Kratos Defense & Security Solutions (NASDAQ: KTOS) saw its shares extend gains following a robust second-quarter performance driven by accelerating demand across its core defense businesses. The stock closed 5.41% higher at $51.87 and added another 0.52% in after-hours trading to reach $52.14, buoyed by rising sales, strengthened bookings, and renewed momentum in unmanned systems and government programs.

Q2 Revenue Rises 31%

Kratos reported second-quarter revenue of $458.8 million, a 30.5% increase from $351.5 million in the same period a year ago. Organic revenue climbed 19.1%, reflecting broad-based growth across both government and unmanned defense operations during a period of elevated U.S. and allied defense budgets. The company generated $38.2 million in adjusted EBITDA during the quarter.

Net income came in at $4.4 million, up from $2.9 million a year earlier. Adjusted earnings reached $0.21 per share, nearly double the $0.11 per share recorded in 2025. However, Kratos posted a $1.6 million operating loss after accounting for research and non-cash expenses.

Stock compensation costs totaled $16.3 million, while company-funded research spending reached $13.6 million. The company also recorded $12.5 million in amortization expenses tied to its expanding defense technology portfolio, with investments directed toward satellites, space systems, unmanned aircraft, and microwave electronics development.

Valkyrie Program Lifts Unmanned Systems

The Unmanned Systems segment posted revenue of $79.1 million, up from $73.2 million a year earlier. Activity related to the Valkyrie program—the XQ-58A, a low-cost, attritable stealth combat drone developed for the Air Force Research Laboratory and designed to fly alongside manned fighters in a "loyal wingman" role—accounted for much of the increase and contributed to stronger operating performance. Segment operating income improved to $1.2 million, reversing a $300,000 loss in the prior-year quarter.

Adjusted EBITDA for Unmanned Systems rose to $5.1 million from $3.6 million in 2025. The segment secured $78.4 million in quarterly bookings, maintaining a 1.0 book-to-bill ratio, and ended the quarter with a total backlog of $374.6 million—essentially flat compared to the prior quarter.

Kratos also recognized $9.3 million in revenue from company-owned Valkyrie sales during the period. Meanwhile, production ramp-ups increased inventory and working capital requirements across multiple active development programs. These dynamics resulted in $11 million in operating cash outflow and $18.9 million in negative free cash flow.

Government Solutions Fuels Backlog and Guidance Upgrade

The Government Solutions segment delivered $379.7 million in revenue, a 36.4% jump from $278.3 million a year ago. Organic growth reached 22%, excluding contributions from the Nomad and Orbit acquisitions.

Defense and Rocket Support revenue led the way with 50.2% growth, followed by Turbine Technologies at 43.3%. Microwave Products revenue advanced 29.5%, while Space, Training and Cyber revenue increased 8.7%. The higher sales volume lifted the segment's adjusted EBITDA to $33.1 million from $24.7 million.

Kratos closed the quarter with a consolidated backlog of $2.084 billion and a $15 billion proposal pipeline. Quarterly bookings reached $492.2 million, bringing the trailing twelve-month book-to-bill ratio to 1.3. Management raised its 2026 organic revenue growth forecast to a range of 18% to 23%, with the expanded backlog and proposal pipeline providing visibility into potential future revenue conversion.