Core Viewpoint - Kratos Defense & Security Solutions, Inc. has entered a formal teaming agreement with GE Aerospace to advance propulsion technologies for affordable unmanned aerial systems and Collaborative Combat Aircraft-type aircraft [1][2] Group 1: Agreement Details - The teaming agreement aims to develop the GEK800 Engine and other low-cost expendable turbofan engines, enhancing capabilities for unmanned aerial systems and collaborative combat aircraft [2][5] - This collaboration builds on a previous Memorandum of Understanding (MOU) established last year, focusing on small, cost-effective engines for unmanned platforms [2] Group 2: Company Expertise - Kratos has over 20 years of experience in developing small, affordable engines for unmanned aerial systems, while GE Aerospace brings a century of expertise in propulsion technology [6] - The partnership is expected to bridge the gap from prototype to deployment, leveraging both companies' strengths in engine development and production [6] Group 3: Strategic Importance - The agreement is strategically important for U.S. National Security, addressing mission-critical needs with a focus on affordability and high performance [2] - Both companies are committed to providing adaptable propulsion systems that meet the future demands of defense applications [2]

Group 1 - Kratos Defense & Security Solutions (NASDAQ: KTOS) is identified as a company with significant opportunities in the drone and hypersonics sector, which has garnered positive valuation from Wall Street [1] - The analysis is provided by an investing group focused on discovering investment opportunities within the aerospace, defense, and airline industries, leveraging data-informed analysis [1] - The investing group offers access to data analytics monitors, enhancing the investment research process [1] Group 2 - The article emphasizes the importance of context in understanding developments within the aerospace and defense industry, which can impact investment theses [1]

Core Viewpoint - Kratos Defense & Security Solutions, Inc. reported a mixed performance in its first-quarter 2025 results, with adjusted earnings exceeding expectations but a decline in share price following the announcement [1][8]. Financial Performance - Adjusted earnings for Q1 2025 were 12 cents per share, a 9.1% increase from 11 cents in the same quarter last year, and surpassed the Zacks Consensus Estimate of 9 cents by 33.3% [1]. - Total revenues reached $302.6 million, exceeding the Zacks Consensus Estimate of $292 million by 3.6% and reflecting a 9.2% increase from $277.2 million in the prior-year quarter [2]. - Operating income was reported at $6.6 million, down from $7 million in the year-ago quarter [3]. Segment Performance - Unmanned Systems segment saw net revenues improve by 6.2% year over year to $63.1 million, driven by increased target drone sales [5]. - Kratos Government Solutions segment reported a 10% increase in net revenues to $239.5 million, attributed to growth in C5ISR, Defense Rocket Support, and Microwave Products businesses [5]. Operational Metrics - The company reported a consolidated book-to-bill ratio of 1.2-1.0, with bookings totaling $365.6 million and a total backlog of $1.51 billion, up from $1.45 billion at the end of 2024 [4]. - Selling, general and administrative expenses increased by 3.8% year over year, while research and development expenses rose by 4.2% [3]. Cash Flow and Debt - As of March 30, 2025, cash and cash equivalents totaled $263.7 million, down from $329.3 million as of December 29, 2024 [6]. - Long-term debt decreased to $172.2 million from $174.6 million as of December 29, 2024 [6]. - The net cash outflow from operating activities was $29.2 million during the first three months of 2025, compared to a net cash inflow of $0.7 million in the previous year [6]. Guidance - For Q2 2025, the company projects revenues in the range of $300-$310 million, while the full-year 2025 revenue guidance remains at $1.26-$1.29 billion [8]. - Operating cash flows are expected to be between $50-$60 million, with free cash outflow projected at $75-$85 million for 2025 [9].

