Stockholders' Equity

12 Months Ended

Dec. 29, 2024

Share-Based Payment Arrangement [Abstract]

Stockholders’ Equity

(a) Common Stock

On February 27, 2024, the Company sold 19,166,667 shares of its common stock at a public offering price of $18.00 per share in an underwritten offering. The Company received gross proceeds of approximately $345.0 million. After deducting underwriting fees and other offering expenses, the Company received approximately $331.2 million in net proceeds. The Company has used and expects to continue to use the net proceeds of this public equity offering to facilitate its long-term strategy, including potential investment in facilities, expanding manufacturing capacity, anticipated capital expenditures for expansion of current sole source/single award programs and high probability pipeline opportunities, initiate or accelerate production or integration of unmanned drone, hypersonic or other systems in anticipation of customer contract awards, further strengthen its balance sheet in anticipation of upcoming customer and partner decisions and source selection on additional large, new program and contract opportunities, for general corporate purposes, including paydown of debt, and to pay fees and expenses in connection with this public equity offering. During the three months ended March 31, 2024, the Company used $45 million of the proceeds from this public equity offering to pay down amounts outstanding under its Revolving Credit Facility.

(b) Equity Incentive Plans

In May 2023, the Company’s board of directors (the “Board”) and stockholders approved the 2023 Equity Incentive Plan (the “2023 Equity Plan”). The 2023 Equity Plan is the successor to the Amended and Restated Kratos Defense & Security Systems, Inc. 2014 Equity Incentive Plan (the “2014 Plan”), the Kratos Defense & Security Solutions, Inc. 2011 Equity Incentive Plan (the “2011 Plan”), and the Kratos Defense & Security Solutions, Inc. Amended and Restated 2005 Equity Incentive Plan (the “2005 Plan”), (collectively, the “Prior Plans”). The 2023 Equity Plan became effective May 24, 2023 and no additional stock awards were granted under the Prior Plans as of May 24, 2023. 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. As of May 23, 2023, there were 2,280,707 shares remaining available for issuance under the Prior Plans. The 2023 Equity Plan increased the number of shares remaining available for issuance under its equity compensation plans by 2,466,983 shares to 4,747,690 shares.

The Board may grant equity-based awards to selected employees, directors and consultants of the Company pursuant to its 2023 Equity Plan. As of December 29, 2024, there were 3,095,444 shares reserved for issuance for future grant under the 2023 Equity Plan. The Board may amend or terminate the 2023 Equity 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 2024, 2023 or 2022. There were no stock options outstanding as of December 31, 2023 and December 29, 2024.

During the years ended December 29, 2024, December 31, 2023, and December 25, 2022, the following values relate to the exercises under the Company’s option plans:


	2024		2023		2022
Total intrinsic value of options exercised (in thousands)	$	—	$	80.8	$	163.0

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 31, 2023	4,935	$	12.72
Granted	1,509	$	19.00
Vested	(2,398)	$	18.48
Forfeited or expired	(38)	$	16.10
Vested but not released	(220)	$	14.11
Nonvested balance at December 29, 2024	3,788	$	11.45

As of December 29, 2024, there was $31.3 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 1.9 years. The fair value of restricted stock unit awards that vested in 2024, 2023, and 2022 was $44.3 million, $9.8 million, and $30.5 million, respectively.

In May 2023, the Board approved the 2023 Employee Stock Purchase Plan (as amended from time to time, the “2023 Purchase Plan”). The 2023 Purchase Plan is the successor to the 1999 Employee Stock Purchase Plan (as amended from time to time, the “1999 Purchase Plan”). The total number of shares of our common stock that were authorized for issuance under the 2023 ESPP is equal to the sum of (1) 3,500,000 shares, plus (2) 766,586 shares, which is the number of shares that remained available for issuance under the 1999 Purchase Plan as of its termination on June 30, 2023 (after giving effect to the purchases pursuant to the offering period ending on such date under the Existing ESPP). The 2023 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 U.S. employees are eligible to participate in the 2023 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. The 2023 Plan also allows the Board to extend the employee stock purchase program to eligible employees outside of the U.S. In 2023, Kratos employees in Canada and the United Kingdom have been allowed to participate in the 2023 Purchase Plan.

Employees who actively participate in the 2023 Purchase Plan are eligible to have up to 15% of their earnings for each purchase period withheld pursuant to the 2023 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 1999 Purchase Plan’s inception through December 29, 2024, the cumulative number of shares of common stock that have been issued under the 1999 Purchase Plan and the 2023 Purchase Plan is 8.0 million and approximately 3.7 million shares are available for future issuance under the 2023 Purchase Plan. During 2024, approximately 271,000 shares were issued under the 2023 and 1999 Purchase Plans at an average price of $17.00 per share.

The fair value of shares issued under the 1999 Purchase Plan and the 2023 Purchase Plan for 2024 was estimated using the Black-Scholes option pricing model. The assumptions and resulting fair values of options granted for 2024, 2023 and 2022 were as follows:


	Offering Periods January 1 to December 31 2024	Offering Periods January 1 to December 31 2023	Offering Periods January 1 to December 31 2022
Expected term (in years)(1)	0.5	0.5	0.5
Risk-free interest rate(2)	5.26% - 5.33%	4.76% - 5.47%	0.19% - 2.51%
Expected volatility(3)	40.15% - 40.68%	41.65% - 45.77%	40.52% - 60.79%
Expected dividend yield(4)	—%	—%	—%
Weighted average grant-date fair value per share	$5.40	$3.30	$4.80

(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 29, 2024, there was no material unrecognized compensation expense related to the 2023 Purchase Plan or the 1999 Purchase Plan.