Financial Guidance
We are adjusting our 2021 Revenue guidance range from $810 million - $850 million to $805 million - $815 million, primarily to reflect continued and increased supply chain and customer delays, and COVID related quarantine issues and restrictions, including where we are unable to enter certain countries to execute on or deliver systems for customers. This adjustment primarily reflects over $31 million of under contract revenue that has been deferred from our 2021 third or fourth quarters to future periods, including in our satellite, microwave electronics and C5ISR businesses. We expect supply chain, customer and COVID related disruptions and delays to continue industry wide and as related to Kratos for the foreseeable future, which we are taking into consideration in our future forecasts. The adjustment also reflects a recent Kratos customer re-baselined execution plan and schedule, on a greater than $150 million C5ISR under contract Kratos program, which shifted certain tasks into future periods, including 2023. At the midpoint of this revenue range of $810 million, excluding the ASC acquisition and the international training contract, Kratos revenues are forecasted to grow organically over 8 percent year over year from 2020 to 2021.
  
We are adjusting our Full Year 2021 EBITDA Guidance range of $81 - $87 million to $80 - $84 million to reflect the impact of the revenues shifted from our third and fourth quarters to future periods.  We are improving our 2021 free cash flow use from operations guidance of $30 - $40 million to a use of $20 - $30 million, to reflect expected reductions in our Days Sales Outstanding (DSOs) and increased collections, and lower than initially forecast capital and other investments, as certain initiatives are ahead of schedule, under budget or reduced for other reasons. 

The full year 2021 estimated Operating Cash Flow includes approximately $5 - $6 million of planned investments in our Rocket Support Systems and Engine businesses for new products, including in the Hypersonic area, and efforts 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 approximately $25 million associated with the continued production of Valkyrie aircraft and related equipment 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, Satellite and Cyber business secure facilities and the Company-owned space domain awareness network, capital investments related to the recent GBSD (Ground Based Strategic Deterrent) award, and investments related to the Company’s Turbine and Rocket Support Systems businesses.  

There is currently no Federal Fiscal Year 2022 (October 1, 2021 – September 30, 2022) defense budget in place and the defense industry is operating under a Federal Budget Continuing Resolution Authorization (CRA). Under a CRA, there are no new start program awards or new programs of record, no increases in production on existing programs, and no transition from existing development programs to production, among other items, all which impact Kratos. The existing CRA expires on December 3, 2021. The ultimate approved and authorized 2022 DoD budget and its timing is unknown at this time, though the longer the CRA continues, the greater the impact on the industry and the Company.

On September 9, 2021 the President issued an Executive Order mandating that by December 8, 2021, all Federal Contractor employees must be fully vaccinated against Covid 19, unless excluded by certain limited exemptions. The Company is moving to comply with the President’s Executive Order. As a result of the President’s Executive Order, the Company (and its subcontractors, suppliers, partners, etc.) is experiencing certain disruptions, including but not limited to employee unrest, retirements, resignations, etc. and other situations that we had not previously anticipated or planned for prior to the Executive Order, all of which we are monitoring.

Management will discuss the Company’s third quarter 2021 financial results, as well as its fourth 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 6477329. 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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