10q10k10q10k.net

What changed in KRATOS DEFENSE & SECURITY SOLUTIONS, INC.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of KRATOS DEFENSE & SECURITY SOLUTIONS, INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+363 added−384 removedSource: 10-K (2025-02-26) vs 10-K (2024-02-13)

Top changes in KRATOS DEFENSE & SECURITY SOLUTIONS, INC.'s 2024 10-K

363 paragraphs added · 384 removed · 278 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

92 edited+54 added−77 removed75 unchanged
Biggest changeSpecifically, since 2012, we have invested over $230 million in our UAS business and since 2019, approximately $196 million in our Space, Satellite and Cyber business, and made investments in rocket and hypersonic systems, and engine 12 and turbine technology areas, through internally funded research, development, contract design retrofit costs, contract design costs for new platforms, software design and development, non-recurring engineering costs and capital expenditures related to these strategic growth areas. • We invested in internally funded research, development and capital expenditures to build our own UTAP-22 (Mako) UAS from 2012 to 2015, and demonstrated the capabilities of the UTAP-22 Mako in a flight demonstration in the fall of 2015 where Kratos Mako drones flew as an unmanned wingman to manned tactical fighter jet aircraft.
Biggest changeSpecifically, since 2013, we have invested over $260 million in our UAS business and since 2019, approximately $252 million in our Space, Satellite and Cyber business, and made investments of approximately $25 million in rocket and hypersonic systems, and engine and turbine 10 technology areas, through internally funded research, development, contract design retrofit costs, contract design costs for new platforms, software design and development, non-recurring engineering costs and capital expenditures related to these strategic growth areas. • Since 2019, we have invested approximately $252 million in Kratos’ Space, Satellite and Cyber business through internally funded research and development, software design and development and capital expenditures, primarily related to our next generation, software based, virtualized satellite C2, TT&C, and other ground-based OpenSpace™ communications systems, which we released “first to market” in 2021, and our global SDA system.
Marine Corps and other National Security-related customers and agencies, commercial and other customers and entities, enable us to develop an in-depth understanding of their missions, problems and technical requirements.
Marine Corps and other National Security-related customers and agencies, and commercial and other customers and entities, enable us to develop an in-depth understanding of their missions, problems and technical requirements.
In addition, cancellations or adjustments to contracts may occur. Backlog is typically subject to large variations from quarter to quarter as existing contracts are renewed or new contracts are awarded. Additionally, all U.S. Government contracts included in backlog, whether or not funded, may be terminated at the convenience of the U.S. Government.
In addition, cancellations or adjustments to contracts may occur. Backlog is typically subject to large variations from quarter to quarter as existing contracts are renewed or new contracts are awarded. Additionally, all U.S. Government contracts included in backlog, whether or not funded, may be terminated at the convenience of the U.S.
Also important is our past performance qualifications, customer relationships, domain and technology expertise, the ability to obtain and replace contract vehicles, the ability to deliver results within budget (time and cost), reputation, accountability, staffing flexibility, and project management expertise.
Also important is our reputation, past performance qualifications, customer relationships, domain and technology expertise, the ability to obtain and replace contract vehicles, the ability to deliver results within budget (time and cost), reputation, accountability, staffing flexibility, and project management expertise.
Government regulations affecting our business are: • the Federal Acquisition Regulations and supplemental agency regulations, which comprehensively regulate the formation, administration, and performance under government contracts; • the Truthful Cost or Pricing Data Statute (formerly the Truth in Negotiations Act), which requires certification and disclosure of all cost and pricing data in connection with contract negotiations; • the Cost Accounting Standards, which impose accounting requirements that govern our right to reimbursement under cost-based government contracts; • the Industrial Security Manual, which establishes the security guidelines for classified programs and facilities as well as individual security clearances; • the Foreign Corrupt Practices Act, which prohibits U.S. companies from providing anything of value to a foreign official to help obtain, retain or direct business, or obtain any unfair advantages; • the False Claims Act and the False Statements Act, which, respectively, impose penalties for payments made on the basis of false facts provided to the government and impose penalties on the basis of false statements, even if they do not result in a payment; and 17 • laws, regulations and executive orders restricting the use and dissemination of information classified for National Security purposes and the exportation of certain products and technical data.
Government regulations affecting our business are: • the Federal Acquisition Regulations and supplemental agency regulations, which comprehensively regulate the formation, administration, and performance under government contracts; • the Truthful Cost or Pricing Data Statute (formerly the Truth in Negotiations Act), which requires certification and disclosure of all cost and pricing data in connection with contract negotiations; • the Cost Accounting Standards, which impose accounting requirements that govern our right to reimbursement under cost-based government contracts; • the Industrial Security Manual, which establishes the security guidelines for classified programs and facilities as well as individual security clearances; • the Foreign Corrupt Practices Act, which prohibits U.S. companies from providing anything of value to a foreign official to help obtain, retain or direct business, or obtain any unfair advantages; • the False Claims Act and the False Statements Act, which, respectively, impose penalties for payments made on the basis of false facts provided to the government and impose penalties on the basis of false statements, even if they do not result in a payment; and • laws, regulations and executive orders restricting the use and dissemination of information classified for National Security purposes and the exportation of certain products and technical data.
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.
We believe that Kratos is known as the innovative disruptive change agent in the industry, a company that is an expert in designing hardware 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.
In-depth understanding of customer missions. We believe that Kratos has a reputation for being an industry disruptor, including by successfully rapidly designing, developing, demonstrating and fielding mission-critical products, solutions and services to our customers, at an affordable cost. Our long-term relationships with the U.S. Air Force, U.S. Army, U.S. Navy, U.S.
In-depth understanding of customer missions. We believe that Kratos has a reputation for being an industry disruptor, including by successfully rapidly designing, developing, demonstrating and fielding mission-critical products, hardware, solutions and services to our customers, at an affordable cost. Our long-term relationships with the U.S. Air Force, U.S. Army, U.S. Navy, U.S.
This has led to fewer sole source awards, as well as more emphasis on cost competitiveness, with certain contract awards issued on a Low Price Technically Acceptable (“LPTA”) basis, rather than a best value basis, which has negatively impacted certain areas of our Defense and Rocket Support Systems (“DRSS”) business in our KGS segment and in our training services business.
This has led to fewer sole source awards, as well as more emphasis on cost competitiveness, with certain contract awards issued on a Low Price Technically Acceptable (“LPTA”) basis, rather than a best value basis, which has historically negatively impacted certain areas of our Defense and Rocket Support Systems (“DRSS”) business in our KGS segment and in our training services business.
As the DoD works to increase, maintain or achieve a technological advantage over adversaries, it has continued its efforts to create breakthrough technologies for national security and related commercial markets, accelerate innovation to the warfighter and repurpose current capabilities to create cost-effective, disruptive technology advances that result in rapidly fielded systems and products.
As the DoD works to increase, maintain or achieve a technological advantage over adversaries, it has continued its efforts to create breakthrough technologies for National Security and related commercial markets, accelerate innovation to the warfighter and repurpose current capabilities to create cost-effective, disruptive technology advances that result in rapidly fielded systems and products in quantity.
In addition, a substantial number of our employees are located at our customer locations, or at secure manufacturing and other secure facilities, all of which provides Kratos with valuable strategic insight into our customers’ ongoing missions and future program and mission requirements. We are also closely aligned with all of the traditional, large, system integrator defense companies.
In addition, a substantial number of our employees are located at our customer locations, or at secure manufacturing and other secure facilities, all of which provides Kratos with valuable strategic insight into our customers’ ongoing missions and future program and mission requirements. We are also closely aligned with most of the traditional, large, system integrator defense companies.
Additionally, our ability to deliver cost effective systems, products, solutions and services that meet our customers’ and partners’ requirements is also a key differentiator. 16 In the U.S. defense, IT, and services markets, the U.S. Government has stressed competition and affordability or low cost in connection with its future procurement of products and services, i.e. affordable mass.
Additionally, our ability to deliver cost effective systems, products, solutions and services that meet our customers’ and partners’ requirements is also a key differentiator. In the U.S. defense, IT, and services markets, the U.S. Government has stressed competition and affordability or low cost in connection with its future procurement of products and services, i.e. affordable mass.
We believe that Kratos is an industry leader in ground-based command, control and communications systems (“C3”), Telemetry Tracking and Control (“TT&C”) and other systems for satellites, and a leader in related radio frequency interference identification, geolocation and mitigation, or Space Domain Awareness. Our primary customers include the U.S.
We believe that Kratos is also an industry leader in ground-based command, control and communications systems (“C3”), Telemetry Tracking and Control (“TT&C”) and other systems for satellites, and a leader in related radio frequency interference identification, geolocation and mitigation, or Space Domain Awareness. Our primary customers include the U.S.
Our Strategy Our strategy is to be a leading technology, systems, software and products provider to the defense, national security and relevant commercial and related global markets, and to disrupt our market focus areas, by being first to market with internally funded and developed offerings, engineered and designed to be mass produced at an affordable cost.
Our Strategy Our strategy is to be a leading technology, hardware, systems, software and products provider to the defense, national security and relevant commercial and related global markets, and to disrupt our market focus areas, by being first to market with internally funded and developed offerings, engineered and designed to be mass produced at an affordable cost.
We also encourage our employees to continue to invent and develop new technologies so as to maintain our competitiveness in the marketplace. We own or have rights to use certain trademarks, service marks and trade names that we use in conjunction with the operation of our business. Certain of our trademarks have also been registered in selected foreign countries.
We also encourage our employees to continue to invent and develop new technologies so as to maintain our competitiveness in the marketplace. 14 We own or have rights to use certain trademarks, service marks and trade names that we use in conjunction with the operation of our business. Certain of our trademarks have also been registered in selected foreign countries.
Our business may require compliance with state or local laws designed to limit the uses of personal user information gathered online or require online services to establish privacy policies. Material Availability We procure critical material, components, products and subsystems from domestic and global supply partners.
Our business may require compliance with state or local laws designed to limit the uses of personal user information gathered online or require online services to establish privacy policies. 15 Material Availability We procure critical material, components, products and subsystems from domestic and global supply partners.
We also routinely partner or team with the large traditional defense industry system integrators when certain opportunities require a significant internally funded investment that Kratos is unwilling to make, or when Kratos believes that teaming significantly increases our probability of win.
We routinely partner or team with the large traditional defense industry system integrators when certain opportunities require a significant internally funded investment that Kratos is unwilling to make, or when Kratos believes that teaming significantly increases our probability of win.
U.S. laws also allow citizens to bring private enforcement actions in some situations. Outside the U.S., the environmental laws and their enforcement vary and may be more burdensome. 18 Other environmental laws, primarily in the U.S., address the contamination of land and groundwater and require the clean-up of such contamination.
U.S. laws also allow citizens to bring private enforcement actions in some situations. Outside the U.S., the environmental laws and their enforcement vary and may be more burdensome. Other environmental laws, primarily in the U.S., address the contamination of land and groundwater and require the clean-up of such contamination.
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 significantly adversely impacted our operations, profit margins and financial forecasts.
In addition, inflation and the related increased cost 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.
Kratos leading technology, products and systems, which are focused on many of the highest priority National Security areas allows us the opportunity to bid on and pursue a large number of contract and program opportunities as the lead or prime contractor, while also providing Kratos the opportunity to partner or team on additional large opportunities, better positioning our Company for success.
Kratos’ leading hardware, technology, products and systems, which are focused on many of the highest priority National Security areas allows us the opportunity to bid on and pursue a large number of contract and program opportunities as the lead or prime contractor, while also providing Kratos the opportunity to partner or team on additional large opportunities, better positioning our Company for success.
We believe continued budget pressures (which are expected), CRAs, (which are also expected), future Federal Government debt ceiling issues, or Federal Government shutdowns could have serious negative consequences for the security of our country and the defense industrial base, including the Company and the related customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base.
We believe continued budget and deficit funding pressures (which are expected), CRAs (which are also expected), future Federal Government debt ceiling issues, or Federal Government shutdowns, could have serious negative consequences for the security of our country and the defense industrial base, including the Company and the related customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base.
The outlook for defense spending is primarily focused on deterring and defeating our adversaries, power projection, warfighting readiness, lethality, and recapitalization of key strategic defense systems to address peer and near peer threats. We believe that our primary capabilities and areas of focus, certain which are listed below, are aligned with the objectives of the U.S.
The outlook for defense spending is primarily focused on deterring and defeating our adversaries, power projection, warfighting readiness, lethality, and recapitalization of key strategic defense systems to address peer and near peer threats. We believe that Kratos’ primary capabilities and areas of focus, certain ones which are listed below, are aligned with the objectives of the U.S.
We make targeted discretionary investments in mission critical DoD, National Security and commercial opportunity priority areas in order to achieve our first to market objective.
We make targeted discretionary investments in mission critical DoD, National Security and related commercial opportunity priority areas in order to achieve our first to market objective.
We believe our focus on constant innovation, capability improvements across our product and solutions portfolio, speed of development, and engineering, design and development for affordable mass production are key differentiators that are disruptive to certain traditional market norms and align us with and address our customers’ and our traditional large defense system integrator partners’ key initiatives.
We believe our focus on low cost, constant innovation, capability improvements across our product and solutions portfolio, speed of development, and engineering, design and development for affordable mass production are key differentiators that are disruptive to certain traditional market norms and align us with and address our customers’ and our traditional large defense system integrator partners’ key initiatives.
Additionally, Kratos customers also include the Defense Innovation Unit (“DIU”) (formerly the Defense Innovation Unit Experimental (“DIUx”)), Defense Advanced Research Projects Agency (“DARPA”), Air Force Research Laboratory (“AFRL”), the Strategic Capabilities Office (“SCO”), the Office of the Secretary of Defense (“OSD”),the Strategic Command (“STRATCOM”), the National Aeronautics and Space Administration (“NASA”), the U.S. intelligence community, and other confidential customers.
Additionally, Kratos customers also include the Defense Innovation Unit (“DIU”) (formerly the Defense Innovation Unit Experimental (“DIUx”)), Defense Advanced Research Projects Agency (“DARPA”), Air Force Research Laboratory (“AFRL”), the Strategic Capabilities Office (“SCO”), the Office of the Secretary of Defense (“OSD”), the Strategic Command (“STRATCOM”), the National Aeronautics and Space Administration (“NASA”), the Space Development Agency (SDA), the Space Force, the U.S. intelligence community, and other confidential customers.
We are proactively focused on continuously improving efficiencies, reducing costs, and concentrating our efforts on operational excellence. Invest in strategic growth areas.
We are proactively focused on continuously improving efficiencies, reducing costs, and concentrating our efforts on operational excellence. Invest and Partner in strategic growth areas.
Transactions between segments are negotiated and accounted for under terms and conditions similar to other government and commercial contracts, and these intercompany transactions are eliminated in consolidation. For additional information regarding our reportable segments, see Note 14 of the Notes to Consolidated Financial Statements contained within this Annual Report.
Transactions between segments are negotiated and accounted for under terms and conditions similar to other government and commercial contracts, and these intercompany transactions are eliminated in consolidation. For additional information regarding our reportable segments, see Note 13 of the Notes to Consolidated Financial Statements contained within this Annual Report.
References to our website and the SEC’s website in this report are provided as a convenience and do not constitute, and should not be viewed as, incorporation by reference of the information contained on, or available through, such websites. Such information should not be considered a part of this report, unless otherwise expressly incorporated by reference in this report. 19
References to our website and the SEC’s website in this report are provided as a convenience and do not constitute, and should not be viewed as, incorporation by reference of the information contained on, or available through, such websites. Such information should not be considered a part of this report, unless otherwise expressly incorporated by reference in this report. 16
As a technology-focused company at the forefront of the DoD’s strategy for technology rich, transformative, disruptive and affordable systems, our current and growing portfolio of proprietary systems, products, solutions, and related intellectual property addresses some of the most critical mission needs and requirements of U.S. and allied militaries.
As a technology-focused company at the forefront of the DoD’s strategy for technology rich, transformative, disruptive and affordable systems, our current and growing portfolio of proprietary systems, products, solutions, and related intellectual property addresses certain of the most critical mission needs and requirements of U.S. and allied militaries.
Additionally, funding for certain programs, including those in which we currently participate, may be reduced, delayed or cancelled, and budget uncertainty or funding cuts globally could adversely affect the viability of our customers, partners, teammates, subcontractors, suppliers, and our employee base.
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.
Government contractors and system integrators such as Northrop Grumman, Lockheed Martin, General Dynamics, Raytheon Technologies, BAE Systems, L3Harris, and Boeing, as well as Intelsat, Blue Halo, Microsoft, Amazon, Siemens, Rolls Royce, Boom, GE Aerospace and others. Revenue from the U.S.
Government contractors and system integrators such as Northrop Grumman, Lockheed Martin, General Dynamics, Raytheon Technologies, BAE Systems, and L3Harris, as well as Intelsat, Blue Halo, Microsoft, Amazon, Siemens, Rolls Royce, Boom, GE Aerospace and others. 11 Revenue from the U.S.
Southern Command, STRATCOM, the SCO, DIU or DIUx, the Rapid Capabilities Offices, the U.S. intelligence community, DARPA, Office of the Secretary of Defense (OSD), and certain confidential customers. A representative list of non-government customers during 2023 included tier one, large U.S.
Southern Command, STRATCOM, the SCO, DIU or DIUx, the Rapid Capabilities Offices, the U.S. intelligence community, DARPA, Office of the Secretary of Defense (OSD), and certain confidential customers. A representative list of non-government customers during 2024 included tier one, large U.S.
Customers A representative list of government customers in our KGS and US segments during 2023 included the U.S. Air Force, U.S. Army, U.S. Navy, U.S. Marines, Missile Defense Agency, Space Command, NASA, the AFRL, foreign military sales (“FMS”), the U.S.
Customers A representative list of government customers in our KGS and US segments during 2024 included the U.S. Air Force, U.S. Army, U.S. Navy, U.S. Marines, Missile Defense Agency, Space Command, Space Force, NASA, the AFRL, foreign military sales (“FMS”), the U.S.
We are also aggressively pursuing several National Security priority areas, including high performance UADS, satellite communications command, control, communication and signal monitoring products, microwave electronics for missiles, radars, electronic warfare and communications, cybersecurity solutions, propulsion and engine systems, specialized training systems, autonomy and artificial intelligence systems, robotics, directed energy systems, hypersonic systems and next generation ballistic missile targets.
We are also aggressively pursuing several National Security priority areas, including high performance UCAVS, satellite communications command, control, communication and signal monitoring products, SDA, satellite microwave electronics for missiles, radars, electronic warfare and communications, cybersecurity solutions, propulsion and engine systems, specialized training systems, autonomy and artificial intelligence systems, robotics, directed energy systems, hypersonic systems and next generation ballistic missile targets.
In addition, once our products are “designed in” to a program or system and we are on-site with a customer and providing our products and solutions, we have historically been successful in winning new and recompete business.
In addition, once our products are “designed in” to a program or system and we are on-site with a customer and providing our hardware, software, products and solutions, we have historically been successful in winning new and recompete business.
Cybersecurity Program In the normal course of business, we may collect and store personal information and certain sensitive information of the Company and third parties, including proprietary and confidential business information, trade secrets, intellectual property, sensitive third-party information and employee information.
Government. 12 Cybersecurity Program In the normal course of business, we may collect and store personal information and certain sensitive information of the Company and third parties, including proprietary and confidential business information, trade secrets, intellectual property, sensitive third-party information and employee information.
Item 1. Business. Overview 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.
Item 1. Business. Overview 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 systems and solutions that address our customers’ and partners’ mission critical needs and requirements.
At Kratos, affordability is a technology, a core competence and a focus that we believe is disruptive and brings an important value proposition to our customers. Kratos business focus areas include: unmanned systems, space and satellite communications, microwave electronics, cybersecurity/warfare, missile defense, hypersonic systems, C5ISR, turbine technologies, jet and rocket engines and training systems.
At Kratos, affordability is a technology, a core competency and a focus that we believe is disruptive and brings an important value proposition to our customers and partners. Kratos business focus areas include: unmanned systems, space and satellite communications, microwave electronics, cybersecurity/warfare, missile defense, hypersonic systems, C5ISR, turbine technologies, jet and rocket engines and training systems.
It is likely that budget and program decisions made in such an uncertain environment would have long-term implications for our Company and the entire defense industry.
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.
In certain cases, our ability to obtain 10 single award and/or sole source contracts is due to our intellectual property, proprietary products, historical performance qualifications, relative experience, affordability or Kratos already having demonstrated a first to market working system. We have a highly diverse base of customers and contracts with no contract representing more than 6% of 2023 revenue.
