Kratos Defense & Security Solutions (NASDAQ:KTOS) executives used the company’s fourth-quarter and full-year 2025 earnings call to highlight what they described as accelerating demand across several national security-focused product lines, alongside continued heavy investment in facilities and internally funded development programs.
Q4 results topped internal expectations
Chief Financial Officer Deanna Lund said fourth-quarter revenue was $345.1 million, above the company’s estimated range of $320 million to $330 million. Lund said revenue reflected 20% year-over-year organic growth versus the company’s prior expectation of 14% to 15% organic growth.
Adjusted EBITDA for Q4 was $34.1 million, slightly above the high end of the company’s $29 million to $34 million range. Lund said results benefited from higher volume and revenue mix, but were partially offset by elevated bid and proposal costs and continued increases in subcontractor and material costs on certain multi-year fixed-price contracts in the unmanned systems business.
Backlog and bookings: record levels
CEO Eric DeMarco said Kratos ended 2025 with a record backlog of $1.573 billion and a record opportunity pipeline of $13.7 billion. He said the company generated a 1.3-to-1 book-to-bill ratio in Q4 on top of 20% organic revenue growth, which he characterized as evidence of rising demand for “affordable military-grade hardware and software.”
DeMarco also said the company’s space and satellite business—Kratos’ largest segment—ended the quarter with a record backlog of $600 million and posted a Q4 and full-year book-to-bill ratio of 1.2-to-1.
Hypersonics, solid rocket motors, and new facilities
DeMarco repeatedly emphasized hypersonics as a primary driver of future growth. He said Kratos has 120 Zeus and Oriole solid rocket motors on order, with deliveries to Kratos for system integration expected to begin in Q3. DeMarco said this supports a rapid ramp in the company’s hypersonic “franchise” beginning this year.
He cited several facility investments tied to that ramp, including a newly opened hypersonic facility in Maryland, a soon-to-open Indiana hypersonic system integration facility, and an expansion of the Birmingham advanced manufacturing facility. DeMarco also referenced public reporting that Kratos was selected by the Pentagon to develop “highly maneuverable Mach 5-plus hypersonic missiles” under the Joint Hypersonics Transition Office.
Looking ahead, DeMarco said Kratos is “hoping” to receive an additional approximately $1 billion-plus hypersonic program-related opportunity by the end of the year, which he believes could be sole-sourced. He also provided revenue expectations for the hypersonics business: approximately $400 million in 2026 (about double 2025) and potentially $700 million in 2027 (up more than 75% from 2026), while noting possible upside tied to the timing of appropriations.
Unmanned systems: Valkyrie momentum, but guidance remains conservative
In unmanned systems, Lund said Q4 revenue was up $7.4 million, or 12.1% organically, driven primarily by Valkyrie-related activity. During Q&A, management said tactical drone revenue in Q4 was roughly $8 million to $9 million.
DeMarco discussed the Marine Corps MUX TACAIR collaborative combat aircraft award in which Northrop Grumman is prime and Kratos provides Valkyrie aircraft. DeMarco said Kratos’ probability of winning was “much higher” with Northrop as prime and that the structure reduces integration risk for Kratos, while still generating profit margin on the aircraft. He told analysts to continue thinking about Valkyrie at roughly $10 million per aircraft for Kratos, depending on configuration.
DeMarco said Kratos is planning to increase Valkyrie production from about 8 aircraft annually to about 40 aircraft annually by the end of 2028, while maintaining some “white tail” aircraft in inventory. However, the company said it will keep base-case forecasts limited to RDT&E and science-and-technology sales quantities until production schedules, funding, and deliveries are definitized.
DeMarco also said the company received a Phase 1 “Gauntlet” award under the Department of War’s $1 billion Drone Dominance Program to acquire small lethal drones over two years, describing it as a program that could move rapidly if Kratos is successful in subsequent phases.
2026 guidance, cash flow, and investment priorities
Lund said Q1 2026 is expected to be the lowest quarter for revenue and adjusted EBITDA, reflecting the impact of the extended U.S. federal government shutdown in Q4 2025 on contract awards and funding. Kratos guided to Q1 revenue of $335 million to $345 million and adjusted EBITDA of $25 million to $30 million.
For full-year 2026, Kratos guided to revenue of $1.59 billion to $1.675 billion, implying organic growth of 12.7% to 18.5% over 2025 actual results (which came in above prior estimates). Lund said the guidance includes Nomad Global Communication Solutions, a tuck-in acquisition that closed in mid-February, but does not include the pending Orbit Technologies acquisition, which management expects to close by the end of Q1.
On cash and working capital, Lund said Q4 operating cash flow was $12.1 million, primarily reflecting working-capital requirements tied to growth, including higher receivables and inventory. She said DSOs increased to 121 days from 111 days in Q3, citing revenue growth, milestone timing, and shutdown-related delays in funding and receivable payments.
Lund also outlined continued investment spending, including 2026 capital expenditures guidance of $135 million to $145 million, with about $30 million to $35 million shifting from 2025 due to timing—specifically for the Indiana Payload Integration Facility and the Birmingham hypersonic facility. She added that Kratos expects to fund the Prometheus joint venture with Rafael at roughly $50 million in aggregate during 2026.
DeMarco reiterated the company’s capital allocation approach, emphasizing that Kratos does not pay dividends or buy back stock, instead investing in manufacturing capability and product development. He said management believes the current defense funding environment and a shift toward fielding “good enough and ready today” systems are aligned with Kratos’ strategy.
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.
