KTOS

It has been about a month since the last earnings report for Kratos (KTOS). Shares have lost about 13.7% in that time frame, underperforming the S&P 500. But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is Kratos due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers. Kratos Defense Q2 Earnings and Revenues Outpace EstimatesKratos Defense & Security Solutions, Inc. reported second-quarter 2026 adjusted earnings of 21 cents per share, which beat the Zacks Consensus Estimate of 13 cents by 61.5%. The bottom line also increased 90.9% from the year-ago quarter’s 11 cents.Kratos Defense reported GAAP earnings of 2 cents per share, which came in line with the year-ago quarter. Revenues of $458.8 million beat the consensus estimate of $412 million by 11.4% and increased 30.5% year over year. Kratos Government Solutions led the growth, while total organic revenues advanced 19.1%.Product sales climbed 33.5% year over year to $289.1 million. Service revenues increased 25.8% to $169.7 million. Selling, general and administrative expenses jumped 35.5% to $73.3 million. Research and development expenses rose 33.3% to $13.6 million.Amortization of intangible assets increased to $10.1 million from $2.8 million, while depreciation rose to $3.9 million from $3 million.Kratos recorded an operating loss of $1.6 million against the operating income of $3.7 million a year earlier. Unmanned Systems: Revenues from this segment totaled $79.1 million compared with $73.2 million in the year-ago quarter. The increase was primarily driven by Valkyrie-related activity.Kratos Government Solutions: Revenues from this segment amounted to $379.7 million compared with $278.3 million in the year-ago quarter. This rise was due to organic revenue growth across its Defense and Rocket Support business, Turbine Technologies and Microwave Products and Space, Training and Cyber businesses, with organic revenue growth rates of 50.2%, 43.3%, 29.5% and 8.7%, respectively, year over year. As of June 28, 2026, cash and cash equivalents totaled $1.44 billion, up from $0.56 billion as of Dec. 28, 2025.The company reported other current liabilities of $19.9 million as of June 28, 2026 compared with $9 million recorded as of Dec. 28, 2025.The net cash used in operating activities amounted to $38.4 million during the first six months of 2026 compared with $40.9 million in the same period of 2025. Consolidated bookings totaled $492.2 million in the second quarter, resulting in a book-to-bill ratio of 1.1. The last-12-month book-to-bill ratio was 1.3, with bookings of $1.99 billion.Backlog increased to $2.08 billion as of June 28, 2026 from $2.05 billion at the end of the first quarter. Funded backlog was $1.57 billion, while unfunded backlog totaled $512.7 million. The bid and proposal pipeline expanded to $15 billion from $14.3 billion. KTOS projects third-quarter 2026 revenues to be in the range of $460-$480 million. The Zacks Consensus Estimate for revenues is pegged at $460.3 million, which is at the lower end of the company’s guided range.Kratos raised its full-year 2026 revenue guidance to $1.75-$1.81 billion compared with the previous range of $1.7-$1.76 billion. The Zacks Consensus Estimate for revenues is pegged at $1.75 billion, which is at the lower end of the company’s guided range.Kratos Defense now expects operating cash flows to be in the range of $30-$50 million and free cash flow to be in the band of $85-$105 million for 2026. Since the earnings release, investors have witnessed a upward trend in fresh estimates. The consensus estimate has shifted 21.43% due to these changes. Currently, Kratos has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock has a grade of F on the value side, putting it in the fifth quintile for this investment strategy. Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in. Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Kratos has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Kratos Defense & Security Solutions, Inc. (KTOS) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Kratos' second quarter results drew a notably positive market response, with leadership attributing the strong performance to accelerated demand across its hypersonics, jet engine, and defense support businesses. CEO Eric DeMarco highlighted the company’s alignment with Department of Defense priorities, noting that Kratos' recent investments in scalable, affordable manufacturing positioned it to capture a growing pipeline of government contracts. Management credited new program awards in hypersonics and directed energy counter-UAS (unmanned aerial system) systems, as well as robust growth in the KGS segment, as key contributors to the quarter’s outperformance. Is now the time to buy KTOS? Find out in our full research report (it’s free). Revenue: $458.8 million vs analyst estimates of $411.2 million (30.5% year-on-year growth, 11.6% beat) Adjusted EPS: $0.21 vs analyst estimates of $0.15 (44.4% beat) Adjusted EBITDA: $38.2 million vs analyst estimates of $34.75 million (8.3% margin, 9.9% beat) The company lifted its revenue guidance for the full year to $1.78 billion at the midpoint from $1.73 billion, a 2.9% increase EBITDA guidance for the full year is $174.5 million at the midpoint, below analyst estimates of $177.7 million Operating Margin: -0.3%, down from 1.1% in the same quarter last year Organic Revenue rose 19.1% year on year (beat) Market Capitalization: $11.72 billion While we enjoy listening to the management’s commentary, our favorite part of earnings calls is the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention. Sheila Kahyaoglu (Jefferies) asked about the pace of hypersonics revenue growth and its relation to capital expenditure timing. CFO Deanna Lund explained sequential quarterly increases are expected, with integration facilities now supporting higher operational tempo. Seth Seifman (JPMorgan) questioned the ramp and mix between turbojet and turbofan engines over the next several years. CEO Eric DeMarco detailed plans for 3,000 turbojets in 2027 and noted turbofans will follow, with production scaling meaningfully in 2028 and beyond. Peter Arment (Baird) requested updates on drone production capacity, especially for the Valkyrie and Mighty Hornet platforms in Taiwan. DeMarco confirmed production rates are increasing, with new facilities enabling higher output and customization for customer needs. Trevor Walsh (Citizens) inquired about growth rates in microwave and space businesses. Lund indicated that while microwave growth may moderate, space and satellite revenue should remain strong, tracking with recent performance. Jonathan Siegmann (Stifel) asked about risks from potential U.S. budget disruptions. DeMarco replied that most core programs are base-budgeted, mitigating risk from continuing budget resolutions, and emphasized Kratos’ favorable position in both low-cost and high-end defense supply chains. In the coming quarters, the StockStory team will be watching (1) the pace at which new engine and hypersonic system facilities reach targeted production rates, (2) the conversion of pipeline opportunities into awarded contracts in drones and directed energy, and (3) ongoing management of supply chain and currency-related margin headwinds. The durability of demand from U.S. and allied defense agencies will also be a critical marker for long-term growth. Kratos currently trades at $62.23, up from $51.87 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members). WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses. But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE. Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.

Image source: The Motley Fool. Tuesday, Aug. 4, 2026 at 5 p.m. ET Vice President and General Counsel - Marie Mendoza President and Chief Executive Officer - Eric DeMarco Executive Vice President and Chief Financial Officer - Deanna Lund Operator: Hello, and welcome to Kratos Defense & Security Solutions Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Marie Mendoza, VP, General Counsel. You may begin. Marie Mendoza: Thank you. Good afternoon, everyone. Thank you for joining us for the Kratos Defense & Security Solutions Second Quarter 2026 Conference Call. With me today is Eric DeMarco, Kratos' President and Chief Executive Officer; and Deanna Lund, Kratos' Executive Vice President and Chief Financial Officer. Before we begin the substance of today's call, I'd like everyone to please take note of the safe harbor paragraph that is included at the end of today's press release. This paragraph emphasizes the major uncertainties and risks inherent in the forward-looking statements we will make this afternoon. Please keep these uncertainties and risks in mind as we discuss future strategic initiatives, potential market opportunities, operational outlook, financial guidance and other forward-looking statements during today's call. Today's call will also include a discussion of non-GAAP financial measures as that term is defined in Regulation G. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, at the end of today's press release, we have provided a reconciliation of these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP. Eric? Eric DeMarco: Thank you, Marie. Kratos' second quarter results reflect the execution of the Kratos team and that our strategy, including making internally funded investments to be first to market with relevant hardware and software that is engineered upfront for affordable mass production, is aligned with the Department of War's priorities. Representative of this alignment, Kratos' last 12-month book-to-bill ratio of 1.3:1, total last 12-month bookings of $1.99 billion, the number of opportunities for Kratos continuing to increase with the bid and proposal pipeline of $15 billion now and our business momentum forecast to accelerate into the second half of this year and continuing into '27. Kratos' second quarter year-over-year organic growth rate was 19.1%. We are forecasting third-quarter organic growth of approximately 19% to 25%, and we are forecasting fourth quarter year-over-year organic growth of approximately 19% to 31%. We are increasing our forecasted full year 2026 organic revenue growth up to 19% to 23%. I am emphasizing that these are all organic growth numbers. Kratos' EBITDA margins also are increasing and are forecast to continue to increase in the second half of '26 and into '27 as the business scales, production increases, and we realize financial leverage on our fixed infrastructure cost. We are generating and forecasting for increased margins while we are making significant investments as we pursue large new Department of War opportunities that are being presented to us and also with the recent strength of the shekel adversely impacting our Israeli operations profitability. We begin the second half of '26 and look forward to '27. We are more confident than ever in Kratos' future prospects, including for the following reasons. We have recently received new hypersonic system program awards, including Kraken 1, Kraken 2 and Nemesis. We have received a new directed energy counter UAS system program award with an initial value of approximately $160 million. We have received a new space domain awareness system production award with an initial value of approximately $100 million. The Space Force is now receiving a new EW system that includes Kratos hardware. We have recently received approximately $400 million in new hypersonic and other funding, and we expect to receive significant additional funding in the second half of this year. We hope to announce shortly a successful recent Kratos rocket system flight event directly related to missile defense, and we have been recently informed that we have received a new contract for a missile system program of record. The Pentagon has requested multiyear procurement authority for multiple munitions and missiles, including PrSM, AMRAAM, JASSM, LRASM, TLAM and MST, THAAD, Patriot, low-cost hypersonic strike systems, family of affordable mass munitions and low-cost containerized cruise missiles. These are all Kratos-supported programs or programs that we are positioning to support in the future. Why is this significant? The family of affordable mass missiles, the FAM program, for example, which the Air Force's Future Years Defense Program or FYDP calls for 27,000 low-cost cruise missiles, has been a top strategic priority of Kratos' jet engine initiative, and it's now happening. The Pentagon is also looking to acquire 10,000 cruise missiles under the low-cost containerized munitions program, another low-cost missile opportunity Kratos has been targeting for our engines. Other new low-cost cruise missile programs Kratos is supporting or positioned for include ERAM, ETV, ground launch cruise missile and JDAM-LR, together representing an estimated potential opportunity for tens of thousands of Kratos small turbojet engines. We believe that JDAM LR alone, which includes the Kratos engine, could be one of the largest single opportunities for our company with the potential for tens of thousands of systems by itself. As a result, we are currently placing initial orders with our supply chain for the components for 3,000 small Kratos TDI Spartan turbojet engines we expect to produce for customers in 2027, and we currently plan to order components during '27 for an additional 5,000 engines expected to produce for customers in 2028. The average selling price of a Kratos Spartan engine, this is a turbojet, is approximately $50,000. We will produce the Kratos Spartan Turbojet engines in our new now operational state-of-the-art manufacturing facility in Michigan. In addition to these low-cost cruise missile systems, it was reported the Air Force is looking to acquire over 11,000 JASSM and LRASM missiles over the next 6 or 7 years. This is an opportunity Kratos' BladeWorks turbofan engine family and our partner, General Electric Aerospace, have been pursuing. Kratos' new BladeWorks facility in Oklahoma, where we recently broke ground and where we plan to produce these turbofans is expected to be operational next summer, which schedule we are closely coordinating with our partner and the customer. We currently plan on turning on our BladeWorks turbofan engine supply chain in either Q4 of this year or Q1 of next so we can meet future customer-required delivery schedules. Additionally, Kratos' partner, GE, has recently revealed a new small turbofan design optimized for the cost profile of the CCA market sized for a range of mission applications. We are expecting Kratos' engine business to be one of our company's largest and fastest growing over the coming years. Kratos' hypersonic business, which generated approximately $200 million in revenue in 2025, and we are currently tracking for $400 million in '26, increasing to at least $700 million in 2027, is positioned to become Kratos' largest business with significant increased government funding in the hypersonic area expected for the foreseeable future. We expect to begin receiving the first of the 120 solid rocket motors we previously procured in Q3 this year. And with Kratos' new hypersonic system integration facility in Indiana operational, we see these as key elements of our hypersonic business expected future growth trajectory. Kratos' hypersonic and rocket systems business has several additional large new opportunities we are pursuing, including certain in source selection, which we expect to be awarded by the end of this year. We are confident in our hypersonic business' forecasted growth trajectory, including based on the several hundred million in funding we recently received. And also, it was recently reported that the MACH-TB program funding over the next 5 years, as reflected in the department's budget justification documents, is approximately $7 billion. An additional data point on why we believe that Kratos' hypersonic business will be a primary future growth driver for Kratos for the foreseeable future is the threat as it was recently reported that using U.S. intelligence estimates that China could have approximately 4,000 hypersonic missiles by 2035 and Russia could have 1,000. There is not only a drone, missile and space arms race underway, but also a hypersonic arms race, each of which Kratos intends on supporting the department to win. Kratos' microwave electronics and SATCOM business headquartered in Israel is working with the Israeli MOD and our partners, Israel Aerospace Industries, RAFAEL and Elbit to replenish stockpiles of advanced weapons, interceptors, SATCOM and other assets used in the Iran conflict. Kratos has over 700 employees in Israel, and we are working on and have access to certain of the highest technology battle-proven systems in the world. Kratos' Israeli employees, business partners and presence is a clear differentiator for our company globally. Kratos' satellite C2 and space domain awareness business, our company's largest, is also rapidly growing and expecting significant future margin expansion with space having never been more important for global security and as space increasingly becomes a warfighting domain. On the commercial side, Kratos' relationship with our partner, global satellite operator, SES, is outstanding with SES being an industry-leading technology company with a future technology and business road map that is truly exciting for SES, its customers, industry and for Kratos. Kratos' industrial gas turbine business area continues to ramp. It is currently one of the fastest-growing business areas in our company. With certain industrial gas turbines, we are working on being air cooled, which we believe is truly differentiating in the market. Kratos' Unmanned Systems business had