Leonardo DRS, Inc. (DRS) Business Profile

What it does

Leonardo DRS designs, makes and integrates defense technology for the U.S. government and allied forces. Its products help military customers detect threats, process information, protect personnel and equipment, and power ships and submarines. John A. Baylouny is its president and chief executive officer.

The company operates through two segments. Advanced Sensing and Computing makes sensors, radars and computing equipment used to detect, track and identify objects and share information. Its equipment supports applications ranging from infrared surveillance and electronic warfare to computing on ground vehicles and ships. DRS also combines sensing, computing and software for tasks such as detecting unmanned aircraft.

Integrated Mission Systems makes and integrates electrical power and propulsion equipment, as well as systems for protecting forces. Its naval products include motors, power conversion and distribution equipment for ships and submarines. On land, it integrates equipment for short-range air defense and vehicle protection.

DRS supplies complete systems, subsystems and components. It can work directly for the U.S. government or supply equipment to another contractor building a larger platform. Its technologies are used across land, air, sea, space and cyber missions. The company also serves foreign governments and commercial customers in the U.S. and abroad.

How it makes money

DRS earns revenue by designing, producing and integrating equipment under government and commercial contracts. It also performs development and service work. In 2025, 39% of its revenue was earned as a prime contractor directly with the U.S. government and 61% as a subcontractor, typically supplying a system to a platform provider.

Advanced Sensing and Computing generates revenue from products including infrared sensors, tactical radars and network computing equipment. Integrated Mission Systems generated $1.3 billion, or 35.7%, from products including naval power and propulsion equipment and integrated force-protection systems.

Most production contracts are fixed price: DRS agrees to perform the work for a set price and keeps the benefit of savings but bears cost overruns. Some contracts share savings or overruns with the customer up to a ceiling. Development work can use cost-plus contracts, which generally reimburse allowable costs plus a fee; services can use time-and-materials contracts, which pay fixed labor rates plus material and other direct costs.

Revenue is supported by long-term programs, including programs where DRS has been an incumbent, sole or dual supplier for years. A significant portion comes from programs already in production, though future orders and funding are not guaranteed. For most contracts, the company recognizes revenue over time as costs are incurred relative to estimated total contract costs.

In Q3 2026, revenue was $1.1 billion. The company expects full-year 2026 revenue of $3.95 billion to $3.985 billion.

Customers and how it sells

The U.S. government is DRS’s largest customer. Contracts with the government, whether held directly or through another contractor, accounted for 80% of total revenue in 2025. The Navy and Army each represented 36% of total revenue, while the Air Force and other U.S. government agencies represented 3% and 5%, respectively. No single contract represented more than 10% of revenue in 2025.

The remaining 20% of 2025 revenue came from foreign governments and commercial sales in the U.S. and abroad. International sales consist primarily of defense transactions with foreign governments. DRS can reach end customers either as the prime contractor or as a supplier to another company providing the platform.

The company was selected in Q3 2026 to provide the permanent-magnet electric propulsion system for the Republic of Korea Navy’s KDDX destroyer program. It has also established DRS UK to serve European customers with local capability and production. DRS has identified demand for its smaller tactical radars in the Middle East and Eastern Europe.

Suppliers and costs

DRS manufactures products by assembling purchased components and subsystems and testing them at different stages. Many materials and components are available from multiple suppliers, but certain components come from sole sources. The company generally expects alternative sources to be available if a supplier stops delivering, although replacement can add costs and cause delays.

DRS has experienced shortages, including of germanium and other raw materials, as well as delays related to component quality. It uses long-term and company-wide supplier agreements and negotiates flexible pricing terms in customer contracts to manage supply risks. The company is also buying some products and materials ahead of need, including before contracts are awarded.

Research and development is funded both by DRS and by customers. Company-funded research costs are allocated to customer contracts as overhead and are generally recoverable on U.S. government contracts; customer-funded work is charged to the relevant contract. Company-funded research costs charged to general and administrative expenses were $129 million in 2025. Fixed-price production work leaves DRS exposed when actual costs exceed its estimates.

