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, our opportunities, and our expected future capital expenditures. 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 War 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 28, 2025 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 23, 2026 (the “Form 10-K”), and in other reports that we have filed with the SEC. These forward-looking statements reflec…

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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, our opportunities, and our expected future capital expenditures. 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 War 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 duration of the current continuing resolution, the timing and amount of fiscal year 2027 appropriations and the potential for a Federal government shutdown; 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, including our expanded operations in Israel following the Orbit acquisition, the conflicts in the Middle East, including Israel and Iran, and in Ukraine, and fluctuations in foreign currency exchange rates, including the Israeli Shekel; risks associated with debt leverage; failure to successfully achieve our integration, cost reduction or divestiture strategies, including with respect to the Nomad, Orbit and Jetset acquisitions; risks related to security breaches, cybersecurity attacks or other significant disruptions of our information systems; risks related to tari…

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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 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 including the procurement of supply chain components for 3,000 jet engines we expect to produce in the next 15 months to address backlog, expected customer demand, current opportunity pipeline, and expected and potential future program and contract awards, including from or with the Department of War, traditional legacy prime …

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Current wording

Kratos is a technology, hardware, 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 or other defense technology companies 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 including the procurement of supply chain components for approximately 3,000 turbojet engines we expect to produce in 2027, of which we currently expect to deliver approximately 1,500 to customers in 2027 and the remainder in 2028, to address backlog, expected customer demand, cu…

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Previous 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.

Current wording

There is a generational rebuild of the United States, its allies and NATO’s respective Defense Industrial Bases underway as a result of the deteriorating geopolitical situation, and an increased global threat environment, 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 $140 billion of the $156 billion in OBBBA funding for defense and national security priorities was programmatically or contractually obligated or expended by September 30, 2026.

Previous wording

On February 3, 2026 President Trump signed the Consolidated Appropriations Act, 2026 (H.R. 7148) a $1.2 trillion funding package, that ended a brief government shutdown that began on February 1, 2026. This law provides funding for most federal agencies, including the DoW, through September 30, 2026. The funding bill includes $838.7 billion in defense appropriations for the DoW. This $838.7 billion, plus the approximate $113 billion included in the OBBBA noted above, and including approximately $45 billion in Department of Energy National Security related funds, brought the initial expected total U.S. Federal Fiscal Year 2026 National Security spend to approximately $1 trillion. In February, 2026, the Secretary of War announced that the $156 billion in the OBBBA for defense and National Security would be entirely expended in fiscal 2026, increasing the expected 2026 National Security spend above $1 trillion.

Current wording

On February 3, 2026 President Trump signed the Consolidated Appropriations Act, 2026 (H.R. 7148) a $1.2 trillion funding package, that ended a brief government shutdown that began on February 1, 2026. This law provides funding for most federal agencies, including the DoW, through September 30, 2026. The funding bill includes $838.7 billion in defense appropriations for the DoW. This $838.7 billion, plus the approximate $140 billion included in the OBBBA noted above, and also including approximately $45 billion in Department of Energy National Security related funds, brought the expected total U.S. Federal Fiscal Year 2026 National Security spend to approximately $1 trillion.

Previous wording

On April 3, 2026, the Administration released the Fiscal Year 2027 Defense request proposal. This proposal seeks a $1.5 trillion defense expenditure, including a large discretionary base funding of approximately $1.15 trillion and an additional $350 billion of mandatory funding through a new reconciliation bill. The fiscal 2027 Defense Request and related Reconciliation Bill are expected to include significant funding for Golden Dome, Space and Satellite communications, unmanned systems and artificial intelligence, missiles, radars and air defense systems, the nuclear triad and many other systems, initiatives and programs. Additionally, the Administration recently submitted an $88 billion supplemental funding request for FY 2026, of which $67 billion is intended to address costs associated with the Iran conflict and other defense priorities. The FY 2027 defense budget proposal and the 2026 supplemental funding request are subject to Congressional approval, and it is not assured when or if they will be enacted at the levels proposed or that increases in funding will result into increased orders for our programs.

