Provide more color on the phasing of the engine business, distinguishing between turbojets and turbofans over the next 2-3 years, and how it compares to hypersonics.

Turbojets (Spartan family, $50k ASP) are for low-cost cruise missiles, with components for 3,000 engines ordered for 2027 production and 5,000 for 2028. Turbofans (BladeWorks family, 50-50 JV with GE) are for larger missiles like JASSM/LRASM, with the Oklahoma factory operational by summer 2027 and LRIP starting in 2028, ramping significantly in 2029-2030. “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.”

Update on Mighty Hornet and new interest in Valkyrie from Taiwan.

Mighty Hornet (Tactical Firejet derivative with Kratos engine) has upcoming flights, with potential production in H1 FY27. Taiwan is also interested in a Valkyrie derivative due to its proven flight record, weapon deployment, and rail/runway launch capability, with a decision expected in H1 FY27. “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... And they're talking about making a decision also in the first half of next year.”

Are other CCA-type tactical unmanned aircraft (besides Firejet and Valkyrie derivatives) still in development or running?

Yes, there are two other classified drone programs under contract, with one currently in the weapon release phase. “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.”

KTOS

Kratos (KTOS) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 4, 2026

Source: earnings call transcript

Executive summary

Kratos Q2 FY26 — Strong Organic Growth and Accelerating Engine/Hypersonic Programs

Kratos delivered robust organic growth in Q2 FY26, driven by strong demand in its KGS segment and accelerating programs in hypersonics and jet engines. The company is strategically investing in manufacturing capacity and long-lead materials to meet anticipated demand for low-cost mass munitions and advanced defense systems, positioning for continued growth despite foreign currency headwinds and working capital needs.

Highlights

Q2 FY26 revenue of $458.8 million exceeded estimates, with consolidated organic growth of 19.1%.
Last 12-month book-to-bill ratio of 1.3:1 and total bookings of $1.99 billion demonstrate strong demand.
Hypersonic business revenue tracking for $400 million in FY26, increasing to at least $700 million in FY27.
Received new program awards including $160 million for directed energy counter UAS and $100 million for space domain awareness.
Forecasted full-year FY26 organic revenue growth raised to 19% to 23%.

Concerns

Strength of the Israeli shekel adversely impacted Q2 EBITDA by $2.5 million and is expected to have a $5 million to $7 million negative impact for the full year FY26.
Q2 cash flow used in operations was $11 million, primarily due to working capital requirements for revenue growth and long-lead material prepayments.
Free cash flow used in operations was $18.9 million, reflecting capital expenditures and investments in development initiatives.

Guidance & targets

Category	Target	Timeline	Confidence
Q3 FY26 Organic Revenue Growth	19% to 25% high materiality	Q3 · FY26	High
Q4 FY26 Organic Revenue Growth	19% to 31% high materiality	Q4 · FY26	High
Full Year FY26 Organic Revenue Growth	19% to 23% high materiality	FY26	High
Full Year FY26 Adjusted EBITDA Margin Performance	approximately 100 basis points improvement high materiality	FY26	High
Full Year FY26 Shekel Impact on EBITDA	approximately $5 million to $7 million negative impact medium materiality	FY26	Medium
Full Year FY26 Total Investments	approximately $250 million to $270 million medium materiality	FY26	High
Q3 FY26 Revenue	$460 million to $480 million high materiality	Q3 · FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
KGS Excludes $40.2 million from recent Nomad and Orbit acquisitions. Defense rocket support organic growth: 50.2%Turbine technologies organic growth: 43.3%Microwave products organic growth: 29.5%Space training and cyber businesses organic growth: 8.7%	up $101.4 million	22% organically	—	—
Unmanned Systems Increase primarily driven by Valkyrie-related activity.	up $5.9 million	8.1% organically	—	—

