Joshua Hoskins, courtesy of U.S. Air Force
The XQ-58A Valkyrie makes its first flight at Yuma Proving Grounds on March 5. Photo by Senior Airman

Joshua Hoskins, courtesy of U.S. Air Force The XQ-58A Valkyrie makes its first flight at Yuma Proving Grounds on March 5. Photo by Senior Airman

Kratos Defense and Security Solutions Inc. continues to develop its unmanned aircraft business, as shown by its recent acquisition of a company that makes small jet engines in February, and the first flight of a drone in March.

The business acquired a majority stake in Florida Turbine Technologies at the end of February. The acquisition “provides Kratos with in-house capabilities for the most expensive part of a drone system,” wrote Joe Gomes of Noble Capital Markets.

Kratos (Nasdaq: KTOS) paid $60 million in cash and stock for 80.1 percent of the Jupiter, Florida-based jet builder, and has the option to buy the remaining part.

On March 5, Kratos’ XQ-58A Valkyrie demonstrator made the first of five test flights at Yuma Proving Grounds in Arizona. The Valkyrie, which can attain speeds approaching the speed of sound, is a joint project of Kratos and the Air Force Research Laboratory. One point of the project, according to the Air Force, is to provide unmanned aircraft that are inexpensive to buy and operate.

A third piece of flight-oriented news was that Kratos and North Carolina-based Corvid Technologies are teaming up on a five-year, $223 million deal to deliver suborbital flight vehicles to the U.S. Navy. They will be used as ballistic missile defense system test targets, and for the development and testing of prototype weapon systems.

Such suborbital vehicles are hypersonic systems, wrote analyst Mike Crawford of B. Riley FBR, nothing that “hypersonics are a strategic priority for both the DoD and for KTOS.” The hypersonic work could give Kratos a chance to exceed its 2019 revenue guidance of $720 million to $760 million, the analyst said.

Back to the new jet-building unit in Florida. Kratos is paying for FTT with a combination of $33 million in cash and $27 million in Kratos stock. Kratos also announced the formation of a new business unit focused on small, affordable, high-performance jet engines, to be led by executive Stacey Rock.

FTT is forecasting revenue of $45 million and adjusted EBITDA of $4.5 million for the 10 months from March 1 to Dec. 31. EBITDA stands for earnings before interest, taxes, depreciation and amortization.

“The scenario with FTT is much like it was when Kratos acquired CEI,” said executive Steve Fendley in a prepared statement, referring to Kratos’ 2012 acquisition of Sacramento drone maker Composite Engineering Inc.

“The technology foundation was in place at CEI, the initial products were in place, the opportunity to be transformational and apply the technology and products to a substantially larger opportunity base existed, but would have been a challenge for a small business. Kratos has been able to transition CEI and take advantage of the opportunities.

“Kratos believes that FTT as a part of Kratos has the potential to follow a similar path of evolution and success,” said Fendley, president of Kratos’ Unmanned Systems Division.

Kratos also released its most recent financial results during the past few weeks. On a GAAP basis, the business practically broke even during 2018.

Kratos reported a net loss of $3.5 million, or 3 cents per share, on revenue of $618 million in 2018. That compares with a net loss of $42.7 million, or 48 cents per share, on revenue of $603.3 million in 2017. GAAP stands for generally accepted accounting principles.

For the fourth quarter, Kratos reported net income of $4.7 million, or 4 cents per share, on revenue of $164.4 million. In the fourth quarter of 2017, Kratos reported a net loss of $22.2 million, or 21 cents per share, on revenue of $166.3 million.