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What changed in KRATOS DEFENSE & SECURITY SOLUTIONS, INC.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of KRATOS DEFENSE & SECURITY SOLUTIONS, INC.'s 2024 and 2025 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 2025 report.

+387 added−366 removedSource: 10-K (2026-02-23) vs 10-K (2025-02-26)

Top changes in KRATOS DEFENSE & SECURITY SOLUTIONS, INC.'s 2025 10-K

387 paragraphs added · 366 removed · 291 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

83 edited+22 added−22 removed116 unchanged
Biggest changeWe 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.
Biggest changeAdditionally, the Trump Administration has recently executed certain executive orders directly related to significantly changing the current DoW procurement policies and procedures, and the Federal Acquisition Regulations, the potential impact of which such changes, if effected either by executive orders or changes to the relevant law, to the industry, and to Kratos, is unknown at this time. 4 We believe continued budget and deficit funding pressures (which are expected), CRAs (which are also expected), future Federal Government debt ceiling issues, or current and potential Federal Government shutdowns could have serious negative consequences for the security of our country and the defense industrial base, including the Company and the related customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base.
Representative recent major contract awards for Kratos include the $1.45 billion MACH-TB 2.0 contract award, if all options are exercised over a five-year period, to support the Office of the Under Secretary of Defense for Research and Engineering (OUSD (R&E)) Test Resource Management Center (TRMC) to support OUSD’s National Hypersonic Initiative 2.0 by creating an affordable flight test bed to rapidly increase hypersonic flight test capacity, a $34.8 million contract from the USMC for Valkyrie mission system integration, a $116.7 million prime contract to create and operate an Advanced Fire Control Ground Infrastructure (AFCGI) from the U.S.
Representative recent major contract awards for Kratos include the $1.45 billion (if all options are exercised over a five-year period) MACH-TB 2.0 contract award to support the Office of the Under Secretary of Defense for Research and Engineering (OUSD (R&E)) Test Resource Management Center (TRMC) to support OUSD’s National Hypersonic Initiative 2.0 by creating an affordable flight test bed to rapidly increase hypersonic flight test capacity, a $34.8 million contract from the USMC for Valkyrie mission system integration, a $116.7 million prime contract to create and operate an Advanced Fire Control Ground Infrastructure (AFCGI) from the U.S.
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.
Our Strategy Our strategy is to be a leading technology, hardware, products, 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 relevant internally funded and developed offerings, engineered and designed to be mass produced at an affordable cost.
In November 2024, Kratos announced that Zeus 1 and Zeus 2 SRMs had completed their first successful flight on October 24, 2024, from the NASA Wallops Flight Facility in Virginia under a customer funded mission. In June 2024, Kratos announced the successful launch and flight of the Kratos Erinyes hypersonic flyer, also under a customer funded mission.
In November 2024, Kratos announced that Zeus 1 and Zeus 2 SRMs had completed their first successful flight on October 24, 2024, from the NASA Wallops Flight Facility in Virginia under a customer funded mission. In June 2024, Kratos announced the successful launch and flight of the Kratos Erinyes hypersonic flyer, also under a customer funded mission.
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.
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.
We also believe that our relationships with the traditional defense industry aerospace and defense system integrators, and the value we bring to them in partnership to pursue large new program opportunities, is a key differentiator for our Company.
We also believe that our relationships with the traditional defense industry aerospace and defense system integrators, and the value we bring to them in partnership to pursue large new program opportunities, is also a key differentiator for our Company.
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.
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.
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).
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 growth, including as based on the recent Fiscal 2025 National Security budget submittal and National Defense Authorization Act (NDAA).
A key aspect of Kratos’ internal growth philosophy is also that “it is better to have a large part of something, than all of nothing”, which is directly relevant to our teaming and partnership approach and strategy, including with the traditional large aerospace and defense system integrators. Expand technology product, solution and service offerings provided to existing customers.
A key aspect of Kratos’ internal growth philosophy is also that “it is better to have a large part of something, than 9 all of nothing”, which is directly relevant to our teaming and partnership approach and strategy, including with the traditional large aerospace and defense system integrators. Expand technology product, solution and service offerings provided to existing customers.
Our current primary internal research and development (“IR&D”) focus areas include satellite communications and signal monitoring, unmanned systems, electronic products, turbine technologies, rocket, hypersonic and other systems. Intellectual Property We believe that our continued success depends in large part on our proprietary technology, the intellectual skills of our employees and the ability of our employees to continue to innovate.
Our current primary internal research and development (“IR&D”) focus areas include satellite communications and signal monitoring, unmanned systems, electronic products, turbine technologies, rocket, hypersonic and other systems. 14 Intellectual Property We believe that our continued success depends in large part on our proprietary technology, the intellectual skills of our employees and the ability of our employees to continue to innovate.
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.
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 6 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.
Over the past few years, Kratos has been in development on a new solid rocket motor system, Zeus (Zeus 1 and Zeus 2), and related hypersonic flight vehicle systems, including Erinyes and Dark Fury, each of which Kratos has made significant internally funded investments for rapid development, fielding and a first to market position.
Over the past few years, Kratos has been in development on a new solid rocket motor system, Zeus (Zeus 1 and Zeus 2), and related hypersonic flight vehicle systems, including Erinyes and Dark Fury, each of which Kratos has made significant internally 7 funded investments for rapid development, fielding and a first to market position.
The Company does not include these expected amounts in its backlog until a related contract award is received. Management believes that year-to-year comparisons of backlog are not necessarily indicative of future revenues. The actual timing of receipt of revenues, if any, on projects included in backlog could change because many factors affect the scheduling of projects.
The Company does not include these expected amounts in its backlog until a related contract award is received. 12 Management believes that year-to-year comparisons of backlog are not necessarily indicative of future revenues. The actual timing of receipt of revenues, if any, on projects included in backlog could change because many factors affect the scheduling of projects.
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.
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 5 Report.
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.
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.
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.
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.
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.
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. • 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, SRM’s and propulsion systems for hypersonic, space and other systems.
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.
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.
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.
The Unmanned Systems (“US”) reportable segment is comprised of an aggregation of US operating segments, including our unmanned aerial, unmanned ground, unmanned seaborne and command, control and communications system businesses. We organize our operating segments based primarily on the nature of the products, solutions and services offered.
Over the past several years, we have made significant internally funded investments in strategic growth areas, including unmanned tactical aircraft drone systems, space and satellite communication software and systems, rocket engines and hypersonic systems, jet engines, turbine and other engine technologies.
Over the past several years, we have made significant internally funded investments in strategic growth areas, including unmanned tactical aircraft drone systems, space and satellite communication software and systems, rocket engines, SRMs and hypersonic systems, jet engines, turbine and other engine technologies.
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.
Kratos’ primary business areas include, virtualized ground systems for satellites and space vehicles including software for command & control (C2) and telemetry, tracking and control (TT&C), jet powered unmanned aerial drone systems, hypersonic vehicles and rocket systems, propulsion systems for drones, missiles, loitering munitions, supersonic systems, space craft and launch systems, command, control, communication, computing, combat, intelligence surveillance and reconnaissance (C5ISR) and microwave electronic products for missile, radar, air defense, missile defense, space, satellite, counter unmanned aircraft systems (CUAS), directed energy, communication and other systems, and virtual & augmented reality training systems for the warfighter.
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.
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.
These investments also included hiring senior executives and managers with significant experience in the National Security and technology industries, hiring firms to support us on Capitol Hill, Congressionally and with our customers, strengthening our internal controls over financial reporting and accounting staff in support of increasing public company reporting requirements, expanding our infrastructure in response to increases in cybersecurity protection and related regulatory requirements, including the DoD’s Cybersecurity Maturity Model Certification (“CMMC”) requirement for all federal contractors, and expanding our backlog and bid and proposal pipeline resources.
These investments also included hiring senior executives and managers with significant experience in the National Security and technology industries, hiring firms to support us on Capitol Hill, Congressionally and with our customers, strengthening our internal controls over financial reporting and accounting staff in support of increasing public company reporting requirements, expanding our infrastructure in response to increases in cybersecurity protection and related regulatory requirements, including the DoW’s Cybersecurity Maturity Model Certification (“CMMC”) requirement for all federal contractors, and expanding our backlog and bid and proposal pipeline resources.
There may need to be a review under the Exon-Florio provisions of the Defense Production Act. including review by the Committee on Foreign Investment in the United States (CFIUS) under the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).
There may need to be a review under the Exon-Florio provisions of the Defense Production Act. including review by the Committee on Foreign Investment in the 15 United States (CFIUS) under the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).
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 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 DoW requirements and funding areas.
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.
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 DoW, the U.S.
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.
As the DoW 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.
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.
As a technology-focused company at the forefront of the DoW’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.
Specifically, 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.
Specifically, since 2013, we have invested over $310 million in our UAS business and since 2019, approximately $315 million in our Space, Satellite and Cyber business, and made investments of approximately $25 million in rocket and hypersonic systems, and engine 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. 10 • Since 2019, we have invested approximately $315 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.
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.
Budget pressures, particularly related to DoW 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.
In recent periods, we have made significant investments in our senior and technical management and corporate infrastructure related to cybersecurity threats to our Company, increased and changing regulations we are subject to, and the changing National Security industry environment.
Capitalize on corporate infrastructure investments. In recent periods, we have made significant investments in our senior and technical management and corporate infrastructure related to cybersecurity threats to our Company, increased and changing regulations we are subject to, and the changing National Security industry environment.
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.
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 relevant solutions that address our customers’ mission critical needs and requirements.
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.
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 War (“OSW”), 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.
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.
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 (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.
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 68%, 67% and 69% of total revenues in 2025, 2024, and 2023, respectively.
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 make targeted discretionary investments in mission critical DoW, National Security and related commercial opportunity priority areas in order to achieve our first to market objective.
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.
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.
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 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 unmanned combat aerial vehicles (“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.
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.
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 $40.0 million, $40.3 million and $38.4 million in 2025, 2024, and 2023, respectively.
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.
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. We have a highly diverse base of customers and contracts with no contract representing more than 5% of 2025 revenue.
The Company is currently making significant capital, property, plant, equipment and other internally funded investments to address its current backlog, current opportunity pipeline, and current and expected potential future program and contract awards, including from or with the Department of Defense and traditional legacy prime system integrators and partners.
The Company is currently making significant capital, property, plant, equipment and other internally funded investments to address its backlog, current opportunity pipeline, and expected and potential future program and contract awards, including from or with the Department of War, traditional legacy prime systems integrators and partners.
National Security Strategy, and the DoD’s focus on leveraging technology to defeat or deter peer and near-peer adversaries, are competitive advantages.
National Security Strategy, and the DoW’s focus on leveraging technology to defeat or deter peer and near-peer adversaries, are competitive advantages.
