drs-20260930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2026

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 001-41565

Leonardo DRS, Inc.

(Exact name of registrant as specified in its charter)


Delaware			13-2632319
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

2345 Crystal Drive

Suite 1000

Arlington, Virginia 22202

(703) 416-8000

(Address of principal executive offices, including zip code, and registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	DRS	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 28, 2026, there were 266,621,085 shares of the registrant’s common stock, par value of $0.01 per share, outstanding.

TABLE OF CONTENTS


			Page
PART I. Financial Information			1
ITEM 1. Financial Statements (Unaudited)			1
Consolidated Statements of Earnings			1
Consolidated Statements of Comprehensive Income			2
Consolidated Balance Sheets			3
Consolidated Statements of Cash Flows			4
Consolidated Statements of Stockholders' Equity			5
Notes to Consolidated Financial Statements			7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			35
ITEM 4. Controls and Procedures			35
PART II. Other Information			37
ITEM 1. Legal Proceedings			37
ITEM 1A. Risk Factors			37
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
ITEM 3. Defaults Upon Senior Securities			37
ITEM 4. Mine Safety Disclosures			37
ITEM 5. Other Information			38
ITEM 6. Exhibits			39
Signatures			40

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

In this quarterly report on Form 10-Q (this “Quarterly Report”), when using the terms the “Company,” “DRS,” “we,” “us” and “our,” unless otherwise indicated or the context otherwise requires, we are referring to Leonardo DRS, Inc. This Quarterly Report contains forward-looking statements and cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “strives,” “targets,” “projects,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. Forward-looking statements include, without limitation, all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report and include, without limitation, statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, financial goals, financial position, results of operations, cash flows, prospects, strategies or expectations, and the impact of prevailing economic conditions.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if future performance and outcomes are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods. New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:

•Disruptions, including from government shutdowns, or deteriorations in our relationship with the relevant agencies of the U.S. government, as well as any failure to pass routine audits or otherwise comply with governmental requirements including those related to security clearance or procurement rules, including the False Claims Act;

•Significant delays, including from government shutdowns, or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly;

•Any failure to comply with the amended and restated proxy agreement with the U.S. Department of War, also known as the U.S. Department of Defense (the “DoW”);

•The effect of inflation and other cost pressures on our supply chain and/or our labor costs;

•Our mix of fixed-price, cost-plus and time-and-materials type contracts and any resulting impact on our cash flows due to cost overruns;

•Failure to properly comply with various covenants of the agreements governing our debt could negatively impact our business;

•Our dependence on U.S. government contracts, which often are only partially funded and are subject to immediate termination, some of which are classified, and the concentration of our customer base in the U.S. defense industry;

•Our use of estimates in pricing and accounting for many of our programs that are inherently uncertain and which may not prove to be accurate;

•Our ability to realize the full value of our backlog;

•Our ability to predict future capital needs or to obtain additional financing if needed, on terms acceptable to us, if at all;

•Our ability to respond to the rapid technological changes in the markets in which we compete;

•The effect of global and regional economic downturns and rising interest rates;

•Our ability to maintain an effective system of internal control over financial reporting;

•Our inability to appropriately manage our inventory;

•Our inability to fully realize the value of our total estimated contract value or bookings;

•Our ability to compete efficiently, including due to U.S. government organizational conflict of interest rules which may limit new contract opportunities or require us to wind down existing contracts;

•Our relationships with other industry participants, including any contractual disputes or the inability of our key suppliers to timely deliver our components, parts or services;

•Preferences for set-asides for small or small disadvantaged businesses could impact our ability to be a prime contractor;

•Any failure to meet our contractual obligations including due to potential impacts to our business from supply chain risks, such as longer lead times and shortages of electronics and other components;

•Any security breach, including any cyber-attack, cyber intrusion, insider threat, or other significant disruption of our IT networks and related systems, as well as any act of terrorism or other threat to our physical security and personnel;

•Our ability to fully exploit or obtain patents or other intellectual property protections necessary to secure our proprietary technology, including our ability to avoid infringing upon the intellectual property of third parties or prevent third parties from infringing upon our own intellectual property;

•The conduct of our employees, agents, affiliates, subcontractors, suppliers, business partners or joint ventures in which we participate which may impact our reputation and ability to do business;

•The outcome of litigation, arbitration, investigations, claims, disputes, enforcement actions and other legal proceedings in which we are involved;

•Various geopolitical and economic factors, laws and regulations including the Foreign Corrupt Practices Act, the Arms Export Control Act, the International Traffic in Arms Regulations, the Export Administration Regulations, recent U.S. tariffs imposed or threatened to be imposed on other countries and any related retaliatory actions taken by such countries and those that we are exposed to as a result of our international business;

•Our ability to obtain export licenses necessary to conduct certain operations abroad, including any attempts by Congress to prevent proposed sales to certain foreign governments;

•Our ability to attract and retain technical and other key personnel;

•The occurrence of prolonged work stoppages;

•The unavailability or inadequacy of our insurance coverage, customer indemnifications or other liability protections to cover all of our significant risks or to pay for material losses we incur;

•Future changes in U.S. tax laws and regulations or interpretations thereof;

•Future changes in the DoW’s and other governments’ budgets;

•Certain limitations on our ability to use our net operating losses to offset future taxable income;

iii

•Termination of our leases or our inability to renew our leases on acceptable terms;

•Changes in estimates used in accounting for our pension plans, including with respect to the funding status thereof;

•Changes in future business or other market conditions that could cause business investments and/or recorded goodwill or other long-term assets to become impaired;

•The proposed acquisition of Raft LLC, including the failure to complete the transaction on the anticipated timeline or at all, the failure to realize the anticipated benefits of the transaction, including expected accretion and tax benefits, integration difficulties, retention of key personnel, transaction and integration costs, and increased indebtedness incurred to fund the transaction;

•Adverse consequences from any acquisitions such as operating difficulties, dilution and other harmful consequences or any modification, delay or prevention of any future acquisition or investment activity by the Committee on Foreign Investment in the United States;

•Natural disasters, severe weather or other significant disruptions;

•Failure to properly contain a global pandemic in a timely manner could materially affect how we and our business partners operate;

•Our compliance with environmental laws and regulations, and any environmental liabilities that may affect our reputation or financial position;

•Any conflict of interest that may arise because Leonardo US Holding, LLC, our majority stockholder, or Leonardo S.p.A., our indirect majority stockholder, may have interests that are different from, or conflict with, those of our other stockholders, including as a result of any ongoing business relationships Leonardo S.p.A. may have with us, and their significant ownership in us may discourage change of control transactions (our third amended and restated certificate of incorporation provides that we waive any interest or expectancy in corporate opportunities presented to Leonardo S.p.A.); or

•Our obligations to provide certain services to Leonardo S.p.A., which may divert human and financial resources from our business.

You should read this Quarterly Report completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this Quarterly Report are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this filing, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise.

Other risks, uncertainties and factors, including those discussed under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025, could cause our actual results to differ materially from those projected in any forward-looking statements we make. Readers should read the discussion of these factors carefully to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

LEONARDO DRS, INC.

Consolidated Statements of Earnings (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions, except per share amounts)	2026		2025		2026		2025



Revenues	$	1,066	$	960	$	2,825	$	2,588



Cost of revenues	(803)		(738)		(2,113)		(1,988)
Gross profit	263		222		712		600
General and administrative expenses	(142)		(123)		(401)		(361)
Amortization of acquired intangible assets	(5)		(5)		(16)		(16)
Other operating expenses, net	—		(1)		—		(1)
Operating earnings	116		93		295		222
Interest income (expense), net	1		(4)		3		(7)
Other, net	(1)		(2)		(5)		(3)
Earnings before taxes	116		87		293		212
Income tax provision	(1)		(15)		(30)		(36)
Net earnings	$	115	$	72	$	263	$	176

Net earnings per share from common stock:
Basic earnings per share	$	0.43	$	0.27	$	0.99	$	0.66
Diluted earnings per share	$	0.43	$	0.26	$	0.98	$	0.65

See accompanying Notes to Consolidated Financial Statements.

LEONARDO DRS, INC.

Consolidated Statements of Comprehensive Income (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2026		2025		2026		2025
Net earnings	$	115	$	72	$	263	$	176
Other comprehensive (loss) income, net of income taxes:

Pension and other postretirement benefit plan adjustments	1		—		1		—
Net unrealized (loss) gain on derivative instruments	(2)		(1)		(4)		4
Other comprehensive (loss) income, net of income taxes	(1)		(1)		(3)		4
Total comprehensive income	$	114	$	71	$	260	$	180

See accompanying Notes to Consolidated Financial Statements.

LEONARDO DRS, INC.

