Core Insights - The article discusses the strong core business of Leonardo DRS while highlighting concerns about its high valuation in the defense sector [1] Financial Analysis - The analysis focuses on two key factors: a comprehensive examination of financial metrics, intrinsic value, and overall health, with an emphasis on competitive advantages using quantitative models [1] - Substantial attention is given to macroeconomic and geopolitical factors that influence the industry, impacting the company's short-to-medium-term performance [1] Investment Perspective - The analyses represent a part of broader research on companies with long-term potential, with a primary focus on quantitative aspects of finance and investing [1]

Core Insights - Leonardo DRS reported strong Q2 2025 earnings, with revenue of $829 million and adjusted diluted EPS of $0.23, both exceeding analyst expectations [1][2] - The company experienced a 10% year-over-year revenue growth and a 42% increase in net earnings, reflecting solid demand and profitability [5][6] - Despite a decline in bookings to $853 million, backlog increased to $8.6 billion, indicating strong future revenue visibility [6][9] Financial Performance - Revenue reached $829 million, surpassing the $827.46 million estimate, and increased from $753 million in Q2 2024, marking a 10% growth [2][5] - Adjusted diluted EPS was $0.23, exceeding the $0.21 estimate and up from $0.18 in the previous year, representing a 28% increase [2][5] - Net earnings rose to $54 million from $38 million a year ago, reflecting a 42% increase [2][5] - Adjusted EBITDA increased by 17% year-over-year to $96 million [2][5] Segment Performance - The Advanced Sensing and Computing segment saw a 10% revenue growth, although margins were impacted by increased R&D investments and supplier disruptions [7][8] - The Integrated Mission Systems segment reported a 9% revenue increase and a 41% jump in adjusted EBITDA, with a margin of 13.1% [8] Strategic Focus - The company is focused on innovation, enhancing defense technology capabilities, and securing large contracts with the U.S. government [4] - Management is addressing supply chain risks and aligning with shifting Department of Defense priorities to ensure timely execution of programs [4][10] Future Outlook - Management raised its fiscal 2025 revenue guidance to a range of $3.53 billion to $3.60 billion, with adjusted diluted EPS expected between $1.06 and $1.11 [9] - Continued margin expansion is anticipated in the electric power and propulsion business [9]

[Special Note Regarding Forward-Looking Statements and Information](index=3&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements%20and%20Information) This section provides a cautionary statement regarding forward-looking statements in the report, highlighting that actual results may differ materially due to various known and unknown risks and uncertainties - Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond the company's control, and actual performance and outcomes may differ materially from those made or suggested[9](index=9&type=chunk) - Key risk factors include disruptions in U.S. government relations, significant delays or reductions in program appropriations, compliance failures, inflation, contract types, debt covenants, dependence on government contracts, and the ability to manage inventory and compete efficiently[9](index=9&type=chunk)[10](index=10&type=chunk) - Other risks include security breaches, intellectual property issues, employee conduct, litigation outcomes, geopolitical factors, export license requirements, talent retention, and potential conflicts of interest with majority stockholders[10](index=10&type=chunk)[13](index=13&type=chunk) [PART I. Financial Information](index=6&type=section&id=PART%20I.%20Financial%20Information) This part presents the unaudited consolidated financial statements for Leonardo DRS, Inc. for the periods ended June 30, 2025, and 2024, along with management's discussion and analysis of financial condition, results of operations, market risks, and controls and procedures [ITEM 1. Financial Statements (Unaudited)](index=6&type=section&id=ITEM%201.%20Financial%20Statements%20(Unaudited)) This section provides the unaudited consolidated financial statements, including statements of earnings, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes explaining significant accounting policies and specific financial line items [Consolidated Statements of Earnings](index=6&type=section&id=Consolidated%20Statements%20of%20Earnings) The Consolidated Statements of Earnings show a significant increase in net earnings for both the three and six months ended June 30, 2025, compared to the prior year, driven by revenue growth and improved gross profit margins | Metric (Dollars in millions, except per share) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | 829 | 753 | 1,628 | 1,441 | | Gross profit | 197 | 169 | 378 | 322 | | Operating earnings | 70 | 55 | 129 | 98 | | Net earnings | 54 | 38 | 104 | 67 | | Basic earnings per share | 0.20 | 0.14 | 0.39 | 0.25 | | Diluted earnings per share | 0.20 | 0.14 | 0.39 | 0.25 | - For the three months ended June 30, 2025, revenues increased by **$76 million (10.1%)** and net earnings increased by **$16 million (42.1%)** compared to the prior year[16](index=16&type=chunk)[133](index=133&type=chunk) - For the six months ended June 30, 2025, revenues increased by **$187 million (13.0%)** and net earnings increased by **$37 million (55.2%)** compared to the prior year[16](index=16&type=chunk)[134](index=134&type=chunk) [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) The Consolidated Statements of Comprehensive Income show an increase in total comprehensive income for both the three and six months ended June 30, 2025, primarily due to net earnings growth and a net unrealized gain on derivative instruments | Metric (Dollars in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net earnings | 54 | 38 | 104 | 67 | | Net unrealized gain on derivative instruments | 5 | — | 5 | — | | Total comprehensive income | 59 | 38 | 109 | 67 | - Total comprehensive income for the three months ended June 30, 2025, was **$59 million**, up from **$38 million** in the prior year, largely due to a **$5 million** net unrealized gain on derivative instruments[19](index=19&type=chunk) - For the six months ended June 30, 2025, total comprehensive income was **$109 million**, up from **$67 million** in the prior year, also benefiting from the net unrealized gain on derivative instruments[19](index=19&type=chunk) [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) The Consolidated Balance Sheets show a decrease in total assets and current assets from December 31, 2024, to June 30, 2025, primarily driven by a reduction in cash and cash equivalents, while contract assets and inventories increased | Metric (Dollars in millions) | June 30, 2025 | December 31, 2024 | | :--------------------------- | :------------ | :---------------- | | Cash and cash equivalents | 278 | 598 | | Accounts receivable, net | 265 | 253 | | Contract assets | 1,016 | 872 | | Inventories | 400 | 358 | | Total current assets | 2,025 | 2,163 | | Total noncurrent assets | 2,054 | 2,021 | | Total assets | 4,079 | 4,184 | | Total current liabilities | 958 | 1,116 | | Total noncurrent liabilities | 521 | 511 | | Total liabilities and stockholders' equity | 4,079 | 4,184 | | Total stockholders' equity | 2,600 | 2,557 | - Cash and cash equivalents decreased significantly from **$598 million** at December 31, 2024, to **$278 million** at June 30, 2025[22](index=22&type=chunk) - Contract assets increased from **$872 million** to **$1,016 million**, and inventories increased from **$358 million** to **$400 million**, indicating ongoing project activity and production[22](index=22&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The Consolidated Statements of Cash Flows show a net decrease in cash and cash equivalents for the six months ended June 30, 2025, primarily due to cash used in operating, investing, and financing activities, with operating cash usage decreasing compared to the prior year | Metric (Dollars in millions) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | (166) | (231) | | Net cash used in investing activities | (60) | (44) | | Net cash used in financing activities | (94) | (43) | | Net decrease in cash and cash equivalents | (320) | (318) | | Cash and