a solid Q2, and we expect to receive an additional Marine Corps Valkyrie order by the end of this year. It was reported that in recently released Marine Corps budget justification documents that the Marines plan to spend $1.28 billion on their CCA program over the relevant 5-year period. Kratos Valkyries are in Europe with our partner, Airbus, and we continue to work with a number of customers on Tactical Firejet, including Taiwan. It was recently reported that Taiwan is planning to adopt a new version of the Valkyrie in addition to its Tactical Firejet initiative, Mighty Hornet. Certain Kratos jet drones are now flying with Kratos jet engines, increasing performance, capability and time to market for our customers. The number of opportunities that Kratos has across our company has never been stronger and continues to increase, both in the United States and internationally. The Department of War is looking for companies like Kratos to invest, move rapidly, mass produce and field the product fast in large quantities at a practical cost, and Kratos is stepping up and executing. Kratos is currently in an investment phase aligned with the department's reindustrialization initiative, which is related to the number of long -- new long-term program opportunities we're receiving. We're focused on organic growth, execution, winning large new programs, supporting the United States and the Department of War and generating a return for our investors. Deanna? Deanna Lund: Thank you, Eric. Good afternoon. In summary, our second quarter's performance exceeded our forecasted revenue and EBITDA targets. And as Eric mentioned, we continue to be on track to meet our previously reported full year 2026 revenue goal of approximately 15% to 20% of organic revenue growth and approximately 100 basis points improvement in adjusted EBITDA margin performance from our reported 2025 operating results. Revenues for the second quarter were $458.8 million, above our estimated range of $400 million to $410 million, with a consolidated organic growth rate of 19.1%, comprised of an organic growth rate of 22% in our KGS segment and 8.1% in our Unmanned Systems segment. Notable year-over-year organic revenue growth in our KGS segment included our defense rocket support, turbine technologies, microwave products and space training and cyber businesses with organic revenue growth rates of 50.2%, 43.3%, 29.5% and 8.7%, respectively. Adjusted EBITDA for the second quarter was $38.2 million, above the high end of our estimated range of $30 million to $35 million, reflecting the increased revenue and revenue mix. Unmanned Systems second quarter 2026 revenue was up $5.9 million or 8.1% organically, with the increase primarily driven by Valkyrie-related activity. KGS' second quarter 2026 revenue was up $101.4 million year-over-year from the second quarter of '25 with organic revenue growth of 22%, excluding the impact of the recent acquisitions of Nomad and Orbit, which contributed $40.2 million. Second quarter 2026 cash flow used in operations was $11 million, primarily reflecting the working capital requirements related to the revenue growth impacting our receivables by approximately $59 million and increases in inventory of approximately $10 million and increases in prepaid and other assets of approximately $14 million, primarily reflecting prepayments for long-lead materials as well as investments we are continuing to make related to certain development initiatives in our Unmanned Systems, Rocket Systems and Space and Satellite businesses. Free cash flow used in operations for the second quarter of '26 was $18.9 million after reflecting funding of $17.2 million of capital expenditures and net of $9.3 million in proceeds from the sale of Valkyries, which were reported as company-owned capital assets and previously classified as capital expenditures when manufactured, and therefore, reflected as an inflow in investing activities when sold. As we planned, we are continuing to make investments to expand and build out certain of our manufacturing and production facilities in our microwave products, rocket systems, hypersonic and jet engine businesses to meet existing and anticipated customer orders and requirements and investing in related new machinery, equipment and systems. Consolidated DSOs or days sales outstanding decreased from 130 days during the first quarter of 2026 to 114 days during the second quarter of '26, primarily reflecting the achievement of billing milestone events. Our contract mix for the second quarter of '26 was 67% fixed price, 29% cost plus and 4% time and material contracts. Revenues generated from contracts with the U.S. federal government during the second quarter of '26 were approximately 69%, including revenues generated from contracts with the DoW, non-DoW federal government agencies and foreign military sales contracts and 20% generated from foreign customers and 11% generated from commercial and state and local entities. Moving on to financial guidance. Our financial guidance we provided today includes our expectations and assumptions for our supply chain execution, the impact of employee sourcing, hiring, retention and the related costs. Our third quarter '26 revenue guidance reflects the estimated revenue mix and estimated leverage on elevated administrative, manufacturing overhead and bid and proposal costs that we have ramped in the business to support the forecasted full year '26 growth as well as the estimated impact of foreign currency impacts, including on our microwave products Israeli business, which is being adversely impacted by the strength of the Israeli shekel versus the U.S. dollars as we are paid in U.S. dollars for work performed but pay our vendors and workforce in shekels. Simply stated, Kratos' second quarter and 6 months ended adjusted EBITDA would have been $2.5 million and $2.8 million higher, respectively, if the increase in the shekel over the past 6 months had not occurred. Further, our forecast for the full year includes an estimated impact of approximately $5 million to $7 million negative impact to EBITDA related to the continued estimated impact of the strength of the shekel. Our third quarter revenue guidance of $460 million to $480 million reflects estimated organic revenue growth of approximately 19% to 25% as compared to the third quarter of '25. Our revised full year cash flow guidance has been updated to include the working capital requirements related to the recent decision to commence procurement of the materials and equipment in the third and fourth quarters to ramp our production of jet engines to 3,000 in 2027 to address the demand for engines for small cruise missiles. Also includes the shift in timing of construction and procurement of related machinery and equipment, removes certain capital expenditures, which are now funded under customer contract, and includes a shift in classification of investments for various drone opportunities, which will be classified as a use of working capital in our operating cash flow as work in process or inventory rather than capital expenditures when incurred. The forecasted total investments for the year effectively remains unchanged at approximately $250 million to $270 million. However, the geography of where certain of these investments are reported on our cash flow statement has shifted between inventory or working capital and operating cash flow versus capital expenditures or investing cash flow. Eric DeMarco: Great. Thank you, Deanna. We'll turn it over to the moderator for questions. Operator: [Operator Instructions] Our first question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Eric and Deanna, great quarter on the growth side. The full year growth rate still implies a meaningful acceleration in the second half, and maybe I'll hone in specifically on hypersonics. Eric, I think you mentioned $400 million this year, still going to $700 million next year. How do you think about that in the second half? And how does that fit with some of the CapEx changes as well as we think about the growth? Eric DeMarco: Go ahead, Deanna. Deanna Lund: Yes. So for the hypersonic business, Sheila, the expectation going from Q2 to Q3 sequentially is approximately $20 million to $25 million of increase, and that's saying $20 million to $25 million, maybe up to $30 million incremental in Q4 from Q2's level. Eric DeMarco: And the big piece operationally, Sheila, is our hypersonic system integration facility is operational now in Q3. And we have multiple lines, production lines, integration lines, if you will, for the motors that are now coming in and the flyers that will be coming in, we integrate them and we have the launch manifest and out they'll go. And that op tempo increases Q3, Q4 and then it increases significantly in 2027, which we have the contract for and the funding for. Operator: Our next question comes from the line of Seth Seifman with JPMorgan. Seth Seifman: I wanted to start off asking about the engine business. And I think you've spoken a lot about the hypersonics business being sort of the fastest-growing piece of the company. It sounds like the engines have a bit of a chance to catch up. And so maybe if you can give a little more color on the phasing of that and maybe the distinction between the turbofans and the turbojets and how the different pieces of that will ramp up, let's say, over the next 2 to 3 years and how that will compare to where things are going on hypersonics. Eric DeMarco: Yes. Very good. So let's talk turbojets first. Turbojets, think 250 pounds of thrust on down -- this is our Spartan family, which we build in Michigan. These are not PowerPoints. These are all engines that work, that are flying today. I went through the various programs. There are many more that are out there. There are literally, as I said, and you can see it in the budget justification docs in the J-Books, tens of thousands, multiple tens of thousands of low-cost $300,000 cruise missiles that are coming beginning next year. The ones publicly that I can talk about that we're designed in on, and I'm probably going to miss some here, is JDAM-LR, Ferra, we're on several with Northrop Grumman, and we're on several more with Lockheed Martin. The big one, of course, is JDAM-LR with Boeing. We're designed in on all those, and we're in on many others. We have a building plan that indicates what we need to build in '27 and '28 and '29. We have leaned forward and we have placed the orders now for the components for 3,000 engines to be built in 2027 and were at least 3,000 for customers. And then we have a building plan where we're going to be ordering, as I mentioned in the remarks, the components for 5,000 more engines for 2028. And I'm not going to give a specific number for 2029, but that could increase significantly. The selling price average for these is $50,000 each. So that's those. On the turbo fans. So these are roughly -- it can adjust 600 pounds of thrust on up. These are much bigger, much more sophisticated. These go in, as I mentioned, JASSM and LRASM. I gave you the numbers that were coming -- that have been publicized there on the increase for those 2 types of cruise missiles. There are several others we cannot talk about here because we're under -- either under an NDA. That factory is going to be up and running, as I said, in the summer of '27 in Oklahoma. It's mapped into missiles coming off the production line in 2020 -- late '27, '28. That will begin LRIP in 2028. That's the partnership with GE. It's a 50-50 partnership. And so any numbers I give financially just divide them by 2 because it's 50-50. And as I mentioned, there are thousands of those planned as well. Those are the 2 biggest for us, those turbojets and those turbofans. Seth Seifman: Okay. Excellent. And then maybe just one to follow up on the guidance for this year. You mentioned some of the headwinds from the shekel. It seems like that's limiting some of the margin expansion that's happening here in Q2 and Q3. Is there anything else we should be aware of with regard to margin? And then are there some mix factors that are pushing the margin back up in Q4? Deanna Lund: You're correct. So the biggest headwind that we're facing is that shekel impact. So the impact for the second quarter was about $2.5 million. For the first quarter, it was much smaller at $300,000. The estimate that we are forecasting at this point is about $5 million to $7 million for the year. So we're expecting that strength, unfortunately, to continue for the second half. So that is some of the headwind. Otherwise, we would have expected to see more margin expansion in the third and fourth quarters. But that's the single most significant headwind from a margin perspective. Eric DeMarco: Yes. And Seth, some of those other platforms we're on, we're on CMMT or COMET, we're on Speed Racer, we're on Carrera, we're on Silver Fox, we're on Gray Wolf, and we're on Lumberjack in addition to JDAM-LR. So those are the public ones I can talk about. Operator: Our next question comes from the line of Peter Arment with Baird. Peter Arment: Nice results. Eric, on -- you mentioned Taiwan. Maybe you could give us an update on the developments with the Mighty Hornet. It certainly seems like it's well positioned and now it sounds like there's some interest in Valkyrie. Maybe you could just give us a Taiwan download here. Eric DeMarco: Yes. So on the first one, the Mighty Hornet, which is the derivative of our Tactical Firejet, and this is one of the Kratos drones now that has a Kratos engine. So I think it's another first for Kratos. We're the first company under the same roof that's building a plane and building an engine. We have flights coming up with the customer soon. I'm not allowed to give the specific dates. We're going to do some things, and we have to hit some things. Assuming they go well, the customer is talking about putting us into production first half of next year on the Mighty Hornet. Those would be produced initially in Oklahoma on the Valkyrie derivative. I was very surprised that the customer came out and did the interview that they did, and they talked about this. They talked about the reason that they want to do it is because the Valkyrie is flying, it's proven. It's flown with the Air Force. It's flown with the Marine Corps, it's deployed weapons. Very importantly, I believe they also talked about is it's rail launched, but it also is runway capable. So it has incredible flexibility. And they talked about a different propulsion type of aspect they wanted to have with the airplane. And they're talking about making a decision also in the first half of next year. I have to leave it there because that's what they said, and I'm under an NDA, but that appears -- both of those appear to be progressing very well for us. Peter Arment: Terrific. And then just could you give us an update on kind of overall production capacity capabilities for Valkyrie now that things are starting to move forward on a number of different fronts? Eric DeMarco: Yes. And so we're increasing our production rate right now, as I've talked about before. We -- I believe as we get into '27, we'll be up to 1.5 planes on average a month. So we'll be getting to 18. I had mentioned a couple of calls ago, I think that we were looking to get on an average of 40. It's going to depend on the configuration where we ultimately get to that the customers want. So for example, if the predominant number of the airplanes that the customer want are rail launched or trolley launched, we'll be closer to the 40 number. If the type of airplane that the customer wants is conventional takeoff and landing CTOL, it will be closer to a 35 number because they're a little bit more sophisticated to make in the factory and the customer will want less of them. And so we're tracking for a ramp in '27 that as we head into '28, we're going to be able to handle our U.S. customer. You know who that is, hopefully, the Taiwan customer. And we have 2 other international customers. I'm hoping we're going to be able to get through State Department, and we're going to be able to announce those very soon. Operator: Our next question comes from the line of Mike Crawford with B. Riley Securities. Michael Crawford: I believe, Eric, in the beginning, you mentioned ERAM, that extended range attack munition, which I think is called the Rusty Dagger. And is that another one of the derivatives that's coming, that's driving some of your engine growth? Eric DeMarco: I cannot talk about any of those because of NDAs. I can't. The ones that I mentioned are the ones I can talk about. Michael Crawford: Okay. And then just for the follow-up question. So it's great to see that Valkyrie production rate rise at your expanded facility. In the past, you've also had a number of other CCA-type tactical unmanned aircraft with perhaps greater performance that have been through various phases of development. Are any of those still in the running? Or are we distilled now to like Firejet and Valkyrie derivatives? Eric DeMarco: No. There are 2 others that are in the running. Both of them now are classified. We are both -- we are under contract on both of them. And one of them is in the release of weapon phase. So there are -- so in addition to Tactical Firejet and Valkyrie, there are 2 others that are under contract. Operator: Our next question comes from the line of Trevor Walsh with Citizens. Trevor Walsh: Eric, maybe just a clarification. You called out the new GE engine that's going for some of the, I think, the increment to CCAs little higher thrust. It wasn't exactly clear when I -- as I read and we read the PR on that as to how you would be partnering with GE on that one. So could you maybe