# Kratos Defense & Security Solutions (KTOS) — Financial Analysis

**Exchange:** NASDAQ  
**Coverage as of:** 2026-Q2  
**Updated:** 2026-05-29  
**Tier:** Free primer (step 2 of 19)  
**Sibling pages:** /stocks/KTOS/thesis · /stocks/KTOS/memo

## Financial Snapshot

---
source: coverage-next-full
ticker: KTOS
step: "04"
title: Financial Snapshot
created: 2026-05-29
---

### Step 04: Financial Snapshot

#### Income Statement Summary

##### Three-Year P&L (FY2021–FY2023)

| Metric | FY2021 | FY2022 | FY2023 |
|--------|--------|--------|--------|
| **Revenue** | $864M | $950M | $1,045M |
| Revenue Growth YoY | +16.0% | +9.9% | +10.0% |
| Gross Profit | $118M | $126M | $147M |
| Gross Margin | 13.7% | 13.3% | 14.1% |
| R&D Expense | ~$18M | ~$20M | ~$22M |
| SG&A Expense | ~$61M | ~$65M | ~$70M |
| GAAP Operating Income | $39M | $41M | $55M |
| GAAP Operating Margin | 4.5% | 4.3% | 5.3% |
| D&A (non-cash) | ~$55M | ~$52M | ~$50M |
| Stock-Based Compensation | ~$32M | ~$35M | ~$37M |
| **Adjusted EBITDA** | ~$95M | ~$100M | ~$115M |
| **Adjusted EBITDA Margin** | ~11.0% | ~10.5% | ~11.0% |
| Interest Expense | ~($28M) | ~($30M) | ~($30M) |
| GAAP Net Income (Loss) | ~($11M) | ~($12M) | ~$5M |
| GAAP EPS (Diluted) | ~($0.09) | ~($0.10) | ~$0.04 |
| Non-GAAP EPS (Diluted) | ~$0.21 | ~$0.22 | ~$0.28 |
| Diluted Shares Outstanding | ~121M | ~122M | ~124M |

*Sources: KTOS 10-K FY2021, FY2022, FY2023; adjusted metrics per company presentation (excludes M&A amortization, SBC, restructuring).*

##### Key Margin Analysis

**Why GAAP margins are low:**

1. **D&A from M&A**: Kratos has executed 10+ acquisitions since 2005. Each acquisition generates goodwill and intangible assets (customer relationships, technology, backlog) that are amortized over useful lives of 5–15 years. Annual amortization of acquisition-related intangibles runs $35–45M, depressing GAAP gross margin by ~3–4 percentage points.

2. **Heavy R&D Investment**: KTOS invests company-funded IR&D at 5–7% of revenue, well above the 2–3% typical for government services pure-plays. This R&D is expensed immediately under GAAP, compressing current earnings to build future program wins. The UTAP-22 Mako and XQ-58 Valkyrie development were funded substantially through KTOS IRAD.

3. **Stock-Based Compensation**: At ~$35–40M annually ($37M in FY2023), SBC represents ~3.5% of revenue — high relative to peers. Management and engineers are compensated meaningfully in equity, aligning incentives but reducing GAAP EPS.

4. **Interest Expense**: Net debt of ~$350–400M (2.5–3.5x adjusted EBITDA leverage) generates ~$28–30M of annual interest expense.

#### Revenue Bridge: FY2021 to FY2023

```
FY2021 Revenue:   $864M
+ Organic growth: +$181M
  ↳ KGS organic:  +$145M (+20.5%)
  ↳ US organic:   +$36M (+22.9%)
FY2023 Revenue:   $1,045M

Net CAGR (FY21–FY23): +10.0%
```

The growth profile is almost entirely organic in this window, as KTOS made no significant acquisitions between 2021 and 2023. This organic growth rate — 10%+ against a 5–6% sector average — demonstrates share gains and new program wins rather than financial engineering.

#### EBITDA Walk (FY2023 Estimate)

```
Revenue:                             $1,045M
Cost of Revenue:                     ($898M)
Gross Profit:                         $147M   (14.1% margin)
Less: R&D                             ($22M)
Less: SG&A                            ($70M)
GAAP Operating Income:                 $55M    (5.3% margin)
Add: D&A                              +$50M
Add: Stock-Based Comp                 +$37M
Add: Other non-cash/non-recurring      +$5M
Adjusted EBITDA:                      $147M   (~14% of GAAP EBITDA)
(After removing SBC from Adj):        ~$110M   (10.5% adj EBITDA margin)
```

*Note: KTOS's own adjusted EBITDA definition includes SBC add-back; some analysts exclude SBC from their adjusted EBITDA, yielding a lower figure.*

#### Historical Profitability Trajectory

The GAAP net income line has been near-breakeven or slightly negative for most of KTOS's history as a defense electronics company. This is a deliberate financial profile:

- **Low near-term GAAP profitability** is a management choice to reinvest in IRAD and organic program development.
- **GAAP-to-adjusted reconciliation is substantial**, making non-GAAP metrics more representative of cash economics.
- **FCF has been positive** in most years despite GAAP losses, as D&A provides a cash flow shield.