cash equivalents at beginning of year | 598 | 467 | | Cash and cash equivalents at end of period | 278 | 149 | - Net cash used in operating activities decreased by **$65 million**, from **$231 million** in 2024 to **$166 million** in 2025, primarily due to lower cash used to fund working capital[25](index=25&type=chunk)[190](index=190&type=chunk) - Net cash used in investing activities increased by **$16 million**, from **$44 million** in 2024 to **$60 million** in 2025, mainly due to higher capital expenditures for a naval expansion project[25](index=25&type=chunk)[192](index=192&type=chunk) - Net cash used in financing activities increased by **$51 million**, from **$43 million** in 2024 to **$94 million** in 2025, driven by dividend payments, higher employee taxes withheld from share-based awards, and share repurchases[25](index=25&type=chunk)[193](index=193&type=chunk) [Consolidated Statements of Stockholders' Equity](index=12&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) The Consolidated Statements of Stockholders' Equity show an increase in total stockholders' equity from December 31, 2024, to June 30, 2025, primarily due to total comprehensive income, partially offset by cash dividends and share repurchases | Metric (Dollars in millions) | Balance as of Dec 31, 2024 | Total Comprehensive Income | Share-based Compensation Activity | Cash Dividends | Repurchases of Common Stock | Balance as of Jun 30, 2025 | | :--------------------------- | :------------------------- | :------------------------- | :-------------------------------- | :------------- | :-------------------------- | :------------------------- | | Common stock | 3 | — | — | — | — | 3 | | Additional paid-in capital | 5,194 | — | (4) | (48) | (14) | 5,128 | | Accumulated other comprehensive loss | (47) | 5 | — | — | — | (42) | | Accumulated deficit | (2,593) | 104 | — | — | — | (2,489) | | Total stockholders' equity | 2,557 | 109 | (4) | (48) | (14) | 2,600 | - Total stockholders' equity increased by **$43 million** from **$2,557 million** at December 31, 2024, to **$2,600 million** at June 30, 2025[27](index=27&type=chunk) - This increase was driven by **$109 million** in total comprehensive income, partially offset by **$48 million** in cash dividends and **$14 million** in common stock repurchases[27](index=27&type=chunk) [Notes to Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the unaudited consolidated financial statements, covering significant accounting policies, revenue recognition, balance sheet accounts, debt, derivatives, EPS, commitments, related party transactions, and segment information [Note 1. Summary of Significant Accounting Policies](index=13&type=section&id=Note%201.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's organization, its primary business as a defense electronics supplier, its two reportable segments (Advanced Sensing and Computing, Integrated Mission Systems), and the basis of presentation for the unaudited consolidated financial statements, including new accounting pronouncements - Leonardo DRS, Inc. is a supplier of defense electronics products, systems, and military support services, with Leonardo S.p.A. as its indirect majority stockholder[31](index=31&type=chunk) - The company operates through two reportable segments: Advanced Sensing and Computing (ASC) and Integrated Mission Systems (IMS), focusing on critical areas for the U.S. military[32](index=32&type=chunk)[33](index=33&type=chunk) - The DoD is the largest customer, accounting for approximately **80% of total revenues** as an end-user for the six months ended June 30, 2025[33](index=33&type=chunk) - The company is evaluating the impact of new accounting pronouncements, ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Expense Disaggregation Disclosures), effective for fiscal years beginning after December 15, 2024, and 2026, respectively[37](index=37&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) [Note 2. Revenue from Contracts with Customers](index=14&type=section&id=Note%202.%20Revenue%20from%20Contracts%20with%20Customers) This note details the company's revenue recognition policies, primarily using the over time, percentage of completion cost-to-cost method, and provides information on contract estimates, assets, liabilities, backlog, and disaggregated revenue by geographical region, customer relationship, and contract type for both segments - Revenue is primarily recognized using the over time, percentage of completion cost-to-cost method, requiring judgment in estimating transaction price and total cost at completion[41](index=41&type=chunk) Revenue and Operating Earnings Impact (Dollars in millions, except per share) | Metric (Dollars in millions, except per share) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue and operating earnings | — | (10) | (9) | (19) | | Total % of revenue | —% | 1% | 1% | 1% | | Net earnings | — | (8) | (7) | (15) | | Impact on diluted earnings per share | — | (0.03) | (0.03) | (0.06) | Contract Assets and Liabilities (Dollars in millions) | (Dollars in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Contract assets | 1,016 | 872 | | Contract liabilities | 436 | 399 | - Total backlog as of June 30, 2025, was **$8,607 million**, with approximately **18%** expected to be recognized as revenue over the next six months and **50%** related to long-term U.S. Navy electric power and propulsion programs[46](index=46&type=chunk) ASC Revenue by Category (Dollars in millions) | (Dollars in millions) | 2025 | 2024 | | :-------------------- | :---- | :---- | | **ASC Revenue by Geographical Region (Six Months Ended June 30):** | | | | United States | 911 | 733 | | International | 136 | 181 | | **ASC Revenue by Customer Relationship (Six Months Ended June 30):** | | | | Prime contractor | 462 | 416 | | Subcontractor | 585 | 498 | | **ASC Revenue by Contract Type (Six Months Ended June 30):** | | | | Firm-Fixed Price | 905 | 752 | | Flexibly Priced | 142 | 162 | IMS Revenue by Category (Dollars in millions) | (Dollars in millions) | 2025 | 2024 | | :-------------------- | :---- | :---- | | **IMS Revenue by Geographical Region (Six Months Ended June 30):** | | | | United States | 590 | 519 | | International | (9) | 8 | | **IMS Revenue by Customer Relationship (Six Months Ended June 30):** | | | | Prime contractor | 100 | 124 | | Subcontractor | 481 | 403 | | **IMS Revenue by Contract Type (Six Months Ended June 30):** | | | | Firm-Fixed Price | 496 | 432 | | Flexibly Priced | 85 | 95 | [Note 3. Accounts Receivable](index=18&type=section&id=Note%203.%20Accounts%20Receivable) This note provides a breakdown of accounts receivable, net of allowance for credit losses, and references agreements for the sale of certain trade receivables Accounts Receivable (Dollars in millions) | (Dollars in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Accounts receivable | 266 | 254 | | Less allowance for credit losses | (1) | (1) | | Accounts receivable, net | 265 | 253 | [Note 4. Sale of Receivables](index=18&type=section&id=Note%204.%20Sale%20of%20Receivables) The company utilizes factoring facilities with an aggregate capacity of $225 million to sell trade receivables, incurring immaterial purchase discount fees - The company has factoring facilities with an aggregate capacity of **$225 million**[57](index=57&type=chunk) Sale of Receivables Activity (Dollars in millions) | (Dollars in millions) | 2025 | 2024 | | :-------------------- | :--- | :--- | | Beginning balance | 130 | 192 | | Sales of receivables | 35 | 50 | | Cash returned to purchasers | (155) | (205) | | Outstanding balance sold to purchasers | 10 | 37 | | Remaining sold receivables | 10 | 36 | [Note 5. Inventories](index=18&type=section&id=Note%205.%20Inventories) This note details the composition of inventories, which primarily consist of work in progress and raw materials, showing an increase from December 31, 2024, to June 30, 2025 Inventories (Dollars in millions) | (Dollars in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Raw materials | 106 | 86 | | Work in progress | 282 | 264 | | Finished goods | 12 | 8 | | Total inventories | 400 | 358 | [Note 6. Property, Plant and Equipment](index=19&type=section&id=Note%206.