just either confirm or just explain if that's -- how that is either the same or different maybe than the first GEK engine, if you could? Eric DeMarco: Yes, yes, absolutely. So on the -- we have a number of, I'll call them, programs going with GE. The one that's most public and that's most talked about is the GEK partnership, and that's for a range of a certain thrust class, think of missiles that fall into those missiles. And that's a 50-50 partnership, and that's the one that we're -- that I've been talking about, we're moving forward with them on those certain missile systems. We are also working with them in a contractor role, but it's more than a contractor, it's a partnership role. And I have to be careful here because we're under NDA, but everyone that they've talked about, we're working on that I'm aware of. If I'm missing any, I apologize. So we are working on them. I would look at Kratos with GE. GE brings incredible depth, breadth, technology, credibility, capability, especially if you're talking building 10,000 jet engines that are going in $2 million cruise missiles. Kratos brings the ability to do very low-cost engineering and NRE and very low-cost mass production of those engines, which makes us a very formidable team. So just think of that on all of these small engines, how we're working with GE. Trevor Walsh: Great. That's terrific. I appreciate the added clarity there. Deanna, maybe a follow-up for you, but Eric feel free to chime in, too. I appreciate all the callouts for the KGS growth rates across the different business lines, pretty high double digits for a lot of those. Can you -- it's probably easy just based on the prepared remarks to understand how durable the defense and rocket support business growth rate is, probably turbine too. But as far as microwave products and space, I guess I'm just trying to understand as we think about modeling these out a little bit or just applying them to what we're doing is how much those latter 2, again, the microwave and space kind of those percentages that you called out for this quarter, if that's sort of a decent kind of foreseeable future next couple of quarters and next year type of growth rate? Or could there be some flux to those? Deanna Lund: I think there may be some flux in the microwave one, so -- but it will still be meaningful. We're still forecasting meaningful growth rates, but it may be a little bit lower than what we just experienced in this last quarter. And I think the space satellite and training and cyber business, that should be probably along the same lines of what we just did in the second quarter. Operator: Our next question comes from the line of Jonathan Siegmann with Stifel. Jonathan Siegmann: Congratulations on strong results. Hoping you could maybe talk a little bit about -- you guys have been through a couple of cycles with sometimes when Washington throws a wrench in things. You've expressed a lot of confidence on the outlook, but just how you're thinking about maybe risks of extended time periods, that sort of budget and any kind of interruptions that Washington might throw at you. Eric DeMarco: Yes. Yes. So our forecast basically assumes there's going to be a Q4 CRA. So October, November, December, it will get settled out sometime in January. That's kind of what we're -- how we've modeled everything out because that's kind of what we've seen 4 out of the last 5 years. A significant amount of our work is program of record based. So it's in the base budget. It's in the base appropriation. We have some work that was in Reconciliation Bill 1 or Big Beautiful Bill 1. A significant amount of that we have received the funding for. The money has been obligated. We've seen it. So we are in pretty good shape on the $1 trillion spend for fiscal '26, which was $850 billion plus $150 billion. As we head into '27, we're looking at a $1,150 billion base. So it's up 15% on the base, and I think that's pretty bipartisan, and I think that's a minimum of what we're going to get. As we all know, there's a Reconciliation 2, it's now called Reconciliation 4 for $350 billion to get '27 potentially up to $1.5 trillion. My tummy tells me we're going to be somewhere between $1.15 trillion and $1.5 trillion. And even if we're not at $1.15 trillion, that's significant growth. And within that growth, as I think you can all see, in that bubble where there's only so much money, there's a huge shift going on to lower-cost mass munitions. The future force structure for the foreseeable future, look at it like a barbell. On one side, there's going to be a ton of and attritable and expendable munitions and -- attritable, expendable munitions, drones, missiles, et cetera. On the other side of the barbell, there's going to be a handful. There's always going to be exquisite of exquisite weapons and munitions and there's not going to be much in the middle. As you know, we're the merchant supplier to both the new defense technology companies, and we're producing our own low-cost weapon systems as a prime on the left. And on the right-hand side, we are the go-to military-grade hardware supplier to the primes on the exquisite. So we feel pretty good about our spot irrespective of what may happen in the budget dynamics. Jonathan Siegmann: That's great. And it sounds like we're just starting to see some contributions from the new CapEx. You mentioned the hypersonic facility opened in Q3. Is there any else -- any other new capacity contributing to '26 that we should be aware of? Or is this all '27? Eric DeMarco: Yes. Remember, Anaconda, which is our radar program. So the Anaconda facility is underway. It's not ready yet. But because of the demand of what we're doing, we are already starting to work on SPY-1 radars. So that is ramping a little bit in the second half of '26. When this facility comes online, middle of next year, this Anaconda, anechoic chamber radar facility, radar refurbishment facility is going to be one of the next legs up for us going into '28. And again, we've got the contract, we've got the program, et cetera. And the other one is Helios. Helios, we're going to be hopefully breaking ground on that later this year. That will be up and ready to go into '27, beginning of '28. This is a hypersonic system arc chamber and laser facility. A lot of the work is classified, but that is going to be another leg for us step up in 2028. Operator: Our next question comes from the line of Andre Madrid with BTIG. Andre Madrid: In the same way that you provided color on kind of the step-up in the hypersonics business, can you provide something similar for KTT or maybe if I could throw some numbers at you and maybe gauge your read of that, if that's all right. Is it safe to assume an incremental like $150 million next year related to the turbofans? And if so, I know that the base business is pretty small, probably call it, barely 8 figures as of now. Excluding this, how should the rest of the KTT business grow into next year? Eric DeMarco: Yes. So the forecasted big jump for 2027 over 2026 on the engines is the turbojets. That's the big jump, the turbojets. And that's the low-cost cruise missiles. And if you guys know -- you see what's required next year, the missiles that the airframers have got to put together and deliver next year, '28, '29 and that -- the big step up '27, '28 is the turbo jets. On the turbofans, if everything comes together according to plan and according to the funding documents, 2028, that's going to begin. And then that steps up big time in '29 and '30. And so '28, '29 is where we will be at significant production rate for both -- the plan holds for both the turbojets and the turbofans. And KTT is in there, of course. Now drilling down even more into KTT. We do -- we have a lot of engine programs that I don't talk about, or we'd be here for hours, right? We are -- we put out a press release in the past week or 2 on a critical element engine of a new weapon system, okay? This is in KTT. If this goes into production, which would be second half of '27, beginning of '28, this could be a $200 million to $300 million a year run rate program by itself. But we don't talk about it because we can't. But we're designed in, it's ours, okay? There's a space program where we are working on the propulsion system for the prime. If that program is to go, that's going to begin in KTT in '28. So we've got some biggies out there that we're designed in on. We're the guy. I think on the first one, we're under an exclusivity arrangement that if it goes, and I think it's going to go within the funding docs, it's going to be another step up for us. So that's kind of the framework on how we're looking at the two. Andre Madrid: Got it. That's really helpful. And then I guess now pivoting maybe to Unmanned Systems. You added that organic growth of 10% to the guide, which is new. Can you provide us a little more color on how that should progress through the second half and into '27? And I guess on that point, with the increase in '26, should we assume some level of growth into '27 as well? I'm pretty sure right now your preliminary '27 outlook does not really account for much KUS contribution. Eric DeMarco: So we have to be very careful here because of the customer, all right? And so we can't get into much detail on this because then it will give away what they're doing. You could probably tell in today's prepared remarks that I purposely, because it's the fact, focus -- tried to focus everybody on where we have very clear line of sight quarterly, yearly, the hypersonics, the engines and the space business. I mean those 3 alone are just -- they're ripping. Our space business is ripping, and a lot of the work is classified. On the drone side, we're going to be very cautious, and we may not be able to report it to you until we ship it, and it shows up in the numbers. And then we may not be able to say much about it, but you're going to know what it is. And I'm sorry, I don't like to operate that way, but we have to, based on what the customers told us here. Andre Madrid: No, I understand, and I appreciate what color you can give. Operator: Our next question comes from the line of Clarke Jeffries with Piper Sandler. Clarke Jeffries: Just sort of a clarifying question around that expansion that you did to Oklahoma City. Trying to put in context what you've said earlier in the call around maybe some upside with Mighty Hornet. Just how does this expansion kind of put you on track for expanding the sort of 165 high-performance jet drones. It seems like Mighty Hornet or the Tactical Firejet would be early in fiscal '27. But also, how much does the expansion explicitly help that 35 to 40 production run rate for Valkyrie in out years? And then one follow-up. Eric DeMarco: Yes. So right now, as you said, we're -- I think we're the largest jet drone producer in the world that I'm aware of, maybe outside of the Ukraine at 165 or 170 a year. The Oklahoma facility, and this ties back to a question Mr. Crawford asked. The Oklahoma facility right now is producing Valkyries, Tactic Firejet -- Tactical Firejet and one other. We've just recently approved an expansion of the facility by another 50,000 square feet or so that is happening, okay? That additional 50,000 square feet is going to be needed for -- it's a mix now, Valkyrie, Firejet target drones. You can imagine with what everything that's going on in the world right now, the target drones are in great demand because so many people are buying missile systems and radars, they've got to exercise the weapon system and train the crew, okay? It's also going to be very important for Tactical Firejet and Mighty Hornet. And then very importantly, Mr. Crawford asked about some other drone programs. If one of these goes into production, I think it will second half next year, we're going to build that other one at this facility because it's going to have a classified space. Clarke Jeffries: Perfect. And then just you talked about 2 months ago, maybe a month ago, $150 million single award for counter UAS Solar Shield. Just curious what's the expected time line for that contract? And maybe help us think about what the opportunity for like mobile C-UAS from the Department of Energy might look like long term. Eric DeMarco: Yes. So that one, we got -- this is a very important program. We received -- I forgot the number, $30 million or $40 million of funding already right out of the chute. So we have begun on this. This is part of our ramp, by the way, into Q4 of this year. One of the reasons we're comfortable with our Q4 is because of this program and we got the funding for it. As you probably saw, this is with the Department of Energy, and it's related to securing nuclear assets, okay? It's a mobile and transportable system. We are the prime. We are the prime system integrator. We are responsible for the entire system working, including the directed energy weapon system. If we're successful, I believe this program is going to grow or this initiative is going to grow significantly because this type of a capability is needed right now, and we're the guy that has it at low, low cost -- low cost. We're doing these systems in Montana. So that's the backdrop there. It's ramping now. It's going to be big in Q4, and it's going to continue to ramp into 2027. Operator: Our next question comes from the line of Pete Skibitski with Alembic Global. Peter Skibitski: Just want to review a couple of things. Eric, you mentioned the $7 billion in the FYDP for MACH-TB over 5 years. So I guess, would it be reasonable for us to factor in that business being $1 billion plus type of run rate starting in 2028 or so, just on the... Eric DeMarco: Brother, yes, that's what's there to go take a look at the justification documents and you can -- and I'm not trying to be coy here because Deanna and I -- we got a forecast for this year. We got an outline for next year. I don't want to get ahead of myself in any of this. But this is one of the reasons for the last couple of calls, including today's call. I've been trying, as I said a minute ago, to orient the investors on our hypersonic franchise. It's growing rapidly. And if things come together the way you're indicating, which is there, this could be very, very substantive for the next 5 years. Peter Skibitski: Yes, that's great. That's great. Just shifting gears to JASSM and LRASM. Obviously, these missiles have been around for a long time, right? So is the dynamic that's going on the DoW, they want a second source engine supplier and you guys are filling that role? And if that's a dynamic, what do you think your share would be on that when you kind of ramp? Eric DeMarco: Yes. It's a double dynamic. It's -- obviously, the department is trying to foster the industrial base that they have the reindustrialization initiative I mentioned, and they want additional competition. The current provider on JASSM and LRASM is outstanding. It's an outstanding company. The CEO is outstanding. They're doing a great job. But the quantities, as I mentioned, and those, I think, 10,000 or 11,000, they're incredible. They're going up 3x or 4x a year. And so it's second source for national security purposes, and it's quantities and capacity to do it. And I don't want to get into any numbers here in specific. But GE and Kratos, we're looking at thousands of these over -- thousands over a period of time. Operator: Our next question comes from the line of Austin Moeller with Canaccord. Austin Moeller: So it seems like in the Iran war, there's been a pretty significant expenditure of both cruise missiles and rocket artillery. So just given the opportunity there to add turbojets or guidance kits on to what would be considered dumb bombs, do you have a sense of how many JDAMs, SDBs or other dumb bombs are out there available for you to add turbojets or guidance kits to? Eric DeMarco: Tens and tens and tens of thousands. There are many numbers -- it's a great question. There are many numbers floating around on putting a wing kit on and bolting on a small turbo jet and now you have extended range and reach and it's much more capable. The numbers are staggering. We have an initiative in Kratos that we've had going on, another one I just haven't talked about because I give you guys so much. You've heard about deep demilitarization, demil. So think of what you just said, you take old ordnance and you burn it or you destroy it, or you take stuff out of it and then you dispose of it. It's expensive to demil. We have an initiative going in here. We're actually doing it. We're remilling it where it's less costly to repurpose an existing ordnance for something you just talked about than it is to destroy it. And it's one of our -- we're doing that under the radar, under the cover because I don't want anybody else to figure out what we're doing. But it ties exactly into what you're saying because of the amount of ordnance out there that is scheduled to be demil, but we're remilling it. That's our plan is to remil it. Austin Moeller: Okay. And there's some large contracts that are starting to go out for the space component of Golden Dome. Do you have a sense on when we might start seeing already appropriated dollars either from Big Beautiful Bill, which you say a lot of that's gone out or from the '26 Space Force budget to purchase virtualized or software-defined ground system to support these satellites that are going to be going up? Eric DeMarco: That's another great question. So about -- in the last 3 weeks, 2 companies were awarded a multibillion-dollar constellation for exactly what you're talking about. We are the ground for one of them with our software-defined command and control, TT&C and tracking. We can't talk about it. I don't think we're