Image Credit: NASA (NASA.gov)

NASA’s Artemis 1 Mission to the Moon Sets the Stage for Routine Space Exploration – Here’s what to Expect and Why it’s Important

NASA’s Artemis 1 mission is poised to take a key step toward returning humans to the Moon after a half-century hiatus. The launch was scheduled for the morning of Aug. 29, 2022 but was postponed due to an issue with one of the rocket’s engines. The next opportunity to launch the rocket is Sept. 2, 2022. The mission is a shakedown cruise – sans crew – for NASA’s Space Launch System and Orion Crew Capsule.

The spacecraft is scheduled to travel to the Moon, deploy some small satellites and then settle into orbit. NASA aims to practice operating the spacecraft, test the conditions crews will experience on and around the Moon, and assure everyone that the spacecraft and any occupants can safely return to Earth.

The Conversation asked Jack Burns, a professor and space scientist at the University of Colorado Boulder and former member of the Presidential Transition Team for NASA, to describe the mission, explain what the Artemis program promises to do for space exploration, and reflect on how the space program has changed in the half-century since humans last set foot on the lunar surface.

How does Artemis 1 differ from the other rockets being
launched routinely?

Artemis 1 is going to be the first flight of the new Space Launch System. This is a “heavy lift” vehicle, as NASA refers to it. It will be the most powerful rocket engine ever flown to space, even more powerful than Apollo’s Saturn V system that took astronauts to the Moon in the 1960s and ‘70s.

It’s a new type of rocket system, because it has both a combination of liquid oxygen and hydrogen main engines and two strap-on solid rocket boosters derived from the space shuttle. It’s really a hybrid between the space shuttle and Apollo’s Saturn V rocket.

Testing is very important, because the Orion Crew Capsule is going to be getting a real workout. It will be in the space environment of the Moon, a high-radiation environment, for a month. And, very importantly, it will be testing the heat shield, which protects the capsule and its occupants, when it comes back to the Earth at 25,000 miles per hour. This will be the fastest capsule reentry since Apollo, so it’s very important that the heat shield function well.

This mission is also going to carry a series of small satellites that will be placed in orbit of the Moon. Those will do some useful precursor science, everything from looking further into the permanently shadowed craters where scientists think there is water to just doing more measurements of the radiation environment, seeing what the effects will be on humans for long-term exposure.

The plan is for Artemis 1 to lift off, travel to the Moon, deploy satellites, orbit the Moon, return to Earth, safely enter the atmosphere and splash down in the ocean. NASA

What’s the goal of the Artemis project? What’s coming up
in the series of launches?

The mission is a first step toward Artemis 3, which is going to result in the first human missions to the Moon in the 21st century and the first since 1972. Artemis 1 is an uncrewed test flight.

Artemis 2, which is scheduled to launch a few years after that, will have astronauts on board. It, too, will be an orbital mission, very much like Apollo 8, which circled the Moon and came back home. The astronauts will spend a longer time orbiting the Moon and will test everything with a human crew.

And, finally, that will lead to a journey to the surface of the Moon in which Artemis 3 – sometime mid-decade – will rendezvous with the SpaceX Starship and transfer crew. Orion will remain in orbit, and the lunar Starship will take the astronauts to the surface. They will go to the south pole of the Moon to look at an area scientists haven’t explored before to investigate the water ice there.

Artemis is reminiscent of Apollo. What has changed in the
past half-century?

The reason for Apollo that Kennedy envisioned initially was to beat the Soviet Union to the Moon. The administration didn’t particularly care about space travel, or about the Moon itself, but it represented an audacious goal that would clearly put America first in terms of space and technology.

The downside of doing that is the old saying “You live by the sword, you die by the sword.” When the U.S. got to the Moon, it was basically game over. We beat the Russians. So we put some flags down and did some science experiments. But pretty quickly after Apollo 11, within a few more missions, Richard Nixon canceled the program because the political objectives had been met.

So fast-forward 50 years. This is a very different environment. We are not doing this to beat the Russians or the Chinese or anybody else, but to begin a sustainable exploration beyond Earth’s orbit.

The Artemis program is driven by a number of different goals. It includes in situ resource utilization, which means using resources at hand like water ice and lunar soil to produce food, fuel and building materials.

The program is also helping to establish a lunar and space economy, starting with entrepreneurs, because SpaceX is very much part of this first mission to the surface of the Moon. NASA doesn’t own the Starship but is buying seats to allow astronauts to go to the surface. SpaceX will then use the Starship for other purposes – to transport other payloads, private astronauts and astronauts from other countries.

Fifty years of technology development means that going to the Moon now is much less expensive and more technologically feasible, and much more sophisticated experiments are possible when you just figure the computer technology. Those 50 years of technological advancement have been a complete game-changer. Almost anybody with the financial resources can send spacecraft to the Moon now, though not necessarily with humans.

NASA’s Commercial Lunar Payload Services contracts private companies to build uncrewed landers to go to the Moon. My colleagues and I have a radio telescope that’s going to the Moon on one of the landers in January. That just wouldn’t have been possible even 10 years ago.

What other changes does Artemis have in store?

