Leonardo DRS, Inc.

Previous wording

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.

Current wording

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” in this Quarterly Report and under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025. Actual results may differ materially from those contained in any forward-looking statements.

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 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, and electric power and propulsion technologies and solutions. The strength of our market positioning in these technology areas has created a foundational and diverse base of programs across the DoW and its allies. 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, 2025, accounted for approximately 81% of our business as an end-user, with revenues principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 38% and 36%, respectively, of our total revenues for such period, which is consistent with historic trends.

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 DoW. The U.S. government, primarily with the DoW, is our largest customer and, for the three months ended March 31, 2026, accounted for approximately 79% 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 39% and 35%, respectively, of our total revenues for such period, which is consistent with historic trends.

Previous wording

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.

Current wording

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 across increasingly complex and contested operating environments.

Previous wording

Our sensing capabilities span numerous applications, including missions requiring advanced passive and active detection, precision targeting and surveillance sensing, long range electro-optic/infrared (“EO/IR”), signals intelligence (“SIGINT”) and other intelligence systems, electronic warfare (“EW”), ground vehicle sensing, next generation active electronically scanned array tactical radars, dismounted soldier sensing and space sensing. Across our offerings, we are focused on advancing sensor distance and enhancing the precision, clarity, definition, spectral depth and effectiveness of our sensors in combination with artificial intelligence (“AI”), enabled by our advanced edge processing solutions. We also seek to leverage the knowledge and expertise built through our decades of experience to optimize size, weight, power and cost for our customers’ specific mission requirements.

Current wording

Our sensing capabilities span numerous applications, including missions requiring advanced 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 range and enhancing the precision, clarity, definition, spectral depth and effectiveness of our sensors to deliver actionable information in time-sensitive mission scenarios in combination with artificial intelligence (“AI”), enabled by our advanced edge processing solutions. We also seek to leverage the knowledge and expertise built through our decades of experience to optimize size, weight, power and cost for our customers’ specific mission requirements and to support integration onto a wide range of tactical platforms, including mobile and power-constrained systems.

Previous wording

Our sensing capabilities are complemented by our rugged, trusted and cyber resilient network edge computing products. Our network computing offerings are utilized across a broad range of mission applications including platform computing on ground and shipboard (both surface ship and submarine) for advanced battle management, combat systems, radar, command and control (“C2”), tactical networks, tactical computing and communications at the “edge” of the network and battlespace. These products help support the DoD’s need for greater situational understanding at the tactical edge by leveraging artificial intelligence and AI-optimized open architecture software, SAGEcore™, to rapidly share, synthesize and transmit data securely between command centers and forward-positioned defense assets and personnel.

Current wording

Our sensing capabilities are complemented by our rugged, trusted and cyber resilient network edge computing products that support data processing, fusion, and dissemination at the tactical edge. 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, tactical networks, tactical computing and communications. These products help support the DoW’s need for greater situational understanding and faster decision-making at the tactical edge by leveraging AI and AI-optimized open architecture software, SAGEcore™, to rapidly share, synthesize and transmit data securely between command centers and forward-positioned defense assets and personnel, while supporting reduced latency, operational continuity, and interoperability through modular, open-system architectures.

Previous wording

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.

Current wording

We believe DRS is well positioned to meet the needs of an increasingly electrified and power-intensive fleet through high-efficiency, power-dense permanent magnet motors, energy storage systems, and associated rugged and compact power conversion, electrical actuation, and advanced thermal management technologies. These capabilities support higher onboard power demands, improved efficiency, and enhanced platform performance across next-generation naval systems.

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 advanced AESA Radars, EW equipment, reconnaissance and surveillance systems, mission command capabilities, modular combat vehicle turrets, and stabilized sensor suites, as well as kinetic and directed energy countermeasures to protect against evolving threats. Our force protection systems, including solutions for C-UAS and active protection systems on army vehicles, help protect personnel and defense assets from enemy combatants.