Consolidated Balance Sheets


	(Unaudited)
(Dollars in millions, except per share amounts)	September 30, 2026		December 31, 2025
ASSETS
Current assets:
Cash and cash equivalents	$	294	$	647
Accounts receivable, net	358		334
Contract assets	1,083		931
Inventories	374		352

Prepaid expenses	45		26
Other current assets	25		36
Total current assets	2,179		2,326
Noncurrent assets:
Property, plant and equipment, net	572		512
Intangible assets, net	94		112
Goodwill	1,238		1,238
Deferred tax assets	87		88
Other noncurrent assets	204		210
Total noncurrent assets	2,195		2,160
Total assets	$	4,374	$	4,486
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	10	$	26
Accounts payable	257		351
Contract liabilities	594		585
Other current liabilities	296		269
Total current liabilities	1,157		1,231
Noncurrent liabilities:
Long-term debt	165		321
Pension and other postretirement benefit plan liabilities	28		35
Deferred tax liabilities	3		3
Other noncurrent liabilities	131		166
Total noncurrent liabilities	327		525
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, $0.01 par value: 10,000,000 shares authorized; none issued	—		—
Common stock, $0.01 par value: 350,000,000 shares authorized; 266,711,588 and 265,822,404 shares issued and outstanding as of September 30, 2026 and December 31, 2025, respectively	3		3
Additional paid-in capital	4,983		5,083
Accumulated deficit	(2,052)		(2,315)
Accumulated other comprehensive loss	(44)		(41)
Total stockholders' equity	2,890		2,730
Total liabilities and stockholders' equity	$	4,374	$	4,486

See accompanying Notes to Consolidated Financial Statements.

LEONARDO DRS, INC.

Consolidated Statements of Cash Flows (Unaudited)


	Nine Months Ended September 30,
(Dollars in millions)	2026		2025
Operating activities
Net earnings	$	263	$	176
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization	77		69
Deferred income taxes	(4)		—

Stock-based compensation expense	17		19

Changes in assets and liabilities:
Accounts receivable	(24)		(74)
Contract assets	(153)		(182)
Inventories	(22)		(46)
Prepaid expenses	(19)		(5)
Other current assets	7		19
Other noncurrent assets	14		13
Defined benefit obligations	(7)		(6)
Accounts payable	(85)		(80)
Contract liabilities	9		41
Other current liabilities	33		9
Other noncurrent liabilities	(41)		(12)
Net cash provided by (used in) operating activities	65		(59)
Investing activities
Capital expenditures	(97)		(90)


Proceeds from sales of assets	1		—
Purchases of investments	—		(15)
Other	1		—

Net cash used in investing activities	(95)		(105)
Financing activities
Net decrease in borrowings (maturities of 90 days or less)	(5)		(1)
Repayments of borrowings	(191)		(9)






Proceeds from stock issuance	8		9
Repurchases of common stock	(28)		(24)
Payments of employee taxes withheld from stock-based awards	(25)		(21)
Dividends paid	(21)		(21)
Dividends paid to related party	(51)		(51)
Other	(10)		(7)
Net cash used in financing activities	(323)		(125)
Effect of exchange rate changes on cash and cash equivalents	—		—
Net decrease in cash and cash equivalents	(353)		(289)
Cash and cash equivalents at beginning of year	647		598
Cash and cash equivalents at end of period	$	294	$	309

See accompanying Notes to Consolidated Financial Statements.

LEONARDO DRS, INC.

Consolidated Statements of Stockholders’ Equity (Unaudited)


(In millions, except per share amounts)	Shares of common stock	Common stock		Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total
Balance as of June 30, 2025	266	$	3	$	5,128	$	(42)	$	(2,489)	$	2,600
Total comprehensive income	—	—		—		(1)		72		71
Stock-based compensation activity	—	—		6		—		—		6
Issuances of stock under employee stock purchase plan	—	—		5		—		—		5
Cash dividends of $0.09 per share	—	—		(24)		—		—		(24)
Repurchases of common stock	—	—		(10)		—		—		(10)
Balance as of September 30, 2025	266	$	3	$	5,105	$	(43)	$	(2,417)	$	2,648


Balance as of June 30, 2026	267	$	3	$	5,010	$	(43)	$	(2,167)	$	2,803
Total comprehensive income	—	—		—		(1)		115		114
Stock-based compensation activity	—	—		6		—		—		6
Issuances of stock under employee stock purchase plan	—	—		3		—		—		3
Cash dividends of $0.09 per share	—	—		(24)		—		—		(24)
Repurchases of common stock	—	—		(12)		—		—		(12)
Balance as of September 30, 2026	267	$	3	$	4,983	$	(44)	$	(2,052)	$	2,890

See accompanying Notes to Consolidated Financial Statements.

LEONARDO DRS, INC.

Consolidated Statements of Stockholders’ Equity (Unaudited)


(In millions, except per share amounts)	Shares of common stock	Common stock		Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total
Balance as of December 31, 2024	265	$	3	$	5,194	$	(47)	$	(2,593)	$	2,557
Total comprehensive income	—	—		—		4		176		180
Stock-based compensation activity	1	—		2		—		—		2
Issuances of stock under employee stock purchase plan	—	—		5		—		—		5
Cash dividends of $0.27 per share	—	—		(72)		—		—		(72)
Repurchases of common stock	—	—		(24)		—		—		(24)
Balance as of September 30, 2025	266	$	3	$	5,105	$	(43)	$	(2,417)	$	2,648


Balance as of December 31, 2025	266	$	3	$	5,083	$	(41)	$	(2,315)	$	2,730
Total comprehensive income	—	—		—		(3)		263		260
Stock-based compensation activity	1	—		(3)		—		—		(3)
Issuances of stock under employee stock purchase plan	—	—		3		—		—		3
Cash dividends of $0.27 per share	—	—		(72)		—		—		(72)
Repurchases of common stock	—	—		(28)		—		—		(28)
Balance as of September 30, 2026	267	$	3	$	4,983	$	(44)	$	(2,052)	$	2,890

See accompanying Notes to Consolidated Financial Statements.

LEONARDO DRS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

A.Organization

Leonardo DRS, Inc., together with its wholly owned subsidiaries (hereinafter, “DRS,” “the Company,” “us,” “our,” or “we”) is a supplier of defense electronics products, systems and military support services. The Company’s largest stockholder is Leonardo S.p.A., an Italian multi-national aerospace, defense and security company headquartered in Rome, Italy, through its ultimate sole ownership of Leonardo US Holding, LLC (“US Holding”). US Holding is the majority stockholder of the Company.

DRS is a provider of defense products and technologies that are used across land, air, sea, space and cyber domains. Our diverse array of defense systems and solutions are offered to all branches of the U.S. military, major aerospace and defense prime contractors, government intelligence agencies, international military customers and industrial markets for deployment on a wide range of military platforms. We focus our capabilities in areas of critical importance to the U.S. military, such as advanced sensing, network computing, force protection and electric power and propulsion.

These capabilities directly align with our two reportable operating segments: Advanced Sensing and Computing (“ASC”) and Integrated Mission Systems (“IMS”). The U.S. government is our largest customer and accounts for approximately 82% and 81% of our total revenues as an end-user for the nine months ended September 30, 2026 and 2025, respectively. Our U.S. government revenues are highly concentrated with the U.S. Department of War, also known as the U.S. Department of Defense (the “DoW”). Specific international and commercial market opportunities exist within these segments and comprise approximately 18% and 19% of our total revenues for the nine months ended September 30, 2026 and 2025, respectively. Our two reportable segments reflect the way performance is assessed and resources are allocated by our Chief Executive Officer, who is our chief operating decision maker (“CODM”).

B.Basis of Presentation

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of DRS, its wholly owned subsidiaries and its controlling interests and contain all adjustments, which are of a normal and recurring nature, considered necessary by management to present fairly the financial position, results of operations and cash flows for the periods presented. Interests in ventures that are controlled by the Company, or for which the Company is otherwise deemed to be the primary beneficiary, are consolidated. For joint ventures in which the Company does not have a controlling interest, but exerts significant influence, the Company applies the equity method of accounting. All intercompany transactions and balances have been eliminated in consolidation.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions include those relating to the recognition of contract revenues and estimated costs to complete contracts in process, recoverability of reported amounts of goodwill and intangible assets, valuation of acquired intangibles, accounting for business combinations, valuation of pensions and other postretirement benefits, the valuation of deferred tax assets and liabilities and the valuation of unrecognized tax benefits. Actual results could differ from these estimates.

The unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These rules and regulations permit some of the information and footnote disclosures included in financial statements prepared in accordance with U.S. GAAP to be condensed or omitted.

LEONARDO DRS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

These unaudited Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2025.

C.New Accounting Pronouncements

Disaggregation of Income Statement Expenses

In November 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure of specified information about certain costs and expenses. The new standard is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, and may be applied on a prospective or retrospective basis. We are currently evaluating the impact of adopting this new pronouncement.

Targeted Improvements to the Accounting for Internal-Use Software

In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which removes references to project stages, requiring companies to capitalize internal-use software costs when management commits to funding the software project and it is probable the project will be completed. The new standard is effective for fiscal years beginning after December 15, 2027 and interim periods within those fiscal years, and may be applied on a prospective, modified transition, or retrospective transition basis. We are currently evaluating the impact of adopting this new pronouncement.

Accounting for Government Grants Received by Business Entities

In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832)—Accounting for Government Grants Received by Business Entities, which establishes the accounting for government grants received by business entities. The new standard is effective for fiscal years beginning after December 15, 2028 and interim periods within those fiscal years, and may be applied on a modified prospective, modified retrospective, or retrospective transition basis. We are currently evaluating the impact of adopting this new pronouncement.

Note 2. Revenue from Contracts with Customers

Contract Estimates

Revenues for the majority of our contracts are measured using the over time, percentage of completion cost-to-cost method of accounting to calculate percentage of completion. We believe this is an appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately depicts the progress of our work and transfer of control to our customers. Due to the long-term nature of many of our contracts, developing the estimated transaction price and total cost at completion often requires judgment. The estimated transaction price may include variable consideration such as performance incentives, requests for equitable adjustment (“REAs”) and claims. Variable consideration is included in the estimated transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Factors that must be considered in estimating the cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance.

