NEW YORK, Aug 5, 2026, 07:15 EDT
- Shares were set to open up 10.8% at $57.45 ahead of Wednesday’s cash-market session.
- Government Solutions accounted for 94.5% of the reported revenue increase in the second quarter.
- The midpoint for 2026 revenue increased by $50 million, while the midpoint for operating cash flow decreased by $25 million.
Shares of Kratos Defense & Security Solutions, Inc. NASDAQ:KTOS were up 10.8% at $57.45 during Wednesday’s premarket session. The U.S. cash market was yet to open.
Kratos reported second-quarter revenue of $458.8 million, surpassing expectations. Adjusted earnings came in at $0.21 per share. The company also increased its revenue outlook for 2026.
The primary surprise was unrelated to drones. Government Solutions contributed $101.4 million out of the $107.3 million sales growth, accounting for 94.5% of reported growth in dollars.
The rise was fueled by missiles, rocket systems, engines, and microwave items. Unmanned Systems expanded but contributed just 5.5% of the overall growth.
The report surpassed outside forecasts and earlier management guidance.
| Q2 metric | Actual | Benchmark | Difference |
|---|---|---|---|
| Revenue | $458.8 million | $411.7 million Zacks consensus | 11.4% higher |
| Revenue | $458.8 million | $400–$410 million company guide | 11.9% above top range |
| Adjusted EPS | $0.21 | $0.13 Zacks consensus | Up 61.5% |
| Adjusted EBITDA | $38.2 million | $30–$35 million company guide | 9.1% over high end |
Clarke Jeffries, analyst at Piper Sandler Companies NYSE:PIPR, raised his rating on the stock to Overweight from Neutral, maintaining the price target at $75.
Government Solutions accounted for 82.8% of the quarter’s overall revenue and contributed almost the entire amount of reported growth.
| Segment | Q2 2026 revenue | Q2 2025 revenue | Dollar increase | Share of total increase |
|---|---|---|---|---|
| Government Solutions | $379.7 million | $278.3 million | $101.4 million | 94.5% |
| Unmanned Systems | $79.1 million | $73.2 million | $5.9 million | 5.5% |
| Consolidated | $458.8 million | $351.5 million | $107.3 million | 100.0% |
Within Government Solutions, defense rocket systems achieved organic growth of 50.2%. Turbine Technologies increased by 43.3%, while Microwave Products advanced 29.5%.
Order figures showed improvement beyond the drone segment. Unmanned backlog fell by $800,000 quarter-on-quarter. Government Solutions backlog rose by $34 million.
| Order measure | Consolidated | Government Solutions | Unmanned Systems |
|---|---|---|---|
| Q2 book-to-bill | 1.1x | 1.1x | 1.0x |
| Trailing-12-month book-to-bill | 1.3x | 1.4x | 1.1x |
| Q2 bookings | $492.2 million | $413.8 million | $78.4 million |
| Backlog at quarter close | $2.084 billion | $1.710 billion | $374.6 million |
| Backlog change from previous quarter | +1.6% | +2.0% | -0.2% |
Chief Executive Eric DeMarco stated that business momentum is “expected to accelerate in the second half of 2026 and into 2027.” The bid pipeline grew to $15 billion. SEC
The forecast showed increased revenue but lower cash conversion. Revenue guidance was lifted by $50 million on both the lower and upper ends. Guidance for operating cash flow dropped significantly.
| FY2026 measure | Prior guidance | New guidance | Midpoint change |
|---|---|---|---|
| Revenue | $1.700–$1.760 billion | $1.750–$1.810 billion | +$50 million |
| Adjusted EBITDA | $170–$176 million | $173–$176 million | +$1.5 million |
| Operating cash flow | $60–$70 million | $30–$50 million | -$25 million |
| Capital expenditure | $155–$165 million | $125–$135 million | -$30 million |
| Free-cash-flow use | $85–$105 million | $85–$105 million | No change |
The revised capital expenditure outlook did not change overall planned investment. Kratos projects 2026 spending and funding between $250 million and $275 million. Its working capital covers rocket motors, materials for drones, and jet-engine inventory.
Kratos aims to have capacity for 3,000 small jet engines in 2027 and to build about 40 Valkyries per year by early 2028. Achieving these targets will rely on scaling up production and securing customer contracts.
Adjusted EBITDA rose by 35% to reach $38.2 million. The margin ticked up to 8.3% from 8.1%. Kratos posted an operating loss of $1.6 million and used $11 million in operating cash.
With shares at $57.45, an initial estimate indicates an equity value of approximately $10.8 billion. This represents about 6.1 times the midpoint of projected 2026 revenue.
Drone peer AeroVironment, Inc. NASDAQ:AVAV gained 2.0% in premarket trading. The bigger swing in Kratos shares suggests an earnings-driven response unique to the company.
Risks: The strategy involves significant spending on inventory and facilities. Potential funding setbacks, shortages of parts, fixed-price agreements and hiring shortfalls could impact margins. Unmanned backlog remained almost unchanged from the previous period.
The upcoming assessment is scheduled for the third quarter. Kratos projects revenue between $460 million and $480 million, with adjusted EBITDA anticipated to range from $40 million to $45 million.
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