Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a
leading National Security Solutions provider, today reported its
first quarter 2020 financial results. For the first quarter
of 2020, Kratos reported Revenues of $168.9 million, a 5.3%
increase over the first quarter of 2019, and first quarter 2020
Adjusted EBITDA of $16.3 million, a 6.9% decrease over the first
quarter of 2019, reflecting increased research and development
investments of approximately $1.8 million, primarily in the
Company’s space and satellite communications business related to
investments in new software-based and open space platforms and
technologies. Operating Income of $4.7 million
for the first quarter of 2020 includes an increase in non-cash
stock based compensation expense of $2.1 million and an increase in
depreciation expense of $0.8 million. First quarter 2020 Cash
Flow generated from Operations was $4.0 million, and Free Cash Flow
from Operations was a use of $2.4 million after the funding of $6.4
million of capital expenditures. Cash used to fund strategic
acquisitions was $14.2 million. Adjusted EPS* was $0.09 for
the first quarter of 2020, compared to $0.11 for the first quarter
of 2019. Kratos reported a first quarter 2020 Net Loss of
$0.2 million, and GAAP EPS was a loss of $0.00 for the first
quarter of 2020.
For the first quarter of 2020, Kratos’ Unmanned
Systems Segment (KUS) reported Revenues of $42.0 million, an
increase of $7.1 million, or 20.3%, over the first quarter of 2019,
and Adjusted EBITDA of $2.3 million, an increase of 15.0%, over
first quarter 2019 Adjusted EBITDA of $2.0 million. KUS’s
book-to-bill ratio for the first quarter of 2020 was 1.5 to 1.0 and
for the last twelve months ended March 29, 2020 was 1.2 to
1.0. Total backlog for KUS at the end of the first quarter of
2020 was $174.4 million.
For the first quarter of 2020, Kratos’
Government Solutions Segment (KGS) reported Revenues of $126.9
million, up from $125.5 million in the first quarter of 2019.
Organic revenue growth in the first quarter of 2020 in our
Microwave Products and Rocket System businesses and the inclusion
of a full quarter’s financial performance of our turbine
technologies business, were offset primarily by expected declines
in our training solutions business and legacy government services
business. First quarter 2020 KGS Adjusted EBITDA of $14.0
million decreased from $15.5 million in the first quarter of 2019,
primarily as a result of a less favorable mix of revenues.
For the first quarter of 2020, KGS reported bookings of
$151.0 million and a book-to-bill ratio of 1.2 to 1.0, with
bookings of $542.1 million and a book to bill ratio of 1.0 to 1.0,
in the last twelve months ended March 29, 2020.
For the first quarter of 2020, Kratos reported
consolidated bookings of $213.1 million and a book-to-bill ratio of
1.3 to 1.0, with bookings of $751.1 million and a book-to-bill
ratio of 1.0 to 1.0, in the last twelve months ended March 29,
2020. Backlog at March 29, 2020 was $646.8 million, up $45.6
million, or 7.6%, from the backlog at December 29, 2019.
Kratos’ bid and proposal pipeline remained consistent as compared
to year-end, at $7.7 billion at March 29, 2020.
Eric DeMarco, Kratos’ President and CEO, said,
“As Kratos addresses the challenges presented by COVID-19, we
remain focused on providing mission critical, affordable, leading
technology systems and solutions for our national security mission,
while maintaining a safe and healthy environment for our
employees. I am extremely proud of the commitment of Kratos
employees to our customers and country and the value they continue
to create for our Company and its shareholders in the current
environment. In the first quarter, Kratos Unmanned Systems,
Space and Satellite Communications, Microwave Electronics, C5ISR
and Rocket System DoD focused businesses performed particularly
well, with strong Q1 bookings providing increased future
visibility.”
