Mr. DeMarco continued, “In Kratos’ space and satellite business, our new software-based OpenSpace and virtualized products are experiencing significant customer penetration and acceptance, including record bookings with approximately 30 customers year to date. We are forecasting an extremely strong second half of 2021 for this business, most notably for the fourth quarter, including significant margin expansion, with this growth trajectory expected to further accelerate into 2022.”

Mr. DeMarco concluded, “Our strategy is to be first to market, with the right products, at an affordable cost, at the right time. We are focused on exceeding our customers’ expectations with new, innovative, and disruptive technology and systems and driving significant organic growth and returns for our stakeholders.”   
   
Financial Guidance

We are providing our third quarter 2021 guidance and reaffirming our previously provided full year 2021 Revenue, Adjusted EBITDA and Cash Flow guidance as follows:

$M	Q321	FY21
Revenues	$195 - $205	$810 - $850
R&D	$9 - $10	$38 - $40
Operating Income	$2 - $5	$27 - $33
Depreciation	$5 - $6	$21 - $22
Amortization	$2 - $3	$6 - $7
Stock Based Compensation	$6 - $7	$25 - $26
Adjusted EBITDA	$16 - $20	$81 - $87
Operating Cash Flow		$23- $28
Capital Expenditures		$58 - $63
Free Cash Flow Use		($30 - $40)

The third quarter and full year 2021 estimated Revenues and operating performance reflects the expected hardware, product and software mix based on current shipment and execution schedules. The third quarter and full year 2021 estimated Revenues also include the impact of the recent loss of a large international training contract, which contributed approximately $34.5 million to the Company’s full year 2020 Revenues. Our full year 2021 guidance range includes our current forecasted business mix, and our most recent assumptions of the expected impact of COVID-19, of which Kratos experienced increased employee cases at the end of 2020, which continued into July 2021, including in California, Florida and Oklahoma and in certain of our drone, space and satellite, turbine and C5ISR locations, and recent supplier delays. In addition, estimated third quarter and full year 2021 Operating Income and Adjusted EBITDA reflect the expected mix of development-type contracts and expected investments, primarily in our Space and Satellite, Unmanned, C5ISR and Engine businesses, where we have received or are pursuing a number of large opportunities, including Ground Based Strategic Deterrent (“GBSD”), Over Head Persistent Infrared (OPIR) and Skyborg.

The full year 2021 estimated Operating Cash Flow includes approximately $10 million of planned investments in our Rocket Support Systems and Engine businesses for new products, including in the Hypersonic area, and to increase Kratos’ market share, as well as approximately $5 million of the required payback of the 2020 deferred employer related payroll taxes. The 2021 capital expenditure forecast currently includes expected outlays of $20 to $25 million associated with the continued production of Valkyrie aircraft prior to receipt of expected customer award(s); therefore, these aircraft are currently reflected as Company-owned assets until receipt of the related customer award(s). Kratos will adjust the forecasted capital expenditure outlays and the ultimate balance sheet classification of these investments once expected customer orders and the nature of the contract terms can be determined. In addition, the capital expenditure forecast includes investments in the Company’s Space and Satellite business secure facilities and the Company-owned space domain awareness network, capital investments related to the recent GBSD award, and investments related to the Company’s Turbine and Rocket Support Systems businesses.

Management will discuss the Company’s second quarter 2021 financial results, as well as its third quarter and full year 2021 guidance on a conference call beginning at 2:00 p.m. Pacific (5:00 p.m. Eastern) today. Analysts and institutional investors may participate in the conference call by dialing (866) 393-0674, and referencing the call by ID number 4751019. The general public may access the conference call by dialing (877) 344-3935 or on the day of the event by visiting www.kratosdefense.com for a simultaneous webcast. A replay of the webcast will be available on the Kratos web site approximately two hours after the conclusion of the conference call.

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.

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