# Leonardo DRS, Inc.: Form 10-Q for the period ended Jun 30, 2025

- Company: [Leonardo DRS, Inc.](/companies/drs.md) (CIK 1833756)
- Form: 10-Q
- Filed: 2025-07-30
- Accepted by EDGAR: Jul 30, 2025, 16:06 ET
- Period: 2025-06-30
- Accession: 0001628280-25-036706
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1833756/000162828025036706/drs-20250630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1833756/000162828025036706/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2025-04-01 to 2025-06-30 | $829.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2025-01-01 to 2025-06-30 | $1.63bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2025-04-01 to 2025-06-30 | $632.0m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2025-01-01 to 2025-06-30 | $1.25bn | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2025-04-01 to 2025-06-30 | $197.0m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2025-01-01 to 2025-06-30 | $378.0m | us-gaap:GrossProfit |
| Research and development | 3 months, 2025-04-01 to 2025-06-30 | $30.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2025-01-01 to 2025-06-30 | $58.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2025-04-01 to 2025-06-30 | $70.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2025-01-01 to 2025-06-30 | $129.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2025-04-01 to 2025-06-30 | $13.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2025-01-01 to 2025-06-30 | $21.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2025-04-01 to 2025-06-30 | $54.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2025-01-01 to 2025-06-30 | $104.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2025-04-01 to 2025-06-30 | $0.20 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2025-01-01 to 2025-06-30 | $0.39 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2025-04-01 to 2025-06-30 | $0.20 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2025-01-01 to 2025-06-30 | $0.39 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2025-04-01 to 2025-06-30 | 269,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2025-01-01 to 2025-06-30 | 268,800,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2025-01-01 to 2025-06-30 | −$166.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2025-01-01 to 2025-06-30 | $60.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2025-01-01 to 2025-06-30 | $14.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2025-06-30 | $278.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2025-06-30 | $2.02bn | us-gaap:AssetsCurrent |
| Total assets | at 2025-06-30 | $4.08bn | us-gaap:Assets |
| Current liabilities | at 2025-06-30 | $958.0m | us-gaap:LiabilitiesCurrent |
| Current portion of debt | at 2025-06-30 | $22.0m | us-gaap:DebtCurrent |
| Short-term borrowings | at 2025-06-30 | $1.0m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2025-06-30 | $2.60bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,595 characters.

*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 six months ended June 30, 2025, accounted for approximately 80% 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 40% and 33%, 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. 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 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. These products help support the DoD’s need for greater situational understanding at the tactical edge by rapidly transmitting 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 EW equipment, reconnaissance and surveillance systems, 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, 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 June 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 80% and 82% of our total revenues for the six months ended June 30, 2025 and 2024, respectively. 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 six months ended June 30, 2025, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 40% and 33%, respectively, of our total revenues for the six months ended June 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.

In March 2025, Congress passed a full-year Continuing Resolution (“CR”) to fund the government through the end of fiscal year (“FY”) 2025. The CR authorizes slightly higher spending than FY 2024 levels for defense and allows significant flexibility in how the DoD funds its priorities. This full-year CR prevented a U.S. government shutdown in FY 2025. However, the extended CR and its flexibility has the potential to impact program funding and as a consequence, results of operations including, but not limited to, program cancellations, schedule delays, production halts and other disruptions. Additionally, the current U.S. administration has discussed various changes to defense spending levels ranging from across-the-board percentage cuts, to a change in spending allocations in favor of new priorities, and potential increases in the top-line spending profile. It remains unclear whether and to what extent the DoD’s budget may change and, if it does, to what extent our business, financial condition and results of operations may be affected.

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. 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 six months ended June 30, 2025. Our remaining revenue was generated from service related contracts. Additionally, 86% of our revenue was derived from firm-fixed price contracts for the six months ended June 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 82% for the six months ended June 30, 2024.

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 six months ended June 30, 2025 and 2024, flexibly priced contracts represented 14% and 18% 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 six months ended June 30, 2025 as compared to the three and six months ended June 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 various types of production contracts and varying delivery schedules. Accordingly, operating results in a particular period may not be indicative of future operating results.