Government, international and commercial customers. Improve operating margins. We believe that we have opportunities to increase our operating margins and improve profitability in the future as we transition from certain development programs, which typically generate inherently lower margins, to production programs, which typically generate higher margins, and by leveraging our corporate infrastructure investments as our business and revenues increase.
We believe that we have opportunities to increase our operating margins and improve profitability in the future as we transition from certain development programs, which typically generate inherently lower margins, to production programs, which typically generate higher margins, and by leveraging our corporate infrastructure investments as our business and revenues increase.
The new Trump Administration, the new Secretary of Defense and other Trump Administration leadership have indicated their support and the potential for increased future funding for unmanned aerial drone systems and related autonomy and artificial intelligence systems.
The Trump Administration, the Secretary of War and other Trump Administration leadership have indicated their support and the potential for increased future funding for unmanned aerial drone systems and related autonomy and artificial intelligence systems.
Army for MQM-178. 7 Kratos also provides Kratos Mako high performance jet powered tactical unmanned drone, which flew manned/unmanned teaming missions with a USMC manned fighter aircraft in 2015. Kratos’ Fifth Generation Stealth Valkyrie tactical drone systems have flown with the USAF and USMC, is under contract with the USMC and is currently involved with the USMC project Eagle.
Kratos also provides Kratos’ Mako high performance jet powered tactical unmanned drone, which flew manned/unmanned teaming missions with a USMC manned fighter aircraft in 2015. Kratos’ Fifth Generation Stealth Valkyrie tactical drone systems have flown with the USAF and USMC, is under contract with the USMC and is currently involved with the USMC project Eagle.
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.
Related to certain of these investments, in 2022, we received an approximate $160 million potential contract award from Blue Halo (acquired by AeroVironment) and a significant contract award from Intelsat (acquired by SES) as a result of Kratos OpenSpace™ products and technology.
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.
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 28, 2025, we held a number of U.S. and foreign patents.
As noted, Kratos and the industry 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 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.
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.
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 28, 2025, we had a work force of approximately 4,300 full-time, part-time and on-call employees in approximately 14 countries.
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.
Our fixed-price contracts, the majority of which are production contracts, represent approximately 69% of our 2025 revenue. Our cost-plus-fee contracts and time and materials contracts represent approximately 27% and 4%, respectively, of our 2025 revenue. We believe our diverse base of key contracts and low reliance on any one contract provides us with a stable, balanced revenue stream.
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.
We are also aggressively pursuing several National Security priority areas, including high performance UCAVs or CCAs, satellite communications command, control, communication and signal monitoring products and offerings, space domain awareness (“SDA”), 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.
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.
Government contractors and system integrators such as Northrop Grumman, Lockheed Martin, General Dynamics, Raytheon Technologies, BAE Systems, and L3Harris, as well as Intelsat (acquired by SES), Blue Halo (acquired by AeroVironment), Microsoft, Amazon, Airbus, Siemens, Rolls Royce, Boom, GE Aerospace and others. Revenue from the U.S.
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
References to our website and the SEC’s website in this report are provided as a convenience and do not constitute, and should 16 not be viewed as, incorporation by reference of the information contained on, or available through, such websites.
We believe that there is a generational recapitalization of weapon systems occurring globally, including with the United States and its allies, 3 to address individual and potential collective peer and near peer threats, including Russia, China, North Korea and Iran, or the so-called Axis of Resistance. The Company currently has at or near record levels of backlog and opportunity pipeline.
We believe that there is a generational recapitalization of weapon systems and related defense industrial bases occurring globally, including with the 3 United States and its allies, to address individual and potential collective peer and near peer threats, including Russia, China, North Korea and Iran. The Company currently has record levels of backlog and opportunity pipeline.
Government Agency for a Next Generation Target Drone (5GAT). Kratos is currently in sole source production year 20 for the BQM-167 with the USAF, sole source production year 7 with the USN for BQM-177, and single source production year 12, with the U.S.
Government Agency for a Next Generation Target Drone (5GAT). Kratos is currently in sole source production year 21 for the BQM-167 with the USAF, sole source production year 7 with the USN for BQM-177, and single source production year 13, with the U.S. Army for MQM-178.
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.
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.
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.
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 electronics products, space, satellite and cyber, training solutions, C5ISR/modular systems, turbine technologies, and defense and rocket support services operating segments.
We believe that the Company’s hardware, software and solution offerings, including jet unmanned aerial drones, rocket and hypersonic systems, C5ISR and air defense systems, jet engine and propulsion systems for missiles, drones, hypersonic and supersonic vehicles, microwave electronics for missile, radar and air defense systems, space and satellite, C2, TT&C, and ADA capabilities and training systems, address mission critical priority areas of the DoD.
We believe that the Company’s military grade hardware, software and solution offerings, including jet unmanned aerial drones, rocket and hypersonic systems, C5ISR and air defense systems, jet engine and propulsion systems for missiles, drones, hypersonic and supersonic vehicles, microwave electronics for missile, radar and air defense systems and training systems, address mission critical priority areas of the DoW.
For the last year, GE Aerospace and Kratos have been working together on a small affordable engine. • Over the past few years, Kratos has been in development on a new solid rocket motor system, Zeus (Zeus 1 and Zeus 2), and related hypersonic flight vehicle systems, Erinyes and Dark Fury, all of which Kratos has internally funded through investments totaling $25 million for rapid development, fielding and a first to market position.
In October 2025, GE Aerospace and Kratos announced the successful completion of altitude testing on its GEK800 engine. • Over the past few years, Kratos has been in development on a new solid rocket motor system, Zeus (Zeus 1 and Zeus 2), and related hypersonic flight vehicle systems, Erinyes and Dark Fury, all of which Kratos has internally funded through investments totaling $25 million for rapid development, fielding and a first to market position.
These investments include: unmanned jet powered aircraft such as Kratos Valkyrie to be manufactured ahead of potential contract award; a hypersonic system fabrication, production, test and integration campus and facility in conjunction with our customer, where a significant amount of work under the new Multi-Service Advanced Capability Hypersonic Test Bed (MACH-TB) 2.0 contract award will be performed, including for Kratos Zeus solid rocket motors (SRMs) and Erinyes hypersonic flight systems; the purchase of long lead items for up to 60 Oriole SRMs for ballistic missile defense-related, hypersonic or other expected customer missions; expansion of our small turbojet engine production capacity in Michigan; establishment of a planned small turbofan jet engine production facility in the United States; expansion of our existing microwave electronics manufacturing facility and capabilities in Israel, establishment of an additional microwave electronics facility in Israel; including a space qualified facility; expansion of our machining, milling, casting, 3D printing and additive manufacturing capable facility in the United States to support our jet engine and other product and system manufacturing requirements; establishment of a new facility related to the Sentinel intercontinental ballistic missile (ICBM) program; expansion of our unmanned jet drone manufacturing capability; and expansion of existing and construction of additional classified facilities for certain programs and contracts.
These investments include unmanned jet powered aircraft such as Kratos Valkyrie ahead of potential contract award; a hypersonic system fabrication and integration facility including for Kratos Zeus solid rocket missiles (SRMs) and Erinyes hypersonic flight systems in Indiana; the procurement of long lead items for 60 Oriole and 60 Zeus SRM’s for ballistic missile defense related, hypersonic or other expected customer missions; relocation and expansion of our small turbojet engine production capacity in Michigan; establishment of a planned small turbofan jet engine production facility in Oklahoma; expansion of our existing microwave electronics manufacturing facility in Israel, establishment of an additional microwave electronics facility in Israel, including a space qualified facility; expansion of our machining, milling, casting, 3D printing and additive manufacturing capable facility in the United States to support our jet engine and other hardware product and system manufacturing requirements; establishment of a new facility related to the Sentinel intercontinental ballistic missile (ICBM) program; expansion of our unmanned jet drone manufacturing capability; and expansion of existing and construction of additional classified facilities for certain programs and contracts.
Subsequent to the successful flights of the Zeus SRMs and the Erinyes hypersonic system, Kratos was awarded the Mach TB 2.0 Hypersonic System related contract, the largest contract in Kratos history at $1.45 billion, if all options are exercised over a five-year period. Capitalize on corporate infrastructure investments.
Subsequent to the successful flights of the Zeus SRMs and the Erinyes hypersonic system, Kratos was awarded the Mach TB 2.0 Hypersonic System related contract, the largest contract in Kratos history at $1.45 billion, if all options are exercised over a five-year period. The Company announced the second successful flight of the Erinyes hypersonic test bed in January 2025.
Such a challenging federal and DoD budgetary environment could have a material adverse effect on our forecasts, estimates, financial position, results of operations and/or cash flows.
Such a dynamic and challenging federal and DoW budgetary environment may negatively impact our customers, business and programs, and could have a material adverse effect on our forecasts, estimates, financial position, results of operations and/or cash flows.
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.
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.
Competition in the KGS and US segments include tier one, large U.S. Government contractors, newer defense technology companies including Anduril, XBow, Shield AI, Castellion, Ursa Major, Bee Hive, and others, and system integrators such as Northrop 13 Grumman, Lockheed Martin, General Dynamics, Raytheon Technologies, BAE Systems, L3Harris, General Atomics, and Boeing.
Government contractors, newer defense technology companies including Anduril, XBow, Shield AI, Castelion, Ursa Major, Bee Hive, and others, and system integrators such as Northrop Grumman, Lockheed Martin, General Dynamics, Raytheon Technologies, BAE Systems, L3Harris, General Atomics, and Boeing.
We believe that our business is well-positioned in areas that the Trump Administration, the DoD and other customers currently indicate are priorities for future defense spending, and also 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.
We believe that our business is well-positioned, including in areas that the Trump Administration, the DoW, and national security related and other customers currently indicate are priorities for future defense spending.
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.
We deliver our systems, products and services through a skilled and primarily engineering and technically oriented workforce of approximately 4,300 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.
As noted above, we believe that there is a generational recapitalization of weapon systems occurring with the U.S. and its allies to address peer and near peer threats, including Russia, China, North Korea and Iran, and the Company’s positioning as a proven provider of hardware, systems and software to address these threats for and with our customers and partners is recognized in the industry.
As noted above, we believe that there is a generational recapitalization of weapon systems and the defense industrial base occurring with the U.S. and its allies to address peer and near peer threats, including Russia, China, North Korea and Iran.
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.
Marines, Missile Defense Agency, Space Command, Space Force, NASA, the AFRL, foreign military sales (“FMS”), the U.S. Southern Command, STRATCOM, the SCO, DIU (formerly DIUx), the Rapid Capabilities Offices, the U.S. intelligence community, DARPA, Office of the Secretary of War (OSW), and certain confidential customers. A representative list of non-government customers during 2025 included tier one, large U.S.
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, the challenging appropriations process, and DOGE, among other items, all continue to create significant short and long-term challenges and risks to the industry and the Company.
