Kratos Defense & Security : View Presentation

Kratos Defense & Security

Solutions

Investor Brief

January 2021

Kratos - Overview

Product Focused Technology Company in the

National Security Industry, Key Intellectual

Property Ownership

Commercial, Entrepreneurial, and Venture Capital

Culture and Backed Business Model and

Approaches

Industry Leading Positions in Our Core Market

Areas:

Space & Satellite

Drones and Artificial intelligence

Microwave Electronics

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Kratos - Differentiators

At Kratos - Affordability is a Technology

Demonstrated Rapid Development and Fielding of

Products and Systems

Recognized "Go To" Alternative, Affordable

Product and System Provider

Utilize and Integrate Proven "Leading Edge

Technology" vs Unproven "Bleeding Edge

Technology" = Reduced Technical, Schedule and

Financial Risk

3

Macro Industry Overview & Kratos

• After ~25 Years of Addressing Terrorist Threats and Asymmetric Warfare, a Recapitalization of Strategic Weapon Systems to Address Peer/Near Peer Threats is Underway: Drones & AI, Space & Satellites, Microwave Electronics, Missile Defense & Hypersonic, Strategic Systems
• Kratos has Made Significant Internally Funded Investments to Achieve its Market Leading Positions and Strong Forecast Organic Growth Profile, with Investments Expected to Continue in 2021 to Support Multiple New Program Awards
• Organic Growth Forecast to Increase and Accelerate in 2022 as New and Development Programs Expected to Transition to Production

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Kratos - Primary Business Areas

Target	Tactical	Space & Satellite
Drones	Drones	Communications

Missile	Microwave	Hypersonic
Defense Systems	Electronics	Systems

Strategic	Next Generation
Engines for Drones/
Deterrence
Missiles

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Unmanned Aerial Target Drone Systems

BQM-167	MQM-178
BQM-177

• Kratos is the leading provider of the Highest Performance, Threat Representative Target Drones in the world
• Kratos Drones exercise U.S. and our Allies' Radars and Weapon Systems - Kratos Target Drones are "shot down" and replaced
• Growth is being driven by the Recapitalization of Strategic Weapon Systems and the need to Test and Evaluate these systems

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Unmanned Aerial Tactical Drone Systems

Valkyrie

Gremlin

Mako

Airwolf

• Kratos is the leading provider of affordable, high performance, tactical jet powered drone UASs in the industry - four drones in this Class flying today
• Multiple major DoD Programs will require hundreds/thousands of affordable/attritable drones in this Class: Skyborg, ABMS, Golden Horde, ACE, IBCS, etc.
• Low Cost (~$400K - ~$3M) Leading Technology Force Multipliers
• Overwhelm the adversary with quantities while protecting the warfighter
• Kratos drones are the highest performance UAVs in the world
• Russian and Chinese Threats, A2/AD environments driving funding and growth

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Tactical Drone Update

• In early 2015, Kratos had ZeroTactical Drones
• In 2020, Kratos has four Tactical Drones (that we can discuss publicly) which are Customer Funded and have participated in multiple Funded demonstrations and military exercises demonstrating operational capability and concepts:
  ̶XQ-58A Valkyrie ̶UTAP-22 Mako
  ̶X-61A Gremlin (Dynetics Prime Contractor, Kratos UAS manufacturer) ̶Airwolf (Tactical Firejet)
• Kratos' Drone Systems are Low Cost, Disposable, Reusable and/or Attritable, Runway Independent, are made in America and the only Company with a family of drones in this Class flying today

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The Valkyrie

Flying in

Formation

with an F-22

& F-35

DARPA

Gremlins

Space & Satellite Communications

WGS	SBIR		OPIR		TITAN	AEHF		HBTSS

• Kratos is the leading provider of Satellite Command & Control (C2) and Telemetry, Tracking & Control (TT&C) Ground Systems in the world and a leader in the Transition to Open Architecture, Software Defined, and Digital to IP Data Conversion Systems. Kratos supports ~80% of Space Missions
• Disaggregation of Ground Segment Procurement from Space System Procurement opening large new market opportunities for Kratos
• Kratos' Global owned and operated RF Monitoring Network is one of our most valuable and unique assets - Increasing # of satellites driving Space Monitoring Demand
• Space and Satellite Communications are one of the fastest growing and well funded DoD areas due to Russian and Chinese threats, Hypersonic System Tracking and Targeting, etc.
• Thousands of LEO and MEO satellites planned for the future, including to track Hypersonic Threats (HBTSS) Program and Sensor to Shooter Data Processing - Tactical Interface Tracking Application Node (TITAN) Program
• Large, New 5G and Ground Station as a Service (GSaaS) opportunity just beginning

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Microwave Electronics

Missile Defense

Radars

Electronic Warfare

ISR

• Kratos is a leading provider of Microwave Electronic Sub Systems and components in support of major C5ISR programs
• Global microwave electronics industry is seeing increased funding and rapid growth due to Recapitalization of Strategic Weapon systems to address peer/near peer threats
• KMED is the largest independent microwave electronics components and sub system provider in Israel, supporting Israel, India, USA and other customers
• Kratos typically the Sole Source Provider to our customers

