Kratos Defense & Security Solutions NASDAQ: KTOS reported second-quarter 2026 revenue and adjusted EBITDA above its prior forecast, citing demand across hypersonics, jet engines, space systems, counter-unmanned aircraft systems and unmanned aircraft.
Revenue for the quarter was $458.8 million, exceeding the company’s projected range of $400 million to $410 million. Organic revenue grew 19.1% from a year earlier, including 22% growth in the Kratos Government Solutions, or KGS, segment and 8.1% organic growth in Unmanned Systems.
Adjusted EBITDA totaled $38.2 million, above the company’s guidance range of $30 million to $35 million. Chief Financial Officer Deanna Lund said the results reflected higher revenue and revenue mix.
“Our second-quarter performance exceeded our forecasted revenue and EBITDA targets,” Lund said.
Growth outlook raised
Chief Executive Officer Eric DeMarco said Kratos increased its forecast for full-year 2026 organic revenue growth to 19% to 23%. The company expects third-quarter organic growth of approximately 19% to 25% and fourth-quarter growth of approximately 19% to 31%.
DeMarco said the company’s trailing 12-month book-to-bill ratio was 1.3-to-1, with $1.99 billion in bookings. Its bid-and-proposal pipeline has reached $15 billion, he said.
Kratos expects margins to improve in the second half of 2026 and into 2027 as production volumes rise and fixed infrastructure costs are leveraged. However, Lund said the appreciation of the Israeli shekel against the U.S. dollar has created a material headwind for the company’s Israeli microwave electronics and satellite communications operations.
The stronger shekel reduced second-quarter adjusted EBITDA by about $2.5 million, according to Lund. Kratos forecasts a full-year EBITDA impact of approximately $5 million to $7 million if the currency strength continues.
Kratos generated $458.8 million in quarterly revenue, with KGS revenue rising $101.4 million year over year. Recent acquisitions Nomad and Orbit contributed $40.2 million to KGS revenue. Within KGS, the company reported organic growth of 50.2% in defense rocket support, 43.3% in turbine technologies, 29.5% in microwave products, and 8.7% in space, training and cyber.
Hypersonic business ramps
DeMarco said Kratos’ hypersonic business generated approximately $200 million in 2025 revenue and is tracking toward $400 million in 2026, with a forecast of at least $700 million in 2027. The company recently received awards connected to the Kraken One, Kraken Two and Nemesis hypersonic programs, as well as approximately $400 million in new hypersonic and other funding.
Lund said hypersonic revenue is expected to increase by approximately $20 million to $25 million sequentially in the third quarter, followed by another $20 million to $30 million increase in the fourth quarter from second-quarter levels.
Kratos’ new hypersonic system integration facility in Indiana is now operational, DeMarco said. The facility will integrate solid rocket motors and flight systems as the company increases its launch tempo. Kratos expects to begin receiving the first of 120 previously procured solid rocket motors during the third quarter.
DeMarco also pointed to reported Department of Defense budget documents showing approximately $7 billion in planned MACH-TB program funding over five years. He said Kratos sees its hypersonic franchise as a major long-term growth driver, though he did not provide a specific revenue forecast beyond 2027.
Jet-engine investment expands
Kratos is increasing investment in turbojet production for low-cost cruise missiles. DeMarco said the company has begun ordering components for 3,000 Spartan small turbojet engines expected to be produced for customers in 2027, and it plans to order components during 2027 for an additional 5,000 engines expected to be produced in 2028.
The average selling price for a Spartan turbojet is approximately $50,000, DeMarco said. The engines will be manufactured at Kratos’ new Michigan production facility, which is operational.
The company is also advancing a 50-50 turbofan engine partnership with GE Aerospace. Kratos’ BladeWorks manufacturing facility in Oklahoma is expected to become operational in summer 2027, with low-rate initial production anticipated in 2028. DeMarco said the turbofan opportunity is tied to systems including JASSM and LRASM, while the larger near-term increase in engine revenue is expected to come from smaller turbojets.
Kratos plans to begin ordering turbofan supply-chain components in either the fourth quarter of 2026 or first quarter of 2027, according to DeMarco.
New programs and manufacturing capacity
DeMarco highlighted a directed-energy counter-UAS award with an initial value of approximately $160 million and a space-domain-awareness production award with an initial value of approximately $100 million. Kratos has already received $30 million to $40 million in funding for its Department of Energy mobile counter-UAS program, called Solar Shield, he said. The project is expected to contribute to fourth-quarter growth and continue ramping in 2027.
The company is also expanding manufacturing capacity for unmanned systems. Its Oklahoma facility produces Valkyrie aircraft, Tactical Firejet systems and another classified platform. Kratos has approved an additional roughly 50,000 square feet of expansion at the site.
DeMarco said the company expects to reach an average Valkyrie production rate of about 1.5 aircraft per month in 2027, or roughly 18 annually. Longer term, capacity could reach approximately 35 to 40 aircraft annually depending on customer configurations.
Kratos expects an additional Marine Corps Valkyrie-related award by the end of 2026. DeMarco also said Mighty Hornet, a Tactical Firejet derivative for Taiwan, has upcoming customer flights and could enter production in the first half of 2027 if those activities are successful.
For domestic Valkyrie programs, DeMarco estimated EBITDA margins of 10% to 15%, depending on configuration and quantity. International programs could generate margins of roughly 15% to 20%, he said.
Cash use reflects investment phase
Cash used in operations was $11 million in the second quarter, primarily due to working-capital requirements associated with growth. Receivables increased by approximately $59 million, inventory increased by about $10 million, and prepaid and other assets rose approximately $14 million.
Free cash flow used in operations was $18.9 million after $17.2 million of capital expenditures. Kratos said total planned investments for 2026 remain approximately $250 million to $270 million, although the company has shifted the classification of certain investments between capital expenditures and working capital.
Lund said the revised cash-flow outlook reflects the decision to procure materials and equipment needed to support jet-engine production in 2027, as well as continued investment in microwave products, rocket systems, hypersonics, jet engines, unmanned systems and space-related capabilities.
About Kratos Defense & Security Solutions (NASDAQ:KTOS)
Kratos Defense & Security Solutions, Inc NASDAQ: KTOS is a technology-driven company that specializes in national security and defense solutions for government and military customers. The firm’s core capabilities span unmanned systems, satellite communications, missile defense, cyber security, and directed-energy weapons. Through its integrated approach, Kratos delivers mission-critical products and services designed to enhance operational readiness and support force modernization initiatives.
In the unmanned systems arena, Kratos develops high-performance aerial platforms used as target drones, low-cost attritable aircraft and experimental stealth demonstrators.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
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