Financial Analysis

Acquisitions Norden Millimeter, Inc. On January 27, 2025, the Company and Kratos Microwave, Inc., a subsidiary of the Company (Kratos Microwave), entered into an Asset Purchase Agreement (the Purchase Agreement) to acquire certain of the assets (the Purchased Assets) of Norden Millimeter, Inc. (Norden) and assume certain liabilities (the Assumed Liabilities) of Norden. Norden focuses on microwave and millimeter wave products. Pursuant to the Purchase Agreement, on February 4, 2025, the acquisition was completed following the satisfaction of all closing conditions and (a) the Company issued 1,095,674 shares of its common stock, with a deemed value of $32.2 million, to Norden in a private placement, (b) the Company agreed to issue up to $6 million worth of additional shares of its common stock to Norden in the future upon release of certain holdback amounts, and (c) Kratos Microwave agreed to assume the Assumed Liabilities, in each case, in exchange for the Purchased Assets. Included in these Assumed Liabilities is contingent bonus liability of $5.0 million payable to certain former employees of Norden. Kratos granted Norden certain registration rights under the Asset Purchase Agreement and registered the 1,095,674 shares with the SEC on February 7, 2025. The Purchased Assets and Assumed Liabilities are included in the KGS segment. The operating results of this acquisition have been included in the Companys results of operations from the effective acquisition date. The excess o …

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Commitments and Contingencies In addition to commitments and obligations in the ordinary course of business, the Company is subject to various claims, pending and potential legal actions for damages, investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of the Companys business. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its consolidated financial statements. An estimated loss contingency is accrued in the Companys consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing litigation contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including but not limited to the procedural status of the matter in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against it may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of its potential liability. The Company regularly reviews contingencies to determine the adequacy of its accru …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

Debt (a) 2022 Credit Facility On February 18, 2022, the Company completed the refinancing of its then-outstanding $90 million revolving credit facility and $300 million 6.5% Senior Secured Notes due November 2025 (the Senior Secured Notes), with a 5-year $200 million Revolving Credit Facility and 5-year $200 million Term Loan A (collectively, the 2022 Credit Facility). The Company incurred debt issuance costs of $3.3 million associated with the 2022 Credit Facility. On July 2, 2025, the Company extinguished all outstanding Term Loan A debt under the 2022 Credit Facility. The then-outstanding Term Loan A aggregate principal balance of $177.5 million, plus accrued interest, was paid in full utilizing a portion of the proceeds received from the June 27, 2025 public equity offering, which is described further in Note 10. The Company incurred a loss on the extinguishment of the debt of $0.5 million during the three months ended September 28, 2025 related to the write-off of unamortized debt issuance costs. This loss is included in Other income (expense) in the consolidated statement of operations. The 2022 Credit Facility is governed by a Credit Agreement (the Credit Agreement), which established a five-year senior secured credit facility which is comprised of a $200 million revolving credit facility (the Revolving Credit Facility) (which includes sub-facilities for the incurrence of up to $10.0 million of swingline loans and the issuance of up to $50.0 million of Letters of Credi …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

The following series of tables presents the Companys revenue disaggregated by several categories. For the majority of contracts, revenue is recognized over time as work is performed on the contract. Revenue by contract type was as follows (in millions): Year Ended December 28, 2025 Year Ended December 29, 2024 Year Ended December 31, 2023 Kratos Government Solutions Fixed price $ 703.1 $ 571.5 $ 566.3 Cost plus fee 298.9 233.9 209.5 Time and materials 52.8 60.4 49.1 Total Kratos Government Solutions 1,054.8 865.8 824.9 Unmanned Systems Fixed price 231.2 216.4 160.9 Cost plus fee 58.1 48.1 41.9 Time and materials 2.7 6.0 9.4 Total Unmanned Systems 292.0 270.5 212.2 Total Revenues $ 1,346.8 $ 1,136.3 $ 1,037.1 Revenue by customer was as follows (in millions): Year Ended December 28, 2025 Year Ended December 29, 2024 Year Ended December 31, 2023 Kratos Government Solutions U.S. Government (1) $ 672.3 $ 528.0 $ 512.5 International (2) 228.3 195.4 192.8 U.S. Commercial and other customers 154.2 142.4 119.6 Total Kratos Government Solutions 1,054.8 865.8 824.9 Unmanned Systems U.S. Government (1) 244.8 234.0 200.2 International (2) 39.3 31.3 9.2 U.S. Commercial and other customers 7.9 5.2 2.8 Total Unmanned Systems 292.0 270.5 212.2 Total Revenues $ 1,346.8 $ 1,136.3 $ 1,037.1 (1) Sales to the U.S. Government include sales from contracts for which the Company is the prime contractor, as well as those for which the Company is a subcontractor and the ultimate customer is the U.S. Gov …

