KTOS 10-K & 10-Q changes, risk factors and insider trading

•The U.S. Government provides a significant portion of our revenue, and our business could be adversely affected by changes in the fiscal and other policies of the U.S. Government and other governmental entities.

•The loss or delay of one or more of our largest customers, programs, or applications could adversely affect our results of operations.

•Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise, or are dependent upon factors not wholly within our control. Failure to meet these obligations could adversely affect our profitability and future prospects. Early termination of client contractscontracts, pauses or stop work orders by our customers or contract penalties could adversely affect our results of operations.

•Loss of our General Services Administration (“GSA”) contracts or government-wide acquisition contractsGWACs could impair our ability to attract new business.

•We are subject to DoDDoW CMMC requirements issued by the Pentagon which may limit our ability to bid and win projects. The cost for the DoDDoW CMMC requirements may be significant.

Risks Related to our Long-Term BorrowingsIndebtedness

•We havemay substantialborrow long-termunder borrowings,our revolving line of credit, which could adversely affect our cash flow, financial condition and business.

•We and our subsidiaries may incur morelong-term debt,indebtedness, which may increaseintroduce the risks associated with our leverage, including our ability to service our indebtedness.

•A portion of our business is conducted through foreign subsidiaries, and the failure to generate sufficient cash flow from these subsidiaries, or otherwise repatriate or receive cash from these subsidiaries, could result in our inability to repay ourindebtedness indebtedness.that we may incur.

The U.S. Government provides a significant portion of our revenue, and our business could be adversely affected by changes in the fiscal and other policies of the U.S. Government and other governmental entities.

In fiscal 2024,2025, 20232024 and 2022,2023, we generated 67%,68%, 69%67% and 69%, respectively, of our total revenues from contracts with the U.S. Government (including all branches of the U.S. military and FMS), either as a prime contractor or a subcontractor. We expect to continue to derive most of our revenues from work performed under U.S. Government contracts. See the Industry Update section in Item 1 “Business” contained within this Annual Report for a discussion of the current budgetary and funding constraints on U.S. Government spending and legislation enacted to reduce the U.S. federal deficit.spending. As a result, we have experienced and expect to continue to experience reduced or delayed awards on some of our programs, with a related negative impact to our revenues, earnings and cash flows. Competitor bid protests also have become more prevalent in the current competitive environment, which has led to further contract award delays. In addition, any future changes to the fiscal policies of the U.S. Government and foreign governmental entities may decrease overall government funding for defense and homeland security, result in delays in the procurement of our products and services due to lack of funding, cause the U.S. Government and government agencies to reduce their purchases under existing contracts, or cause them to exercise their rights to terminate contracts at-will or to abstain from exercising options to renew contracts, any of which would have an adverse effect on our business, financial condition, results of operations and/or cash flows. Furthermore, on January 20, 2025, President Trump announced an executive order establishing the “Department of Government Efficiency” to maximize government efficiency and productivity. In February 2025, President Trump stated that he has directed DOGE to review Pentagon spending for potential waste and fraud. Pressures on and uncertainty surrounding the U.S. federal government’s budget and potential changes in budgetary priorities, could adversely affect our revenue, financial condition, and results of operations.

The budget environment, including budget caps mandated by the Budget Control Act of 2011 (the “BCA”) for fiscal years 2022 and 2023, which was reinstituted with established budget caps for 2024 and 2025 under The Fiscal Responsibility Act of 2023, and uncertainty surrounding the debt ceiling and the appropriations process, remain significant short and long-term risks for the Company. Considerable uncertainty exists regarding how future budget and program decisions will unfold, including the defense spending priorities of the current administration and Congress, what challenges budget reductions (required by the BCA and otherwise) will present for the defense industry and whether annual appropriations bills for all agencies will be enacted in a timely manner. If annual appropriations bills are not timely enacted, the U.S. Government may again operate under a continuing resolution, restricting new contract or program starts, presenting resource allocation challenges and placing limitations on some planned program budgets, and we may face additional government shutdowns of unknown duration. If a prolonged government shutdown of the DoDDoW were to occur, it could result in program cancellations, disruptions and/or stop work orders and could limit the U.S. Government’s ability to effectively progress programs and to make timely payments, and our ability to perform on our U.S. Government contracts and successfully compete for new work.

Additionally, funding for certain programs in which we participate may be reduced, delayed or cancelled, and budget cuts globally could adversely affect the viability of our subcontractors and suppliers, and our employee base. While we believe that our business is well-positioned in areas that the DoDDoW and other customers have indicated are areas of focus for future defense spending, the long-term impact of the BCA, other defense spending cuts, challenges in the appropriations process, the debt ceiling and the ongoing fiscal debates remain uncertain.

Our reputation and relationship with the U.S. Government, and in particular with the agencies of the DoDDoW and the U.S. intelligence community, are key factors in maintaining and developing new business opportunities. In addition, we often act as a subcontractor or in “teaming” arrangements in which we and other contractors bid together on particular contracts or programs for the U.S. Government or government agencies. We expect to continue to depend on relationships with other prime contractors for a portion of our revenue for the foreseeable future. Negative press reports regarding conflicts of interest, poor contract performance, employee misconduct, information security breaches or other aspects of our business, regardless of accuracy, could harm our reputation. Additionally, as a subcontractor or team member, we often lack control over fulfillment of a contract, and poor performance on the contract could tarnish our reputation, even when we perform as required. As a result, we may be unable to successfully maintain our relationships with government agencies or prime contractors, and any failure to do so could adversely affect our ability to maintain our existing business and compete successfully for new business.

