KRATOS DEFENSE SECURITY SOLUTIONS INC

Previous wording

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” relating to our future financial performance, the market for our services and our expansion plans and opportunities. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of such terms or other comparable terminology. These forward-looking statements reflect our current beliefs, expectations and projections, are based on assumptions, and are subject to known and unknown risks and uncertainties that could cause our actual results or achievements to differ materially from any future results or achievements expressed in or implied by our forward-looking statements. Many of these factors are beyond our ability to control or predict. As a result, you should not place undue reliance on forward-looking statements. Important risks and uncertainties that could cause our actual results or achievements to differ materially from the results or achievements reflected in our forward-looking statements include, but are not limited to: changes, cutbacks or delays in spending by the U.S. Department of Defense may occur which could cause delays or cancellations of key government contracts; delays to or the cancellation of our projects as a result of protest actions submitted by our competitors; changes in federal government (or other applicable) procurement laws, regulations, policies and budgets; the availability of government funding for the Company’s products and services due to performance, cost growth, or other factors; changes in government and customer priorities and requirements; the potential of the current economic environment to adversely impact our business; currently unforeseen risks associated with COVID-19 or any other public health crisis; risks related to natural disasters or severe weather; changes in the scope or timing of our projects; the timing, rescheduling or cancellation of significant customer contracts and agreements, or consolidation by or the loss of key customers; risks of adverse regulatory action or litigation; risks related to our international operations; risks associated with debt leverage; failure to successfully achieve our integration, cost reduction or divestiture strategies; risks related to security breaches, cybersecurity attacks or other significant disruptions of our information systems; and competition in the marketplace, which could reduce revenues and profit margins, as well as the additional risks and uncertainties described in this Quarterly Report on Form 10-Q, in “Item 1A-Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 13, 2024 (the “Form 10-K”), and in other reports that we have filed with the SEC. These forward-looking statements reflect…

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Current wording

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” relating to our future financial performance, the market for our services and our opportunities. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of such terms or other comparable terminology. These forward-looking statements reflect our current beliefs, expectations and projections, are based on assumptions, and are subject to known and unknown risks and uncertainties that could cause our actual results or achievements to differ materially from any future results or achievements expressed in or implied by our forward-looking statements. Many of these factors are beyond our ability to control or predict. As a result, you should not place undue reliance on forward-looking statements. Important risks and uncertainties that could cause our actual results or achievements to differ materially from the results or achievements reflected in our forward-looking statements include, but are not limited to: changes, cutbacks or delays in spending by the U.S. Department of Defense may occur which could cause delays or cancellations of key government contracts; delays to or the cancellation of our projects as a result of protest actions submitted by our competitors; changes in federal government (or other applicable) procurement laws, regulations, policies and budgets; the availability of government funding for the Company’s products and services due to performance, cost growth, or other factors; changes in government and customer priorities and requirements; the potential of the current economic environment to adversely impact our business; currently unforeseen risks associated with any public health crisis; risks related to natural disasters or severe weather; changes in the scope or timing of our projects; the timing, rescheduling or cancellation of significant customer contracts and agreements, or consolidation by or the loss of key customers; risks of adverse regulatory action or litigation; risks related to our international operations; risks associated with debt leverage; failure to successfully achieve our integration, cost reduction or divestiture strategies; risks related to security breaches, cybersecurity attacks or other significant disruptions of our information systems; and competition in the marketplace, which could reduce revenues and profit margins, as well as the additional risks and uncertainties described in this Quarterly Report on Form 10-Q, in “Item 1A-Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 13, 2024 (the “Form 10-K”), and in other reports that we have filed with the SEC. These forward-looking statements reflect our views and assumptions only as of …

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Kratos is a technology, products, system and software company addressing the defense, national security, and commercial markets. Kratos makes true internally funded research, development, capital and other investments, to rapidly develop, produce and field solutions that address our customers’ mission critical needs and requirements. At Kratos, affordability is a technology, and we seek to utilize proven, leading edge approaches and technology, not unproven bleeding edge approaches or technology, with Kratos’ approach designed to reduce cost, schedule and risk, enabling us to be first to market with cost effective solutions. We believe that Kratos is known as the innovative disruptive change agent in the industry, a company that is an expert in designing products and systems up front for successful rapid, large quantity, low cost future manufacturing, which is a value add competitive differentiator for our large traditional prime system integrator partners and also to our government and commercial customers. Kratos intends to pursue program and contract opportunities as the prime or lead contractor when we believe our probability of win is high and any investment required by Kratos is within our capital resource comfort level. We intend to partner and team with a large, traditional system integrator when our assessment of probability of win is greater or required investment is beyond Kratos comfort level. Kratos’ primary business areas include, virtualized ground systems for satellites and space vehicles including software for command & control (C2) and telemetry, tracking and control (TT&C), jet powered unmanned aerial drone systems, hypersonic vehicles and rocket systems, propulsion systems for drones, missiles, loitering munitions, supersonic systems, space craft and launch systems, command, control, communication, computing, combat, intelligence surveillance and reconnaissance (C5ISR) and microwave electronic products for missile, radar, air defense, missile defense, space, satellite, counter unmanned aircraft systems (CUAS), directed energy, communication and other systems, and virtual & augmented reality training systems for the warfighter.

Current wording

Kratos is a technology, products, system and software company addressing the defense, national security, and commercial markets. Kratos makes true internally funded research, development, capital and other investments, to rapidly develop, produce and field solutions that address our customers’ mission critical needs and requirements. At Kratos, affordability is a technology, and we seek to utilize proven, leading edge approaches and technology, not unproven bleeding edge approaches or technology, with Kratos’ approach designed to reduce cost, schedule and risk, enabling us to be first to market with cost effective solutions. We believe that Kratos is known as the innovative disruptive change agent in the industry, a company that is an expert in designing products and systems up front for successful rapid, large quantity, low cost future manufacturing, which is a value add competitive differentiator for our large traditional prime system integrator partners and also to our government and commercial customers. Kratos intends to pursue program and contract opportunities as the prime or lead contractor when we believe our probability of win is high and any investment required by Kratos is within our capital resource comfort level. We intend to partner and team with a large, traditional system integrator when our assessment of probability of win is greater or required investment is beyond Kratos comfort level. Kratos’ primary business areas include, virtualized ground systems for satellites and space vehicles including software for command & control (C2) and telemetry, tracking and control (TT&C), jet powered unmanned aerial drone systems, hypersonic vehicles and rocket systems, propulsion systems for drones, missiles, loitering munitions, supersonic systems, space craft and launch systems, command, control, communication, computing, combat, intelligence surveillance and reconnaissance (C5ISR) and microwave electronic products for missile, radar, air defense, missile defense, space, satellite, counter unmanned aircraft systems (CUAS), directed energy, communication and other systems, and virtual & augmented reality training systems for the warfighter. We believe that there is a generational recapitalization of weapon systems occurring globally, including with the United States and its allies, to address individual and potential collective peer and near peer threats, including Russia, China, North Korea and Iran. The Company currently has record levels of backlog and opportunity pipeline. The Company is currently making significant capital, property, plant, equipment and other internally funded investments to address its backlog, current opportunity pipeline, and expected and potential future program and contract awards, including from or with the Department of Defense, traditional legacy prime systems integrators and partners. These investments include; unmanned jet powered aircraft such as Kratos Valkyrie ahead of potential contract award; a hyperson…

