DRS

Let’s dig into the relative performance of Leonardo DRS (NASDAQ:DRS) and its peers as we unravel the now-completed Q2 defense contractors earnings season. Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds. The 13 defense contractors stocks we track reported a very strong Q2. As a group, revenues beat analysts’ consensus estimates by 3.9% while next quarter’s revenue guidance was 1.1% above. While some defense contractors stocks have fared somewhat better than others, they have collectively declined. On average, share prices are down 3.5% since the latest earnings results. Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ:DRS) is a provider of defense systems, electronics, and military support services. Leonardo DRS reported revenues of $913 million, up 10.1% year on year. This print exceeded analysts’ expectations by 0.9%. Overall, it was a very strong quarter for the company with a beat of analysts’ EPS and EBITDA estimates. Investor expectations, however, were likely higher than Wall Street’s published projections, leaving some wishing for even better results (analysts’ consensus estimates are those published by big banks and advisory firms, not the investors who make buy and sell decisions). The stock is down 19.8% since reporting and currently trades at $37.30. Is now the time to buy Leonardo DRS? Access our full analysis of the earnings results here, it’s free. Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE:HII) develops marine vessels and their mission systems and maintenance services. Huntington Ingalls reported revenues of $3.42 billion, up 10.9% year on year, outperforming analysts’ expectations by 8.2%. The business had an incredible quarter with a beat of analysts’ EPS estimates. The market seems content with the results as the stock is up 4% since reporting. It currently trades at $291.72. Is now the time to buy Huntington Ingalls? Access our full analysis of the earnings results here, it’s free. Delivering aerospace technology during the Cold War-era, Parsons (NYSE:PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors. Parsons reported revenues of $1.58 billion, flat year on year, falling short of analysts’ expectations by 1.9%. It was a disappointing quarter as it posted full-year revenue guidance missing analysts’ expectations. Parsons delivered the weakest performance against analyst estimates, slowest revenue growth, and weakest full-year guidance update of the whole group. As expected, the stock is down 26.3% since the results and currently trades at $45.73. Read our full analysis of Parsons’s results here. Contributing components and materials to the famous Manhattan Project in the 1940s, BWX (NYSE:BWXT) is a manufacturer and service provider of nuclear components and fuel for government and commercial industries. BWX reported revenues of $901.6 million, up 18% year on year. This print met analysts’ expectations. It was a strong quarter as it also recorded full-year EBITDA guidance beating analysts’ expectations and a solid beat of analysts’ EBITDA estimates. The stock is down 9.5% since reporting and currently trades at $157.26. Read our full, actionable report on BWX here, it’s free. Originally focused on refrigeration technology, Raytheon (NSYE:RTX) provides a variety of products and services to the aerospace and defense industries. RTX reported revenues of $24.71 billion, up 14.5% year on year. This number beat analysts’ expectations by 7.8%. Overall, it was an exceptional quarter as it also put up full-year EPS guidance exceeding analysts’ expectations and a beat of analysts’ EPS estimates. The stock is up 3.2% since reporting and currently trades at $201.03. Read our full, actionable report on RTX here, it’s free. Over the past year, investors have been forced to repeatedly answer the same question: what is the market’s biggest risk? The answer has changed several times, and each shift has reshaped market leadership. Late in 2025 and early 2026, artificial intelligence became the market’s primary uncertainty. Investors questioned whether AI would erode software pricing power and weaken competitive moats as AI made it easier to replicate once-differentiated products. By the spring, technology took a back seat to geopolitics. The U.S. conflict with Iran briefly became the market’s dominant narrative, raising concerns about oil prices, inflation, and global growth. But as energy markets remained orderly and fears of a prolonged supply disruption faded, investors quickly turned their focus back to fundamentals. Want to invest in winners with rock-solid fundamentals? Check out our Top 5 Quality Compounder Stocks and add them to your watchlist. These companies are poised for growth regardless of the political or macroeconomic climate.

Image source: The Motley Fool. Thursday, July 30, 2026, at 10 a.m. ET Senior Vice President, Corporate Development and Investor Relations - Stephen Vather President and CEO - John A. Baylouny CFO - Michael Dippold Need a quote from a Motley Fool analyst? Email [email protected] Operator: Ladies and gentlemen, good day, and welcome to the Leonardo DRS Second Quarter Fiscal Year 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the company's prepared remarks, there will be an opportunity to ask questions. Instructions will be provided at that time. As a reminder, this event is being recorded. I would now like to turn the conference over to Stephen Vather, Senior Vice President, Corporate Development and Investor Relations. Please go ahead. Stephen Vather: Good morning, and welcome, everyone. Thank you for joining today's quarterly earnings conference call. With me today are John A. Baylouny, our President and CEO and Michael Dippold, our CFO. They will discuss our strategy, operational highlights, financial results, and outlook. Today's call is being webcast on the Investor Relations section of the website. Where you can find the earnings release and supplemental presentation. Management may also make forward-looking statements during the call regarding future events, future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These statements, including those relating to the pending acquisition of Raft LLC, including the expected timing of completion of the transaction, the satisfaction of closing conditions, the receipt of regulatory approvals, and the anticipated benefits of the transaction in plans for the integration of the acquired business. For a full discussion of the risk factors, please refer to our latest Form 10-K and our other SEC filings. We undertake no obligation other than as may be required by law to update any of the forward-looking statements made on this call. During the call, management will also discuss non-GAAP financial measures, which we believe provide useful information for investors. These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures. You can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release. With that, I will turn the call over to John. John? John A. Baylouny: Thank you, Steve, and good morning, everyone. We appreciate you joining us for a review of our second quarter 2026 results. Q2 was another strong quarter that builds directly on the foundation that we have laid over the past several years. Organic revenue growth accelerated to 10% year over year. Bookings exceeded $1 billion driving book-to-bill to 1.2x for the quarter. Demand was apparent throughout the portfolio and our Q2 book-to-bill extended our streak of 18 quarters with book-to-bill at or above 1.0. Furthermore, we exited the quarter with a record funded backlog given our conservative bookings and backlog methodology, this provides meaningful visibility into future growth. The highlight of the quarter was the 33% year-over-year growth in adjusted EBITDA and 240 basis points of margin expansion. Execution, favorable program mix, and the retirement of program risk, were the linchpins of our success. Mike will expand on the drivers later. These strong results once again demonstrate the benefits of DRS' diverse portfolio and platform-agnostic approach. The top and bottom line outperformance further validates our strategy is a direct result. Of the sound execution across the portfolio. Additionally, I am pleased to highlight that we announced an agreement to acquire RAFT, expanding our multi-domain AI data fusion, and mission software capabilities. This $450 million all-cash acquisition reflects a disciplined deployment of capital in line with our strategy and supportive of continued long-term growth. Overall, the solid first half trajectory reinforces our confidence in raising our full year profit outlook. I want to thank the entire DRS team for the relentless effort and unwavering focus on execution to convert demand into these outstanding results. Let me offer some framing comments with respect to the macro and operating backdrop. The global threat environment remains elevated. And demand fundamentals remain supportive across our diverse portfolio. Customers are prioritizing modernization and the procurement of production-ready capabilities. And those demand signals are clearly evident in our book-to-bill. On the U.S. budget, Congress is working through the fiscal 2027 funding and we expect a continuing resolution to govern the calendar fourth quarter. I will not speculate on the timing or final level of fiscal 2027 defense appropriations. And we recognize the path may not be linear. What we are confident in is that the threat environment warrants continued and growing defense investment. Beyond the near-term funding mechanics, and the record based budget request, the reconciliation dollars flowing to priority programs reinforce a durable, demand signal for exactly the capabilities that we provide Top line, and timing alone does not determine the opportunity set for DRS. What matters more are the underlying priorities and thematics. Where we remain closely aligned. Customer priorities are increasingly shaped by operational lessons from recent and ongoing conflicts in the Middle East and in Eastern Europe. These structural trends are the ones I discussed last quarter, to refresh, they are first, the necessity of layered and effective air defense and counter-UAS. Second, the shift towards proliferated resilient sensing across domains. Third, the depth and cost asymmetry of effectors, to counter growing threats. We saw each of these trends further manifest in our business this quarter. With that, let me discuss how these trends as well as other customer priorities are materializing in our results. As you know, the DRS portfolio is diverse. Platform agnostic, and benefits from a number of different defense thematics. Starting with air defense and counter-UAS, the proliferation of unmanned threats keeps accelerating adoption of counter-UAS technology and the customer pull is evident in our results. Our tactical radars are essential enabling technology embedded in counter-UAS systems fielded around the globe and order flow continues to run ahead of supply. So we are aggressively adding capacity. We also continue to see robust global appetite as international allies quickly work to fill air defense gaps highlighted by recent conflicts. We think we are in the early innings of tactical radar proliferation, only for counter-UAS missions, but more broadly. Staying ahead of the sensing only matters if you can turn it into decisions. Our advantage is combining sensing, computing, and networking. To act on that data across a connected force. Not just deliver a standalone component. That is exactly the capability we are expanding on with our acquisition of Raft. A recent example of this is what we saw firsthand in Operation Jailbreak. And I want to spend a moment on it because I was there on the ground. Operation Jailbreak the Army's first industry hackathon. A live effort to get systems to talk to one another. They brought roughly 20 companies together to break down the barriers between systems that are not originally designed to connect. It is the first step in what the Army calls its right to integrate. And the foundation for the next-generation command and control system. I am pleased to report that our team had a meaningful role in that exercise. And that our technology has demonstrated interoperability seamlessly and quickly in a matter of a few hours. Modularity opens standards platform-agnostic approach, and scalability are designed into the entirety of our technology portfolio. And it is just one of the latest proofs of that point. Next generation command and control is among the Army's top modernization priorities. Customers are managing growing volumes of data from distributed sensors and systems. With fragmented architectures that slow decision making. As such, there is a need for a resilient network and a unified data layer that turns that data into decisions. And this is also what is driving our customers towards integrated hardware and software capabilities. that is why we announced an agreement to acquire RAFT earlier this week. RAFT is a provider of open architecture, mission software for multi-domain data fusion, and AI, supporting real-time situational awareness and faster decision making for national security customers. Importantly, RAFT was selected by the Army's Next Generation C2 software architecture. The very priority I just described. Additionally, the company expands our customer footprint within the Air Force, Space Force, special operations, and the intelligence community. We have long said that we apply the same open or modular philosophy to software as we do hardware. Giving customers the flexibility to deploy the best of breed solutions without being locked into a single provider. RAFT advances that approach and checks the boxes that matter to us most. Outstanding people. A mission-first culture, and a proven open architecture technology. RAFT software, AI, and Data Fusion are complementary to our core strengths in sensing, computing, and mission systems. Combining those franchises is expected to open growth avenues not available to either company on a standalone basis. It also accelerates our R&D emphasis on platform AI, autonomy and extending our platform-agnostic capabilities to new missions. Put simply, RAFT helps us own the edge. Putting sensing, computing, and integration where the decision gets made. Reducing the cognitive burden on operators and improving decision speed. Coming back to counter-UAS, we continue to see adversary target high value assets that degrade sensing to defensive capability. This only reinforces the need for proliferated and resilient sensing architectures. It also puts a premium on the open software and data layer that sits one level up from those sensors and that is what RAFT provides. It unifies fragmented data into a single common operating picture. So the force keeps a coherent view even when individual nodes are degraded or lost. Our counter-UAS work extends into systems and platform integration. As unmanned threats evolve, we expect the technologies and systems used to neutralize them. To also evolve rapidly. Customers increasingly seek counter-UAS solutions that are platform and vehicle agnostic. For example, the Army is iterating on its approach for the next tranche of ground-based air defense capabilities. To that end, we are maturing our palletized counter-UAS offerings by incorporating different effectors and technologies that will broaden the flexibility of capability development. Given our enabling technologies are modular and integrated across vehicles, we are not tied to any single platform procurement line. And we stay aligned as mission needs evolve across configurations. Last quarter, I mentioned that we received a $533 million production IDIQ contract for the Distributed Aperture Infrared Countermeasure system, or DAIRCM for aircraft survivability. Demand for aircraft protection remains elevated across infrared countermeasure programs, and order flow is accelerating given how critical these systems are to airborne platform survivability. Recent conflicts have put these systems to the test. And they delivered. Pushing the urgency to field more of these systems quickly. I am proud of our work to help ensure the safety of Airmen. Beyond protecting our soldiers and platforms, we are also growing on the munitions side. Equally important is sensing and countermeasure systems are effectors. While our footprint today in this area is modest, our involvement is expanding meaningfully. This is similar to how you saw DRS take the preeminent weather satellite position in space and leverage that pedigree to drive adjacent growth into missile tracking and warning via the SDA Tranche contract. That same sensing pedigree positions us for homeland defense, where investments in infrared space-based interception are directly poised to support missile defense mission. Our exposure to missiles and effectors spans tactical to strategic balanced between existing platforms seeing urgent multifold increases in demand and next-generation systems that will see growth for years to come. Today, we are providing essential components to platforms such as THAAD and as a qualified supplier on those platforms, we are leaning in to add capacity and depth. As the prime scale these programs under the multiyear munitions frameworks, we are leaning in right alongside them. And investing in ramping capacity to support higher level production of our content. As I have mentioned before, we are also being designed in as advanced sensing provider for future missile platforms. What is also exciting is that our infrared capabilities are starting to see notable traction in low-cost drone platforms. Our investments in size, weight, power, and cost optimized uncooled long-wave infrared detection are paying off. As the Department of War prioritizes affordable drones, building at higher volume, the sensing payload is increasingly what differentiates 1 platform from the next. And our sensing and our infrared pedigree plays directly into that need. In the quarter, we secured a contract with a leading low-cost drone manufacturer for high volume production of the camera cores with initial order of 50,000 units. We are seeing appetite and interest from additional drone OEMs given our quality capability, and ability to deliver at a significant scale. Turning from sensing and effectors to the maritime domain and naval power, expanding shipbuilding capacity to grow nation's naval fleet of operational surface and subsurface platforms remains an important priority. I am pleased to report that we saw a steadfast demand materialize in the quarter not only for our propulsion content, but also for our naval network computing capabilities. While many of many know DRS for its innovative full electric propulsion work on Columbia-class, We offer naval propulsion capabilities that include traditional, and hybrid electric approaches. In the quarter, we booked orders for content across power capabilities, for a diversity of subsurface and surface platforms, including Columbia class, Virginia class, DDG-51, LPD. Additionally, existing naval platforms still require regular network computing modernization to enhance and scale processing at the edge. We are supporting these initiatives through our delivery of advanced platform based processing solutions critical to onboard sensing, combat weapons, communications, and other mission systems. While executing on this demand is driving near and midterm growth, we continue to progress efforts to expand our involvement in steam turbines, as well as grow our sensing footprint and content more broadly on unmanned surface vessels. Stepping back from the individual mission areas, our results reinforce our strategy. Delivering differentiated capability to help our customers maintain overmatch, is core to DRS. We are capturing growth through consistent delivery and disciplined investment. We have proactively and methodically stepped up organic investment over the past few years and are doing so year-to-date. Investment in internal research and development was up 16% year-over-year in the first half and approached 4% of revenue. Our increased investment is going towards innovation initiatives such as infrared sensing technologies for space-based interception, further involving our platform-agnostic and modular counter-UAS solutions, enhancing our tactical radars, and expanding naval propulsion capabilities. Similarly, we are stepping up the capital investment to further expand capacity across the board, scaling tactical radar production, revitalizing our foundry to drive next-generation infrared sensors, and detectors and, of course, deepening our naval propulsion and shipbuilding presence in Charleston. These investments position us well to address the mission critical needs of our customers, capture market share, and drive growth. RAFT is the same strategy at work through M&A. Adding to an already strong organic growth profile. To bring it together, we delivered a robust second quarter with growth. Accelerating, margins expanding and steady execution across the portfolio. That combination is what compounds over time and gives us confidence in the year ahead. These results rest on the trust of our customers placed in us. Trust to earn the same way every quarter. By delivering mission critical capabilities at speed, with quality, and at scale. With that, I will turn it over to Mike to walk through the financials. Michael Dippold: Thanks, John, and good morning, everyone. As John noted, the second quarter was a strong one for DRS. With standout performance evident across our financial metrics. At a high level, our strong execution drove us to exceed the framework we had set last quarter. Revenue came in ahead of