Kratos Defense & Security Solutions, Inc. (KTOS) on Q2 2022 Results - Earnings Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Kratos Defense & Security Solutions’ Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. And without further ado I would now like to hand the conference over Marie Mendoza, Vice President and General Counsel. Please go ahead. Marie Mendoza: Thank you. Good afternoon everyone. Thank you for joining us for the Kratos Defense & Security Solutions second quarter 2022 conference call. With me today is Eric DeMarco, Kratos’ President and Chief Executive Officer; and Deanna Lund, Kratos’ Executive Vice President and Chief Financial Officer. Before we begin the substance of today’s call, I’d like everyone to please take note of the Safe Harbor paragraph that is included at the end of today’s press release. This paragraph emphasizes the major uncertainties and risks inherent in the forward-looking statements we will make this afternoon. Please keep these uncertainties and risks in mind as we discuss future strategic initiatives, potential market opportunities, operational outlook and financial guidance during today’s call. Today’s call will also include a discussion of non-GAAP financial measures, as that term is defined in Regulation G. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, at the end of today’s press release, we have provided a reconciliation of these non-GAAP financial measures to the company’s financial results prepared in accordance with GAAP. With that I will now turn the call over to Eric DeMarco. Eric DeMarco: Thank you, Marie. Good afternoon. I believe today’s report reflects the success of Kratos’ strategy to disrupt the National Security market space with first-to-market affordable, transformative technology, product systems and solutions. Since our last report to you, we have received each of the three large new space and satellite program contract awards we mentioned on the Q1 call, including the BlueHalo Space Force SCAR program and Intelsat’s next-generation satellite network. Each of which have now been disclosed by our customers. We have also received the third contract award I mentioned. It has not yet been publicly disclosed by the customer, therefore, we are unable to provide any additional information at this time, but we have received all three. The initial estimated total future potential value of these three new programs for Kratos is several hundreds of millions of dollars over the respective program periods. These new program awards that we have now received, which have a significant OpenSpace software component are key elements to Kratos’ expected fourth quarter ramp and EBITDA margin increase and also our future year expected financial organic growth rate that I’ll discuss later. Kratos’ first to market OpenSpace Platform is the only software-defined satellite ground system today. And this was key to Kratos’ receiving each of these three new large program awards. Kratos is the clear market leader in next generation satellite ground systems, which is an extremely large and rapidly growing market area. We believe that these recent program awards and our 1.7 to 1.0 Q2 book-to-bill ratio and our space satellite and cyber business is representative of Kratos’ OpenSpace software and technology disruption potential for Kratos to the multi-billion dollar total addressable satellite market space we are penetrating. We are currently in pursuit of several additional, new space in satellite program opportunities with our OpenSpace technology, certain of which we also hope to be successful on by the end of this year. We Kratos’ Space and Satellite business, which is our company’s largest to be one of our fastest growing and highest margin businesses going forward as customer acceptance of our OpenSpace software based products increases. We will continue to invest significant internally funded R&D into our OpenSpace software product, family, and intellectual property in order to further Kratos’ position as the leader in what we see as a transformational large and growing market opportunity for our company. Since our last report to you we have had several successful flights with multiple Kratos tactical drones, including Valkyrie for the Skyborg program, and a number of Kratos Valkyries have now been delivered to and accepted by the customer. We now expect to receive additional Valkyries related contract awards in the second half of 2022, including a Valkyries related contract from a new service branch customer in Q4, which is a key element of our forecasted Q4 Unmanned Systems, revenue and profit contribution increase. Since our last report to you, it has been reported that the Air Force will be retiring the entire Global Hawk fleet of drones in order to free up funding for more survivable platforms and systems in a high-end conflict. On the Global Hawk retirement decision the Air Force reportedly said that in part, our ability to win future high-end conflicts requires accelerating investment in connected survivable platforms by divesting legacy ISR assets that offer limited capabilities against peer and near-peer threats. It was also recently reported that the USAF is planning the reduction and retirement of the JSTARS fleet as the aircraft is also not considered survivable in a high-end conflict. Since our last report to you, the Deputy Assistant Secretary of the Air Force for Science, Technology, and Engineering informed Congress, that the Skyborg Vanguard program, which Kratos Valkyrie and Mako tactical jet drones have been publicly acknowledged to be part of, will now become a program of record by the end of 2023, and will transition to acquisition. The Valkyrie was specifically designed to be survivable in a high-end fight with the Valkyrie having flown with both the stealthy F-22 and F-35 and the Valkyrie having a very attractive signature characteristic of its own at a cost level that allows the Valkyrie to be deployed in Affordable Mass. We believe that the world is now seeing that quantities or mass does matter, but the approximately 1,000 drones of all types reportedly lost thus far in the Ukraine, including jet drones. Emphasizing this belief that low cost and the delivery of Affordable Mass is now considered critical. The UK recently canceled its loyal wingman drone program Mosquito, reportedly due to high cost, a flying system still many years away and that the UK MoD has now determined that cost effectiveness is achievable through smaller, less costly, but still highly capable drones. We continue serial production of the initial 12 lot of Valkyrie. Certain of which as I mentioned earlier have now been delivered to an accepted by a customer. Based on discussions with the potential new service branch customer certain of the 12 Valkyrie still in productions, mission system configuration will be modified to meet a certain requirement. Based on recent interactions with additional potential new customers, we believe the fact that Kratos has active production lines for high performance jet powered drones, including Valkyrie, Mako, Air Wolf and others. All of which are flying today. These are not PowerPoints or simulated videos or concepts that reportedly will be ready three, five, seven years from now at some unknown price, is a key differentiator for Kratos. Kratos is ready now with active production lines and in place supply chain, flying aircraft and known price points. We believe that Kratos is being ready now positioning and affordability along with recent global geopolitical events, demonstrating that the threat is real and that quantities do matter in a high end conflict will be a catalyst for us. Additionally, over the past several weeks, it has become clear based on publicly available information and our meetings with customers that runway independence is an absolute critical requirement for affordable, reusable, disposable and attritable drones. Accordingly, our unmanned businesses resources will now primarily be focused on runway independent systems and area where Kratos is already the clear industry leader, having built hundreds of jet drone aircraft, all of which are runway independent. Related to runway independent, Kratos’ Ghost Works is now almost complete with what we believe is like new game changing capability in this area as specifically related to Kratos’ drones. Runway independent, we believe is also critical to the success of the Air Force’s Agile Combat Employment or ACE program in the Pacific. As a result of these recent customer meetings, communications, events, et cetera, we are now planning to increase serial production. We’re in the planning process of the Valkyrie beyond the initial 12 lot currently in production. Over the next 12 months, and I currently believe – excuse me, and then over the next few months, and I currently believe that by the end of this year, we will be making the decision to begin the next Valkyrie production lot and its size based on the increasing demand signals we are receiving from multiple sources. As I’ve mentioned previously, a significant amount of Kratos’ tactical drone work and initiatives are now classified CUI or confidential, and we cannot get ahead of our customers from a communications standpoint on certain programs, projects, or initiatives we may be working on, including as related to Valkyrie. However, Kratos is the clear industry leader in low cost, high performance jet power drones, and we remain highly confident in the future potential transformational success of Kratos’ tactical drone business for our company. Kratos’ target drone business where Kratos is also the clear industry leader once again is also well-positioned, including as a result of the Russian-Ukraine war, Asia-Pacific tensions, and the related global recapitalization of strategic weapon systems, which systems need to be exercised and tested against target drones. We continue to expect to receive an approximate $100 million sole source target drone IDIQ contract in Q4. And we are in pursuit of several other new U.S. and international target drone opportunities. Kratos is the primary target drone provider to the United