Leonardo DRS Inc

Previous wording

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 U.S. Department of Defense (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.

Current wording

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.

Previous wording

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, 2024, 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 37% and 32%, respectively, of our total revenues for such period, which is consistent with historic trends.

Current wording

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 three months ended March 31, 2025, accounted for approximately 78% 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 32%, respectively, of our total revenues for such period, which is consistent with historic trends.

Previous wording

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 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.

Current wording

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.

Previous wording

In February 2022, Russia escalated its war with Ukraine by invading and occupying parts of that country. 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.

Current wording

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.

Previous wording

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 Technologies Ltd (“RADA”) operations with approximately 5% of our workforce as of September 30, 2024 residing in Israel.

Current wording

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 5% of our workforce as of March 31, 2025 residing in Israel.

Previous wording

Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 81% and 80% of our total revenues for the nine months ended September 30, 2024 and 2023, 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 nine months ended September 30, 2024, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 37% and 32%, respectively, of our total revenues for the nine months ended September 30, 2024. Therefore, our revenue is highly correlated to changes in U.S. government spending levels, especially within the DoD.

Current wording

Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 78% and 81% of our total revenues for the three months ended March 31, 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 three months ended March 31, 2025, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 38% and 32%, respectively, of our total revenues for the three months ended March 31, 2025. Therefore, our revenue is highly correlated to changes in U.S. government spending levels, especially within the DoD.

Previous wording

The DoD budget is the largest defense budget in the world. In March 2024, the U.S. President’s fiscal year (“FY”) 2025 budget request was released and included $850 billion for national defense programs, which marks a 1% increase over prior year levels. In April 2024, Congress passed and the President signed into law a national security supplemental package that provides for $95 billion in foreign aid for Ukraine, Israel, and the Indo-Pacific, which also includes over $3 billion of funding to support the submarine industrial base.

Current wording

The DoD budget is the largest defense budget in the world.

Previous wording

Under U.S. GAAP, contract costs, including allowable general and administrative expenses on certain government contracts, are charged to work in progress inventory and are written off to costs and expenses 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.

Current wording

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.

Previous wording

Revenue consists primarily of product related revenue, which represented 94% of our total revenues for the nine months ended September 30, 2024. Our remaining revenue was generated from service related contracts. Additionally, 83% of our revenue was derived from firm-fixed price contracts for the nine months ended September 30, 2024. This was consistent with the prior year comparable period which realized product related revenue of 93% and revenue from firm-fixed price contracts of 84% for the nine months ended September 30, 2023.

Current wording

Revenue consists primarily of product related revenue, which represented 94% of our total revenues for the three months ended March 31, 2025. Our remaining revenue was generated from service related contracts. Additionally, 86% of our revenue was derived from firm-fixed price contracts for the three months ended March 31, 2025. This was consistent with the prior year comparable period which realized product related revenue of 91% and revenue from firm-fixed price contracts of 83% for the three months ended March 31, 2024.

Previous wording

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, 2024 and 2023, flexibly priced contracts represented 17% and 16% of our total revenues, respectively.

Current wording

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 three months ended March 31, 2025 and 2024, flexibly priced contracts represented 14% and 17% of our total revenues, respectively.

Previous wording

General and administrative 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.

Current wording

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.

Previous wording

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, 2024, as compared to the three and nine months ended September 30, 2023. 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.

Current wording

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 months ended March 31, 2025 as compared to the three months ended March 31, 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.

Previous wording

Our revenue generation of $812 million for the three months ended September 30, 2024 represents an increase of $109 million, or 15.5%, as compared to the three months ended September 30, 2023. 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, force protection and weapon system support activities.

Current wording

Our revenue generation of $799 million for the three months ended March 31, 2025 represents an increase of $111 million, or 16.1%, as compared to the three months ended March 31, 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 network computing, electric power and propulsion and force protection activities.

Previous wording

Cost of revenues increased by $92 million, or 17.0%, from $541 million to $633 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The cost of revenues increase was primarily due to the increased revenue contribution realized during the period.

