Breaking Down Kratos Defense & Security Solutions, Inc. (KTOS) Financial Health: Key Insights for Investors

You're looking at Kratos Defense & Security Solutions, Inc. (KTOS) right now, and the question isn't just about their next quarter-it's whether their high-growth bets in unmanned systems and hypersonics are finally translating to consistent bottom-line performance. Honestly, the latest numbers from Q3 2025 are defintely encouraging: the company reported revenue of $347.6 million, a strong beat driven by 23.7% organic growth, and subsequently raised their full-year 2025 revenue guidance to a range of $1.32 billion to $1.33 billion. This growth isn't just noise; it's grounded in a massive, forward-looking consolidated backlog of $1.480 billion and a record bid pipeline of $13.5 billion, signaling sustained demand for their affordable tactical drones like the Valkyrie. The challenge remains converting that pipeline into higher-margin profit, but with Q3 GAAP Net Income hitting $8.7 million and Adjusted EPS at $0.14, the trajectory is clear: Kratos is moving from a high-investment story to a scaled-production reality, and you need to understand the near-term risks in capital expenditure versus the sheer opportunity in next-generation defense tech.

Revenue Analysis

You need to know where the money is coming from at Kratos Defense & Security Solutions, Inc. (KTOS) because the growth story is segment-specific. The direct takeaway is that the company is on track to hit a full-year 2025 revenue of between $1.320 billion and $1.330 billion, fueled by strong organic growth, especially in its Unmanned Systems (KUS) segment.

The primary revenue streams for Kratos Defense & Security Solutions, Inc. flow through two main segments: Kratos Government Solutions (KGS) and Unmanned Systems (KUS). For the third quarter of 2025, KGS was the clear workhorse, contributing about 74.9% of the total quarterly revenue of $347.6 million. The United States remains the dominant market, accounting for 81.88% of total revenue in Q2 2025. Honestly, this US-centric revenue base is a double-edged sword: it offers stability from the massive U.S. defense budget, but also concentrates geopolitical risk.

Here's the quick math on the segment breakdown for Q3 2025 revenue of $347.6 million:

• Kratos Government Solutions (KGS): $260.4 million
• Unmanned Systems (KUS): $87.2 million

Growth Drivers and Segment Shifts

The year-over-year revenue growth is defintely strong, with the trailing twelve months (TTM) ending September 2025 showing a 14% increase, bringing TTM revenue to approximately $1.28 billion. More recently, Q3 2025 saw a total revenue increase of 26.0% over Q3 2024, with organic growth-meaning growth from existing operations, not acquisitions-hitting 23.7%. That's a significant acceleration.

The most significant changes are happening inside the segments. While KGS is the largest contributor, the KUS segment is showing explosive organic growth, up 35.8% in Q3 2025. Within KGS, the growth is being driven by critical, high-demand areas. For example, the Defense Rocket Systems business saw organic revenue growth of 47.2%, and the Space, Training and Cyber businesses grew by 21.2% compared to Q3 2024. This tells you where the defense spending priorities are right now: unmanned platforms and next-generation missile and space capabilities. You need to keep an eye on the book-to-bill ratio, which was a healthy 1.2 to 1.0 in Q3 2025, signaling that new orders are outpacing revenue recognized. For a deeper dive on who is betting on this growth, check out Exploring Kratos Defense & Security Solutions, Inc. (KTOS) Investor Profile: Who's Buying and Why?

The table below shows the segment contribution and growth for the most recent quarter, which maps out the current revenue landscape.

What this estimate hides is the working-capital strain that comes with such rapid growth, which is a near-term risk to monitor. Finance: track the accounts receivable collection cycle closely.

Profitability Metrics

You're looking for a clear picture of Kratos Defense & Security Solutions, Inc. (KTOS) profitability, and the data tells a story of high-growth investment still pressuring the bottom line. The company's margins are currently thin, but the trajectory is pointing toward significant future expansion driven by their next-generation defense programs.

