Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a
leading National Security Solutions provider, today reported its
third quarter 2019 financial results. For the third quarter 2019,
Kratos reported Revenues of $184.1 million, a 15.5% increase over
the third quarter of 2018, and third quarter 2019 Adjusted EBITDA
of $20.4 million, or 11.1%, a 22.2% increase over the third quarter
of 2018. Excluding the impact of the recent FTT acquisition,
revenues grew organically 5.3% from the third quarter of 2018 to
the third quarter of 2019. Third quarter 2019 Operating Income of
$11.5 million increased 13.9% over the third quarter of 2018. Third
quarter 2019 Cash Flow from Operations was $10.2 million, and third
quarter 2019 Free Cash Flow generated from Operations was $2.1
million, after capital expenditures of $8.1 million, which included
the continued build out of the Company’s new drone manufacturing
facility in Oklahoma, where the XQ-58 Valkyrie will be produced.
Third quarter 2019 Adjusted EPS* was $0.09, a 12.5% increase over
the third quarter of 2018. Kratos reported third quarter 2019 Net
Income of $2.5 million, a 47.1% increase over third quarter 2018
Net Income of $1.7 million.
For the third quarter of 2019, Kratos’ Unmanned
Systems Division (KUSD) reported Revenues of $45.7 million, an
increase of $12.4 million, or 37.2%, over 2018 third quarter
Revenues of $33.3 million, and Adjusted EBITDA of $4.9 million, an
increase of 88.5% over 2018 third quarter Adjusted EBITDA of $2.6
million. Third quarter KUSD Operating Income of $3.3 million
increased 230.0% over 2018 Operating Income of $1.0 million. KUSD’s
third quarter 2019 book-to-bill ratio was 1.2 to 1.0 and 1.3 to 1.0
for the last twelve months ended September 29, 2019. Total backlog
for KUSD at the end of the 2019 third quarter was $160.9
million.
Kratos’ Government Solutions Division (KGS)
reported third quarter 2019 Revenues of $138.4 million, an increase
of 9.8% over 2018 third quarter Revenues of $126.1 million.
Excluding the impact of the FTT acquisition, which contributed
$16.3 million to third quarter 2019 revenues, KGS Revenues
decreased 3.2%, or $4.0 million, from the third quarter of 2018,
resulting from the continued reduction in the Company’s
deemphasized legacy government services revenues, which declined
$5.1 million from the third quarter of 2018. Third quarter 2019 KGS
Adjusted EBITDA of $15.5 million increased 9.9% over third quarter
2018 Adjusted EBITDA of $14.1 million, and third quarter 2019 KGS
Operating Income of $11.1 million increased from third quarter 2018
Operating Income of $11.0 million.
For the third quarter of 2019, Kratos reported
bookings of $172.5 million and a book-to-bill ratio of 0.9 to 1.0,
with bookings of $713.1 million in the last twelve months and a
book-to-bill ratio of 1.0 to 1.0. Backlog at September 29, 2019 was
$608.7 million. All Kratos business units reported a book-to-bill
ratio for the last twelve months between 1.0 to 1.4, with the
exception of the Company’s Training Solutions business. In the
third quarter, Kratos’ bid and proposal pipeline increased by $100
million, up to approximately $7.7 billion, at September 29,
2019.
For the nine months ended September 29, 2019,
cash generated from operations was $30.2 million, and Free Cash
Flow generated from operations was $12.3 million, after capital
expenditures of $17.9 million. Net leverage ratio as of September
29, 2019 was 1.5 to 1, computed as net debt of $113.8 million over
trailing twelve months Adjusted EBITDA of $75.1 million.
