What happened

Shares of Kratos Defense & Security Solutions (KTOS -7.18%) stock crashed by as much as 10.4% in early trading Friday, before clawing their way back up to close at a 9% loss.

So what

Expectations were high for Kratos heading into earnings day. In its last earnings report, Kratos had promised investors that it would earn a profit in the second quarter, grow steadily more profitable as the year progressed, then begin generating positive free cash flow in 2018 -- but that's not how things turned out.

Not in Q2, at least. Instead of a GAAP (generally accepted accounting principles) profit, Kratos investors had to settle for a $0.07-per-share GAAP loss for the fiscal second quarter, and a "pro forma" loss of only $0.01. On the plus side, analysts had not bought fully into Kratos's story, and had told investors to expect the penny-a-share loss. Thus, the good news is that Kratos at least met expectations for earnings.

The other good news is that Kratos succeeded in topping expectations for Q2 sales, which came in at a more-than-expected $185.7 million.

Kratos UTAP-22 Mako drone

Kratos makes combat drones, but will its stock survive earnings? Image source: Kratos Defense.

Now what

Undeterred by the failure to reach profitability last quarter, management is raising expectations again for the third quarter. Revising guidance for the quarter already underway, Kratos told investors to expect sales of between $180 million and $190 million this quarter, culminating in sales of $720 million to $740 million for the full year.

Management made no promises of GAAP profitability, however, limiting itself to promising "adjusted EBITDA" (earnings before interest, taxes, depreciation, and amortization -- a very non-GAAP term) of about $12 million for the quarter, and about $53 million for the year. Real profits, it appears, will have to wait.