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KRATOS DEFENSE & SECURITY SOLUTIONS, INC. (KTOS)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $283.1M (+3.4% y/y), GAAP EPS $0.03, Adjusted EPS $0.13, and Adjusted EBITDA $25.2M; consolidated book-to-bill was 1.5x with $434.2M bookings .
  • Operating cash flow was strong at $45.6M with free cash flow of $32.0M, supported by accelerated favorable milestone payments; deferred revenues rose to $76.3M from $61.9M in Q3 .
  • FY25 guidance introduced: revenue $1.260–$1.285B (~10% growth), Adjusted EBITDA $112–$118M, capex $125–$135M, operating cash flow $50–$60M; management lifted initial 2026 revenue growth forecast to 13–15% over FY25, citing recent program awards (MACH‑TB 2.0: $1.45B) .
  • Strategic catalysts: MACH‑TB 2.0 award, Prometheus Energetics JV with RAFAEL (SRM merchant supplier; initial production in 2027), expanding microwave/engine facilities, and robust backlog ($1.445B) .

What Went Well and What Went Wrong

What Went Well

  • Record pipeline and bookings underpin accelerated growth: Q4 consolidated book-to-bill 1.5x and bid/pipeline at $12.4B; CEO emphasized “up and to the right” trajectory with increased margins .
  • Hypersonics momentum: Awarded MACH‑TB 2.0 ($1.45B), with anticipated ramp in 2026–2027; management expects incremental revenue and EBITDA margin lift as test cadence increases .
  • Cash generation: Q4 operating cash flow $45.6M and FCF $32.0M, aided by accelerated milestone receipts; backlog rose to $1.445B and consolidated bookings hit $434.2M .

Quote: “We can significantly organically grow the business… with increased margins” .
Quote: “MACH‑TB… is expected to begin to significantly ramp starting in ’26… ramp even more in 2027 and ’28” .

What Went Wrong

  • Space & Satellite headwinds: Q4 KGS growth was offset by a ~$16.1M decline due to OEM delays on software-defined satellites; KGS operating income fell to $11.0M from $17.5M y/y .
  • Unmanned Systems margin pressure: KUS had an operating loss of $0.7M and Adjusted EBITDA declined to $2.6M (mix, higher materials/subcontract costs on multi-year fixed-price contracts, increased R&D) .
  • CRA impacts: Continued operating under a federal Continuing Resolution constrained new awards/funding; guidance assumes resolution by March 14, 2025, with risk to FY25 if extended .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($M)$273.8 $275.9 $283.1
GAAP EPS ($)$0.02 $0.02 $0.03
Adjusted EPS ($)$0.12 $0.11 $0.13
Adjusted EBITDA ($M)$29.1 $24.6 $25.2
EBITDA Margin (%)10.6% 8.9% 8.9%

Segment breakdown:

Segment MetricQ4 2023Q3 2024Q4 2024
KUS Revenue ($M)$55.4 $64.2 $61.1
KUS Operating Income ($M)$1.0 $0.4 $(0.7)
KUS Adjusted EBITDA ($M)$4.0 $3.6 $2.6
KGS Revenue ($M)$218.4 $211.7 $222.0
KGS Operating Income ($M)$17.5 $13.5 $11.0
KGS Adjusted EBITDA ($M)$25.1 $21.0 $22.6

KPIs and operating metrics:

KPIQ3 2024Q4 2024
Consolidated Book-to-Bill (x)1.0 1.5
Consolidated Bookings ($M)$267.2 $434.2
Consolidated Backlog ($B)$1.294 $1.445
Operating Cash Flow ($M)$6.1 $45.6
Free Cash Flow ($M)$(9.2) $32.0
Capital Expenditures ($M)$15.3 $13.6
DSOs (days)105 104
Contract Mix (% of Revenue)Fixed 69%, Cost 25%, T&M 6% Fixed 69%, Cost 25%, T&M 6%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q1 2025N/A$285–$295 New
Revenue ($M)FY 2025N/A (prior base case “~10% growth”) $1,260–$1,285 (~10% growth) Maintained vs base case
Adjusted EBITDA ($M)FY 2025N/A$112–$118 New
Operating Cash Flow ($M)FY 2025N/A$50–$60 New
Capital Expenditures ($M)FY 2024 vs FY 2025FY24: $60–$70 FY25: $125–$135 Raised materially
Free Cash Flow ($M)FY 2025N/A$(75)–$(85) (use) New
2026 Revenue Growth (%)FY 2026Not specified previously+13–15% y/y over FY25 Initiated/raised trajectory

FY25 investment detail (selected): Valkyrie second lot build $28–$30M; MACH‑TB payload integration facility $22–$24M; microwave expansion $15–$16M; engines/test cell $14–$15M; working capital for Zeus/Oriole $10–$15M and unmanned initiatives $13–$16M .