The loss or delay of one or more of our largest customers, programs, or applications could adversely affect our results of operations.

We are dependent on a small number of customers for certain large programs that represent a large portion of our revenues. A significant decrease in the sales to or loss of any of these programs or our major customers would have a material adverse effect on our business and results of operations. In fiscal 20242025 and 2023,2024, the U.S. Air Force accounted for 15.2%12.6% and 22.6%15.2% respectively, of our total revenues and the U.S. Navy accounted for 14.7%17.7% and 13.0%,14.7%, respectively, of our total revenues. No assurance can be given that our customers will not experience financial, technical or other difficulties that could adversely affect their operations and, in turn, our results of operations. We believe that the USAF BQM-167, USN BQM-177, GBSD (also known as Sentinel) and the recently awarded MACH-TB 2.0 programs could represent a large portion of our future revenues in the coming years, and the lossloss, cancellation, or cancellationdelay of any of these programs could adversely affect our future results. Further, new programs may yield lower margins than legacy programs, which could result in an overall reduction in gross margins.

Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise, or are dependent upon factors not wholly within our control. Failure to meet these obligations could adversely affect our profitability and future prospects. Early termination of client contractscontracts, pauses or stop work orders by our customers, or contract penalties could adversely affect our results of operations.

We design, develop, and manufacture technologically advanced and innovative products and services, which are applied by our customers in a variety of environments. Problems and delays in development or delivery as a result of issues with respect to design, technology, licensing and intellectual property rights, labor, inability to achieve learning curve assumptions, manufacturing materials or components could prevent us from meeting requirements. Either we or the customer may generally terminate a contract as a result of a material uncured breach by the other. If we breach a contract or fail to perform in accordance with contractual service levels, delivery schedules, performance specifications, or other contractual requirements set forth therein, the other party thereto may terminate such contract for default, and we may be required to refund money previously paid to us by the customer or to pay penalties or other damages. Even if we have not breached, we may deal with various situations from time to time that may result in the amendment or termination of a contract.contract, or a pause or stop work order. These steps can result in significant current period charges and/or reductions in current or future revenue, and/or delays in collection of outstanding receivables and costs incurred on the contract.contract, and impacts to our profitability. Other factors that may affect revenue and profitability include inaccurate cost estimates, design issues, unforeseen costs and expenses not covered by insurance or indemnification from the customer, diversion of management focus in responding to unforeseen problems, and loss of follow-on work.

Backlog is typically subject to large variations from quarter to quarter and comparisons of backlog from period to period are not necessarily indicative of future revenues. The contracts comprising our backlog may not result in actual revenue in any particular period or at all, and the actual revenue from such contracts may differ from our backlog estimates. The timing of receipt of revenues, if any, on projects included in backlog could change because many factors affect the scheduling of projects. Cancellation of or adjustments to contracts may occur. Additionally, all U.S. Government contracts included in backlog, whether or not funded, may be terminated at the convenience of the U.S. Government.Government, or work can be suspended or paused by our customers. The failure to realize all amounts in our backlog could adversely affect our revenues and gross margins. As a result, our funded, unfunded and total backlog as of any particular date may not be an accurate indicator of our future earnings.

Significant fluctuations in our operating results for a particular quarter could cause us to fall out of compliance with the financial covenants related to our debt which, if not waived, could restrict our access to capital and cause us to take extreme measures to pay down theoutstanding debt,indebtedness, if any, under our five-year $200 million Revolving Credit Facility andor five-yearany $200future million Term Loan A entered into on February 18, 2022 (collectively, the “2022 Credit Facility”).indebtedness. In addition, fluctuations in our financial results could cause our stock price to decline. See the risks and uncertainties related to our ability to raise additional capital below in “We may need additional capital to fund the growth of our business, and financing may not be available on favorable terms or at all.”

Given the current market conditions and continued economicbudget uncertaintyand indeficit thefunding U.S. defense industry,pressures, including sequestration and issues surrounding the national debt ceiling and inflationary impacts and cost input increases to certain of our businesses, our future revenues, profits and cash flows could be substantially lower than our current projections. Market conditions, including increased price competitiveness specifically in the government services space, and procurements awarded on an LPTA rather than a best value basis, and the impact of increased cost inputs can significantly impact our projections. In addition, our ability to penetrate new international markets could also impact our current projections. Additional market factors could impact our projections and our ability to successfully develop new products and platforms. For example, our US reporting unit forecasts include the successful completion of certain performance criteria on new unmanned systems platforms, and acceptance of new unmanned systems platforms on a technical basis as well as from a political and government budgetary standpoint, including the assumption that products we have developed or will develop will become programs of record. In addition, market-based inputs to the calculations in the impairment test, such as weighted average cost of capital, and market multiples, could also be negatively impacted. Such circumstances may result in the future deterioration of the fair value of our reporting units and an impairment of our goodwill. Due to continual changes in market and general business conditions, we cannot predict whether, and to what extent, our goodwill and long-lived intangible assets may be impaired in future periods. Any resulting impairment loss could harm our profitability and financial condition.

