Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS), a
leading National Security Solutions provider, today reported
its fourth quarter and full year fiscal 2017 financial
results.
Kratos’ revenues and Adjusted EBITDA for the
fourth quarter of 2017 were $202.2 million and $17.8 million,
respectively. Fourth quarter 2017 revenues increased 11.0
percent over the fourth quarter of 2016 and 3.1 percent
sequentially over the third quarter of 2017. Fourth quarter 2017
Adjusted EBITDA increased 32.8 percent over the fourth quarter of
2016 and 22.8 percent sequentially over the third quarter of
2017.
Kratos’ Unmanned Systems Division (KUSD)
generated year over year revenue growth of 65.9 percent, from $25.5
million in the fourth quarter of 2016 to $42.3 million in the
fourth quarter of 2017. KUSD’s Adjusted EBITDA of $4.1 million, or
9.7 percent of revenue, in the fourth quarter of 2017, increased
86.4 percent over Adjusted EBITDA of $2.2 million in the fourth
quarter of 2016. Kratos’ largest segment, Kratos Government
Solutions (KGS), which includes Kratos Satellite Communications,
Microwave Electronics and Training Systems businesses generated
fourth quarter 2017 Adjusted EBITDA of $12.6 million, increasing
sequentially 85.3 percent from the third quarter of 2017.
Kratos reported full fiscal year 2017 revenues
of $751.9 million, increasing 12.4 percent from $668.7 million in
fiscal year 2016. Adjusted EBITDA increased $9.4 million, or
20.9%, from $45.0 million in fiscal year 2016 to $54.4 million in
fiscal year 2017. For fiscal year 2017, approximately 60% of
Kratos’ revenue was derived from U.S. Federal Government related
customers, approximately 29% from commercial, state and local
government customers, and approximately 11% from international
customers.
In the fourth quarter of 2017, as a result of
the Company’s annual impairment test of the carrying value of its
goodwill balances, the Company recorded a non-cash impairment
charge of $24.2 million related to its Defense Rocket Support
Services (DRSS) business within the KGS segment. The majority
of DRSS’s business and revenue includes Kratos’ legacy government
services business, which the Company has considered a non-core
business and has de-emphasized since 2012.
For the full fiscal year 2017, Adjusted EPS* was
$0.12 and net loss per share was $0.48. Net loss was $42.7
million. For the fourth quarter of 2017, Adjusted EPS* was
$0.09 and net loss per share was $0.21. Net loss was $22.2
million, which included the loss on extinguishment of debt of $15.2
million related to the Company’s refinancing of its Senior Secured
Notes to replace its existing 7% Notes with 8-year 6.5% Notes, and
included the $24.2 million impairment of goodwill.
Eric DeMarco, Kratos’ President and CEO, said,
“Kratos’ fourth quarter and full year 2017 performance clearly
demonstrated the continued upward trajectory of our Company and the
successful execution of our strategy to build a business
specializing in the rapid development, demonstration and fielding
of affordable products and systems for national security.
With the pending divestiture of PSS, Kratos is now primarily a pure
play defense systems, product, technology and intellectual property
company focused on well-funded mission critical DoD priority areas;
including high performance unmanned aerial drone systems, satellite
communications, missile defense, training systems and microwave
electronics. Each of these markets, where Kratos is an
industry leader, is expected to experience significant funding
increases and growth, and continue to be long term, high priority
areas.”
Mr. DeMarco concluded, “We closed 2017 and began
2018 with many significant contract wins, including a $93 million,
an $81 million, a $24.3 million and a $23 million unmanned aerial
drone system award. Accordingly, for 2018, we are focused on
execution, operational excellence and continued improved financial
performance, and we expect Kratos’ revenues and Adjusted EBITDA to
continue to organically grow, profit margins to expand and a return
to positive cash flow generation.”
The Company also announced today that it has
signed a definitive agreement to divest its PSS business for net
cash proceeds of approximately $70 million, which transaction is
expected to close in the next 90 days, contingent on customary
closing conditions and regulatory approvals. As a result of
the announced divestiture, PSS will now be reflected as a
discontinued operation going forward in the Company’s financial
statements. Accordingly, all prior year comparative data in
future financial statements will be recast to reflect this business
as discontinued operations for all periods presented. Kratos’
PSS business was forecast to achieve full year 2018 revenues and
Adjusted EBITDA of approximately $140 to $150 million, and $9 to
$12 million, respectively. Kratos’ PSS business generated
full year 2017 revenues and Adjusted EBITDA before corporate
overhead costs of $149.9 million and $6.9 million,
respectively. As a result of the pending sale, Kratos’ 2018
Q1 and full year financial guidance provided today excludes PSS, as
does all other financial information noted below.
Kratos’ first quarter 2018 financial guidance
for revenues excluding the PSS business is $140 to $150 million, as
compared to $132.0 million for the first quarter of 2017, and first
quarter 2018 Adjusted EBITDA guidance of $9 to $11 million, as
compared to $10.2 million for the first quarter of 2017.
Kratos’ full year 2018 financial guidance for revenues excluding
the PSS business is $640 to $650 million, as compared to $603.2
million for the full year of 2017, and full year 2018 Adjusted
EBITDA guidance of $55 to $59 million, as compared to $47.5 million
for the full year of 2017. Kratos is forecasting 2018
positive cash flow from operations of $35 to $45 million.
