KRATOS DEFENSE & SECURITY SOLUTIONS, INC.

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. 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 War, traditional legacy prime systems integrators and partners. These investments include; unmanned jet powered aircraft such as Kratos Valkyrie ahead of potential contract award; a hypersonic s…

Excerpt shortened here; the source contains the full paragraph.

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 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 the defense industrial base and 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

Previous wording

On July 4, 2025, the One Big Beautiful Bill Act was enacted. This Reconciliation bill appropriated an additional $156 billion for national security priorities and is expected to result in increased investment by the DoW in defense modernization projects.

Current wording

The United States, its allies and NATO are currently rebuilding their respective Defense Industrial Bases and there is currently an ongoing global recapitalization of weapon systems under way as a result of the deteriorating geopolitical situation, including as related to Russia, China, Iran, North Korea, etc. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA), previously known as the Reconciliation Bill, was enacted. The OBBBA appropriated an additional $156 billion for defense spending and national security priorities and is expected to result in increased investment by the DoW in defense modernization projects and increasing weapons and armaments production capacity. Approximately $113 billion of the $156 billion in OBBBA funding for defense and national security priorities was initially intended to be added to the final 2026 defense appropriations bill, as described below. The appropriated funds will remain available to be obligated until September 30, 2029 and expended through FY 2035. The OBBBA is expected to result in increased investments by the DoW in defense modernization projects and Pacific region deterrence.

Previous wording

The potential challenges presented by the recent U.S. Government shutdown, Presidential and Congressional changes, proposed new tariffs, the current budgetary and deficit funding environment, the Trump Administration’s stated fiscal policies, Israel, Ukraine and Taiwan funding support, potential continuing heightened levels of inflation, ongoing supply chain disruption, and the challenging appropriations process, among other items, all continue to potentially create significant short and long-term risks to the industry and the Company. Additionally, the Trump Administration has recently executed certain executive orders directly related to significantly changing the current DoW procurement policies and procedures, and the Federal Acquisition Regulations, the potential impact of which such changes, if effected either by executive orders or changes to the relevant law, to the industry, and to Kratos, is unknown at this time.

Current wording

The potential challenges presented by the recent U.S. Government shutdown, Presidential and Congressional changes, the current budgetary and deficit funding environment, the Trump Administration’s stated fiscal policies, the uncertain tariff situation, the conflicts in Iran, Israel, Ukraine and Taiwan funding support, potential continuing heightened levels of inflation, ongoing supply chain disruption, and the challenging appropriations process, among other items, all continue to potentially create significant short and long-term risks to the industry and the Company. Additionally, the Trump Administration has executed certain executive orders directly related to significantly changing the current DoW procurement policies and procedures, and the Federal Acquisition Regulations, the potential impact of such changes, if effected either by executive orders or changes to the relevant law, to the industry, and to Kratos, is unknown at this time.

Previous wording

Such a dynamic and challenging federal and DoW budgetary environment may negatively impact our customers, business and programs and could have a material adverse effect on our forecasts, estimates, financial position, results of operations and/or cash flows.

Current wording

Such a dynamic and challenging federal, DoW and National Security related budgetary environment may negatively impact our customers, partners, suppliers, business and programs, and could have a material adverse effect on our forecasts, estimates, financial position, results of operations and/or cash flows.

Previous 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.

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 Kratos, 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, 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. The challenge of retaining skilled experienced production personnel has continued to negatively impact our operating margins, especially on our longer-term firm fixed-priced production contracts. 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

Additionally, 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. The challenge of retaining skilled experienced production personnel has continued to negatively impact our operating margins, especially on our longer-term firm fixed-priced production contracts. 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

We do believe that our business is well-positioned, including in areas that the Trump Administration, the DoW, national security related and other customers currently indicate are priorities for future defense spending. As noted above, we believe that there is a generational recapitalization of weapon systems and the defense industrial base occurring with the U.S. and its allies to address peer and near peer threats, including Russia, China, North Korea and Iran. We believe that the Company’s positioning as a proven provider of military grade 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 military grade 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 DoW.