%20Property,%20Plant%20and%20Equipment) This note provides a breakdown of property, plant, and equipment by major asset class, net of accumulated depreciation, and reports depreciation expense for the periods Property, Plant and Equipment (Dollars in millions) | (Dollars in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Land, buildings and improvements | 386 | 380 | | Plant and machinery | 205 | 203 | | Equipment and other | 429 | 382 | | Total property, plant and equipment, at cost | 1,020 | 965 | | Less accumulated depreciation | (557) | (525) | | Total property, plant and equipment, net | 463 | 440 | - Depreciation expense was **$35 million** for the six months ended June 30, 2025, consistent with **$34 million** in the prior year[61](index=61&type=chunk) [Note 7. Other Liabilities](index=19&type=section&id=Note%207.%20Other%20Liabilities) This note summarizes significant other current and noncurrent liabilities, including salaries, fringe benefits, contract loss provisions, operating lease liabilities, and warranty reserves Other Current Liabilities (Dollars in millions) | (Dollars in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Salaries, wages and accrued bonuses | 53 | 75 | | Fringe benefits | 66 | 63 | | Provision for contract losses | 42 | 43 | | Operating lease liabilities | 27 | 27 | | Taxes payable | 15 | 24 | | Warranty reserves | 19 | 19 | | Other | 13 | 15 | | Total other current liabilities | 235 | 266 | Other Noncurrent Liabilities (Dollars in millions) | (Dollars in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Operating lease liabilities | 92 | 66 | | Unrecognized tax benefits | 46 | 46 | | Warranty reserves | 8 | 10 | | Other | 9 | 8 | | Total other noncurrent liabilities | 155 | 130 | [Note 8. Intangible Assets](index=19&type=section&id=Note%208.%20Intangible%20Assets) This note provides a breakdown of intangible assets, primarily acquired intangible assets and patents/licenses, net of accumulated amortization, and reports amortization expense Intangible Assets (Dollars in millions) | (Dollars in millions) | Gross Carrying Amount (Jun 30, 2025) | Accumulated Amortization (Jun 30, 2025) | Net Carrying Amount (Jun 30, 2025) | Gross Carrying Amount (Dec 31, 2024) | Accumulated Amortization (Dec 31, 2024) | Net Carrying Amount (Dec 31, 2024) | | :-------------------- | :----------------------------------- | :-------------------------------------- | :--------------------------------- | :----------------------------------- | :-------------------------------------- | :--------------------------------- | | Acquired intangible assets | 1,087 | (973) | 114 | 1,087 | (962) | 125 | | Patents and licenses | 14 | (8) | 6 | 14 | (7) | 7 | | Total intangible assets | 1,101 | (981) | 120 | 1,101 | (969) | 132 | - Amortization expense for acquired intangible assets was **$11 million** for both the six months ended June 30, 2025, and 2024[65](index=65&type=chunk) [Note 9. Income Taxes](index=21&type=section&id=Note%209.%20Income%20Taxes) This note details the company's effective tax rates for the periods presented and mentions the enactment of the One Big Beautiful Bill Act (OBBBA) and its potential impact on future financial statements Effective Tax Rates | Period | 2025 | 2024 | | :----- | :--- | :--- | | 3 Months Ended June 30 | 19.4% | 19.1% | | 6 Months Ended June 30 | 16.8% | 20.2% | - The lower effective tax rate for the six months ended June 30, 2025, was primarily due to discrete tax benefits from vesting of share-based compensation[66](index=66&type=chunk) - The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, reinstates full deduction of R&D expenditures and extends bonus depreciation, with the company currently evaluating its financial impact[67](index=67&type=chunk) [Note 10. Debt](index=21&type=section&id=Note%2010.%20Debt) This note provides a summary of the company's debt, including the 2022 Term Loan A and credit facilities, detailing outstanding balances, interest rates, and available capacity Debt Summary (Dollars in millions) | (Dollars in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | 2022 Term Loan A | 197 | 203 | | Finance lease and other | 156 | 159 | | Short-term borrowings related to factoring facilities | 1 | 4 | | Total debt principal | 354 | 366 | | Total long-term debt | 331 | 340 | - The 2022 Term Loan A had an outstanding balance of **$197 million** at June 30, 2025, bearing a variable interest rate based on SOFR plus a spread[69](index=69&type=chunk) - The 2022 Revolving Credit Facility has a limit of **$275 million**, with no outstanding balance as of June 30, 2025, and December 31, 2024[70](index=70&type=chunk)[72](index=72&type=chunk) - The company also maintains uncommitted working capital credit facilities of **$130 million**, with **$35 million** in outstanding letters of credit as of June 30, 2025[73](index=73&type=chunk) [Note 11. Derivative Instruments](index=23&type=section&id=Note%2011.%20Derivative%20Instruments) This note describes the company's use of forward exchange contracts as cash flow hedges to limit exposure to foreign currency fluctuations, primarily related to Israeli Shekel payroll expenses - The company uses forward exchange contracts to hedge against foreign currency fluctuations, mainly for Israeli Shekel-denominated payroll expenses[75](index=75&type=chunk) Forward Exchange Contracts (Dollars in millions) | (Dollars in millions) | Notional amount | Balance sheet location | Settlement and termination | Fair value | | :-------------------- | :-------------- | :--------------------- | :------------------------- | :--------- | | Forward exchange contracts | 44 | Other current assets | Monthly through 9/30/2026 | 5 | - The company estimates reclassifying **$4 million** of unrealized gains from accumulated other comprehensive loss into earnings over the next 12 months[76](index=76&type=chunk) [Note 12. Earnings Per Share ("EPS"), Share Repurchases and Dividends](index=23&type=section&id=Note%2012.%20Earnings%20Per%20Share%20(%22EPS%22),%20Share%20Repurchases%20and%20Dividends) This note provides details on basic and diluted EPS calculations, the company's share repurchase program, and declared cash dividends EPS Calculation (In millions, except per share amounts) | Metric (In millions, except per share amounts) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net earnings | 54 | 38 | 104 | 67 | | Basic weighted average number of shares outstanding | 266.2 | 263.3 | 265.7 | 263.0 | | Impact of dilutive share-based awards | 2.8 | 4.2 | 3.1 | 3.9 | | Diluted weighted average number of shares outstanding | 269.0 | 267.5 | 268.8 | 266.9 | | Basic EPS | 0.20 | 0.14 | 0.39 | 0.25 | | Diluted EPS | 0.20 | 0.14 | 0.39 | 0.25 | - The Board approved a **$75 million** share repurchase program through March 4, 2027, under which **$14 million** has been repurchased as of June 30, 2025[80](index=80&type=chunk) - The company declared and paid a quarterly dividend of **$0.09 per share** for the three months ended June 30, 2025, and subsequently declared another **$0.09 per share** dividend payable September 3, 2025[81](index=81&type=chunk) [Note 13. Commitments and Contingencies](index=24&type=section&id=Note%2013.%20Commitments%20and%20Contingencies) This note outlines the company's commitments related to leases, purchase obligations, and credit agreements, and discusses contingencies such as legal proceedings, government audits, and product warranties - The company is subject to legal proceedings and claims in the ordinary course of business, with management believing adequate provisions have been made for potential audits, investigations, and contract adjustments[83](index=83&type=chunk)[85](index=85&type=chunk) - As a government contractor, the company is subject to audits, investigations, and claims regarding contract performance, pricing, and cost allocations[84](index=84&type=chunk) Warranty Reserve Activity (Dollars in millions) | (Dollars in millions) | Amount | | :-------------------- | :----- | | Balance at December 31, 2024 | 29 | | Additional provision | 8 | | Reversal and utilization | (10) | | Balance at June 30, 2025 | 27 | [Note 14. Related Party Transactions](index=25&type=section&id=Note%2014.%20Related%20Party%20Transactions) This note discloses related party sales and purchases with the indirect majority stockholder and its affiliates, along with outstanding receivables and payables - Related party sales were **$7 million** for the six months ended June 30, 2025, down from **$11 million** in the prior year, while purchases were immaterial[89](index=89&type=chunk) - Receivables with related parties were **$10 million** and payables were **$4 million** as of June 30, 2025[89](index=89&type=chunk) [Note 15. Segment Information](index=25&type=section&id=Note%2015.