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Previous wording

This legislation reflects an $886 billion appropriation for national defense, of which $842 billion would be for the U.S. Department of Defense (“DoD”) base budget. On April 24, 2024, President Biden signed a bill providing a total of $95.3 billion in additional supplemental funding for Ukraine, Israel and Taiwan, including funding for the restock of U.S. munitions capacity, and a fourth bill to impose sanctions and allow the use of seized Russian assets to assist Ukraine.

Current wording

On March 22, 2024, President Biden signed the second fiscal year 2024 Consolidated Appropriations package into law. This legislation reflects an $886 billion appropriation for national defense, of which $842 billion would be for the U.S. Department of Defense (“DoD”) base budget. On April 24, 2024, President Biden signed a bill providing a total of $95.3 billion in additional supplemental funding for Ukraine, Israel and Taiwan, including funding for the restock of U.S. munitions capacity, and a fourth bill to impose sanctions and allow the use of seized Russian assets to assist Ukraine.

Previous wording

On March 1, 2024, President Biden submitted the fiscal year 2025 budget request to Congress. The request included $895 billion for national defense, of which $850 billion is for the DoD base budget. On May 22, 2024, the House Armed Services Committee approved the fiscal year 2025 National Defense Authorization Act. The bill authorizes $849.8 billion in funding for the DoD. On June 28, 2024, the House passed the fiscal year 2025 DoD Appropriations bill H.R. 8774. On July 8, 2024, the Senate Armed Service Committee filed their version of the fiscal 2025 National Defense Authorization Act at a level $25 billion above the President’s budget request. Congress still needs to approve or revise the President’s fiscal year 2025 budget request, which would then require final approval from the President in order for the FY 2025 budget to become law.

Current wording

On March 11, 2024, President Biden submitted the fiscal year 2025 budget request to Congress. The request included $895 billion for national defense, of which $850 billion is for the DoD base budget. On May 22, 2024, the House Armed Services Committee approved the fiscal year 2025 National Defense Authorization Act. The bill authorizes $849.8 billion in funding for the DoD. On June 28, 2024, the House passed the fiscal year 2025 DoD Appropriations bill H.R. 8774. On July 8, 2024, the Senate Armed Service Committee filed their version of the fiscal 2025 National Defense Authorization Act at a level $25 billion above the President’s budget request.

Previous wording

We believe continued budget pressures (which are expected), continuing resolution authorities (CRAs), (which are also expected), future Federal Government debt ceiling issues, or Federal Government shutdowns could have serious negative consequences for the security of our country and the defense industrial base, including the Company and the related customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base. It is likely that budget and program decisions made in such an uncertain environment would have long-term implications for our Company and the entire defense industry. Additionally, funding for certain programs, including those in which we currently participate, may be reduced, delayed or cancelled, and budget uncertainty or funding cuts globally could adversely affect the viability of our customers, partners, teammates, subcontractors, suppliers, and our employee base.

Current wording

We believe continued budget and deficit funding pressures (which are expected), CRAs.(which are also expected), future Federal Government debt ceiling issues, or Federal Government shutdowns could have serious negative consequences for the security of our country and the defense industrial base, including the Company and the related customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base. It is possible that budget and program decisions made in such an uncertain environment would have long-term implications for our Company and the entire defense industry. Additionally, funding for certain programs, including those in which we currently participate or are pursuing, may be reduced, delayed or cancelled, and budget uncertainty or funding cuts globally could adversely affect the viability of our customers, partners, teammates, subcontractors, suppliers, and our employee base.

Previous wording

We continue to be affected by various unfavorable macroeconomic conditions including adverse supply chain disruptions that continue throughout the industry and for us, and related delays in the receipt and delivery of materials, parts, supplies, etc., which in certain instances and for certain items is significant. To mitigate the impact of these delays, we have implemented advanced and larger lot purchases of certain materials and parts which has resulted in an increased use of our working capital. In addition, inflation and the related increased costs of inputs needed to execute our business, including materials, parts, supplies, consultants, subcontractors, vendors, etc. have significantly increased our business costs and have adversely impacted our operations, profit margins and financial forecasts.

Current wording

We also continue to be affected by various unfavorable macroeconomic conditions including adverse supply chain disruptions that continue throughout the industry and for us, and related delays in the receipt and delivery of materials, parts, supplies, etc., which in certain instances and for certain items is significant. To mitigate the impact of these delays, we have implemented advanced and larger lot purchases of certain materials and parts which has resulted in an increased use of our working capital, which is expected to continue. In addition, inflation and the related increased costs of inputs needed to execute our business, including materials, parts, supplies, consultants, subcontractors, vendors, etc. have significantly increased our business costs and have adversely impacted our operations, profit margins and financial forecasts.

Previous wording

Also, a shortage of qualified labor, and the cost of that labor for the Company and its labor base is a significant operational challenge for the Company. The cost of labor has increased significantly and current challenges in hiring, obtaining and retaining employees, including those employees requiring National Security clearances, is adversely impacting Kratos’ ability to execute its business. There is also a significant industry wide labor shortage, including in the Science, Technology, Engineering, and Math (STEM) discipline areas, and also including employees willing and/or able to obtain National Security clearances, and for high level manufacturing and production disciplines.