After establishing the estimated total cost at completion, we follow a standard Estimate at Completion (“EAC”) process in which we review the progress and performance on our ongoing contracts on a routine basis. Adjustments to original estimates for a contract's revenue, estimated costs at completion and estimated profit or loss often are required as work progresses under a contract, as experience is gained

LEONARDO DRS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

and as more information is obtained, even though the scope of work required under the contract may not change and are also required if contract modifications occur. When adjustments in estimated total costs at completion are determined, the related impact on revenue and operating earnings are recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.

Net EAC adjustments had the following impacts for the periods presented:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions, except per share amounts)	2026			2025			2026			2025
Revenue and operating earnings	$	8		$	5		$	33		$	(4)
Total % of revenue	1		%	1		%	1		%	—		%
Net earnings	$	7		$	4		$	27		$	(3)
Impact on diluted earnings per share	$	0.03		$	0.01		$	0.10		$	(0.01)

The impacts noted above are attributed primarily to changes in our fixed-price programs. As changes happen in the design required to achieve contractual specifications, those changes often result in a change in the programs’ estimates and related profitability.

Contract Assets and Liabilities

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities. Contract assets and contract liabilities as of the dates presented were:


(Dollars in millions)	September 30, 2026		December 31, 2025
Contract assets	$	1,083	$	931
Contract liabilities	594		585

Revenue recognized in the nine months ended September 30, 2026 and 2025, that was included in the contract liability balance at the beginning of each period was $411 million and $270 million, respectively.

Value of Remaining Performance Obligations

As of September 30, 2026, the total value of our remaining performance obligations was $9,381 million. We expect to recognize approximately 40% of our September 30, 2026 remaining performance obligations as revenue over the next twelve months, with the remainder to be recognized thereafter. Approximately 40% of our remaining performance obligations relates to long-term contracts on electric power and propulsion programs with the U.S. Navy, which are expected to be recognized as revenue over a span of up to 11 years.

Disaggregation of Revenue

ASC: ASC revenue is primarily derived from U.S. government development and production contracts and is generally recognized using the over time, percentage of completion cost-to-cost method of accounting. We disaggregate ASC revenue by geographical region, customer relationship and contract

LEONARDO DRS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

type. We believe these categories best depict how the nature, amount, timing and uncertainty of ASC revenue and cash flows are affected by economic factors.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2026		2025		2026		2025
Revenue by Geographical Region
United States	$	558	$	500	$	1,516	$	1,411
International	81		77		256		213
Intersegment sales	20		3		33		9
Total	$	659	$	580	$	1,805	$	1,633
Revenue by Customer Relationship
Prime contractor	$	302	$	298	$	807	$	760
Subcontractor	337		279		965		864
Intersegment sales	20		3		33		9
Total	$	659	$	580	$	1,805	$	1,633
Revenue by Contract Type
Fixed-price	$	563	$	509	$	1,572	$	1,414
Flexibly priced(1)	76		68		200		210
Intersegment sales	20		3		33		9
Total	$	659	$	580	$	1,805	$	1,633

________________

(1)Includes revenue derived from cost-plus and time-and-materials contracts.

IMS: IMS revenue is primarily derived from U.S. government development and production contracts and is generally recognized using the over time, percentage of completion cost-to-cost method of accounting. We disaggregate IMS revenue by geographical region, customer relationship and contract type. We believe these categories best depict how the nature, amount, timing and uncertainty of IMS revenue and cash flows are affected by economic factors.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2026		2025		2026		2025
Revenue by Geographical Region
United States	$	411	$	366	$	1,005	$	956
International	16		17		48		8
Intersegment sales	1		—		3		—
Total	$	428	$	383	$	1,056	$	964
Revenue by Customer Relationship
Prime contractor	$	107	$	136	$	223	$	236
Subcontractor	320		247		830		728
Intersegment sales	1		—		3		—
Total	$	428	$	383	$	1,056	$	964
Revenue by Contract Type
Fixed-price	$	343	$	359	$	847	$	855
Flexibly priced(1)	84		24		206		109
Intersegment sales	1		—		3		—
Total	$	428	$	383	$	1,056	$	964

________________

(1)Includes revenue derived from cost-plus and time-and-materials contracts.

LEONARDO DRS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 3. Accounts Receivable

Accounts receivable consists of the following:


(Dollars in millions)	September 30, 2026		December 31, 2025
Accounts receivable	$	366	$	335
Less allowance for credit losses	(8)		(1)
Accounts receivable, net	$	358	$	334

As of September 30, 2026 and December 31, 2025, the Company has $57 million and $53 million of noncurrent accounts receivable, respectively, that are included in other noncurrent assets in our Consolidated Balance Sheets.

The Company maintains certain agreements with financial institutions to sell certain trade receivables. See Note 4: Sale of Receivables for more information.

Note 4. Sale of Receivables

The Company is party to factoring facilities with various financial institutions (the “purchasers”) with an aggregate capacity of $175 million and $225 million as of September 30, 2026 and December 31, 2025, respectively.

During the nine months ended September 30, 2026 and 2025, the Company incurred immaterial purchase discount fees, which are presented in general and administrative expenses on the Consolidated Statements of Earnings.

The table below summarizes the activity under the factoring facilities:


	Nine Months Ended September 30,
(Dollars in millions)	2026		2025
Beginning balance	$	70	$	130
Sales of receivables	—		60
Cash returned to purchasers	(70)		(165)
Outstanding balance sold to purchasers	—		25
Cash collected, not remitted to purchasers(1)	—		—
Remaining sold receivables	$	—	$	25

________________

(1)Represents cash collected on behalf of purchasers and not yet remitted. This balance is included within short-term borrowings and current portion of long-term debt in the Consolidated Balance Sheets.

Note 5. Inventories

Inventories consist of the following:


(Dollars in millions)	September 30, 2026		December 31, 2025
Raw materials	$	122	$	112
Work in progress	242		225
Finished goods	10		15
Total inventories	$	374	$	352

LEONARDO DRS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 6. Property, Plant and Equipment

Property, plant and equipment by major asset class consists of the following:


(Dollars in millions)	September 30, 2026		December 31, 2025
Land, buildings and improvements	$	457	$	389
Plant and machinery	233		212
Equipment and other	506		487
Total property, plant and equipment, at cost	1,196		1,088
Less accumulated depreciation	(624)		(576)
Total property, plant and equipment, net	$	572	$	512

Depreciation expense related to property, plant and equipment was $22 million and $61 million for the three and nine months ended September 30, 2026, respectively, and $18 million and $53 million for the three and nine months ended September 30, 2025, respectively.

Note 7. Other Liabilities

The following table summarizes significant other liabilities by balance sheet caption:


(Dollars in millions)	September 30, 2026		December 31, 2025
Salaries, wages and accrued bonuses	$	88	$	85
Fringe benefits	74		60


Provision for contract losses	37		35
Operating lease liabilities	24		28
Taxes payable	17		10
Warranty reserves	32		24
Other	24		27
Total other current liabilities	$	296	$	269
Operating lease liabilities	$	87	$	95
Unrecognized tax benefits	28		50
Warranty reserves	8		9
Other	8		12
Total other noncurrent liabilities	$	131	$	166

Note 8. Intangible Assets

Intangible assets consist of the following:


	September 30, 2026						December 31, 2025
(Dollars in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Acquired intangible assets	$	1,087	$	(1,000)	$	87	$	1,087	$	(984)	$	103
Patents and licenses	18		(11)		7		18		(9)		9
Total intangible assets	$	1,105	$	(1,011)	$	94	$	1,105	$	(993)	$	112

LEONARDO DRS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Amortization expense related to acquired intangible assets was $5 million for the three months ended September 30, 2026 and 2025, and $16 million for the nine months ended September 30, 2026 and 2025.

Note 9. Income Taxes

Our effective tax rate was 0.9% and 10.2% for the three and nine months ended September 30, 2026, respectively, and 17.2% and 17.0% for the three and nine months ended September 30, 2025, respectively. For the three and nine months ended September 30, 2026, the effective tax rate was lower than the statutory rate primarily due to the recognition of discrete tax benefits associated with the reduction in unrecognized tax benefits, excess tax benefits from the vesting of stock-based awards and the purchase of tax credits at a discount to face value. For the nine months ended September 30, 2025, the effective tax rate was lower than the statutory rate primarily due to excess tax benefits from the vesting of stock-based awards. During the three and nine months ended September 30, 2026, the Company recognized an income tax benefit of approximately $22 million from the release of unrecognized tax benefits in connection with a short period return for 2022 following the expiration of the applicable statute of limitations. During the three and nine months ended September 30, 2026, the Company purchased approximately $20 million in tax credits for approximately $18 million in cash. The purchased tax credits will be utilized to partially offset the Company’s Federal and New Jersey tax liabilities for 2025.

Note 10. Debt

The Company’s debt consists of the following:


(Dollars in millions)	September 30, 2026		December 31, 2025
2022 Term Loan A	$	—	$	191


Finance leases and other	175		152
Short-term borrowings related to factoring facilities (Note 4)	—		5
Total debt principal	175		348
Less unamortized debt issuance costs and discounts	—		(1)
Total debt, net	175		347
Less short-term borrowings and current portion of long-term debt	(10)		(26)
Total long-term debt	$	165	$	321

Term Loan

In November 2022, the Company entered into a senior unsecured credit agreement with Bank of America, N.A. in the amount of $500 million (the “2022 Credit Agreement”) with a maturity of November 29, 2027. The 2022 Credit Agreement provided for a term loan (the “2022 Term Loan A”) of $225 million. The fair value of the 2022 Term Loan A was approximately $190 million at December 31, 2025. The fair value of the Company’s outstanding debt obligations is calculated using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements.