our expectations and even more notably, posted significant outperformance across our profit metrics. Importantly, we delivered these results while continuing to invest organically in R&D and capacity to fuel future growth. Let me walk through our Q2 performance in greater detail, and then I will turn to our revised 2026 outlook and offer a few thoughts on Q3. We generated $913 million of revenue in the quarter, up 10% year over year. Growth rate accelerated from Q1 and a solid first half reinforces our confidence in achieving the full year revenue outlook. Growth in the quarter was led by programs related to tactical radars, electric power and propulsion, infrared sensing, and force protection. The IMS segment led the way with 15% growth, while ASC contributed a healthy 8% increase. At IMS, the gains were broad-based with contributions spread across the segment. At ASC, programs related to tactical radars, and infrared sensing bolstered the top line growth. When evaluating the half-year results, you could see that both segments are contributing evenly to growth. Underscoring the momentum we see across the business. As I noted at the outset, our quarterly profit metrics were outstanding. Overall, we expect that outperformance to carry through to our full year 2026 outlook. In Q2, adjusted EBITDA was $128 million, up 33% year over year, and meaningfully outpacing the top line. Adjusted EBITDA margin was 14%, up 240 basis points versus the prior year. The increased adjusted EBITDA and margin expansion reflected disciplined program execution across the portfolio, favorable program mix, and operating leverage on higher volume. it is also worth noting that part of this operational execution drove program risk retirement. Which acted as a tailwind to profitability given the cumulative catch-up nature of fixed-price contract accounting. Breaking it down by segment, as with revenue, IMS paced our year over year adjusted EBITDA growth in the quarter. IMS adjusted EBITDA rose 55% over the prior year Q2, translating to 460 basis points of margin expansion. Higher volume, together with broad-based execution and program risk retirement, propelled net margin. In ASC, adjusted EBITDA increased 19% and margin expanded 110 basis points as sound program execution favorable mix, and operational leverage from higher volume more than offset increased investment in research and development versus Q2 2025. Again, on a first half basis, the two segments growth and margin gains were far more balanced than the quarterly figures alone suggest. Turning to earnings for the quarter. Our operational strength flows straight to the bottom line. Net earnings were $86 million, up 59% and diluted EPS was $0.32 per share, up 60% year-over-year. Adjusted net earnings were $94 million, up 52%, and adjusted diluted EPS was $0.35 per share, up 52% year-over-year. These gains were driven primarily by stronger operating performance and aided by a lower net interest expense and lower tax rate. Turning to free cash flow. We are seeing improved quarterly linearity relative to last year. Free cash flow was positive in the quarter, supported by higher profitability and greater working capital efficiency. Furthermore, we delivered this while maintaining our planned level of capital investment to support future growth. More broadly, our strong balance sheet and cash flow generation let us deploy capital across both organic and inorganic growth. The pending all-cash acquisition of RAFT embodies that go-forward strategy. Reflects disciplined capital deployment and is being funded from a position of financial strength. Given the momentum in our business and solid first half performance, we are raising our 2026 outlook across profit metrics. We still expect healthy full year revenue performance and are maintaining the range of $3.9 billion to $3.975 billion which implies a 7% to 9% organic growth year over year. Guidance reflects a balanced view of second half revenue shaped by the timing and level of material receipts and achievement of programmatic milestones. If you look back at 2024 and 2025, you will see that we generated approximately 45% of full year revenue in the first half. Our revenue outlook assumes a similar first half versus second half cadence in 2026. Our record funded backlog gives us tremendous visibility and confidence in delivering on that outlook. We now expect adjusted EBITDA of $525 million to $540 million up from $515 million to $530 million previously. This increased adjusted EBITDA outlook implies a path to greater margin expansion for the year. Disciplined operational execution favorable program mix, and leverage from higher volume are all contributing to improved profitability and margin. Consistent with what we shared last quarter, we still expect revenue and adjusted EBITDA growth to be visible at both segments The margin expansion will come primarily from IMS. That stronger profitability carries through to our improved bottom line outlook We now expect adjusted diluted EPS of $1.34 to $1.39 per share and we have updated our full year tax rate assumption to 16.5%. Our diluted share count assumption is unchanged at 269 million shares. Please note that our guidance excludes any contribution from the pending acquisition of RAFT. We do not anticipate a meaningful contribution in 2026 given the expected fourth quarter close. However, we expect the acquisition to be accretive to adjusted diluted EPS in the first full year of ownership. Lastly, the implied EBITDA multiple being paid net of the tax assets acquired, is in line with our own and reflects a disciplined deployment of capital. We are maintaining a 75% conversion of adjusted net earnings into free cash flow for the full year. You should assume that the increased adjusted diluted EPS implies a modest uplift to free cash flow as well. That said, we still expect high capital expenditures in the second half with full year CapEx running likely in the mid-4% range of revenue. Broadly, we expect the second half to drive a greater contribution across key metrics And as we have consistently said, we are working to drive better linearity on profit and cash. Finally, a quick view on the third quarter. We expect revenue to be above $1 billion and adjusted EBITDA margin should be in the mid-13% range. The sequential step down in margin simply reflects the nonrecurring program risk retirement gain that lifted Q2. Not any change in underlying execution. Additionally, we expect free cash flow to be modestly positive and above our Q2 level. Let me turn the call back over to John. for closing remarks. John A. Baylouny: Thanks, Mike. Before we take your questions, I want to close on what this quarter reaffirms about our strategy. Continue to execute with strength quarter after quarter. In Q2, we delivered double-digit revenue growth, profitability that significantly outpaced the top line and bookings that once again exceeded revenue. We are deploying capital with discipline organically and through M&A. Investing ahead of the shifts that we see coming. This quarter, we agreed to acquire RAFT, extending our platform-agnostic approach into multi-domain software and AI as customers increasingly demand integrated hardware and software. Our portfolio is differentiated and throughout our business, we are well aligned through an enduring customer demand signal as evidenced by our multiyear book-to-bill trends. Thanks to our talented people, strong execution, strategic investments, and differentiated portfolio, DRS is well positioned to deliver durable profitable growth. We will keep delivering with the speed, quality, and scale that our customers demand. With that, we are happy to take your questions. Operator: Thank you. At this time, we will conduct a question and answer session. To ask a question, you will need to press star 1 on your telephone, and wait for your name to be announced. To withdraw your question, please press star 1 again. We ask that you please limit your questions to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Peter Arment of Baird. Your line is now open. Peter Arment: Good morning, John, Mike, Steve. Nice results. Mike, this question may this question may first be for you. On IMS, the margin performance, obviously, excellent. You mentioned volume execution and then the program risk retirement. Could you either size that for us or give us some more color on what that specifically was, and if you could kind of give us an update on where things stand on Columbia, in terms of shipset volume where you are? Michael Dippold: Yeah. Sure. Thanks, Peter. So margins were strong really on improved execution across the entire segment. It is led by the naval propulsion business, but the execution gains are really more broad-based than just Columbia The favorable programmatic risk retirement that did occur in the naval business is on a surface ship. We also saw some real good execution across our counter-UAS portfolio, really highlighting this kind of portfolio wide execution improvements If I take out the risk retirement, I would think of the IMS margin kind of closer to the 15% range. For the quarter. So that is that is the magnitude there, Peter. And from a Columbia perspective, things continue to go very well. Seeing the benefits of the long-term contract. And the and the procurements of the materials that we front end loaded. The team's executing well. Charleston is on pace. So things are really hitting on all cylinders within the segment. John A. Baylouny: Let me just add to that real quickly, Peter. I just wanted to highlight the fact that as you know, we are very optimistic about the budget environment for the navy. We are looking at a 50% increase. Obviously, the navy needs a second source for critical components like the steam turbine generator, and we are investing in that capability. To bring that to the navy. They deserve it. So we are investing in that as well. Just wanted to add that point. Peter Arment: Appreciate that. And just as my follow-up, just could you John, could you give us maybe an update on kinda how things are progressing in your counter unmanned area? I know you guys have made some investments there. The over-the-horizon radar, it seems like a great opportunity for Golden Dome. Maybe if you could just touch upon both of those. Thanks. John A. Baylouny: Sure, Peter. Yeah. Certainly, in the short range air defense and counter-UAS area, there is a lot of change. We are seeing from Ukraine lessons learned and changes in capability almost on a weekly basis we would expect that market to continue to evolve. And, and we have gotta evolve with it. So we are investing ahead of need on a lot of capabilities. We are bringing new technologies to the play. We have kinda moved our, UAS program onto a sled so it could be platform-agnostic like the rest of our business, and we are moving forward on that. On the on the over the horizon radar for that could apply to Golden Dome, we are seeing some great positive movement there as well. I will not get into the specifics, but we are definitely moving forward and we are looking at that as a nice growth factor for us. Appreciate the color. I will jump back in the queue. Great results. Operator: One moment for our next question. Our next question comes from the line of Robert Stallard of Vertical Research. Your line is now open. Robert Stallard: Thanks so much. Good morning. Morning, John, you mentioned that you are seeing strong demand coming out of Europe for a range of your different products. I was wondering if there is an opportunity for you to, in some way, pull forces with your parent to get some of these deals over the line and potentially grow your market share into the European region? John A. Baylouny: Yeah, absolutely, Robert. We are actually doing a lot of that right now. it is a it is a push for us to do more and more together with Leonardo As you know, the macro environment is ripe for this. The US is on a wartime footing, and the demand is high and urgency is high. Same thing is happening in Europe. In Europe, they wanna have some internal capabilities, sovereign capabilities. And there are gaps. So we are we are looking at pulling and pushing technology in both directions. Together with our parent. Robert Stallard: K. that is great. And then follow-up for Mike. On the Raft acquisition, I was wondering if you could give us some idea of what sort of revenue, this business could generate, on an annual basis and how its margin maybe compares to the overall EBITDA margin of DRS? Michael Dippold: Yes. So we are not going to comment on the sizing of the revenue yet. We will kinda come out with that with our 2027 guidance given the late fourth quarter close. But what we will say to kind of give you some direction is as was in the prepared remarks, that the EBITDA multiple paid is going to be kind of inside of DRS' current trading multiple. And when you think about the financial profiles of the business, it is gonna be accretive to DRS from a growth profile and from a margin perspective. So as you know, we have been very disciplined in our approach towards M&A. We have been looking for the right target. Both strategically and financially. And that is the shot we took here. We feel real confident about this deal. John A. Baylouny: 1 of the things, Robert, I will just add on to that to say that you know, we really think about this strategically. Think about the gaps that we are filling here. If you think about DRS as a business, we have been really focused on sensing and computing and communications and force protection. And those sensors that we created and have in the marketplace really need to have that intelligence. And as Ralph likes to say, sensors need a brain. And in the future, autonomous platforms are gonna increasingly need sense the plat the battle space make sense out of those battle space, and do something about it and act. So we have been working really on the front end of that, providing the sensors and the computing infrastructure. Raft fills that slot of the thinking part. Of what is actually happening on the battlefield. They have been focused on the edge. We have been focused on the edge for with our hardware. They are focused on it with the software. So these are these are really nice synergistic play for us. Yep, that is great. Thanks, Richel. Operator: One moment for our next question. Our next question comes from the line of Andre Madrid of BTIG. Your line is now open. Andre Madrid: Hey, this is actually Ned Morgan on for Andre this morning. I just wanted to build on that. You know, could you provide some specific examples of programs where combining your guys' hardware with RAFT software capabilities creates new opportunities? And when we could expect those opportunities to begin contributing. John A. Baylouny: Yes. Thanks, Ned. Let me start by saying, you know, the US Army has selected RAFT for their data layer. And so what that means, is that our sensors and other sensors would be converted that data would be converted in a in a way that the AI algorithms can read it. Across the enterprise. And from the from the starting at the edge and moving to the enterprise, So this is a is an area where obviously, we are already playing from a computing standpoint, from a sensing standpoint, and now they have now Raft has been selected for the data layer. This is a big step forward. I think it is a it is an area where, immediately have synergies. I also wanna point out the customer profile here. Because when we when we talked about filling gaps with M&A, we talked about filling technical gaps customer gaps, and geographic gaps. Well, this acquisition really fills 2 of those. It fills the technology gap and the and this and the intelligence piece that I just spoke to, but also expanding our customer base They have got a large presence in the air force. They have got a large presence with special operations in space force as well as in the intelligence community. So it opens up a lot of doors for us. And, of course, we are gonna be opening doors for them. So there is gonna be a lot of synergies between the 2 businesses. Andre Madrid: Great. And then just a follow-up, another 1. You guys have highlighted space as a big opportunity in growth driver. I know you guys won work on the Tranche tracking layer, but any opportunities you are pursuing right now? And where are you seeing the strongest demand Yeah, Ned. John A. Baylouny: I would tell you that there is a lot of opportunity going on in space right now. We are looking at different sensing, different communication opportunities across the board. Of course, Raft is going to play into some of that as well. I am not gonna be at liberty to talk about any particular opportunity that we are that we are focused on, but there is a lot of opportunity there. Space is, you are probably aware in the in the president's budget request. '2027 budget request is growing 100%. So there is a lot of opportunities. it is a big market Thank you. Operator: One moment for our next question. Our next question comes from the line of Jonathan Tanwanteng of CJS. Your line is now open. Jonathan Tanwanteng: Hi, good morning, and thank you for taking my questions, and congrats on a nice quarter and outlook. I was wondering if you could drill a little bit more into the drones and munitions business. John, that you mentioned in the prepared remarks. How big is that business today number one? And number two, how should we think of growth going forward And especially focused on the capacity side just because I know you have had issues with germanium in the past, and I am and I am wondering what happens when you start putting on these higher volume programs like low-cost drones and munitions, and if that strains your ability to go there. John A. Baylouny: Alright. Thanks, John. I appreciate the question. Obviously, the munition business is growing very, very quickly. You are seeing some of the primes print some very incredible growth numbers because of that. We have got exposure across the board from you know, that sensing Patriot components all the way down to low-cost drones. And there is a few elements in between. So we see this core capability that we have in infrared sensing as applicable to a lot of different of these of these vectors and missiles. You are also gonna see that missiles and effectors one-way drones, if you will, are gonna start fusing together. You are gonna start seeing all of these different types of capabilities between the 2 capabilities. But we are on a number of different platforms, number of different missile platforms through the primes. We see this as a growth path, but obviously, a small part of our business today. Can you frame the relative size and the growth rates that you are seeing there? I am not gonna put the relative size. It is a it is a small part of our business today, but it is gonna be growing it is gonna it is gonna outpace the growth of the company. So I will just leave it there. Jonathan Tanwanteng: Okay. Great. And then second, I think you mentioned you are increasing your R&D and CapEx for the year. Were there any specific numbers attached to that, and then kind of what programs are they associated with? Michael Dippold: Yeah. there is a couple numbers to attest to that, John. We would mention that R&D is going to approach 4% of sales. During the course of the year here. And from a CapEx perspective, we are looking in the mid 4% range. So we continue to invest heavily in the growth given the demand signals that we are seeing. I will let John elaborate on the R&D projects, but it is not going to be a surprise that we are looking in areas like space and counter drone and continuing to affect our tactical radars. As well as the investments we are making in the power and propulsion domain. But, John, you want to add? John A. Baylouny: Yeah. Let me just let me just add one point to that. And I am gonna just point out space-based interceptions is an area that we are investing in. it is it is aligned to our core competency, our core capabilities in infrared sensing. It is a national need to have a low-cost interceptor. So we are focused on our investment there to try to bring that cost down. that is just an example, John, so that we are working on. Jonathan Tanwanteng: Got it. Thank you. Operator: For our next question. Our next question comes from the line of Seth Seifman of JPMorgan. Your line is now open. Seth Seifman: Hey, thanks very much, and good morning and good results. Wanted to ask about the, you know, the booking environment from here. The fact that there is still a bunch of money that has not been on contract yet from last year's reconciliation bill. Do you expect significant order activity and backlog growth coming up here in the third quarter? And if so, does that create some potential revenue upside for the year? Or is the top line really about the supply side of the business right now? You know, given the how much demand is out there. Michael Dippold: Yeah. I think from a bookings perspective, we continue to confident in the trajectory, just holistically because of the threat environment and where we are aligned. Hopefully, will result in some awards here in the second half as they start to let some of the OVA money out, as you alluded to. From a revenue perspective, however, I would not assume that the bookings cadence is going to impact the revenue for 2026 significantly I would think of it more as we talk about our record backlog that we are moving up the value chain and the value stack from the solutions that we are providing. So we are really in the midst of that transition from components to solutions, which is going to elongate that conversion of backlog