Current wording

Also, an industry wide shortage of qualified labor, and the cost of that labor for the Company and its labor base is a significant operational challenge. The cost of labor has increased significantly and current challenges in hiring, obtaining and retaining employees, including those employees requiring National Security clearances, is adversely impacting Kratos’ ability to execute its business. There is also a significant industry wide labor shortage, including in the Science, Technology, Engineering, and Math (STEM) discipline areas, and also including employees willing and/or able to obtain National Security clearances, and for high level manufacturing and production disciplines.

Previous wording

In addition, recent actions by the Federal Reserve to increase interest rates have impacted our interest expense on our outstanding debt borrowings and the related cost of executing Kratos’ business. Each of these matters and issues are expected to continue for the foreseeable future and are expected to continue to adversely impact the Company’s operations, financial results and financial forecasts.

Current wording

In addition, actions by the Federal Reserve to increase interest rates in the past few years have impacted our interest expense on our outstanding debt borrowings and the related cost of executing Kratos’ business. Although the most recent actions by the Federal Reserve decreased rates slightly, the industry and Kratos are still impacted by rates that are higher than prevailing interest rates over the past several years. Each of these challenges are expected to continue for the foreseeable future and are expected to continue to adversely impact the Company’s operations, financial results and financial forecasts.

Previous wording

We believe that our business is well-positioned in areas that the DoD and other customers currently indicate are priorities for future defense spending, including those based on the 2022 National Security Strategy document, the 2023 U.S. National Security related budget and NDAA, the recently submitted fiscal 2025 budget request and the fiscal 2024 Future Year Defense Program (FYDP).

Current wording

We do believe that our business is well-positioned in areas that the DoD and other customers currently indicate are priorities for future defense spending, including as identified in the 2024 defense budget and related Future Years Defense Program (FYDP), the President’s 2025 National Security and Defense Budget Request and the 2022 National Security Strategy document. As noted above, we believe that there is a generational recapitalization of weapon systems occurring with the U.S. and its allies to address peer and near peer threats, including Russia, China, North Korea and Iran, and the Company’s positioning as a proven provider of hardware, systems and software to address these threats for and with our customers and partners is recognized in the industry. We believe that the Company’s hardware, software and solution offerings, including jet unmanned aerial drones, rocket and hypersonic systems, C5ISR and air defense systems, jet engine and propulsion systems for missiles, drones, hypersonic and supersonic vehicles, microwave electronics for missile, radar and air defense systems and training systems, address mission critical priority areas of the DoD.

Previous wording

Revenues. Revenues by operating segment for the three months ended June 30, 2024 and June 25, 2023 are as follows (dollars in millions):

Current wording

Revenues. Revenues by reporting segment for the three months ended September 29, 2024 and October 1, 2023 are as follows (dollars in millions):

Previous wording

Revenues increased $43.2 million to $300.1 million for the three months ended June 30, 2024 from $256.9 million for the three months ended June 25, 2023. Revenues in our KGS segment increased $9.5 million primarily due to revenue growth in our C5ISR and microwave electronics businesses primarily resulting from increased activity for multiple air defense systems and programs, and growth in our training solutions and turbine technologies businesses primarily resulting from new contract awards, partially offset by decreases in our defense and rocket support and our space businesses, which has been impacted by the extended Continuing Resolution Authorization (CRA) as well as delayed satellite launches which has impacted the deployment of our commercial satellite ground equipment. Revenues in our US segment increased $33.7 million to $85.8 million for the three months ended June 30, 2024, reflecting the contribution from the STS acquisition, and increased domestic drone production and a certain international target drone delivery which contributed $17.4 million in revenue during the quarter ended June 30, 2024, and as a result of timing of program contract awards and increased production volume as compared to the three months ended June 25, 2023.

Current wording

Revenues increased $1.3 million to $275.9 million for the three months ended September 29, 2024 from $274.6 million for the three months ended October 1, 2023. Revenues in our KGS segment decreased $6.2 million primarily due to a decline of $24.2 million in the Space and Satellite business primarily resulting from the industry related Original Equipment Manufacturers (OEM) delays in the manufacture and delivery of software defined satellites which has adversely impacted the deployment of our satellite ground equipment as well as the impact of an extended CRA, partially offset by aggregate organic revenue growth of $18.0 million generated in our turbine technologies, microwave products, C5ISR, Defense Rocket Support and Training Solutions businesses. Revenues in our US segment increased $7.5 million to $64.2 million for the three months ended September 29, 2024, reflecting the contribution from the STS acquisition and increased international target drone production activity during the quarter ended September 29, 2024.

Previous wording

Product sales increased $40.4 million to $193.6 million for the three months ended June 30, 2024 from $153.2 million for the three months ended June 25, 2023, primarily as a result of increased production in our KGS segment and in our US segment. As a percentage of total consolidated revenues, product sales were 64.5% for the three months ended June 30, 2024 as compared to 59.6% for the three months ended June 25, 2023. Service revenues increased by $2.8 million to $106.5 million for the three months ended June 30, 2024 from $103.7 million for the three months ended June 25, 2023, primarily related to increased activity in our turbine technologies, and space and satellite business in our KGS segment.

Current wording

Product sales increased $3.9 million to $172.0 million for the three months ended September 29, 2024 from $168.1 million for the three months ended October 1, 2023, primarily as a result of increased production in our US segment. As a percentage of total consolidated revenues, product sales were 62.3% for the three months ended September 29, 2024 as compared to 61.2% for the three months ended October 1, 2023. Service revenues decreased by $2.6 million to $103.9 million for the three months ended September 29, 2024 from $106.5 million for the three months ended October 1, 2023, primarily related to decreased activity in our space and satellite business in our KGS segment.

Previous wording

Cost of Revenues. Cost of revenues increased $29.9 million to $222.9 million for the three months ended June 30, 2024 from $193.0 million for the three months ended June 25, 2023. The increase in cost of revenues was primarily related to the increased revenues, with the most notable increased activity in our Unmanned Systems Segment.

Current wording

Cost of Revenues. Cost of revenues increased $5.5 million to $206.7 million for the three months ended September 29, 2024 from $201.2 million for the three months ended October 1, 2023. The increase in cost of revenues was primarily related to the increased revenues as well the impact of increased labor and material costs, with the most notable increased activity in our Unmanned Systems segment.

