Leonardo DRS (DRS) Q4 2025 earnings summary

Executive summary

• Achieved double-digit organic revenue growth of 13% in 2025, driven by strong customer demand, record bookings, and a book-to-bill ratio at or above 1.2x for the fourth consecutive year, with a year-end backlog of $8.7 billion providing strong visibility into 2026 growth.

• Delivered 19% growth in full-year free cash flow, with net earnings of $278 million for the year and $102 million in Q4.

• Secured a landmark position on the SDA Tracking Layer Tranche 3 program and a $100 million, 10-year quantum laser IP license agreement, contributing $73 million to 2025 revenue and Adjusted EBITDA.

• Leadership transition with John Baylouny appointed CEO, emphasizing innovation and operational excellence, and Sally Wallace as COO.

Financial highlights

• Q4 2025 revenue was $1.1 billion, up 8% year-over-year; full year revenue reached $3.648 billion, up 13% organically.

• Adjusted EBITDA was $158 million in Q4 (up 13%) and $453 million for the year (up 13%).

• Margins were 14.9% in Q4 and 12.4% for the full year, with margin flat year-over-year due to higher R&D investment and material cost growth.

• Diluted EPS and Adjusted Diluted EPS for Q4 were $0.38 and $0.42, and for the full year $1.03 and $1.15, respectively.

• Free cash flow for the year was $227 million, with a net cash position and strong liquidity at year-end.

Outlook and guidance

• 2026 revenue guidance is $3.85–$3.95 billion, implying 6–8% organic growth, supported by strong backlog.

• Adjusted EBITDA expected at $505–$525 million, with margin improvement of 70–90 basis points year-over-year.

• Adjusted Diluted EPS guidance is $1.20–$1.26 per share; free cash flow conversion expected at 80% of adjusted net earnings.

• Effective tax rate for 2026 forecasted at 18.5%.

• CapEx projected to be just under 5% of revenue in 2026, with continued focus on capacity expansion and modernization.