Core Insights - Kratos (KTOS) reported revenue of $302.6 million for Q1 2025, a year-over-year increase of 9.2%, with an EPS of $0.12 compared to $0.11 a year ago, exceeding Zacks Consensus Estimate of $292.16 million by 3.57% [1] Revenue Performance - Kratos Government Solutions generated $239.50 million, surpassing the four-analyst average estimate of $226.95 million, reflecting a year-over-year increase of 10% [4] - Unmanned Systems reported revenues of $63.10 million, slightly below the four-analyst average estimate of $65.55 million, with a year-over-year change of 6.2% [4] - Product sales reached $200.20 million, exceeding the $176.11 million average estimate from three analysts, marking a year-over-year increase of 17.3% [4] - Service revenues totaled $102.40 million, falling short of the three-analyst average estimate of $117.12 million, representing a year-over-year decline of 3.9% [4] Profitability Metrics - Gross profit from service revenues was $26.70 million, compared to the average estimate of $28.97 million from three analysts [4] - Operating income for Kratos Government Solutions was $17 million, exceeding the average estimate of $13.79 million from three analysts [4] - Unmanned Systems reported an operating loss of $1.70 million, compared to the average estimate of a $0.41 million profit from three analysts [4] - Gross profit from product sales was $46.90 million, slightly below the average estimate of $47.03 million from three analysts [4] Stock Performance - Kratos shares have returned +25.3% over the past month, outperforming the Zacks S&P 500 composite's +10.6% 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]

Group 1 - Kratos (KTOS) reported quarterly earnings of $0.12 per share, exceeding the Zacks Consensus Estimate of $0.09 per share, and showing an increase from $0.11 per share a year ago, representing an earnings surprise of 33.33% [1] - The company achieved revenues of $302.6 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 3.57% and increasing from $277.2 million year-over-year [2] - Kratos has outperformed the S&P 500, with shares rising approximately 37.3% since the beginning of the year, while the S&P 500 has declined by 4.7% [3] Group 2 - The current consensus EPS estimate for the upcoming quarter is $0.11 on revenues of $314.57 million, and for the current fiscal year, it is $0.49 on revenues of $1.28 billion [7] - The Aerospace - Defense Equipment industry, to which Kratos belongs, is currently ranked in the top 14% of over 250 Zacks industries, indicating a favorable outlook for the sector [8]

Financial Data and Key Metrics Changes - Revenues for Q1 2025 were $302.6 million, exceeding the estimated range of $285 million to $295 million, with notable organic revenue growth across all business lines [22][23] - Adjusted EBITDA for Q1 2025 was $26.7 million, above the estimated range of $20 million to $24 million, reflecting a favorable mix of higher-margin revenues [22][23] - Cash flow used in operations for Q1 2025 was $29.2 million, primarily due to working capital requirements related to revenue growth [23][24] Business Line Data and Key Metrics Changes - Unmanned Systems organic revenue growth was 6.2% for Q1 2025, while KGS organic revenue growth was 7.8%, excluding the impact of recent acquisitions [22][23] - Microwave products, T5ISR, and defense rocket support businesses saw organic revenue growth rates ranging from 13% to over 18% [22] Market Data and Key Metrics Changes - Approximately 68% of revenues in Q1 2025 were generated from contracts with the US federal government, including the Department of Defense [25] - Revenues from commercial customers accounted for 12%, while foreign customers contributed 20% [25] Company Strategy and Development Direction - The company is focused on expanding its hypersonic franchise, which is expected to be a key growth driver for the foreseeable future [10][88] - Investments are being made in manufacturing and production facilities to meet existing and anticipated customer orders, particularly in microwave products and hypersonic businesses [23][27] - The company is pursuing large multi-hundred million dollar single award opportunities, particularly in the drone area and integrated air and missile defense [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed increased confidence in 2025 and 2026 financial forecasts due to clearer defense funding and priorities, including a potential $1 trillion national security budget for 2026 [7][8] - The company anticipates continued organic revenue growth of approximately 10% in 2025 and 13% to 15% in 2026 [7] - Management highlighted the importance of existing products and systems in government procurement decisions, suggesting a shift away from funding new programs [9] Other Important Information - The company is experiencing a record opportunity pipeline of approximately $12.6 billion, indicating a strong demand for its products and services [9] - The Israeli-based microwave electronics business is expected to grow significantly following a facility move, which is planned to minimize disruption [19][26] Q&A Session Summary Question: How does Kratos fit into the Golden Dome program? - Management indicated that Kratos is involved in ground command and control, telemetry tracking, and control, with a focus on space domain awareness [33][34] Question: When will test flights with the new landing gear for Valkyrie commence? - Management confirmed that the landing gear capable Valkyrie is tracking to fly soon this year, but specific details could not be disclosed for security reasons [36][37] Question: What missile programs will support turbojet engine production? - Management mentioned several missile programs, including JDAM and classified projects, that would utilize their engines [42] Question: How will the production of Valkyries impact financials once contracts are awarded? - Revenue will be recorded at the time of contract award, with completed units transferring to inventory [44] Question: What is the profit contribution expectation from unmanned systems this year? - Management expects unmanned systems to continue being profitable this year, despite challenges from fixed-price contracts [51] Question: What competitive threats exist in the tactical drone market? - Management stated that there are no competitive threats keeping them up at night, emphasizing their leading position in the market [68] Question: What areas would be targeted for potential M&A? - Management indicated that microwave electronics and turbomachinery would be top targets for tuck-in acquisitions [76][78]

Financial Data and Key Metrics Changes - Revenues for Q1 2025 were $302.6 million, exceeding the estimated range of $285 million to $295 million, with notable organic revenue growth across all business lines, particularly in microwave products, T5ISR, and defense rocket support, with growth rates ranging from 13% to over 18% [21][22] - Adjusted EBITDA for Q1 2025 was $26.7 million, also above the estimated range of $20 million to $24 million, reflecting a favorable mix of higher-margin revenues [21][22] - Cash flow used in operations for Q1 2025 was $29.2 million, primarily due to working capital requirements related to revenue growth [22] - Free cash flow used in operations for Q1 2025 was $51.8 million after capital expenditures of $22.6 million [22] Business Line Data and Key Metrics Changes - Unmanned Systems organic revenue growth was 6.2% for Q1 2025, while KGS organic revenue growth was 7.8%, excluding the impact of the recent acquisition of Norton Millimeter Inc [22] - The contract mix for Q1 2025 consisted of 73% fixed-price contracts, 22% cost-plus contracts, and 5% time and material contracts [22] - Revenues from contracts with the US federal government accounted for approximately 68% of total revenues in Q1 2025 [22] Market Data and Key Metrics Changes - Kratos' opportunity pipeline reached an all-time high of approximately $12.6 billion, indicating a significant increase in available opportunities from customers and partners [6][7] - The company is seeing substantial new opportunities in integrated air and missile defense and counter UAS systems, with a focus on military-grade hardware and software [8][9] Company Strategy and Development Direction - The company is focused on making investments in core business areas to increase market share, drive revenue growth, and enhance margins, with a strong emphasis on hypersonic systems, microwave electronics, and propulsion systems [19][21] - Kratos is pursuing large multi-hundred million dollar single award opportunities, particularly in the drone sector, and is positioned to benefit from government funding priorities [6][8] - The company is also expanding its microwave electronics business, particularly in Israel, which is expected to contribute to strong organic growth and high EBITDA margins [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed increased confidence in the 2025 and 2026 financial forecasts due to clearer defense funding and priorities, including a potential $1 trillion national security budget for 2026 [6][7] - The company anticipates continued growth in its hypersonic franchise and expects to see significant contributions from its tactical drone business in the future [10][12] - Management acknowledged challenges related to increased material and subcontractor costs but is taking steps to manage these impacts [25][26] Other Important Information - The company is currently in the process of relocating its Israeli microwave production operation, which is expected to impact Q2 margins but is planned to be executed with minimal disruption [24][56] - Kratos is actively working on integrating jet engines into its drone systems and is developing new propulsion systems for classified programs [15][16] Q&A Session Summary Question: How does Kratos fit into the Golden Dome program? - Kratos is involved in ground command and control, telemetry tracking, and control, and anticipates benefits as more assets are deployed in space [32] Question: When will test flights with the new Valkyrie landing gear commence? - The Valkyrie with landing gear is tracking to fly soon this year, but specific details cannot be disclosed for security reasons [36] Question: What missile programs will support turbojet engine production? - The engines could be involved with programs such as JDAM, Mace, and Franklin, along with some classified projects [40] Question: Will unmanned systems be profitable this year? - The unmanned systems segment is expected to continue being profitable this year from an EBITDA perspective [49] Question: What is the outlook for the facility move in Israel? - The move is planned in a phased approach with close coordination with customers and the government to minimize risks [56] Question: What competitive threats exist in the tactical drone market? - Management stated that there are no competitive threats that are concerning, as Kratos has the best aircraft at competitive prices [68] Question: What areas would be targeted for potential M&A? - Microwave electronics and turbomachinery are top targets for potential tuck-in acquisitions [78]

Core Points - Kratos Defense & Security Solutions, Inc. will host a webcast presentation by President and CEO Eric DeMarco during its 2025 Annual Meeting of Shareholders on May 14, 2025, at 9:00 a.m. PDT [1][5] - The presentation will cover strategic priorities, operational highlights, technology initiatives, and market outlook across all divisions, with a focus on hypersonic systems, unmanned platforms, propulsion, space-based capabilities, and dual-use technologies [2] Company Overview - Kratos Defense & Security Solutions is a technology company that addresses defense, national security, and commercial markets, focusing on rapid development and production of solutions to meet mission-critical needs [4] - The company emphasizes affordability as a technology and aims to utilize proven approaches to reduce costs, schedules, and risks, positioning itself as an innovative change agent in the industry [4] - Key business areas include virtualized ground systems for satellites, unmanned aerial drone systems, hypersonic vehicles, propulsion systems, C5ISR products, and virtual & augmented reality training systems [4]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for Q1 2025 report total revenues of **$302.6 million**, net income of **$4.5 million**, total assets of **$2.005 billion**, and negative operating cash flow of **$29.2 million** [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 30, 2025, total assets increased to **$2.005 billion**, driven by unbilled receivables and goodwill, while total liabilities reached **$617.3 million** and stockholders' equity grew to **$1.388 billion** Condensed Consolidated Balance Sheet Highlights (in millions) | Account | March 30, 2025 | December 29, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $263.7 | $329.3 | | Total current assets | $864.4 | $872.1 | | Goodwill | $597.4 | $568.9 | | **Total assets** | **$2,004.9** | **$1,950.9** | | **Liabilities & Equity** | | | | Total current liabilities | $304.9 | $296.7 | | Long-term debt, net | $172.2 | $174.6 | | **Total liabilities** | **$617.3** | **$597.7** | | **Total stockholders' equity** | **$1,387.6** | **$1,353.2** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q1 2025, total revenues increased **9.2%** to **$302.6 million**, resulting in **$6.6 million** in operating income and **$4.5 million** in net income attributable to Kratos Condensed Consolidated Statements of Operations (in millions, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total revenues | $302.6 | $277.2 | | Gross profit | $73.6 | $71.0 | | Operating income | $6.6 | $7.0 | | Net income attributable to Kratos | $4.5 | $1.3 | | Diluted EPS | $0.03 | $0.01 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities for Q1 2025 was **$29.2 million**, a significant decrease from the prior year, primarily due to increased unbilled receivables, with **$22.6 million** used in investing activities Summary of Cash Flows (in millions) | Activity | Three Months Ended March 30, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(29.2) | $0.7 | | Net cash used in investing activities | $(22.6) | $(16.6) | | Net cash provided by (used in) financing activities | $(14.5) | $282.6 | | **Net (decrease) increase in cash** | **$(65.6)** | **$266.1** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide details on accounting policies, the **$37.0 million** Norden Millimeter acquisition, **$1.508 billion** in remaining performance obligations, and the U.S. Government as the largest customer, accounting for **68%** of total revenue - On February 4, 2025, the company completed an asset acquisition from Norden Millimeter, Inc. for a total consideration of **$37.0 million**, which included stock and potential future payments, adding **$28.5 million** in goodwill[35](index=35&type=chunk)[40](index=40&type=chunk)[42](index=42&type=chunk) - As of March 30, 2025, the company had approximately **$1.508 billion** in remaining performance obligations, with **48%** expected to be recognized as revenue in fiscal year 2025[47](index=47&type=chunk) - Sales to the U.S. Government, including foreign military sales, accounted for approximately **$205.5 million**, or **68%** of total revenue, for the three months ended March 30, 