Shares of Kratos Defense & Security Solutions (NASDAQ:KTOS) rose about 2% after the company disclosed it had secured roughly $400 million in new funding from the U.S. Department of Defense for hypersonic system programs and other national security work.
Kratos described the funding as tied to specific hypersonic system efforts and additional national security initiatives. The engineering and defense technology firm focuses on development, production and integration of hypersonic systems, flight vehicles, solid rocket motors and other high-speed systems.
Management said the funding timeline began in June and accelerated into July. Eric DeMarco, Kratos’ president and chief executive officer, said the influx of DoD support is expected to accelerate the company’s organic growth rate and to increase operating cash receipts. DeMarco also said the funding should help reduce customer receivables, inventory and assets that Kratos had previously invested to meet customer schedule expectations.
Dave Carter, president of Kratos’ Defense and Rocket Support Services Division, pointed to the company’s speed across design, engineering, development, flight and fielding as a differentiator. Carter said Kratos is capable of delivering systems that can be mass produced at lower cost points and that the company anticipates additional hypersonic-related awards in the coming months.
Kratos supplies both propulsion and flyer systems, including the Erinyes Hypersonic Flyer, Dark Fury, Zeus and Oriole solid rocket motors. The company said work under the funded hypersonic system programs will be carried out at secure Kratos facilities as well as at government locations.
Because of security, competitive and other considerations, Kratos did not provide further details about the specific programs, scope or schedule for the work. The company did not expand on program-level timing or the precise allocation of the funding beyond confirming the approximately $400 million figure and the general program categories covered.
On market reaction, the stock moved higher following the announcement reflecting investor response to the funding news and management commentary on cash flow improvements and reduced receivables and inventory pressure. Kratos emphasized that the award supports both its propulsion and flyer system businesses while work is executed at secured sites.
Management reiterated expectations for more hypersonic awards ahead, but offered limited program detail publicly due to the sensitivities surrounding the work. Observers and market participants will be watching subsequent contract announcements and program disclosures as they become available.
Key developments:
- Kratos said it received about $400 million in new Department of Defense funding for hypersonic and other national security programs.
- Company leadership said the funding began in June, accelerated in July and should boost organic growth, operating cash receipts and reduce certain receivables and inventory.
- Kratos expects additional hypersonic-related awards in coming months and will perform work at secure company and government locations.