Eric DeMarco, Kratos’ President and CEO, said,
“Since our last report to you, Kratos’ tactical drone business
continued to make important progress, including our XQ-58A Valkyrie
completing Flight 3, successfully executing 100 Percent of the test
points and Kratos’ Unmanned Systems Division receiving new contract
awards for tactical drone capability expansion, mission system
integration and concepts of operations. Our confidence continues to
increase that Kratos’ market leading position in affordable, high
performance drones, of which we believe Kratos has the only
existing systems in the class today, including Valkyrie, Mako and
Gremlins, will become a long-term growth driver and value generator
for the Company.”
Mr. DeMarco concluded, “Over the past few years,
Kratos has successfully received a number of development and
production programs, certain of which are forecasted for
significant future growth as production both begins and increases,
including in our unmanned systems business, which reported 37%
organic revenue growth and a 1.3 to 1.0 book to bill ratio over the
past 12 months. Though short-term delays may occur as a result of
Continuing Resolutions or delays in DoD budget approvals, we are
confident in the long-term growth trajectory and direction of our
business based on our existing program portfolio and opportunity
pipeline which increased to $7.7 billion.” Financial
Guidance
Kratos is affirming its full year 2019 financial
guidance for Revenues of $720 to $740 million, Adjusted EBITDA of
$71 to $77 million and its full year 2019 Free Cash Flow guidance
of $10 to $20 million, including capital expenditures and the
expected final cash receipt of the retained working capital from
the Company’s divested PSS business of approximately $4 to $6
million. Capital expenditures are expected to continue to be
elevated in 2019, reflecting expected outlays associated with
manufacturing equipment for the Company’s new drone facility in
Oklahoma, equipment for a new secured facility of approximately $6
to $8 million and approximately $6 to $8 million related to the
planned manufacture of Company-owned aerial target drones in
preparation of fulfilling expected customer requirements.
Consistent with prior years practice, Kratos
plans to provide next year, or fiscal 2020 financial guidance, with
its full fiscal year 2019 financial report, currently planned for
February 2020. This schedule provides the Company additional
insight into both the timing and funding content of Department of
Defense (DoD) Budgets and the potential impact of Continuing
Resolution Authorizations, under which typically no new contract
awards, or increases in existing production programs or contracts
can be made.
Management will discuss the Company’s third
quarter 2019 financial results, as well as its fourth quarter and
full year 2019 guidance on 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 8466148. 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.
About Kratos Defense & Security
SolutionsKratos Defense & Security Solutions,
Inc. (NASDAQ:KTOS) develops and fields transformative,
affordable technology, platforms and systems for United States
National Security related customers, allies and commercial
enterprises. Kratos is changing the way breakthrough
technologies for these industries are rapidly brought to market
through proven commercial and venture capital backed approaches,
including proactive research and streamlined development
processes. Kratos specializes in unmanned systems,
satellite communications, cyber security/warfare, microwave
electronics, missile defense, hypersonic systems, training and
combat systems and next generation turbo jet and turbo fan engine
development. For more information go to www.kratosdefense.com.
Notice
Regarding Forward-Looking StatementsThis 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
for its fourth quarter and full year 2019 revenue and Adjusted
EBITDA, full year 2019 capital expenditures and ability to generate
positive cash flow from operations and positive free cash flow in
2019, the timing and amount of the Company’s receipt of retained
working capital from the Company’s divested PSS business, the
Company’s ability to achieve projected growth in certain of the
Company’s business units and the expected timing of such growth,
the Company’s expectation of ramp on projects, the Company’s 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 and programs, 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 carry forwards, the
availability and timing of government funding for the Company’s
offerings, including the strength of the future funding
environment, the short-term delays that may occur as a result of
Continuing Resolutions or delays in DoD budget approvals, 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, 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 and extended
continuing resolutions, the Federal budget deficit and Federal
government shut-downs; risks of adverse regulatory action or
litigation; risks associated with debt leverage and cost savings
and cash flow improvements expected as a result of the refinancing
of our 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 that the UAS and UGS markets do not experience significant
growth; risks that we cannot expand our customer base or that our
products do not achieve broad acceptance which could impact our
ability to achieve our anticipated level of growth; risks of
increases in the Federal government initiatives related to
in-sourcing; risks related to security breaches, including cyber
security 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; 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 30, 2018, and in our other filings made with
the Securities and Exchange Commission.