2025[97](index=97&type=chunk) - The company operates in two reportable segments: Kratos Government Solutions (KGS) and Unmanned Systems (US), with Q1 2025 revenues of **$239.5 million** for KGS and **$63.1 million** for US[82](index=82&type=chunk)[85](index=85&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a **9.2%** revenue increase to **$302.6 million** for Q1 2025, a gross margin decline to **24.3%**, a record backlog of **$1.508 billion**, and ongoing macroeconomic challenges including supply chain disruptions and labor shortages [Overview and Industry Update](index=25&type=section&id=Overview%20and%20Industry%20Update) Kratos is making significant capital investments to expand manufacturing capacity for unmanned aircraft and hypersonic systems, while navigating political uncertainties and macroeconomic headwinds such as supply chain disruptions and labor shortages - Kratos is making significant capital investments to expand manufacturing capacity for unmanned aircraft (Valkyrie), hypersonic systems (Zeus, Erinyes), small turbojet engines, and microwave electronics[108](index=108&type=chunk) - The company identifies significant short and long-term risks from the U.S. political and budgetary environment, including potential impacts from Continuing Resolutions (CRAs), new tariffs, and changes to DoD procurement policies[110](index=110&type=chunk)[111](index=111&type=chunk) - Ongoing macroeconomic challenges include supply chain disruptions, inflation increasing business costs, and a significant industry-wide shortage of qualified labor, particularly in STEM and cleared personnel, which negatively impacts operating margins[113](index=113&type=chunk)[114](index=114&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Total revenues for Q1 2025 increased **9.2%** to **$302.6 million**, with KGS revenue growing **10.0%** to **$239.5 million** and US revenue growing **6.2%** to **$63.1 million**, though overall gross margin declined to **24.3%** Revenues by Segment (in millions) | Segment | Q1 2025 | Q1 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Kratos Government Solutions | $239.5 | $217.8 | $21.7 | 10.0% | | Unmanned Systems | $63.1 | $59.4 | $3.7 | 6.2% | | **Total revenues** | **$302.6** | **$277.2** | **$25.4** | **9.2%** | - The increase in KGS revenue was driven by growth across all business units, including C5ISR, Defense Rocket Support, and microwave products, plus a **$4.8 million** contribution from the Norden acquisition[120](index=120&type=chunk) - Gross margin in the US segment decreased to **15.8%** from **19.5%** in the prior year, primarily due to a less favorable product mix and the impact of increased labor and material costs on multi-year fixed-price contracts[123](index=123&type=chunk) [Backlog](index=29&type=section&id=Backlog) Total backlog increased to approximately **$1.508 billion** as of March 30, 2025, with **$1.174 billion** funded, driven by new contract awards across various segments, with **48%** expected to be recognized in fiscal year 2025 Backlog Comparison (in millions) | Backlog Type | March 30, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Total Backlog | $1,508.1 | $1,272.8 | | Funded Backlog | $1,173.6 | $1,043.9 | - The company expects to convert approximately **48%** of its total backlog into revenue during fiscal year 2025, with an additional **25%** in fiscal year 2026[129](index=129&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents decreased to **$263.7 million** due to **$29.2 million** used in operating activities and **$22.6 million** in capital expenditures, while total long-term debt was **$182.5 million** and a **$200 million** revolving credit facility remains undrawn - Cash and cash equivalents decreased by **$65.6 million** during the quarter to **$263.7 million** as of March 30, 2025[135](index=135&type=chunk)[20](index=20&type=chunk) - Net cash used in operating activities was **$29.2 million**, primarily due to increases in unbilled receivables and inventory, as the company makes advance purchases to mitigate supply chain disruptions[137](index=137&type=chunk)[138](index=138&type=chunk) - Capital expenditures for Q1 2025 were **$22.6 million**, with significant investments continuing in the Unmanned Systems business, and full-year 2025 capex is expected to be significant[139](index=139&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no material changes in the company's quantitative or qualitative market risk profile since December 29, 2024 - There have been no material changes in the company's market risk profile since December 29, 2024[150](index=150&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 30, 2025, with no material changes in internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 30, 2025[154](index=154&type=chunk) - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[155](index=155&type=chunk) [PART II. OTHER INFORMATION](index=34&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal proceedings in the ordinary course of business, with details in Note 14, and does not anticipate a material adverse impact - Information regarding legal proceedings is detailed in Note 14 of the Notes to condensed consolidated financial statements[158](index=158&type=chunk) [Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors have occurred since their previous disclosure in the Annual Report on Form 10-K - During the period covered by this report, there have been no material changes in the company's risk factors from those previously disclosed[159](index=159&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[160](index=160&type=chunk) [Other Information](index=34&type=section&id=Item%205.