Given the current market conditions and continued economic uncertainty in the U.S. defense industry and issues surrounding the national debt ceiling impacts to certain of our businesses, including disruptions in supply chain and inflationary impacts, our future revenues, profits, cash flows, and taxable income could be substantially lower than our then-current projections. Market conditions, including increased price competitiveness specifically in the government services space, and procurements awarded on an LPTA rather than a best value basis, and the impact of increased cost inputs can significantly impact our projections. In addition, our ability to penetrate new international markets could also impact our current projections. Additional market factors could impact our projections and our ability to successfully develop new products and platforms. For example, our US reporting unit forecasts include the successful completion of certain performance criteria on new unmanned systems platforms, and acceptance of new unmanned systems platforms on a technical basis as well as from a political and government budgetary standpoint. In addition, reforms or changes to current tax regulations could impact the future utilization of our NOLs. Such circumstances may result in the expiration of our NOLs before we are able to utilize them, which could result in a requirement to record valuation allowances. Due to continual changes in market and general business conditions, we cannot predict whether, and to what extent, a valuation allowance may be required in future periods.

We currently anticipate that our available capital resources, amounts available under our Credit Agreement (as defined below in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “2022 Credit Facility”) and operating cash flow will be sufficient to meet our expected working capitalcapital, internal investments and capital expenditure requirements for at least the next 12 months. However, these resources may not be sufficient to fund the long-term growth of our business, especially in the event that we are awarded future multiple sizable production awards related to our tactical drone programs or in the event we are awarded future multiple sizable production awards related to our turbine technologies and rocket motor businesses, each of which will require significant amounts of working capital to fund such growth. If we determine that it is necessary to raise additional funds, either through an expansion or refinancing of our Credit Agreement or through public or private debt offerings or additional public or private equity financings, additional financing may not be available on terms favorable to us, or at all. Disruptions in the capital and credit markets could adversely affect our ability to access these markets. Limitations on our ability to borrow contained in our Credit Agreement may limit our access to capital, and we could fall out of compliance with financial and other covenants contained in our Credit Agreement which, if not waived, would restrict our access to capital and could require us to pay down any then-existing debt under the Credit Agreement. Our lenders may not agree to extend additional or continuing credit under our Credit Agreement or waive restrictions on our access to capital. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of available opportunities, develop new products or otherwise respond to competitive pressures and our business, operating results or financial condition could be materially adversely affected.

A facility security clearance is required for a company to perform on classified contracts for the DoDDoW and certain other agencies of the U.S. Government. Security clearances are subject to regulations and requirements including the National Industrial Security Program Operating Manual (“NISPOM”), which specifies the requirements for the protection of classified information released or disclosed in connection with classified U.S. Government contracts.

We are subject to the DoDDoW CMMC requirement issued by the Pentagon which may limit our ability to bid and win projects. The cost for the DoDDoW CMMC requirement may be significant.

The Pentagon, on January 31, 2020, released the official version of its unified Cybersecurity standard that all contractors must meet by 2026. This standard, the CMMC, will apply to any company that does business with the DoD.DoW. CMMC will also apply to subcontractors as well as prime contractors. CMMC borrows heavily from the existing NIST Cybersecurity Framework, and intends to rely heavily on a CMMC accrediting body up and running, companies will be able to apply for certification through a portal run by the accrediting body. The CMMC certification will be good for three years; with it, companies will be able to bid on contracts across the DoDDoW and military services. In December 2020, the DoDDoW disclosed the first seven contracts that are likely to be the initial test cases for the first “pathfinder” solicitations mandating CMMC. It is expected to take until 2026 to bring all contractors into compliance, since five years is the typical duration of a government contract. Contractors are required to flow the CMMC requirements down to all subcontracts except those for Commercial Off the Shelf (COTS) items. Additionally, a contractor may not award a subcontract unless the subcontractor has a current assessment in the Supplier Performance Risk System (SPRS). Because contractors only have access to their own information, contractors may need to rely on certifications from subcontractors for this requirement.

Under the CMMC 2.0 Model announced on July 17, 2021, there will be three levels of certification, Level 1 through Level 3, with contractors able to self-attest for Level 1. The new certification will not be required for existing contracts already signed, only on new contracts and potentially, to modification of existing contracts. CMMC 2.0 will allow for so-called plans of action and milestones, which will allow companies to document controls they are not fully implementing yet. The plans of action are required to state the means by which companies expect to reach full compliance, which are required to be completed within 180 days. Another change includes the requirement for senior company officials to self-certify and submit attestations of compliance. If there is a breach but a company certified its compliance with the security standards, a company could be open to False Claims Act lawsuits. The final change in the draft CMMC 2.0 requires cloud computing services used by the government contractor to be certified through the FedRAMP authorization process in accordance with DoDDoW security requirements. Proposed final CMMC rules were issued by the DoDDoW on December 26, 2023, with a public comment period that ended on February 26, 2024. The final rules were released October 15, 2024 and became effective on December 16, 2024, with audits expected to begin by January 2, 2025. The DoW published the final CMMC 48 CFR rule on September 10, 2025, taking effect on November 10, 2025. It mandates, for the first time, that contractors and subcontractors, with few exceptions, must be certified to handle Federal Contract Information (FCI) or Controlled Unclassified Information (CUI) to win or retain DoW contracts. The rule introduces a three-year phased implementation for compliance.