Government shutdown, Presidential and Congressional changes, proposed new tariffs, the current budgetary and deficit funding environment, the Trump Administration’s stated fiscal policies, Israel, Ukraine, Venezuela and Taiwan funding support, potential heightened levels of inflation, ongoing supply chain disruption, and the challenging appropriations process, among other items, all continue to potentially create significant short and long-term risks to the industry and the Company.
We believe our management experience, technical capabilities, manufacturing, production and corporate infrastructure can support a company with a much larger revenue base than we currently have. Accordingly, we believe that, to the extent our revenue grows, we will be able to leverage this infrastructure base and increase our operating margins.
We believe our management experience, technical capabilities, manufacturing, production and corporate infrastructure can support a company with a much larger revenue base than we currently have.
As of December 29, 2024 and December 31, 2023, our backlog was approximately $1,445.1 million and $1,243.9 million, respectively, of which $1,090.1 million was funded in 2024 and $944.6 million was funded in 2023.
As of December 28, 2025 and December 29, 2024, our backlog was approximately $1,573.4 million and $1,445.1 million, respectively, of which $1,232.0 million was funded in 2025 and $1,090.1 million was funded in 2024.
Guided by our values, we are committed to creating a company where everyone is included and respected, and where we support each other in reaching our full potential. We are committed to diverse representation across all levels of our workforce to reflect the vibrant and thriving diversity of the communities in which we live and work.
Guided by our values, we are committed to creating a company where everyone is included and respected, and where we support each other in reaching our full potential.
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.
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.
In 2024, we received a number of contract awards including a $48 million contract for geolocation global support services, a $116.7 million contract from the U.S.
In 2024, we received a number of contract awards including a $48 million contract for geolocation global support services, a $116.7 million contract from the U.S. Space Development Agency for Ground System to support advanced fire control missions and a $579 million single award IDIQ for Space Form Satcom C2 System.
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. 5 Current Reporting Segments The Company currently operates in two reportable segments.
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 28, 2025. Events and changes in circumstances arising after December 28, 2025, including those resulting from the continuing impacts of the current unfavorable macroeconomic climate, will be reflected in management’s estimates for future periods.
Space Development Agency for Ground System to support advanced fire control missions and a $579 million single award IDIQ for Space Form Satcom C2 System. • During 2024 we entered into a Memorandum of Understanding (MOU) with GE Aerospace to partner on the development and production of small affordable engines that could potentially power unmanned aerial systems, collaborative combat aircraft, missile, drone and similar applications.
Kratos’ successful completion of the PDR with zero liens is expected to allow the program to advance on an accelerated timeline, aligning with projected launch milestones. • During 2024 we entered into a Memorandum of Understanding (MOU) with GE Aerospace to partner on the development and production of small affordable engines that could potentially power unmanned aerial systems, collaborative combat aircraft, missile, drone and similar applications.
We also believe that our ability to rapidly develop, demonstrate and field high technology systems and products, at an affordable cost, is a clear competitive differentiator for our Company. We anticipate that this overall expansion in our capabilities will enable us to pursue larger program opportunities, higher value work and to further diversify our revenue base across additional U.S.
We anticipate that this overall expansion in our capabilities will enable us to pursue larger program opportunities, higher value work and to further diversify our revenue base across additional U.S. Government, international and commercial customers. Improve operating margins.
Backlog as of December 29, 2024 as compared to December 31, 2023 has increased primarily as a result of contract awards in our Space and Satellite, Microwave Products, C5ISR, Defense and Rocket Support and Unmanned Systems businesses.
Backlog as of December 28, 2025 as compared to December 29, 2024 has increased primarily as a result of contract awards in our Space and Satellite, Microwave Products, and Unmanned Systems businesses. We expect to recognize approximately 54.0% of the remaining total backlog as revenue in 2026, an additional 20.0% in 2027 and the balance thereafter.
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.
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.
Presidential and Congressional elections occurred, with Donald Trump being elected President of the United States and the Republican party controlling the Senate and the House of Representatives. President Trump took office on January 20, 2025, and the new Congress and Senate were seated on January 3, 2025.
We reincorporated in the state of Delaware in 1998. Industry Update On November 5, 2024, the U.S. Presidential and Congressional elections occurred, with Donald Trump being elected President of the United States, and the Republican party controlling both the U.S. Senate and the U.S. House of Representatives.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

102 edited+35 added−19 removed308 unchanged
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.
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.
The timing of receipt of revenues, if any, on projects included in backlog could change because many factors affect the scheduling of projects. Cancellation of or adjustments to contracts may occur. Additionally, all U.S. Government contracts included in backlog, whether or not funded, may be terminated at the convenience of the U.S. Government.
The timing of receipt of revenues, if any, on projects included in backlog could change because many factors affect the scheduling of projects. Cancellation of or adjustments to contracts may occur. Additionally, all U.S. Government contracts included in backlog, whether or not funded, may be terminated at the convenience of the U.S.
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 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.
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. • If we fail to establish and maintain important relationships with government agencies and prime contractors, our ability to successfully maintain and develop new business may be adversely affected. • The loss of one or more of our largest customers, programs, or applications could adversely affect our results of operations. • Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise, or are dependent upon factors not wholly within our control.
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. • If we fail to establish and maintain important relationships with government agencies and prime contractors, our ability to successfully maintain and develop new business may be adversely affected. • The loss or delay of one or more of our largest customers, programs, or applications could adversely affect our results of operations. • Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, require state-of-the-art manufacturing expertise, or are dependent upon factors not wholly within our control.
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.
It is likely budget and program decisions made in this environment will have long-term implications for us and the entire defense industry. 21 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.
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.
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. 37 Our international business exposes us to additional risks.
For example, our US reporting unit forecasts include the successful completion of certain performance criteria on new unmanned systems platforms, and acceptance of new unmanned systems platforms on a technical basis as well as from a political and government budgetary standpoint, including the assumption that products we have developed or will develop will become programs of record.
For example, our US reporting unit forecasts 30 include the successful completion of certain performance criteria on new unmanned systems platforms, and acceptance of new unmanned systems platforms on a technical basis as well as from a political and government budgetary standpoint, including the assumption that products we have developed or will develop will become programs of record.
The failure to successfully integrate the operations or to otherwise realize any of the anticipated benefits of the acquisition could seriously harm our financial condition and results of operations. While we believe that we have established appropriate and adequate procedures and processes to mitigate these risks, there is no assurance that these transactions will be successful.
The failure to 33 successfully integrate the operations or to otherwise realize any of the anticipated benefits of the acquisition could seriously harm our financial condition and results of operations. While we believe that we have established appropriate and adequate procedures and processes to mitigate these risks, there is no assurance that these transactions will be successful.
In addition, an inability to maximize the utility and benefit of our current information technology and business tools could impact our ability to meet cost reduction and planned efficiency and operational improvement goals. The loss of any member of our senior management could impair our relationships with U.S. Government customers and disrupt the management of our business.
In addition, an inability to 34 maximize the utility and benefit of our current information technology and business tools could impact our ability to meet cost reduction and planned efficiency and operational improvement goals. The loss of any member of our senior management could impair our relationships with U.S. Government customers and disrupt the management of our business.
Government and government agencies to reduce their purchases under existing contracts, or cause them to exercise their rights to terminate contracts at-will or to abstain from exercising options to renew contracts, any of which would have an adverse effect on our business, financial condition, results of operations and/or cash flows.
Government and government agencies to 20 reduce their purchases under existing contracts, or cause them to exercise their rights to terminate contracts at-will or to abstain from exercising options to renew contracts, any of which would have an adverse effect on our business, financial condition, results of operations and/or cash flows.
If we fail in our new product development efforts or if our products or services fail to achieve market acceptance more rapidly as compared to our competitors, our ability to procure new contracts could be negatively impacted, which could negatively impact our results of operations and financial condition.
If we fail in our new product development efforts or if our products 24 or services fail to achieve market acceptance more rapidly as compared to our competitors, our ability to procure new contracts could be negatively impacted, which could negatively impact our results of operations and financial condition.
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.
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.
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.
Risks Related to our Operations • Our operations expose us to risks associated with pandemics, epidemics or other public health emergencies. 18 • 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.
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.
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.
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.
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 excess of what we anticipate. Acquisitions frequently involve benefits related to integration of operations.
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.
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. 41 We are subject to environmental laws and potential exposure to environmental liabilities.
CMMC borrows heavily from the existing NIST Cybersecurity Framework, and intends to rely heavily on a CMMC accrediting body up and running, companies will be able to apply for certification through a portal run by the accrediting body.
CMMC borrows heavily from the existing NIST Cybersecurity Framework, and intends to rely heavily on a CMMC accrediting body up and running, companies will be able to 35 apply for certification through a portal run by the accrediting body.
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.
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 27 liability for damages, damaged customer relationships, and harm to our reputation, any of which could materially harm our results of operations.
We currently anticipate that our available capital resources, amounts available under our Credit Agreement (as defined below in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “2022 Credit Facility”) and operating cash flow will be sufficient to meet our expected working capital and capital expenditure requirements for at least the next 12 months.
We currently anticipate that our available capital resources, amounts available under our Credit Agreement (as defined below in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “2022 Credit Facility”) and operating cash flow will be sufficient to meet our expected working capital, internal investments and capital expenditure requirements for at least the next 12 months.
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.
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 contract funding or work paused by the customer. • 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; 28 • 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.
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.
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.
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.
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 DoW CMMC requirement issued by the Pentagon which may limit our ability to bid and win projects.
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.
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 2024.
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.
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 and 2024 incurred costs, will be. If future adjustments were to exceed our estimates, our profitability could be adversely affected.
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.
Given the current market conditions and continued economic uncertainty in the U.S. defense industry and issues surrounding the national debt ceiling impacts to certain of our businesses, including disruptions in supply chain and inflationary impacts, our future revenues, profits, cash flows, and taxable income could be substantially lower than our then-current 31 projections.
Macroeconomic conditions, such as increased volatility or disruption in the credit markets, and the current high levels of inflation and interest rates, could adversely affect our ability to refinance existing debt or obtain additional financing at terms satisfactory to us, if at all, thereby affecting our resources to support operations or to fund new initiatives.
Macroeconomic conditions, such as increased volatility or disruption in the credit markets, and the levels of inflation and interest rates, could adversely affect our ability to refinance existing debt or obtain additional financing at terms satisfactory to us, if at all, thereby affecting our resources to support operations or to fund new initiatives.
Any failure to meet those debt-related obligations could result in an event of default under our indebtedness and the acceleration of such indebtedness.
Any failure to meet those debt-related obligations could result in an event of default under our indebtedness and the acceleration of such outstanding indebtedness.
If there is a breach but a company certified its compliance with the security standards, a company could be open to False Claims Act lawsuits. The final change in the draft CMMC 2.0 requires cloud computing services used by the government contractor to be certified through the FedRAMP authorization process in accordance with DoD security requirements.