ever going to be able to talk about it, but it's exactly what you just said and our team won, and we're the ground. On other programs that we have, 2 of which we've announced in the last 2 quarters, we are seeing -- we have seen significant funding and it's increasing. As I mentioned in my prepared remarks where I said there's a hypersonic arms race going on, the big dog is the space arms race. And we've all heard about LEO and MEO and GEO. VLEO is happening now. And VLEO is another major opportunity area for Kratos because of the nature of our software-defined command and control. Operator: Our next question comes from the line of Ken Herbert with RBC Capital Markets. Kenneth Herbert: You continue to call out pretty significant investment, $40 million to $45 million for the rocket system inventory build. Can you just update us, Eric, and apologies if I missed it, but update us on what you're seeing on that supply chain, how you're handicapping risk on that supply chain as you think about the ramp of hypersonics and some of your other businesses and sort of your optimism that, that supply chain continues to get the kind of improvement and unlock that you need to see the ramp in your business? Eric DeMarco: Yes. So our Zeus solid rocket motors, L3 Aerojet is building them for us. They are doing an outstanding job for us. We don't have what I'll call a partnership agreement with them, but they're a true partner of Kratos. And they are doing an incredible job. They have met every milestone on time, on budget. So at least when it comes to Zeus, for us, they're doing a hell of a job. And part of it may be because they see the next 5, 7 years, what's coming in addition to what we've already done, okay? On the second one, Oriole, this is our partner, Northrop Grumman, Northrop Orbital ATK. Ken, here again, when it comes to us, I can't speak for what I read in the press about other system issues. They are outstanding with us. I mean we're getting ready. We're looking at having to place another order for dozens and dozens more, and they have been very accommodating. And again, they're on time and on schedule. So I can only speak for Kratos, but -- we do some other ones, but those are the 2 primary ones. L3Harris and Chris is great and Northrop Grumman and Kathy is great, and they're just outstanding. Kenneth Herbert: Okay. That's excellent, Eric. And [Technical Difficulty] Prometheus and where you stand and some of the next major milestones as we think about [Technical Difficulty] Facility. Eric DeMarco: Ken, you broke up a little. When I think about which facility, Buddy? Kenneth Herbert: Prometheus, sorry, the investments there on the motor side. Eric DeMarco: Yes. I'm so glad you said that. If you all haven't seen it, a podcast came out this morning on Prometheus with a major publication, and it walks through the entire campus. It walks through the platforms, that walks through the timing, it walks through everything with our partner, RAFAEL. So go take a look at that for details on what I'm about to say. It's incredible. I didn't know it was coming out this morning and it did. Ken, we are on track for first fire next year. We are on track with our partner, RAFAEL. And I got to tell you, RAFAEL is outstanding. They are stable, outstanding, and they are bringing proven military-grade qualified energetics. This is so far ahead of any of these other guys that are saying they're going to stand up an energetics facility. They got to get qualified, et cetera, et cetera, et cetera. We is. So this is going to begin middle of next year. I think we'll get into production, what year is next year, '27, '28, we'll get into production. Operator: Our next question comes from the line of Joe Gomes with NOBLE Capital. Joseph Gomes: So you guys are talking about the 3,000 and then the 5,000 and it starting to add up or starting to get the ordering of the component parts later this year and into '27. As you look at the supply chain there, are there any critical suppliers for certain parts? Or do you have multiple part suppliers for the components there that maybe we need to keep an eye on? Eric DeMarco: Yes. So Joe, as you know, we have lots of Kratos systems here. One of my favorite Kratos systems is what's the most important part. It's the one you don't have, to complete a system. So we got to make sure every one of our vendors and every one of our suppliers, including their backup and the backup to the backup is qualified. We're giving them production quantity, so they're in production and they're going through quality, through delivery and through integration. So we are -- this is one -- obviously, I'm not going to say we're bulletproof, but this is so important to the company, to our company. We are going to incredible length with the people we're bringing in from the auto industry, from the Department of War, from primes that are coming in to work with us, to work for Kratos to set up these lines, work the supply chain, work the quality, control and delivery schedules with them in redundancy. So we are -- this is a huge effort because, as I said, you just said, we're going to do a minimum of 3,000 next year, a minimum of 5,000 in '28. It could be 8,000, 10,000 in '29 if things come together. So -- and these are just the turbojets. We have to do the same thing with the turbofans beginning, as I said, we're going to start ordering for those probably -- I said Q4 this year, Q1 next year, probably Q1, we're going to have to start ordering for those, and then we'll make a very big order Q4 of '27 or Q1 of '28 because that factory will be set. Joseph Gomes: Okay. And then Eric, I just want to try and get your views on this or your -- point me in the right direction here. So as you know, there's a big private company out there, which I consider a peer in the same space as you guys that's been raising capital here at valuations at multiples of where Kratos is trading at on an enterprise value to EBITDA or excuse me, revenue basis. And I'm wondering, am I incorrect they are not a peer? Is there a disconnect something there that we saw Kratos stock run up and now it's come back down. And this private company is now saying there's rumors out there they're raising even more money at even a higher valuation that just as I sit here, looking at the 2 companies kind of shake my head and just seeing, am I missing something? I'm just trying to get your view as to what the disconnect there is. Eric DeMarco: Yes. Anduril is an absolute peer of Kratos. We're peers, okay? They have Lattice, their software that ties everything together. We have OpenSpace, our software that ties together space assets, space vehicles, space ground, et cetera, et cetera. They have unmanned jet drones. Kratos has unmanned jet drones. You may have seen recently now they're getting into the hypersonic area. We're in the hypersonic area, okay? They're in solid rocket motors. They acquired Adranos, so they're in solid rocket motors. We're in solid rocket motors with our partners and then also our new facility with RAFAEL. They are an outstanding company. I want them to succeed. The United States needs them to succeed. We are absolute peers, no question about it. The only difference I see between -- and they are partners with us, we work. We work together, and I can't talk about what we're working together on. The only difference I see right now between the 2 of us is financial because they're private and we're public. And because they're private, they can take different approaches on things and invest more because they don't have to -- they're not held to yet. If they get public, then they'll be held to it. They're not held to certain metrics that a public company is held to. So that might be an advantage for them. I have some advantages on them being public and it brings me access to certain things. From a valuation standpoint, I can't speak to that. I think I said on the last earnings call or the one before it. In my opinion, I'm the CEO, I drink the Kool-Aid. Kratos is the most valuable defense company there is. And you listen to our calls, you look at our programs, look at our growth rates. I mean, we could grow 30% in Q4 and make money, okay? And we're going to keep going in '27 and '28. We're the most valuable one to our investors, and we're the most valuable one to the department, and I'm sure they would say the same thing that they are. Operator: Our next question comes from the line of Cashen Keeler with BNP Paribas. Cashen Keeler: You guys brought up a pair of facilities this year, you're bringing up some more next year. Can you maybe just talk about or quantify any start-up costs related to ramping these, what the payback periods look like? And what sort of awards you might need to get to that 100 basis points of margin improvement next year as well? Eric DeMarco: Yes. I didn't hear the first part of your question. You said investing in and then I think blipped a little bit. Investing in what? Cashen Keeler: Yes. No, you're just bringing up some more facilities next year. Just curious on start-up costs related to ramping those and payback periods as well. Eric DeMarco: Got it. Yes. So just -- it's a good question. So as a reminder, we don't do a build it and they will come. We don't do that, okay? We built our hypersonic integration facility because we won the MACH-TB program and some other programs. So we knew what the operational tempo would be. We built the facility to satisfy that; plus some other things I think we're going to get. We did not build our new turbojet engine facility in Michigan until I was extremely comfortable that we were going to be designed into multiple cruise missiles, which I went through today. We've just now broken ground on the facility in Oklahoma for the turbofans with our partner, GE. You've heard me talk about the programs. I can't get into much more detail than that, but it is not a build it and hope they come. It is a build it because we have a program or we have a partner or we have a contract, and we can model out the quantities, we can model out the profitability, and we can model out the rate of return we're going to get on our investment. Anaconda, which I mentioned, the radar one, I think that's SPY-1. I think that, that program was announced for us goes through 2053 publicly for the radars. That's on Anaconda. On Helios, we've already got 2 or 3 customers signed up that who said that if we built that arc jet facility for the hypersonic test, they would sign up. So everything we do, we've got a customer, a partner, a program or funding, and we can do a rate of return calculation, so we know we're getting an adequate rate of return for our investors. Operator: Our next question comes from the line of Gabriel Flouret with Cantor Fitzgerald. Gabriel Flouret: This is Gabriel Flouret on for Colin Canfield. Can you discuss how your customers are talking about CCA volumes relative to their national security outlook? Specifically, where is Kratos seeing customer pricing and production schedule pull to the left? How should we think about that momentum versus U.S. production scaling? Eric DeMarco: I'm not -- if you can see me, I'm smiling because that program, that is one you haven't heard me talk about that for a long time. I cannot talk about the CCA program with the Air Force. Can't talk about it. It is a classified, super classified program, and we can't say anything. On the Marine Corps CCA program, you saw how I said today, it's been reported that the program of record is this much money. It's been reported because that's how I have to talk because I'm not approved to talk about anything. So again, I'm sorry, but I just can't get into any of that because we do not have approval to discuss it. Operator: Our next question comes from the line of Brian Dobson with Clear Street. Jonah Henschel: First of all, congrats on a great quarter. And this is Jonah Henschel speaking on behalf of Brian Dobson here at Clear Street. Given the Valkyrie momentum you've described tonight, I'm curious what kind of updated color you can provide when it comes to the LRIP Phase 1 timing. Deanna Lund: What were the last few words? Eric DeMarco: Yes, the last part, you broke up. The what timing? Jonah Henschel: Sorry. Sorry. The LRIP Phase 1... Eric DeMarco: LRIP, so low-rate initial production. I got it. I got it. So as I said in my prepared remarks, we expect to receive by the end of the year, an additional award where we're partnered with Northrop on that MUX TACAIR program with Northrop and the Marines. That's all I can say right now is that we expect something by the end of this calendar year. Jonah Henschel: Okay. Understood. And then just a quick follow-up. When Valkyrie ended up scaling, I'm curious how can we think about margins in that segment? Eric DeMarco: Right. Yes, I think 10% to 15% EBITDA margin depending on configuration. And that's domestic, I'm -- very important domestic because we got another -- a number of international ones going. And the international ones are typically higher fees for us because they're international and there are different aspects. And in certain instances, we're not held to TINA, Truth in Negotiations Act, because we're not sole source. So international, I think 15% to 20%, domestic think 10% to 15%, depending on configuration and quantity. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Eric for closing remarks. Eric DeMarco: Great. Excellent. Thank you for joining us this afternoon, and we look forward to talking to you when we report Q3, I think, in the first week of November. Thank you. Operator: That concludes today's conference call. Thank you for your participation. You may now disconnect. Before you buy stock in Kratos Defense & Security Solutions, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Kratos Defense & Security Solutions wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $411,427!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,335,252!* Now, it’s worth noting Stock Advisor’s total average return is 965% — a market-crushing outperformance compared to 215% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of August 11, 2026. This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has positions in and recommends Kratos Defense & Security Solutions. The Motley Fool has a disclosure policy. Kratos (KTOS) Q2 2026 Earnings Call Transcript was originally published by The Motley Fool

Ondas Inc. ONDS will release results for the second quarter of 2026 on Aug 13. ONDS’ earnings missed the Zacks Consensus Estimate in the last quarter. Its earnings have missed estimates in three of the four trailing quarters, while beating once, with an average negative surprise of 210.68%. Image Source: Zacks Investment Research Let us see how ONDS is expected to fare in terms of revenues and earnings this time. The Zacks Consensus Estimate for the second-quarter bottom line is a loss of 7 cents, unchanged in the past 30 days. The same for revenues stands at $66.7 million, indicating a 963.5% jump from the year-ago actual. The company’s top line is driven by strong business momentum in its Ondas Autonomous Systems (“OAS”) division. Robust M&A activity is a key factor underpinning rapid OAS scaling. Our proven model does not predict an earnings beat for Ondas this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here. Ondas Holdings Inc. price-consensus-eps-surprise-chart | Ondas Holdings Inc. Quote ONDS currently has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter. You can see the complete list of today’s Zacks #1 Rank stocks here. Ondas entered the second quarter with significant momentum in the OAS. The company reported first-quarter revenues of $50.1 million, up more than 10X year over year, driven by robust demand across counter-drone (Cyber-over-RF platform and Iron Drone interceptor systems), Intelligence, Surveillance, Reconnaissance, or ISR, and other defense-related solutions. The demand is likely to have remained strong amid simmering geopolitical tensions across the globe. This is likely to have cushioned the second quarter performance. ONDS’ active deployment spans more than 45 countries across defense, homeland security, public safety markets and critical infrastructure. Ondas, through rapid M&A, has built a multi-domain autonomy platform spanning ISR, c-UAS, loitering munitions/strike systems, unmanned ground vehicles and stratospheric sensing via World View acquisition. The Mistral acquisition has positioned it to compete more effectively for large-scale, multi-year government contracts. Mistral is a prime contractor on U.S. Army and USSOCOM uncrewed and autonomous platforms procurement vehicles. It brings U.S.-based manufacturing, assembly, integration and quality assurance capabilities to Ondas’ operations, supporting program execution and compliance with the country’s defense sourcing requirements. This expanding reach is complemented by a rapidly growing opportunity set, including a $4.3 billion active pipeline and more than $1.6 billion in strategic program potential, as highlighted by management on the last earnings call. It is advancing in other markets such as Israel. The company is also targeting large-scale defense initiatives such as the LASSO program, which alone represents a potential opportunity nearing $1 billion. Further, on July 22, management noted that the company had secured $70 million in new orders across its defense, security and autonomous technology portfolio over the past four weeks.  