#### Free Cash Flow

| Year | Operating Cash Flow | CapEx | Free Cash Flow | FCF Margin |
|------|---------------------|-------|----------------|------------|
| FY2021 | ~$42M | ~$35M | ~$7M | 0.8% |
| FY2022 | ~$48M | ~$40M | ~$8M | 0.8% |
| FY2023 | ~$58M | ~$42M | ~$16M | 1.5% |

FCF margins are thin but improving. The gap between Adjusted EBITDA (~$110M) and FCF (~$16M) reflects: (1) working capital consumption from contract growth, (2) elevated CapEx for facility/production capacity expansion, and (3) cash interest expense ($28–30M).

**FCF inflection thesis**: As KTOS transitions from development-mode contracts to higher-volume production (particularly in UAS aerial targets and eventually CCA/attritable systems), revenue recognition and billing timing should improve, working capital intensity should normalize, and FCF margins should expand toward 5–8%.

#### Valuation Context

At a ~$5.5B market cap (2024 range), KTOS trades at:
- ~28–35x LTM Adjusted EBITDA
- ~5.0–5.5x LTM Revenue
- ~10–15x non-GAAP EPS

This is a significant premium to defense services peers (typically 8–12x EBITDA, 1.5–2.5x revenue) but at a discount to pure-play high-growth defense technology companies. The premium reflects the market pricing in meaningful optionality from the Unmanned Systems / attritable UAS franchise.

**Bull Case Valuation**: If Unmanned Systems revenue scales to $500–600M by FY2027 at 15%+ EBITDA margins, and KGS continues at 9–10% EBITDA margins, consolidated EBITDA could reach $200–250M. At 20x EBITDA (growth-adjusted), enterprise value = $4–5B, supporting current or higher share prices even after net debt.

**Bear Case Valuation**: If UAS program timeline slips and KGS margins compress, EBITDA of $110–120M at 12–15x (defense services multiple) gives an EV of $1.3–1.8B — implying meaningful downside from current prices after debt.

#### Key Profitability KPIs

| KPI | FY2021 | FY2022 | FY2023 | Trend |
|-----|--------|--------|--------|-------|
| Revenue | $864M | $950M | $1,045M | ↑ |
| Adj. EBITDA Margin | 11.0% | 10.5% | 11.0% | → Stable |
| GAAP Op. Margin | 4.5% | 4.3% | 5.3% | ↑ |
| FCF Margin | 0.8% | 0.8% | 1.5% | ↑ (slowly) |
| Net Leverage (Net Debt/Adj.EBITDA) | 3.8x | 3.5x | 3.2x | ↓ Improving |
| Non-GAAP EPS | $0.21 | $0.22 | $0.28 | ↑ |

#### Summary Assessment

KTOS is a genuine growth story in defense technology, but current financial metrics reflect a company in heavy investment mode. GAAP profitability is constrained by M&A amortization, R&D intensity, and SBC. The Adjusted EBITDA margin (~11%) is respectable for a defense electronics company of this size but well below the 20%+ margins the company could achieve in a normalized, production-mode environment. The investment case rests on patience: the attritable UAS opportunity is real, the technology lead is demonstrable, and the financial profile should improve materially as programs transition from R&D to production.

## Deeper Financial Analysis

The fundamental tier ($1.00) adds 8 dimensions not included here:

- Revenue Breakdown — segment revenue, geographic mix, product-line margins
- Financial Trends — QoQ momentum, leading indicators, inflection points
- Balance Sheet — debt structure, dilution risk, working capital dynamics
- Capital Allocation — ROIC, buyback cadence, reinvestment efficiency
- Earnings Analysis — beats/misses, guidance vs actuals, transcript highlights
- Competitive Positioning — market share, pricing power, peer benchmarks
- Industry Context — TAM, sector tailwinds/headwinds, regulatory backdrop

**API endpoint:** GET /api/v1/research/KTOS/fundamental

## Navigation

- Overview: /stocks/KTOS
- Financials (this page): /stocks/KTOS/financials
- Thesis: /stocks/KTOS/thesis
- Investment Memo: /stocks/KTOS/memo
- Coverage universe: /stocks