Core Insights - Leonardo DRS stock declined 4.9% despite beating earnings forecasts, with actual earnings of $0.29 per share and sales of $960 million compared to analyst expectations of $0.28 per share and sales under $925 million [1][3][4] Financial Performance - The defense sector is experiencing significant growth, with Leonardo's sales increasing by 18% year over year in Q3, and the company booking $1.3 billion in new orders, resulting in a 1.4 book-to-bill ratio [3] - Leonardo's GAAP earnings grew 24% year over year to $0.26 per share, while the company generated $77 million in positive free cash flow during the quarter [4] - The company raised its revenue forecast for full-year 2025, predicting sales between $3.5 billion and $3.6 billion, and adjusted non-GAAP earnings guidance to between $1.07 and $1.12 per share [5] Valuation Considerations - Despite strong earnings growth, the stock is priced at a P/E ratio of 34, which may be considered expensive given the current valuation [6] - The Motley Fool Stock Advisor analyst team has identified other stocks they believe are better investment opportunities than Leonardo DRS [7][8]

Financial Data and Key Metrics Changes - The company reported a quarterly revenue growth of 18% year-over-year, totaling $960 million [20] - Adjusted EBITDA increased by 17% to $117 million, with a quarterly adjusted EBITDA margin of 12.2%, reflecting a slight contraction of 10 basis points from the prior year [21] - Net earnings for the third quarter were $72 million, with diluted EPS rising by 26% to $0.26 [22] - Free cash flow was reported at $77 million for the quarter, significantly up from the prior year [22] Business Line Data and Key Metrics Changes - The Integrated Mission Systems (IMS) segment saw a revenue increase of 34%, driven by strong contributions from Counter-UAS and electric power and propulsion programs [21] - The Advanced Solutions and Capabilities (ASC) segment demonstrated a healthy growth of 9%, attributed to naval network computing, advanced infrared sensing, and tactical radar programs [21] Market Data and Key Metrics Changes - The company secured $1.3 billion in bookings during the quarter, resulting in a book-to-bill ratio of 1.4, with a year-to-date book-to-bill ratio of 1.2 [5] - The total backlog reached a record $8.9 billion, up 8% year-over-year and 20% year-over-year for funded backlog [6][7] Company Strategy and Development Direction - The company is focused on areas of customer priority, including Counter-UAS, missile production, and sensing and electronics modernization, with strong alignment to defense funding trends [9] - The company is actively working on strengthening its germanium supply chain through recycling initiatives and strategic agreements with partners [10] Management's Comments on Operating Environment and Future Outlook - Management noted that while the operating environment presents both opportunities and challenges, they remain focused on execution discipline and maintaining investment for organic growth [8] - The company is optimistic about the future, with expectations for revenue growth of 10%-11% for the full year [7] Other Important Information - The company announced a leadership transition, with John Baylouny set to take over as CEO from Bill Lynn on January 1 [11][12] - The company is maintaining a balanced capital allocation strategy, focusing on M&A opportunities while also instituting a dividend [97] Q&A Session Summary Question: Update on IRAD spending trends - Management expects internal research and development investment to remain at current levels to maintain growth [29] Question: Foreign military sales activity - Management anticipates a ramp-up in foreign military sales opportunities, particularly in Counter-UAS and sensors [31] Question: Germanium pricing and supply - Management indicated progress in solidifying germanium supply and diversifying the supply base away from reliance on China [35] Question: Impact of the U.S. government shutdown - Management noted that while the shutdown has had a moderate impact, prolonged delays could affect awards and payments [42] Question: Counter-UAS program exposure - Approximately 20% of revenues are tied to Counter-UAS programs, with strong demand expected to continue [50] Question: Supply chain and inventory management - The company has a plan to bridge supply constraints through recycling and partnerships, ensuring robust supply into 2026 [94][95] Question: Capital allocation strategy - The company aims for a balanced capital allocation strategy, focusing on M&A opportunities while maintaining dividends and buybacks [97]

