Thank you. Good afternoon, everyone.

Thank you for joining us for the Kratos Defense & Security Solutions second quarter 2026 conference call. With me today is Eric DeMarco, Kratos' President and Chief Executive Officer; and Deanna Lund, Kratos' Executive Vice President and Chief Financial Officer.

Before we begin the substance of today's call, I'd like everyone to please take note of the safe harbor paragraph that is included at the end of today's press release. This paragraph emphasizes the major uncertainties and risks inherent in the forward-looking statements we will make this afternoon.

Please keep these uncertainties and risks in mind as we discuss future strategic initiatives, potential market opportunities, operational outlook, financial guidance, and other forward-looking statements during today's call. Today's call will also include discussion of non-GAAP financial measures as that term is defined in Regulation G.

Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, at the end of today's press release, we have provided a reconciliation of these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP.

Eric?

Thank you, Marie. Kratos' second quarter results reflect the execution of the Kratos team and that our strategy, including making internally funded investments to be first to market with relevant hardware and software that is engineered upfront for affordable mass production, is aligned with the Department of War's priorities.

Representative of this alignment, Kratos' last 12-month book-to-bill ratio of 1.3:1, total last 12-month bookings of $1.99 billion, the number of opportunities for Kratos continuing to increase with the bid and proposal pipeline of $15 billion now, and our business momentum forecast to accelerate into the second half of this year and continuing into '27. Kratos' second quarter year-over-year organic growth rate was 19.1%.

We are forecasting third quarter organic growth of approximately 19% to 25%, and we are forecasting fourth quarter year-over-year organic growth of approximately 19% to 31%. We are increasing our forecasted full-year 2026 organic revenue growth up to 19% to 23%.

I am emphasizing that these are all organic growth numbers. Kratos' EBITDA margins also are increasing and are forecast to continue to increase in the second half of '26 and into '27 as the business scales, production increases, and we realize financial leverage on our fixed infrastructure cost.

We are generating and forecasting for increased margins while we are making significant investments as we pursue large new Department of War opportunities that are being presented to us and also with the recent strength of the shekel adversely impacting our Israeli operations profitability. We begin the second half of '26 and look forward to '27, we are more confident than ever in Kratos' future prospects, including for the following reasons.

We have recently received new hypersonic system program awards, including Kraken 1, Kraken 2, and Nemesis. We have received a new directed energy counter-UAS system program award with an initial value of approximately $160 million.

We have received a new space domain awareness system production award with an initial value of approximately $100 million. The Space Force is now receiving a new EW system that includes Kratos hardware.

We have recently received approximately $400 million in new hypersonic and other funding, and we expect to receive significant additional funding in the second half of this year. We hope to announce shortly a successful recent Kratos rocket system flight event directly related to missile defense, and we have been recently informed that we have received a new contract for a missile system program of record.

The Pentagon has requested multiyear procurement authority for multiple munitions and missiles, including PrSM, AMRAAM, JASSM, LRASM, TLAM, and MST, THAAD, Patriot, low-cost hypersonic strike systems, family of affordable mass munitions, and low-cost containerized cruise missiles. These are all Kratos-supported programs or programs that we are positioning to support in the future.

Why is this significant? The Family of Affordable Mass Missiles, the FAM program, for example, which the Air Force's Future Years Defense Program, or FYDP, calls for 27,000 low-cost cruise missiles, has been a top strategic priority of Kratos' jet engine initiative, and it's now happening.

The Pentagon is also looking to acquire 10,000 cruise missiles under the low-cost containerized munitions program, another low-cost missile opportunity Kratos has been targeting for our engines. Other new low-cost cruise missile programs Kratos is supporting or positioned for include ERAM, ETV, Ground Launched Cruise Missile, and JDAM-LR, together representing an estimated potential opportunity for tens of thousands of Kratos small turbojet engines.

We believe that JDAM-LR alone, which includes a Kratos engine, could be one of the largest single opportunities for our company, with the potential for tens of thousands of systems by itself. As a result, we are currently placing initial orders with our supply chain for the components for 3,000 small Kratos TDI Spartan turbojet engines we expect to produce for customers in 2027, and we currently plan to order components during '27 for an additional 5,000 engines expected to produce for customers in 2028.

The average selling price of a Kratos Spartan engine, this is a turbojet, is approximately $50,000. We will produce the Kratos Spartan turbojet engines in our new now-operational state-of-the-art manufacturing facility in Michigan.

In addition to these low-cost cruise missile systems, it was reported the Air Force is looking to acquire over 11,000 JASSM and LRASM missiles over the next 6 or 7 years. This is an opportunity Kratos' Bladeworks turbofan engine family and our partner General Electric Aerospace have been pursuing.

Kratos' new Bladeworks facility in Oklahoma, where we recently broke ground and where we plan to produce these turbofans, is expected to be operational next summer, which schedule we are closely coordinating with our partner and the customer. We currently plan on turning on our Bladeworks turbofan engine supply chain in either Q4 of this year or Q1 of next so we can meet future customer-required delivery schedules.

Additionally, Kratos' partner GE has recently revealed a new small turbofan design optimized for the cost profile of the CCA market, sized for a range of mission applications. We are expecting Kratos' engine business to be one of our company's largest and fastest-growing over the coming years.

Kratos' hypersonic business, which generated approximately $200 million in revenue in 2025, and we are currently tracking for $400 million in '26, increasing to at least $700 million in 2027, is positioned to become Kratos' largest business, with significant increased government funding in the hypersonic area expected for the foreseeable future. We expect to begin receiving the first of the 120 solid rocket motors we previously procured in Q3 this year.