CybersecurityThe threats we face are continuous and evolving, and vary in degree of severity and sophistication.Cybersecurity incidents can be caused by human error from our workforce or that of our third-party service providers, by malicious third parties, acting alone or in groups, or by more sophisticated organizations, including nation-states and state-sponsored organizations.organizations (some of which target the U.S. defense industrial base and other critical infrastructure sectors). Such risks may be elevated in connection with geopolitical tensions, including the Russia-Ukraine war.war and other geopolitical conflicts. Certain unauthorized parties may have in the past managed, and may in the future manage, to overcome our security measures and those of our third-party service providers to access and misuse systems and software by exploiting defects in design or manufacture, including bugs, vulnerabilities and other problems that unexpectedly compromise the security or operation of a product or system. Further, malicious third parties have in the past attempted, and may in the future attempt, to fraudulently induce our employees or users of our products, services or solutions to disclose sensitive, personal or confidential information via illegal electronic spamming, phishing or other tactics, and this risk is heightened in our current hybrid model working environment. Malicious actors may engage in fraudulent or abusive activities through our products, services and solutions, including unauthorized use of accounts through stolen credentials, use of stolen credit cards or other payment vehicles, failure to pay for servicesany accessed,employees orwho otherwork activities that violate our terms of service. While we actively combat such fraudulent activities, we have experienced, and may in the future experience, impacts to our revenue from such activities. Further, unauthorized parties may also gain physical access to our facilities and infiltrate our information systems or attempt to gain logical access to our products, services or information systems to access content and data. The loss of or unauthorized access to data, such as resulting from computer viruses, worms, ransomware or other malware may harm our systems, expose us to litigation or regulatory investigation and subject us to costly and time-intensive notification requirements.remotely.

Risks Related to Our Long-Term BorrowingsIndebtedness

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 relevant 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, and enableenabling us to be first to market with cost effective solutions. We believe that Kratos is known as anthe 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 manufacturingmanufacturing, 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 that 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’Kratos comfort level. Kratos’ primary business areas include, virtualized ground systems for satellites and space vehicles including software for command and& 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 UAS,unmanned aircraft systems (CUAS), directed energy, communication and other systems, and virtual and& augmented reality training systems for the warfighter.

Our primary end customers are U.S. Government agencies, including the DoD,DoW, intelligence agencies, and other national and homeland security related agencies. We also conduct business with local, state and foreign governments and domestic and international commercial customers. In fiscal 2024,2025, 20232024 and 2022,2023, we generated 67%,68%, 69%67% and 69%, respectively, of our total revenues from contracts with the U.S. Government (including all branches of the U.S. military and including FMS), either as a prime contractor or a subcontractor. We believe our stable customer base, strong customer relationships, intellectual property, specialized and differentiated products, broad array of contract vehicles, “designed in” positions on strategic National Security platforms, our targeted investments in strategic growth areas, large employee base possessing specialized skills, security clearances, specialized manufacturing facilities and equipment, extensive list of past performance qualifications, and significant management and operational capabilities position us for success.

The potential challenges presented by the recent elections,U.S. Government shutdown, Presidential and congressionalCongressional changeschanges, andproposed thenew related transitions, the CRA,tariffs, the current budgetary and deficit funding environment, the Trump Administration’s stated fiscal policies, Israel, Ukraine and Taiwan funding support, continuingpotential 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.

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

Such a dynamic and challenging federal and DoDDoW 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.

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.

We do believe that our business is well-positionedwell-positioned, including in areas that the DoDTrump Administration, the DoW, and national security related and other customers currently indicate are priorities for future defense spending, including as identified in the 2024 defense budget and related Future Years Defense Program (FYDP), the President’s 2025 National Security and Defense Budget Request and the 2022 National Security Strategy document.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,Iran. andWe 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 DoD.DoW.

We operate in two reportable segments. The KGS reportable segment is comprised of an aggregation of KGS operating segments, including its microwave electronicelectronics products, space, satellite and cyber, training solutions, C5ISR/modular systems, turbine technologiestechnologies, and defense and rocket support services operating segments. The US reportable segment consists of our unmanned aerial, unmanned ground andground, unmanned seaborne systemand products.command, Our KGScontrol and UScommunications segmentssystem provide products, solutions and services for mission critical National Security programs. KGS and US customers primarily include National Security related agencies, the DoD, intelligence agencies and classified agencies, and to a lesser degree, international government agencies and domestic and international commercial customers. We organize our operating segments based primarily on the nature of the products, solutions and services offered. For additional information regarding our reportable segments, see Note 13 of the Notes to Consolidated Financial Statements. From a customer and solutions perspective, we view our business as an integrated whole, leveraging skills and assets wherever possible.businesses.

Our business with the U.S. Government and traditional prime contractors is generally performed under fixed-price, cost reimbursable, or time and materials contracts. Cost reimbursable contracts for the U.S. Government provide for reimbursement of costs plus the payment of a fee. Some cost reimbursable contracts include award and incentive fees that are awarded based on performance on the contract. Under time and materials contracts, we are reimbursed for labor hours at negotiated hourly billing rates and reimbursed for travel and other direct expenses at actual costs plus applied general and administrative expenses.

Product sales increased $78.4$164.9 million to $877.8 million for the year ended December 28, 2025 from $712.9 million for the year ended December 29, 2024 from $634.5 million for the year ended December 31, 2023,2024, primarily as a result of increased production activity in our KGS and in our US segments. As a percentage of total revenue, product sales were 65.2% for the year ended December 28, 2025, as compared to 62.7% for the year ended December 29, 2024,2024. asService comparedrevenues increased by $45.6 million to 61.2%$469.0 million for the year ended December 31,28, 2023.2025, Service revenues increased by $20.8 million tofrom $423.4 million for the year ended December 29, 2024, from $402.6 million for the year ended December 31, 2023.2024. The increase was primarily related to increased activity in our turbine technologies and defense rocket support businesses in our KGS segment.