In January 2026, the Company repaid the remaining outstanding balance of the 2022 Term Loan A in the amount of $191 million and terminated the 2022 Credit Agreement. There was no prepayment penalty or other fee associated with prepaying the principal balance.

Credit Facilities

The 2022 Credit Agreement provided for a revolving credit facility available for the working capital needs of the Company (the “2022 Revolving Credit Facility”). As of December 31, 2025, the 2022 Revolving Credit Facility had a limit of $275 million. There was no outstanding balance on the 2022 Revolving Credit Facility as of December 31, 2025. As noted above, the 2022 Credit Agreement was terminated in January 2026.

LEONARDO DRS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In January 2026, the Company entered into a senior unsecured credit agreement with JPMorgan Chase Bank N.A. and the other lenders party thereto (the “2026 Credit Agreement”). The 2026 Credit Agreement provides for a revolving credit facility available for the working capital requirements of the Company (the “2026 Revolving Credit Facility”). The 2026 Revolving Credit Facility has a limit of $500 million and expires in January 2031. There was no outstanding balance on the 2026 Revolving Credit Facility as of September 30, 2026. Loans under the 2026 Revolving Credit Facility bear interest at a variable rate generally based on the Secured Overnight Financing Rate (“SOFR”), plus a spread ranging from 1.25% to 1.63% depending on the leverage ratio, as defined in the 2026 Credit Agreement, or an alternative variable rate based on the higher of the prime rate, as defined in the 2026 Credit Agreement, the federal funds rate, or a rate generally based on the SOFR, in each case subject to an additional basis point spread as defined in the 2026 Credit Agreement. The Company also pays a commitment fee ranging between 0.15% and 0.30% depending on the Company’s leverage ratio applied to the unused balance of the 2026 Revolving Credit Facility. The 2026 Credit Agreement allows for up to $75 million of the 2026 Revolving Credit Facility to be used to issue letters of credit in support of Company contracts. As of September 30, 2026, the Company had outstanding letters of credit against the 2026 Revolving Credit Facility of $9 million.

In addition to the letters of credit issued under the 2026 Revolving Credit Facility, the Company maintains uncommitted working capital credit facilities with certain financial institutions in the aggregate of $105 million at September 30, 2026 and December 31, 2025 (the “Financial Institution Credit Facilities”). The sole purpose of the Financial Institution Credit Facilities is to support standby letter of credit issuances on contracts with customers. The Company had letters of credit outstanding of approximately $48 million and $54 million as of September 30, 2026 and December 31, 2025, respectively, which reduce the available capacity of the Financial Institution Credit Facilities by an equal amount.

Maturities

Maturities of debt as of September 30, 2026 are as follows:


(Dollars in millions)
Year Ending December 31,	Total
Remainder of 2026	$	3
2027	11
2028	10
2029	9
2030	9
Thereafter	133
Total principal payments	$	175

LEONARDO DRS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 11. Earnings Per Share (“EPS”), Stock Repurchases and Dividends

EPS


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share amounts)	2026		2025		2026		2025
Net earnings	$	115	$	72	$	263	$	176
Basic weighted average number of shares outstanding	266.8		266.2		266.5		265.9
Impact of dilutive stock-based awards	1.5		2.2		2.1		2.8
Diluted weighted average number of shares outstanding	268.3		268.4		268.6		268.7
Basic earnings per share	$	0.43	$	0.27	$	0.99	$	0.66
Diluted earnings per share	$	0.43	$	0.26	$	0.98	$	0.65

Basic EPS is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during each period. The computation of diluted EPS includes the dilutive effect of outstanding stock-based compensation awards (which primarily consist of employee stock options, restricted stock units, and performance-based restricted stock units).

Stock Repurchases

On February 20, 2025, the Company announced that its Board of Directors (the “Board”) approved a stock repurchase program that allows the Company to purchase up to $75 million of its outstanding common stock through March 4, 2027, subject to market conditions. As of September 30, 2026, the Company has repurchased approximately $62 million under the program. The Company retires its common stock upon repurchase with the excess over par value allocated to additional paid-in capital.

Dividends

The Company declared and paid a quarterly dividend of $0.09 per share of its common stock during the three months ended September 30, 2026. Subsequent to quarter end, the Company’s Board declared a cash dividend of $0.09 per share of common stock payable on November 25, 2026 to stockholders of record as of the close of business on November 12, 2026.

Note 12. Commitments and Contingencies

Commitments

The Company’s commitments are primarily related to our lease agreements, purchase obligations, and credit agreements.

Contingencies

From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. These matters are subject to many uncertainties, and it is possible that some of these matters ultimately could be decided, resolved or settled in a manner adverse to us. Although the precise amount of liability that may result from these matters is not ascertainable, the Company believes that any amounts exceeding the Company's recorded accruals should not materially adversely affect the Company's financial condition or liquidity. It is possible, however, that the ultimate resolution of those matters could result in a material adverse effect on the Company's results of operations and/or cash flows from operating activities for a particular reporting period. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. The Company reviews the developments in contingencies that could affect the amount of the reserves that have been previously recorded. The Company adjusts provisions and changes to

LEONARDO DRS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability and the estimated amount of any potential losses.

As a government contractor, with customers including the U.S. government as well as various state and local government entities, the Company may be subject to audits, investigations and claims with respect to its contract performance, pricing, costs, cost allocations and procurement practices. Additionally, amounts billed under such contracts, including direct and indirect costs, are subject to potential adjustments before final settlement.

Management believes that adequate provisions for such potential audits, investigations, claims and contract adjustments, if any, have been made in the financial statements.

Note 13. Related Party Transactions

The Company has related party sales and purchases with Leonardo S.p.A., our indirect majority stockholder, and its other affiliates that occur in the regular course of business. Related party sales are included in revenues and were $5 million and $11 million for the three and nine months ended September 30, 2026, respectively, and $4 million and $11 million for the three and nine months ended September 30, 2025, respectively. Related party purchases are included in cost of revenues and were immaterial for the three and nine months ended September 30, 2026 and 2025. The receivables with the indirect majority stockholder and its other affiliates of $9 million and $5 million, respectively, and payables of $4 million and $5 million, respectively, as of September 30, 2026 and December 31, 2025, are included in accounts receivable, net and accounts payable in our Consolidated Balance Sheets. In addition, there were related party balances in contract assets of $6 million and $16 million at September 30, 2026 and December 31, 2025, respectively.

The Company has an investment of $21 million in the preferred stock of a private company that is included in other noncurrent assets in our Consolidated Balance Sheets. The Company holds two board seats in the investee. Related party sales to this company were $3 million and $6 million for the three and nine months ended September 30, 2026, respectively. The Company had immaterial related party balances in accounts receivable with this company at September 30, 2026. The Company had $10 million and $6 million of related party balances in contract assets with this company at September 30, 2026 and December 31, 2025, respectively.

Note 14. Segment Information

Operating segments represent components of an enterprise for which separate financial information is available that is regularly reviewed by the CODM in determining how to allocate resources and assess performance. The Company’s operating and reportable segments consist of ASC and IMS. All other operations, which consist primarily of DRS corporate headquarters and certain non-operating subsidiaries of the Company, are grouped in Corporate & Eliminations.

The CODM primarily uses operating earnings to manage the Company and allocate resources. Operating earnings is used to facilitate a comparison of the ordinary, ongoing and customary course of our operations on a consistent basis from period to period and provide an additional understanding of factors and trends affecting our business segments.

Certain information related to our segments for the periods ended September 30, 2026 and 2025 is presented in the following tables. Consistent accounting policies have been applied by all segments within the Company, within all reporting periods. Intersegment sales are generally transferred at cost to the buying segment, and the sourcing segment does not recognize a profit. Such intercompany operating earnings is eliminated in consolidation, so that the Company’s total revenues and operating earnings reflect only those transactions with external customers.

LEONARDO DRS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Revenues, expenses, and operating earnings by segment and the reconciliation to earnings before taxes for the periods ended September 30, 2026 and 2025 consist of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2026		2025		2026		2025
Revenues
ASC	$	659	$	580	$	1,805	$	1,633
IMS	428		383		1,056		964
Corporate & Eliminations	(21)		(3)		(36)		(9)
Total revenues	$	1,066	$	960	$	2,825	$	2,588

Cost of revenues
ASC	$	500	$	437	$	1,357	$	1,237
IMS	324		304		792		760
Corporate & Eliminations	(21)		(3)		(36)		(9)
Total cost of revenues	$	803	$	738	$	2,113	$	1,988





General and administrative
ASC	$	70	$	63	$	206	$	196
IMS	30		24		86		71
Corporate & Eliminations	5		—		5		—
Total general and administrative	$	105	$	87	$	297	$	267

Company-funded independent research and development
ASC	$	27	$	29	$	80	$	76
IMS	10		7		24		18
Corporate & Eliminations	—		—		—		—
Total company-funded independent research and development	$	37	$	36	$	104	$	94





Amortization of acquired intangible assets
ASC	$	5	$	5	$	16	$	16
IMS	—		—		—		—
Corporate & Eliminations	—		—		—		—
Total amortization of acquired intangible assets	$	5	$	5	$	16	$	16

Other segment items
ASC	$	—	$	1	$	—	$	1
IMS	—		—		—		—
Corporate & Eliminations	—		—		—		—
Total other segment items(1)	$	—	$	1	$	—	$	1

LEONARDO DRS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Operating earnings
ASC	$	57	$	45	$	146	$	107
IMS	64		48		154		115
Corporate & Eliminations	(5)		—		(5)		—
Total operating earnings	$	116	$	93	$	295	$	222
Interest income (expense), net	1		(4)		3		(7)
Other, net	(1)		(2)		(5)		(3)
Earnings before taxes	$	116	$	87	$	293	$	212

________________

(1)Includes ASC restructuring costs for the periods presented.