Earnings Call Themes & Trends

TopicQ2 2024 (Prior-2)Q3 2024 (Prior-1)Q4 2024 (Current)Trend
Hypersonics (Erinyes, Zeus; MACH‑TB)Erinyes first flight; hypersonic pipeline outlined; expected incremental $50–$100M in ’25 and ramp thereafter Zeus first flight; site identified for hypersonic facility; expecting multi-year growth MACH‑TB 2.0 $1.45B award; ramp in ’26–’28; facility buildout plan Strengthening
Tactical Drones (Valkyrie, Apollo, Athena)Planning 3rd production spiral; runway-flexible variants; customer options Apollo selected/in documentation; Athena under contract; international Valkyrie down-select Apollo/Athena under contract; Marine Corps Project Eagle test plan; international win hedged pending deliveries Progressing
Microwave ProductsRecord backlog; facility expansion planned (space-qualified capability) Continued strength, supporting air-defense systems; India facility contemplated U.S. re-entry via acquisitions (Norden/Phoenix); aiming to be lead merchant supplier; Israel facility expansions Expanding
Space & SatelliteCommercial SD-satellite OEM issues; government pipeline strong Commercial down ~$30–$35M FY; government awards/book-to-bill improving Q4 KGS decline ~$16.1M; government sat awards drove 2.3x book-to-bill; priming more Mixed: gov improving, commercial pressured
Supply Chain/Costs & CRAElevated vendor prepayments; CRA risk CRA continued; cost growth pressures noted; hiring scarcity Guidance assumes CRA resolution by Mar-14; margin recovery as contracts reprice and scale Near-term risk, medium-term relief
Engines/Propulsion (GE partnership; TDI)GE Aerospace turbofan partnership; preparing capacity; low-cost cruise missiles engines Turbojet capacity and LRIP timing; tight labor market pressure on margins New OK test/production facility with GE; expected revenue contributions post ’26/’27 Building capacity
Vertical Integration/Merchant SupplierPursuing SRM merchant supplier; vertical integration to mitigate supply/cyber risk Positioning as merchant supplier across microwave/electronics Prometheus JV (SRMs, warheads); above 50% equity method; base case several hundred $M revenue at rate Advancing

Management Commentary

  • “Kratos’ full year 2024 and fourth quarter demonstrated once again that we can significantly organically grow the business… with increased margins.”
  • “Beginning in 2026 and continuing into 2027, we are currently looking at significantly increased EBITDA margins… [contracts] renewed at higher rates… and leverage on our fixed costs” .
  • “MACH‑TB… planned to significantly ramp starting in ’26… ramp even more in 2027 and ’28” .
  • “Prometheus… will be a step function catalyst… with RAFAEL intending tens of thousands of solid rocket motors and energetics… base case revenue of several hundred million dollars a year at rate” .
  • “Our space business… 2.3:1 book-to-bill ratio [Q4]… encouraged to prime more… we’ve been winning” .

Q&A Highlights

  • Margin trajectory: Management targets +100–150 bps EBITDA margin lift per year in ’26–’28 as contracts reprice and scale improves; CRA delays have slowed near-term awards .
  • MACH‑TB ramp mechanics: Long lead SRMs and flight vehicles ordered to enable 2H25 nominal revenue; significant ramp in ’26–’28 tied to aerial hypersonic testing cadence .
  • Capex/investments: FY25 capex includes ~$30M for Valkyrie lot-two build and ~$22–$24M for MACH‑TB payload integration; most facility builds complete in ’25; Prometheus capex mostly in ’26 .
  • Segment margins: KGS expected to expand margins in ’25; unmanned margins face continued headwinds until lot renewals reset pricing .
  • Programs: Sentinel participation (above-ground missile transporters); Valkyrie Marine Corps plans progressing (Project Eagle/MUX TACAIR) .

Estimates Context

  • S&P Global consensus estimates were unavailable due to a data access limit at the time of this analysis; therefore, beats/misses versus Wall Street consensus cannot be assessed. Values would normally be retrieved from S&P Global.
  • Directionally, actual Q4 results were within company guidance ranges previously issued (Revenue $270–$295M; Adjusted EBITDA $21–$26M), but we cannot quantify performance versus external consensus without S&P Global data .

Key Takeaways for Investors

  • Near-term execution solid; Q4 results and strong bookings/backlog support FY25 revenue growth (~10%) and position for accelerated growth in ’26–’28 on hypersonics and air-defense hardware .
  • Margin story improving: Expect staged EBITDA margin expansion from ’26 as fixed-price contracts renew at higher rates and scale leverage kicks in; CRA resolution remains a near-term swing factor .
  • Capex is front-loaded in FY25 to build capacity (MACH‑TB, Valkyrie, microwave, engines); anticipate FY25 free cash flow use with operating cash flow positive, flipping to stronger cash generation post-ramp .
  • Hypersonics is a multiyear catalyst: MACH‑TB 2.0 ($1.45B) and Erinyes/Zeus progress should drive revenue growth and margin mix improvement starting in ’26 .
  • Prometheus JV creates strategic SRM/warhead merchant-supply capability with base-case “several hundred million” annual revenue at rate; equity method accounting smooths P&L optics .
  • Unmanned Systems remains strategically important but faces 2025 margin pressure until contract renewals and vertical-integration initiatives mitigate cost growth .
  • Space & Satellite mix shifting toward government; commercial SD-satellite delays persist, but government awards/book-to-bill support recovery in ’26–’27 .

Additional Press Releases & Program Context

  • MACH‑TB 2.0: Five-year OTA, total value if all options exercised is $1.45B; Kratos primes Task Area 1 SEIT, leading integrated test services .
  • Prometheus Energetics JV: 50/50 JV with RAFAEL; site near NSWC Crane; production targeted for 2027; Kratos records ~50% of JV net income via equity method .
  • Valkyrie EW/Kill Chain Demonstration: USMC-led Emerald Flag exercise demonstrated collaborative kill chain closure and expeditionary control of XQ‑58A .
  • Zeus SRMs: Successful first flight; production motors expected 1Q25; supports hypersonic test and missile target markets .

All figures and statements are sourced from Kratos’ Q4 2024 8‑K and press release, Q2/Q3 filings and transcripts, and related company press releases as cited above.