Current wording

We do believe that our business is well-positioned, including in areas that the Trump Administration, the DoW, national security related and other customers currently indicate are priorities for future defense spending. As noted above, we believe that there is a generational recapitalization of weapon systems and the defense industrial base occurring with the U.S. and its allies to address peer and near peer threats, including Russia, China, North Korea and Iran. We believe that the Company’s position as a proven provider of military grade 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 military grade 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, space and satellite communication systems and training systems, address mission critical priority areas of the DoW.

Previous wording

Revenues increased $71.7 million to $347.6 million for the three months ended September 28, 2025 from $275.9 million for the three months ended September 29, 2024. Revenues in our KGS segment increased $48.7 million primarily due to increased revenues across all business units, with the most notable organic revenue increases in our Defense Rocket Support business driven by our hypersonic systems business and our space, satellite and cyber business, as well as growth in our C5ISR, microwave products businesses and turbine technologies businesses, and the contribution of $6.3 million in revenue from the recent acquisition of certain assets from Norden Millimeter, Inc. Revenues in our US segment were $87.2 million for the three months ended September 28, 2025, an increase of $23.0 million from $64.2 million in the three months ended September 29, 2024, primarily as a result of an international shipment of tactical Valkyrie aircraft during the three months ended September 28, 2025.

Current wording

Revenues increased $68.4 million to $371.0 million for the three months ended March 29, 2026 from $302.6 million for the three months ended March 30, 2025. Revenues in our KGS segment increased $48.9 million primarily due to increased revenues in our Defense Rocket Support business driven by our hypersonic systems business, as well as growth in our microwave products businesses and turbine technologies businesses, and the contribution of $7.3 million in revenue from the recent acquisition of Nomad Global Communication Solutions, and $13.3 million in revenue from the recent acquisition of Orbit Technologies. Revenues in our US segment were $82.6 million for the three months ended March 29, 2026, an increase of $19.5 million from $63.1 million in the three months ended March 30, 2025, primarily as a result of Valkyrie aircraft related production during the three months ended March 29, 2026.

Previous wording

Product sales increased $58.2 million to $230.2 million for the three months ended September 28, 2025 from $172.0 million for the three months ended September 29, 2024, primarily as a result of increased production in our KGS segment. As a percentage of total consolidated revenues, product sales were 66.2% for the three months ended September 28, 2025 as compared to 62.3% for the three months ended September 29, 2024. Service revenues increased by $13.5 million to $117.4 million for the three months ended September 28, 2025 from $103.9 million for the three months ended September 29, 2024, primarily related to increased activity in our defense rocket support business in our KGS segment.

Current wording

Product sales increased $36.8 million to $237.0 million for the three months ended March 29, 2026 from $200.2 million for the three months ended March 30, 2025, primarily as a result of increased production in our KGS segment. As a percentage of total consolidated revenues, product sales were 63.9% for the three months ended March 29, 2026 as compared to 66.2% for the three months ended March 30, 2025. Service revenues increased by $31.6 million to $134.0 million for the three months ended March 29, 2026 from $102.4 million for the three months ended March 30, 2025, primarily related to increased activity in our defense rocket support business in our KGS segment.

Previous wording

Cost of Revenues. Cost of revenues increased $63.8 million to $270.5 million for the three months ended September 28, 2025 from $206.7 million for the three months ended September 29, 2024. 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.

Current wording

Cost of Revenues. Cost of revenues increased $52.4 million to $281.4 million for the three months ended March 29, 2026 from $229.0 million for the three months ended March 30, 2025. The increase in cost of revenues was primarily related to the increased revenues as well the impact of increased labor and material costs.

Previous wording

Gross Margin. Gross margin decreased to 22.2% for the three months ended September 28, 2025 from 25.1% for the three months ended September 29, 2024. Margins on services decreased to 22.3% for the three months ended September 28, 2025 from 26.2% for the three months ended September 29, 2024. Margins on products decreased to 22.1% for the three months ended September 28, 2025 from 24.4% for the three months ended September 29, 2024. Margins in the KGS segment decreased to 23.9% for the three months ended September 28, 2025 from 27.4% for the three months ended September 29, 2024. Margins in the US segment decreased to 17.0% for the three months ended September 28, 2025 from 17.6% for the three months ended September 29, 2024.

