Stockholders' Equity

12 Months Ended

Dec. 25, 2022

Share-Based Payment Arrangement [Abstract]

Stockholders’ Equity

(a) Common Stock

On June 23, 2020, the Company sold 15,525,000 shares of common stock at a purchase price of $16.25 per share in an underwritten public offering. The Company received gross proceeds of approximately $252.3 million. After deducting underwriting fees and other offering expenses, the Company received approximately $240.4 million in net proceeds. The

Company expects to use the net proceeds for general corporate purposes, including for potential strategic “tuck-in” acquisitions, to further position the Company for projected growth from new and anticipated increased production and to facilitate its long-term strategy.

(b) Stock Option Plans and Restricted Stock Unit Plans

In March 2014, the Company’s board of directors (the “Board”) approved the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan is the successor to the Kratos Defense & Security Solutions, Inc. 2011 Equity Incentive Plan, the Kratos Defense & Security Solutions, Inc. Amended and Restated 2005 Equity Incentive Plan, the Kratos Defense & Security Solutions, Inc. 2000 Nonstatutory Stock Option Plan, the Kratos Defense & Security Solutions, Inc. 1999 Equity Incentive Plan, the Amended and Restated Integral Systems, Inc. 2008 Stock Incentive Plan, the Amended and Restated Herley Industries, Inc. 2010 Stock Plan, the Herley Industries, Inc. 2003 Stock Option Plan, the Henry Bros. Electronics, Inc. 2007 Stock Option Plan, the Henry Bros. Electronics, Inc. 2006 Stock Option Plan, the Amended and Restated 2005 Digital Fusion, Inc. Equity Incentive Plan, the 2000 Digital Fusion, Inc. Stock Option Plan, the 1999 Digital Fusion, Inc. Stock Option Plan, and the 1998 Digital Fusion, Inc. Stock Option Plan (collectively, the “Prior Plans”).

The 2014 Plan became effective May 14, 2014 and no additional stock awards will be granted under the Prior Plans as of April 1, 2014. All outstanding stock awards granted subject to the terms of the Prior Plans will continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards and the terms of the respective Prior Plans. Any shares subject to outstanding stock awards granted under the Prior Plans or granted outside of a Prior Plan that, at any time after March 27, 2014, (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited, canceled or otherwise returned to the Company because of the failure to meet a contingency or condition required to vest such shares; or (iii) are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award (collectively, the “Returning Shares”) will immediately be added to the share reserve of the 2014 Plan and become available for issuance pursuant to stock awards granted under the 2014 Plan.

As of March 27, 2014, there were 2,306,256 shares remaining available for issuance under the Prior Plans. The total number of awards outstanding under all of the Prior Plans and outside of any Prior Plan was 5,511,322 as of March 27, 2014. The 2014 Plan decreased the number of shares remaining available for issuance under its equity compensation plans from 2,306,256 to 1,550,000, although, per the 2014 Plan, up to 5,511,322 shares subject to outstanding awards under the Prior Plans and non-plan grants could potentially become Returning Shares available for issuance under the 2014 Plan. In May 2017, the Company’s shareholders approved an amendment to the 2014 Plan to increase the aggregate number of shares that may be issued under the plan by 2,500,000 shares. In June 2020, the Company’s shareholders approved an amendment to the 2014 Plan to increase the aggregate number of shares that may be issued under the plan by 4,700,000 shares.

The Board may grant equity-based awards to selected employees, directors and consultants of the Company pursuant to its 2014 Plan. As of December 25, 2022, there were 3,213,722 shares reserved for issuance for future grant under the 2014 Plan. The Board may amend or terminate the 2014 Plan at any time. Certain amendments, including an increase in the share reserve, require stockholder approval. Generally, options and restricted stock units outstanding vest over periods not exceeding ten years. When the Company grants stock options, they are granted with a per share exercise price not less than the fair market value of the Company’s common stock on the date of grant, and generally would be exercisable for up to ten years from the grant date. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model or a trinomial lattice options pricing model with the weighted average assumptions (annualized percentages). There were no stock options granted or related expenses for stock options in 2020, 2021 or 2022.