Current wording

Cost of revenues increased by $83 million, or 15.5%, to $618 million for the three months ended March 31, 2025 as compared to $535 million for the three months ended March 31, 2024. The cost of revenues increase was primarily due to the increased revenue contribution realized during the period and efficient execution on Columbia Class programs. This was offset in part by the escalating cost of germanium for our infrared products.

Previous wording

Gross profit increased by $17 million, or 10.5%, to $179 million for the three months ended September 30, 2024, as compared to $162 million for the three months ended September 30, 2023 and gross profit increased by $63 million, or 14.4%, to $501 million for the nine months ended September 30, 2024 as compared to $438 million for the nine months ended September 30, 2023, resulting from the revenue and cost of revenues trends noted above.

Current wording

Gross profit increased by $28 million, or 18.3%, to $181 million for the three months ended March 31, 2025 as compared to $153 million for the three months ended March 31, 2024, resulting from the revenue and cost of revenues trends noted above.

Previous wording

There were no other operating expenses for the three months ended September 30, 2024 compared to $2 million for the three months ended September 30, 2023. Other operating expenses were $5 million for the nine months ended September 30, 2024 compared to $10 million for the nine months ended September 30, 2023. The expense in both periods is attributed to restructuring efforts implemented in our ASC segment.

Current wording

Other operating expenses were zero for the three months ended March 31, 2025 compared to $4 million for the three months ended March 31, 2024. The expense in the prior year is attributed to restructuring efforts that were implemented in our ASC segment.

Previous wording

Operating earnings increased by $16 million to $75 million for the three months ended September 30, 2024. Operating earnings increased by $47 million to $173 million for the nine months ended September 30, 2024. The increase was driven by the gross profit impacts noted above.

Current wording

Operating earnings increased by $16 million to $59 million for the three months ended March 31, 2025. The increase was driven by the gross profit impacts noted above.

Previous wording

Interest expense decreased by $5 million to $5 million for the three months ended September 30, 2024, as compared to $10 million for the three months ended September 30, 2023. Interest expense decreased by $10 million to $17 million for the nine months ended September 30, 2024, as compared to $27 million for the nine months ended September 30, 2023. The reduction in interest expense is attributed to reduced borrowings on our credit facilities during the current year periods.

Current wording

Net interest expense decreased by $4 million to $1 million for the three months ended March 31, 2025, as compared to $5 million for the three months ended March 31, 2024. 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.

Previous wording

Other, net remained relatively consistent for the three and nine months ended September 30, 2024 and 2023.

Current wording

Other, net remained relatively consistent for the three months ended March 31, 2025 and 2024.

Previous wording

Earnings before taxes increased by $21 million to $69 million for the three months ended September 30, 2024 from $48 million for the three months ended September 30, 2023 and increased by $56 million to $153 million for the nine months ended September 30, 2024 from $97 million for the nine months ended September 30, 2023. This was primarily due to the increases in operating earnings and decreased interest expense as noted above.

Current wording

Earnings before taxes increased by $21 million to $58 million for the three months ended March 31, 2025 from $37 million for the three months ended March 31, 2024. This was primarily due to the increases in operating earnings and decreased interest expense as noted above.

Previous wording

Income tax provision increased by $11 million to $12 million for the three months ended September 30, 2024, from $1 million for the three months ended September 30, 2023. Income tax provision increased by $26 million to $29 million for the nine months ended September 30, 2024, from $3 million for the nine months ended September 30, 2023. This increase was attributed to an increase in earnings before taxes noted above, coupled with the recognition of a discrete tax benefit associated with historic research and development credits recorded during the three and nine months ended September 30, 2023. Our effective tax rate was 17.4% and 19.0% for the three and nine months ended September 30, 2024, respectively, compared to 2.1% and 3.1% for the three and nine months ended September 30, 2023, respectively.