Mr. DeMarco concluded, “Since our last financial
report, we have continued to execute our business plan, including
important progress with Kratos’ tactical unmanned aerial drone
system programs and initiatives, including Valkyrie, Gremlins, Air
Wolf, Thanatos and Mako. Kratos is now involved in
several new major DoD programs, including OPIR, GBSD, ABMS,
Skyborg, Golden Horde and Vanguard, which we believe reflects the
alignment of our business portfolio with the future national
security priorities of the U.S. and its Allies.”
Financial Guidance
We are providing initial Second Quarter 2020
guidance for Revenues of $160 million to $170 million and Adjusted
EBITDA of $12 million to $16 million.
We are affirming our full year 2020 Adjusted
EBITDA guidance of $72 million to $78 million and we are affirming
our full year 2020 Free Cash Flow guidance of generation of $7
million to a use of $18 million, including capital expenditures of
$40 to $45 million.
We are adjusting our full year 2020 revenue
guidance from $740 million to $780 million, to $720 million to $760
million, primarily to reflect the expected impact of COVID-19 on
our business, vendors, suppliers and customers (1), the non-renewal
of an option on a sole source training contract by an international
customer and the extension through the end of 2020 of a previously
protested U.S. Navy/RSNF Training Contract. Including our
first quarter bookings, our affirmed Adjusted EBITDA guidance
reflects an overall forecasted improved revenue mix and
profitability in our DoD and National Security business areas,
including in our space, satellite, unmanned systems and microwave
electronic operations.
Kratos’ fiscal year 2020 guidance excludes any
potential contribution from expected Valkyrie or other tactical
drone production or system contracts, with expected orders to be
taken into consideration and our financial forecast adjusted once
such contracts/orders are received and the related financial
contribution can be estimated.
The 2020 capital expenditure forecast currently
includes expected outlays of $15 to $17 million associated with the
production of 12 Valkyrie aircraft prior to receipt of expected
customer award(s); therefore, these aircraft will be reflected as
Company-owned tactical drones until receipt of the related customer
award(s), and approximately $5 million related to the production of
Company-owned aerial target drone systems in preparation for
fulfilling forecasted customer requirements. Kratos will
adjust/reduce these initial forecasted capital expenditure outlays
once expected customer orders are received and the related
financial contribution can be estimated.
The Company will provide additional information
in its earnings call today.
(1) The company's 2020 financial outlook
includes updated guidance for net sales reflecting the currently
expected impacts related to COVID-19. The ultimate impact of the
Global COVID-19 Pandemic on the company's financial outlook for
2020 remains uncertain.
Management will discuss the Company’s first
quarter 2020 financial results, as well as its second quarter and
full year 2020 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 8476815. 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 second quarter and full year 2020 revenue and Adjusted
EBITDA, and full year 2020 capital expenditures and free cash flow,
the Company’s ability to achieve improved revenue mix and profit in
certain of its business segments and the expected timing of such
profit, 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, including
the magnitude and timing of funding and expected contract awards
related to the Company’s Valkyrie program and other new tactical
unmanned programs, 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 and full rate production 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, market and industry developments, and
the estimated impact of COVID-19 on our financial projections,
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; currently unforeseen risks
associated with COVID-19 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 29, 2019, 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 from continuing operations before income taxes, excluding
depreciation, 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 legal related items
and foreign transaction gains and losses, less the estimated tax
cash payments) and Adjusted EBITDA (which includes net income
(loss) attributable to noncontrolling interest and excludes, among
other things, losses and gains from discontinued operations,
acquisition and restructuring 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 KUS 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, depreciation,
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, including legal fees, 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.