into revenue. What I would say is that rec that record backlog that we talked about, record funded backlog, is the indication that we have a platform for sustained success. So that is the way I would look at that. Not so much a 26 item, but continued confidence into 27 and beyond. John A. Baylouny: And I will I will just add, Seth, that we are seeing the money from the reconciliation bill flowing. In core areas of our of our growth that money is actually flowing now. Excellent. Excellent. Seth Seifman: Okay. And may maybe to follow-up, if you talk a little bit more maybe about naval computing, I know you highlighted it as a growth driver. And just as we think about that environment, the potential for further growth there and kind of how that stacks up within the company? And maybe just a little bit more about how that market works. Is that mainly associated with mods and upgrades on existing ships and submarines? Is it is it tied more to new builds? How should we think about it Yeah. John A. Baylouny: it is both. The traditional approach here is weapon system by weapon system compute capabilities for new ships and backfits. And we get incremental awards for those capabilities. What the future looks like is quite a bit different. What we believe is gonna happen onboard ship is you are gonna see central computing more like a cloud computing architecture And so you are gonna you are gonna process sensors and weapon systems centrally virtually, on the edge on the edge in on the ship. And so we are preparing for that. We are we are investing in areas that allow the Navy to go off and move in that direction. So that they can have cloud computing and AI on the edge on the ship, And so that is what we think the future the future holds. Right. Very helpful. Thanks very much. Operator: One moment for our next question. Our next question comes from the line of Ronald Epstein of Bank of America. Your line is now open. Ronald Epstein: Good morning, guys. Been a lot of questions so far on RAFT. Maybe just one more Does that signal that you guys want to move more into AI enabled mission software you know, given, you know, software tends to have a different margin structure, and so on and so forth? Or is this just more of a strategic enabler for your hardware? How are you thinking about that? John A. Baylouny: Yeah. Thanks, Ronald. Let me let me take that. Acquisition reform has I think, been very successful in one thing. it is moving the customer away from buying components and subsystems to solutions. We have we have been investing in capability that provides solutions to our customers for a while. This was 1 of the missing pieces that we needed to fill to get to that level. So our customer is now saying, hey. Can you solve the problem for me? With a solution that includes a lot of our components, our core capabilities, whether it is sensing, computing, communications, and power propulsion and, of course, protection. But this gives us the ability to address those kinds of needs. So we are kind of heading them off at the pass where the where the customers are moving. And, yeah, so that is a that is a big structural change in both the way that the customers are buying and what we are selling and how we are selling. Got it. Got it. Got it. And then I know anybody's asked this yet, so but I think it is an important 1. How is your supply chain doing given, you know, the increase in demand? You had, you know, some issues a little while back on critical minerals. I mean, how are we doing there? Just kinda broadly, are there any pinch points, and how's it going? Well, we strengthened our supply chain pretty significantly since we had some trouble with the germanium, as you as you alluded to. We have got a regular cadence of detection, mitigation, and that is deeper and faster than it is ever been. And we are maintaining you know, we manage a couple of areas of risk at all times. And we are willing to accept a little bit less efficient working capital to secure the critical material so we do not run out of them. So the germanium picture is a positive story. We have got a great flow of germanium. We are not gonna run out. Even with the areas that we are chasing in missiles and other places. In terms of magnet material, I think we are in good shape. We talked about memory devices, and we are in good shape there. I think across the board, the availability of materials in the right place. The cost is always sometimes a little bit variable, and we will deal with that. But the process that we put in place now is very robust. And has been successful at mitigating these risks. Great. Thank you very much. Operator: For our next question. Our next question comes from the line of Noah Poponak at Goldman Sachs. Your line is now open. Noah Poponak: Hey, good morning, everyone. Morning. Morning. Is DRS taking market share, or is there more? Kinda opportunity in the forward here to take market share, I guess, in a world where you know, your customers are potentially looking to grow faster than they had for a bit. And then also, I guess, specifically, in a world where your customers maybe signing contracts that put schedule risk on them more than it has in the past that would make me think would maybe want more sourcing of given components or more reliable sourcing, which DRS is. So is that an has that been happening recently? Is that an opportunity going forward? Should we think of that as a growth kicker, or should we just be thinking your end markets and your positions in them drive your growth? Well, no. John A. Baylouny: I would say both of those avenues are areas of growth for us. But I would not lean on market share as the predominant element. Of our growth. I would say that the market itself is growing considerably. I do think that the point that you made about schedule risk and really the idea of second sources is helping us. It is an element of our growth, but I would say that the market itself is growing fast. And that is the predominant part of our growth. Michael Dippold: Yeah. And let me just add on to that real quick. I think the other thing that you touched on is a reliable provider. So these opportunities that are emerging, I think, are in part because of our execution and what we have been able to demonstrate that is why the Navy's lining up to see us as a second source on the steam turbine generators. I think that is why we were successful in getting you know, the camera cores for the attritable drones that John talked about in the prepared remarks. it is because of the ability to ramp, the ability to scale, and to do that effectively and predictably. Okay. Noah Poponak: Appreciate that. And then I also wanted to just try to get a little bit more of a sense for I guess, how big a piece of the strategy M&A could become for DRS over the medium term now? With RAFT, I guess or I guess the business was not super acquisitive prior to that. For a little bit of a window of time. Is there a lot to do? Is there a little to do? I and I obviously, your balance sheet has a lot of capacity. And maybe it is a little bit too early for this, but you know, we have had this kind of violent derating of the broader defense tech landscape. Your stock price and multiple on a relative basis have been more spared from that. So the so your kinda relative buying power would be arguably greater from that. Maybe that is too soon or too short term, but I do not know. How would you frame how acquisitive we should expect the business to be over the next two or three years? John A. Baylouny: Well, no. I would I would repeat what we have said in the past I think our primary focus is on organic investment IRAD, CapEx. We are we are gonna be looking for and have continue to look for key capabilities outside inorganically that would fill gaps But I we are gonna continue to be picky about it. and make sure that we are really filling gaps and that we get the value out of that. RAFT is an outstanding example of kind of disciplined approach to M&A. Finding the right product capability that fills our gaps from a technology standpoint and from a customer standpoint, I think you can you can count on us continuing that approach. Okay. Thanks very much. Operator: One moment for our next question. Next comes from the line of Kristine Liwag of Morgan Stanley. Your line is now open. Kristine Liwag: Yeah. Hi. This is Austin on for Christine this morning. Thanks for taking the questions. So Mike, hey, Mike. You mentioned the Charleston facility earlier. Was hoping maybe you could provide a little more of an update on the facility build out. And you have talked about taking on incremental marine industrial based work on top of the Columbia-class sub work at the facility. Just curious if you could update us on that front any potential margin implications for IMS? Michael Dippold: Yeah. So Phase 1 of the of the Charleston facility is getting towards completion. We are starting to put the equipment in and you know, take possession and occupy the facility. The Phase 1 was always geared towards driving the insourcing of Columbia. that is the margin opportunity. We had kind of put that out as a as a second half of 2027. We will start to see some of the uplift from that insourcing that is still on track and going well. The Phase 2, which was, you know, when we when we announced that the investment was always kind of the upside opportunity, which was further expansion of the facility to take on new scopes of work things like the steam turbine generator. That funding continues to flow. We are moving in the right direction there, both from a capacity build out and also you know, getting the design for the for this second source opportunity under our belt. So things are moving at or maybe even little better than the pace we had initially laid out. And we are still very optimistic on the outlook for that facility. Kristine Liwag: Great. And the Navy just yesterday, I think, announced it was $76.6 billion worth of submarine contracts, including about $29.5 billion for Columbia. Curious for any color there. I mean, does that change the profile for DRS on the program at all? Michael Dippold: Or are you contracted separately? Yeah. We are we are contracted separately. So we were able to negotiate the long-term contract for the multiboat buy you know, a while back. So we have been in that luxurious position of having the full contract already and I think the rest of the shipyards here are catching up to where we are. Okay. Would just add that the Virginia part of that will flow down to us because we do not have a multiyear for Virginia, but we will we will we will see the flow down from the Virginia part of that order to us over time. Okay. Great. Kristine Liwag: If I and I could sneak maybe one more in. You know, the Navy is moving out on the new battleship class. I guess the designation is BBG(X). Just curious how you are thinking about addressability there and you flagged DDG(X) in the past as a good opportunity. I am just wondering if you think the customer can sustain both programs in tandem. Thanks. John A. Baylouny: Yeah. Thanks, Austin. I think that we view BBG(X) as a as an opportunity in the following way. We believe that the navy should be focused on a modular architecture that allows them to design a ship that is applicable to whatever size ship they wanna build. Whether it is a battleship or a cruiser or destroyer or frigate. And we believe that architecture needs to be electric. That those ideas are getting some traction. And so we believe that the battleship is an opportunity not just for the industry and us, but also for the Navy to make sure that they can shorten the amount of time it takes to design a new ship. Got it. Great color. Thanks. Operator: One moment for our next question. Our next question comes from the line of Alexandra Mandery of Truist Securities. Your line is now open. Alexandra Mandery: Hey. Nice results, and thanks for taking my question. Following up on the earlier bookings question, do you see any headwinds for the remainder of the year, including maybe a potential continuing resolution that might impact the booking cadence? Michael Dippold: I think we are pretty confident. You know, we do not lay out a bookings guidance, but we have kinda said we are gonna continue to print the bookings better than 1.0x. I think we are on a good start to the year. In what we have shown for the first half. Obviously, a CR can impact on the fringes, but I do not see it having a material impact to our bookings trajectory. John A. Baylouny: No. We are we are likely to see a CR here as we said in the opening remarks. The effect on us is really minimal. it is really kinda normal for us to see that. Even if it is an extended CR, we do not see a lot of impact We if there is an extended CR, we do expect the Hill to provide some flexibility in the CR that would give the department the ability to move forward with new starts and things like that. I do not see that as a risk to DRS. Alexandra Mandery: Great. Then I guess given these long-term contracts for missiles, including THAAD, as you mentioned, what are your margin expectations on missiles? And what is the potential there as these long-term contracts ramp? Michael Dippold: Yeah. I would say we are still approaching the missiles and the and the seekers here as a new market for us. But what it is born off of is our indigenous capabilities in the infrared spectrum. So we are expecting that these products, because they are mature in the detector and the sensor, to carry a margin consistent with what we see in our legacy profile. Great. Thank you. Operator: One moment for our next question. Our next question comes from the line of Austin Moeller of Canaccord Genuity. Your line is now open. Austin Moeller: Hi, good morning, John and Mike. Nice quarter. So recently, you had a great program win on the tracking layer tranche 3 program. And more recently, there have been some contract awards that have gone out for the AMD T3 program. Would it be good intuition to think that there could be some contracts coming associated with the sensor payload for that? John A. Baylouny: Yeah. I would I do not wanna guess as to what the SDA is gonna do. We believe that second award that you just described is a acceleration or an increase on tranche 2, award But, you know, we are we are moving forward on tranche 3. We are making great progress We believe that capability is useful in the in the end architecture and, you know, I think we are gonna be successful there. Austin Moeller: Okay. And on the ground component of Golden Dome, we are starting to see some contracts come out for that as well. what is the latest that you have heard from Space Force or General Guetlein about the potential of deploying Stout STRIKERs or multi-hemispheric radars at various bases around the country or overseas. They are already talking about a such a capability in Grand Forks, for example. John A. Baylouny: Yeah. This is definitely an area that we are focusing a lot of attention on. And General Guetlein is moving ahead with his with his program, as you indicated. We are we are definitely chasing this on multiple different vectors We spoke about OTHR over-the-horizon radar as an opportunity for us to MHR and our radar infrastructure Like, we see in Ukraine is an area that we have been discussing with that office. Just to reiterate what we have done in Ukraine is with thousands of radars all networked together, to supplement or even replace the big radars that you saw that in Ukraine, we lost the big TPY-2 radar, which is a very expensive radar. You know, the approach that we have in other places of the world is a distributed, proliferated sensing architecture We think that is a structural change in the marketplace. And I think that the department sees it that way as well. Excellent. Thanks for all the color there. Operator: I am showing no further questions at this time. I will turn the floor back to John Baylouny for closing remarks. John A. Baylouny: Thanks everyone for joining us today. And for the great discussion Our second quarter results reflect a strong market position solid execution, and overall momentum we have in our business. Robust bookings, accelerating organic growth, expanding margins and profitability. It rounds out a strong first half and that performance coupled with a funded backlog that will keep us pushing to new record provide us with solid visibility into the year ahead and the confidence to raise our full year profit outlook. We continue to invest in innovation and capacity to execute on the demand ahead. If you have any follow-up questions, Steve and the team will be available after the call. We appreciate your time and continued interest in DRS. We look forward to updating you again in the next quarter. Thank you. Operator: This concludes today's conference. You may disconnect now. Thank you for your participation. 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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Leonardo DRS (DRS) Q2 2026 Earnings Call Transcript was originally published by The Motley Fool

Axon Enterprise, Inc. AXON is scheduled to release second-quarter 2026 results on Aug. 5, after market close.The Zacks Consensus Estimate for second-quarter revenues is pegged at $868.4 million, which indicates an increase of 29.9% from the year-ago quarter’s figure. The consensus mark for earnings is pinned at $1.89 per share, which has been stable in the past 60 days. The estimate indicates a decline of 10.9% from the figure reported in the year-ago quarter. Image Source: Zacks Investment Research The company has surpassed the Zacks Consensus Estimate twice and missed in the other two in the preceding four quarters, the average surprise being 8.8%. In the last reported quarter, it reported earnings of $1.61 per share, which missed the consensus estimate by 3%. Axon Enterprise, Inc price-eps-surprise | Axon Enterprise, Inc Quote Our proven model does not conclusively predict an earnings beat for Axon Enterprise this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here, as elaborated below. Earnings ESP: AXON has an Earnings ESP of 0.00% as both the Zacks Consensus Estimate and the Most Accurate Estimate are pegged at $1.89 per share. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.Zacks Rank: AXON currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here. Axon Enterprise’s Connected Devices segment’s second-quarter performance is expected to have benefited from solid demand for TASER 10 products and higher cartridge revenues. Also, strong customer response for its next-generation body-worn camera, Axon Body 4, and solid demand for virtual reality training services are expected to have driven the segment’s performance.Axon Enterprise’s strong presence in the counter-drone space is likely to have contributed to the segment’s growth. The Zacks Consensus Estimate for the Connected Devices segment’s revenues is pegged at $479 million, indicating a 27.4% increase year over year.The addition of new users and associated devices to the AXON network is expected to have supported the Software & Services segment. Continued momentum in digital evidence management and increased demand for premium add-on features are also likely to have augmented the segmental top line. The Zacks Consensus Estimate for the Software & Services segment’s net sales is pegged at $390 million, indicating a 33.6% increase year over year.AXON remains focused on acquisitions and strategic collaborations to expand its product offerings and customer base. For instance, in February 2026, the company acquired Carbyne, a well-known provider of cloud contact center technology solutions to public safety agencies. The acquisition integrated Carbyne’s advanced cloud-native 911 technology into the Axon ecosystem to create Axon 911, a state-of-the-art, fully integrated solution that will connect callers and responders instantly. The buyouts are expected to have boosted its top line in the quarter.Despite the positives, escalating costs and operating expenses have been a concern for the company. High costs related to business integration activities, increased wages and stock-based compensation are expected to have weighed on AXON’s bottom line in the to-be-reported quarter. AXON’s shares have surged 22.5% in the past six months against the Zacks Aerospace - Defense Equipment industry’s 1.1% decline. The company’s shares have also fared better than the S&P 500’s increase of 8.5%. Shares of its key rivals like Kratos Defense & Security Solutions, Inc. KTOS and Leonardo DRS, Inc. DRS have declined 49% and increased 20.2%, respectively. Image Source: Zacks Investment Research The stock is trading at a forward 12-month price-to-earnings (P/E) ratio of 169.05X compared with the industry average of 40.35X. This elevated valuation could make the stock vulnerable to further pullbacks if market sentiment sours. Both peers, Kratos Defense and Leonardo DRS, are trading cheaper compared with AXON. Notably, Kratos Defense and Leonardo DRS are trading at 68.49X and 32.43X, respectively. Image Source: Zacks Investment Research Axon Enterprise is benefiting from strong demand for its TASER devices, body-worn cameras and software solutions, supported by continued customer adoption and innovation. The company's expanding ecosystem, strategic acquisitions such as Carbyne and growing recurring software revenues are expected to drive long-term growth. However, higher operating costs, integration expenses and stock-based compensation may continue to weigh on margins in the near term. Strong demand for TASER devices, along with continued customer additions, strategic acquisitions and growth in the counter-drone market, positions AXON favorably for solid second-quarter results. However, rising operating costs, integration expenses and stock-based compensation are likely to weigh on its near-term profitability.AXON's premium valuation warrants a cautious approach for existing investors. Potential investors should consider waiting for the company's earnings report and a more attractive entry point before investing in the stock. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Axon Enterprise, Inc (AXON) : Free Stock Analysis Report Kratos Defense & Security Solutions, Inc. (KTOS) : Free Stock Analysis Report Leonardo DRS, Inc. (DRS) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Image source: The Motley Fool. Thursday, July 30, 2026, at 10 a.m. ET Senior Vice President, Corporate Development and Investor Relations — Stephen Vather President and CEO — John A. Baylouny CFO — Michael Dippold Need a quote from a Motley Fool analyst? Email [email protected] Operator: Ladies and gentlemen, good day, and welcome to the Leonardo DRS Second Quarter Fiscal Year 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the company's prepared remarks, there will be an opportunity to ask questions. Instructions will be provided at that time. As a reminder, this event is being recorded. I would now like to turn the conference over to Stephen Vather, Senior Vice President, Corporate Development and Investor Relations. Please go ahead. Stephen Vather: Good morning, and welcome, everyone. Thank you for joining today's quarterly earnings conference call. With me today are John A. Baylouny, our President and CEO and Michael Dippold, our CFO. They will discuss our strategy, operational highlights, financial results, and outlook. Today's call is being webcast on the Investor Relations section of the website. Where you can find the earnings release and supplemental presentation. Management may also make forward-looking statements during the call regarding future events, future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These statements, including those relating to the pending acquisition of Raft LLC, including the expected timing of completion of the transaction, the satisfaction of closing conditions, the receipt of regulatory approvals, and the anticipated benefits of the transaction in plans for the integration of the acquired business. For a full discussion of the risk factors, please refer to our latest Form 10-K and our other SEC filings. We undertake no obligation other than as may be required by law to update any of the forward-looking statements made on this call. During the call, management will also discuss non-GAAP financial measures, which we believe provide useful information for investors. These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures. You can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release. With that, I will turn the call over to John. John? John A. Baylouny: Thank you, Steve, and good morning, everyone. We appreciate you joining us for a review of our second quarter 2026 results. Q2 was another strong quarter that builds directly on the foundation that we have laid over the past several years. Organic revenue growth accelerated to 10% year over year. Bookings exceeded $1 billion driving book-to-bill to 1.2x for the quarter. Demand was apparent throughout the portfolio and our Q2 book-to-bill extended our streak of 18 quarters with book-to-bill at or above 1.0. Furthermore, we exited the quarter with a record funded backlog given our conservative bookings and backlog methodology, this provides meaningful visibility into future growth. The highlight of the quarter was the 33% year-over-year growth in adjusted EBITDA and 240 basis points of margin expansion. Execution, favorable program mix, and the retirement of program risk, were the linchpins of our success. Mike will expand on the drivers later. These strong results once again demonstrate the benefits of DRS' diverse portfolio and platform-agnostic approach. The top and bottom line outperformance further validates our strategy is a direct result. Of the sound execution across the portfolio. Additionally, I am pleased to highlight that we announced an agreement to acquire RAFT, expanding our multi-domain AI data fusion, and mission software capabilities. This $450 million all-cash acquisition reflects a disciplined deployment of capital in line with our strategy and supportive of continued long-term growth. Overall, the solid first half trajectory reinforces our confidence in raising our full year profit outlook. I want to thank the entire DRS team for the relentless effort and unwavering focus on execution to convert demand into these outstanding results. Let me offer some framing comments with respect to the macro and operating backdrop. The global threat environment remains elevated. And demand fundamentals remain supportive across our diverse portfolio. Customers are prioritizing modernization and the procurement of production-ready capabilities. And those demand signals are clearly evident in our book-to-bill. On the U.S. budget, Congress is working through the fiscal 2027 funding and we expect a continuing resolution to govern the calendar fourth quarter. I will not speculate on the timing or final level of fiscal 2027 defense appropriations. And we recognize the path may not be linear. What we are confident in is that the threat environment warrants continued and growing defense investment. Beyond the near-term funding mechanics, and the record based budget request, the reconciliation dollars flowing to priority programs reinforce a durable, demand signal for exactly the capabilities that we provide Top line, and timing alone does not determine the opportunity set for DRS. What matters more are the underlying priorities and thematics. Where we remain closely aligned. Customer priorities are increasingly shaped by operational lessons from recent and ongoing conflicts in the Middle East and in Eastern Europe. These structural trends are the ones I discussed last quarter, to refresh, they are first, the necessity of layered and effective air defense and counter-UAS. Second, the shift towards proliferated resilient sensing across domains. Third, the depth and cost asymmetry of effectors, to counter growing threats. We saw each of these trends further manifest in our business this quarter. With that, let me discuss how these trends as well as other customer priorities are materializing in our results. As you know, the DRS portfolio is diverse. Platform agnostic, and benefits from a number of different defense thematics. Starting with air defense and counter-UAS, the proliferation of unmanned threats keeps accelerating adoption of counter-UAS technology and the customer pull is evident in our results. Our tactical radars are essential enabling technology embedded in counter-UAS systems fielded around the globe and order flow continues to run ahead of supply. So we are aggressively adding capacity. We also continue to see robust global appetite as international allies quickly work to fill air defense gaps highlighted by recent conflicts. We think we are in the early innings of tactical radar proliferation, only for counter-UAS missions, but more broadly. Staying ahead of the sensing only matters if you can turn it into decisions. Our advantage is combining sensing, computing, and networking. To act on that data across a connected force. Not just deliver a standalone component. That is exactly the capability we are expanding on with our acquisition of Raft. A recent example of this is what we saw firsthand in Operation Jailbreak. And I want to spend a moment on it because I was there on the ground. Operation Jailbreak the Army's first industry hackathon. A live effort to get systems to talk to one another. They brought roughly 20 companies together to break down the barriers between systems that are not originally designed to connect. It is the first step in what the Army calls its right to integrate. And the foundation for the next-generation command and control system. I am pleased to report that our team had a meaningful role in that exercise. And that our technology has demonstrated interoperability seamlessly and quickly in a matter of a few hours. Modularity opens standards platform-agnostic approach, and scalability are designed into the entirety of our technology portfolio. And it is just one of the latest proofs of that point. Next generation command and control is among the Army's top modernization priorities. Customers are managing growing volumes of data from distributed sensors and systems. With fragmented architectures that slow decision making. As such, there is a need for a resilient network and a unified data layer that turns that data into decisions. And this is also what is driving our customers towards integrated hardware and software capabilities. that is why we announced an agreement to acquire RAFT earlier this week. RAFT is a provider of open architecture, mission software for multi-domain data fusion, and AI, supporting real-time situational awareness and faster decision making for national security customers. Importantly, RAFT was selected by the Army's Next Generation C2 software architecture. The very priority I just described. Additionally, the company expands our customer footprint within the Air Force, Space Force, special operations, and the intelligence community. We have long said that we apply the same open or modular philosophy to software as we do hardware. Giving customers the flexibility to deploy the best of breed solutions without being locked into a single provider. RAFT advances that approach and checks the boxes that matter to us most. Outstanding people. A mission-first culture, and a proven open architecture technology. RAFT software, AI, and Data Fusion are complementary to our core strengths in sensing, computing, and mission systems. Combining those franchises is expected to open growth avenues not available to either company on a standalone basis. It also accelerates our R&D emphasis on platform AI, autonomy and extending our platform-agnostic capabilities to new missions. Put simply, RAFT helps us own the edge. Putting sensing, computing, and integration where the decision gets made. Reducing the cognitive burden on operators and improving decision speed. Coming back to counter-UAS, we continue to see adversary target high value assets that degrade sensing to defensive capability. This only reinforces the need for proliferated and resilient sensing architectures. It also puts a premium on the open software and data layer that sits one level up from those sensors and that is what RAFT provides. It unifies fragmented data into a single common operating picture. So the force keeps a coherent view even when individual nodes are degraded or lost. Our counter-UAS work extends into systems and platform integration. As unmanned threats evolve, we expect the technologies and systems used to neutralize them. To also evolve rapidly. Customers increasingly seek counter-UAS solutions that are platform and vehicle agnostic. For example, the Army is iterating on its approach for the next tranche of ground-based air defense capabilities. To that end, we are maturing our palletized counter-UAS offerings by incorporating different effectors and technologies that will broaden the flexibility of capability development. Given our enabling technologies are modular and integrated across vehicles, we are not tied to any single platform procurement line. And we stay aligned as mission needs evolve across configurations. Last quarter, I mentioned that we received a $533 million production IDIQ contract for the Distributed Aperture Infrared Countermeasure system, or DAIRCM for aircraft survivability. Demand for aircraft protection remains elevated across infrared countermeasure programs, and order flow is accelerating given how critical these systems are to airborne platform survivability. Recent conflicts have put these systems to the test. And they delivered. Pushing the urgency to field more of these systems quickly. I am proud of our work to help ensure the safety of Airmen. Beyond protecting our soldiers and platforms, we are also growing on the munitions side. Equally important is sensing and countermeasure systems are effectors. While our footprint today in this area is modest, our involvement is expanding meaningfully. This is similar to how you saw DRS take the preeminent weather satellite position in space and leverage that pedigree to drive adjacent growth into missile tracking and warning via the SDA Tranche contract. That same sensing pedigree positions us for homeland defense, where investments in infrared space-based interception are directly poised to support missile defense mission. Our exposure to missiles and effectors spans tactical to strategic balanced between existing platforms seeing urgent multifold increases in demand and next-generation systems that will see growth for years to come. Today, we are providing essential components to platforms such as THAAD and as a qualified supplier on those platforms, we are leaning in to add capacity and depth. As the prime scale these programs under the multiyear munitions frameworks, we are leaning in right alongside them. And investing in ramping capacity to support higher level production of our content. As I have mentioned before, we are also being designed in as advanced sensing provider for future missile platforms. What is also exciting is that our infrared capabilities are starting to see notable traction in low-cost drone platforms. Our investments in size, weight, power, and cost optimized uncooled long-wave infrared detection are paying off. As the Department of War prioritizes affordable drones, building at higher volume, the sensing payload is increasingly what differentiates 1 platform from the next. And our sensing and our infrared pedigree plays directly into that need. In the quarter, we secured a contract with a leading low-cost drone manufacturer for high volume production of the camera cores with initial order of 50,000 units. We are seeing appetite and interest from additional drone OEMs given our quality capability, and ability to deliver at a significant scale. Turning from sensing and effectors to the maritime domain and naval power, expanding shipbuilding capacity to grow nation's naval fleet of operational surface and subsurface platforms remains an important priority. I am pleased to report that we saw a steadfast demand materialize in the quarter not only for our propulsion content, but also for our naval network computing capabilities. While many of many know DRS for its innovative full electric propulsion work on Columbia-class, We offer naval propulsion capabilities that include traditional, and hybrid electric approaches. In the quarter, we booked orders for content across power capabilities, for a diversity of subsurface and surface platforms, including Columbia class, Virginia class, DDG-51, LPD. Additionally, existing naval platforms still require regular network computing modernization to enhance and scale processing at the edge. We are supporting these initiatives through our delivery of advanced platform based processing solutions critical to onboard sensing, combat weapons, communications, and other mission systems. While executing on this demand is driving near and midterm growth, we continue to progress efforts to expand our involvement in steam turbines, as well as grow our sensing footprint and content more broadly on unmanned surface vessels. Stepping back from the individual mission areas, our results reinforce our strategy. Delivering differentiated capability to help our customers maintain overmatch, is core to DRS. We are capturing growth through consistent delivery and disciplined investment. We have proactively and methodically stepped up organic investment over the past few years and are doing so year-to-date. Investment in internal research and development was up 16% year-over-year in the first half and approached 4% of revenue. Our increased investment is going towards innovation initiatives such as infrared sensing technologies for space-based interception, further involving our platform-agnostic and modular counter-UAS solutions, enhancing our tactical radars, and expanding naval propulsion capabilities. Similarly, we are stepping up the capital investment to further expand capacity across the board, scaling tactical radar production, revitalizing our foundry to drive next-generation infrared sensors, and detectors and, of course, deepening our naval propulsion and shipbuilding presence in Charleston. These investments position us well to address the mission critical needs of our customers, capture market share, and drive growth. RAFT is the same strategy at work through M&A. Adding to an already strong organic growth profile. To bring it together, we delivered a robust second quarter with growth. Accelerating, margins expanding and steady execution across the portfolio. That combination is what compounds over time and gives us confidence in the year ahead. These results rest on the trust of our customers placed in us. Trust to earn the same way every quarter. By delivering mission critical capabilities at speed, with quality, and at scale. With that, I will turn it over to Mike to walk through the financials. Michael Dippold: Thanks, John, and good morning, everyone. As John noted, the second quarter was a strong one for DRS. With standout performance evident across our financial metrics. At a high level, our strong execution drove us to exceed the framework we had set last quarter. Revenue came in ahead of our expectations and even more notably, posted significant outperformance across our profit metrics. Importantly, we delivered these results while continuing to invest organically in R&D and capacity to fuel future growth. Let me walk through our Q2 performance in greater detail, and then I will turn to our revised 2026 outlook and offer a few thoughts on Q3. We generated $913 million of revenue in the quarter, up 10% year over year. Growth rate accelerated from Q1 and a solid first half reinforces our confidence in achieving the full year revenue outlook. Growth in the quarter was led by programs related to tactical radars, electric power and propulsion, infrared sensing, and force protection. The IMS segment led the way with 15% growth, while ASC contributed a healthy 8% increase. At IMS, the gains were broad-based with contributions spread across the segment. At ASC, programs related to tactical radars, and infrared sensing bolstered the top line growth. When evaluating the half-year results, you could see that both segments are contributing evenly to growth. Underscoring the momentum we see across the business. As I noted at the outset, our quarterly profit metrics were outstanding. Overall, we expect that outperformance to carry through to our full year 2026 outlook. In Q2, adjusted EBITDA was $128 million, up 33% year over year, and meaningfully outpacing the top line. Adjusted EBITDA margin was 14%, up 240 basis points versus the prior year. The increased adjusted EBITDA and margin expansion reflected disciplined program execution across the portfolio, favorable program mix, and operating leverage on higher volume. it is also worth noting that part of this operational execution drove program risk retirement. Which acted as a tailwind to profitability given the cumulative catch-up nature of fixed-price contract accounting. Breaking it down by segment, as with revenue, IMS paced our year over year adjusted EBITDA growth in the quarter. IMS adjusted EBITDA rose 55% over the prior year Q2, translating to 460 basis points of margin expansion. Higher volume, together with broad-based execution and program risk retirement, propelled net margin. In ASC, adjusted EBITDA increased 19% and margin expanded 110 basis points as sound program execution favorable mix, and operational leverage from higher volume more than offset increased investment in research and development versus Q2 2025. Again, on a first half basis, the two segments growth and margin gains were far more balanced than the quarterly figures alone suggest. Turning to earnings for the quarter. Our operational strength flows straight to the bottom line. Net earnings were $86 million, up 59% and diluted EPS was $0.32 per share, up 60% year-over-year. Adjusted net earnings were $94 million, up 52%, and adjusted diluted EPS was $0.35 per share, up 52% year-over-year. These gains were driven primarily by stronger operating performance and aided by a lower net interest expense and lower tax rate. Turning to free cash flow. We are seeing improved quarterly linearity relative to last year. Free cash flow was positive in the quarter, supported by higher profitability and greater working capital efficiency. Furthermore, we delivered this while maintaining our planned level of capital investment to support future growth. More broadly, our strong balance sheet and cash flow generation let us deploy capital across both organic and inorganic growth. The pending all-cash acquisition of RAFT embodies that go-forward strategy. Reflects disciplined capital deployment and is being funded from a position of financial strength. Given the momentum in our business and solid first half performance, we are raising our 2026 outlook across profit metrics. We still expect healthy full year revenue performance and are maintaining the range of $3.9 billion to $3.975 billion which implies a 7% to 9% organic growth year over year. Guidance reflects a balanced view of second half revenue shaped by the timing and level of material receipts and achievement of programmatic milestones. If