For the third quarter of 2025, Kratos Defense & Security Solutions reported a strong top-line with $347.6 million in revenue, reflecting a 23.7% organic growth year-over-year. But when you look at how much of that revenue they kept, the numbers are modest. Here's the quick math on their Q3 2025 performance:

• Operating Profit Margin: 2.04% ($7.1 million operating income on $347.6 million revenue).
• Net Profit Margin (GAAP): 2.50% ($8.7 million net income on $347.6 million revenue).

That 2.50% net margin for the quarter is a defintely positive sign, showing an improvement in their ability to convert sales to profit, even as they ramp up production and R&D spending.

Operational Efficiency and Cost Management

The gross profit margin is the first check on operational efficiency-how well a company manages the direct costs of its products and services. Kratos Defense & Security Solutions' recent Gross Margin stands at approximately 23.61%. This ratio is critical because it shows the cost of goods sold (COGS) is still eating up over three-quarters of their revenue. While this is typical for a defense contractor heavily investing in new, complex programs like unmanned systems and hypersonics, it highlights a key risk.

The long-term trend in profitability has been challenging, with the Gross Margin declining at an average rate of -1.4% per year and the Operating Margin declining at an average of -16.5% annually over the last five years. This compression is due to a mix of fixed-price contracts being hit by inflation, and heavy, necessary investment in research and development (R&D) and production capacity to meet future demand. This is a classic growth-stage trade-off: sacrifice near-term margin for long-term market dominance.

Comparison with Industry Averages

To be fair, Kratos Defense & Security Solutions' margins are significantly lower than the industry average for the Aerospace & Defense sector, which is dominated by major primes. This gap is the core of the investment thesis.

Here is how Kratos Defense & Security Solutions stacks up against the broader industry as of November 2025:

The market is clearly pricing in future success, as their Price-to-Sales (P/S) Ratio of 10.8x is still well above the sector average of 3.2x. The opportunity is that analysts expect the Net Margin to nearly quadruple, rising from 1.2% to 5.2% by 2028, as key programs like tactical drones move from development to high-volume production. That's the pivot point you need to watch. If you want to dive deeper into the full financial picture, you can check out the full analysis: Breaking Down Kratos Defense & Security Solutions, Inc. (KTOS) Financial Health: Key Insights for Investors.

Next Step: Portfolio Manager: Model a scenario where KTOS achieves a 5.0% Net Margin by Q4 2027 to assess the potential stock price impact.

Debt vs. Equity Structure

You're looking at Kratos Defense & Security Solutions, Inc. (KTOS) because its technology-driven defense portfolio is compelling, but the capital structure-how it funds its growth-is just as critical. The direct takeaway here is that Kratos is a very lightly leveraged company, favoring equity financing to power its expansion, which is a sign of financial strength and flexibility.

As of the third quarter of 2025, Kratos Defense & Security Solutions, Inc. operates with a remarkably low level of financial leverage. Its Debt-to-Equity (D/E) ratio is approximately 0.07 (Trailing Twelve Months, Q3 2025). This means that for every dollar of shareholder equity, the company carries only about seven cents of debt. That's a strong balance sheet.

To put that into perspective, the average Debt-to-Equity ratio for the broader Aerospace & Defense industry is around 0.38 as of November 2025. Kratos is operating at a fraction of the industry's typical leverage, giving it significant headroom for future borrowing should a large, strategic opportunity arise. This low debt profile is defintely a strategic advantage in a capital-intensive sector.

Here's the quick math on their core obligations based on mid-2025 data:

The company's total debt of $270 Million is manageable against its equity base of nearly $2 Billion. The bulk of this is long-term, which is common for funding multi-year defense programs and capital expenditures.

Kratos Defense & Security Solutions, Inc. has been very clear about its preference for equity funding to fuel its growth strategy. In June 2025, the company completed a public offering of common stock, which generated net proceeds of approximately $556 Million. This significant capital injection was earmarked for a few key areas:

• Funding capital expenditures to scale operations for National Security programs.
• Financing strategic acquisitions.
• General corporate purposes, including the pay-down of existing debt.

This action shows a deliberate balancing act: they used equity to both reduce debt and fund high-growth, mission-critical programs, ensuring they don't saddle the business with high interest payments while scaling up. They are prioritizing a strong balance sheet to support their vision, which you can read more about here: Mission Statement, Vision, & Core Values of Kratos Defense & Security Solutions, Inc. (KTOS).

