- Organic Revenue Growth Full-year 2025 revenue reached $3.6 billion, reflecting 13% organic growth. Advanced Sensing and Computing segment grew 11% annually, while Integrated Mission Systems rose 15%.
- Free Cash Flow Expansion Delivered 19% full-year free cash flow growth in 2025, with 80% conversion of adjusted net earnings expected in 2026 due to working capital efficiencies.
- R&D & CapEx Surge 2025 R&D investment increased 40%, and capital expenditures rose over 60%. CapEx is projected to trend toward 5% of revenue in 2026, with $300 million allocated for Charleston facility expansion.
- Backlog & Guidance Ended 2025 with $8.7 billion in backlog. 2026 revenue guidance set at $3.85–$3.95 billion (6–8% organic growth), with adjusted EBITDA targeting $500–$525 million and margin expansion of 70–90 bps.
Segment Performance
The Advanced Sensing and Computing segment delivered revenue growth of 9% in Q4 and 11% for the full year, while the Integrated Mission Systems segment achieved year-over-year growth of 5% in Q4 and a healthy 15% for the full year. The strong demand in IMS from the naval power business drove the margin, which was fueled by volume leverage.
Guidance and Outlook
For 2026, Leonardo DRS is initiating a revenue range of $3.85 billion to $3.95 billion, implying 6% to 8% organic growth, which is slightly above analysts' estimates of 6.0% revenue growth. The company expects adjusted EBITDA of $500 million to $525 million, with an implied year-over-year margin improvement of 70 to 90 basis points. The guidance assumes an 18.5% tax rate and a fully diluted share count of 269 million.
Valuation and Growth Prospects
With a P/E Ratio of 41.82, P/B Ratio of 4.26, and P/S Ratio of 3.2, the market seems to have priced in significant growth expectations. The EV/EBITDA ratio of 54.6 indicates a relatively high valuation. However, the company's strong track record of growth, with 16 consecutive quarters of being either at or above one time book-to-bill ratio, and its diversified portfolio, position it well for continued growth. As John Baylouny mentioned, "We are incredibly proud of the team’s relentless focus and their immense contributions in support of our critical national security priorities." The company's commitment to investing in R&D and expanding its capabilities is expected to drive long-term growth.
Investment Strategy
Leonardo DRS plans to continue its robust company-funded R&D investment at a comparable percentage of revenue to 2025, focusing on expanding its footprint in high-growth markets. The company is also increasing its capital expenditures, with a projected CapEx of approximately 5% of revenue in 2026. The top priority is organic investments, and the company expects to invest in CapEx and IRAD to drive growth in the out years.