*(Dollars in millions, except per share amounts)*

|  | Three Months Ended June 30, 2025 | 2024 | Change $% |  |  |
| --- | ---: | ---: | ---: | --- | ---: |
| Total revenues | $829 | $753 | $76 |  | 10.1% |
| Total cost of revenues | (632) | (584) | (48) |  | 8.2% |
| Gross profit | $197 | $169 | $28 |  | 16.6% |
| Gross margin | 23.8% | 22.4% | 140 | bps |  |
| General and administrative expenses | (121) | (107) | (14) |  | 13.1% |
| Amortization of intangibles | (6) | (6) | — |  | —% |
| Other operating expenses, net | — | (1) | 1 |  | (100.0)% |
| Operating earnings | $70 | $55 | $15 |  | 27.3% |
| Interest expense, net | (2) | (7) | 5 |  | (71.4)% |
| Other, net | (1) | (1) | — |  | —% |
| Earnings before taxes | $67 | $47 | $20 |  | 42.6% |
| Income tax provision | 13 | 9 | 4 |  | 44.4% |
| Net earnings | $54 | $38 | $16 |  | 42.1% |
| Basic EPS | $0.20 | $0.14 | $0.06 |  | 42.9% |
| Diluted EPS | $0.20 | $0.14 | $0.06 |  | 42.9% |
| Backlog | $8,607 | $7,925 | $682 |  | 8.6% |
| Bookings | $853 | $941 | $(88) |  | (9.4)% |

22

*(Dollars in millions, except per share amounts)*

|  | Six Months Ended June 30, 2025 | 2024 | Change $% |  |  |
| --- | ---: | ---: | ---: | --- | ---: |
| Total revenues | $1,628 | $1,441 | $187 |  | 13.0% |
| Total cost of revenues | (1,250) | (1,119) | (131) |  | 11.7% |
| Gross profit | $378 | $322 | $56 |  | 17.4% |
| Gross margin | 23.2% | 22.3% | 90 | bps |  |
| General and administrative expenses | (238) | (208) | (30) |  | 14.4% |
| Amortization of intangibles | (11) | (11) | — |  | —% |
| Other operating expenses, net | — | (5) | 5 |  | (100.0)% |
| Operating earnings | $129 | $98 | $31 |  | 31.6% |
| Interest expense, net | (3) | (12) | 9 |  | (75.0)% |
| Other, net | (1) | (2) | 1 |  | (50.0)% |
| Earnings before taxes | $125 | $84 | $41 |  | 48.8% |
| Income tax provision | 21 | 17 | 4 |  | 23.5% |
| Net earnings | $104 | $67 | $37 |  | 55.2% |
| Basic EPS | $0.39 | $0.25 | $0.14 |  | 56.0% |
| Diluted EPS | $0.39 | $0.25 | $0.14 |  | 56.0% |
| Backlog | $8,607 | $7,925 | $682 |  | 8.6% |
| Bookings | $1,844 | $1,756 | $88 |  | 5.0% |

### Revenue

Our revenue generation of $829 million for the three months ended June 30, 2025 represents an increase of $76 million, or 10.1%, as compared to the three months ended June 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 electric power and propulsion and advanced sensing activities.

Our revenue generation of $1,628 million for the six months ended June 30, 2025 represents an increase of $187 million, or 13.0%, as compared to the six months ended June 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 $48 million, or 8.2%, to $632 million for the three months ended June 30, 2025 as compared to $584 million for the three months ended June 30, 2024. The cost of revenues increase was primarily due to the increased revenue contribution realized during the period, partially offset by efficient execution on Columbia Class programs.

Cost of revenues increased by $131 million, or 11.7%, to $1,250 million for the six months ended June 30, 2025 as compared to $1,119 million for the six months ended June 30, 2024. The cost of revenues increase was primarily due to the increased revenue contribution realized during the period and increased cost of germanium on our infrared products, partially offset by efficient execution on Columbia Class programs.