The administration has said that in that first crewed flight, on Artemis 3, there will be at least one woman and very likely a person of color. They may be one and the same. There may be several.

I’m looking forward to seeing more of that diversity, because young kids today who are looking up at NASA can say, “Hey, there’s an astronaut who looks like me. I can do this. I can be part of the space program.”

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Image Credit: NASA Kennedy (Flickr)

Journey to Investments in Space-Related Companies

Are space exploration, space recreation, and the military transformation in space opening investment opportunities? NASA has aggressive plans to collaborate with commercial partners to establish a presence on the moon – SpaceX, Blue Origin, and Virgin Galactic are successfully moving forward with their own services beyond the Earth’s atmosphere, and SpaceForce, which is approaching its third anniversary, is experiencing a growing budget allocation from Washington. If space is the final frontier, does it deserve consideration as part of your portfolio – could the timing be right to explore the possibilities?

Last year  (2021), there were several spaceflight-related records set. This includes the most successful orbital launches in a year, most humans sent to space, and most orbiting Earth all at the same time. Launching more equipment, with or without passengers, into orbit opens possibilities for many companies, large and small. The big companies, like Boeing (BA), which is developing the Starliner spacecraft for travel, and Northrop Grumman (NOC), which is developing the Cygnus spacecraft, are huge companies, so space missions and travel will be just a small fraction of their business. Meanwhile, smaller companies, even those with various related lines of business, stand to experience a greater impact from increased launches, travel, and military design and implementation.

Companies do not have to build the rocket or space vehicle itself to benefit. There are launch operations, communications, data, satellites, computer systems, design, etc., all critical to providing a successful mission.

Smaller companies in this investment space have been underperforming the S&P 500 so far this year. Whether this means they are on the launch pad and headed to the moon with the new pace of activity or that they will continue to sit idle for some time is never known with stocks in any industry, but this sector is expanding while so many others are shrinking.  

Who are some of the smaller, more interesting companies to discover?

Maxar Technologies, Inc (NYSE: MAXR) is a space and geospatial data provider with a full range of space technology products and solutions for both commercial and government customers. Maxar’s solutions include satellites, Earth imagery, geospatial data, and analytics.

Current MAXR Price, $24.25/ Market Cap $1.79b.

Kratos Defense & Security Solutions, Inc. (KTOS) provides engineering, information technology, and warfighter solutions to the U. S. Department of Defense. Kratos is a U.S. government contractor that operates through two segments, Kratos Government Solutions and Unmanned Systems. The Kratos Government Solutions segment offers microwave electronic products, space and satellite communications, training and cybersecurity/warfare, modular systems, turbine technologies, and defense and rocket support services. The Unmanned Systems segment provides unmanned aerial systems (drones), and unmanned ground and seaborne systems.

Current KTOS Price $13.03/ Market Cap $1.63b.

Rocket Lab USA, Inc.(RKLB) serves commercial, aerospace contractors, and government customers. The company was founded in 2006 and went public via SPAC in August of 2021. It provides launch services, spacecraft design, manufacturing, and other spacecraft and non-orbit management products and services. Rocket Lab also designs, manufactures, and sells small orbital launch vehicles and satellite platforms. They are developing an 8-ton payload class launch vehicle.

Current Price $5.18 / Market Cap $2.4b.

Momentus, Inc. (MTS) serves satellite operators. It is a smaller company that focuses on providing in-space infrastructure services, and in-space transportation hosted payloads and in-orbit services. Current Price $1.85  / Market Cap $154.1m.

Take-Away

There has been increasing buzz around space travel, work being done on improved internet and communications from space, exploring Mars, and expanded military operations from the heavens. This increased business and increased attention is on an upward trajectory and could potentially take some small company prices with it.

Helping you discover and explore smaller companies is one of Channelchek’s main purposes. Login to your free Channelchek account, click on COMPANY Data, and start your journey.

Paul Hoffman

Managing Editor, Channelchek

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Sources

https://www.spaceforce.mil/News/Article/3013259/kendall-brown-raymond-tell-congress-194-billion-budget-request-balances-risks-q/

https://en.wikipedia.org/wiki/2021_in_spaceflight

https://www.space.com/rocket-lab-goes-public-spac-merger

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Thursday, August 18, 2022

The GEO Group (GEO)
Debt Restructuring Approved

The GEO Group, Inc. (NYSE: GEO) is a leading diversified government service provider, specializing in design, financing, development, and support services for secure facilities, processing centers, and community reentry centers in the United States, Australia, South Africa, and the United Kingdom. GEO’s diversified services include enhanced in-custody rehabilitation and post-release support through the award-winning GEO Continuum of Care®, secure transportation, electronic monitoring, community-based programs, and correctional health and mental health care. GEO’s worldwide operations include the ownership and/or delivery of support services for 103 facilities totaling approximately 83,000 beds, including idle facilities and projects under development, with a workforce of up to approximately 18,000 employees.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Push Back That Wall. GEO received the required participation of its creditors to close on the debt restructuring. The $2 billion debt wall due over the next four years, now has maturities of $125 million in 2023; approximately $165 million in 2024; approximately $341 million in 2026; approximately $1.1 billion in 2027; and approximately $526 million in 2028, providing substantial flexibility of the Company.