If there is a breach but a company certified its compliance with the security standards, a company could be open to False Claims Act lawsuits. The final change in the draft CMMC 2.0 requires cloud computing services used by the government contractor to be certified through the FedRAMP authorization process in accordance with DoW security requirements.
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.
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. 40 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.
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.
See Note 14 of the Notes to Consolidated Financial Statements contained within this Annual Report for a further discussion of our legal proceedings. 44 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 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.
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 29 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.
The cost for the DoD CMMC requirement may be significant. The Pentagon, on January 31, 2020, released the official version of its unified Cybersecurity standard that all contractors must meet by 2026. This standard, the CMMC, will apply to any company that does business with the DoD. CMMC will also apply to subcontractors as well as prime contractors.
The cost for the DoW CMMC requirement may be significant. The Pentagon, on January 31, 2020, released the official version of its unified Cybersecurity standard that all contractors must meet by 2026. This standard, the CMMC, will apply to any company that does business with the DoW. CMMC will also apply to subcontractors as well as prime contractors.
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.
Limitations on our ability to borrow contained in our Credit Agreement may limit our access to capital, and we could fall out of compliance with financial and other covenants contained in our Credit Agreement which, if not waived, would restrict our access to capital and could require us to pay down any then-existing debt under the Credit 32 Agreement.
If we fail to establish and maintain important relationships with government agencies and prime contractors, our ability to successfully maintain and develop new business may be adversely affected. Our reputation and relationship with the U.S. Government, and in particular with the agencies of the DoD and the U.S. intelligence community, are key factors in maintaining and developing new business opportunities.
If we fail to establish and maintain important relationships with government agencies and prime contractors, our ability to successfully maintain and develop new business may be adversely affected. Our reputation and relationship with the U.S. Government, and in particular with the agencies of the DoW and the U.S. intelligence community, are key factors in maintaining and developing new business opportunities.
While we believe that our business is well-positioned in areas that the DoD and other customers have indicated are areas of focus for future defense spending, the long-term impact of the BCA, other defense spending cuts, challenges in the appropriations process, the debt ceiling and the ongoing fiscal debates remain uncertain.
While we believe that our business is well-positioned in areas that the DoW and other customers have indicated are areas of focus for future defense spending, the long-term impact of the BCA, other defense spending cuts, challenges in the appropriations process, the debt ceiling and the ongoing fiscal debates remain uncertain.
Government. • We are subject to DoD CMMC requirements issued by the Pentagon which may limit our ability to bid and win projects. The cost for the DoD CMMC requirements may be significant. • Cybersecurity breaches or disruptions of our information technology systems could negatively impact our operations.
Government. • We are subject to DoW CMMC requirements issued by the Pentagon which may limit our ability to bid and win projects. The cost for the DoW CMMC requirements may be significant. • Cybersecurity breaches or disruptions of our information technology systems could negatively impact our operations.
The CMMC certification will be good for three years; with it, companies will be able to bid on contracts across the DoD and military services. In December 2020, the DoD disclosed the first seven contracts that are likely to be the initial test cases for the first “pathfinder” solicitations mandating CMMC.
The CMMC certification will be good for three years; with it, companies will be able to bid on contracts across the DoW and military services. In December 2020, the DoW disclosed the first seven contracts that are likely to be the initial test cases for the first “pathfinder” solicitations mandating CMMC.
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.
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 26 no assurance that these procedures and controls will be sufficient.
We are subject to the requirements of the National Industrial Security Program Operating Manual for our facility security clearance, which is a prerequisite to our ability to perform on classified contracts for the U.S. Government. A facility security clearance is required for a company to perform on classified contracts for the DoD and certain other agencies of the U.S. Government.
We are subject to the requirements of the National Industrial Security Program Operating Manual for our facility security clearance, which is a prerequisite to our ability to perform on classified contracts for the U.S. Government. A facility security clearance is required for a company to perform on classified contracts for the DoW and certain other agencies of the U.S. Government.
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.
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 42 the due diligence procedures we implemented, which may harm our reputation.
Additional market factors could impact our projections and our ability to successfully 28 develop new products and platforms.
Additional market factors could impact our projections and our ability to successfully develop new products and platforms.
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 believe that the USAF BQM-167, USN BQM-177, GBSD (also known as Sentinel) and the MACH-TB 2.0 programs could represent a large portion of our future revenues in the coming years, and the loss, cancellation, or delay of any of these programs could adversely affect our future results.
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.
Market conditions, including increased price competitiveness specifically in the government services space, and procurements awarded on an LPTA rather than a best value basis, and the impact of increased cost inputs can significantly impact our projections. In addition, our ability to penetrate new international markets could also impact our current projections.
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.
Market conditions, including increased price competitiveness specifically in the government services space, and procurements awarded on an LPTA rather than a best value basis, and the impact of increased cost inputs can significantly impact our projections. In addition, our ability to penetrate new international markets could also impact our current projections.
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.
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. 43 General Risk Factors The market price of our common stock is volatile.
If we are unable to service our indebtedness, we will be forced to adopt an alternative strategy that may include actions such as reducing capital expenditures, reducing internal investments in research and development efforts, selling assets, restructuring or refinancing our indebtedness or seeking additional equity capital.
If we are unable to service our indebtedness, we would be forced to adopt an alternative strategy that may include actions such as 38 reducing capital expenditures, reducing internal investments in research and development efforts, selling assets, restructuring or refinancing our indebtedness or seeking additional equity capital.
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.
Fixed-price contracts (including both government and commercial contracts) represented approximately 69% of our revenue for the fiscal year ended December 28, 2025. 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.
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.
Our ability to meet our potential future 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.
Failure to meet these obligations could adversely affect our profitability and future prospects. Early termination of client contracts or contract penalties could adversely affect our results of operations. We design, develop, and manufacture technologically advanced and innovative products and services, which are applied by our customers in a variety of environments.
Failure to meet these obligations could adversely affect our profitability and future prospects. Early termination of client contracts, pauses or stop work orders by our customers, or contract penalties could adversely affect our results of operations. We design, develop, and manufacture technologically advanced and innovative products and services, which are applied by our customers in a variety of environments.
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.
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 28, 2025.
The market price of our common stock has been in the past, and will continue to be, subject to fluctuations as a result of a number of factors, most of which we cannot control, including: failure of our operating results to meet market or analysts’ expectations; general fluctuations in the stock market; actual or anticipated fluctuations in our operating results based on reduced and/or delayed government spending or the threat thereof; fluctuations in the stock prices of companies in our industry; changes in earnings estimated by securities analysts or our ability to meet those estimates; rumors or dissemination of false information; short selling of our common stock; litigation and government inquiries; political and/or military events associated with current worldwide conflicts; and domestic and foreign economic conditions.
The market price of our common stock has been in the past, and will continue to be, subject to significant fluctuations as a result of a number of factors, most of which we cannot control, including: failure of our operating results to meet market or analysts’ expectations; general fluctuations in the stock market; actual or anticipated fluctuations in our operating results based on reduced and/or delayed government spending or the threat thereof; expectation regarding increased U.S. and allied country government defense spending; fluctuations in the stock prices of companies in our industry; changes in earnings estimated by securities analysts or our ability to meet those estimates; rumors or dissemination of false information; short selling of our common stock; litigation and government inquiries; political and/or military events associated with current worldwide conflicts; and domestic and foreign economic conditions.
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.
Our international business represents 20% of our total revenue for the year ended December 28, 2025, 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.
Early termination of client contracts or contract penalties could adversely affect our results of operations. • If our subcontractors or suppliers fail to perform their contractual obligations, our performance and reputation as a contractor and our ability to obtain future business could suffer. • 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 the UAS and UGS markets do not experience significant growth, if we cannot expand our customer base or if our products do not achieve broad acceptance, or if the products we have developed or will develop do not become programs of record, then we may not be able to achieve our anticipated level of growth. • Loss of our General Services Administration (“GSA”) contracts or government-wide acquisition contracts could impair our ability to attract new business. • Government contracts differ materially from standard commercial contracts, involve competitive bidding and may be subject to cancellation or delay without penalty. • We may not receive the full amounts estimated under the contracts in our backlog, which could reduce our revenue in future periods below the levels anticipated.
Early termination of client contracts, pauses or stop work orders by our customers or contract penalties could adversely affect our results of operations. • If our subcontractors or suppliers fail to perform their contractual obligations, our performance and reputation as a contractor and our ability to obtain future business could suffer. • 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 the UAS and UGS markets do not experience significant growth, if we cannot expand our customer base or if our products do not achieve broad acceptance, or if the products we have developed or will develop do not become programs of record, then we may not be able to achieve our anticipated level of growth. • Loss of our GSA contracts or GWACs could impair our ability to attract new business. • Government contracts differ materially from standard commercial contracts, involve competitive bidding and may be subject to cancellation or delay without penalty. • We may not receive the full amounts estimated under the contracts in our backlog, which could reduce our revenue in future periods below the levels anticipated.
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.
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 28, 2025.
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 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 $40.0 million, or 3.0% of our total revenue, in our fiscal year ended December 28, 2025 on internally funded research and development activities.
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.
For the year ended December 28, 2025, 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.
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.
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.
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.
The Government has provided fiscal year 2023 and 2024 final rate agreement letters for certain Kratos entities and is currently auditing a fiscal year 2024 incurred cost proposal of one Kratos entity.
Risks Related to our Long-Term Borrowings • We have substantial long-term borrowings, which could adversely affect our cash flow, financial condition and business. • We and our subsidiaries may incur more debt, which may increase the risks associated with our leverage, including our ability to service our indebtedness. • A portion of our business is conducted through foreign subsidiaries, and the failure to generate sufficient cash flow from these subsidiaries, or otherwise repatriate or receive cash from these subsidiaries, could result in our inability to repay our indebtedness. • The agreements governing our debt impose significant operating and financial restrictions on us and our subsidiaries that may prevent us and our subsidiaries from pursuing certain business opportunities and restrict our ability to operate our business.
Risks Related to our Indebtedness • We may borrow under our revolving line of credit, which could adversely affect our cash flow, financial condition and business. • We and our subsidiaries may incur long-term indebtedness, which may introduce the risks associated with our leverage, including our ability to service our indebtedness. • A portion of our business is conducted through foreign subsidiaries, and the failure to generate sufficient cash flow from these subsidiaries, or otherwise repatriate or receive cash from these subsidiaries, could result in our inability to repay indebtedness that we may incur. • The agreements governing our debt impose significant operating and financial restrictions on us and our subsidiaries that may prevent us and our subsidiaries from pursuing certain business opportunities and restrict our ability to operate our business.
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.
We have incurred and may continue to incur goodwill impairment charges in our reporting entities, which could harm our profitability. As of December 28, 2025, goodwill represented approximately 24% of our total assets. We test for impairment annually.
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.
If a prolonged government shutdown of the DoW 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.
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.
For the fiscal year ended December 28, 2025, our US segment accounted for 21.7% 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 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.
