Leonardo DRS (DRS) Q3 2025 earnings summary

Executive summary

• Q3 2025 revenue rose 18% year-over-year to $960 million, with net earnings up 26% to $72 million and diluted EPS at $0.26, driven by strong demand in counter-UAS, electric power/propulsion, and advanced sensing programs.

• Bookings reached $1.3 billion, resulting in a 1.4x book-to-bill ratio and record backlog of $8.9 billion, up 8% year-over-year.

• CEO transition: John Baylouny to succeed William Lynn as CEO effective January 1, 2026; Fran Townsend elected as new Chair.

• Strategic focus on innovation with increased R&D investment, launch of SAGEcore platform, and leadership in counter-UAS and maritime technologies.

• Company remains highly dependent on U.S. government contracts, with 81% of revenue from the DoD.

Financial highlights

• Adjusted EBITDA for Q3 was $117 million, up 17% year-over-year, with margin at 12.2%, down 10 bps due to higher R&D and less favorable mix.

• Net earnings for Q3 were $72 million (up 26%); adjusted net earnings $78 million (up 22%); adjusted diluted EPS $0.29 (up 21%).

• Free cash flow for Q3 was $77 million, significantly higher year-over-year; net cash from operating activities was $107 million.

• Gross margin improved by 110 bps to 23.1% for Q3; operating earnings rose 24% to $93 million.

• Cash and cash equivalents were $309 million at September 30, 2025, with $194 million in outstanding borrowings.

Outlook and guidance

• 2025 revenue guidance raised to $3.55–$3.6 billion, implying 10–11% growth; adjusted EBITDA guidance at $437–$453 million.

• Adjusted diluted EPS guidance increased to $1.07–$1.12, with a lower effective tax rate of 18%.

• Free cash flow conversion targeted at ~80% of adjusted net earnings.

• Q4 expected to contribute significantly to full-year results, though growth may step down from first nine months.

• International sales expected to provide future growth opportunities despite a current year decrease.