As of June 22, 2026, Ondas noted that second-quarter-to-date order activity stood at more than $150 million. Ondas Holdings Inc. revenue-quarterly | Ondas Holdings Inc. Quote On the last earnings call, the company raised its 2026 revenue outlook to at least $390 million, citing a backlog exceeding $450 million. However, with multiple acquisitions announced, such as Omsnisys, Cyberhawk and DZYNE, the growth narrative has become increasingly acquisition-led. Following the DZYNE acquisition (July 2026), Ondas now expects 2026 revenues of at least $525 million, up from the previous forecast of $390 million. DZYNE is expected to contribute approximately $191 million in revenues in 2026 and $300 million in 2027. That said, execution risks remain significant.  So many acquisitions in such a short period can create integration overload and execution risks, as achieving targets depends on timely integration and conversion of backlog into revenues. Even if a single large customer delays, reduces or cancels, revenues would decline materially. Profitability remains concerning despite sharp revenue growth. Ondas faces rising operating costs as it invests in personnel and infrastructure capabilities to capture additional market opportunities. Amid rising costs, management expects adjusted EBITDA losses to have stayed elevated in the second quarter of 2026, likely marking the peak loss period. Beyond that, ONDS expects improvement throughout the year, driven by higher revenues, gross profit and operational scale. Ondas also faces enormous competitive pressure. Players such as Red Cat Holdings RCAT, Kratos Defense & Security Solutions KTOS and Draganfly DPRO are also vying to capture a larger share. ONDS’ shares have inched up 3.8% in the past six months, underperforming the Wireless-National industry’s growth of 86.6%. The S&P 500 composite and the Zacks Computer and Technology sector are up 13.5% and 20.4%, respectively, over the same time frame. Image Source: Zacks Investment Research RCAT, KTOS and DPRO have lost 11.1%, 28.3% and 30.4%, respectively, over the same time frame ONDS stock is trading at a forward 12-month price-to-sales of 6.38X compared with the industry’s 7.82X. Image Source: Zacks Investment Research In comparison, RCAT, KTOS and DPRO trade at multiples of 6.41X, 5.75X and 0.7X, respectively. Ondas is seeing strong structural tailwinds driven by defense demand and an increasingly differentiated multi-domain platform. While acquisitions strengthen the long-term growth narrative, near-term performance will hinge on integration and the company’s ability to convert its expanding opportunity set into consistent financial performance. Investors already holding can remain invested, but new investors would be better off waiting for a more attractive entry point. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Ondas Holdings Inc. (ONDS) : Free Stock Analysis Report Kratos Defense & Security Solutions, Inc. (KTOS) : Free Stock Analysis Report Red Cat Holdings, Inc. (RCAT) : Free Stock Analysis Report Draganfly Inc. (DPRO) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Kratos Defense & Security Solutions, Inc. KTOS used its second-quarter call to emphasize faster production growth in hypersonics, jet engines and unmanned systems, backed by new capacity and program funding. President and CEO Eric DeMarco tied expansion projects to identified demand, while CFO Deanna Lund highlighted currency pressure and heavy investment as the main offsets to margin gains. Second-quarter adjusted earnings of $0.21 per share topped the Zacks Consensus Estimate of $0.13. Revenues came in at $458.8 million, which beat the $411.7 million consensus mark. Kratos Defense & Security Solutions, Inc. price-consensus-eps-surprise-chart | Kratos Defense & Security Solutions, Inc. Quote CFO Deanna Lund guided third-quarter revenues to $460-$480 million. Kratos also raised full-year revenue guidance to $1.75-$1.81 billion, with third-quarter organic growth projected at 19% to 25%. President and CEO Eric DeMarco cited $1.99 billion of trailing-12-month bookings, a 1.3 book-to-bill ratio and a $15 billion bid-and-proposal pipeline as support for stronger second-half momentum. CEO DeMarco said hypersonics is tracking toward $400 million of 2026 revenues after about $200 million in 2025, with at least $700 million targeted for 2027. A Jefferies analyst asked about the ramp-up. CFO Deanna Lund said third-quarter hypersonics revenues should rise $20 million to $25 million from the second quarter, with the fourth quarter up $20 million to as much as $30 million from second-quarter levels. DeMarco said the Indiana integration facility is operational and the first of 120 previously ordered solid rocket motors should arrive in the third quarter. He also cited roughly $400 million of recent hypersonic and related funding. DeMarco said Kratos has ordered components for 3,000 Spartan turbojets for 2027 and plans another 5,000 engines for 2028. The average selling price is about $50,000. A JPMorgan analyst asked about timing. DeMarco said turbojets drive the 2027 step-up, while the 50-50 GE turbofan partnership is expected to enter low-rate initial production in 2028 after the Oklahoma BladeWorks facility opens in summer 2027. A NOBLE Capital analyst pressed on supply-chain risk. DeMarco said Kratos is qualifying suppliers and backups, with redundancy and quality control central to meeting planned volumes. DeMarco said Kratos expects another Marine Corps Valkyrie order by year-end. The 2026 outlook includes about 10% organic growth for Unmanned Systems, supported by recent awards including Valkyrie. A Baird analyst asked about Taiwan and capacity. DeMarco said Mighty Hornet customer flights could support production in the first half of 2027 if milestones are met, while Valkyrie output should average 1.5 aircraft per month during 2027. DeMarco said longer-term Valkyrie capacity should reach 35 to 40 aircraft annually depending on configuration. To a Clear Street analyst, he put domestic Valkyrie EBITDA margins at 10% to 15% and international margins at 15% to 20%. CFO Lund called the Israeli shekel the largest margin headwind. She said it reduced second-quarter adjusted EBITDA by about $2.5 million and is expected to create a $5 million to $7 million full-year headwind. Even so, Lund said Kratos still expects its 2026 adjusted EBITDA margin to improve about 100 basis points from 2025. Full-year adjusted EBITDA guidance is $173 million to $176 million. Kratos forecasts $250 million to $275 million of 2026 investments, including $125 million to $135 million of capital expenditures. Free cash flow use is projected at $85 million to $105 million. DeMarco repeatedly emphasized that new facilities are tied to programs, partners, contracts or committed funding rather than speculative demand. Management’s tone remained confident on hypersonics, engines, drones and space, while execution priorities centered on supplier readiness, production rates and converting funded opportunities into revenues. KTOS carries a Zacks Rank #4 (Sell), with a Value Score of F, Growth Score of D, Momentum Score of C and VGM Score of F. Zacks associates a poor Rank with declining earnings-estimate revisions and favors A or B Style Scores with a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The current combination sits outside that more favorable Rank-and-Style profile. The Zacks Rank can change as earnings estimates are revised after the just-reported results, so the reading remains a point-in-time signal. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Kratos Defense & Security Solutions, Inc. (KTOS) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Kratos Defense & Security Solutions, Inc. KTOS reported second-quarter 2026 adjusted earnings of 21 cents per share, which beat the Zacks Consensus Estimate of 13 cents by 61.5%. The bottom line also increased 90.9% from the year-ago quarter’s 11 cents. Kratos Defense reported GAAP earnings of 2 cents per share, which came in line with the year-ago quarter. Revenues of $458.8 million beat the consensus estimate of $412 million by 11.4% and increased 30.5% year over year. Kratos Government Solutions led the growth, while total organic revenues advanced 19.1%. Product sales climbed 33.5% year over year to $289.1 million. Service revenues increased 25.8% to $169.7 million. Kratos Defense & Security Solutions, Inc. price-consensus-eps-surprise-chart | Kratos Defense & Security Solutions, Inc. Quote Selling, general and administrative expenses jumped 35.5% to $73.3 million. Research and development expenses rose 33.3% to $13.6 million.Amortization of intangible assets increased to $10.1 million from $2.8 million, while depreciation rose to $3.9 million from $3 million. Kratos recorded an operating loss of $1.6 million against the operating income of $3.7 million a year earlier. Unmanned Systems: Revenues from this segment totaled $79.1 million compared with $73.2 million in the year-ago quarter. The increase was primarily driven by Valkyrie-related activity.Kratos Government Solutions: Revenues from this segment amounted to $379.7 million compared with $278.3 million in the year-ago quarter. This rise was due to organic revenue growth across its Defense and Rocket Support business, Turbine Technologies and Microwave Products and Space, Training and Cyber businesses, with organic revenue growth rates of 50.2%, 43.3%, 29.5% and 8.7%, respectively, year over year. As of June 28, 2026, cash and cash equivalents totaled $1.44 billion, up from $0.56 billion as of Dec. 28, 2025.The company reported other current liabilities of $19.9 million as of June 28, 2026 compared with $9 million recorded as of Dec. 28, 2025.The net cash used in operating activities amounted to $38.4 million during the first six months of 2026 compared with $40.9 million in the same period of 2025. Consolidated bookings totaled $492.2 million in the second quarter, resulting in a book-to-bill ratio of 1.1. The last-12-month book-to-bill ratio was 1.3, with bookings of $1.99 billion.Backlog increased to $2.08 billion as of June 28, 2026 from $2.05 billion at the end of the first quarter. Funded backlog was $1.57 billion, while unfunded backlog totaled $512.7 million. The bid and proposal pipeline expanded to $15 billion from $14.3 billion. KTOS projects second-quarter 2026 revenues to be in the range of $460-$480 million. The Zacks Consensus Estimate for revenues is pegged at $460.3 million, which is at the lower end of the company’s guided range.Kratos raised its full-year 2026 revenue guidance to $1.75-$1.81 billion compared with the previous range of $1.7-$1.76 billion. The Zacks Consensus Estimate for revenues is pegged at $1.75 billion, which is at the lower end of the company’s guided range.Kratos Defense now expects operating cash flows to be in the range of $30-$50 million and free cash flow to be in the band of $85-$105 million for 2026. Kratos Defense currently has a Zacks Rank #4 (Sell).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. RTX Corporation’s RTX second-quarter 2026 adjusted earnings per share (EPS) of $1.89 beat the Zacks Consensus Estimate of $1.66 by 13.9%. The bottom line improved 21.1% from the year-ago quarter’s level of $1.56.Revenues rose 14.5% year over year to $24.71 billion and outpaced the consensus mark of $22.83 billion by 8.2%.Northrop Grumman Corporation NOC reported second-quarter 2026 adjusted earnings of $7.68 per share, which beat the Zacks Consensus Estimate of $6.84 by 12.3%. The bottom line, however, declined 5.8% from the year-ago quarter’s level of $8.15.NOC’s total sales of $10.88 billion in the second quarter outperformed the Zacks Consensus Estimate of $10.80 billion by 0.7%. The top line also improved 5.1% from $10.35 billion reported in the year-ago quarter.Textron Inc. TXT reported second-quarter 2026 adjusted earnings of $1.62 per share, which surpassed the Zacks Consensus Estimate of $1.52 by 6.6%. The bottom line also rose 4.5% from $1.55 in the year-ago quarter. The company reported total revenues of $3.83 billion, which beat the Zacks Consensus Estimate of $3.82 billion by 0.15%. The top line also increased 3% from the year-ago quarter’s level of $3.72 billion. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Kratos Defense & Security Solutions, Inc. (KTOS) : Free Stock Analysis Report Northrop Grumman Corporation (NOC) : Free Stock Analysis Report Textron Inc. (TXT) : Free Stock Analysis Report RTX Corporation (RTX) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

This article first appeared on GuruFocus. Revenue: Second quarter revenue was $458.8 million, above the estimated range of $400 million to $410 million. Organic Growth Rate: Consolidated organic growth rate was 19.1% year-over-year. Segment Organic Growth: KGS segment grew 22% organically; Unmanned Systems segment grew 8.1% organically. Adjusted EBITDA: Second quarter adjusted EBITDA was $38.2 million, above the high end of the estimated range of $30 million to $35 million. Cash Flow Used in Operations: Second quarter cash flow used in operations was $11 million. Free Cash Flow: Free cash flow used in operations was $18.9 million for the second quarter. Capital Expenditures: Funded $17.2 million in capital expenditures during the quarter. DSOs: Consolidated day sales outstanding decreased from 130 days in Q1 2026 to 114 days in Q2 2026. Contract Mix: 67% fixed price, 29% cost plus, and 4% time and material contracts. Revenue by Customer Type: 69% from U.S. Federal government, 20% from foreign customers, and 11% from commercial and state/local entities. Third Quarter Revenue Guidance: Expected revenue of $460 million to $480 million, reflecting organic growth of approximately 19% to 25%. Full Year Organic Growth Guidance: Increased forecast to 19% to 23% organic revenue growth for 2026. Foreign Currency Impact: Adjusted EBITDA was negatively impacted by $2.5 million in Q2 and $2.8 million for the six months due to the strengthening of the Israeli shekel; full-year impact estimated at $5 million to $7 million. Warning! GuruFocus has detected 5 Warning Signs with KTOS. Is KTOS fairly valued? Test your thesis with our free DCF calculator. Release Date: August 04, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Kratos Defense & Security Solutions Inc (NASDAQ:KTOS) reported strong Q2 2026 results with 19.1% organic revenue growth, exceeding its forecasted revenue and EBITDA targets. The company's last 12-month book-to-bill ratio was 1.3 to 1, with total bookings of $1.99 billion and a bid and proposal pipeline of $15 billion, indicating strong future demand. Kratos Defense & Security Solutions Inc (NASDAQ:KTOS) is forecasting significant growth in its hypersonic business, with revenue expected to increase from $200 million in 2025 to $400 million in 2026 and at least $700 million in 2027. The company is positioning itself for massive growth in the low-cost cruise missile market, with plans to produce 3,000 small turbojet engines in 2027 and 5,000 more in 2028, representing a potential for tens of thousands of engines. Kratos Defense & Security Solutions Inc (NASDAQ:KTOS) has received several new major program awards, including a $160 million directed energy counter-UAS system and a $100 million space domain awareness system, and expects additional significant funding in the second half of 2026. The company's EBITDA margins are increasing and are forecast to continue to rise as the business scales, despite significant investments in new facilities and programs. Kratos Defense & Security Solutions Inc (NASDAQ:KTOS) is expanding its production capacity with new facilities in Michigan, Oklahoma, and Indiana, which are expected to be operational and contribute to growth in 2027 and 2028. The company's partnership with GE Aerospace for turbofan engines positions it well for the JASM and LRASM missile programs, which are expected to see significant production increases. Kratos Defense & Security Solutions Inc (NASDAQ:KTOS) is seeing strong demand for its unmanned systems, including Valkyrie and tactical fire jet, with potential orders from Taiwan and other international customers. The company's space and satellite business is rapidly growing, with new contracts for space domain awareness and software-defined command and control systems, including a major win for a multi-billion dollar constellation program. Kratos Defense & Security Solutions Inc (NASDAQ:KTOS) is facing a significant headwind from the strength of the Israeli shekel, which is adversely impacting its Israeli operations' profitability, with an estimated $5 million to $7 million negative impact to EBITDA for the full year. The company's Q2 2026 cash flow used in operations was $11 million, reflecting increased working capital requirements due to revenue growth, including a $59 million increase in receivables and $10 million in inventory. Kratos Defense & Security Solutions Inc (NASDAQ:KTOS) is making significant investments in manufacturing facilities and inventory, with total investments forecasted at $250 million to $270 million for the year, which could pressure near-term cash flow. The company's guidance assumes a Q4 Continuing Resolution (CRA) in Washington, which could create uncertainty and potential delays in funding and program execution. Kratos Defense & Security Solutions Inc (NASDAQ:KTOS) is unable to provide detailed guidance on its unmanned systems business due to customer confidentiality, limiting visibility into this segment's near-term growth. The company's microwave products business in Israel is being adversely impacted by the shekel strength, and growth rates in this segment may be lower than the 29.5% organic growth seen in Q2 2026. Kratos Defense & Security Solutions Inc (NASDAQ:KTOS) faces potential supply chain risks in ramping up production of its turbojet engines, despite efforts to qualify multiple suppliers. The company's Q3 2026 revenue guidance of $460 million to $480 million implies a