As if to put an exclamation point on Kratos' solid second-quarter performance, one researcher even initiated coverage with its own buy rating. This was Cannacord Genuity's Austin Moeller. Essentially in line with his two peers, he believes the company's shares could reach a price of $74 apiece. Time to go on offense with this defense stock Those bullish adjustments from pundits started flowing in on Friday, following Kratos' earnings release, and continued into the new week. Monday morning, both B. Riley an ...

New digital experience underscores Kratos' mission to rapidly deliver affordable, disruptive defense hardware, software and technologies SAN DIEGO, Aug. 11, 2025 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS), a technology company in Defense, National Security and Global Markets, today announced the launch of its redesigned corporate website at www.kratosdefense.com. The new website reflects Kratos' bold vision and evolving identity as an agile leader delivering high-performanc ...

Core Insights - Kratos Defense & Security Solutions, Inc. (KTOS) shares increased by 8.1% to $63.88 following the release of its Q2 2025 results, which showed adjusted earnings of 11 cents per share, a 21.4% decline from the previous year but exceeding the Zacks Consensus Estimate by 22.2% [1][9] Financial Performance - The company reported GAAP earnings of 2 cents per share, down from 5 cents in Q2 2024, primarily due to higher costs and operating expenses [2] - Total revenues for Q2 2025 were $351.5 million, surpassing the Zacks Consensus Estimate of $307 million by 14.6% and reflecting a 17.1% increase from $300.1 million in the same quarter last year [3][9] - Operating income decreased to $3.7 million from $12.5 million in the prior-year quarter, with selling, general and administrative expenses rising by 9.1% year over year [4] Segment Performance - Unmanned Systems segment saw a revenue decline of 14.7% year over year to $73.2 million, attributed to the absence of $17.4 million from an international drone shipment in the prior year [6] - Kratos Government Solutions segment experienced a revenue increase of 29.9% to $278.3 million, driven by growth across various business units and synergies from the acquisition of assets from Norden Millimeter, Inc. [7] Operational Metrics - The consolidated book-to-bill ratio was reported at 0.7-1.0, with bookings totaling $257 million and a total backlog of $1.41 billion, down from $1.51 billion at the end of Q1 2025 [5] Guidance and Outlook - For Q3 2025, the company projects revenues between $315-$325 million, with the Zacks Consensus Estimate at $323 million [11] - Full-year 2025 revenue guidance has been raised to $1.29-$1.31 billion from the previous range of $1.26-$1.29 billion, while operating cash flows are expected to be between $50-$60 million [12] Financial Position - As of June 29, 2025, cash and cash equivalents stood at $783.6 million, significantly up from $329.3 million at the end of 2024, while long-term debt decreased to $233 million [10]

The quarter's revenue rose 17.1% over the same period last year. This strong performance reflected growth in the core Government Solutions segment (KGS), which reported 27.1% organic revenue growth. Within this segment, Defense Rocket Support (hypersonics) saw organic revenue growth of 116.6%. Sales related to command, control, communications, computers, combat systems, intelligence, surveillance, and reconnaissance (C5ISR) also delivered 25.4% organic growth. These are product families critical to the mode ...

Core Insights - Kratos reported revenue of $351.5 million for the quarter ended June 2025, reflecting a 17.1% increase year-over-year and surpassing the Zacks Consensus Estimate of $306.76 million by 14.58% [1] - The company's EPS was $0.11, down from $0.14 in the same quarter last year, but exceeded the consensus estimate of $0.09 by 22.22% [1] Revenue Breakdown - Product sales revenue reached $216.6 million, exceeding the average analyst estimate of $188.63 million, marking an 11.9% increase year-over-year [4] - Unmanned Systems revenue was $73.2 million, below the average estimate of $79.14 million, representing a decline of 14.7% year-over-year [4] - Kratos Government Solutions generated $278.3 million in revenue, significantly above the average estimate of $228.72 million, with a year-over-year increase of 29.9% [4] - Service revenues totaled $134.9 million, surpassing the average estimate of $117.55 million, reflecting a 26.7% increase year-over-year [4] Profitability Metrics - Gross profit from service revenues was $27.7 million, below the average estimate of $31.87 million [4] - Gross profit from product sales was $46.1 million, exceeding the average estimate of $42.56 million [4] - Operating income for Unmanned Systems was a loss of $0.3 million, better than the estimated loss of $0.5 million [4] - Operating income for Kratos Government Solutions was $12.6 million, below the average estimate of $14.44 million [4] Stock Performance - Kratos shares have returned +28.1% over the past month, significantly outperforming the Zacks S&P 500 composite's +1.2% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions. The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the ...