Current wording

On April 3, 2026, the Administration released the Fiscal Year 2027 Defense request proposal. This proposal seeks a $1.5 trillion defense expenditure, including discretionary base funding of approximately $1.15 trillion and an additional $350 billion of funding through a new 2027 reconciliation bill. The fiscal 2027 Defense Request and related Reconciliation Bill are expected to include significant funding for certain priorities of the current presidential Administration, including Golden Dome, Space and Satellite communications, unmanned systems and artificial intelligence, missiles, radars and air defense systems, the nuclear triad and many other systems, initiatives and programs. Additionally, the Administration recently submitted an $88 billion supplemental funding request for FY 2026, of which $67 billion is intended to address costs and munitions expenditures associated with the Iran conflict and other defense priorities. The FY 2027 defense budget proposal and the 2026 supplemental funding request are subject to Congressional approval, and it is not assured when or if they will be enacted at the levels proposed or that increases in funding will result in increased orders for either the industry or our programs. On September 2, 2026, the Continuing Appropriations Act, 2027 (P.L. 119-103) was enacted, providing funding for federal agencies, including the DoW, through December 11, 2026, generally at fiscal year 2026 levels and subject to customary restrictions on new program starts and increases in production rates. As of the date of this Quarterly Report, none of the regular fiscal year 2027 appropriations bills has been enacted, and we expect the continuing resolution to be extended beyond December 11, 2026.

Previous 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.

Current wording

The potential challenges presented by differing U.S. Government political and related budgetary priorities, recent Congressional changes, including the Democrats obtaining control of the U.S. House of Representatives and Senate as a result of the election on November 3, 2026, the current budgetary and deficit funding environment, the current Administration’s stated fiscal policies, an 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 current Administration has executed certain executive orders directly related to significantly changing the certain DoW procurement policies and procedures, and the Federal Acquisition Regulations, etc., 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

We believe continued budget and deficit funding pressures (which are expected), CRAs (which are also expected), future Federal Government debt ceiling issues, and potential 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.

Current wording

We believe continued budget and deficit funding pressures (which are expected), CRs (which are expected), future Federal Government debt ceiling issues (which are expected), and potential Federal Government shutdowns or disruptions could have serious negative consequences for the security of our country and the defense industrial base, including the Company and 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 could have long-term implications for the entire defense industry and for our Company. 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 also continue to be affected by various unfavorable macroeconomic conditions including adverse supply chain disruptions as well as cost increases that continue throughout the industry and for Kratos, and related delays in the receipt and delivery of materials, parts, supplies, etc., including the impact of the increased demand for certain electronics and SD cards resulting from consumption by AI data centers, 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 as well as cost increases that continue throughout the industry and for Kratos, and related delays in the receipt and delivery of materials, parts, supplies, etc. These industry and Company related issues also include the impact of the increased demand for certain electronics and SD cards resulting from consumption by AI data centers, which in certain instances and for certain items is significant. To mitigate the impact of certain delays, we have implemented advanced and larger lot purchases of certain materials and parts where we can and practical, 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

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.

Current wording

Additionally, an industry wide shortage of qualified labor, and the cost of that labor for the Company 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, including 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 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.

Current wording

We do believe that our business is well-positioned, including in areas that the current Administration, the DoW, national security related and other customers currently indicate are priorities, including 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 technology and 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 $107.3 million to $458.8 million for the three months ended June 28, 2026 from $351.5 million for the three months ended June 29, 2025. Revenues in our KGS segment increased $101.4 million primarily due to increased revenues in our Defense Rocket Support business driven by our hypersonic systems business, as well as growth in our turbine technologies, microwave products and space and training businesses, and the contribution of $18.8 million in revenue from the recent acquisition of Nomad Global Communication Solutions, and $21.4 million in revenue from the recent acquisition of Orbit Technologies. Revenues in our US segment were $79.1 million for the three months ended June 28, 2026, an increase of $5.9 million from $73.2 million in the three months ended June 29, 2025, primarily as a result of Valkyrie aircraft related production during the three months ended June 28, 2026.

Current wording

Revenues increased $124.2 million to $471.8 million for the three months ended September 27, 2026 from $347.6 million for the three months ended September 28, 2025. Revenues in our KGS segment increased $136.8 million primarily due to increased revenues in our Defense Rocket Support business driven by our hypersonic systems business, as well as growth in our turbine technologies, microwave products and space and training businesses, and the contribution of $20.4 million in revenue from the recent acquisition of Nomad Global Communication Solutions, and $23.3 million in revenue from the recent acquisition of Orbit Technologies. Revenues in our US segment were $74.6 million for the three months ended September 27, 2026, a decrease of $12.6 million from $87.2 million in the three months ended September 28, 2025, which included a shipment of approximately $16.1 million of Valkyrie aircraft to an international customer during the three months ended September 28, 2025.

