Leonardo DRS — Third Quarter 2026 Earnings Summary

Financial Performance:

• Revenue reached $1.066 billion for the quarter, an 11% increase year-over-year from $960 million; year-to-date revenue was $2.825 billion, up 9% from $2.588 billion.
• Net earnings were $115 million for the quarter, up 60% year-over-year from $72 million; year-to-date net earnings were $263 million, up 49% from $176 million.
• Net margin improved to 10.8% in the quarter (up 330 basis points from 7.5%) and 9.3% year-to-date (up 250 basis points from 6.8%).
• Adjusted EBITDA was $149 million for the quarter, up 27% year-over-year from $117 million; year-to-date Adjusted EBITDA was $382 million, up 29% from $295 million.
• Adjusted EBITDA margin expanded to 14.0% in the quarter (up 180 basis points from 12.2%) and 13.5% year-to-date (up 210 basis points from 11.4%).
• Diluted EPS was $0.43 for the quarter, up 65% year-over-year from $0.26; year-to-date diluted EPS was $0.98, up 51% from $0.65.
• Adjusted Diluted EPS was $0.46 for the quarter, up 59% year-over-year from $0.29; year-to-date Adjusted Diluted EPS was $1.07, up 47% from $0.73.
• Net cash provided by operating activities was $96 million for the quarter, down from $107 million in the prior year period; year-to-date operating cash flow was $65 million, compared to a use of $59 million in the prior year.
• Free cash flow was $61 million for the quarter, down from $77 million in the prior year; year-to-date free cash flow was a use of $28 million, compared to a use of $149 million in the prior year.
• Cash and cash equivalents were $294 million at quarter-end, down from $647 million at year-end 2025.
• Total debt was $175 million ($10 million short-term, $165 million long-term) at quarter-end, down from $347 million ($26 million short-term, $321 million long-term) at year-end 2025.

Guidance and Future Outlook:

• The company raised full-year 2026 guidance for Revenue to a range of $3.950 billion to $3.985 million (prior: $3.900 billion to $3.975 billion).
• The company raised full-year 2026 guidance for Adjusted EBITDA to a range of $545 million to $555 million (prior: $525 million to $540 million).
• The company raised full-year 2026 guidance for Adjusted Diluted EPS to a range of $1.50 to $1.53 (prior: $1.34 to $1.39).
• The updated guidance assumes a tax rate of 13.0% (prior: 16.5%) and a diluted weighted average shares outstanding of 269.0 million.
• The guidance excludes the pending acquisition of Raft LLC.

Business Segments and Product Lines:

• Advanced Sensing and Computing (ASC): Revenue was $659 million, up 14% year-over-year; Operating earnings were $57 million, up 27% year-over-year; Operating margin was 8.6% (up 80 basis points). Segment Adjusted EBITDA was $78 million, up 22% year-over-year. Bookings were $1.017 billion with a 1.5x book-to-bill ratio. Growth was driven by tactical radars and space sensing programs.
• Integrated Mission Systems (IMS): Revenue was $428 million, up 12% year-over-year; Operating earnings were $64 million, up 33% year-over-year; Operating margin was 15.0% (up 250 basis points). Segment Adjusted EBITDA was $71 million, up 34% year-over-year. Bookings were $622 million with a 1.5x book-to-bill ratio. Growth was driven by naval power and propulsion programs, with significant margin expansion despite increased R&D investment.

Market and Competitive Landscape:

• Total bookings for the quarter were $1.639 billion, up from $1.307 billion in the prior year, resulting in a 1.5x book-to-bill ratio (prior: 1.4x).
• Year-to-date bookings were $3.609 billion, up from $3.151 billion, with a 1.3x book-to-bill ratio (prior: 1.2x).
• Funded backlog reached a record $5.640 billion at quarter-end, up 21% year-over-year from $4.678 billion.
• Customer demand remained robust, led by naval power and propulsion, tactical radars, and force protection programs.

Risks and Challenges:

• Risks include government shutdowns, changes in U.S. government priorities, and spending levels.
• Supply chain disruptions, including longer lead times and shortages of electronics, could impact contractual obligations.
• Dependence on U.S. government contracts which are subject to immediate termination and partial funding.
• Potential impacts from inflation, cost pressures on the supply chain, and labor costs.
• Risks related to the pending acquisition of Raft LLC, including failure to complete the transaction, integration difficulties, and increased indebtedness.
• Geopolitical factors, export license restrictions, and compliance with international regulations (e.g., FCPA, ITAR).
• Potential conflicts of interest with majority stockholder Leonardo S.p.A.

Management Commentary and Tone:

• CEO John Baylouny described the quarter as "strong," noting 11% organic revenue growth and profitability growing faster.
• Management highlighted that bookings exceeded $1.6 billion with a 1.5x book-to-bill ratio, the strongest since becoming a public company four years ago.
• The strategy of investing ahead of demand in differentiated capability and capacity was reinforced as working to help customers maintain overmatch.
• Management expressed confidence to raise and narrow the full-year outlook due to the record funded backlog and improved visibility into the fourth quarter.

Other Key Points:

• The Board of Directors declared a cash dividend of $0.09 per share, payable on November 25, 2026, to stockholders of record on November 12, 2026.
• During the quarter, the company repurchased 288,633 shares of common stock for approximately $12 million.
• Total dividends paid to stockholders during the quarter were approximately $24 million ($0.09 per share).
• The company held no outstanding borrowings under its credit facility at quarter-end.
• The company is a leading provider of advanced defense technologies specializing in advanced sensing, network computing, force protection, and electric power and propulsion.