Financial Data and Key Metrics Changes - The company reported a quarterly revenue growth of 18% year-over-year, totaling $960 million [20] - Adjusted EBITDA increased by 17% to $117 million, with a quarterly adjusted EBITDA margin of 12.2%, reflecting a slight contraction of 10 basis points from the prior year [21] - Net earnings for the third quarter were $72 million, with diluted EPS rising by 24% to $0.26 [22] - Free cash flow was reported at $77 million for the quarter, significantly up from the prior year [22] Business Line Data and Key Metrics Changes - The Integrated Mission Systems (IMS) segment saw a revenue increase of 34%, driven by strong contributions from Counter-UAS and electric power and propulsion programs [20][21] - The Advanced Sensing and Computing (ASC) segment demonstrated a healthy growth of 9%, attributed to naval network computing, advanced infrared sensing, and tactical radar programs [21] Market Data and Key Metrics Changes - The company secured $1.3 billion in bookings during the quarter, resulting in a book-to-bill ratio of 1.4, with a year-to-date book-to-bill ratio of 1.2 [5] - The total backlog reached a record $8.9 billion, up 8% year-over-year and 20% year-over-year for funded backlog [6][5] Company Strategy and Development Direction - The company is focused on areas of customer priority, including Counter-UAS, shipbuilding throughput, missile production, and electronics modernization [9] - The company is actively working on strengthening its germanium supply chain through recycling initiatives and strategic agreements with partners [10] - The transition in leadership is expected to maintain the company's strategic focus on innovation and growth [12] Management's Comments on Operating Environment and Future Outlook - Management noted that the operating environment presents both opportunities and challenges, particularly with ongoing global defense investments [8] - The company remains optimistic about future growth, particularly in the Counter-UAS domain, and expects to see funding flow from the $150 billion defense budget [9] - The company is monitoring the impact of the U.S. government shutdown but has not yet seen significant effects on program execution [8][9] Other Important Information - The company announced a leadership transition, with John Baylouny succeeding Bill Lynn as CEO [11][12] - The company is maintaining a balanced capital allocation strategy, focusing on M&A opportunities while also instituting a dividend [97] Q&A Session Summary Question: How do you expect IRAD spending to trend? - Management expects internal research and development investment to remain at current levels to maintain growth [29] Question: Any updates on foreign military sales activity? - Management anticipates a ramp-up in foreign military sales opportunities, particularly in Counter-UAS and sensor demand [31] Question: Have germanium prices stabilized? - Management indicated progress in solidifying supply for germanium and diversifying the supply base [34][35] Question: Were there any unusually large orders this quarter? - There was increased demand for Counter-UAS and short-range air defense programs, contributing to strong bookings [40] Question: What risks does the extended U.S. government shutdown pose? - The impact is moderate currently, but prolonged shutdowns could lead to delays in awards and payments [42] Question: How do you measure the payback on R&D investments? - R&D investments are expected to open up adjacent markets and growth opportunities, particularly in Counter-UAS and unmanned systems [48] Question: What is the current exposure to Counter-UAS programs? - Approximately 20% of revenues are tied to force protection, primarily from short-range air defense and Counter-UAS programs [50] Question: What is the strategy regarding Hoverfly investment? - The investment aligns with the strategy to bring best-in-breed technologies for elevated sensing and targeting [60] Question: How is the company addressing germanium supply constraints? - The company is utilizing buffer stock and recycling initiatives while developing partnerships for long-term supply [58][59] Question: Any changes to capital allocation thoughts? - The company aims for a balanced capital allocation strategy, focusing on M&A opportunities while maintaining dividends [97]