### Gross Profit

Gross profit increased by $28 million, or 16.6%, to $197 million for the three months ended June 30, 2025 and increased by $56 million, or 17.4%, to $378 million for the six months ended June 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 and higher profitability on our electric power and propulsion programs drove an expansion of 140bps and 90bps in our gross margin for the three and six months ended June 30, 2025, respectively.

### General and Administrative Expenses

G&A expenses increased by $14 million, or 13.1%, for the three months ended June 30, 2025 as compared to the three months ended June 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 $30 million, or 14.4%, for the six months ended June 30, 2025 as compared to the six months ended June 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 consistent for the three and six months ended June 30, 2025 as compared to the three and six months ended June 30, 2024.

### Other Operating Expenses, Net

Other operating expenses were zero for the three and six months ended June 30, 2025 compared to $1 million and $5 million for the three and six months ended June 30, 2024, respectively. The expenses in the prior year periods are attributed to restructuring efforts that were implemented in our ASC segment.

### Operating Earnings

Operating earnings increased by $15 million to $70 million for the three months ended June 30, 2025 and increased by $31 million to $129 million for the six months ended June 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 $5 million to $2 million for the three months ended June 30, 2025 and decreased by $9 million to $3 million for the six months ended June 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 six months ended June 30, 2025 as compared to the same periods in the prior year.

### Earnings Before Taxes

Earnings before taxes increased by $20 million to $67 million for the three months ended June 30, 2025 and increased by $41 million to $125 million for the six months ended June 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 $4 million for the three and six months ended June 30, 2025 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 six months ended June 30, 2024. Our effective tax rate was 19.4% and

16.8% for the three and six months ended June 30, 2025, respectively, compared to 19.1% and 20.2% for the six months ended June 30, 2024, respectively.

### Net Earnings

Net earnings increased by $16 million to $54 million for the three months ended June 30, 2025 and increased by $37 million to $104 million for the six months ended June 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.

The following table summarizes the value of our backlog, incorporating both funded and unfunded components:

*(Dollars in millions)*

|  | June 30, 2025 | June 30, 2024 |
| --- | ---: | ---: |
| Funded | $4,355 | $3,676 |
| Unfunded | 4,252 | 4,249 |
| **Total backlog** | $8,607 | $7,925 |

Backlog increased by $682 million to $8,607 million as of June 30, 2025, from $7,925 million as of June 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 value of contract awards and orders received from customers other than the U.S. government.

Bookings for the three months ended June 30, 2025 decreased to $853 million as compared to $941 million for the three months ended June 30, 2024. Bookings for the six months ended June 30, 2025 increased to $1,844 million as compared to $1,756 million for the six months ended June 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 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 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 six months ended June 30, 2025 and 2024:

*(Dollars in millions)*

|  | Three Months Ended June 30, 2025 | 2024 | Six Months Ended June 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $— | $(10) | $(9) | $(19) |
| 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 8% and 13% of our revenue for the six months ended June 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 be relatively consistent as a percentage of sales that we realized in the full year 2024. 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 six months ended June 30, 2025.

### 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 information on our segment performance. Additional information regarding our segments can be found in *Note 15: Segment Information* to the Consolidated Financial Statements.

*(Dollars in millions)*

| Revenues: | Three Months Ended June 30, 2025 | 2024 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| ASC | $542 | $492 | $50 | 10.2% |
| IMS | 290 | 266 | 24 | 9.0% |
| Corporate & Eliminations | (3) | (5) | 2 | (40.0)% |
| Total revenues | $829 | $753 | $76 | 10.1% |
| **Operating earnings:** |  |  |  |  |
| ASC | $37 | $37 | $— | —% |
| IMS | 33 | 21 | 12 | 57.1% |
| Corporate & Eliminations | — | (3) | 3 | (100.0)% |
| Total operating earnings | $70 | $55 | $15 | 27.3% |
| **Operating margin:** |  |  |  |  |
| ASC | 6.8% | 7.5% |  |  |
| IMS | 11.4% | 7.9% |  |  |
| **Bookings:** |  |  |  |  |
| ASC | $559 | $616 | $(57) | (9.3)% |
| IMS | 294 | 325 | (31) | (9.5)% |
| Total bookings | $853 | $941 | $(88) | (9.4)% |