sequential increase, but the growth is dependent on the successful ramp of hypersonic and other programs in the second half of the year. Kratos Defense & Security Solutions Inc (NASDAQ:KTOS) is making significant investments in new facilities like Anaconda and Helios, which will not contribute to revenue until 2027 or 2028, creating a period of elevated capital expenditure without immediate returns. The company's contract mix is heavily weighted towards fixed-price contracts (67%), which could expose it to cost overruns and margin pressure if production costs increase unexpectedly. Q: Can you provide more color on the phasing of the engine business ramp-up over the next two to three years, and how it will compare to hypersonics?A: Eric DeMarco (CEO) detailed the two-pronged engine strategy. For turbojets (Spartan family, ~$50,000 ASP), Kratos has placed orders for components for 3,000 engines for 2027 delivery and plans to order for 5,000 more for 2028, driven by low-cost cruise missile programs like JDAM-LR. For turbofans (BladeWorks, 50/50 partnership with GE), production is expected to begin in 2028, ramping significantly in 2029-2030, targeting programs like JASM and LRASM. The turbojets are the big jump for 2027, while turbofans will be the significant contributor in 2028 and beyond. Q: What is the expected growth trajectory for the hypersonic business in the second half of 2026, and how does the new facility support this?A: CFO Deanna Lund stated that the hypersonic business is expected to increase sequentially by approximately $20-25 million in Q3 and another $20-30 million in Q4 from Q2 levels. CEO Eric DeMarco added that the new hypersonic system integration facility in Indiana is now operational, with multiple production lines for motors and flyers, which will drive a significant increase in operational tempo in Q3, Q4, and into 2027. Q: What are the key margin headwinds and tailwinds for the remainder of 2026?A: CFO Deanna Lund identified the strengthening Israeli shekel as the single most significant margin headwind, with an estimated $5-7 million negative impact to EBITDA for the full year. Excluding this, the company would have seen more margin expansion in Q3 and Q4. The company is forecasting increased EBITDA margins in the second half of 2026 and into 2027 as the business scales and production increases. Q: Can you provide an update on the Taiwan opportunities, specifically the Mighty Hornet and Valkyrie derivative programs?A: CEO Eric DeMarco confirmed that the Mighty Hornet, a derivative of the tactical fire jet, is now flying with a Kratos engine. The customer is discussing production in the first half of next year, with initial production in Oklahoma. Regarding the Valkyrie derivative, the customer has publicly expressed interest due to its proven flight record and flexibility (rail-launched and runway capable). A decision is also expected in the first half of next year. Q: How is Kratos positioned regarding the Department of War's budget and the shift toward affordable mass munitions?A: CEO Eric DeMarco explained that Kratos' forecast assumes a Q4 Continuing Resolution (CRA). He highlighted the significant shift in defense spending toward lower-cost mass munitions, creating a "barbell" structure: a large number of attritable/expendable munitions on one side and a few exquisite weapons on the other. Kratos is positioned as a merchant supplier to both sides, making it resilient to budget dynamics. He also noted the Pentagon's request for multi-year procurement authority for several programs Kratos supports, including PRISM and low-cost hypersonic strike systems. Q: What is the expected timeline and potential for the new counter-UAS directed energy program (Solar Shield)?A: CEO Eric DeMarco stated that Kratos has already received $30-40 million in initial funding for the program, which is ramping now and will be significant in Q4. Kratos is the prime system integrator for the mobile and transportable system, responsible for the entire system including the directed energy weapon. He believes this program will grow significantly if successful, as the capability is needed now and Kratos provides it at low cost. Q: Can you provide an update on the Prometheus solid rocket motor facility and its timeline?A: CEO Eric DeMarco confirmed that Kratos is on track for the first fire at the Prometheus facility next year, in partnership with Rafael. He emphasized that Rafael brings proven, military-grade, qualified energetics, which puts Kratos far ahead of competitors who are still working on qualification. Production is expected to begin in 2027-2028. Q: How should we think about the margin profile for the Valkyrie program as it scales?A: CEO Eric DeMarco provided margin guidance for the Valkyrie program: 10-15% EBITDA margin for domestic contracts, depending on configuration and quantity. International contracts are typically higher, in the 15-20% range, due to different pricing dynamics and not being held to the Truth in Negotiation Act (TINA) in certain sole-source situations. Q: What is the status of the supply chain for the solid rocket motors (Zeus and Oriel) needed for the hypersonic ramp?A: CEO Eric DeMarco praised both L3Harris (for Zeus motors) and Northrop Grumman (for Oriel motors) as outstanding partners. He stated that both have met every milestone on time and on budget, and are accommodating Kratos' plans for additional orders. He noted that these partners see the long-term demand picture and are performing exceptionally well for Kratos. Q: Can you discuss the new GE engine revealed for the CCA market and how Kratos is partnering with GE on it?A: CEO Eric DeMarco clarified that Kratos has multiple programs with GE. The most public is the 50/50 GEK partnership for a certain thrust class of missiles. Beyond that, Kratos works with GE in a partnership role on other small engines. He described the combined team as formidable: GE brings depth, technology, and credibility, while Kratos brings low-cost engineering and mass production capabilities, making them well-suited for programs requiring thousands of engines. For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Kratos Defense & Security (NASDAQ:KTOS) shares jumped 7.8% in pre-market trading after the defense technology company reported second-quarter 2026 results that comfortably exceeded Wall Street expectations and raised its growth outlook for the full year. The company posted adjusted earnings of $0.21 per share, well above the analyst consensus of $0.13, while revenue reached $458.8 million, outperforming forecasts of approximately $411 million. Organic revenue increased 19.1% from a year earlier, supported by strong demand across its hypersonics, engine and unmanned systems businesses. Management increased its full-year 2026 organic revenue growth forecast to between 19% and 23%, compared with its previous outlook of 15% to 20%. Kratos also lifted its full-year revenue guidance to a range of $1.75 billion to $1.81 billion, reflecting confidence that business momentum will continue through the second half of 2026 and into 2027. Following the results, Piper Sandler upgraded Kratos from Neutral to Overweight and assigned the stock a price target of $75. The brokerage highlighted improving visibility for growth through the MACH-TB programme, expanding turbojet and turbofan manufacturing capacity, and the potential for additional tactical drone production over the coming year. Cantor Fitzgerald maintained its Overweight rating on the shares, although it reduced its price target to $100 from $115, signalling that analysts remain broadly positive despite the stock’s weakness earlier this year. During the earnings call, Chief Executive Officer Eric DeMarco said Kratos currently has a $15 billion bid-and-proposal pipeline and a book-to-bill ratio of 1.3x, indicating healthy demand across its portfolio. He also said revenue from the company’s hypersonics business alone is expected to reach at least $700 million by 2027. The broader US market provided only modest support, with the S&P 500 gaining around 0.3% while the Nasdaq traded broadly unchanged. The sharp move in Kratos shares was driven primarily by company-specific developments rather than wider market conditions. Recent earnings from other defense contractors had already strengthened sentiment across the sector, reinforcing investor appetite for companies delivering strong financial performance and improving growth prospects. The combination of better-than-expected earnings, higher full-year guidance, a positive analyst upgrade and supportive industry sentiment helped fuel a strong rebound in Kratos shares, which had fallen roughly 38% since the beginning of the year before the earnings announcement. Kratos Defense & Security Solutions stock price

Interested in Kratos Defense & Security Solutions, Inc.? Here are five stocks we like better. Kratos exceeded Q2 expectations: Revenue reached $458.8 million, up 19.1% organically year over year, while adjusted EBITDA was $38.2 million—both above guidance. The company raised its growth outlook: Kratos now expects full-year 2026 organic revenue growth of 19% to 23%, supported by a 1.3-to-1 book-to-bill ratio, $1.99 billion in bookings and a $15 billion pipeline. Hypersonics and propulsion are major expansion areas: Hypersonic revenue is projected to grow from about $200 million in 2025 to $400 million in 2026, while the company is investing in thousands of turbojet engines and new manufacturing capacity. Growth investments are weighing on cash flow, and a stronger Israeli shekel is expected to reduce 2026 EBITDA by $5 million to $7 million. 3 Drone Stocks That Should Soar After the Summer Slump Kratos Defense & Security Solutions (NASDAQ:KTOS) reported second-quarter 2026 revenue and adjusted EBITDA above its prior forecast, citing demand across hypersonics, jet engines, space systems, counter-unmanned aircraft systems and unmanned aircraft. Revenue for the quarter was $458.8 million, exceeding the company’s projected range of $400 million to $410 million. Organic revenue grew 19.1% from a year earlier, including 22% growth in the Kratos Government Solutions, or KGS, segment and 8.1% organic growth in Unmanned Systems. → SpaceX’s First Earnings Report Could Decide Whether Shorts or Bulls Have Control AeroVironment’s Stock Is Down, But Drone Demand Is Taking Off Adjusted EBITDA totaled $38.2 million, above the company’s guidance range of $30 million to $35 million. Chief Financial Officer Deanna Lund said the results reflected higher revenue and revenue mix. “Our second-quarter performance exceeded our forecasted revenue and EBITDA targets,” Lund said. → Financials Hit Record Highs as the AI Trade Unravels—Can They Keep Leading? Drone Stocks Are Down, But Defense Backlogs Tell a Different Story Chief Executive Officer Eric DeMarco said Kratos increased its forecast for full-year 2026 organic revenue growth to 19% to 23%. The company expects third-quarter organic growth of approximately 19% to 25% and fourth-quarter growth of approximately 19% to 31%. DeMarco said the company’s trailing 12-month book-to-bill ratio was 1.3-to-1, with $1.99 billion in bookings. Its bid-and-proposal pipeline has reached $15 billion, he said. → Why Rare Earth Processing Could Be the Real 2027 Opportunity Kratos expects margins to improve in the second half of 2026 and into 2027 as production volumes rise and fixed infrastructure costs are leveraged. However, Lund said the appreciation of the Israeli shekel against the U.S. dollar has created a material headwind for the company’s Israeli microwave electronics and satellite communications operations. The stronger shekel reduced second-quarter adjusted EBITDA by about $2.5 million, according to Lund. Kratos forecasts a full-year EBITDA impact of approximately $5 million to $7 million if the currency strength continues. Kratos generated $458.8 million in quarterly revenue, with KGS revenue rising $101.4 million year over year. Recent acquisitions Nomad and Orbit contributed $40.2 million to KGS revenue. Within KGS, the company reported organic growth of 50.2% in defense rocket support, 43.3% in turbine technologies, 29.5% in microwave products, and 8.7% in space, training and cyber. DeMarco said Kratos’ hypersonic business generated approximately $200 million in 2025 revenue and is tracking toward $400 million in 2026, with a forecast of at least $700 million in 2027. The company recently received awards connected to the Kraken One, Kraken Two and Nemesis hypersonic programs, as well as approximately $400 million in new hypersonic and other funding. Lund said hypersonic revenue is expected to increase by approximately $20 million to $25 million sequentially in the third quarter, followed by another $20 million to $30 million increase in the fourth quarter from second-quarter levels. Kratos’ new hypersonic system integration facility in Indiana is now operational, DeMarco said. The facility will integrate solid rocket motors and flight systems as the company increases its launch tempo. Kratos expects to begin receiving the first of 120 previously procured solid rocket motors during the third quarter. DeMarco also pointed to reported Department of Defense budget documents showing approximately $7 billion in planned MACH-TB program funding over five years. He said Kratos sees its hypersonic franchise as a major long-term growth driver, though he did not provide a specific revenue forecast beyond 2027. Kratos is increasing investment in turbojet production for low-cost cruise missiles. DeMarco said the company has begun ordering components for 3,000 Spartan small turbojet engines expected to be produced for customers in 2027, and it plans to order components during 2027 for an additional 5,000 engines expected to be produced in 2028. The average selling price for a Spartan turbojet is approximately $50,000, DeMarco said. The engines will be manufactured at Kratos’ new Michigan production facility, which is operational. The company is also advancing a 50-50 turbofan engine partnership with GE Aerospace. Kratos’ BladeWorks manufacturing facility in Oklahoma is expected to become operational in summer 2027, with low-rate initial production anticipated in 2028. DeMarco said the turbofan opportunity is tied to systems including JASSM and LRASM, while the larger near-term increase in engine revenue is expected to come from smaller turbojets. Kratos plans to begin ordering turbofan supply-chain components in either the fourth quarter of 2026 or first quarter of 2027, according to DeMarco. DeMarco highlighted a directed-energy counter-UAS award with an initial value of approximately $160 million and a space-domain-awareness production award with an initial value of approximately $100 million. Kratos has already received $30 million to $40 million in funding for its Department of Energy mobile counter-UAS program, called Solar Shield, he said. The project is expected to contribute to fourth-quarter growth and continue ramping in 2027. The company is also expanding manufacturing capacity for unmanned systems. Its Oklahoma facility produces Valkyrie aircraft, Tactical Firejet systems and another classified platform. Kratos has approved an additional roughly 50,000 square feet of expansion at the site. DeMarco said the company expects to reach an average Valkyrie production rate of about 1.5 aircraft per month in 2027, or roughly 18 annually. Longer term, capacity could reach approximately 35 to 40 aircraft annually depending on customer configurations. Kratos expects an additional Marine Corps Valkyrie-related award by the end of 2026. DeMarco also said Mighty Hornet, a Tactical Firejet derivative for Taiwan, has upcoming customer flights and could enter production in the first half of 2027 if those activities are successful. For domestic Valkyrie programs, DeMarco estimated EBITDA margins of 10% to 15%, depending on configuration and quantity. International programs could generate margins of roughly 15% to 20%, he said. Cash used in operations was $11 million in the second quarter, primarily due to working-capital requirements associated with growth. Receivables increased by approximately $59 million, inventory increased by about $10 million, and prepaid and other assets rose approximately $14 million. Free cash flow used in operations was $18.9 million after $17.2 million of capital expenditures. Kratos said total planned investments for 2026 remain approximately $250 million to $270 million, although the company has shifted the classification of certain investments between capital expenditures and working capital. Lund said the revised cash-flow outlook reflects the decision to procure materials and equipment needed to support jet-engine production in 2027, as well as continued investment in microwave products, rocket systems, hypersonics, jet engines, unmanned systems and space-related capabilities. Kratos Defense & Security Solutions, Inc (NASDAQ: KTOS) is a technology-driven company that specializes in national security and defense solutions for government and military customers. The firm’s core capabilities span unmanned systems, satellite communications, missile defense, cyber security, and directed-energy weapons. Through its integrated approach, Kratos delivers mission-critical products and services designed to enhance operational readiness and support force modernization initiatives. In the unmanned systems arena, Kratos develops high-performance aerial platforms used as target drones, low-cost attritable aircraft and experimental stealth demonstrators. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Kratos Defense & Security Solutions Q2 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for August 2026.