Financial Data and Key Metrics Changes - Revenues for Q2 2025 were $351.5 million, exceeding the estimated range of $300 million to $310 million, with notable growth in Defense Rocket support and C5ISR businesses, showing organic revenue growth rates of 116% and 625% respectively [19][20] - Adjusted EBITDA for Q2 2025 was $28.3 million, above the estimated range of $21 million to $25 million, reflecting increased volume but offset by rising contractor and material costs [19][20] - The company increased its full-year 2025 revenue guidance from $1.26 billion to a range of $1.285 billion to $1.31 billion, indicating an organic revenue growth rate of 11% to 13% over 2024 [22][23] Business Line Data and Key Metrics Changes - Unmanned Systems revenue decreased by $12.6 million year-over-year, primarily due to the prior year’s international target drone delivery, while tactical drone revenues increased [20] - KGS revenue increased by $64 million year-over-year, with an organic growth rate of 27.1%, excluding the impact of an acquisition [20] - The company reported cash flow used in operations of $10.6 million, primarily due to working capital requirements related to revenue growth [20] Market Data and Key Metrics Changes - The U.S. government accounted for approximately 71% of revenues in Q2 2025, with 12% from commercial customers and 17% from foreign customers [21] - The company noted a significant increase in defense spending globally, with the U.S. national security budget expected to exceed $1 trillion [5][6] Company Strategy and Development Direction - The company is positioned to capitalize on a generational global recapitalization of weapon systems and related infrastructure, with a record bid and proposal pipeline of $13 billion [6][7] - The company is focusing on expanding its manufacturing and production facilities to meet existing and anticipated customer orders, particularly in microwave products, rocket systems, and hypersonic businesses [20][23] - The company aims to leverage its partnerships and existing capabilities to enhance its market position, particularly in hypersonics and tactical drones [12][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth outlook, citing a strong pipeline of contract awards and a favorable operating environment driven by increased defense spending [6][8] - The company anticipates strong bookings in Q3 2025 and expects an increase in EBITDA margins as new higher-margin programs ramp up [8][19] - Management highlighted the importance of maintaining a skilled workforce and managing supply chain risks as key operational priorities [21][90] Other Important Information - The company has successfully paid off its entire term loan balance of approximately $180 million, which will minimize interest expenses moving forward [24] - The company is actively pursuing new program opportunities, including the Poseidon and Deimos programs, which are expected to contribute significantly to future revenue [7][10] Q&A Session Summary Question: Guidance and Revenue Expectations - Management clarified that the implied revenue decrease in the second half of the year is due to the timing of a hypersonic mission that occurred earlier than expected [27][28] Question: Valkyrie Program and Revenue Recognition - Management explained that upon receiving a contract for the Valkyrie, revenue would be recognized based on the completion percentage of the production lots [29] Question: Impact of the Reconciliation Bill - Management confirmed that the reconciliation bill, including significant funding for hypersonics, enhances confidence in future growth [31] Question: Target Drone Business and Golden Dome - Management indicated that Kratos is well-positioned for the Golden Dome initiative, which will require various target drones for testing [36][37] Question: Ranking of Business Segments - Management ranked hypersonics as the top priority, followed by air defense systems, with engines and tactical drones being significant but dependent on customer decisions [38] Question: Supply Chain and Investment Outlook - Management expressed confidence in the supply chain but acknowledged risks associated with sole-source suppliers and rising costs [90] Question: Marine Corps Program of Record - Management refrained from commenting on specific details regarding the Marine Corps program but indicated ongoing positive developments [95] Question: Future Growth Vectors - Management projected that both the GEK and Prometheus initiatives could reach billion-dollar valuations once in full production [96][98]