*(Dollars in millions)*

| Revenues: | Six Months Ended June 30, 2025 | 2024 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| ASC | $1,053 | $925 | $128 | 13.8% |
| IMS | 581 | 527 | 54 | 10.2% |
| Corporate & Eliminations | (6) | (11) | 5 | (45.5)% |
| Total revenues | $1,628 | $1,441 | $187 | 13.0% |
| **Operating earnings:** |  |  |  |  |
| ASC | $62 | $56 | $6 | 10.7% |
| IMS | 67 | 46 | 21 | 45.7% |
| Corporate & Eliminations | — | (4) | 4 | (100.0)% |
| Total operating earnings | $129 | $98 | $31 | 31.6% |
| **Operating margin:** |  |  |  |  |
| ASC | 5.9% | 6.1% |  |  |
| IMS | 11.5% | 8.7% |  |  |
| **Bookings:** |  |  |  |  |
| ASC | $1,228 | $1,203 | $25 | 2.1% |
| IMS | 616 | 553 | 63 | 11.4% |
| Total bookings | $1,844 | $1,756 | $88 | 5.0% |

### ASC

#### Revenue

The ASC segment reported revenue of $542 million for the three months ended June 30, 2025, an increase of 10.2%, or $50 million, from the three months ended June 30, 2024. The revenue increase is attributed to both our advanced sensing and force protection programs. Within our advanced sensing portfolio, revenue growth is highlighted by increased revenue within our tactical computing programs and continued expansion of our C-UAS tactical radars.

The ASC segment reported revenue of $1,053 million for the six months ended June 30, 2025, an increase of 13.8%, or $128 million, from the six months ended June 30, 2024. The revenue increase is attributed to both our advanced sensing and force protection programs. Within our advanced sensing portfolio, revenue growth is highlighted by increased revenue within our advanced sensing portfolio (dismounted and ground vehicle), network computing programs and continued expansion of our C-UAS tactical radars within our force protection efforts.

#### Operating Earnings and Operating Margin

Operating earnings was consistent for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 despite the increased revenue. This drove operating margin to 6.8% for the three months ended June 30, 2025 compared to the 7.5% realized during the three months ended June 30, 2024. The operating margin decrease is primarily attributed to increased investment in internal research and development efforts during the period.

For the six months ended June 30, 2025, operating earnings increased by $6 million, or 10.7%, to $62 million for the six months ended June 30, 2025 from $56 million for the six months ended June 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 5.9% for the six months ended June 30, 2025 compared to the 6.1% realized during the six months ended June 30, 2024.

#### Bookings

For the three months ended June 30, 2025, bookings decreased $57 million, or 9.3%, from the three months ended June 30, 2024 to $559 million. The decrease in bookings is largely attributed to the timing of certain dismounted soldier and ground vehicle awards received in the prior year.

For the six months ended June 30, 2025, bookings increased $25 million, or 2.1%, from the six months ended June 30, 2024 to $1,228 million. The increase in new awards is largely attributed to bookings received for ground vehicle and tactical radar programs. This was partially offset by a reduction in new awards received for tactical computing programs.

### IMS

#### Revenue

IMS segment revenue increased by $24 million, or 9.0%, to $290 million for the three months ended June 30, 2025 from $266 million for the three months ended June 30, 2024, which is attributed to increased revenue generated from our naval power programs for both submarine and surface ships.

IMS segment revenue increased by $54 million, or 10.2%, to $581 million for the six months ended June 30, 2025 from $527 million for the six months ended June 30, 2024, which is attributed to increased revenue generated from our naval power programs for both submarine and surface ships. On the land side, short-range air defense programs also contributed to the year over year increase.

#### Operating Earnings and Operating Margin

For the three months ended June 30, 2025, operating earnings increased by $12 million, or 57.1%, to $33 million for the three months ended June 30, 2025 from $21 million for the three months ended June 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 our foreign surveillance program, resulting in a net operating margin increase to 11.4% compared to the 7.9% realized during the three months ended June 30, 2024.

