Kratos Defense & Security Solutions (KTOS) risk factors, 2025 10-K

Risks Related to Our Business

1. 01Significant delays or reductions in appropriations for our programs and U.S. Government funding more broadly may negatively impact our business and programs and could have a material adverse effect on our financial position, results of operations and/or cash flows
2. 02The federal budget and debt ceiling are expected to continue to be the subject of considerable debate, which could have a significant impact on defense spending broadly and our programs in particular
3. 03If we fail to establish and maintain important relationships with government agencies and prime contractors, our ability to successfully maintain and develop new business may be adversely affected
4. 04The loss of one or more of our largest customers, programs, or applications could adversely affect our results of operations
5. 05If our subcontractors or suppliers fail to perform their contractual obligations, our performance and reputation as a contractor and our ability to obtain future business could suffer
6. 06Our earnings and profitability depend, in part, on subcontractor and supplier performance and product availability
7. 07We face intense competition from many competitors that have greater resources than we do, which could result in price reductions, reduced profitability or loss of market share
8. 08Our business is dependent upon our ability to keep pace with the latest technological changes
9. 09If the UAS and UGS markets do not experience significant growth, if we cannot expand our customer base or if our products do not achieve broad acceptance, or if the products we have developed or will develop do not become programs of record, then we may not be able to achieve our anticipated level of growth
10. 10Government regulations or other restrictions; and
11. 11Loss of our GSA contracts or GWACs could impair our ability to attract new business
12. 12Government contracts differ materially from standard commercial contracts, involve competitive bidding and may be subject to cancellation or delay without penalty
13. 13We may not receive the full amounts estimated under the contracts in our backlog, which could reduce our revenue in future periods below the levels anticipated. This makes backlog an uncertain indicator of future operating results
14. 14A preference for minority-owned, small and small disadvantaged businesses could impact our ability to be a prime contractor and limit our opportunity to work as a subcontractor on certain governmental procurements
15. 15U.S. Government in-sourcing could result in loss of business opportunities and personnel
16. 16Our business could be negatively impacted by cyber and other security threats or disruptions
17. 17If we experience systems or service failure, our reputation could be harmed and our customers could assert claims against us for damages or refunds
18. 18We cannot ensure that provisions in our customer contracts will be legally sufficient to protect us if we are sued
19. 19Our products are complex and could have unknown defects or errors, which may increase our costs, harm our reputation with customers, give rise to costly litigation, or divert our resources from other purposes
20. 20The existence of any defects, errors, or failures in our products or the misuse of our products could also lead to lawsuits against us, result in injury, death, or property damage, and significantly damage our reputation and support for our products in general
21. 21disrupt our business or cause significant injuries, which could adversely affect our financial results
22. 22Our financial results may vary significantly from quarter to quarter
23. 23Our margins and operating results may suffer if we experience unfavorable changes in the proportion of cost-plus-fee or fixed‑price contracts in our total contract mix
24. 24Cost overruns on our contracts could subject us to losses, decrease our operating margins and adversely affect our future business
25. 25Our cash flow and profitability could be reduced if expenditures are incurred prior to the final receipt of a contract
26. 26If we fail to respond to commercial industry cycles in terms of our cost structure, manufacturing capacity, and/or personnel needs, our business could be seriously harmed
27. 27We face significant risks in the management of our inventory, and failure to effectively manage our inventory levels may result in product recalls or supply imbalances that could harm our business
28. 28We have incurred and may continue to incur goodwill impairment charges in our reporting entities, which could harm our profitability
29. 29Failure to properly manage projects may result in additional costs or claims
30. 30We use estimates when accounting for contracts, and any changes in such estimates could have an adverse effect on our profitability and our overall financial performance
31. 31Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited. We may be required to record valuation allowances on our net operating loss carryforwards in future periods which could adversely impact our profitability and financial condition
32. 32We expect to incur substantial research and development costs and devote significant resources to identifying and developing new products and services, which could significantly reduce our profitability and may never result in revenue to us