In certain cases, our ability to obtain single award and/or sole source contracts is due to our intellectual property, proprietary products, historical performance qualifications, relative experience, affordability or Kratos already having demonstrated a first to market working system. 8 We have a highly diverse base of customers and contracts with no contract representing more than 6% of 2024 revenue.
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, missile defense, space, satellite, counter unmanned aircraft systems (UAS), directed energy, communication and other systems, and virtual & augmented reality training systems for the warfighter.
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), space domain awareness, 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 and augmented reality training systems for the warfighter.
We believe that the principal competitive factors in our ability to win new business include our ability as a technology company to address the defense, national security and commercial markets, our belief that affordability is a technology, our focus on making internally funded investments, and our ability to rapidly develop and produce actual working products and systems and our strategy of being first to market with relevant systems, products and technology, focused on priority DoD requirements and funding areas.
We believe that the principal competitive factors in our ability to win new business include our ability as a technology company to address the defense, national security and commercial markets, our belief that affordability is a technology, our focus on making internally funded investments, our ability to rapidly develop and produce actual working products and systems, our ability to manufacture military qualified and specified hardware and our strategy of being first to market with relevant systems, products and technology, focused on priority DoD requirements and funding areas.
We believe our strategy of internally funding the research and development of many of our systems, products, software, solutions and capabilities, will continue to enable Kratos to “be first to market” and advance our position in high growth markets, such as high performance UCAVs, satellite communications, turbine and engine technologies, hypersonic systems, ballistic missile targets and microwave electronics, and allow us to grow, over the long-term, at a rate greater than that of the industry.
We believe our strategy of internally funding the research and development of many of our systems, products, software, solutions and capabilities, will continue to enable Kratos to be “first to market”, ahead of the competition and advance our position in high growth markets, such as high performance UCAVs, turbine and engine technologies, hypersonic systems, ballistic missile targets, microwave electronics and satellite communications, and allow us to grow, over the long-term, at a rate greater than that of the industry.
We also believe that our proven ability to rapidly design, develop, demonstrate and field disruptive, transformative and leading technology products and systems, at an affordable cost, also differentiates us from our competitors.
We also believe that our proven ability to rapidly design, develop, demonstrate and field disruptive, transformative and leading technology products and systems, at an affordable cost, also differentiates us from our competitors, both traditional and new.
Government (which includes FMS) includes revenue from contracts for which we are the prime contractor as well as those for which we are a subcontractor and the ultimate customer is the U.S. Government. Revenues from U.S. Government agency customers in aggregate accounted for approximately 69%, 69% and 70% of total revenues in 2023, 2022, and 2021, respectively.
Government (which includes FMS) includes revenue from contracts for which we are the prime contractor as well as those for which we are a subcontractor and the ultimate customer is the U.S. Government. Revenues from U.S. Government agency customers in aggregate accounted for approximately 67%, 69% and 69% of total revenues in 2024, 2023, and 2022, respectively.
There is also a significant industry wide labor shortage, including in the Science, Technology, Engineering, and Math (STEM) discipline areas, as well as employees willing and/or able to obtain National Security clearances, and for other high level manufacturing and production disciplines.
There is also a significant industry wide labor and talent 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.
Our cybersecurity team reports to the full Board of Directors typically on an annual basis on information security and cybersecurity matters, or more frequently as needed. Certain members from our Board of Directors have cybersecurity experience. See “Cybersecurity” below for additional information.
Our cybersecurity team reports to the full Board of Directors typically on an annual basis on information security and cybersecurity matters, or more frequently as needed. Certain members from our Board of Directors have cybersecurity experience. See “Item 1C. Cybersecurity” below for additional information.
We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements, to establish and protect our proprietary rights. As of December 31, 2023, we held a number of U.S. and foreign patents.
We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements, to establish and protect our proprietary rights. As of December 29, 2024, we held a number of U.S. and foreign patents.
In 2023, we introduced the satellite industry’s first open edge terminal for satellite communications and other applications and we announced that our OpenSpace platform is the first commercially available, fully virtualized satellite ground system to achieve MEF 3.0 Carrier Ethernet certification. Capitalize on corporate infrastructure investments.
In 2023, we introduced the satellite industry’s first open edge terminal for satellite communications and other applications and we announced that our OpenSpace platform is the first commercially available, fully virtualized satellite ground system to achieve MEF 3.0 Carrier Ethernet certification.
Competitive Strengths We believe that Kratos being a technology company, including the composition and experience of our Board of Directors and Executive management team, our ability to act and make decisions quickly, our culture of affordable innovation and our investments to develop and maintain intellectual property, proprietary products, and technology, which are strongly aligned with certain of the highest priority spending areas of the DoD, the U.S.
Competitive Strengths We believe that Kratos being a technology company, focused on affordability and the composition and experience of our Board of Directors and Executive management team, our ability to act and make decisions quickly, our culture of rapid innovation and our investments to develop and maintain intellectual property, proprietary products, and technology, are strongly aligned with certain of the highest priority spending areas of the DoD, the U.S.
We are pursuing new program and contract opportunities and awards as we build the business with our expanding technology base, intellectual property ownership, contract portfolio, and product, solution, software and service offerings.
We are pursuing new program and contract opportunities and awards as we build the business with our expanding technology base, intellectual property ownership, contract portfolio, and product, hardware, solution, software, service offerings and past performance qualifications.
Our fixed-price contracts, the majority of which are production contracts, represent approximately 70% of our 2023 revenue. Our cost-plus-fee contracts and time and materials contracts represent approximately 24% and 6%, respectively, of our 2023 revenue. We believe our diverse base of key contracts and low reliance on any one contract provides us with a stable, balanced revenue stream.
Our fixed-price contracts, the majority of which are production contracts, represent approximately 69% of our 2024 revenue. Our cost-plus-fee contracts and time and materials contracts represent approximately 25% and 6%, respectively, of our 2024 revenue. We believe our diverse base of key contracts and low reliance on any one contract provides us with a stable, balanced revenue stream.
Research and Development We believe that our future success depends upon our ability to continue to rapidly develop new products and services, and enhancements to and applications for our existing products and services, to be delivered at an affordable cost. Our research and development expenses were $38.4 million, $38.6 million and $35.2 million in 2023, 2022, and 2021, respectively.
Research and Development We believe that our future success depends upon our ability to continue to rapidly develop new products and services, and enhancements to and applications for our existing products and services, to be delivered at an affordable cost. Our research and development expenses were $40.3 million, $38.4 million and $38.6 million in 2024, 2023, and 2022, respectively.
We believe that our reputation, longstanding customer relationships, and the designed-in position of our systems, technology and products into our customers’ platforms, programs and systems, provide a unique competitive advantage and position us well for future accelerated growth.
We believe that our reputation, longstanding customer relationships, past-performance qualifications and the designed-in position of our hardware systems, technology and products into our customers’ and partners’ platforms, programs and systems, provide a unique competitive advantage and position us well for future accelerated growth.
With our focus on delivering proven leading edge systems, products and technologies that address the most critical current and emerging threats, our customers include some of the most technologically advanced organizations of the defense establishment, including the U.S. Air Force, the U.S. Navy, the U.S. Army, the U.S. Marine Corps, the U.S. Space Force and the U.S.
With our focus on delivering proven leading edge systems, products and technologies that address the most critical current and emerging threats, our customers include some of the most technologically advanced organizations of the defense and National Security establishment, including the U.S. Air Force (USAF), the U.S. Navy (USN), the U.S. Army, the U.S. Marine Corps (USMC), the U.S.
While budget pressures routinely cause delays in contracts or orders for our business, the global threat environment as described in the 2022 National Security Strategy document and current budget projections suggest that future years defense spending will continue to be significant, including to address the increasing threats to the United States and its allies.
While budget pressures routinely cause delays in contracts or orders for our business, the global threat environment and current budget projections suggest that future years defense spending will continue to be significant, including to address the increasing threats to the United States and its allies.
We believe our understanding of customer needs, missions, requirements and processes, and our ability to rapidly deliver low cost, technology leading systems, products and solutions, position us well for success in the current National Security environment. Capitalize on current contract base.
We believe our understanding of customer needs, missions, requirements and processes, our reputation and past performance qualifications and our ability to rapidly deliver low cost, technology leading hardware, systems, products and solutions, position us well for success in the current National Security and geopolitical threat environment. Capitalize on current contract base.
In 2022, we received an approximate $160 million potential contract award from Blue Halo and a significant contract award from Intelsat as a result of Kratos OpenSpace™ products and technology.
Related to certain of these investments, in 2022, we received an approximate $160 million potential contract award from Blue Halo and a significant contract award from Intelsat as a result of Kratos OpenSpace™ products and technology.
Current Reporting Segments The Company currently operates in two reportable segments. The Kratos Government Solutions (“KGS”) reportable segment is comprised of an aggregation of KGS operating segments, including our microwave electronic products, space, satellite and cyber, training solutions, C5ISR/modular systems, turbine technologies, and defense and rocket support services operating segments.
The Kratos Government Solutions (“KGS”) reportable segment is comprised of an aggregation of KGS operating segments, including our microwave electronic products, space, satellite and cyber, training solutions, C5ISR/modular systems, turbine technologies, and defense and rocket support services operating segments.
The Unmanned Systems (“US”) reportable segment consists of our unmanned aerial, unmanned ground, unmanned seaborne and related command, control and communications system businesses. We organize our operating segments based primarily on the nature of the products, solutions and services offered.
The Unmanned Systems (“US”) reportable segment is comprised of an aggregation of US operating segments, including our unmanned aerial, unmanned ground, unmanned seaborne and related command, control and communications system businesses. We organize our operating segments based primarily on the nature of the products, solutions and services offered.
Also, a shortage of qualified labor, and the cost of our labor base is a significant operational challenge for the Company. The cost of labor has increased significantly and current challenges in hiring, obtaining and retaining employees, including those employees requiring National Security clearances, is adversely impacting Kratos’ ability to execute its business.
Additionally, an industry wide shortage of qualified labor, and the cost of that labor for the Company and its labor base is an 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.
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.
At Kratos, we strive to deliver more for less to our customers and partners. 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.
See “Risk Factors” for additional information about the risks to our business associated with a breach or compromise to our information technology systems. 15 Human Capital Management As of December 31, 2023, we had a work force of approximately 3,900 full-time, part-time and on-call employees in approximately 13 countries.
See “Risk Factors” for additional information about the risks to our business associated with a breach or compromise to our information technology systems. Human Capital Management As of December 29, 2024, we had a work force of approximately 4,000 full-time, part-time and on-call employees in approximately 14 countries.
We believe that our advanced capabilities in the training systems and solutions market, including mixed, virtual and synthetic reality technology, products and systems for aircraft, combat and other vehicles, have allowed us to successfully remain at the forefront of defense industry readiness initiatives.
Air Force, Space Command, Space Development and other agencies, and also commercial customers, enterprises and entities. We also believe that our advanced capabilities in the training systems and solutions market, including mixed, virtual and synthetic reality technology, products and systems for aircraft, combat and other vehicles, have allowed us to successfully remain at the forefront of defense industry readiness initiatives.
At Kratos, affordability is a technology, which we believe is a critical element of the successful execution of our strategy. Additionally, whenever there is a defense/security/commercial “multi use” opportunity for our technology, products and systems, we lever off of this opportunity with increased efficiencies and further reduced cost opportunity via increased quantities provided to dual or multiple markets.
Additionally, whenever there is a defense/security/commercial “multi use” opportunity for our technology, products and systems, we lever off of this opportunity with increased efficiencies and further reduced cost opportunity via increased quantities provided to dual or multiple markets.
Competition Our market is competitive and includes a number of companies in the U.S. defense, National Security and commercial markets and industries. Most of the companies that we compete against have significantly greater financial, technical, marketing and other resources and generate greater revenues than we do. Competition in the KGS and US segments include tier one, large U.S.
Competition Our market is competitive and includes a number of companies in the U.S. defense, National Security, venture capital and private equity financed and commercial markets and industries. Most of the companies that we compete against have significantly greater financial, technical, marketing and other resources and generate greater revenues than we do.
Government including those outlined in the 2022 National Defense Strategy document: • Unmanned aerial drone, unmanned ground and unmanned seaborne systems and related artificial intelligence. • Satellite communications and Space Domain Awareness capabilities and technology. • Microwave electronics, including in support of warfare, missile, radar, space, satellite and communication systems. • Electronic warfare, attack, missile, and radar systems. • Intelligence, surveillance and reconnaissance technology, platforms solutions and systems. • Ballistic missile defense, hypersonic and other “High Performance” type systems. • C5ISR systems, including Strategic Deterrence Systems and support of the “Strategic Triad”. • Cybersecurity and information assurance, and • Specialized training and operational readiness systems and solutions. • Jet engines for drones, missiles and loitering munitions • Rocket engines and propulsion systems for hypersonic, space and other systems IP-centric technology company with proprietary products, technology and systems which address critical current and emerging threats faced by U.S. and allied militaries.
Government including those outlined in the 2022 National Defense Strategy document: • Unmanned aerial drones, unmanned ground and unmanned seaborne systems and related autonomy and artificial intelligence. • Satellite communications, C2, TT&C and Space Domain Awareness capabilities and technology. • Microwave electronics, including in support of air defense, missile, radar, space, satellite and communication systems. • Electronic warfare, attack, missile, and radar systems. • Intelligence, surveillance and reconnaissance technology, platforms solutions and systems. • Ballistic missile defense, hypersonic and other “High Performance” type systems. 6 • C5ISR systems, including Air Defense, Strategic Deterrence Systems and support of the “Strategic Triad”. • Cybersecurity and information assurance. • Specialized training and operational readiness systems and solutions. • Jet engines for drones, missiles and loitering munitions. • Rocket engines and propulsion systems for hypersonic, space and other systems.
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.
We expect to recognize approximately 57.0% of the remaining total backlog as revenue in 2025, an additional 17.0% in 2026 and the balance thereafter. 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.
We are focused on expanding our customer base into areas with significant growth opportunities, including as indicated by the fiscal year 2024 spending bill, the 2022 National Defense Strategy document and the related Fiscal Year Defense Plan (FYDP), by leveraging our technology, intellectual property, proprietary products, capabilities, industry reputation, long-term customer relationships and diverse contract base.
We are focused on expanding our customer base into areas with significant growth opportunities, including as indicated by the fiscal year 2024 spending bill, the Fiscal 2025 NDAA and the Trump Administration’s initial indicated priority areas, by leveraging our technology, intellectual property, proprietary products, capabilities, industry reputation, past performance qualifications, long-term customer relationships and diverse contract base.
We deliver our systems, products and services through a skilled and primarily engineering and technically oriented workforce of approximately 3,900 employees. Our executives and senior managers have significant experience with technology companies, commercial enterprises, U.S. Government agencies, the U.S. military, U.S. Government contractors and other relevant entities. A significant number of Kratos employees hold National Security clearances.
Our executives and senior managers have significant experience with technology companies, commercial enterprises, U.S. Government agencies, the U.S. military, U.S. Government contractors and other relevant entities. A significant number of Kratos employees hold National Security clearances.
Primary Kratos business areas include unmanned systems, space and satellite communications, cybersecurity, microwave electronics, hypersonic and rocket systems, missile defense, jet engines, rocket motors and turbine technologies, and training systems, which we believe have the highest potential for growth, based on the 11 2022 National Defense Strategy document and recent funding requests.
Primary Kratos business areas include unmanned systems, space and satellite communications, cybersecurity, microwave electronics, hypersonic and rocket systems, missile defense, jet engines, rocket motors, turbine technologies and propulsion systems, and training systems, which we believe have the highest potential for 9 growth, including as based on the recent Fiscal 2025 National Security budget submittal and National Defense Authorization Act (NDAA).
National Security Strategy, and the DoD’s focus on leveraging technology to defeat or deter peer and near-peer adversaries, are competitive advantages. Additionally, Kratos’ strategy of being “first to market” with our systems, products, technology and solutions, we believe is also a competitive differentiator, including in certain areas as compared to the traditional defense industrial complex prime system integrators.
Additionally, we believe Kratos’ strategy of being “first to market” with our hardware systems, products, technology and solutions, is also a competitive differentiator, including in certain areas as compared to the traditional defense industrial complex prime system integrators, as well as venture capital backed defense technology companies.
It is also common in the defense industry for work on major programs to be shared among a number of companies. A company competing to be a prime contractor or subcontractor on an award may, upon final award of the contract to another competitor, become a subcontractor for the final prime contractor.
A company competing to be a prime contractor or subcontractor on an award may, upon final award of the contract to another competitor, become a subcontractor for the final prime contractor.
Specifically, we have increased internally funded research and development, capital and other expenditures, non-recurring engineering expenditures, and infrastructure investments, including executive management, bid, proposal and new business capture, pursuit and related expenses.
Specifically, we have increased internally funded research and development, capital and other expenditures, non-recurring engineering expenditures, and infrastructure investments, including executive management, bid, proposal and new business capture, pursuit and related expenses. We have made these investments with the intention of developing, demonstrating, fielding, bringing to production and being first to market in these strategic growth areas.
Government to identify National Security as an area of enhanced functional and spending priority, including as described in the 2022 National Security Strategy document. Budget pressures, particularly related to DoD spending, have placed a premium on developing and fielding low-cost, high-technology solutions, that can be fielded in quantities, i.e. affordable mass, to assist in National Security missions.
Budget pressures, particularly related to DoD spending, have placed a premium on rapidly developing and fielding low-cost, high-technology hardware, systems and solutions, that can be fielded in quantities, i.e. affordable mass, to address National Security requirements.
Particularly, the market for electronic components is experiencing increased demand and a global shortage of semiconductors, creating substantial uncertainty regarding our suppliers’ continued production of key components for our products, and the supply for certain raw materials such as aluminum and the availability for milling activities is experiencing shortages and delays which is impacting our C5ISR business.
Particularly, the market for electronic components is experiencing increased demand and a global shortage of semiconductors, creating substantial uncertainty regarding our suppliers’ continued production of key components for our products, and the supply for certain subcomponents and parts is impacting our C5ISR business, and the shortage of qualified vendors which supply certain ancillary parts for our aerial targets have resulted in cost increases.
Total backlog does not include orders for which 14 neither party has performed and which each party has the unilateral right to terminate a wholly unperformed contract without compensating the other party.
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 contract.
Kratos’ specialized National Security focus is aligned with mission-critical National Security priorities. Continued and increased concerns related to the threats posed by certain foreign nations, including nations with peer or near peer capabilities, have caused the U.S.
Continued and increased concerns related to the threats posed by certain foreign nations, including nations with peer or near peer capabilities, have caused the U.S. Government to identify National Security as an area of enhanced functional and spending priority.
In fact, many of our tier one competitors are also our partners and our customers. Tier two competitors include smaller government contractors such as Mercury Systems, Qinetiq, Cobham, Anduril, CACI, Peraton, Linquest, Viasat and AAR Corp. Intense competition and long operating cycles are key characteristics of business within the defense industry.
Tier two competitors include smaller government contractors such as Mercury Systems, Qinetiq, Cobham, CACI, Peraton, Linquest (now owned by KBR), Viasat and AAR Corp. Intense competition and long operating cycles are key characteristics of business within the defense industry. It is also common in the defense industry for work on major programs to be shared among a number of companies.
Our contract backlog provides visibility into stable future revenue and cash flow over a diverse set of contracts. Importantly, a number of our systems and products are designed-in and support long term, multi-year/multi-decade programs, which provides significant operational and financial visibility to our Company. Highly skilled employees and an experienced management team.
Importantly, a number of our systems and products are designed-in and support long term, multi-year/multi-decade programs, which provides significant operational and financial visibility to our Company. Highly skilled employees and an experienced management team. We deliver our systems, products and services through a skilled and primarily engineering and technically oriented workforce of approximately 4,000 employees.
The request includes an $886 billion proposed appropriation for national defense, of which $842 billion would be for the U.S. Department of Defense (“DoD”) base budget. The proposed legislation also caps national defense spending at $886 billion for fiscal year 2024 and $895 billion for fiscal year 2025.
This legislation reflects an $886 billion appropriation for national defense, of which $842 billion would be for the U.S. Department of Defense (“DoD”) base budget.