Management will discuss the Company’s fourth
quarter and fiscal year 2017 financial results, first quarter and
full year 2018 guidance in a conference call beginning at 2:00 p.m.
Pacific (5:00 p.m. Eastern) today. Analysts and institutional
investors may participate in the conference call by dialing (866)
393-0674, and referencing the call by ID number 9678809. The
general public may access the conference call by dialing (877)
344-3935 or on the day of the event by visiting
www.kratosdefense.com for a simultaneous webcast. A replay of the
webcast will be available on the Kratos web site approximately two
hours after the conclusion of the conference call.
Kratos Defense & Security Solutions,
Inc. (NASDAQ:KTOS) develops transformative, affordable
technology for the Department of Defense and commercial customers.
Kratos is changing the way breakthrough technology for these
industries is brought to market through proactive research and a
streamlined development process. Kratos specializes in unmanned
systems, satellite communications, cyber security/warfare,
microwave electronics, missile defense, training and combat
systems. For more information go to www.kratosdefense.com.
This news release contains certain
forward-looking statements that involve risks and uncertainties,
including, without limitation, express or implied statements
concerning the Company’s expectations regarding its future
financial performance, including the Company’s expectations of the
first quarter and full year 2018 revenue, Adjusted EBITDA and
Adjusted EPS, and ability to generate positive cash flow from
operations in 2018, the Company’s ability to achieve projected
growth in certain of the Company’s business units and the expected
timing of such growth, its bid and proposal pipeline, demand for
its products and services, including the Company’s ability to
successfully compete in the tactical unmanned aerial system area
and expected new customer awards, performance of key contracts,
including the timing of production and demonstration related to
certain of the Company’s contracts and product offerings, the
impact of the Company’s restructuring efforts and cost reduction
measures, including its ability to improve profitability and cash
flow in certain business units as a result of these actions,
benefits to be realized from the Company’s net operating loss
carryforwards and the availability and timing of government funding
for the Company’s offerings, timing of LRIP related to the
Company’s unmanned aerial target system offerings, as well as the
level of recurring revenues expected to be generated by these
programs once they achieve full rate production, ability to close
the pending divestiture of its PSS business, and market and
industry developments, including projected growth. Such statements
are only predictions, and the Company’s actual results may differ
materially from the results expressed or implied by these
statements. Investors are cautioned not to place undue reliance on
any such forward-looking statements. All such forward-looking
statements speak only as of the date they are made, and the Company
undertakes no obligation to update or revise these statements,
whether as a result of new information, future events or otherwise.
Factors that may cause the Company’s results to differ include, but
are not limited to: risks to our business and financial results
related to the reductions and other spending constraints imposed on
the U.S. Government and our other customers, including as a result
of sequestration, the Federal budget deficit and Federal government
shut-downs; risks of adverse regulatory action or litigation; risks
associated with debt leverage and expected cost savings and cash
flow improvements expected as a result of the refinancing of our
Senior Notes and the repurchase of Senior Notes; risks that our
cost-cutting initiatives will not provide the anticipated benefits;
risks that changes, cutbacks or delays in spending by the U.S. DoD
may occur, which could cause delays or cancellations of key
government contracts; risks of delays to or the cancellation of our
projects as a result of protest actions submitted by our
competitors; risks that changes may occur in Federal government (or
other applicable) procurement laws, regulations, policies and
budgets; risks of the availability of government funding for the
Company's products and services due to performance, cost growth, or
other factors, changes in government and customer priorities and
requirements (including cost-cutting initiatives, the potential
deferral of awards, terminations or reduction of expenditures to
respond to the priorities of Congress and the Administration, or
budgetary cuts resulting from Congressional committee
recommendations or automatic sequestration under the Budget Control
Act of 2011, as amended); risks of increases in the Federal
government initiatives related to in-sourcing; risks related to
security breaches, including cybersecurity attacks and threats or
other significant disruptions of our information systems,
facilities and infrastructures; risks related to our compliance
with applicable contracting and procurement laws, regulations and
standards; risks relating to contract performance; risks related to
failure of our products or services; risks associated with our
subcontractors’ or suppliers’ failure to perform their contractual
obligations, including the appearance of counterfeit or corrupt
parts in our products; changes in the competitive environment
(including as a result of bid protests); failure to successfully
integrate acquired operations and competition in the marketplace,
which could reduce revenues and profit margins; risks that
potential future goodwill impairments will adversely affect our
operating results; risks that anticipated tax benefits will not be
realized in accordance with our expectations; risks that a change
in ownership of our stock could cause further limitation to the
future utilization of our net operating losses; risks that the
current economic environment will adversely impact our business;
risks that we are not able to close the pending divestiture of the
PSS business on our anticipated timeline or at all; and risks
related to natural disasters or severe weather. These and other
risk factors are more fully discussed in the Company’s Annual
Report on Form 10-K for the period ended December 31, 2017, and in
our other filings made with the Securities and Exchange
Commission.