Financial Data and Key Metrics Changes - The company reported a quarterly revenue growth of 18% year-over-year, totaling $960 million [20] - Adjusted EBITDA increased by 17% to $117 million, with a quarterly adjusted EBITDA margin of 12.2%, reflecting a slight margin contraction of 10 basis points from the prior year [21] - Net earnings for the third quarter were $72 million, with diluted EPS rising by 24% to $0.26 [22] - Free cash flow was $77 million for the quarter, significantly up from the prior year [22] Business Line Data and Key Metrics Changes - The Integrated Mission Systems (IMS) segment saw a revenue increase of 34%, driven by strong contributions from Counter-UAS and electric power and propulsion programs [21] - The Advanced Solutions and Capabilities (ASC) segment demonstrated a healthy growth of 9%, attributed to naval network computing, advanced infrared sensing, and tactical radar programs [21] Market Data and Key Metrics Changes - The company secured $1.3 billion in bookings during the quarter, resulting in a book-to-bill ratio of 1.4, with a year-to-date book-to-bill ratio of 1.2 [4] - The total backlog reached a record $8.9 billion, up 8% year-over-year, with funded backlog growing by 20% [4] Company Strategy and Development Direction - The company is focused on areas of customer priority, including Counter-UAS, shipbuilding throughput, missile production, and electronics modernization [8] - The company is actively working on strengthening its germanium supply chain through recycling initiatives and strategic agreements with partners [9] - The company is positioned to capture growth opportunities in electric power and propulsion technology for future platforms [19] Management's Comments on Operating Environment and Future Outlook - The management noted that the operating environment presents both opportunities and challenges, with continued growth in U.S. and allied defense investments [6] - The company remains optimistic about the future, expecting revenue growth of 10% to 11% for the full year [5] - Management expressed confidence in navigating the complexities of the dynamic market environment while maintaining investment for organic growth [5] Other Important Information - The company announced a leadership transition, with John Baylouny set to become the new CEO [11] - The company is maintaining a balanced capital allocation strategy, focusing on M&A opportunities while instituting a dividend and moderate buyback [156] Q&A Session Summary Question: How do we expect IRAD spending to trend? - Management expects internal research and development investment to remain around mid 3% of revenues to maintain growth [31][32] Question: Any updates on foreign military sales activity? - The company anticipates a ramp-up in foreign military sales opportunities, particularly in Counter-UAS and sensors [35] Question: Have germanium pricing and supply stabilized? - Management indicated progress in solidifying supply for 2026 and diversifying the supply base away from reliance on China [39] Question: What drove the increase in bookings this quarter? - The increase was primarily due to strong demand for Counter-UAS and short-range air defense programs, with a typical flow seen at the government fiscal year-end [52] Question: What is the outlook for the government shutdown's impact? - The impact is currently moderate, but prolonged shutdowns could lead to delays in awards and payments [54] Question: How does the company view the long-term growth prospects in propulsion and missile business? - The company sees significant long-term growth opportunities in propulsion systems for various ship classes and in the missile sector due to increasing demand for advanced sensors [102][106] Question: How does Sage Core fit into the U.S. Army's Next Generation C2 plans? - Sage Core is positioned as a critical component for enabling platforms to operate autonomously and make decisions at the edge of the battlefield [116]

Core Viewpoint - Leonardo DRS, Inc. reported quarterly earnings of $0.29 per share, exceeding the Zacks Consensus Estimate of $0.28 per share, and showing an increase from $0.24 per share a year ago, indicating a positive earnings surprise of +3.57% [1] Financial Performance - The company achieved revenues of $960 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 3.78%, and up from $812 million in the same quarter last year [2] - Over the last four quarters, Leonardo DRS has consistently exceeded consensus EPS estimates [2] Stock Performance - Leonardo DRS shares have increased approximately 24.4% since the beginning of the year, outperforming the S&P 500's gain of 17.2% [3] Future Outlook - The company's earnings outlook is crucial for investors, with current consensus EPS estimates at $0.40 for the coming quarter and $1.11 for the current fiscal year, alongside projected revenues of $1.03 billion and $3.59 billion respectively [7] - The estimate revisions trend for Leonardo DRS was mixed prior to the earnings release, resulting in a Zacks Rank 3 (Hold), suggesting the stock is expected to perform in line with the market in the near future [6] Industry Context - The Aerospace - Defense Equipment industry, to which Leonardo DRS belongs, is currently ranked in the bottom 41% of over 250 Zacks industries, indicating potential challenges ahead [8]

Q3 2025 Performance Highlights - The company reported quarterly bookings of $1.3 billion, resulting in a 1.4x book-to-bill ratio in Q3 [8] - Revenue increased by 18% to $960 million in Q3 2025, compared to $812 million in Q3 2024 [10] - Adjusted EBITDA grew by 22% to $117 million in Q3 2025, up from $78 million in Q3 2024 [10] - Adjusted Diluted EPS increased by 21% to $0.29 in Q3 2025, compared to $0.24 in Q3 2024 [10] - Total backlog increased by 8% to $8.909 billion, compared to $8.264 billion [10] Segment Performance - Advanced Sensing and Computing (ASC) revenue increased by 9% to $580 million [13] - Integrated Mission Systems (IMS) revenue increased significantly by 34% to $383 million [13] - ASC Adjusted EBITDA increased significantly by 47% to $53 million [13] Revised 2025 Guidance - The company is raising the lower end of its prior revenue guidance and now expects revenue between $3.55 billion and $3.60 billion for full year 2025, reflecting double-digit growth [8, 15] - Adjusted EBITDA is maintained in the range of $437 million to $453 million [15] - Adjusted Diluted EPS is increased to a range of $1.07 to $1.11, reflecting a slightly lower tax rate of 18% [8, 15] - Free Cash Flow (FCF) is still expected to track towards approximately 80% of Adjusted Net Earnings [8]

