods ended September 30, 2025 and 2024 consists of the following:
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 2025 2024
ASC $ 3 $ 6 $ 9 $ 17
IMS — — — —
Total intersegment revenues $ 3 $ 6 $ 9 $ 17
Depreciation by segment for the periods ended September 30, 2025 and 2024 consists of the following:
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 2025 2024
ASC $ 12 $ 12 $ 36 $ 36
IMS 6 5 17 15
Total depreciation $ 18 $ 17 $ 53 $ 51
Total assets by segment as of September 30, 2025 and December 31, 2024, consists of the following:
(Dollars in millions) September 30, 2025 December 31, 2024
ASC $ 2,465 $ 2,249
IMS 1,344 1,225
Corporate & Eliminations 436 710
Total assets $ 4,245 $ 4,184

Note 16. Subsequent Events
Chief Executive Officer Transition
As part of the Company’s long-term leadership development and succession processes, the Company announced that William J. Lynn III notified the Company on October 27, 2025 that he will retire from his role as Chief Executive Officer, Non-Proxy Holder Director and as Chairman of the Board of Directors (the “Board”) effective as of midnight on December 31, 2025. Mr. Lynn will continue to serve as an employee of the Company until April 1, 2026. Concurrently, the Board has approved the appointment of Mr. John Baylouny to succeed Mr. Lynn as President and Chief Executive Officer of the Company, effective January 1, 2026. Mr. Baylouny will also join the Company’s Board as a Non-Proxy Holder Director, effective as of the same date.
On October 27, 2025, the Company entered into an employment agreement with John Baylouny, pursuant to which Mr. Baylouny will serve as the Company’s President, Chief Executive Officer and Non-Proxy Holder Director, effective as of January 1, 2026. On the same date, the Company entered into a Transition Separation Plan with Mr. Lynn to set out the terms of his retirement.
Appointment of Board Chair
On October 27, 2025, the Board appointed Ms. Frances F. Townsend as Chair of the Board, effective January 1, 2026.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with our Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report.
This discussion and other parts of this Quarterly Report include forward-looking statements such as those relating to our plans, objectives, expectations and beliefs, which involve risks, uncertainties and assumptions. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties discussed under “Special Note Regarding Forward-Looking Statements and Information” and “Risk Factors” in this Quarterly Report and under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024. Actual results may differ materially from those contained in any forward-looking statements.
Business Overview and Considerations
General
DRS is an innovative and agile provider of advanced defense technology to U.S. national security customers and allies around the world. We specialize in the design, development and manufacture of advanced sensing, network computing, force protection, as well as electric power and propulsion. The strength of our market positioning in these technology areas have created a foundational and diverse base of programs across the DoD. We believe these technologies will not only support our customers in today’s mission but will also underpin their strategy to migrate towards more autonomous, dynamic, interconnected, and multi-domain capabilities needed to address evolving and emerging threats. We view more advanced capabilities in sensing, computing, self-protection and power as necessary to enable these strategic priorities.
Our overall strategy is to be a balanced and diversified company, less vulnerable to any one budgetary platform or service decision with a specific focus on establishing strong technical and market positions in areas of priority for the DoD. The DoD is our largest customer and, for the nine months ended September 30, 2025, accounted for approximately 81% of our business as an end-user, with revenues principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 38% and 36%, respectively, of our total revenues for such period, which is consistent with historic trends.
We continue to monitor and evaluate the potential impact of current trade conflicts and in particular, tariffs. Although the actual impact of these tariffs on our business, financial condition and results of operations are subject to a number of factors that are not yet known or are subject to change, we will continue to monitor developments and assess potential implications as trade policies evolve.
Our operations and reporting are structured into the following two technology driven segments based on the capabilities and solutions offered to our customers:
Advanced Sensing and Computing
Our Advanced Sensing and Computing (“ASC”) segment designs, develops and manufactures sensing and network computing technology that enables real-time situational awareness required for enhanced operational decision making and execution by our customers.
Our sensing capabilities span numerous applications, including missions requiring advanced passive and active detection, precision targeting and surveillance sensing, long range electro-optic/infrared (“EO/IR”), signals intelligence (“SIGINT”) and other intelligence systems, electronic warfare (“EW”), ground vehicle sensing, next generation active electronically scanned array tactical radars, dismounted soldier sensing and space sensing. Across our offerings, we are focused on advancing sensor distance and enhancing the precision, clarity, definition, spectral depth and effectiveness of our sensors in combination
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with artificial intelligence (“AI”), enabled by our advanced edge processing solutions. We also seek to leverage the knowledge and expertise built through our decades of experience to optimize size, weight, power and cost for our customers’ specific mission requirements.
Our sensing capabilities are complemented by our rugged, trusted and cyber resilient network edge computing products. Our network computing offerings are utilized across a broad range of mission applications including platform computing on ground and shipboard (both surface ship and submarine) for advanced battle management, combat systems, radar, command and control (“C2”), tactical networks, tactical computing and communications at the “edge” of the network and battlespace. These products help support the DoD’s need for greater situational understanding at the tactical edge by leveraging artificial intelligence and AI-optimized open architecture software, SAGEcore™, to rapidly share, synthesize and transmit data securely between command centers and forward-positioned defense assets and personnel.
Integrated Mission Systems
Our Integrated Mission Systems (“IMS”) segment designs, develops, manufactures and integrates power conversion, control and distribution systems, ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems for the U.S. military and allied defense customers.
DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy. We provide power conversion, control, distribution and propulsion systems for the U.S. Navy’s top priority shipbuilding programs, including the Columbia Class ballistic missile submarine, the first modern U.S. electric drive submarine.
We believe DRS is well positioned to meet the needs of an increasingly electrified fleet with our high efficiency, power dense permanent magnet motors, energy storage systems and associated efficient, rugged and compact power conversion, electrical actuation systems, and advanced cooling technologies.
DRS has a long history of providing a number of other critical products to the U.S. Navy with a significant installed base on submarines, aircraft carriers and other surface ships including motor controllers, instrumentation and control equipment, electrical actuation systems, and thermal management systems for electronics and ship stores refrigeration.
DRS is also an integrator of complex systems in ground vehicles for short-range air defense, counter - unmanned aerial systems (“C-UAS”), and vehicle survivability and protection. Our short-range air defense systems integrate advanced AESA Radars, EW equipment, reconnaissance and surveillance systems, mission command capabilities, modular combat vehicle turrets, and stabilized sensor suites, as well as kinetic and directed energy countermeasures to protect against evolving threats. Our force protection systems, including solutions for C-UAS and active protection systems on army vehicles, help protect personnel and defense assets from enemy combatants.
Focus on Customer and Execution
DRS and its employees focus on our end-customers – the men and women of the armed forces in the U.S. and its allies. We seek to provide high-quality equipment and services to support their mission success. We strive for excellence in everything we do, in every job in our Company, in order to satisfy our customers’ needs embedded in our contractual commitments. We seek to ensure that we learn from every lesson experienced in our Company and insist that these lessons affect all elements of our businesses. This approach permeates through the Company with a focus on continuous improvement at every level.
Part of this learning has resulted in institutionalizing our continuous improvement process through our Business Excellence initiative called the Always Performing for Excellence (“APEX”) program. The APEX program’s goal is to strive for continuous improvement through unification of all of our business practices,
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tools and metrics, ongoing employee training and innovation. We believe that excellence is not a destination, but by constantly challenging ourselves to be better, we will improve, and ultimately approach excellence. We challenge ourselves to exceed our customers’ expectations and we partner with them to work to ensure that our execution meets their needs.
Continuous improvement through the APEX program also allows us to improve our efficiency, which we believe contributes to increased margins, helps us to remain competitive and allows us to make strategic investments, all while maintaining our focus on customer satisfaction. In these elements, our goals are aligned with those of our customers. We are humbled by the dedication and sacrifice that our ultimate customers have made to serve and we work to perform for them with excellence in everything we do.
Global Events and Business Impacts
Global Conflicts
In February 2022, Russia invaded and began occupying parts of Ukraine. Since that time, western powers, including the U.S., have pledged support with humanitarian and military aid. Some of that military aid pledged by the U.S. will result in increased efforts to replace equipment and consumables. We have received orders from the U.S. and allies to both provide equipment in support of this effort, and to replace equipment pledged.
The ongoing conflicts in Israel and the broader Middle East region have the potential to evolve quickly creating uncertainty, along with the potential for disruptions to our Israeli operations in the region, including, but not limited to, workforce calls for duty, transportation and other logistical impacts and reduced customer confidence. To date, the conflict has not had a material impact to our operations. The U.S. and other western powers have directed military and funding support to Israel. DRS has direct exposure to Israel principally through its RADA operations with approximately 6% of our workforce as of September 30, 2025 residing in Israel.
Business Environment
Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 81% of our total revenues for the nine months ended September 30, 2025 and 2024. Our U.S. government sales are highly concentrated within our DoD customers, which made up the overwhelming majority of our U.S. government revenue for the nine months ended September 30, 2025, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 38% and 36%, respectively, of our total revenues for the nine months ended September 30, 2025. Therefore, our revenue is highly correlated to changes in U.S. government spending levels, especially within the DoD. The DoD budget is the largest defense budget in the world.
On October 1, 2025, a lapse in government fiscal year 2026 appropriations occurred, and the U.S. government entered a shutdown. At this time, it is unclear if the government will be funded by one or more Continuing Resolutions (“CR”) or by a full year appropriations act. Federal agencies have published shutdown guidance, including the DoD, which has furloughed civilian positions and restricted activities in the absence of enacted funding. Active duty pay remains intact, but that is subject to review going forward. If the U.S. government shutdown is protracted, it could have programmatic and funding impacts on our business. Delayed billing, testing and prohibitions on new contract awards, as well as resourcing delays by federal workers, could lead to a material effect on our operations and financial position.
On July 4, 2025, the President signed into law the One Big Beautiful Bill Act, a budget reconciliation measure that authorizes an additional $150 billion in mandatory defense related funding, of which approximately $113 billion is expected to be obligated during fiscal year 2026. Additionally, on July 18, 2025, the U.S. House of Representatives passed the Fiscal Year 2026 Department of Defense Appropriations Act, which provides for approximately $832 billion in discretionary defense spending.
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These two legislative measures significantly shape the funding outlook for the DoD and have direct implications for our operations, programs and long-term strategy.
Operating Performance Assessment and Reporting
For the majority of our contracts, revenues are recognized using the over time, percentage of completion cost-to-cost method of accounting, with revenue recognized based on the ratio of cumulative costs incurred to date to estimated total contract costs at completion. For contracts accounted for in this way, our reported revenues may contain amounts which we have not billed to customers if we have incurred costs, and recognized related profits, in excess of billed progress or performance-based payments.