%20Segment%20Information) This note provides financial information for the company's two reportable segments, Advanced Sensing and Computing (ASC) and Integrated Mission Systems (IMS), including revenues, expenses, operating earnings, and assets, along with a reconciliation to earnings before taxes - The company's operating segments are ASC and IMS, with operating earnings used as the primary measure for performance assessment and resource allocation[90](index=90&type=chunk)[91](index=91&type=chunk) Segment Revenues (Dollars in millions) | (Dollars in millions) | 2025 | 2024 | | :-------------------- | :---- | :---- | | ASC | 1,053 | 925 | | IMS | 581 | 527 | | Total revenues | 1,628 | 1,441 | Segment Operating Earnings (Dollars in millions) | (Dollars in millions) | 2025 | 2024 | | :-------------------- | :--- | :--- | | ASC | 62 | 56 | | IMS | 67 | 46 | | Total operating earnings | 129 | 98 | Segment Assets (Dollars in millions) | (Dollars in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | ASC | 2,473 | 2,249 | | IMS | 1,226 | 1,225 | | Corporate & Eliminations | 380 | 710 | | Total assets | 4,079 | 4,184 | [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook, discussing business overview, operating results, factors impacting performance, segment reviews, and liquidity and capital resources [Business Overview and Considerations](index=29&type=section&id=Business%20Overview%20and%20Considerations) Leonardo DRS is a provider of advanced defense technology to U.S. national security customers and allies, specializing in sensing, network computing, force protection, and electric power and propulsion - DRS is an innovative provider of advanced defense technology, specializing in sensing, network computing, force protection, and electric power and propulsion for U.S. national security customers and allies[102](index=102&type=chunk) - The company's strategy is to be balanced and diversified, with a focus on DoD priorities, which represented approximately **80% of total revenues** for the six months ended June 30, 2025[103](index=103&type=chunk)[119](index=119&type=chunk) - The Advanced Sensing and Computing (ASC) segment focuses on real-time situational awareness through advanced passive/active detection, precision targeting, surveillance sensing, and rugged network computing products[105](index=105&type=chunk)[106](index=106&type=chunk)[108](index=108&type=chunk) - The Integrated Mission Systems (IMS) segment provides power conversion, control, and distribution systems, ship propulsion systems, force protection systems, and transportation/logistics systems, including next-generation electrical propulsion for the U.S. Navy[109](index=109&type=chunk)[110](index=110&type=chunk) - The company's "Always Performing for Excellence" (APEX) program drives continuous improvement, aiming to enhance efficiency, increase margins, and maintain competitiveness[115](index=115&type=chunk)[116](index=116&type=chunk) - Global conflicts, particularly in Ukraine and Israel, are monitored for potential impacts; while the Ukraine conflict has led to increased orders, the Israel conflict has not yet materially impacted operations, though DRS has direct exposure through its RADA operations in Israel[117](index=117&type=chunk)[118](index=118&type=chunk) - The recently enacted One Big Beautiful Bill Act (OBBBA) and the Fiscal Year 2026 Department of Defense Appropriations Act are expected to significantly shape DoD funding, with potential positive implications for DRS's operations and strategy[121](index=121&type=chunk) [Operating Performance Assessment and Reporting](index=32&type=section&id=Operating%20Performance%20Assessment%20and%20Reporting) This section explains the company's revenue recognition method (over time, percentage of completion cost-to-cost) for most contracts and highlights that U.S. government contracts are subject to audits, various profit/cost controls, and termination clauses, with funding dependent on Congressional appropriations - Revenues for most contracts are recognized using the over time, percentage of completion cost-to-cost method, based on the ratio of cumulative costs incurred to estimated total contract costs[122](index=122&type=chunk) - U.S. government contracts are subject to audits by the DCAA, various profit and cost controls, and termination for convenience or default, with funding dependent on Congressional appropriations[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) [Components of Operations](index=32&type=section&id=Components%20of%20Operations) This section defines the key components of the company's operations: Revenue, primarily product-related and derived from firm-fixed price contracts; Cost of Revenues, including materials, labor, and overhead; and General and Administrative (G&A) Expenses, covering indirect functions, internal R&D, and bid/proposal efforts - Product-related revenue accounted for **94% of total revenues** for the six months ended June 30, 2025, with **86%** derived from firm-fixed price contracts[127](index=127&type=chunk) - Flexibly priced contracts (cost-plus and time-and-materials) represented **14% of total revenues** for the six months ended June 30, 2025, down from **18%** in the prior year[129](index=129&type=chunk) - Cost of revenues includes materials, labor, and overhead for manufacturing, design, and services, as well as warranty costs[130](index=130&type=chunk) - G&A expenses cover indirect functions, internal research and development costs, and bid and proposal efforts[131](index=131&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance for the three and six months ended June 30, 2025, compared to the prior year, highlighting significant increases in revenues, gross profit, operating earnings, and net earnings, driven by backlog growth and operational efficiencies Three Months Ended June 30 (Dollars in millions, except per share) | Metric (Dollars in millions, except per share) | 2025 | 2024 | Change ($) | Change (%) | | :--------------------------------------------- | :------ | :------ | :--------- | :--------- | | Total revenues | 829 | 753 | 76 | 10.1 % | | Gross profit | 197 | 169 | 28 | 16.6 % | | Gross margin | 23.8 % | 22.4 % | 140 bps | | | Operating earnings | 70 | 55 | 15 | 27.3 % | | Net earnings | 54 | 38 | 16 | 42.1 % | | Diluted EPS | 0.20 | 0.14 | 0.06 | 42.9 % | | Backlog | 8,607 | 7,925 | 682 | 8.6 % | | Bookings | 853 | 941 | (88) | (9.4)% | Six Months Ended June 30 (Dollars in millions, except per share) | Metric (Dollars in millions, except per share) | 2025 | 2024 | Change ($) | Change (%) | | :--------------------------------------------- | :------ | :------ | :--------- | :--------- | | Total revenues | 1,628 | 1,441 | 187 | 13.0 % | | Gross profit | 378 | 322 | 56 | 17.4 % | | Gross margin | 23.2 % | 22.3 % | 90 bps | | | Operating earnings | 129 | 98 | 31 | 31.6 % | | Net earnings | 104 | 67 | 37 | 55.2 % | | Diluted EPS | 0.39 | 0.25 | 0.14 | 56.0 % | | Backlog | 8,607 | 7,925 | 682 | 8.6 % | | Bookings | 1,844 | 1,756 | 88 | 5.0 % | [Revenue](index=34&type=section&id=Revenue) Revenues increased by 10.1% to $829 million for the three months and 13.0% to $1,628 million for the six months ended June 30, 2025, driven by continued backlog growth across all operating segments, particularly in electric power and propulsion and advanced sensing activities - Three-month revenue increased by **$76 million (10.1%)** to **$829 million**, primarily due to backlog growth in electric power and propulsion and advanced sensing[135](index=135&type=chunk) - Six-month revenue increased by **$187 million (13.0%)** to **$1,628 million**, driven by backlog growth in advanced sensing, electric power and propulsion, and force protection activities[136](index=136&type=chunk) [Cost of Revenues](index=34&type=section&id=Cost%20of%20Revenues) Cost of revenues increased by 8.2% to $632 million for the three months and 11.7% to $1,250 million for the six months ended June 30, 2025, primarily due to increased revenue contribution, partially offset by efficient execution on Columbia Class programs - Three-month cost of revenues increased by **$48 million (8.2%)** to **$632 million**, driven by higher revenue, partially offset by efficient execution on Columbia Class programs[137](index=137&type=chunk) - Six-month cost of revenues