… 143 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

95 edited+7 added−5 removed327 unchanged
Biggest changeGovernment requirements or the appearance of counterfeit parts in our products could have a material adverse effect on our financial position, results of operations or cash flows. Our earnings and profitability depend, in part, on subcontractor and supplier performance and product availability. We rely on other companies to provide major components for our products.
Biggest changeWe are also required to procure certain materials and parts from supply sources approved by the U.S. Government. The inability of a supplier to meet our needs or U.S. Government requirements or the appearance of counterfeit parts in our products could have a material adverse effect on our financial position, results of operations or cash flows.
We currently invest the majority of our cash in institutional U.S. money market funds, institutional U.S. treasury money market funds, U.S. treasuries, and U.S. government agency securities, and in depository accounts with large global financial institutions for those cash balances that are held by our foreign subsidiaries, the performance of which are subject to additional market risks related to their respective issuers and those global financial institutions.
We currently invest the majority of our cash in institutional U.S. money market funds, institutional U.S. treasury money market funds, U.S. treasuries, and U.S. government agency securities, in depository accounts with large financial institutions, and in depository accounts with large global financial institutions for those cash balances that are held by our foreign subsidiaries, the performance of which are subject to additional market risks related to their respective issuers and those global financial institutions.
Additional factors that may cause our financial results to fluctuate from quarter to quarter include those addressed elsewhere in this Item 1A “Risk Factors” and the following factors, among others: • the terms of customer contracts that affect the timing of revenue recognition; • variability in demand for our services and solutions; • commencement, completion or termination of contracts during any particular quarter; • timing of shipments and product deliveries; • timing of award or performance incentive fee notices; • timing of significant bid and proposal costs; • the costs of remediating unknown defects, errors or performance problems of our product offerings; • variable purchasing patterns under GSA contracts, GWACs, blanket purchase agreements and other IDIQ contracts; • restrictions on and delays related to the export of defense articles and services; • costs related to government inquiries; • strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs and joint ventures; • strategic investments or changes in business strategy; • the ability of certain of our commercial based customers to raise adequate capital to fund early stage commercial initiatives; 29 • changes in the extent to which we use subcontractors; • seasonal fluctuations in our staff utilization rates; • changes in our effective tax rate, including changes in our judgment as to the necessity of the valuation allowance recorded against our deferred tax assets; and • the length of sales cycles.
Additional factors that may cause our financial results to fluctuate from quarter to quarter include those addressed elsewhere in this Item 1A “Risk Factors” and the following factors, among others: • the terms of customer contracts that affect the timing of revenue recognition; • variability in demand for our services and solutions; • commencement, completion or termination of contracts during any particular quarter; • timing of shipments and product deliveries; • timing of award or performance incentive fee notices; • timing of significant bid and proposal costs; • the costs of remediating unknown defects, errors or performance problems of our product offerings; • variable purchasing patterns under GSA contracts, GWACs, blanket purchase agreements and other IDIQ contracts; • restrictions on and delays related to the export of defense articles and services; 26 • costs related to government inquiries; • strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs and joint ventures; • strategic investments or changes in business strategy; • the ability of certain of our commercial based customers to raise adequate capital to fund early stage commercial initiatives; • changes in the extent to which we use subcontractors; • seasonal fluctuations in our staff utilization rates; • changes in our effective tax rate, including changes in our judgment as to the necessity of the valuation allowance recorded against our deferred tax assets; and • the length of sales cycles.
In addition, we may encounter challenges to satisfy those customers who require that all of the components of our products be certified as conflict-free, which could place us at a competitive disadvantage if we are unable to do so. 43 Natural disasters or severe weather conditions could disrupt our business and result in loss of revenue or higher expenses.
In addition, we may encounter challenges to satisfy those customers who require that all of the components of our products be certified as conflict-free, which could place us at a competitive disadvantage if we are unable to do so. Natural disasters or severe weather conditions could disrupt our business and result in loss of revenue or higher expenses.
These problems could result in expensive and time-consuming design modifications or warranty charges, delays in the introduction of new products or enhancements, significant increases in our service and maintenance costs, diversion of our personnel’s attention from our product development efforts, exposure to liability for damages, damaged customer relationships, and harm to our reputation, any of which could materially harm our results of operations.
These problems could result in expensive and time-consuming design modifications or warranty charges, delays in the introduction of new products or enhancements, significant increases in our 25 service and maintenance costs, diversion of our personnel’s attention from our product development efforts, exposure to liability for damages, damaged customer relationships, and harm to our reputation, any of which could materially harm our results of operations.
It is likely budget and program decisions made in this environment will have long-term implications for us and the entire defense industry. 22 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.
It is likely budget and program decisions made in this environment will have long-term implications for us and the entire defense industry. 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.
Competitive procurements impose substantial costs and managerial time and effort in order to prepare bids and proposals for contracts that may not be awarded to us. In many cases, unsuccessful bidders for government contracts are provided the opportunity to formally protest certain contract awards through various agencies, 26 administrative and judicial channels.
Competitive procurements impose substantial costs and managerial time and effort in order to prepare bids and proposals for contracts that may not be awarded to us. In many cases, unsuccessful bidders for government contracts are provided the opportunity to formally protest certain contract awards through various agencies, administrative and judicial channels.
The extent to which the COVID-19 pandemic, or any other outbreak of an epidemic disease, impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
The extent to which the lingering impacts of the COVID-19 pandemic, or any other outbreak of an epidemic disease, impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
Government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our revenue and operating profit would decline. Our contracts and administrative processes and systems are subject to audits and cost adjustments by the U.S. Government, which could reduce our revenue, disrupt our business or otherwise adversely affect our results of operations. U.S.
Government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our revenue and operating profit would decline. 38 Our contracts and administrative processes and systems are subject to audits and cost adjustments by the U.S. Government, which could reduce our revenue, disrupt our business or otherwise adversely affect our results of operations.
If our government or prime contractor customer’s requirements should change or if the government or the prime contractor should direct the anticipated procurement to another contractor, or if the anticipated contract award does not materialize, or if the equipment or materials become obsolete or require modification before we are under contract for the procurement, our investment in the equipment or materials might be at risk if we cannot efficiently resell them.
If our government or prime contractor customer’s requirements should change or if the government or the prime contractor should 27 direct the anticipated procurement to another contractor, or if the anticipated contract award does not materialize, or if the equipment or materials become obsolete or require modification before we are under contract for the procurement, our investment in the equipment or materials might be at risk if we cannot efficiently resell them.
Such an incident could lead to losses or unauthorized disclosure of sensitive information or capabilities; theft or exposure of data; harm to personnel, infrastructure or products; regulatory actions; and/or financial 27 liabilities, as well as potential damage to our reputation as a government contractor and provider of cyber-related or cyber-protected goods and services.
Such an incident could lead to losses or unauthorized disclosure of sensitive information or capabilities; theft or exposure of data; harm to personnel, infrastructure or products; regulatory actions; and/or financial liabilities, as well as potential damage to our reputation as a government contractor and provider of cyber-related or cyber-protected goods and services.
Any reduction in international sales of our solutions resulting from reductions in consumer spending or continued disruption in the availability of credit to retailers or consumers, could materially and adversely affect our business, results of operations and financial condition. 37 Changes in foreign tax laws and regulations could expose us to additional tax liabilities and could adversely affect our financial results.
Any reduction in international sales of our solutions resulting from reductions in consumer spending or continued disruption in the availability of credit to retailers or consumers, could materially and adversely affect our business, results of operations and financial condition. Changes in foreign tax laws and regulations could expose us to additional tax liabilities and could adversely affect our financial results.
We cannot be sure that our pending patent applications will result in the issuance of patents to us, that patents issued to or licensed 40 by us in the past or in the future will not be challenged or circumvented by competitors or that these patents will remain valid or sufficiently broad to preclude our competitors from introducing technologies similar to those covered by our patents and patent applications.
We cannot be sure that our pending patent applications will result in the issuance of patents to us, that patents issued to or licensed by us in the past or in the future will not be challenged or circumvented by competitors or that these patents will remain valid or sufficiently broad to preclude our competitors from introducing technologies similar to those covered by our patents and patent applications.
In addition, increased development and warranty costs could be substantial and could reduce our operating margins. 28 The existence of any defects, errors, or failures in our products or the misuse of our products could also lead to lawsuits against us, result in injury, death, or property damage, and significantly damage our reputation and support for our products in general.
In addition, increased development and warranty costs could be substantial and could reduce our operating margins. The existence of any defects, errors, or failures in our products or the misuse of our products could also lead to lawsuits against us, result in injury, death, or property damage, and significantly damage our reputation and support for our products in general.
Market conditions, including increased price competitiveness specifically in the government services space, and procurements awarded on an LPTA rather than a best value basis, can significantly impact our projections. In addition, our ability to penetrate new international markets could also impact our current 32 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, can significantly impact our projections. In addition, our ability to penetrate new international markets could also impact our current projections.
We could be subject to fines, 42 suspensions of production, alteration of our manufacturing processes or interruption or cessation of our operations if we fail to comply with present or future laws or regulations related to the use, storage, handling, discharge or disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing processes.
We could be subject to fines, suspensions of production, alteration of our manufacturing processes or interruption or cessation of our operations if we fail to comply with present or future laws or regulations related to the use, storage, handling, discharge or disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing processes.
This could reduce anticipated earnings or result in a loss, negatively affecting our cash flow and profitability. 30 If we fail to respond to commercial industry cycles in terms of our cost structure, manufacturing capacity, and/or personnel needs, our business could be seriously harmed.
This could reduce anticipated earnings or result in a loss, negatively affecting our cash flow and profitability. If we fail to respond to commercial industry cycles in terms of our cost structure, manufacturing capacity, and/or personnel needs, our business could be seriously harmed.
In addition, market-based inputs to the 31 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.
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.
Violations of the International Traffic in Arms Regulations (“ITAR”) or other applicable trade compliance regulations could result in significant sanctions including fines, more onerous compliance requirements and debarments from export privileges or loss of authorizations needed to conduct aspects of our international business.
Violations of the International Traffic in Arms Regulations (“ITAR”) or other applicable trade compliance regulations could result in significant sanctions including fines, more onerous compliance requirements and debarments from export 35 privileges or loss of authorizations needed to conduct aspects of our international business.
Furthermore, we cannot be sure that our competitors will not develop competing technologies that gain market acceptance in advance of our products. Additionally, the possibility exists that our competitors might develop new technology or offerings that might cause our existing technology and offerings to become obsolete.
Furthermore, we cannot be sure that our competitors will not develop competing technologies that gain market acceptance in advance of our products. 22 Additionally, the possibility exists that our competitors might develop new technology or offerings that might cause our existing technology and offerings to become obsolete.
Our customers and partners (including our supply chain and joint ventures) face similar threats and growing requirements. Although we utilize various procedures and controls to monitor and mitigate the risk of these threats, there can be no assurance that these procedures and controls will be sufficient.
Our customers and partners (including our supply chain and joint ventures) face similar threats and growing 24 requirements. Although we utilize various procedures and controls to monitor and mitigate the risk of these threats, there can be no assurance that these procedures and controls will be sufficient.
A violation of ITAR or other applicable trade regulations could have a material adverse effect on our business, financial condition and results of operations. 38 Risks Related to Our Long-Term Borrowings We have substantial long-term borrowings, which could adversely affect our cash flow, financial condition and business.
A violation of ITAR or other applicable trade regulations could have a material adverse effect on our business, financial condition and results of operations. Risks Related to Our Long-Term Borrowings We have substantial long-term borrowings, which could adversely affect our cash flow, financial condition and business.
These systems may be susceptible to security breaches, damage, disruptions or shutdowns due to attacks by from hackers, criminals, malicious insiders, computer viruses, employee error or malfeasance, power outages, hardware failures, telecommunication failures, catastrophes or other unforeseen events.
These systems may be susceptible to security breaches, damage, disruptions or shutdowns due to attacks from hackers, criminals, malicious insiders, computer viruses, employee error or malfeasance, power outages, hardware failures, telecommunication failures, catastrophes or other unforeseen events.
In the future, we may issue our securities if we need to raise capital in connection with a capital expenditure, working capital requirement or acquisition. The amount of shares of our common stock issued in connection with a capital expenditure, working capital requirement or acquisition could constitute a material portion of our then-outstanding shares of common stock.
In the future, we may issue our securities if we need to raise capital in connection with a capital expenditure, working capital requirement, acquisition or investment. The amount of shares of our common stock issued in connection with a capital expenditure, working capital requirement, acquisition or investment could constitute a material portion of our then-outstanding shares of common stock.
Our ability to meet our debt service obligations with cash from foreign subsidiaries will depend upon the results of operations of these subsidiaries and may be subject to legal, contractual or other restrictions and other business considerations.
Our ability to meet our debt service obligations with cash from foreign subsidiaries will depend upon the results 36 of operations of these subsidiaries and may be subject to legal, contractual or other restrictions and other business considerations.
Therefore, to the extent that we must use cash generated 39 in foreign jurisdictions to make principal or interest payments on our debt, there may be a cost associated with repatriating the cash to the U.S.
Therefore, to the extent that we must use cash generated in foreign jurisdictions to make principal or interest payments on our debt, there may be a cost associated with repatriating the cash to the U.S.
Since our supply chain is complex, we are not always able to sufficiently verify the origins of the relevant minerals used in our products through the due diligence procedures we implemented, which may harm our reputation.
Since our supply chain is complex, we are not always able to sufficiently verify the origins of the relevant minerals used in our products through 40 the due diligence procedures we implemented, which may harm our reputation.
As a result, if we are unable to recruit and retain a sufficient number of qualified employees, we may lose revenue and our ability to maintain and grow our business could be limited. 35 Moreover, in a tight labor market our direct labor costs could increase or we may be required to engage large numbers of subcontractor personnel, which could cause our profit margins to suffer.
As a result, if we are unable to recruit and retain a sufficient number of qualified employees, we may lose revenue and our ability to maintain and grow our business could be limited. 32 Moreover, in a tight labor market our direct labor costs could increase or we may be required to engage large numbers of subcontractor personnel, which could cause our profit margins to suffer.
Continued international economic uncertainty and reductions in consumer spending may result in reductions in our revenue. Additionally, disruptions in international credit markets may materially limit consumer credit availability and restrict credit availability of our customers.
Continued international economic uncertainty and reductions in consumer spending may result in reductions in our revenue. 34 Additionally, disruptions in international credit markets may materially limit consumer credit availability and restrict credit availability of our customers.
In addition, this emphasis on environmental, social and other sustainability matters has resulted and may result in the adoption of new laws and regulations, including new reporting requirements. Recently, California legislation was enacted that will require climate-related risk disclosures for company’s doing business in the state. These will be effective for Kratos beginning in 2026.
In addition, this emphasis on environmental, social and other sustainability matters has resulted and may result in the adoption of new laws and regulations, including new reporting requirements. Recently, California legislation was enacted that will require climate-related risk disclosures for companies doing business in the state. These will be effective for Kratos beginning in 2026.
A pandemic, including COVID-19 or other epidemic or public health emergency, poses the risk that we or our employees, suppliers and other partners may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities.
A pandemic or other epidemic or public health emergency, poses the risk that we or our employees, suppliers and other partners may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities.
Government imposing penalties and sanctions against us, including withholding of payments, suspension of payments and increased government scrutiny that could delay or adversely affect our ability to invoice and receive timely payment on contracts, perform contracts or compete for contracts with the U.S. Government. We have submitted incurred cost claims through fiscal year 2022.
Government imposing penalties and sanctions against us, including withholding of payments, suspension of payments and increased government scrutiny that could delay or adversely affect our ability to invoice and receive timely payment on contracts, perform contracts or compete for contracts with the U.S. Government. We have submitted incurred cost claims through fiscal year 2023.
Although we have recorded contract revenues based upon costs that we believe will be approved upon final completion of the audits, we do not know what the results of any current or future government audits, for fiscal year 2022 incurred costs, will be. If future adjustments were to exceed our estimates, our profitability could be adversely affected.
Although we have recorded contract revenues based upon costs that we believe will be approved upon final completion of the audits, we do not know what the results of any current or future government audits, for fiscal year 2023 incurred costs, will be. If future adjustments were to exceed our estimates, our profitability could be adversely affected.
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 2023 and 2022, the U.S.
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 2024 and 2023, the U.S.
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, 33 would restrict our access to capital and could require us to pay down any then-existing debt under the Credit Agreement.
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, 30 would restrict our access to capital and could require us to pay down any then-existing debt under the Credit Agreement.
These provisions may also frustrate or prevent any attempts by our stockholders to replace or remove our current management team by making it more difficult for stockholders to replace members of our board, which is responsible for appointing the members of our management. 44 General Risk Factors The market price of our common stock may be volatile.
These provisions may also frustrate or prevent any attempts by our stockholders to replace or remove our current management team by making it more difficult for stockholders to replace members of our board, which is responsible for appointing the members of our management. 41 General Risk Factors The market price of our common stock may be volatile.
The new certification will not be required for existing contracts already signed, only on new 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 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.
Risks Related to Our Common Stock • Some of our contracts with the U.S. Government are classified, which may limit investor insight into portions of our business. For a more complete discussion of the material risks facing our business, see below. 21 Risks Related to Our Business The U.S.