Previous wording

Gross Margin. Gross margin increased to 25.7% for the three months ended June 30, 2024 from 24.9% for the three months ended June 25, 2023. Margins on services increased to 27.7% for the three months ended June 30, 2024 from 22.9% for the three months ended June 25, 2023. Margins on products decreased to 24.6% for the three months ended June 30, 2024 from 26.2% for the three months end June 25, 2023. Margins in the KGS segment increased to 28.7% for the three months ended June 30, 2024 from 26.0% for the three months ended June 25, 2023. Margins in the US segment decreased to 18.4% for the three months ended June 30, 2024 from 20.3% for the three months ended June 25, 2023.

Current wording

Gross Margin. Gross margin decreased to 25.1% for the three months ended September 29, 2024 from 26.7% for the three months ended October 1, 2023. Margins on services increased to 26.2% for the three months ended September 29, 2024 from 25.8% for the three months ended October 1, 2023. Margins on products decreased to 24.4% for the three months ended September 29, 2024 from 27.3% for the three months end October 1, 2023. Margins in the KGS segment decreased to 27.4% for the three months ended September 29, 2024 from 27.9% for the three months ended October 1, 2023. Margins in the US segment decreased to 17.6% for the three months ended September 29, 2024 from 22.0% for the three months ended October 1, 2023, primarily due to a less favorable mix of products produced and shipped, and from the impact of increased labor and material costs in the three months ended September 29, 2024.

Previous wording

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses increased $7.2 million to $54.5 million for the three months ended June 30, 2024 from $47.3 million for the three months ended June 25, 2023 due primarily to the increased revenue volume and headcount. As a percentage of revenues, SG&A decreased to 18.2% at June 30, 2024 from 18.4% at June 25, 2023.

Current wording

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses increased $1.7 million to $52.6 million for the three months ended September 29, 2024 from $50.9 million for the three months ended October 1, 2023 due primarily to the increased revenue volume and headcount. As a percentage of revenues, SG&A increased to 19.1% at September 29, 2024 from 18.5% at October 1, 2023.

Previous wording

Research and Development (“R&D”) Expenses. R&D expenses increased $0.3 million to $10.2 million for the three months ended June 30, 2024 from $9.9 million for the three months ended June 25, 2023, primarily due to increased development efforts in our unmanned systems business. As a percentage of revenues, R&D decreased to 3.4% for the three months ended June 30, 2024 from 3.9% for the three months ended June 25, 2023. R&D expenses are made by the Company, typically in conjunction with our customers, for the Company to achieve a “first to market” position with our products or technology. We also invest in R&D expenses to achieve market leading “designed in” positions on major programs, platforms or systems.

Current wording

Research and Development (“R&D”) Expenses. R&D expenses decreased $0.4 million to $9.9 million for the three months ended September 29, 2024 from $10.3 million for the three months ended October 1, 2023, primarily due to decreased development efforts in our space and satellite communications business partially offset with increases in our unmanned systems and microwave products businesses. As a percentage of revenues, R&D decreased to 3.6% for the three months ended September 29, 2024 from 3.8% for the three months ended October 1, 2023. R&D expenses are made by the Company, typically in conjunction with our customers, for the Company to achieve a “first to market” position with our products or technology. We also invest in R&D expenses to achieve market leading “designed in” positions on major programs, platforms or systems.

Previous wording

Restructuring Expenses and Other. We had no restructuring expenses for the three months ended June 30, 2024 and for the three months ended June 25, 2023.

Current wording

Restructuring Expenses and Other. We had no restructuring expenses for the three months ended September 29, 2024 or for the three months ended October 1, 2023.

Previous wording

Total Other Income (Expense), Net. The total other income (expense), net was $0.2 million for the three months ended June 30, 2024 and the total other expense, net was $4.9 million for the three months ended June 25, 2023. This change in total other income (expense) of $5.1 million was primarily related to a decrease in interest expense of $1.6 million as a result of the reduction of debt and the interest rate hedge entered into during the second quarter of 2023 on the Company’s Term Loan A, and an increase in interest income of $3.6 million in the three months ended June 30, 2024, resulting from the increased cash balances following the February 27, 2024 stock offering which raised approximately $331.2 million in net proceeds.

Current wording

Total Other Expense, Net. The total other expense, net was $0.7 million for the three months ended September 29, 2024 and $5.4 million for the three months ended October 1, 2023. This decrease in total other expense, net of $4.7 million was primarily related to a decrease in interest expense of $1.9 million as a result of the reduction of debt and the interest rate hedge entered into during the third quarter of 2023 on the Company’s Term Loan A, and an increase in interest income of $3.2 million in the three months ended September 29, 2024, resulting from the increased cash balances following the February 27, 2024 stock offering which raised approximately $331.2 million in net proceeds.

Previous wording

Provision for Income Taxes. The income tax expense for the three months ended June 30, 2024 was $4.8 million and the income tax expense for the three months ended June 25, 2023 was $2.2 million. For the three months ended June 30, 2024 and June 25, 2023, the Company utilized the discrete effective tax rate method. The discrete method is applied when it is not possible to reliably estimate our full year effective tax rate due to significant permanent differences in relation to pre-tax book income, resulting in significant variability to our effective tax rate.

Current wording

Provision for Income Taxes. The income tax expense for the three months ended September 29, 2024 was $2.6 million and the income tax expense for the three months ended October 1, 2023 was $3.8 million. For the three months ended September 29, 2024 and October 1, 2023, the Company utilized the discrete effective tax rate method. The discrete method is applied when it is not possible to reliably estimate our full year effective tax rate due to significant permanent differences in relation to pre-tax book income, resulting in significant variability to our effective tax rate.