%20Other%20Information) Marie Mendoza, Senior Vice President and General Counsel, adopted a Rule 10b5-1 trading plan on March 17, 2025, covering a maximum of **24,473 shares** - Marie Mendoza, an officer of the company, adopted a Rule 10b5-1 trading plan on March 17, 2025[163](index=163&type=chunk) [Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files

[Kratos First Quarter 2025 Financial Performance](index=1&type=section&id=Kratos%20First%20Quarter%202025%20Financial%20Performance) [First Quarter 2025 Financial Highlights](index=1&type=section&id=First%20Quarter%202025%20Financial%20Highlights) Kratos reported strong revenue growth in the first quarter of 2025, with total revenues reaching \$302.6 million, a 9.2% increase year-over-year, driven by 7.4% organic growth. Net income attributable to Kratos more than tripled to \$4.5 million, and Adjusted EBITDA saw a modest increase to \$26.7 million. The company maintained a healthy order momentum with a consolidated book-to-bill ratio of 1.2 to 1. Q1 2025 Key Financial Metrics (vs. Q1 2024) | Metric | Q1 2025 (\$) | Q1 2024 (\$) | Change (%) | | :--- | :--- | :--- | :--- | | **Revenues** | \$302.6 million | \$277.2 million | +9.2% | | **Operating Income** | \$6.6 million | \$7.0 million | -5.7% | | **Net Income (attributable to Kratos)** | \$4.5 million | \$1.3 million | +246% | | **GAAP EPS (diluted)** | \$0.03 | \$0.01 | +200% | | **Adjusted EBITDA** | \$26.7 million | \$26.0 million | +2.7% | | **Adjusted EPS** | \$0.12 | \$0.11 | +9.1% | - Total revenue growth of **9.2% increase** was primarily driven by **7.4% organic growth**, with notable performance in the Unmanned Systems (**6.2% growth**) and KGS segments (**7.8% growth**)[2](index=2&type=chunk)[5](index=5&type=chunk) - Operating income was impacted by **\$8.7 million** in non-cash stock compensation and **\$10.0 million** in company-funded R&D expenses[3](index=3&type=chunk) [Segment Performance](index=2&type=section&id=Segment%20Performance) The Kratos Government Solutions (KGS) segment was the primary revenue driver with \$239.5 million, showing 7.8% organic growth. The Unmanned Systems (KUS) segment also grew, with revenues of \$63.1 million, but faced margin pressure from legacy fixed-price contracts, resulting in a higher operating loss and lower Adjusted EBITDA compared to the prior year. [Unmanned Systems (KUS)](index=2&type=section&id=Unmanned%20Systems%20(KUS)) The KUS segment achieved 6.2% revenue growth to \$63.1 million, driven by increased target drone sales. However, profitability declined, with an operating loss of \$1.7 million and Adjusted EBITDA of \$1.7 million, due to cost pressures on multi-year fixed-price contracts. The segment demonstrated strong demand with a book-to-bill ratio of 1.8 to 1.0 for the quarter. KUS Segment Q1 2025 Performance | Metric | Q1 2025 (\$) | Q1 2024 (\$) | | :--- | :--- | :--- | | **Revenues** | \$63.1 million | \$59.4 million | | **Operating Loss** | \$(1.7) million | \$(0.4) million | | **Adjusted EBITDA** | \$1.7 million | \$2.9 million | | **Book-to-Bill Ratio** | 1.8 to 1.0 | N/A | | **Backlog** | \$347.1 million | N/A | - Profitability was negatively impacted by increased material, subcontractor, and labor costs on fixed-price contracts negotiated in 2020 and 2021[7](index=7&type=chunk) [Kratos Government Solutions (KGS)](index=2&type=section&id=Kratos%20Government%20Solutions%20(KGS)) The KGS segment reported revenues of \$239.5 million, an organic growth of 7.8% year-over-year, with strong performance in C5ISR, Defense Rocket Support, and Microwave Products. Operating income and Adjusted EBITDA both increased, reflecting favorable revenue volume and mix. The segment maintained a solid book-to-bill ratio of 1.0 to 1.0 for the quarter. KGS Segment Q1 2025 Performance | Metric | Q1 2025 (\$) | Q1 2024 (\$) | | :--- | :--- | :--- | | **Revenues** | \$239.5 million | \$217.8 million | | **Operating Income** | \$17.0 million | \$16.6 million | | **Adjusted EBITDA** | \$25.0 million | \$23.1 million | | **Book-to-Bill Ratio** | 1.0 to 1.0 | N/A | | **Backlog** | \$1.161 billion | N/A | - The most notable growth within KGS came from the C5ISR, Defense Rocket Support, and Microwave Products businesses, with organic growth rates ranging from **13.1% to 18.7%**[9](index=9&type=chunk) [Bookings, Backlog & Pipeline](index=1&type=section&id=Bookings,%20Backlog%20%26%20Pipeline) Kratos demonstrated strong business momentum with a consolidated book-to-bill ratio of 1.2 to 1.0 for both the first quarter and the last twelve months. Total backlog grew to \$1.508 billion, supported by a robust