Risks Related to Our Common Stock • Some of our contracts with the U.S. Government are classified, which may limit investor insight into portions of our business. For a more complete discussion of the material risks facing our business, see below. 18 Risks Related to Our Business The U.S.
As a result, if we fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in 34 excess of what we anticipate. Acquisitions frequently involve benefits related to integration of operations.
As a result, if we fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in 31 excess of what we anticipate. Acquisitions frequently involve benefits related to integration of operations.
Additional market factors could impact our projections and our ability to successfully develop new products and platforms.
Additional market factors could impact our projections and our ability to successfully 28 develop new products and platforms.
Failure to comply with the NISPOM or other security requirements may subject us to civil or criminal penalties, loss of access to classified information, loss of a U.S. Government contract, or potentially debarment as a government contractor. We will be subject to the DoD CMMC requirement issued by the Pentagon which may limit our ability to bid and win projects.
Failure to comply with the NISPOM or other security requirements may subject us to civil or criminal penalties, loss of access to classified information, loss of a U.S. Government contract, or potentially debarment as a government contractor. We are subject to the DoD CMMC requirement issued by the Pentagon which may limit our ability to bid and win projects.
As each country in which we operate evaluates their alignment with the recommendations and will enact their own tax rules, the ultimate impact of any such changes on our effective tax rate remains uncertain. However, any such changes to foreign tax laws could harm our results of operations and financial condition. Our international business exposes us to additional risks.
As each country in which we operate evaluates their alignment with the recommendations and enacts their own tax rules, the ultimate impact of any such changes on our effective tax rate remains uncertain. However, any such changes to foreign tax laws could harm our results of operations and financial condition. Our international business exposes us to additional risks.
Our amended and restated certificate of incorporation, our second amended and restated bylaws, as amended, and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover.
Our amended and restated certificate of incorporation, our third amended and restated bylaws, and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover.
Loss of our GSA contracts or GWACs could impair our ability to attract new business. We are a prime contractor under several GSA contracts and governmentwide acquisition contracts (GWACs). We believe that our ability to provide services under these contracts will continue to be important to our business because of the multiple opportunities for new engagements each contract provides.
Loss of our GSA contracts or GWACs could impair our ability to attract new business. We are a prime contractor under several GSA contracts and government-wide acquisition contracts (GWACs). We believe that our ability to provide services under these contracts will continue to be important to our business because of the multiple opportunities for new engagements each contract provides.
Given the current market conditions and continued economic uncertainty in the U.S. defense industry, including sequestration and issues surrounding the national debt ceiling and COVID-19 related and inflationary impacts to certain of our businesses, our future revenues, profits and cash flows could be substantially lower than our current projections.
Given the current market conditions and continued economic uncertainty in the U.S. defense industry, including sequestration and issues surrounding the national debt ceiling and inflationary impacts to certain of our businesses, our future revenues, profits and cash flows could be substantially lower than our current projections.
Our products, including but not limited to unmanned vehicles, aerial targets, UAS and ballistic missile targets, are extremely complex and must operate successfully with complex products from other vendors.
Our products, including but not limited to unmanned vehicles, aerial targets, UAS and ballistic missile targets, and hypersonic systems, are extremely complex and must operate successfully with complex products from other vendors.
Air Force accounted for 22.6% and 25.3% respectively, of our total revenues and the U.S. Navy accounted for 13.0% and 14.2%, 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.
Air Force accounted for 15.2% and 22.6% respectively, of our total revenues and the U.S. Navy accounted for 14.7% and 13.0%, 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.
See “Dividend Policy.” Certain provisions in our amended and restated certificate of incorporation and second amended and restated bylaws, as amended, and of Delaware law, may prevent or delay an acquisition of our Company, which could decrease the trading price of our common stock.
See “Dividend Policy.” Certain provisions in our amended and restated certificate of incorporation and third amended and restated bylaws, and of Delaware law, may prevent or delay an acquisition of our Company, which could decrease the trading price of our common stock.
See Note 15 of the Notes to Consolidated Financial Statements contained within this Annual Report for a further discussion of our legal proceedings. 45 If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and any trading volume could decline.
See Note 14 of the Notes to Consolidated Financial Statements contained within this Annual Report for a further discussion of our legal proceedings. 42 If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and any trading volume could decline.
If we cannot provide reliable financial reports, our operating results could be misstated, our reputation may be harmed and the market price of our common stock could be negatively affected. Our management has concluded that there are no material weaknesses in our internal controls over financial reporting as of December 31, 2023.
If we cannot provide reliable financial reports, our operating results could be misstated, our reputation may be harmed and the market price of our common stock could be negatively affected. Our management has concluded that there are no material weaknesses in our internal controls over financial reporting as of December 29, 2024.
Risks Related to our Operations • Our operations expose us to risks associated with pandemics, epidemics or other public health emergencies, such as the outbreak of COVID-19. 20 • We may need additional capital to fund the growth of our business, and financing may not be available on favorable terms or at all. • Our cash may be subject to a risk of loss and we may be exposed to fluctuations in the market values of our portfolio investments and in interest rates. • Past acquisitions and future acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our resources. • The loss of any member of our senior management could impair our relationships with U.S.
Risks Related to our Operations • Our operations expose us to risks associated with pandemics, epidemics or other public health emergencies. • We may need additional capital to fund the growth of our business, and financing may not be available on favorable terms or at all. 17 • Our cash may be subject to a risk of loss and we may be exposed to fluctuations in the market values of our portfolio investments and in interest rates. • Past acquisitions and future acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our resources. • The loss of any member of our senior management could impair our relationships with U.S.
Government provides a significant portion of our revenue, and our business could be adversely affected by changes in the fiscal policies of the U.S. Government and other governmental entities. In fiscal 2023, 2022 and 2021, we generated 69%, 69% and 70%, respectively, of our total revenues from contracts with the U.S.
Government provides a significant portion of our revenue, and our business could be adversely affected by changes in the fiscal policies of the U.S. Government and other governmental entities. In fiscal 2024, 2023 and 2022, we generated 67%, 69% and 69%, respectively, of our total revenues from contracts with the U.S.
Given the current market conditions and continued economic uncertainty in the U.S. defense industry, including sequestration and issues surrounding the national debt ceiling and COVID-19 related 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.
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 29 impacts, our future revenues, profits, cash flows, and taxable income could be substantially lower than our then-current projections.
Risks Related to Our Intellectual Property We may be unable to protect our intellectual property rights. We rely on a combination of patents, trademarks, copyrights, trade secrets and nondisclosure agreements to protect our proprietary intellectual property. Our efforts to protect our intellectual property and proprietary rights may not be sufficient.
We rely on a combination of patents, trademarks, copyrights, trade secrets and nondisclosure agreements to protect our proprietary intellectual property. Our efforts to protect our intellectual property and proprietary rights may not be sufficient.
Misconduct or improper actions by our employees, agents, subcontractors, suppliers, business partners and/or joint ventures could subject us to administrative, civil or criminal investigations and enforcement actions; monetary and non-monetary penalties; liabilities; and the loss of privileges and other sanctions, including suspension and debarment, which could negatively impact our reputation and ability to conduct business and could have a material adverse effect on our financial position, results of operations and/or cash flows.
Misconduct or improper actions by our employees, agents, subcontractors, suppliers, business partners and/or joint ventures could subject us to administrative, civil or criminal investigations and enforcement actions; monetary and non-monetary penalties; liabilities; and the loss of privileges and other sanctions, including suspension and debarment, which could negatively impact our reputation and ability to conduct business and could have a material adverse effect on our financial position, results of operations and/or cash flows. 39 We are subject to environmental laws and potential exposure to environmental liabilities.
If a prolonged government shutdown of the DoD 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.
If a prolonged government shutdown of the DoD 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.
Fixed-price contracts (including both government and commercial contracts) represented approximately 70% of our revenue for the fiscal year ended December 31, 2023. If we fail to anticipate technical problems, estimate costs accurately or control costs during our performance of fixed-price contracts, then we may incur losses on these contracts because we absorb any costs in excess of the fixed price.
Fixed-price contracts (including both government and commercial contracts) represented approximately 69% of our revenue for the fiscal year ended December 29, 2024. If we fail to anticipate technical problems, estimate costs accurately or control costs during our performance of fixed-price contracts, then we may incur losses on these contracts because we absorb any costs in excess of the fixed price.
We believe that our cash is held in institutions whose credit risk is minimal and that the value and liquidity of our deposits are accurately reflected in our Consolidated Financial Statements as of December 31, 2023.
We believe that our cash is held in institutions whose credit risk is minimal and that the value and liquidity of our deposits are accurately reflected in our Consolidated Financial Statements as of December 29, 2024.
For the year ended December 31, 2023, there was no impact of such limitations on the income tax provision since the amount of taxable income did not exceed the cumulative annual limitation amount.
For the year ended December 29, 2024, there was no impact of such limitations on the income tax provision since the amount of taxable income did not exceed the cumulative annual limitation amount.
Significant delays or reductions in appropriations for our programs and U.S. Government funding more broadly may negatively impact our business and programs and could have a material adverse effect on our financial position, results of operations and/or cash flows. U.S. Government programs are subject to annual congressional budget authorization and appropriation processes.
Government funding more broadly may negatively impact our business and programs and could have a material adverse effect on our financial position, results of operations and/or cash flows. U.S. Government programs are subject to annual congressional budget authorization and appropriation processes.
We believe that the USAF BQM-167, USN BQM-177, and the GBSD (also known as Sentinel) programs could represent a large portion of our future revenues in the coming years, and the loss or cancellation of any of these programs could adversely affect our future results.
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 loss or cancellation of any of these programs could adversely affect our future results.
We have incurred and may continue to incur goodwill impairment charges in our reporting entities, which could harm our profitability. As of December 31, 2023, goodwill represented approximately 35% of our total assets. We test for impairment annually.
We have incurred and may continue to incur goodwill impairment charges in our reporting entities, which could harm our profitability. As of December 29, 2024, goodwill represented approximately 29% of our total assets. We test for impairment annually.
Our international business represents 19% of our total revenue for the year ended December 31, 2023, which may be impacted by changes in foreign national priorities and government budgets and may be further impacted by global economic conditions and fluctuations in foreign currency exchange rates.
Our international business represents 20% of our total revenue for the year ended December 29, 2024, which may be impacted by changes in foreign national priorities and government budgets and may be further impacted by global economic conditions and fluctuations in foreign currency exchange rates.
For the fiscal year ended December 31, 2023, our US segment accounted for 20.5% of our total revenue. We cannot accurately predict the future growth rate or size of this market. Demand for our products may not increase, or may decrease, either generally or in specific markets, for particular types of products or during particular time periods.
For the fiscal year ended December 29, 2024, our US segment accounted for 23.8% of our total revenue. We cannot accurately predict the future growth rate or size of this market. Demand for our products may not increase, or may decrease, either generally or in specific markets, for particular types of products or during particular time periods.
Cost-plus-fee and fixed-price contracts in our federal business accounted for approximately 35% and 62%, respectively, of our federal business revenues for the year ended December 31, 2023. To the extent that we enter into more cost-plus-fee or less fixed-price contracts in proportion to our total contract mix in the future, our margins and operating results may suffer.
Cost-plus-fee and fixed-price contracts in our federal business accounted for approximately 37% and 60%, respectively, of our federal business revenues for the year ended December 29, 2024. To the extent that we enter into more cost-plus-fee or less fixed-price contracts in proportion to our total contract mix in the future, our margins and operating results may suffer.
We believe continued budget pressures would have serious negative consequences for the security of our country, the defense industrial base, including the Company, and the customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base.
Government contracts and successfully compete for new work. 19 We believe continued budget pressures would have serious negative consequences for the security of our country, the defense industrial base, including the Company, and the customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base.
As of December 31, 2023, we had approximately $219.3 million of long-term borrowings outstanding, which is net of $0.7 million of unamortized debt issuance costs. As a result of this indebtedness, our interest payment obligations are significant, and are subject to fluctuate as the interest rate is floating with SOFR (the “Secured Overnight Financing Rate”).
As of December 29, 2024, we had approximately $174.6 million of long-term borrowings outstanding, which is net of $0.4 million of unamortized debt issuance costs. As a result of this indebtedness, our interest payment obligations are significant, and are subject to fluctuate as the interest rate is floating with SOFR (the “Secured Overnight Financing Rate”).
We plan to incur substantial research and development costs as part of our efforts to design, develop and commercialize new products and services and enhance existing products. We spent $38.4 million, or 3.7% of our total revenue, in our fiscal year ended December 31, 2023 on internally funded research and development activities.
We plan to incur substantial research and development costs as part of our efforts to design, develop and commercialize new products and services and enhance existing products. We spent $40.3 million, or 3.5% of our total revenue, in our fiscal year ended December 29, 2024 on internally funded research and development activities.
We are subject to environmental laws and potential exposure to environmental liabilities. This may affect our ability to develop, sell or rent our property or to borrow money where such property is required to be used as collateral. We use hazardous materials common to the industries in which we operate.
This may affect our ability to develop, sell or rent our property or to borrow money where such property is required to be used as collateral. We use hazardous materials common to the industries in which we operate.
The Government has provided fiscal year 2022 final rate agreement letters for certain Kratos entities and is currently auditing the fiscal year 2022 incurred cost claims of several other Kratos entities.
The Government has provided fiscal year 2023 final rate agreement letters for certain Kratos entities and is currently auditing the fiscal year 2023 incurred cost claims of one Kratos entity.
These agencies review our performance on contracts, pricing practices, cost structure and compliance with applicable laws, regulations and standards. 41 They also review the adequacy of our compliance with government standards for our accounting and management of internal control systems, including our control environment and overall accounting system; general IT system; budget and planning system; purchasing system; material management and accounting system; compensation system; labor system; indirect and other direct costs system; billing system; and estimating system used for pricing on government contracts.
They may also review the adequacy of our compliance with government standards for our accounting and management of internal control systems, including our control environment and overall accounting system; general IT system; budget and planning system; purchasing system; material management and accounting system; compensation system; labor system; indirect and other direct costs system; billing system; and estimating system used for pricing on government contracts.
The budget environment, including budget caps mandated by the Budget Control Act of 2011 (the “BCA”) for fiscal years 2022 and 2023, and uncertainty surrounding the debt ceiling and the appropriations process, remain significant short and long-term risks for the Company.
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.
We may be required to record valuation allowances on our net operating loss carryforwards in future periods, which could harm our profitability.
We may be required to record valuation allowances on our net operating loss carryforwards in future periods which could adversely impact our profitability and financial condition.
We use these systems to manage and support critical business activities as well as collect and store sensitive data, including confidential business information and personal data.
Some of these systems are managed by outside vendors. We use these systems to manage and support critical business activities as well as collect and store sensitive data, including confidential business information and personal data.
As of December 31, 2023, approximately 13% of our consolidated assets, based on book value, and 13% of our total revenues for the year ended December 31, 2023, were held by foreign subsidiaries, which do not guarantee our indebtedness.
As of December 29, 2024, approximately 11% of our consolidated assets, based on book value, and 13% of our total revenues for the year ended December 29, 2024, were attributable to foreign subsidiaries, which do not guarantee our indebtedness.
If we are unable to procure, or experience significant delays in subcontractor or supplier deliveries of, needed materials, components, intellectual property or parts; if our subcontractors or suppliers do not comply with all applicable laws and regulations; if the certifications we receive from them are inaccurate; or if what we receive is counterfeit or otherwise improper, it could have a material adverse effect on our financial position, results of operations and/or cash flows. 24 We face intense competition from many competitors that have greater resources than we do, which could result in price reductions, reduced profitability or loss of market share.
If we are unable to procure, or experience significant delays in subcontractor or supplier 21 deliveries of, needed materials, components, intellectual property or parts; if our subcontractors or suppliers do not comply with all applicable laws and regulations; if the certifications we receive from them are inaccurate; or if what we receive is counterfeit or otherwise improper, it could have a material adverse effect on our financial position, results of operations and/or cash flows.
Further, we may be negatively impacted by our subcontractors if they are not compliant with these requirements. Cybersecurity breaches or disruptions of our information technology systems could negatively impact our operations. We utilize our information technology systems to process, transmit and store electronic information. Some of these systems are managed by outside vendors.
The cost to comply with the new CMMC requirement has been significant and may increase. Further, we may be negatively impacted by our subcontractors if they are not compliant with these requirements. Cybersecurity breaches or disruptions of our information technology systems could negatively impact our operations. We utilize our information technology systems to process, transmit and store electronic information.
In addition, from time to time, we may build production units such as unmanned aerial vehicles in advance of receiving an anticipated contract award. These actions that we may take to procure materials and/or commence production in advance of contract award require use of our working capital resources which impact our near-term operating cash flows.
These actions that we may take to procure materials and/or commence production in advance of contract award require use of our working capital resources which impact our near-term operating cash flows.
Disruptions or performance problems caused by our subcontractors and suppliers, or a misalignment between our contractual obligations to our customers and our agreements with our subcontractors and suppliers, could have an adverse effect on our ability to meet our commitments to customers.
We primarily rely on our suppliers to provide the engines and parachutes for landing the unmanned aerial systems. Disruptions or performance problems caused by our subcontractors and suppliers, or a misalignment between our contractual obligations to our customers and our agreements with our subcontractors and suppliers, could have an adverse effect on our ability to meet our commitments to customers.
Further, our research and development programs may not produce successful results, and our new products and services may not achieve market acceptance, create additional revenue or become profitable, which could materially harm our business, prospects, financial results and liquidity.
Further, our research and development programs may not produce successful results, and our new products and services may not achieve market acceptance, create additional revenue or become profitable, which could materially harm our business, prospects, financial results and liquidity. Risks Related to Our Operations Our operations expose us to risks associated with pandemics, epidemics or other public health emergencies.