Previous wording

Product sales increased $72.5 million to $289.1 million for the three months ended June 28, 2026 from $216.6 million for the three months ended June 29, 2025, primarily due to the acquisitions of Nomad and Orbit, as well as increased production in our KGS and US segments. As a percentage of total consolidated revenues, product sales were 63.0% for the three months ended June 28, 2026 as compared to 61.6% for the three months ended June 29, 2025. Service revenues increased by $34.8 million to $169.7 million for the three months ended June 28, 2026 from $134.9 million for the three months ended June 29, 2025, primarily related to increased activity in our defense rocket support business in our KGS segment.

Current wording

Product sales increased $64.7 million to $294.9 million for the three months ended September 27, 2026 from $230.2 million for the three months ended September 28, 2025, due in part to the acquisitions of Nomad and Orbit, as well as increased production in our hypersonic, space and training, and microwave electronics businesses. As a percentage of total consolidated revenues, product sales were 62.5% for the three months ended September 27, 2026 as compared to 66.2% for the three months ended September 28, 2025. Service revenues increased by $59.5 million to $176.9 million for the three months ended September 27, 2026 from $117.4 million for the three months ended September 28, 2025, primarily related to increased activity in our defense rocket support and turbine technologies businesses in our KGS segment.

Previous wording

Cost of Revenues. Cost of revenues increased $81.0 million to $358.7 million for the three months ended June 28, 2026 from $277.7 million for the three months ended June 29, 2025. The increase in cost of revenues was primarily due to increased revenues in our Defense Rocket Support business driven by our hypersonic systems business, as well as the acquisitions of Nomad and Orbit and the impact of increased labor and material costs.

Current wording

Cost of Revenues. Cost of revenues increased $95.3 million to $365.8 million for the three months ended September 27, 2026 from $270.5 million for the three months ended September 28, 2025. The increase in cost of revenues was primarily due to increased revenues in our KGS business driven by our hypersonic systems business, turbine technologies, microwave products and space, training and cyber businesses, as well as the acquisitions of Nomad and Orbit and the impact of increased labor and material costs. Cost of revenues for the three months ended September 27, 2026 included $12.3 million of amortization of capitalized contract and development costs primarily related to the delivery of certain hypersonic systems, primarily in our KGS segment, compared to $1.2 million for the three months ended September 28, 2025.

Previous wording

Gross Margin. Gross margin increased to 21.8% for the three months ended June 28, 2026 from 21.0% for the three months ended June 29, 2025. Margins on services increased to 22.5% for the three months ended June 28, 2026 from 20.5% for the three months ended June 29, 2025. Margins on products increased to 21.4% for the three months ended June 28, 2026 from 21.3% for the three months ended June 29, 2025. Margins in the KGS segment increased to 22.9% for the three months ended June 28, 2026 from 22.3% for the three months ended June 29, 2025. Margins in the US segment increased to 16.7% for the three months ended June 28, 2026 from 15.8% for the three months ended June 29, 2025.

Current wording

Gross Margin. Gross margin increased to 22.5% for the three months ended September 27, 2026 from 22.2% for the three months ended September 28, 2025. Margins on services decreased to 21.7% for the three months ended September 27, 2026 from 22.3% for the three months ended September 28, 2025. Margins on products increased to 23.0% for the three months ended September 27, 2026 from 22.1% for the three months ended September 28, 2025. Margins in the KGS segment decreased to 22.9% for the three months ended September 27, 2026 from 23.9% for the three months ended September 28, 2025. Margins in the US segment increased to 20.0% for the three months ended September 27, 2026 from 17.0% for the three months ended September 28, 2025.

Previous wording

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses increased $27.4 million to $87.3 million for the three months ended June 28, 2026 from $59.9 million for the three months ended June 29, 2025 due primarily to increased amortization expense of $8.8 million related to the acquisitions of Nomad and Orbit, increased stock compensation expense of $7.7 million, and the impact of increased revenue volume and headcount. As a percentage of revenues, SG&A increased to 19.0% at June 28, 2026 from 17.0% at June 29, 2025.

Current wording

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses increased $35.2 million to $95.0 million for the three months ended September 27, 2026 from $59.8 million for the three months ended September 28, 2025. This increase was primarily due to the inclusion of operating costs from the recent acquisitions of Nomad and Orbit, higher intangible amortization expense of $8.7 million related to these acquisitions, an increase in stock compensation expense of $9.0 million, and the impact of increased revenue volume and headcount. As a percentage of revenues, SG&A increased to 20.1% at September 27, 2026 from 17.2% at September 28, 2025.

Previous wording

R&D increased to 3.0% for the three months ended June 28, 2026 from 2.9% for the three months ended June 29, 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.