Current wording

Income tax provision was consistent for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. This was attributed to an increase in earnings before taxes noted above, offset by the recognition of a discrete tax benefit associated with employee stock vesting that occurred during the three months ended March 31, 2025. Our effective tax rate was 13.8% for the three months ended March 31, 2025, compared to 21.6% for the three months ended March 31, 2024.

Previous wording

Net earnings increased by $10 million to $57 million for the three months ended September 30, 2024, when compared to the three months ended September 30, 2023. Net earnings increased by $30 million to $124 million for the nine months ended September 30, 2024, when compared to the nine months ended September 30, 2023. This was driven by an increase in earnings before taxes offset by the income tax provision increase as noted above.

Current wording

Net earnings increased by $21 million to $50 million for the three months ended March 31, 2025, when compared to the three months ended March 31, 2024. This was driven by an increase in earnings before taxes coupled with the reduction in our effective tax rate as noted above.

Previous wording

(1)Funded - Funded backlog represents the revenue value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts.

Current wording

(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.

Previous wording

The following table summarizes the value of our total backlog as of September 30, 2024, incorporating both funded and unfunded components:

Current wording

The following table summarizes the value of our backlog as of March 31, 2025, incorporating both funded and unfunded components:

Previous wording

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 the discretionary budget for defense and non-defense departments and agencies, and the ability of Congress to determine how to allocate the available budget authority and pass appropriations bills to fund both U.S. government departments and agencies that are, and those that are not, subject to the caps. 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, 2023, and Part I, Item 2,“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Considerations—Business

Current wording

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 the discretionary budget for defense and non-defense departments and agencies, and the ability of Congress to determine how to allocate the available budget authority and pass appropriations bills to fund both U.S. government departments and agencies that are, and those that are not, subject to the caps. 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.

Previous wording

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. We classify revenues as products or services on our Consolidated Statements of Earnings based on the predominant attributes of the performance obligations. 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-material (“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 Customersto the Consolidated Financial Statements.

Current wording

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 Customersto the Consolidated Financial Statements.

Previous wording

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 total cost at completion often requires judgment. 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.

Current wording

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.

Previous wording

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 development programs, have had on our revenues for the three and nine months ended September 30, 2024 and 2023, respectively:

Current wording

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 months ended March 31, 2025 and 2024:

Previous wording

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 free cash flow results. As a result of such quarterly fluctuations in free 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.

Current wording

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.

Previous wording

International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 13% and 9% of our revenue for the nine months ended September 30, 2024 and 2023, respectively. The increase is due in part to incremental demand resulting from higher defense spending within Eastern Europe, compounded by continued military aid programs in support of Ukraine in its conflict with Russia. These efforts are highlighted by demand for our battle management, tactical radars and C-UAS products. Since our focus is primarily with the DoD and our investments are focused as such, we anticipate that international sales will continue to account for a similar percentage of revenue in the future. 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.

Current wording

International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 7% and 14% of our revenue for the three months ended March 31, 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 quarter, 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.

Previous wording

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, 2024.

Current wording

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 three months ended March 31, 2025.

Previous wording

The following is a discussion of operating results for each of our operating segments. We have elected to use revenue, adjusted EBITDA, adjusted EBITDA margin, and bookings to provide detailed information on our segment performance. Additional information regarding our segments can be found in Note 15: Segment Informationto the Consolidated Financial Statements.

Current wording

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 14: Segment Informationto the Consolidated Financial Statements.

Previous wording

The ASC segment reported revenue of $533 million and $1,458 million for the three and nine months ended September 30, 2024, respectively, an increase of 23.7%, or $102 million, from the three months ended September 30, 2023 and 18.9%, or $232 million, from the nine months ended September 30, 2023. The revenue increase is attributed to both our advanced sensing and force protection programs. Within our advanced sensing portfolio, revenue growth is highlighted by our ground vehicle and dismounted soldier sensing programs while our force protection programs were enhanced by our tactical radar portfolio. This was offset in part by a reduction in airborne sensing revenue realized in the period.