bid and proposal pipeline of \$12.6 billion. Consolidated Bookings & Backlog (as of March 30, 2025) | Metric | Q1 2025 (\$) | LTM (\$) | | :--- | :--- | :--- | | **Bookings** | \$365.6 million | \$1.401 billion | | **Book-to-Bill Ratio** | 1.2 to 1.0 | 1.2 to 1.0 | - Consolidated backlog increased to **\$1.508 billion** at the end of Q1 2025, up from **\$1.445 billion** at the end of Q4 2024[13](index=13&type=chunk) - The bid and proposal pipeline stood at **\$12.6 billion**, indicating a strong pipeline for future growth[13](index=13&type=chunk) [Cash Flow](index=2&type=section&id=Cash%20Flow) The company experienced a cash outflow during the quarter, with Cash Flow Used in Operations at \$29.2 million and Free Cash Flow Used in Operations at \$51.8 million. This was primarily due to working capital needs for revenue growth, inventory increases for future production, and investments in development initiatives. - Cash Flow Used in Operations was **\$29.2 million**, reflecting working capital requirements from revenue growth, increased inventories, and investments in the Unmanned Systems segment[6](index=6&type=chunk) - Free Cash Flow Used in Operations was **\$51.8 million** after funding **\$22.6 million** in capital expenditures[6](index=6&type=chunk) [Management Commentary and Outlook](index=3&type=section&id=Management%20Commentary%20and%20Outlook) [Management Commentary](index=3&type=section&id=Management%20Commentary) CEO Eric DeMarco expressed increased confidence in the company's 2025 and 2026 forecasts, citing a clearer defense funding environment and projecting organic revenue growth of approximately 10% in 2025 and 14% in 2026. Key growth areas identified include hypersonics, jet drones, propulsion systems, and C5ISR. The company is also expanding its Israel-based microwave electronics production facilities to support new program awards. - Management is confident in achieving **~10% organic revenue growth** in 2025 and **~14% in 2026**, bolstered by a clearer defense funding environment and a strong **book-to-bill ratio**[14](index=14&type=chunk) - Key future growth drivers include the hypersonic franchise, jet drones, jet engines, microwave electronics, and C5ISR systems[14](index=14&type=chunk)[15](index=15&type=chunk) - The company is expanding its Israel-based microwave electronics production facility, with a move scheduled for late June 2025 to support new large programs. A temporary impact on Q2 productivity is factored into guidance[14](index=14&type=chunk) - Kratos is focused on making strategic investments in its core business areas to increase market share, drive revenue growth, and improve margins[15](index=15&type=chunk) [Financial Guidance](index=4&type=section&id=Financial%20Guidance) Kratos reaffirmed its full-year 2025 guidance and provided initial guidance for the second quarter of 2025. The company anticipates full-year revenues between \$1,260 million and \$1,285 million and Adjusted EBITDA between \$112 million and \$118 million. Guidance includes significant investments in capital expenditures, primarily for expanding manufacturing and production facilities. Q2 2025 and Full Year 2025 Guidance | Metric ($ millions) | Q2 2025 Guidance ($ millions) | FY 2025 Guidance ($ millions) | | :--- | :--- | :--- | | **Revenues** | \$300 - \$310 | \$1,260 - \$1,285 | | **Operating Income** | \$3 - \$5 | \$34 - \$39 | | **Adjusted EBITDA** | \$21 - \$25 | \$112 - \$118 | | **Operating Cash Flow** | N/A | \$50 - \$60 | | **Capital Expenditures** | N/A | \$125 - \$135 | | **Free Cash Flow Use** | N/A | (\$75) - (\$85) | - The company is making elevated investments in capital expenditures to expand facilities for its Rocket Systems, Hypersonic, Microwave Products, and small jet engine businesses[17](index=17&type=chunk) [Financial Statements](index=10&type=section&id=Financial%20Statements) [Consolidated Statements of Operations](index=10&type=section&id=Consolidated%20Statements%20of%20Operations) For Q1 2025, Kratos generated \$302.6 million in total revenues, up from \$277.2 million in Q1 2024. Gross profit increased to \$73.6 million. Despite higher revenues, operating income slightly decreased to \$6.6 million from \$7.0 million, primarily due to increased SG&A and R&D expenses. Net income attributable to Kratos significantly improved to \$4.5 million. Q1 2025 Income Statement Highlights | Line Item | Q1 2025 ($ millions) | Q1 2024 ($ millions) | | :--- | :--- | :--- | | **Total Revenues** | \$302.6 | \$277.2 | | **Total Gross Profit** | \$73.6 | \$71.0 | | **Operating Income** | \$6.6 | \$7.0 | | **Income Before Taxes** | \$5.4 | \$4.0 | | **Net Income Attributable to Kratos** | \$4.5 | \$1.3 | [Consolidated Balance Sheets](index=14&type=section&id=Consolidated%20Balance%20Sheets) As of March 30, 2025, Kratos reported total assets of \$2.005 billion, an increase from \$1.951 billion at the end of 2024. The increase was driven by growth in unbilled receivables, inventory, and property, plant, and equipment. Total liabilities rose to \$617.3 million, while total stockholders' equity increased to \$1.388 billion. Balance Sheet Highlights | Line Item | March 30, 2025 ($ millions) | Dec 29, 2024 ($ millions) | | :--- | :--- | :--- | | **Cash and cash equivalents** | \$263.7 | \$329.3 | | **Total Current Assets** | \$864.4 | \$872.1 | | **Total Assets** | \$2,004.9 | \$1,950.9 | | **Total Current Liabilities** | \$304.9 | \$296.7 | | **Total Liabilities** | \$617.3 | \$597.7 | | **Total Stockholders' Equity** | \$1,387.6 | \$1,353.2 | [Consolidated Statements of Cash Flows](index=15&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended March 30, 2025, net cash used in operating activities was \$29.2 million, a significant shift from the \$0.7 million provided by operations in the prior-year period. This was mainly due to increases in unbilled receivables and inventory. Investing activities used \$22.6 million for capital expenditures, while financing activities used \$14.5 million, resulting in a net decrease in cash of \$65.6 million. Cash Flow Highlights | Line Item | Q1 2025 ($ millions) | Q1 2024 ($ millions) | | :--- | :--- | :--- | | **Net Cash (Used in) Operating Activities** | \$(29.2) | \$0.7 | | **Net Cash Used in Investing Activities** | \$(22.6) | \$(16.6) | | **Net Cash (Used in) Provided by Financing Activities** | \$(14.5) | \$282.6 | | **Net (Decrease) Increase in Cash** | \$(65.6) | \$266.1 | | **Cash at End of Period** | \$263.7 | \$338.9 | [Non-GAAP Financial Measures](index=8&type=section&id=Non-GAAP%20Financial%20Measures) [Reconciliation of Net Income to Adjusted EBITDA](index=12&type=section&id=Reconciliation%20of%20Net%20Income%20to%20Adjusted%20EBITDA) Kratos' Adjusted EBITDA for Q1 2025 was \$26.7 million, a slight increase from \$26.0 million in Q1 2024. The reconciliation from GAAP Net Income of \$4.5 million includes adjustments for interest, taxes, depreciation, amortization, and \$8.7 million in stock-based compensation. Reconciliation of Net Income to Adjusted EBITDA | Line Item | Q1 2025 ($ millions) | Q1 2024 ($ millions) | | :--- | :--- | :--- | | **Net income attributable to Kratos** | \$4.5 | \$1.3 | | Interest expense, net | \$0.9 | \$2.8 | | Provision for income taxes | \$0.9 | \$2.7 | | Depreciation | \$8.3 | \$7.2 | | Stock-based compensation | \$8.7 | \$9.2 | | Amortization of intangible assets | \$2.1 | \$2.1 | | Other adjustments | \$1.3 | \$0.7 | | **Adjusted EBITDA** | **\$26.7** | **\$26.0** | [Computation of Adjusted Earnings Per Share (EPS)](index=16&type=section&id=Computation%20of%20Adjusted%20Earnings%20Per%20Share%20(EPS)) Non-GAAP Adjusted EPS for Q1 2025 was \$0.12, compared to \$0.11 in the prior-year quarter. The calculation starts with GAAP net income and adds back non-cash and certain other expenses like amortization, depreciation, and stock-based compensation, resulting in a Non-GAAP Adjusted Net Income of \$18.9 million. Adjusted EPS Calculation | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | **GAAP Net Income (\$ million)** | \$4.5 | \$1.3 | | Total Adjustments (\$ million) | \$21.3 | \$19.2 | | Income Taxes on Non-GAAP measure (\$ million) | \$(6.9) | \$(7.1) | | **Non-GAAP Adjusted Net Income (\$ million)** | **\$18.9** | **\$16.1** | | **Adjusted EPS** | **\$0.12** | **\$0.11** | | Diluted Shares Outstanding (millions) | 156.2 | 141.5 | [Company Information and Disclosures](index=5&type=section&id=Company%20Information%20and%20Disclosures) [About Kratos Defense & Security Solutions](index=5&type=section&id=About%20Kratos%20Defense%20%26%20Security%20Solutions) Kratos is a technology company focused on the defense, national security, and commercial markets. The company emphasizes affordability and rapid development of mission-critical solutions. Its primary business areas include satellite ground systems, unmanned aerial drones, hypersonic vehicles, propulsion systems, C5ISR, microwave electronics, and virtual training systems. - Kratos positions itself as an innovative and disruptive change agent, specializing in designing products for rapid, large-quantity, and low-cost manufacturing[19](index=19&type=chunk) - Key business areas include jet-powered unmanned aerial systems, hypersonic vehicles, rocket and propulsion systems, C5ISR, and satellite command and control systems[20](index=20&type=chunk) [Forward-Looking Statements and Risk Factors](index=6&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) This section contains standard legal disclaimers regarding forward-looking statements, which include the company's financial guidance and expectations for future performance. It cautions investors that actual results may differ materially and lists numerous risk factors, such as government spending constraints, contract cancellations, supply chain disruptions, and geopolitical conflicts. - The report includes forward-looking statements concerning future financial performance, including revenue growth expectations for 2025 and 2026, profitability, and cash flow[21](index=21&type=chunk) - Key risks identified include dependency on U.S. government spending, changes in procurement laws, competition, supply chain issues, cybersecurity threats, and geopolitical conflicts in Ukraine and Israel[22](index=22&type=chunk)[23](index=23&type=chunk)