Gross margin percentage decreased to 22.9% for the year ended December 28, 2025, compared to 25.3% for the year ended December 29, 2024,2024. comparedMargins on services decreased to 25.9%23.9% for the year ended December 31,28, 2023.2025, Margins on services increased tofrom 26.8% for the year ended December 29, 2024, from 24.7% for the year ended December 31, 2023.2024. Margins on product sales decreased to 24.4%22.3% for the year ended December 29,28, 2024,2025, as compared to 26.7% for the year ended December 31, 2023. Margins in the KGS segment increased to 27.6% for the year ended December 29, 2024, from 27.2% for the year ended December 31, 2023. This change was primarily due to a more favorable mix of revenues24.4% for the year ended December 29, 2024. Margins in the KGS segment decreased to 24.4% for the year ended December 28, 2025, from 27.6% for the year ended December 29, 2024. This change was primarily due to a less favorable mix of revenues for the year ended December 28, 2025. Margins in the US segment decreased to 17.4% for the year ended December 28, 2025 from 17.9% for the year ended December 29, 20242024, primarily due to the less favorable mix of revenues and from 20.7%the forimpact of increased labor and material costs in the year ended December 31,28, 2023,2025, primarilywhich dueare tonot therecoverable mix of revenues, revenue volume and resources, including the impact of increased material and subcontractor costs onunder multi-year fixed price contracts.

Selling, general and administrative expenses (SG&A). SG&A increased $16.2$23.0 million to $214.0$240.2 million for the year ended December 28, 2025, from $217.2 million for the year ended December 29, 2024,2024 fromdue $197.8primarily million forto the yearincreased endedrevenue Decembervolume 31,and 2023,headcount, primarilypartially reflectingoffset by the increase in costs to support higher revenues including increases in stock compensation expenseimpact of $4.5cost millionreduction andactions SG&A-relatedwe depreciationhave and amortization of $4.5 million.taken. As a percentage of revenues, SG&A decreased to 18.8%17.8% for the year ended December 29,28, 20242025 from 19.1% for the year ended December 31,29, 2023.2024.

Research and development (R&D) expenses. R&D expenses were $40.0 million for the year ended December 28, 2025 and $40.3 million for the year ended December 29, 2024 and $38.4 million for the year ended December 31, 2023, with the primary increases in expenses in our unmanned systems and microwave products businesses, offset by a net reduction in our space and satellite communications business.2024. As a percentage of revenues, R&D decreased to 3.0% of revenues for the year ended December 28, 2025, from 3.5% of revenues for the year ended December 29, 2024, from 3.7% of revenues for the year ended December 31, 2023.2024. 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” and “first to market” positions on major programs, platforms or systems.

Provision for income taxes. The Company recorded an income tax provision of $12.0 million for the year ended December 28, 2025, and an income tax provision of $10.2 million for the year ended December 29, 2024,2024. and anThe income tax provision offor $8.72025 includes a $0.2 million forbenefit related to the yeardecrease endedin Decemberthe 31,Company’s 2023.valuation allowance on U.S. deferred tax assets. The income tax provision for 2024 includes a $4.2 million benefit related to the decrease in the Company’s valuation allowance on U.S. deferred tax assets.The income tax provision for 2023 includes a $2.0 million benefit related to the decrease in the Company’s valuation allowance on deferred tax assets.

We use our operating cash flow to finance trade accounts receivable, fund necessary increases in inventory and internal investments related to non-recurring engineering and software development, fund capital expenditures, fund our IR&D investments and our ongoing operations, service our debt 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 since a number of our receivables are contractually billable and due to us only when certain contractual milestones are achieved, certain of which are not achieved until final shipment and acceptance of our products. Financing increases in inventory balances is necessary to fulfill shipment requirements to meet delivery schedules of our customers. Cash from consolidated operations is primarily derived from our customer contracts in progress and associated changes in working capital components. Our days sales outstanding (“DSO”) have decreasedincreased to 124 days as of December 28, 2025 from 104 days as of December 29, 2024 from 116 days as of December 31, 2023.2024. Our DSOs are impacted by the achievement of contractual billing milestones, such as equipment shipments and deliveries on certain products, and for certain flight requirements that must be fulfilled on certain aerial target programs, for the receipt of certain contractual funding, certain of which has been impacted by government budgetary delays and appropriations 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.

A summary of our net cash provided by (used in) operating activities from our Consolidated Statements of Cash Flows is as follows (in millions):

Net cash used in investing activities was $88.3 million for year ended December 28, 2025 is comprised of $95.3 million in capital expenditures partially offset by $12.0 million in proceeds from the sale of company owned Valkyries which were previously classified as capital expenditures. Net cash used in investing activities for the year ended December 29, 2024 is comprised of $58.2 million in capital expenditures and $11.5 million in cash paid (including subsequent payments of $0.2 million for amounts payable to former employees of FTT) 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). Net cash used in investing activities for the year ended December 31, 2023 is comprised of $52.4 million in capital expenditures partially offset by the receipt of $8.3 million of proceeds from the sale of Valkyries which had been previously booked as capital assets as they were produced ahead of government contract award and $0.3 million cash acquired related to the acquisition of STS. During the year ended December 29,28, 2024,2025, capital expenditures of approximately $28.1$38.4 million were incurred in our US business, primarily related to our manufacture of two production lots of Valkyries prior to contract award to meet anticipated customer orders and requirements. We expect our capital expenditures for our fiscal year 20252026 to continue to be significant for investments we are making,making includingfor innew ourproduction USand businessmanufacturing totalingfacilities, approximately $35 to $40 millionexpansion of estimatedexisting expenditures,facilities includingand approximatelycontinued $28build to $30 million estimated forof capital aerial targets and related support equipment as well as other manufacturing facility expansion for our Microwave Products and Defense and Rocket Support businesses.equipment.