Go Forward. Following the closing of the transactions, GEO will have approximately $200 million in domestic unrestricted cash and cash equivalents and total liquidity of approximately $375 million. Assuming consistent financial performance across its business units, over the next two years, GEO expects to be able to reduce net recourse debt by $200­­–250 million annually. …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

Thursday, August 11, 2022

V2X, Inc. (VVX)
A Final Quarter for Vectrus

For more than 70 years, Vectrus has provided critical mission support for our customers’ toughest operational challenges. As a high-performing organization with exceptional talent, deep domain knowledge, a history of long-term customer relationships, and groundbreaking technical expertise, we deliver innovative, mission-matched solutions for our military and government customers worldwide. Whether it’s base operations support, supply chain and logistics, IT mission support, engineering and digital integration, security, or maintenance, repair and overhaul, our customers count on us for on-target solutions that increase efficiency, reduce costs, improve readiness, and strengthen national security. Vectrus is headquartered in Colorado Springs, Colo., and includes about 8,100 employees spanning 205 locations in 28 countries. In 2021, Vectrus generated sales of $1.8 billion. For more information, visit the company’s website at www.vectrus.com or connect with Vectrus on Facebook, Twitter, and LinkedIn.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

2Q22 Operating Results. V2X reported record second quarter revenue of $498 million, up 6% year-over-year and 9% sequentially. The growth was even more impressive considering the absence of revenues related to the 2021 Pacific Defender exercise and the lack of Afghanistan revenue. We had projected revenue of $460 million. The Company reported GAAP EPS of $0.88 compared to $1.35 in 2Q21. Adjusted EPS was $1.41 versus $1.52. We had projected $1.04 and $1.21, respectively.

Drivers. High OPTEMPO, LOGCAP V momentum, and contract growth on existing programs all drove the top-line growth. Notably, INDOPACOM accounted for 9% of overall revenue, up from 3% in 2Q21. Lower margin early stage contracts as well as M&A and integration costs associated with the Vertex merger negatively impacted margins.…

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

Wednesday, August 10, 2022

Kratos Defense & Security (KTOS)
Building Award Momentum

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) develops and fields transformative, affordable technology, platforms, and systems for United States National Security related customers, allies, and commercial enterprises. Kratos is changing the way breakthrough technologies for these industries are rapidly brought to market through proven commercial and venture capital backed approaches, including proactive research, and streamlined development processes. At Kratos, affordability is a technology, and we specialize in unmanned systems, satellite communications, cyber security/warfare, microwave electronics, missile defense, hypersonic systems, training and combat systems and next generation turbo jet and turbo fan engine development. For more information go to www.kratosdefense.com.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Awards. Kratos announced the receipt of two drone contract awards over the past two days, building momentum in the space. The first is an approximate $20 million production contract for high performance, jet powered, unmanned aerial target drone systems. The second is an approximate $14 million tactical jet drone contract award. While details of the tactical drone award were limited, we note the Company does reference its manned-unmanned teaming capabilities and the evolution of certain of Kratos’ highest performance, most capable unmanned aerial systems. Kratos is working on a number of manned-unmanned platforms, of which Skyborg is the most well known.

Capabilities. We believe these contract awards are representative of Kratos’ industry leading position for certain of the highest performance and most capable jet drone aircraft flying in the world today. Kratos today has multiple active production lines producing approximately 150 target and tactical jet drone aircraft annually. These new drone production contract awards are a key element of the Company’s future expected growth trajectory….

This Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

Kratos Receives $14 Million Tactical Jet Drone System Contract Award

Research, News, and Market Data on Kratos Defense & Security Solutions

August 9, 2022 at 8:00 AM EDT

SAN DIEGO, Aug.
09, 2022 (GLOBE NEWSWIRE) — Kratos
Defense & Security Solutions, Inc. (Nasdaq: KTOS), a leading
National Security Solutions provider, announced today that it has recently
received an approximate $14 million Tactical Jet
Drone contract award. Kratos is an industry leader in the
development, design and fielding of affordable, high-performance jet powered
unmanned aerial drone systems. Work under this new contract award will be
performed at secure Kratos facilities and at customer locations. Due to
competitive, security related and other considerations, no additional information
will be provided related to this new contract award.

Steve Fendley, President of Kratos Unmanned Systems Division, said, “Kratos today has a family of affordable, high performance, tactical jet drone systems flying, including Valkyrie, MAKO, Gremlins, Airwolf, and others. In 2015 Kratos demonstrated manned – unmanned teaming with Kratos high performance Mako jet drone systems flying with a manned fighter aircraft, with the Mako performing a series of autonomous and operator-supervised missions. Today’s contract award announcement continues Kratos’ industry leading position and the evolution of certain of Kratos’ highest performance, most capable unmanned aerial systems in the world today.”

About Kratos
Defense & Security Solutions
Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) develops and fields transformative, affordable technology, platforms and systems for United States National Security related customers, allies and commercial enterprises. Kratos is changing the way breakthrough technology for these industries are rapidly brought to market through proven commercial and venture capital backed approaches, including proactive research and streamlined development processes. At Kratos, affordability is a technology and we specialize in unmanned systems, satellite communications, cyber security/warfare, microwave electronics, missile defense, hypersonic systems, training, combat systems and next generation turbo jet and turbo fan engine development. For more information go to 
www.KratosDefense.com.