Under U.S. GAAP, contract costs are charged to work in progress inventory and are expensed as revenues are recognized. The Federal Acquisition Regulation (“FAR”) and the Defense Federal Acquisition Regulation Supplement (“DFARS”), incorporated by reference in U.S. government contracts, provide that internal research and development costs are allowable general and administrative expenses. Unallowable costs, pursuant to the FAR, are excluded from costs accumulated on U.S. government contracts.
Our defense contracts and subcontracts that require the submission of cost or pricing data are subject to audit, various profit and cost controls, and standard provisions for termination at the convenience of the customer. The Defense Contract Audit Agency (“DCAA”) performs these audits on behalf of the U.S. government. The DCAA has the right to perform audits on our incurred costs on cost-type or price redeterminable-type contracts on a yearly basis. Approval of an incurred cost submission can take from one to three years from the date of the submission of the contract cost.
U.S. government contracts are, by their terms, subject to termination by the U.S. government for either convenience or default by the contractor. Fixed-price contracts provide for payment upon termination for items delivered to and accepted by the U.S. government and, if the termination is for convenience, for payment of fair compensation of work performed plus the costs of settling and paying claims by terminated subcontractors, other settlement expenses and a reasonable profit on the costs incurred. Cost-plus contracts provide that, upon termination, the contractor is entitled to reimbursement of its allowable costs and, if the termination is for convenience, a total fee proportionate to the percentage of the work completed under the contract. If a contract termination is for default, however, the contractor is paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. government. In these circumstances, the U.S. government is not liable for excess costs incurred by us in procuring undelivered items from another source.
In addition to the right of the U.S. government to terminate U.S. government contracts, such contracts are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract performance may take many years. Consequently, at the outset of a major program, the contract is typically only partially funded, and additional funds normally are committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years.
Components of Operations
Revenue
Revenue consists primarily of product related revenue, which represented 94% of our total revenues for the nine months ended September 30, 2025. Our remaining revenue was generated from service related contracts. Additionally, 88% of our revenue was derived from firm-fixed price contracts for the nine months ended September 30, 2025. This was consistent with the prior year comparable period which realized product related revenue of 94% and revenue from firm-fixed price contracts of 83% for the nine months ended September 30, 2024.
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Under flexibly priced contracts, we are reimbursed for allowable or otherwise defined total costs (defined as cost of revenues plus allowable general and administrative expenses) incurred, plus a fee. The contracts may also include incentives for various performance criteria, including quality, timeliness, cost-effectiveness or other factors. For the nine months ended September 30, 2025 and 2024, flexibly priced contracts represented 12% and 17% of our total revenues, respectively.
Refer to Note 2: Revenue from Contracts with Customers to the Consolidated Financial Statements for additional information.
Cost of Revenues
Cost of revenues includes materials, labor and overhead costs incurred in the manufacturing, design, and provision of products and services sold in the period as well as warranty costs. Material costs include raw materials, purchased components and sub-assemblies and outside processing and inbound freight. Labor and overhead costs consist of direct and indirect manufacturing costs, including wages and fringe benefits, operating supplies, depreciation and amortization, occupancy costs, and purchasing, receiving, inspection costs and inbound freight costs.
General and Administrative Expenses
General and administrative (“G&A”) expenses include general and administrative expenses not included within cost of revenues such as salaries, wages and fringe benefits, facility costs and other costs related to these indirect functions. Additionally, general and administrative expenses include internal research and development costs as well as expenditures related to bid and proposal efforts.
Results of Operations
The following discussion of operating results is intended to help the reader understand the results of operations and financial condition of the Company for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024. Given the nature of our business, we believe revenue and operating earnings are most relevant to an understanding of our performance at an enterprise and segment level. Our operating cycle is longer term in nature and involves
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various types of production contracts and varying delivery schedules. Accordingly, operating results in a particular period may not be indicative of future operating results.
Three Months Ended September 30, Change
(Dollars in millions, except per share amounts) 2025 2024 $ %
Total revenues $ 960 $ 812 $ 148 18.2 %
Total cost of revenues (738) (633) (105) 16.6 %
Gross profit $ 222 $ 179 $ 43 24.0 %
Gross margin 23.1 % 22.0 % 110 bps
General and administrative expenses (123) (98) (25) 25.5 %
Amortization of intangibles (5) (6) 1 (16.7) %
Other operating expenses, net (1) — (1) 100.0 %
Operating earnings $ 93 $ 75 $ 18 24.0 %
Interest expense, net (4) (5) 1 (20.0) %
Other, net (2) (1) (1) 100.0 %
Earnings before taxes $ 87 $ 69 $ 18 26.1 %
Income tax provision 15 12 3 25.0 %
Net earnings $ 72 $ 57 $ 15 26.3 %
Basic EPS
$ 0.27 $ 0.22 $ 0.05 22.7 %
Diluted EPS
$ 0.26 $ 0.21 $ 0.05 23.8 %
Backlog $ 8,909 $ 8,264 $ 645 7.8 %
Bookings $ 1,307 $ 1,051 $ 256 24.4 %
Nine Months Ended September 30, Change
(Dollars in millions, except per share amounts) 2025 2024 $ %
Total revenues $ 2,588 $ 2,253 $ 335 14.9 %
Total cost of revenues (1,988) (1,752) (236) 13.5 %
Gross profit $ 600 $ 501 $ 99 19.8 %
Gross margin 23.2 % 22.2 % 100 bps
General and administrative expenses (361) (306) (55) 18.0 %
Amortization of intangibles (16) (17) 1 (5.9) %
Other operating expenses, net (1) (5) 4 (80.0) %
Operating earnings $ 222 $ 173 $ 49 28.3 %
Interest expense, net (7) (17) 10 (58.8) %
Other, net (3) (3) — — %
Earnings before taxes $ 212 $ 153 $ 59 38.6 %
Income tax provision 36 29 7 24.1 %
Net earnings $ 176 $ 124 $ 52 41.9 %
Basic EPS
$ 0.66 $ 0.47 $ 0.19 40.4 %
Diluted EPS
$ 0.65 $ 0.46 $ 0.19 41.3 %
Backlog $ 8,909 $ 8,264 $ 645 7.8 %
Bookings $ 3,151 $ 2,807 $ 344 12.3 %

Revenue
Our revenue generation of $960 million for the three months ended September 30, 2025 represents an increase of $148 million, or 18.2%, as compared to the three months ended September 30, 2024. The revenue increase is primarily attributed to our continued backlog growth across each of our operating
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segments. This is highlighted by our efforts within force protection, electric power and propulsion and advanced sensing activities.
