0001069258-26-000053
SEC filingKratos reported 22.6% revenue growth to $371.0M, with backlog at record $2.011B; net income rose to $11.9M driven by lower interest costs.
For the three months ended March 29, 2026, total revenue increased 22.6% to $371.0 million from $302.6 million in the prior year. The growth was broad-based, with Kratos Government Solutions (KGS) up 20.4% and Unmanned Systems (US) up 30.9%. Gross margin contracted slightly to 24.2% from 24.3%, as margins on services (25.9% vs 26.1%) and products (23.2% vs 23.4%) both declined. Net income rose to $11.9 million from $4.5 million, driven by a $6.3 million favorable swing in other income (net) due to the elimination of interest expense after repaying all Term Loan A debt in July 2025 and increased interest income on cash balances from two public equity offerings. The effective tax rate benefited from stock compensation items.
KGS segment revenue grew 20.4% to $288.4 million, fueled by the Defense Rocket Support business (hypersonic systems), microwave electronics, turbine technologies, and contributions from recent acquisitions—Nomad Global Communication Solutions ($7.3M) and Orbit Technologies ($13.3M). Segment margin declined to 26.2% from 26.6%, reflecting mix and cost pressures. Unmanned Systems revenue surged 30.9% to $82.6 million, primarily on Valkyrie aircraft production, and segment margin improved to 17.1% from 15.8%, benefiting from scale.
Management highlighted a record backlog of $2.011 billion (up from $1.508 billion), with $1.457 billion funded. They expect to recognize 37% of total backlog as revenue in fiscal 2026, with an additional 25% in 2027. Capital expenditures are anticipated to remain significant, particularly for the US business ($35-40 million for the year) including aerial targets and support equipment. The company also noted ongoing supply chain disruptions and labor shortages as headwinds, but believes it is well-positioned for increased defense spending under the OBBBA and Fiscal 2027 budget proposals. No specific quantitative forward guidance was provided.
Kratos ended Q1 2026 with a very strong liquidity position. Cash and cash equivalents totaled $1,464.3 million, a dramatic increase from $560.6 million at December 28, 2025. This was primarily driven by a $1,348.6 million net proceeds from a February 2026 public equity offering of 16.4 million shares at $84.00 per share. Total assets grew to $4,042.7 million from $2,467.2 million, largely due to the cash infusion and acquisitions. Total debt, consisting entirely of finance lease liabilities (net of current portion), was $132.0 million, with an additional $4.8 million current portion. The company's $300 million revolving credit facility under the 2026 Credit Agreement was undrawn as of March 29, 2026, with $31.2 million in letters of credit outstanding. Shareholders' equity rose to $3,410.0 million from $1,996.3 million.
As of March 29, 2026, Kratos had $2.011 billion in remaining performance obligations (RPO) on executed contracts. The company expects to recognize approximately 37% of this backlog as revenue in fiscal year 2026, an additional 25% in fiscal year 2027, and the balance thereafter. This represents a significant backlog. Additionally, the company has a joint venture commitment with RAFAEL for Prometheus Energetics, with a combined total capital commitment of up to $175 million, of which Kratos has contributed approximately $7 million as of the filing date. Lease obligations total $54.8 million for operating leases and $211.0 million for finance leases (undiscounted), with imputed interest of $6.2 million and $74.2 million, respectively.
Kratos did not repurchase any shares or pay dividends during the quarter. The company's primary capital allocation activities were centered on acquisitions and capital expenditures. Capital expenditures totaled $19.9 million (5.4% of sales), with $12.5 million in KGS and $6.7 million in US. The company completed two significant acquisitions: Orbit Technologies Ltd. for $352.7 million in cash (funded from balance sheet) and Nomad Global Communication Solutions for total consideration of $148.8 million (including $88.8 million in stock and $37.0 million in cash). Debt activity was minimal; the company made no borrowings or repayments under its credit facilities, and finance lease payments were $0.9 million.
Kratos operates in two reportable segments: Kratos Government Solutions (KGS) and Unmanned Systems (US). For Q1 2026, KGS generated $288.4 million in revenue (77.7% of total) and $20.3 million in operating income (7.0% margin). US generated $82.6 million in revenue (22.3% of total) and $1.3 million in operating income (1.6% margin). Revenue by contract type: KGS was 74.3% fixed price, 20.5% cost-plus, and 5.2% time & materials. US was 67.7% fixed price, 30.3% cost-plus, and 2.0% time & materials. Geographically, U.S. Government customers accounted for $254.7 million (68.6% of total revenue), international customers for $76.4 million (20.6%), and U.S. commercial/other for $39.9 million (10.8%). No single foreign country exceeded 10% of total revenue.
Net income of $11.9 million was positive, yet operating cash flow was negative $(27.4) million, indicating significant working capital investment. Key non-cash add-backs included depreciation and amortization ($16.8M), stock-based compensation ($15.0M), and lease amortization ($3.4M). The primary cash drains were unbilled receivables ($26.7M), prepaid expenses ($26.5M), inventoried costs ($14.7M), and accrued expenses ($16.1M). Accounts payable provided a $30.8M inflow, partially offsetting these uses.
Capital expenditures of $19.9 million represented 1.7x net income, reflecting moderate reinvestment. Free cash flow (CFO minus capex) was negative $(47.3) million, meaning internal cash generation did not cover capex. Financing activities surged to $1,297.3 million, driven by a $1,348.6 million common stock issuance (net of costs), which funded the $347.4 million cash paid for acquisitions and other investing outflows. The company did not repurchase shares or pay dividends during the period. The comparison shows a slight improvement in CFO from $(29.2)M to $(27.4)M year-over-year, but the cash flow remains negative, highlighting reliance on external financing for growth.