Notice Regarding Forward-Looking Statements
Certain statements in this press release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of the management of Kratos and are subject to significant risks and uncertainty. Investors are cautioned not to place undue reliance on any such forward-looking statements. All such forward-looking statements speak only as of the date they are made, and Kratos undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise. Although Kratos believes that the expectations reflected in these forward-looking statements are reasonable, these statements involve many risks and uncertainties that may cause actual results to differ materially from what may be expressed or implied in these forward-looking statements. For a further discussion of risks and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements, as well as risks relating to the business of Kratos in general, see the risk disclosures in the Annual Report on Form 10-K of Kratos for the year ended 
December 26, 2021, and in subsequent reports on Forms 10-Q and 8-K and other filings made with the 
SEC by Kratos.

Press Contact: Yolanda White 858-812-7302 Direct

Investor Information:
877-934-4687

investor@kratosdefense.com

Source: Kratos Defense & Security Solutions, Inc.

Kratos Receives $20 Million Unmanned Aerial Drone System Production Contract

Research, News, and Market Data on Kratos Defense & Security Solutions

SAN DIEGO, 
Aug. 08, 2022 (GLOBE NEWSWIRE) — 
Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS), a leading National Security Solutions provider, announced today that it has received an approximate 
$20 million production contract for high performance, jet powered, unmanned aerial target drone systems. Kratos is an industry leader in the development, design and fielding of affordable, high-performance jet powered unmanned aerial drone systems. The unmanned aerial drone systems produced under this contract award will be manufactured in a Kratos production facility. Due to competitive, security-related, and other considerations, no additional information will be provided related to this award.

Steve Fendley, President of Kratos Unmanned Systems Division, said, “We believe that this contract award is representative of Kratos’ industry leading position for certain of the highest performance and most capable jet drone aircraft flying in the world today. Kratos today has multiple active production lines producing approximately 150 target and tactical jet drone aircraft annually, and this new target drone production contract award is a key element of our future expected growth trajectory.”

About Kratos
Defense & Security Solutions
Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) develops and fields transformative, affordable technology, platforms and systems for United States National Security related customers, allies and commercial enterprises. Kratos is changing the way breakthrough technology for these industries are rapidly brought to market through proven commercial and venture capital backed approaches, including proactive research and streamlined development processes. At Kratos, affordability is a technology and we specialize in unmanned systems, satellite communications, cyber security/warfare, microwave electronics, missile defense, hypersonic systems, training, combat systems and next generation turbo jet and turbo fan engine development. For more information go to 
www.KratosDefense.com.

Notice Regarding Forward-Looking Statements
Certain statements in this press release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of the management of Kratos and are subject to significant risks and uncertainty. Investors are cautioned not to place undue reliance on any such forward-looking statements. All such forward-looking statements speak only as of the date they are made, and Kratos undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise. Although Kratos believes that the expectations reflected in these forward-looking statements are reasonable, these statements involve many risks and uncertainties that may cause actual results to differ materially from what may be expressed or implied in these forward-looking statements. For a further discussion of risks and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements, as well as risks relating to the business of Kratos in general, see the risk disclosures in the Annual Report on Form 10-K of Kratos for the year ended 
December 26, 2021, and in subsequent reports on Forms 10-Q and 8-K and other filings made with the 
SEC by Kratos.

Press Contact: Yolanda White 858-812-7302 Direct

Investor Information:
877-934-4687

investor@kratosdefense.com

Monday, August 08, 2022

Kratos Defense & Security (KTOS)
When Will the Promise be Realized?

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) develops and fields transformative, affordable technology, platforms, and systems for United States National Security related customers, allies, and commercial enterprises. Kratos is changing the way breakthrough technologies for these industries are rapidly brought to market through proven commercial and venture capital backed approaches, including proactive research, and streamlined development processes. At Kratos, affordability is a technology, and we specialize in unmanned systems, satellite communications, cyber security/warfare, microwave electronics, missile defense, hypersonic systems, training and combat systems and next generation turbo jet and turbo fan engine development. For more information go to www.kratosdefense.com.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

2Q22 Results. Revenue of $224.2 million, up 9.3% y-o-y, and came in above the $205-$215 million guidance. Revenue from acquisitions offset supply chain issues, staffing challenges, and a decline in the Training business. Adjusted EBITDA came in at $17.7 million, above guidance, versus $17.6 million a year ago. GAAP EPS loss was $0.04 and adjusted EPS net income was $0.07, compared to net income of $0.01 and $0.06, respectively, a year ago.

Awards Coming In. Kratos received a number of new awards, including three large space and satellite programs, new turbine engine work, and additional awards in the microwave business. The Company remains in pursuit of new awards across its multiple business lines.  …

This Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

Kratos Reports Second Quarter 2022 Financial Results

Research, News, and Market Data on Kratos Defense & Security Solutions

SAN DIEGO, Aug. 04, 2022 (GLOBE NEWSWIRE) — Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider, today reported its second quarter 2022 financial results. For the second quarter of 2022, Kratos reported Revenues of $224.2 million, Operating Loss of $1.9 million, Net Loss of $4.7 million, Adjusted EBITDA of $17.7 million and a book to bill ratio of 1.2 to 1.0.   Included in Net Loss is a $5.5 million litigation settlement related charge resulting from the resolution of a dispute with an international customer in our Unmanned Systems segment, which contractual arrangement was entered into in March 2011, prior to Kratos’ acquisition of CEi (Composite Engineering Inc.).