States Air Force, Navy and Army, and U.S. allies want to exercise their respective weapon, radar and other systems against the same target drones that are used by the United States Military, which are Kratos drones. Kratos Turbine Technologies, and our engine business is also performing well. And since our last report to you, the Golden Horde Vanguard program was reported by the deputy assistant air force secretary to also now be on scheduled to be a program of record in 2023. We believe that the Golden Horde Vanguard program transitioning to a program of record is important to Kratos from a tactical drone, tactical empowered munition, and a propulsion system standpoint. Just last week, Kratos Turbine Technologies or KTT announced the $54 million sole source single award task order to develop a low cost limited life engine for attritable and expendable systems. Also in KTT, the new Rolls-Royce B-52 engine program we recently received is expected to begin ramping in Q3 of this year, as our several space propulsion system programs KTT is currently executing on. In our C5ISR business, the GBSD or Sentinel program with our outstanding prime partner Northrop Grumman is also beginning to ramp up in Q3 with an expected increase in Q4. We anticipate that GBSD will also be a key future year organic growth driver for Kratos. Our C5ISR business is also pursuing an additional, large, potential several hundred million dollar new program opportunity for Kratos where Kratos has now received a development contract. Kratos’ rocket systems business growth opportunities are also robust, including in the ballistic missile defense and hypersonic areas, which is receiving significant funding increases in the 2023 request and the fight up. We continue to progress on Kratos’ Zeus propulsion system with our strategic partner Aerojet and our Erinyes hypersonic vehicle system, including with our stakeholder customer partners and we are now expecting to receive a new large contract related to these systems by the end of this year. We believe that the extremely affordable Kratos Zeus and Erinyes hypersonic system will be disruptive and transformative, providing significant capabilities to our customers at a low cost. The SRE transaction closed in Q2 of this year, which further positions Kratos in the high priority and extremely well funded hypersonics area. Our microwave electronics business has virtually 100% of its Q3 and Q4 revenue forecast now in backlog and has a strong opportunity pipeline similar to virtually every other Kratos business. In our microwave business, we have now been informed by a customer and we have executed a letter of intent with the customer that we have been selected for a potential $250 million Kratos value program related to a C5ISR system. We expect Kratos’ microwave business to be under formal contract on this new opportunity by the end of this year, which will further position Kratos’ microwave electronics business for sustained future organic growth and margin expansion. In summary, Kratos’ positioned and well funded mission critical priority national security areas of the United States and our allies and the demand for Kratos’ systems, our products and our solutions has never been stronger and it’s increasing. Virtually, every Kratos business unit continues to forecast organic growth for 2022 in a very challenging environment, which is representative of the Kratos’ teams execution, assuming no future acquisitions we are currently forecasting a base case 2023 over 2022 year-over-year growth rate of approximately 10% with the possibility for an even substantially greater growth above this 10% base case, if certain opportunities in our tactical drone, space, satellite and cyber businesses come to fruition ahead of our base case expectation. The expected growth, of course, could move around a bit depending on the length of any future year, continuing resolution authorizations or government funding delays, but irrespective Kratos’ future organic growth trajectory is expected to be very strong. Operationally, supply chain issues remain a significant challenge and we now expect them to continue into 2023 with specific representative Kratos issues, including the procurement of FPGAs, aluminum antennas, and certain materials related to composites. Inflation across every cost point, including as related to materials and wages is also a challenge, which has gotten worse since our last report to you and which is impacting our Q3 margins on existing firm fixed price contracts and on price options as we cannot pass the increase costs onto our customers. We expect our margins to increase in Q4 as certain new contracts we have recently received have contemplated inflation and increased costs in them and as the mix of our revenue improves, including in our space and satellite business with open space software, as we realize increased leverage also on our fixed cost base and revenues increases. Hiring, obtaining and retaining personnel, including those with security clearances is also an operational challenge and we are having to increase compensation to both retain and obtain qualified personnel, which is also adversely impacting our near-term profit margins. Our forecasted execution plan and revenue growth includes the assumption that we will be able to increase our workforce to meet the production and delivery requirements of the contract awards that we’re executing on and that are included in our backlog. However, irrespective of these challenges, we believe that Kratos’ strategy of providing affordable technology for national security is spot on and that we have the right products at the right price at the right time to meet the U.S. and its allies national security priorities. Our plan remains to focus internally on organic growth and our 10% 2023 over 2022 base case growth rate and to successfully execute on our potentially transformational tactical drone, space and satellite opportunities. Deanna? Deanna Lund: Thank you, Eric. Good afternoon. As we have included a detailed summary of the second quarter financial performance and financial guidance in the press release we published earlier today, I will focus on the highlights in my remarks today. Kratos reported second quarter 2022 revenues of $224.2 million above our estimated range of $205 million to $215 million, driven primarily by growth in our space, satellite and cyber and turbine technology businesses and do in part to the contribution from the recently closed SRE acquisition. Excluding the impact of the contribution from the CTT Cosmic AES and CRE – excuse me, SRE acquisitions, which contributed $21.5 million and excluding the impact of the reduction in our training solutions business of $8.6 million, revenues grew organically 3.2% as compared to the second quarter of 2021. Q2 2022 revenues continued to be impacted by continued and increased COVID related, supply chain and other delays, including obtaining and retaining qualified personnel resulting in approximately $14.5 million in revenues being deferred into future periods with approximately $2.9 million of associated operating income, including increased inflationary cost. Our Q2 2022 consolidated operating loss was $1.9 million compared to operating income of $3.3 million in the second quarter of 2021 with Q2 2022, including a litigation settlement charge of $5.5 million. Net loss was $4.7 million for the second quarter of 2022 and a GAAP loss of $0.04 per share compared to net income of $1.1 million in the second quarter of 2021 and GAAP EPS of $0.01 per share. Included in second quarter 2022 net loss is $5.5 million litigation settlement charge discussed previously. We generated adjusted EBITDA of $17.7 million for the second quarter, exceeding the higher end of our expected range of $11 million to $14 million, due primarily to a favorable mix in our space, satellite and cyber and turbine technologies businesses. Our Unmanned Systems segment reported revenues of $56.4 million in the second quarter of 2022 compared to $60.3 million in the second quarter of 2021. KGS reported revenues of $167.8 million in the second quarter of 2022 compared to $144.8 million in the second quarter of 2021 including contribution of $25.1 million from the recently acquired Cosmic AES, SRE and CTT acquisitions, offset partially by the training solutions business of $8.6 million, which included the loss of an international training services contract, which contributed revenue of $4.5 million in the second quarter of 2021. Despite the continued unfavorable impact resulting from supply chain, COVID and related delays and disruptions, which impacted current quarter revenues unfavorably by approximately $13.9 million on a pro forma basis excluding the impact of the training solutions business, KGS revenues grew organically 7.7% in the second quarter of 2022. Second quarter 2022 operating income and adjusted EBITDA for Unmanned Systems included a heavier mix of more development based revenues, which are typically lower in margin due to less leverage on fixed overhead manufacturing, SG&A and development infrastructure. Our Unmanned Systems business experienced an increase of $900,000 in SG&A primarily related to increased head count and $1.3 million of R&D in the second quarter of 2022, as compared to the second quarter of 2021. KGS operating income and adjusted EBITDA included a more favorable revenue mix, including software and license-based revenues. Q2 2022 cash flow from operations was a use of $21.6 million with the use including an increase of in receivables of approximately $27.1 million primarily related to future milestone in other contractual payments from customers and an increase in our inventory balances of approximately $10.5 million during the quarter, primarily in our Unmanned Systems, C5ISR, Satellite and Microwave Electronics businesses in anticipation of the ramps and production in the second half of the year and in part to secure additional safety stock and advanced buys in larger lot sizes to gain pricing benefits where possible, and to mitigate the impact of supply chain disruptions. In addition, operating cash