This news release contains non-GAAP financial
measures, including Adjusted income (loss) per share (computed
using income (loss) from continuing operations before income
taxes, excluding amortization of intangible assets and capitalized
contract and development costs, stock compensation expense, loss on
extinguishment of debt, contract design retrofit costs, acquisition
and restructuring related items and other, and impairment of
goodwill, which includes but is not limited to unused office space
expense, excess capacity, investments in unmanned combat systems
initiatives, and foreign transaction gains and losses, less the
estimated tax cash payments) and Adjusted EBITDA (which excludes,
among other things, losses and gains from discontinued operations,
restructuring and transaction related items, investments in
unmanned combat systems initiatives, stock compensation expense,
unused office space expense, impairment of goodwill, loss on
extinguishment of debt, and foreign transaction gains and losses,
and the associated margin rates). Additional non-GAAP
financial measures include Revenues and Adjusted EBITDA related to
our PSS business. Kratos believes this information is useful
to investors because it provides a basis for measuring the
Company’s available capital resources, the actual and forecasted
operating performance of the Company’s business and the Company’s
cash flow, excluding extraordinary items and non-cash items that
would normally be included in the most directly comparable measures
calculated and presented in accordance with generally accepted
accounting principles. The Company’s management uses these
non-GAAP financial measures along with the most directly comparable
GAAP financial measures in evaluating the Company’s actual and
forecasted operating performance, capital resources and cash
flow. Non-GAAP financial measures should not be considered in
isolation from, or as a substitute for, financial information
presented in compliance with GAAP, and investors should carefully
evaluate the Company’s financial results calculated in accordance
with GAAP and reconciliations to those financial statements.
In addition, non-GAAP financial measures as reported by the Company
may not be comparable to similarly titled amounts reported by other
companies. As appropriate, the most directly comparable GAAP
financial measures and information reconciling these non-GAAP
financial measures to the Company’s financial results prepared in
accordance with GAAP are included in this news release.
*Adjusted earnings per share (Adjusted EPS)
excludes loss from discontinued operations, non-cash amortization
expenses, as the Company has historically been acquisitive,
non-cash stock compensation costs, foreign transaction gains
and losses, certain non-recurring items such as acquisition and
restructuring related items and other, the loss on extinguishment
of debt, and the non-cash impairment of goodwill, and includes cash
actually expected to be paid for income taxes on continuing
operations, reflecting the benefit of the Company’s net operating
loss carryforwards of over $300 million. Kratos believes that
reporting adjusted income (loss) per share is a meaningful metric
to present the Company’s financial results.
|
|
Kratos Defense & Security Solutions,
Inc. |
|
Unaudited Condensed Consolidated Statements of
Operations |
|
(in millions, except per share
data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve
Months Ended |
|
|
|
December 31, |
|
December 25, |
|
December 31, |
|
December 25, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues |
|
$ |
83.1 |
|
|
$ |
90.1 |
|
|
$ |
346.4 |
|
|
$ |
348.1 |
|
|
Product sales |
|
|
119.1 |
|
|
|
92.0 |
|
|
|
405.5 |
|
|
|
320.6 |
|
|
Total
revenues |
|
|
202.2 |
|
|
|
182.1 |
|
|
|
751.9 |
|
|
|
668.7 |
|
|
Cost of service
revenues |
|
|
57.9 |
|
|
|
66.4 |
|
|
|
247.5 |
|
|
|
255.8 |
|
|
Cost of product
sales |
|
|
87.6 |
|
|
|
69.1 |
|
|
|
307.1 |
|
|
|
259.3 |
|
|
Total
costs |
|
|
145.5 |
|
|
|
135.5 |
|
|
|
554.6 |
|
|
|
515.1 |
|
|
Gross profit - service
revenues |
|
|
25.2 |
|
|
|
23.7 |
|
|
|
98.9 |
|
|
|
92.3 |
|
|
Gross profit - product
sales |
|
|
31.5 |
|
|
|
22.9 |
|
|
|
98.4 |
|
|
|
61.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total gross
profit |
|
|
56.7 |
|
|
|
46.6 |
|
|
|
197.3 |
|
|
|
153.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses |
|
|
37.3 |
|
|
|
33.4 |
|
|
|
147.5 |
|
|
|
132.6 |
|
|
Unused office space,
restructuring expenses, and other |
|
|
- |
|
|
|
1.5 |
|
|
|
0.5 |
|
|
|
12.0 |
|
|
Research and
development expenses |
|
|
5.1 |
|
|
|
3.8 |
|
|
|
17.8 |
|
|
|
13.9 |
|
|
Impairment of
goodwill |
|
|
24.2 |
|
|
|
- |
|
|
|
24.2 |
|
|
|
- |
|
|
Depreciation |
|
|
0.8 |
|
|
|
0.7 |
|
|
|
2.7 |
|
|
|
3.2 |
|
|
Amortization of
intangible assets |
|
|
2.5 |
|
|
|
2.6 |
|
|
|
10.4 |
|
|
|
10.5 |
|
|
Operating income
(loss) from continuing operations |
|
|
(13.2 |
) |
|
|
4.6 |
|
|
|
(5.8 |
) |
|
|
(18.6 |
) |
|
Interest expense,
net |
|
|
(5.5 |
) |
|
|
(8.6 |
) |
|
|
(28.6 |
) |
|
|
(34.7 |
) |
|
Gain (loss) on
extinguishment of debt |
|
|
(15.2 |
) |
|
|
0.2 |
|
|
|
(17.3 |
) |
|
|
0.2 |
|
|
Other income, net |
|
|
(0.1 |
) |
|
|
0.2 |
|
|
|
0.9 |
|
|
|
0.8 |
|
|
Loss from
continuing operations before income taxes |
|
|
(34.0 |
) |
|
|
(3.6 |
) |
|
|
(50.8 |
) |
|
|
(52.3 |
) |
|
Provision (benefit) for
income taxes from continuing operations |
|
