Kratos Defense & Security Solutions, Inc. Q1 FY2026 earnings call

Kratos' balanced business model is succeeding with Q1 results like 1.6 to 1 book-to-bill, record backlog of 2 billion, opportunity pipeline up to $14 billion. Exceeded first quarter forecast across the board. Space and satellite business well positioned with 1.8 to 1 book-to-bill ratio, $447 million contract win. Hypersonic business tracking strong with 400 million in reconciliation bill and 700 million next year. Unmanned systems Valkyrie production ramping up. Prometheus joint venture, Anaconda radar program, Helios hypersonic program, engine facilities, etc. tracking to be online. Dual commercial national security use differentiates Kratos. Orbit and Nomad acquisitions expected to drive growth.

Revenues for the first quarter were $371 million above the estimated range. Unmanned Systems first quarter 26 revenue was up 19.5 million or 30.9% organically. KGS first quarter 26 revenue was up 48.9 million year over year with organic revenue growth of 11.8% excluding recent acquisitions. Q126 revenues include consolidated organic revenue growth of 15.8%. Adjusted EBITDA for the first quarter was $38.7 million. First quarter 26 cash flow generated used in operations was 27.4 million. Free cash flow used in operations for the first quarter of 26 was $43.1 million. Contract mix for the first quarter of 26 was 73% fixed price, 23% cost plus, 4% time and material. Revenues from US federal government were ~69%, foreign customers 21%, commercial customers 10%. Second quarter revenue guidance 400 to 410 million, full year 26 revenue guidance 1.7 to 1.760 billion including Orbit acquisition.

Second quarter revenue guidance 400 - 410 million with estimated organic growth of 47% vs Q2 25. Full year 26 revenue guidance 1.7 - 1.760 billion including Orbit acquisition and 15 - 19% organic growth over 25. Operating cash flow guidance includes working capital use for organic growth, investments in rocket and unmanned systems, etc. Prometheus joint venture funding ~50 million ratably in 26.

Operational challenge of obtaining and retaining qualified people, especially with security clearances. Supply chain challenges for hypersonic and engine businesses. Uncertainty in government contract funding timing and awards impact on backlog and growth.

Q: Elaborate on strong start and fiscal revenue raise, compare Orbit and Nomad impact.

A: Engine business, microwave electronics, unmanned systems strong. Nomad in Counter UAS, SATCOM, expected organic growth. Orbit crown jewel in Israel, same customers, growth rate consistent.

Q: Hypersonic revenue opportunity, Middle East conflict visibility.

A: Can't comment on Middle East. Visibility on 700 million from reconciliation bill, testing requirements, etc.

Q: Unmanned Systems Fund, Valkyrie production location, other drone production.

A: Valkyrie 100% in Oklahoma, Mako in Sacramento, tactical fire jet production moved to Oklahoma.

Q: JDAM LR ramp up, Florida Turbine involvement.

A: GBU-75, program of record, tied to LRIP and full rate production. Kratos selected for engine development, down selected on some, won others.

Q: Size of hypersonic and power/propulsion revenue, 2Q outlook.

A: Hypersonic 2026 ~400 million, 2027 ~700 million. 2Q margin step down due to mix and infrastructure ramp.

Q: Funding for drones, DOG impact, merchant supplier model.

A: DOG funding placeholder $56 billion over 5 years, confidence in engine side, merchant supplier model for drones.

Q: Prometheus JV, Orbit Tech acquisition exposure.

A: Prometheus expected first fire next year, significant department funding opportunity. Orbit Tech acquisition near 10% revenue, large exposure to ammunition restock.

Q: Labor situation, commercial unmanned ground system business.

A: Labor situation better but still hard to obtain qualified people. Commercial business doing well, in discussions with farming equipment company.

Q: KGS growth, hypersonic revenue opportunities.

A: KGS growth across divisions. Hypersonic has multiple large initiatives, waiting for customer announcements.

Q: CapEx guidance, SCAR opportunity, drone dominance.

A: CapEx will continue elevated. SCAR opportunity to be evaluated. Kratos in strong position for drone dominance.

Q: Backlog impact of government shutdown, hypersonic revenue above target.

A: Government shutdown delayed awards, expecting Q2 bookings. Hypersonic revenue above target possible with supply chain and engine/materials.

Q: Capital deployment, Valkyrie production mix.

A: Capital deployment for organic investments, no aggressive M&A planned. Valkyrie production mix depends on customer orders.

Q: Generational recapitalization endurance, Kratos evolution.

A: National security spending trajectory up due to threat profile. Kratos focus on execution, delivering products affordably.

Q: White House executive order on fixed price contracting.

A: Fixed price production contracts beneficial, Kratos not doing fixed price development contracts, seen as low-cost provider.