Our revenue generation of $2,588 million for the nine months ended September 30, 2025 represents an increase of $335 million, or 14.9%, as compared to the nine months ended September 30, 2024. The revenue increase is primarily attributed to our continued backlog growth across each of our operating segments. This is highlighted by our efforts within advanced sensing, electric power and propulsion and force protection activities.
Cost of Revenues
Cost of revenues increased by $105 million, or 16.6%, to $738 million for the three months ended September 30, 2025 as compared to $633 million for the three months ended September 30, 2024. The cost of revenues increase was primarily due to the increased revenue contribution realized during the period and the impact of additional charges realized on a long range surveillance program, which was partially offset by favorable revenue mix and efficient execution on Columbia Class programs.
Cost of revenues increased by $236 million, or 13.5%, to $1,988 million for the nine months ended September 30, 2025 as compared to $1,752 million for the nine months ended September 30, 2024. The cost of revenues increase was primarily due to the increased revenue contribution realized during the period, increased cost of germanium on our infrared products, and the impact of the surveillance program charge, partially offset by efficient execution on Columbia Class programs, favorable mix and overall improvement in program execution.
Gross Profit
Gross profit increased by $43 million, or 24.0%, to $222 million for the three months ended September 30, 2025 and increased by $99 million, or 19.8%, to $600 million for the nine months ended September 30, 2025 as compared to the same periods in the prior year, resulting from the revenue and cost of revenues trends noted above. The gross profit increase, favorable mix and overall program performance, including on the Columbia Class program, drove an expansion of 110 basis points and 100 basis points in our gross margin for the three and nine months ended September 30, 2025, respectively.
General and Administrative Expenses
G&A expenses increased by $25 million, or 25.5%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to increased internal research and development expenditures and costs related to bid and proposal efforts for new contractual pursuits.
G&A expenses increased by $55 million, or 18.0%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to increased internal research and development expenditures, costs related to bid and proposal efforts for new contractual pursuits and increases attributed to performance-related compensation.
Amortization of Intangibles
Amortization of intangibles was relatively consistent for the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024.
Other Operating Expenses, Net
Other operating expenses were $1 million for the three and nine months ended September 30, 2025 compared to zero and $5 million for the three and nine months ended September 30, 2024, respectively.
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The expense in the periods presented are attributed to restructuring efforts that were implemented in our ASC segment.
Operating Earnings
Operating earnings increased by $18 million to $93 million for the three months ended September 30, 2025 and increased by $49 million to $222 million for the nine months ended September 30, 2025 as compared to the same periods in the prior year. The increases were driven by the gross profit impacts noted above.
Interest Expense, Net
Net interest expense decreased by $1 million to $4 million for the three months ended September 30, 2025 and decreased by $10 million to $7 million for the nine months ended September 30, 2025 as compared to the same periods in the prior year. The reduction in net interest expense is attributed to increased interest income as a result of higher cash balances and reduced borrowings on our credit facilities during the current year period.
Other, Net
Other, net remained relatively consistent for the three and nine months ended September 30, 2025 as compared to the same periods in the prior year.
Earnings Before Taxes
Earnings before taxes increased by $18 million to $87 million for the three months ended September 30, 2025 and increased by $59 million to $212 million for the nine months ended September 30, 2025, as compared to the same periods in the prior year. This was primarily due to the increases in operating earnings and decreased net interest expense as noted above.
Income Tax Provision
Income tax provision increased by $3 million and $7 million for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in the prior year. This was attributed to an increase in earnings before taxes noted above, offset by the recognition of discrete tax benefits associated with employee stock vesting that occurred during the nine months ended September 30, 2024. Our effective tax rate was 17.2% and 17.0% for the three and nine months ended September 30, 2025, respectively, compared to 17.4% and 19.0% for the nine months ended September 30, 2024, respectively.
Net Earnings
Net earnings increased by $15 million to $72 million for the three months ended September 30, 2025 and increased by $52 million to $176 million for the nine months ended September 30, 2025, as compared to the same periods in the prior year. This was driven by an increase in earnings before taxes coupled with the changes in our effective tax rate as noted above.
Backlog
Total backlog includes the following components:
(1) Funded - Funded backlog represents the revenue value of orders for products and services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts.
(2) Unfunded - Unfunded backlog represents the revenue value of firm orders for products and services under existing contracts for which funding has not yet been appropriated less funding previously recognized on these contracts.
