Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) announced a $61,068,139 modification to its firm‑fixed‑price contract (N0001923C0021) with the U.S. Navy. The modification authorizes full‑rate production of 70 BQM‑177A Subsonic Aerial Targets and the associated Rocket‑Assisted Takeoff (RATO) equipment, expanding the company’s backlog and reinforcing its position as a key supplier to Navy training and testing operations.
The BQM‑177A is a critical component of the Navy’s unmanned aerial system portfolio, providing realistic threat representation for advanced weapons testing and fleet training. The contract modification follows a $59.33 million award in March 2025 for 70 units and a $50.1 million award in December 2023 for 65 units, bringing the total Lot Seven value to $238.8 million. By moving to full‑rate production, Kratos can scale output to meet the Navy’s operational requirements and capture additional revenue streams.
Kratos’ Q4 2025 earnings, released on February 23 2026, showed revenue of $345.1 million—an increase of 20.0% from $283.1 million in Q4 2024. Adjusted EPS rose to $0.18 from $0.13, while GAAP EPS remained at $0.03. The earnings beat was driven by strong organic growth in the Unmanned Systems (12.1% YoY) and KGS (22.2% YoY) segments, with the KGS sub‑segments—Defense Rocket Systems (+47.4%), Microwave Products (+32.4%), and Space, Training, and Cyber (+22.7%)—providing significant lift.
Management highlighted the contract’s strategic importance. CEO Eric DeMarco said, "We finished 2025 exceeding our financial objectives for the fourth quarter, generating approximately 20% Q4 year-over-year organic revenue growth, generating a 1.3 to 1 book-to-bill ratio." CFO Deanna Lund added, "Adjusted EBITDA was at the high end of our expected range, benefiting from higher volume and revenue mix, but partially offset by elevated bid and proposal costs and continued increases in subcontractor and material costs on certain multi-year fixed-price contracts in the unmanned systems business."
The contract modification underscores Kratos’ ability to secure full‑rate production, a milestone that signals the Navy’s confidence in the company’s delivery capability. Steve Fendley, President of Kratos Unmanned Systems Division, noted, "Achieving full-rate production of the BQM-177A reflects the Navy's continued confidence in Kratos' ability to deliver reliable, high-performance aerial target systems at scale." He added, "This award underscores our commitment to providing affordable, mission-relevant unmanned systems that directly support Navy training, test, and evaluation requirements while maintaining production readiness for future demand."
Kratos’ guidance for fiscal year 2026 remains robust. The company forecasts revenue of $1.595 billion to $1.675 billion and adjusted EBITDA of $157 million to $167 million, reflecting confidence in continued demand for its unmanned systems and the anticipated growth of its hypersonic and drone programs. The company also plans to double hypersonic revenue to $400 million by 2026, ramp up Valkyrie drone production, and integrate recent acquisitions of Nomad Global Communications Solutions and Orbit Technologies to broaden its satellite, microwave, and command‑and‑control capabilities.
Investors reacted cautiously to the earnings release, citing mixed guidance and insider selling. The contract win, however, reinforces Kratos’ competitive position and backlog strength, supporting its long‑term growth trajectory.
Kratos’ strategic focus on affordable, attritable defense solutions continues to resonate with government customers, positioning the company for sustained expansion in the unmanned systems market.
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