Current wording

Gross Margin. Gross margin decreased to 24.2% for the three months ended March 29, 2026 from 24.3% for the three months ended March 30, 2025. Margins on services decreased to 25.9% for the three months ended March 29, 2026 from 26.1% for the three months ended March 30, 2025. Margins on products decreased to 23.2% for the three months ended March 29, 2026 from 23.4% for the three months ended March 30, 2025. Margins in the KGS segment decreased to 26.2% for the three months ended March 29, 2026 from 26.6% for the three months ended March 30, 2025. Margins in the US segment increased to 17.1% for the three months ended March 29, 2026 from 15.8% for the three months ended March 30, 2025.

Previous wording

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses increased $7.2 million to $59.8 million for the three months ended September 28, 2025 from $52.6 million for the three months ended September 29, 2024 due primarily to the increased revenue volume and headcount. As a percentage of revenues, SG&A decreased to 17.2% at September 28, 2025 from 19.1% at September 29, 2024.

Current wording

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses increased $15.3 million to $72.3 million for the three months ended March 29, 2026 from $57.0 million for the three months ended March 30, 2025 due primarily to the increased stock compensation expense, revenue volume and headcount. As a percentage of revenues, SG&A increased to 19.5% at March 29, 2026 from 18.8% at March 30, 2025.

Previous wording

Research and Development (“R&D”) Expenses. R&D expenses increased to $10.0 million for the three months ended September 28, 2025 from $9.9 million for September 29, 2024. As a percentage of revenues, R&D decreased to 2.9% for the three months ended September 28, 2025 from 3.6% for the three months ended September 29, 2024. 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 increased to $10.7 million for the three months ended March 29, 2026 from $10.0 million for March 30, 2025. As a percentage of revenues, R&D decreased to 2.9% for the three months ended March 29, 2026 from 3.3% for the three months ended March 30, 2025. 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

Total Other Income (Expense), Net. The total other income (expense), net was $4.8 million for the three months ended September 28, 2025 and $(0.7) million for the three months ended September 29, 2024. The net change of $5.5 million between the three months ended September 29, 2024 and the three months ended September 28, 2025 is primarily related to the reduction of interest expense from the payoff of our long-term debt on July 2, 2025 and an increase in interest income on cash balances, which increased following our June 27, 2025 public offering.

Current wording

Total Other Income (Expense), Net. The total other income (expense), net was $5.1 million for the three months ended March 29, 2026 and $(1.2) million for the three months ended March 30, 2025. The net change of $6.3 million between the three months ended March 30, 2025 and the three months ended March 29, 2026 is primarily related to the reduction of interest expense from the payoff of our long-term debt on July 2, 2025 and an increase in interest income on cash balances, which increased following our June 27, 2025 and February 26, 2026 public offerings.

Previous wording

Provision for Income Taxes. The provision for income taxes was $3.2 million for the three months ended September 28, 2025 and $2.6 million for the three months ended September 29, 2024. The provision for income taxes for the three months ended September 28, 2025 and three months ended September 29, 2024 included a benefit of $1.2 million and $0.1 million, respectively, for stock compensation related items. For the three months ended September 28, 2025, the Company utilized the annual effective tax rate method based on the forecasted information provided. For the three months ended September 29, 2024, the Company utilized the discrete effective tax rate method. The discrete method is applied when it is not possible to reliably estimate the full year effective tax rate due to significant permanent differences in relation to pre-tax book income, resulting in significant variability to the effective tax rate.

Current wording

Provision for Income Taxes. The benefit for income taxes was $2.1 million for the three months ended March 29, 2026 and a provision of $0.9 million for the three months ended March 30, 2025. The provision for income taxes for the three months ended March 29, 2026 and three months ended March 30, 2025 included a benefit of $7.3 million and $1.6 million, respectively, for stock compensation related items. For the three months ended March 29, 2026 and March 30, 2025, the Company utilized the annual effective tax rate method based on the forecasted information provided.

