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    KTOS
    Earnings call· Mar 2026(Q1 FY26)

    KRATOS DEFENSE & SECURITY SOLUTIONS Q1 FY26 earnings call KTOS

    May 6, 2026 Source

    Executive summary

    Kratos Q1 FY26 — Record Backlog, Strong Organic Growth, and Increased Profitability

    Kratos delivered a strong Q1 FY26, surpassing revenue and EBITDA estimates, driven by record backlog and robust organic growth across Unmanned Systems, Turbine Technologies, and Microwave Products. The company is strategically investing in its industrial base and key programs like hypersonics and jet engines, aligning with increasing national security spend. While facing working capital demands and labor constraints, Kratos anticipates continued growth and margin expansion, leveraging its affordable, military-grade hardware and software.

    Highlights

    5

    • Achieved a record backlog of $2 billion, reflecting an accelerating growth trajectory.

    • Reported Q1 revenue of $371 million, exceeding the estimated range of $335 million to $345 million.

    • Delivered Adjusted EBITDA of $38.7 million, above the high end of the estimated range of $25 million to $30 million.

    • Realized consolidated organic revenue growth of 15.8% in Q1 FY26.

    • The satellite business achieved a 3:1 book-to-bill ratio in Q1, contributing to a 1.8:1 KGS book-to-bill.

    Concerns

    3

    • Operating cash flow used $27.4 million in Q1, primarily due to working capital requirements for revenue growth and long-lead material prepayments.

    • Days Sales Outstanding (DSOs) increased from 121 days in Q4 FY25 to 130 days in Q1 FY26, attributed to revenue growth and delays in contract funding.

    • Labor shortages, particularly for turbomachinery engineers and security-cleared personnel, continue to pose a challenge to accelerating growth in certain areas.

    Guidance & targets

    10
    CategoryTargetConfidence
    Full Year 2026 Revenue
    $1.7 billion to $1.760 billion
    high materiality
    High
    Full Year 2026 Organic Revenue Growth
    15% to 19%
    high materiality
    High
    Q2 2026 Revenue
    $400 million to $410 million
    medium materiality
    Medium
    Q2 2026 Organic Revenue Growth
    4% to 7%
    medium materiality
    Medium
    EBITDA Margin Increase
    100 basis point increase
    high materiality
    High
    Valkyrie Annual Production
    up to approximately 40 drones annually
    medium materiality
    Medium
    Small Jet Engine LRIP Start
    later this year
    medium materiality
    High
    Small Jet Engine Production
    several thousand engines
    high materiality
    High
    Prometheus JV Funding
    approximately $50 million
    medium materiality
    High
    Industrial Gas Turbine Program Award
    expect to receive
    medium materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Unmanned Systems
    Increase primarily driven by Valkyrie-related activity. Tactical revenue for the quarter was about $20 million, predominantly Valkyrie.
    Organic Revenue Growth: 30.9%Revenue Increase: $19.5 million
    		—30.9%——
    KGS (Kratos Government Solutions)
    Year-over-year increase from Q1 FY25, excluding the impact of recent acquisitions (Nomad and Orbit). Organic growth driven by MachCTB, Microwave, and KTT businesses.
    Organic Revenue Growth: 11.8%Revenue Increase: $48.9 million
    		—11.8%——
    Defense Rocket Support
    Notable year-over-year organic revenue growth.
    Organic Revenue Growth: 45.8%
    		—45.8%——
    Turbine Technologies
    Notable year-over-year organic revenue growth. Business is 'ripping' due to involvement in missile, drone, and space programs.
    Organic Revenue Growth: 20.3%
    		—20.3%——
    Microwave Products
    Notable year-over-year organic revenue growth. Strong performance due to restocking needs from Middle East conflicts and involvement in missile/radar systems.
    Organic Revenue Growth: 12.3%
    		—12.3%——
    Satellite Business
    Rapidly accelerating business, reflected by strong Q1 book-to-bill ratio.
    Book-to-bill ratio: 3:1
    		————

    Operational metrics

    35
    Revenue
    $371 millionabove estimated range of $335 million to $345 million
    Q1 FY26

    Exceeded estimated range, which did not include Orbit acquisition.

    Estimated Revenue Range
    $335 million to $345 million
    Q1 FY26

    Original estimated range for Q1 FY26 revenue.

    Revenue excluding Orbit acquisition
    $357.7 millionabove estimated range
    Q1 FY26

    Excluding Orbit, but including Nomad acquisition.

