Sign in
KD

KRATOS DEFENSE & SECURITY SOLUTIONS, INC. (KTOS)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered a clean beat versus internal guidance and Street: revenue $302.6M vs company range $285–$295M and Street $292.3M; Adjusted EPS $0.12 vs Street $0.09; Adjusted EBITDA $26.7M vs Street $23.1M. Book-to-bill was 1.2x; consolidated backlog rose to $1.508B *.
  • KGS drove growth with $239.5M revenue (+10% YoY) and $25.0M Adjusted EBITDA; KUS grew 6% YoY but posted a $1.7M operating loss on inflation-impacted fixed-price contracts .
  • FY25 guidance reaffirmed (revenue $1.260–$1.285B; Adjusted EBITDA $112–$118M). Q2 2025 guidance ($300–$310M revenue; $21–$25M Adjusted EBITDA) incorporates an Israel microwave facility move; management expects stronger Q3–Q4 as “customer predictability returns” .
  • Strategic catalysts: MACH‑TB hypersonic ramp (prime award), engine and microwave expansions, and tactical drone programs progressing; management emphasized minimal tariff exposure due to U.S.-centric supply chain .

What Went Well and What Went Wrong

What Went Well

  • Revenue/EBITDA beat and organic growth: $302.6M (+9.2% YoY; +7.4% organic), Adjusted EBITDA $26.7M (above $20–$24M guidance), with strongest growth in Microwave Products, C5ISR, Defense Rocket Systems (+13–19% YoY) .
  • Backlog and pipeline strength: Book-to-bill 1.2x; bookings $365.6M; backlog rose to $1.508B; bid pipeline at $12.6B (all-time high), supporting FY25/FY26 growth confidence .
  • Management confidence and macro tailwinds: “potential $1T FY26 U.S. national security budget” and possible $150B reconciliation support; hypersonics, engines, microwave, and C5ISR cited as top growth vectors .

Quote: “Kratos being a military quality hardware and software company…we expect little impact from existing or any currently contemplated tariffs.”

What Went Wrong

  • KUS margins/headwinds: KUS operating loss widened to $1.7M; Adjusted EBITDA fell to $1.7M (2.7% margin) due to inflation-driven cost growth on multi‑year fixed‑price target contracts negotiated in 2020–2021, with relief only at next lot renegotiation .
  • Working capital/cash flow: Operating cash flow used $(29.2)M and FCF used $(51.8)M on growth-driven receivables (+$37M), inventory builds, and development investments; DSOs increased to 109 days (from 104) .
  • Near-term Q2 impact: Israel microwave facility move (3 weeks) will dampen Q2 revenue/margins; guidance embeds lower June and higher July/August as operations normalize .

Financial Results

Consolidated Performance (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$275.9 $283.1 $302.6
GAAP Diluted EPS ($)$0.02 $0.03 $0.03
Adjusted EPS ($)$0.11 $0.13 $0.12
Adjusted EBITDA ($USD Millions)$24.6 $25.2 $26.7
EBITDA Margin (%)8.9% 8.9% 8.8%

vs. Estimates (Q1 2025)

MetricActualS&P Global Consensus
Revenue ($USD Millions)$302.6 $292.3*
EPS (Normalized) ($)$0.12 $0.090*
Adjusted EBITDA ($USD Millions)$26.7 $23.1*

Values marked with * retrieved from S&P Global.

Segment Breakdown

SegmentQ4 2024 Revenue ($M)Q1 2025 Revenue ($M)Q4 2024 Operating Income ($M)Q1 2025 Operating Income ($M)Q4 2024 Adj. EBITDA ($M)Q1 2025 Adj. EBITDA ($M)
Unmanned Systems (KUS)$61.1 $63.1 $(0.7) $(1.7) $2.6 $1.7
Government Solutions (KGS)$222.0 $239.5 $11.0 $17.0 $22.6 $25.0

KPIs and Cash Metrics

KPIQ4 2024Q1 2025
Bookings ($USD Millions)$434.2 $365.6
Book-to-Bill (x)1.5 1.2
Consolidated Backlog ($USD Billions)$1.445 $1.508
Bid & Proposal Pipeline ($USD Billions)$12.4 $12.6
Cash from Operations ($USD Millions)$45.6 $(29.2)
Free Cash Flow ($USD Millions)$32.0 $(51.8)
Capital Expenditures ($USD Millions)$13.6 $22.6
DSOs (days)104 109