Previous wording

On September 28, 2025, we had approximately $1.480 billion of total backlog, of which $1.234 billion was funded. We expect to recognize approximately 19% of the remaining total backlog as revenue in fiscal year 2025, an additional 47% in fiscal year 2026 and the balance thereafter. Our comparable total backlog balance as of September 29, 2024, was approximately $1.294 billion, of which $1.099 billion was funded. Backlog as of September 28, 2025 as compared to September 29, 2024 has increased primarily as a result of contract awards in our Space, Satellite and Training, C5ISR, and Unmanned Systems businesses.

Current wording

On March 29, 2026, we had approximately $2.011 billion of total backlog, of which $1.457 billion was funded. We expect to recognize approximately 37% of the remaining total backlog as revenue in fiscal year 2026, an additional 25% in fiscal year 2027 and the balance thereafter. Our comparable total backlog balance as of March 30, 2025, was approximately $1.508 billion, of which $1.174 billion was funded. Backlog as of March 29, 2026 as compared to March 30, 2025 has increased primarily as a result of contract awards in our Space, Satellite and Training, Defense Rocket Support Services and Unmanned Systems businesses, as well as the impact of the acquisitions of Nomad and Orbit which contributed approximately $184.4 million to the increase in backlog.

Previous wording

As of September 28, 2025, we had cash and cash equivalents of $565.9 million compared with cash and cash equivalents of $329.3 million as of December 29, 2024, which includes $18.0 million and $40.2 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 March 29, 2026, we had cash and cash equivalents of $1,464.3 million compared with cash and cash equivalents of $560.6 million as of December 28, 2025, which includes $80.2 million and $30.3 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 $185.0 million at December 29, 2024 to zero at September 28, 2025, reflecting the extinguishment on July 2, 2025 of all outstanding Term Loan A debt under the 2022 Credit Facility. The then outstanding Term Loan A aggregate principal balance of $177.5 million, plus accrued interest, was paid in full utilizing a portion of the proceeds we received from the June 27, 2025 public equity offering that generated net proceeds of approximately $555.9 million, which is described further in Note 12 to the accompanying unaudited condensed consolidated financial statements. The undrawn $200 million revolving credit facility referred to above remains active and available to the Company.

Current wording

Our total long-term debt at March 29, 2026 remains at zero reflecting the extinguishment on July 2, 2025 of all outstanding Term Loan A debt under the 2022 Credit Facility. The then outstanding Term Loan A aggregate principal balance of $177.5 million, plus accrued interest, was paid in full utilizing a portion of the proceeds we received from the June 27, 2025 public equity offering that generated net proceeds of approximately $555.9 million, which is described further in Note 11 to the accompanying unaudited condensed consolidated financial statements. The new undrawn $300.0 million revolving credit facility (see Note 9) remains active and available to the Company less approximately $31.2 million of letters of credit outstanding.

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 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 28, 2025, approximately $31.5 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 and certain investments we are making for unmanned systems initiatives. 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 increased from 104 days as of December 29, 2024 to 111 days at September 28, 2025, primarily reflecting the timing of outstanding contractual billing milestones and our internal revenue growth. Our DSO's 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 three months ended March 29, 2026, approximately $26.5 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 and certain investments we are making for unmanned systems initiatives. 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 increased from 124 days as of December 28, 2025 to 130 days at March 29, 2026, primarily reflecting the timing of outstanding contractual billing milestones and our internal revenue growth as well as the impact of the recent Nomad and Orbit acquisitions. Our DSO's are impacted by the achievement of contractual billing milestones such as equipment shipments and deliveries on certain products, the receipt of contractual funding, 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

Net cash used in operating activities was $54.2 million for the nine months ended September 28, 2025. Net cash used in operating activities for the nine months ended September 28, 2025 was primarily a result of net income of $16.1 million and changes in net working capital accounts of $140.6 million partially offset by noncash charges of $70.3 million which primarily includes stock compensation, depreciation and amortization. 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 primarily includes stock compensation, depreciation and amortization.