Our net cash provided by (used in) financing activities is summarized as follows (in millions):

Net cash provided by financing activities was $277.6$360.7 million for the year ended December 29,28, 2024,2025, which included employee stock purchase plan receipts of $8.2$9.9 million and net proceeds from the issuance of common stock of approximately $330.7$555.9 million.million (see Note 10 to the accompanying consolidated financial statements). These proceeds were partially offset by $7.5$185.0 million of principal payments on our $200 millionthe Term Loan A,A aunder $45.0our millionCredit paymentAgreement, (partiallywhich offsetwas byfully a $10.0 million draw)extinguished on theJuly new2, Revolving Credit Facility,2025, payroll withholding taxes paid from vested restricted stock traded for taxes of $17.4$20.0 million and payments made on financing lease obligations of $1.4$1.8 million. Net cash used in financing activities was $30.7 million for the year ended December 31, 2023, which included $5.0 million of principal payments on our $200 million Term Loan A, a $94.0 million payment (partially offset by a $69.0 million draw) on the new Revolving Credit Facility, and a $2.0 million payment to settle debt acquired related to the STS acquisition, payroll withholding taxes paid from vested restricted stock traded for taxes of $3.7 million and payments made on financing lease obligations of $1.5 million. These uses were partially offset by employee stock purchase plan receipts of $6.5 million.

The 2022 Credit Facility is governed by a Credit Agreement (the “Credit Agreement”), dated February 18, 2022, by and among the Company, the lenders from time to time party thereto (the “Lenders”), the Issuing Banks party thereto (as defined in the Credit Agreement) and Truist Bank, in its capacity as administrative agent for the Lenders, and as an issuing bank and as the swing line lender, which establishes the 5-year senior secured credit facility which is comprised of the $200 million Revolving Credit Facility, none of which is outstanding, and the $200 million Term Loan A, which was paid fully on July 2, 2025. The 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.Credit. 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).

Borrowings under the revolvingRevolving creditCredit facility and the term loan credit facilityFacility may take the form of base rate loans or Secured Overnight Financing Rate (“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 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 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 December 28, 2025.

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 amortizes in accordance with Term Loan A. The swap iswas at a fixed rate one-month term SOFR of 3.721% and settlessettled monthly on the last day of each calendar month. The swap hashad an effective date of May 1, 2023 and terminateswas scheduled 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, the Company terminated the interest rate swap contract referred to above. The Company received a payment of approximately $0.3 million representing the termination value of the interest rate swap.

As of December 29,28, 2024,2025, we had contractual commitments to repay debt, make payments under finance and operating leases, repay obligations related to agreements to purchase goods and services and settle tax and other liabilities. The following table summarizes our contractual obligations and other commitments as of December 29,28, 2024,2025, and the effect such obligations could have on our liquidity and cash flow in future periods (in millions):

KGS has five operating businesses: Defense and Rocket Support Systems (“DRSS”), Microwave Electronics (“ME”), Space, Training and Cybersecurity Solutions (“ST&C”), C5ISR Systems/Modular Systems (“MS”), and Kratos Turbine Technologies (“KTT”), that provide technology based defense solutions, involving products and services, primarily for mission critical U.S. National Security priorities, with the primary focus relating to the nation’s C5ISR requirements. The US reportable segment provides unmanned aerial systems,aerial, unmanned ground, and unmanned seaborne systems.and command, control and communications system products. We have identified our reporting units to be the DRSS, ME, ST&C, MS, and KTT operating segments, within the KGS reportable segment, and the US reportable segment, each of which has been assessed and evaluated for potential impairment in our fiscal year 20242025 annual test.

In determining the fair value of our reporting units, there are key assumptions related to our future operating performance and revenue growth. If the actual operating performance and financial results are not consistent with our assumptions, an impairment in our $568.9$595.7 million goodwill and $53.8$53.9 million long-lived intangibles could occur in future periods. In particular, the US reporting unit fair value includes assumptions that the development of the high performance UCAS product is successful and we are awarded future contracts for new tactical unmanned aircraft systems. Additionally, the US reporting unit fair value assumes that the U.S. Navy will continue to award full rate production contracts for the Sub-Sonic Aerial Target. Additional risks for goodwill across all reporting units include, but are not limited to, the risks discussed in Item 1A “Risk Factors” contained within this Annual Report and:

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 edgeleading-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 costlow-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 itsbacklog, 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 systems integrators and partners.partners Theseand new defense technology companies. Additional investments include: unmanned jet powered aircraft including Kratos Valkyrie ahead of potential contract award; a hypersonic system fabrication and integration facility including for Kratos Zeus solid rocket motors (SRMs) and Erinyes hypersonic flight systems in Indiana; the purchase of long lead items for 60 Oriole SRM’s and 60 Zeus SRM’s for ballistic missile defense; related, hypersonic or other expected customer missions; relocation and expansion of our small turbojet engine production capacity in Michigan; establishment of a planned small turbofan jet engine production facility in Oklahoma; establishment of a radar maintenance overhaul and upgrade facility in Indiana; establishment of a hypersonic system related arc chamber in Indiana; expansion of our existing microwave electronics manufacturing facility in Israel; establishment of an additional microwave electronics facility in Israel, including a space qualified facility; expansion of our machining, milling, casting, 3D printing and additive manufacturing capable facility in the United States to support our jet engine and other product and system manufacturing requirements; establishment of a new facility related to the Sentinel intercontinental ballistic missile (ICBM) program; expansion of our unmanned jet drone manufacturing capability; and expansion of existing and construction of additional classified facilities for certain programs and contracts. Investments related to the Company’s Prometheus venture with RAFAEL Advanced Defense Systems, Ltd and the new turbofan production facility in Oklahoma related to our arrangement with GE Aerospace are expected to ramp up in 2026 and 2027.

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.

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

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.

Comparison of Results for the Three Months Ended MarchJune 29,28, 2026 to the Three Months Ended MarchJune 30,29, 2025

Revenues. Revenues by reporting segment for the three months ended MarchJune 29,28, 2026 and MarchJune 30,29, 2025 are as follows (dollars in millions):

Revenues increased $68.4$107.3 million to $371.0$458.8 million for the three months ended MarchJune 29,28, 2026 from $302.6$351.5 million for the three months ended MarchJune 30,29, 2025. Revenues in our KGS segment increased $48.9$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 businessesand space and turbine technologiestraining businesses, and the contribution of $7.3$18.8 million in revenue from the recent acquisition of Nomad Global Communication Solutions, and $13.3$21.4 million in revenue from the recent acquisition of Orbit Technologies. Revenues in our US segment were $82.6$79.1 million for the three months ended MarchJune 29,28, 2026, an increase of $19.5$5.9 million from $63.1$73.2 million in the three months ended MarchJune 30,29, 2025, primarily as a result of Valkyrie aircraft related production during the three months ended MarchJune 29,28, 2026.

Product sales increased $36.8$72.5 million to $237.0$289.1 million for the three months ended MarchJune 29,28, 2026 from $200.2$216.6 million for the three months ended MarchJune 30,29, 2025, primarily due to the acquisitions of Nomad and Orbit, as awell result ofas increased production in our KGS segment.and US segments. As a percentage of total consolidated revenues, product sales were 63.9%63.0% for the three months ended MarchJune 29,28, 2026 as compared to 66.2%61.6% for the three months ended MarchJune 30,29, 2025. Service revenues increased by $31.6$34.8 million to $134.0$169.7 million for the three months ended MarchJune 29,28, 2026 from $102.4$134.9 million for the three months ended MarchJune 30,29, 2025, primarily related to increased activity in our defense rocket support business in our KGS segment.

Cost of Revenues. Cost of revenues increased $52.4$81.0 million to $281.4$358.7 million for the three months ended MarchJune 29,28, 2026 from $229.0$277.7 million for the three months ended MarchJune 30,29, 2025. The increase in cost of revenues was primarily relateddue to the 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.

Gross Margin. Gross margin decreasedincreased to 24.2%21.8% for the three months ended MarchJune 29,28, 2026 from 24.3%21.0% for the three months ended MarchJune 30,29, 2025. Margins on services decreasedincreased to 25.9%22.5% for the three months ended MarchJune 29,28, 2026 from 26.1%20.5% for the three months ended MarchJune 30,29, 2025. Margins on products decreasedincreased to 23.2%21.4% for the three months ended MarchJune 29,28, 2026 from 23.4%21.3% for the three months ended MarchJune 30,29, 2025. Margins in the KGS segment decreasedincreased to 26.2%22.9% for the three months ended MarchJune 29,28, 2026 from 26.6%22.3% for the three months ended MarchJune 30,29, 2025. Margins in the US segment increased to 17.1%16.7% for the three months ended MarchJune 29,28, 2026 from 15.8% for the three months ended MarchJune 30,29, 2025.

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses increased $15.3$27.4 million to $72.3$87.3 million for the three months ended MarchJune 29,28, 2026 from $57.0$59.9 million for the three months ended MarchJune 30,29, 2025 due primarily to increased amortization expense of $8.8 million related to the acquisitions of Nomad and Orbit, increased stock compensation expense,expense of $7.7 million, and the impact of increased revenue volume and headcount. As a percentage of revenues, SG&A increased to 19.5%19.0% at MarchJune 29,28, 2026 from 18.8%17.0% at MarchJune 30,29, 2025.

Research and Development (“R&D”) Expenses. R&D expenses increased to $10.7$13.6 million for the three months ended MarchJune 29,28, 2026 from $10.0$10.2 million for MarchJune 30,29, 2025.2025 primarily due to the acquisition of Orbit. As a percentage of revenues, R&D decreasedincreased to 3.0% for the three months ended June 28, 2026 from 2.9% for the three months ended MarchJune 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.

Total Other Income (Expense),Income, Net. The total other income (expense),income, net was $5.1$8.6 million for the three months ended MarchJune 29,28, 2026 and $(1.2)$0.9 million for the three months ended MarchJune 30,29, 2025. The net change of $6.3$7.7 million between the three months ended MarchJune 30,29, 2025 and the three months ended MarchJune 29,28, 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.

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 MarchJune 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 MarchJune 30,29, 2025 included a benefit of $7.3$1.7 million and $1.6$0.6 million, respectively, for stock compensation related items. For the three months ended MarchJune 29,28, 2026 and MarchJune 30,29, 2025, the Company utilized the annual effective tax rate method based on the forecasted information provided.