flow also includes the continued planned investments in engineering costs in our Rocket System and Turbine Technologies businesses for new products and investments including the design and development of an affordable hypersonic vehicle Erinyes and a complimentary propulsion system Zeus. For the first six months of 2022, our operating cash flow uses included $15 million of increases in receivables and increases of $25.8 million in inventories across all of our product-based businesses including Unmanned Systems, Space & Satellite, Microwave Products and C5ISR. In addition, we have made approximately $5.6 million in investments in non-recurring engineering costs for these new rocket products during the first six months of 2022. Our contract mix for the quarter was 72% of revenues generated from fixed price contracts, 23% from cost plus fixed fee contracts, and 5% from time and materials contracts. Revenues generated from contracts with the U.S. federal government during the quarter were approximately 70% including revenues generated from contracts with the DoD, non-DoD federal government agencies and FMS contracts. In Q2 of 2022, we generated 12% of revenues from commercial customers and 18% from foreign customers. Now moving to financial guidance. Our third quarter 2022 financial guidance we provided today includes our current forecasted business mix, and our assumptions related to the expected continued impact of employee absenteeism, challenges related to obtaining and retaining qualified personnel, supply chain disruptions, inflation, and related expected costs and price increases and other COVID-19 related items that have are currently and expected to continue to impact the industry and Kratos. Throughout the first half of the year, Kratos experience a significant increase in the intensity and effects of COVID-19 and the related impact to our employees absenteeism, consultants, vendors, suppliers, customers, et cetera, which impact included loss of weeks of manufacturing and production functions in our Unmanned Systems, C5ISR and Microwave products businesses. We have assumed that these COVID-19 and supply chain related impact to our business including increased inflationary costs, which significantly impacted our first half 2022 operations will continue to impact the third quarter with an estimated impact of approximately $10 million to $14 million in third quarter revenues and $3 million to $5 million of our adjusted EBITDA. We are having some success with certain customers on building and cost and inflation escalators on new bids and new upcoming price options. And we expect to begin seeing certain benefit of these efforts in the fourth quarter of this year. However, since our contract mix is predominantly fixed price with certain of the contracts under longer period of performance terms, it will take some time to transition the contracts to those with increased pricing. As result of each of these pricing and inflation factors that we are contractually obligated to absorb and the continued delay of our ability to produce and deliver certain products with the most significant impact to our third quarter forecast, which we had originally expected to significantly improve. We are adjusting our Fiscal 2022 adjusted EBITDA to $80 million to $85 million with the most significant impact to the forecasted third quarter margins with improvements expected in the fourth quarter, based upon the projected ramp and new large programs, which includes more recent cost, leverage realize on the SG&A and overhead infrastructure and a more favorable revenue mix including more software based revenues driven largely by the three new open space programs that Eric mentioned earlier. We are forecasting increased revenues in the third and fourth quarters of this year with the trajectory increasing in the fourth quarter. We are also adjusting our revenue guidance up to $890 million to $930 million to reflect the expected contribution from the SRE acquisition, along with forecasted organic growth driven by our booking and backlog offset partially by continued revenue delays caused by supply chain disruptions. The growth expected in the fourth quarter of 2022 is largely driven by the forecasted execution and delivery schedules of five new programs, four of which have already been awarded, the three satellite program awards, GBSD, and an expected Valkyrie award from new customer. In order to maintain our Fiscal 2022 estimated use from free cash flow estimate of $30 million to $40 million. We have adjusted our FY 2022 capital expenditure plan to mitigate where possible the additional uses of working capital that we have expended this year to bolster our inventory levels and advanced inventory purchases. Eric? Eric DeMarco: Excellent. Thank you, Deanna. We’ll turn it back over to the moderator for any questions. Operator: Thank you. Our first question comes from the line of Michael Ciarmoli of Truist Securities. Your line is now open, Michael. Michael Ciarmoli: Hey good evening guys, thanks for taking the questions. Eric, just on the guidance, I guess two questions, for the current year you’ve got this, this bigger fourth quarter, how are you contemplating or thinking about a continuing resolution and then even just in the, it seems pretty early to be talking about 2023, given the range of unknowns and supply chain and are you thinking it takes some time for supply chain to normal out and just I guess you’re calling that 10% of base case, but just maybe more thoughts on why throwing out that number now? Eric DeMarco: Right, on the first one, Michael, we – our fourth quarter is substantially all in 2022 or prior year money. So we’re – there’s very little that’s on the 2023 in there very little. Okay. On putting out a number relative to next year, Deanna kind of sort of went through big, big drivers we have are Sentinel, which is under contract and we’ve got the work plan laid out through at least 2023. The big space awards that we’ve won are target drone production schedules, primarily with the Air Force and the Navy. They’re pretty much laid down out for the next 18 months. So we believe we have pretty good visibility and we understand the pricing and cost element in those, and as I went through, certain of those are new and so there have been inflationary factors built into them. So we feel – we feel pretty comfortable. The primary risk we have right now is hiring the people operationally, Mike, that is absolutely the high, the primary risk. It’s not winning new business. We’re winning a lot of business. We’re going to win a lot more in the next few months that we know, but hiring these people particularly with security clearances, and not just engineers, manufacturing, people that have security clearances on some of these programs we’ve won, that’s where we’ve got to stay focused to achieve the top line. Michael Ciarmoli: Got it. Okay. Perfect. Thanks. I’ll jump back in the queue. Eric DeMarco: Okay. Moderator? Operator: Okay. Our – yes, our next question comes from Mike Crawford from B. Riley Securities. Go ahead Mike. Your line is open. Mike Crawford: Thank you. Eric with the Skyborg looking near a lot become a program, a record in the next budget. What does that specifically mean for Valkyrie and what the ancillary to that is? What about these other myriad platforms that you’ve been developing over the years ranging from Thanatos on down? Thanks. Eric DeMarco: Right, right now, Mike, the primary focus of the customer set is on three platforms, and I believe it’s because they’re mature and they’ve all been flying for a number of years. It’s Valkyrie, Mako and Air Wolf that is where we are having the most significant activity with customers, and in particular the past couple of months, I believe, as I said in the prepared remarks, it’s in part maybe a big part being driven by what’s going on in the Russian and Ukraine war. I saw this just this morning that the Russians alone now have lost over 800 drones, including lots and lots of jet drones. And as our established as the DoD, as I went through is retiring the Global Hawk for survivability reason, retiring J-Stars, you’ve seen the discussion around the reaper) which is excellent asymmetric warfare, as we just saw recently. But survivability is not so much. My opinion is the customer focus on Valkyrie right now, Mako and Air Wolf is because they’re flying. They’ve proven. They’ve exercised things; they’ve deployed things and where the focus is now. That’s where the money is. Mike Crawford: Okay. And of course those are attributable expansible and disposable platform. So it’s good. You have the whole mix there, and I guess maybe Air Wolf being runway independent. Is that what gives it a leg up over say Gremlins? Eric DeMarco: Yes. In my opinion, the Air Wolf is much more survivable even though it’s expendable than the Gremlins was designed to be the. The Air Wolf is an incredible high performance aircraft. It has very interesting characteristics on it, as far as identifying it’s even there versus the Gremlins was not designed for that mission. And that’s why I believe survivability to get to the mission area, to exercise its mission; it has a legs up on the gremlins. Mike Crawford: And then what about this down select on the On-Board Sensing Station onboard or your Demogorgon project? Eric DeMarco: Yes So that’s we’re in Phase 1 as is the other party and the down select or the move to Phase 2 is scheduled Q4. I think its October or November and so we’re heads down and we’re focused on that. As I did mention Mike in the prepared remarks though, Mike the nearer term opportunity for meaningful revenue and profit margin increases for our company right now is in Valkyrie, Mako and Air Wolf. And we’ve all been patient; we’ve waited a long-time we’re doing everything we can to pull some of these in now that that the geopolitical position has changed. That’s where our focus is primarily. Mike Crawford: Just the last question on Unmanned Systems, so with the growth and the targets, and then these opportunities is your Oklahoma facility like highly underutilized now or that’s one place you need to