Leonardo DRS, Inc. (DRS) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows a positive outlook with increased revenue growth expectations and optimistic guidance. The Q&A section reveals confidence in organic growth and strategic investments, despite some uncertainties in specific areas. The focus on expanding naval capabilities, counter UAS, and missile production aligns with strong market trends. The company's commitment to organic growth and strategic use of cash reserves further supports a positive sentiment. Overall, the company's strategic initiatives and market opportunities suggest a positive stock price movement over the next two weeks.
Key Financial Performance
Revenue (Q4 2025) $1.1 billion, up 8% year-over-year. Growth driven by robust demand for tactical radars, electric power and propulsion, and advanced infrared sensing.
Revenue (Full Year 2025) $3.6 billion, representing 13% organic growth versus 2024. Growth was broad-based across demand sensing, network computing, force protection, and electric power and propulsion.
Adjusted EBITDA (Q4 2025) $158 million, up 7% year-over-year. Margins were 14.9%.
Adjusted EBITDA (Full Year 2025) $453 million, representing year-over-year growth of 13%. Margins were flat at 12.4%, impacted by higher R&D investment and material cost growth.
Backlog (Year-End 2025) $8.7 billion, providing clear visibility into 2026 growth.
Free Cash Flow (Full Year 2025) $227 million, representing 19% growth year-over-year. Driven by higher profitability and improved working capital efficiency.
Internal R&D Investment (2025) Increased by 40% year-over-year. Focused on high-growth markets like airborne, missiles, space, and unmanned markets.
Capital Expenditures (2025) Rose more than 60% year-over-year. Investments focused on new naval power facility and targeted growth initiatives.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
R&D investment: Increased by 40% in 2025, focusing on high-growth markets like airborne, missiles, space, and unmanned markets. Emphasis on advancing platform AI, autonomy, security, and modularity.
CapEx: Increased by over 60% in 2025, with investments in a new naval power facility in Charleston, SC, and targeted growth initiatives. Expected to increase further in 2026 to approximately 5% of revenue.
Space market: Secured a landmark position on the SDA tracking layer Tranche 3 program, showcasing innovation in infrared sensing. Demonstrated secure data transport using next-gen crypto multichannel software-defined radio.
Infrared sensing: Expanded applications in ground-based, space, and airborne platforms. Advanced infrared gimbals used for targeting threats.
Defense spending: Significant increases in defense spending by the U.S. and allies, supporting sustained demand for next-gen capabilities.
Tactical radars: High global demand for Counter UAS and air defense capabilities. Increased relevance in maritime-based applications and unmanned surface vessels.
Columbia Class program: Continued strong execution and financial benefits from delivering on time and with quality.
Book-to-bill ratio: Achieved a ratio of 1.2 or better for the fourth consecutive year, indicating strong customer demand.
Supply chain: Addressed germanium shortages through recycling, strategic allocations, and long-term supply agreements.
Free cash flow: Increased by 19% in 2025, driven by higher profitability and improved working capital efficiency.
Quantum technology license: Entered a 10-year $100 million license agreement for laser IP in quantum computing, monetizing commercial opportunities while focusing on core defense markets.
Legacy program conclusion: Concluded a legacy foreign ground surveillance program, clearing the slate for core competencies.
Leadership changes: New CEO John Baylouny and COO Sally Wallace appointed, emphasizing innovation and operational excellence.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
Supply Chain Complexity: The company faced challenges related to shortages of critical raw materials, particularly germanium. Although remediation measures are in place, price volatility may persist in the near term.
Legacy Program Loss: The company recognized a loss on a legacy foreign ground surveillance program due to technology evolution and obsolescence issues, which impacted financial performance.
Material Cost Growth: Higher raw material costs, especially germanium, created headwinds for program execution and impacted margins.
Government Shutdown: A prolonged government shutdown in the fourth quarter posed operational challenges, although the company managed to deliver results above expectations.