Current wording

Net cash used in operating activities was $27.4 million for the three months ended March 29, 2026. Net cash used in operating activities for the three months ended March 29, 2026 was primarily a result of net income of $11.9 million and changes in net working capital accounts of $75.8 million partially offset by noncash charges of $36.5 million which primarily includes stock compensation, depreciation and amortization. Net cash used in operating activities was $29.2 million for the three months ended March 30, 2025. Net cash used in operating activities for the three months ended March 30, 2025 was primarily a result of net income of $4.5 million and changes in net working capital accounts of $56.0 million partially offset by noncash charges of $22.3 million which primarily includes stock compensation, depreciation and amortization.

Previous wording

Net cash used in investing activities was $71.1 million for the nine months ended September 28, 2025 and is comprised entirely of capital expenditures. During the nine months ended September 28, 2025, capital expenditures of approximately $25.8 million were incurred in our US business, primarily related to our unmanned tactical initiative. We expect our capital expenditures for fiscal year 2025 to continue to be significant for investments we are making, specifically in our US business totaling approximately $35 to $40 million, including approximately $25 to $30 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 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.

Current wording

Net cash used in investing activities was $365.1 million for the three months ended March 29, 2026 and is comprised primarily of $347.4 million of payments for acquisitions and $19.9 million of capital expenditures. During the three months ended March 29, 2026, capital expenditures of approximately $6.7 million were incurred in our US business, primarily related to our unmanned tactical initiative. We expect our capital expenditures for fiscal year 2026 to continue to be significant for investments we are making, specifically in our US business totaling approximately $35 to $40 million, including approximately $25 to $30 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. The Company’s small jet engines are currently “designed in” on certain cruise missiles and loitering munitions, certain of which the Company may receive indications of or production contracts for, which could result in the Company ordering or acquiring related hardware for in 2026, which could impact our cash flow. Net cash used in investing activities was $22.6 million for the three months ended March 30, 2025 and is primarily comprised of $22.6 million in capital expenditures. During the three months ended March 30, 2025, capital expenditures of approximately $8.3 million were incurred in our US business, primarily related to our unmanned tactical initiative.

Previous wording

Net cash provided by financing activities was $360.2 million for the nine months ended September 28, 2025, which included employee stock purchase plan receipts of $9.9 million and net proceeds from the issuance of common stock of approximately $555.9 million (see Note 12 to the accompanying unaudited condensed consolidated financial statements). These proceeds were partially offset by $185.0 million of principal payments on our Term Loan A, which was extinguished on July 2, 2025, payroll withholding taxes paid from vested restricted stock traded for taxes of $19.2 million and payments made on financing lease obligations of $1.4 million. 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.

Current wording

Net cash provided by financing activities was $1,297.3 million for the three months ended March 29, 2026, which included net proceeds from the issuance of common stock of approximately $1,348.6 million (see Note 11 to the accompanying unaudited condensed consolidated financial statements) and employee stock purchase plan receipts of $5.3 million. These receipts were partially offset by payroll withholding taxes paid from vested restricted stock traded for taxes of $54.9 million, and payments made on financing lease obligations of $0.9 million. Net cash used in financing activities was $14.5 million for the three months ended March 30, 2025, which included $2.5 million of principal payments on our Term Loan A, payroll withholding taxes paid from vested restricted stock traded for taxes of $16.2 million and payments made on financing lease obligations of $0.4 million. These uses were partially offset by employee stock purchase plan receipts of $4.6 million.

Previous wording

On February 18, 2022, we completed the refinancing of our 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. We incurred debt issuance costs of $3.3 million associated with the 2022 Credit Facility. On July 2, 2025, we extinguished all outstanding Term Loan A debt under the 2022 Credit Facility. The then outstanding Term Loan A aggregate principal balance of $177.5 million, plus accrued interest, was paid in full utilizing a portion of the proceeds we received from the June 27, 2025 public equity offering, which is described further in Note 12 to the accompanying unaudited condensed consolidated financial statements. We incurred a loss on the extinguishment of the debt of $0.5 million related to the write-off of unamortized debt issuance costs. The undrawn $200 million revolving credit facility under the 2022 Credit Facility remains active and available to the Company.