    Consolidated Organic Revenue Growth
    15.8%YoY
    Q1 FY26

    Largest contributors were Unmanned Systems, Defense and Rocket Support, Turbine Technologies, and Microwave Products.

    Adjusted EBITDA
    $38.7 millionabove high end of estimated range of $25 million to $30 million
    Q1 FY26

    Reflecting contribution from Orbit acquisition, increased volume, and favorable revenue mix.

    Estimated Adjusted EBITDA Range
    $25 million to $30 million
    Q1 FY26

    Original estimated range for Q1 FY26 Adjusted EBITDA.

    Cash Flow Used in Operations
    $27.4 million
    Q1 FY26

    Primarily reflecting working capital requirements related to revenue growth.

    Capital Expenditures
    $19.9 million
    Q1 FY26

    Part of investments to expand manufacturing and production facilities.

    Days Sales Outstanding (DSOs)
    130 daysincreased from 121 days during Q4 FY25
    Q1 FY26

    Reflecting 22.6% revenue growth impact of acquisitions, timing of milestone billings, and contractual funding delays.

    Contract Mix (Fixed Price)
    73%
    Q1 FY26

    Percentage of revenues generated from fixed price contracts.

    Contract Mix (Cost-Plus)
    23%
    Q1 FY26

    Percentage of revenues generated from cost-plus contracts.

    Contract Mix (Time & Material)
    4%
    Q1 FY26

    Percentage of revenues generated from time and material contracts.

    Revenue from US Federal Government
    69%
    Q1 FY26

    Including revenues from DOW, non-DOW federal agencies, and foreign military sales contracts.

    Revenue from Foreign Customers
    21%
    Q1 FY26

    Percentage of revenues generated from foreign customers.

    Revenue from Commercial Customers
    10%
    Q1 FY26

    Percentage of revenues generated from commercial customers.

    Acquisition Revenue Contribution
    $20.6 million
    Q1 FY26

    Aggregate contribution from Nomad and Orbit acquisitions.

    Receivables Impact on OCF
    approximately $28.7 million
    Q1 FY26

    Working capital requirement impacting receivables.

    Inventory Increase Impact on OCF
    approximately $14.7 million
    Q1 FY26

    Working capital requirement for inventory increases.

    Prepaid and Other Assets Increase Impact on OCF
    approximately $26.5 million
    Q1 FY26

    Primarily reflecting prepayments for long lead materials and development initiatives.

    Hypersonic Business Revenue
    $400 million
    FY26

    Expected revenue for the hypersonic business (Defense Rocket Support).

    Hypersonic Business Revenue
    $700 million
    FY27

    Expected revenue for the hypersonic business, with $400 million from MTB program covered by reconciliation bill and $300 million plus from FY27 defense budget.

    Small Jet Engine Annual Run Rate
    about $10 million
    annual

    Current annual run rate for smaller jet engines.

    Small Jet Engine Selling Price
    $40,000 to $60,000 each
    per unit

    Selling price range depending on the engine type.

    Defense Reconciliation Bill (FY25)
    $156 billion
    FY25

    Entire bill related to defense, intended to be spent in FY26.

    Defense Reconciliation Bill Obligated (FY25)
    approximately $30 billion
    FY25

    Amount obligated into April from the $156 billion bill.

    National Security Spend Projection
    $1.5 trillionapproximate $411 billion increase above 2026
    FY27

    Projected national security spend for FY27.

    National Security Spend Base Budget
    $1.150 trillion
    FY27

    Base budget piece of the projected FY27 national security spend.

    National Security Spend Reconciliation Bill
    $350 billion
    FY27

    Reconciliation bill piece of the projected FY27 national security spend.

    National Security Spend Potential Lower Bound
    $1.3 trillion
    FY27

    Management acknowledges this as a potential lower bound for FY27 national security spend.

    DOD Drone Funding
    $56 billion
    5 years

    Placeholder funding over 5 years for drone programs.

    Ballistic Missile Target Cost (Kratos)
    $15 million a shot
    per unit

    Cost for Kratos' most expensive ballistic missile target, including decoys and countermeasures.

    Ballistic Missile Target Cost (Competing)
    $100 million
    per unit

    Cost for a competing ballistic missile target.

    Valkyrie Tactical Revenue
    about $20 million
    Q1 FY26

    Tactical revenue for the quarter, predominantly Valkyrie.

    Total Capital Expenditures
    $160 million
    FY26

    Expected total CapEx for FY26, elevated for manufacturing and production facilities.

    Space Program Award
    $450 million
    Q1 FY26

    Analyst-confirmed figure for a recent space program award, won by Kratos.