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Fair Value Measurement ASC Topic 820 , Fair Value Measurement, establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Companys own assumptions used to measure assets and liabilities at fair value. A financial asset or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. As more fully described in Note 16, Derivative Financial Instruments , our forward exchange contracts used to manage foreign currency risks and an interest rate swap contract to hedge U.S. dollar-one month Term SOFR in order to mitigate the exposure to interest rate movements associated with the Companys Term Loan A are recognized on the Consolidated Balance Sheets as either assets or liabilities and are measured at fair value. On June 30, 2025, in anticipation of the extinguishment of all outstanding Term Loan A debt under the 2022 Credit Facility, the Company terminated the interest rate …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

Goodwill and Other Intangible Assets (a) Goodwill The Company performs its annual impairment test for goodwill in accordance with Topic 350 as of the last day of its fiscal October or when evidence of potential impairment exists. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. The Company determines its reporting units by first identifying its operating segments, and then assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. The Company aggregates components within an operating segment that have similar economic characteristics. The KGS reportable segment has five operating businesses: Defense and Rocket Support Systems (DRSS), Microwave Electronics (ME), Space, Training and Cybersecurity Solutions (ST&C), C5ISR/Modular Systems (MS), and Kratos Turbine Technologies (KTT). All of the KGS operating segments provide technology based defense solutions, involving products and services, primarily for mission critical U.S. National Security priorities, with the primary focus relating to the nations C5ISR requirements. The US reportable segment consists of its unmanned aerial system, unmanned ground, and unmanned seaborne system products. The Company identified its reporting units to be t …

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Income Taxes The components of income (loss) from consolidated operations before income taxes are comprised of the following (in millions): December 28, 2025 December 29, 2024 December 31, 2023 Domestic $ 17.1 $ 3.8 $ (9.6) Foreign 16.9 22.7 20.7 Total $ 34.0 $ 26.5 $ 11.1 The provision for income taxes from consolidated operations are comprised of the following (in millions): Year Ended December 28, 2025 December 29, 2024 December 31, 2023 Federal income taxes: Current $ $ $ Deferred 8.3 7.1 2.4 Total Federal 8.3 7.1 2.4 State and local income taxes: Current (1.9) 1.8 1.1 Deferred 0.3 (2.7) 0.3 Total State and local (1.6) (0.9) 1.4 Foreign income taxes: Current 5.8 4.2 5.1 Deferred (0.5) (0.2) (0.2) Total Foreign 5.3 4.0 4.9 Total $ 12.0 $ 10.2 $ 8.7 The reconciliation from the statutory federal income tax rate of 21% to the Companys effective income tax rate, applying ASU 2023-09 prospectively for the years ended December 28, 2025, is as follows (in millions): Amount Rate December 28, 2025 December 28, 2025 Income tax (benefit) at federal statutory rate $ 7.1 21.0 % State taxes (benefit), net of federal tax benefit 1.1 3.2 Foreign tax effects: Israel tax expense (benefit) (0.6) (1.9) Other foreign jurisdictions tax expense (benefit) 1.2 3.4 Effects of cross-border tax laws: Global intangible low-taxed income 3.2 9.5 Tax credits: Research & development tax credits (0.5) (1.6) Change in federal valuation allowance (0.2) (0.7) Nondeductible items: Stock-based compensation …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

