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Strong Q1 and raised guidance: Leonardo DRS beat internal expectations with revenue of $846 million (+6% YoY), adjusted EBITDA of $105 million (12.4% margin, +210 bps) and adjusted EPS of $0.26, and raised 2026 guidance to revenue of $3.9–$3.975 billion, adjusted EBITDA of $515–$530 million, and adjusted diluted EPS of $1.26–$1.30.
Profitability driven by ASC and program mix: The Advanced Sensing & Computing segment saw adjusted EBITDA rise 48% with a 290-basis-point margin expansion, while IMS margins also improved thanks to Columbia-class and broader program-level efficiencies and favorable material/mix effects.
Robust demand and contract wins: The company reported a 17th consecutive quarter with book-to-bill ≥1, record funded backlog, won a $533 million DAIRCM production IDIQ, and is ramping production capacity for tactical radars and other high-demand systems.
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Leonardo DRS (NASDAQ:DRS) executives said the company opened fiscal 2026 with results that outpaced its internal expectations, driven by higher volume, program mix, and execution, and management raised its full-year outlook across key financial metrics.
President and CEO John Baylouny told investors the first quarter represented “an excellent start to 2026,” highlighting revenue growth, margin expansion, and continued investment in research and development and capital expenditures. “Revenue for the first quarter was up 6% year-over-year,” Baylouny said, adding that adjusted EBITDA grew 28% and adjusted diluted earnings per share came in at $0.26.
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Chief Financial Officer Michael Dippold said results were “well above the framework we provided on our last call,” noting that revenue benefited from “favorable receipt timing.” Revenue totaled $846 million, with year-over-year growth stemming from programs tied to tactical radars, infrared sensing, and electric power and propulsion.
Adjusted EBITDA was $105 million, and adjusted EBITDA margin was 12.4%, reflecting 210 basis points of year-over-year expansion. Dippold attributed profitability gains to “strong program execution across the business, favorable mix, and operational leverage from higher volume.”
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Dippold said the Advanced Sensing and Computing (ASC) segment saw adjusted EBITDA rise 48% in the quarter, with margin expanding 290 basis points. He cited “improved execution, better mix, and operational leverage.” In response to an analyst question, Dippold added that raw material costs—“especially germanium”—also contributed favorably versus the prior year, alongside mix benefits from tactical radars.
In the Integrated Mission Systems (IMS) segment, revenue growth was described as “more modest,” as strength in electric power and propulsion was offset by a “tough compare” in a force protection program due mostly to timing. Even so, adjusted EBITDA in IMS increased 8%, and margin expanded 90 basis points, helped by “strong program execution, including on the Columbia-class,” Dippold said.
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Asked about IMS profitability momentum, Dippold said, “The IMS margins were notably strong,” and pointed to the Columbia-class program as “the largest contributor,” while also citing broader “program-level efficiency throughout the segment” and cost management. He characterized first-quarter performance as a “revised baseline” for the segment as the year progresses.
Baylouny said customer demand remained robust, resulting in a “17th consecutive book-to-bill of at least one times revenue,” which pushed funded backlog to new company records and improved visibility. He also said the company is seeing “immense global demand” for its tactical radars and is “aggressively increasing throughput and production capacity” to meet that demand.
During the quarter, DRS received a $533 million production contract IDIQ for its Distributed Aperture Infrared Countermeasure system (DAIRCM), which Baylouny described as combining missile warning and infrared countermeasures and using multiple sensors to provide a 360-degree threat picture. He said each sensor is paired “with a laser director to defeat increasingly capable missiles that threaten aircraft,” and argued that recent operations have underscored vulnerabilities for aircraft without such capabilities in contested environments.
On book-to-bill trends within ASC, Dippold told analysts not to be overly concerned by recent quarter-to-quarter fluctuations, noting that over the last 12 months the segment was “right around 1 to 1.” He also said the DAIRCM IDIQ had not yet begun to show meaningful order flow, adding that he expected the trend to “reverse pretty quickly in a favorable manner” when paired with other IDIQ awards in next-generation sensing and activity in space.
Baylouny framed the demand environment around an elevated threat landscape and a defense budget backdrop he characterized as favorable. He cited the administration’s fiscal 2027 budget request proposing $1.5 trillion in total defense spending, while emphasizing that Congressional action will determine final allocations. In Q&A, Baylouny said the “most important element” of the budget request is “what’s inside it,” pointing to shipbuilding, air and missile defense, counter-UAS, unmanned systems, space, and missiles as areas that “align very nicely with DRS’ capabilities.”
Baylouny also outlined how lessons from conflicts in the Middle East and Ukraine are reshaping requirements, including the need for layered air defense and counter-UAS, the move toward distributed and resilient sensing architectures, and the importance of scalable production and “effector cost symmetry.” He said these trends “play directly to DRS’ strengths,” citing tactical radars, seeker development, and lower-cost seeker introductions.
On product and technology development, Baylouny highlighted:
Demonstrations of counter-UAS mission execution from both unmanned ground and unmanned naval platforms.
The release of THOR, a “tactical high-performance embedded computing product,” described as an open-architecture rugged chassis supporting AI-enabled operations and multi-sensor data fusion.
Sage Core, the company’s platform-level operating system intended to accelerate data fusion and support integrated counter-UAS solutions being tested with customers.
In shipbuilding and naval power, Baylouny said the company is working with its customer on second-sourcing steam turbine generators for the submarine industrial base, noting the Navy currently has one source and “deserves to have at least 2.” He said the company is also investing in electric propulsion-related components and advocated for modular architectures across future surface combatants, arguing that electric propulsion supports power needs for radars, directed energy, and electronic warfare.
Dippold said the company’s first-quarter performance supported higher guidance. Leonardo DRS raised its full-year revenue outlook to $3.9 billion to $3.975 billion, implying 7% to 9% organic revenue growth. The company also lifted its adjusted EBITDA outlook to $515 million to $530 million and increased adjusted diluted EPS guidance to $1.26 to $1.30.
Dippold said assumptions for the full-year tax rate and diluted share count were unchanged at 18.5% and 269 million, respectively. The company is now targeting free cash flow generation at approximately 75% of adjusted net earnings, with the CFO citing increased working capital needs to fund growth. While capital expenditures were light in the first quarter due to timing, Dippold said CapEx is expected to pick up and reiterated an expectation of roughly 5% of sales by year-end.
For the second quarter, management expects revenue around $900 million and adjusted EBITDA margin “comparable to Q1 in the mid-12% range,” with Dippold adding the company anticipates being “modestly free cash flow positive” in the quarter.
In closing comments, Baylouny said the company is operating “on a wartime footing” and plans to continue investing in innovation and capacity amid what he described as urgent and enduring demand, while emphasizing speed, quality, and scalability in meeting customer needs.
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.
The article "Leonardo DRS Q1 Earnings Call Highlights" was originally published by MarketBeat.