you look back at 2024 and 2025, you will see that we generated approximately 45% of full year revenue in the first half. Our revenue outlook assumes a similar first half versus second half cadence in 2026. Our record funded backlog gives us tremendous visibility and confidence in delivering on that outlook. We now expect adjusted EBITDA of $525 million to $540 million up from $515 million to $530 million previously. This increased adjusted EBITDA outlook implies a path to greater margin expansion for the year. Disciplined operational execution favorable program mix, and leverage from higher volume are all contributing to improved profitability and margin. Consistent with what we shared last quarter, we still expect revenue and adjusted EBITDA growth to be visible at both segments The margin expansion will come primarily from IMS. That stronger profitability carries through to our improved bottom line outlook We now expect adjusted diluted EPS of $1.34 to $1.39 per share and we have updated our full year tax rate assumption to 16.5%. Our diluted share count assumption is unchanged at 269 million shares. Please note that our guidance excludes any contribution from the pending acquisition of RAFT. We do not anticipate a meaningful contribution in 2026 given the expected fourth quarter close. However, we expect the acquisition to be accretive to adjusted diluted EPS in the first full year of ownership. Lastly, the implied EBITDA multiple being paid net of the tax assets acquired, is in line with our own and reflects a disciplined deployment of capital. We are maintaining a 75% conversion of adjusted net earnings into free cash flow for the full year. You should assume that the increased adjusted diluted EPS implies a modest uplift to free cash flow as well. That said, we still expect high capital expenditures in the second half with full year CapEx running likely in the mid-4% range of revenue. Broadly, we expect the second half to drive a greater contribution across key metrics And as we have consistently said, we are working to drive better linearity on profit and cash. Finally, a quick view on the third quarter. We expect revenue to be above $1 billion and adjusted EBITDA margin should be in the mid-13% range. The sequential step down in margin simply reflects the nonrecurring program risk retirement gain that lifted Q2. Not any change in underlying execution. Additionally, we expect free cash flow to be modestly positive and above our Q2 level. Let me turn the call back over to John. for closing remarks. John A. Baylouny: Thanks, Mike. Before we take your questions, I want to close on what this quarter reaffirms about our strategy. Continue to execute with strength quarter after quarter. In Q2, we delivered double-digit revenue growth, profitability that significantly outpaced the top line and bookings that once again exceeded revenue. We are deploying capital with discipline organically and through M&A. Investing ahead of the shifts that we see coming. This quarter, we agreed to acquire RAFT, extending our platform-agnostic approach into multi-domain software and AI as customers increasingly demand integrated hardware and software. Our portfolio is differentiated and throughout our business, we are well aligned through an enduring customer demand signal as evidenced by our multiyear book-to-bill trends. Thanks to our talented people, strong execution, strategic investments, and differentiated portfolio, DRS is well positioned to deliver durable profitable growth. We will keep delivering with the speed, quality, and scale that our customers demand. With that, we are happy to take your questions. Operator: Thank you. At this time, we will conduct a question and answer session. To ask a question, you will need to press star 1 on your telephone, and wait for your name to be announced. To withdraw your question, please press star 1 again. We ask that you please limit your questions to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Peter Arment of Baird. Your line is now open. Peter Arment: Good morning, John, Mike, Steve. Nice results. Mike, this question may this question may first be for you. On IMS, the margin performance, obviously, excellent. You mentioned volume execution and then the program risk retirement. Could you either size that for us or give us some more color on what that specifically was, and if you could kind of give us an update on where things stand on Columbia, in terms of shipset volume where you are? Michael Dippold: Yeah. Sure. Thanks, Peter. So margins were strong really on improved execution across the entire segment. It is led by the naval propulsion business, but the execution gains are really more broad-based than just Columbia The favorable programmatic risk retirement that did occur in the naval business is on a surface ship. We also saw some real good execution across our counter-UAS portfolio, really highlighting this kind of portfolio wide execution improvements If I take out the risk retirement, I would think of the IMS margin kind of closer to the 15% range. For the quarter. So that is that is the magnitude there, Peter. And from a Columbia perspective, things continue to go very well. Seeing the benefits of the long-term contract. And the and the procurements of the materials that we front end loaded. The team's executing well. Charleston is on pace. So things are really hitting on all cylinders within the segment. John A. Baylouny: Let me just add to that real quickly, Peter. I just wanted to highlight the fact that as you know, we are very optimistic about the budget environment for the navy. We are looking at a 50% increase. Obviously, the navy needs a second source for critical components like the steam turbine generator, and we are investing in that capability. To bring that to the navy. They deserve it. So we are investing in that as well. Just wanted to add that point. Peter Arment: Appreciate that. And just as my follow-up, just could you John, could you give us maybe an update on kinda how things are progressing in your counter unmanned area? I know you guys have made some investments there. The over-the-horizon radar, it seems like a great opportunity for Golden Dome. Maybe if you could just touch upon both of those. Thanks. John A. Baylouny: Sure, Peter. Yeah. Certainly, in the short range air defense and counter-UAS area, there is a lot of change. We are seeing from Ukraine lessons learned and changes in capability almost on a weekly basis we would expect that market to continue to evolve. And, and we have gotta evolve with it. So we are investing ahead of need on a lot of capabilities. We are bringing new technologies to the play. We have kinda moved our, UAS program onto a sled so it could be platform-agnostic like the rest of our business, and we are moving forward on that. On the on the over the horizon radar for that could apply to Golden Dome, we are seeing some great positive movement there as well. I will not get into the specifics, but we are definitely moving forward and we are looking at that as a nice growth factor for us. Appreciate the color. I will jump back in the queue. Great results. Operator: One moment for our next question. Our next question comes from the line of Robert Stallard of Vertical Research. Your line is now open. Robert Stallard: Thanks so much. Good morning. Morning, John, you mentioned that you are seeing strong demand coming out of Europe for a range of your different products. I was wondering if there is an opportunity for you to, in some way, pull forces with your parent to get some of these deals over the line and potentially grow your market share into the European region? John A. Baylouny: Yeah, absolutely, Robert. We are actually doing a lot of that right now. it is a it is a push for us to do more and more together with Leonardo As you know, the macro environment is ripe for this. The US is on a wartime footing, and the demand is high and urgency is high. Same thing is happening in Europe. In Europe, they wanna have some internal capabilities, sovereign capabilities. And there are gaps. So we are we are looking at pulling and pushing technology in both directions. Together with our parent. Robert Stallard: K. that is great. And then follow-up for Mike. On the Raft acquisition, I was wondering if you could give us some idea of what sort of revenue, this business could generate, on an annual basis and how its margin maybe compares to the overall EBITDA margin of DRS? Michael Dippold: Yes. So we are not going to comment on the sizing of the revenue yet. We will kinda come out with that with our 2027 guidance given the late fourth quarter close. But what we will say to kind of give you some direction is as was in the prepared remarks, that the EBITDA multiple paid is going to be kind of inside of DRS' current trading multiple. And when you think about the financial profiles of the business, it is gonna be accretive to DRS from a growth profile and from a margin perspective. So as you know, we have been very disciplined in our approach towards M&A. We have been looking for the right target. Both strategically and financially. And that is the shot we took here. We feel real confident about this deal. John A. Baylouny: 1 of the things, Robert, I will just add on to that to say that you know, we really think about this strategically. Think about the gaps that we are filling here. If you think about DRS as a business, we have been really focused on sensing and computing and communications and force protection. And those sensors that we created and have in the marketplace really need to have that intelligence. And as Ralph likes to say, sensors need a brain. And in the future, autonomous platforms are gonna increasingly need sense the plat the battle space make sense out of those battle space, and do something about it and act. So we have been working really on the front end of that, providing the sensors and the computing infrastructure. Raft fills that slot of the thinking part. Of what is actually happening on the battlefield. They have been focused on the edge. We have been focused on the edge for with our hardware. They are focused on it with the software. So these are these are really nice synergistic play for us. Yep, that is great. Thanks, Richel. Operator: One moment for our next question. Our next question comes from the line of Andre Madrid of BTIG. Your line is now open. Andre Madrid: Hey, this is actually Ned Morgan on for Andre this morning. I just wanted to build on that. You know, could you provide some specific examples of programs where combining your guys' hardware with RAFT software capabilities creates new opportunities? And when we could expect those opportunities to begin contributing. John A. Baylouny: Yes. Thanks, Ned. Let me start by saying, you know, the US Army has selected RAFT for their data layer. And so what that means, is that our sensors and other sensors would be converted that data would be converted in a in a way that the AI algorithms can read it. Across the enterprise. And from the from the starting at the edge and moving to the enterprise, So this is a is an area where obviously, we are already playing from a computing standpoint, from a sensing standpoint, and now they have now Raft has been selected for the data layer. This is a big step forward. I think it is a it is an area where, immediately have synergies. I also wanna point out the customer profile here. Because when we when we talked about filling gaps with M&A, we talked about filling technical gaps customer gaps, and geographic gaps. Well, this acquisition really fills 2 of those. It fills the technology gap and the and this and the intelligence piece that I just spoke to, but also expanding our customer base They have got a large presence in the air force. They have got a large presence with special operations in space force as well as in the intelligence community. So it opens up a lot of doors for us. And, of course, we are gonna be opening doors for them. So there is gonna be a lot of synergies between the 2 businesses. Andre Madrid: Great. And then just a follow-up, another 1. You guys have highlighted space as a big opportunity in growth driver. I know you guys won work on the Tranche tracking layer, but any opportunities you are pursuing right now? And where are you seeing the strongest demand Yeah, Ned. John A. Baylouny: I would tell you that there is a lot of opportunity going on in space right now. We are looking at different sensing, different communication opportunities across the board. Of course, Raft is going to play into some of that as well. I am not gonna be at liberty to talk about any particular opportunity that we are that we are focused on, but there is a lot of opportunity there. Space is, you are probably aware in the in the president's budget request. '2027 budget request is growing 100%. So there is a lot of opportunities. it is a big market Thank you. Operator: One moment for our next question. Our next question comes from the line of Jonathan Tanwanteng of CJS. Your line is now open. Jonathan Tanwanteng: Hi, good morning, and thank you for taking my questions, and congrats on a nice quarter and outlook. I was wondering if you could drill a little bit more into the drones and munitions business. John, that you mentioned in the prepared remarks. How big is that business today number one? And number two, how should we think of growth going forward And especially focused on the capacity side just because I know you have had issues with germanium in the past, and I am and I am wondering what happens when you start putting on these higher volume programs like low-cost drones and munitions, and if that strains your ability to go there. John A. Baylouny: Alright. Thanks, John. I appreciate the question. Obviously, the munition business is growing very, very quickly. You are seeing some of the primes print some very incredible growth numbers because of that. We have got exposure across the board from you know, that sensing Patriot components all the way down to low-cost drones. And there is a few elements in between. So we see this core capability that we have in infrared sensing as applicable to a lot of different of these of these vectors and missiles. You are also gonna see that missiles and effectors one-way drones, if you will, are gonna start fusing together. You are gonna start seeing all of these different types of capabilities between the 2 capabilities. But we are on a number of different platforms, number of different missile platforms through the primes. We see this as a growth path, but obviously, a small part of our business today. Can you frame the relative size and the growth rates that you are seeing there? I am not gonna put the relative size. It is a it is a small part of our business today, but it is gonna be growing it is gonna it is gonna outpace the growth of the company. So I will just leave it there. Jonathan Tanwanteng: Okay. Great. And then second, I think you mentioned you are increasing your R&D and CapEx for the year. Were there any specific numbers attached to that, and then kind of what programs are they associated with? Michael Dippold: Yeah. there is a couple numbers to attest to that, John. We would mention that R&D is going to approach 4% of sales. During the course of the year here. And from a CapEx perspective, we are looking in the mid 4% range. So we continue to invest heavily in the growth given the demand signals that we are seeing. I will let John elaborate on the R&D projects, but it is not going to be a surprise that we are looking in areas like space and counter drone and continuing to affect our tactical radars. As well as the investments we are making in the power and propulsion domain. But, John, you want to add? John A. Baylouny: Yeah. Let me just let me just add one point to that. And I am gonna just point out space-based interceptions is an area that we are investing in. it is it is aligned to our core competency, our core capabilities in infrared sensing. It is a national need to have a low-cost interceptor. So we are focused on our investment there to try to bring that cost down. that is just an example, John, so that we are working on. Jonathan Tanwanteng: Got it. Thank you. Operator: For our next question. Our next question comes from the line of Seth Seifman of JPMorgan. Your line is now open. Seth Seifman: Hey, thanks very much, and good morning and good results. Wanted to ask about the, you know, the booking environment from here. The fact that there is still a bunch of money that has not been on contract yet from last year's reconciliation bill. Do you expect significant order activity and backlog growth coming up here in the third quarter? And if so, does that create some potential revenue upside for the year? Or is the top line really about the supply side of the business right now? You know, given the how much demand is out there. Michael Dippold: Yeah. I think from a bookings perspective, we continue to confident in the trajectory, just holistically because of the threat environment and where we are aligned. Hopefully, will result in some awards here in the second half as they start to let some of the OVA money out, as you alluded to. From a revenue perspective, however, I would not assume that the bookings cadence is going to impact the revenue for 2026 significantly I would think of it more as we talk about our record backlog that we are moving up the value chain and the value stack from the solutions that we are providing. So we are really in the midst of that transition from components to solutions, which is going to elongate that conversion of backlog into revenue. What I would say is that rec that record backlog that we talked about, record funded backlog, is the indication that we have a platform for sustained success. So that is the way I would look at that. Not so much a 26 item, but continued confidence into 27 and beyond. John A. Baylouny: And I will I will just add, Seth, that we are seeing the money from the reconciliation bill flowing. In core areas of our of our growth that money is actually flowing now. Excellent. Excellent. Seth Seifman: Okay. And may maybe to follow-up, if you talk a little bit more maybe about naval computing, I know you highlighted it as a growth driver. And just as we think about that environment, the potential for further growth there and kind of how that stacks up within the company? And maybe just a little bit more about how that market works. Is that mainly associated with mods and upgrades on existing ships and submarines? Is it is it tied more to new builds? How should we think about it Yeah. John A. Baylouny: it is both. The traditional approach here is weapon system by weapon system compute capabilities for new ships and backfits. And we get incremental awards for those capabilities. What the future looks like is quite a bit different. What we believe is gonna happen onboard ship is you are gonna see central computing more like a cloud computing architecture And so you are gonna you are gonna process sensors and weapon systems centrally virtually, on the edge on the edge in on the ship. And so we are preparing for that. We are we are investing in areas that allow the Navy to go off and move in that direction. So that they can have cloud computing and AI on the edge on the ship, And so that is what we think the future the future holds. Right. Very helpful. Thanks very much. Operator: One moment for our next question. Our next question comes from the line of Ronald Epstein of Bank of America. Your line is now open. Ronald Epstein: Good morning, guys. Been a lot of questions so far on RAFT. Maybe just one more Does that signal that you guys want to move more into AI enabled mission software you know, given, you know, software tends to have a different margin structure, and so on and so forth? Or is this just more of a strategic enabler for your hardware? How are you thinking about that? John A. Baylouny: Yeah. Thanks, Ronald. Let me let me take that. Acquisition reform has I think, been very successful in one thing. it is moving the customer away from buying components and subsystems to solutions. We have we have been investing in capability that provides solutions to our customers for a while. This was 1 of the missing pieces that we needed to fill to get to that level. So our customer is now saying, hey. Can you solve the problem for me? With a solution that includes a lot of our components, our core capabilities, whether it is sensing, computing, communications, and power propulsion and, of course, protection. But this gives us the ability to address those kinds of needs. So we are kind of heading them off at the pass where the where the customers are moving. And, yeah, so that is a that is a big structural change in both the way that the customers are buying and what we are selling and how we are selling. Got it. Got it. Got it. And then I know anybody's asked this yet, so but I think it is an important 1. How is your supply chain doing given, you know, the increase in demand? You had, you know, some issues a little while back on critical minerals. I mean, how are we doing there? Just kinda broadly, are there any pinch points, and how's it going? Well, we strengthened our supply chain pretty significantly since we had some trouble with the germanium, as you as you alluded to. We have got a regular cadence of detection, mitigation, and that is deeper and faster than it is ever been. And we are maintaining you know, we manage a couple of areas of risk at all times. And we are willing to accept a little bit less efficient working capital to secure the critical material so we do not run out of them. So the germanium