With Kratos' new hypersonic system integration facility in Indiana operational, we see these as key elements of our hypersonic business expected future growth trajectory. Kratos' hypersonic and rocket systems business has several additional large new opportunities we are pursuing, including certain in source selection, which we expect to be awarded by the end of this year.

We are confident in our hypersonic business's forecasted growth trajectory, including based on the several hundred million in funding we recently received, and also, it was recently reported that the MACH-TB program funding over the next 5 years, as reflected in the department's budget justification documents, is approximately $7 billion. An additional data point on why we believe that Kratos' hypersonic business will be a primary future growth driver for Kratos for the foreseeable future is the threat, as it was recently reported that using U.S.

intelligence estimates that China could have approximately 4,000 hypersonic missiles by 2035, and Russia could have 1,000. There is not only a drone, missile, and space arms race underway, but also a hypersonic arms race, each of which Kratos intends on supporting the department to win.

Kratos' microwave electronics and SATCOM business headquartered in Israel is working with the Israeli MOD and our partners Israeli Aerospace Industries, Rafael, and Elbit to replenish stockpiles of advanced weapons, interceptors, SATCOM, and other assets used in the Iran conflict. Kratos has over 700 employees in Israel, and we are working on and have access to certain of the highest-technology, battle-proven systems in the world.

Kratos' Israeli employees, business partners, and presence is a clear differentiator for our company globally. Kratos' satellite C2 and space domain awareness business, our company's largest, is also rapidly growing and expecting significant future margin expansion, with space having never been more important for global security and as space increasingly becomes a warfighting domain.

On the commercial side, Kratos' relationship with our partner global satellite operator SES is outstanding, with SES being an industry-leading technology company with a future technology and business roadmap that is truly exciting for SES, its customers, industry, and for Kratos. Kratos' industrial gas turbine business area continues to ramp.

It is currently one of the fastest-growing business areas in our company, with certain industrial gas turbines we are working on being air-cooled, which we believe is truly differentiating in the market. Kratos' unmanned systems business had a solid Q2, and we expect to receive an additional Marine Corps Valkyrie order by the end of this year.

It was reported that in recently released Marine Corps budget justification documents that the Marines plan to spend $1.28 billion on their CCA program over the relevant 5-year period. Kratos' Valkyries are in Europe with our partner Airbus, and we continue to work with a number of customers on Tactical Firejet, including Taiwan.

It was recently reported that Taiwan is planning to adopt a new version of the Valkyrie in addition to its Tactical Firejet initiative, Mighty Hornet. Certain Kratos jet drones are now flying with Kratos jet engines, increasing performance, capability, and time to market for our customers.

The number of opportunities that Kratos has across our company has never been stronger and continues to increase, both in the United States and internationally. The Department of War is looking for companies like Kratos to invest, move rapidly, mass produce, and field a product fast in large quantities at a practical cost, and Kratos is stepping up and executing.

Kratos is currently in an investment phase aligned with the department's reindustrialization initiative, which is related to the number of new long-term program opportunities we're receiving. We're focused on organic growth, execution, winning large new programs, supporting the United States and the Department of War, and generating a return for our investors.

Deanna?

Thank you, Eric. Good afternoon.

In summary, our second quarter performance exceeded our forecasted revenue and EBITDA targets. As Eric mentioned, we continue to be on track to meet our previously reported full-year 2026 revenue goal of approximately 15% to 20% of organic revenue growth and approximately 100-basis-point improvement in adjusted EBITDA margin performance from our reported 2025 operating results.

Revenues for the second quarter were $458.8 million, above our estimated range of $400 million to $410 million, with a consolidated organic growth rate of 19.1%, comprised of an organic growth rate of 22% in our KGS segment and 8.1% in our Unmanned Systems segment. Notable year-over-year organic revenue growth in our KGS segment included our defense rocket support, turbine technologies, microwave products, and space training and cyber businesses, with organic revenue growth rates of 50.2%, 43.3%, 29.5%, and 8.7%, respectively.

Adjusted EBITDA for the second quarter was $38.2 million, above the high end of our estimated range of $30 million to $35 million, reflecting the increased revenue and revenue mix. Unmanned Systems second quarter 2026 revenue was up $5.9 million, or 8.1% organically, with the increase primarily driven by Valkyrie-related activities.

KGS's second quarter 2026 revenue was up $101.4 million year-over-year from the second quarter of '25, with organic revenue growth of 22%, excluding the impact of the recent acquisitions of Nomad and Orbit, which contributed $40.2 million. Second quarter 2026 cash flow used in operations was $11 million, primarily reflecting the working capital requirements related to the revenue growth impact in our receivables by approximately $59 million and increases in inventory of approximately $10 million and increases in prepaid and other assets of approximately $14 million, primarily reflecting prepayments for long-lead materials, as well as investments we are continuing to make related to certain development initiatives in our Unmanned Systems, rocket systems, and space and satellite businesses.

Free cash flow used in operations for the second quarter of '26 was $18.9 million after reflecting funding of $17.2 million of capital expenditures and net of $9.3 million in proceeds from the sale of Valkyries, which were reported as company-owned capital assets and previously classified as capital expenditures when manufactured and, therefore, reflected as an inflow in investing activities when sold. As we planned, we are continuing to make investments to expand and build out certain of our manufacturing and production facilities in our microwave products, rocket systems, hypersonic, and jet engine businesses to meet existing and anticipated customer orders and requirements and investing in related new machinery, equipment, and systems.

Consolidated DSOs, or days sales outstanding, decreased from 130 days during the first quarter of 2026 to 114 days during the second quarter of 2026, primarily reflecting the achievement of billing milestone events. Our contract mix for the second quarter of '26 was 67% fixed price, 29% cost-plus, and 4% time-and-material contracts.