On MarchJune 29,28, 2026, we had approximately $2.011$2.084 billion of total backlog, of which $1.457$1.572 billion was funded. We expect to recognize approximately 37%35% of the remaining total backlog as revenue in fiscal year 2026, an additional 25%35% in fiscal year 2027 and the balance thereafter. Our comparable total backlog balance as of MarchJune 30,29, 2025, was approximately $1.508$1.414 billion, of which $1.174$1.125 billion was funded. Backlog as of MarchJune 29,28, 2026 as compared to MarchJune 30,29, 2025 has increased primarily as a result of contract awards in our Space, Satellite and Training, Defense Rocket Support ServicesServices, Microwave Products and Unmanned Systems businesses, as well as the impact of the acquisitions of Nomad and Orbit which contributed approximately $184.4$243.4 million to the increase in backlog.

As of MarchJune 29,28, 2026, we had cash and cash equivalents of $1,464.3$1,437.6 million compared with cash and cash equivalents of $560.6 million as of December 28, 2025, which includes $80.2$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.

Our total long-term debt at MarchJune 29,28, 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 $31.2$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.

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,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 threesix months ended MarchJune 29,28, 2026, approximately $26.5$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 increaseddecreased from 124 days as of December 28, 2025 to 130114 days at MarchJune 29,28, 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.

Net cash used in operating activities was $27.4$38.4 million for the threesix months ended MarchJune 29,28, 2026. Net cash used in operating activities for the threesix months ended MarchJune 29,28, 2026 was primarily a result of net income of $11.9$16.3 million and changes in net working capital accounts of $75.8$134.2 million partially offset by noncash charges of $36.5$79.5 million which primarily includes stock compensation, depreciation and amortization. Net cash used in operating activities was $29.2$40.9 million for the threesix months ended MarchJune 30,29, 2025. Net cash used in operating activities for the threesix months ended MarchJune 30,29, 2025 was primarily a result of net income of $4.5$7.4 million and changes in net working capital accounts of $56.0$94.1 million partially offset by noncash charges of $22.3$45.8 million which primarily includes stock compensation, depreciation and amortization.

Net cash used in investing activities was $365.1$375.3 million for the threesix months ended MarchJune 29,28, 2026 and is comprised primarily of $347.4$346.8 million of payments for acquisitions and $19.9$37.1 million of capital expenditures. During the threesix months ended MarchJune 29,28, 2026, capital expenditures of approximately $6.7$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 targetsdrones 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$43.1 million for the threesix months ended MarchJune 30,29, 2025 and is primarily comprised of $22.6$43.1 million in capital expenditures. During the threesix months ended MarchJune 30,29, 2025, capital expenditures of approximately $8.3$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.

Net cash provided by financing activities was $1,297.3$1,291.2 million for the threesix months ended MarchJune 29,28, 2026, which included net proceeds from the issuance of common stock of approximately $1,348.6$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 $54.9$59.1 million, and payments made on financing lease obligations of $0.9$2.0 million. Net cash used in financing activities was $14.5$536.3 million for the threesix months ended MarchJune 30,29, 2025, which included $2.5employee 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 $16.2$18.3 million and payments made on financing lease obligations of $0.4$0.9 million. These uses were partially offset by employee stock purchase plan receipts of $4.6 million.

On February 20, 2026, the Company entered into a Credit Agreement (the “2026 Credit Agreement”), by and among the Company, the guarantors from time to time party thereto, the lenders from time to time party thereto (the “Lenders”), and PNC Bank, National Association (the “Administrative Agent”), in its capacity as administrative agent, and as swingline loan lender and issuing lender. The 2026 Credit Agreement establishes a five-year senior secured credit facility which is comprised of a $300 million revolving credit facility (which includes sub-facilities for the incurrence of up to $35.0 million of swingline loans and the issuance of up to $50.0 million of Letters of Credit). Letters of credit outstanding under the 2022 Credit Agreement willhave bebeen transferred to the 2026 Credit Agreement. The 2026 Credit Agreement contemplates uncommitted incremental credit facilities of up to $135.0 million. As of MarchJune 29,28, 2026, the Company has no amounts outstanding under the Revolving Credit Facility, with $300.0 million remaining in borrowing capacity, less approximately $31.2$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.

The Company has capitalized and is amortizing the debt issuance costs over the term of the facility. The unamortized balance at MarchJune 29,28, 2026 and December 28, 2025 were $1.4$1.6 million and $0.4 million respectively.

Our results of operations for the three and six months ended MarchJune 29,28, 2026, include the activity of Nomad Global Communication Solutions, Incorporated ("Nomad GCS"), which was acquired on February 11, 2026, and Orbit Technologies, Ltd. ("Orbit"), which was acquired on March 2, 2026.

InPursuant accordance withto ASC 805, Business Combinations, the initial purchase price allocations for these acquisitions areremain provisional as of MarchJune 29,28, 2026. Due to the proximity of these transactions to our fiscal quarter end, we have not yet completed theThe identification and valuation of specific intangible assets. Consequently,assets for both the Nomad GCS andhave been finalized, subject to pending tax-related adjustments, while the valuation for Orbit acquisitions,remains in progress. Accordingly, the excess of the purchase consideration over the preliminary fair valuevalues of both the net tangible and intangible assets acquired has been recordedallocated asto goodwill.