What this estimate hides is the potential for future debt issuance to fund a very large acquisition, but their current conservative structure gives them the capacity to do so without alarming the market. The low D/E ratio is a green light for flexibility.

Next step: Check the Q4 2025 earnings release for the final debt pay-down figures resulting from the June equity raise.

Liquidity and Solvency

You want to know if Kratos Defense & Security Solutions, Inc. (KTOS) has enough near-term cash to cover its bills, and the answer, on paper, is a resounding yes. The company's liquidity ratios for the trailing twelve months (TTM) ending June 2025 show a very strong position, but you still need to look deeper into the cash flow statement to understand the full picture.

The core of liquidity is the Current Ratio, which measures current assets against current liabilities. For Kratos Defense & Security Solutions, Inc., this ratio is exceptionally high at approximately 5.91. This means the company has nearly six dollars in current assets for every one dollar of current liabilities, a sign of low immediate default risk. The Quick Ratio, which is a tougher test because it strips out inventory, is also very strong at around 4.89. This high ratio is driven by a significant cash position of $783.6 million in Cash & Equivalents.

• Current Ratio: 5.91 (TTM June 2025)
• Quick Ratio: 4.89 (TTM June 2025)
• High ratios signal robust short-term financial health.

Here's the quick math on working capital: Total Current Assets of $1,429 million minus Total Current Liabilities of approximately $241.7 million results in a Working Capital surplus of roughly $1,187.3 million. This massive buffer is a major strength, giving Kratos Defense & Security Solutions, Inc. substantial flexibility to fund its growth, especially in new programs like hypersonics and tactical drones. This is defintely a balance sheet strength.

Still, a high ratio doesn't tell the whole story; you must look at how cash is actually moving. The cash flow statement for the TTM period ending September 30, 2025, shows a challenging trend: Cash from Operating Activities was a negative -$8.60 million. This negative operating cash flow is a key concern, as it suggests the core business is currently consuming cash rather than generating it. For example, in Q3 2025 alone, cash flow used in operations was $13.3 million.

Management attributes this operating cash drain to working capital needs driven by rapid revenue growth, production ramps, and development investments, which tie up cash in accounts receivable and inventory. This is a common growing pain for defense contractors with long-cycle contracts. Cash Flow from Investing Activities was a net outflow of -$84.70 million, primarily due to Capital Expenditures (CapEx) of $58.20 million to expand capacity for future programs. This investment is necessary, but it adds to the cash burn.

The company offset these outflows with a significant Cash Flow from Financing Activities of $357.20 million for the TTM ending September 30, 2025. This inflow, likely from a recent equity or debt offering, is what has inflated the cash balance and, consequently, the current and quick ratios. While the ratios look great, the reliance on financing to cover operating and investing cash needs is a liquidity risk that needs to be monitored. The true test will be if the negative operating cash flow reverses as the new contracts move past the initial investment phase and start generating positive cash returns, which management expects in the latter half of 2025 and into 2026. For a deeper dive into who is funding this growth, you can check out Exploring Kratos Defense & Security Solutions, Inc. (KTOS) Investor Profile: Who's Buying and Why?

Valuation Analysis

You're looking at Kratos Defense & Security Solutions, Inc. (KTOS) and wondering if the market has gotten ahead of itself, and honestly, the headline valuation metrics suggest it has. The company is defintely a growth-story stock, not a value play, and the current multiples reflect high expectations for its Unmanned Systems and satellite communication segments.

The core takeaway is that Kratos Defense & Security Solutions appears overvalued on traditional earnings metrics, but analysts still see significant upside based on forward-looking growth. Your decision hinges on how much you trust the defense modernization and drone demand narrative to materialize into profits over the next few years. It's a classic high-growth, high-multiple scenario.

Is Kratos Defense & Security Solutions, Inc. (KTOS) Overvalued or Undervalued?

When we look at the standard valuation ratios for Kratos Defense & Security Solutions as of November 2025, the picture is one of extreme optimism. The Price-to-Earnings (P/E) ratio is a staggering 546.99. Here's the quick math: the S&P 500 average P/E is typically in the low to mid-twenties, so a P/E over 500 tells you investors are paying for future earnings, not current ones. The Price-to-Book (P/B) ratio is also elevated at 5.89, which is well above the aerospace and defense industry average.