Revenues generate from contracts with the U.S. federal government during the second quarter of 2026 were approximately 69%, including revenues generated from contracts with the DOW, non-DOW federal government agencies, and foreign military sales contracts, and 20% generated from foreign customers, and 11% generated from commercial and state and local entities.

Moving on to financial guidance. Our financial guidance we provided today includes our expectations and assumptions for our supply chain's execution, the impact of employee sourcing, hiring, retention, and the related cost.

Our third quarter '26 revenue guidance reflects the estimated revenue mix and estimated leverage on elevated administrative, manufacturing overhead, and bid and proposal costs that we have ramped in the business to support the forecasted full-year '26 growth, as well as the estimated impact of foreign currency impacts, including on our microwave products Israeli business, which is being adversely impacted by the strength of the Israeli shekel versus the U.S. dollars, as we are paid in U.S.

dollars for work performed, but pay our vendors and workforce in shekels. Simply stated, Kratos' second quarter and 6 months ended adjusted EBITDA would have been $2.5 million and $2.8 million higher, respectively, if the increase in the shekel over the past 6 months had not occurred.

Further, our forecast for the full year includes an estimated impact of approximately $5 million to $7 million negative impact to EBITDA related to the continued estimated impact of the strength of the shekel. Our third quarter revenue guidance of $460 million to $480 million reflects estimated organic revenue growth of approximately 19% to 25% as compared to the third quarter of '25.

Our revised full-year cash flow guidance has been updated to include the working capital requirements related to the recent decision to commence procurement of the materials and equipment in the third and fourth quarters to ramp our production of jet engines to 3,000 in 2027 to address the demand for engines for small cruise missiles, also includes the shift in timing of construction and procurement of related machinery and equipment, removes certain capital expenditures which are now funded under customer contract, and includes a shift in classification of investments for various drone opportunities, which will be classified as a use of working capital in our operating cash flow as work in process or inventory, rather than capital expenditures when incurred. The forecasted total investments for the year effectively remains unchanged at approximately $250 million to $270 million.

However, the geography of where certain of these investments are reported on our cash flow statement have shifted between inventory or working capital in operating cash flow versus capital expenditures for investing cash flow.

Great. Thank you, Deanna.

Turn it over to the moderator for questions.

Good afternoon, guys, and thanks so much. Eric and Deanna, great quarter on the growth side.

The full-year growth rate still implies a meaningful acceleration in the second half, and maybe I'll hone in specifically on hypersonics. Eric, I think you mentioned $400 million this year, still going to $700 million next year.

How do you think about that in the second half? How does that fit with some of the CapEx changes as well as we think about the growth?

Yep. Go ahead, Deanna.

For the hypersonic business, Sheila, the expectation going from Q2 to Q3 sequentially is approximately $20 million to $25 million of increase, and that same $20 million to $25 million, maybe up to $30 million incremental in Q4 from Q2's level.

The big piece, Sheila, operationally is our hypersonic system integration facility is operational now in Q3. We have multiple lines, production lines, integration lines, if you will, for the motors that are now coming in and the flyers that'll be coming in.

We integrate them, and we have the launch manifest that out they'll go. That op tempo increases Q3, Q4, and then it increases significantly in 2027, which we have the contract for and the funding for.

Got it. Thank you.

Okay.

Thanks very much and good afternoon. I wanted to start off asking about the engine business.

I think you've spoken a lot about the hypersonic business being sort of the fastest-growing piece of the company. It sounds like the engines have a bit of a chance to catch up.

Maybe if you can give a little more color on the phasing of that and maybe the distinction between the turbofans and the turbojets, and how the different pieces of that will ramp up let's say over the next 2 to 3 years, and how that will compare to where things are going on hypersonics.

Yep, very good. Let's talk turbojets first.

Turbojets, think 250 pounds of thrust on down. This is our Spartan family, which we build in Michigan.

These are not PowerPoints. These are all engines that work, that are flying today.

I went through, Seth, the various programs. There are many more that are out there.

There are literally, as I said, you can see it in the budget justification docs in the J-books, tens of thousands, multiple tens of thousands of low-cost $300,000 cruise missiles that are coming beginning next year. The ones publicly that I can talk about that we're designed in on, and I'm probably going to miss some here, is JDAM-LR, Carrera.

We're on several with Northrop Grumman, and we're on several more with Lockheed Martin. The big one, of course, is JDAM-LR with Boeing.

We're designed in on all those, and we're in on many others. We have a build plan that indicates what we need to build in '27 and in '28 and in '29.

We have leaned forward, and we have placed the orders now for the components for 3,000 engines to be built in 2027, and we're at least 3,000 for customers. Then we have a build plan where we're going to be ordering, as I mentioned in the remarks, the components for 5,000 more engines for 2028.

I'm not going to give a specific number for 2029, but that could increase significantly. The selling price average for these is $50,000 each.

That's those. On the turbofans, these are roughly, and it can adjust, 600 pounds of thrust on up.

These are much bigger, much more sophisticated. These go in, as I mentioned, JASSM and LRASM.

I gave you the numbers that have been publicized there on the increase for those two types of cruise missiles. There are several others we cannot talk about here because we're under an NDA.

That factory is going to be up and running, as I said, in the summer of '27 in Oklahoma. It's mapped into missiles coming off the production line in 2020 late 2027, 2028.

That will begin LRIP in 2028. That's the partnership with GE.

It's a 50/50 partnership. Any numbers I give financially, just divide them by two because it's 50/50.

As I mentioned, there are thousands of those planned as well. Those are the two biggies for us, those turbojets and those turbofans.

Excellent. Then maybe just one to follow up on the guidance for this year.

You mentioned some of the headwinds from the shekel. It seems like that's limiting some of the margin expansion that's happening here in Q2 and Q3.