Second quarter 2022 Operating Loss includes non-cash stock compensation expense of $6.3 million, and Company-funded Research and Development expense of $9.2 million, reflecting significant ongoing development efforts being made, including in our Space and   Satellite business to develop our virtual, software-based OpenSpace ground station solution.

Kratos reported a second quarter 2022 GAAP loss per share of $0.04, which includes the $5.5 million litigation settlement related charge noted above, compared to Net Income of $1.1 million and GAAP EPS income of $0.01 for the second quarter of 2021. Adjusted EPS was $0.07 for the second quarter of 2022, compared to $0.06 for the second quarter of 2021. Kratos has approximately $235 million of net operating loss carryforwards, which are expected to substantially shield the Company from paying future cash income taxes.   

Second quarter 2022 Revenues of $224.2 million, which increased $19.1 million, or 9.3 percent, from second quarter 2021 Revenues of $205.1 million, were adversely impacted by continuing and increased supply chain disruptions and increased material costs, COVID-related employee absenteeism and increased challenges and costs associated with hiring, obtaining and retaining qualified employees, which resulted in approximately $14.5 million of second quarter 2022 revenues being deferred into future periods, with approximately $2.9 million of associated operating income, including increased inflationary costs.    Second quarter 2022 revenues include an aggregate contribution of $21.5 million from the recent acquisitions of Cosmic Advanced Engineered Solutions, Inc. (Cosmic AES), CTT, Inc., (CTT), and the Engineering Division of Southern Research (SRE), offset by reductions in our Training Solutions business of $8.6 million as compared to the second quarter 2021 revenues, including the previously reported loss of an international training services contract which accounted for approximately $4.5 million of the reduction as well as the completion of certain large training system programs. On a proforma basis, excluding the impact of the Training Solutions business, revenues grew organically 3.2% in the second quarter of 2022 as compared to the second quarter of 2021.

Second quarter 2022 Cash Flow Used in Operations was $21.6 million, with the use including increases in receivables of $27.1 million primarily related to future milestone and other contractual payments and an increase of inventory balances of $10.5 million, primarily in our Unmanned Systems, Microwave Products and C5ISR businesses in anticipation of expected significant ramps in production in the second half of the year and to increase stock inventory levels and advance buys in larger lot sizes to gain pricing benefits where possible, to mitigate the impact of supply chain disruptions and price increases. Free Cash Flow Used in Operations was $32.7 million, after funding $11.1 million of capital expenditures, including in our high growth Unmanned Systems, Space, Satellite and Cyber and Turbine Technologies business areas.

For the second quarter of 2022, Kratos’ Unmanned Systems Segment (KUS) generated Revenues of $56.4 million, as compared to $60.3 million in the second quarter of 2021. KUS Operating Loss was $5.0 million in the second quarter of 2022, which included the $5.5 million litigation settlement related charge discussed above. Excluding the impact of the litigation settlement related charge, Operating Income was $0.5 million, compared to $4.1 million in the second quarter of 2021, reflecting a less favorable mix of revenues, including an increase in development programs which typically generate lower margins, an increase in SG&A costs of approximately $0.9 million resulting primarily from increased headcount, an increase of R&D expenses of approximately $1.3 million and increases in supply chain and employee related costs.

Excluding the litigation settlement charge, KUS Adjusted EBITDA for the second quarter of 2022 was $2.9 million, compared to second quarter 2021 Adjusted EBITDA of $6.9 million, reflecting increases in certain development programs which typically generate lower margins and increases in SG&A, R&D, supply chain related and employee costs.
        

KUS’s book-to-bill ratio for the second quarter of 2022 was 0.5 to 1.0 and 1.1 to 1.0 for the last twelve months ended June 26, 2022, with bookings of $242.6 million for the twelve months ended June 26, 2022.   Total backlog for KUS at the end of the second quarter of 2022 was $203.3 million compared to $230.5 million at the end of the first quarter of 2022.

For the second quarter of 2022, Kratos’ Government Solutions Segment (KGS) reported Revenues of $167.8 million, compared to Revenues of $144.8 million in the second quarter of 2021. The increased revenues include the aggregate contribution of approximately $21.5 million from the recently acquired Cosmic AES, CTT and SRE, offset by a reduction of $8.6 million in our Training Solutions business, including the loss of an international training contract, continued and increased supply chain, COVID and employee sourcing and retention disruptions, which resulted in second quarter 2022 KGS revenues of approximately $13.9 million being deferred into future periods.    On a proforma basis, excluding the Training Solutions business, KGS revenues grew organically 7.7 percent or $10.2 million, from $132.3 million in the second quarter of 2021 to $142.5 million in the second quarter of 2022.