Current wording

Research and Development (“R&D”) Expenses. R&D expenses increased to $15.0 million for the three months ended September 27, 2026 from $10.0 million for September 28, 2025 primarily due to the acquisition of Orbit. As a percentage of revenues, R&D increased to 3.2% for the three months ended September 27, 2026 from 2.9% for the three months ended September 28, 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, Net. The total other income, net was $8.6 million for the three months ended June 28, 2026 and $0.9 million for the three months ended June 29, 2025. The net change of $7.7 million between the three months ended June 29, 2025 and the three months ended June 28, 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.

Current wording

Total Other Income, Net. The total other income, net was $9.5 million for the three months ended September 27, 2026 and $4.8 million for the three months ended September 28, 2025. The net change of $4.7 million between the three months ended September 28, 2025 and the three months ended September 27, 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 for the three months ended June 28, 2026 and the three months ended June 29, 2025 was $2.6 million and $1.7 million, respectively. The provision for income taxes for the three months ended June 28, 2026 and three months ended June 29, 2025 included a benefit of $1.7 million and $0.6 million, respectively, for stock compensation related items. For the three months ended June 28, 2026 and June 29, 2025, the Company utilized the annual effective tax rate method based on the forecasted information provided.

Current wording

Provision for Income Taxes. The provision for income taxes for the three months ended September 27, 2026 and the three months ended September 28, 2025 was $4.8 million and $3.2 million, respectively. The higher provision for income taxes for the three months ended September 27, 2026 when compared to the three months ended September 28, 2025 primarily relates to the jurisdictional mix of earnings and $1.0 million less discrete tax benefits for stock compensation related items. For the three months ended September 27, 2026 and September 28, 2025, the Company utilized the annual effective tax rate method based on the forecasted information provided.

Previous wording

Comparison of Results for the Six Months Ended June 28, 2026 to the Six Months Ended June 29, 2025

Current wording

Comparison of Results for the Nine Months Ended September 27, 2026 to the Nine Months Ended September 28, 2025

Previous wording

Revenues. Revenues by reporting segment for the six months ended June 28, 2026 and June 29, 2025 are as follows (dollars in millions):

Current wording

Revenues. Revenues by reporting segment for the nine months ended September 27, 2026 and September 28, 2025 are as follows (dollars in millions):

Previous wording

Revenues increased $175.7 million to $829.8 million for the six months ended June 28, 2026 from $654.1 million for the six months ended June 29, 2025. Revenues in our KGS segment increased $150.3 million, primarily due to increased revenues in our Defense Rocket Support business driven by our hypersonic business, as well as growth in our Space, Cyber and Training, Turbine Technologies and Microwave Products businesses, and the contribution of $26.2 million and $34.8 million in revenues from the acquisitions of Nomad and Orbit, respectively. Revenues in our US segment were $161.7 million for the six months ended June 28, 2026, an increase of $25.4 million from $136.3 million for the six months ended June 29, 2025, primarily reflecting increased tactical drone activity during the six months ended June 28, 2026.

Current wording

Revenues increased $299.9 million to $1,301.6 million for the nine months ended September 27, 2026 from $1,001.7 million for the nine months ended September 28, 2025. Revenues in our KGS segment increased $287.1 million, primarily due to increased revenues in our Defense Rocket Support business driven by our hypersonic business, as well as growth in our Space, Cyber and Training, Turbine Technologies and Microwave Products businesses, and the contribution of $46.6 million and $58.0 million in revenues from the acquisitions of Nomad and Orbit, respectively. Revenues in our US segment were $236.3 million for the nine months ended September 27, 2026, an increase of $12.8 million from $223.5 million for the nine months ended September 28, 2025, primarily reflecting increased tactical drone activity during the nine months ended September 27, 2026.

Previous wording

Product sales increased $109.3 million to $526.1 million for the six months ended June 28, 2026 from $416.8 million for the six months ended June 29, 2025, primarily due to increased production activity in the Company’s US Segment and in the Defense Rocket Support, Space, Training and Cyber, Microwave Products and Turbine Technologies businesses in KGS, as well as the acquisitions of Nomad and Orbit. As a percentage of total revenue, product sales were 63.4% for the six months ended June 28, 2026 as compared to 63.7% for the six months ended June 29, 2025. Service revenues increased by $66.4 million to $303.7 million for the six months ended June 28, 2026 from $237.3 million for the six months ended June 29, 2025. The increase was primarily related to increased activity in our defense rocket support businesses in our KGS segment.