Total intersegment revenues by segment for the periods ended September 30, 2026 and 2025 consist of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2026		2025		2026		2025
ASC	$	20	$	3	$	33	$	9
IMS	1		—		3		—
Total intersegment revenues	$	21	$	3	$	36	$	9

Depreciation by segment for the periods ended September 30, 2026 and 2025 consists of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2026		2025		2026		2025
ASC	$	15	$	12	$	42	$	36
IMS	7		6		19		17
Total depreciation	$	22	$	18	$	61	$	53

Total assets by segment as of September 30, 2026 and December 31, 2025, consist of the following:


(Dollars in millions)	September 30, 2026		December 31, 2025
ASC	$	2,643	$	2,451
IMS	1,295		1,300
Corporate & Eliminations	436		735
Total assets	$	4,374	$	4,486

Note 15. Business Acquisitions

On July 28, 2026, the Company announced that it entered into a definitive agreement to acquire Raft LLC, an open-architecture mission software company focused on multi-domain data fusion and artificial intelligence for U.S. government and defense customers, for $450 million. We expect to fund the acquisition with cash on hand and borrowings under our 2026 Revolving Credit Facility. The transaction is subject to customary closing conditions and regulatory approvals, and is expected to close in the fourth quarter of 2026.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion together with our Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report.

This discussion and other parts of this Quarterly Report include forward-looking statements such as those relating to our plans, objectives, expectations and beliefs, which involve risks, uncertainties and assumptions. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties discussed under “Special Note Regarding Forward-Looking Statements and Information” 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.

Business Overview and Considerations

General

DRS is an innovative and agile provider of advanced defense technology to U.S. national security customers and allies around the world. We specialize in the design, development and manufacture of advanced sensing, network computing, force protection, 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.

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 the DoW, is our largest customer and, for the nine months ended September 30, 2026, accounted for approximately 82% of our business as an end-user, with revenues principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 37% and 34%, respectively, of our total revenues for such period, which is consistent with historic trends.

Our operations and reporting are structured into the following two technology-driven segments based on the capabilities and solutions offered to our customers:

Advanced Sensing and Computing

Our Advanced Sensing and Computing (“ASC”) segment designs, develops and manufactures sensing and network computing technology that enables real-time situational awareness required for enhanced operational decision making and execution by our customers across increasingly complex and contested operating environments.

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.

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.

Within ASC, we are increasingly combining sensing, computing, and software to support applications such as counter-unmanned aircraft systems (“C-UAS”), EW, and networked sensing, where performance depends on the ability to detect, process, and act on data in real time. These integrated capabilities are designed to support evolving operational concepts that emphasize distributed operations, resilient communications, and decision advantage at the tactical edge.

Integrated Mission Systems

Our Integrated Mission Systems (“IMS”) segment designs, develops, manufactures and integrates power conversion, control and distribution systems, ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems for the U.S. military and allied defense customers.

DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy. We provide power conversion, control, distribution and propulsion systems for the U.S. Navy’s top priority shipbuilding programs, including the Columbia Class ballistic missile submarine, the first modern U.S. electric drive submarine.

We believe DRS is well positioned to meet the needs of an increasingly electrified 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.

DRS has a long history of providing a number of other critical products to the U.S. Navy with a significant installed base on submarines, aircraft carriers and other surface ships including motor controllers, instrumentation and control equipment, electrical actuation systems, and thermal management systems for electronics and ship stores refrigeration.

DRS is also an integrator of complex systems in ground vehicles for short-range air defense, 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.

Focus on Customer and Execution

DRS and its employees focus on our end-customers – the men and women of the armed forces in the U.S. and its allies. We seek to provide high-quality equipment and services to support their mission success. We strive for excellence in everything we do, in every job in our Company, in order to satisfy our customers’ needs embedded in our contractual commitments. We seek to ensure that we learn from

every lesson experienced in our Company and insist that these lessons affect all elements of our business. This approach permeates through the Company with a focus on continuous improvement at every level.

Part of this learning has resulted in institutionalizing our continuous improvement process through our Business Excellence initiative called the Always Performing for Excellence (“APEX”) program. The APEX program’s goal is to strive for continuous improvement through unification of all of our business practices, tools and metrics, ongoing employee training and innovation. We believe that excellence is not a destination, but by constantly challenging ourselves to be better, we will improve, and ultimately approach excellence. We challenge ourselves to exceed our customers’ expectations and we partner with them to work to ensure that our execution meets their needs.

Continuous improvement through the APEX program also allows us to improve our efficiency, which we believe contributes to increased margins, helps us to remain competitive and allows us to make strategic investments, all while maintaining our focus on customer satisfaction. In these elements, our goals are aligned with those of our customers. We are humbled by the dedication and sacrifice that our ultimate customers have made to serve and we work to perform for them with excellence in everything we do.

We continue to align our investment strategy with the evolving priorities of the DoW, with a particular focus on increasing internal research and development to accelerate innovation in advanced sensing, networked systems, force protection and naval power & propulsion. In parallel, we are selectively investing in capacity, engineering resources and supply chain readiness to enhance our ability to deliver critical capabilities at the speed required by our service members.

Global Events and Business Impacts

Global Conflicts

The U.S. and its allies continue to face a global security environment characterized by heightened geopolitical tensions, armed conflicts and instability, including threats from state and non-state actors, strategic competition among major powers, terrorism and regional security challenges. Demand for defense products, services and solutions is influenced by these complex and evolving conditions, as well as government policies, budgetary priorities and broader political and socioeconomic circumstances. Changes in these conditions can affect our operations and financial performance and influence the timing, scope and funding of customer requirements.

Russia’s ongoing war in Ukraine continues to affect European security and defense priorities. In the Middle East, the conflict involving Iran, the U.S. and Israel, continuing hostilities involving regional armed groups, and the risk of renewed or broader escalation remain sources of significant uncertainty. Threats to maritime security in the Persian Gulf, including the Strait of Hormuz, and other regional waterways can disrupt commercial shipping, energy supplies and global trade. In the Indo-Pacific, tensions involving China and Taiwan and competing territorial claims in the South China Sea continue to underscore the importance of regional deterrence and maritime security. These conflicts and tensions, together with other regional instability, present evolving security requirements for the U.S. and its allies.

We believe these conditions continue to underscore the need for strong deterrence, resilient defense industrial capacity and advanced capabilities, including integrated air and missile defense, C-UAS, intelligence, surveillance and reconnaissance, EW, cyber resilience, secure communications and naval capabilities. These priorities may create additional demand for our products and services; however, the timing and extent of any resulting orders depend on customer procurement decisions, appropriations, program priorities and applicable regulatory approvals.

At the same time, these conditions may increase operational and financial risks, including supply-chain and transportation disruptions, higher energy and material costs, cybersecurity threats, and changes in sanctions, export controls or other regulatory requirements. The duration, scope and ultimate effects of these developments remain uncertain. We continue to evaluate the opportunities and risks associated with the global security environment and their potential effects on our business.

Business Environment

Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 82% and 81% of our total revenues for the nine months ended September 30, 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 37% and 34%, respectively, of our total revenues for the nine months ended September 30, 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.

Given the reliance on the U.S. government, funding for our programs is subject to a variety of factors that can affect our business, including: the President’s budget requests and procurement priorities and policies; the annual congressional budget authorization and appropriations process; and other U.S. government domestic and international priorities. U.S. government spending levels, particularly defense spending and the timing of funding, can affect our financial performance over the short and long term.

Fiscal year (“FY”) 2026 defense funding has been enacted through a combination of authorizations and full-year appropriations. The President’s FY2026 budget request (June 2025) proposed $848 billion in base (discretionary) funding and $113 billion in reconciliation (mandatory) funding. The One Big Beautiful Bill Act, signed July 4, 2025, provided more than $150 billion in mandatory national defense funding (including the $113 billion reconciliation amount) available through September 30, 2029. The FY2026 National Defense Authorization Act (“NDAA”) was signed on December 18, 2025, authorizing approximately $901 billion for defense. Following a continuing resolution signed November 12, 2025 (through January 30, 2026), Congress completed full-year FY2026 appropriations via the Consolidated Appropriations Act, 2026 (signed February 3, 2026), which included the Department of Defense Appropriations Act and provided approximately $839 billion for the DoW. Together, these actions established the FY2026 budget baseline and related multi-year mandatory resources supporting national defense priorities.