staff up or exactly how you’re going to go about this operationally? Eric DeMarco: Yes. So that is absolutely an area where we are staffing up and we are staffing up. We need to staff up or looking at executing the next option to expand the facility once again. We’re going to probably make that decision by the end of this year, similar to we’re going to make the decision. I don’t think it’s going to be any later than the end of this year that we’re going to begin the next lot. I’ll call it lot number twos of the Valkyrie that all ties to together. But – and that’s what we’re going to get leveraged on the margins going forward. Of course, as we continue to fill up that facility. And Mike it’s primarily Valkyrie’s and Air Wolf’s right now and one other program that we just haven’t talked about. Mike Crawford: Okay, thanks. And the final question, switching gears, just relaying the open space. So there – you have the software or virtual commercial platform, but there are others that have their own proprietary platforms that may be interoperable. Do you see those as alternatives for the customers you’re going after? Or those just customers that are kind of that you’re locked out from maybe assisting? Eric DeMarco: Yes. If you could see me, I’m smiling because that’s – that’s the exact dynamic we’re going after. But what you just mentioned is the legacy traditional model that’s vendor lock that the operators like the U.S. Air Force and Intelsat, they can’t stand it because they’re vendor-locked into dedicated ground equipment for those satellites where open space is open and it’s open architecture and it’s software and the – as I think I talked about it on the last call, these new operators, these new constellations that have software defined satellites that are mega capable, this is Greenfield for us and that is our primary target opportunity market. We are not looking to this place anybody on an existing 20-year constellation; we’re going after the new stuff and there’s a lot of them national security wise and commercially. Mike Crawford: All right. Thank you, Eric. Eric DeMarco: Yes. Operator: Okay. Next up we have Ken Herbert from RBC Capital Markets. Ken, your line is live. Ken Herbert: Yes. Hi, good afternoon Eric and Deanna. Deanna Lund: Hi Ken. Eric DeMarco: Hi Ken. Ken Herbert: Hey, Eric, I just wanted to first start off with the wins on the open space, the three large programs and the contracts you called out, what is it considering the size of the opportunity there? What can you quantify what you expect to be sort of the revenue impact in the back half as they ramp or I guess more importantly, maybe in 2023 in particular? And how do they factor into the expected double-digit growth next year? Deanna Lund: Ken, this is Deanna. So obviously we’re not giving any guidance on 2023 at this point. But the ramp in the second half we would expect a portion of that in the third quarter and then a more significant ramp in the fourth quarter. And remembers a lot of these are license-based so it’ll be a much more favorable mix from a margin perspective. Eric DeMarco: And Ken your question kind of dovetails into Mr. Ciarmoli question on why we’re given some, our initial thoughts on growth rate between 2022 and 2023. Ken Herbert: Yes. Eric DeMarco: With these contract wins, and those are bolted in, they give us a pretty – obviously they give us pretty good visibility into our Space and Satellite business, our company’s largest in 2023, which is a layer of comfort of what we’re looking at next year. Ken Herbert: Okay. Okay, no, that’s helpful. And I guess considering the risks around not only this year, but next year, when you look at hiring, what operationally, Eric, what are you doing differently maybe now to try and accelerate that to the extent to which you can, I know you’re in obviously different parts of the country? But what levers do you have to pull besides just salary, perhaps as you look at addressing that issue? Because it’s an issue obviously across the industry. Eric DeMarco: Yes. Ken Herbert: And so it seems to be phenomenally competitive for talent right now. So, how can you maybe accelerate that or differentiate yourself there? Eric DeMarco: Yes. And so it’s different in certain of our different business areas. So let me tell you what I mean. In our unmanned area, we’re finding it much easier to bring people in because they like the work, and it’s exciting and they get to work on a new airplane every couple or every three years. They are not like stuck on the B-2 Bomber for 30 years. Okay? So, there’s that group and we’re having better success in that area. We’re also having better success in the hypersonic area because that’s exciting. That’s exciting work, it’s interesting stuff, there aren’t very many people doing it, et cetera. In our C5ISR business, that’s different. Also having better success in the hypersonic area because that’s exciting. That’s exciting work, it’s interesting stuff, there aren’t very many people doing it, et cetera. In our C5ISR business that’s different. That is very challenging where you have these very skilled machinists that work on all types of exotic and unique materials to build weapon systems, and platforms. And there’s an incredible demand for that in the industry right now as the entire industry is ramping up and doing the pivot away from the war on terrorists to protecting against the peer threats. That’s very difficult and that is money. And it’s trying to take people from other companies, if we can, through relationships, we have referral programs that we’re trying to – that we’ve rolled out, we’re doing that. We’ve got mentorship programs that we’ve rolled out. And Deanna, what’s the name of the programs that the colleges we’ve… Deanna Lund: It’s both high school and college internships. Eric DeMarco: Internships, where we’re training internship programs, but Ken, that is a challenging area, very challenging. Ken Herbert: Got it. I appreciate that. And just maybe remind us what percent of your overall contract mix is revenue recognized on a percent complete basis, or maybe what could be the risk of incremental delays on those contracts based on your ability to get people in the door? Deanna Lund: Yes. I don’t have the percent complete as far as what the total percentage is, but our fixed price contracts are 72%. And I would say a substantial majority of those are on cost over cost percent complete. There is a portion that’s on units delivered and that’s primarily from an international contract perspective. So I would say the vast majority of that 72% is percent complete. Ken Herbert: Perfect. All right, thanks, Deanna. Deanna Lund: Sure. Thanks. Operator: Okay. Next up, we have Josh Sullivan from The Benchmark Company. Josh, your line is live. Josh Sullivan: Hey, good evening Eric DeMarco: Good evening, sir. Deanna Lund: Good evening. Josh Sullivan: Just the lack of mill capacity for crate Kratos products and I think you’ve mentioned carbon fiber and aluminum antennas issues as well. What’s the visibility on these issues? Are lead times improving? Are they still going out at this point? And then are you having any issues with smaller suppliers facing any financial viability issues? Eric DeMarco: Yes. On the aluminum and castings, it has not improved at all for us. And you can imagine both aerospace and defense, the demand that’s going on there. So, that is not good. On the composite side and certain resins in that area, Josh it’s become challenging. We are reaching out not only to the supply base, to other companies that do composite structures that we have great relationships with. And we’re having some luck with some of those that have the significant amount of inventory available. We just hit it with somebody company very well last week where we got some. So that’s choppy. I don’t expect that one to get worse, but it’s choppy. Josh, what was the third part of the question? Josh Sullivan: Just, I mean, are you having any issues with smaller suppliers facing any financing issues? Eric DeMarco: Knock on wood, we have not had any to date, but that is an area where our team routinely is doing the due diligence and the checks, the financial reviews of them routinely. And the corporate team here we go through that with the divisional teams monthly. So we’re trying to stay on top of it, we have not run into any issues to date. Josh Sullivan: And then on the $50 million low-cost jet engine development contract, what are some of the timeline issues there – timelines and maybe milestones you’re looking for? Eric DeMarco: Right. So the timeline, we’ve already received the initial funding of several millions of dollars. So, we’re off and running. In my opinion, this effort here by the AFRL, it’s directly related to programs like Golden Horde and swarming munitions that need very small, low life, which means low cost turbo jet engines for missiles, and powered munitions and things like that. So we’re off and running with that. I expect that to ramp up between now and the end of the year, and then that’s going to be a significant contributor next year. And I’m not going to be surprised Josh, if we don’t see more of those coming our way as a result of all of the new missile systems, weapon systems, powered munitions, drones that are on the drawing board that are coming online. Let me be specific on that. And I’m just talking generally here. You’ve seen Lockheed Martin, they’ve talked about Speed Racer, as you know we are on that one. They have rolled out just a couple weeks ago, a whole new family of small aircraft they’re planning on bringing out in the next few years. They announced that a couple weeks ago that is perfect ground for Kratos Turbine Technologies in our engine business. Northrop Grumman, they announced a couple weeks ago or a month ago that they’ve got – they’re working on a jet-powered loitering munition that can get there very quickly. That’s another area that’s right up the sweet spot of that contract and other efforts we have going. So, I see a lot of inertia in this area that ties into the thesis we’ve been talking about for a while and today, quantities have