The Enterprise Value-to-EBITDA (EV/EBITDA) ratio, which helps normalize for capital structure and non-cash items, sits at a high 163.64. This metric compares the company's total value (equity plus debt, minus cash) to its operating cash flow proxy (EBITDA). A multiple this high suggests the market expects massive, imminent growth in operating profits. This stock is priced for perfection.

• P/E Ratio: 546.99 (Extremely high, signals growth pricing).
• P/B Ratio: 5.89 (High, premium on book value).
• EV/EBITDA Ratio: 163.64 (Very high, anticipating huge operating profit growth).

Stock Performance and Analyst Sentiment

The stock price trend over the last 12 months supports the high-growth narrative, with the stock price increasing by a massive 163.58%. The latest closing price around $69.14 (as of November 21, 2025) is a long way from its 52-week low of $23.90, but also significantly below its recent all-time high of $112.57 set in October 2025. The volatility is real. This kind of run-up is what pushes valuation multiples to the stratosphere, but also creates significant risk if the market narrative shifts.

Kratos Defense & Security Solutions does not pay a dividend. The Trailing Twelve Months (TTM) dividend payout is $0.00, resulting in a 0.00% dividend yield. This is typical for a company focused on reinvesting all capital back into R&D and scaling its high-tech defense programs, like its drone and satellite technology, a key factor in its Exploring Kratos Defense & Security Solutions, Inc. (KTOS) Investor Profile: Who's Buying and Why?

Despite the high valuation, the analyst community remains generally bullish. The consensus rating is a Moderate Buy, with a consensus price target ranging from about $79.71 to $99.80. The most bullish target is $125.00. To be fair, even the most bearish target is around $80.00, which is still a decent premium over the current price. This suggests analysts believe the company will grow into its valuation, but any delay in contract execution or margin expansion will be punished. The market is betting on the pipeline.

Risk Factors

You're looking at Kratos Defense & Security Solutions, Inc. (KTOS) because of its high-growth potential in unmanned systems and hypersonics, but you need to see the real risks behind the headlines. The biggest near-term risk isn't a lack of demand-it's cash conversion and margin pressure from the very growth that excites us.

The company is making massive, necessary upfront investments to capture a generational recapitalization of the U.S. defense industrial base. Still, this strategy creates a short-term financial squeeze that you must understand. The core issue is timing: the company pays for materials and facilities now, but the government pays later.

Here's the quick math on the financial risk: Kratos Defense & Security Solutions, Inc. used $13.3 million in operating cash flow and $41.3 million in free cash flow in the third quarter of 2025. This cash burn is tied directly to a working capital build-up, with Days Sales Outstanding (DSO) rising to 111 days. That's a long time to wait for payment, and it requires careful management.

• Cash Conversion Risk: Working capital build-up is a direct drag on free cash flow.
• Margin Pressure: Fixed-price legacy contracts are getting squeezed by rising material costs.
• Contract Timing: Delays in large contract awards could strain cash flow.

Operational and Strategic Risks from 2025 Filings

The operational risks are classic for a defense contractor in a growth phase. The Q3 2025 reports highlight persistent material and subcontractor cost increases, which are particularly painful on older, fixed-price contracts where Kratos Defense & Security Solutions, Inc. can't easily pass the cost to the customer. Plus, the company is spending an elevated amount on bid and proposal costs to win new business, which also weighs on near-term margins. This is the cost of chasing a $13.5 billion bid and proposal pipeline.

Strategically, the company's focus on being a low-cost, non-traditional defense prime contractor is a double-edged sword. To meet anticipated demand, Kratos Defense & Security Solutions, Inc. is forecasting capital expenditures between $105 million and $115 million for the full 2025 fiscal year. These investments-like the new Propulsion Manufacturing Facility in Auburn Hills, Michigan, and the expanded Microwave Electronics facility in Jerusalem-are high-reward, but they increase downside exposure if the expected contract flow slows down. You're betting on the contracts coming through.