Current wording

On February 18, 2022, the Company completed the refinancing of its then-outstanding $90 million revolving credit facility and $300 million 6.5% Senior Secured Notes, with a 5-year $200 million Revolving Credit Facility and 5-year $200 million Term Loan A (collectively, the “2022 Credit Facility”). The Company incurred debt issuance costs of $3.3 million associated with the 2022 Credit Facility. On July 2, 2025, the Company extinguished all outstanding Term Loan A debt under the 2022 Credit Facility. The then-outstanding Term Loan A aggregate principal balance of $177.5 million, plus accrued interest, was paid in full utilizing a portion of the proceeds received from the June 27, 2025 public equity offering, which is described further in Note 11. The Company incurred a loss on the extinguishment of the debt of $0.5 million during the three months ended September 28, 2025 related to the write-off of unamortized debt issuance costs. This loss is included in Other income (expense) in the condensed consolidated statement of operations. The undrawn $200 million revolving credit facility under the 2022 Credit Facility remained active and available to the Company through the February 20, 2026 refinancing described below.

Previous wording

The 2022 Credit Facility is governed by a Credit Agreement (the “Credit Agreement”), which establishes the 5-year senior secured credit facility which is comprised of the $200 million Revolving Credit Facility (which includes sub-facilities for the incurrence of up to $10.0 million of swingline loans and the issuance of up to $50.0 million of Letters of Credit) and the $200 million Term Loan A (which was paid fully on July 2, 2025). The Credit Agreement contemplates uncommitted incremental credit facilities of up to $200 million (which amount would be reduced by the aggregate amount of any and all incremental credit facilities actually established under the Credit Agreement) plus additional uncommitted incremental capacity subject to a limitation based on the Company’s pro forma total net leverage ratio (including any such additional uncommitted incremental capacity).

Current wording

The 2022 Credit Facility was governed by a Credit Agreement (the “2022 Credit Agreement”), which established a 5-year senior secured credit facility which was comprised of a $200 million Revolving Credit Facility (which included sub-facilities for the incurrence of up to $10.0 million of swingline loans and the issuance of up to $50.0 million of Letters of Credit) and the $200 million Term Loan A. The 2022 Credit Agreement contemplated uncommitted incremental credit facilities of up to $200 million (which amount would be reduced by the aggregate amount of any and all incremental credit facilities actually established under the 2022 Credit Agreement) plus additional uncommitted incremental capacity subject to a limitation based on the Company’s pro forma total net leverage ratio (including any such additional uncommitted incremental capacity).

Previous wording

Borrowings under the Revolving Credit Facility may take the form of base rate loans or SOFR loans. Base rate loans under the Credit Agreement will bear interest at a rate per annum equal to the sum of the Applicable Margin (as defined in the Credit Agreement) from time to time in effect plus the highest of (i) the Agent’s (as defined in the Credit Agreement) prime lending rate, as in effect at such time, (ii) the Federal Funds Rate (as defined in the Credit Agreement), as in effect at such time, plus 0.50%, (iii) the Adjusted Term SOFR (as defined in the Credit Agreement) for a one-month tenor in effect on such day, plus 1.00% and (iv) 1.00%. SOFR loans will bear interest a rate per annum equal to the sum of the Applicable Margin from time to time in effect plus the Adjusted Term SOFR for an Interest Period (as defined in the Credit Agreement) selected by the Company of one, three or six months. The Applicable Margin varies between 1.25% and 2.25% per annum for SOFR loans and between 0.25% and 1.25% per annum for base rate loans, and is based on the Company’s total net leverage ratio from time to time. The Credit Agreement contains certain covenants, which include, but are not limited to, restrictions on indebtedness, liens, fundamental changes, restricted payments, asset sales, and investments, and places limits on various other payments. We were in compliance with the covenants contained in the Credit Agreement as of September 28, 2025.