increased by **$131 million (11.7%)** to **$1,250 million**, due to increased revenue and higher germanium costs, partially offset by Columbia Class program efficiencies[138](index=138&type=chunk) [Gross Profit](index=34&type=section&id=Gross%20Profit) Gross profit increased by 16.6% to $197 million for the three months and 17.4% to $378 million for the six months ended June 30, 2025, leading to gross margin expansion of 140 basis points and 90 basis points, respectively, primarily due to higher profitability on electric power and propulsion programs - Three-month gross profit increased by **$28 million (16.6%)** to **$197 million**, with gross margin expanding by **140 basis points** to **23.8%**[133](index=133&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) - Six-month gross profit increased by **$56 million (17.4%)** to **$378 million**, with gross margin expanding by **90 basis points** to **23.2%**, driven by higher profitability on electric power and propulsion programs[134](index=134&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) [General and Administrative Expenses](index=36&type=section&id=General%20and%20Administrative%20Expenses) G&A expenses increased by 13.1% for the three months and 14.4% for the six months ended June 30, 2025, primarily due to increased internal research and development expenditures, bid and proposal efforts, and performance-related compensation - Three-month G&A expenses increased by **$14 million (13.1%)** due to higher internal R&D and bid/proposal costs[141](index=141&type=chunk) - Six-month G&A expenses increased by **$30 million (14.4%)** due to increased internal R&D, bid/proposal efforts, and performance-related compensation[142](index=142&type=chunk) [Amortization of Intangibles](index=36&type=section&id=Amortization%20of%20Intangibles) Amortization of intangibles remained consistent at $6 million for the three months and $11 million for the six months ended June 30, 2025, compared to the prior year periods - Amortization of intangibles was consistent at **$6 million** for the three months and **$11 million** for the six months ended June 30, 2025, compared to the prior year[143](index=143&type=chunk) [Other Operating Expenses, Net](index=36&type=section&id=Other%20Operating%20Expenses,%20Net) Other operating expenses were zero for the three and six months ended June 30, 2025, a decrease from $1 million and $5 million in the prior year periods, which were attributed to restructuring efforts in the ASC segment - Other operating expenses were **zero** for the three and six months ended June 30, 2025, compared to **$1 million** and **$5 million** in the prior year, which were related to ASC segment restructuring[144](index=144&type=chunk) [Operating Earnings](index=36&type=section&id=Operating%20Earnings) Operating earnings increased by 27.3% to $70 million for the three months and 31.6% to $129 million for the six months ended June 30, 2025, driven by the positive gross profit trends - Three-month operating earnings increased by **$15 million (27.3%)** to **$70 million**[133](index=133&type=chunk)[145](index=145&type=chunk) - Six-month operating earnings increased by **$31 million (31.6%)** to **$129 million**, driven by gross profit improvements[134](index=134&type=chunk)[145](index=145&type=chunk) [Interest Expense, Net](index=36&type=section&id=Interest%20Expense,%20Net) Net interest expense decreased significantly by 71.4% to $2 million for the three months and 75.0% to $3 million for the six months ended June 30, 2025, primarily due to increased interest income from higher cash balances and reduced borrowings - Three-month net interest expense decreased by **$5 million (71.4%)** to **$2 million**[133](index=133&type=chunk)[146](index=146&type=chunk) - Six-month net interest expense decreased by **$9 million (75.0%)** to **$3 million**, attributed to higher interest income from increased cash balances and reduced borrowings[134](index=134&type=chunk)[146](index=146&type=chunk) [Other, Net](index=36&type=section&id=Other,%20Net) Other, net remained relatively consistent for both the three and six months ended June 30, 2025, compared to the prior year periods - Other, net remained consistent for both the three and six months ended June 30, 2025[147](index=147&type=chunk) [Earnings Before Taxes](index=36&type=section&id=Earnings%20Before%20Taxes) Earnings before taxes increased by 42.6% to $67 million for the three months and 48.8% to $125 million for the six months ended June 30, 2025, driven by higher operating earnings and reduced net interest expense - Three-month earnings before taxes increased by **$20 million (42.6%)** to **$67 million**[133](index=133&type=chunk)[148](index=148&type=chunk) - Six-month earnings before taxes increased by **$41 million (48.8%)** to **$125 million**, due to higher operating earnings and lower net interest expense[134](index=134&type=chunk)[148](index=148&type=chunk) [Income Tax Provision](index=36&type=section&id=Income%20Tax%20Provision) Income tax provision increased by $4 million for both the three and six months ended June 30, 2025, due to higher earnings before taxes, partially offset by discrete tax benefits from employee stock vesting - Income tax provision increased by **$4 million** for both periods, driven by higher earnings before taxes, offset by discrete tax benefits from employee stock vesting[149](index=149&type=chunk) - The effective tax rate for the six months ended June 30, 2025, was **16.8%**, compared to **20.2%** in the prior year[150](index=150&type=chunk) [Net Earnings](index=37&type=section&id=Net%20Earnings) Net earnings increased by 42.1% to $54 million for the three months and 55.2% to $104 million for the six months ended June 30, 2025, primarily due to the increase in earnings before taxes and favorable changes in the effective tax rate - Three-month net earnings increased by **$16 million (42.1%)** to **$54 million**[133](index=133&type=chunk)[151](index=151&type=chunk) - Six-month net earnings increased by **$37 million (55.2%)** to **$104 million**, driven by higher earnings before taxes and changes in the effective tax rate[134](index=134&type=chunk)[151](index=151&type=chunk) [Backlog](index=37&type=section&id=Backlog) Total backlog increased by $682 million (8.6%) to $8,607 million as of June 30, 2025, compared to June 30, 2024, primarily due to new awards in both ASC and IMS segments Backlog (Dollars in millions) | (Dollars in millions) | June 30, 2025 | June 30, 2024 | | :-------------------- | :------------ | :------------ | | Funded | 4,355 | 3,676 | | Unfunded | 4,252 | 4,249 | | Total backlog | 8,607 | 7,925 | - Total backlog increased by **$682 million (8.6%)** to **$8,607 million** as of June 30, 2025, driven by new awards in ASC and IMS segments[152](index=152&type=chunk) [Bookings](index=37&type=section&id=Bookings) Bookings decreased by 9.4% to $853 million for the three months ended June 30, 2025, but increased by 5.0% to $1,844 million for the six months, driven by new orders in both segments, particularly for ground vehicle and tactical radar programs - Three-month bookings decreased by **$88 million (9.4%)** to **$853 million**[133](index=133&type=chunk)[154](index=154&type=chunk) - Six-month bookings increased by **$88 million (5.0%)** to **$1,844 million**, driven by new orders in both segments, including ground vehicle and tactical radar programs[134](index=134&type=chunk)[154](index=154&type=chunk) [Factors Impacting Our Performance](index=37&type=section&id=Factors%20Impacting%20Our%20Performance) This section discusses external and internal factors influencing the company's performance, including U.S. government spending and budget uncertainty, operational performance on contracts, regulatory scrutiny, international sales dynamics, and potential acquisitions [U.S. Government Spending and Federal Budget Uncertainty](index=37&type=section&id=U.S.