Cost-plus-fee and fixed-price contracts in our federal business accounted for approximately 39% and 59%, respectively, of our federal business revenues for the year ended December 28, 2025. 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.
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.
As of December 28, 2025, approximately 12% of our consolidated assets, based on book value, and 13% of our total revenues for the year ended December 28, 2025, were attributable to foreign subsidiaries, which do not guarantee our indebtedness.
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.
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.
The failure to realize all amounts in our backlog could adversely affect our revenues and gross margins. As a result, our funded, unfunded and total backlog as of any particular date may not be an accurate indicator of our future earnings.
Government, or work can be suspended or paused by our customers. The failure to realize all amounts in our backlog could adversely affect our revenues and gross margins. As a result, our funded, unfunded and total backlog as of any particular date may not be an accurate indicator of our future earnings.
Government to: • terminate our existing contracts; • reduce potential future income from our existing contracts; • modify some of the terms and conditions in our existing contracts; • suspend or permanently prohibit us from doing business with the U.S.
Government to: • terminate our existing contracts; • suspend or pause our work which can impact our workforce and costs; • reduce potential future income from our existing contracts; • modify some of the terms and conditions in our existing contracts; • suspend or permanently prohibit us from doing business with the U.S.
The restrictions contained in our Credit Agreement could also limit our ability to plan for or react to market conditions, meet capital needs or otherwise restrict our activities or business plans and adversely affect our ability to finance operations, enter into acquisitions or to engage in other business activities that would be in the Company’s interest.
The restrictions contained in our Credit Agreement could also limit our ability to plan for or react to market conditions, meet capital needs or otherwise restrict our activities or business plans and adversely affect our ability to finance operations, enter into acquisitions or to engage in other business activities that would be in the Company’s interest. 39 Risks Related to Our Intellectual Property We may be unable to protect our intellectual property rights.
See the Industry Update section in Item 1 “Business” contained within this Annual Report for a discussion of the current budgetary and funding constraints on U.S. Government spending and legislation enacted to reduce the U.S. federal deficit.
Government contracts. See the Industry Update section in Item 1 “Business” contained within this Annual Report for a discussion of the current budgetary and funding constraints on U.S. Government spending.
We are subject to various U.S. federal, state, local and non-U.S. laws and regulations related to environmental protection, including the discharge, treatment, storage, disposal and remediation of hazardous substances and wastes.
Our operations expose us to the risk of material environmental liabilities. We are subject to various U.S. federal, state, local and non-U.S. laws and regulations related to environmental protection, including the discharge, treatment, storage, disposal and remediation of hazardous substances and wastes.
Significant fluctuations in our operating results for a particular quarter could cause us to fall out of compliance with the financial covenants related to our debt which, if not waived, could restrict our access to capital and cause us to take extreme measures to pay down the debt, if any, under our five-year $200 million Revolving Credit Facility and five-year $200 million Term Loan A entered into on February 18, 2022 (collectively, the “2022 Credit Facility”).
Significant fluctuations in our operating results for a particular quarter could cause us to fall out of compliance with the financial covenants related to our debt which, if not waived, could restrict our access to capital and cause us to take extreme measures to pay down outstanding indebtedness, if any, under our five-year $200 million Revolving Credit Facility or any future indebtedness.
As a result, we may be unable to successfully maintain our relationships with government agencies or prime contractors, and any failure to do so could adversely affect our ability to maintain our existing business and compete successfully for new business. The loss of one or more of our largest customers, programs, or applications could adversely affect our results of operations.
As a result, we may be unable to successfully maintain our relationships with government agencies or prime contractors, and any failure to do so could adversely affect our ability to maintain our existing business and compete successfully for new business.
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.
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. 23 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.
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.
Navy accounted for 17.7% and 14.7%, respectively, of our total revenues. No assurance can be given that our customers will not experience financial, technical or other difficulties that could adversely affect their operations and, in turn, our results of operations.
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.
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.
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.
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.
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.
Given the current market conditions and continued budget and deficit funding pressures, including sequestration and issues surrounding the national debt ceiling and inflationary impacts and cost input increases to certain of our businesses, our future revenues, profits and cash flows could be substantially lower than our current projections.
The loss of or unauthorized access to data, such as resulting from computer viruses, worms, ransomware or other malware may harm our systems, expose us to litigation or regulatory investigation and subject us to costly and time-intensive notification requirements. Our operations expose us to the risk of material environmental liabilities.
The loss of or unauthorized access to data, such as resulting from computer viruses, worms, ransomware or other malware may harm our systems, expose us to litigation or regulatory investigation and subject us to costly and time-intensive notification requirements. National security considerations may preclude us from, or cause us to delay, publicly disclosing a cybersecurity incident.
Government (including all branches of the U.S. military and FMS), either as a prime contractor or a subcontractor. We expect to continue to derive most of our revenues from work performed under U.S. Government contracts.
Government and other governmental entities. In fiscal 2025, 2024 and 2023, we generated 68%, 67% and 69%, respectively, of our total revenues from contracts with the U.S. Government (including all branches of the U.S. military and FMS), either as a prime contractor or a subcontractor. We expect to continue to derive most of our revenues from work performed under U.S.
Government or with any specific government agency; • impose fines and penalties; • subject us to criminal prosecution; • suspend work under existing multiple year contracts and related task orders if the necessary funds are not appropriated by Congress; • decline to exercise an option to extend an existing multiple year contract; and • claim rights in technologies and systems invented, developed or produced by us. 23 In addition, government contracts are frequently awarded only after formal competitive bidding processes, which have been and may continue to be protracted and typically impose provisions that permit cancellation in the event that necessary funds are unavailable to the government agency.
Government or with any specific government agency; • impose fines and penalties; • subject us to criminal prosecution; • suspend work under existing multiple year contracts and related task orders if the necessary funds are not appropriated by Congress; • decline to exercise an option to extend an existing multiple year contract; and • claim rights in technologies and systems invented, developed or produced by us.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur 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.
Biggest changeOur 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.
Among other information security duties, the CIO is responsible for: • implementing the IRP, • identifying and managing an incident response team (“IRT”) principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents, • coordinating IRT activities, including developing, maintaining, and following appropriate procedures to respond to, appropriately escalate, make decisions regarding, and document identified cybersecurity incidents, • conducting post-incident reviews to gather feedback on identified cybersecurity incident response procedures and address any identified gaps in security measures, • providing training and conducting periodic exercises to promote employee and stakeholder preparedness and awareness of the IRP, and • reviewing the IRP at least annually, or whenever there is a material change in our business practices that may reasonably affect its cybersecurity incident response procedures.
Among other information security duties, the CIO is responsible for: • implementing the IRP, • identifying and managing an incident response team (“IRT”) principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents, 45 • coordinating IRT activities, including developing, maintaining, and following appropriate procedures to respond to, appropriately escalate, make decisions regarding, and document identified cybersecurity incidents, • conducting post-incident reviews to gather feedback on identified cybersecurity incident response procedures and address any identified gaps in security measures, • providing training and conducting periodic exercises to promote employee and stakeholder preparedness and awareness of the IRP, and • reviewing the IRP at least annually, or whenever there is a material change in our business practices that may reasonably affect its cybersecurity incident response procedures.
However, cybersecurity threats are constantly evolving, are becoming more frequent and more sophisticated and are being made by groups of individuals with a wide range of expertise and motives, which increases the difficulty of detecting and successfully defending against them.
However, cybersecurity threats are constantly evolving, are becoming more frequent and more sophisticated and are being made by groups of individuals with a wide range of expertise 46 and motives, which increases the difficulty of detecting and successfully defending against them.
We developed and maintain our program as required by applicable laws and regulations, including without limitation Cybersecurity Maturity Model Certification (CMMC) and 17 CFR Part 229.
We developed and maintain our program as required by applicable laws and regulations, including without limitation the Cybersecurity Maturity Model Certification (CMMC) and 17 CFR Part 229.
Our CIO has over 20 years of experience in the field of cybersecurity and is responsible for the management of our cybersecurity and data privacy program.
Our CIO has over 20 years of experience in the field of information technology including cybersecurity and is responsible for the management of our cybersecurity and data privacy program.
Impact of Cybersecurity Risks on Business Strategy, Results of Operations or Financial Condition Cybersecurity threats, such as threats of attacks from computer hackers, cyber criminals, nation-state actors and other malicious internet-based activity, continue to increase.
Impact of Cybersecurity Risks on Business Strategy, Results of Operations or Financial Condition Cybersecurity threats, such as threats of attacks from computer hackers, cyber criminals, nation-state actors and other malicious internet-based activity (some of which target the U.S. defense industrial base and other critical infrastructure sectors), continue to increase.
In addition, given the constant and evolving threat of cyber-based attacks, we incur significant costs in an effort to detect and prevent security breaches and incidents, and these costs may increase in the future.
In addition, given the constant and evolving threat of cyber-based attacks, we incur significant costs in an effort to detect and prevent security breaches and incidents, and these costs may increase in the future. Due to the evolving nature of such risks, the impact of any potential incident cannot be predicted.
We believe that our current preventative actions and response activities provide adequate measures of protection against security breaches and generally reduce our cybersecurity risks.
Further, the sophistication, availability, and use of artificial intelligence and quantum computing by threat actors present an increased level of risk. We believe that our current preventative actions and response activities provide adequate measures of protection against security breaches and generally reduce our cybersecurity risks.
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On September 10, 2025, the Department of War (DoW) published its final Cybersecurity Maturity Model Certification (CMMC) rule in the Federal Register, effective November 10, 2025, officially launching a three-year phased rollout of cybersecurity requirements across DoW contracts.
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The rule, implemented through the Defense Federal Acquisition Regulation Supplement (DFARS) under Title 48 CFR, establishes mandatory cybersecurity standards for all contractors and subcontractors. Certification is required to handle Federal Contract Information (FCI) or Controlled Unclassified Information (CUI) and to bid on new contracts.
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CMMC 2.0, announced July 17, 2021, streamlined requirements to three levels: • Level 1: Self-attestation allowed. • Levels 2 & 3: Third-party assessments required. Failure to achieve CMMC certification will prevent bidding on new or follow-on contracts, creating significant contract risk. Compliance efforts will require substantial and ongoing investment, increasing cost pressures.
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Additionally, non-compliant subcontractors may jeopardize overall eligibility for DoW work. Collectively, these factors could negatively impact revenue, operating margins, and cash flow. As of July 24, 2025, Kratos has received Final CMMC Level 2 (C3PAO) Certification.
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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.
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In addition, our insurance coverage, which may exclude losses from war or cyber operations, may not be adequate to cover all related costs and we may not otherwise be fully indemnified for them.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe 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.
Biggest changeWe have major operations at the following locations: Kratos Government Solutions : Birmingham and Huntsville, AL; Placerville, San Diego, and San Jose, CA; Colorado Springs and Englewood, CO; Jupiter and Orlando, FL; Crane, IN, Baltimore, Princess Anne, and Lanham, MD; Reno, NV, Bristow, OK; Dallastown and York, PA; Plano, TX; and Alexandria, Herndon and Chantilly, VA.