Core Points - Leonardo DRS, Inc. announced the retirement of William J. (Bill) Lynn as Chairman and CEO after 14 years, with John Baylouny appointed as the new President & CEO effective January 1, 2026 [1][4] - Frances (Fran) Fragos Townsend has been elected as the new Chair of the Board of Directors, also effective January 1, 2026 [1][4] Company Leadership Transition - Bill Lynn has transformed Leonardo DRS into a technology-driven organization, focusing on advanced sensing, network computing, force protection, and electric power and propulsion technologies [2][3] - Under Lynn's leadership, the company achieved significant contract wins, including propulsion content for the Columbia Class submarine and counter-UAS positions, contributing to durable growth [2] - John Baylouny, with over 35 years of experience at Leonardo DRS, has served as COO since late 2018 and is expected to ensure a seamless leadership transition [4][5] Board of Directors - Fran Townsend has been a Board director since 2009 and has extensive experience in both private and public sectors, including roles in the Department of Justice and as Assistant to President George W. Bush [6] - Townsend's deep understanding of the company and its strategic journey positions her well for the role of Board Chair [3][6] Company Overview - Leonardo DRS specializes in developing transformative defense technologies and delivering innovative solutions for U.S. national security customers and allies [7] - The company focuses on high-performance, multi-domain capabilities across next-generation advanced sensing, network computing, force protection, and electric power and propulsion [7]

Financial Performance - Revenue for Q3 2025 was $960 million, an 18% increase year-over-year[4] - Net earnings reached $72 million, up 26% compared to Q3 2024[5] - Adjusted EBITDA was $117 million, reflecting a 17% year-over-year growth[5] - Adjusted diluted EPS for Q3 2025 was $0.29, a 21% increase from the previous year[5] - Revenues for Q3 2025 reached $960 million, a 18.2% increase from $812 million in Q3 2024[27] - Gross profit for Q3 2025 was $222 million, up 24.0% from $179 million in Q3 2024[27] - Net earnings for the nine months ended September 30, 2025, were $176 million, compared to $124 million for the same period in 2024, reflecting a 42.0% increase[27] - Adjusted Net Earnings for Q3 2025 were $78 million, compared to $64 million in Q3 2024, reflecting a 21.9% increase[38] - Diluted EPS rose to $0.26 in Q3 2025, up from $0.21 in Q3 2024, marking a 23.8% increase[38] - For the nine months ended September 30, 2025, net earnings reached $176 million, compared to $124 million in the same period of 2024, a 42% increase[38] - Adjusted Diluted EPS for the nine months ended September 30, 2025, was $0.73, compared to $0.56 in the same period of 2024, reflecting a 30.4% increase[38] Cash Flow and Investments - Cash flow from operating activities was $107 million, with free cash flow of $77 million for the quarter[8] - Cash and cash equivalents decreased to $309 million as of September 30, 2025, from $598 million at the beginning of the year[30] - The company reported a net cash used in operating activities of $59 million for the nine months ended September 30, 2025, an improvement from $172 million in the same period of 2024[30] - Free Cash Flow for Q3 2025 was $77 million, compared to $48 million in Q3 2024, indicating a 60.4% increase[40] - Free Cash Flow for the nine months ended September 30, 2025, was negative $149 million, an improvement from negative $226 million in the same period of 2024[40] - The company invested $15 million in Hoverfly Technologies, increasing its stake to approximately 25%[10] Guidance and Future Outlook - The company revised its 2025 revenue guidance to $3.550 billion - $3.600 billion[15] - Bookings totaled $1.3 billion with a book-to-bill ratio of 1.4x, indicating strong demand[5] - Backlog increased by 8% year-over-year to a record $8.9 billion[12] Capital Expenditures - The company incurred capital expenditures of $90 million for the nine months ended September 30, 2025, compared to $56 million in the same period of 2024[30] - Capital expenditures in Q3 2025 were $30 million, up from $12 million in Q3 2024, representing a 150% increase[40] Dividends and Stockholder Equity - A cash dividend of $0.09 per share was declared, payable on December 2, 2025[9] - Total stockholders' equity rose to $2,648 million as of September 30, 2025, up from $2,557 million at the end of 2024[29]

Core Insights - Leonardo DRS, Inc. reported strong financial results for Q3 2025, highlighting exceptional bookings and organic revenue growth driven by broad-based customer demand [1] Financial Performance - The company is on track to achieve double-digit revenue growth for the year 2025, supported by solid year-to-date performance [1]

Core Insights - Leonardo DRS, Inc. has launched SAGEcore™, an integrated software platform that combines artificial intelligence, advanced sensors, and edge computing for tactical platforms in multi-domain environments [1] - SAGEcore is specifically designed for real-time battlefield operations and is optimized to run AI on ruggedized edge computers [1] - The platform is engineered to rapidly process complex data on-platform, ensuring high efficiency in operational scenarios [1]