Note Regarding Use of Non-GAAP Financial
MeasuresThis news release contains non-GAAP financial
measures, including Adjusted earnings per share (computed using
income (loss) from continuing operations before income taxes,
excluding amortization of intangible assets, amortization of
capitalized contract and development costs, stock-based
compensation expense, acquisition and restructuring related items
and other, which includes but is not limited to restructuring
costs, acquisition and transaction related items, legal related
items and foreign transaction gains and losses, less the estimated
tax cash payments) and Adjusted EBITDA (which includes net income
attributable to noncontrolling interest and excludes, among other
things, losses and gains from discontinued operations,
restructuring and transaction related items, stock compensation
expense, foreign transaction gains and losses, and the associated
margin rates). Additional non-GAAP financial measures include Free
Cash Flow from Operations and Adjusted EBITDA related to our KUSD
and KGS businesses. 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 non-recurring items and non-cash items that would
normally be included in the most directly comparable measures
calculated and presented in accordance with GAAP. 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 income (loss) from discontinued operations, non-cash
intangible amortization expense, as the Company has historically
been acquisitive, non-cash amortization of capitalized contract and
development costs, non-cash stock-based compensation costs, foreign
transaction gains and losses, certain non-recurring items such as
acquisition and restructuring related items and other, and includes
cash actually expected to be paid for income taxes on continuing
operations, reflecting the benefit of the Company’s net operating
loss carry forwards of over $300 million. Kratos believes that
reporting adjusted earnings 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) |
|
|
|
|
|
|
|
|
|
(in
millions, except per share data) |
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 29, |
|
September 30, |
|
September 29, |
|
September 30, |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
Service
revenues |
|
$ |
70.8 |
|
|
$ |
54.9 |
|
|
$ |
207.1 |
|
|
$ |
147.9 |
|
Product
sales |
|
|
113.3 |
|
|
|
104.5 |
|
|
|
325.3 |
|
|
|
305.7 |
|
Total revenues |
|
|
184.1 |
|
|
|
159.4 |
|
|
|
532.4 |
|
|
|
453.6 |
|
Cost of
service revenues |
|
|
50.2 |
|
|
|
34.3 |
|
|
|
142.8 |
|
|
|
100.4 |
|
Cost of
product sales |
|
|
85.3 |
|
|
|
81.0 |
|
|
|
248.0 |
|
|
|
229.0 |
|
Total costs |
|
|
135.5 |
|
|
|
115.3 |
|
|
|
390.8 |
|
|
|
329.4 |
|
Gross profit
- service revenues |
|
|
20.6 |
|
|
|
20.6 |
|
|
|
64.3 |
|
|
|
47.5 |
|
Gross profit
- product sales |
|
|
28.0 |
|
|
|
23.5 |
|
|
|
77.3 |
|
|
|
76.7 |
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
|
48.6 |
|
|
|
44.1 |
|
|
|
141.6 |
|
|
|
124.2 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses |
|
|
29.4 |
|
|
|
27.4 |
|
|
|
88.2 |
|
|
|
82.5 |
|
Acquisition
and restructuring related items |
|
|
- |
|
|
|
0.1 |
|
|
|
2.2 |
|
|
|