a quality all their own and affordable mass. And that’s where I think the requirements are heading. Josh Sullivan: Got it. Thank you for the time. Eric DeMarco: Okay. Operator: Next up. We’ve got Austin Moeller from Canaccord Genuity. Austin you are live. Austin Moeller: Good afternoon, Eric and Deanna. Eric DeMarco: Good afternoon. Deanna Lund: Good afternoon. Eric DeMarco: Good afternoon, sir Austin Moeller: So, my first question here, it looks like the Valkyrie is in the process of ramping here right now. So I assume you guys must feel pretty good about this. You’ve got multiple service branches that are looking at are committing to purchase the aircraft now. And the closest competitors, Boeings’ best is way behind in development relative to Valkyrie and General Atomics’ Gambit is even further behind them. And then the other proposed UCAVs that are sort of in development, a lot of them are flying wings, which is useless in air-to-air combat. So if we think about that next production lot, can you sort of talk about directionally how many we should expect quantity wise compared to the existing one? Eric DeMarco: Yes, not yet, but over the next several weeks, and couple of months, we have a number of meetings scheduled with these potential customers and certain existing customers to talk exactly about this. Austin, if things go, as I currently see them, I’m hopeful and I put the, the timeline out there by the end of the year, I’m hopeful by the end of September, October, we’re going to have the data points and we’re going to have received certain things that are going to give us the confidence to pull the trigger, order the engines in the long leads and get going on the next lot. And to give you a data point on this Austin to kind of frame it for you. And these are by memory, so they may be off, but Austin, they’re close. On the engines, we get price breaks on lots. And so like if we order six, we get a price break. If we go to 12, we get a price break. If we go to 18 or 24, we get an even bigger price break, which drives at lower. So it’s gone and probably be somewhere and I’m – I don’t use those numbers, but it’s going to be partially driven by the price break we get on the engines, which also gives us a quicker slot to get them. And so those are the dynamics that we’re thinking through with the customers and the perspective customers. Austin Moeller: Okay. That’s helpful. And then if we think about all the inflation that’s going on, should we still expect the Valkyries and I know it’s lock dependent, but do – should we expect them sort of around a $5 million price point or closer to $10 million? I know it’s still a step function below whatever the next competing drone is going to be priced at. Eric DeMarco: Yes. I’m glad you asked that a – that question. So as you know, the Air Force’s definition of a attritable is $20 million on down, that’s a fully missionized aircraft. The Marine Corps, as you’ve probably seen, has been talking a lot about at attritable, et cetera, there’s – their all in missionized price point is substantially less than that, okay. I’m going to throw out $10 million fully missionized. We – because of our target drone business and the quantity that we produce, and as you know, our tactical drones, we use substantially the same composites, avionics, electronics, flight control, et cetera, et cetera, et cetera, we’re still getting leverage there and a lot of that’s made in America. So the price increases there haven’t been terrible yet. We’re seeing them, but we – but they haven’t been terrible yet. So I am very comfortable that we are going to be for the aircraft and the full mission systems. And I can’t get into much more than what I just said on that. We’re going to be well within those price points and mission systems can be $3 million, $6 million, $8 million. So we are beautifully positioned because of how low cost I’ll use the word the truck, our truck, our flying truck is. And as you alluded to, and my opinion, any of the other players, even if they ever do get anything flying, they can’t practically get anywhere near us on price, on cost. They can’t do it. They’re not designed to do it. Austin Moeller: Okay. That’s very helpful. And then just one last if I could, I think you mentioned in your remarks or earlier commentary that the Air Wolf has a in a radar cross section that is considered to be interesting to the customer. Eric DeMarco: I said that they’re hard to identify is what I said. That that’s the term I use and I’ll stick with it. They’re hard to see, very maneuverable, very hard to hit, that’s what I’ll use. Austin Moeller: Okay. Thanks for all the call, Eric. Appreciate it. Eric DeMarco: Okay. Thanks. Operator: Okay. Next up is Noah Poponak from Goldman Sachs. Noah, your line is open. Noah Poponak: Hello, everyone. Eric DeMarco: Hello. Deanna Lund: Hi. Noah Poponak: Eric, I guess, the key question is, why is 2023, the year that will prove to have had the visibility, the accurate visibility on growing double digits organically, relative to each of the past few years where, I think you came inside of the original guidance range. That was an official guidance range each of those years, but they were all described one or two years in advance as step function years or game changer years, or double-digit organic revenue growth years. How can we feel comfortable that this is different? Eric DeMarco: I’m glad. Noah, I’m glad you asked that because I can clarify and add some meat to what I said. Our 10% base case growth that we’re looking year-over-year 2023 to 2022 does not include any significant production of tactical drones. I said – and so to clarify, it doesn’t include it. And if things occur, that’s where I said we could substantially beat it. But our base case does not include it. The base case is driven by – yes, our space business, target drones, GBSD, which has come online now. And we got that LOI on that, that, that microwave program, that $0.25 billion microwave program, we’re going to be under contract by the end of the year and it includes that, those are some of the biggies. Noah Poponak: Okay. That’s helpful. Eric DeMarco: Yes. Noah Poponak: Within the guidance for this year, if I take the full year, and then I take the third quarter top line, it implies a sequential revenue growth rate, 4Q over 3Q that’s significantly higher than you had any time in the recent past. Can you speak to what drives that? Deanna Lund: Yes. Noah, this is Deanna. So those five programs that we’ve highlighted, the three space satellite contracts, GBSD and the new customer that we’re expecting to book on Valkyrie those five contracts comprise about it over a $20 million sequential revenue increase from Q3 to Q4. So that’s the lion share of the growth that we’re projecting for the fourth quarter over the third quarter. Noah Poponak: Okay. That’s helpful. And Eric, on Valkyrie, why is a new customer kind of seemingly sliding in front of some of the older customers? And you’ve highlighted in the past the budget dollars for the category of aircraft that have been in the few hundred million dollar range for a few years. Where is that money like it was that not really ever, just not ever obligated on the contract and how I square that, where those numbers were for a little while with the lack of orders and the revenue that you’ve had on the program? Eric DeMarco: I will tell you how I square it, when the Secretary of the Air Force, the new Secretary of the Air Force came in Mr. Kendall. He announced that late last year that he was rolling out two new classified drone programs. And the Secretary used the term that all of the other drone programs are virtually all of the other drone programs to date would be feeders into these two new programs. In my opinion, a significant amount of the funding on the other programs were feeders into those two new programs. I believe they sucked the air out of the room. I’m not saying that in any way negatively, but as we saw at Farnborough three weeks ago, the Secretary has now canceled one of those two new drone programs, which was the loyal wingman for the B-21 bomber. And I’m paraphrasing now saying that it would take too long. It would be too far out and they would be too expensive. So that might change again now, I don’t know. So a lot clearly, Noah, as you’re pointing out here buddy is a lot has happened, is happening in the last six, eight months and really in the last four weeks. Noah Poponak: Why? I mean, if they given their commentary about the desire to have this product, your ability to have it ready to go, is it just not needed imminently? So they’d rather figure out exactly what they want to buy before they start buying larger quantities. Eric DeMarco: So my opinion, what that last part of your statement is what has been going on for the last year or two. They truly wanted to assess and figure out exactly what they wanted, which I – it makes total sense. I totally get it. Things that have changed… Noah Poponak: Do they now know exactly what they want, I guess that is going to… Eric DeMarco: I don’t know. I just – I will refer the group here to public statements. I mean there was an incredible interview with the Navy Admiral last week where he specifically talked about the Valkyrie and what that is going to be used for. I mean he talked about it. The four-star General of Pacific Air Force recently did an interview. And he said, the only – I’m paraphrasing, the only way we can deter China is if I have hundreds or thousands of low cost affordable jet drones. This is just recently. So I don’t know if they’ve decided, but I know what their narrative is and I know what has been specifically going on with our company, and we’re doing everything we can to respond to them. Noah Poponak: Okay. I appreciate all that. Thanks. Thanks for taking the questions. Eric DeMarco: Okay. Operator: Okay. Next question comes from Sheila Kahyaoglu from Jefferies, LLC. Sheila, your line is open. Sheila Kahyaoglu: Thanks so much. Good afternoon, guys. Just on Noah’s line of questioning, if we could think about it, Eric, you mentioned the customer potentially coming in, in Q4. How