Leonardo DRS, Inc.

What they do

DRS designs, develops, manufactures and integrates advanced sensing, network computing, force protection, and electric power and propulsion technologies for U.S. national security customers and allied defense forces. Operations are organized into two reporting segments: Advanced Sensing and Computing (ASC) and Integrated Mission Systems (IMS). The U.S. government, primarily the Department of War, is its largest customer and accounted for approximately 82% of business as an end-user in the six months ended June 30, 2026, with the U.S. Navy and U.S. Army representing 37% and 33% of total revenues respectively.

Revenue drivers

• Advanced Sensing and Computing (ASC) — Designs and manufactures sensing and network edge computing technology including EO/IR, SIGINT, electronic warfare, tactical radars, space sensing and dismounted soldier sensing, complemented by rugged network computing products and SAGEcore open-architecture software for tactical-edge data processing and dissemination.
• Integrated Mission Systems (IMS) — Designs, develops, manufactures and integrates power conversion, control and distribution systems, ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems; described as a leading provider of next-generation electrical propulsion systems for the U.S. Navy.
• Priority program areas — Demand is concentrated in counter-unmanned aircraft systems (C-UAS), advanced infrared sensing, network computing, and electric power and propulsion for next generation navy vessels. Second quarter 2026 revenue growth was primarily led by programs related to tactical radars, electric power and propulsion, infrared sensing and force protection.
• U.S. Navy and U.S. Army customers — For the six months ended June 30, 2026, the U.S. Navy and U.S. Army represented 37% and 33% of total revenues respectively, with revenues principally derived directly or indirectly from contracts with those services.

Recent performance

Second quarter 2026 revenue was $913 million, up 10% year-over-year, with net earnings of $86 million, up 59%, and diluted EPS of $0.32, up 60%. Adjusted EBITDA was $128 million, up 33%, at a 14.0% margin, and Adjusted Diluted EPS was $0.35, up 52%. Bookings were $1.1 billion, a book-to-bill ratio of 1.2x, and funded backlog reached a record $5.1 billion, up 17% year-over-year. For the first half of 2026, revenue was $1,759 million, up 8%, and net earnings were $148 million, up 42%. Net cash provided by operating activities was $35 million in the quarter and Free Cash Flow was $6 million.

Strategy

DRS positions itself as a balanced, diversified company less vulnerable to any one budgetary platform or service decision, focused on strong technical and market positions in Department of War priority areas. It targets investments toward high-growth areas of the U.S. defense budget and toward supporting the transition to more autonomous, software-enabled, interconnected and multi-domain capabilities. The company announced the $450 million acquisition of Raft to expand its multi-domain AI, data fusion and mission software capabilities, which management described as disciplined capital deployment. It also returned capital through dividends, declaring a $0.09 per share dividend paid August 27, 2026, with approximately $24 million of dividends paid in the second quarter.

Risks

• U.S. defense spending dependence — DRS depends on U.S. defense spending for the vast majority of revenues, and disruptions such as government shutdowns or deterioration in relationships with U.S. government agencies could materially harm the business.
• Appropriations delays and priority shifts — Significant delays, including from government shutdowns, or reductions in appropriations for its programs and changes in U.S. government priorities and spending levels could negatively impact results.
• Contract mix and cost overruns — Results and cash flows are substantially affected by the mix of fixed-price, cost-plus and time-and-materials contracts, with fixed-price contracts exposing DRS to losses from cost overruns or higher-than-anticipated inflation.
• Security clearances and compliance — DRS is subject to U.S. government requirements including the DoW's National Industrial Security Program Operating Manual for facility security clearances, which are prerequisites to performing on classified contracts.

Outlook

Management increased 2026 guidance for Adjusted EBITDA and Adjusted Diluted EPS following first half performance. CEO John Baylouny cited over $1 billion in bookings, record funded backlog, double-digit organic revenue growth and margin expansion as the basis for that conviction. The company also pointed to the announced Raft acquisition as accelerating its multi-domain AI, data fusion and mission software position.