KGS reported operating income of $9.5 million in the second quarter of 2022, compared to $5.9 million in the second quarter of 2021, primarily reflecting a more favorable revenue mix, offset partially by increased costs related to the supply chain and employee base.  

Kratos’ Space, Satellite and Cyber business generated Revenues of $88.5 million in the second quarter of 2022, compared to $67.5 million in the second quarter of 2021. Excluding revenues generated of $15.0 million from the recent Cosmic AES acquisition, revenues for our Space, Satellite and Cyber business grew organically 8.9 percent in the second quarter of 2022.

Second quarter 2022 KGS Adjusted EBITDA was $14.8 million, compared to second quarter 2021 KGS Adjusted EBITDA of $10.7 million, reflecting a more favorable mix of revenues, including in our Space, Satellite and Cyber and Turbine Technologies businesses.

For the second quarter of 2022, KGS reported a book-to-bill ratio of 1.4 to 1.0, with a book to bill ratio of 1.2 to 1.0 for the twelve months ended June 26, 2022, and bookings of $713.9 million for the twelve months ended June 26, 2022.   Included in KGS is Kratos’ Space, Satellite and Cyber business, which reported a book to bill ratio of 1.7 to 1.0 for the second quarter of 2022, and a book to bill ratio of 1.2 to 1.0 for the twelve months ended June 26, 2022. Bookings for the Space, Satellite and Cyber business for the last twelve months ended June 26, 2022, were $371.1 million. KGS’s total backlog at the end of the second quarter of 2022 was $846.9 million, as compared to $751.6 million at the end of the first quarter of 2022.

For the second quarter of 2022, Kratos reported consolidated bookings of $261.0 million and a book-to-bill ratio of 1.2 to 1.0, with consolidated bookings of $956.5 million and a book-to-bill ratio of 1.1 to 1.0 for the last twelve months ended June 26, 2022. Backlog on June 26, 2022 was $1.05 billion, as compared to $982.1 million at March 27, 2022, and Kratos’ bid and proposal pipeline was $9.9 billion at June 26, 2022, as compared to $9.4 billion at March 27, 2022.   Backlog at June 26, 2022 was comprised of funded backlog of $713.6 million and unfunded backlog of $336.6 million.

Eric DeMarco, Kratos’ President and CEO, said, “Kratos’ second quarter execution was solid in a challenging environment, including revenues of $224 million, Adjusted EBITDA of $17.7 million, a 1.2 to 1.0 book to bill ratio and a current opportunity pipeline of over $9 billion. We have now received each of the three important, large new satellite related program awards we discussed in our Q1 2022 report, including contracts with Blue Halo and Intelsat, which we believe position Kratos for future organic growth and increased margins beginning in the second half of this year. We believe these awards are representative of the increasing customer acceptance of Kratos’ first to market, internally funded and developed, software-based OpenSpace virtualized family of products and we are now in pursuit of several additional, large, new satellite program opportunities.”

Mr. DeMarco, continued, “Since our last report to you, the Air Force announced to Congress that the Skyborg Vanguard program, which includes Kratos’ Valkyrie, is now planned to be a Program of Record in 2023 and transition to acquisition. Additionally, Kratos’ tactical drone business continues to progress, including recent successful flights at the Burns Flat, Oklahoma range and other locations, and we are expecting to receive certain new tactical drone related contract awards in the second half of this year, including as related to Valkyrie.   Also importantly, the Air Force recently announced that the Golden Horde Vanguard Program, which Kratos is also supporting, is now also slated to become a Program of Record in 2023, which includes networked, collaborative and autonomous munitions and drones.”     

Mr. DeMarco concluded, “Based on important recent events and communications, we continue to believe that the global security environment and requirement for affordable, reusable, disposable and attritable high performance jet drones has never been stronger and is increasing. We view Kratos’ family of Made in America, demonstrated low-cost, runway independent, Collaborative Combat Aircraft, that have been flying with manned fighter aircraft since 2015, and are not concepts, power points or video presentations that are years away from reality, along with active Kratos serial production lines that can provide Affordable Mass now, are important differentiators for our Country, our customers and our Company.”

Financial Guidance
Our third quarter and Fiscal Year 2022 financial guidance we are providing today includes our current forecasted business mix, and our assumptions related to the expected continuing impact of: employee absenteeism, employee sourcing, hiring and retention; manufacturing, production and supply chain disruptions; parts shortages and related significant cost and price increases, including for employees, materials and components; travel restrictions and other COVID-19 related items that have and continue to impact the industry and Kratos.   The growth expected in the fourth quarter of 2022 is largely driven by the forecasted execution and delivery schedules of 5 new programs, 4 of which have already been awarded: the three satellite program awards, GBSD and an expected Valkyrie award from a new customer.        

The revised full Fiscal Year 2022 financial guidance reflects the expected revenue growth, including the impact of the recent SRE acquisition, as well as expected organic revenue growth driven by our recent bookings and backlog. Since our contract mix is predominantly firm fixed price, we are contractually obligated to absorb the impact of significant inflationary factors until we are able to include our revised costs in new contracts or the exercise of contractual options, which is reflected in our revised Fiscal Year 2022 Adjusted EBITDA guidance.

