Image source: Kratos Defense & Security Solutions.

What: Shares of Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) jumped as much as 21.8% on Friday after reporting second-quarter earnings. At 1:40 p.m. EDT, shares had pulled back slightly to an 18.4% gain for the day.

So what: Total revenue rose 5% to $168.2 million and net loss declined 31% to $10.4 million, or $0.17 per share. Adjusted for one-time items and non-cash amortization expenses, the company earned $0.01 per share compared to the $0.07 loss analysts were expecting.  

Satellite, technology, and training improved the most, increasing revenue 21.2% from a year ago to $70.3 million. Unmanned systems also showed improvement, with revenue up 25.3% sequentially to $17.8 million.

Now what: Along with the improving results, management thinks the U.S. defense budget has hit bottom and will be a macro driver of growth in the future. And the company is well positioned in satellite and unmanned systems, two long-term growth opportunities.

While the business may be improving, it's still experiencing heavy losses on a GAAP (generally accepted accounting principles) basis. And until that stops, I'll sit on the sidelines of this defense stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.