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 .