Current wording

DRS is also an integrator of complex systems in ground vehicles for short-range air defense, C-UAS, and vehicle survivability and protection. Our short-range air defense systems integrate advanced active electronically scanned array radars, EW equipment, reconnaissance and surveillance systems, mission command capabilities, modular combat vehicle turrets, and stabilized sensor suites, as well as kinetic and directed energy countermeasures to protect against evolving threats. Our force protection systems, including solutions for C-UAS, help protect personnel and defense assets from enemy combatants.

Previous wording

Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 81% of our total revenues for the nine months ended September 30, 2025 and 2024. Our U.S. government sales are highly concentrated within our DoD customers, which made up the overwhelming majority of our U.S. government revenue for the nine months ended September 30, 2025, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 38% and 36%, respectively, of our total revenues for the nine months ended September 30, 2025. Therefore, our revenue is highly correlated to changes in U.S. government spending levels, especially within the DoD. The DoD budget is the largest defense budget in the world.

Current wording

Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 79% and 78% of our total revenues for the three months ended March 31, 2026 and 2025, respectively. Our U.S. government sales are highly concentrated within our DoW customers, which made up the overwhelming majority of our U.S. government revenue for the periods presented and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 39% and 35%, respectively, of our total revenues for the three months ended March 31, 2026. Therefore, our revenue is highly correlated to changes in U.S. government spending levels, especially within the DoW. The DoW budget is the largest defense budget in the world.

Previous wording

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.

Current wording

U.S. government contracts are, by their terms, generally 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.

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, 2025 and 2024, flexibly priced contracts represented 12% and 17% 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, 2026 and 2025, flexibly priced contracts represented 13% and 14% of our total revenues, respectively.

Previous 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.

Current wording

General and administrative (“G&A”) expenses include G&A 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, G&A expenses include company-funded independent research and development (“IR&D”) costs as well as expenditures related to bid and proposal (“B&P”) 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, 2025 as compared to the three and nine months ended September 30, 2024. Given the nature of our business, we believe revenue and operating earnings are most relevant to an understanding of our performance at an enterprise and segment level. Our operating cycle is longer term in nature and involves 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, 2026 as compared to the three months ended March 31, 2025. 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 $960 million for the three months ended September 30, 2025 represents an increase of $148 million, or 18.2%, as compared to the three months ended September 30, 2024. The revenue increase is primarily attributed to our continued backlog growth across each of our operating segments. This is highlighted by our efforts within force protection, electric power and propulsion and advanced sensing activities.

Current wording

Our revenue generation of $846 million for the three months ended March 31, 2026 represents an increase of $47 million, or 5.9%, as compared to the three months ended March 31, 2025. The revenue increase is primarily attributed to continued demand across each of our operating segments. This is highlighted by our efforts within advanced sensing, electric power and propulsion and force protection activities.

Previous wording

Cost of revenues increased by $105 million, or 16.6%, to $738 million for the three months ended September 30, 2025 as compared to $633 million for the three months ended September 30, 2024. The cost of revenues increase was primarily due to the increased revenue contribution realized during the period and the impact of additional charges realized on a long range surveillance program, which was partially offset by favorable revenue mix and efficient execution on Columbia Class programs.

Current wording

Cost of revenues increased by $16 million, or 2.6%, to $634 million for the three months ended March 31, 2026 as compared to $618 million for the three months ended March 31, 2025. The cost of revenues increase was due to the increased revenue contribution realized during the period. This increase was offset in part by improved program performance and favorable program mix across both of our operating segments.

Previous wording

Gross profit increased by $43 million, or 24.0%, to $222 million for the three months ended September 30, 2025 and increased by $99 million, or 19.8%, to $600 million for the nine months ended September 30, 2025 as compared to the same periods in the prior year, resulting from the revenue and cost of revenues trends noted above. The gross profit increase, favorable mix and overall program performance, including on the Columbia Class program, drove an expansion of 110 basis points and 100 basis points in our gross margin for the three and nine months ended September 30, 2025, respectively.

Current wording

Gross profit increased by $31 million, or 17.1%, to $212 million for the three months ended March 31, 2026 as compared to the same period in the prior year, resulting from the revenue and cost of revenues trends noted above. The gross profit increase, favorable mix and overall program performance drove an expansion of 240 basis points in our gross margin for the three months ended March 31, 2026.