Previous wording

Comparison of Results for the Six Months Ended June 30, 2024 to the Six Months Ended June 25, 2023

Current wording

Comparison of Results for the Nine Months Ended September 29, 2024 to the Nine Months Ended October 1, 2023

Previous wording

Revenues. Revenues by operating segment for the six months ended June 30, 2024 and June 25, 2023 are as follows (dollars in millions):

Current wording

Revenues. Revenues by reporting segment for the nine months ended September 29, 2024 and October 1, 2023 are as follows (dollars in millions):

Previous wording

Revenues increased $88.6 million to $577.3 million for the six months ended June 30, 2024 from $488.7 million for the six months ended June 25, 2023. Revenues in our KGS segment increased $43.5 million, primarily due to revenue increases in our C5ISR and microwave electronics products businesses primarily resulting from increased activity for multiple air defense systems and programs, and growth in our training solutions and turbine technologies businesses primarily resulting from new contract awards, training solutions and turbine technologies businesses, partially offset by decreases in our defense and rocket support and our space businesses, which has been impacted by the extended Continuing Resolution Authorization (CRA) as well as delayed satellite launches which has impacted the deployment of our commercial satellite ground equipment. Revenues in our US segment increased $45.1 million to $145.2 million for the six months ended June 30, 2024 reflecting the contribution from the STS acquisition, and increased domestic target drone production and a certain international target drone delivery which contributed $17.7 million in revenue during the six months ended June 30, 2024, and as a result of timing of program contract awards and increased production volume as compared to the six months ended June 25, 2023.

Current wording

Revenues increased $89.9 million to $853.2 million for the nine months ended September 29, 2024 from $763.3 million for the nine months ended October 1, 2023. Revenues in our KGS segment increased $37.3 million, primarily due to revenue increases in our C5ISR and microwave electronics products businesses primarily resulting from increased activity for multiple air defense systems and programs, and growth in our turbine technologies, training solutions and defense and rocket support businesses primarily resulting from new contract awards, partially offset by decreases in our space and satellite businesses, which has been impacted by the extended CRA as well as OEM delayed commercial satellite launches which has adversely impacted the deployment of our commercial satellite ground equipment resulting in an aggregate reduction of $31.8 million in revenues for our space and satellite business. Revenues in our US segment increased $52.6 million to $209.4 million for the nine months ended September 29, 2024 reflecting the contribution from the STS acquisition, and increased domestic target drone production and a certain international target drone delivery which contributed $18.9 million in revenue during the nine months ended September 29, 2024, and as a result of timing of program contract awards and increased production volume as compared to the nine months ended October 1, 2023.

Previous wording

Product sales increased $70.9 million to $364.3 million for the six months ended June 30, 2024 from $293.4 million for the six months ended June 25, 2023, primarily as a result of increased production activity in our KGS segment and in our US segment. As a percentage of total revenue, product sales were 63.1% for the six months ended June 30, 2024 as compared to 60.0% for the six months ended June 25, 2023. Service revenues increased by $17.7 million to $213.0 million for the six months ended June 30, 2024 from $195.3 million for the six months ended June 25, 2023. The increase was primarily related to increased activity in our turbine technologies, and space and satellite business in our KGS segment.

Current wording

Product sales increased $74.8 million to $536.3 million for the nine months ended September 29, 2024 from $461.5 million for the nine months ended October 1, 2023, primarily as a result of increased production activity in our KGS segment and in our US segment. As a percentage of total revenue, product sales were 62.9% for the nine months ended September 29, 2024 as compared to 60.5% for the nine months ended October 1, 2023. Service revenues increased by $15.1 million to $316.9 million for the nine months ended September 29, 2024 from $301.8 million for the nine months ended October 1, 2023. The increase was primarily related to increased activity in our turbine technologies and defense rocket support businesses in our KGS segment.

Previous wording

Cost of Revenues. Cost of revenues increased $63.7 million to $429.1 million for the six months ended June 30, 2024 from $365.4 million for the six months ended June 25, 2023. The increase in cost of revenues was primarily a result of the increase in revenues discussed above.

Current wording

Cost of Revenues. Cost of revenues increased $69.2 million to $635.8 million for the nine months ended September 29, 2024 from $566.6 million for the nine months ended October 1, 2023. The increase in cost of revenues was primarily a result of the increase in revenues discussed above as well as the impact of increased labor and material costs.

Previous wording

Gross Margin. Gross margin increased to 25.7% for the six months ended June 30, 2024 from 25.2% for the six months ended June 25, 2023. Margins on services increased to 26.7% for the six months ended June 30, 2024 from 24.1% for the six months ended June 25, 2023. Margins on product sales decreased to 25.1% for the six months ended June 30, 2024 from 26.0% for the six months ended June 25, 2023. Margins in the KGS segment increased to 28.0% for the six months ended June 30, 2024 from 26.6% for the six months ended June 25, 2023 primarily due to a more favorable mix of revenues. Margins in the US segment decreased to 18.9% for the six months ended June 30, 2024 from 20.0% for the six months ended June 25, 2023.

Current wording

Gross Margin. Gross margin decreased to 25.5% for the nine months ended September 29, 2024 from 25.8% for the nine months ended October 1, 2023. Margins on services increased to 26.5% for the nine months ended September 29, 2024 from 24.7% for the nine months ended October 1, 2023. Margins on product sales decreased to 24.9% for the nine months ended September 29, 2024 from 26.5% for the nine months ended October 1, 2023. Margins in the KGS segment increased to 27.8% for the nine months ended September 29, 2024 from 27.1% for the nine months ended October 1, 2023 primarily due to a more favorable mix of revenues. Margins in the US segment decreased to 18.5% for the nine months ended September 29, 2024 from 20.7% for the nine months ended October 1, 2023 due to the mix of revenues, revenue volume and resources.

Previous wording

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses increased $13.8 million from $95.1 million for the six months ended June 25, 2023 to $108.9 million for the six months ended June 30, 2024 due primarily to the increased revenue volume and headcount. As a percentage of revenues, SG&A decreased to 18.9% at June 30, 2024, from 19.5% at June 25, 2023.

Current wording

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses increased $15.5 million from $146.0 million for the nine months ended October 1, 2023 to $161.5 million for the nine months ended September 29, 2024 due primarily to the increased revenue volume and headcount. As a percentage of revenues, SG&A decreased to 18.9% at September 29, 2024, from 19.1% at October 1, 2023.

Previous wording

Research and Development (“R&D”) Expenses. R&D expenses were $19.8 million for the six months ended June 30, 2024 and $20.1 million for the six months ended June 25, 2023, primarily due to decreased development efforts in our space and satellite communications business partially offset with increases in our unmanned systems business. As a percentage of revenues, R&D expenses decreased to 3.4% for the six months ended June 30, 2024 from 4.1% for the six months ended June 25, 2023. R&D expenses are made by the Company, typically in conjunction with our customers, for the Company to achieve a “first to market” position with our products or technology. We also invest in R&D expenses to achieve market leading “designed in” positions on major programs, platforms or systems.