3.5 |
|
Research and
development expenses |
|
|
4.6 |
|
|
|
4.4 |
|
|
|
13.0 |
|
|
|
11.6 |
|
Depreciation |
|
|
1.4 |
|
|
|
0.8 |
|
|
|
4.3 |
|
|
|
2.4 |
|
Amortization
of intangible assets |
|
|
1.7 |
|
|
|
1.3 |
|
|
|
5.2 |
|
|
|
4.5 |
|
Operating income from continuing operations |
|
|
11.5 |
|
|
|
10.1 |
|
|
|
28.7 |
|
|
|
19.7 |
|
Interest
expense, net |
|
|
(5.4 |
) |
|
|
(5.0 |
) |
|
|
(16.2 |
) |
|
|
(15.8 |
) |
Other
expense, net |
|
|
(0.7 |
) |
|
|
(0.3 |
) |
|
|
(1.1 |
) |
|
|
(0.6 |
) |
Income from continuing operations before income taxes |
|
|
5.4 |
|
|
|
4.8 |
|
|
|
11.4 |
|
|
|
3.3 |
|
Provision
for income taxes from continuing operations |
|
|
2.8 |
|
|
|
3.4 |
|
|
|
3.8 |
|
|
|
4.4 |
|
Income (loss) from continuing operations |
|
|
2.6 |
|
|
|
1.4 |
|
|
|
7.6 |
|
|
|
(1.1 |
) |
Income
(loss) from discontinued operations, net of income taxes |
|
|
- |
|
|
|
0.3 |
|
|
|
2.4 |
|
|
|
(7.1 |
) |
Net income (loss) |
|
|
2.6 |
|
|
|
1.7 |
|
|
|
10.0 |
|
|
|
(8.2 |
) |
Less: Net income attributable to noncontrolling interest |
|
|
0.1 |
|
|
|
- |
|
|
|
0.5 |
|
|
|
- |
|
Net income (loss) attributable to Kratos |
|
$ |
2.5 |
|
|
$ |
1.7 |
|
|
$ |
9.5 |
|
|
$ |
(8.2 |
) |
|
|
|
|
|
|
|
|
|
Basic income
(loss) per common share attributable to Kratos: |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.02 |
|
|
$ |
0.01 |
|
|
$ |
0.07 |
|
|
$ |
(0.01 |
) |
Income (loss) from discontinued operations |
|
|
- |
|
|
|
0.01 |
|
|
|
0.02 |
|
|
|
(0.07 |
) |
Net income (loss) |
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
0.09 |
|
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
Diluted
income (loss) per common share attributable to Kratos: |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.02 |
|
|
$ |
0.01 |
|
|
$ |
0.07 |
|
|
$ |
(0.01 |
) |
Income (loss) from discontinued operations |
|
|
- |
|
|
|
0.01 |
|
|
|
0.02 |
|
|
|
(0.07 |
) |
Net income (loss) |
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
0.09 |
|
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
106.5 |
|
|
|
103.9 |
|
|
|
105.8 |
|
|
|
103.8 |
|
Diluted weighted average common shares outstanding |
|
|
109.9 |
|
|
|
106.4 |
|
|
|
109.0 |
|
|
|
103.8 |
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA (1) |
|
$ |
20.4 |
|
|
$ |
16.7 |
|
|
$ |
57.1 |
|
|
$ |
42.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Reconciliation of GAAP to Non-GAAP
Measures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net
income (loss) attributable to Kratos adjusted for net
income attributable to noncontrolling interest, income (loss)
from discontinued operations, net interest expense, provision for
income taxes, depreciation and amortization expense of
intangible assets, amortization of capitalized contract and
development costs, stock-based compensation, acquisition and
restructuring related items and other, and foreign transaction gain
(loss). 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 interest expense, net. 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, leased 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
targets in its Unmanned Systems and ballistic missile target