|
(11.7 |
) |
|
|
0.8 |
|
|
|
(8.2 |
) |
|
|
8.1 |
|
|
Loss from
continuing operations |
|
|
(22.3 |
) |
|
|
(4.4 |
) |
|
|
(42.6 |
) |
|
|
(60.4 |
) |
|
Income (loss) from
discontinued operations, net of income taxes |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
Net loss |
|
$ |
(22.2 |
) |
|
$ |
(4.3 |
) |
|
$ |
(42.7 |
) |
|
$ |
(60.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss
per common share: |
|
|
|
|
|
|
|
|
|
Loss from
continuing operations |
|
$ |
(0.21 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.48 |
) |
|
$ |
(0.99 |
) |
|
Income (loss)
from discontinued operations |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net loss |
|
$ |
(0.21 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.48 |
) |
|
$ |
(0.99 |
) |
|
Weighted average common
shares outstanding |
|
|
|
|
|
|
|
|
|
Basic and
diluted weighted average common shares outstanding |
|
|
103.5 |
|
|
|
65.5 |
|
|
|
89.5 |
|
|
|
61.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(1) |
|
$ |
17.8 |
|
|
$ |
13.4 |
|
|
$ |
54.4 |
|
|
$ |
45.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Reconciliation of GAAP to Non-GAAP
Measures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: (1)
Adjusted EBITDA is a non-GAAP measure defined as GAAP net income
(loss) plus (income) loss from discontinued |
|
operations, net interest expense, income taxes, depreciation and
amortization, stock compensation, amortization of
intangible |
|
assets,
amortization of capitalized contract and development costs, foreign
transaction gain (loss), acquisition and |
|
restructuring related items, impairment of goodwill, contract
design retrofit costs, investment in unmanned combat systems,
litigation related |
|
charges,
unused office space expense and costs related to pending customer
change orders. |
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA as calculated by us may be calculated differently than
Adjusted EBITDA for other companies. We have
provided |
|
Adjusted
EBITDA because we believe it is a commonly used measure of
financial performance in comparable companies and is provided
to |
|
help
investors evaluate companies on a consistent basis, as well as to
enhance understanding of our operating results. Adjusted
EBITDA |
|
should not
be construed as either an alternative to net income or as an
indicator of our operating performance or an alternative to cash
flows |
|
as a
measure of liquidity. The adjustments to calculate this
non-GAAP financial measure and the basis for such adjustments are
outlined below. |
|
Please
refer to the following table below that reconciles GAAP net income
(loss) to Adjusted EBITDA. |
|
|
|
|
|
|
|
|
|
|
|
The
adjustments to calculate this non-GAAP financial measure, and the
basis for such adjustments, are outlined below: |
|
|
|
|
|
Interest
income and expense. The Company receives interest income on
investments and incurs interest expense on loans, capital leases
and other |
|
financing
arrangements, including the amortization of issue discounts and
deferred financing costs. These amounts may vary from period
to period due to |
changes in cash and
debt balances. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes. The Company's tax expense can fluctuate materially
from period to period due to tax adjustments that may not be
directly related to |
|
underlying
operating performance or to the current period of operations and
may not necessarily reflect the impact of utilization of our
NOLs. |
|
|
|
|
|
|
|
|
|
|
|
Depreciation. The Company incurs depreciation expense
(recorded in cost of revenues and in operating expenses) related to
capital assets purchased |
|
or
constructed to support the ongoing operations of the
business. The assets are recorded at cost or fair value and
are depreciated over the estimated |
|
useful lives of
individual assets. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets. The Company incurs
amortization of intangible expense related to acquisitions it has
made. These intangible assets are |
|
valued at
the time of acquisition and are amortized over the estimated useful
lives. |
|
|
|
|
|
|
|
|
|
|
|
Amortization of capitalized contract and development costs.
The Company incurs amortization of previously capitalized software
development and non- |
|
recurring
engineering costs related to certain aerial targets in its Unmanned
Systems business as these units are sold. |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense. The Company incurs expense
related to stock-based compensation included in its GAAP
presentation of selling, |
|
general
and administrative expense. Although stock-based compensation
is an expense of the Company and viewed as a form of compensation,
these |
|
expenses
vary in amount from period to period, and are affected by market
forces that are difficult to predict and are not within the control
of management, |
such as
the market price and volatility of the Company's shares, risk-free
interest rates and the expected term and forfeiture rates of the
awards. |
|
Management
believes that exclusion of these expenses allows comparison of
operating results to those of other companies that disclose
non-GAAP |
|
financial
measures that exclude stock-based compensation. |
|
|
|
|
|
|
|
|
|
|
|
Foreign
transaction (gain) loss. The Company incurs transaction gains
and losses related to transactions with foreign customers in
currencies other than |
|
the U.S.