Current wording

The ASC segment reported revenue of $511 million for the three months ended March 31, 2025, an increase of 18.0%, or $78 million, from the three months ended March 31, 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.

Previous wording

IMS segment revenue increased by $8 million, or 2.9%, to $285 million for the three months ended September 30, 2024 from $277 million for the three months ended September 30, 2023, which is attributed to increased contribution from our short-range air defense force protection programs. This was offset in part by a reduction in surface ship power program revenue realized during the period.

Current wording

IMS segment revenue increased by $30 million, or 11.5%, to $291 million for the three months ended March 31, 2025 from $261 million for the three months ended March 31, 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 contributed to the year over year increase.

Previous wording

For the nine months ended September 30, 2024, adjusted EBITDA increased by $20 million, or 27.8%, to $92 million for the nine months ended September 30, 2024 from $72 million for the nine months ended September 30, 2023. 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 the program delays on our foreign surveillance program, resulting in adjusted EBITDA margin up 90 bps to 11.3% compared to the 10.4% realized during the nine months ended September 30, 2023.

Current wording

For the three months ended March 31, 2025, operating earnings increased by $9 million, or 36.0%, to $34 million for the three months ended March 31, 2025 from $25 million for the three months ended March 31, 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 the program delays on our foreign surveillance program, resulting in a net operating margin increase to 11.7% compared to the 9.6% realized during the three months ended March 31, 2024.

Previous wording

For the nine months ended September 30, 2024 bookings increased by $110 million, or 13.6%, from the nine months ended September 30, 2023 to $919 million. The increase for the nine months ended is largely attributed to the receipt of short-range air defense program awards offset in part by accelerated receipt of Columbia Class funding in the prior year.

Current wording

For the three months ended March 31, 2025, bookings increased by $94 million, or 41.2%, from the three months ended March 31, 2024 to $322 million. The increase for the three months ended is largely attributed to funding received for the next tranche of the Columbia Class program along with the awards of additional short-range air defense program vehicles. The increased awards were offset in part by a reduction in fire system support programs.

Previous wording

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 and free cash flow, a non-GAAP measure described in more detail below. 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, 2024, was $198 million compared to $467 million as of December 31, 2023.

Current wording

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 March 31, 2025, was $380 million compared to $598 million as of December 31, 2024.

Previous wording

Cash usage related to operating activities decreased by $138 million from $310 million for the nine months ended September 30, 2023 to $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, 2024 when compared to the nine months ended September 30, 2023. The decrease in cash used to fund working capital for the period was caused by a reduction of investments made in contract assets during the period.

Current wording

Cash usage related to operating activities decreased by $127 million to $138 million for the three months ended March 31, 2025, from $265 million for the three months ended March 31, 2024. This was primarily due to lower cash used to fund working capital for the three months ended March 31, 2025 when compared to the three months ended March 31, 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. Additionally, we saw less cash outflow from our accounts payable.

Previous wording

Net cash used in investing activities increased by $13 million for the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023, primarily due to higher capital expenditures attributed to our naval expansion project in South Carolina.

Current wording

Net cash used in investing activities increased by $22 million for the three months ended March 31, 2025 when compared to the three months ended March 31, 2024, primarily due to higher capital expenditures attributed to our naval expansion project in South Carolina.

Previous wording

Net cash used in financing activities for the nine months ended September 30, 2024 was $42 million compared to net cash provided by financing activities of $93 million for the nine months ended September 30, 2023. The change was primarily due to the reduction of revolver borrowing, reducing the outstanding balance from $110 million at September 30, 2023 compared to no outstanding revolver balance at September 30, 2024. Additionally, we realized a higher net decrease in third party borrowings (maturities of 90 days or less) in the current period when compared to the same period in the prior year.

Current wording

Net cash used in financing activities for the three months ended March 31, 2025 was $48 million compared to $32 million for the three months ended March 31, 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 current period. Offsetting this was 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.