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
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. 47 PART II
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.
At December 28, 2025, 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 current and projected future staffing levels.
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 2. Properties. At December 28, 2025, we owned or leased approximately 2.4 million square feet of floor space at 62 separate locations, primarily in the U.S., for manufacturing, warehousing, research and development, administration and various other uses.
The 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.
The following is a summary of our floor space at December 28, 2025: Square feet (in thousands) Owned Leased Total Kratos Government Solutions 619 1,136 1,755 Unmanned Systems 35 534 569 Corporate (includes San Diego, operations of KGS and US segments) — 26 26 Total 654 1,696 2,350 See Note 6 of the Notes to Consolidated Financial Statements contained within this Annual Report for information regarding commitments under leases.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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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.
Biggest changeThe companies included in the Company’s Peer Group are: AAR Corp, AeroVironment Inc., CACI International Inc., Ducommun Inc., Frequency Electronics Inc., Leidos Holdings Inc., Mercury Systems Inc. and Parsons Corp. Recent Sales of Unregistered Securities; Use of Proceeds On February 4, 2025, pursuant to an Asset Purchase Agreement among the Company, Kratos Microwave, Inc., and Norden Millimeter, 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. 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.
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. 48 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 12/31/19 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 a Peer Group *$100 invested on 12/31/20 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
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
The shares were issued 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. 49 Item 6. Reserved 50
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.
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 20, 2026, there were 263 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 two customized peer groups consisting of the companies listed below, for the period commencing December 31, 2019 and ending December 31, 2024.
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 a customized peer group consisting of the companies listed below, for the period commencing December 31, 2020 and ending December 31, 2025.
Removed
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.
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(“Norden”), the Company issued 1,095,674 shares of its common stock, with a deemed value of $32.2 million, to Norden. The shares were issued as part of the consideration for the Company’s acquisition of certain assets of Norden.
Removed
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.

Item 7. Management's Discussion & Analysis

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

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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.
Biggest changeOur net cash used in investing activities is summarized as follows (in millions): Year Ended December 28, 2025 December 29, 2024 Investing activities: Cash paid for acquisitions, net of cash acquired $ — $ (11.5) Proceeds from sale of assets 12.0 — Investment in joint venture (5.0) — Capital expenditures (95.3) (58.2) Net cash used in investing activities $ (88.3) $ (69.7) Net cash used in investing activities was $88.3 million for year ended December 28, 2025 is comprised of $95.3 million in capital expenditures partially offset by $12.0 million in proceeds from the sale of company owned Valkyries which were previously classified as capital expenditures.
We believe that Kratos is known as an 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 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.
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.
Our historical growth rates and operating results are not indicative of our projected growth rates and operating results as a consequence of our acquisitions and divestitures. • The terminal growth rate is used to calculate the value of cash flows beyond the last projected period in our DCF analysis and reflects our best estimates for stable, perpetual growth of our reporting units. • We use estimates of market participant weighted average cost of capital (“WACC”) as a basis for determining the discount rates to apply to our reporting units’ future expected cash flows.
Our historical growth rates and operating results are not indicative of our projected growth rates and operating results as a consequence of our acquisitions and divestitures. 61 • The terminal growth rate is used to calculate the value of cash flows beyond the last projected period in our DCF analysis and reflects our best estimates for stable, perpetual growth of our reporting units. • We use estimates of market participant weighted average cost of capital (“WACC”) as a basis for determining the discount rates to apply to our reporting units’ future expected cash flows.
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.
We believe continued budget and deficit funding pressures (which are expected), CRAs (which are also expected), future Federal Government debt ceiling issues, or potential Federal Government shutdowns could have serious negative consequences for the security of our country and the defense industrial base, including the Company and the related customers, employees, suppliers, investors, and communities that rely on companies in the defense industrial base.
Topic 360 requires companies to separately report discontinued operations, including components of an entity that either have been disposed of (by sale, abandonment or in a distribution to owners) or classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Topic 360 requires companies to separately report discontinued operations, including 60 components of an entity that either have been disposed of (by sale, abandonment or in a distribution to owners) or classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
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.
We determine our reporting units by first identifying our 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.
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.
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.
We believe that our technology, intellectual property, proprietary products, reputation and designed-in positions on our customers’ programs, platforms and systems, and our ability to rapidly develop, demonstrate and field affordable leading technology systems gives us a competitive advantage and creates a high barrier to entry into our markets.
We believe that our technology, intellectual property, proprietary products, reputation and designed-in positions on our customers’ programs, platforms and systems, and our ability to rapidly develop, demonstrate and field affordable leading 51 technology systems gives us a competitive advantage and creates a high barrier to entry into our markets.
Critical Accounting Principles and Estimates The preparation of our Consolidated Financial Statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, stockholders’ equity, revenues and expenses, and related disclosures of contingent assets and liabilities.
Critical Accounting Principles and Estimates The preparation of our Consolidated Financial Statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, stockholders’ equity, revenues and expenses, and related 59 disclosures of contingent assets and liabilities.
Where a liability is probable and there is a range of estimated loss and no amount in the range is more likely than any other number in the range, we record the minimum estimated liability related to the claim in accordance with FASB ASC Topic 450, Contingencies .
Where a liability is probable and there is a range of estimated loss and no 62 amount in the range is more likely than any other number in the range, we record the minimum estimated liability related to the claim in accordance with FASB ASC Topic 450, Contingencies .
Kratos intends to pursue program and contract opportunities as the prime or lead contractor when we believe that our probability of win is high and any investment required by Kratos is within our capital resource comfort level.
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.
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.
The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.
The Applicable Margin varies between 1.25% and 2.25% per annum for SOFR loans and between 0.25% and 1.25% per annum for base rate loans, and is based on the Company’s total net leverage ratio from time to time.
The Applicable Margin varies between 1.25% and 2.25% per annum for SOFR loans and 58 between 0.25% and 1.25% per annum for base rate loans, and is based on the Company’s total net leverage ratio from time to time.
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.
It is possible that budget and program decisions made in such an uncertain environment would have long-term implications for our Company and the 52 entire defense industry.
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.
Kratos makes true internally funded research, development, capital and other investments, to rapidly develop, produce and field relevant solutions that address our customers’ mission critical needs and requirements.
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.
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 2026 Credit Facility and cash expected to be generated from operating activities will be sufficient to fund our short- and long-term liquidity needs.
Our entire organization is focused on executing our strategy of being the leading technology and intellectual property based product and system company and being “first to market” in each of our industry leading core competency areas. Our primary end customers are U.S. Government agencies, including the DoD, intelligence agencies, and other national and homeland security related agencies.
Our entire organization is focused on executing our strategy of being the leading technology and intellectual property based product and system company and being “first to market” in each of our industry leading core competency areas. Our primary end customers are U.S. Government agencies, including the DoW, intelligence agencies, and other national and homeland security related agencies.
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 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.
Our business with the U.S. Government and prime contractors is generally performed under fixed-price, cost reimbursable, or time and materials contracts. Cost reimbursable contracts for the U.S. Government provide for reimbursement of costs plus the payment of a fee. Some cost reimbursable contracts include award and incentive fees that are awarded based on performance on the contract.
Our business with the U.S. Government and traditional prime contractors is generally performed under fixed-price, cost reimbursable, or time and materials contracts. Cost reimbursable contracts for the U.S. Government provide for reimbursement of costs plus the payment of a fee. Some cost reimbursable contracts include award and incentive fees that are 53 awarded based on performance on the contract.
Current Reporting Segments We operate in two reportable segments. The KGS reportable segment is comprised of an aggregation of KGS operating segments, including its microwave electronic products, space, satellite and cyber, training solutions, C5ISR/modular systems, turbine technologies and defense and rocket support services operating segments.
Current Reporting Segments We operate in two reportable segments. The KGS reportable segment is comprised of an aggregation of KGS operating segments, including its microwave electronics products, space, satellite and cyber, training solutions, C5ISR/modular systems, turbine technologies, and defense and rocket support services operating segments.
KGS and US customers primarily include National Security related agencies, the DoD, intelligence agencies and classified agencies, and to a lesser degree, international government agencies and domestic and international commercial customers. We organize our operating segments based primarily on the nature of the products, solutions and services offered.
KGS and US customers primarily include National Security related agencies, the DoW, intelligence agencies and classified agencies, and to a lesser degree, international government agencies and domestic and international commercial customers. We organize our operating segments based primarily on the nature of the products, solutions and services offered.
At Kratos, affordability is a technology, and we seek to utilize proven, leading edge approaches and technology, not unproven bleeding edge approaches or technology, with Kratos’ approach designed to reduce cost, schedule and risk, and enable us to be first to market with cost effective solutions.
At Kratos, affordability is a technology, and we seek to utilize proven, leading edge approaches and technology, not unproven bleeding edge approaches or technology, with Kratos’ approach designed to reduce cost, schedule and risk, enabling us to be first to market with cost effective solutions.
We 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.
We also conduct business with local, state and foreign governments and domestic and international commercial customers. In fiscal 2025, 2024 and 2023, we generated 68%, 67% and 69%, respectively, of our total revenues from contracts with the U.S. Government (including all branches of the U.S. military and including FMS), either as a prime contractor or a subcontractor.
We intend to partner and team with a large, traditional system integrator when our assessment of probability of win is greater or required investment is beyond Kratos’ comfort level.
We intend to partner and team with a large, traditional system integrator when our assessment of probability of win is greater or required investment is beyond Kratos comfort level.
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.
The income tax provision for 2025 includes a $0.2 million benefit related to the decrease in the Company’s valuation allowance on U.S. deferred tax assets. The income tax provision for 2024 includes a $4.2 million benefit related to the decrease in the Company’s valuation allowance on deferred tax assets.
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.
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 28, 2025, we consider the following factors to be important in understanding our financial statements.
Government spending generally, or specific departments or agencies; 59 • changes in U.S.
Government spending generally, or specific departments or agencies; • changes in U.S.
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.
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 28, 2025. Events and changes in circumstances arising after December 28, 2025, 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 2023-related items, refer to Part II, Item 7.
For discussion related to changes in financial condition and the results of operations for fiscal year 2024-related items, refer to Part II, Item 7.
Such a challenging federal and DoD budgetary environment may negatively impact our customers, business and programs and could have a material adverse effect on our forecasts, estimates, financial position, results of operations and/or cash flows.
Such a dynamic and challenging federal and DoW budgetary environment may negatively impact our customers, business and programs and could have a material adverse effect on our forecasts, estimates, financial position, results of operations and/or cash flows.
We believe that the Company’s hardware, software and solution offerings, including jet unmanned aerial drones, rocket and hypersonic systems, C5ISR and air defense systems, jet engine and propulsion systems for missiles, drones, hypersonic and supersonic vehicles, microwave electronics for missile, radar and air defense systems and training systems, address mission critical priority areas of the DoD.