dollar. In addition, certain intercompany transactions can
give rise to realized and unrealized foreign currency gains and
losses. |
|
|
|
|
|
|
|
|
|
|
|
Acquisition and restructuring related items. The Company
incurs transaction related costs, such as legal and accounting fees
and other expenses, related to |
|
acquisitions and divestiture activities. Management believes these
items are outside the normal operations of the Company's business
and are not |
|
indicative
of ongoing operating results. |
|
|
|
|
|
|
|
|
|
|
|
Excess
capacity and restructuring costs. The Company incurs excess
capacity and excess overhead costs related to certain of its
manufacturing businesses |
|
within its
Unmanned Systems and Modular Systems businesses due primarily to
underutilization of manufacturing facilities and support costs
resulting from |
less than
optimal volumes and efficiencies. The Company incurs restructuring
costs for cost reduction actions which include employee termination
costs, |
|
facility
shut-down related costs and remaining lease commitment costs for
excess or exited facilities. Management believes that these
costs are not |
|
indicative
of ongoing operating results as they are either non-recurring
and/or not expected when full capacity and volumes are
achieved. |
|
|
|
|
|
|
|
|
|
|
|
Litigation
related items. The Company periodically incurs expenses
related to pending claims and litigation and associated legal fees
and potential |
|
case
settlements and/or judgments. Although we may incur such
costs and other related charges and adjustments, we do not believe
it is indicative |
|
of any
particular outcome until the matter is fully resolved.
Management believes these items are outside the normal operations
of the Company's |
|
business
and are not indicative of ongoing operating results. |
|
|
|
|
|
|
|
|
|
|
|
Investment
in unmanned combat systems. The Company makes discretionary
investments related to its tactical unmanned combat systems
initiative |
|
with the
intention of retaining the intellectual property and data package
rights of the technology it is developing. Management
believes these rights |
|
will
result in securing future sole source positions on new platforms
which will provide an attractive rate of return. Management
believes that these |
|
costs are
not indicative of ongoing operating results. |
|
|
|
|
|
|
|
|
|
|
|
Contract
design retrofits. The Company makes certain design retrofits
primarily related to its development programs in its Unmanned
Systems business |
|
which are
necessary for the final design and configuration of these
vehicles. Management believes that these costs are not
indicative of ongoing |
|
operating
results. |
|
|
|
|
|
|
|
|
|
|
|
Impairment
of goodwill. As management has de-emphasized its legacy government
services business since 2012 and has considered this business
non-core, |
management
believes that this non-cash charge is not indicative of ongoing
operating results. |
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA is a non-GAAP financial measure and should not be considered
in isolation or as a substitute for financial information provided
in |
|
accordance
with GAAP. This non-GAAP financial measure may not be
computed in the same manner as similarly titled measures used by
other |
|
companies. The Company expects to continue to incur expenses
similar to the Adjusted EBITDA financial adjustments described
above, and investors |
|
should not
infer from the Company's presentation of this non-GAAP financial
measure that these costs are unusual, infrequent, or
non-recurring. |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net income (loss) to Adjusted EBITDA is as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve
Months Ended |
|
|
|
December 31, |
|
December 25, |
|
December 31, |
|
December 25, |
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(22.2 |
) |
|
$ |
(4.3 |
) |
|
$ |
(42.7 |
) |
|
$ |
(60.5 |
) |
|
Income (loss) from
discontinued operations, net of income taxes |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
0.1 |
|
|
Interest expense,
net |
|
|
5.5 |
|
|
|
8.6 |
|
|
|
28.6 |
|
|
|
34.7 |
|
|
(Income) loss on
extinguishment of debt |
|
|
15.2 |
|
|
|
(0.2 |
) |
|
|
17.3 |
|
|
|
(0.2 |
) |
|
Provision (benefit) for
income taxes from continuing operations |
|
|
(11.7 |
) |
|
|
0.8 |
|
|
|
(8.2 |
) |
|
|
8.1 |
|
|
Depreciation (including
cost of service revenues and product sales) |
|
|
3.0 |
|
|
|
2.9 |
|
|
|
12.1 |
|
|
|
12.3 |
|
|
Stock-based
compensation |
|
|
1.0 |
|