Current wording

Research and Development (“R&D”) Expenses. R&D expenses were $29.7 million for the nine months ended September 29, 2024 and $30.4 million for the nine months ended October 1, 2023, primarily due to decreased development efforts in our space and satellite communications business partially offset with increases in our unmanned systems and microwave products businesses. As a percentage of revenues, R&D expenses decreased to 3.5% for the nine months ended September 29, 2024 from 4.0% for the nine months ended October 1, 2023. R&D expenses are made by the Company, typically in conjunction with our customers, for the Company to achieve a “first to market” position with our products or technology. We also invest in R&D expenses to achieve market leading “designed in” positions on major programs, platforms or systems.

Previous wording

Restructuring Expenses and Other. We had no restructuring expenses for the six months ended June 30, 2024. Restructuring expenses were $0.9 million for the six months ended June 25, 2023.

Current wording

Restructuring Expenses and Other. We had no restructuring expenses for the nine months ended September 29, 2024. Restructuring expenses were $0.9 million for the nine months ended October 1, 2023.

Previous wording

Total Other Expense, Net. Total other expense, net decreased to $2.8 million for the six months ended June 30, 2024 from $10.5 million for the six months ended June 25, 2023. The decrease of $7.7 million was primarily related to a decrease in interest expense of $2.7 million, and an increase in interest income of $5.0 million during the six months ended June 30, 2024, resulting from the increased cash increased cash balances following the February 27, 2024 stock offering which raised approximately $331.2 million in net proceeds.

Current wording

Total Other Expense, Net. Total other expense, net decreased to $3.5 million for the nine months ended September 29, 2024 from $15.9 million for the nine months ended October 1, 2023. The decrease of $12.4 million was primarily related to a decrease in interest expense of $4.6 million, resulting from reduced debt balances and an increase in interest income of $8.2 million during the nine months ended September 29, 2024, resulting from the increased cash balances following the February 27, 2024 stock offering which raised approximately $331.2 million in net proceeds.

Previous wording

Provision for Income Taxes from Continuing Operations. The income tax expense from continuing operations for the six months ended June 30, 2024 was $7.5 million and the income tax expense for the six months ended June 25, 2023 was $2.9 million. For the six months ended June 30, 2024 and June 25, 2023, the Company utilized the discrete effective tax rate method. The discrete method is applied when it is not possible to reliably estimate our full year effective tax rate due to significant permanent differences in relation to pre-tax book income, resulting in significant variability to our estimated effective tax rate.

Current wording

Provision for Income Taxes from Continuing Operations. The income tax expense from continuing operations for the nine months ended September 29, 2024 was $10.1 million and the income tax expense for the nine months ended October 1, 2023 was $6.7 million. For the nine months ended September 29, 2024 and October 1, 2023, the Company utilized the discrete effective tax rate method. The discrete method is applied when it is not possible to reliably estimate our full year effective tax rate due to significant permanent differences in relation to pre-tax book income, resulting in significant variability to our estimated effective tax rate.

Previous wording

On June 30, 2024, we had approximately $1,302.7 million of total backlog, of which $1,070.6 million was funded. We expect to recognize approximately 35% of the remaining total backlog as revenue in fiscal year 2024, an additional 41% in fiscal year 2025 and the balance thereafter. Our comparable total backlog balance as of June 25, 2023, was approximately $1,157.3 million, of which $863.9 million was funded. Backlog as of June 30, 2024 as compared to June 25, 2023 has increased primarily as a result of contract awards in our Space, Satellite, Cyber and Training, Turbine Technologies, Microwave Technologies, C5ISR and Unmanned Systems businesses.

Current wording

On September 29, 2024, we had approximately $1,294.0 million of total backlog, of which $1,098.6 million was funded. We expect to recognize approximately 19% of the remaining total backlog as revenue in fiscal year 2024, an additional 50% in fiscal year 2025 and the balance thereafter. Our comparable total backlog balance as of October 1, 2023, was approximately $1,165.0 million, of which $850.9 million was funded. Backlog as of September 29, 2024 as compared to October 1, 2023 has increased primarily as a result of contract awards in our Microwave Products, C5ISR, Defense and Rocket Support and Unmanned Systems businesses.

Previous wording

As of June 30, 2024, we had cash and cash equivalents of $308.2 million compared with cash and cash equivalents of $72.8 million as of December 31, 2023, which includes $39.2 million and $44.1 million, respectively, of cash and cash equivalents held by our foreign subsidiaries. We are not presently aware of any restrictions on the repatriation of these funds, however, earnings of these foreign subsidiaries are essentially considered permanently invested in these foreign subsidiaries. If these funds were needed to fund our operations or satisfy obligations in the United States they could be repatriated, and their repatriation into the United States may cause us to incur additional foreign withholding taxes. We do not currently intend to repatriate these earnings.

Current wording

As of September 29, 2024, we had cash and cash equivalents of $301.5 million compared with cash and cash equivalents of $72.8 million as of December 31, 2023, which includes $39.3 million and $44.1 million, respectively, of cash and cash equivalents held by our foreign subsidiaries. We are not presently aware of any restrictions on the repatriation of these funds, however, earnings of these foreign subsidiaries are essentially considered permanently invested in these foreign subsidiaries. If these funds were needed to fund our operations or satisfy obligations in the United States they could be repatriated, and their repatriation into the United States may cause us to incur additional foreign withholding taxes. We do not currently intend to repatriate these earnings.

Previous wording

Our total long-term debt decreased from $227.5 million at December 31, 2023 to $190.0 million at June 30, 2024, reflecting the $2.5 million in aggregate principal payments we have made on the Term Loan A and a net $35 million repayment made during the six months ended June 30, 2024 on our Revolving Credit Facility. On February 18, 2022, we completed the refinancing of our outstanding $90 million revolving credit facility and $300 million of Senior Secured Notes, with a new 5-year $200 million Revolving Credit Facility and 5-year $200 million Term Loan A. As of June 30, 2024, the Company has made an aggregate of $10.0 million of principal payments on Term Loan A, and has no amounts outstanding under the new Revolving Credit Facility, with $200.0 million remaining in borrowing capacity, less approximately $6.9 million for outstanding letters of credit (as more fully described in Note 9 of the accompanying unaudited condensed consolidated financial statements).