KTOS operating KPIs by quarter

KTOS operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Dec 2025 Q4 FY25	Mar 2026 Q1 FY26	Change vs prior quarter
Book-to-bill ratio	1.3 ratio We finished 2025, exceeding our financial objectives for the fourth quarter, generating approximately 20% Q4 year-over-year organic revenue growth, generating a 1.3:1 book-to-bill ratio on top of this 20% growth rate, having a record backlog of $1.573 billion, a record opportunity pipeline of $13.7 billion and with the opportunity set for Kratos having never been stronger and expected to continue to increase based on recent events. Source: earnings call transcript	1.6 ratio The success is reflected in our Q1 results, including a 1.6:1 book-to-bill ratio, a record backlog of $2 billion and increased opportunity pipeline up to $14 billion, and the $14 billion is after the 1.6:1 book-to-bill, reflecting Kratos' accelerating growth trajectory. Source: earnings call transcript	+23.1%
Backlog	$1.573B We finished 2025, exceeding our financial objectives for the fourth quarter, generating approximately 20% Q4 year-over-year organic revenue growth, generating a 1.3:1 book-to-bill ratio on top of this 20% growth rate, having a record backlog of $1.573 billion, a record opportunity pipeline of $13.7 billion and with the opportunity set for Kratos having never been stronger and expected to continue to increase based on recent events. Source: earnings call transcript	$2B The success is reflected in our Q1 results, including a 1.6:1 book-to-bill ratio, a record backlog of $2 billion and increased opportunity pipeline up to $14 billion, and the $14 billion is after the 1.6:1 book-to-bill, reflecting Kratos' accelerating growth trajectory. Source: earnings call transcript	+27.1%
Book-to-bill ratio space and satellite	1.2 ratio And as a result, Kratos' space and satellite business opportunity pipeline is particularly robust even after generating a fourth quarter and 12-month book-to-bill ratio of 1.2:1 and now having a record backlog of $600 million at the end of Q4. Source: earnings call transcript	3 ratio The business is rapidly accelerating, including as reflected by a 3:1 book-to-bill ratio in Q1 for our satellite business. Source: earnings call transcript	+150%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Total last 12-month bookings $1.99 billion LTM

Bid and proposal pipeline $15 billion current

continuing to increase

Product announcements

Product	Type	Timeline
Kraken 1, Kraken 2, Nemesis	launch	—
New EW system	launch	—
Missile system program of record	launch	—
Kratos TDI Spartan turbojet engines	launch	2027, 2028
New small turbofan design (GE)	launch	—
Mighty Hornet	launch	First half of next year

Deals & partnerships

Department of Energy Directed Energy Counter UAS System Program $160 million

Kratos is the prime system integrator for this program related to securing nuclear assets. Initial funding of $30M-$40M received.

Undisclosed Space Domain Awareness System Production $100 million

New production award for space domain awareness system.

GE Aerospace BladeWorks Turbofan Engine Family

Partnership for turbofan engines for JASSM and LRASM missiles. New BladeWorks facility in Oklahoma expected operational by summer 2027.

Airbus Valkyrie deployment in Europe

Kratos Valkyries are in Europe with Airbus.

RAFAEL Prometheus Solid Rocket Motor Facility

Partnership for solid rocket motors, with first fire expected next year and production in FY27-FY28.

L3 Aerojet Zeus solid rocket motors supplier

L3 Aerojet is building Zeus solid rocket motors for Kratos, meeting milestones on time and budget.

Northrop Grumman Oriole solid rocket motors supplier

Northrop Orbital ATK is supplying Oriole solid rocket motors, being very accommodating and on time/schedule.

Northrop Grumman MUX TACAIR program with Marines

Kratos is partnered with Northrop on this program, expecting an additional award by year-end.

SES Global satellite operator relationship

Outstanding relationship with SES, an industry-leading technology company.

Capital programs

New Spartan Turbojet Engine Manufacturing Facility operational

Benefit:produce 3,000 engines in 2027, 5,000 in 2028

We will produce the Kratos Spartan Turbojet engines in our new now operational state-of-the-art manufacturing facility in Michigan.

BladeWorks Turbofan Engine Facility underway

Spent to date: recently broke ground

Benefit:produce turbofans

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

Hypersonic System Integration Facility operational

Benefit:integration of motors and flyers

Kratos' new hypersonic system integration facility in Indiana operational, we see these as key elements of our hypersonic business expected future growth trajectory.

Anaconda Radar Facility underway

Spent to date: underway

Benefit:anechoic chamber radar facility, radar refurbishment facility

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... 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.

Helios Hypersonic System Arc Chamber and Laser Facility announced

Start: later this year

Benefit:hypersonic system arc chamber and laser facility

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.

Prometheus Solid Rocket Motor Facility underway

Benefit:military-grade qualified energetics

Ken, we are on track for first fire next year. We are on track with our partner, RAFAEL... 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.

Oklahoma Unmanned Systems Facility Expansion underway

Spent to date: happening

Benefit:additional 50,000 square feet for Valkyrie, Firejet target drones, Tactical Firejet, Mighty Hornet, and classified drone programs.

We've just recently approved an expansion of the facility by another 50,000 square feet or so that is happening, okay?

Risks & headwinds

Israeli Shekel Strength Q2 FY26, H1 FY26, Full Year FY26

Negative impact of $2.5 million on Q2 FY26 EBITDA, $2.8 million on H1 FY26 EBITDA, and an estimated $5 million to $7 million negative impact for full year FY26.

Mitigation:Management is aware and forecasting for continued impact, but no specific mitigation actions were detailed.