%20Government%20Spending%20and%20Federal%20Budget%20Uncertainty) The company's business is highly correlated to U.S. government spending, particularly within the DoD. Changes in spending levels, priorities, and budget constraints, including the impact of continuing resolutions and potential government shutdowns, can significantly affect operations - The company's business is highly dependent on U.S. government spending, especially within the DoD, making it vulnerable to shifts in priorities, budget restrictions, and delays in appropriations[155](index=155&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - A full-year Continuing Resolution for FY2025 and recent legislative measures (OBBBA, FY2026 DoD Appropriations Act) are expected to significantly influence future DoD funding and the company's operations[120](index=120&type=chunk)[121](index=121&type=chunk) [Operational Performance on Contracts](index=38&type=section&id=Operational%20Performance%20on%20Contracts) The company recognizes revenue for most contracts over time using the percentage of completion cost-to-cost method, with the majority being fixed-price contracts. Contract estimates are subject to adjustments, which are recognized using the cumulative catch-up method - Revenue is recognized over time, primarily using the percentage of completion cost-to-cost method, for complex and integrated goods/services[163](index=163&type=chunk)[164](index=164&type=chunk) - The majority of total revenues are derived from fixed-price contracts, with cost-plus and time-and-materials contracts also utilized[159](index=159&type=chunk)[160](index=160&type=chunk)[162](index=162&type=chunk) Revenue Impact (Dollars in millions) | (Dollars in millions) | 2025 | 2024 | | :-------------------- | :--- | :--- | | Revenue | — | (19) | | Total % of revenue | — % | 1 % | - Fluctuations in working capital and quarterly cash flows can occur due to the timing of billable milestones on contracts[165](index=165&type=chunk) [Regulations](index=39&type=section&id=Regulations) The company is subject to increased scrutiny, audits, and investigations by U.S. government agencies regarding contract performance and compliance, which could impact operating results - Increased audit, review, investigation, and scrutiny by U.S. government agencies regarding contract performance and compliance could affect operating results[166](index=166&type=chunk) [International Sales](index=40&type=section&id=International%20Sales) International revenue, including foreign military sales and direct commercial sales, decreased to 8% of total revenue for the six months ended June 30, 2025, from 13% in the prior year, primarily due to the timing of certain dismounted soldier sensing program sales - International revenue decreased to approximately **8% of total revenue** for the six months ended June 30, 2025, from **13%** in the prior year, mainly due to timing of dismounted soldier sensing program sales[167](index=167&type=chunk) - Despite the current reduction, international sales are expected to remain relatively consistent as a percentage of total sales, driven by international defense investment and ongoing global conflicts[167](index=167&type=chunk) - Foreign exchange fluctuations did not have a material impact on results for the six months ended June 30, 2025[168](index=168&type=chunk) [Acquisitions](index=40&type=section&id=Acquisitions) The company considers acquisitions that expand or complement its portfolio and divestitures of businesses that no longer align with its strategy - The company actively considers acquisitions to expand its portfolio and access new customers/technologies, and may divest businesses that no longer fit its strategy[169](index=169&type=chunk) [Review of Operating Segments](index=40&type=section&id=Review%20of%20Operating%20Segments) This section provides a detailed review of the financial performance of the Advanced Sensing and Computing (ASC) and Integrated Mission Systems (IMS) segments, including revenues, operating earnings, operating margins, and bookings for the three and six months ended June 30, 2025, compared to the prior year Segment Performance (Three Months Ended June 30, Dollars in millions) | (Dollars in millions) | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | **Revenues:** | | | | | | ASC | 542 | 492 | 50 | 10.2 % | | IMS | 290 | 266 | 24 | 9.0 % | | **Operating earnings:** | | | | | | ASC | 37 | 37 | — | — % | | IMS | 33 | 21 | 12 | 57.1 % | | **Operating margin:** | | | | | | ASC | 6.8 % | 7.5% | | | | IMS | 11.4 % | 7.9% | | | | **Bookings:** | | | | | | ASC | 559 | 616 | (57) | (9.3)% | | IMS | 294 | 325 | (31) | (9.5)% | Segment Performance (Six Months Ended June 30, Dollars in millions) | (Dollars in millions) | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | **Revenues:** | | | | | | ASC | 1,053 | 925 | 128 | 13.8 % | | IMS | 581 | 527 | 54 | 10.2 % | | **Operating earnings:** | | | | | | ASC | 62 | 56 | 6 | 10.7 % | | IMS | 67 | 46 | 21 | 45.7 % | | **Operating margin:** | | | | | | ASC | 5.9 % | 6.1% | | | | IMS | 11.5 % | 8.7% | | | | **Bookings:** | | | | | | ASC | 1,228 | 1,203 | 25 | 2.1 % | | IMS | 616 | 553 | 63 | 11.4 % | [ASC](index=41&type=section&id=ASC) The ASC segment reported revenue increases of 10.2% for three months and 13.8% for six months, driven by advanced sensing and force protection programs. Operating earnings remained consistent for three months due to increased R&D investment, but increased 10.7% for six months - Three-month ASC revenue increased by **$50 million (10.2%)** to **$542 million**, driven by advanced sensing (tactical computing, C-UAS tactical radars) and force protection programs[173](index=173&type=chunk)[175](index=175&type=chunk) - Six-month ASC revenue increased by **$128 million (13.8%)** to **$1,053 million**, driven by advanced sensing (dismounted and ground vehicle), network computing, and C-UAS tactical radars[176](index=176&type=chunk) - Three-month ASC operating earnings were consistent at **$37 million**, leading to a margin decrease to **6.8%** due to increased internal R&D investment[177](index=177&type=chunk) - Six-month ASC operating earnings increased by **$6 million (10.7%)** to **$62 million**, with operating margin at **5.9%**, impacted by increased germanium costs and R&D, offset by revenue growth and reduced restructuring[178](index=178&type=chunk) - Three-month ASC bookings decreased by **$57 million (9.3%)** to **$559 million** due to timing of dismounted soldier and ground vehicle awards in the prior year[179](index=179&type=chunk) - Six-month ASC bookings increased by **$25 million (2.1%)** to **$1,228 million**, driven by ground vehicle and tactical radar programs, partially offset by reduced tactical computing awards[180](index=180&type=chunk) [IMS](index=43&type=section&id=IMS) The IMS segment reported revenue increases of 9.0% for three months and 10.2% for six months, primarily from naval power programs and short-range air defense. Operating earnings significantly increased by 57.1% for three months and 45.7% for six months, driven by operational leverage and Columbia Class submarine program improvements, leading to margin expansion - Three-month IMS revenue increased by **$24 million (9.0%)** to **$290 million**, attributed to increased naval power programs (submarine and surface ships)[181](index=181&type=chunk) - Six-month IMS revenue increased by **$54 million (10.2%)** to **$581 million**, driven by naval power programs and short-range air defense programs[182](index=182&type=chunk) - Three-month IMS operating earnings increased by **$12 million (57.1%)** to **$33 million**, with operating margin rising to **11.4%**, due to operational leverage and Columbia Class program improvements, partially offset by foreign surveillance program delays[183](index=183&type=chunk)[184](index=184&type=chunk) - Six-month IMS operating earnings increased by **$21 million (45.7%)** to **$67 million**, with operating margin rising to **11.5%**, driven by increased revenue and Columbia Class program improvements[185](index=185&type=chunk) - Three-month IMS bookings decreased by **$31 million (9.5%)** to **$294 million**, attributed to accelerated funding for the Columbia Class program in Q1 2025[186](index=186&type=chunk) - Six-month IMS bookings increased by **$63 million (11.4%)** to **$616 million**, largely due to funding received for the next tranche of the Columbia Class program[187](index=187&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) The company's cash balance decreased significantly from December 31, 2024, to June 30, 2025, primarily due to cash used in operating, investing, and financing activities - Cash and cash equivalents decreased from **$598 million** at December 31, 2024, to **$278 million** at June 30, 2025[188](index=188&type=chunk) Cash Flow Summary (Dollars in millions) | (Dollars in millions) | 2025 | 2024 | | :-------------------- | :---- | :---- | | Net cash used in