Kratos Defense & Security Solutions (NASDAQ: KTOS) stock jumped 6.7% through 11:15 a.m. ET Wednesday after rushing right past analyst earnings forecasts last night. Heading into the report, Wall Street had Kratos pegged for a $0.13 per share profit on $410.4 million in sales. In fact, Kratos earned $0.21 per share on sales of $458.8 million. Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Kratos grew its sales by 30% year over year, with 19% organic growth. Curiously for a company that's best known as a drone stock, most of this growth came through Kratos's government solutions business, which provides satellite communications and intelligence services, electronics, and training systems -- rather than the drones unit (called "unmanned systems"). Drones revenue increased only 8%. The other interesting part of Kratos's report is that the $0.21 "profit" that got investors so excited today was, in fact, only a pro forma, non-GAAP profit. Actual earnings for the quarter when calculated under generally accepted accounting principles (GAAP) was only $0.02 per share -- flat against one year ago. And this news gets worse. While Kratos was at least profitable -- if much less profitable than at first appeared -- free cash flow at the defense stock actually ran negative. Indeed, with more than $75 million in cash burned in just the first six months of this year, Kratos is on course to burn $150 million in 2026. The good news is that as the company converts manufactured products into cash, Kratos expects to be able to correct course and burn significantly less cash as the year progresses -- perhaps as little as $85 million. Even if it succeeds at that, though, I can't see myself investing in this barely profitable stock until FCF turns positive. Before you buy stock in Kratos Defense & Security Solutions, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Kratos Defense & Security Solutions wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $396,758!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,300,820!* Now, it’s worth noting Stock Advisor’s total average return is 939% — a market-crushing outperformance compared to 211% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of August 5, 2026. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kratos Defense & Security Solutions. The Motley Fool has a disclosure policy. Why Kratos Stock Popped After Earnings was originally published by The Motley Fool

Second Quarter 2026 Revenues of $458.8 Million Reflect 19.1 Percent Organic Growth and 30.5 Percent Growth Over Second Quarter 2025 Revenues of $351.5 Million Kratos Government Solutions Second Quarter 2026 Revenues of $379.7 Million Reflect 22.0 Percent Organic Growth and 36.4 Percent Growth Over Second Quarter 2025 Revenues of $278.3 Million Unmanned Systems Second Quarter 2026 Revenues of $79.1 Million Reflect 8.1 Percent Organic Growth Over Second Quarter 2025 Revenues of $73.2 Million Second Quarter 2026 Consolidated Book to Bill Ratio of 1.1 to 1 and Bookings of $492.2 Million Last Twelve Months Ended June 28, 2026, Consolidated Book to Bill Ratio of 1.3 to 1 and Bookings of $1.990 Billion Increases Full Year 2026 Revenue Guidance to $1.750 to $1.810 Billion, With Forecasted Organic Revenue Growth of Approximately 18 Percent to 23 Percent as Compared to Full Year 2025 SAN DIEGO,Calif., Aug. 04, 2026 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS), a leader in defense, national security and global markets, today reported its second quarter 2026 financial results, including Revenues of $458.8 million, Operating Loss of $1.6 million, Net Income of $4.4 million, Adjusted EBITDA of $38.2 million and a consolidated book to bill ratio of 1.1 to 1.0. Second quarter 2026 Net Income and Operating Income includes non-cash stock compensation expense of $16.3 million, Company-funded Research and Development (R&D) expense of $13.6 million, including efforts in our Space, Satellite, Unmanned Systems and Microwave Electronic businesses, and non-cash amortization expense of $12.5 million. Kratos reported in the second quarter 2026 GAAP Net Income of $4.4 million and GAAP Net Income per share of $0.02, compared to GAAP Net Income of $2.9 million and GAAP Net Income per share of $0.02, for the second quarter of 2025. Adjusted earnings per share (EPS) were $0.21 for the second quarter of 2026, compared to $0.11 for the second quarter of 2025. Second quarter 2026 Revenues of $458.8 million increased $107.3 million, reflecting 30.5 percent growth and 19.1 percent organic growth from second quarter 2025 Revenues of $351.5 million. Organic revenue growth was reported in our Unmanned Systems (KUS) segment of 8.1 percent and in our Government Solutions (KGS) segment of 22.0 percent. The most notable growth in our KGS Segment was in our Defense Rocket Systems, Turbine Technologies, Microwave Products and Space, Training and Cyber businesses, with organic revenue growth rates of 50.2 percent, 43.3 percent, 29.5 percent and 8.7 percent, respectively, compared to the second quarter of 2025. Second quarter 2026 Cash Flow Used in Operations was $11.0 million, primarily reflecting the working capital requirements related to the 30.5 percent revenue growth impacting our receivables, and also including increases in inventory balances related to ramps in production and investments we are making related to certain development initiatives. Free Cash Flow Used in Operations for the second quarter of 2026 was $18.9 million after funding $17.2 million of capital expenditures, and net of cash received of $9.3 million for the sale of company-owned Valkyries. For the second quarter of 2026, KUS generated Revenues of $79.1 million, compared to $73.2 million in the second quarter of 2025, with the increase primarily driven by Valkyrie-related activity. KUS’s Operating Income was $1.2 million in the second quarter of 2026, compared to an Operating Loss of $0.3 million in the second quarter of 2025. KUS’s Adjusted EBITDA for the second quarter of 2026 was $5.1 million, compared to $3.6 million for the second quarter of 2025, reflecting the impact of the revenue volume and mix. KUS’s book-to-bill ratio for the second quarter of 2026 was 1.0 to 1.0 and 1.1 to 1.0 for the twelve months ended June 28, 2026, with bookings of $78.4 million for the three months ended June 28, 2026, and bookings of $354.4 million for the twelve months ended June 28, 2026. Total backlog for KUS at the end of the second quarter of 2026 was $374.6 million, compared to $375.4 million at the end of the first quarter of 2026. For the second quarter of 2026, our KGS segment Revenues of $379.7 million increased from Revenues of $278.3 million in the second quarter of 2025, reflecting a 36.4 percent increase and a 22.0 percent organic growth rate, excluding the impact of the Nomad Global Communication Solutions (Nomad) and Orbit Technologies Ltd (Orbit) acquisitions. The increased Revenues includes organic revenue growth across our Defense and Rocket Support business, Turbine Technologies, Microwave Products and Space, Training and Cyber businesses, with organic revenue growth rates of 50.2 percent, 43.3 percent, 29.5 percent and 8.7 percent, respectively, over the second quarter of 2025. KGS reported Operating Income of $14.3 million in the second quarter of 2026 compared to $12.6 million in the second quarter of 2025, primarily reflecting increased volume and mix in revenues. Second quarter 2026 KGS Adjusted EBITDA was $33.1 million, compared to second quarter 2025 KGS Adjusted EBITDA of $24.7 million, primarily reflecting the volume and mix in revenues and resources. KGS reported a book-to-bill ratio of 1.1 to 1.0 for the second quarter of 2026, a book-to-bill ratio of 1.4 to 1.0 for the last twelve months ended June 28, 2026, and bookings of $413.8 million and $1.636 billion for the three and last twelve months ended June 28, 2026, respectively. KGS’s total backlog was $1.710 billion at the end of the second quarter of 2026, compared to $1.676 billion at the end of the first quarter of 2026. Kratos reported consolidated bookings of $492.2 million and a book-to-bill ratio of 1.1 to 1.0 for the second quarter of 2026, and consolidated bookings of $1.990 billion and a book-to-bill ratio of 1.3 to 1.0 for the last twelve months ended June 28, 2026. Consolidated backlog was $2.084 billion on June 28, 2026, as compared to $2.051 billion on March 29, 2026. Kratos’ bid and proposal pipeline was $15.0 billion at June 28, 2026, as compared to $14.3 billion on March 29, 2026. Backlog on June 28, 2026, included funded backlog of $1.572 billion and unfunded backlog of $512.7 million. Eric DeMarco, Kratos’ President and CEO, said, “Kratos’ second quarter results are reflective of the execution of the Kratos team and that our strategy, including making internally funded investments to be first-to-market with relevant hardware and software, that is engineered up front for affordable mass production, at scale, is aligned with the Department of War’s priorities. Representative of this alignment is Kratos’ last 12 month book-to-bill ratio of 1.3 to 1.0, the number of opportunities for Kratos continuing to increase as evidenced in our bid and proposal pipeline of $15 billion, and our business momentum expected to accelerate in the second half of 2026 and into 2027.” Mr. DeMarco continued, “Kratos’ second quarter year over year organic growth rate was 19.1 percent, we are now forecasting third quarter organic growth of approximately 19 percent to 25 percent, and for fourth quarter organic growth of approximately 19 percent to 31 percent.   As a result, we have increased our full year 2026 organic revenue growth forecast up to approximately 18 percent to 23 percent as compared to full year 2025, which now also includes an expectation of approximately 10 percent organic growth for our Unmanned Systems business based upon recent contract awards, including Valkyrie.” Mr. DeMarco concluded, “Kratos’ EBITDA margins are also increasing, and are forecast to continue to increase in the second half of 2026 and into 2027, as the business scales, production increases and we realize financial leverage on our fixed cost infrastructure. We are generating and forecasting for increased margins irrespective of increased costs as we pursue large new opportunities with the Department of War and the strength of the Shekel adversely impacting our Israel operations profitability, where we now have over 700 personnel. Expected future growth areas for Kratos include; hypersonic and rocket systems, missiles, jet engines, space and satellite communications.” Financial Guidance We are providing our initial third quarter guidance and increasing our full year 2026 Revenue guidance and tightening our Adjusted EBITDA guidance, and our assumptions, including as related to: current forecasted business mix, expected employee sourcing, hiring and retention; potential manufacturing, production and supply chain disruptions; potential parts shortages and related continued significant cost and price increases in each of these areas, which are impacting the industry and Kratos. We continue to make significant investments in bid, proposal and other new program opportunity areas, and increasing staffing to enable us to ramp production levels, all of which is currently adversely impacting our profit margins and free cash flow generation. We are also making significant investments in inventory, property, plant, equipment and facilities, consistent with the Department of War’s National Security Strategy and its stated expectations of U.S. National Security government contractors. These investments are expected to continue at least into Kratos’ fiscal year 2027, as our opportunity pipeline continues to increase. Kratos’ revised cash flow guidance also assumes certain investments in our Rocket Systems and Unmanned Systems businesses, related to the procurement of rocket motors and related systems, and has been updated to include the working capital requirements related to the procurement of the materials and equipment in the third and fourth quarters to ramp our production of jet engines to 3,000 in 2027 to address the demand for engines for small cruise missiles, and our plan to begin producing approximately 40 Valkyries annually beginning by the beginning of 2028, as well as the completion of certain of our unmanned systems and related derivatives and vehicles. Additional forecasted investments in 2026 include our funding of the Prometheus joint venture, our Anaconda radar program, our Helios hypersonic and arc chamber program, our Indiana hypersonic integration facility, our Birmingham advanced manufacturing facility for hypersonic systems, expansion and new microwave electronics facilities in Israel and the U.S., our GEK and BladeWorks engine facilities, the continued build of our second lot of 12 Valkyrie aircraft, certain manufacturing and production related equipment for our recently acquired Nomad acquisition, certain drone-related investments, and our Vulcan, Kraken, Elysium, Nemesis, Hermes and other initiatives. The revised forecast for our estimated FY26 capital expenditure spend includes the shift in timing of construction and procurement of related machinery and equipment, to remove certain expenditures which are now funded under customer contract, and a shift in classification of investments for various drone opportunities which will be classified as a use of working capital in our Operating Cash Flow as work in process rather than capital expenditures when incurred. In summary, Kratos continues to make the required investments to support the rebuild of the U.S. defense industrial base and related infrastructure consistent with the Department of War’s direction, take advantage of the ongoing generational recapitalization of strategic and other weapon and National Security related systems, and generate value for all Kratos stakeholders, including the warfighter and Kratos shareholders. We expect our second half of fiscal 2026 will have significantly higher Revenue than the first half, as we expect to begin to receive in the second half of 2026 certain long-lead time items related to existing customer funded programs, including solid rocket motors and other hardware related to certain hypersonic and other programs, hardware and components related to jet engine and propulsion system development and production, and hardware related to air defense, missile, radar and other National Security system production. We expect our third quarter Revenues to grow organically 19 to 25 percent from third quarter 2025, with forecasted margin expansion in the third quarter tempered somewhat by increased business development and proposal costs to support the forecasted revenue growth, as well as continued negative foreign currency impacts on our Microwave Products Israeli business, which is adversely impacted by the strength of the Israeli Shekel vs. the US Dollar. We expect Kratos’ second half of fiscal 2026 Adjusted EBITDA to be greater than our first half as our Revenue increases and Adjusted EBITDA margins expand and are impacted by both expected increased scale and product mix, and customer contract funding is expected to increase coming off of the late 2025 and early 2026 U.S. Government shutdown and extended Continuing Resolution. We continue to expect Kratos’ full year 2026 Adjusted EBITDA margin rates to be approximately 100 bps greater than our reported 2025 Adjusted EBITDA margin rates. We expect to provide our initial full year 2027 financial guidance when we report our third quarter of fiscal 2026 later this year. We continue to expect our 2027 Adjusted EBITDA margin rates to increase an additional 100 bps above forecast 2026 Adjusted EBITDA margin rates, when we provide full year 2027 guidance later this year. Management will discuss the Company’s financial results at a conference call beginning at 2:00 p.m. Pacific (5:00 p.m. Eastern) today. The call will be available at www.kratosdefense.com. Participants may register for the call using this On-line Form. Upon registration, all telephone participants will receive the dial-in number along with a unique PIN that can be used to access the call. For those who cannot access the live broadcast, a replay will be available on Kratos’ website. About Kratos Defense & Security Solutions Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) is a technology, hardware, products, system and software company addressing the defense, national security, and commercial markets. Kratos makes true internally funded research, development, capital and other investments, to rapidly develop, produce and field relevant solutions that address our customers’ mission critical needs and requirements. At Kratos, affordability is a technology, and we seek to utilize proven, leading-edge approaches and technology, not unproven bleeding edge approaches or technology, with Kratos’ approach designed to reduce cost, schedule and risk, enabling us to be first to market with cost effective solutions. We believe that Kratos is known as the innovative disruptive change agent in the industry, a company that is an expert in designing products and systems up front for successful rapid, large quantity, low-cost future manufacturing, which is a value-add competitive differentiator for our large traditional prime system integrator partners and also to our government and commercial customers. Kratos intends to pursue program and contract opportunities as the prime or lead contractor when we believe our probability of win is high and any investment required by Kratos is within our capital resource comfort level. We intend to partner and team with a large, traditional system integrator when our assessment of probability of win is greater or required investment is beyond Kratos’ comfort level. Kratos’ primary business areas include, virtualized ground systems for satellites and space vehicles