[Q2 2025 Financial & Operational Highlights](index=1&type=section&id=Kratos%20Reports%20Second%20Quarter%202025%20Financial%20Results) This section details Kratos's Q2 2025 financial performance, including revenue growth, net income, adjusted EBITDA, bookings, backlog, and cash flow metrics [Key Financial Results](index=1&type=section&id=Second%20Quarter%202025%20Financial%20Results) Kratos reported strong revenue growth of 17.1% in Q2 2025, reaching $351.5 million, driven by 15.2% organic growth, while Net Income and Adjusted EBITDA declined compared to the prior year Q2 2025 vs Q2 2024 Key Financial Metrics | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | **Revenues** | $351.5 million | $300.1 million | +17.1% | | **Operating Income** | $3.7 million | $12.5 million | -70.4% | | **Net Income (GAAP)** | $2.9 million | $7.9 million | -63.3% | | **Adjusted EBITDA** | $28.3 million | $29.9 million | -5.4% | | **GAAP EPS (Diluted)** | $0.02 | $0.05 | -60.0% | | **Adjusted EPS** | $0.11 | $0.14 | -21.4% | - Total revenue growth was **17.1%**, with organic growth accounting for **15.2%**, primarily driven by the KGS segment's **27.1% organic growth**[2](index=2&type=chunk)[5](index=5&type=chunk) - Q2 2025 Net Income was impacted by **$8.6 million** in non-cash stock compensation, **$10.2 million** in R&D expenses, and a **$2.0 million** legal settlement accrual[3](index=3&type=chunk) [Bookings and Backlog](index=1&type=section&id=Bookings%20and%20Backlog) The company reported a consolidated book-to-bill ratio of 0.7 to 1.0 for Q2 2025, indicating lower bookings than revenues recognized, though the last twelve months ratio remains strong at 1.2 to 1.0 Consolidated Bookings & Backlog (as of June 29, 2025) | Metric | Q2 2025 | LTM | | :--- | :--- | :--- | | **Bookings** | $257.0 million | $1.401 billion | | **Book-to-Bill Ratio** | 0.7 to 1.0 | 1.2 to 1.0 | - Consolidated backlog was **$1.414 billion** at the end of Q2 2025, down from **$1.508 billion** at the end of Q1 2025[14](index=14&type=chunk) - The bid and proposal pipeline increased to **$13.0 billion** from **$12.6 billion** at the end of the previous quarter[14](index=14&type=chunk) [Cash Flow and Capital Expenditures](index=2&type=section&id=Cash%20Flow%20and%20Capital%20Expenditures) In Q2 2025, Kratos experienced a cash outflow from operations of $10.6 million, primarily due to working capital needs and investments in inventory, resulting in negative free cash flow - Cash Flow Used in Operations was **$10.6 million**, driven by increased receivables and inventory builds[7](index=7&type=chunk) - Free Cash Flow Used in Operations was **$31.1 million** for the quarter, after funding **$20.5 million** in capital expenditures[7](index=7&type=chunk) [Segment Performance](index=2&type=section&id=Segment%20Performance) This section analyzes the individual financial and operational performance of Kratos's Unmanned Systems (KUS) and Kratos Government Solutions (KGS) segments [Unmanned Systems (KUS)](index=2&type=section&id=Unmanned%20Systems%20%28KUS%29) The Unmanned Systems (KUS) segment saw a revenue decline to $73.2 million in Q2 2025, primarily due to a large international drone shipment in the prior-year quarter, leading to weaker operating results KUS Segment Performance: Q2 2025 vs Q2 2024 | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | **Revenues** | $73.2 million | $85.8 million | | **Operating Income (Loss)** | ($0.3 million) | $3.6 million | | **Adjusted EBITDA** | $3.6 million | $7.2 million | - The revenue decrease was mainly because Q2 2024 included a **$17.4 million** international target drone shipment[8](index=8&type=chunk) - KUS book-to-bill ratio was **0.9 to 1.0** for Q2 2025 and **1.3 to 1.0** for the last twelve months, with total backlog ending the quarter at **$337.6 million**[9](index=9&type=chunk) [Kratos Government Solutions (KGS)](index=2&type=section&id=Kratos%20Government%20Solutions%20%28KGS%29) The Kratos Government Solutions (KGS) segment delivered robust performance with a 27.1% organic revenue growth, reaching $278.3 million in Q2 2025, driven by strong performance in Defense Rocket Support and C5ISR businesses KGS Segment Performance: Q2 2025 vs Q2 2024 | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | **Revenues** | $278.3 million | $214.3 million | | **Operating Income** | $12.6 million | $15.5 million | | **Adjusted EBITDA** | $24.7 million | $22.7 million | - The segment achieved a **27.1% organic growth rate**, with standout performances from Defense Rocket Support (**116.6% growth**) and C5ISR (**25.4% growth**)[10](index=10&type=chunk) - KGS book-to-bill ratio was **0.7 to 1.0** for Q2 2025 and **1.2 to 1.0** for the last twelve months, with total backlog at **$1.076 billion** at quarter-end[13](index=13&type=chunk) [Management Commentary & Outlook](index=3&type=section&id=Management%20Commentary%20%26%20Outlook) This section provides insights from Kratos's CEO on market conditions and strategic initiatives, along with the company's updated financial guidance for 2025 [CEO Remarks on Market and Strategy](index=3&type=section&id=CEO%20Remarks%20on%20Market%20and%20Strategy) CEO Eric DeMarco highlighted a favorable market environment driven by strategic weapon system recapitalization and increased global defense spending, with Kratos securing prime positions