Increased R&D Investment: Substantial increases in R&D investment created a 70 basis point year-over-year headwind to margins, impacting profitability.
CapEx Growth: Significant increases in capital expenditures, including investments in a new naval power facility and production capacity, may strain financial resources in the short term.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
Revenue Growth: The company expects revenue to range between $3.85 billion and $3.95 billion in 2026, representing 6% to 8% organic growth.
Adjusted EBITDA: Guidance for adjusted EBITDA is set between $505 million and $525 million in 2026, with an implied year-over-year margin improvement of 70 to 90 basis points.
Capital Expenditures (CapEx): CapEx is projected to increase significantly in 2026, trending toward approximately 5% of revenue. Investments will focus on completing the Charleston facility, expanding production capacity, and modernizing facilities.
Free Cash Flow: Free cash flow conversion is expected to be 80% of adjusted net earnings in 2026.
R&D Investment: The company plans to maintain robust R&D investment at a comparable percentage of revenue to 2025, focusing on high-growth markets such as airborne, missiles, space, and unmanned markets.
Market Demand: Sustained demand is anticipated due to increased defense spending by the U.S. and allies, with a focus on next-generation capabilities.
Segment Performance: Growth is expected in tactical radars, air defense products, advanced infrared sensing, and electric power and propulsion systems.
Material Supply Constraints: Supply chain constraints related to germanium are expected to be contained, with measures in place to ensure stable supply in the short, medium, and long term.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
The selected topic was not discussed during the call.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:Have you seen any potential benefits from the reconciliation bill passed last year for DRS?
A:Yes, we are starting to see some of the money flowing now and believe there is alignment in some priority areas where incremental funding could flow. However, it is still early days, and the money has not yet reached our customers.
Q:Does the 4 years of at or above 1.2x book-to-bill suggest a step-up in revenue growth in the years ahead?
A:We are optimistic about growth but acknowledge that we have a diverse portfolio with an elongated conversion cycle. While we aim to continue growing, there are other elements to consider.
Q:Is anything in your portfolio winding down or creating a headwind for growth?
A:There are pockets, mainly in the network computing area, that are growing at a slower rate. However, areas like shipbuilding and space are aligned with allocated funding and growing well.
Q:How should we think about putting the balance sheet to work with a net cash position of over $400 million and a new $500 million revolver?
A:Our top priority is organic investments, including CapEx and IRAD, to drive growth in the out years. Inorganic investments will be considered selectively, but organic growth remains the focus.
Q:What should we think about the fourth-quarter margin in IMS and its implications going forward?
A:The strong margin was driven by demand across the IMS segment, including naval power, surface ships, and counter UAS efforts. Volume leverage contributed significantly, and while Colombia continues to be a tailwind, it was not a major catch-up.
Q:What are the discussions about using the new capacity in Charleston for new ship processes?
A:The focus is on building modular electric propulsion systems that can be used across different ship sizes, from battleships to medium-sized USVs. The Charleston capacity will enable this modularity and support various ship components.
Q:Can you comment on the Tranche 3 tracking layer infrared payload award and its potential growth?
A:We cannot comment on the size of the award due to competitive reasons. However, we are excited about the innovation involved and are focused on executing the program. The award aligns with solving connectivity challenges in space for the Golden Dome initiative.
Q:Do you expect a higher mix of small or medium USVs in the force structure, and how would that impact your ability to build electric drive systems?
A:We expect a mix of different ship classes, including more small and medium USVs. We have been investing in propulsion systems for various ship sizes and can address the needs of different ship classes.
Q:Can you address the Quantum laser license and its potential applications?
A:The technology is used to excite ions in quantum computing. While we focus on military and defense, we license technology for non-core markets like this. We will continue to explore similar opportunities in the future.
Q:What specific programs are tied to the increased CapEx for the year?
A:The increase is focused on expanding capacity in naval elements, counter UAS, tactical radars, and missile capabilities. Additionally, some CapEx is allocated for demo assets to meet speed-to-market needs.