We believe that the Company’s military grade hardware, software and solution offerings, including jet unmanned aerial drones, rocket and hypersonic systems, C5ISR and air defense systems, jet engine and propulsion systems for missiles, drones, hypersonic and supersonic vehicles, microwave electronics for missile, radar and air defense systems and training systems, address mission critical priority areas of the DoW.
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.
For a comparison of the Company’s results of operations for the fiscal year ended December 31, 2023 to the fiscal year ended December 29, 2024, 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 29, 2024, which was filed with the U.S.
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.
If the actual operating performance and financial results are not consistent with our assumptions, an impairment in our $595.7 million goodwill and $53.9 million long-lived intangibles could occur in future periods.
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.
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 29, 2024, which was filed with the Securities and Exchange Commission on February 26, 2025. Overview Kratos is a technology, hardware, products, system and software company addressing the defense, national security, and commercial markets.
The US reportable segment consists of our unmanned aerial, unmanned ground and unmanned seaborne system products. Our KGS and US segments provide products, solutions and services for mission critical National Security programs.
The US reportable segment consists of our unmanned aerial, unmanned ground, unmanned seaborne and command, control and communications system businesses. Our KGS and US segments provide products, solutions and services for mission critical National Security programs.
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.
Kratos’ primary business areas include, virtualized ground systems for satellites and space vehicles including software for command & control (C2) and telemetry, tracking and control (TT&C), jet powered unmanned aerial drone systems, hypersonic vehicles and rocket systems, propulsion systems for drones, missiles, loitering munitions, supersonic systems, space craft and launch systems, command, control, communication, computing, combat, intelligence surveillance and reconnaissance (C5ISR) and microwave electronic products for missile, radar, air defense, missile defense, space, satellite, counter unmanned aircraft systems (CUAS), directed energy, communication and other systems, and virtual & augmented reality training systems for the warfighter.
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.
As a percentage of revenues, R&D decreased to 3.0% of revenues for the year ended December 28, 2025, from 3.5% of revenues for the year ended December 29, 2024. 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.
Our DSOs are impacted by the achievement of contractual billing milestones, such as equipment shipments and deliveries on certain products, and for certain flight requirements that must be fulfilled on certain aerial target programs, or final billings which are not due until completion on certain projects, and therefore we are unable to contractually bill for amounts outstanding related to those milestones at this time.
Our DSOs are impacted by the achievement of contractual billing milestones, such as equipment shipments and deliveries on certain products, for certain flight requirements that must be fulfilled on certain aerial target programs, for the receipt of certain contractual funding, certain of which has been impacted by government budgetary delays and appropriations or final milestone billings which are not due until completion on certain projects, and therefore we are unable to contractually bill for amounts outstanding related to those milestones at this time.
Financing trade accounts receivable is necessary because, on average, our customers do not pay us as quickly as we pay our vendors and employees for their goods and services since a number of our receivables are contractually billable and due to us only when certain contractual milestones are achieved, certain of which are not achieved until final shipment and acceptance of our products.
Financing trade accounts receivable is necessary because, on average, our customers do not pay us as quickly as we pay our vendors and employees for their goods and services because a number of our receivables are contractually billable and due to us only when certain contractual milestones are achieved.
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.
During the year ended December 28, 2025, capital expenditures of approximately $38.4 million were incurred in our US business, primarily related to our manufacture of two production lots of Valkyries prior to contract award to meet anticipated customer orders and requirements.
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.
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 2025 annual test.
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.
The carrying value of goodwill of the US and KGS reportable segments, was $124.8 million and $470.9 million, respectively, at December 28, 2025. In determining the fair value of our reporting units, there are key assumptions related to our future operating performance and revenue growth.
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.
The $189.8 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 22.9% for the year ended December 28, 2025, compared to 25.3% for the year ended December 29, 2024.
Our net cash used in investing activities is summarized as follows (in millions): Year Ended December 29, 2024 December 31, 2023 Investing activities: Cash paid for acquisitions, net of cash acquired $ (11.5) $ 0.3 Proceeds from sale of assets — 8.3 Capital expenditures (58.2) (52.4) Net cash used in investing activities $ (69.7) $ (43.8) 54 Net cash used in investing activities for year ended December 29, 2024 is comprised of $58.2 million in capital expenditures and $11.5 million in cash paid (including subsequent payments of $0.2 million for amounts payable to former employees of FTT) for the remaining minority interests in KTT Core (along with a corresponding issuance of 583,700 shares of Kratos common stock valued at $11.3 million).
Net cash used in investing activities for the year ended December 29, 2024 is comprised of $58.2 million in capital expenditures and $11.5 million in cash paid (including subsequent payments of $0.2 million for amounts payable to former employees of FTT) for the remaining minority interests in KTT Core (along with a corresponding issuance of 583,700 shares of Kratos common stock valued at $11.3 million).
The swap is at a fixed rate one-month term SOFR of 3.721% and settles monthly on the last day of each calendar month. The swap has an effective date of May 1, 2023 and terminates on May 1, 2026.
The swap was at a fixed rate one-month term SOFR of 3.721% and settled monthly on the last day of each calendar month. The swap had an effective date of May 1, 2023 and was scheduled to terminate on May 1, 2026.
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.
The increase was primarily related to increased activity in our defense rocket support businesses in our KGS segment. Cost of revenues. Cost of revenues increased to $1,038.9 million for the year ended December 28, 2025, from $849.1 million for the year ended December 29, 2024.
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 Credit Agreement contains certain covenants, which include, but are not limited to, restrictions on indebtedness, liens, fundamental changes, restricted payments, asset sales, and investments, and places limits on various other payments. We were in compliance with the covenants contained in the Credit Agreement as of December 28, 2025.
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.
Securities and Exchange Commission on February 26, 2025. Liquidity and Capital Resources As of December 28, 2025, we had cash and cash equivalents of $560.6 million compared with cash and cash equivalents of $329.3 million as of December 29, 2024, which includes $30.3 million and $40.2 million, respectively, of cash and cash equivalents held by our foreign subsidiaries.
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.
As a percentage of total revenue, product sales were 65.2% for the year ended December 28, 2025, as compared to 62.7% for the year ended December 29, 2024. Service revenues increased by $45.6 million to $469.0 million for the year ended December 28, 2025, from $423.4 million for the year ended December 29, 2024.
These proceeds were partially offset by $7.5 million of principal payments on our $200 million Term Loan A, a $45.0 million payment (partially offset by a $10.0 million draw) on the new Revolving Credit Facility, payroll withholding taxes paid from vested restricted stock traded for taxes of $17.4 million and payments made on financing lease obligations of $1.4 million.
These proceeds were partially offset by $7.5 million of principal payments on the Term Loan A under our credit Agreement, a $45.0 million payment (partially offset by a $10.0 million draw) on the Revolving Credit Facility under our Credit Agreement, payroll withholding taxes paid from vested restricted stock traded for taxes of $17.4 million and payments made on financing lease obligations of $1.4 million. 2022 Credit Facility On February 18, 2022, we completed the refinancing of our then-outstanding $90 million revolving credit facility and $300 million Senior Secured Notes, with a 5-year $200 million Revolving Credit Facility and 5-year $200 million Term Loan A.
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.
Provision for income taxes. The Company recorded an income tax provision of $12.0 million for the year ended December 28, 2025, and an income tax provision of $10.2 million for the year ended December 29, 2024.
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 in the KGS segment decreased to 24.4% for the year ended December 28, 2025, from 27.6% for the year ended December 29, 2024. This change was primarily due to a less favorable mix of revenues for the year ended December 28, 2025.
Margins 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.
Margins on services decreased to 23.9% for the year ended December 28, 2025, from 26.8% for the year ended December 29, 2024. Margins on product sales decreased to 22.3% for the year ended December 28, 2025, as compared to 24.4% for the year ended December 29, 2024.
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.
As a percentage of revenues, SG&A decreased to 17.8% for the year ended December 28, 2025 from 19.1% for the year ended December 29, 2024. 55 Research and development (R&D) expenses. R&D expenses were $40.0 million for the year ended December 28, 2025 and $40.3 million for the year ended December 29, 2024.
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.
Government shutdown, Presidential and Congressional changes, proposed new tariffs, the current budgetary and deficit funding environment, the Trump Administration’s stated fiscal policies, Israel, Ukraine and Taiwan funding support, potential heightened levels of inflation, ongoing supply chain disruption, and the challenging appropriations process, among other items, all continue to potentially create significant short and long-term risks to the industry and the Company.
Significant management judgments and estimates, including the estimated costs to complete the project, which determine the project’s percentage complete, must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any period if management makes different judgments or utilizes different estimates.
Significant management judgments and estimates, including the estimated costs to complete the project, which determine the project’s percentage complete, must be made and used in connection with the revenue recognized in any accounting period.
A summary of our net cash provided by operating activities from our Consolidated Statements of Cash Flows is as follows (in millions): Year Ended December 29, 2024 December 31, 2023 Net cash provided by operating activities $ 49.7 $ 65.2 Our net cash provided by operating activities was $49.7 million for the year ended December 29, 2024, primarily as a result of the net income of $16.3 million and noncash charges of $86.8 million which includes stock compensation, depreciation and amortization, which was partially offset by changes in net working capital accounts of $53.4 million, which included customer advance payments reflected as a decrease in Billings in Excess of Costs of $25.7 million.
Net cash provided by operating activities was $49.7 million for the year ended December 29, 2024, primarily as a result of the net income of $16.3 million and noncash charges of $86.8 million which primarily includes stock compensation, depreciation and amortization, which was partially offset by changes in net working capital accounts of $53.4 million.
As noted above, we believe that there is a generational recapitalization of weapon systems occurring with the U.S. and its allies to address peer and near peer threats, including Russia, China, North Korea and Iran, and the Company’s positioning as a proven provider of hardware, systems and software to address these threats for and with our customers and partners is recognized in the industry.
As noted above, we believe that there is a generational recapitalization of weapon systems and the defense industrial base occurring with the U.S. and its allies to address peer and near peer threats, including Russia, China, North Korea and Iran.
In particular, the US reporting unit fair value includes assumptions that the development of the high performance UCAS product is successful and we are awarded future contracts for new tactical unmanned aircraft systems. Additionally, the US reporting unit fair value assumes that the U.S. Navy will continue to award full rate production contracts for the Sub-Sonic Aerial Target.
In particular, the US reporting unit fair value includes assumptions that the development of the high performance UCAS product is successful and we are awarded future contracts for new tactical unmanned aircraft systems.
Our days sales outstanding (“DSO”) have decreased to 104 days as of December 29, 2024 from 116 days as of December 31, 2023.
Our days sales outstanding (“DSO”) have increased to 124 days as of December 28, 2025 from 104 days as of December 29, 2024.