    Industry KPIs

    5
    MetricValueDetails
    Book to bill ratio1.6:1ratio
    Total company backlog$2 billionUSD
    Defense program awards$447 millionUSD
    Program segment backlog$447 millionUSD
    Production rates by programapproximately 40 drones annuallyunits

    Orderbook & backlog

    5
    Total Backlog$2 billion2026-03-31

    record

    Reflects Kratos' accelerating growth trajectory.

    Opportunity Pipeline$14 billion2026-03-31

    up

    Pipeline is up after a 1.6:1 book-to-bill ratio, reflecting increasing opportunities.

    New Hypersonic Program AwardsseveralQ1 FY26

    Verbally informed of success on certain new hypersonic program awards.

    Sole-Source Hypersonic Program Expansion$1 billion-plusQ1 FY26

    Verbal award received, expected shortly.

    Solid Rocket Motors120 motorsQ1 FY26

    Under order, expected to start coming in Q3 FY26.

    Product announcements

    2
    ProductTypeDetails
    Industrial Gas Turbine Program for AI Data Centerslaunch
    Directed Energy Weapon System Programlaunch

    Deals & partnerships

    6
    OrbitAcquisition of Orbit

    Recently closed acquisition, previously reported financial results under International Accounting Financial Reporting Standards.

    NomadAcquisition of Nomad

    Transaction was closed at the time prior estimates were provided. Nomad is involved in counter-UAS, SATCOM, and missile defense.

    RafaelPrometheus Joint Venture for solid rocket motors

    Joint venture established last year for solid rocket motor initiatives, with Kratos funding approximately $50 million in FY26. The Department of War is also investing $100 million into the campus.

    U.S. Space ForcePrime contract for Resilient missile warning and tracking program$447 million

    Kratos will provide the ground system and software to operate the satellites after launch for a MEO constellation designed to detect and track ICBM launches and hypersonic missiles.

    well-known global industrial technology companyNew additional industrial gas turbine program for AI-related data centers

    A dual-use example, expected to be received by the end of this year.

    US GovernmentNew multi-hundred million dollar directed energy weapon system programmulti-hundred million dollar

    Kratos is the prime contractor for this counter-UAS mobile system.

    Capital programs

    8
    Prometheus Joint Ventureunderway
    Period spend: approximately $50 million
    Start: last year

    Funding for FY26 will occur ratably. The Department of War is also investing $100 million into the energetics campus. First fire expected next year.

    Hypersonic System Integration Facilityunderway

    Tracking to be online later this year or next, expected to contribute to continued future Kratos growth.

    Anaconda Radar Program Facilityunderway

    Tracking to be online later this year or next, expected to contribute to continued future Kratos growth.

    Helios Hypersonic Program Facilityunderway

    Tracking to be online later this year or next, expected to contribute to continued future Kratos growth.

    GEK Turbofan Engine Facilityunderway

    Tracking to be online later this year or next, expected to contribute to continued future Kratos growth.

    Blade Works Engine Facilitiesunderway

    Tracking to be online later this year or next, expected to contribute to continued future Kratos growth.

    Nomad Facilities (Machinery and Equipment)underway

    Benefit: enhance throughput and production

    Investments for additional machinery and equipment to enhance throughput and production at recently acquired Nomad facilities.

    Vulcan Kraken Elysium Nemesis Hermes Investmentsunderway

    Benefit: drone-related opportunities and other initiatives

    Investments for certain drone-related opportunities and other initiatives.

    Risks & headwinds

    4
    Government Obligation DelaysQ1 FY26 and ongoing

    Only approximately $30 billion of the $156 billion FY25 reconciliation bill had been obligated into April.

    Mitigation: Management is trying to be conservative in Q2 guidance due to the backlog in government program shops; expects awards to free up in Q2.

    Working Capital RequirementsQ1 FY26 and ongoing

    Q1 FY26 cash flow used $27.4 million in operations, reflecting approximately $28.7 million in receivables, $14.7 million in inventory, and $26.5 million in prepaid and other assets.

    Mitigation: Continued use of working capital is expected to fund organic revenue growth, including increases in accounts receivable, inventory, and prepaid asset balances for production ramp and long-lead materials.

    Labor ShortagesOngoing

    Not quantified, but described as the '#1 operational challenge'.

    Mitigation: Focus on obtaining and retaining qualified personnel, especially turbomachinery engineers and security-cleared individuals. This challenge limits acceleration in certain growth areas.

    Supply Chain ConstraintsOngoing

    Not quantified, but identified as a potential inhibitor.