Is there anything else we should be aware of with regard to margin, and then are there some mix factors that are pushing the margin back up in Q4?

Seth, you're correct. The biggest headwind that we're facing is that shekel impact.

The impact for the second quarter was about $2.5 million, but the first quarter was much smaller at 300 grand. The estimate that we are forecasting at this point is about six $5 million to $7 million for the year.

We're expecting that strength unfortunately to continue for the second half. That is some of the headwind.

Otherwise, we would have expected to see more margin expansion in the third and fourth quarters. That's the single most significant headwind from a margin perspective.

Great. Thanks very much.

Seth, some of those other platforms we're on, we're on CMMT or Comet, we're on Speed Racer, we're on Carrera, we're on Silver Fox, we're on Gray Wolf, and we're on Lumberjack, in addition to JDAM-LR. Those are the public ones I can talk about.

Great, thank you.

Okay.

Thanks. Good afternoon, Eric and Deanna.

Nice results. Hey Eric, you mentioned Taiwan.

Maybe you could give us an update on the developments with the Mighty Hornet. Certainly seems like it's well positioned, and now sounds like there's some interest in Valkyrie.

Maybe you could just give us a Taiwan download here. Yep.

On the first one, the Mighty Hornet, which is a derivative of our Tactical Firejet, and this is one of the Kratos drones now that has a Kratos engine, I think it's another first for Kratos, we're the first company under the same roof that's building a plane and building an engine. We have flights coming up with the customer soon.

I'm not allowed to give the specific dates. We're going to do some things, and we have to hit some things.

Assuming they go well, the customer is talking about putting us into production first half of next year on the Mighty Hornet. Those would be produced initially in Oklahoma.

On the Valkyrie derivative, I was very surprised that the customer came out and did the interview that they did and they talked about this. They talked about the reason that they want to do it is because the Valkyrie is flying, it's proven, it's flown with the Air Force, it's flown with the Marine Corps, it's deployed weapons.

Very importantly, I believe they also talked about is it's rail launched, but it also is runway capable, it has incredible flexibility. They talked about a different propulsion type of aspect they wanted to have with the airplane, and they're talking about making a decision also in the first half of next year.

I have to leave it there because that's what they said and I'm under an NDA, but both of those appear to be progressing very well for us.

Terrific. Then just could you give us an update on kind of overall production or capacity capabilities for Valkyrie now that things are starting to move forward on a number of different fronts?

Thanks.

Yep, and so we're increasing our production rate right now, as I've talked about before. I believe as we get into 2027, we'll be up to 1.5 planes on average a month, we'll be getting to 18.

I had mentioned a couple of calls ago, I think, that we were looking to get on an average of 40. It's going to depend on the configuration where we ultimately get to that the customers want.

For example, if the predominant number of the airplanes that the customer want are rail launched or trolley launched, we'll be closer to the 40 number. If the type of airplane that the customer wants is conventional takeoff or landing, CTOL, it'll be closer to a 35 number because they're a little bit more sophisticated to make in the factory and the customer will want less of them.

We're tracking for a ramp in '27. As we head into '28, we're going to be able to handle our U.S.

customer, you know who that is, hopefully the Taiwan customer, and we have two other international customers I'm hoping we're going to be able to get through State Department and we're going to be able to announce those very soon.

Appreciate all the color. Thanks, Eric.

Thank you.

Thank you. I believe, Eric, in the beginning, you mentioned ERAM, that extended-range attack munition, which I think is called the Rusty Dagger.

Is that another one of the derivatives that's driving some of your engine growth?

I cannot talk about any of those because of NDAs. I can't.

The ones that I mentioned to Seth are the ones I can talk about.

Thank you. Then just for the follow-up question, it's great to see that Valkyrie production rate rise at your expanded facility.

In the past, you've also had a number of other of CCA-type tactical unmanned aircraft with perhaps greater performance that have been through various phases of development. Are any of those still in the running, or are we just still down to Firejet and Valkyrie derivatives?

No, there are two others that are in the running. Both of them now are classified.

We are under contract on both of them, and one of them is in the release of weapons phase. In addition to Tactical Firejet and Valkyrie, there are two others that are under contract.

Great, thank you very much.

You're welcome.

Great. Hey, Eric and Deanna, thanks for taking the questions.

Eric, maybe just a clarification. You called out the new GE engine that's going for some of the, I think, the Increment 2 CCAs, a little higher thrust.

It wasn't exactly clear as we read the PR on that as to how you would be partnering with GE on that one. Could you maybe just either confirm or just explain if that's how that is either the same or different maybe than the first GEK engine, if you could?

Yep. Yep, absolutely.

On the we have a number of of I'll call them programs going with GE. The one that's most public and that that's most talked about is the GEK partnership, and that's for a range of a certain thrust class, think missiles.

It falls into those missiles. That's a 50/50 that's a 50/50 partnership, and that's the one that we're that I've been talking about we're moving forward with them on those certain missile systems.

We are also working with them in a contractor role, but it's more than a contractor, it's a partnership role. I have to be careful here because I'm we're under NDA, but but everyone that they've talked about, we're working on, that I'm aware of.

If if I'm missing any, I apologize. We are we are working on them.

I would look at at Kratos with GE. GE brings incredible depth, breadth, technology, credibility, capability, especially if you're talking building 10,000 jet engines that are going in $2 million cruise missiles.

Kratos brings the ability to do very low-cost engineering and NRE and very low-cost mass production of those engines, which makes us a very formidable team. Just think of that on all of these small engines, how we're working with GE.

Great, that's terrific. Appreciate the added clarity there.

Deanna, maybe a follow-up for you. Eric, feel free to chime in too.