|
|
0.9 |
|
|
|
7.8 |
|
|
|
5.1 |
|
|
Foreign transaction
(gain)/loss |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
Amortization of
intangible assets |
|
|
2.5 |
|
|
|
2.6 |
|
|
|
10.4 |
|
|
|
10.5 |
|
|
Amortization of
capitalized contract and development costs |
|
|
0.2 |
|
|
|
- |
|
|
|
0.5 |
|
|
|
- |
|
|
Impairment of
goodwill |
|
|
24.2 |
|
|
|
- |
|
|
|
24.2 |
|
|
|
|
Acquisition and
restructuring related items and other |
|
|
- |
|
|
|
2.1 |
|
|
|
4.7 |
|
|
|
35.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
17.8 |
|
|
$ |
13.4 |
|
|
$ |
54.4 |
|
|
$ |
45.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of acquisition and restructuring related items and
other included in Adjusted EBITDA: |
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve
Months Ended |
|
|
|
December 31, |
|
December 25, |
|
December 31, |
|
December 25, |
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Acquisition and
transaction related items |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
0.3 |
|
|
$ |
- |
|
|
Excess capacity and
restructuring costs |
|
|
- |
|
|
|
2.1 |
|
|
|
4.4 |
|
|
|
13.4 |
|
|
Litigation related
items |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1.9 |
|
|
Investment in unmanned
combat systems |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
2.1 |
|
|
$ |
4.7 |
|
|
$ |
35.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
|
Unaudited Segment Data |
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve
Months Ended |
|
|
|
December 31, |
|
December 25, |
|
December 31, |
|
December 25, |
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
Unmanned
Systems |
|
$ |
42.3 |
|
|
$ |
25.5 |
|
|
$ |
121.7 |
|
|
$ |
75.8 |
|
|
Kratos
Government Solutions |
|
|
123.9 |
|
|
|
124.4 |
|
|
|
480.3 |
|
|
|
465.8 |
|
|
Public Safety
& Security |
|
|
36.0 |
|
|
|
32.2 |
|
|
|
149.9 |
|
|
|
127.1 |
|
|
Total
revenues |
|
$ |
202.2 |
|
|
$ |
182.1 |
|
|
$ |
751.9 |
|
|
$ |
668.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
from continuing operations: |
|
|
|
|
|
|
|
|
|
Unmanned
Systems |
|
$ |
2.1 |
|
|
$ |
(0.1 |
) |
|
$ |
(3.0 |
) |
|
$ |
(27.7 |
) |
|
Kratos
Government Solutions |
|
|
(15.3 |
) |
|
|
6.9 |
|
|
|
1.7 |
|
|
|
17.3 |
|
|
Public Safety
& Security |
|
|
1.0 |
|
|
|
(1.3 |
) |
|
|
3.8 |
|
|
|
(3.0 |
) |
|
Unallocated
corporate expense, net |
|
|
(1.0 |
) |
|
|
(0.9 |
) |
|
|
(8.3 |
) |
|
|
(5.2 |
) |
|
Total
operating income (loss) from continuing operations |
|
$ |
(13.2 |
) |
|
$ |
4.6 |
|
|
$ |
(5.8 |
) |
|
$ |
(18.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Note: The operating performance for Kratos Government
Solutions for the three months and twelve months ended December 31,
2017 includes the non-cash impairment of goodwill of $24.2 million.
Unallocated corporate expense, net includes costs for certain
stock-based compensation programs (including stock-based
compensation costs for stock options, employee stock purchase plan
and restricted stock units), the effects of items not considered
part of management’s evaluation of segment operating performance,
merger and acquisition expenses, corporate costs not allocated to
the segments, and other miscellaneous corporate activities. |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of consolidated Adjusted EBITDA to Adjusted EBITDA
by segment is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve
Months Ended |
|
|
|
December 31, |
|
December 25, |
|
December 31, |
|
December 25, |
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Unmanned Systems |
|
$ |
4.1 |
|
|
$ |
2.2 |
|
|
$ |
6.8 |
|
|
$ |
2.2 |
|
|
% of
revenue |
|
|
9.7 |
% |
|
|
8.6 |
% |
|
|
5.6 |
% |
|
|
2.9 |
% |
|
Kratos Government
Solutions |
|
|
12.6 |
|
|
|
12.1 |
|
|
|
43.0 |
|
|
|
43.1 |
|
|
% of
revenue |
|
|
10.2 |
% |
|
|
9.7 |
% |
|
|
9.0 |
% |
|
|
9.3 |
% |
|
Public Safety &
Security |
|
|
1.1 |
|
|
|
(0.9 |
) |
|
|
4.6 |
|
|
|
(0.3 |
) |
|
% of revenue |
|
|
3.1 |
% |
|
|
(2.8 |
)% |
|
|
3.1 |
% |
|
|
(0.2 |
)% |
|
Total Adjusted
EBITDA |
|
$ |
17.8 |
|
|
$ |
13.4 |
|
|
$ |
54.4 |
|
|
$ |
45.0 |
|
|
% of
revenue |
|
|
8.8 |
% |
|
|
7.4 |
% |
|
|
7.2 |
% |
|
|
6.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
|
Unaudited Condensed Consolidated Balance
Sheets |
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 25, |
|
|
|
|
|
|
|
2017 |
|
2016 |
|
Assets |
|
|
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
|
|
|
|
$ |
129.6 |
|
|
$ |
69.1 |
|
|
Restricted cash |
|
|
|
|
|
|
0.4 |
|
|
|
0.5 |
|
|
Accounts
receivable, net |
|
|
|
|
|
|
268.4 |