Current wording

Product sales increased $174.0 million to $821.0 million for the nine months ended September 27, 2026 from $647.0 million for the nine months ended September 28, 2025, primarily due to increased production activity in the Company’s US Segment and in the Defense Rocket Support, Space, Training and Cyber, and Microwave Products businesses in KGS, as well as the acquisitions of Nomad and Orbit. As a percentage of total revenue, product sales were 63.1% for the nine months ended September 27, 2026 as compared to 64.6% for the nine months ended September 28, 2025. Service revenues increased by $125.9 million to $480.6 million for the nine months ended September 27, 2026 from $354.7 million for the nine months ended September 28, 2025. The increase was primarily related to increased activity in our defense rocket support and turbine technologies businesses in our KGS segment.

Previous wording

Cost of Revenues. Cost of revenues increased $133.4 million to $640.1 million for the six months ended June 28, 2026 from $506.7 million for the six months ended June 29, 2025. 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.

Current wording

Cost of Revenues. Cost of revenues increased $228.7 million to $1,005.9 million for the nine months ended September 27, 2026 from $777.2 million for the nine months ended September 28, 2025. 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. Cost of revenues for the nine months ended September 27, 2026 included $16.5 million of amortization of capitalized contract and development costs primarily related to the delivery of certain hypersonic systems, primarily in our KGS segment, compared to $3.0 million for the nine months ended September 28, 20255.

Previous wording

Gross Margin. Gross margin increased to 22.9% for the six months ended June 28, 2026 from 22.5% for the six months ended June 29, 2025. Gross margin on services increased to 24.0% for the six months ended June 28, 2026 from 22.9% for the six months ended June 29, 2025. Gross margin on product sales decreased to 22.2% for the six months ended June 28, 2026 from 22.3% for the six months ended June 29, 2025. Gross margin in the KGS segment was 24.3% for the six months ended June 28, 2026, consistent with 24.3% for the six months ended June 29, 2025. Gross margin in the US segment increased to 16.9% for the six months ended June 28, 2026 from 15.8% for the six months ended June 29, 2025 due primarily to the more favorable mix of revenues in the six months ended June 28, 2026.

Current wording

Gross Margin. Gross margin increased to 22.7% for the nine months ended September 27, 2026 from 22.4% for the nine months ended September 28, 2025. Gross margin on services increased to 23.1% for the nine months ended September 27, 2026 from 22.7% for the nine months ended September 28, 2025. Gross margin on product sales increased to 22.5% for the nine months ended September 27, 2026 from 22.2% for the nine months ended September 28, 2025. Gross margin in the KGS segment decreased to 23.8% for the nine months ended September 27, 2026 from 24.2% for the nine months ended September 28, 2025 primarily due to less favorable mix of revenues. Gross margin in the US segment increased to 17.9% for the nine months ended September 27, 2026 from 16.3% for the nine months ended September 28, 2025 due primarily to the more favorable mix of revenues in the nine months ended September 27, 2026.

Previous wording

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses increased $42.7 million from $116.9 million for the six months ended June 29, 2025 to $159.6 million for the six months ended June 28, 2026 due to increased amortization expense of $13.4 million related to the acquisitions of Nomad and Orbit, increased stock compensation expense of $14.0 million, and the impact of increased revenue volume and headcount. As a percentage of revenues, SG&A increased to 19.2% at June 28, 2026, from 17.9% at June 29, 2025.

Current wording

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses increased $77.9 million from $176.7 million for the nine months ended September 28, 2025 to $254.6 million for the nine months ended September 27, 2026. This increase was primarily due to the inclusion of operating costs from the recent acquisitions of Nomad and Orbit, higher intangible amortization expense of $20.0 million related to these acquisitions, an increase in stock compensation expense of $23.0 million, and the impact of increased revenue volume and headcount. As a percentage of revenues, SG&A increased to 19.6% at September 27, 2026, from 17.6% at September 28, 2025.

Previous wording

Research and Development (“R&D”) Expenses. R&D expenses were $24.3 million for the six months ended June 28, 2026 and $20.2 million for the six months ended June 29, 2025. As a percentage of revenues, R&D expenses decreased to 2.9% for the six months ended June 28, 2026 from 3.1% for the six months ended June 29, 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.

Current wording

Research and Development (“R&D”) Expenses. R&D expenses were $39.3 million for the nine months ended September 27, 2026 and $30.2 million for the nine months ended September 28, 2025. As a percentage of revenues, R&D expenses remained consistent at 3.0% for the nine months ended September 27, 2026 and September 28, 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. Total other income (expense), net increased to income of $13.7 million for the six months ended June 28, 2026 from expense of $0.3 million for the six months ended June 29, 2025. The increase in total other income (expense), net of $14.0 million was primarily related to the reduction of interest expense from the payoff of our Term Loan A debt on July 2, 2025 and an increase in interest income on cash balances which increased following our June 27, 2025 and February 27, 2026 public offerings, and due to the receipt of a research and development tax related refund received by one of the Company’s international businesses.