Appreciate all the callouts for the KGS growth rates across the different business lines. Pretty high double digits for a lot of those.

It's probably easy just based in the prepared remarks to understand how durable the defense and rocket support business growth rate is, probably turbine too. As far as microwave products and space, I guess just trying to understand as we think about modeling these out a little bit or just applying them to what we're doing is how much those latter two, again, the microwave and space, kind of those percentages that you called out for this quarter if that's sort of a decent kind of foreseeable future next couple of quarters into next year type of growth rate, or if there would be some flux to those.

Thank you.

I think there may be some flux in the microwave one, but it'll still be meaningful. We're still forecasting meaningful growth rates, but they may be a little bit lower than what we just experienced in this last quarter.

I think the space, satellite, and training and cyber business, that should be probably along the same lines of what we just did in the second quarter.

Great. Thanks, both.

Appreciate it.

Sure. Thanks.

Appreciate the time, Eric and Deanna. Congratulations on the strong results.

Hoping you could maybe talk a little bit about you guys have been through a couple cycles with sometimes when Washington throws a wrench at things. You've expressed a lot of confidence on the outlook, but just how you're thinking about maybe risks of extended time periods, passing a budget, and any interruption that Washington might throw at you.

Thank you. Yep,

our forecast basically assumes there's going to be a Q4 CRA. October, November, December, it'll get settled out sometime in January.

That's kind of how we've modeled everything out because that's kind of what we've seen four out of the last 5 years. A significant amount of our work is program-of-record based, it's in the base budget.

It's in the base appropriation. We have some work that was in Reconciliation Bill One, or Big Beautiful Bill One.

A significant amount of that we have received the funding for. The money's been obligated.

We've seen it. We are in pretty good shape on the trillion-dollar spend for fiscal '26, which was 850 plus 150.

As we head into '27, we're looking at a $1 trillion $150 billion base, it's up 15% on the base, and I think that's pretty bipartisan, and I think that's a minimum of what we're going to get. As we all know, there's a Reconciliation Two, it's now called Reconciliation Four for $350 billion to get '27 potentially up to $1.5 trillion.

My tummy tells me we're going to be somewhere between $1.15 trillion and $1.5 trillion, and even if we're not at $1.15, that's significant growth. Within that growth, as I think you can all see, in that bubble where there's only so much money, there's a huge shift going on to lower-cost mass munitions.

The future force structure for the foreseeable future, look at it like a barbell. On one side, there's going to be a ton of attritable, expendable munitions, drones, missiles, etc.

On the other side of the barbell, there's going to be a handful, there's always going to be exquisite weapons and munitions, and there's not going to be much in the middle. As we're the merchant supplier to both the new defense technology companies, and we're producing our own low-cost weapon systems as the prime on the left.

On the right-hand side, we are the go-to military-grade hardware supplier to the primes on the exquisits. We feel pretty good about our spot, irrespective of what may happen in the budget dynamics.

That's great, and it sounds like we're just starting to see some contributions from the new CapEx. You mentioned the hypersonic facility opening in Q3.

Is there any other new capacity contributing to '26 that we should be aware of, or is this all a '27 contribution value? Yep.

Remember Anaconda, which is our radar program. The Anaconda facility is underway.

It's not ready yet, but because of the demand of what we're doing, we are already starting to work on SPY-1 radars. That is ramping a little bit in the second half of '26.

When this facility comes online middle of next year, this Anaconda anechoic chamber radar refurbishment facility, is going to be one of the next legs up for us going into '28, and again, we've got the contract, we've got the program, etc. The other one is Helios.

Helios, we're going to be hopefully breaking ground on that later this year. That'll be up and ready to go end of '27, beginning of '28.

This is a hypersonic system arc chamber and laser facility. A lot of the work is classified, but that is going to be another leg for us, step-up in 2028.

Thank you.

Yep.

Eric, Deanna, thanks so much for taking my question.

You're welcome.

In the same way that you provided color on kind of the step-up in the hypersonics business, can you provide something similar for KTT? Or maybe if I can throw some numbers at you and maybe gauge your read of that if that's all right.

Is it safe to assume an incremental $150 million next year related to the turbofans? If so, I know that the base business is pretty small, probably call it barely eight figures as of now.

Excluding this, how should the rest of the KTT business grow into next year? Yep.

The forecasted big jump for 2027 over 2026 on the engines is the turbojets. That's the big jump, the turbojets.

That's the low-cost cruise missiles. If you guys know, you see what's required next year, the missiles that the airframers have got to put together and deliver next year, '28, '29, and the big step-up '27, '28 is the turbojets.

On the turbofans, if everything comes together according to plan and according to the funding documents, 2028, that's going to begin. Then that steps up big time in '29 and '30.

So '28, '29 is where we will be at significant production rate for both if the plan holds for both the turbojets and the turbofans. KTT is in there, of course.

Now, drilling down even more into KTT. We have a lot of engine programs that I don't talk about, or we'd be here for hours.

All right? We put out a press release in the past week or two on a critical engine of a new weapon system.

This is in KTT. If this goes into production, which would be second half of '27, beginning of '28, this could be a $200 million to $300 million a year run rate program by itself.

We don't talk about it because we can't, but we're designed in, it's ours. Okay?

There's a space program where we are working on the propulsion system for the prime. If that program's a go, that's going to begin in KTT in '28.

We've got some biggies out there that we're designed in on. We're the guy.

I think on the first one, we're under an exclusivity arrangement that if it goes, and I think it's going to go, it's in the funding docs, it's going to be another step-up for us. That's kind of the framework on how we're looking at the two.

Got it, Eric. That's really helpful.

Then, I guess, now pivoting maybe to Unmanned Systems. You added that organic growth of 10% to the guide, which is new.