Throughout the second quarter of 2022, we continued to experience the effects of COVID–19, including on our employees, consultants, vendors, suppliers, customers, etc. We have assumed that these COVID–19 related impacts to our business, which significantly impacted our fiscal first and second quarters of 2022 and continue to impact our third quarter, will continue at least through the end of calendar 2022. Our previous assumption was that COVID-19 related impacts would begin to subside beginning in the third fiscal quarter and continue to improve throughout the second half of our fiscal year 2022.

We currently estimate that COVID, supply chain, work force and inflation related issues, including the availability and increased costs of certain raw materials and related components and materials, a lack of capacity at mills supporting Kratos’ hardware programs, the availability and significant increased costs to obtain and the ability to retain an experienced skilled workforce will continue to impact our financial performance throughout 2022. We expect these issues to impact our third quarter 2022 Revenues by approximately $10 to $14 million and Adjusted EBITDA by approximately $3 to $5 million, respectively. We also currently estimate these issues to impact our full fiscal year 2022 Revenues by approximately $22 to $26 million and Adjusted EBITDA by approximately $10 to $13 million, respectively. We will provide future updates as appropriate.  

The forecasted financial trajectory in the second half of 2022 reflects the expected mix of revenues, including the expected timing of software product deliveries in our Space, Satellite and Cyber business, based upon the forecasted order flow and roll out of our new OpenSpace solution, and contract awards we have recently received or that we have been informed we will receive, with deliveries expected to occur predominantly in the fourth quarter of 2022 based upon current program execution plans.  

Forecasted third quarter 2022 and fiscal year 2022 Operating Income and Adjusted EBITDA also reflect the expected mix of development-type contracts and expected investments, including in our Space, Satellite and Cyber, Unmanned Systems, C5ISR, Turbine Technologies and Rocket System businesses, where we have received, have been informed that we will receive, or are pursuing or expect to receive several new contract awards.   Kratos’ fiscal year 2022 forecasted Revenues also include the final projected impact of the 2021 loss of a large international training contract, which contributed approximately $13.0 million to the Company’s fiscal year 2021 first and second quarter Revenues and include the estimated contribution from the recently closed CTT, Cosmic AES and SRE acquisitions.  

Management will discuss the Company’s second quarter 2022 financial results, as well as its third quarter and full year 2022 guidance on a conference call beginning at 2:00 p.m. Pacific (5:00 p.m. Eastern) today. The call will be available at www.kratosdefense.com. Participants may register for the call at 
https://register.vevent.com/register/BId7480930af214120a135751b6240fd74. While not required, it is recommended you join 10 minutes prior to the event start. Instructions are provided to ensure the necessary audio applications are downloaded and installed. Users can obtain these programs at no charge. For those who cannot access the live broadcast, a replay will be available on Kratos’ website.

About Kratos Defense & Security Solutions
Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) develops and fields transformative, affordable technology, platforms, and systems for United States National Security related customers, allies, and commercial enterprises.  Kratos is changing the way breakthrough technologies for these industries are rapidly brought to market through proven commercial and venture capital backed approaches, including proactive research, and streamlined development processes.  At Kratos, affordability is a technology, and we specialize in unmanned systems, satellite communications, cyber security/warfare, microwave electronics, missile defense, hypersonic systems, training and combat systems and next generation turbo jet and turbo fan engine development. For more information go to www.kratosdefense.com.

