Eric DeMarco
KRATOS DEFENSE & SECURITY SOLUTIONSAbout Eric DeMarco
Eric DeMarco, age 61, has served as Kratos’ CEO and a director since April 1, 2004, after joining in November 2003 as President and COO; he previously was President/COO and EVP/CFO of The Titan Corporation and began his career in public accounting. He holds a B.S. in Business Administration and Finance (summa cum laude) from the University of New Hampshire and a Top Secret clearance . Under his leadership, Kratos delivered 2024 revenue of $1.136B vs. $1.037B in 2023 and Adjusted EBITDA of $105.7M vs. $95.4M, with operating cash flow of $49.7M; the share price rose from $10.32 (FY22) to $26.52 (FY24) amid record bookings and backlog .
Past Roles
| Organization | Role | Years | Strategic Impact |
|---|---|---|---|
| Kratos Defense & Security Solutions | President & COO | Nov 2003–Mar 2004 | Led transition period prior to becoming CEO; supported strategic pivot to defense solutions |
| Kratos Defense & Security Solutions | Chief Executive Officer; Director | Since Apr 1, 2004 | Transitioned company from wireless communications to defense/security products via organic growth and acquisitions |
| The Titan Corporation | President & COO; EVP & CFO | — | Senior leadership at NYSE-listed defense contractor prior to L-3 acquisition |
| Public Accounting (various) | Audit roles | — | Focused on large multinationals and public companies |
External Roles
No other public company directorships or external board roles for DeMarco are disclosed in the proxy biography .
Fixed Compensation
| Metric | FY 2022 | FY 2023 | FY 2024 |
|---|---|---|---|
| Base Salary ($) | $760,000 | $850,000 | $850,000 |
| Target Annual Bonus (% of Salary) | 75%-100% (corporate NEO policy) | 75%-100% (corporate NEO policy) | 75%-100% (corporate NEO policy) |
| Actual Bonus Paid ($) | $304,000 | $637,500 | $844,276 |
| All Other Compensation ($) | $97,910 (PTO payout + 401k match) | $77,345 (PTO payout + 401k match) | $110,169 (PTO payout + 401k match) |
| Total Compensation ($) | $7,056,910 | $4,573,845 | $7,363,445 |
Notes:
- In Sept 2024, the Compensation Committee set DeMarco’s 2025 base salary at $1,000,000 (75th percentile of CEO peers), citing combined CEO/COO responsibilities and record performance .
Performance Compensation
Annual cash incentive design (corporate NEOs; CEO applies):
- Weighting: Up to 60% financial (25% Adjusted EBITDA; 10% Revenue; 25% Free Cash Flow), with 90% threshold on each metric; up to 40% non-financial strategic objectives .
- 2024 outcomes:
- Adjusted EBITDA: $105.7M (grew from $95.4M)
- Revenue: Target $1.144B; Actual $1.136B (99.3% of target)
- Operating Cash Flow: $49.7M
- DeMarco 2024 bonus paid: $844,276 .
Long-term equity incentives (RSUs):
| Grant Year | Instrument | Target Shares | Vesting/Performance Terms |
|---|---|---|---|
| 2024 | Time-based RSUs | 150,000 | Vest ratably over 5 years |
| 2024 | Performance-based RSUs | 150,000 | Vest 33.3% for each 10% Adjusted EBITDA increase vs. 2023 over a 5-year period (2024–2028); minimum 10% growth threshold for any vesting |
| 2025 | Time-based RSUs | 150,000 | Vest ratably over 5 years |
| 2025 | Performance-based RSUs | 150,000 | Vest 33.3% per 10% Adjusted EBITDA increase vs. 2024 over a 5-year period; tougher baseline given record 2024 Adjusted EBITDA |
Program features and governance:
- Mix approx. 50% performance/50% time-based at target; LTI ≈75% of CEO total target compensation .
- No stock options currently granted; equity awards include double-trigger vesting on change-in-control for new awards (subject to agreements) .
Equity Ownership & Alignment
| Ownership Metric | Value | Notes |
|---|---|---|
| Total beneficial ownership (shares) | 1,450,698 | Includes ~19,006 shares in 401(k), 42,910 via ESPP, and 1,388,782 held in trust with shared voting/investment power |
| Ownership as % of shares outstanding | <1% | Total shares outstanding: 153,285,643 (record date Mar 17, 2025) |
| Unvested RSUs outstanding | 990,000 | Detailed grant composition spans 2010–2024 awards |
| Market value of unvested RSUs | $26,254,800 (at $26.52 close on Dec 27, 2024) | |
| Stock ownership guideline | 5x base salary (CEO) | Includes purchased stock, 401(k), vested RSUs |
| Hedging/Pledging | Prohibited for directors and executive officers | Insider trading policy filed as Exhibit 19.1 to 2024 10-K |
| Clawback | Policy updated in 2023 to comply with Rule 10D‑1/Nasdaq |
Employment Terms
| Provision | Key Terms |
|---|---|
| Agreement | Second Amended & Restated Executive Employment Agreement (Aug 4, 2011) |
| Severance (termination without cause or CoC+trigger) | Lump sum = 3x current base salary + 3x maximum target bonus; accelerated vesting of all equity; health benefits continuation for up to 3 years (COBRA if required) |
| Illustrative 12/29/2024 payout | $5,100,000 cash; RSU acceleration $26,254,800; COBRA premiums $97,731; plus Section 280G gross-up payment, if applicable |
| Change-of-control definition | Ownership/control tests per IRS 409A regulations (ownership ≥50%, board control change, merger asset sale tests) |
| Triggering event definition | Termination without cause, material job change, relocation increasing commute by >30 miles, or Company material breach; separation within 12 months required |
| Non-solicit | One-year post-termination non-solicitation condition tied to severance |
| Equity vesting on change-of-control | DeMarco’s agreement provides 100% acceleration of unvested equity on change-of-control |
| Tax gross-up | Agreement includes 280G excise tax gross-up provisions; Company policy is to eliminate gross-ups in new/renewed agreements |
Board Governance
- Board service: Director since 2003; CEO since 2004 .