businesses 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 transaction 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. |
|
|
|
Restructuring costs. 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. |
|
|
|
|
|
|
|
|
|
Legal related items. The Company incurs costs related to pending
legal settlements and other legal related matters. Management
believes these items are outside the normal operations of the
Company's business and are 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) attributable to Kratos to
Adjusted EBITDA is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 29, |
|
September 30, |
|
September 29, |
|
September 30, |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
Net income
(loss) attributable to Kratos |
|
$ |
2.5 |
|
|
$ |
1.7 |
|
|
$ |
9.5 |
|
|
$ |
(8.2 |
) |
Loss
(Income) from discontinued operations, net of income taxes |
|
|
- |
|
|
|
(0.3 |
) |
|
|
(2.4 |
) |
|
|
7.1 |
|
Interest
expense, net |
|
|
5.4 |
|
|
|
5.0 |
|
|
|
16.2 |
|
|
|
15.8 |
|
Provision
for income taxes from continuing operations |
|
|
2.8 |
|
|
|
3.4 |
|
|
|
3.8 |
|
|
|
4.4 |
|
Depreciation
(including cost of service revenues and product sales) |
|
|
4.0 |
|
|
|
3.1 |
|
|
|
11.6 |
|
|
|
9.1 |
|
Stock-based
compensation |
|
|
2.8 |
|
|
|
1.7 |
|
|
|
8.2 |
|
|
|
5.1 |
|
Foreign
transaction loss |
|
|
0.8 |
|
|
|
0.3 |
|
|
|
1.3 |
|
|
|
0.7 |
|
Amortization
of intangible assets |
|
|
1.7 |
|
|
|
1.3 |
|
|
|
5.2 |
|
|
|
4.5 |
|
Amortization
of capitalized contract and development costs |
|
|
0.3 |
|
|
|
0.4 |
|
|
|
1.0 |
|
|
|
0.6 |
|
Acquisition
and restructuring related items and other |
|
|
- |
|
|
|
0.1 |
|
|
|
2.2 |
|
|
|
3.4 |
|
Plus: Net
income attributable to noncontrolling interest |
|
|
0.1 |
|
|
|
- |
|
|
|
0.5 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA |
|
$ |
20.4 |
|
|
$ |
16.7 |
|
|
$ |
57.1 |
|
|
$ |
42.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of acquisition and restructuring related items and
other included in Adjusted EBITDA: |
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 29, |
|
September 30, |
|
September 29, |
|
September 30, |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Acquisition
and transaction related items |
|
$ |
0.1 |
|
|
$ |
- |
|
|
$ |
1.9 |
|
|
$ |
- |
|
Restructuring costs |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
0.3 |
|
|
|
0.7 |
|
Legal
related items |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
0.1 |
|
|
$ |
2.2 |
|
|
$ |
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Segment Data |
(in
millions) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 29, |
|
September 30, |
|
September 29, |
|
September 30, |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Revenues: |
|
|
|
|
|
|
|
|
Unmanned Systems |
|
$ |
45.7 |
|
|
$ |
33.3 |
|
|
$ |
123.1 |
|
|
$ |
96.7 |
|
Kratos Government Solutions |
|
|
138.4 |
|
|
|
126.1 |
|
|
|
409.3 |
|
|
|
356.9 |
|
Total revenues |
|
$ |
184.1 |
|
|
$ |
159.4 |
|
|
$ |
532.4 |
|
|
$ |
453.6 |
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) from continuing operations: |
|
|
|
|
|
|
|
|
Unmanned Systems |
|
$ |
3.3 |
|
|
$ |
1.0 |
|
|