For FY2027, which began on October 1, 2026, the President’s budget request released in April 2026 proposed approximately $1.15 trillion in discretionary funding for the national defense function and an additional $350 billion in mandatory funding through reconciliation, for approximately $1.5 trillion in proposed total national defense resources. Full-year FY2027 defense appropriations, the FY2027 NDAA and the proposed additional reconciliation funding has not been enacted to date. The proposed increases remain subject to congressional approval and do not represent enacted funding or committed orders for our products and services.

The Continuing Appropriations and Extensions Act, 2027, signed on September 2, 2026, provides temporary funding for federal agencies, including the DoW, through December 11, 2026, unless superseded by applicable appropriations legislation. Funding under the Continuing Appropriations and Extensions Act, 2027, generally continues at FY2026 rates, subject to statutory exceptions, and restrictions on new program starts, increased production rates and certain multi-year procurements may affect the timing of customer awards and program execution. The timing, amount and composition of final FY2027 funding remains uncertain. Additional continuing resolutions or a lapse in appropriations could delay awards or funding actions and affect the timing of our revenues and cash flows. We continue to monitor these developments and their potential effects on our business.

Operating Performance Assessment and Reporting

For the majority of our contracts, revenues are recognized using the over time, percentage of completion cost-to-cost method of accounting, with revenue recognized based on the ratio of cumulative costs incurred to date to estimated total contract costs at completion. For contracts accounted for in this way, our reported revenues may contain amounts which we have not billed to customers if we have incurred costs, and recognized related profits, in excess of billed progress or performance-based payments.

Under U.S. GAAP, contract costs are charged to work in progress inventory and are expensed as revenues are recognized. The Federal Acquisition Regulation (“FAR”) and the Defense Federal Acquisition Regulation Supplement (“DFARS”), incorporated by reference in U.S. government contracts, provide that internal research and development costs are allowable general and administrative expenses. Unallowable costs, pursuant to the FAR, are excluded from costs accumulated on U.S. government contracts.

Our defense contracts and subcontracts that require the submission of cost or pricing data are subject to audit, various profit and cost controls, and standard provisions for termination at the convenience of the customer. The Defense Contract Audit Agency (“DCAA”) performs these audits on behalf of the U.S. government. The DCAA has the right to perform audits on our incurred costs on cost-type or price redeterminable-type contracts on a yearly basis. Approval of an incurred cost submission can take from one to three years from the date of the submission of the contract cost.

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

In addition to the right of the U.S. government to terminate U.S. government contracts, such contracts are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract performance may take many years. Consequently, at the outset of a major program, the contract is typically only partially funded, and additional funds normally are committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years.

Components of Operations

Revenue

For the nine months ended September 30, 2026 and September 30, 2025, 86% and 88%, respectively, of our revenue was derived from fixed-price contracts.

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

Refer to Note 2: Revenue from Contracts with Customers to the Consolidated Financial Statements for additional information.

Cost of Revenues

Cost of revenues includes materials, labor and overhead costs incurred in the manufacturing, design, and provision of products and services sold in the period as well as warranty costs. Material costs include raw materials, purchased components and sub-assemblies and outside processing and inbound freight. Labor and overhead costs consist of direct and indirect manufacturing costs, including wages and fringe benefits, operating supplies, depreciation and amortization, occupancy costs, and purchasing, receiving, inspection costs, and inbound freight costs.

General and Administrative Expenses

General and administrative (“G&A”) expenses include 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.

Results of Operations

The following discussion of operating results is intended to help the reader understand the results of operations and financial condition of the Company for the three and nine months ended September 30, 2026, as compared to the three and nine months ended September 30, 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 long-term in nature and involves various types of production contracts and varying delivery schedules. Accordingly, our operating results in a particular period may not be indicative of future operating results.


	Three Months Ended September 30,						Change
(Dollars in millions, except per share amounts)	2026			2025			$			%
Total revenues	$	1,066		$	960		$	106		11.0	%
Total cost of revenues	(803)			(738)			(65)			8.8	%
Gross profit	$	263		$	222		$	41		18.5	%
Gross margin	24.7		%	23.1		%	160		bps
General and administrative expenses	(142)			(123)			(19)			15.4	%
Amortization of acquired intangible assets	(5)			(5)			—			—	%
Other operating expenses, net	—			(1)			1			(100.0)	%
Operating earnings	$	116		$	93		$	23		24.7	%
Interest income (expense), net	1			(4)			5			125.0	%
Other, net	(1)			(2)			1			(50.0)	%
Earnings before taxes	$	116		$	87		$	29		33.3	%
Income tax provision	(1)			(15)			14			(93.3)	%
Net earnings	$	115		$	72		$	43		59.7	%
Basic EPS	$	0.43		$	0.27		$	0.16		59.3	%
Diluted EPS	$	0.43		$	0.26		$	0.17		65.4	%
Backlog	$	9,381		$	8,669		$	712		8.2	%
Bookings	$	1,639		$	1,307		$	332		25.4	%


	Nine Months Ended September 30,						Change
(Dollars in millions, except per share amounts)	2026			2025			$			%
Total revenues	$	2,825		$	2,588		$	237		9.2	%
Total cost of revenues	(2,113)			(1,988)			(125)			6.3	%
Gross profit	$	712		$	600		$	112		18.7	%
Gross margin	25.2		%	23.2		%	200		bps
General and administrative expenses	(401)			(361)			(40)			11.1	%
Amortization of acquired intangible assets	(16)			(16)			—			—	%
Other operating expenses, net	—			(1)			1			(100.0)	%
Operating earnings	$	295		$	222		$	73		32.9	%
Interest income (expense), net	3			(7)			10			142.9	%
Other, net	(5)			(3)			(2)			66.7	%
Earnings before taxes	$	293		$	212		$	81		38.2	%
Income tax provision	(30)			(36)			6			(16.7)	%
Net earnings	$	263		$	176		$	87		49.4	%
Basic EPS	$	0.99		$	0.66		$	0.33		50.0	%
Diluted EPS	$	0.98		$	0.65		$	0.33		50.8	%
Backlog	$	9,381		$	8,669		$	712		8.2	%
Bookings	$	3,609		$	3,151		$	458		14.5	%

Revenue

Our revenue of $1,066 million for the three months ended September 30, 2026 represents an increase of $106 million, or 11.0%, as compared to the three months ended September 30, 2025. The

revenue increase is primarily attributed to the conversion of our funded backlog along with higher demand across each of our operating segments. This is highlighted by increased output within our tactical radars, electric power and propulsion and space payload program activities.

Our revenue of $2,825 million for the nine months ended September 30, 2026 represents an increase of $237 million, or 9.2%, as compared to the nine months ended September 30, 2025. The revenue increase is primarily attributed to conversion of our funded backlog along with higher demand across each of our operating segments. This is highlighted by our efforts within advanced sensing, power and propulsion and force protection activities.

See “—Review of Operating Segments” below for more detail.

Cost of Revenues

Cost of revenues increased by $65 million, or 8.8%, to $803 million for the three months ended September 30, 2026, as compared to $738 million for the three months ended September 30, 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.

Cost of revenues increased by $125 million, or 6.3%, to $2,113 million for the nine months ended September 30, 2026, as compared to $1,988 million for the nine months ended September 30, 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.

Gross Profit

Gross profit increased by $41 million, or 18.5%, to $263 million for the three months ended September 30, 2026 and increased by $112 million, or 18.7%, to $712 million for the nine months ended September 30, 2026, as compared to the same periods in the prior year, resulting from the revenue and cost of revenues trends noted above. The gross profit increases, favorable mix and overall program performance drove an expansion of 160 basis points and 200 basis points in our gross margin for the three and nine months ended September 30, 2026, respectively.

General and Administrative Expenses

G&A expenses increased by $19 million, or 15.4%, for the three months ended September 30, 2026, as compared to the three months ended September 30, 2025, primarily due to increased IR&D expenditures, costs related to B&P efforts for new contractual pursuits and expenses incurred to support the proposed acquisition of Raft LLC (see Note 15: Business Acquisitions to the Consolidated Financial Statements for additional information).

G&A expenses increased by $40 million, or 11.1%, for the nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025, primarily due to increased IR&D expenditures, costs related to B&P efforts for new contractual pursuits and expenses incurred to support the proposed acquisition of Raft LLC.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets was consistent for the three and nine months ended September 30, 2026, as compared to the three and nine months ended September 30, 2025.

Other Operating Expenses, Net

There were no other operating expenses, net for the three and nine months ended September 30, 2026 compared to $1 million for the three and nine months ended September 30, 2025. The expenses in the prior year periods are attributed to restructuring efforts that were implemented in our ASC segment.

Operating Earnings

Operating earnings increased by $23 million to $116 million for the three months ended September 30, 2026 and increased by $73 million to $295 million for the nine months ended September 30, 2026, as compared to the same periods in the prior year. The increases were driven by the higher gross profit offset in part by the G&A expense increases both noted above.

Interest Income (Expense), Net

Net interest income was $1 million and $3 million for the three and nine months ended September 30, 2026, respectively, compared to net interest expense of $4 million and $7 million for the three and nine months ended September 30, 2025, respectively. The change is attributed to increased interest income and reduced interest expense with the repayment and termination of the 2022 Term Loan A in January 2026.

Other, Net

Other, net decreased $1 million and increased $2 million for the three and nine months ended September 30, 2026, respectively, as compared to the same periods in the prior year primarily due to foreign exchange rate impacts.