… 27 more changes not shown on this page.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

4 edited+1 added−1 removed17 unchanged
Biggest changeBoard members receive presentations on cybersecurity topics from our CIO, internal security staff or external experts as part of the Board’s continuing education on topics that impact public companies. Our management team is responsible for assessing and managing our material risks from cybersecurity threats. Our CIO regularly informs our management team of all aspects related to cybersecurity risks and incidents.
Biggest changeIn addition, management updates our entire Board, as necessary, regarding any material cybersecurity incidents, as well as any incidents with lesser impact potential. Board members receive presentations on cybersecurity topics from our CIO, internal security staff or external experts as part of the Board’s continuing education on topics that impact public companies.
Our cybersecurity risk management program includes: • risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment including risks associated with ransomware; • the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; • cybersecurity awareness training of our employees, incident response personnel, and senior management; • a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and 46 • a third-party risk management process for service providers, suppliers, and vendors.
Our cybersecurity risk management program includes: • risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment including risks associated with ransomware; • the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; • cybersecurity awareness training of our employees, incident response personnel, and senior management; • a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and • a third-party risk management process for service providers, suppliers, and vendors. 43 We have developed processes to identify and oversee risks from cybersecurity threats associated with our third-party service providers, which includes the information security team assisting with and assessing cybersecurity robustness during vendor onboarding as well as risk-based monitoring of vendors on an ongoing basis.
Governance Our Board considers cybersecurity risk as part of its risk oversight function and oversees management’s implementation of our cybersecurity risk management program. The Board receives regular reports from management on our cybersecurity risks. In addition, management updates the Board, as necessary, regarding any material cybersecurity incidents, as well as any incidents with lesser impact potential.
Governance and Management’s Responsibilities Our entire Board considers cybersecurity risk as part of its risk oversight function and our entire board oversees management’s implementation of our cybersecurity risk management program. Our entire Board receives regular reports from management on our cybersecurity risks.
This is designed to ensure that the highest levels of management are kept abreast of the cybersecurity posture and potential risks facing the Company. The team has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained cybersecurity consultants.
The team has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained cybersecurity consultants.
Removed
We have developed processes to identify and oversee risks from cybersecurity threats associated with our third-party service providers, which includes the information security team assisting with and assessing cybersecurity robustness during vendor onboarding as well as risk-based monitoring of vendors on an ongoing basis.
Added
Our management team is responsible for assessing and managing our material risks from cybersecurity threats. Our CIO regularly informs our management team of all aspects related to cybersecurity risks and incidents. This is designed to ensure that the highest levels of management are kept abreast of the cybersecurity posture and potential risks facing the Company.

Item 2. Properties

Properties — owned and leased real estate

5 edited+0 added−0 removed2 unchanged
Biggest changeThe following is a summary of our floor space at December 31, 2023: Square feet (in thousands) Owned Leased Total Kratos Government Solutions 619 1,022 1,641 Unmanned Systems 35 458 493 Corporate (includes San Diego, operations of KGS and US segments) — 26 26 Total 654 1,506 2,160 See Note 6 of the Notes to Consolidated Financial Statements contained within this Annual Report for information regarding commitments under leases.
Biggest changeThe following is a summary of our floor space at December 29, 2024: Square feet (in thousands) Owned Leased Total Kratos Government Solutions 619 981 1,600 Unmanned Systems 35 516 551 Corporate (includes San Diego, operations of KGS and US segments) — 26 26 Total 654 1,523 2,177 See Note 6 of the Notes to Consolidated Financial Statements contained within this Annual Report for information regarding commitments under leases.
We have major operations at the following locations: Kratos Government Solutions : Birmingham and Huntsville, AL; San Diego, and San Jose, CA; Colorado Springs and Englewood, CO; Jupiter and Orlando, FL; Baltimore and Lanham, MD; Bristow, OK; Dallastown, PA; Plano, TX; and Alexandria and Chantilly, VA.
We have major operations at the following locations: Kratos Government Solutions : Birmingham and Huntsville, AL; San Diego, and San Jose, CA; Colorado Springs and Englewood, CO; Jupiter and Orlando, FL; Baltimore and Lanham, MD; Bristow, OK; Dallastown, PA; Plano, TX; and Alexandria, Herndon and Chantilly, VA.
Item 3. Legal Proceedings. See Note 15 of the Notes to Consolidated Financial Statements contained within this Annual Report for a discussion of our legal proceedings. Item 4. Mine Safety Disclosures. None. 48 PART II
Item 3. Legal Proceedings. See Note 14 of the Notes to Consolidated Financial Statements contained within this Annual Report for a discussion of our legal proceedings. Item 4. Mine Safety Disclosures. None. 45 PART II
At December 31, 2023, we also leased approximately 106 acres of land, which included 98 acres in Ontario, Canada which is used by our Kratos ASC Signal business. We continually evaluate our current and future space capacity in relation to 47 current and projected future staffing levels.
At December 29, 2024, we also leased approximately 106 acres of land, which included 98 acres in Ontario, Canada which is used by our Kratos ASC Signal business. We continually evaluate our current and future space capacity in relation to 44 current and projected future staffing levels.
Item 2. Properties. At December 31, 2023, we owned or leased approximately 2.2 million square feet of floor space at 64 separate locations, primarily in the U.S., for manufacturing, warehousing, research and development, administration and various other uses.
Item 2. Properties. At December 29, 2024, we owned or leased approximately 2.2 million square feet of floor space at 60 separate locations, primarily in the U.S., for manufacturing, warehousing, research and development, administration and various other uses.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+3 added−0 removed2 unchanged
Biggest changeThe companies included in the Company’s Peer Group are: AAR Corp, AeroVironment Inc., Comtech Telecommunications Corp., CPI Aerostructures Inc., Ducommun Inc., Frequency Electronics Inc., and Mercury Systems Inc. Recent Sales of Unregistered Securities; Use of Proceeds None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. Reserved 50
Biggest changeThe companies included in the Company’s 2024 Peer Group are: AAR Corp, AeroVironment Inc., CACI International Inc., Ducommun Inc., Frequency Electronics Inc., Leidos Holdings Inc., Mercury Systems Inc. and Parsons Corp. The companies included in the Company’s 2023 Peer Group are: AAR Corp, AeroVironment Inc., Comtech Telecommunications Corp, CPI Aerostructures Inc., Ducommun Inc., Frequency Electronics Inc., and Mercury Systems Inc.
Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our future financial condition, results of operations and capital requirements, general business conditions and other relevant factors as determined by our board of directors. 49 Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act of 1934 as amended (the “Exchange Act”), except to the extent that we specifically incorporate it by reference into such filing.
Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our future financial condition, results of operations and capital requirements, general business conditions and other relevant factors as determined by our board of directors. 46 Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act of 1934 as amended (the “Exchange Act”), except to the extent that we specifically incorporate it by reference into such filing.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Kratos Defense & Security Solutions, Inc., the Russell 2000 Index, and Peer Group *$100 invested on 12/31/18 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Kratos Defense & Security Solutions, Inc., the Russell 2000 Index, and Peer Group *$100 invested on 12/31/19 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
In addition, our ability to pay dividends is restricted by our Credit Agreement, as discussed in the section entitled “Liquidity and Capital Resources” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 5 of the Notes to Consolidated Financial Statements contained within this Annual Report.
In addition, our ability to pay dividends is restricted by our Credit Agreement, as discussed in the sections entitled “Liquidity and Capital Resources” and “2022 Credit Facility” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 5 of the Notes to Consolidated Financial Statements contained within this Annual Report.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on the NASDAQ Global Select Market and is traded under the symbol “KTOS”. Holders of Record On February 9, 2024, there were 295 shareholders of record of our common stock.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on the NASDAQ Global Select Market and is traded under the symbol “KTOS”. Holders of Record On February 21, 2025, there were 279 shareholders of record of our common stock.
The following performance graph presents a comparison of the five year cumulative stockholder return on our common stock against the cumulative total return of a broad equity market index, the Russell 2000 Stock Index, and one customized peer group consisting of the companies listed below, for the period commencing December 31, 2018 and ending December 31, 2023.
The following performance graph presents a comparison of the five year cumulative stockholder return on our common stock against the cumulative total return of a broad equity market index, the Russell 2000 Stock Index, and two customized peer groups consisting of the companies listed below, for the period commencing December 31, 2019 and ending December 31, 2024.
Added
Recent Sales of Unregistered Securities; Use of Proceeds On June 21, 2024, pursuant to an Equity Purchase Agreement among the Company, Joseph D. Brostmeyer, Shirley C. Brostmeyer, certain trusts established by Joseph D. Brostmeyer, Shirley C. Brostmeyer and members of their immediate family, and Pegasus Residual, LLC, the Company issued 583,700 shares of its common stock to Pegasus Residual, LLC.
Added
The shares were issued as partial consideration for the Company’s acquisition of an additional 9.95% of the issued and outstanding shares of capital stock of KTT Core for an aggregate estimated purchase price of approximately $22.5 million.
Added
The shares were issued 47 in reliance upon the exemption from the registration requirements of the Securities Act provided by Section 4(a)(2) of the Securities Act as sales by an issuer not involving any public offering. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. Reserved 48