Working Capital Requirements Q2 FY26

Q2 FY26 cash flow used in operations was $11 million, primarily due to increased receivables ($59 million), inventory ($10 million), and prepaid assets ($14 million).

Mitigation:Management is continuing to make investments to expand manufacturing and procure long-lead materials, with total investments for FY26 remaining unchanged at $250 million to $270 million, but with a shift in classification on the cash flow statement.

Budget Uncertainty/Continuing Resolutions (CRAs) Q4 FY26

Expectation of a Q4 FY26 CRA (October-December) settling in January.

Mitigation:A significant amount of Kratos' work is program of record based and in the base budget. The company is positioned for a shift to lower-cost mass munitions, which is a bipartisan priority.

Supply Chain Execution Ongoing, particularly for 2027 and 2028 engine production

Implicit risk in ramping production for engines and hypersonics.

Mitigation:Kratos is working to ensure all vendors and suppliers are qualified, providing production quantities, and bringing in experts from the auto industry and Department of War to set up lines, manage quality control, and ensure redundancy in the supply chain.

What to watch in Q3 FY26

Hypersonic Business Revenue Growth

Q3 FY26

Current Q2 FY26 revenue increase of $20M-$25M sequentially from Q2 to Q3.

Target Q3 FY26 revenue increase of $20M-$25M sequentially from Q2.

Why it matters

Hypersonic business is a primary future growth driver, with significant funding and new facilities coming online.

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.

Find out whether KTOS delivers this. Inve re-checks your case every morning.

Q&A highlights

How does the $400M FY26 to $700M FY27 hypersonic growth fit into H2 FY26 acceleration and CapEx changes?

Hypersonic revenue is expected to increase by $20M-$25M sequentially from Q2 to Q3, and another $20M-$30M from Q3 to Q4. The new hypersonic system integration facility is now operational, enabling increased integration and launch tempo in H3 FY26 and significantly in FY27.

“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.”

asked by Sheila Kahyaoglu · answered by Eric DeMarco

2 min read 6 chapters

Detailed narrative

Strategic Alignment and Investment Phase

Kratos' strategy of internally funded investments in affordable mass production hardware and software aligns with Department of War priorities, leading to significant program awards and a strong bid pipeline of $15 billion. The company is in an investment phase, focused on organic growth and winning large new programs, supporting the reindustrialization initiative.

This approach is expected to drive business momentum into the second half of FY26 and continuing into FY27.

Engine Business Expansion

Kratos is rapidly expanding its jet engine business, with plans to produce 3,000 Spartan turbojet engines in 2027 and 5,000 in 2028, primarily for low-cost cruise missiles like JDAM-LR, with an average selling price of $50,000 per engine. The new BladeWorks facility in Oklahoma for turbofan engines (a 50-50 partnership with GE) is expected to be operational by summer 2027, targeting JASSM and LRASM missiles, with LRIP starting in 2028 and significant ramp-up in 2029-2030.

Kratos is placing initial orders for components for these engines.

Hypersonic Business Growth

The hypersonic business, which generated $200 million in 2025, is tracking for $400 million in 2026 and at least $700 million in 2027. This growth is supported by new program awards (Kraken 1, Kraken 2, Nemesis), $400 million in recent funding, and the operationalization of a new integration facility in Indiana.

The MACH-TB program alone represents a potential $7 billion funding over five years, underscoring the significant future growth potential in this area, driven by global arms races.

International Operations and Space Domain

Kratos' Israeli microwave electronics and SATCOM business is working with the Israeli MOD to replenish advanced weapons stockpiles, leveraging over 700 employees and battle-proven systems. The satellite C2 and space domain awareness business, the company's largest, is also rapidly growing, with significant margin expansion expected as space becomes a critical warfighting domain. Kratos is the ground system provider for a recently awarded multi-billion dollar constellation.

Unmanned Systems and Production Capacity

The Unmanned Systems business had a solid Q2, with expectations for an additional Marine Corps Valkyrie order by year-end. Production rates for Valkyrie are increasing to 1.5 planes per month (18 per year) by 2027, with potential for 35-40 planes per month depending on configuration (rail-launched vs.

CTOL). The company is also pursuing opportunities for Tactical Firejet and Mighty Hornet in Taiwan, with potential production in H1 FY27, and has two other classified drone programs under contract.

Capital Expenditure and Facility Ramps

Kratos is investing in expanding manufacturing facilities for microwave products, rocket systems, hypersonics, and jet engines. New facilities like the Anaconda radar facility (ramping in H2 FY26, fully operational mid-2027) and the Helios hypersonic arc chamber (breaking ground late FY26, operational early FY28) are tied to specific, funded programs with clear returns on investment.

The Prometheus solid rocket motor facility is on track for first fire next year and production in FY27-FY28.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.