on new programs - Management sees a generational recapitalization of strategic weapon systems, with significant global funding increases from the U.S., NATO, and Asian allies[15](index=15&type=chunk) - Recent government actions, including the Presidential Executive Order on "Unleashing American Drone Dominance" and proposed legislation like the FORGED and SPEED Acts, are expected to streamline acquisition and benefit Kratos[15](index=15&type=chunk) - Kratos has been selected as prime on a new program codenamed 'Poseidon' with a potential value up to **$750 million**, and was down-selected with a partner for another large program, 'Deimos'[16](index=16&type=chunk) - The company anticipates significant organic growth across virtually all business units and expects EBITDA margins to increase starting in 2026 due to new higher-margin programs and contract renegotiations[17](index=17&type=chunk) [Financial Guidance](index=4&type=section&id=Financial%20Guidance) Kratos has increased its full-year 2025 guidance for Revenue and Adjusted EBITDA, reflecting continued investments in manufacturing and production facilities for key defense systems Updated 2025 Financial Guidance | Metric | Q3 2025 Guidance | Full Year 2025 Guidance | | :--- | :--- | :--- | | **Revenues** | $315 million - $325 million | $1,290 million - $1,310 million | | **Adjusted EBITDA** | $25 million - $30 million | $114 million - $120 million | | **Operating Income** | $3 million - $7 million | $29 million - $34 million | | **Operating Cash Flow** | N/A | $50 million - $60 million | | **Capital Expenditures** | N/A | $125 million - $135 million | | **Free Cash Flow Use** | N/A | ($75 million) - ($85 million) | - The company is increasing its full-year 2025 Revenue and Adjusted EBITDA guidance[18](index=18&type=chunk) - Guidance includes elevated investments for capital expenditures to expand manufacturing facilities for Rocket Systems, Hypersonics, Valkyrie production, Microwave Products, and small jet engines[19](index=19&type=chunk) [Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Consolidated%20Financial%20Statements%20%28Unaudited%29) This section presents Kratos's unaudited consolidated statements of operations, segment data, balance sheets, and cash flows for the reported periods [Statements of Operations](index=10&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended June 29, 2025, Kratos generated $351.5 million in revenue, but higher costs and expenses led to a decrease in operating income to $3.7 million and net income to $2.9 million year-over-year Condensed Statement of Operations (in millions) | Line Item | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $351.5 | $300.1 | $654.1 | $577.3 | | **Total Gross Profit** | $73.8 | $77.2 | $147.4 | $148.2 | | **Operating Income** | $3.7 | $12.5 | $10.3 | $19.5 | | **Net Income** | $2.9 | $7.9 | $7.4 | $9.2 | [Segment Data](index=13&type=section&id=Unaudited%20Segment%20Data) For Q2 2025, the Kratos Government Solutions (KGS) segment was the primary revenue driver with $278.3 million, while the Unmanned Systems (KUS) segment's revenue decreased to $73.2 million, resulting in an operating loss Segment Revenues and Operating Income (in millions) | Segment | Q2 2025 Revenue | Q2 2024 Revenue | Q2 2025 Operating Income (Loss) | Q2 2024 Operating Income (Loss) | | :--- | :--- | :--- | :--- | :--- | | **Unmanned Systems** | $73.2 | $85.8 | ($0.3) | $3.6 | | **Kratos Government Solutions** | $278.3 | $214.3 | $12.6 | $15.5 | [Balance Sheets](index=14&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) As of June 29, 2025, Kratos's total assets significantly increased to $2.59 billion, largely driven by a substantial rise in cash and cash equivalents to $783.6 million from financing activities, while total liabilities remained stable Condensed Balance Sheet Highlights (in millions) | Account | June 29, 2025 | Dec 29, 2024 | | :--- | :--- | :--- | | **Cash and cash equivalents** | $783.6 | $329.3 | | **Total current assets** | $1,428.9 | $872.1 | | **Total assets** | $2,585.7 | $1,950.9 | | **Total current liabilities** | $322.4 | $296.7 | | **Total liabilities** | $625.7 | $597.7 | | **Total stockholders' equity** | $1,960.0 | $1,353.2 | [Statements of Cash Flows](index=15&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the first six months of 2025, Kratos used $40.9 million in cash from operating activities, while financing activities provided a substantial net cash inflow of $536.3 million, primarily from common stock issuance Condensed Statement of Cash Flows (Six Months Ended, in millions) | Activity | June 29, 2025 | June 30, 2024 | | :--- | :--- | :--- | | **Net cash used in operating activities** | ($40.9) | ($2.0) | | **Net cash used in investing activities** | ($43.1) | ($40.8) | | **Net cash provided by financing activities** | $536.3 | $279.0 | | **Net increase in cash** | $454.3 | $235.4 | | **Cash at end of period** | $783.6 | $308.2 | [Non-GAAP Financial Measures](index=8&type=section&id=Non-GAAP%20Financial%20Measures) This section provides reconciliations of Kratos's GAAP financial results to non-GAAP measures such as Adjusted EBITDA and Adjusted EPS, along with explanations of these metrics [Reconciliation of Net Income to Adjusted EBITDA](index=12&type=section&id=Reconciliation%20of%20Net%20Income%20to%20Adjusted%20EBITDA) The company reconciled its Q2 2025 GAAP Net Income of $2.9 million to a Non-GAAP Adjusted EBITDA of $28.3 million, with key adjustments including depreciation, stock-based compensation, and income tax provision Reconciliation of Net Income to Adjusted EBITDA (Q2, in millions) | Line Item | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | **Net income** | $2.9 | $7.9 | | Interest expense, net | $1.2 | ($0.1) | | Provision for income taxes | $1.7 | $4.8 | | Depreciation | $9.0 | $8.2 | | Stock-based compensation | $8.6 | $6.6 | | Other adjustments | $2.9 | $2.5 | | **Adjusted EBITDA** | **$28.3** | **$29.9** | [Computation of Adjusted Earnings Per Share (Adjusted EPS)](index=16&type=section&id=Computation%20of%20Adjusted%20Earnings%20Per%20Share) Kratos reported a Q2 2025 GAAP diluted EPS of $0.02, which, after adjustments for non-cash items and a non-GAAP tax rate, resulted in a Non-GAAP Adjusted EPS of $0.11 Reconciliation of GAAP EPS to Adjusted EPS (Q2) | Line Item | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | **Diluted EPS (GAAP)** | **$0.02** | **$0.05** | | Adjustments (Amortization, Depreciation, Stock Comp, etc.) | $0.15 | $0.12 | | Income taxes on Non-GAAP adjustments | ($0.06) | ($0.03) | | **Adjusted EPS (Non-GAAP)** | **$0.11** | **$0.14** | [Explanation of Non-GAAP Measures and Other Metrics](index=8&type=section&id=Explanation%20of%20Non-GAAP%20Measures%20and%20Other%20Metrics) Kratos utilizes non-GAAP measures like Adjusted EBITDA, Adjusted EPS, and Free Cash Flow to provide a clearer view of its core operating performance, while the Book-to-Bill Ratio indicates future revenue potential - Non-GAAP measures like Adjusted EBITDA and Adjusted EPS are used to exclude items such as stock-based compensation, acquisition costs, and amortization to better reflect ongoing operating performance[26](index=26&type=chunk) - The Book-to-Bill Ratio is presented as a key performance indicator, measuring new bookings against revenues to show how the backlog is being utilized or built over a period[27](index=27&type=chunk)[28](index=28&type=chunk)

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's financial position strengthened, with total assets increasing to $2.59 billion from $1.95 billion, largely due to a significant rise in cash and cash equivalents from a recent equity offering. However, net income for the quarter and six-month period decreased compared to the prior year, driven by lower gross margins despite higher revenues. Cash flow from operations was negative, reflecting increased working capital needs for inventory and other assets Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 29, 2025 | December 29, 2024 | | :--- | :--- | :--- | | **Cash and cash equivalents** | $783.6 | $329.3 | | **Total current assets** | $1,428.9 | $872.1 | | **Total assets** | $2,585.7 | $1,950.9 | | **Total current liabilities** | $322.4 | $296.7 | | **Total liabilities** | $625.7 | $597.7 | | **Total stockholders' equity** | $1,960.0 | $1,353.2 | Condensed Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | **Total revenues** | $351.5 | $300.1 | $654.1 | $577.3 | | **Gross profit** | $73.8 | $77.2 | $147.4 | $148.2 | | **Operating income** | $3.7 | $12.5 | $10.3 | $19.5 | | **Net income** | $2.9 | $7.9 | $7.4 | $9.2 | | **Diluted EPS** | $0.02 | $0.05 | $0.05 | $0.06 | Condensed Consolidated Statements of Cash Flows Highlights (in millions) | Activity | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Net cash used in operating activities** | $(40.9) | $(2.0) | | **Net cash used in investing activities** | $(43.1) | $(40.8) | | **Net cash provided by financing activities** | $536.3 | $279.0 | [Note 2. Acquisitions](index=11&type=section&id=Note%202.%20Acquisitions) On February 4, 2025, the company acquired certain assets of Norden Millimeter, Inc. for a total consideration of $37.0 million, primarily paid in Kratos common stock. This acquisition added $29.9 million in goodwill and is included in the KGS segment, contributing $5.9 million in revenue for the quarter - The company acquired certain assets of Norden Millimeter, Inc. on February 4, 2025, for a total consideration of **$37.0 million**, primarily consisting of **$32.2 million** in common stock and a **$6.0 million** holdback[38](index=38&type=chunk)[44](index=44&type=chunk) Preliminary Purchase Price Allocation for Norden (in millions) | Account | Value | | :--- | :--- | | Total identifiable net assets acquired | $21.6 | | Total identifiable net liabilities assumed | $(14.5) | | **Goodwill** | **$29.9** | | **Net assets acquired** | **$37.0** | - The acquired Norden assets contributed **$5.9 million** in revenue and **$0.4 million** in operating income for the three months ended June 29, 2025[43](index=43&type=chunk) [Note 3. Revenue Recognition](index=13&type=section&id=Note%203.