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

72 edited+20 added−23 removed93 unchanged
Biggest changeNet cash used in operating activities from continuing operations was $25.6 million for the year ended December 25, 2022, primarily as a result of net loss from continuing operations of $34.1 million, and changes in working capital requirements of $74.9 million, including increases in receivables and inventory balances reflecting advance payments to mitigate supply chain disruptions, and internal investments we are making in certain rocket motors and software products of approximately $16.7 million, partially offset by noncash charges of $83.4 million. 56 Our net cash used in investing activities from continuing operations is summarized as follows (in millions): Year Ended December 31, 2023 December 25, 2022 Investing activities: Cash paid for acquisitions, net of cash acquired $ 0.3 $ (132.2) Proceeds from sale of assets 8.3 0.2 Capital expenditures (52.4) (45.4) Net cash used in investing activities from continuing operations $ (43.8) $ (177.4) Net cash used in investing activities from continuing operations for 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.
Biggest changeNet 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.
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, C5ISR and microwave electronic products for missile, radar, missile defense, space, satellite, counter UAS, directed energy, communication and other systems, and virtual & augmented reality training systems for the warfighter.
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, C5ISR and microwave electronic products for missile, radar, missile defense, space, satellite, counter UAS, directed energy, communication and other systems, and virtual and augmented reality training systems for the warfighter.
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 significantly adversely impacted our operations, profit margins and financial forecasts.
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.
For the majority of contracts, we satisfy the underlying performance obligations over time as the customer obtains control or receives benefits as work is performed on the contract. We generally recognize revenue over time as we perform on long-term contracts because of continuous transfer of control to the customer.
For the majority of contracts, we satisfy the underlying performance obligations over time as the customer obtains control or receives benefits as work is performed on the contract. We generally recognize revenue over time as we perform on long-term contracts because of continuous transfer of control to the customer.
For U.S. government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process.
For U.S. government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process.
Similarly, for non-U.S. government contracts, the customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment of the transaction price associated with work performed to date on products or services that do not have an alternative use to the Company.
Similarly, for non-U.S. government contracts, the customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment of the transaction price associated with work performed to date on products or services that do not have an alternative use to the Company.
In accordance with ASC 606, we evaluate whether a contract with a customer exists by evaluating a number of criteria including whether collection of consideration is reasonably assured; comprehensive collection history; results of our communications with customers; the current financial position of the customer; and the relevant economic conditions in the customer’s country.
In accordance with ASC 606, we evaluate whether a contract with a customer exists by evaluating a number of criteria including whether collection of consideration is reasonably assured; comprehensive collection history; results of our communications with customers; the current financial position of the customer; and the relevant economic conditions in the 51 customer’s country.
We continue to be affected by various unfavorable macroeconomic conditions including significant adverse supply chain disruptions that continue throughout the industry and for us, and related delays in the receipt and delivery of materials, parts, supplies, etc., which in certain instances and for certain items is significant.
We also continue to be affected by various unfavorable macroeconomic conditions including adverse supply chain disruptions that continue throughout the industry and for us, and related delays in the receipt and delivery of materials, parts, supplies, etc., which in certain instances and for certain items is significant.
We believe continued budget pressures (which are expected), CRAs, (which are also expected), future Federal Government debt ceiling issues, or Federal Government shutdowns could have serious negative consequences for the security of our country and the defense industrial base, including the Company and the related customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base.
We believe continued budget and deficit funding pressures (which are expected), CRAs.(which are also expected), future Federal Government debt ceiling issues, or Federal Government shutdowns could have serious negative consequences for the security of our country and the defense industrial base, including the Company and the related customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base.
Additional information regarding our financial commitments is provided in the Note 15 to Consolidated Financial Statements contained in this Annual Report. We believe our cash on hand, together with funds available under the 2022 Credit Facility and cash expected to be generated from operating activities will be sufficient to fund our short- and long-term liquidity needs.
Additional information regarding our financial commitments is provided in the Note 14 to Consolidated Financial Statements contained in this Annual Report. We believe our cash on hand, together with funds available under the 2022 Credit Facility and cash expected to be generated from operating activities will be sufficient to fund our short- and long-term liquidity needs.
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.
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 53 subsidiaries.
We determine our reporting units by first identifying our 60 operating segments, and then assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. We aggregate components within an operating segment that have similar economic characteristics.
We determine our reporting units by first identifying our 58 operating segments, and then assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. We aggregate components within an operating segment that have similar economic characteristics.
The US reportable segment provides unmanned aerial systems, unmanned ground, and unmanned seaborne systems. 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 2023 annual test.
The US reportable segment provides unmanned aerial systems, unmanned ground, and unmanned seaborne systems. 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 2024 annual test.
As additional information becomes available, we assess the potential liability related to our pending litigation and revise our estimates. Revisions in our estimates of potential liability could materially impact our results of operations. See Note 15 of the Notes to Consolidated Financial Statements contained within this Annual Report for a further discussion of our legal proceedings.
As additional information becomes available, we assess the potential liability related to our pending litigation and revise our estimates. Revisions in our estimates of potential liability could materially impact our results of operations. See Note 14 of the Notes to Consolidated Financial Statements contained within this Annual Report for a further discussion of our legal proceedings.
Government programs or requirements, including the increased use of small business providers; • our failure to reach our internal forecasts could impact our ability to achieve our forecasted levels of cash flows and reduce the estimated discounted value of our reporting units; • volatility in equity and debt markets resulting in higher discount rates; • market and political factors that could impact the success of new products, especially related to new unmanned systems platforms; • continued impact to our businesses and the industry resulting from COVID-19; and • continued impact to our businesses and the industry related to supply chain disruptions and inflation.
Government programs or requirements, including the increased use of small business providers; • our failure to reach our internal forecasts could impact our ability to achieve our forecasted levels of cash flows and reduce the estimated discounted value of our reporting units; • volatility in equity and debt markets resulting in higher discount rates; • market and political factors that could impact the success of new products, especially related to new unmanned systems platforms; and • continued impact to our businesses and the industry related to supply chain disruptions and inflation.
Additionally, funding for certain programs, including those in which we currently participate, may be reduced, delayed or cancelled, and budget uncertainty or funding cuts globally could adversely affect the viability of our customers, partners, teammates, subcontractors, suppliers, and our employee base.
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.
Financing increases in inventory balances is necessary to fulfill shipment requirements to meet delivery schedules of our customers. Cash from continuing operations is primarily derived from our customer contracts in progress and associated changes in working capital components.
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.
The majority of our contracts have a single performance obligation as the promise to transfer the 59 individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.
The majority of our contracts have a single performance obligation as the promise to transfer the 57 individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.
It is likely that budget and program decisions made in such an uncertain environment would have long-term implications for our Company and the entire defense industry.
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.
We also conduct business with local, state and foreign governments and domestic and international commercial customers. In fiscal 2023, 2022 and 2021, we generated 69%, 69% and 70%, 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 also conduct business with local, state and foreign governments and domestic and international commercial customers. In fiscal 2024, 2023 and 2022, we generated 67%, 69% 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.
Our Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations reflect estimates and assumptions made by management as of December 31, 2023. Events and changes in circumstances arising after December 31, 2023, including those resulting from the continuing impacts of the current unfavorable macroeconomic climate, will be reflected in management’s estimates for future periods.
Our Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations reflect estimates and assumptions made by management as of December 29, 2024. Events and changes in circumstances arising after December 29, 2024, including those resulting from the continuing impacts of the current unfavorable macroeconomic climate, will be reflected in management’s estimates for future periods.
For discussion related to changes in financial condition and the results of operations for fiscal year 2022-related items, refer to Part II, Item 7.
For discussion related to changes in financial condition and the results of operations for fiscal year 2023-related items, refer to Part II, Item 7.
Also, a shortage of qualified labor, and the cost of that labor for the Company and its labor base is a significant operational challenge for the Company. The cost of labor has increased significantly and current challenges in hiring, obtaining 52 and retaining employees, including those employees requiring National Security clearances, is adversely impacting Kratos’ ability to execute its business.
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.
For a comparison of the Company’s results of operations for the fiscal year ended December 26, 2021 to the fiscal year ended December 25, 2022, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 25, 2022, which was filed with the U.S.
For a comparison of the Company’s results of operations for the fiscal year ended December 25, 2022 to the fiscal year ended December 31, 2023, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the U.S.
Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 25, 2022, which was filed with the Securities and Exchange Commission on February 23, 2023. Overview Kratos is a technology, products, system and software company addressing the defense, national security, and commercial markets.
Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission on February 13, 2024. Overview Kratos is a technology, products, system and software company addressing the defense, national security, and commercial markets.
For additional information regarding our reportable segments, see Note 14 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. Key Financial Statement Concepts As of December 31, 2023, we consider the following factors to be important in understanding our financial statements.
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. Key Financial Statement Concepts As of December 29, 2024, we consider the following factors to be important in understanding our financial statements.
In some instances, we require advance payments or deposits from our customers, which help fund our purchase commitments and reduce the risk of customer performance. 58 As of December 31, 2023, 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.
In some instances, we require advance payments or deposits from our customers, which help fund our purchase commitments and reduce the risk of customer performance. 56 As of December 29, 2024, 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.
We monitor our policies and procedures with respect to our contracts on a regular basis to ensure consistent application under similar terms and conditions as well as compliance with all applicable government regulations. In addition, costs incurred and allocated to contracts with the U.S.
We monitor our policies and procedures with respect to our contracts on a regular basis to ensure consistent application under similar terms and conditions as well as compliance with all applicable government regulations. In addition, costs incurred and allocated to contracts with the U.S. Government are routinely audited by the DCAA.
As a percentage of revenues, R&D decreased to 3.7% of revenues for the year ended December 31, 2023, from 4.3% of revenues for the year ended December 25, 2022. 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.
As a percentage of revenues, R&D decreased to 3.5% of revenues for the year ended December 29, 2024, from 3.7% of revenues for the year ended December 31, 2023. R&D expenses are made by the Company, typically in conjunction with our customers, for the Company to achieve a “first to market” position with our products or technology.
Government spending generally, or specific departments or agencies; 61 • changes in U.S.
Government spending generally, or specific departments or agencies; 59 • changes in U.S.
If these funds were needed to fund our operations or satisfy obligations in the U.S. they could be repatriated, and their repatriation into the U.S. may cause us to incur additional foreign withholding taxes.
If these funds were needed to fund our operations or satisfy obligations in the U.S. they could be repatriated, and their repatriation into the U.S. may cause us to incur additional foreign withholding taxes. We do not currently intend to repatriate these earnings.
The carrying value of goodwill of the US and KGS reportable segments, was $125.0 million and $444.1 million, respectively, at December 31, 2023. In determining the fair value of our reporting units, there are key assumptions related to our future operating performance and revenue growth.
The carrying value of goodwill of the US and KGS reportable segments, was $124.8 million and $444.1 million, respectively, at December 29, 2024. In determining the fair value of our reporting units, there are key assumptions related to our future operating performance and revenue growth.
Margins in the KGS segment increased to 27.2% for the year ended December 31, 2023, from 26.8% for the year ended December 25, 2022. This change was primarily due to a more favorable mix of revenues 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 revenues for the year ended December 29, 2024.
Margins on services decreased to 24.7% for the year ended December 31, 2023, from 26.5% for the year ended December 25, 2022. Margins on product sales increased to 26.7% for the year ended December 31, 2023, as compared to 24.4% for the year ended December 25, 2022.
Margins on services increased to 26.8% for the year ended December 29, 2024, from 24.7% for the year ended December 31, 2023. Margins on product sales decreased to 24.4% for the year ended December 29, 2024, as compared to 26.7% for the year ended December 31, 2023.
Results of Operations Comparison of Results for the Year Ended December 31, 2023 to the Year Ended December 25, 2022 Revenues.
Results of Operations Comparison of Results for the Year Ended December 29, 2024 to the Year Ended December 31, 2023 Revenues.
If the actual operating performance and financial results are not consistent with our assumptions, an impairment in our $569.1 million goodwill and $62.4 million long-lived intangibles could occur in future periods.
If the actual operating performance and financial results are not consistent with our assumptions, an impairment in our $568.9 million goodwill and $53.8 million long-lived intangibles could occur in future periods.
Government are routinely audited by the DCAA. 53 We manage and assess the performance of our businesses based on our performance on individual contracts and programs obtained generally from government organizations.
We manage and assess the performance of our businesses based on our performance on individual contracts and programs obtained generally from government organizations.
R&D expenses were $38.4 million for the year ended December 31, 2023 and $38.6 million for the year ended December 25, 2022, with the primary increases in expenses in our space and satellite communications business, offset by a net reduction in our unmanned systems business.
R&D expenses were $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.
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 (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.
The Company incurred a loss on the extinguishment of debt of $9.8 million related to the call premium on the Senior Secured Notes and the write-off of $3.2 million of unamortized debt issuance costs, resulting in a total loss on extinguishment of debt of $13.0 million. 55 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 (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.
Securities and Exchange Commission on February 23, 2023. Liquidity and Capital Resources As of December 31, 2023, we had cash and cash equivalents of $72.8 million compared with cash and cash equivalents of $81.3 million as of December 25, 2022, which includes $44.1 million and $18.9 million, respectively, of cash and cash equivalents held by our foreign subsidiaries.
Securities and Exchange Commission on February 13, 2024. Liquidity and Capital Resources As of December 29, 2024, we had cash and cash equivalents of $329.3 million compared with cash and cash equivalents of $72.8 million as of December 31, 2023, which includes $40.2 million and $44.1 million, respectively, of cash and cash equivalents held by our foreign subsidiaries.
As a percentage of total revenue, product sales were 61.2% for the year ended December 31, 2023, as compared to 63.8% for the year ended December 25, 2022. Service revenues increased by $77.4 million to $402.6 million for the year ended December 31, 2023, from $325.2 million for the year ended December 25, 2022.
As a percentage of total revenue, product sales were 62.7% for the year ended December 29, 2024, as compared to 61.2% for the year ended December 31, 2023. Service revenues increased by $20.8 million to $423.4 million for the year ended December 29, 2024, from $402.6 million for the year ended December 31, 2023.
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. The Company was in compliance with the covenants contained in the Credit Agreement as of December 31, 2023.
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.
Our days sales outstanding (“DSO”) have decreased to 116 days as of December 31, 2023 from 134 days as of December 25, 2022.
Our days sales outstanding (“DSO”) have decreased to 104 days as of December 29, 2024 from 116 days as of December 31, 2023.
