Kratos Defense & Security Solutions (KTOS) Q1 2025 earnings summary

Executive summary

• Q1 2025 revenue reached $302.6 million, up 9.2% year-over-year, with strong organic growth in microwave products, C5ISR, defense rocket support, and contributions from the Norden Millimeter acquisition.

• Net income increased to $4.5 million from $1.3 million, with GAAP EPS at $0.03 and adjusted EPS at $0.12.

• Adjusted EBITDA was $26.7 million, above expectations, driven by higher margin revenues, partially offset by increased costs in unmanned systems.

• Book-to-bill ratio was 1.2 for Q1 and the last 12 months, with bookings of $365.6 million and backlog rising to $1.51 billion.

• Major growth drivers identified as hypersonics, engines/propulsion, and microwave electronics, with tactical drones as a potential step-change opportunity.

Financial highlights

• Q1 2025 revenue: $302.6 million (guidance: $285–$295 million), up 9.2% year-over-year.

• Adjusted EBITDA: $26.7 million (guidance: $20–$24 million); Adjusted EBITDA margin: 8.8%.

• Free cash flow used: $51.8 million, including $22.6 million in capex.

• Cash and cash equivalents were $263.7 million at quarter-end, down from $329.3 million at year-end.

• Gross margin was 24.3%, down from 25.6% year-over-year.

Outlook and guidance

• 2025 organic revenue growth forecast at ~10%, with 2026 at 13–15%.

• Affirmed full-year 2025 guidance; Q2 guidance reflects downtime from Israeli facility move and higher material costs.

• 48% of backlog is anticipated to convert to revenue in 2025, with an additional 25% in 2026.

• Hypersonics, engines, and microwave electronics expected to be top growth contributors; tactical drones could drive a step-change if major awards are won.

• No must-win programs required for growth; most key programs already won or sole-sourced.