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Leonardo DRS Inc

Leonardo DRS Inc (DRS) Q1 2026 Earnings Call Transcript

Bullish Aerospace & Defense 10.76B USA
Next Earnings
2026-04-29

Leonardo DRS, Inc., together with its subsidiaries, provides defense electronic products, systems, and military support service. It operates through Advanced Sensing and Computing (ASC) segment, and Integrated Mission Systems (IMS) segments. The ASC segment designs, develops, and manufacture sensing and network computing technology that enables real-time situational awareness required for enhanced operational decision making and execution; and offers sensing capabilities span applications, such as missions requiring advanced detection, precision targeting and surveillance sensing, long range electro-optic/infrared, signals intelligence, and other intelligence systems including electronic warfare, ground vehicle sensing, active electronically scanned array tactical radars, dismounted soldier, and space sensing. This segment also provides network computing, which is utilized across a range of mission applications including platform computing on ground and shipboard for advanced battle management, combat systems, radar, command and control, tactical networks, tactical computing, and communications. Its IMS segment designs, develops, manufacture, and integrates power conversion, control, and distribution systems, ship propulsion systems, motors and variable frequency drives, force protection systems, transportation, and logistics systems for the U.S. and allied defense customers. This segment also offers naval power and propulsion systems, which includes power conversion, control, distribution, and propulsion systems, as well as power dense permanent magnet motors, energy storage systems and associated efficient, rugged and compact power conversion, electrical actuation systems, and cooling technologies; and motor controllers, instrumentation and control equipment, electrical actuation systems, and thermal management systems. The company was incorporated in 1968 and is based in Arlington, Virginia. Leonardo DRS, Inc. operates as a subsidiary of Leonardo S.p.a.

DRS delivered solid 2025 results with record bookings, 13% organic revenue growth, and strong 2026 guidance centered on higher CapEx, R&D, and ongoing execution across defense programs.

⭐ Key Highlights

Record bookings and double-digit growth
DRS achieved fourth consecutive year with book-to-bill at or above 1.2x and 2025 organic revenue growth of 13%.
Material capex and R&D investment uplift in 2025
Internal R&D rose 40% and CapEx increased by over 60%, funding growth in high-growth spaces like space, airborne, missiles, and unmanned markets.
2026 guidance and margin expectations
Revenue guide of $3.85–$3.95 billion (6–8% organic growth) and adjusted EBITDA of $505–$525 million; implied margin improvement of 70–90 bps.
Space program win and crypto-secure comms demo
Secured SDA tracking layer Tranche 3 award and demonstrated secure data transport with a next-gen crypto SDR, signaling near-term revenue and technology momentum in space and secure communications.
Charleston capacity expansion and modular propulsion vision
CapEx to expand naval power facility and support modular electric propulsion architectures for multi-size ships, enabling potential cross-platform production.

✔Positive Signals

  • Back-to-back double-digit organic revenue growth (2024-2025) and record bookings
  • Significant expansion in R&D and CapEx to fuel high-growth markets (space, missiles, airborne, unmanned)
  • 2026 guidance implying margin expansion and solid free cash flow generation
  • Space program win (SDA Tranche 3) and secure crypto-enabled data transport demonstration
  • Charleston naval-capacity expansion enabling modular electric propulsion across ship classes

✖Negative Signals

  • Full-year margins were flat due to higher R&D and material headwinds (germanium) despite volume gains
  • Licensing and non-core program wind-downs caused a net nonroutine impact in 2025
  • Material supply-chain challenges and input cost volatility potentially recurring (germanium, raw materials)
  • Elongated conversion cycle due to portfolio diversity and evolving defense programs
  • Ambiguity on future size of some awards and timing of funding flowing to customers

📊Financial Results

  • Q4 revenue $1.1 billion, up 8% YoY; full-year revenue $3.6 billion, up 13% organically
  • Adjusted EBITDA: Q4 $158 million; full-year $453 million; margins 14.9% in Q4 and 12.4% for the year
  • Full-year diluted EPS up 29% and adjusted diluted EPS up 24%; strong cash flow with $376 million Q4 free cash flow and $227 million for the full year
  • Net cash position at year-end; new $500 million revolver post-year-end to lower interest costs
  • Segment performance: IMS growth 5% Q4, 15% full-year; ASC benefited from laser IP license; ge Germanium-related headwinds and legacy program exit.

🔮Future Guidance

  • 2026 revenue guide of $3.85–$3.95 billion (6–8% organic growth)
  • Adjusted EBITDA guidance of $505–$525 million; ~70–90 bps margin improvement year-over-year
  • CapEx expected to be just under 5% of revenue; working capital efficiency offset some of the higher capex
  • Adjusted diluted EPS guidance of $1.20–$1.26; tax rate assumed 18.5% and diluted share count of 269 million
  • Q1 2026: revenue in low 800s with adjusted EBITDA margin in the low 11% range; second half expected to contribute more than half of revenue and EBITDA

💡Interesting Insights

  • Strategic emphasis on a common modular electric propulsion architecture across ship sizes to maximize Charleston capacity utilization, suggesting a multi-year, cross-platform production strategy

Detailed Analysis

AI-generated summary of Leonardo DRS Inc earnings call transcript.

DRS ended 2025 with robust demand across sensing, network computing, and propulsion, highlighted by a 13% organic revenue increase and a back-to-back stretch of 1.2x+ book-to-bill. The company significantly boosted internal R&D (+40%) and capex (+60%), funded by a favorable mix and program execution, including strength in space, counter-UAS, and naval power. While margins were flat for the full year due to intentional R&D investment and supply-chain costs (notably germanium), EBITDA grew 13% with strong free cash flow generation ($227 million for the year) and a new $500 million revolver to enhance liquidity. In 2026, DRS projects $3.85–$3.95 billion in revenue and $505–$525 million in adjusted EBITDA, implying margin improvement of 70–90 bps and capex near 5% of revenue to fund Charleston expansion and capacity building, with organic growth drivers broad-based but with pockets of slower growth in networks computing. The company maintained an emphasis on organic investments first, a disciplined M&A posture, and a focus on execution for next-generation defense programs, including space and naval platforms, while acknowledging ongoing macro and supply-chain headwinds. The tone remained confident about long-term growth and the potential upside from defense funding and policy actions, though execution risk and rising input costs were noted as considerations.

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