Kratos Defense & Security Solutions, Inc. reported its financial results for the third quarter and nine months ended September 29, 2024, showing notable changes in revenue, profitability, and strategic developments compared to the previous fiscal period.

For Q3 2024, total revenues reached $275.9 million, a slight increase of $1.3 million (0.5%) from $274.6 million in Q3 2023. The nine-month revenue also rose to $853.2 million, up from $763.3 million in the same period last year, reflecting a growth of $89.9 million. The increase was driven by a $37.3 million rise in revenues from the Kratos Government Solutions (KGS) segment, totaling $643.8 million, and a $52.6 million increase in the Unmanned Systems segment, which reached $209.4 million.

Service revenues for Q3 2024 decreased to $103.9 million from $106.5 million in Q3 2023, primarily due to reduced activity in the space and satellite business. Conversely, product sales increased to $172.0 million from $168.1 million year-over-year. Gross profit for Q3 2024 was $69.2 million, down from $73.4 million in Q3 2023, leading to a gross margin decline to 25.1% from 26.7%. Operating income for Q3 2024 was $6.5 million, significantly lower than $12.2 million in the prior year.

Net income from consolidated operations for Q3 2024 was $3.2 million, compared to $3.0 million in Q3 2023. For the nine months ended September 29, 2024, net income improved to $12.4 million from a loss of $3.2 million in the same period last year. The basic income per share attributable to Kratos for Q3 2024 was $0.02, compared to a loss of $(0.01) in Q3 2023.

Strategically, Kratos completed the acquisition of Sierra Technical Services, Inc. on October 3, 2023, for approximately $27.3 million in common stock, which contributed to the revenue growth in the Unmanned Systems segment. The company also acquired the remaining 9.95% of KTT Core on June 21, 2024, eliminating the redeemable noncontrolling interest.

As of September 29, 2024, total current assets increased to $838.4 million from $594.2 million at the end of 2023, with cash and cash equivalents rising to $301.5 million from $72.8 million. Long-term debt decreased to $177.0 million from $219.3 million, reflecting principal payments on Term Loan A and a net repayment on the Revolving Credit Facility.

Despite these positive developments, Kratos faces challenges from a difficult federal budgetary environment, supply chain disruptions, and inflationary pressures affecting profit margins. The company is actively investing in unmanned systems and hypersonic technologies to align with defense spending priorities, while also managing increased operational costs and labor shortages.