Earnings Before Taxes

Earnings before taxes increased by $29 million to $116 million for the three months ended September 30, 2026 and increased by $81 million to $293 million for the nine months ended September 30, 2026, as compared to the same periods in the prior year. This was primarily due to the increase in operating earnings and change in net interest income (expense) as noted above.

Income Tax Provision

Income tax provision decreased by $14 million and $6 million for the three and nine months ended September 30, 2026, respectively, as compared to the same periods in the prior year. This was primarily attributable to discrete tax benefits in connection with the reversal of unrecognized tax benefits, the purchase of tax credits at a discount to face value and excess tax benefits associated with the vesting of stock-based awards, partially offset by an increase in earnings before taxes. For the three months ended September 30, 2026, the income tax provision decrease was largely attributable to the reduction of unrecognized tax benefits. For the nine months ended September 30, 2026, our effective tax rate was lower due to the discrete items noted above. Our effective tax rate was 0.9% and 10.2% for the three and nine months ended September 30, 2026, respectively, compared to 17.2% and 17.0% for the three and nine months ended September 30, 2025, respectively.

Net Earnings

Net earnings increased by $43 million to $115 million for the three months ended September 30, 2026 and increased by $87 million to $263 million for the nine months ended September 30, 2026, as compared to the same periods in the prior year. This was driven by an increase in earnings before taxes coupled with the changes in our effective tax rate as noted above.

Backlog and Bookings

Total backlog includes the following components:

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

(2)Unfunded - Unfunded backlog represents the revenue value of firm orders for products and services under existing contracts for which funding has not yet been appropriated less funding previously recognized on these contracts.

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


(Dollars in millions)	September 30, 2026		September 30, 2025
Funded	$	5,640	$	4,678
Unfunded	3,741		3,991
Total backlog	$	9,381	$	8,669

Backlog increased by $712 million to $9,381 million as of September 30, 2026, from $8,669 million as of September 30, 2025. The backlog increase was driven primarily by the receipt of new awards within our IMS segment which realized bookings in excess of revenue for the period.

We define bookings as the total value of contract awards received from the U.S. government for which it has appropriated funds and legally obligated such funds to the Company through a contract or purchase order, plus the funded value of contract awards and orders received from customers other than the U.S. government.

Bookings for the three months ended September 30, 2026 increased to $1,639 million, as compared to $1,307 million for the three months ended September 30, 2025. Bookings for the nine months ended September 30, 2026 increased to $3,609 million, as compared to $3,151 million for the nine months ended September 30, 2025. The increase in new orders for the nine months ended September 30, 2026 was driven by bookings within our IMS segment. See “—Review of Operating Segments” below for more detail.

Factors Impacting Our Performance

U.S. Government Spending and Federal Budget Uncertainty

Changes in the volume and relative mix of U.S. and allied government spending as well as areas of spending growth, including due to the evolution of warfare, could impact our business and results of operations. In particular, our results can be affected by shifts in strategies and priorities on homeland security, intelligence, defense-related programs, infrastructure and urbanization and continued increased spending on technology and innovation, including cybersecurity with respect to our and third parties’ information networks and related systems, 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.

There is also uncertainty around the timing, extent, nature and effect of Congressional and other U.S. government actions to address budgetary constraints, caps on certain discretionary budgets, and the ability of Congress to determine how to allocate the available budget authority and pass appropriations bills to fund U.S. government departments and agencies. Additionally, budget deficits and the growing U.S. national debt may increase pressure on the U.S. government to reduce federal spending across all federal agencies, with uncertainty about the size and timing of those reductions. Furthermore, delays in the completion of future U.S. government budgets could in the future delay procurement of the federal government services we provide. A reduction in the amount of, or reductions, delays, or cancellations of funding for, services that we are contracted to provide to the U.S. government as a result of any of these impacts or related initiatives, legislation or otherwise could have a material adverse effect on our business and results of operations. See Part I, Item 1A, “Risk Factors—Risks Related to Our Business—Significant delays, including from government shutdowns, or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly may negatively impact our business and could have a material adverse impact on our business, financial condition and results of operations” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Considerations—Business Environment” in our Annual Report on Form 10-K for the year ended December 31, 2025, and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Considerations—Business Environment” in this Quarterly Report for further details on U.S. government spending and current and potential impacts on our business.

Operational Performance on Contracts

The Company recognizes revenue for each separately identifiable performance obligation in a contract representing an obligation to transfer a distinct good or service to a customer. In most cases, goods and services provided under the Company’s contracts are accounted for as single performance obligations due to the complex and integrated nature of our products and services. These contracts generally require significant integration of a group of goods and/or services to deliver a combined output. In some contracts, the Company provides multiple distinct goods or services to a customer. In those cases, the Company accounts for the distinct contract deliverables as separate performance obligations and allocates the transaction price to each performance obligation based on its relative standalone selling price, which is generally estimated using cost plus a reasonable margin. While the Company provides warranties on certain contracts, we typically do not provide for services beyond standard assurances and therefore do not consider warranties to be separate performance obligations.

Typically, we enter into three types of contracts: fixed-price contracts, cost-plus contracts and time-and-materials (“T&M”) contracts. The majority of our total revenues are derived from fixed-price contracts; refer to the revenue disaggregation disclosures in Note 2: Revenue from Contracts with Customers to the Consolidated Financial Statements.

For fixed-price contracts, customers agree to pay a fixed amount, negotiated in advance for a specified scope of work.

For cost-plus contracts, typically we are reimbursed for allowable or otherwise defined total costs (defined as cost of revenues plus allowable general and administrative expenses) incurred, plus a fee. The contracts may also include incentives for various performance criteria, including quality, timeliness and cost-effectiveness. In addition, costs are generally subject to review by clients and regulatory audit agencies, and such reviews could result in costs being disputed as non-reimbursable under the terms of the contract.

T&M contracts provide for reimbursement of labor hours expended at a contractual fixed labor rate per hour, plus the actual costs of material and other direct non-labor costs. The fixed labor rates on T&M contracts include amounts for the cost of direct labor, indirect contract costs and profit.

Revenue from contracts with customers is recognized when the performance obligations are satisfied through the transfer of control over the good or service to the customer, which may occur either over time or at a point in time.

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:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions)	2026			2025			2026			2025
Revenue	$	8		$	5		$	33		$	(4)
Total % of revenue	1		%	1		%	1		%	—		%

Additionally, the timing of our cash flows is impacted by the timing of achievement of billable milestones on contracts. Historically, this has resulted and could continue to result in fluctuations in working capital levels and quarterly cash provided by (used in) operating activities results. As a result of such quarterly fluctuations in cash flow results, we believe that quarter-to-quarter comparisons of our results of operations may not necessarily be meaningful and should not be relied upon as indicators of future performance.

Regulations

Increased audit, review, investigation and general scrutiny by U.S. government agencies of performance under government contracts and compliance with the terms of those contracts and applicable laws, 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.

International Sales

International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 11% and 9% of our revenue for the nine months ended September 30, 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.

Our sales remain subject to the spending levels, pace and priorities of the U.S. government as well as international governments and commercial customers, and to general economic conditions that could adversely affect us, our customers and our suppliers.

Additionally, some international sales may expose us to foreign exchange fluctuations and changing dynamics of foreign competitiveness based on variations in the value of the U.S. dollar relative to other currencies. The impact of those fluctuations is reflected throughout our Consolidated Financial Statements, but in the aggregate, did not have a material impact on our results of operations for the nine months ended September 30, 2026.

Acquisitions

We consider the acquisition of businesses and investments that we believe will expand or complement our current portfolio and allow access to new customers or technologies. We also may explore the divestiture of businesses that no longer meet our needs or strategy or that could perform better outside of our organization.

Review of Operating Segments

The following is a discussion of operating results for each of our operating segments. We have elected to use revenue, operating earnings, operating margin, and bookings to provide detailed

information on our segment performance. Additional information regarding our segments can be found in Note 14: Segment Information to the Consolidated Financial Statements.


	Three Months Ended September 30,						Change
(Dollars in millions)	2026			2025			$		%
Revenues:
ASC	$	659		$	580		$	79	13.6	%
IMS	428			383			45		11.7	%
Corporate & Eliminations	(21)			(3)			(18)		600.0	%
Total revenues	$	1,066		$	960		$	106	11.0	%
Operating earnings:
ASC	$	57		$	45		$	12	26.7	%
IMS	64			48			16		33.3	%
Corporate & Eliminations	(5)			—			(5)		100.0	%
Total operating earnings	$	116		$	93		$	23	24.7	%
Operating margin:
ASC	8.6		%	7.8		%
IMS	15.0		%	12.5		%
Bookings:
ASC	$	1,017		$	757		$	260	34.3	%
IMS	622			550			72		13.1	%
Total bookings	$	1,639		$	1,307		$	332	25.4	%


	Nine Months Ended September 30,						Change
(Dollars in millions)	2026			2025			$		%
Revenues:
ASC	$	1,805		$	1,633		$	172	10.5	%
IMS	1,056			964			92		9.5	%
Corporate & Eliminations	(36)			(9)			(27)		300.0	%
Total revenues	$	2,825		$	2,588		$	237	9.2	%
Operating earnings:
ASC	$	146		$	107		$	39	36.4	%
IMS	154			115			39		33.9	%
Corporate & Eliminations	(5)			—			(5)		100.0	%
Total operating earnings	$	295		$	222		$	73	32.9	%
Operating margin:
ASC	8.1		%	6.6		%
IMS	14.6		%	11.9		%
Bookings:
ASC	$	2,137		$	1,985		$	152	7.7	%
IMS	1,472			1,166			306		26.2	%
Total bookings	$	3,609		$	3,151		$	458	14.5	%

ASC

Revenue

The ASC segment reported revenue of $659 million for the three months ended September 30, 2026, an increase of 13.6%, or $79 million, from the three months ended September 30, 2025. The revenue increase is attributed to increased demand for our tactical radars, advanced sensing used in space-based

applications and the overall execution of our backlog programs coupled with increased customer demand driven by the elevated global threat environment.