Current wording

Our total long-term debt decreased from $227.5 million at December 31, 2023 to $187.5 million at September 29, 2024, reflecting the $5.0 million in aggregate principal payments we have made on the Term Loan A and a net $35.0 million repayment made during the nine months ended September 29, 2024 on our Revolving Credit Facility. On February 18, 2022, we completed the refinancing of our outstanding $90 million revolving credit facility and $300 million of Senior Secured Notes, with a new 5-year $200 million Revolving Credit Facility and 5-year $200 million Term Loan A. As of September 29, 2024, the Company has made an aggregate of $12.5 million of principal payments on Term Loan A, and has no amounts outstanding under the new Revolving Credit Facility, with $200.0 million remaining in borrowing capacity, less approximately $8.0 million for outstanding letters of credit (as more fully described in Note 9 of the accompanying unaudited condensed consolidated financial statements).

Previous wording

We use our operating cash flow to finance trade accounts receivable, fund necessary increases in inventory including increasing inventory stock levels and advance buys in larger lot sizes to gain pricing benefits where possible, in order to mitigate the impact of supply chain disruptions and price increases, utilize working capital to fund revenue growth, fund internal investments of engineering costs, fund capital expenditures, our internal research and development investments and our ongoing operations, service our debt, enhance our security infrastructure, including cyber security infrastructure, and make strategic acquisitions. Financing trade accounts receivable is necessary because, on average, our customers do not pay us as quickly as we pay our vendors and employees for their goods and services because a number of our receivables are contractually billable and due to us only when certain contractual milestones are achieved. Financing increases in inventory balances are necessary to fulfill shipment requirements to meet delivery schedules of our customers, to fund advanced inventory purchases to mitigate supply chain disruptions, and to fund production for work in progress and increased inventory levels related to revenue growth. These financing requirements have increased and have recently negatively impacted our operating cash flows due to actions we have taken to advance inventory purchases in an attempt to mitigate supply chain disruptions and to bolster our inventory levels. For the six months ended June 30, 2024, approximately $18.8 million of operating cash flow use was related to increases in prepaid expenses and other current assets which also include certain vendor prepayments related to the purchase of materials and inventory. Cash from continuing operations is primarily derived from our customer contracts in progress and associated changes in working capital components. Our days sales outstanding (“DSO”) have decreased from 116 days as of December 31, 2023 to 103 days at June 30, 2024, primarily reflecting the timing of outstanding contractual billing milestones. Our DSOs are impacted by the achievement of contractual billing milestones such as equipment shipments and deliveries on certain products, and for certain flight requirements that must be fulfilled on certain aerial target programs, or final milestone billings which are not due until completion on certain projects, and therefore we are unable to contractually bill for amounts outstanding related to those milestones at this time.

Current wording

We use our operating cash flow to finance trade accounts receivable, fund necessary increases in inventory including increasing inventory stock levels and advance buys in larger lot sizes to gain pricing benefits where possible, in order to mitigate the impact of supply chain disruptions and price increases, utilize working capital to fund revenue growth, fund prepayments required for long lead items necessary for production, fund internal investments of engineering and software development costs, fund capital expenditures, our internal research and development investments and our ongoing operations, service our debt, enhance our security infrastructure, including cyber security infrastructure, and make strategic acquisitions. Financing trade accounts receivable is necessary because, on average, our customers do not pay us as quickly as we pay our vendors and employees for their goods and services because a number of our receivables are contractually billable and due to us only when certain contractual milestones are achieved. Financing increases in inventory balances are necessary to fulfill shipment requirements to meet delivery schedules of our customers, to fund advanced inventory purchases to mitigate supply chain disruptions, and to fund production for work in progress and increased inventory levels and prepayments for long-lead materials related to production and revenue growth. These financing requirements have increased and have recently negatively impacted our operating cash flows due to actions we have taken to advance inventory purchases in an attempt to mitigate supply chain disruptions and to bolster our inventory levels. For the nine months ended September 29, 2024, approximately $35.5 million of operating cash flow use was related to increases in prepaid expenses and other assets which also include certain vendor prepayments and deposits related to the procurement of long-lead materials and inventory. Cash from continuing operations is primarily derived from our customer contracts in progress and associated changes in working capital components. Our days sales outstanding (“DSO”) have decreased from 116 days as of December 31, 2023 to 105 days at September 29, 2024, primarily reflecting the timing of outstanding contractual billing milestones. Our DSOs are impacted by the achievement of contractual billing milestones such as equipment shipments and deliveries on certain products, and for certain flight requirements that must be fulfilled on certain aerial target programs, or final milestone billings which are not due until completion on certain projects, and therefore we are unable to contractually bill for amounts outstanding related to those milestones at this time.

Previous wording

At June 30, 2024, approximately $2.9 million in billed receivables and $1.5 million in unbilled receivables remained outstanding related to a training solutions program that was terminated for convenience (“T for C”) by the customer in 2019. In July 2024, the $2.9 million receivable was collected. The remaining unbilled receivable amount is subject to negotiation and settlement with the customer, which negotiations are currently expected to commence in the second half of 2024.

Current wording

At September 29, 2024, approximately $1.5 million in unbilled receivables remained outstanding related to a training solutions program that was terminated for convenience (“T for C”) by the customer in 2019. The remaining unbilled receivable amount is subject to negotiation and settlement with the customer, which negotiations are expected to commence soon.

Previous wording

Net cash used in operating activities was $2.0 million for the six months ended June 30, 2024. Net cash used in operating activities for the six months ended June 30, 2024 was primarily a result of the net gain of $9.2 million and changes in net working capital accounts of $53.1 million partially offset by noncash charges of $41.9 million which includes stock compensation, depreciation and amortization. Net cash used in operating activities was $2.2 million for the six months ended June 25, 2023. Net cash used in operating activities from continuing operations for the six months ended June 25, 2023 was primarily a result of the net loss of $6.2 million and changes in net working capital accounts of $30.9 million partially offset by noncash charges $35.2 million which includes stock compensation, depreciation and amortization.

Current wording

Net cash provided by operating activities was $4.1 million for the nine months ended September 29, 2024. Net cash provided by operating activities for the nine months ended September 29, 2024 was primarily a result of net income of $12.4 million and changes in net working capital accounts of $70.7 million partially offset by noncash charges of $62.4 million which includes stock compensation, depreciation and amortization. Net cash used in operating activities was $2.2 million for the nine months ended October 1, 2023. Net cash used in operating activities from continuing operations for the nine months ended October 1, 2023 was primarily a result of the net loss of $3.2 million and changes in net working capital accounts of $51.9 million offset by noncash charges $53.1 million which includes stock compensation, depreciation and amortization.