do we think about Valkyrie options into 2022? Is it contributing a $100 million? Does it go to $150 million in 2023? What are the range of options for Valkyrie? Eric DeMarco: Yes. So I’m going to be, as I talked about in the last fall one, before that I’m going to be very, very conservative. I’m going to assume. We continue to execute on RDT&E and S&T money and S&T funds. I’m going to assume that we continue to do demonstration flights of different capabilities, carrying different payloads and different mission packages. And I’m going to assume that we continue to sell or lease a handful or to a year. That’s one scenario. The upside scenario and the data points that support this could happen or the cancellations of all these other programs, the Mosquito has been canceled and take a look at one of our – some of our competitors have said recently, so the upside scenario is what’s gone on in the Ukraine, I’ve talked about the losses of the drones, what we’re seeing going on over in the Taiwan Strait as we speak, that a decision is made to field affordable mass with the capability that we have today that we know is flying. And so we – next year or the year after, we get some significant production runs. That’s how I see it, but I’m focused on the conservative ones. Sheila Kahyaoglu: Okay. That sounds good. And then on your 10% baseline for next year, potentially, what are the top three growth drivers of that one, I would guess is GBSD. Maybe can you talk about what your top three are? Eric DeMarco: Yes. GBSD – go ahead, Deanna. Deanna Lund: Yes. GBSD, the continued ramp of the space programs. Eric DeMarco: And there are a couple three of them. Deanna Lund: Yes. There’s three of those and some of the production in our target drone business as well. Sheila Kahyaoglu: Okay. And then last question from me, I think you mentioned supporting Rolls-Royce and their B-52 Re-Engining, what’s your role on the contract and how do we think of timing of revenue there? Eric DeMarco: Yes. I don’t believe that they’ve – Rolls-Royce has disclosed what we’re doing. But let – so let me talk in general about what we do in that area. We are one of the industry leaders, if not the industry leader in building the ground rigs for jet engines for test and evaluation purposes, all types of testing, all types of evaluation. That is one of our expertise areas. We are an expertise area in the exotic materials that are used in all types of engines. That is another area where we are one of the industry leaders. And so those would be the types of areas that a company like Rolls would come to us on. And then on the second part of your question, as you know, we just received that initial contract. It is growing. It’s expanding. I can’t get into numbers, but it’s a big program for us. It’s a big program. And it’s expected to begin ramping in Q4 and then it’ll ramp in Q1, I think. And then it’s going to flatten out a little bit, because some of the big work we’re doing including materials is Q4, Q1. Sheila Kahyaoglu: Okay, great. Thank you so much. Eric DeMarco: Yes. Operator: Okay. Next question comes from Peter Arment from Baird. Peter, your line is open. Peter Arment: Thanks so much. Good afternoon, Eric and Deanna. Eric DeMarco: Good afternoon. Peter Arment: Hey, on the space business Deanna mentioned that a lot of it’s in licensing. And so that’s obviously less of the top line story, better on the margin. What do we think about as the margin opportunity when we’re looking at space compared to what you report today? Eric DeMarco: Yes. So our – it’ll be different probably for government versus commercial, because there are certain limitations on the government side that there aren’t on commercial. But our mid and long-term view is mid-teens profit margins for our space business. And the reason I’m saying that is because, we’ve gone – if we’re going to a more of a software model. So there’s significant R&D and continued development on next versions. And I talked about that in my prepared remarks. In addition to that, let me just throw this piece in there. As you know, we build manufacture and deliver very sophisticated antenna, okay. Those antennas can have a lower margin than the software side. And the antennas business is very lumpy depending on the stage of the ground deployment for the base station we’re building. And so those can be mid-single-digits not even high single digits, mid-single-digits, because it’s a hardware type thing, and it’s really not all that unique. And so one quarter in the space business could be very, very high, but another quarter could be lower, because we delivered significant antennas in that one. So think of blended mid-teens. Peter Arment: Okay. That’s helpful. And then just regarding your space business, just – it’s your largest business. How long do you expect it to be your largest business? Do you – ultimately, what I’m asking is when do you think unmanned can kind of overtake it? Eric DeMarco: In my conservative view, unmanned will not overtake space for the next several years, because our space business, Peter, it’s ripping. And we may have a tiger by the tail here. We are first to market with the total software based virtualized ground system, we’re two or three years ahead of everybody else. We – the first three big programs we went for, we won. As I said in my remarks, we’re lined up to win some more. And I think we’re going to – and I’ve gone through on previous calls on why this is such a big differentiator. So in the base case, the space business will continue to be the lead horse. In the upside case, the drone business in a couple of three years could pass it. Peter Arment: That’s helpful. And just related to your drones, just any updates on just we don’t hear as much about that recently. So maybe if you could just give us your thoughts there. Thanks. Eric DeMarco: Yes. So let me – Peter, I have to answer it this way. The most, if not all of the previous drone programs have become feeder programs into other programs that are all classified. Peter Arment: Okay. I get it. Appreciate it, Eric. Eric DeMarco: Yes. Operator: Okay. And next up is Pete Skibitski from Alembic Global. Pete, your line is open. Pete Skibitski: Hey, good afternoon guys. Deanna Lund: Good afternoon. Pete Skibitski: So guys you have pretty solid revenue in the quarter. I wanted to make sure I understood Deanna your comments about the reduction in the operating income guidance. Obviously, you had the $5.5 million charge in the quarter. Is the whole rest of the balance all due to inflation or were there any other, I don’t know, negative EAC adjustments at all that impacted that guidance? Deanna Lund: All due to inflation. Pete Skibitski: All due to inflation, okay. Eric DeMarco: Primarily in Q3, because we’re substantially firm fixed price contracts, and we can’t pass it on in the existing contracts and the existing priced options. So we just – we eat it. Pete Skibitski: And in terms of the recovery – the recovering that inflation through the contracts, obviously you have positive mix in the fourth quarter, but is it reasonable to assume that first half of 2023, you’d still be kind of in process of repricing your contract? So hopefully by the back half of 2023 is when you kind of make up all the inflation that we’re seeing this year. Eric DeMarco: Yes. Yes, sir. Pete Skibitski: Okay. Eric DeMarco: It’s a process as the existing contracts or options, which are typically one or two years priced transition off and the new negotiated ones or the new wins come in. Pete Skibitski: Right. Okay. Okay. And then on the charge, the $5.5 million charge on the training program. Does that impact kind of the go forward revenue from that customer? I think it sounds like maybe international targets, any color you could provide there. Deanna Lund: Yes. So we have not had any other work with that customer since the original contract of 2011. So it should not impact any future revenue streams. Pete Skibitski: Obviously, you hadn’t generated revenue there for a while on that one? Deanna Lund: That’s correct. Pete Skibitski: I see. Okay. Okay. Okay. Last one for me, Eric, on OpenSpace, I feel – you’re winning new contracts, but I feel like I’ve been hearing about development for a long time. So I just want to make sure I understood this. Is kind of the core development of OpenSpace completed or is there – do you kind of have to do some bespoke R&D every time you get a new customer. Is that how it works? Can you tell me kind of understand the business model there? Eric DeMarco: Yes. So think of it like an operating system. Okay. So like on your Apple iPhone, the iOS system. So the operating system for space ground infrastructure is substantially complete, if not complete for the existing customers. R&D now think of the apps on the operating system. And so the apps and the space area think of like modems, they’re all hardware right now. All the different types of communication modems that are not just related to satellites that are on drones or aircraft or ships, we’re turning them into software. And you can just think about what – instead of having a rack of all types of different modems or communication systems under drone, now you have just code, okay. So the R&D is for the – in my example here, is for the apps and think of it on the operating system, each customer is probably a little different. So there’s some R&D, I’m making this number up 10% or 15% to modify that operating system for that specific customer. But it’s substantially done as you can see with the program wins. Pete Skibitski: Yes. Okay. That’s really helpful. Thanks guys. Eric DeMarco: Yes. Operator: Okay. At this time, I’d like to turn it back to Eric DeMarco for closing comments. Eric DeMarco: Great. Thank you all for joining us this afternoon and truly for the interest and the questions, we’ll circle up with you at the end of Q3. Operator: Okay. Thank you for your participation in today’s conference. This concludes the program and you may disconnect.
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Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) Analysts Show Growing Confidence