Previous wording

G&A expenses increased by $25 million, or 25.5%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to increased internal research and development expenditures and costs related to bid and proposal efforts for new contractual pursuits.

Current wording

G&A expenses increased by $13 million, or 11.1%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025, primarily due to increased IR&D expenditures and costs related to bid and proposal efforts for new contractual pursuits.

Previous wording

Operating earnings increased by $18 million to $93 million for the three months ended September 30, 2025 and increased by $49 million to $222 million for the nine months ended September 30, 2025 as compared to the same periods in the prior year. The increases were driven by the gross profit impacts noted above.

Current wording

Operating earnings increased by $18 million to $77 million for the three months ended March 31, 2026 as compared to the same period in the prior year. The increase was driven by the gross profit impacts offset in part by the G&A expense increases noted above.

Previous wording

Net interest expense decreased by $1 million to $4 million for the three months ended September 30, 2025 and decreased by $10 million to $7 million for the nine months ended September 30, 2025 as compared to the same periods in the prior year. The reduction in net interest expense is attributed to increased interest income as a result of higher cash balances and reduced borrowings on our credit facilities during the current year period.

Current wording

Net interest expense decreased by $1 million to zero for the three months ended March 31, 2026 as compared to the same period 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 interest expense with the repayment and termination of the 2022 Term Loan A in January 2026.

Previous wording

Earnings before taxes increased by $18 million to $87 million for the three months ended September 30, 2025 and increased by $59 million to $212 million for the nine months ended September 30, 2025, as compared to the same periods in the prior year. This was primarily due to the increases in operating earnings and decreased net interest expense as noted above.

Current wording

Earnings before taxes increased by $19 million to $77 million for the three months ended March 31, 2026, as compared to the same period in the prior year. This was primarily due to the increase in operating earnings and decreased net interest expense as noted above.

Previous wording

Income tax provision increased by $3 million and $7 million for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in the prior year. This was attributed to an increase in earnings before taxes noted above, offset by the recognition of discrete tax benefits associated with employee stock vesting that occurred during the nine months ended September 30, 2024. Our effective tax rate was 17.2% and 17.0% for the three and nine months ended September 30, 2025, respectively, compared to 17.4% and 19.0% for the nine months ended September 30, 2024, respectively.

Current wording

Income tax provision increased by $7 million for the three months ended March 31, 2026, as compared to the same period in the prior year. This was primarily attributable to an increase in earnings before taxes as noted above. Additionally our effective tax rate increased as compared to the prior year due to the timing of certain stock-based discrete tax benefits which did not anniversary. Our effective tax rate was 19.5% for the three months ended March 31, 2026, compared to 13.8% for the three months ended March 31, 2025.

Previous wording

Net earnings increased by $15 million to $72 million for the three months ended September 30, 2025 and increased by $52 million to $176 million for the nine months ended September 30, 2025, as compared to the same periods in the prior year. This was driven by an increase in earnings before taxes coupled with the changes in our effective tax rate as noted above.

Current wording

Net earnings increased by $12 million to $62 million for the three months ended March 31, 2026, as compared to the same period 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.

Previous wording

Backlog increased by $645 million to $8,909 million as of September 30, 2025, from $8,264 million as of September 30, 2024. The backlog increase was driven primarily by the receipt of new awards within our ASC and IMS segments.

Current wording

Backlog increased by $10 million to $8,382 million as of March 31, 2026, from $8,372 million as of March 31, 2025. The backlog increase was driven primarily by the receipt of new awards within our IMS segment.

Previous wording

Bookings for the three months ended September 30, 2025 increased to $1,307 million as compared to $1,051 million for the three months ended September 30, 2024. Bookings for the nine months ended September 30, 2025 increased to $3,151 million as compared to $2,807 million for the nine months ended September 30, 2024. The increase in new orders was driven by both segments. See“—Review of Operating Segments” below for more detail.

