Kratos Defense & Security Solutions (KTOS) Q2 2025 earnings summary

Executive summary

• Q2 2025 revenue reached $351.5 million, up 17.1% year-over-year, with strong organic growth in defense rocket support (116.6%) and C5ISR (25.4%), but Unmanned Systems revenue declined due to prior-year international drone shipments not recurring.

• Net income for Q2 2025 was $2.9 million, down from $7.9 million in Q2 2024, with diluted EPS of $0.02 and adjusted EPS of $0.11, reflecting margin pressure from higher labor and material costs.

• Bookings for Q2 2025 were $257 million, with a consolidated book-to-bill ratio of 0.7, but the trailing twelve-month book-to-bill was 1.2 and backlog reached $1.414 billion, supported by a $13 billion bid and proposal pipeline.

• Major program wins included the $750 million Poseidon program and DMOS down-selection, with strategic investments in production positioning the company for rapid revenue recognition upon contract awards.

• The company is benefiting from global defense spending increases, U.S. and NATO procurement reforms, and a generational recapitalization of defense infrastructure.

Financial highlights

• Adjusted EBITDA for Q2 2025 was $28.3 million, above guidance but down from $29.9 million in Q2 2024; adjusted EBITDA margin was 8.1%.

• Gross margin for Q2 2025 was 21.0%, down from 25.7% year-over-year, impacted by higher costs and less favorable product mix.

• Cash and cash equivalents rose to $783.6 million at June 29, 2025, from $329.3 million at year-end, mainly due to a $555.9 million equity raise.

• Cash flow used in operations was $10.6 million in Q2; free cash flow usage was $31.1 million after $20.5 million in capital expenditures.

• Days sales outstanding improved to 103 days from 104 days sequentially.

Outlook and guidance

• Full-year 2025 revenue guidance raised to $1.29–$1.31 billion, with adjusted EBITDA guidance increased to $125–$135 million.

• Q3 2025 revenue guidance is $315–$325 million, with adjusted EBITDA expected at $29–$34 million.

• 2026 base case organic revenue growth forecast of 13–15% over 2025 is substantially covered by existing programs, with margin/EBITDA rate expected to increase 100–150 basis points.

• Management expects increased EBITDA margins in 2026 and beyond as higher-margin programs ramp and lower-margin contracts are renegotiated.

• Continued elevated capital expenditures planned for facility and production expansion, especially in Rocket Systems and Hypersonic businesses.