operating activities | (166) | (231) | | Net cash used in investing activities | (60) | (44) | | Net cash used in financing activities | (94) | (43) | | Net decrease in cash and cash equivalents | (320) | (318) | - Management believes existing cash, credit facilities, and future operating cash will be sufficient for short and long-term liquidity needs[188](index=188&type=chunk) [Operating Activities](index=44&type=section&id=Operating%20Activities) Cash used in operating activities decreased by $65 million to $166 million for the six months ended June 30, 2025, primarily due to lower cash used to fund working capital, driven by customer advances on electric propulsion and tactical radar programs - Net cash used in operating activities decreased by **$65 million** to **$166 million** for the six months ended June 30, 2025[190](index=190&type=chunk) - This decrease was primarily due to lower cash used to fund working capital, driven by customer advances on electric propulsion (IMS) and tactical radars (ASC) programs[190](index=190&type=chunk)[191](index=191&type=chunk) [Investing Activities](index=45&type=section&id=Investing%20Activities) Net cash used in investing activities increased by $16 million to $60 million for the six months ended June 30, 2025, mainly due to higher capital expenditures for the naval expansion project in South Carolina - Net cash used in investing activities increased by **$16 million** to **$60 million** for the six months ended June 30, 2025[192](index=192&type=chunk) - The increase was primarily due to higher capital expenditures for the naval expansion project in South Carolina[192](index=192&type=chunk) [Financing Activities](index=45&type=section&id=Financing%20Activities) Net cash used in financing activities increased by $51 million to $94 million for the six months ended June 30, 2025, driven by cash dividends, higher employee taxes withheld from share-based awards, and share repurchases, partially offset by changes in third-party borrowings - Net cash used in financing activities increased by **$51 million** to **$94 million** for the six months ended June 30, 2025[193](index=193&type=chunk) - This increase was primarily due to cash outlays for dividends paid, higher employee taxes withheld from share-based awards, and share buybacks[193](index=193&type=chunk) [Critical Accounting Policies and Estimates](index=45&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) There have been no material changes to the company's critical accounting policies and estimates since those discussed in its Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to critical accounting policies and estimates have occurred since the Annual Report on Form 10-K for December 31, 2024[194](index=194&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to various market risks, including equity risk, interest rate risk, foreign currency risk, and inflation risk, and their potential impact on financial statements [Equity Risk](index=45&type=section&id=Equity%20Risk) The company has limited equity risk, as its only investments outside of pension assets are overnight money market accounts, making significant fluctuations unlikely - The company has limited equity risk, with investments primarily in overnight money market accounts, making material impact from fluctuations unlikely[195](index=195&type=chunk) [Interest Rate Risk](index=45&type=section&id=Interest%20Rate%20Risk) The company is exposed to interest rate risk on its variable-rate 2022 Term Loan A. A 0.5% change in the weighted average interest rate would impact annual interest expense by approximately $1 million - The company is exposed to interest rate risk on its variable-rate 2022 Term Loan A (**$197 million** outstanding at June 30, 2025)[196](index=196&type=chunk) - A **0.5%** change in the weighted average interest rate on variable debt would result in an approximate **$1 million** change in annual interest expense[196](index=196&type=chunk) [Foreign Currency Risk](index=45&type=section&id=Foreign%20Currency%20Risk) The company has limited foreign currency exposure, primarily with the Canadian dollar, due to the overwhelming majority of its revenue being U.S.-sourced. A 10% fluctuation in exchange rates would not materially impact financial statements - The company has limited foreign currency exposure, primarily with the Canadian dollar (**$14 million** in receivables at June 30, 2025), as most revenue is U.S.-sourced[197](index=197&type=chunk) - A **10%** fluctuation in exchange rates would not have a material impact on the financial statements[197](index=197&type=chunk) [Inflation Risk](index=45&type=section&id=Inflation%20Risk) The company has experienced inflationary pressures on supply chain costs, including micro-electronics and commodities, which have impacted profitability - The company has experienced inflationary pressures on supply chain costs (micro-electronics, commodities), impacting profitability[198](index=198&type=chunk) - While longer-term fixed-price contracts include cost escalation assumptions, future cost increases may not be fully mitigated and could negatively affect financial results[198](index=198&type=chunk)[199](index=199&type=chunk) [ITEM 4. Controls and Procedures](index=46&type=section&id=ITEM%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2025, and states that there were no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=46&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025 - The company'

Financial Data and Key Metrics Changes - The company secured $853 million in bookings for the quarter, achieving a 1.0 book-to-bill ratio, with total backlog rising to $8.6 billion, a 9% year-over-year increase [6][8] - Revenue for the quarter was $829 million, reflecting a 10% increase year-over-year, with adjusted EBITDA up 17% to $96 million and adjusted diluted EPS up 28% [20][22][24] - The company raised its full-year revenue growth expectations to 9% to 11% [8][24] Business Line Data and Key Metrics Changes - The Electric Power and Propulsion segment showed strong performance, contributing significantly to revenue growth, particularly on the Columbia Class program [22][24] - The Advanced Sensing and Computing (ASC) segment's adjusted EBITDA increased by 5%, but margins contracted due to higher R&D investments and less favorable program mix [22] - The Integrated Mission Systems (IMS) segment's adjusted EBITDA rose by 41%, with margin expansion attributed to improved profitability on the Columbia Class program [22] Market Data and Key Metrics Changes - Global defense spending is increasing, with NATO members targeting 5% of GDP for national security, which is expected to drive international demand for the company's capabilities [10][11] - The U.S. defense budget request for FY 2026 is $962 billion, representing a 12% year-over-year increase, providing a favorable environment for the company [10] Company Strategy and Development Direction - The company is focused on disciplined program execution, investing for future growth, and navigating a complex operational environment [9][19] - The enactment of the One Big Beautiful Bill Act, which includes $150 billion in defense funding, is expected to create significant opportunities for the company [9][10] - The company is enhancing its R&D investments to support new technologies, particularly in space sensing and counter UAS capabilities [16][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to meet full-year outlooks, citing strong customer demand and a healthy backlog [8][19] - The operational environment remains complex, particularly regarding supply chain challenges, specifically related to germanium availability [12][14] - Management is optimistic about the long-term growth potential driven by geopolitical tensions and increased defense spending [10][11] Other Important Information - The company is actively seeking to mitigate supply chain challenges, particularly regarding germanium, through various strategies [12][14] - The company is exploring M&A opportunities but is cautious about high valuations in the current market [33][47] Q&A Session Summary Question: When should the company expect orders related to the Golden Dome initiative to impact backlog? - Management indicated that significant orders are expected to roll out in the 2026 timeframe as the architecture is still being organized [31] Question: What is the current situation regarding germanium supply and its impact? - Management explained that germanium supply has been constrained due to geopolitical tensions, leading to increased prices and the need to seek alternative sources [41][42] Question: How does the company view the M&A environment? - Management noted that while they are actively looking for opportunities, rising prices in the sector are a consideration, and they are willing to be flexible on financial criteria for strategically aligned acquisitions [33][47] Question: What are the expectations for international sales growth? - Management expressed confidence that international sales will continue to grow, driven by NATO commitments and ongoing geopolitical conflicts [75] Question: How does the company plan to address the challenges posed by germanium shortages? - Management is pursuing multiple strategies, including recycling and seeking alternative materials, with a target to alleviate issues by 2026 [42][83]