|
|
|
229.4 |
|
|
Inventoried costs |
|
|
|
|
|
|
50.4 |
|
|
|
55.4 |
|
|
Prepaid
expenses |
|
|
|
|
|
|
12.9 |
|
|
|
8.9 |
|
|
Other
current assets |
|
|
|
|
|
|
9.6 |
|
|
|
9.8 |
|
|
Total
current assets |
|
|
|
|
|
|
471.3 |
|
|
|
373.1 |
|
|
Property,
plant and equipment, net |
|
|
|
|
|
|
61.2 |
|
|
|
49.8 |
|
|
Goodwill |
|
|
|
|
|
|
461.2 |
|
|
|
485.4 |
|
|
Intangible assets, net |
|
|
|
|
|
|
22.0 |
|
|
|
32.6 |
|
|
Other
assets |
|
|
|
|
|
|
8.3 |
|
|
|
7.7 |
|
|
Total
assets |
|
|
|
|
|
$ |
1,024.0 |
|
|
$ |
948.6 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
|
|
|
$ |
48.8 |
|
|
$ |
52.7 |
|
|
Accrued
expenses |
|
|
|
|
|
|
45.6 |
|
|
|
50.0 |
|
|
Accrued
compensation |
|
|
|
|
|
|
34.8 |
|
|
|
39.1 |
|
|
Accrued
interest |
|
|
|
|
|
|
1.7 |
|
|
|
3.6 |
|
|
Billings
in excess of costs and earnings on uncompleted contracts |
|
|
|
|
|
|
47.2 |
|
|
|
41.8 |
|
|
Other
current liabilities |
|
|
|
|
|
|
9.7 |
|
|
|
7.7 |
|
|
Other
current liabilities of discontinued operations |
|
|
|
|
|
|
1.1 |
|
|
|
1.6 |
|
|
Total
current liabilities |
|
|
|
|
|
|
188.9 |
|
|
|
196.5 |
|
|
Long-term
debt principal, net of current portion |
|
|
|
|
|
|
293.5 |
|
|
|
431.0 |
|
|
Other
long-term liabilities |
|
|
|
|
|
|
26.3 |
|
|
|
41.0 |
|
|
Other
long-term liabilities of discontinued operations |
|
|
|
|
|
|
3.8 |
|
|
|
3.7 |
|
|
Total
liabilities |
|
|
|
|
|
|
512.5 |
|
|
|
672.2 |
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Common
stock |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
Additional paid-in capital |
|
|
|
|
|
|
1,233.7 |
|
|
|
956.2 |
|
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
(1.4 |
) |
|
|
(1.7 |
) |
|
Accumulated deficit |
|
|
|
|
|
|
(720.8 |
) |
|
|
(678.1 |
) |
|
Total
stockholders’ equity |
|
|
|
|
|
|
511.5 |
|
|
|
276.4 |
|
|
Total
liabilities and stockholders’ equity |
|
|
|
|
|
$ |
1,024.0 |
|
|
$ |
948.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
|
Unaudited Condensed Consolidated Statements of
Cash Flows |
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
Months Ended |
|
|
|
|
|
|
|
December 31, |
|
December 25, |
|
|
|
|
|
|
|
2017 |
|
2016 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
|
|
|
$ |
(42.7 |
) |
|
$ |
(60.5 |
) |
|
Less:
loss from discontinued operations |
|
|
|
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
Loss from
continuing operations |
|
|
|
|
|
|
(42.6 |
) |
|
|
(60.4 |
) |
|
Adjustments to reconcile loss from continuing operations to net
cash used in operating activities from continuing operations: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
22.5 |
|
|
|
22.8 |
|
|
Deferred
income taxes |
|
|
|
|
|
|
(10.2 |
) |
|
|
4.7 |
|
|
Stock-based compensation |
|
|
|
|
|
|
7.8 |
|
|
|
5.1 |
|
|
Impairment of goodwill |
|
|
|
|
|
|
24.2 |
|
|
|
- |
|
|
Litigation related charges |
|
|
|
|
|
|
- |
|
|
|
1.7 |
|
|
Amortization of deferred financing costs |
|
|
|
|
|
|
1.3 |
|
|
|
1.5 |
|
|
Amortization of discount on Senior Secured Notes |
|
|
|
|
|
|
0.7 |
|
|
|
0.9 |
|
|
Loss on
extinguishment of debt |
|
|
|
|
|
|
17.3 |
|
|
|
(0.2 |
) |
|
Provision
for non-cash restructuring costs |
|
|
|
|
|
|
- |
|
|
|
9.1 |
|
|
Provision
for doubtful accounts |
|
|
|
|
|
|
0.1 |
|
|
|
0.3 |
|
|
Changes
in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
|
|
|
|
(39.1 |
) |
|
|
(24.7 |
) |
|
Inventoried costs |
|
|
|
|
|
|
7.1 |
|
|
|
(2.7 |
) |
|
Prepaid
expenses and other assets |
|
|
|
|
|
|
(6.6 |
) |
|
|
5.0 |
|
|
Accounts
payable |
|
|
|
|
|
|
(3.4 |
) |
|
|
2.9 |
|
|
Accrued
compensation |
|
|
|
|
|
|
(4.4 |
) |
|
|
2.3 |
|
|
Accrued
expenses |
|
|
|
|
|
|
(5.4 |
) |
|
|
16.5 |
|
|
Accrued
interest |
|
|
|
|
|
|
(1.9 |
) |
|
|
(0.3 |
) |
|
Billings
in excess of costs and earnings on uncompleted contracts |
|
|
|
|
|
|
5.4 |
|
|
|
(0.4 |
) |
|
Income
tax receivable and payable |
|
|
|
|
|
|
1.7 |
|
|
|
1.2 |
|
|
Other
liabilities |
|
|
|
|
|
|
(1.5 |
) |
|
|
2.3 |
|
|
Net cash used in operating activities from continuing
operations |
|
|
|
|
(27.0 |
) |
|
|
(12.4 |
) |
|
Investing
activities: |
|
|
|
|
|
|
|
|
|
Cash paid
for acquisitions, net of cash acquired |
|
|
|
|
|
|
- |
|
|
|
(5.1 |
) |
|
Change in
restricted cash |
|
|
|
|
|
|
- |
|
|
|
0.3 |
|
|
Proceeds
from the sale of assets |
|
|
|
|
|
|
0.7 |
|
|
|
0.1 |
|
|
Capital
expenditures |
|
|
|
|
|
|
(26.5 |
) |
|
|
(9.2 |
) |
|
Net cash used in investing activities from continuing
operations |
|
|
|
|
(25.8 |
) |
|
|
(13.9 |
) |
|
Financing
activities: |
|
|
|
|
|
|
|
|
|
Proceeds
from the issuance of long-term debt |