Guidance Changes

MetricPeriodPrevious Guidance (Feb 26)Current Guidance (May 7)Change
Revenue ($M)Q2 2025—$300–$310 New
Adjusted EBITDA ($M)Q2 2025—$21–$25 New
Revenue ($B)FY 2025$1.260–$1.285 $1.260–$1.285 Maintained
Adjusted EBITDA ($M)FY 2025$112–$118 $112–$118 Maintained
Operating Cash Flow ($M)FY 2025$50–$60 $50–$60 Maintained
Capex ($M)FY 2025$125–$135 $125–$135 Maintained
Free Cash Flow Use ($M)FY 2025$(75)–$(85) $(75)–$(85) Maintained
R&D ($M)Q2 2025—$9–$10 New
R&D ($M)FY 2025$42–$45 $40–$42 Lowered
Operating Income ($M)Q2 2025—$3–$5 New
Operating Income ($M)FY 2025$34–$39 $34–$39 Maintained
Depreciation ($M)Q2 2025—$8–$9 New
Depreciation ($M)FY 2025$38–$40 $35–$37 Lowered
Amortization ($M)Q2 2025—$3–$4 New
Amortization ($M)FY 2025$9–$11 $12–$13 Raised
Stock-Based Compensation ($M)Q2 2025—$7–$8 New
Stock-Based Compensation ($M)FY 2025$28–$29 $31–$32 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Hypersonics/MACH‑TBSuccessful Zeus flights; MACH‑TB campus investment planned ; MACH‑TB ~$1.5B prime award; ramp expected ’26–’27 Reinforced prime role; long leads ordered (≈70 SRMs); modest H1 contribution; ramp H2’25/’26 Accelerating execution and funding clarity
Tactical Drones (Valkyrie/Thanatos/Apollo/Athena)Apollo contract documentation; Athena under contract; Valkyrie flights with Marines/Navy/OSD Valkyrie internal-gear variant to fly “soon”; Thanatos/Apollo/Athena flight series in H2’25; international Valkyrie win pending State approvals Progressing; production upside as programs mature
Engines/PropulsionNew turbofan facility site identified; strong demand across missiles/drones Expect “several hundred” small jet engines in H2’25; programs include Powered JDAM, MACE, Franklin Capacity/throughput ramp into ’26–’27
Microwave Electronics (Israel/US)Israel expansion Q2’25 completion; space-qualified capability; U.S. re-entry (Norden) Israel facility move over 3 weeks in Q2; high margins/book-to-bill; U.S. microwave positioned as merchant supplier Growth with short-term Q2 disruption
Space/SATCOM (OpenSpace/SDA)Commercial softness; national security wins (2.3x B2B in Q4) Strong national security demand (Ground C2/TT&C, SDA); commercial GEO SD satellites still bottlenecked Mix shift to Gov; margin lift expected in ’26
Supply Chain/Fixed‑Price InflationTarget contracts pressured; renewals to reset rates Continued headwind; working with customers on alternatives; renegotiations in upcoming lots Gradual mitigation through lot renewals
Tariffs/MacroCRA uncertainty (timing) Minimal tariff exposure; FY25 CRA resolution now provides clarity; potential $150B reconciliation Improved funding visibility

Management Commentary

  • CEO on macro/funding tailwinds: “A potential additional $150 billion defense related 2025 Reconciliation Bill… and the potential for a $1 trillion fiscal 2026 U.S. National Security Budget… increasing our confidence” .
  • CFO on Q1 beat and drivers: “Revenues… $302.6M, above our estimated range… Adjusted EBITDA… $26.7M, also above our estimated range… notable increases in Microwave Products, C5ISR and Defense Rocket Support” .
  • CEO on tactical drones: “There is absolutely nothing any of our tactical drone competitors… are doing that is keeping me up at night. Nothing.” .
  • CEO on hypersonics: “Dark Fury hypersonic vehicle has successfully flown its initial mission… at an extremely low cost point” .

Q&A Highlights

  • Golden/“Iron” Dome positioning: Kratos to provide ground C2/TT&C and SATCOM; more assets in space require more ground equipment and OpenSpace—“we clearly have the wind in our sails” .
  • Valkyrie internal-gear flight: CEO expects flight “soon this year”; multiple customers engaged .
  • Engine programs: H2’25 production scale; missiles cited include Powered JDAM, MACE, Franklin (plus classified) .
  • Israel microwave facility move: Phased, approvals secured; conservative Q2 guidance embeds disruption with catch-up by August .
  • KUS margin trajectory: Headwinds persist on fixed-price targets; renewals and vertical-integration mitigations underway .
  • MACH‑TB cadence: Modest H1; ramp H2 and into ’26–’28 driven by aerial test tempo and long-lead deliveries; Kratos is prime .

Estimates Context

  • Q1 2025: Company beat Street on revenue and EPS. Revenue $302.6M vs $292.3M*, Adjusted EPS $0.12 vs ~$0.09*, Adjusted EBITDA $26.7M vs ~$23.1M*. Expect upward estimate revisions for KGS and consolidated EBITDA given margin mix and backlog *.
  • Q2 2025: Guidance $300–$310M revenue and $21–$25M Adjusted EBITDA brackets consensus revenue ~$305.8M* and EBITDA ~$23.7M*. EPS normalized consensus ~$0.093* appears aligned with guidance caution given Israel facility move *.

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Solid execution and improving visibility: Revenue/EBITDA beats, rising backlog, and reaffirmed FY25 guide support near‑term confidence .
  • Near-term calendar: Expect muted Q2 (Israel move) followed by stronger Q3–Q4; trajectory should attract estimate upgrades as funding clarity persists .
  • Medium-term margin expansion: Lot renewals and merchant-supplier mix (hypersonics, engines, microwave) point to sustained EBITDA margin lift starting ’26 .
  • Hypersonics is the biggest growth driver: MACH‑TB prime role, successful Dark Fury/Erinyes missions, and long leads in hand set up a multi‑year ramp .
  • Tactical drone optionality: Multiple programs progressing; any production award could be a step‑function catalyst (management treating as “call option”) .
  • Cash/Capex plan is deliberate: Elevated FY25 capex is tied to booked/programmatic growth; cash OCF guide intact ($50–$60M) despite Q1 working capital use .
  • Tariff and CRA risks low: U.S.-centric vendor base minimizes tariff impact; FY25 CRA resolution and reconciliation bill potential are tailwinds .

SOURCES:

  • Q1 2025 8‑K (Results & Guidance):
  • Q1 2025 Earnings Call Transcript:
  • Additional Press Releases (Q1 context): Truck platooning deployment ; $30M air defense hardware award
  • Prior quarters: Q4 2024 8‑K (results/backlog/guide) ; Q3 2024 8‑K (themes/backlog)
  • S&P Global consensus estimates: Q1/Q2 2025 revenue/EPS/EBITDA* (values marked with *).