Competitive position

DRS competes with divisions of large defense contractors, mid-sized and smaller defense companies, and some nontraditional suppliers. It also teams with or supplies other market participants. Several competitors in its markets are substantially larger and can devote more resources to research and development. No competing company is named in the available material.

Customers evaluate performance, cost, delivery schedules, existing positions on platforms, past performance, innovation and reputation. DRS has supplied some programs for years as an incumbent, sole or dual supplier, and has equipment installed on submarines and surface ships. Its patents cover technologies including semiconductor devices, rugged computing and infrared products, although the company does not consider its business materially dependent on any single intellectual property right.

Our reading: Established program positions and installed equipment provide a meaningful competitive advantage because customers consider embedded positions and past performance, but they do not eliminate competition for future work. Our reading: Technical capabilities and intellectual property also support its position, though their protection is limited by the government’s potential rights to use or permit others to use technology developed under government contracts.

Growth opportunities

DRS is investing in sensing, counter-drone systems, network computing and naval power and propulsion. The company expects demand for its capabilities to benefit from defense priorities involving autonomous and connected systems, air and missile defense, electronic warfare and shipbuilding.

The company is expanding radar capacity and has established DRS UK for European customers. It also invested in a naval power and propulsion manufacturing and testing facility in South Carolina and funding for additional capacity. DRS has invested in expanding its Dallas foundry to address infrared sensing demand.

In Q3 2026, DRS received a $500 million contract supporting the Department of War’s counter-drone office. The contract ceiling was not included in backlog. The company also secured a contract for thermal cores for a low-cost drone manufacturer, beginning with an order of more than 50 thousand units. Funded backlog reached $5.6 billion in Q3 2026; funded backlog represents orders under existing contracts for which funding has been appropriated or otherwise authorized, less revenue already recognized.

DRS has a pending all-cash acquisition of RAFT. The company expects RAFT’s mission software to complement its hardware and expand its integrated command-and-control capabilities, and expects the transaction to close in the fourth quarter of 2026. The company’s 2026 outlook excludes any contribution from the pending acquisition.

Structural risks

• Government spending and timing: DRS depends on U.S. government programs whose funding can change with procurement priorities, budget authorization and appropriations. Spending levels and the timing of funding can affect financial performance.

• Contract execution: Fixed-price contracts expose DRS to cost overruns. Some obligations involve complex technology, advanced manufacturing or factors outside its control, while delays in materials and program milestones can affect revenue timing.

• Supply chain: Certain components have sole-source suppliers. Shortages, quality problems or disruptions can delay manufacturing, raise costs and affect the company’s ability to meet customer commitments.

• Regulation and security: Government contracting rules impose compliance costs and risks. Violations can lead to penalties, contract termination or suspension from government business. DRS also stores sensitive government, technology and employee data that could be compromised in a cyber incident.

• Ownership and governance: DRS operates under a proxy agreement intended to mitigate foreign ownership influence on classified programs. Failure to comply could result in termination of classified U.S. government contracts.

• Acquisition completion: The pending RAFT transaction remains subject to closing conditions and regulatory approvals; its expected benefits and integration are also subject to uncertainty.

Leadership

Leonardo S.p.A. is DRS’s indirect majority stockholder, while US Holding is its immediate majority stockholder. A proxy agreement limits their influence over classified work and requires DRS to operate with an independent board, subject to specified majority-stockholder consent rights.

Bottom line

Our reading

Our reading: DRS is a defense-equipment supplier whose established positions on military programs support repeat work, while its sensors and naval power systems give it exposure to areas where customers are investing. Its dependence on government funding, fixed-price execution and constrained component supplies can affect how orders turn into revenue and profit. The funded backlog offers visibility, but it does not remove those execution risks.