Mitigation and Actionable Insights

Management is defintely aware of these issues. Their mitigation strategy is essentially to execute flawlessly on their current backlog and convert their massive pipeline into funded programs. They are actively focused on the collection of increased accounts receivable and the recovery of working capital timing.

Operationally, Kratos Defense & Security Solutions, Inc. is using advanced material purchasing to get ahead of supply chain disruptions and has made investments in new facilities to achieve the economies of scale that will eventually improve margins on their high-volume production programs. The entire investment thesis rests on the belief that customers, facing geopolitical tensions, will choose Kratos Defense & Security Solutions, Inc.'s existing, proven, and affordable systems-like the Valkyrie drone-rather than spend billions on new, long-term government-funded R&D programs.

If you want a deeper dive into the numbers, you can read the full analysis: Breaking Down Kratos Defense & Security Solutions, Inc. (KTOS) Financial Health: Key Insights for Investors.

Growth Opportunities

You're looking at Kratos Defense & Security Solutions, Inc. (KTOS) because you see the tailwinds in defense spending, and you're right to focus on their unique position. The company is defintely poised for significant growth, but it's not just about the macro environment; it's about their deliberate focus on affordable, next-generation technology that the Department of Defense (DoD) is prioritizing.

The core of Kratos Defense & Security Solutions, Inc.'s future growth is tied to its dual focus on high-performance, low-cost systems. This strategy is paying off in their two main segments: Unmanned Systems and Government Solutions (KGS). They are capitalizing on the shift away from expensive, exquisite platforms toward attritable (disposable) drones and rapid-development programs.

• Unmanned Systems: Scaling production of high-performance, low-cost jet drones like the XQ-58A Valkyrie.
• Hypersonic Systems: The hypersonic franchise, including the MACH-TB program, is a primary growth engine, with new systems like the Dark Fury seeing successful missions.
• Defense Rocket Systems: This area saw a massive organic growth surge of 47.2% in the third quarter of 2025, showing strong demand for their propulsion and rocket support services.

Financial Projections: Near-Term View

Let's get straight to the numbers, which reflect this operational momentum. Following a strong Q3 2025, where revenue hit $347.6 million-a 26.0% year-over-year increase-management raised its full-year guidance. This is a clear signal of confidence in their pipeline execution.

Here's the quick math on what Kratos Defense & Security Solutions, Inc. is now projecting for the full 2025 fiscal year:

What this estimate hides is the accelerating momentum into 2026. Kratos Defense & Security Solutions, Inc. has also raised its full-year 2026 organic revenue growth forecast from 13%-15% to a range of 15% to 20% over the 2025 forecast. This is a significant jump, and it's supported by a robust consolidated book-to-bill ratio of 1.2 to 1 in Q3 2025, meaning they are booking orders faster than they are fulfilling them.

Strategic Partnerships & Competitive Edge

Kratos Defense & Security Solutions, Inc.'s competitive advantage isn't just in the technology itself, but in the speed and cost at which they deliver it. They use a commercial-like approach to defense, focusing on proven technology to reduce costs and time-to-market, which is exactly what the U.S. military is demanding now.

Strategic partnerships are key to maintaining this edge. The collaboration with GE Aerospace is a prime example, focusing on the GEK800 engine for next-generation affordable unmanned aerial systems, moving toward production readiness. Also, their partnership with Korea Aerospace Industries (KAI) is critical for advancing Manned-Unmanned Teaming (MUM-T) technologies, opening up international market opportunities.

This focus on affordability and rapid development is their moat, especially against larger, slower defense contractors. They are also making significant internal investments, with $10.0 million in company-funded Research and Development (R&D) in Q3 2025 alone, primarily in Space, Satellite, Unmanned Systems, and Microwave Electronic businesses. For a deeper understanding of their long-term vision, you can review Kratos Defense & Security Solutions, Inc.'s Mission Statement, Vision, & Core Values of Kratos Defense & Security Solutions, Inc. (KTOS).

The next step for investors is to monitor the execution of their large backlog and the progress of their new facilities, like the planned Indiana Payload Integration Facility (IPIF) for Hypersonic Systems, which will boost their flight testing tempo.