Previous wording

Net cash used in investing activities was $40.8 million for the six months ended June 30, 2024 and is primarily comprised of $29.3 million in capital expenditures and $11.3 million in cash paid for the remaining minority interests in KTT Core (along with a corresponding issuance of 583,700 shares of Kratos common stock valued at $11.3 million). During the six months ended June 30, 2024, capital expenditures of approximately $13.8 million were incurred in our US business, primarily related to our unmanned tactical initiative. We expect our capital expenditures for fiscal year 2024 to continue to be significant for investments we are making, specifically in our US business totaling approximately $30 to $34 million, including approximately $18 to $22 million for capital aerial targets and related support equipment. The Company is currently producing or anticipates producing several versions of the Valkyrie within the 24 unit production, based on routine communications with the customers, which mix and ultimate duration of the 24 Lot Build may change as a result. Net cash used in investing activities for the six months ended June 25, 2023 is comprised of $18.9 million in capital expenditures partially offset by receipt of $8.3 million of proceeds from the sale of Valkyries which had been previously built as capital assets as they were produced ahead of government contract award. During the six months ended June 25, 2023, capital expenditures of approximately $8.2 million were incurred in our US business, primarily related to our unmanned tactical initiative. The Company made the decision in the first quarter of 2023 to move forward with its second serial production run of 12 next generation Valkyries. The total estimated amount related to production of Valkyries ahead of government contract award, including the first and second production run, is $18 to $22 million of the estimated 2024 capital expenditures for the US business.

Current wording

Net cash used in investing activities was $56.1 million for the nine months ended September 29, 2024 and is primarily comprised of $44.6 million in capital expenditures and $11.3 million in cash paid for the remaining minority interests in KTT Core (along with a corresponding issuance of 583,700 shares of Kratos common stock valued at $11.3 million). During the nine months ended September 29, 2024, capital expenditures of approximately $20.5 million were incurred in our US business, primarily related to our unmanned tactical initiative. We expect our capital expenditures for fiscal year 2024 to continue to be significant for investments we are making, specifically in our US business totaling approximately $30 to $34 million, including approximately $18 to $22 million for capital aerial targets and related support equipment. The Company is currently producing or anticipates producing several versions of the Valkyrie within the 24 unit production, based on routine communications with the customers, which mix and ultimate duration of the 24 Lot Build may change as a result. Net cash used in investing activities for the nine months ended October 1, 2023 is comprised of $33.1 million in capital expenditures partially offset by receipt of $8.3 million of proceeds from the sale of Valkyries which had been previously built as capital assets as they were produced ahead of government contract award. During the nine months ended October 1, 2023, capital expenditures of approximately $16.5 million were incurred in our US business, primarily related to our unmanned tactical initiative. The Company made the decision in the first quarter of 2023 to move forward with its second serial production run of 12 next generation Valkyries. The total estimated amount related to production of Valkyries and related equipment, ahead of government contract award, including the first and second production run, is $18 to $22 million of the estimated 2024 capital expenditures for the US business.

Previous wording

Net cash provided by financing activities was $279.0 million for the six months ended June 30, 2024, which included employee stock purchase plan receipts of $3.6 million and net proceeds from the issuance of common stock of approximately $330.7 million. These proceeds were partially offset by $2.5 million of principal payments on our Term Loan A and a $45.0 million payment (partially offset by a $10.0 million draw) on our Revolving Credit Facility, payroll withholding taxes paid from vested restricted stock traded for taxes of $17.1 million and payments made on financing lease obligations of $0.7 million. Net cash used in financing activities was $20.8 million for the six months ended June 25, 2023, which included $2.5 million of principal payments on our $200 million Term Loan A and a $51.0 million payment (partially offset by a $34.0 million draw) on the new Revolving Credit Facility, payroll withholding taxes paid from vested restricted stock of $3.4 million and payments made on financing lease obligations of $0.8 million. These uses were partially offset by employee stock purchase plan receipts of $2.9 million.

Current wording

Net cash provided by financing activities was $280.6 million for the nine months ended September 29, 2024, which included employee stock purchase plan receipts of $8.2 million and net proceeds from the issuance of common stock of approximately $330.7 million. These proceeds were partially offset by $5.0 million of principal payments on our Term Loan A and a $45.0 million payment (partially offset by a $10.0 million draw) on our Revolving Credit Facility, payroll withholding taxes paid from vested restricted stock traded for taxes of $17.3 million and payments made on financing lease obligations of $1.0 million. Net cash used in financing activities was $12.1 million for the nine months ended October 1, 2023, which included $3.8 million of principal payments on our $200 million Term Loan A and a $64.0 million payment (partially offset by a $54.0 million draw) on the new Revolving Credit Facility, payroll withholding taxes paid from vested restricted stock of $3.6 million and payments made on financing lease obligations of $1.2 million. These uses were partially offset by employee stock purchase plan receipts of $6.5 million.

Previous wording

On February 18, 2022, the Company completed the refinancing of its then-outstanding $90 million revolving credit facility and $300 million Senior Secured Notes, with a new 5-year $200 million Revolving Credit Facility and 5-year $200 million Term Loan A. The Company incurred debt issuance costs of $3.3 million associated with the 2022 Credit Facility. As of June 30, 2024, the Company has made an aggregate of $10.0 million of principal payments on Term Loan A. As of June 30, 2024, the Company has no amounts outstanding under the Revolving Credit Facility, with $200.0 million remaining in borrowing capacity, less approximately $6.9 million for outstanding letters of credit.

Current wording

On February 18, 2022, the Company completed the refinancing of its then-outstanding $90 million revolving credit facility and $300 million Senior Secured Notes, with a new 5-year $200 million Revolving Credit Facility and 5-year $200 million Term Loan A. The Company incurred debt issuance costs of $3.3 million associated with the 2022 Credit Facility. As of September 29, 2024, the Company has made an aggregate of $12.5 million of principal payments on Term Loan A. As of September 29, 2024, the Company has no amounts outstanding under the Revolving Credit Facility, with $200.0 million remaining in borrowing capacity, less approximately $8.0 million for outstanding letters of credit.