picture is a positive story. We have got a great flow of germanium. We are not gonna run out. Even with the areas that we are chasing in missiles and other places. In terms of magnet material, I think we are in good shape. We talked about memory devices, and we are in good shape there. I think across the board, the availability of materials in the right place. The cost is always sometimes a little bit variable, and we will deal with that. But the process that we put in place now is very robust. And has been successful at mitigating these risks. Great. Thank you very much. Operator: For our next question. Our next question comes from the line of Noah Poponak at Goldman Sachs. Your line is now open. Noah Poponak: Hey, good morning, everyone. Morning. Morning. Is DRS taking market share, or is there more? Kinda opportunity in the forward here to take market share, I guess, in a world where you know, your customers are potentially looking to grow faster than they had for a bit. And then also, I guess, specifically, in a world where your customers maybe signing contracts that put schedule risk on them more than it has in the past that would make me think would maybe want more sourcing of given components or more reliable sourcing, which DRS is. So is that an has that been happening recently? Is that an opportunity going forward? Should we think of that as a growth kicker, or should we just be thinking your end markets and your positions in them drive your growth? Well, no. John A. Baylouny: I would say both of those avenues are areas of growth for us. But I would not lean on market share as the predominant element. Of our growth. I would say that the market itself is growing considerably. I do think that the point that you made about schedule risk and really the idea of second sources is helping us. It is an element of our growth, but I would say that the market itself is growing fast. And that is the predominant part of our growth. Michael Dippold: Yeah. And let me just add on to that real quick. I think the other thing that you touched on is a reliable provider. So these opportunities that are emerging, I think, are in part because of our execution and what we have been able to demonstrate that is why the Navy's lining up to see us as a second source on the steam turbine generators. I think that is why we were successful in getting you know, the camera cores for the attritable drones that John talked about in the prepared remarks. it is because of the ability to ramp, the ability to scale, and to do that effectively and predictably. Okay. Noah Poponak: Appreciate that. And then I also wanted to just try to get a little bit more of a sense for I guess, how big a piece of the strategy M&A could become for DRS over the medium term now? With RAFT, I guess or I guess the business was not super acquisitive prior to that. For a little bit of a window of time. Is there a lot to do? Is there a little to do? I and I obviously, your balance sheet has a lot of capacity. And maybe it is a little bit too early for this, but you know, we have had this kind of violent derating of the broader defense tech landscape. Your stock price and multiple on a relative basis have been more spared from that. So the so your kinda relative buying power would be arguably greater from that. Maybe that is too soon or too short term, but I do not know. How would you frame how acquisitive we should expect the business to be over the next two or three years? John A. Baylouny: Well, no. I would I would repeat what we have said in the past I think our primary focus is on organic investment IRAD, CapEx. We are we are gonna be looking for and have continue to look for key capabilities outside inorganically that would fill gaps But I we are gonna continue to be picky about it. and make sure that we are really filling gaps and that we get the value out of that. RAFT is an outstanding example of kind of disciplined approach to M&A. Finding the right product capability that fills our gaps from a technology standpoint and from a customer standpoint, I think you can you can count on us continuing that approach. Okay. Thanks very much. Operator: One moment for our next question. Next comes from the line of Kristine Liwag of Morgan Stanley. Your line is now open. Kristine Liwag: Yeah. Hi. This is Austin on for Christine this morning. Thanks for taking the questions. So Mike, hey, Mike. You mentioned the Charleston facility earlier. Was hoping maybe you could provide a little more of an update on the facility build out. And you have talked about taking on incremental marine industrial based work on top of the Columbia-class sub work at the facility. Just curious if you could update us on that front any potential margin implications for IMS? Michael Dippold: Yeah. So Phase 1 of the of the Charleston facility is getting towards completion. We are starting to put the equipment in and you know, take possession and occupy the facility. The Phase 1 was always geared towards driving the insourcing of Columbia. that is the margin opportunity. We had kind of put that out as a as a second half of 2027. We will start to see some of the uplift from that insourcing that is still on track and going well. The Phase 2, which was, you know, when we when we announced that the investment was always kind of the upside opportunity, which was further expansion of the facility to take on new scopes of work things like the steam turbine generator. That funding continues to flow. We are moving in the right direction there, both from a capacity build out and also you know, getting the design for the for this second source opportunity under our belt. So things are moving at or maybe even little better than the pace we had initially laid out. And we are still very optimistic on the outlook for that facility. Kristine Liwag: Great. And the Navy just yesterday, I think, announced it was $76.6 billion worth of submarine contracts, including about $29.5 billion for Columbia. Curious for any color there. I mean, does that change the profile for DRS on the program at all? Michael Dippold: Or are you contracted separately? Yeah. We are we are contracted separately. So we were able to negotiate the long-term contract for the multiboat buy you know, a while back. So we have been in that luxurious position of having the full contract already and I think the rest of the shipyards here are catching up to where we are. Okay. Would just add that the Virginia part of that will flow down to us because we do not have a multiyear for Virginia, but we will we will we will see the flow down from the Virginia part of that order to us over time. Okay. Great. Kristine Liwag: If I and I could sneak maybe one more in. You know, the Navy is moving out on the new battleship class. I guess the designation is BBG(X). Just curious how you are thinking about addressability there and you flagged DDG(X) in the past as a good opportunity. I am just wondering if you think the customer can sustain both programs in tandem. Thanks. John A. Baylouny: Yeah. Thanks, Austin. I think that we view BBG(X) as a as an opportunity in the following way. We believe that the navy should be focused on a modular architecture that allows them to design a ship that is applicable to whatever size ship they wanna build. Whether it is a battleship or a cruiser or destroyer or frigate. And we believe that architecture needs to be electric. That those ideas are getting some traction. And so we believe that the battleship is an opportunity not just for the industry and us, but also for the Navy to make sure that they can shorten the amount of time it takes to design a new ship. Got it. Great color. Thanks. Operator: One moment for our next question. Our next question comes from the line of Alexandra Mandery of Truist Securities. Your line is now open. Alexandra Mandery: Hey. Nice results, and thanks for taking my question. Following up on the earlier bookings question, do you see any headwinds for the remainder of the year, including maybe a potential continuing resolution that might impact the booking cadence? Michael Dippold: I think we are pretty confident. You know, we do not lay out a bookings guidance, but we have kinda said we are gonna continue to print the bookings better than 1.0x. I think we are on a good start to the year. In what we have shown for the first half. Obviously, a CR can impact on the fringes, but I do not see it having a material impact to our bookings trajectory. John A. Baylouny: No. We are we are likely to see a CR here as we said in the opening remarks. The effect on us is really minimal. it is really kinda normal for us to see that. Even if it is an extended CR, we do not see a lot of impact We if there is an extended CR, we do expect the Hill to provide some flexibility in the CR that would give the department the ability to move forward with new starts and things like that. I do not see that as a risk to DRS. Alexandra Mandery: Great. Then I guess given these long-term contracts for missiles, including THAAD, as you mentioned, what are your margin expectations on missiles? And what is the potential there as these long-term contracts ramp? Michael Dippold: Yeah. I would say we are still approaching the missiles and the and the seekers here as a new market for us. But what it is born off of is our indigenous capabilities in the infrared spectrum. So we are expecting that these products, because they are mature in the detector and the sensor, to carry a margin consistent with what we see in our legacy profile. Great. Thank you. Operator: One moment for our next question. Our next question comes from the line of Austin Moeller of Canaccord Genuity. Your line is now open. Austin Moeller: Hi, good morning, John and Mike. Nice quarter. So recently, you had a great program win on the tracking layer tranche 3 program. And more recently, there have been some contract awards that have gone out for the AMD T3 program. Would it be good intuition to think that there could be some contracts coming associated with the sensor payload for that? John A. Baylouny: Yeah. I would I do not wanna guess as to what the SDA is gonna do. We believe that second award that you just described is a acceleration or an increase on tranche 2, award But, you know, we are we are moving forward on tranche 3. We are making great progress We believe that capability is useful in the in the end architecture and, you know, I think we are gonna be successful there. Austin Moeller: Okay. And on the ground component of Golden Dome, we are starting to see some contracts come out for that as well. what is the latest that you have heard from Space Force or General Guetlein about the potential of deploying Stout STRIKERs or multi-hemispheric radars at various bases around the country or overseas. They are already talking about a such a capability in Grand Forks, for example. John A. Baylouny: Yeah. This is definitely an area that we are focusing a lot of attention on. And General Guetlein is moving ahead with his with his program, as you indicated. We are we are definitely chasing this on multiple different vectors We spoke about OTHR over-the-horizon radar as an opportunity for us to MHR and our radar infrastructure Like, we see in Ukraine is an area that we have been discussing with that office. Just to reiterate what we have done in Ukraine is with thousands of radars all networked together, to supplement or even replace the big radars that you saw that in Ukraine, we lost the big TPY-2 radar, which is a very expensive radar. You know, the approach that we have in other places of the world is a distributed, proliferated sensing architecture We think that is a structural change in the marketplace. And I think that the department sees it that way as well. Excellent. Thanks for all the color there. Operator: I am showing no further questions at this time. I will turn the floor back to John Baylouny for closing remarks. John A. Baylouny: Thanks everyone for joining us today. And for the great discussion Our second quarter results reflect a strong market position solid execution, and overall momentum we have in our business. Robust bookings, accelerating organic growth, expanding margins and profitability. It rounds out a strong first half and that performance coupled with a funded backlog that will keep us pushing to new record provide us with solid visibility into the year ahead and the confidence to raise our full year profit outlook. We continue to invest in innovation and capacity to execute on the demand ahead. If you have any follow-up questions, Steve and the team will be available after the call. We appreciate your time and continued interest in DRS. We look forward to updating you again in the next quarter. Thank you. Operator: This concludes today's conference. You may disconnect now. Thank you for your participation. Before you buy stock in Leonardo DRS, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Leonardo DRS wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $397,081!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,166,221!* Now, it’s worth noting Stock Advisor’s total average return is 889% — a market-crushing outperformance compared to 203% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of July 30, 2026. This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Leonardo DRS (DRS) Q2 2026 Earnings Call Transcript was originally published by The Motley Fool

Interested in Leonardo DRS, Inc.? Here are five stocks we like better. Second-quarter results strengthened: Revenue rose 10% to $913 million, while adjusted EBITDA increased 33% to $128 million and adjusted EPS climbed 52% to $0.35. Bookings exceeded $1 billion, producing a 1.2x book-to-bill ratio and record funded backlog. Full-year profit outlook raised: Leonardo DRS maintained its $3.9 billion–$3.975 billion revenue forecast but increased adjusted EBITDA guidance to $525 million–$540 million and adjusted EPS guidance to $1.34–$1.39. Raft acquisition expands software capabilities: DRS agreed to acquire mission-software provider Raft for $450 million in cash, with the deal expected to close in the fourth quarter and become accretive to adjusted EPS in its first full year. Leonardo DRS (NASDAQ:DRS) reported second-quarter fiscal 2026 revenue growth of 10% and sharply higher profitability, supported by demand across tactical radar, naval propulsion, infrared sensing and force-protection programs. The company also raised its full-year profit outlook and announced an agreement to acquire mission software provider Raft for $450 million in cash. President and CEO John Baylouny said bookings exceeded $1 billion during the quarter, resulting in a book-to-bill ratio of 1.2 times. The company has now recorded book-to-bill of at least 1.0 times for 18 consecutive quarters and exited the period with record funded backlog, according to management. → Why SK hynix Could Be the Best AI Chip Stock to Buy Now “Demand was apparent throughout the portfolio,” Baylouny said, citing customer modernization priorities and an elevated global threat environment. He said the company remains aligned with demand for layered air defense, counter-unmanned aircraft systems, resilient sensing architectures, munitions and naval capabilities. Revenue totaled $913 million, up 10% from the prior-year period. Growth accelerated from the first quarter and was led by tactical radar, electric power and propulsion, infrared sensing, and force-protection programs, Chief Financial Officer Mike Dippold said. → 3 Value ETFs to Consider as Growth Stocks Lag Behind The Integrated Mission Systems, or IMS, segment posted 15% revenue growth, while the Advanced Sensing and Computing, or ASC, segment grew 8%. Dippold said the first-half results showed balanced growth contributions from both segments. Adjusted EBITDA increased 33% year over year to $128 million, while adjusted EBITDA margin rose 240 basis points to 14%. The company attributed the improvement to program execution, favorable program mix, higher production volume and the retirement of program risk under fixed-price contract accounting. → 5 AI Stocks Are Pulling Back—Which Growth Catalysts Still Look Strongest? IMS adjusted EBITDA rose 55% from the prior-year quarter, with margin expanding 460 basis points. ASC adjusted EBITDA increased 19%, with margin up 110 basis points. Dippold said the favorable risk retirement occurred in the naval business on a surface ship program, though execution improvements were broader across the segment. Excluding that risk retirement, IMS margin would have been closer to 15% for the quarter, he said. Net earnings increased 59% to $86 million. Diluted earnings per share rose 60% to $0.32. Adjusted net earnings increased 52% to $94 million. Adjusted diluted EPS increased 52% to $0.35. The company generated positive free cash flow in the quarter, aided by profitability and working-capital efficiency, while continuing capital investments intended to expand production capacity. Leonardo DRS announced an agreement to acquire Raft, a provider of open-architecture mission software for multi-domain data fusion and artificial intelligence, for $450 million in cash. Management expects the transaction to close in the fourth quarter, subject to closing conditions and regulatory approvals. Baylouny said Raft’s software capabilities complement DRS’s existing sensing, computing, networking and mission-systems portfolio. Raft has been selected for the U.S. Army’s next-generation command-and-control software architecture data layer, according to Baylouny, and also expands DRS’s access to customers in the Air Force, Space Force, special operations and the intelligence community. The acquisition is intended to help the company provide integrated hardware-and-software solutions rather than individual components and subsystems. Baylouny described the combination as a way to bring sensing, computing and integration closer to where battlefield decisions are made. Dippold said the company does not expect Raft to make a meaningful contribution to 2026 results because of the anticipated late-year close. However, management expects the acquisition to be accretive to adjusted diluted EPS in its first full year of ownership. The company did not provide Raft revenue or margin figures, but said the acquisition is expected to be accretive to DRS’s growth and margin profile. Management highlighted continued demand for counter-UAS systems, tactical radars, aircraft survivability systems, missile-related components, drone sensing payloads and naval propulsion and computing systems. Baylouny said order flow for the company’s tactical radars continues to exceed supply and that DRS is adding production capacity. He also cited international demand for air-defense capabilities, particularly as allies seek to address gaps exposed by recent conflicts. In infrared sensing, the company secured an initial order for 50,000 camera-core units from a low-cost drone manufacturer. Baylouny said the munitions and drone-related business remains a small part of DRS today but is expected to grow faster than the company overall. For naval programs, the company booked orders across power capabilities for Columbia-class and Virginia-class submarines, DDG 51 destroyers and LPD platforms. Dippold said the first phase of the Charleston facility expansion is nearing completion and is designed to support the insourcing of Columbia-class work, with margin benefits expected to begin in the second half of 2027. A second phase could support additional work, including a potential second-source opportunity for steam turbine generators. Research and development spending increased 16% year over year in the first half and approached 4% of revenue. DRS is investing in infrared sensing for space-based interception, modular counter-UAS offerings, tactical radar enhancements and naval propulsion. Capital expenditures are expected to be in the mid-4% range of full-year revenue. Leonardo DRS maintained its full-year revenue outlook of $3.9 billion to $3.975 billion, representing projected organic growth of 7% to 9%. The company said its forecast reflects the timing of material receipts and program milestones, with a larger contribution expected in the second half of the year. Management raised its adjusted EBITDA outlook to $525 million to $540 million, from a prior range of $515 million to $530 million. The company also increased its adjusted diluted EPS forecast to $1.34 to $1.39 and updated its full-year tax-rate assumption to 16.5%. For the third quarter, DRS expects revenue above $1 billion, adjusted EBITDA margin in the mid-13% range and free cash flow that is modestly positive and above the second-quarter level. Dippold said the anticipated sequential margin decline reflects the nonrecurring program-risk retirement benefit recorded in the second quarter rather than a change in underlying execution. Leonardo DRS is a U.S.-based defense technology company and wholly owned subsidiary of Italy's Leonardo S.p.A. The firm specializes in developing and integrating mission-critical systems for military and government customers, with a primary focus on command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR). Its core offerings encompass advanced sensors, targeting systems, radars and electronic warfare solutions designed to enhance situational awareness and operational effectiveness across land, sea and air domains. The company's portfolio includes naval combat management systems, unmanned vehicle sensors, power generation and distribution equipment, and training and simulation solutions. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Leonardo DRS Q2 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for July 2026.