$ |
5.6 |
|
|
$ |
3.8 |
|
Kratos Government Solutions |
|
|
11.1 |
|
|
|
11.0 |
|
|
|
33.2 |
|
|
|
23.9 |
|
Unallocated corporate expense, net |
|
|
(2.9 |
) |
|
|
(1.9 |
) |
|
|
(10.1 |
) |
|
|
(8.0 |
) |
Total operating income from continuing operations |
|
$ |
11.5 |
|
|
$ |
10.1 |
|
|
$ |
28.7 |
|
|
$ |
19.7 |
|
|
|
|
|
|
|
|
|
|
Note: 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, and acquisition and
restructuring related items, corporate costs not allocated to the
segments, legal related items, and other miscellaneous corporate
activities. |
|
|
|
|
|
|
|
|
|
Reconciliation of consolidated Adjusted EBITDA to Adjusted EBITDA
by segment is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 29, |
|
September 30, |
|
September 29, |
|
September 30, |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Unmanned
Systems |
|
$ |
4.9 |
|
|
$ |
2.6 |
|
|
$ |
10.4 |
|
|
$ |
8.0 |
|
% of revenue |
|
|
10.7% |
|
|
|
7.8% |
|
|
|
8.4% |
|
|
|
8.3% |
|
Kratos
Government Solutions |
|
|
15.5 |
|
|
|
14.1 |
|
|
|
46.7 |
|
|
|
34.5 |
|
% of revenue |
|
|
11.2% |
|
|
|
11.2% |
|
|
|
11.4% |
|
|
|
9.7% |
|
Total
Adjusted EBITDA |
|
$ |
20.4 |
|
|
$ |
16.7 |
|
|
$ |
57.1 |
|
|
$ |
42.5 |
|
% of revenue |
|
|
11.1% |
|
|
|
10.5% |
|
|
|
10.7% |
|
|
|
9.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Condensed Consolidated Balance Sheets |
(in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, |
|
December 30, |
|
|
|
|
|
|
|
2019 |
|
|
|
2018 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
$ |
181.0 |
|
|
$ |
182.7 |
|
Restricted cash |
|
|
|
|
|
|
- |
|
|
|
0.3 |
|
Accounts receivable, net |
|
|
|
|
|
|
241.8 |
|
|
|
237.4 |
|
Inventoried costs |
|
|
|
|
|
|
68.2 |
|
|
|
46.8 |
|
Prepaid expenses |
|
|
|
|
|
|
10.1 |
|
|
|
8.9 |
|
Other current assets |
|
|
|
|
|
|
9.9 |
|
|
|
10.3 |
|
Current assets of discontinued operations |
|
|
|
|
|
|
4.6 |
|
|
|
8.3 |
|
Total current assets |
|
|
|
|
|
|
515.6 |
|
|
|
494.7 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
115.7 |
|
|
|
67.1 |
|
Operating lease right-of-use assets |
|
|
|
|
|
|
44.8 |
|
|
|
- |
|
Goodwill |
|
|
|
|
|
|
458.1 |
|
|
|
425.7 |
|
Intangible assets, net |
|
|
|
|
|
|
37.8 |
|
|
|
16.1 |
|
Other assets |
|
|
|
|
|
|
6.3 |
|
|
|
6.5 |
|
Total assets |
|
|
|
|
|
$ |
1,178.3 |
|
|
$ |
1,010.1 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
$ |
42.4 |
|
|
$ |
46.6 |
|
Accrued expenses |
|
|
|
|
|
|
39.0 |
|
|
|
38.1 |
|
Accrued compensation |
|
|
|
|
|
|
36.2 |
|
|
|
33.5 |
|
Accrued interest |
|
|
|
|
|
|
6.5 |
|
|
|
1.6 |
|
Billings in excess of costs and earnings on uncompleted
contracts |
|
|
|
|
|
|
34.0 |
|
|
|
34.9 |
|
Current portion of operating lease liabilities |
|
|
|
|
|
|
10.9 |
|
|
|
- |
|
Other current liabilities |
|
|
|
|
|
|
8.9 |
|
|
|
4.7 |
|
Other current liabilities of discontinued operations |
|
|
|
|
|
|
3.6 |
|
|
|
5.3 |
|
Total current liabilities |
|
|
|
|
|
|
181.5 |
|
|
|
164.7 |
|
Long-term debt principal, net of current portion |
|
|
|
|
|
|
294.8 |
|
|
|
294.2 |
|
Operating lease liabilities, net of current portion |
|
|
|
|
|
|
39.5 |
|
|
|
- |
|
Other long-term liabilities |
