Kratos Defense & Security Solutions (NASDAQ:KTOS) reported third-quarter 2026 revenue growth of 35.7% and issued an initial 2027 forecast calling for revenue of $2.1 billion to $2.2 billion, as demand increased across its defense technology businesses.
The company reported third-quarter revenue of $471.8 million, including organic growth of 23.2%, and adjusted EBITDA of $50.9 million, or 10.8% of revenue. Bookings totaled $1.04 billion, producing a book-to-bill ratio of 2.2-to-1 and a record $2.6 billion backlog.
2027 Outlook and Funding Risks
Kratos projected 2027 adjusted EBITDA of $230 million to $240 million. CFO Deanna Lund said the revenue outlook implies organic growth of 18% to 22% from the company’s estimated 2026 revenue range and includes growth across all business units in both operating segments.
For 2026, the company tightened its revenue guidance to $1.78 billion to $1.81 billion. Fourth-quarter revenue is expected to be $480 million to $510 million, with organic growth of approximately 18% to 26% from the prior-year period.
Assuming a funding appropriation is in place early next year, DeMarco expects the third and fourth quarters of 2027 to generate substantially more revenue and adjusted EBITDA than earlier in the year. He expects the first quarter to be the lightest.
DeMarco said Kratos does not need a reconciliation funding bill to meet its 2027 objectives. He added that an appropriation by March 31 and a reconciliation bill containing substantial additional defense funding could provide upside, depending on the details.
Valkyrie Order and Drone Expansion
Kratos recently received what DeMarco described as a low-rate initial production contract for its Valkyrie drone, following a successful flight in Europe with partner Airbus. He declined to provide contract details, citing customer restrictions, but said Kratos expects additional Valkyrie orders in 2027, including international orders.
DeMarco said Valkyrie revenue is beginning to be included in the company’s 2027 guidance. Kratos expects its Unmanned Systems business to be among its strongest organic growers next year, supported by Valkyrie, Firejet and turbojet engines.
The company plans to approximately triple Firejet production capacity in Oklahoma City by the end of 2027. Valkyrie and Firejet are both produced in Oklahoma, and Kratos is adjusting production quantities and resources to meet customer demand, DeMarco said.
Third-quarter Unmanned Systems revenue fell $12.6 million from a year earlier, which Lund attributed to the prior-year quarter’s approximately $16.1 million Valkyrie shipment to an international customer.
Engines and Hypersonics
Kratos’ J85 turbojet was selected to power the Joint Direct Attack Munition Long Range. The company is placing supply-chain orders to support production of 3,000 turbojet engines in 2027 and currently expects to deliver approximately 1,500 that year, predominantly in the second half, with the remainder delivered in 2028.
DeMarco said Kratos also expects to order parts next year for a second lot of approximately 5,000 engines, to be built predominantly in 2028 and delivered in 2028 and 2029. He later noted that supply-chain constraints could affect how many of the initial 3,000 engines are completed in 2027.
Separately, the GEK800 engine developed by Kratos and GE Aerospace was selected as a second-source propulsion system for the Joint Air-to-Surface Standoff Missile. DeMarco said Kratos’ Oklahoma turbofan manufacturing facility remains on track to begin operations in late 2027.
In hypersonics and rocket systems, DeMarco reiterated the company’s expectation of approximately $700 million in 2027 revenue. He said the business has received approximately $600 million in funding and recently won three programs: Nemesis 1, Nemesis 2 and Kraken. Supply availability and access to testing ranges remain potential risks, he said, although the company had not seen disruptions at the time of the call.
Cash Flow and Investment
Third-quarter operating cash flow was negative $5.2 million, while free cash flow was negative $29.4 million as Kratos invested in production facilities and working capital. Days sales outstanding rose to 125 days from 114 days in the second quarter, primarily because of revenue growth and billing milestones, Lund said.
Kratos expects to become cash flow positive in 2029 as production and shipments increase relative to investment, according to DeMarco. He said the company plans to spend approximately $130 million to $140 million to activate the supply chain for the initial 3,000 turbojet engines, with cash expected to begin coming in as deliveries start.
DeMarco said Kratos is fully capitalized for the foreseeable future and does not expect significant acquisitions, although it may pursue small tuck-in deals. The company is also investing in automation and manufacturing capacity as it faces competition for qualified workers and persistent supply-chain challenges.
About Kratos Defense & Security Solutions (NASDAQ:KTOS)
Kratos Defense & Security Solutions, Inc is a technology and defense contractor that develops systems and products for national security applications. The company supports the U.S. Department of Defense, intelligence agencies, national security-related organizations and selected commercial customers, with an emphasis on affordable, rapidly deployable technologies.
Its offerings include unmanned aerial and target systems, hypersonic and high-speed systems, rocket and propulsion technologies, satellite communications equipment, microwave electronics, radar and missile-defense systems, electronic warfare solutions, command-and-control systems, and virtual and live training products.