Leases The components of lease expense for the years ended December 28, 2025, December 29, 2024, and December 31, 2023 were as follows (in millions): December 28, 2025 December 29, 2024 December 31, 2023 Amortization of right of use assets - finance leases $ 4.1 $ 3.2 $ 3.1 Interest expense on lease liabilities - finance leases 4.1 3.3 3.1 Operating lease cost (expense resulting from amortization of total lease payments) 14.5 13.9 14.0 Short-term lease cost 1.5 1.4 1.2 Variable lease cost (cost excluded from lease payments) 0.1 Sublease income (0.2) (0.2) Total lease cost $ 24.0 $ 21.6 $ 21.5 The components of leases on the balance sheet were as follows (in millions): December 28, 2025 December 29, 2024 Operating Leases: Operating lease right-of-use assets $ 43.4 $ 37.6 Current portion of operating lease liabilities $ 12.8 $ 11.3 Operating lease liabilities, net of current portion $ 33.8 $ 29.8 Finance leases: Property, plant and equipment, net $ 86.2 $ 57.6 Other current liabilities $ 3.4 $ 1.9 Other long-term liabilities $ 95.8 $ 64.4 Cash paid for amounts included in the measurement of lease liabilities for the years ended December 28, 2025, December 29, 2024, and December 31, 2023 were as follows (in millions): December 28, 2025 December 29, 2024 December 31, 2023 Finance lease - cash paid for interest $ 3.9 $ 3.3 $ 3.1 Finance lease - financing cash flows $ 1.8 $ 1.4 $ 1.5 Operating lease - operating cash flows (fixed payments) $ 14.9 $ 14.3 $ 14.1 Other supplemental non …

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Recent Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09 , Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires companies to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires companies to disclose additional information about income taxes paid. The Company has adopted ASU 2023-09 on a prospective basis effective for the period ending December 28, 2025. The adoption of this standard did not have an impact on the Companys consolidated financial position, results of operations or cash flows. In November 2024, the FASB issued ASU 2024-03 , Income Statement (Topic 220): Reporting Comprehensive Income Expense Disaggregation Disclosures, which requires the amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization included in each relevant expense caption. It also requires companies to include certain amounts that are already required to be disclosed under current GAAP in the same disclosure. Additionally, it requires companies to disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and to disclose the total amount of selling expenses and, in annual reporting periods, an entitys definition of selling expenses. ASU 2024-03 will be effe …

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Retirement Plans The Company provides eligible employees the opportunity to participate in defined-contribution savings plans (commonly known as 401(k) plans), which permit contributions on a before-tax basis. Generally, salaried employees and certain hourly employees are eligible to participate in the plans. Under most plans, the employee may contribute to various investment alternatives. In certain plans, the Company matches a portion of the employees contributions. The Companys matching contributions to these defined-contribution savings plans totaled $13.3 million in 2025, $11.8 million in 2024, and $10.7 million in 2023. …

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Segment Information The Company operates in two reportable segments. The KGS reportable segment is comprised of an aggregation of KGS operating segments, including DRSS, ME, ST&C, MS, and KTT. The US reportable segment consists of the Companys unmanned aerial, unmanned ground, unmanned seaborne and command, control and communications system products. The KGS and US segments provide products, solutions and services for mission critical National Security programs. KGS and US customers primarily include National Security related agencies, the DoW, intelligence agencies and classified agencies, and to a lesser degree, international government agencies and domestic and international commercial customers. There were not any significant intersegment sales, cost of sales and profit for the years ended December 28, 2025, December 29, 2024, and December 31, 2023. The Companys chief operating decision maker is the President and Chief Executive Officer. The chief operating decision maker uses segment operating income (loss) predominantly in the annual budget and forecasting process. The chief operating decision maker considers budget-to-actual variances on a quarterly basis when making decisions about the allocation of operating and capital resources to each segment. The chief operating decision maker also uses segment operating income (loss) to assess the performance of each segment by comparing the results of each segment with one another and in determining the compensation of cert …

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Subsequent Events The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. On November 4, 2025, the Company and certain of its subsidiaries entered into a definitive merger agreement (the Orbit Merger Agreement) pursuant to which the Company agreed to acquire Orbit Technologies Ltd., a company organized under the laws of the State of Israel (Orbit). Orbits ordinary shares are currently publicly traded on the Tel Aviv Stock Exchange. The aggregate consideration payable by the Company pursuant to the Orbit Merger Agreement is expected to be approximately $356.3 million, which is expected to be funded via cash on the Companys balance sheet immediately prior to closing. Consummation of the acquisition of Orbit is subject to a number of customary closing conditions. The transaction is expected to close in the first half of 2026. On February 11, 2026, the Company and the other parties thereto entered into an Agreement and Plan of Merger (Nomad Merger Agreement) pursuant to which the Company acquired Nomad Global Communication Solutions, Incorporated, a Montana corporation (Nomad). The Nomad acquisition was consummated on February 11, 2026. Nomad is a company that focuses on the design and manufacture of connected mobile operations centers. Pursuant to the Nomad Merger Agreement, the Company (i) issued 972,136 shares of Kratos common stock with a deemed value of $88.8 million on Febr …

SubsequentEventsTextBlock · excerpt; the full note is in the filing