Leonardo DRS (NASDAQ:DRS) reported second-quarter fiscal 2026 revenue growth of 10% and sharply higher profitability, supported by demand across tactical radar, naval propulsion, infrared sensing and force-protection programs. The company also raised its full-year profit outlook and announced an agreement to acquire mission software provider Raft for $450 million in cash.
President and CEO John Baylouny said bookings exceeded $1 billion during the quarter, resulting in a book-to-bill ratio of 1.2 times. The company has now recorded book-to-bill of at least 1.0 times for 18 consecutive quarters and exited the period with record funded backlog, according to management.
Revenue and Profitability Rise
Revenue totaled $913 million, up 10% from the prior-year period. Growth accelerated from the first quarter and was led by tactical radar, electric power and propulsion, infrared sensing, and force-protection programs, Chief Financial Officer Mike Dippold said.
The Integrated Mission Systems, or IMS, segment posted 15% revenue growth, while the Advanced Sensing and Computing, or ASC, segment grew 8%. Dippold said the first-half results showed balanced growth contributions from both segments.
Adjusted EBITDA increased 33% year over year to $128 million, while adjusted EBITDA margin rose 240 basis points to 14%. The company attributed the improvement to program execution, favorable program mix, higher production volume and the retirement of program risk under fixed-price contract accounting.
IMS adjusted EBITDA rose 55% from the prior-year quarter, with margin expanding 460 basis points. ASC adjusted EBITDA increased 19%, with margin up 110 basis points. Dippold said the favorable risk retirement occurred in the naval business on a surface ship program, though execution improvements were broader across the segment. Excluding that risk retirement, IMS margin would have been closer to 15% for the quarter, he said.
- Net earnings increased 59% to $86 million.
- Diluted earnings per share rose 60% to $0.32.
- Adjusted net earnings increased 52% to $94 million.
- Adjusted diluted EPS increased 52% to $0.35.
The company generated positive free cash flow in the quarter, aided by profitability and working-capital efficiency, while continuing capital investments intended to expand production capacity.
Raft Deal Expands Software and AI Capabilities
Leonardo DRS announced an agreement to acquire Raft, a provider of open-architecture mission software for multi-domain data fusion and artificial intelligence, for $450 million in cash. Management expects the transaction to close in the fourth quarter, subject to closing conditions and regulatory approvals.
Baylouny said Raft’s software capabilities complement DRS’s existing sensing, computing, networking and mission-systems portfolio. Raft has been selected for the U.S. Army’s next-generation command-and-control software architecture data layer, according to Baylouny, and also expands DRS’s access to customers in the Air Force, Space Force, special operations and the intelligence community.
The acquisition is intended to help the company provide integrated hardware-and-software solutions rather than individual components and subsystems. Baylouny described the combination as a way to bring sensing, computing and integration closer to where battlefield decisions are made.
Dippold said the company does not expect Raft to make a meaningful contribution to 2026 results because of the anticipated late-year close. However, management expects the acquisition to be accretive to adjusted diluted EPS in its first full year of ownership. The company did not provide Raft revenue or margin figures, but said the acquisition is expected to be accretive to DRS’s growth and margin profile.
Defense Demand Supports Investments
Management highlighted continued demand for counter-UAS systems, tactical radars, aircraft survivability systems, missile-related components, drone sensing payloads and naval propulsion and computing systems.
Baylouny said order flow for the company’s tactical radars continues to exceed supply and that DRS is adding production capacity. He also cited international demand for air-defense capabilities, particularly as allies seek to address gaps exposed by recent conflicts.
In infrared sensing, the company secured an initial order for 50,000 camera-core units from a low-cost drone manufacturer. Baylouny said the munitions and drone-related business remains a small part of DRS today but is expected to grow faster than the company overall.
For naval programs, the company booked orders across power capabilities for Columbia-class and Virginia-class submarines, DDG 51 destroyers and LPD platforms. Dippold said the first phase of the Charleston facility expansion is nearing completion and is designed to support the insourcing of Columbia-class work, with margin benefits expected to begin in the second half of 2027. A second phase could support additional work, including a potential second-source opportunity for steam turbine generators.
Research and development spending increased 16% year over year in the first half and approached 4% of revenue. DRS is investing in infrared sensing for space-based interception, modular counter-UAS offerings, tactical radar enhancements and naval propulsion. Capital expenditures are expected to be in the mid-4% range of full-year revenue.
2026 Profit Outlook Raised
Leonardo DRS maintained its full-year revenue outlook of $3.9 billion to $3.975 billion, representing projected organic growth of 7% to 9%. The company said its forecast reflects the timing of material receipts and program milestones, with a larger contribution expected in the second half of the year.
Management raised its adjusted EBITDA outlook to $525 million to $540 million, from a prior range of $515 million to $530 million. The company also increased its adjusted diluted EPS forecast to $1.34 to $1.39 and updated its full-year tax-rate assumption to 16.5%.
For the third quarter, DRS expects revenue above $1 billion, adjusted EBITDA margin in the mid-13% range and free cash flow that is modestly positive and above the second-quarter level. Dippold said the anticipated sequential margin decline reflects the nonrecurring program-risk retirement benefit recorded in the second quarter rather than a change in underlying execution.
About Leonardo DRS (NASDAQ:DRS)
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.