%20Revenue%20Recognition) The company's revenue is primarily recognized over time using the cost-to-cost method. As of June 29, 2025, remaining performance obligations (a proxy for backlog) stood at approximately $1.41 billion. Revenue is disaggregated by segment, contract type, and customer, with the U.S. Government being the largest customer - Remaining performance obligations totaled **$1,413.6 million** as of June 29, 2025. The company expects to recognize approximately **36%** of this amount as revenue in fiscal year 2025[50](index=50&type=chunk) Revenue by Segment and Contract Type - Q2 2025 (in millions) | Segment | Fixed price | Cost plus fee | Time and materials | Total | | :--- | :--- | :--- | :--- | :--- | | **Kratos Government Solutions** | $170.3 | $94.8 | $13.2 | $278.3 | | **Unmanned Systems** | $59.2 | $13.1 | $0.9 | $73.2 | | **Total Revenues** | **$229.5** | **$107.9** | **$14.1** | **$351.5** | Revenue by Customer - Q2 2025 (in millions) | Segment | U.S. Government | International | U.S. Commercial & Other | Total | | :--- | :--- | :--- | :--- | :--- | | **Kratos Government Solutions** | $186.7 | $52.2 | $39.4 | $278.3 | | **Unmanned Systems** | $62.0 | $9.0 | $2.2 | $73.2 | | **Total Revenues** | **$248.7** | **$61.2** | **$41.6** | **$351.5** | [Note 9. Debt](index=21&type=section&id=Note%209.%20Debt) As of June 29, 2025, the company had $180.0 million outstanding on its Term Loan A. Subsequent to the quarter's end, on July 2, 2025, the company fully extinguished this debt using proceeds from a recent equity offering. The $200 million revolving credit facility remains undrawn and available - As of quarter-end, total debt was **$180.0 million** under the Term Loan A, with no borrowings on the **$200 million** revolving credit facility[88](index=88&type=chunk) - On July 2, 2025, subsequent to the quarter end, the company extinguished the entire outstanding Term Loan A balance of **$177.5 million** using proceeds from its June 2025 equity offering[88](index=88&type=chunk)[105](index=105&type=chunk) - In anticipation of the debt extinguishment, the company terminated its interest rate swap contract on June 30, 2025, receiving a payment of approximately **$0.3 million**[87](index=87&type=chunk)[114](index=114&type=chunk) [Note 10. Segment Information](index=22&type=section&id=Note%2010.%20Segment%20Information) The Kratos Government Solutions (KGS) segment reported a 29.9% revenue increase to $278.3 million in Q2 2025, with operating income of $12.6 million. The Unmanned Systems (US) segment saw a 14.7% revenue decrease to $73.2 million, resulting in an operating loss of $0.3 million Segment Performance Comparison (in millions) | Metric (Q2 2025) | KGS | US | Total | | :--- | :--- | :--- | :--- | | **Total revenues** | $278.3 | $73.2 | $351.5 | | **Total segment operating income (loss)** | $12.6 | $(0.3) | $12.3 | | **Metric (Q2 2024)** | | | | | **Total revenues** | $214.3 | $85.8 | $300.1 | | **Total segment operating income** | $15.5 | $3.6 | $19.1 | - For the six months ended June 29, 2025, KGS revenues grew to **$517.8 million** from **$432.1 million** year-over-year, while US revenues decreased to **$136.3 million** from **$145.2 million**[94](index=94&type=chunk)[96](index=96&type=chunk) - Corporate assets increased significantly to **$782.7 million** as of June 29, 2025, from **$314.8 million** at year-end 2024, primarily due to the increase in cash and cash equivalents from the equity offering[98](index=98&type=chunk) [Note 12. Stockholders Equity - Common Stock](index=26&type=section&id=Note%2012.%20Stockholders%20Equity%20-%20Common%20Stock) The company conducted two major public equity offerings. In February 2024, it raised approximately $331.2 million in net proceeds. In June 2025, it raised an additional $555.9 million in net proceeds to fund investments, capital expenditures, and debt repayment - On June 27, 2025, the company sold **14.9 million** shares of common stock in an underwritten offering, receiving approximately **$555.9 million** in net proceeds[105](index=105&type=chunk) - Proceeds from the June 2025 offering were used to pay off the **$177.5 million** Term Loan A debt and are intended for investments, capex, potential acquisitions, and general corporate purposes[105](index=105&type=chunk) - An earlier offering in February 2024 raised net proceeds of approximately **$331.2 million**, which was used to strengthen the balance sheet and pay down the revolving credit facility[104](index=104&type=chunk) [Note 13. Significant Customers](index=26&type=section&id=Note%2013.