  • The consensus price target for NASDAQ:KTOS has been on an upward trend, indicating strong positive sentiment from analysts.
  • Despite a notable increase in the average price target over the past year, challenges such as margin headwinds are highlighted by some analysts.
  • The company's focus on unmanned systems and advanced technologies is a key factor driving the optimistic outlook.

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is a prominent player in the defense and security sector, specializing in unmanned systems and advanced technologies. As a government contractor, Kratos is strategically positioned to benefit from increased defense spending and technological advancements. The company competes with other defense giants, but its focus on innovation sets it apart.

The consensus price target for KTOS has shown a notable upward trend over the past year. Last month, the average price target was $70, reflecting strong positive sentiment from analysts. This suggests that analysts expect the stock to perform well in the near future, driven by Kratos' strategic initiatives and market position.

In the last quarter, the average price target was $58.67, marking a significant increase from the previous quarter. This rise indicates growing confidence in Kratos' prospects, likely due to its focus on unmanned systems and advanced technologies. The company's involvement in key defense and security sectors further bolsters this positive outlook.

A year ago, the average price target was $44, and the substantial increase over the past year highlights analysts' optimism about Kratos' potential. This upward trend suggests that the company's strategic position as a government contractor and its innovative approach are resonating well with analysts and investors alike.

Despite the positive sentiment, Kratos may face challenges due to margin headwinds, as highlighted by analyst Ken Herbert from RBC Capital. He has set a price target of $27 for KTOS, indicating a more cautious outlook. As the Q2 earnings report approaches, investors should consider these factors and stay informed about any developments that could impact the stock's performance.

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) Sees Optimistic Price Target Amidst Airbus Partnership

  • Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) receives a bullish price target of $70 from JMP Securities, indicating a potential upside of 19.09%.
  • The company's recent partnership with Airbus to supply combat drones to the German Air Force is a key factor driving positive market sentiment.
  • Kratos' stock has reached a yearly high of $61.43, with a market capitalization of approximately $9.78 billion, highlighting strong investor confidence.

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is a prominent player in the defense and security sector, specializing in the development and production of advanced technology solutions for national security. The company is known for its innovative approach to defense systems, including unmanned aerial vehicles (UAVs) and combat drones. Kratos competes with other defense giants like Lockheed Martin and Northrop Grumman.

On July 22, 2025, Trevor Walsh from JMP Securities set a price target of $70 for KTOS. At that time, the stock was trading at $58.78, suggesting a potential upside of approximately 19.09%. This optimistic outlook reflects confidence in Kratos' growth prospects, particularly in light of its recent partnership with Airbus. The collaboration with Airbus to supply combat drones to the German Air Force is a significant development for Kratos, as highlighted by Reuters.

The stock for KTOS is currently priced at $58.78, experiencing a slight decrease of 0.58%, with a change of $0.34. Despite this minor dip, the stock has shown resilience, fluctuating between a low of $58.50 and a high of $61.43 today. Notably, $61.43 marks its highest price over the past year, indicating strong investor interest and confidence in the company's future.

Kratos' market capitalization stands at approximately $9.78 billion, reflecting its substantial presence in the defense industry. The trading volume for KTOS today is 5,637,316 shares, indicating active investor engagement. The stock's performance is closely watched, especially with the recent Airbus partnership, which is expected to enhance Kratos' market position and drive future growth.

The lowest price for KTOS in the past year was $17.91, showcasing significant growth over the year. This upward trajectory aligns with the company's strategic initiatives and partnerships, such as the one with Airbus, which are expected to bolster its market standing and contribute to its long-term success.

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) Sees Upgrade and Potential Growth Amid Increased Defense Spending

  • Citigroup upgraded Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) to "Market Outperform" with a stock price of $58.78.
  • The "One Big, Beautiful Bill" has significantly increased U.S. defense spending, benefiting companies like Kratos with a focus on drone technology.
  • Kratos' innovative drone technologies, such as the "loyal wingman" and the Valkyrie, position the company to capitalize on the Pentagon's shift towards advanced drone systems.

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is a key player in the defense industry, known for its innovative drone technologies and electronic systems. On July 22, 2025, Citigroup upgraded its rating for Kratos to "Market Outperform," with the stock priced at $58.78. This upgrade reflects the company's potential to capitalize on the growing demand for advanced drone systems.

The recent passage of the Trump administration's "One Big, Beautiful Bill" has significantly increased U.S. defense spending, allocating an additional $150 billion, bringing the total budget close to $1 trillion. This increase is part of a broader initiative to modernize the military, with a focus on drone-centric and autonomous systems. Kratos, with its expertise in drone technology, stands to benefit from this shift in funding priorities.

Kratos' stock surged by 13% following news that the U.S. government may redirect funding from traditional fighter planes to drone manufacturers. This shift has sparked investor enthusiasm, particularly for companies like Kratos, known for its innovative uncrewed systems. The Pentagon's recent memo emphasizing the need for advanced drone technologies further fuels interest in Kratos' offerings.

Kratos has been developing advanced drone technologies, including the "loyal wingman" drone designed to accompany piloted F-35s in combat. This innovation enhances firepower, disrupts enemy antiaircraft systems, and increases pilot safety. The Valkyrie, another of Kratos' drone designs, has been undergoing testing with the Air Force, although it has yet to secure a full-production order.

