Kratos (KTOS) Q4 FY25 earnings call: guidance and Q&A

What are Kratos' perspectives on defense tech valuations and how would significant funding impact Kratos' acceleration, especially given the Secretary of War's comments?

Eric DeMarco stated his belief that Kratos is the most valuable defense company, private or public, emphasizing its balanced strategy of organic growth, significant investment in the industrial base, and generating adequate returns for investors, rather than pursuing rapid, unconstrained growth.

“I believe that Kratos is the most valuable defense company in the industry, private or public. I'm taking nothing away from Anduril or any of the other defense tech companies. I want them to all succeed for U.S. national security. Okay. But we are the most valuable, and I can go through that if you'd like me to.”

asked by Josh Sullivan · answered by Eric DeMarco

Can you provide an update on the Kratos-Boom partnership and the superpower IGT, including other customers and backlog, given recent announcements?

Kratos confirmed its expertise in industrial gas turbines (IGT) from the Florida Turbine acquisition and stated that the market has shifted in its favor. While the primary focus is with their partner, Kratos is a merchant supplier and multiple companies are now seeking their assistance in this area.

“The market has definitely come our way now on the industrial gas turbine area, and we are moving out on this aggressively. Our #1 priority is to do it with our partner, but this is an area of expertise for us, and we have -- we are a merchant supplier, and there are multiple companies in this area that are coming to us now for our assistance.”

asked by Joshua Sullivan · answered by Eric DeMarco

Why is Northrop Grumman the prime contractor for the Marine Corps Valkyrie program, rather than Kratos?

Kratos explained that partnering with Northrop, who has fantastic mission systems, increases the probability of winning the program and reduces Kratos' risk on integration. Kratos also acts as a merchant supplier of tactical jet drones, allowing mission system companies to prime if it means selling more aircraft faster.

“Additionally, it reduces risk to Kratos on the integration of those very exquisite capability but not necessarily in cost, mission systems that Northrop is putting on. It's a risk reduction for Kratos, and we are getting a full stock profit margin on the aircraft.”

asked by Anthony Valentini · answered by Eric DeMarco

Is the $10 million per aircraft figure still accurate for Valkyrie, even with Northrop as prime and a 50-50 revenue split?

Eric DeMarco clarified that the $10 million figure should be considered for Kratos' content per aircraft, not necessarily split from a total program value. He noted it might vary slightly based on configuration (e.g., rail-launched vs. conventional takeoff and landing).

“Look at $10 million per aircraft for Kratos. Okay? Might be a little less, might be a little more depending on the configuration. As you know, we have 3 different Valkyries now that are 3 different ones, rail launched, trolley launched, conventional takeoff and landing. So depending on the type of aircraft, it might move around a bit, but if you use $10 million, you're in good shape for Kratos.”

asked by Anthony Valentini · answered by Eric DeMarco

Can you elaborate on Kratos' small drone offerings, particularly in the context of the Drone Dominance Plan, and its involvement in counter-UAS?

Kratos revealed it has a family of Class 1 and 2 small drones, primarily developed with the U.S. Army, which won a Phase 1 award in the Drone Dominance Plan. While focused on offensive drones for this program, Kratos is also involved in other counter-UAS programs, building hardware and utilizing tethered drones for CUAS capabilities.

“We have a family of small drones, Class 1 drones, some Class 2 drones that we just haven't been talking about that we have primarily been working with the United States Army on for multiple, multiple years. And very candidly, you have not heard me talk about this one because I was not sure we were going to be successful in the first round, and we were.”

asked by Michael Crawford · answered by Eric DeMarco

How do the potential defense budget increases, including a possible $450 billion supplemental, impact Kratos' organic growth outlook for the next 1-2 years, especially compared to a low-to-mid single-digit growth in overall defense spending?

Kratos is well-positioned to achieve or exceed its FY26/FY27 forecasts even with normal defense budget growth (e.g., 5% annually), as funding shifts to new priorities where Kratos has strong contracts (hypersonics, space, small engines). If budgets increase to $1.5 trillion, it would be very beneficial due to increased demand.

“We are in great shape to achieve, if not exceed our forecast for '26 and '27 with the potentially accelerating in '28 and '29. This is with current funding normal growth. Why is that? Because within that funding, money is moving from previous priorities to new priorities.”

asked by Kenneth Herbert · answered by Eric DeMarco

Which contract vehicles are primarily driving the hypersonics growth, and are the 120 Zeus and Oriole SRMs all under MACH-TB or other contracts?

The primary drivers for hypersonics growth are MACH-TB, a Navy program closely coordinated with the Missile Defense Agency, and a program with a large prime contractor. The 120 SRMs are tied to missions and launch manifests, with MACH-TB specifically driving Zeus 1 and 2, Erinyes, and Dark Fury.

“So number one is MACH-TB. Number two is the Navy program that's coordinated very closely with the Missile Defense Agency, very closely. Okay. Number three, it's with the prime. I can't talk about it, but it's with the prime.”

asked by Peter Skibitski · answered by Eric DeMarco

Can you size the Microwave Electronics business, its growth in FY25, projected growth in FY26, and identify its larger program drivers?

The Microwave Electronics business grew organically by approximately 17% in FY25. Major programs driving this include Iron Dome, Tamir, Arrow, BARAK, and two classified programs. Kratos also recently received a production award for a large, well-known missile program in the U.S. The business is 'ripping' due to the universal need for microwave electronics in national security systems.

“Big programs are Iron Dome, Tamir, Arrow, BARAK. There's next 2 -- the next 2 are classified. So those are the big 5, 2 classified and those 3 I mentioned.”

asked by Sheila Kahyaoglu · answered by Eric DeMarco

Does the increased investment by prime contractors, and their shift away from buybacks, lead to more direct competition for Kratos, or does it accelerate Kratos' opportunities?

Kratos rarely competes directly with traditional primes, instead partnering with them. The primes' increased investment and focus on production, such as Northrop's 4x increase for IBCS or Leidos Dynetics' indirect fire systems, is seen as an accelerator for Kratos, as Kratos builds significant hardware for these programs.

“We really don't compete with the traditional primes. We rarely do. It's -- we partner with them. I went through a little earlier that for every one of the major primes that builds missile, radar, air defense type systems, the ones that are going to be involving Golden Dome, we build the hardware for them. We partner with them.”

asked by Gavin Parsons · answered by Eric DeMarco