Current wording

Borrowings under the revolving credit facility and the term loan credit facility may take the form of base rate loans or Secured Overnight Financing Rate (“SOFR”) loans. Base rate loans under the 2022 Credit Agreement bore interest at a rate per annum equal to the sum of the Applicable Margin (as defined in the Credit Agreement) from time to time in effect plus the highest of (i) the Agent’s (as defined in the 2022 Credit Agreement) prime lending rate, as in effect at such time, (ii) the Federal Funds Rate (as defined in the 2022 Credit Agreement), as in effect at such time, plus 0.50%, (iii) the Adjusted Term SOFR (as defined in the 2022 Credit Agreement) for a one-month tenor in effect on such day, plus 1.00% and (iv) 1.00%. SOFR loans will bear interest at a rate per annum equal to the sum of the Applicable Margin from time to time in effect plus the Adjusted Term SOFR for an Interest Period (as defined in the 2022 Credit Agreement) selected by the Company of one, three or six months. The Applicable Margin varied between 1.25% and 2.25% per annum for SOFR loans and between 0.25% and 1.25% per annum for base rate loans, and is based on the Company’s total net leverage ratio from time to time.

Previous wording

On April 28, 2023, we entered into an interest rate swap contract to hedge U.S. dollar-one month Term SOFR in order to fix the interest rate movements associated with the Company’s Term Loan A. The initial hedge amount was $195.0 million and amortizes in accordance with Term Loan A. The swap is at a fixed rate one-month term SOFR of 3.721% and settles monthly on the last day of each calendar month. The swap has an effective date of May 1, 2023 and was set to terminate on May 1, 2026. On June 30, 2025, in anticipation of the extinguishment of all outstanding Term Loan A debt under the 2022 Credit Facility, we terminated the swap.

Current wording

On April 28, 2023, the Company entered into an interest rate swap contract to hedge U.S. dollar-one month Term SOFR in order to fix the interest rate movements associated with the Company’s Term Loan A. The initial hedge amount was $195.0 million and amortized in accordance with Term Loan A. The swap was at a fixed rate of one-month term SOFR of 3.721% and settled monthly on the last day of each calendar month. The swap had an effective date of May 1, 2023 and was scheduled to terminate on May 1, 2026. On June 30, 2025, in anticipation of the extinguishment of Term Loan A, the Company terminated the swap. The Company received a payment of approximately $0.3 million representing the termination value of the swap. Refer to Note 14 for further discussion of the accounting treatment of the swap arrangement.

Previous wording

We believe that our cash on hand, together with funds available under the undrawn $200 million revolving credit facility under the 2022 Credit Facility and cash expected to be generated from operating activities, will be sufficient to fund our anticipated working capital and other cash needs for at least the next 12 months. As discussed below and in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K, our quarterly and annual operating results have fluctuated in the past and may vary in the future due to a variety of factors, many of which are outside our control. If the conditions in our industry deteriorate or our customers cancel or postpone projects or if we are unable to sufficiently increase our revenues or further reduce our expenses, we may experience a significant long-term negative impact to our financial results and cash flows from operations. In such a situation, we could fall out of compliance with our financial and other covenants, which, if not waived, could limit our liquidity and capital resources.

Current wording

We believe that our cash on hand, together with funds available under the undrawn $300.0 million revolving credit facility under the 2026 Credit Facility and cash expected to be generated from operating activities, will be sufficient to fund our anticipated working capital and other cash needs for at least the next 12 months. As discussed below and in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K, our quarterly and annual operating results have fluctuated in the past and may vary in the future due to a variety of factors, many of which are outside our control. If the conditions in our industry deteriorate or our customers cancel or postpone projects or if we are unable to sufficiently increase our revenues or further reduce our expenses, we may experience a significant long-term negative impact to our financial results and cash flows from operations. In such a situation, we could fall out of compliance with our financial and other covenants, which, if not waived, could limit our liquidity and capital resources.

Previous wording

There have been no significant changes to our “Critical Accounting Policies or Estimates” as compared to the significant accounting policies described in our Annual Report on Form 10-K.

Current wording

There have been no other significant changes to our “Critical Accounting Policies or Estimates” as compared to the significant accounting policies described in our Annual Report on Form 10-K.