Leonardo DRS Raises 2026 Outlook as Q3 Backlog Hits Record

Leonardo DRS Inc. (NASDAQ: DRS) raised and narrowed its 2026 revenue, adjusted EBITDA and adjusted diluted earnings-per-share guidance after third-quarter revenue increased 11% and profit grew faster than sales. Strong demand for tactical radars, power and propulsion systems, and space sensing programs also lifted funded backlog to a company record of $5.64 billion.

Revenue for the quarter ended Sept. 30 rose to $1.07 billion from $960 million a year earlier. Adjusted EBITDA increased 27% to $149 million, while adjusted EBITDA margin expanded 180 basis points to 14.0%, reflecting program execution, favorable business mix and operating leverage from higher volumes.

GAAP net earnings climbed to $115 million from $72 million. Adjusted net earnings rose 59% to $124 million, and adjusted diluted EPS increased to $0.46 from $0.29. GAAP diluted EPS was $0.43, compared with $0.26 in the prior-year period. The company said operational performance and a lower tax rate supported earnings growth.

Record backlog supports demand visibility

Third-quarter bookings increased 25% year over year to $1.6 billion, producing a book-to-bill ratio of 1.5 times, which DRS described as its strongest since becoming public four years ago. Both Advanced Sensing and Computing and Integrated Mission Systems recorded book-to-bill ratios of 1.5 times.

Funded backlog rose 21% from $4.68 billion a year earlier. DRS said the total reflected broad customer demand and alignment between its portfolio and U.S. defense priorities.

During the quarter, the company received a $500 million award supporting the Counter Drone office, JIATF-401. It was also selected to provide the permanent-magnet electric propulsion system for the Republic of Korea Navy’s KDDX destroyer program.

Growth across both operating segments

Advanced Sensing and Computing revenue increased 14% to $659 million, driven primarily by tactical radar and space payload programs. Segment adjusted EBITDA rose 22% to $78 million, while the segment margin increased 80 basis points to 11.8%. DRS attributed the improvement to operational delivery, favorable mix and volume leverage.

Integrated Mission Systems revenue advanced 12% to $428 million, led by power and propulsion programs. Segment adjusted EBITDA climbed 34% to $71 million, and its margin expanded 280 basis points to 16.6%. Higher volume and execution within power and propulsion programs supported the increase.

Full-year outlook increased and narrowed

DRS now expects 2026 revenue of $3.95 billion to $3.985 billion, representing growth of 8% to 9% from 2025. Its previous range was $3.90 billion to $3.975 billion, or growth of 7% to 9%. Management said year-to-date performance and the anticipated conversion of funded backlog provided greater visibility into the revised range.

Adjusted EBITDA is projected at $545 million to $555 million, up 20% to 23%, compared with the prior forecast of $525 million to $540 million. The company expects margin improvement to be supported by program execution, favorable mix and higher-volume benefits.

The adjusted diluted EPS forecast increased to $1.50 to $1.53 from $1.34 to $1.39. DRS also reduced its expected full-year effective tax rate to 13% from 16.5%, while maintaining its assumption of 269 million diluted shares outstanding.

The company continues to target free cash flow equal to approximately 75% of adjusted net earnings. It expects the fourth quarter to contribute meaningfully to full-year revenue, adjusted EBITDA, adjusted net earnings and free cash flow.

DRS plans to increase 2026 research and development spending to 3.5% of sales and capital expenditure to 4% of sales, supporting product development and additional capacity. Its pending acquisition of Raft LLC, which is intended to expand its artificial intelligence, data fusion and mission software capabilities, is expected to close in the fourth quarter but is not included in the guidance.

The timing and volume of material receipts and progress in labor execution remain the primary factors affecting revenue, according to the presentation. The Raft transaction also remains subject to closing conditions and regulatory approvals, and its expected benefits, financing and integration involve uncertainty. DRS noted that its non-GAAP measures are supplemental, may not be comparable with similarly named measures used by other companies and should be considered alongside GAAP results.