Can you provide us a little more color on how that should progress through the second half and into '27? I guess, on that point, with the increase in '26, should we assume some level of growth into '27 as well?

I'm pretty sure right now your preliminary '27 outlook does not really account for much KUS contribution.

We have to be very careful here because of the customer. All right?

We can't get into much details on this because then it'll give away what they're doing. You could probably tell in today's prepared remarks that I purposely, because it's the fact, tried to focus everybody on where we have very clear line of sight quarterly, yearly, the hypersonics, the engines, and the space business.

Those three alone they're ripping. Our space business is ripping, and a lot of the work is classified.

On the drone side, we're going to be very cautious, and we may not be able to report it to you until we ship it and it shows up in the numbers, and then we may not be able to say much about it, but you're going to know what it is. I'm sorry, I don't like to operate that way, but we have to based on what the customers told us here.

No, I understand, and I appreciate what color you can give. Thanks for that, Eric.

I'll leave it there.

Yep, thank you.

Hello, thank you for taking the question. Just sort of a clarifying question around that expansion that you did to Oklahoma City.

Trying to put in context what you've said earlier in the call around maybe some upside with Mighty Hornet. Just how does this expansion kind of put you on track for expanding the sort of 165 high-performance jet drones?

Seems like Mighty Hornet or the Tactical Firejet would be early in fiscal '27, but also how much does the expansion explicitly help that 35 to 40 production run rate for Valkyrie in out years? Then one follow-up, thank you.

Yep. Right now, as you said, I think we're the largest jet drone producer in the world that I'm aware of, maybe outside of the Ukraine, at 165 or 170 a year.

This ties back to a question Mr. Crawford asked, the Oklahoma facility right now is producing Valkyries, Tactical Firejet and one other.

We've just recently approved an expansion of the facility by another 50,000 square feet or so that is happening. Okay?

That additional 50,000 square feet is going to be needed for it's a mix now, Valkyrie, Firejet, target drones. What you can imagine with everything that's going on in the world right now, the target drones are in great demand because so many people are buying missile systems and radars, they've got to exercise the weapon system and train the crew, okay?

It's also going to be very important for Tactical Firejet and Mighty Hornet. Then very importantly, Mr.

Crawford asked about some other drone programs. If one of these goes into production, I think it will second half next year, we're going to build that other one at this facility, because it's going to have a classified space.

Perfect. Then just you talked about two two months ago maybe a month ago $150 million single award for counter-UAS, Solar Shield.

Just curious what's the expected timeline for that contract, and maybe help us think about what the opportunity for mobile C-UAS from the Department of Energy might look like long-term. Thank you.

That one, this is a very important program. We received, I forget the number, $30 million or $40 million of funding already right out of the shoot.

We have begun on this. This is part of our ramp, by the way, into Q4 of this year.

One of the reasons we're comfortable with our Q4 is because this program and we got the funding for it. As you probably saw, this is with the Department of Energy and it's related to securing nuclear assets, okay?

It's a mobile and transportable system. We are the prime.

We are the prime system integrator. We are responsible for the entire system working including the directed energy weapon system.

If we're successful, I believe this initiative is going to grow significantly because this type of a capability is needed right now and we're the guy that has it at low cost. We're doing these systems in Montana.

That's the backdrop there. It's ramping now, it's going to be big in Q4, and it's going to continue to ramp into 2027.

Thank you.

Yep.

Good evening, guys. Just want to review a couple things.

Eric, you mentioned the $7 billion in the FYDP for MACH-TB over 5 years. I guess would it be reasonable for us to factor in that business being $1 billion-plus type of run rate starting in 2028 or so, just on a base [unclear]?

Yes, that's what's there to go take a look at the justification documents and I'm not trying to be coy here because Deanna and I, we got a forecast for this year, we got an outline for next year. I don't want to get ahead of myself in any of this, but this is one of the reasons for the last couple calls, including today's call.

I've been trying, as I said a minute ago, to orient the investors on our hypersonic franchise. It's growing rapidly, and if things come together the way you are indicating, which is there, this could be very, very substantive for the next 5 years.

That's great. That's great.

Okay. Thank you for that.

Just shifting gears to JASSM and LRASM. Obviously, these missiles have been around for a long time, right?

Is the dynamic that's going on the DOW, they want a second-source engine supplier and you guys are filling that role, and if that's the dynamic, what do you think your share would be on that when you kind of ramp?

It's a double dynamic. It's obviously the department is trying to foster additional the industrial base.

They have the reindustrialization initiative I mentioned, and they want additional competition. The current provider on JASSM and LRASM is outstanding.

It's an outstanding company. The CEO is outstanding.

They're doing a great job. The quantities, as I mentioned, and those I think 10,000 or 11,000, they're incredible.

They're going up 3 or 4x a year. It's second source for national security purposes and it's quantities and capacity to field to do it.

I don't want to get into any numbers here in specific, but GE and Kratos, we're looking at thousands of these over a period of time.

Yeah. That's great.

Thank you. Yep.

Yep.

Hi, good afternoon, Eric and Deanna. It seems like in the Iran war, there's been a pretty significant expenditure of both cruise missiles and rocket artillery.

Just given the opportunity there to add turbojets or guidance kits onto what would be considered dumb bombs, do you have a sense of how many JDAMs, SDBs, or other dumb bombs are out there available for you to add turbojets or guidance kits to?

Tens and tens and tens of thousands. It's a great question.

There are many numbers floating around on putting a wing kit on and bolting on a small turbojet. Now you have extended range and reach, and it's much more capable.

The numbers are staggering. We have an initiative in Kratos that we've had going on.

Another one I just haven't talked about because I give you guys so much. You've heard about demilitarization, demil.