A summary of our net cash provided by (used in) operating activities from continuing operations from our Consolidated Statements of Cash Flows is as follows (in millions): Year Ended December 31, 2023 December 25, 2022 Net cash provided by (used in) operating activities from continuing operations $ 65.2 $ (25.6) Our net cash provided by operating activities from continuing operations was $65.2 million for the year ended December 31, 2023, primarily as a result of the net income from continuing operations of $2.2 million and noncash charges of $74.2 million partially offset by changes in net working capital accounts of $11.2 million, which included customer advanced payments reflected as an increase in Billings in Excess of Costs of $28.4 million.
Net cash provided by operating activities was $65.2 million for the year ended December 31, 2023, primarily as a result of the net income of $2.2 million and noncash charges of $74.2 million which includes stock compensation, depreciation and amortization, which was partially offset by changes in net working capital accounts of $11.4 million, which included customer advance payments reflected as an increase in Billings in Excess of Costs of $28.4 million.
The following table summarizes our contractual obligations and other commitments as of December 31, 2023, and the effect such obligations could have on our liquidity and cash flow in future periods (in millions): Total Due within 1 Year Total debt $ 227.5 $ 7.5 Interest payment 44.8 12.4 Purchase orders 278.9 172.8 Operating leases 55.7 14.1 Finance leases 82.7 4.6 Total contractual cash obligations and commitments $ 689.6 $ 211.4 As of December 31, 2023, we have $10.2 million of standby letters of credit outstanding.
The following table summarizes our contractual obligations and other commitments as of December 29, 2024, and the effect such obligations could have on our liquidity and cash flow in future periods (in millions): Total Due within 1 Year Total debt $ 185.0 $ 10.0 Interest payment 25.0 10.9 Purchase orders 336.4 265.9 Operating leases 45.3 12.9 Finance leases 105.5 5.4 Total contractual cash obligations and commitments $ 697.2 $ 305.1 As of December 29, 2024, we have $9.6 million of standby letters of credit outstanding.
As a percentage of revenues, SG&A decreased to 19.1% for the year ended December 31, 2023 from 20.3% for the year ended December 25, 2022 due primarily to the increase in revenues in the year ended December 31, 2023. Research and development (R&D) expenses.
As a percentage of revenues, SG&A decreased to 18.8% for the year ended December 29, 2024 from 19.1% for the year ended December 31, 2023. Research and development (R&D) expenses.
The $96.2 million increase in cost of revenues was primarily a result of the overall increase in revenue discussed above. 54 Gross margin percentage increased to 25.9% for the year ended December 31, 2023, compared to 25.2% for the year ended December 25, 2022.
The $80.6 million increase in cost of revenues was primarily a result of the overall increase in revenue discussed above as well as the impact of increased labor and material costs. Gross margin percentage decreased to 25.3% for the year ended December 29, 2024, compared to 25.9% for the year ended December 31, 2023.
These uses were partially offset by $300 million in proceeds from our 2022 Credit Facility (partially offset by $2.5 million of principal payments on our $200 million Term Loan A and a $40 million payment on the new Revolving Credit Facility) and employee stock purchase plan receipts of $6.2 million. 2022 Credit Facility On February 18, 2022, the Company completed the refinancing of its then-outstanding $90 million revolving credit facility and Senior Secured Notes, with the 2022 Credit Facility.
These uses were partially offset by employee stock purchase plan receipts of $6.5 million. 2022 Credit Facility On February 18, 2022, the Company completed the refinancing of its then-outstanding $90 million revolving credit facility and Senior Secured Notes, with the 2022 Credit Facility. The Company incurred debt issuance costs of $3.3 million associated with the 2022 Credit Facility.
Our net cash used in financing activities from continuing operations is summarized as follows (in millions): Year Ended December 31, 2023 December 25, 2022 Financing activities: Proceeds from the issuance of long-term debt $ — $ 200.0 Borrowings under credit facility 69.0 100.0 Redemption of Senior Secured Notes — (309.8) Repayments under credit facility, term loan and other debt (101.0) (42.5) Payments of employee taxes withheld from share-based awards (3.7) (12.5) Debt issuance costs — (3.3) Payments under finance leases (1.5) (1.4) Proceeds from shares issued under equity plans 6.5 6.2 Net cash used in financing activities from continuing operations $ (30.7) $ (63.3) Net cash used in financing activities from continuing operations 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.
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.
We believe that our business is well-positioned in areas that the DoD and other customers indicate are priorities for future defense spending, including those based on the 2022 National Security Strategy document, the 2023 U.S.
We do believe that our business is well-positioned in areas that the DoD and other customers currently indicate are priorities for future defense spending, including as identified in the 2024 defense budget and related Future Years Defense Program (FYDP), the President’s 2025 National Security and Defense Budget Request and the 2022 National Security Strategy document.
Provision for income taxes from continuing operations. The Company recorded an income tax provision of $8.9 million for the year ended December 31, 2023, and an income tax provision of $1.4 million for the year ended December 25, 2022.
Provision for income taxes. The Company recorded an income tax provision of $10.2 million for the year ended December 29, 2024, and an income tax provision of $8.7 million for the year ended December 31, 2023.
As of December 31, 2023, we have $192.5 million outstanding on the Term Loan A and net borrowings of $35.0 million outstanding on the Revolving Credit Facility, with $165.0 million remaining in borrowing capacity, less approximately $10.2 million for outstanding letters of credit.
As of December 29, 2024, we have $185.0 million outstanding on the Term Loan A and net borrowings of $0.0 million outstanding on the Revolving Credit Facility, with $200.0 million remaining in borrowing capacity, less approximately $9.6 million for outstanding letters of credit (as more fully described in Note 5 of the accompanying consolidated financial statements).
We expect our capital expenditures for our fiscal year 2024 to continue to be significant for investments we are making, including in our US business totaling approximately $28 to $32 million, including approximately $18 to $22 million for capital aerial targets and related support equipment.
We expect our capital expenditures for our fiscal year 2025 to continue to be significant for investments we are making, including in our US business totaling approximately $35 to $40 million of estimated expenditures, including approximately $28 to $30 million estimated for capital aerial targets and related support equipment as well as other manufacturing facility expansion for our Microwave Products and Defense and Rocket Support businesses.
Revenues by reportable segment for the years ended December 31, 2023 and December 25, 2022 are as follows (in millions): 2023 2022 $ Change % Change Kratos Government Solutions Service revenues $ 395.9 $ 320.0 $ 75.9 23.7 % Product sales 429.0 356.6 72.4 20.3 % Total Kratos Government Solutions 824.9 676.6 148.3 21.9 % Unmanned Systems Service revenues 6.7 5.2 1.5 28.8 % Product sales 205.5 216.5 (11.0) (5.1) % Total Unmanned Systems 212.2 221.7 (9.5) (4.3) % Total revenues $ 1,037.1 $ 898.3 $ 138.8 15.5 % Total service revenues $ 402.6 $ 325.2 $ 77.4 23.8 % Total product sales 634.5 573.1 61.4 10.7 % Total revenues $ 1,037.1 $ 898.3 $ 138.8 15.5 % Revenues increased $138.8 million to $1,037.1 million for the year ended December 31, 2023 from $898.3 million for the year ended December 25, 2022.
Revenues by reportable segment for the years ended December 29, 2024 and December 31, 2023 are as follows (in millions): 2024 2023 $ Change % Change Kratos Government Solutions Service revenues $ 416.3 $ 395.9 $ 20.4 5.2 % Product sales 449.5 429.0 20.5 4.8 % Total Kratos Government Solutions 865.8 824.9 40.9 5.0 % Unmanned Systems Service revenues 7.1 6.7 0.4 6.0 % Product sales 263.4 205.5 57.9 28.2 % Total Unmanned Systems 270.5 212.2 58.3 27.5 % Total revenues $ 1,136.3 $ 1,037.1 $ 99.2 9.6 % Total service revenues $ 423.4 $ 402.6 $ 20.8 5.2 % Total product sales 712.9 634.5 78.4 12.4 % Total revenues $ 1,136.3 $ 1,037.1 $ 99.2 9.6 % Revenues increased $99.2 million to $1,136.3 million for the year ended December 29, 2024 from $1,037.1 million for the year ended December 31, 2023.
We estimate a range of liability related to pending litigation where the amount and range of loss can be estimated. We record our estimate of a loss when the loss is considered probable and reasonably estimable.
We record our estimate of a loss when the loss is considered probable and reasonably estimable.
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.
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. 50 In addition, actions by the Federal Reserve to increase interest rates in the past few years have impacted our interest expense on our outstanding debt borrowings and the related cost of executing Kratos’ business.
We also invest in R&D expenses to achieve market leading “designed in”and “first to market” positions on major programs, platforms or systems. Restructuring expenses and other.
We also invest in R&D expenses to achieve market leading “designed in” and “first to market” positions on major programs, platforms or systems. Restructuring expenses and other. Restructuring expenses and other increased to $3.2 million for the year ended December 29, 2024 from $0.9 million for the year ended December 31, 2023.
Industry Background On March 9, 2023, President Biden’s fiscal year 2024 budget request was submitted to Congress, initiating the 2024 defense budget authorization and appropriations legislative process. The request includes an $886 billion proposed appropriation for national defense, of which $842 billion would be for the U.S. Department of Defense (“DoD”) base budget.
Industry Background On March 22, 2024, President Biden signed the second fiscal year 2024 Consolidated Appropriations package into law. This legislation reflects an $886 billion appropriation for national defense, of which $842 billion would be for the U.S. Department of Defense (“DoD”) base budget.
We do not currently intend to repatriate these earnings. 55 Our total long-term debt, decreased by $30.0 million to $227.5 million as of December 31, 2023 from $257.5 million as of December 25, 2022.
Our total long-term debt, decreased by $42.5 million to $185.0 million as of December 29, 2024 from $227.5 million as of December 31, 2023.
As of December 31, 2023, the Company has net borrowings of approximately $35.0 million outstanding on the new Revolving Credit Facility, with $165.0 million remaining in borrowing capacity, less approximately $10.2 million of letters of credit outstanding.
During the year ended December 29, 2024, the Company made $7.5 million of principal payments on Term Loan A. As of December 29, 2024, the Company has no net borrowings outstanding on the new Revolving Credit Facility, with $200.0 million remaining in borrowing capacity, less approximately $9.6 million of letters of credit outstanding.
The current budget environment, including Israel and Ukraine funding support, heightened levels of inflation, related supply chain disruption, and the appropriations process, continues to create significant short and long-term industry risks.
The potential challenges presented by the recent elections, Presidential and congressional changes and the related transitions, the CRA, the current budgetary and deficit funding environment, Israel, Ukraine and Taiwan funding support, continuing heightened levels of inflation, ongoing supply chain disruption, and the challenging appropriations process, among other items, all continue to create significant short and long-term risks to the industry and the Company.
Margins in the US segment increased to 20.7% for the year ended December 31, 2023 from 20.1% for the year ended December 25, 2022. primarily due to a more favorable mix of products produced and shipped in the year ended December 31, 2023. Selling, general and administrative expenses (SG&A).
Margins in the US segment decreased to 17.9% for the year ended December 29, 2024 from 20.7% for the year ended December 31, 2023, primarily due to the mix of revenues, revenue volume and resources, including the impact of increased material and subcontractor costs on multi-year fixed price contracts. Selling, general and administrative expenses (SG&A).
The increase was primarily a result of the recent SRE acquisition, as well as increased volume in the turbine technologies and space, satellite, training and cyber businesses. Cost of revenues. Cost of revenues increased to $768.5 million for the year ended December 31, 2023, from $672.3 million for the year ended December 25, 2022.
The increase was primarily related to increased activity in our turbine technologies and defense rocket support businesses in our KGS segment. Cost of revenues. Cost of revenues increased to $849.1 million for the year ended December 29, 2024, from $768.5 million for the year ended December 31, 2023.
SG&A increased $15.3 million to $197.8 million for the year ended December 31, 2023, from $182.5 million for the year ended December 25, 2022, primarily reflecting the increase in revenues.
SG&A increased $16.2 million to $214.0 million for the year ended December 29, 2024, from $197.8 million for the year ended December 31, 2023, primarily reflecting the increase in costs to support higher revenues including increases in stock compensation expense of $4.5 million and SG&A-related depreciation and amortization of $4.5 million.
During the year ended December 31, 2023, capital expenditures of approximately $25.1 million were incurred in our US business, primarily related to our unmanned combat target initiative.
During the year ended December 29, 2024, capital expenditures of approximately $28.1 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.
The income tax provision for 2022 includes a $4.9 million expense related to the increase in the Company’s valuation allowance on U.S. deferred tax assets related to certain state Net Operating Losses, capital loss carryforwards and federal research and development credits. Income from discontinued operations.
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.
Total other expense, net. Other expense, net, decreased to $20.0 million from $30.1 million for the years ended December 31, 2023 and December 25, 2022, respectively.
The Restructuring expenses and other in 2024 includes an expense to accrue $3.2 million related to an employee benefit plan assumed by the Company in an acquisition completed in 2011. Total other expense, net. Other expense, net, decreased to $2.5 million from $20.0 million for the years ended December 29, 2024 and December 31, 2023, respectively.
In addition, recent actions by the Federal Reserve to increase interest rates have impacted our interest expense on our outstanding debt borrowings and the related cost of executing Kratos’ business. Each of these matters and issues are expected to continue for the foreseeable future and are expected to continue to adversely impact the Company’s operations, financial results and financial forecasts.
Each of these challenges are expected to continue for the foreseeable future and are expected to continue to adversely impact the Company’s operations, financial results and financial forecasts.
Revenues in our US segment decreased $9.5 million primarily due to a reduction in our tactical drone-based revenues, as compared to the twelve months ended December 25, 2022 offset with the contribution of $6.4 million in revenues from the recent acquisition of Sierra Technical Services, Inc. (“STS”).
Revenues in our US segment increased $58.3 million primarily due to a full year contribution of revenues from the acquisition of the Sierra Technical Services, Inc.
Product sales increased $61.4 million to $634.5 million for the year ended December 31, 2023 from $573.1 million for the year ended December 25, 2022, primarily as a result of increased production activity in our KGS segment, offset partially by decreased volume in our US segment.
(“STS”), resulting in increased revenues of $17.7 million, and increased domestic target drone production of approximately $13.2 million and a certain international target drone delivery which contributed $19.0 million in revenue during the twelve months ended December 29, 2024. 52 Product sales increased $78.4 million to $712.9 million for the year ended December 29, 2024 from $634.5 million for the year ended December 31, 2023, primarily as a result of increased production activity in our KGS and in our US segments.
During the fourth quarter of 2020, the Company released a significant portion of the valuation allowance. For further discussion see Note 8 “Income Taxes” in the Notes to the Consolidated Financial Statements in this Annual Report.
For further discussion see Note 8 “Income Taxes” in the Notes to the Consolidated Financial Statements in this Annual Report. Contingencies and litigation. We are currently involved in certain legal proceedings. We estimate a range of liability related to pending litigation where the amount and range of loss can be estimated.
Revenues in our KGS segment increased $148.3 million primarily due to a full year contribution of revenues from the acquisition of the Southern Research Institute’s Engineering Division (“SRE”), which increased $26.4 million, increased revenues in our space, satellite, training solutions and cyber business of $64.0 million, increases in our C5ISR, turbine technologies, and microwave electronics products businesses of $65.4 million, partially offset by an $7.5 million reduction of revenues in our defense and rocket support services.
Revenues in our KGS segment increased $40.9 million primarily due to revenue increases in our C5ISR and microwave electronics products businesses primarily resulting from increased activity for multiple air defense systems and programs, and growth in our turbine technologies, training solutions and defense and rocket support businesses primarily resulting from new contract awards, which collectively generated an aggregate increase in revenues of $88.7 million, partially offset by decreases in our space and satellite business, which has been primarily impacted by the extended CRA as well as the industry related OEM delays in the manufacture and delivery of software defined satellites, which impact includes the delay in the deployment of our commercial satellite ground equipment, with a total reduction of $47.8 million in our space and satellite business.
Removed
The proposed legislation also caps national defense spending at $886 billion for fiscal year 2024 and $895 billion for fiscal year 2025. On June 3, 2023, President Biden signed into law a bill to suspend the $31.4 trillion debt ceiling through January 1, 2025. 51 On July 14, 2023, the U.S.
Added
On April 24, 2024, President Biden signed a bill providing a total of $95.3 billion in additional supplemental funding for Ukraine, Israel and Taiwan, including funding for the restock of U.S. munitions 49 capacity, and a fourth bill to impose sanctions and allow the use of seized Russian assets to assist Ukraine.
Removed
House of Representatives passed its version of a sweeping Bill setting Policy for the DoD, the Fiscal 2024 National Defense Authorization Act (“NDAA”), at $886 billion. The vote of 219-210 was largely along party lines, a departure from the typical bipartisan support for a bill that has passed every year since 1961.
Added
On March 11, 2024, President Biden submitted the fiscal year 2025 budget request to Congress. The request included $895 billion for national defense, of which $850 billion is for the DoD base budget. On May 22, 2024, the House Armed Services Committee approved the fiscal year 2025 National Defense Authorization Act.
Removed
The Senate passed its version of the NDAA Bill on July 27, 2023 at $886 billion and included several significant differences from the previously passed U.S. House of Representative Bill. The NDAA is one of the major pieces of legislation Congress passes annually.
Added
The bill authorizes $849.8 billion in funding for the DoD. On June 28, 2024, the House passed the fiscal year 2025 DoD Appropriations bill H.R. 8774. On July 8, 2024, the Senate Armed Service Committee filed their version of the fiscal 2025 National Defense Authorization Act at a level $25 billion above the President’s budget request.
Removed
The NDAA is closely watched by industry and other stakeholders and related interests, as the NDAA typically determines the specific spending outlays and purchases of the Department of Defense and other National Security related Agencies.
Added
The Federal fiscal year 2024 ended September 30, 2024, without Congress approving, nor the President signing into law a Federal fiscal 2025 budget, including the National Security and Department of Defense Budgets. As a result, beginning October 1, 2024, the U.S.