Current wording

Total Other Income, Net. Total other income (expense), net increased to income of $23.2 million for the nine months ended September 27, 2026 from income of $4.5 million for the nine months ended September 28, 2025. The increase in total other income (expense), net of $18.7 million was primarily related to the reduction of interest expense from the payoff of our Term Loan A 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, and due to the receipt of a research and development tax related refund received by one of the Company’s international businesses.

Previous wording

Provision (benefit) for Income Taxes. The provision for income taxes for the six months ended June 28, 2026 and the six months ended June 29, 2025 was $0.5 million and $2.6 million, respectively. The provision for income taxes for the six months ended June 28, 2026 and the six months ended June 29, 2025 include a benefit of $8.9 million and $2.2 million, respectively, for stock compensation related items. For the six months ended June 28, 2026 and June 29, 2025, the Company utilized the annual effective tax rate method based on the forecasted information provided.

Current wording

Provision (benefit) for Income Taxes. The provision for income taxes for the nine months ended September 27, 2026 and the nine months ended September 28, 2025 was $5.3 million and $5.8 million, respectively. The provision for income taxes for the nine months ended September 27, 2026 and the nine months ended September 28, 2025 include a benefit of $9.2 million and $3.4 million, respectively, for stock compensation related items. For the nine months ended September 27, 2026 and September 28, 2025, the Company utilized the annual effective tax rate method based on the forecasted information provided.

Previous wording

On June 28, 2026, we had approximately $2.084 billion of total backlog, of which $1.572 billion was funded. We expect to recognize approximately 35% of the remaining total backlog as revenue in fiscal year 2026, an additional 35% in fiscal year 2027 and the balance thereafter. Our comparable total backlog balance as of June 29, 2025, was approximately $1.414 billion, of which $1.125 billion was funded. Backlog as of June 28, 2026 as compared to June 29, 2025 has increased primarily as a result of contract awards in our Space, Satellite and Training, Defense Rocket Support Services, Microwave Products and Unmanned Systems businesses, as well as the impact of the acquisitions of Nomad and Orbit which contributed approximately $243.4 million to the increase in backlog.

Current wording

On September 27, 2026, we had approximately $2.650 billion of total backlog, of which $2.067 billion was funded. We expect to recognize approximately 16% of the remaining total backlog as revenue in fiscal year 2026, an additional 50% in fiscal year 2027 and the balance thereafter. Our comparable total backlog balance as of September 28, 2025, was approximately $1.480 billion, of which $1.234 billion was funded. Backlog as of September 27, 2026 as compared to September 28, 2025 has increased primarily as a result of contract awards in our Space, Satellite and Training, Defense Rocket Support Services, Microwave Products and Unmanned Systems businesses, as well as the impact of the acquisitions of Nomad and Orbit which contributed approximately $258.1 million to the increase in backlog.

Previous wording

Total backlog is our estimate of the amount of revenue expected to be realized over the remaining life of awarded contracts and task orders that we have in hand as of the measurement date. Total backlog can include award fees, incentive fees, or other variable consideration estimated based on the most likely amount we expect to be entitled to receive, to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur. Total backlog can include both funded and unfunded future revenue under government contracts. Total backlog does not include orders for which neither party has performed and which each party has the unilateral right to terminate a wholly unperformed contract without compensating the other party. As such, total backlog generally does not include options for additional performance obligations which have not been executed unless they are considered a material right of the base agreement/contract. For indefinite delivery or indefinite quantity contracts, only awarded or funded task orders are included for backlog purposes.

Current wording

Total backlog is our estimate of the amount of revenue expected to be realized over the remaining life of awarded contracts and task orders that we have in hand as of the measurement date. Total backlog represents the transaction price allocated to unsatisfied or partially unsatisfied performance obligations under ASC 606 as of the measurement date. Total backlog can include award fees, incentive fees, or other variable consideration estimated based on the most likely amount we expect to be entitled to receive, to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur. Total backlog can include both funded and unfunded future revenue under government contracts. Total backlog does not include orders for which neither party has performed and which each party has the unilateral right to terminate a wholly unperformed contract without compensating the other party. As such, total backlog generally does not include options for additional performance obligations which have not been executed unless they are considered a material right of the base agreement/contract. For indefinite delivery or indefinite quantity contracts, only awarded or funded task orders are included for backlog purposes. The Company has not elected either of the ASC 606 practical expedients related to the disclosure of remaining performance obligations. Accordingly, we disclose the transaction price allocated to all unsatisfied or partially unsatisfied performance obligations, including those with an original expected duration of one year or less and those that include variable consideration dependent on future events.