Think of what you just said. You take old ordnance and you burn it, or you destroy it, or you take stuff out of it, and then you dispose of it.

It's expensive to demil. We have an initiative going in here where actually doing it, we're remilling it, where it's less costly to repurpose an existing ordnance for something you just talked about than it is to destroy it.

We're doing that under the radar, under the cover, because I don't want anybody else to figure out what we're doing. It ties exactly into what you're saying because of the amount of ordnance out there that is scheduled to be demilled, but we're remilling it.

That's our plan is to remil it.

Okay. There's some large contracts that are starting to go out for the space component of Golden Dome.

Do you have a sense on when we might start seeing already-appropriated dollars either from Big Beautiful Bill, which you say a lot of that's gone out, or from the '26 Space Force budget to purchase virtualized or software-defined ground system to support these satellites that are going to be going up?

That's another great question. In the last 3 weeks, two companies were awarded a multibillion-dollar constellation for exactly what you're talking about.

We are the ground for one of them with our software-defined command and control, TT&C and tracking. We can't talk about it.

I don't think we're ever going to be able to talk about it, but it's exactly what you just said and our team won and we're the ground. On other programs that we have, two of which we've announced in the last two two quarters, We have seen significant funding and it's increasing.

As I mentioned in my prepared remarks where I said there's a hypersonic arms race going on, the big dog is the space arms race. We've all heard about LEO and MEO and GEO.

VLEO is happening now, and VLEO is another major opportunity area for Kratos because of the nature of our software-defined command and control.

Great, thanks for pointing me in the right direction.

You got it.

Hey, Eric and Deanna, good afternoon. Hey, you continue to call out pretty significant investment, $40 million to $45 million for the rocket system inventory build.

Could you just update us, Eric, and apologies if I missed it, but update us on what you're seeing on that supply chain, how you're handicapping risk on that supply chain as you think about the ramp of hypersonics and some of your other businesses, and sort of your optimism that that supply chain continues to get the kind of improvement and unlock that you need to see the ramp in your business?

Yep. Our Zeus solid rocket motors, L3Harris Aerojet is building them for us.

They are doing an outstanding job for us. We don't have a what I'll call a partnership agreement with them, but they're a true partner of Kratos.

They are doing an incredible job. They have met every milestone, on time, on budget.

At least when it comes to Zeus for us, they're doing a hell of a job. Part of it may be because they see the next 5, 7 years, what's coming in addition to what we've already done.

Okay? On the second one, Oriole, this is our partner Northrop Grumman, Northrop Orbital ATK.

Ken, here again, when it comes to us, I can't speak for what I read in the press about other system issues. They are outstanding with us.

We're looking at having to place another order for dozens and dozens more, and they have been very accommodating. Again, they're on time and on schedule.

I can only speak for Kratos, but on those We do some other ones, but those are the two primary ones. L3Harris and Chris is great, and Northrop Grumman and Kathy is great, and they're just outstanding.

Oh that's excellent, Eric. Prometheus and where you stand and some of the next major milestones as we think about [unclear] facility.

Ken, you broke up a little. When I think about which facility, buddy?

Prometheus. The

investments

there on the motor side. Oh,

yeah. I'm so glad you said that.

If you all haven't seen it, a podcast came out this morning on Prometheus with a major publication, and it walks through the entire campus, it walks through the platforms, it walks through the timing, it walks through everything with our partner Rafael. Go take a look at that for details on what I'm about to say.

It's incredible. I didn't know it was coming out this morning, and it did.

Ken, we are on track for first fire next year. We are on track with our partner Rafael.

I got to tell you, Rafael is outstanding. They are stable, outstanding, and they are bringing proven, military-grade, qualified energetics.

This is so far ahead of any of these other guys that are saying they're going to stand up an energetics facility. They got to get qualified, etc., etc., etc.

We is. This is going to begin middle of next year.

I think we'll get into production what year is next year, 27? '28, we'll get into production.

Great. Thanks, Eric.

Yep.

Yep.

Good afternoon. Thanks for taking my questions.

Hey, Joe. Good afternoon.

Hi, Joe.

You guys are talking about the 3,000 and then the 5,000 Spartan and starting to add up or are starting to get the ordering of the component parts later this year into '27. As you look at the supply chain there, are there any critical suppliers for certain parts, or do you have multiple part suppliers for the components there that maybe we need to keep an eye on?

Yep. Joe, as we have lots of Kratosisms here.

One of my favorite Kratosisms is, what's the most important part? It's the one you don't have to complete a system.

We got to make sure every one of our vendors and every one of our suppliers, including their backup and the backup to the backup, is qualified. We're giving them production quantities so they're in production and they're going through quality, through delivery, and through integration.

This is one obviously, I'm not going to say we're bulletproof, but this is so important to our company. We are going to incredible lengths with the people we're bringing in from the auto industry, from the Department of War, from primes that are coming in to work with us, to work for Kratos, to set up these lines, work the supply chain, work the quality control and delivery schedules with them in redundancy.

This is a huge effort because, as I said, you just said, we're going to do a minimum of 3,000 next year, a minimum of 5,000 in 2028. It could be 8,000, 10,000 in 2029 if things come together.

These are just the turbojets. We have to do the same thing with the turbofans beginning, as I said, we're going to start ordering for those probably I said Q4 of this year, Q1 next year, probably Q1.

We're going to have to start ordering for those, and then we'll make a very big order Q4 of '27 or Q1 of '28 because that factory will be set.

Thanks for that. Then yeah, Eric, just want to try and get your views on this, or point me in the right direction here.

As there's a big private company out there which I consider a peer in the same space as you guys that's been raising capital here at valuations at multiples of where Kratos is trading at on a enterprise value to revenue basis. I'm wondering am I incorrect?