Current wording

Bookings for the three months ended March 31, 2026 decreased to $885 million as compared to $991 million for the three months ended March 31, 2025. The decrease in new orders was driven within our ASC segment and offset in part by IMS bookings expansion. See“—Review of Operating Segments” below for more detail.

Previous wording

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.

Current wording

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, AI, connected communities and physical infrastructure (for example, the potential impacts of the Russia / Ukraine conflict and conflicts involving the Middle East region, including Israel). 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.

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. 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.

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.

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 programs, have had on our revenues for the three and nine months ended September 30, 2025 and 2024:

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 periods presented:

Previous wording

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.

Current wording

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, including executive orders, 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 DoW and the U.S. intelligence community, including those related to cybersecurity, could impact our ability to perform in the markets we serve.

Previous wording

International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 9% and 13% of our revenue for the nine months ended September 30, 2025 and 2024, respectively. The decrease in international revenues is primarily attributed to the timing of certain dismounted soldier sensing program sales to Eastern European countries realized in the first quarter of the prior year. Despite the reduction of international sales for the current year period, given the trend of international defense investment and the continuing conflicts in both Ukraine and Israel, we anticipate that international sales will drive future growth opportunities. However, we remain subject to the spending levels, pace and priorities of the U.S. government as well as international governments and commercial customers, and to general economic conditions that could adversely affect us, our customers and our suppliers.

Current wording

International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 12% and 7% of our revenue for the three months ended March 31, 2026 and 2025, respectively. The increase in international sales is due in part to the global demand for our tactical radars used in counter drone and short-range air defense applications.

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, 2025.

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, 2026.

Previous wording

The ASC segment reported revenue of $580 million for the three months ended September 30, 2025, an increase of 8.8%, or $47 million, from the three months ended September 30, 2024. The revenue increase is attributed to our advanced sensing programs. Within our advanced sensing portfolio, revenue growth is highlighted by increased revenue within our dismounted and ground vehicle sensing applications.

Current wording

The ASC segment reported revenue of $559 million for the three months ended March 31, 2026, an increase of 9.4%, or $48 million, from the three months ended March 31, 2025. The revenue increase is attributed to our advanced sensing and tactical radars used in force protection and counter drone applications.

Previous wording

For the nine months ended September 30, 2025, operating earnings increased by $6 million, or 5.9%, to $107 million for the nine months ended September 30, 2025 from $101 million for the nine months ended September 30, 2024. The increase was driven by increased revenue contribution and a reduction in restructuring expenditures, offset by the increased cost of germanium on our infrared programs and increased G&A and internal research and development expenditures. The net of these impacts drove operating margin to 6.6% for the nine months ended September 30, 2025 compared to the 6.9% realized during the nine months ended September 30, 2024.

Current wording

For the three months ended March 31, 2026, operating earnings increased by $15 million, or 60.0%, to $40 million for the three months ended March 31, 2026, from $25 million for the three months ended March 31, 2025. The increase was driven by increased revenue contribution, favorable program mix and better program execution. The net of these impacts drove operating margin to 7.2% for the three months ended March 31, 2026, compared to the 4.9% realized during the three months ended March 31, 2025.

Previous wording

For the nine months ended September 30, 2025, bookings increased $97 million, or 5.1%, from the nine months ended September 30, 2024 to $1,985 million. The increase in new awards is largely attributed to bookings received for ground vehicle and tactical radar sensor programs coupled with additional awards received for pilot training and force protection efforts. This was partially offset by a reduction in new awards received for tactical computing and dismounted soldier sensing programs.

Current wording

For the three months ended March 31, 2026, bookings decreased $240 million, or 35.9%, from the three months ended March 31, 2025 to $429 million. The decrease in new awards is largely attributed to a large multi-year award received in the prior year for next generation ground vehicle sensing. This reduction was offset in part by demand for our tactical radar sensor programs coupled with additional awards received for pilot training efforts.

Previous wording

IMS segment revenue increased by $98 million, or 34.4%, to $383 million for the three months ended September 30, 2025 from $285 million for the three months ended September 30, 2024, which is attributed to increased revenue generated from our force protection programs, highlighted by our efforts in counter drone capabilities.