A summary of the status of the Company’s stock option plan as of December 25, 2022, and changes in options outstanding under the plan for the year ended December 25, 2022, is as follows:


	Number of Shares Under Option	Weighted-Average Exercise Price per Share		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
	(000’s)				(000’s)
Options outstanding at December 26, 2021	42	$	4.98	1.0	$	622.9
Granted	—	$	—
Exercised	(24)	$	4.98
Forfeited or expired	—	$	—
Options outstanding at December 25, 2022	18	$	4.98	0.0	$	79.9
Options exercisable at December 25, 2022	18	$	4.98	0.0	$	79.9

Upon exercise of an option, the Company issues new shares of common stock.

During the years ended December 25, 2022, December 26, 2021, and December 27, 2020, the following values relate to the exercises under the Company’s option plans:


	2022		2021		2020
Total intrinsic value of options exercised (in thousands)	$	163.0	$	—	$	1,446.4

The following table summarizes the Company’s Restricted Stock Unit activity:


	Restricted Stock Units (000’s)	Weighted-Average Grant Date Fair Value
Nonvested balance at December 26, 2021	4,878	$	12.74
Granted	1,577	$	18.85
Vested	(1,716)	$	17.75
Forfeited or expired	(80)	$	17.61

Nonvested balance at December 25, 2022	4,659	$	12.88

As of December 25, 2022, there was $36.1 million of total unrecognized stock-based compensation expense related to nonvested restricted stock units which is expected to be recognized over a remaining weighted-average vesting period of 1.7 years. The fair value of restricted stock unit awards that vested in 2022, 2021, and 2020 was $30.5 million, $24.7 million, and $4.6 million, respectively.

In August 1999, the Board approved the 1999 Employee Stock Purchase Plan (as amended from time to time, the “Purchase Plan”). A total of 5,200,000 shares of common stock had been previously approved for reservation of the Company’s common stock for purchase by employees under the Purchase Plan. In May 2017, the Company’s shareholders approved an amendment to the Purchase Plan to increase the maximum number of shares of common stock that may be issued under the Purchase Plan by 3,000,000 shares. The Purchase Plan qualifies as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Service Code. Unless otherwise determined by the Compensation Committee of the Board, all employees are eligible to participate in the Purchase Plan, so long as they are employed by the Company (or a subsidiary designated by the Board) for at least 20 hours per week and were customarily employed by the Company (or a subsidiary designated by the Board) for at least 5 months per calendar year.

Employees who actively participate in the Purchase Plan are eligible to have up to 15% of their earnings for each purchase period withheld pursuant to the Purchase Plan. The amount that is withheld is used at various purchase dates within the offering period to purchase shares of common stock. The price paid for common stock at each such purchase date is equal to

the lower of 85% of the fair market value of the common stock at the commencement date of that offering period or 85% of the fair market value of the common stock on the relevant purchase date. Employees are also able to end their participation in the offering at any time during the offering period, and participation ends automatically upon termination of employment. From the Purchase Plan’s inception through December 25, 2022, the cumulative number of shares of common stock that have been issued under the Purchase Plan is 6.7 million and approximately 1.5 million shares are available for future issuance. During fiscal 2022, approximately 448,000 shares were issued under the plan at an average price of $13.62.

The fair value of Kratos’ Purchase Plan shares for 2022 was estimated using the Black-Scholes option pricing model. The assumptions and resulting fair values of options granted for 2022, 2021 and 2020 were as follows:


	Offering Periods January 1 to December 31 2022	Offering Periods January 1 to December 31 2021	Offering Periods January 1 to December 31, 2020
Expected term (in years)(1)	0.5	0.5	0.5
Risk-free interest rate(2)	0.19% - 2.51%	0.06% - 0.09%	0.18% - 1.60%
Expected volatility(3)	40.52% - 60.79%	41.40% - 45.93%	44.14% - 82.75%
Expected dividend yield(4)	—%	—%	—%
Weighted average grant-date fair value per share	$4.80	$7.60	$5.43

(1) The expected term is equivalent to the offering period.

(2) The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant with a term equal to the expected term.

(3) The Company estimated implied volatility based upon trailing volatility.

(4) The Company has no history or expectation of paying dividends on its common stock.

As of December 25, 2022, there was no material unrecognized compensation expense related to the Purchase Plan.