|
|
|
|
|
|
77.5 |
|
|
|
25.5 |
|
Other long-term liabilities of discontinued operations |
|
|
|
|
|
|
2.8 |
|
|
|
6.4 |
|
Total liabilities |
|
|
|
|
|
|
596.1 |
|
|
|
490.8 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest |
|
|
|
|
|
|
15.5 |
|
|
|
- |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
1,282.7 |
|
|
|
1,244.5 |
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
(1.0 |
) |
|
|
(0.7 |
) |
Accumulated deficit |
|
|
|
|
|
|
(715.0 |
) |
|
|
(724.5 |
) |
Total Kratos stockholders’ equity |
|
|
|
|
|
|
566.7 |
|
|
|
519.3 |
|
Total liabilities and stockholders’ equity |
|
|
|
|
|
$ |
1,178.3 |
|
|
$ |
1,010.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Condensed Consolidated Statements of Cash Flows |
(in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 29, |
|
September 30, |
|
|
|
|
|
|
|
2019 |
|
|
|
2018 |
|
Operating
activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
$ |
10.0 |
|
|
$ |
(8.2 |
) |
Less: income (loss) from discontinued operations |
|
|
|
|
|
|
2.4 |
|
|
|
(7.1 |
) |
Income (loss) from continuing operations |
|
|
|
|
|
|
7.6 |
|
|
|
(1.1 |
) |
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by operating activities from continuing
operations: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
16.8 |
|
|
|
13.6 |
|
Amortization of lease right-of-use assets |
|
|
|
|
|
|
8.7 |
|
|
|
- |
|
Deferred income taxes |
|
|
|
|
|
|
(4.1 |
) |
|
|
0.5 |
|
Stock-based compensation |
|
|
|
|
|
|
8.2 |
|
|
|
5.1 |
|
Amortization of deferred financing costs |
|
|
|
|
|
|
0.7 |
|
|
|
0.7 |
|
Provision for doubtful accounts |
|
|
|
|
|
|
- |
|
|
|
0.4 |
|
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
7.4 |
|
|
|
13.8 |
|
Unbilled receivables |
|
|
|
|
|
|
2.0 |
|
|
|
(29.2 |
) |
Inventoried costs |
|
|
|
|
|
|
(10.3 |
) |
|
|
0.9 |
|
Advance payments received on contracts |
|
|
|
|
|
|
- |
|
|
|
(0.6 |
) |
Prepaid expenses and other assets |
|
|
|
|
|
|
(0.2 |
) |
|
|
(4.2 |
) |
Operating lease liabilities |
|
|
|
|
|
|
(3.1 |
) |
|
|
- |
|
Accounts payable |
|
|
|
|
|
|
(6.5 |
) |
|
|
8.2 |
|
Accrued compensation |
|
|
|
|
|
|
0.9 |
|
|
|
2.0 |
|
Accrued expenses |
|
|
|
|
|
|
(0.3 |
) |
|
|
(1.0 |
) |
Accrued interest |
|
|
|
|
|
|
4.8 |
|
|
|
4.8 |
|
Billings in excess of costs and earnings on uncompleted
contracts |
|
|
|
|
|
|
(2.8 |
) |
|
|
(1.3 |
) |
Income tax receivable and payable |
|
|
|
|
|
|
1.7 |
|
|
|
(0.8 |
) |
Other liabilities |
|
|
|
|
|
|
(1.3 |
) |
|
|
3.6 |
|
Net cash provided by operating activities from continuing
operations |
|
|
|
|
|
|
30.2 |
|
|
|
15.4 |
|
Investing activities: |
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired |
|
|
|
|
|
|
(17.6 |
) |
|
|
(2.9 |
) |
Capital expenditures |
|
|
|
|
|
|
(17.9 |
) |
|
|
(17.9 |
) |
Proceeds from sale of assets |
|
|
|
|
|
|
0.3 |
|
|
|
67.0 |
|
Net cash provided by (used in) investing activities from continuing
operations |
|
|
|
|
|
|
(35.2 |
) |
|
|
46.2 |
|
Financing activities: |
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
|
|
|
|
- |
|
|
|
(0.1 |
) |
Expenses from the issuance of common stock |
|
|
|
|
|
|
- |
|
|
|
(1.1 |
) |