For the six months ended June 30, 2025, operating earnings increased by $21 million, or 45.7%, to $67 million for the six months ended June 30, 2025 from $46 million for the six months ended June 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 our foreign surveillance program, resulting in a net operating margin increase to 11.5% compared to the 8.7% realized during the six months ended June 30, 2024.

#### Bookings

For the three months ended June 30, 2025, bookings decreased by $31 million, or 9.5%, from the three months ended June 30, 2024 to $294 million. The decrease for the three months ended is largely attributed to accelerated funding received for the next tranche of the Columbia Class program in the first quarter of 2025.

For the six months ended June 30, 2025, bookings increased by $63 million, or 11.4%, from the six months ended June 30, 2024 to $616 million. The increase for the six months ended is largely attributed to funding received for the next tranche of the Columbia Class program.

### 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 June 30, 2025, was $278 million compared to $598 million as of December 31, 2024.

The following table summarizes our cash flows for the periods presented:

*(Dollars in millions)*

|  | Six Months Ended June 30, 2025 | 2024 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(166) | $(231) |
| Net cash used in investing activities | (60) | (44) |
| Net cash used in financing activities | (94) | (43) |
| Effect of exchange rate changes on cash and cash equivalents | — | — |
| Net decrease in cash and cash equivalents | $(320) | $(318) |

### Operating Activities

Cash usage related to operating activities decreased by $65 million to $166 million for the six months ended June 30, 2025, from $231 million for the six months ended June 30, 2024. This was primarily due to lower cash used to fund working capital for the six months ended June 30, 2025 when compared to the six months ended June 30, 2024. The decrease in cash used to fund working capital for the period was driven by customer advances received on our electric propulsion programs within our IMS segment and on tactical radars within our ASC segment.

### Investing Activities

Net cash used in investing activities increased by $16 million for the six months ended June 30, 2025 when compared to the six months ended June 30, 2024, primarily due to higher capital expenditures attributed to our naval expansion project in South Carolina.

### Financing Activities

Net cash used in financing activities for the six months ended June 30, 2025 was $94 million compared to $43 million for the six months ended June 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.

## Market risk

As filed, 2,201 characters.

### 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 $197 million, and our 2022 Revolving Credit Facility, which had no amounts outstanding, as of June 30, 2025. A 0.5% increase or decrease in our weighted average interest rate on our variable debt outstanding as of June 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 June 30, 2025. See *Note 10: Debt* to the Consolidated Financial Statements for additional information.

### 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 receivables owed of $14 million as of June 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.

## Controls and procedures

As filed, 1,496 characters.

### 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 June 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 June 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 June 30, 2025 covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,733 characters.

***Third parties have claimed in the past and may claim in the future that we are infringing directly or indirectly upon their intellectual property rights, and third parties may infringe upon our intellectual property rights.***

Our ability to ensure a competitive market position and gain awards of contracts depends in part on our ability to ensure that our intellectual property is protected, that our intellectual property rights are not diluted or subject to misuse, that we are able to license certain third-party intellectual property on reasonable terms and that we are able to operate without infringing the intellectual property rights of others. Third parties have claimed in the past and may claim in the future that we are infringing directly or indirectly upon their intellectual property rights, and we may be found to be infringing or to have infringed directly or indirectly upon those intellectual property rights. For example, in June 2017 another defense contractor filed suit in the United States Court of Federal Claims alleging that the U.S. government had infringed upon four of its patents relating to night vision weapon systems under a contract awarded to one of our subsidiaries. Neither we nor our subsidiary were named as defendants in the case, and the U.S. government assumes all infringement liability. In July 2025 the litigation was settled. We elected to participate in the settlement to secure a license and avoid the uncertainty of any related claims or litigation.

As of the date of this Quarterly Report, there have been no other 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.

Filed Jul 30, 2025.
Source: SEC EDGAR, the filing index for accession 0001628280-25-036706. Last ingested by Listed: Nov 3, 2026, 22:12 ET. No prices; not investment advice.