    Mitigation: Supply chain for engines and materials for glide vehicles and air breathers is a key focus; management is working with suppliers to ramp up production (e.g., 3,000 engines next year).

    What to watch in Q2 FY26

    5

    Valkyrie LRIP Phase 1 Contract

    this year
    CurrentNegotiating contractual terms
    TargetExpected receipt of contract

    Why it matters

    Secures initial low-rate production for a key unmanned system program, impacting future revenue and production ramp-up.

    including on the Marine Corps MUX/TACAIR program, we are currently negotiating contractual terms of the expected receipt of what I will refer to as Valkyrie program LRIP Phase 1 this year

    Q&A highlights

    8

    Could you elaborate on the strong Q1 results and the fiscal revenue raise, specifically where you see the most strength and how Orbit and Nomad are performing?

    Eric highlighted strong performance in the engine business (KTT), Microwave Electronics (due to Middle East conflict and restocking), and Unmanned Systems (tactical side). Nomad is expected to be a strong organic grower after capital investments, focusing on counter-UAS and SATCOM. Orbit, located in Israel, is a 'crown jewel' with unique SATCOM capabilities for unmanned systems, expected to grow consistently with Kratos.

    “So internally, as I said in the remarks, Sheila, our engine business, KTT, is ripping right now. It is ripping.”

    asked by Sheila Kahyaoglu · answered by Eric DeMarco

    3 min read7 chapters

    Detailed Narrative

    01

    Strategic Alignment and Market Opportunity

    Kratos' business model is successfully aligned with the Department of War's objectives, benefiting from a generational recapitalization of the U.S. industrial base. The national security spend is projected to reach $1.5 trillion in FY27, representing an approximate $411 billion increase over FY26. This expanding market creates significant opportunities for qualified defense technology companies like Kratos, which differentiates itself through affordability and rapid fielding of relevant products, including military-grade hardware and software.

    02

    Funding and Program Confidence

    The company has increased confidence in its full-year 2026 forecast due to the Department of War's intent to obligate the entire $156 billion FY25 reconciliation bill in FY26. This bill includes crucial funding for Kratos' hypersonic systems, Valkyrie CCA, solid rocket motors, and jet engines for drones and missiles. This funding, combined with favorable spend timing, is expected to accelerate Kratos' growth throughout FY26 and into FY27.

    03

    Space and Satellite Business Acceleration

    Kratos' space and satellite business, encompassing OpenSpace software and globally owned/operated space domain awareness systems, is experiencing rapid acceleration, evidenced by a 3:1 book-to-bill ratio in Q1. The company secured a significant $447 million U.S. Space Force prime contract for the Resilient missile warning and tracking program, where Kratos will provide ground systems and software for MEO constellations. This segment is anticipated to be a primary driver of increased revenue and profit margins in Q3 and Q4 of this year, with continued expansion into FY27 and FY28.

    04

    Hypersonic and Engine Growth Drivers

    The hypersonic franchise is identified as a key growth driver, with Kratos receiving new program awards and a verbal award for a separate $1 billion-plus sole-source hypersonic program expansion. The company expects to begin small jet engine LRIP later this year for cruise missiles and powered munitions, with plans to produce several thousand engines in 2027 and further increase production into 2028. These initiatives are expected to significantly contribute to revenue and margin expansion.

    05

    Directed Energy and Dual-Use Applications

    Kratos has been awarded a new multi-hundred million dollar directed energy weapon system program as the prime contractor. The company continues to leverage dual commercial and national security applications for its software, hardware, and offerings, which helps spread R&D costs and accelerate speed to market. A new industrial gas turbine program for AI-related data centers is expected to be secured by the end of this year with a global industrial technology company.

    06

    Infrastructure and Capacity Investments

    Kratos is actively investing in expanding and building out its manufacturing and production facilities across microwave products, rocket systems, hypersonics, and jet engines. These investments include the Prometheus joint venture, Anaconda radar program facility, Helios hypersonic program facility, and GEK/Blade Works engine facilities. These strategic capital outlays are aimed at meeting existing and anticipated customer orders, enhancing throughput, and positioning the company for significant future growth and value generation.

    07

    Q2 Outlook and Government Contracting Challenges

    The second-quarter outlook is more conservative, reflecting an estimated revenue mix and less leverage on elevated administrative, manufacturing overhead, and bid and proposal costs. Management noted that the timing of📎 awards and contract obligations from government program offices remains a challenge, with an additional $120 billion needing to be obligated by the end of the fiscal year, which could impact the pace of execution.

    AI-generated summary of the company’s earnings call. Not investment advice.