Repayment of debt |
|
|
|
|
|
|
- |
|
|
|
(0.8 |
) |
Payment under finance leases |
|
|
|
|
|
|
(0.4 |
) |
|
|
- |
|
Proceeds from exercise of restricted stock units, employee
stock options, and employee stock purchase plan |
|
|
|
|
|
|
3.0 |
|
|
|
3.7 |
|
Net cash provided by financing activities from continuing
operations |
|
|
|
|
|
|
2.6 |
|
|
|
1.7 |
|
Net cash flows from continuing operations |
|
|
|
|
|
|
(2.4 |
) |
|
|
63.3 |
|
Net operating cash flows of discontinued operations |
|
|
|
|
|
|
0.8 |
|
|
|
(6.4 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
(0.4 |
) |
|
|
(0.3 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
(2.0 |
) |
|
|
56.6 |
|
Cash, cash equivalents and restricted cash at beginning of
period |
|
|
|
|
|
|
183.0 |
|
|
|
130.9 |
|
Cash, cash equivalents and restricted cash at end of period |
|
|
|
|
|
$ |
181.0 |
|
|
$ |
187.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Non-GAAP Measures |
Computation
of Adjusted Earnings Per Share |
(in
millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income from
continuing operations and adjusted income from continuing
operations per diluted common share (Adjusted EPS) are
non-GAAP measures for reporting financial performance and
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 from continuing operations before amortization
of intangible assets, stock-based compensation, foreign transaction
gain/loss, and acquisition and restructuring related items and
other. 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 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 |
|
Nine Months Ended |
|
|
September 29, |
|
September 30, |
|
September 29, |
|
September 30, |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Income from continuing operations before taxes |
|
$ |
5.4 |
|
|
$ |
4.8 |
|
|
|
$ |
11.4 |
|
|
$ |
3.3 |
|
Add:
Amortization of intangible assets |
|
|
1.7 |
|
|
|
1.3 |
|
|
|
|
5.2 |
|
|
|
4.5 |
|
Add:
Amortization of capitalized contract and development costs |
|
|
0.3 |
|
|
|
0.4 |
|
|
|
1.0 |
|
|
|
0.6 |
|
Add:
Stock-based compensation |
|
|
2.8 |
|
|
|
1.7 |
|
|
|
8.2 |
|
|
|
5.1 |
|
Add: Foreign
transaction loss |
|
|
0.8 |
|
|
|
0.3 |
|
|
|
1.3 |
|
|
|
0.7 |
|
Add:
Acquisition and restructuring related items and other |
|
|
- |
|
|
|
0.1 |
|
|
|
2.2 |
|
|
|
3.4 |
|
Adjusted income from continuing operations before income taxes |
|
|
11.0 |
|
|
|
8.6 |
|
|
|
29.3 |
|
|
|
17.6 |
|
|
|
|
|
|
|
|
|
|
Estimated cash tax provision |
|
|
0.7 |
|
|
|
0.2 |
|
|
|
2.3 |
|
|
|
1.5 |
|
Adjusted
income from continuing operations |
|
$ |
10.3 |
|
|
$ |
8.4 |
|
|
$ |
27.0 |
|
|
$ |
16.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
income from continuing operations per diluted common share |
|
$ |
0.09 |
|
|
$ |
0.08 |
|
|
$ |
0.25 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
Weighted
average diluted common shares outstanding |
|
|
109.9 |
|
|
|
106.4 |
|
|
|
109.0 |
|
|
|
103.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Press Contact:Yolanda White858-812-7302 Direct
Investor
Information:877-934-4687investor@kratosdefense.com
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