Are they not a peer? Is there a disconnect something there that, we saw Kratos stock run up and now it's come back down?

This private company is now saying there rumors out there they're raising even more money at an even higher valuation that just, as I sit here, looking at the two companies, kind of shake my head. Just seeing am I missing something?

I'm just trying to get your view as to what the disconnect there is.

Anduril is a absolute peer of Kratos. We're peers, okay?

They have Lattice, their software that ties everything together. We have OpenSpace, our software that ties together space assets, space vehicles, space ground, etc., etc.

They have unmanned jet drones. Kratos has unmanned jet drones.

You may have seen recently now they're getting into the hypersonic area. We're in the hypersonic area, okay?

They're in solid rocket motors. They acquired Adranos, they're in solid rocket motors.

We're in solid rocket motors with our partners and then also our new facility with Rafael. They are an outstanding company.

I want them to succeed. The United States needs them to succeed.

We are absolute peers. No question about it.

They're partners with us. We work together, and I can't talk about what we're working together on.

The only difference I see right now between the two of us is financial because they're private and we're public. Because they're private, they can take different approaches on things and invest more because they're not held to yet, if they get public, then they'll be held to it, they're not held to certain matrices that a public company is held to.

That might be an advantage for them. I have some advantages on them being public because it brings me access to certain things.

From a valuation standpoint, I can't speak to that. I think I said on the last earnings call or the one before, in my opinion, I'm the CEO, I drink the Kool-Aid, Kratos is the most valuable defense company there is.

You listen to our calls, you look at our programs, look at our growth rates. We could grow 30% in Q4 and make money.

Okay? We're going to keep going in '27 and '28.

We're the most valuable one to our investors, and we're the most valuable one to the department, and I'm sure they would say the same thing, that they are.

Great. Thanks for that insight, Eric.

I appreciate it.

Hi, thanks for the questions. You guys brought up a pair of facilities this year, you're bringing up some more next year.

Can you maybe just talk about or quantify any startup costs related to ramping these, what the payback periods look like, and what sort of awards you might need to get to that 100 basis points of margin improvement next year as well? Thanks.

I didn't hear the first part of your question. You said investing in and then it blipped a little bit.

Investing in what?

No, you're just bringing up some more facilities next year, just curious on startup costs related to ramping those and payback periods as well.

Oh, got it. Good question, so as a reminder, we don't do a build it and they will come.

We don't do that, okay? We built our hypersonic integration facility because we won the MACH-TB program and some other programs, we knew what the operational tempo would be.

We built the facility to satisfy that plus some other things I think we're going to get. We did not build our new turbojet engine facility in Michigan until I was extremely comfortable that we were going to be designed in to multiple cruise missiles, which I went through today.

We've just now broken ground on the facility in Oklahoma for the turbofans with our partner GE. You've heard me talk about the programs.

I can't get into much more detail than that, but it is not a build it and hope they come. It is a build it because we have a program, or we have a partner, or we have a contract, and we can model out the quantities, we can model out the profitability, and we can model out the rate of return we're going to get on our investment.

Anaconda, which I mentioned, the radar one, I think that's SPY-1, I think that program was announced for us goes through 2053 publicly for the radars. That's on Anaconda.

On Helios, we've already got two or three customers signed up who said that if we build that arc jet facility for the hypersonic test, they would sign up. Everything we do, we've got a customer, a partner, a program, or funding, and we can do a rate of return calculation so we know we're getting an adequate rate of return for our investors.

You're welcome.

Hi, good evening. This is Gabriel Flouret on for Colin Canfield.

Can you discuss how your customers are talking about CCA volumes relative to their national security outlook, specifically where is Kratos seeing customer pricing or production schedule pulled to the left? How should we think about that momentum versus U.S.

production scaling?

If you can see me, I'm smiling because that program, that is one you haven't heard me talk about that for a long time. I cannot talk about the CCA program with the Air Force.

Can't talk about it. It is a classified, super-classified program, and we can't say anything.

On the Marine Corps CCA program, you saw how I said today, it's been reported that the program of record is this much money. It's been reported because that's how I have to talk because I'm not approved to talk about anything.

I, again, I'm sorry, but I just can't get into any of that because we do not have approval to discuss it.

Understood. Thank you.

Leave it there for this evening.

Okie-doke.

Congrats on a great quarter. This is Jonah Henschel speaking on behalf of Bryant Dobson here at Clear Street.

Given the Valkyrie momentum you've described tonight, I'm curious what kind of updated color you can provide when it comes to the LRIP Phase 1 timing.

What were the last few words you said?

What were the last few words you said? The last part, you broke up.

The what timing?

Sorry. The LRIP Phase 1 timing.

Oh, LRIP.

Oh, LRIP.

Low-rate initial production. I got it.

As I said in my prepared remarks, we expect to receive by the end of the year an additional award where we're partnered with Northrop on that MUX/TACCAR program with Northrop and the Marines. That's all I can say right now is that we expect something by the end of this calendar year.

Understood. Then just a quick follow-up.

When Valkyrie ended up scaling, I'm curious how can we think about margins in that segment?

Right. Think 10% to 15% EBITDA margin, depending on configuration.

That's domestic. Very important, domestic, because we got a number of international ones going, and the international ones are typically higher fee for us because they're international and there are different aspects.

In certain instances, we're not held to TINA, Truth in Negotiation Act, because we're not sole source. International, think 15% to 20%, domestic, think 10% to 15%, depending on configuration and quantity.

Understood, and thanks for the question.

Yep.

Great. Excellent.

Thank you for joining us this afternoon, and look forward to talking to you when we report Q3, I think, in the first week of November. Thank you.