… 35 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+0 added−0 removed11 unchanged
Biggest changeOur cash and cash equivalents as of December 31, 2023 were $72.8 million and are primarily invested in money market interest bearing accounts. A hypothetical 10% adverse change in the average interest rate on our money market cash investments and short-term investments would have had no material effect on our net income for the year ended December 31, 2023.
Biggest changeOur cash and cash equivalents as of December 29, 2024 were $329.3 million and are primarily invested in money market interest bearing accounts. A hypothetical 10% adverse change in the average interest rate on our money market cash investments and short-term investments would have had no material effect on our net income for the year ended December 29, 2024.
We manage exposure to these risks through our operating and financing activities and, when deemed 62 appropriate, through the use of derivative financial instruments. Derivative financial instruments are viewed as risk management tools and are not used for speculation or for trading purposes.
We manage exposure to these risks through our operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Derivative financial instruments are viewed as risk management tools and are not used for speculation or for trading purposes.
Based on our overall foreign currency rate exposure as of December 31, 2023, including the limited derivative financial instruments that we have entered into to manage this risk, a 10% appreciation or depreciation of the USD from its cross-functional rates would not be expected, in the aggregate, to have a material effect on our financial position, results of operations and cash flows in the near-term.
Based on our overall foreign currency rate exposure as of December 29, 2024, including the limited derivative financial instruments that we have entered into to manage this risk, a 10% appreciation or depreciation of the USD from its cross-functional rates would not be expected, in the aggregate, to have a material effect on our financial position, results of operations and cash flows in the near-term.
Derivative financial instruments were contracted with investment grade counterparties to reduce exposure to interest rate risk on our prior credit facilities. Please see Note 17 in the accompanying Consolidated Financial Statements for information on our outstanding derivative financial instruments as of December 31, 2023.
Derivative financial instruments were contracted with investment grade counterparties to reduce exposure to interest rate risk on our prior credit facilities. Please see Note 16 in 60 the accompanying Consolidated Financial Statements for information on our outstanding derivative financial instruments as of December 29, 2024.

Other KTOS 10-K year-over-year comparisons