%20Significant%20Customers) The U.S. Government remains the company's most significant customer, accounting for 71% of total revenue in Q2 2025, up from 65% in the prior-year quarter - Sales to the U.S. Government represented **71%** (**$248.7M**) of total revenue for the three months ended June 29, 2025, and **69%** (**$454.2M**) for the first six months of 2025[106](index=106&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management highlights the company's position as a disruptive technology provider amidst a global recapitalization of weapon systems. While revenue grew 17.1% in Q2 2025, driven by the KGS segment, profitability was challenged by lower gross margins due to product mix and cost pressures from inflation and labor shortages. The company maintains a strong liquidity position following a significant equity raise and has a record backlog of $1.41 billion, signaling future growth potential despite macroeconomic headwinds [Overview](index=29&type=section&id=Overview) Kratos positions itself as an innovative and disruptive technology company focused on rapidly developing affordable solutions for defense and national security. Key business areas include unmanned systems, hypersonics, satellite ground systems, and microwave electronics. The company is making significant capital investments to expand manufacturing capacity for programs like Valkyrie, hypersonic systems, and jet engines to meet record backlog and pipeline opportunities - Kratos' strategy is to be a disruptive change agent, focusing on affordability and rapid development of mission-critical solutions for defense, national security, and commercial markets[118](index=118&type=chunk) - The company is making significant internally funded investments to expand production capacity for key strategic areas, including unmanned jet aircraft (Valkyrie), hypersonic systems (Zeus, Erinyes), jet engines, and microwave electronics[119](index=119&type=chunk) [Industry Update](index=30&type=section&id=Industry%20Update) Management notes the current political environment, including the FY2026 defense budget request of approximately $962 billion, an 11.8% increase. However, the company faces macroeconomic headwinds, including supply chain disruptions, inflation, and a significant industry-wide shortage of qualified labor, which are adversely impacting costs and margins - The fiscal year 2026 DoD budget request of approximately **$962 billion** represents an **11.8%** increase over FY2025 levels, indicating a favorable spending environment for defense priorities[121](index=121&type=chunk) - The company continues to be affected by unfavorable macroeconomic conditions, including supply chain disruptions, inflation, and increased costs for materials and parts, which adversely impact operations and profit margins[126](index=126&type=chunk) - A significant industry-wide shortage of qualified labor, particularly in STEM fields and for personnel requiring security clearances, is a major operational challenge impacting execution and margins on fixed-price contracts[127](index=127&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) For Q2 2025, revenues increased 17.1% year-over-year to $351.5 million, driven by a 29.9% growth in the KGS segment, while the US segment declined 14.7%. Overall gross margin fell from 25.7% to 21.0%, primarily due to a less favorable product mix and increased labor and material costs on fixed-price contracts. For the six-month period, revenues grew 13.3% to $654.1 million Q2 Revenue Comparison by Segment (in millions) | Segment | Q2 2025 | Q2 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **KGS** | $278.3 | $214.3 | $64.0 | 29.9% | | **US** | $73.2 | $85.8 | $(12.6) | (14.7)% | | **Total** | **$351.5** | **$300.1** | **$51.4** | **17.1%** | - Q2 2025 gross margin decreased to **21.0%** from **25.7%** in Q2 2024. This was primarily due to a less favorable mix of products in the US segment and the impact of increased labor and material costs on multi-year fixed-price contracts[135](index=135&type=chunk) - For the six months ended June 29, 2025, total revenues increased **13.3%** to **$654.1 million** from **$577.3 million** in the prior year period[141](index=141&type=chunk) [Backlog](index=34&type=section&id=Backlog) As of June 29, 2025, total backlog increased to $1.41 billion from $1.30 billion a year prior. The funded portion of the backlog was $1.13 billion. The company expects to recognize 36% of the total backlog as revenue in the remainder of fiscal 2025 Backlog Comparison (in millions) | Date | Total Backlog | Funded Backlog | | :--- | :--- | :--- | | **June 29, 2025** | $1,413.6 | $1,125.0 | | **June 30, 2024** | $1,302.7 | $1,070.6 | - The company expects to recognize approximately **36%** of its total backlog as revenue in fiscal year 2025, an additional **37%** in fiscal year 2026, and the balance thereafter[149](index=149&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity position is strong, with cash and cash equivalents at $783.6 million as of June 29, 2025, significantly boosted