Notice Regarding Forward-Looking Statements
This news release contains certain forward-looking statements that involve risks and uncertainties, including, without limitation, express or implied statements concerning the Company’s expectations regarding its future financial performance, including the Company’s expectations for its third quarter and full year 2022 revenues, R&D, operating income, depreciation, amortization, stock based compensation expense, and Adjusted EBITDA, and full year 2022 operating cash flow, capital expenditures and other investments, and free cash flow use, the Company’s future growth trajectory and ability to achieve improved revenue mix and profit in certain of its business segments and the expected timing of such improved revenue mix and profit, the Company’s expectation of ramp on projects and that investments in its business will result in an increase in the Company’s market share and total addressable market and position the Company for significant future organic growth, profitability, cash flow and an increase in shareholder value, the Company’s bid and proposal pipeline, demand for its products and services, including the Company’s alignment with today’s National Security requirements, ability to successfully compete in the tactical unmanned aerial system area and expected new customer awards, including the magnitude and timing of funding and the future opportunity associated with such awards, and expected contract awards related to the Company’s Skyborg Vanguard program, Golden Horde Vanguard program and other new tactical unmanned programs, performance of key contracts and programs, including the timing of production and demonstration related to certain of the Company’s contracts and product offerings, the impact of the Company’s restructuring efforts and cost reduction measures, including its ability to improve profitability and cash flow in certain business units as a result of these actions and to achieve financial leverage on fixed administrative costs, benefits to be realized from the Company’s net operating loss carry forwards, the availability and timing of government funding for the Company’s offerings, including the strength of the future funding environment, the short-term delays that may occur as a result of Continuing Resolutions or delays in DoD budget approvals, timing of LRIP and full rate production related to the Company’s unmanned aerial target system offerings, as well as the level of recurring revenues expected to be generated by these programs once they achieve full rate production, market and industry developments, and the current estimated impact of COVID-19 and employee absenteeism, supply chain disruptions, availability of an experienced skilled workforce, inflation and increased costs, and delays on our financial projections, industry, business and operations, including projected growth. Such statements are only predictions, and the Company’s actual results may differ materially from the results expressed or implied by these statements. Investors are cautioned not to place undue reliance on any such forward-looking statements. All such forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise. Factors that may cause the Company’s results to differ include, but are not limited to: risks to our business and financial results related to the reductions and other spending constraints imposed on the U.S. Government and our other customers, including as a result of sequestration and extended continuing resolutions, the Federal budget deficit and Federal government shut-downs; risks of adverse regulatory action or litigation; risks associated with debt leverage and cost savings and cash flow improvements expected as a result of the refinancing of our Senior Notes; risks that our cost-cutting initiatives will not provide the anticipated benefits; risks that changes, cutbacks or delays in spending by the U.S. DoD may occur, which could cause delays or cancellations of key government contracts; risks of delays to or the cancellation of our projects as a result of protest actions submitted by our competitors; risks that changes may occur in Federal government (or other applicable) procurement laws, regulations, policies and budgets; risks of the availability of government funding for the Company’s products and services due to performance, cost growth, or other factors, changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reduction of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional committee recommendations or automatic sequestration under the Budget Control Act of 2011, as amended); risks that the UAS and UGS markets do not experience significant growth; risks that products we have developed or will develop will become programs of record; risks that we cannot expand our customer base or that our products do not achieve broad acceptance which could impact our ability to achieve our anticipated level of growth; risks of increases in the Federal government initiatives related to in-sourcing; risks related to security breaches, including cyber security attacks and threats or other significant disruptions of our information systems, facilities and infrastructures; risks related to our compliance with applicable contracting and procurement laws, regulations and standards; risks related to the new DoD Cybersecurity Maturity Model Certification (CMMC); risks related to contract performance; risks related to failure of our products or services; risks associated with our subcontractors’ or suppliers’ failure to perform their contractual obligations, including the appearance of counterfeit or corrupt parts in our products; changes in the competitive environment (including as a result of bid protests); failure to successfully integrate acquired operations and competition in the marketplace, which could reduce revenues and profit margins; risks that potential future goodwill impairments will adversely affect our operating results; risks that anticipated tax benefits will not be realized in accordance with our expectations; risks that a change in ownership of our stock could cause further limitation to the future utilization of our net operating losses; risks that we may be required to record valuation allowances on our net operating losses which could adversely impact our profitability and financial condition; risks that the current economic environment will adversely impact our business; currently unforeseen risks associated with COVID-19 and risks related to natural disasters or severe weather. These and other risk factors are more fully discussed in the Company’s Annual Report on Form 10-K for the period ended December 26, 2021, and in our other filings made with the Securities and Exchange Commission.

Note Regarding Use of Non-GAAP Financial Measures and Other
Performance Metrics
This news release contains non-GAAP financial measures, including Adjusted earnings per share (computed using income from continuing operations before income taxes, excluding income (loss) from discontinued operations, excluding income (loss) attributable to non-controlling interest, excluding depreciation, amortization of intangible assets, amortization of capitalized contract and development costs, stock-based compensation expense, acquisition and restructuring related items and other, which includes, but is not limited to, legal related items and foreign transaction gains and losses, less the estimated impact to income taxes) and including Adjusted EBITDA (which includes net income (loss) attributable to noncontrolling interest and excludes, among other things, losses and gains from discontinued operations, acquisition and restructuring related items, stock compensation expense, foreign transaction gains and losses, and the associated margin rates). Additional non-GAAP financial measures include Free Cash Flow from Operations computed as Cash Flow from Operations less Capital Expenditures and Adjusted EBITDA related to our KUS and KGS businesses. Kratos believes this information is useful to investors because it provides a basis for measuring the Company’s available capital resources, the actual and forecasted operating performance of the Company’s business and the Company’s cash flow, excluding non-recurring items and non-cash items that would normally be included in the most directly comparable measures calculated and presented in accordance with GAAP. The Company’s management uses these non-GAAP financial measures, along with the most directly comparable GAAP financial measures, in evaluating the Company’s actual and forecasted operating performance, capital resources and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and investors should carefully evaluate the Company’s financial results calculated in accordance with GAAP and reconciliations to those financial results. In addition, non-GAAP financial measures as reported by the Company may not be comparable to similarly titled amounts reported by other companies. As appropriate, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Company’s financial results prepared in accordance with GAAP are included in this news release.

Another Performance Metric the Company believes is a key performance indicator in our industry is our Book to Bill Ratio as it provides investors with a measure of the amount of bookings or contract awards as compared to the amount of revenues that have been recorded during the period and provides an indicator of how much of the Company’s backlog is being burned or utilized in a certain period. The Book to Bill Ratio is computed as the number of bookings or contract awards in the period divided by the revenues recorded for the same period. The Company believes that the rolling or last twelve months’ Book to Bill Ratio is meaningful since the timing of quarter-to-quarter bookings can vary.

Press Contact:
Yolanda White
858-812-7302 Direct

Investor Information:
877-934-4687

investor@kratosdefense.com