Q:How do you expect OpEx and R&D to grow as a percentage of revenue this year?
A:IRAD is expected to remain a similar percentage of revenue, stabilizing at mid-3% of sales. OpEx is expected to grow moderately, unlike the significant jump seen in 2025.
Q:When do you expect to achieve the 14% EBITDA margin target, and what insights can you provide about the remainder of the decade?
A:We aim to provide multiyear targets in the first quarter of 2027. The business is structured to achieve mid-teens margins, and we expect continued margin growth into 2027.
Q:Are you worried about a softening in book-to-bill, and are there any areas of concern?
A:We are not concerned about demand falling off but acknowledge that some areas may grow at a slower rate than others.
Q:What opportunities do you see in Europe, and how has transatlantic tension impacted your business?
A:European defense spending is increasing, and we are leveraging our parent company's footprint to expand growth. Collaboration with Leonardo is key to addressing both European and U.S. markets.
Q:Is the laser IP licensing a sign of expanded work outside defense?
A:The laser IP has broad applicability in non-defense markets, but we remain focused on defense. Licensing allows us to capitalize on non-core opportunities while staying focused on defense growth markets.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the size of the Tranche 3 tracking layer infrared payload award, citing competitive reasons. Additionally, they did not provide a clear timeline for achieving the 14% EBITDA margin target, only indicating that it could be reached by 2027. Discussions about the preliminary architecture for the Golden Dome initiative were also vague, with no concrete details shared.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Charleston
Chief Officer
Class program
Corporate Development
DRS year
Development Investor
IP license
RD investment
SDA
Technology
ammunition
application
backdrop
booking year
capital efficiency
capital investment
conclusion
decade
defense capability
demand term
ground surveillance
initiative
item
laser
leader
license agreement
material cost
momentum
people
platform approach
platform capability
production capacity
profitability Columbia
quality
quantum
role Chief
space market
speed
surveillance program
understanding
DRS Transcript
Leonardo DRS, Inc. (DRS) Q4 2025 Earnings Call Transcript
Positive2-24
The earnings call summary shows a positive outlook with increased revenue growth expectations and optimistic guidance. The Q&A section reveals confidence in organic growth and strategic investments, despite some uncertainties in specific areas. The focus on expanding naval capabilities, counter UAS, and missile production aligns with strong market trends. The company's commitment to organic growth and strategic use of cash reserves further supports a positive sentiment. Overall, the company's strategic initiatives and market opportunities suggest a positive stock price movement over the next two weeks.
Leonardo DRS, Inc. (DRS) Q3 2025 Earnings Call Transcript
Positive10-29
The company reported strong financial performance with increased EPS, free cash flow, and revenue growth in key segments. The strategic focus on counter UAS and propulsion systems, along with a stable IRAD spending and a balanced capital allocation, supports future growth. Despite minor concerns about germanium supply and potential U.S. government shutdown impacts, the overall outlook is positive, especially with increased revenue guidance and strong backlog. The positive sentiment is reinforced by the absence of major negative factors and optimistic guidance.
Leonardo DRS, Inc. (DRS) Q2 2025 Earnings Call Transcript
Positive7-30
The earnings call summary indicates strong financial metrics with a significant backlog and bookings, alongside promising product developments and strategic initiatives. The Q&A section reveals management's optimism and strategic focus on international markets and partnerships. Despite some concerns about germanium's impact on margins, the overall sentiment is positive due to strong revenue guidance and shareholder return plans. The positive outlook on defense budgets and international sales further supports a positive sentiment.
Leonardo DRS, Inc. (DRS) Q1 2025 Earnings Call Transcript
Positive5-1
The earnings call highlights strong financial performance with significant growth in EBITDA, net earnings, and backlog. The Q&A section reveals management's optimism about future growth and operational improvements, despite some concerns about margins and trade uncertainties. The overall sentiment is positive, with growth opportunities in defense and shipbuilding sectors, supported by optimistic guidance and strong customer demand.
DRS Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
