Leonardo DRS lifts forecast as backlog hits record $5.6 billion

Leonardo DRS raised its full-year 2026 forecast on October 29 after reporting third-quarter revenue of $1.066 billion, up 11% from a year earlier, as demand for tactical radars, naval power and propulsion systems and space sensors drove the gain.

Orders grew even faster than sales, with the Arlington, Virginia-based defense electronics maker booking $1.64 billion in new funded orders in the three months ended September 30. That gave it a book-to-bill ratio of 1.5x, meaning it took in $1.50 of new business for every dollar of revenue it recognized, and the company said both figures were its strongest since it became a public company four years ago.

Funded backlog, which counts work that customers have placed on contract with money already committed but that the company has not yet delivered and booked as revenue, reached a record $5.64 billion. That figure is up 21% from $4.68 billion a year earlier and continues a steady climb through 2026, from $4.7 billion at the end of March and $5.1 billion at the end of June.

“These results reinforce a strategy that is working — investing ahead of demand, in both differentiated capability and capacity, to help our customers maintain overmatch and enable us to scale when the mission requires it,” said John Baylouny, President and CEO of Leonardo DRS.

Net earnings rose 60% to $115 million, or 43 cents per diluted share, from $72 million, or 26 cents, a year earlier, although a lower tax bill accounts for part of that increase. Operating earnings grew 25% to $116 million, while the income tax provision fell to $1 million from $15 million, and the company now assumes a full-year tax rate of 13%, down from 16.5% in its previous outlook.

Adjusted EBITDA, a measure that excludes interest, taxes, depreciation, amortization and one-time items, rose 27% to $149 million, with the adjusted margin widening to 14.0% from 12.2%. The company credited program execution, a more profitable mix of work and higher volumes for the improvement.

The Advanced Sensing and Computing segment, the larger of the company’s two units, grew revenue 14% to $659 million on the strength of tactical radars and space sensing programs, while booking just over $1 billion in orders and lifting its operating margin to 8.6% from 7.8%. Demand for its radars has continued into the fourth quarter, after the company won a place on a $500 million counter-drone radar contract from Joint Interagency Task Force 401 in mid-October, although that figure is a ceiling for orders the company must still compete for rather than guaranteed work. On the space side, the U.S. Space Force in September selected Leonardo DRS to further develop sensor technology intended to detect, track and target fast-moving threats.

The Integrated Mission Systems segment, which includes electric power and propulsion work for naval vessels as well as force protection programs, grew revenue 12% to $428 million. Its operating margin climbed to 15.0% from 12.5%, even as the company increased spending on internal research and development. Much of that naval business rests on the U.S. Navy’s Columbia-class ballistic missile submarine program, for which Leonardo DRS holds contracts worth more than $3 billion to supply electric drive propulsion components, and in September the company also announced it would build the electric propulsion system for South Korea’s next-generation KDDX destroyer.

The quarter extended a run of growth this year, after Leonardo DRS reported first-quarter revenue of $846 million in May and second-quarter revenue of $913 million in July.

The new 2026 outlook calls for revenue of $3.95 billion to $3.985 billion, up from a prior range of $3.90 billion to $3.975 billion, along with Adjusted EBITDA of $545 million to $555 million and adjusted earnings per share of $1.50 to $1.53. Based on the $2.825 billion the company has recorded through September, the revenue range implies fourth-quarter sales of roughly $1.13 billion to $1.16 billion.

Cash generation was weaker in the quarter, with operating cash flow of $96 million and free cash flow of $61 million, down from $77 million a year earlier, as more money went into working capital. For the first nine months, free cash flow was negative $28 million, an improvement from negative $149 million in the same period of 2025.

Cash on hand fell to $294 million from $647 million at the end of 2025, largely because the company repaid $191 million of borrowings over nine months, cutting long-term debt to $165 million from $321 million and leaving nothing drawn on its credit facility at quarter end.

The board declared a quarterly dividend of 9 cents per share, payable November 25 to stockholders of record on November 12, and Leonardo DRS repurchased 288,633 shares for about $12 million during the quarter. Italy’s Leonardo S.p.A. owns 71.38% of the Nasdaq-listed company, according to the parent group.

The updated guidance excludes the pending purchase of Raft LLC, a McLean, Virginia-based developer of mission software that fuses data from multiple sensors, which Leonardo DRS agreed in July to buy in an all-cash deal valued at $450 million. The company plans to fund the purchase with cash on hand and borrowings under its revolving credit facility, and its third-quarter results already included $4 million in deal-related costs.

The transaction is expected to close in the fourth quarter of 2026, pending regulatory approvals and customary closing conditions.