including software for command & control (C2) and telemetry, tracking and control (TT&C), jet powered unmanned aerial drone systems, hypersonic vehicles and rocket systems, propulsion systems for drones, missiles, loitering munitions, supersonic systems, space craft and launch systems, command, control, communication, computing, combat, intelligence surveillance and reconnaissance (C5ISR) and microwave electronic products for missile, radar, air defense, missile defense, space, satellite, counter unmanned aircraft systems (CUAS), directed energy, communication and other systems, and virtual & augmented reality training systems for the warfighter. For more information, visit www.KratosDefense.com and follow Kratos on LinkedIn and X. Notice Regarding Forward-Looking StatementsThis news release contains certain forward-looking statements that involve risks and uncertainties, including, without limitation, express or implied statements concerning the Company’s expectations regarding its future financial performance, including the Company’s expectations for its third quarter, second half, and full year 2026 revenues, R&D, operating income, depreciation, amortization, stock based compensation expense, and Adjusted EBITDA, and full year 2026 operating cash flow, capital expenditures, investments, and free cash flow, forecasted company and business unit organic revenue growth, estimated revenue and organic revenue growth for 2026 and 2027, Adjusted EBITDA margins in 2026 and 2027, future initiation of higher margin programs and negotiation of lower margin contracts which are expected to be renewed in the future, expected future investments in property, plant, facilities, and equipment (including expected investments in the Prometheus joint venture and other programs, opportunities, and initiatives), expected future production of Valkyries, the ability of the Company’s customers to respond to industry and market conditions, the impact of acquired companies and businesses on the Company’s operations and financial condition, the Company’s bid and proposal pipeline and backlog, including the Company’s ability to timely execute on its backlog, demand for its products and services, including the Company’s alignment with today’s National Security requirements and the positioning of its C5ISR and other businesses, ability to successfully compete and expected new customer awards, the impact of federal government shutdowns on the Company’s operations and financial condition, the availability and timing of government funding for the Company’s offerings, availability of an experienced skilled workforce, inflation and increased costs, risks related to potential cybersecurity events or disruptions of our information technology systems, and delays in our financial projections, industry, business and operations, including projected growth. Such statements are only predictions, and the Company’s actual results may differ materially from the results expressed or implied by these statements. Investors are cautioned not to place undue reliance on any such forward-looking statements. All such forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise. Factors that may cause the Company’s results to differ include, but are not limited to: risks to our business and financial results related to the reductions and other spending constraints imposed on the U.S. Government and our other customers, including as a result of sequestration and extended continuing resolutions, the Federal budget deficit and Federal government shut-downs; risks of adverse regulatory action or litigation; risks associated with debt leverage; risks that our cost-cutting initiatives will not provide the anticipated benefits; risks that changes, cutbacks or delays in spending by the DoW may occur, which could cause delays or cancellations of key government contracts; risks of delays to or the cancellation of our projects as a result of protest actions submitted by our competitors; risks that changes may occur in Federal government (or other applicable) procurement laws, regulations, policies and budgets; risks of the availability of government funding for the Company's products and services due to performance, cost growth, or other factors, changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reduction of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional committee recommendations or automatic sequestration under the Budget Control Act of 2011, as amended); risks related to tariffs or import duties which could affect the Company’s supply chain and customer affordability; risks related to Executive Orders issued by the Trump Administration and resultant changes to the DoW procurement policies and Federal Acquisition Regulations; risks related to DoW reorganization and DOGE; risks that the unmanned aerial systems and unmanned ground sensor markets do not experience significant growth; risks that products we have developed or will develop will not become programs of record; risks that we cannot expand our customer base or that our products do not achieve broad acceptance which could impact our ability to achieve our anticipated level of growth; risks of increases in the Federal government initiatives related to in-sourcing; risks related to security breaches, including cyber security attacks and threats or other significant disruptions of our information systems, facilities and infrastructures; risks related to our compliance with applicable contracting and procurement laws, regulations and standards; risks related to the new DoW Cybersecurity Maturity Model Certification; risks relating to the ongoing conflict in Ukraine and the Israeli-Palestinian military conflict; risks to our business in Israel including our expanded operations in Israel following the Orbit acquisition; risks related to contract performance; risks related to failure of our products or services; risks associated with our subcontractors’ or suppliers’ failure to perform their contractual obligations, including the appearance of counterfeit or corrupt parts in our products; changes in the competitive environment (including as a result of bid protests); failure to successfully integrate acquired operations and compete in the marketplace, which could reduce revenues and profit margins; risks that potential future goodwill impairments will adversely affect our operating results; risks that anticipated tax benefits will not be realized in accordance with our expectations; risks that a change in ownership of our stock could cause further limitation to the future utilization of our net operating losses; risks that we may be required to record valuation allowances on our net operating losses which could adversely impact our profitability and financial condition; risks that the current economic environment will adversely impact our business, including with respect to our ability to recruit and retain sufficient numbers of qualified personnel to execute on our programs and contracts, as well as expected contract awards and risks related to increasing interest rates; currently unforeseen risks associated with any public health crisis, and risks related to natural disasters or severe weather. These and other risk factors are more fully discussed in the Company’s Annual Report on Form 10-K for the period ended December 28, 2025, and in our other filings made with the Securities and Exchange Commission. Note Regarding Use of Non-GAAP Financial Measures and Other Performance MetricsThis news release contains non-GAAP financial measures, including organic revenue growth rates computed as the revenue growth rate excluding the current year impact of the contribution from acquisitions, Adjusted EPS (computed using income before income taxes, excluding depreciation, amortization of intangible assets, amortization of capitalized contract and development costs, stock-based compensation expense, acquisition and restructuring related items and other, which includes, but is not limited to, legal related items, non-recoverable rates and costs, and foreign transaction gains and losses, less the estimated impact of current and deferred income taxes) and Adjusted EBITDA (which excludes, among other things, acquisition and restructuring related items, stock compensation expense, foreign transaction gains and losses, and the associated margin rates). Additional non-GAAP financial measures include Free Cash Flow from Operations computed as Cash Flow from Operations less Capital Expenditures plus proceeds from sale of assets and Adjusted EBITDA related to our KUS and KGS businesses. Kratos believes this information is useful to investors because it provides a basis for measuring the Company’s available capital resources, the actual and forecasted operating performance of the Company’s business and the Company’s cash flow, excluding non-recurring items and non-cash items that would normally be included in the most directly comparable measures calculated and presented in accordance with GAAP. The Company’s management uses these non-GAAP financial measures, along with the most directly comparable GAAP financial measures, in evaluating the Company’s actual and forecasted operating performance, capital resources and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and investors should carefully evaluate the Company’s financial results calculated in accordance with GAAP and reconciliations to those financial results. In addition, non-GAAP financial measures as reported by the Company may not be comparable to similarly titled amounts reported by other companies. As appropriate, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Company’s financial results prepared in accordance with GAAP are included in this news release. Another Performance Metric the Company believes is a key performance indicator in our industry is our Book to Bill Ratio as it provides investors with a measure of the amount of bookings or contract awards as compared to the amount of revenues that have been recorded during the period and provides an indicator of how much of the Company’s backlog is being burned or utilized in a certain period. The Book to Bill Ratio is computed as the number of bookings or contract awards in the period divided by the revenues recorded for the same period. The Company believes that the rolling or last twelve months’ Book to Bill Ratio is meaningful since the timing of quarter-to-quarter bookings can vary. Press Contact:Claire [email protected] Investor Information:[email protected] Unaudited Reconciliation of GAAP to Non-GAAP Measures Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net income adjusted for net interest income (expense), provision for income taxes, depreciation and amortization expense of intangible assets, amortization of capitalized contract and development costs, stock-based compensation, acquisition and restructuring related items and other, and foreign transaction (gain) loss. Adjusted EBITDA as calculated by us may be calculated differently than Adjusted EBITDA for other companies. We have provided Adjusted EBITDA because we believe it is a commonly used measure of financial performance in comparable companies and is provided to help investors evaluate companies on a consistent basis, as well as to enhance understanding of our operating results. Adjusted EBITDA should not be construed as either an alternative to net income (loss) or as an indicator of our operating performance or an alternative to cash flows as a measure of liquidity.  The adjustments to calculate this non-GAAP financial measure and the basis for such adjustments are outlined below.  Please refer to the following table below that reconciles GAAP net income (loss) to Adjusted EBITDA. The adjustments to calculate this non-GAAP financial measure, and the basis for such adjustments, are outlined below: Interest income and interest expense, net. The Company receives interest income on investments and incurs interest expense on loans, capital leases and other financing arrangements, including the amortization of issue discounts and deferred financing costs. These amounts may vary from period to period due to changes in cash and debt balances. Income taxes. The Company's tax expense can fluctuate materially from period to period due to tax adjustments that may not be directly related to underlying operating performance or to the current period of operations and may not necessarily reflect the impact of utilization of our NOLs. Depreciation. The Company incurs depreciation expense (recorded in cost of revenues and in operating expenses) related to capital assets purchased, leased or constructed to support the ongoing operations of the business. The assets are recorded at cost or fair value and are depreciated over the estimated useful lives of individual assets. Amortization of intangible assets. The Company incurs amortization of intangible expense related to acquisitions it has made. These intangible assets are valued at the time of acquisition and are amortized over the estimated useful lives. Amortization of capitalized contract and development costs. The Company incurs amortization of previously capitalized software development and non-recurring engineering or design costs related to certain products or offerings in its Unmanned Systems, rocket support and services, and space and satellite businesses as related units are sold or over the estimated useful life, as applicable. Stock-based compensation expense. The Company incurs expense related to stock-based compensation included in its GAAP presentation of selling, general and administrative expense. Although stock-based compensation is an expense of the Company and viewed as a form of compensation, these expenses vary in amount from period to period, and are affected by market forces that are difficult to predict and are not within the control of management, such as the market price and volatility of the Company's shares, risk-free interest rates and the expected term and forefeiture rates of the awards. Management believes that exclusion of these expenses allows comparison of operating results to those of other companies that disclose non-GAAP financial measures that exclude stock-based compensation. Foreign transaction (gain) loss. The Company incurs transaction gains and losses which are not hedged related to transactions with foreign customers in currencies other than the U.S. dollar. In addition, certain intercompany transactions can give rise to realized and unrealized foreign currency gains and losses. Acquisition and transaction related items. The Company incurs transaction related costs, such as legal and accounting fees and other expenses, related to acquisitions and divestiture activities. Management believes these items are outside the normal operations of the Company's business and are not indicative of ongoing operating results. Restructuring costs. The Company incurs restructuring costs for cost reduction actions which include employee termination costs, facility shut-down related costs and lease commitment costs for unused, excess or exited facilities.  Management believes that these costs are not indicative of ongoing operating results as they are either non-recurring and/or not expected when full capacity and volumes are achieved. Legal related items. The Company incurs costs related to pending legal settlements and other legal related matters. Management believes these items are outside the normal operations of the Company's business and are not indicative of ongoing operating results. Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. The Company expects to continue to incur expenses similar to the Adjusted EBITDA financial adjustments described above, and investors should not infer from the Company's presentation of this non-GAAP financial measure that these costs are unusual, infrequent, or non-recurring. Reconciliation of Net Income to Adjusted EBITDA is as follows: Reconciliation of Segment Operating Income (Loss) to Adjusted EBITDA is as follows: Adjusted income and adjusted income per diluted common share (Adjusted EPS) are non-GAAP measures for reporting financial performance and exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. Management believes that exclusion of these items assists in providing a more complete understanding of the Company's underlying results and trends and allows for comparability with our peer company index and industry. The Company uses these measures along with the corresponding GAAP financial measures to manage the Company's business and to evaluate its performance compared to prior periods and the marketplace. The Company defines adjusted income before amortization of intangible assets and capitalized contract and development costs, depreciation, stock based compensation, foreign transaction gain/loss, and acquisition and restructuring related items and other. The estimated impact to income taxes excludes the impact to the expenses and release of valuation alloweffective tax rate, current tax provision and deferred tax provision, and excludes the impact of discrete items, including transaction related expenses and release of valuation allowance, or benefit related to the add-backs.*     Adjusted EPS reflects adjusted income on a per share basis using weighted average diluted shares outstanding. The following table reconciles the most directly comparable GAAP financial measures to the non-GAAP financial measures. *The impact to income taxes is calculated by recasting income before income taxes to include the add-backs involved in determining Adjusted Income before income taxes and recalculating the income tax provision, including current and deferred income taxes, using the Adjusted Income before income taxes.The recalculation also adjusts for any discrete tax expense, including transaction related expenses and the release of valuation allowance, or benefit related to the add-backs.