Leonardo DRS, Inc. (DRS) came out with quarterly earnings of $0.35 per share, beating the Zacks Consensus Estimate of $0.27 per share. This compares to earnings of $0.23 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of +29.63%. A quarter ago, it was expected that this company would post earnings of $0.21 per share when it actually produced earnings of $0.26, delivering a surprise of +23.81%. Over the last four quarters, the company has surpassed consensus EPS estimates four times. Leonardo DRS, Inc., which belongs to the Zacks Aerospace - Defense Equipment industry, posted revenues of $913 million for the quarter ended June 2026, surpassing the Zacks Consensus Estimate by 1.51%. This compares to year-ago revenues of $829 million. The company has topped consensus revenue estimates four times over the last four quarters. The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call. Leonardo DRS, Inc. shares have added about 36.5% since the beginning of the year versus the S&P 500's gain of 6.9%. While Leonardo DRS, Inc. has outperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock? There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately. Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions. Ahead of this earnings release, the estimate revisions trend for Leonardo DRS, Inc. was mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. It will be interesting to see how estimates for the coming quarters and the current fiscal year change in the days ahead. The current consensus EPS estimate is $0.34 on $1.03 billion in revenues for the coming quarter and $1.30 on $3.94 billion in revenues for the current fiscal year. Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Aerospace - Defense Equipment is currently in the top 29% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Another stock from the same industry, Karman Holdings Inc. (KRMN), has yet to report results for the quarter ended June 2026. The results are expected to be released on August 6. This company is expected to post quarterly earnings of $0.13 per share in its upcoming report, which represents a year-over-year change of +30%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days. Karman Holdings Inc.'s revenues are expected to be $179.91 million, up 56.3% from the year-ago quarter. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Leonardo DRS, Inc. (DRS) : Free Stock Analysis Report Karman Holdings Inc. (KRMN) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Organic revenue growth accelerated to 10% year-over-year, driven by broad-based demand for tactical radars, electric propulsion, and infrared sensing. Adjusted EBITDA grew 33% with 240 basis points of margin expansion, primarily resulting from disciplined program execution and favorable risk retirement in the naval business. Management highlighted a 'platform-agnostic' strategy that allows the company to capture growth across diverse defense priorities without being tied to specific vehicle procurement lines. The acquisition of Raft LLC for $450 million is intended to bridge the gap between hardware sensing and AI-driven decision-making at the tactical edge. Operational lessons from Ukraine and the Middle East are driving urgent demand for counter-UAS technology, where tactical radar order flow is currently exceeding supply. The company is transitioning from a component provider to a solutions integrator, leveraging modular architectures to meet the Army's 'right to integrate' requirements. Supply chain resilience has improved significantly following previous germanium shortages, with management prioritizing material availability over working capital efficiency. Full-year profit outlook was raised based on first-half momentum, though revenue guidance remains unchanged due to the timing of material receipts and programmatic milestones. Management expects a continuing resolution to govern the fourth calendar quarter but anticipates minimal impact on DRS due to alignment with high-priority defense modernization themes. Internal R&D investment is projected to approach 4% of revenue, focusing on space-based interception, autonomous platforms, and next-generation naval propulsion. The Raft acquisition is expected to be accretive to adjusted diluted EPS in the first full year of ownership, expanding the customer footprint into the Air Force and Intelligence Community. Capital expenditures are forecasted in the mid-4% range of revenue to support capacity expansion for tactical radars and the Charleston naval facility. A record funded backlog provides significant visibility into 2027, though management noted the transition to complex solutions may elongate the conversion of backlog to revenue. The Q2 margin outperformance included a non-recurring benefit from program risk retirement; excluding this, IMS margins would have been approximately 15%. Phase 1 of the Charleston facility is nearing completion, which will facilitate the insourcing of Columbia-class work and drive margin uplift starting in late 2027. A new contract for 50,000 camera core units for low-cost drones marks a strategic expansion into high-volume, affordable effector markets. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management declined to provide specific revenue figures for Raft until 2027 guidance but confirmed the purchase multiple is inside DRS's current trading multiple. The deal is strategically designed to provide the 'brain' for DRS sensors, enabling autonomous platforms to process data at the edge. DRS is actively collaborating with its parent company, Leonardo, to address sovereign capability gaps in Europe. The strategy involves 'pulling and pushing' technology in both directions to meet the urgent wartime footing of international allies. Germanium flow is currently stable with robust mitigation processes in place to prevent future shortages. Management expressed confidence in the availability of magnet materials and memory devices despite high production volumes. Management anticipates a shift from weapon-specific computing to centralized, virtualized 'cloud' architectures onboard ships. DRS is positioning its hardware and software investments to support this transition toward AI-enabled edge computing for the Navy.

Revenue: $913 million, up 10% year-over-year Net Earnings: $86 million, up 59% year-over-year Adjusted EBITDA: $128 million, up 33% year-over-year Diluted EPS: $0.32, up 60% year-over-year Adjusted Diluted EPS: $0.35, up 52% year-over-year Bookings: $1.1 billion (book-to-bill ratio of 1.2x) Record Funded Backlog: $5.1 billion, up 17% year-over-year Increases 2026 guidance for Adjusted EBITDA and Adjusted Diluted EPS Announced the $450 million acquisition of Raft, expanding DRS’s multi-domain AI, data fusion and mission software capabilities Dividend: Company declares cash dividend of $0.09 per share to be paid on August 27, 2026 ARLINGTON, Va., July 30, 2026 (GLOBE NEWSWIRE) -- Leonardo DRS, Inc. (Nasdaq: DRS), a leading provider of advanced defense technologies, today reported financial results for the second quarter 2026, which ended June 30, 2026. CEO Commentary“Leonardo DRS delivered an exceptional second quarter. Our results reflect disciplined execution and sustained demand for DRS’s differentiated technologies. We captured over $1 billion in bookings, which increased funded backlog to record levels, drove double-digit organic revenue growth and meaningfully expanded margins and profitability. We are encouraged by our first half performance, which gives us the conviction to support increasing our full year guidance for Adjusted EBITDA and Adjusted Diluted EPS. Building on this momentum, the announced acquisition of Raft accelerates our multi-domain AI, data fusion and mission software position and reflects the disciplined capital deployment that underpins our long-term strategy. We are confident that our continued dedication to solving our customers’ toughest challenges will drive consistent, profitable growth and create meaningful long-term value for our stockholders,” said John Baylouny, President and CEO of Leonardo DRS. Summary Financial Results (1) The company reports its financials in accordance with U.S. generally accepted accounting principles (“GAAP”). Information about the company’s use of non-GAAP financial measures, including a reconciliation of the non-GAAP financial measures to the most comparable financial measures calculated and presented in accordance with U.S. GAAP, is provided under "Non-GAAP Financial Measures." The company delivered 10% revenue growth in the second quarter 2026. The year-over-year growth was primarily led by programs related to tactical radars, electric power and propulsion, infrared sensing and force protection. Disciplined program execution across the portfolio, favorable mix and leverage from increased volume fueled robust Adjusted EBITDA growth and margin expansion. Additionally, strong operational performance, lower net interest expense and a lower tax rate supported year-over-year growth in second quarter net earnings, Adjusted Net Earnings, diluted EPS and Adjusted Diluted EPS. Cash FlowNet cash flow provided by operating activities was $35 million for the second quarter. The company’s Free Cash Flow was $6 million in the quarter. Both operating and Free Cash Flow increased year-over-year in the second quarter due to higher profitability and better working capital efficiency. The strong second quarter cash flow performance continues the trend of improved quarterly linearity versus the prior year. Dividends and Stock RepurchasesDuring the second quarter, the company paid dividends to stockholders totaling approximately $24 million or $0.09 per share of common stock. Leonardo DRS today announced that its Board of Directors declared a cash dividend of $0.09 per share of common stock payable on August 27, 2026, to stockholders of record on August 13, 2026. Additionally, the company repurchased 261,526 shares of its common stock for approximately $12 million in the second quarter, pursuant to a previously announced stock repurchase program. Balance SheetAt the end of the second quarter, the company held $270 million of cash and had no outstanding borrowings under its credit facility. This balance sheet strength provides the flexibility to fund organic and inorganic growth initiatives to create stockholder value. Bookings and Funded Backlog Second quarter new funded bookings totaled $1.1 billion. Customer demand remained resilient, with the strongest contributions from electric power and propulsion, infrared sensing, tactical radars and naval network computing. At quarter end, funded backlog stood at a record $5.1 billion, a 17% increase year-over-year and also up sequentially. Segment ResultsAdvanced Sensing and Computing (ASC) Segment (1) The company reports its financials in accordance with U.S. GAAP. Information about the company’s use of non-GAAP financial measures, including a reconciliation of the non-GAAP financial measures to the most comparable financial measures calculated and presented in accordance with U.S. GAAP, is provided under "Non-GAAP Financial Measures." ASC quarterly bookings were supported by healthy demand for infrared sensing, tactical radars and naval network computing. The segment’s revenue growth was primarily attributable to programs related to tactical radars and infrared sensing. Adjusted EBITDA and margin rose versus second quarter 2025 on favorable mix, strong operational execution and leverage from higher volume, despite increased investment in internal research and development. Integrated Mission Systems (IMS) Segment (1) The company reports its financials in accordance with U.S. GAAP. Information about the company’s use of non-GAAP financial measures, including a reconciliation of the non-GAAP financial measures to the most comparable financial measures calculated and presented in accordance with U.S. GAAP, is provided under "Non-GAAP Financial Measures." Electric power and propulsion programs drove quarterly bookings in the IMS segment. Broad-based revenue growth reflected momentum across the segment. Adjusted EBITDA and margin expanded significantly over second quarter 2025, reflecting outstanding program execution and operational leverage from higher volume. 2026 GuidanceLeonardo DRS is increasing 2026 guidance for Adjusted EBITDA and Adjusted Diluted EPS based on strong first half performance, as specified in the table below: The guidance excludes the pending acquisition of Raft. The company does not provide a reconciliation of forward-looking Adjusted EBITDA and Adjusted Diluted EPS due to the inherent difficulty in forecasting and quantifying the adjustments that are necessary to calculate such non-GAAP measures without unreasonable effort. Material changes to any one of these items could have a significant effect on future GAAP results. Conference CallLeonardo DRS management will host a conference call beginning at 10:00 a.m. ET on July 30, 2026 to discuss the financial results for its second quarter 2026. A live audio broadcast of the conference call along with a supplemental presentation will be available to the public through links on the Leonardo DRS Investor Relations website (https://investors.leonardodrs.com). A replay of the conference call will be available on the Leonardo DRS website approximately 2 hours after the conclusion of the conference call. About Leonardo DRSHeadquartered in Arlington, VA, Leonardo DRS, Inc. is an innovative and agile provider of advanced defense technology to U.S. national security customers and allies around the world. We specialize in the design, development and manufacture of advanced sensing, network computing, force protection, electric power and propulsion and other leading mission-critical technologies. Our innovative people are leading the way in developing disruptive technologies for autonomous, dynamic, interconnected and multi-domain capabilities to defend against new and emerging threats. For more information and to learn more about our full range of capabilities, visit www.LeonardoDRS.com. Leonardo DRS Contacts Forward-Looking StatementsIn this press release, when using the terms the “company”, “Leonardo DRS”, “we”, “us” and “our,” unless otherwise indicated or the context otherwise requires, we are referring to Leonardo DRS, Inc. This press release contains forward-looking statements and cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “strives,” “targets,” “projects,” “guidance,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. Forward-looking statements include, without limitation, all matters that are not historical facts. They appear in a number of places throughout this press release and include, without limitation, statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, financial goals, financial position, results of operations, cash flows, prospects, strategies or expectations, the proposed acquisition of Raft LLC (“Raft”), including the expected timing of completion of the transaction, the satisfaction of closing conditions, the receipt of regulatory approvals, the anticipated benefits of the transaction, the expected impact of the transaction on DRS or Raft LLC’s financial results, including expected accretion and tax benefits, the expected financing of the transaction, plans for the integration of the acquired business, and the impact of prevailing economic conditions. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes may differ materially from those made in or suggested by the forward-looking statements contained in this press release. In addition, even if future performance and outcomes are consistent with the forward-looking statements contained in this press release, those results or developments may not be indicative of results or developments in subsequent periods. New factors emerge from time to time that may cause our business not to develop as we expect and it is not possible for us to predict all of them. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation: disruptions, including from government shutdowns, or deteriorations in our relationship with the relevant agencies of the U.S. government, as well as any failure to pass routine audits or otherwise comply with governmental requirements including those related to security clearance or procurement rules, including the False Claims Act; significant delays, including from government shutdowns, or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly; any failure to comply with the amended and restated proxy agreement with the U.S. Department of War (“DoW”); the effect of inflation and other cost pressures on our supply chain and/or our labor costs; our mix of fixed-price, cost-plus and time-and-materials type contracts and any resulting impact on our cash flows due to cost overruns; failure to properly comply with various covenants of the agreements governing our debt could negatively impact our business; our dependence on U.S. government contracts, which often are only partially funded and are subject to immediate termination, some of which are classified and the concentration of our customer base in the U.S. defense industry; our use of estimates in pricing and accounting for many of our programs that are inherently uncertain and which may not prove to be accurate; our ability to realize the full value of our backlog; our ability to predict future capital needs or to obtain additional financing if needed, on terms acceptable to us, if at all; our ability to respond to the rapid technological changes in the markets in which we compete; the effect of global and regional economic downturns and rising interest rates; our ability to maintain an effective system of internal control over financial reporting; our inability to appropriately manage our inventory; our inability to fully realize the value of our total estimated contract value or bookings; our ability to compete efficiently, including due to U.S. government organizational conflict of interest rules which may limit new contract opportunities or require us to wind down existing contracts; our relationships with other industry participants, including any contractual disputes or the inability of our key suppliers to timely deliver our components, parts or services; preferences or set-asides for small or small disadvantaged businesses could impact our ability to be a prime contractor; any failure to meet our contractual obligations including due to potential impacts to our business from supply chain risks, such as longer lead times and shortages of electronics and other components; any security breach, including any cyber-attack, cyber intrusion, insider threat, or other significant disruption of our IT networks and related systems, as well as any act of terrorism or other threat to our physical security and personnel; our ability to fully exploit or obtain patents or other intellectual property protections necessary to secure our proprietary technology, including our ability to avoid infringing upon the intellectual property of third parties or prevent third parties from infringing upon our own intellectual property; the conduct of our employees, agents, affiliates, subcontractors, suppliers, business partners or joint ventures in which we participate which may impact our reputation and ability to do business; the outcome of litigation, arbitration, investigations, claims, disputes, enforcement actions and other legal proceedings in which we are involved; various geopolitical and economic factors, laws and regulations including the Foreign Corrupt Practices Act, the Export Control Act, the International Traffic in Arms Regulations, the Export Administration Regulations, recent U.S. tariffs imposed or threatened to be imposed on other countries and any related retaliatory actions taken by such countries and those that we are exposed to as a result of our international business; our ability to obtain export licenses necessary to conduct certain operations abroad, including any attempts by Congress to prevent proposed sales to certain foreign governments; our ability to attract and retain technical and other key personnel; the occurrence of prolonged work stoppages; the unavailability or inadequacy of our insurance coverage, customer indemnifications or other liability protections to cover all of our significant risks or to pay for material losses we incur; future changes in U.S. tax laws and regulations or interpretations thereof; future changes in the DoW’s and other governments’ budgets; certain limitations on our ability to use our net operating losses to offset future taxable income; termination of our leases or our inability to renew our leases on acceptable terms; changes in estimates used in accounting for our pension plans, including with respect to the funding status thereof; changes in future business or other market conditions that could cause business investments and/or recorded goodwill or other long-term assets to become impaired; risks related to our proposed acquisition of Raft, including the failure to complete the transaction on the anticipated timeline or at all, the failure to realize the anticipated benefits of the transaction, including expected accretion and tax benefits, integration difficulties, retention of key personnel, transaction and integration costs, and increased indebtedness incurred to fund the transaction; adverse consequences from any acquisitions such as operating difficulties, dilution and other harmful consequences or any modification, delay or prevention of any future acquisition or investment activity by the Committee on Foreign Investment in the United States; natural disasters, severe weather or other significant disruptions; failure to properly contain a global pandemic in a timely manner could materially affect how we and our business partners operate; our compliance with environmental laws and regulations and any environmental liabilities that may affect our reputation or financial position; any conflict of interest that may arise because Leonardo US Holding, LLC, our majority stockholder, or Leonardo S.p.A., our indirect majority stockholder, may have interests that are different from, or conflict with, those of our other stockholders, including as a result of any ongoing business relationships Leonardo S.p.A. may have with us and their significant ownership in us may discourage change of control transactions (our amended and restated certificate of incorporation provides that we waive any interest or expectancy in corporate opportunities presented to Leonardo S.p.A); or our obligations to provide certain services to Leonardo S.p.A., which may divert human and financial resources from our business. You should read this press release completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this press release are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this press release and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise and changes in future operating results over time or otherwise. Other risks, uncertainties and factors, including those discussed in our latest SEC filings under “Risk Factors” of our latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, all of which may be viewed or obtained through the investor relations section of our website at www.LeonardoDRS.com, could cause our actual results to differ materially from those projected in any forward-looking statements we make. Readers should read the discussion of these factors carefully to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. Non-GAAP Financial Measures (Unaudited)In addition to the results reported in accordance with U.S. GAAP included throughout this document, the company has provided information regarding “Adjusted EBITDA,” “Adjusted EBITDA Margin,” “Segment Adjusted EBITDA,” “Segment Adjusted EBITDA Margin,” “Adjusted Net Earnings,” “Adjusted Diluted Earnings Per Share” and “Free Cash Flow” (each, a non-GAAP financial measure). We believe the non-GAAP financial measures presented in this document will help investors understand our financial condition and operating results and assess our future prospects. We believe these non-GAAP financial measures, each of which is discussed in greater detail below, are important supplemental measures because they exclude unusual or non-recurring items as well as non-cash items that are unrelated to or may not be indicative of our ongoing operating results. Further, when read in conjunction with our GAAP results, these non-GAAP financial measures provide a baseline for analyzing trends in our underlying businesses and can be used by management as a tool to help make financial, operational and planning decisions. Finally, these measures are often used by analysts and other interested parties to evaluate companies in our industry by providing more comparable measures that are less affected by factors such as capital structure. We recognize that these non-GAAP financial measures have limitations, including that they may be calculated differently by other companies or may be used under different circumstances or for different purposes, thereby affecting their comparability from company to company. In order to compensate for these and the other limitations discussed below, management does not consider these measures in isolation from or as alternatives to the comparable financial measures determined in accordance with U.S. GAAP. Readers should review the reconciliations below and should not rely on any single financial measure to evaluate our business. We define these non-GAAP financial measures as: Adjusted EBITDA and Adjusted EBITDA Margin are defined as net earnings before income taxes, net interest expense, amortization of acquired intangible assets, depreciation, deal-related transaction costs, restructuring costs and other one-time non-operational events (which include non-service pension expense, legal liability accrual reversals, executive transition costs and foreign exchange impacts), then in the case of Adjusted EBITDA Margin dividing Adjusted EBITDA by revenues. Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin are defined as operating earnings before amortization of acquired intangible assets, depreciation, deal-related transaction costs, restructuring costs and other one-time non-operational events, then in the case of Segment Adjusted EBITDA Margin dividing Segment Adjusted EBITDA by revenues. Advanced Sensing & Computing (ASC) Segment Adjusted EBITDA Integrated Mission Systems (IMS) Segment Adjusted EBITDA Adjusted Net Earnings and Adjusted Diluted EPS are defined as net earnings excluding amortization of acquired intangible assets, deal-related transaction costs, restructuring costs and other one-time non-operational events (which include non-service pension expense, legal liability accrual reversals, executive transition costs and foreign exchange impacts) and the related tax impacts, then in the case of Adjusted Diluted EPS dividing Adjusted Net Earnings by the diluted weighted average number of shares outstanding (WASO). (1) Calculation uses an estimated statutory tax rate on non-GAAP adjustments. Free Cash Flow is defined as the sum of the cash flows provided by (used in) operating activities, transaction-related expenditures (net of tax), capital expenditures and proceeds from sale of assets.

This article first appeared on GuruFocus. Release Date: July 30, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Organic revenue growth accelerated to 10% year over year in Q2 2026. Bookings exceeded $1 billion, driving a book-to-bill ratio of 1.2 times for the quarter. Adjusted EBITA grew 33% year over year with 240 basis points of margin expansion. Record funded backlog provides strong visibility into future growth. Announced acquisition of Raft LLC to expand multi-domain AI, data fusion, and mission software capabilities. Expect a continuing resolution to govern the calendar fourth quarter for fiscal '27 funding. Q3 adjusted EBITDA margin expected to step down to mid-13% range due to non-recurring program risk retirement gains in Q2. Revenue guidance maintained at $3.9 billion to $3.975 billion, implying a balanced view of second-half performance. High capital expenditures expected in the second half, with CapEx likely in the mid-4% range of revenue. Pending acquisition of Raft LLC not expected to contribute meaningfully to 2026 results due to late fourth-quarter close. Here are the key Q&A highlights from the Leonardo DRS Inc (NASDAQ:DRS) Q2 2026 earnings call. Warning! GuruFocus has detected 5 Warning Sign with DRS. Is DRS fairly valued? Test your thesis with our free DCF calculator. Q: On the IMS segment, the margin performance was excellent. You mentioned volume execution and program risk retirement. Could you size that for us and give an update on where things stand on the Columbia class program? A: (Mike Gold, CFO) The margins were strong on improved execution across the entire segment, led by the naval propulsion business. The favorable programmatic risk retirement occurred in the naval businesses on a surface ship. If I take out the risk retirement, I would think of the IMS margin closer to the 15% range for the quarter. From a Columbia perspective, things continue to go very well. We are seeing the benefits of the long-term contract and the front-end loaded material procurement. (John Balaguer, CEO) We are very optimistic about the Navy budget environment. The Navy needs a second source for critical components like the steam turbine generator, and we are investing in that capability. Q: You mentioned strong demand coming out of Europe. Is there an opportunity to pull forces with your parent, Leonardo, to grow market share in the European region? A: (John Balaguer, CEO) Absolutely. We are doing a lot of that right now. It is a push for us to do more together with Leonardo. The US is on a wartime footing with high urgency, and the same is happening in Europe. They want sovereign capabilities and there are gaps. We are looking at pulling and pushing technology in both directions together with our parent. Q: On the Raft acquisition, could you give us an idea of what sort of revenues this business could generate and how its margin compares to DRS's overall EBITDA margin? A: (Mike Gold, CFO) We are not going to comment on the sizing of the revenue yet, as we will come out with that with our 2027 guidance given the late Q4 close. The EBITDA multiple paid is going to be inside of DRS's current trading multiple. The financial profile of the business will be accretive to DRS from a growth profile and a margin perspective. (John Balaguer, CEO) Strategically, we think about the gaps we are filling. DRS has been focused on sensing and computing. Raft fills the "thinking" part of what is happening on the battlefield. They have been focused on the edge with software, while we have been focused on the edge with hardware. This is a nice synergistic play. Q: Could you provide specific examples of programs where combining your hardware with Raft's software creates new opportunities? A: (John Balaguer, CEO) The US Army has selected Raft for their data layer. This means our sensors and other sensors will have their data converted in a way that AI algorithms can read it across the enterprise, from the edge to the enterprise. This is an area where we immediately have synergies. This acquisition also fills a technology gap in the intelligence piece and expands our customer base into the Air Force, Space Force, Special Operations, and the intelligence community. Q: Can you drill down into the drones and munitions business? How big is it today, and how should we think of growth going forward, especially regarding capacity and the germanium supply? A: (John Balaguer, CEO) The munition business is growing very quickly. We have exposure from sensing Patriot components all the way down to low-cost drones. Our core capability in infrared sensing is applicable to many different effectors and missiles. It is a small part of our business today, but it is going to outpace the growth of the company. On the supply chain, we have strengthened it significantly. The germanium picture is a positive story; we have a great flow and will not run out, even with the areas we are chasing in missiles and other places. Q: Given the strong booking environment and the reconciliation bill money, do you expect significant order activity and backlog growth in Q3? Does this create potential revenue upside for the year? A: (Mike Gold, CFO) From a bookings perspective, we continue to be confident in the trajectory due to the threat environment. We are moving up the value stack from components to solutions, which elongates the conversion of backlog into revenue. The record funded backlog is an indication of a platform for sustained success into 2027 and beyond. (John Balaguer, CEO) We are seeing the money from the reconciliation bill flowing in core areas of our growth. Q: Does the Raft acquisition signal that you want to move more into AI-enabled mission software, or is it more of a strategic enabler for your hardware? A: (John Balaguer, CEO) Acquisition reform has moved the customer away from buying components and subsystems to solutions. We have been investing in providing solutions, and Raft was one of the missing pieces. Our customers are now asking us to solve problems with a solution that includes our core capabilities in sensing, computing, communications, and power. This gives us the ability to address those needs. Q: Is DRS taking market share, or is the growth primarily driven by the market itself? A: (John Balaguer, CEO) I would say both avenues are areas of growth, but I wouldn't lean on market share as the predominant element. The market itself is growing considerably, and that is the predominant part of our growth. (Mike Gold, CFO) The other thing is being a reliable provider. The Navy is lining up to see us as a second source on steam turbine generators, and we were successful in getting the camera core for the drone program because of our ability to ramp and execute effectively and predictably. Q: How is your supply chain doing given the increase in demand? Are there any pinch points? A: (John Balaguer, CEO) We have strengthened our supply chain significantly since we had trouble with germanium. We have a regular cadence of detection and mitigation that is steeper and faster than ever. We manage a couple of areas of risk at all times and are willing to accept less efficient working capital to secure critical materials. The germanium picture is a positive story, and we are in good shape with magnet materials and memory devices. Q: On the Charleston facility, could you provide an update on the build-out and any potential margin implications for IMS? A: (Mike Gold, CFO) Phase 1 of the Charleston facility is getting towards completion. We are starting to put equipment in and occupy the facility. Phase 1 was geared towards For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Aerospace and defense company Leonardo DRS (NASDAQ:DRS) will be announcing earnings results this Thursday before market hours. Here’s what investors should know. Leonardo DRS beat analysts’ revenue expectations last quarter, reporting revenues of $846 million, up 5.9% year on year. It was an exceptional quarter for the company, with a beat of analysts’ EPS estimates and a solid beat of analysts’ EBITDA estimates. Is Leonardo DRS a buy or sell going into earnings? Read our full analysis here, it’s free for active Edge members. This quarter, the market is expecting Leonardo DRS’s revenue to grow 9.1% year on year, in line with the 10.1% increase it recorded in the same quarter last year. Analysts covering the company have generally reconfirmed their estimates over the last 30 days, suggesting they anticipate the business will stay the course heading into earnings. Leonardo DRS has a history of exceeding Wall Street’s expectations. Looking at Leonardo DRS’s peers in the defense contractors segment, some have already reported their Q2 results, giving us a hint as to what we can expect. RTX delivered year-on-year revenue growth of 14.5%, beating analysts’ expectations by 7.8%, and Lockheed Martin reported revenues up 10.5%, topping estimates by 3.8%. RTX traded up 9.2% following the results while Lockheed Martin was also up 13.3%. Read our full analysis of RTX’s results here and Lockheed Martin’s results here. In the last twelve months or so, the market has shifted its attention from one area of macro importance to the next (AI disintermediation and AI capex spending to geopolitical conflict, rates, and whether the economy is on solid footing or not). While some of the defense contractors stocks have shown solid performance in this choppy environment, the group has generally underperformed, with share prices down 3.3% on average over the last month. Leonardo DRS is up 20.1% during the same time and is heading into earnings with an average analyst price target of $52.90 (compared to the current share price of $49.19). ALSO WORTH WATCHING: Nvidia’s Quiet Partner. Nvidia’s chips cost a hundred grand. The connectors that make them work cost even more. One company makes them all. Every AI server needs specialized infrastructure the chip companies don’t make. High-speed cables. Power connectors. Thermal sensors. This 90-year-old company built a monopoly on it. The AI boom just started. This stock is still flying under the radar. Claim The Stock Ticker Here for FREE.