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The following table summarizes the value of our backlog, incorporating both funded and unfunded components:
(Dollars in millions) September 30, 2025 September 30, 2024
Funded $ 4,678 $ 3,899
Unfunded 4,231 4,365
Total backlog $ 8,909 $ 8,264
Backlog increased by $645 million to $8,909 million as of September 30, 2025, from $8,264 million as of September 30, 2024. The backlog increase was driven primarily by the receipt of new awards within our ASC and IMS segments.
Bookings
We define bookings as the total value of contract awards received from the U.S. government for which it has appropriated funds and legally obligated such funds to the Company through a contract or purchase order, plus the funded value of contract awards and orders received from customers other than the U.S. government.
Bookings for the three months ended September 30, 2025 increased to $1,307 million as compared to $1,051 million for the three months ended September 30, 2024. Bookings for the nine months ended September 30, 2025 increased to $3,151 million as compared to $2,807 million for the nine months ended September 30, 2024. The increase in new orders was driven by both segments. See “—Review of Operating Segments” below for more detail.
Factors Impacting Our Performance
U.S. Government Spending and Federal Budget Uncertainty
Changes in the volume and relative mix of U.S. and allied government spending as well as areas of spending growth, including due to the evolution of warfare, could impact our business and results of operations. In particular, our results can be affected by shifts in strategies and priorities on homeland security, intelligence, defense-related programs, infrastructure and urbanization and continued increased spending on technology and innovation, including cybersecurity with respect to our and third parties’ information networks and related systems, artificial intelligence, connected communities and physical infrastructure (for example, the potential impacts for the Russia / Ukraine conflict and the Israel-Hamas war). Cost-cutting and efficiency initiatives, increasing nationalization efforts, current and future budget restrictions, spending cuts and other efforts to reduce government spending and shifts in overall priorities could cause our government customers to reduce or delay funding or invest appropriated funds on a less consistent basis or not at all, and demand for our solutions or services could diminish. Existing contracts could also be canceled due to changes in need and prioritization. Furthermore, any disruption in the functioning of government agencies, including as a result of government closures and shutdowns, could have a negative impact on our operations and cause us to lose revenue or incur additional costs due to, among other things, our inability to maintain access and schedules for government testing or deploy our staff to customer locations or facilities as a result of such disruptions.
There is also uncertainty around the timing, extent, nature and effect of Congressional and other U.S. government actions to address budgetary constraints, caps on certain discretionary budgets, and the ability of Congress to determine how to allocate the available budget authority and pass appropriations bills to fund U.S. government departments and agencies. Additionally, budget deficits and the growing U.S. national debt, may increase pressure on the U.S. government to reduce federal spending across all federal agencies, with uncertainty about the size and timing of those reductions. Furthermore, delays in the completion of future U.S. government budgets could in the future delay procurement of the federal government services we provide. A reduction in the amount of, or reductions, delays, or cancellations of funding for, services that we are contracted to provide to the U.S. government as a result of any of these
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impacts or related initiatives, legislation or otherwise could have a material adverse effect on our business and results of operations. See Part I, Item 1A, “Risk Factors—Risks Related to Our Business—Significant delays or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly may negatively impact our business and could have a material adverse impact on our business, financial condition and results of operations” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Considerations—Business Environment” in our Annual Report on Form 10-K for the year ended December 31, 2024, and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Considerations—Business Environment” in this Quarterly Report for further details on U.S. government spending’s impact on our business.
Operational Performance on Contracts
The Company recognizes revenue for each separately identifiable performance obligation in a contract representing an obligation to transfer a distinct good or service to a customer. In most cases, goods and services provided under the Company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of our products and services. These contracts generally require significant integration of a group of goods and/or services to deliver a combined output. In some contracts, the Company provides multiple distinct goods or services to a customer. In those cases, the Company accounts for the distinct contract deliverables as separate performance obligations and allocates the transaction price to each performance obligation based on its relative standalone selling price, which is generally estimated using cost plus a reasonable margin. While the Company provides warranties on certain contracts, we typically do not provide for services beyond standard assurances and therefore do not consider warranties to be separate performance obligations. Typically, we enter into three types of contracts: fixed-price contracts, cost-plus contracts and time-and-materials (“T&M”) contracts. The majority of our total revenues are derived from fixed-price contracts; refer to the revenue disaggregation disclosures in Note 2: Revenue from Contracts with Customers to the Consolidated Financial Statements.
For fixed-price contracts, customers agree to pay a fixed amount, negotiated in advance for a specified scope of work.
For cost-plus contracts, typically we are reimbursed for allowable or otherwise defined total costs (defined as cost of revenues plus allowable general and administrative expenses) incurred, plus a fee. The contracts may also include incentives for various performance criteria, including quality, timeliness and cost-effectiveness. In addition, costs are generally subject to review by clients and regulatory audit agencies, and such reviews could result in costs being disputed as non-reimbursable under the terms of the contract.
T&M contracts provide for reimbursement of labor hours expended at a contractual fixed labor rate per hour, plus the actual costs of material and other direct non-labor costs. The fixed labor rates on T&M contracts include amounts for the cost of direct labor, indirect contract costs and profit.
Revenue from contracts with customers is recognized when the performance obligations are satisfied through the transfer of control over the good or service to the customer, which may occur either over time or at a point in time.