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Strategic Deterrence

GBSD	Hypersonic Systems

• Kratos is supporting the ~$100 billion Ground Based Strategic Deterrence (GBSD), Minuteman III ICBM Replacement Program
• Kratos supports multiple Hypersonic Systems Programs with our Launch System, Space and C5ISR Businesses
• GBSD and Hypersonic Systems are two of the best funded and fastest growing priority areas of DoD Budget
• GBSD, HBTSS, TITAN, IBCS, etc., Kratos supported Programs
• Recapitalization of Strategic Weapons Systems to address peer/near peer threats driving funding and growth

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Turbine Technologies and Engines

Engine	Gray Wolf	Speed Racer

• The Engine is typically the #1 Bill Of Material (BOM) cost element in a jet drone, cruise missile and powered munition system
• Kratos is looking to disrupt this class of engine market, similar to our drone initiatives; rapid development and fielding, improved performance and affordability
• DoD wants new technology, alternative engine providers and competition
• Thousands of engine applications and opportunities forecast: Gray Wolf, Speed Racer, Golden Horde, Skyborg, ABMS, Arsenal Plane, Attritables
• Kratos has multiple engines under customer funded development programs

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Missile Defense and Hypersonic Programs

BMD Targets
Patriot		GBSD		SHORAD		AEGIS

• Kratos is the leading provider of Affordable Ballistic Missile Defense (BMD) Related Target Systems in the industry
• BMD Target Systems used to Test and Evaluate radar, missile defense and other systems and for operational readiness
• Kratos is the leading provider of missile and combat system/program sub systems and strategic deterrence systems
• Satellite Hypersonic and Ballistic Tracking Space Sensor (HBTSS) Program
• Integrated Battle Command System (IBCS) Missile Defense System Network Program and AEGIS Combat System
• Recapitalization of Strategic Weapon Systems to address peer/near peer threats driving business growth

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Kratos - Third Quarter 2020 Execution Highlights

• Q320 Revenue $202.0 million, up from Q319 Revenue of $184.1 million. Organic growth in Unmanned Systems, Microwave Electronics, C5ISR and Rocket Support Solutions businesses and contribution from ASC Signal acquisition offset by reduction in scope of certain international Training Services contracts with net impact of $6.3 million and COVID-19 related impacts in commercial satcom, aero and services businesses
• Q320 Adjusted EBITDA of $24.6 million, up from Q319 Adjusted EBITDA of $20.4 million, primarily due to favorable revenue mix including certain programs and products in more mature lifecycles
• Q320 Operating Income $12.7 million, up from Operating Income of $11.5 million due to favorable revenue mix, offset partially by increase in non-cash stock compensation expense of $2.2 million and increase in R&D expense of $3.1 million
• Q320 Book-To-Bill ratio 1.8 to 1, LTM Book-to-Bill ratio 1.3 to 1. KGS Book-To-Bill ratio 1.9 to 1, KGS LTM Book-to-Bill ratio 1.4 to 1
• Q320 Backlog $873.1 million, up from Q220 Backlog of $683.4 million. Q320 Funded Backlog $579.3 million, Q320 Unfunded Backlog $293.8 million
• Qualified Bid and Proposal Pipeline $8.3 billion, up from $8.0 billion at Q220

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Kratos - Recent Financial Highlights - FY20

Nine Months ended 9/27/20

Revenue by Customer

International

20.3%

Comm	U.S. Gov't*
71.9%
& Other
7.8%

*Includes Foreign Military Sales (FMS)

Backlog ended 9/27/20

Unfunded	Funded
$293.8M	$579.3M

Total $873.1M

Nine Months ended 9/27/20

Contract Mix

T&M

CPFF 4.2% 20.1%

Firm Fixed

Price

75.7%

Bid & Proposal Pipeline ended 9/27/20

$8.3B

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Kratos - Growth Trajectory(1)
				$717.5M	$760M
			$618.0M
		$603.3M
	$542M			$77.3M	$75M
$512.5M			$60.5M
		$47.6M
	$43.1M
$37.6M
2015	2016	2017	2018	2019	2020E(2)

Revenue	(1)	Recast to Present PSS as Discontinued Operations
Adjusted EBITDA	(2)	Reflects Mid-Point of 2020 Estimate

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Kratos - Recent Financial Highlights - Q320

		Q320
Gross Debt		$300.3M
Cash		$375.4M
Net Cash	$75.1M
LTM Adjusted EBITDA	$76.4M

Kratos' Balance Sheet Positioned to Support Expected Future Growth and Investments Required For Multiple Recent New Program Awards, New Opportunities and Forecasted Growth

Kratos is Focused Primarily on Organic Growth with Existing Programs/Platforms/Systems

No Major Acquisitions Planned, Only Potential Small "Tuck-Ins" in Existing Core Areas

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Kratos - Investment Summary

• Technology Company in National Security Industry with Multiple New Program Awards Positioning Kratos for Long Term, Sustained Future Organic Growth, Forecast to Increase and Accelerate Beginning in 2022, as New and Development Programs Mature and Transition to Production
• Primary Business Focus Areas Include: Drones and Artificial Intelligence, Space and Satellites, Microwave Electronics, Hypersonics and BMD
• Tactical Drone Opportunity Could Transform Kratos as a Company
• Affordability is a Technology and Affordability will be of Increasing Importance and a Key Differentiator for Kratos
• 2021 Currently Forecast to be Final Year of Increased Internal Investments to Execute on and Pursue New Programs and Opportunities, Resulting in Increased and Accelerating Growth Trajectory in 2022

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