- Independence: Not independent (CEO); majority of Board is independent .
- Leadership: Chairman is independent (William Hoglund); Board supports separation of Chair/CEO as optimal structure .
- Committees: DeMarco does not serve on Board committees; Audit, Compensation, and Nominating/Governance chaired by independent directors .
- Executive sessions: Independent directors hold executive sessions at each regular Board meeting without management present .
- Attendance: In 2024 the Board held 4 regular and 3 special meetings; each director attended ≥75% of applicable meetings .
- Say-on-Pay: 92.22% approval at 2024 annual meeting .
Performance Compensation Detail (Annual Incentive Structure)
| Metric | Weighting | Target | Actual | Payout Evidence | Vesting/Timing |
|---|---|---|---|---|---|
| Adjusted EBITDA (Consolidated) | 25% of financial; financial up to 60% total; 90% threshold | Company-set; threshold ≥90% for any payout | $105.7M (vs. $95.4M in 2023) | Bonus paid $844,276 reflects aggregate metric attainment | Annual cash, paid Q1 following year |
| Revenue (Consolidated) | 10% of financial | $1.144B | $1.136B (99.3% of target) | Included in bonus outcome | Annual cash |
| Free Cash Flow / Operating Cash Flow | 25% of financial | Not disclosed | Operating Cash Flow $49.7M | Included in bonus outcome | Annual cash |
| Non-financial strategic goals | Up to 40% | Set annually (e.g., strategic relationships, efficiency, long-term objectives) | Not disclosed | Included in bonus outcome | Annual cash |
Director Compensation (context; non-employee directors)
- Non-employee director fees and equity: Quarterly retainers and annual 10,000 RSUs; not applicable to DeMarco as an employee director .
Compensation Peer Group and Positioning
- 2024 peer group includes AAR, AeroVironment, Barnes, Comtech, Ducommun, Hexcel, Kaman, Mercury, Palantir, V2X, VSE (Aerojet removed post-acquisition) .
- 2025 CEO base salary set at 75th percentile of peer group .
Equity Award History and Outstanding RSUs (Selected)
| Award Year | Structure | Outstanding (selected) |
|---|---|---|
| 2010 | 50,000 RSUs; vest at 15-year anniversary | Part of 990,000 unvested total |
| 2015 | 115,000 RSUs; vest at 10-year anniversary | Part of 990,000 unvested total |
| 2020–2024 | Mix of time- and performance-based RSUs; time vesting ratably over 5 years; performance tied to Adjusted EBITDA growth over 5 years | Aggregate unvested RSUs: 990,000; value $26,254,800 at $26.52/share |
Investment Implications
- Pay-for-performance alignment: Heavy weighting to performance-based RSUs tied to multi-year Adjusted EBITDA growth (50% of LTI at target, 75% of CEO total target compensation) aligns incentives to long-term profitability and cash flow; clawback and anti-hedging/pledging further reinforce governance .
- Retention and selling pressure: Five-year time-based vesting and significant unvested RSUs ($26.3M at FY24 pricing) imply strong retention incentives; anti-pledging policy reduces forced selling risk, though routine tax-withholding sales can occur upon vesting .
- Change-of-control economics: DeMarco’s agreement includes 3x salary + 3x max target bonus cash, full equity acceleration, benefits continuation, and a 280G gross-up—generous protections that are a potential red flag if CoC probability increases; note company policy to eliminate gross-ups in future agreements .
- Governance: CEO is not Chairman; majority-independent board with regular executive sessions mitigates dual-role independence concerns; strong say-on-pay support (92.22%) indicates investor acceptance of the pay design .
- Execution track record: 2024 revenue and Adjusted EBITDA growth, record bookings/backlog, and share appreciation from FY22 to FY24 underpin the performance basis for awards and bonus outcomes .
Say-on-pay and stockholder outreach suggest continued support for EBITDA-focused LTI as long as growth targets remain challenging and achieved; watch for any amendments to DeMarco’s agreement (gross-up removal), shifts in performance metrics, or unusually large retention grants that could dilute pay-at-risk discipline .