Revenues for the majority of our contracts are measured using the over time, percentage of completion cost-to-cost method of accounting to calculate percentage of completion. We believe this is an appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately depicts the progress of our work and transfer of control to our customers. Due to the long-term nature of many of our contracts, developing the estimated transaction price and total cost at completion often requires judgment. The estimated transaction price may include variable consideration such as performance incentives, requests for equitable adjustment (“REAs”) and claims. Variable consideration is included in the estimated transaction price only to the extent it is probable that a significant reversal of
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cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance.
After establishing the estimated total cost at completion, we follow a standard Estimate at Completion (“EAC”) process in which we review the progress and performance on our ongoing contracts. The following represents the net impact that changes in our estimates, particularly those regarding our fixed-price programs, have had on our revenues for the three and nine months ended September 30, 2025 and 2024:
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2025 2024 2025 2024
Revenue $ 5 $ (10) $ (4) $ (29)
Total % of revenue
1 % 1 % — % 1 %
Additionally, the timing of our cash flows is impacted by the timing of achievement of billable milestones on contracts. Historically, this has resulted and could continue to result in fluctuations in working capital levels and quarterly cash provided by (used in) operating activities results. As a result of such quarterly fluctuations in cash flow results, we believe that quarter-to-quarter comparisons of our results of operations may not necessarily be meaningful and should not be relied upon as indicators of future performance.
Regulations
Increased audit, review, investigation and general scrutiny by U.S. government agencies of performance under government contracts and compliance with the terms of those contracts and applicable laws could affect our operating results. Negative publicity and increased scrutiny of government contractors in general, including us, relating to government expenditures for contractor services and incidents involving the mishandling of sensitive or classified information as well as the increasingly complex requirements of the DoD and the U.S. intelligence community, including those related to cybersecurity, could impact our ability to perform in the markets we serve.
International Sales
International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 9% and 13% of our revenue for the nine months ended September 30, 2025 and 2024, respectively. The decrease in international revenues is primarily attributed to the timing of certain dismounted soldier sensing program sales to Eastern European countries realized in the first quarter of the prior year. Despite the reduction of international sales for the current year period, given the trend of international defense investment and the continuing conflicts in both Ukraine and Israel, we anticipate that international sales will drive future growth opportunities. However, we remain subject to the spending levels, pace and priorities of the U.S. government as well as international governments and commercial customers, and to general economic conditions that could adversely affect us, our customers and our suppliers.
Additionally, some international sales may expose us to foreign exchange fluctuations and changing dynamics of foreign competitiveness based on variations in the value of the U.S. dollar relative to other currencies. The impact of those fluctuations is reflected throughout our Consolidated Financial Statements, but in the aggregate, did not have a material impact on our results of operations for the nine months ended September 30, 2025.
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Acquisitions
We consider the acquisition of businesses and investments that we believe will expand or complement our current portfolio and allow access to new customers or technologies. We also may explore the divestiture of businesses that no longer meet our needs or strategy or that could perform better outside of our organization.
Review of Operating Segments
The following is a discussion of operating results for each of our operating segments. We have elected to use revenue, operating earnings, operating margin, and bookings to provide detailed
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information on our segment performance. Additional information regarding our segments can be found in Note 15: Segment Information to the Consolidated Financial Statements.
Three Months Ended September 30, Change
(Dollars in millions) 2025 2024 $ %
Revenues:
ASC $ 580 $ 533 $ 47 8.8 %
IMS 383 285 98 34.4 %
Corporate & Eliminations (3) (6) 3 (50.0) %
Total revenues $ 960 $ 812 $ 148 18.2 %
Operating earnings:
ASC $ 45 $ 45 $ — — %
IMS 48 31 17 54.8 %
Corporate & Eliminations — (1) 1 (100.0) %
Total operating earnings $ 93 $ 75 $ 18 24.0 %
Operating margin:
ASC 7.8 % 8.4 %
IMS 12.5 % 10.9 %
Bookings:
ASC $ 757 $ 685 $ 72 10.5 %
IMS 550 366 184 50.3 %
Total bookings $ 1,307 $ 1,051 $ 256 24.4 %
Nine Months Ended September 30, Change
(Dollars in millions) 2025 2024 $ %
Revenues:
ASC $ 1,633 $ 1,458 $ 175 12.0 %
IMS 964 812 152 18.7 %
Corporate & Eliminations (9) (17) 8 (47.1) %
Total revenues $ 2,588 $ 2,253 $ 335 14.9 %
Operating earnings:
ASC $ 107 $ 101 $ 6 5.9 %
IMS 115 77 38 49.4 %
Corporate & Eliminations — (5) 5 (100.0) %
Total operating earnings $ 222 $ 173 $ 49 28.3 %
Operating margin:
ASC 6.6 % 6.9 %
IMS 11.9 % 9.5 %
Bookings:
ASC $ 1,985 $ 1,888 $ 97 5.1 %
IMS 1,166 919 247 26.9 %
Total bookings $ 3,151 $ 2,807 $ 344 12.3 %
ASC
Revenue
The ASC segment reported revenue of $580 million for the three months ended September 30, 2025, an increase of 8.8%, or $47 million, from the three months ended September 30, 2024. The revenue increase is attributed to our advanced sensing programs. Within our advanced sensing portfolio, revenue
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growth is highlighted by increased revenue within our dismounted and ground vehicle sensing applications.
The ASC segment reported revenue of $1,633 million for the nine months ended September 30, 2025, an increase of 12.0%, or $175 million, from the nine months ended September 30, 2024. The revenue increase is attributed to our advanced sensing, network computing and force protection programs. ASC revenue growth is highlighted by increased revenue within our advanced sensing portfolio (dismounted and ground vehicle), network computing programs which benefited by our efforts within the U.S. Navy, and force protection programs which benefited by continued expansion of our tactical radars to support C-UAS and other short-range threats.