Financial Data and Key Metrics Changes - The company secured $853 million in bookings for the quarter, achieving a book-to-bill ratio of 1.0, with total backlog rising to $8.6 billion, a 9% year-over-year increase [6][7] - Revenue for the quarter was $829 million, reflecting a 10% increase year-over-year, with adjusted EBITDA up 17% to $96 million and adjusted diluted EPS up 28% [20][22][23] - The full-year revenue growth expectations have been increased to 9% to 11% [7][24] Business Line Data and Key Metrics Changes - The Electric Power and Propulsion segment showed strong performance, contributing significantly to revenue growth, particularly from the Columbia Class program [22][18] - The Advanced Sensing and Computing (ASC) segment's adjusted EBITDA increased by 5%, but margins contracted due to higher R&D investments and less favorable program mix [22] - The Integrated Mission Systems (IMS) segment's adjusted EBITDA rose by 41%, with margin expansion attributed to improved profitability on the Columbia Class program [22] Market Data and Key Metrics Changes - Global defense spending is increasing, with NATO members targeting 5% of GDP for national security, which is expected to drive demand for the company's capabilities [9][10] - The U.S. defense budget request for FY 2026 is $962 billion, representing a 12% year-over-year increase, providing a favorable environment for the company [9] Company Strategy and Development Direction - The company is focused on disciplined program execution and investing for future growth, particularly in areas aligned with national defense priorities [8][9] - Increased internal R&D investment is being directed towards enhancing space sensing capabilities and counter UAS technologies [15][18] - The company is exploring M&A opportunities, although rising prices in the sector are a consideration [34][46] Management's Comments on Operating Environment and Future Outlook - Management noted a complex operational environment but highlighted sustained momentum in capturing customer demand and expanding profitability [5][8] - The enactment of the One Big Beautiful Bill Act is expected to provide significant opportunities for the company [8][9] - Concerns regarding germanium availability and pricing were raised, with mitigation efforts expected to yield relief in 2026 [11][40] Other Important Information - The company is actively monitoring geopolitical tensions, particularly in Israel, and is taking steps to ensure employee safety [10] - The company anticipates a strong bookings environment for the second half of the year, expecting to exit with a higher backlog than at June 30 [61] Q&A Session Summary Question: Timing of Golden Dome program impact on backlog - Management indicated that significant orders related to the Golden Dome initiative are expected to roll out in 2026, as the architecture is still being organized [32] Question: M&A environment and deal flow - Management confirmed ongoing diligence in the M&A market, noting that while there is a continuous flow of opportunities, rising prices are a factor in their assessment [34] Question: Impact of germanium supply issues - Management explained that germanium supply has been constrained due to geopolitical tensions, leading to increased prices and the need to seek alternative sources [40][41] Question: Opportunities from NATO commitments - Management expressed optimism about international sales growth driven by NATO commitments and ongoing geopolitical conflicts [68] Question: Future defense budget expectations - Management anticipates sustained and predictable increases in defense budgets, driven by the need to address growing threats from global adversaries [114]

Leonardo DRS, Inc. (DRS) reported $829 million in revenue for the quarter ended June 2025, representing a year-over-year increase of 10.1%. EPS of $0.23 for the same period compares to $0.18 a year ago. Here is how Leonardo DRS, Inc. performed in the just reported quarter in terms of the metrics most widely monitored and projected by Wall Street analysts: View all Key Company Metrics for Leonardo DRS, Inc. here>>> Shares of Leonardo DRS, Inc. have returned +6.9% over the past month versus the Zacks S&P 500 ...

Q2 2025 Performance Highlights - The company's organic revenue grew by 10%, indicating strong alignment with customer priorities[8] - Adjusted EBITDA increased by 17%, reaching $96 million, driven by higher volume and improved Columbia Class profitability[8, 10] - Adjusted EBITDA margin expanded by 70 bps to 11.6%[8, 10] - Quarterly bookings totaled $853 million, exceeding revenue and demonstrating strong customer demand[8] - Total backlog increased by 9% to $8607 million, reflecting consistent customer demand[10] - Adjusted Diluted EPS increased by 28% from $0.18 to $0.23[10] Segment Results - Advanced Sensing and Computing (ASC) revenue increased by 10% to $542 million, with Adjusted EBITDA increasing by 41% to $38 million[13] - Integrated Mission Systems (IMS) revenue increased by 9% to $290 million, with Adjusted EBITDA increasing by 5% to $58 million[13] Revised 2025 Guidance - The company increased its full-year revenue growth expectation to 9%-11%[8, 15]

Leonardo DRS, Inc. (DRS) came out with quarterly earnings of $0.23 per share, beating the Zacks Consensus Estimate of $0.22 per share. This compares to earnings of $0.18 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of +4.55%. A quarter ago, it was expected that this company would post earnings of $0.17 per share when it actually produced earnings of $0.2, delivering a surprise of +17.65%.Over the last four quarters, the compan ...

(1) The company reports its financials in accordance with U.S. generally accepted accounting principles ("GAAP"). Information about the company's use of non-GAAP financial measures, including a reconciliation of the non-GAAP financial measures to the most comparable financial measures calculated and presented in accordance with U.S. GAAP, is provided below under "Non-GAAP Financial Measures." Leonardo DRS Announces Financial Results for Second Quarter 2025 ARLINGTON, Va., (BUSINESS WIRE) July 30, 2025 — Leo ...

Group 1: Company Performance - Leonardo DRS, Inc. has returned 38.2% year-to-date, outperforming the average gain of 19.2% in the Aerospace group [4] - The Zacks Consensus Estimate for DRS' full-year earnings has increased by 0.7% over the past 90 days, indicating improved analyst sentiment [4] - DRS currently holds a Zacks Rank of 2 (Buy), suggesting a positive earnings outlook [3] Group 2: Industry Context - The Aerospace group is ranked 1 within the Zacks Sector Rank, which evaluates 16 different groups based on the average Zacks Rank of individual stocks [2] - Leonardo DRS is part of the Aerospace - Defense Equipment industry, which consists of 27 companies and is currently ranked 30 in the Zacks Industry Rank [6] - Stocks in the Aerospace - Defense Equipment industry have gained approximately 18.6% year-to-date, indicating that DRS is performing better than its peers in this specific industry [6] Group 3: Comparison with Peers - Elbit Systems, another stock in the Aerospace sector, has achieved a year-to-date return of 66.5% and has a Zacks Rank of 1 (Strong Buy) [5] - Over the past three months, Elbit Systems' consensus EPS estimate has increased by 22.6%, reflecting strong performance in the sector [5] - Both Leonardo DRS and Elbit Systems are highlighted as stocks to watch for continued solid performance in the Aerospace sector [7]