Borrowings under the revolving credit facility and the term loan credit facility may take the form of base rate loans or Secured Overnight Financing Rate (“SOFR”) loans.
Borrowings under the Revolving Credit Facility may take the form of base rate loans or SOFR loans.
We enter into agreements with suppliers and subcontractors for goods and services in support of these contracts and programs with payment terms that are generally aligned with the payment terms from our customers.
We enter into agreements with suppliers and subcontractors for goods and services in support of these contracts and programs with payment terms that are generally aligned with the payment terms from our customers. 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.
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.
We also invest in R&D expenses to achieve market leading “designed in” positions on major programs, platforms or systems. Total other income (expense), net. Other income (expense), net, increased to income of $8.4 million for the year ended December 28, 2025 from expense of $2.5 million for the year ended December 29, 2024.
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.
We believe that our business is well-positioned, including in areas that the Trump Administration, the DoW, and national security related and other customers currently indicate are priorities for future defense spending.
Our net cash provided by (used in) financing activities is summarized as follows (in millions): Year Ended December 29, 2024 December 31, 2023 Financing activities: Proceeds from the issuance of common stock, net of issuance costs $ 330.7 $ — Borrowings under credit facility 10.0 69.0 Repayments under credit facility, term loan and other debt (52.5) (101.0) Payments of employee taxes withheld from share-based awards (17.4) (3.7) Payments under finance leases (1.4) (1.5) Proceeds from shares issued under equity plans 8.2 6.5 Net cash provided by (used in) financing activities $ 277.6 $ (30.7) Net cash provided by financing activities was $277.6 million for the year ended December 29, 2024, which included employee stock purchase plan receipts of $8.2 million and net proceeds from the issuance of common stock of approximately $330.7 million.
We expect our capital expenditures for our fiscal year 2026 to continue to be significant for investments we are making for new production and manufacturing facilities, expansion of existing facilities and continued build of capital aerial targets and related support equipment. 57 Our net cash provided by financing activities is summarized as follows (in millions): Year Ended December 28, 2025 December 29, 2024 Financing activities: Proceeds from the issuance of common stock, net of issuance costs $ 555.9 $ 330.7 Borrowings under credit facility — 10.0 Repayments under credit facility, term loan and other debt (185.0) (52.5) Payments of employee taxes withheld from share-based awards (20.0) (17.4) Payments under finance leases (1.8) (1.4) Proceeds from shares issued under equity plans 9.9 8.2 Proceeds from state grant for capital construction 1.7 — Net cash provided by financing activities $ 360.7 $ 277.6 Net cash provided by financing activities was $360.7 million for the year ended December 28, 2025, which included employee stock purchase plan receipts of $9.9 million and net proceeds from the issuance of common stock of approximately $555.9 million (see Note 10 to the accompanying consolidated financial statements).
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.
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.
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.
The following table summarizes our contractual obligations and other commitments as of December 28, 2025, and the effect such obligations could have on our liquidity and cash flow in future periods (in millions): Total Due within 1 Year Purchase orders 479.7 293.8 Operating leases 52.8 14.8 Finance leases 153.3 9.1 Joint venture contributions 82.3 55.0 Total contractual cash obligations and commitments $ 768.1 $ 372.7 As of December 28, 2025, we have $11.5 million of standby letters of credit outstanding.
Presidential and Congressional elections occurred, with Donald Trump being elected President of the United States and the Republican party controlling the Senate and the House of Representatives. President Trump took office on January 20, 2025, and the new Congress and Senate were seated on January 3, 2025.
Industry Background On November 5, 2024, the U.S. Presidential and Congressional elections occurred, with Donald Trump being elected President of the United States, and the Republican party controlling both the U.S. Senate and the U.S. House of Representatives.
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.
Revenues by reportable segment for the years ended December 28, 2025 and December 29, 2024 are as follows (in millions): 2025 2024 $ Change % Change Kratos Government Solutions Service revenues $ 460.3 $ 416.3 $ 44.0 10.6 % Product sales 594.5 449.5 145.0 32.3 % Total Kratos Government Solutions 1,054.8 865.8 189.0 21.8 % Unmanned Systems Service revenues 8.7 7.1 1.6 22.5 % Product sales 283.3 263.4 19.9 7.6 % Total Unmanned Systems 292.0 270.5 21.5 7.9 % Total revenues $ 1,346.8 $ 1,136.3 $ 210.5 18.5 % Total service revenues $ 469.0 $ 423.4 $ 45.6 10.8 % Total product sales 877.8 712.9 164.9 23.1 % Total revenues $ 1,346.8 $ 1,136.3 $ 210.5 18.5 % Revenues increased $210.5 million to $1,346.8 million for the year ended December 28, 2025 from $1,136.3 million for the year ended December 29, 2024.
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).
Margins in the US segment decreased to 17.4% for the year ended December 28, 2025 from 17.9% for the year ended December 29, 2024, primarily due to the less favorable mix of revenues and from the impact of increased labor and material costs in the year ended December 28, 2025, which are not recoverable under multi-year fixed price contracts.
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.
As of December 28, 2025, we had contractual commitments to make payments under finance and operating leases, repay obligations related to agreements to purchase goods and services and settle tax and other liabilities.
(“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.
Product sales increased $164.9 million to $877.8 million for the year ended December 28, 2025 from $712.9 million for the year ended December 29, 2024, primarily as a result of increased production activity in our KGS and in our US segments.
Net cash used in financing activities was $30.7 million for the year ended December 31, 2023, which included $5.0 million of principal payments on our $200 million Term Loan A, a $94.0 million payment (partially offset by a $69.0 million draw) on the new Revolving Credit Facility, and a $2.0 million payment to settle debt acquired related to the STS acquisition, payroll withholding taxes paid from vested restricted stock traded for taxes of $3.7 million and payments made on financing lease obligations of $1.5 million.
These proceeds were partially offset by $185.0 million of principal payments on the Term Loan A under our Credit Agreement, which was fully extinguished on July 2, 2025, payroll withholding taxes paid from vested restricted stock traded for taxes of $20.0 million and payments made on financing lease obligations of $1.8 million.
On February 18, 2022, we completed the refinancing of our then-outstanding $90 million revolving credit facility and $300 million of Senior Secured Notes, with a new 5-year $200 million Revolving Credit Facility and 5-year $200 million Term Loan A issued pursuant to the 2022 Credit Facility. We incurred debt issuance costs of $3.3 million associated with the 2022 Credit Facility.
We incurred debt issuance costs of $3.3 million associated with the 2022 Credit Facility. On July 2, 2025, we extinguished all outstanding Term Loan A debt under the 2022 Credit Facility.
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.
A summary of our net cash provided by (used in) operating activities from our Consolidated Statements of Cash Flows is as follows (in millions): Year Ended December 28, 2025 December 29, 2024 Net cash provided by (used in) operating activities $ (42.1) $ 49.7 Our net cash used in operating activities was $42.1 million for the year ended December 28, 2025, primarily as a result of the net income of $22.0 million and noncash charges of $103.9 million which primarily includes stock compensation, depreciation and amortization offset by changes in net working capital accounts of $168.0 million which includes increases in billed and unbilled receivables of $126.0 million and increases in inventory of $19.3 million.
The decrease in other expense, net, of $17.5 million was primarily related to a decrease in interest expense of $6.5 million, resulting from reduced debt balances and an increase in interest income of $11.0 million during the year ended December 29, 2024, resulting from the increased cash balances following the February 27, 2024 public stock offering which raised approximately $331.2 million in net proceeds.
The increase in other income (expense), net, of $10.9 million was primarily related to the reduction of interest expense from the payoff of the Term Loan A under our Credit Agreement on July 2, 2025, an increase in interest income on cash balances which increased following our June 27, 2025 public offering, and due to the receipt of a research and development tax related refund received by one of the Company’s international businesses during the year ended December 28, 2025.
We use our operating cash flow to finance trade accounts receivable, fund necessary increases in inventory and internal investments related to non-recurring engineering and software development, fund capital expenditures, fund our IR&D investments and our ongoing operations, service our debt and make strategic acquisitions.
We use our operating cash flow to finance trade accounts receivable, fund necessary increases in inventory including increasing inventory stock levels and advance buys in larger lot sizes to gain pricing benefits where possible, in order to mitigate the impact of supply chain disruptions and price increases, utilize working capital to fund revenue growth, fund prepayments required for long lead items necessary for production, fund internal investments of engineering and software development costs, fund capital expenditures, our internal research and development investments and our ongoing operations, service our debt, enhance our security infrastructure, including cyber security infrastructure, and make strategic acquisitions.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAccordingly, a strengthening of the U.S. dollar (“USD”) or a strengthening of certain foreign currencies, such as the Israeli Shekel, will negatively impact revenues and gross margins expressed in consolidated USD terms.
Biggest changeExposure to market risk for foreign currency exchange rate risk is related to receipts from customers, payments to suppliers and intercompany loans denominated in foreign currencies. Accordingly, a strengthening of the U.S. dollar (“USD”) or a strengthening of certain foreign currencies, such as the Israeli Shekel, will negatively impact revenues and gross margins expressed in consolidated USD terms.
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.
Based on our overall foreign currency rate exposure as of December 28, 2025, 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.
We are exposed to interest rate risk, primarily through our borrowing activities under the Credit Agreement discussed under “ Liquidity and Capital Resources” above. Based on our current outstanding balances, a 1% change in the SOFR would not materially impact our financial position and results of operations.
We are exposed to interest rate risk, primarily through any future borrowings under the Credit Agreement discussed under “ Liquidity and Capital Resources” above. Based on our current outstanding balances, a 1% change in the SOFR would not materially impact our financial position and results of operations.
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.
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 the accompanying Consolidated Financial Statements for information on our outstanding derivative financial instruments as of December 28, 2025.
Our 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.
Our cash and cash equivalents as of December 28, 2025 were $560.6 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 28, 2025.
We currently enter into limited foreign currency forward contracts to manage foreign currency exchange rate risk because exchange rate fluctuations have had, and we expect will have, minimal impact on our operating results and cash flows.
From time to time, we enter into limited foreign currency forward contracts to manage foreign currency exchange rate risk because exchange rate fluctuations have had, and we expect will have, minimal impact on our operating results and cash flows. We had no such contracts outstanding as of December 28, 2025.
Removed
We are also exposed to market risk due to the current phase out of LIBOR and the subsequent replacement with alternative reference rates, including SOFR. Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely impact our interest rates and related interest expense.
Removed
Risks and uncertainties related to the LIBOR phase out are further described in Part I, Item 1A.
Removed
Risk Factors- "The discontinuance of LIBOR and the replacement of LIBOR with an alternative reference rate may adversely affect our borrowing costs and could impact our business and results of operations.” Exposure to market risk for foreign currency exchange rate risk is related to receipts from customers, payments to suppliers and intercompany loans denominated in foreign currencies.

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