by a $555.9 million net proceed from a June 2025 equity offering. Cash used in operations was $40.9 million for the first six months, driven by working capital needs, including advance inventory purchases. Subsequent to the quarter, the company used offering proceeds to pay off its $177.5 million Term Loan A Summary of Cash Flows (in millions) | Activity | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(40.9) | $(2.0) | | Net cash used in investing activities | $(43.1) | $(40.8) | | Net cash provided by financing activities | $536.3 | $279.0 | - Cash and cash equivalents increased to **$783.6 million** at quarter-end, largely due to the **$555.9 million** in net proceeds from the June 2025 public equity offering[156](index=156&type=chunk)[162](index=162&type=chunk) - On July 2, 2025, the company extinguished all outstanding Term Loan A debt (**$177.5 million** principal) using proceeds from the June 2025 equity offering. The **$200 million** revolving credit facility remains undrawn[158](index=158&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in its quantitative or qualitative market risk profile since its Annual Report on Form 10-K for the fiscal year ended December 29, 2024 - There have been no material changes in the quantitative or qualitative aspects of the company's market risk profile since December 29, 2024[174](index=174&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 29, 2025. No material changes to internal control over financial reporting occurred during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 29, 2025[177](index=177&type=chunk) - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[178](index=178&type=chunk) [PART II. OTHER INFORMATION](index=39&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various claims and legal actions in the ordinary course of business, including audits by the Defense Contract Audit Agency (DCAA). Management does not currently believe the outcome of these matters will have a material adverse impact on its financial condition or results of operations - The company is subject to routine litigation and other matters arising from the ordinary course of business, the aggregate accruals for which are not material[110](index=110&type=chunk) - Contracts with the DoD are subject to audit by the DCAA, which from time to time raises claims about disallowed or disputed costs. The company cannot reasonably estimate the range of loss, if any, from unaudited periods[109](index=109&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors as disclosed in its Annual Report on Form 10-K for the fiscal year ended December 29, 2024 - During the period covered by this Quarterly Report, there have been no material changes in the company's risk factors as previously disclosed in its Annual Report on Form 10-K[181](index=181&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) On February 4, 2025, the company issued 1,095,674 shares of common stock, valued at $32.2 million, to Norden Millimeter, Inc. as part of the consideration for an asset acquisition. The issuance was exempt from registration under Section 4(a)(2) of the Securities Act - On February 4, 2025, the Company issued **1,095,674 shares** of its common stock, with a deemed value of **$32.2 million**, to Norden Millimeter, Inc. as part of the consideration for an asset acquisition[182](index=182&type=chunk) - The shares were issued in a private placement, relying on the exemption from registration provided by Section 4(a)(2) of the Securities Act[182](index=182&type=chunk) [Other Information](index=39&type=section&id=Item%205.%20Other%20Information) During the quarter ended June 29, 2025, several company officers and directors, including the President of Unmanned Systems and the CFO, adopted Rule 10b5-1 trading plans for the future sale of company stock Adoption of Rule 10b5-1 Trading Plans by Officers | Name | Title | Action | Adoption Date | | :--- | :--- | :--- | :--- | | Steven Fendley | President, Unmanned Systems | Adopted | 5/12/2025 | | Deanna Lund | EVP, Chief Financial Officer | Adopted | 5/20/2025 | | Thomas Mills | President, C5ISR Systems | Adopted | 6/03/2025 | | David Carter | President, Defense and Rocket Support Services | Adopted | 6/13/2025 | | Stacy Rock | President, Kratos Turbine Technologies | Adopted | 6/16/2025 | [Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO as required by the Sarbanes-Oxley Act and the Inline XBRL documents

Analysts predict that the 'Revenues- Product sales' will reach $188.63 million. The estimate indicates a change of -2.6% from the prior-year quarter. The upcoming report from Kratos (KTOS) is expected to reveal quarterly earnings of $0.09 per share, indicating a decline of 35.7% compared to the year-ago period. Analysts forecast revenues of $306.76 million, representing an increase of 2.2% year over year. The consensus EPS estimate for the quarter has been revised 1.6% lower over the last 30 days to the cur ...