Operating Earnings and Operating Margin
Operating earnings was consistent for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024 despite the increased revenue. This drove operating margin to 7.8% for the three months ended September 30, 2025 compared to the 8.4% realized during the three months ended September 30, 2024. The operating margin decrease is primarily attributed to increased investment in internal research and development efforts and G&A expenditures during the period.
For the nine months ended September 30, 2025, operating earnings increased by $6 million, or 5.9%, to $107 million for the nine months ended September 30, 2025 from $101 million for the nine months ended September 30, 2024. The increase was driven by increased revenue contribution and a reduction in restructuring expenditures, offset by the increased cost of germanium on our infrared programs and increased G&A and internal research and development expenditures. The net of these impacts drove operating margin to 6.6% for the nine months ended September 30, 2025 compared to the 6.9% realized during the nine months ended September 30, 2024.
Bookings
For the three months ended September 30, 2025, bookings increased $72 million, or 10.5%, from the three months ended September 30, 2024 to $757 million. The increase in bookings is largely attributed to certain dismounted soldier and airborne sensing programs received during the period.
For the nine months ended September 30, 2025, bookings increased $97 million, or 5.1%, from the nine months ended September 30, 2024 to $1,985 million. The increase in new awards is largely attributed to bookings received for ground vehicle and tactical radar sensor programs coupled with additional awards received for pilot training and force protection efforts. This was partially offset by a reduction in new awards received for tactical computing and dismounted soldier sensing programs.
IMS
Revenue
IMS segment revenue increased by $98 million, or 34.4%, to $383 million for the three months ended September 30, 2025 from $285 million for the three months ended September 30, 2024, which is attributed to increased revenue generated from our force protection programs, highlighted by our efforts in counter drone capabilities.
IMS segment revenue increased by $152 million, or 18.7%, to $964 million for the nine months ended September 30, 2025 from $812 million for the nine months ended September 30, 2024, which is attributed to increased revenue generated from our naval power programs for both submarine and surface ships.
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On the land side, force protection programs including counter drone and short-range air defense programs also contributed to the year over year increase.
Operating Earnings and Operating Margin
For the three months ended September 30, 2025, operating earnings increased by $17 million, or 54.8%, to $48 million for the three months ended September 30, 2025 from $31 million for the three months ended September 30, 2024. The increase for the period is attributed to operational leverage created by the increased revenue as well as continued program improvement on our Columbia Class submarine program, offset in part by program delays on a surveillance program, resulting in a net operating margin increase to 12.5% compared to the 10.9% realized during the three months ended September 30, 2024.
For the nine months ended September 30, 2025, operating earnings increased by $38 million, or 49.4%, to $115 million for the nine months ended September 30, 2025 from $77 million for the nine months ended September 30, 2024. The increase for the period is attributed to operational leverage created by the increased revenue output as well as continued program improvement on our Columbia Class submarine program, offset in part by program delays on a surveillance program, resulting in a net operating margin increase to 11.9% compared to the 9.5% realized during the nine months ended September 30, 2024.
Bookings
For the three months ended September 30, 2025, bookings increased by $184 million, or 50.3%, from the three months ended September 30, 2024 to $550 million. The increase for the three months ended is largely attributed to funding received for the next vehicle set for our counter drone capabilities.
For the nine months ended September 30, 2025, bookings increased by $247 million, or 26.9%, from the nine months ended September 30, 2024 to $1,166 million. The increase for the nine months ended is largely attributed to funding received for the counter drone and short range air defense efforts within our force protection business coupled with continued demand across our naval power portfolio.
Liquidity and Capital Resources
We endeavor to ensure the most efficient conversion of operating income into cash for deployment in our business and to maximize stockholder value through cash deployment activities. In addition to our cash position, we use various financial measures to assist in capital deployment decision-making, including cash provided by (used in) operating activities. We believe that the combination of our existing cash, access to credit facilities as described in Note 10: Debt to the Consolidated Financial Statements, and future cash that we expect to generate from our operations will be sufficient to meet our short and long-term liquidity needs. There can be no assurance, however, that our business will continue to generate cash flow at current levels or that anticipated operational improvements will be achieved. We may also pursue acquisitions or other strategic priorities that will require additional liquidity beyond the liquidity we generate through our operations. Our cash balance as of September 30, 2025, was $309 million compared to $598 million as of December 31, 2024.
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The following table summarizes our cash flows for the periods presented:
Nine Months Ended September 30,
(Dollars in millions) 2025 2024
Net cash used in operating activities $ (59) $ (172)
Net cash used in investing activities (105) (55)
Net cash used in financing activities (125) (42)
Effect of exchange rate changes on cash and cash equivalents — —
Net decrease in cash and cash equivalents $ (289) $ (269)

Operating Activities
Cash usage related to operating activities decreased by $113 million to $59 million for the nine months ended September 30, 2025, from $172 million for the nine months ended September 30, 2024. This was primarily due to lower cash used to fund working capital for the nine months ended September 30, 2025 when compared to the nine months ended September 30, 2024.
Investing Activities
Net cash used in investing activities increased by $50 million for the nine months ended September 30, 2025 when compared to the nine months ended September 30, 2024, primarily due to higher capital expenditures attributed to our naval expansion project in South Carolina and a $15 million investment to extend our ownership stake in Hoverfly Technologies, a tethered UAV company.
Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2025 was $125 million compared to $42 million for the nine months ended September 30, 2024. The change was primarily due to cash outlays related to dividends paid in the current period, higher payments of employee taxes withheld from share-based awards, and share buy backs under the share repurchase program announced in the first quarter of 2025. This was partially offset by the net change in third party borrowings (maturities of 90 days or less) in the current period when compared to the same period in the prior year.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2024.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Equity Risk
We currently have limited risk related to fluctuations in marketable securities. Outside of pension assets, the only investments the Company holds are overnight money market accounts. Fluctuations are unlikely and would have limited impact on the financial statements of the Company.
Interest Rate Risk
We are exposed to interest rate risk on variable rate borrowings under our 2022 Term Loan A, which had an outstanding balance of $194 million, and our 2022 Revolving Credit Facility, which had no amounts outstanding, as of September 30, 2025. A 0.5% increase or decrease in our weighted average interest rate on our variable debt outstanding as of September 30, 2025 would result in an increase or decrease in our annual interest expense of approximately $1 million. The carrying value of the Company’s borrowings under the 2022 Credit Agreement approximate their fair values at September 30, 2025. See Note 10: Debt to the Consolidated Financial Statements for additional information.
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Foreign Currency Risk
In certain circumstances, we may be exposed to foreign currency risk. However, as the overwhelming majority of our revenue is derived from U.S. sources directly as a prime contractor or indirectly as a subcontractor for the U.S. government as end-customer, we have limited foreign currency exposure. Currently, our exposure is primarily with the Canadian dollar and limited to immaterial receivables owed as of September 30, 2025. A 10% fluctuation in exchange rates would not have a material impact on our financial statements. We do not enter into or issue derivative instruments for trading purposes.
Inflation Risk
We have experienced inflationary pressures to our supply chain costs, including those associated with micro-electronics, commodities (e.g., metals), and others. These costs have impacted our profitability. Bids for longer-term firm-fixed price contracts typically include assumptions for labor and other cost escalations in amounts that have been sufficient to cover cost increases over the period of performance. However, these costs could rise further and may not be mitigated. As a result, they could affect our financial results negatively in the future.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the quarterly period ended September 30, 2025, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2025.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarterly period ended September 30, 2025 covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information relating to legal proceedings, see Note 13: Commitments and Contingencies to the Consolidated Financial Statements in Part 1, Item 1.
ITEM 1A. RISK FACTORS
As of the date of this Quarterly Report, there have been no material changes to the risk factors discussed under “Risk Factors” in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, except for the updated risk factor included in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2025.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes our repurchases of common stock during the three months ended September 30, 2025:
Period
Total Number of Shares (or Units) Purchased
Average Price Paid per Share (or Unit)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs (1)
Approximate Dollar Value of Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs (1)
(Dollars in millions, except per share amounts)
July 1, 2025 - July 31, 2025 78,718 $ 47.01 78,718 $ 58
August 1, 2025 - August 31, 2025 84,712 41.70 84,712 54
September 1, 2025 - September 30, 2025 84,128 $ 41.99 84,128 $ 51
Total
247,558 247,558
________________
(1) On February 20, 2025, the Company announced that its Board approved a share repurchase program that allows the Company to purchase up to $75 million of its outstanding common stock through March 4, 2027, subject to market conditions. All repurchased shares are expected to be retired.
Share repurchases are at the discretion of our Board and will depend upon our financial condition, results of operations, capital requirements, alternative uses of capital and other factors that our Board may consider at its discretion.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Securities Trading Plans of Directors and Executive Officers
During the three months ended September 30, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted , modified or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" as such terms are defined under Item 408 of Regulation S-K.
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ITEM 6. EXHIBITS
Exhibit
Number 		Exhibit Description
31.1*
31.2*
32.1*
32.2*
101.INS XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: October 29, 2025
LEONARDO DRS, INC.
By: /s/ William J. Lynn III
Name: William J. Lynn III
Title: Chief Executive Officer
/s/ Michael D. Dippold
Name: Michael D. Dippold
Title: Executive Vice President and Chief Financial Officer
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TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial Statements (unaudited)Note 1. Summary Of Significant Accounting PoliciesNote 2. Revenue From Contracts with CustomersNote 3. Accounts ReceivableNote 4: Sale Of ReceivablesNote 4. Sale Of ReceivablesNote 5. InventoriesNote 6. Property, Plant and EquipmentNote 7. Other LiabilitiesNote 8. Intangible AssetsNote 9. Income TaxesNote 10. DebtNote 11. Derivative InstrumentsNote 12. Earnings Per Share ( Eps ), Share Repurchases and DividendsNote 13. Commitments and ContingenciesNote 14. Related Party TransactionsNote 15. Segment InformationNote 16. Subsequent EventsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsNote 2: Revenue From Contracts with CustomersNote 15: Segment InformationNote 10: DebtItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsNote 13: Commitments and ContingenciesItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits

Exhibits

31.1* Certification by principal executive officer pursuant to Rule13a-14(a)or 15d-14(a)under the Securities Exchange Act of 1934, as adopted pursuant to Section302 of the Sarbanes-Oxley Act of 2002 31.2* Certification by principal financial officer pursuant to Rule13a-14(a)or 15d-14(a)under the Securities Exchange Act of 1934, as adopted pursuant to Section302 of the Sarbanes-Oxley Act of 2002 32.1* Certification by principal executive officer pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002 32.2* Certification by principal financial officer pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002