Risks Related to Our Operations

1. 33Our operations expose us to risks associated with pandemics, epidemics or other public health emergencies
2. 34We may need additional capital to fund the growth of our business, and financing may not be available on favorable terms or at all
3. 35investments and in interest rates
4. 36Past acquisitions and future acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our resources
5. 37If we are unable to manage our growth, our business and financial results could suffer
6. 38We may need to invest in new information technology systems and infrastructure to scale our operations
7. 39The loss of any member of our senior management could impair our relationships with U.S. Government customers and disrupt the management of our business
8. 40If we fail to attract and retain skilled employees or employees with the necessary National Security clearances, we might not be able to perform under our contracts or win new business
9. 41We are subject to the requirements of the National Industrial Security Program Operating Manual for our facility security clearance, which is a prerequisite to our ability to perform on classified contracts for the U.S. Government
10. 42We are subject to the DoD CMMC requirement issued by the Pentagon which may limit our ability to bid and win projects. The cost for the DoD CMMC requirement may be significant
11. 43Cybersecurity breaches or disruptions of our information technology systems could negatively impact our operations
12. 44Our operations expose us to the risk of material environmental liabilities

Risks Related to Our International Operations

1. 45Revenues derived from our international business could be subject to global economic downturn and hardship
2. 46Changes in foreign tax laws and regulations could expose us to additional tax liabilities and could adversely affect our financial results
3. 47Our international business exposes us to additional risks

Risks Related to Our Long-Term Borrowings

1. 48We have substantial long-term borrowings, which could adversely affect our cash flow, financial condition and business
2. 49We and our subsidiaries may incur more debt, which may increase the risks associated with our leverage, including our ability to service our indebtedness
3. 50Changes in our credit metrics or macroeconomic conditions may affect our liquidity, increasing borrowing costs and limiting our financing options
4. 51A portion of our business is conducted through foreign subsidiaries, and the failure to generate sufficient cash flow from these subsidiaries, or otherwise repatriate or receive cash from these subsidiaries, could result in our inability to repay our indebtedness
5. 52Our Credit Agreement subjects us, and our subsidiaries, to several financial and other restrictive covenants, including limitations on liens or indebtedness, payment of dividends, transactions with affiliates, and mergers, sales or other dispositions of our assets
6. 53The discontinuance of LIBOR and the replacement of LIBOR with an alternative reference rate may adversely affect our borrowing costs and could impact our business and results of operations

Risks Related to Our Intellectual Property

1. 54We may be unable to protect our intellectual property rights
2. 55Disclosure of trade secrets could cause harm to our business
3. 56We may be harmed by intellectual property infringement claims

Risks Related to Regulatory, Environmental and Legal Issues

1. 57Our failure to comply with complex procurement laws and regulations could cause us to lose business and subject us to a variety of penalties
2. 58Our contracts and administrative processes and systems are subject to audits and cost adjustments by the U.S. Government, which could reduce our revenue, disrupt our business or otherwise adversely affect our results of operations
3. 59Our employees or others acting on our behalf may engage in misconduct or other improper activities, which could cause us to lose contracts or cause us to incur costs
4. 60We are subject to environmental laws and potential exposure to environmental liabilities. This may affect our ability to develop, sell or rent our property or to borrow money where such property is required to be used as collateral
5. 61The increasing focus on environmental sustainability and social initiatives could increase our costs, harm our reputation and adversely impact our financial results
6. 62Regulations related to “conflict minerals” may cause us to incur additional expenses and could limit the supply and increase the cost of certain metals used in manufacturing our products
7. 63Natural disasters or severe weather conditions could disrupt our business and result in loss of revenue or higher expenses

Risks Related to Our Common Stock

1. 64Some of our contracts with the U.S. Government are classified, which may limit investor insight into portions of our business
2. 65We do not expect to pay any cash dividends or buyback any Kratos stock for the foreseeable future
3. 66Certain provisions in our amended and restated certificate of incorporation and third amended and restated bylaws, and of Delaware law, may prevent or delay an acquisition of our Company, which could decrease the trading price of our common stock
4. 67Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock
5. 68The market price of our common stock may be volatile
6. 69Your percentage of ownership in us may be diluted in the future
7. 70Future sales of our common stock could cause the market price for our common stock to decline
8. 71financial results and operations
9. 72If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and any trading volume could decline