Current wording

IMS segment revenue increased by $4 million, or 1.4%, to $295 million for the three months ended March 31, 2026, from $291 million for the three months ended March 31, 2025, which is attributed to increased revenue generated from our naval power programs, partially offset by a reduction in force protection generated revenues.

Previous wording

For the three months ended September 30, 2025, operating earnings increased by $17 million, or 54.8%, to $48 million for the three months ended September 30, 2025 from $31 million for the three months ended September 30, 2024. The increase for the period is attributed to operational leverage created by the increased revenue as well as continued program improvement on our Columbia Class submarine program, offset in part by program delays on a surveillance program, resulting in a net operating margin increase to 12.5% compared to the 10.9% realized during the three months ended September 30, 2024.

Current wording

For the three months ended March 31, 2026, operating earnings increased by $3 million, or 8.8%, to $37 million for the three months ended March 31, 2026, from $34 million for the three months ended March 31, 2025. The increase for the period is attributed to operational leverage created by continued program improvement on our Columbia Class submarine program, resulting in a net operating margin increase to 12.5%, compared to the 11.7% realized during the three months ended March 31, 2025.

Previous wording

For the three months ended September 30, 2025, bookings increased by $184 million, or 50.3%, from the three months ended September 30, 2024 to $550 million. The increase for the three months ended is largely attributed to funding received for the next vehicle set for our counter drone capabilities.

Current wording

For the three months ended March 31, 2026, bookings increased by $134 million, or 41.6%, from the three months ended March 31, 2025 to $456 million. The increase for the three months ended March 31, 2026 is largely attributed to funding received for our naval power and propulsion efforts as well as increased demand for our force protection efforts.

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. We believe that the combination of our existing cash, access to credit facilities as described in Note 10: Debt to the Consolidated Financial Statements, and future cash that we expect to generate from our operations will be sufficient to meet our short and long-term liquidity needs. There can be no assurance, however, that our business will continue to generate cash flow at current levels or that anticipated operational improvements will be achieved. We may also pursue acquisitions or other strategic priorities that will require additional liquidity beyond the liquidity we generate through our operations. Our cash balance as of September 30, 2025, was $309 million compared to $598 million as of December 31, 2024.

Current wording

We endeavor to ensure the most efficient conversion of operating earnings 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, 2026, was $328 million compared to $647 million as of December 31, 2025.

Previous wording

Cash usage related to operating activities decreased by $113 million to $59 million for the nine months ended September 30, 2025, from $172 million for the nine months ended September 30, 2024. This was primarily due to lower cash used to fund working capital for the nine months ended September 30, 2025 when compared to the nine months ended September 30, 2024.

Current wording

Cash usage related to operating activities decreased by $72 million to $66 million for the three months ended March 31, 2026, from $138 million for the three months ended March 31, 2025. This was primarily due to lower cash used to fund working capital for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025.

Previous wording

Net cash used in investing activities increased by $50 million for the nine months ended September 30, 2025 when compared to the nine months ended September 30, 2024, primarily due to higher capital expenditures attributed to our naval expansion project in South Carolina and a $15 million investment to extend our ownership stake in Hoverfly Technologies, a tethered UAV company.

Current wording

Net cash used in investing activities decreased by $3 million for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025, primarily due to lower capital expenditures.

Previous wording

Net cash used in financing activities for the nine months ended September 30, 2025 was $125 million compared to $42 million for the nine months ended September 30, 2024. The change was primarily due to cash outlays related to dividends paid in the current period, higher payments of employee taxes withheld from share-based awards, and share buy backs under the share repurchase program announced in the first quarter of 2025. This was partially offset by the net change in third party borrowings (maturities of 90 days or less) in the current period when compared to the same period in the prior year.

Current wording

Net cash used in financing activities for the three months ended March 31, 2026 was $224 million, compared to $48 million for the three months ended March 31, 2025. The change was primarily due to the repayment and termination of the 2022 Term Loan A in January 2026, partially offset by payments of employee taxes withheld from stock-based awards in the prior period.