The company's stock, currently priced at $58.78, experienced a slight decrease of 0.34, a 0.58% drop. The stock's price fluctuated between $58.50 and $61.43 during the day, with $61.43 marking the highest price in the past year. Kratos has a market capitalization of approximately $9.78 billion, with a trading volume of 5,637,316 shares.

Kratos Defense & Security Solutions (NASDAQ:KTOS) Sees Positive Analyst Ratings and Price Targets

Kratos Defense & Security Solutions (NASDAQ:KTOS) is a prominent player in the defense sector, specializing in unmanned systems and propulsion technology. The company is known for its innovative solutions that cater to both national security and commercial markets. Kratos competes with other defense giants, leveraging its advanced technology to maintain a competitive edge.

On July 3, 2025, Jonathan Siegmann from Stifel Nicolaus set a price target of $54 for KTOS, suggesting a potential upside of about 21.16% from its then trading price of $44.57. This optimistic outlook is supported by recent developments, as highlighted by Goldman Sachs, which upgraded KTOS to a "Buy" rating from a "Neutral" stance. This upgrade reflects growing confidence in Kratos' capabilities and market position. Goldman Sachs has set a new price target of $52 per share for KTOS, indicating an approximate 13% increase from its recent closing price of $45.84. This aligns with the positive sentiment surrounding the stock, which is currently priced at $44.64, marking a 3.14% increase or $1.36.

The stock's daily fluctuation between $43.65 and $44.81 shows investor interest and market activity. KTOS has experienced significant price movements over the past year, with a high of $47.09 and a low of $17.91. This volatility reflects the dynamic nature of the defense sector and investor sentiment. The company's market capitalization stands at approximately $6.85 billion, indicating its substantial presence in the industry. Today's trading volume for KTOS is 1,027,313 shares, demonstrating active investor engagement. As Kratos continues to innovate and expand its offerings, the stock's performance and analyst ratings suggest a promising outlook for the company in the defense market.

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) Shows Promising Growth Potential

  • KTOS has experienced a monthly gain of 3.61%, indicating strong investor confidence despite a recent 10-day loss of 2.24%.
  • The stock is considered undervalued with an 18.85% increase, highlighting its growth potential and making it appealing to growth-oriented investors.
  • Analysts have set a target price of $29 for KTOS, suggesting a substantial upside and reinforcing its attractiveness in the defense sector.

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is a prominent player in the defense and security industry, providing a range of products and services that cater to national security needs. The company specializes in unmanned systems, satellite communications, and cybersecurity solutions. Kratos competes with other defense giants like Lockheed Martin and Northrop Grumman, but it distinguishes itself with its focus on innovative technologies and cost-effective solutions.

KTOS has shown a promising monthly gain of 3.61%, indicating strong investor confidence and positive market sentiment. This upward momentum suggests that the company is on a growth trajectory, appealing to investors looking for stocks with potential for appreciation. Despite a recent 10-day loss of 2.24%, this short-term dip might offer a strategic buying opportunity for those anticipating a rebound.

The stock's growth potential is underscored by an impressive 18.85% increase, suggesting that KTOS is currently undervalued. This presents a compelling case for growth-oriented investors who are seeking stocks with significant room for appreciation. The company's strong financial health is further evidenced by a Piotroski Score of 8, indicating robust fundamentals and efficient operations.

Analysts have set a target price of $29 for KTOS, reflecting a substantial upside from its current price. This target price reinforces the stock's potential for future gains, making it an attractive option for investors interested in the defense sector. The combination of a high Piotroski Score and a significant target price positions KTOS well for future growth.

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) Shows Promising Growth Potential

  • KTOS has experienced a monthly gain of 3.61%, indicating strong investor confidence despite a recent 10-day loss of 2.24%.
  • The stock is considered undervalued with an 18.85% increase, highlighting its growth potential and making it appealing to growth-oriented investors.
  • Analysts have set a target price of $29 for KTOS, suggesting a substantial upside and reinforcing its attractiveness in the defense sector.

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is a prominent player in the defense and security industry, providing a range of products and services that cater to national security needs. The company specializes in unmanned systems, satellite communications, and cybersecurity solutions. Kratos competes with other defense giants like Lockheed Martin and Northrop Grumman, but it distinguishes itself with its focus on innovative technologies and cost-effective solutions.

KTOS has shown a promising monthly gain of 3.61%, indicating strong investor confidence and positive market sentiment. This upward momentum suggests that the company is on a growth trajectory, appealing to investors looking for stocks with potential for appreciation. Despite a recent 10-day loss of 2.24%, this short-term dip might offer a strategic buying opportunity for those anticipating a rebound.

The stock's growth potential is underscored by an impressive 18.85% increase, suggesting that KTOS is currently undervalued. This presents a compelling case for growth-oriented investors who are seeking stocks with significant room for appreciation. The company's strong financial health is further evidenced by a Piotroski Score of 8, indicating robust fundamentals and efficient operations.

Analysts have set a target price of $29 for KTOS, reflecting a substantial upside from its current price. This target price reinforces the stock's potential for future gains, making it an attractive option for investors interested in the defense sector. The combination of a high Piotroski Score and a significant target price positions KTOS well for future growth.

Kratos Defense & Security Solutions, Inc. Sees Bullish Outlook from JMP Securities

  • JMP Securities sets a bullish price target of $27 for Kartos Defense, indicating a potential upside of approximately 25.35%.
  • KTOS stock has been on an upward trend, reaching a two-year high with a significant growth of 54.9% over the past year.
  • Historically low implied volatility (IV) suggests that KTOS could continue its upward trajectory, supported by its strong performance and favorable market conditions.

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is a company that operates in the defense sector, providing innovative technology solutions for the United States and its allies. This includes unmanned systems, satellite communications, cybersecurity, and missile defense, among others. With the defense industry being highly competitive, Kratos stands out by focusing on advanced technology to meet evolving threats and challenges. Companies like Lockheed Martin and Northrop Grumman are among its competitors, but Kratos has carved out a niche with its specialized offerings.

Trevor Walsh of JMP Securities has recently set a bullish price target of $27 for KTOS, suggesting a potential upside of approximately 25.35% from its current price of $21.54. This optimistic outlook, published on May 28, 2024, underscores the firm's confidence in Kratos's future performance. The report, available on TheFly's website, points towards a positive trajectory for the company, reflecting a broader optimism in the defense sector.

Supporting this bullish outlook, KTOS has been on an upward trend, with its stock price increasing by 0.5% to $21.76, marking a third consecutive day of gains. This recent surge has pushed the stock to a fresh two-year high of $22.03. Over the past year, KTOS has experienced a significant growth of 54.9%, and it is up nearly 22% this year alone. Such performance is noteworthy, indicating potential prolonged tailwinds for the defense stock, which could push it to levels not seen since February 2021.

A key factor contributing to this optimistic outlook is the historically low implied volatility (IV) associated with KTOS. According to Schaeffer's Senior Quantitative Analyst, Rocky White, there have been instances where the stock was trading close to its 52-week high while its Schaeffer's Volatility Index (SVI) was unusually low. Currently, KTOS' SVI stands at 31%, placing it in the low 1st percentile. This combination of high stock prices and low volatility has historically been bullish for the stock, suggesting that KTOS could continue its upward trajectory.

In summary, the bullish price target set by JMP Securities, combined with KTOS's recent performance and the historically low implied volatility, paints a positive picture for Kratos Defense & Security Solutions. The company's focus on advanced defense technologies, along with favorable market conditions, positions it well for future growth. As the defense sector continues to evolve, Kratos's innovative solutions are likely to keep it at the forefront of industry advancements.