Previous wording

As of June 28, 2026, we had cash and cash equivalents of $1,437.6 million compared with cash and cash equivalents of $560.6 million as of December 28, 2025, which includes $78.1 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.

Current wording

As of September 27, 2026, we had cash and cash equivalents of $1,404.3 million compared with cash and cash equivalents of $560.6 million as of December 28, 2025, which includes $81.6 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. As of September 27, 2026, we had no amounts outstanding under our new revolving credit facility (see Note 9), with $300.0 million remaining in borrowing capacity, less approximately $1.5 million of domestic letters of credit outstanding. Foreign letters of credit outstanding of $29.0 million do not impact the availability of the revolving credit facility.

Previous wording

Our total long-term debt at June 28, 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 $2.1 million of domestic letters of credit outstanding. Foreign letters of credit outstanding of $29.0 million do not impact the availability of the Revolving Credit Facility.

Current wording

On July 2, 2025 all outstanding Term Loan A debt under the 2022 Credit Facility was extinguished. 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.

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 fluctuations in demand for critical components, 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 six months ended June 28, 2026, approximately $36.6 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 decreased from 124 days as of December 28, 2025 to 114 days at June 28, 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.

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, including to mitigate the impact of supply chain disruptions and price increases. We utilize working capital to fund revenue growth, including purchases of components necessary to ramp our production and provide Kratos with a first to market competitive advantage, fund prepayments required for long lead items necessary for production, fund internal investments of engineering and software development costs and fund capital expenditures. We also utilize our working capital for our internal research and development investments and our ongoing operations, to service our debt, enhance our security infrastructure, including facility and cyber security infrastructure, make strategic acquisitions and other discretionary investments. Financing trade accounts receivable is necessary as our customers may not pay us as quickly as we pay our suppliers, vendors and employees for their goods and services as a number of our receivables are contractually billable and due to us only when certain contractual milestones are achieved. Additionally, 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 fluctuations in demand for critical components, 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, including as related 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 27, 2026, approximately $34.9 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 investments we are making for certain 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 125 days at September 27, 2026, 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, including equipment shipments and deliveries on certain products, the receipt of contractual funding, and for certain flight requirements that must be fulfilled on c…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Net cash used in operating activities was $38.4 million for the six months ended June 28, 2026. Net cash used in operating activities for the six months ended June 28, 2026 was primarily a result of net income of $16.3 million and changes in net working capital accounts of $134.2 million partially offset by noncash charges of $79.5 million which primarily includes stock compensation, depreciation and amortization. Net cash used in operating activities was $40.9 million for the six months ended June 29, 2025. Net cash used in operating activities for the six months ended June 29, 2025 was primarily a result of net income of $7.4 million and changes in net working capital accounts of $94.1 million partially offset by noncash charges of $45.8 million which includes stock compensation, depreciation and amortization.

Current wording

Net cash used in operating activities was $43.6 million for the nine months ended September 27, 2026. Net cash used in operating activities for the nine months ended September 27, 2026 was primarily a result of net income of $16.1 million and changes in net working capital accounts of $180.7 million partially offset by noncash charges of $121.0 million which primarily includes stock compensation, depreciation and amortization. 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 includes stock compensation, depreciation and amortization.

Previous wording

Net cash used in investing activities was $375.3 million for the six months ended June 28, 2026 and is comprised primarily of $346.8 million of payments for acquisitions and $37.1 million of capital expenditures. During the six months ended June 28, 2026, capital expenditures of approximately $10.9 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 drones 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 $43.1 million for the six months ended June 29, 2025 and is comprised of $43.1 million in capital expenditures. During the six months ended June 29, 2025, capital expenditures of approximately $16.8 million were incurred in our US business, primarily related to our unmanned tactical initiative. During the six months ended June 28, 2026, the company funded $6.9 million related to its investment in the Prometheus Energetics (“Prometheus”) joint venture with RAFAEL Advanced Defense Systems, Ltd. (“RAFAEL”). Kratos and RAFAEL (through its U.S. based subsidiary RAFAEL USA) have jointly committed up to a combined total of $175 million in capital for the establishment of Prometheus and required property, plant, equity and personnel needed for the new, state-of-the-art SRM and energetics manufacturing campus and facilities. The Company expects to fund approximately $50 million to the Prometheus joint venture during 2026.