The ASC segment reported revenue of $1,805 million for the nine months ended September 30, 2026, an increase of 10.5%, or $172 million, from the nine months ended September 30, 2025. The revenue increase is attributed to our tactical radars, advanced sensing used in space-based applications and the overall execution of our backlog programs coupled with increased customer demand driven by the elevated global threat environment.

Operating Earnings and Operating Margin

Operating earnings increased by $12 million, or 26.7%, to $57 million for the three months ended September 30, 2026, from $45 million for the three months ended September 30, 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 8.6% for the three months ended September 30, 2026, compared to the 7.8% realized during the three months ended September 30, 2025.

Operating earnings increased by $39 million, or 36.4%, to $146 million for the nine months ended September 30, 2026, from $107 million for the nine months ended September 30, 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 8.1% for the nine months ended September 30, 2026, compared to the 6.6% realized during the nine months ended September 30, 2025.

Bookings

For the three months ended September 30, 2026, bookings increased $260 million, or 34.3%, from the three months ended September 30, 2025 to $1,017 million. The increase in new awards is largely attributed to increased orders for our tactical radars and aircraft protection systems. This was offset in part by a reduction in infrared sensing awards realized during the period.

For the nine months ended September 30, 2026, bookings increased $152 million, or 7.7%, from the nine months ended September 30, 2025 to $2,137 million. The increase is driven by demand for our tactical radar programs offset in part by a large multi-year award received in the prior year for next generation ground vehicle sensing.

IMS

Revenue

IMS segment revenue increased by $45 million, or 11.7%, to $428 million for the three months ended September 30, 2026, from $383 million for the three months ended September 30, 2025, which is attributed to increased revenue generated from our naval power related programs during the period.

IMS segment revenue increased by $92 million, or 9.5%, to $1,056 million for the nine months ended September 30, 2026, from $964 million for the nine months ended September 30, 2025, which is attributed to increased revenue generated from our naval power programs.

Operating Earnings and Operating Margin

Operating earnings increased by $16 million, or 33.3%, to $64 million for the three months ended September 30, 2026, from $48 million for the three months ended September 30, 2025. The increase for the period is attributed to continued program improvement within both land and naval programs coupled with the benefits of operational leverage generated from the increased volume noted above, resulting in a net operating margin increase to 15.0%, compared to the 12.5% realized during the three months ended September 30, 2025.

Operating earnings increased by $39 million, or 33.9%, to $154 million for the nine months ended September 30, 2026, from $115 million for the nine months ended September 30, 2025. The increase for the period is attributed to improved performance on both land and naval programs coupled with the benefits of operational leverage generated from the increased volume noted above, resulting in a net operating margin increase to 14.6%, compared to the 11.9% realized during the nine months ended September 30, 2025.

Bookings

For the three months ended September 30, 2026, bookings increased by $72 million, or 13.1%, from the three months ended September 30, 2025 to $622 million. The increase for the three months ended September 30, 2026 is largely attributed to funding received for our naval power and propulsion efforts.

For the nine months ended September 30, 2026, bookings increased by $306 million, or 26.2%, from the nine months ended September 30, 2025 to $1,472 million. The increase for the nine months ended September 30, 2026 is largely attributed to funding received for our naval power and propulsion efforts.

Liquidity and Capital Resources

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 September 30, 2026, was $294 million compared to $647 million as of December 31, 2025.

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


	Nine Months Ended September 30,
(Dollars in millions)	2026		2025
Net cash provided by (used in) operating activities	$	65	$	(59)
Net cash used in investing activities	(95)		(105)
Net cash used in financing activities	(323)		(125)
Effect of exchange rate changes on cash and cash equivalents	—		—
Net decrease in cash and cash equivalents	$	(353)	$	(289)

Operating Activities

Cash provided by operating activities was $65 million for the nine months ended September 30, 2026 compared to cash used in operating activities of $59 million for the nine months ended September 30,

2025. This was primarily due to increased earnings and lower cash used to fund working capital for the nine months ended September 30, 2026 when compared to the nine months ended September 30, 2025.

Investing Activities

Net cash used in investing activities decreased by $10 million for the nine months ended September 30, 2026 when compared to the nine months ended September 30, 2025, primarily due to a $15 million investment during the prior year period, partially offset by higher capital expenditures.

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2026 was $323 million, compared to $125 million for the nine months ended September 30, 2025. The change was primarily due to the repayment and termination of the 2022 Term Loan A in January 2026.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2025.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Equity Risk

We currently have limited risk related to fluctuations in marketable securities. Outside of pension assets, the Company’s investments consist primarily of overnight money market accounts. Fluctuations are unlikely and would have limited impact on the financial statements of the Company.

Interest Rate Risk

We are exposed to interest rate risk on variable rate borrowings under our 2026 Revolving Credit Facility. We had no amounts outstanding under the 2026 Revolving Credit Facility as of September 30, 2026. See Note 10: Debt to the Consolidated Financial Statements for additional information.

Foreign Currency Risk

In certain circumstances, we may be exposed to foreign currency risk. However, as the overwhelming majority of our revenue is derived from U.S. sources directly as a prime contractor or indirectly as a subcontractor for the U.S. government as end-customer, we have limited foreign currency exposure. A 10% fluctuation in exchange rates would not have a material impact on our financial statements. We do not enter into or issue derivative instruments for trading purposes.

Inflation Risk

We have experienced inflationary pressures to our supply chain costs, including those associated with micro-electronics, commodities (e.g., metals), and others. These costs have impacted our profitability. Bids for longer-term fixed-price contracts typically include assumptions for labor and other cost escalations in amounts that have been sufficient to cover cost increases over the period of performance. However, these costs could rise further and may not be mitigated. As a result, they could affect our financial results negatively in the future.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the quarterly period ended September 30, 2026, as such term is

defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2026.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarterly period ended September 30, 2026 covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information relating to legal proceedings, see Note 12: Commitments and Contingencies to the Consolidated Financial Statements in Part I, Item 1.

ITEM 1A. RISK FACTORS

As of the date of this Quarterly Report, there have been no material changes to the risk factors discussed under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes our repurchases of DRS common stock during the three months ended September 30, 2026:


Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(1)	Approximate Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(1)
(Dollars in millions, except per share amounts)
July 1, 2026 - July 31, 2026	91,148	$	45.13	91,148	$	20
August 1, 2026 - August 31, 2026	91,462	42.93		91,462	16
September 1, 2026 - September 30, 2026	106,023	$	36.97	106,023	$	13
Total	288,633			288,633

________________

(1)On February 20, 2025, the Company announced that its Board approved a stock repurchase program that allows the Company to purchase up to $75 million of its outstanding common stock through March 4, 2027, subject to market conditions. All repurchased shares are expected to be retired.

Stock repurchases are at the discretion of our Board and will depend upon our financial condition, results of operations, capital requirements, alternative uses of capital and other factors that our Board may consider at its discretion.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Securities Trading Plans of Directors and Officers

The following table includes the material terms (other than with respect to the price) of each Rule 10b5-1 Plan adopted, modified or terminated by our directors and officers (as defined in Rule 16a-1(f) of the Exchange Act) during the quarter ended September 30, 2026(1):

Name and title

Date of adoption of Rule 10b5-1 Plan(2)

Date of termination of Rule 10b5-1 Plan

Scheduled expiration date of Rule 10b5-1 Plan(3)

Aggregate number of shares of common stock to be purchased or sold(4)(5)

Jason Rinsky, Executive Vice President, Chief Tax and Treasury Officer

8/26/2026

N/A

3/31/2027

Up to 6,500 shares

Mark Dorfman, Executive Vice President, General Counsel & Secretary

3/6/2026

9/4/2026

N/A

Up to 27,680 shares

________________

(1)Each trading arrangement listed is a “Rule 10b5-1 Trading Arrangement” and is intended to satisfy the affirmative defense of Rule 10b5-1(c), as amended.

(2)Transactions under each Rule 10b5-1 Plan commence no earlier than 90 days after adoption, or such later date as required by Rule 10b5-1.

(3)Each Rule 10b5-1 Plan may expire on such earlier date as all transactions are completed.

(4)Each Rule 10b5-1 Plan provides for shares to be sold on multiple predetermined dates.

(5)The actual number of shares under each Rule 10b5-1 Plan may be different than the aggregate number of shares listed based on tax withholdings and performance and vesting conditions of performance-based stock units and restricted stock units (as applicable).

ITEM 6. EXHIBITS


Exhibit Number						Exhibit Description
31.1*						Certification by principal executive officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*						Certification by principal financial officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**						Certification by principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**						Certification by principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


* Filed herewith.
** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 29, 2026


LEONARDO DRS, INC.


By:			/s/ John Baylouny
			Name: John Baylouny
			Title: President and Chief Executive Officer

			/s/ Michael D. Dippold
			Name: Michael D. Dippold
			Title: Executive Vice President and Chief Financial Officer