|
|
|
|
|
|
300.0 |
|
|
|
- |
|
|
Payment
of long-term debt |
|
|
|
|
|
|
(448.8 |
) |
|
|
(14.1 |
) |
|
Proceeds
from the issuance of common stock |
|
|
|
|
|
|
269.1 |
|
|
|
76.2 |
|
|
Repayment
of debt |
|
|
|
|
|
|
(1.0 |
) |
|
|
(1.0 |
) |
|
Debt
issuance costs |
|
|
|
|
|
|
(6.6 |
) |
|
|
- |
|
|
Proceeds
from exercise of restricted stock units, employee stock options,
and employee stock purchase plan |
|
|
|
|
|
|
1.5 |
|
|
|
2.0 |
|
|
Other |
|
|
|
|
|
|
(0.8 |
) |
|
|
- |
|
|
Net cash provided by financing activities from
continuing operations |
|
|
|
|
113.4 |
|
|
|
63.1 |
|
|
Net cash
flows from continuing operations |
|
|
|
|
|
|
60.6 |
|
|
|
36.8 |
|
|
Net operating
and investing cash flows of discontinued operations |
|
|
|
|
|
|
(0.6 |
) |
|
|
4.1 |
|
|
Effect of
exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
0.5 |
|
|
|
(0.3 |
) |
|
Net
increase in cash and cash equivalents |
|
|
|
|
|
|
60.5 |
|
|
|
40.6 |
|
|
Cash and
cash equivalents at beginning of period |
|
|
|
|
|
|
69.1 |
|
|
|
28.5 |
|
|
Cash and
cash equivalents at end of period |
|
|
|
|
|
$ |
129.6 |
|
|
$ |
69.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
|
Unaudited Non-GAAP Measures |
|
Computation of Adjusted Earnings Per
Share |
|
(in millions, except per share
data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income (loss) from continuing operations and adjusted
earnings per share (Adjusted EPS) are non-GAAP measure for
reporting financial |
|
performance, exclude the impact of certain items and,
therefore, have not been calculated in accordance with GAAP.
Management believes that exclusion |
|
of these items assists in providing a more complete
understanding of the Company's underlying continuing operations
results and trends and allows |
|
for comparability with our peer company index and
industry. The Company uses these measures along with the
corresponding GAAP financial measures |
|
to manage the Company's business and to evaluate its
performance compared to prior periods and the marketplace.
The Company defines adjusted |
|
income (loss) from continuing operations before amortization
of intangible assets, stock-based compensation, foreign transaction
gain/loss, contract |
|
design retrofit costs, acquisition and restructuring related
items and other, and impairment of goodwill. The Company uses
the estimated cash tax provision |
in computing adjusted earnings per share to reflect the
benefit from the utilization of the Company's net operating losses.
Adjusted EPS expresses adjusted |
income (loss) from continuing operations on a per share basis
using weighted average diluted shares outstanding. |
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the most directly comparable
GAAP financial measures to the non-GAAP financial
measures. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve
Months Ended |
|
|
|
December 31, |
|
December 25, |
|
December 31, |
|
December 25, |
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Loss from continuing
operations before taxes |
|
$ |
(34.0 |
) |
|
$ |
(3.6 |
) |
|
$ |
(50.8 |
) |
|
$ |
(52.3 |
) |
|
Add: Amortization of
intangible assets |
|
|
2.5 |
|
|
|
2.6 |
|
|
|
10.4 |
|
|
|
10.5 |
|
|
Add: Amortization of
capitalized contract and development costs |
|
|
0.2 |
|
|
|
- |
|
|
|
0.5 |
|
|
|
- |
|
|
Add: Stock-based
compensation |
|
|
1.0 |
|
|
|
0.9 |
|
|
|
7.8 |
|
|
|
5.1 |
|
|
Add: Loss/(gain) on
extinguishment of debt |
|
|
15.2 |
|
|
|
(0.2 |
) |
|
|
17.3 |
|
|
|
(0.2 |
) |
|
Add: Foreign
transaction (gain)/loss |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
Add: Impairment of
goodwill |
|
|
24.2 |
|
|
|
- |
|
|
|
24.2 |
|
|
|
- |
|
|
Add: Acquisition and
restructuring related items and other |
|
|
- |
|
|
|
2.1 |
|
|
|
4.7 |
|
|
|
35.3 |
|
|
Adjusted income/(loss) from continuing operations before income
taxes |
|
9.3 |
|
|
|
1.9 |
|
|
|
13.7 |
|
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
Estimated cash
tax provision |
|
|
0.3 |
|
|
|
0.7 |
|
|
|
2.4 |
|
|
|
2.4 |
|
|
Adjusted income/(loss)
from continuing operations |
|
$ |
9.0 |
|
|
$ |
1.2 |
|
|
$ |
11.3 |
|
|
$ |
(4.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Diluted income per
common share: |
|
|
|
|
|
|
|
|
|
Adjusted
income/(loss) from continuing operations |
|
$ |
0.09 |
|
|
$ |
0.02 |
|
|
$ |
0.12 |
|
|
$ |
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding |
|
|
|
|
|
|
|
|
|
Diluted |
|
|
105.4 |
|
|
|
67.0 |
|
|
|
91.5 |
|
|
|
61.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|