Current wording

Net cash used in investing activities was $408.7 million for the nine months ended September 27, 2026 and is comprised primarily of $346.8 million of payments for acquisitions and $67.3 million of capital expenditures. During the nine months ended September 27, 2026, capital expenditures of approximately $17.7 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, including in our US business totaling approximately $30 to $35 million, including approximately $20 to $25 million for Kratos owned capital aerial drones and related support equipment. The Company is currently producing or anticipates producing several versions of the Valkyrie within the ongoing 24 unit production run, with differing versions based on routine communications with the customers, which mix and ultimate duration of the 24 Lot Build may change as a result. In light of increased customer demand for our Firejet drones, which we expect will require us to approximately triple Firejet manufacturing capacity in Oklahoma City by the end of 2027, we are extending the timing of our previously planned Valkyrie production ramp of up to approximately 40 aircraft annually, which we previously expected to achieve by the beginning of 2028. Both the Valkyrie and Firejet are manufactured in our Oklahoma drone facility, and with the significant expected near-term demand for Firejet, we are managing our resources and capital across our drone portfolio based on evolving customer demand, mix and timing. 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 requirements or production contracts for, which has resulted in the Company initiating the ordering from our supply chain the components to produce approximately 3,000 turbojet engines in 2027, which could impact our cash flow. 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. During the nine months ended September 27, 2026, the company funded $16.1 million related to its investment in the Prometheus Energetics (“Prometheus”) approximately 50/50 joint venture with RAFAEL Advanced Defense Systems, Ltd. (“RAFAEL”). Kratos and RAFAEL (through its U.S. based subsidiary RAFAEL USA) have jointly committed up to a combined total of $175 million in capital for the establishment of Prometheus and required property, plant, equity and personnel needed at the new, state-of-the-art SRM and energetics manufacturing campus and facilities. The Company expects to fund approximately $25 to $35 million to th…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Net cash provided by financing activities was $1,291.2 million for the six months ended June 28, 2026, which included net proceeds from the issuance of common stock of approximately $1,348.4 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 $59.1 million, and payments made on financing lease obligations of $2.0 million. Net cash used in financing activities was $536.3 million for the six months ended June 29, 2025, which included employee stock purchase plan receipts of $4.6 million and net proceeds from the issuance of common stock of approximately $555.9 million (see Note 11 to the accompanying unaudited condensed consolidated financial statements). These proceeds were partially offset by $5.0 million of principal payments on our Term Loan A, payroll withholding taxes paid from vested restricted stock traded for taxes of $18.3 million and payments made on financing lease obligations of $0.9 million.

Current wording

Net cash provided by financing activities was $1,296.5 million for the nine months ended September 27, 2026, which included net proceeds from the issuance of common stock of approximately $1,348.4 million (see Note 11 to the accompanying unaudited condensed consolidated financial statements) and employee stock purchase plan receipts of $12.0 million. These receipts were partially offset by payroll withholding taxes paid from vested restricted stock traded for taxes of $59.3 million, and payments made on financing lease obligations of $3.2 million. 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 11 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.

Previous wording

incremental credit facilities of up to $135.0 million. As of June 28, 2026, the Company has no amounts outstanding under the Revolving Credit Facility, with $300.0 million remaining in borrowing capacity, less approximately $2.1 million of domestic letters of credit outstanding. Foreign letters of credit outstanding of $29.0 million does not impact the availability of the Revolving Credit Facility.

Current wording

incremental credit facilities of up to $135.0 million. As of September 27, 2026, the Company has no amounts outstanding under the Revolving Credit Facility, with $300.0 million remaining in borrowing capacity, less approximately $1.5 million of domestic letters of credit outstanding. Foreign letters of credit outstanding of $29.0 million does not impact the availability of the Revolving Credit Facility.

Previous wording

In connection with the execution of the consummation of the transactions contemplated by the 2026 Credit Agreement,

Current wording

In connection with the execution of the transactions contemplated by the 2026 Credit Agreement, the 2022 Credit Agreement was terminated.

Previous wording

The Company has capitalized and is amortizing the debt issuance costs over the term of the facility. The unamortized balance at June 28, 2026 and December 28, 2025 were $1.6 million and $0.4 million respectively.

Current wording

The Company has capitalized and is amortizing the debt issuance costs over the term of the facility. The unamortized balance at September 27, 2026 and December 28, 2025 were $1.5 million and $0.4 million respectively.

Previous 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.

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 Agreement 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.