Press
Contact:Yolanda White858-812-7302 Direct Investor
Information:877-934-4687investor@kratosdefense.com |
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Condensed Consolidated Statements of Operations |
(in
millions, except per share data) |
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 29, |
|
March 31, |
|
|
2020 |
|
2019 |
|
|
|
|
|
Service revenues |
|
$ |
63.6 |
|
|
$ |
62.6 |
|
Product
sales |
|
|
105.3 |
|
|
|
97.8 |
|
Total revenues |
|
|
168.9 |
|
|
|
160.4 |
|
Cost of
service revenues |
|
|
45.2 |
|
|
|
42.0 |
|
Cost of
product sales |
|
|
77.9 |
|
|
|
73.5 |
|
Total costs |
|
|
123.1 |
|
|
|
115.5 |
|
Gross profit
- service revenues |
|
|
18.4 |
|
|
|
20.6 |
|
Gross profit
- product sales |
|
|
27.4 |
|
|
|
24.3 |
|
|
|
|
|
|
Total gross profit |
|
|
45.8 |
|
|
|
44.9 |
|
|
|
|
|
|
Selling,
general and administrative expenses |
|
|
31.5 |
|
|
|
28.7 |
|
Acquisition
and restructuring related items |
|
|
0.5 |
|
|
|
1.3 |
|
Research and
development expenses |
|
|
5.7 |
|
|
|
3.9 |
|
Depreciation |
|
|
1.5 |
|
|
|
1.3 |
|
Amortization
of intangible assets |
|
|
1.9 |
|
|
|
1.5 |
|
Operating income |
|
|
4.7 |
|
|
|
8.2 |
|
Interest
expense, net |
|
|
(5.4 |
) |
|
|
(5.5 |
) |
Other
expense, net |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
Income (loss) from continuing operations before income taxes |
|
|
(1.2 |
) |
|
|
2.2 |
|
Benefit for
income taxes from continuing operations |
|
|
(1.4 |
) |
|
|
(1.5 |
) |
Income from continuing operations |
|
|
0.2 |
|
|
|
3.7 |
|
Loss from
discontinued operations, net of income taxes |
|
|
(0.4 |
) |
|
|
(0.6 |
) |
Net income (loss) |
|
|
(0.2 |
) |
|
|
3.1 |
|
Less: Net income attributable to noncontrolling interest |
|
|
- |
|
- |
|
- |
|
Net income (loss) attributable to Kratos |
|
$ |
(0.2 |
) |
|
$ |
3.1 |
|
|
|
|
|
|
Basic income
(loss) per common share attributable to Kratos: |
|
|
|
|
Income from continuing operations |
|
$ |
- |
|
|
$ |
0.04 |
|
Loss from discontinued operations |
|
|
- |
|
|
|
(0.01 |
) |
Net income |
|
$ |
- |
|
|
$ |
0.03 |
|
|
|
|
|
|
Diluted
income (loss) per common share attributable to Kratos: |
|
|
|
|
Income from continuing operations |
|
$ |
- |
|
|
$ |
0.03 |
|
Loss from discontinued operations |
|
|
- |
|
|
|
- |
|
Net income |
|
$ |
- |
|
|
$ |
0.03 |
|
|
|
|
|
|
Weighted
average common shares outstanding: |
|
|
|
|
Basic weighted average common shares outstanding |
|
|
107.2 |
|
|
|
104.9 |
|
Diluted weighted average common shares outstanding |
|
|
110.1 |
|
|
|
107.8 |
|
|
|
|
|
|
Adjusted
EBITDA (1) |
|
$ |
16.3 |
|
|
$ |
17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
(loss) 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 |
|
|
March 29, |
|
March 31, |
|
|
2020 |
|
2019 |
|
|
|
|
|
Net income
(loss) attributable to Kratos |
|
$ |
(0.2 |
) |
|
$ |
3.1 |
|
Loss from
discontinued operations, net of income taxes |
|
|
0.4 |
|
|
|
0.6 |
|
Interest
expense, net |
|
|
5.4 |
|
|
|
5.5 |
|
Benefit for
income taxes from continuing operations |
|
|
(1.4 |
) |
|
|
(1.5 |
) |
Depreciation
(including cost of service revenues and product sales) |
|
|
4.4 |
|
|
|
3.6 |
|
Stock-based
compensation |
|
|
4.7 |
|
|
|
2.6 |
|
Foreign
transaction loss |
|
|
0.4 |
|
|
|
0.5 |
|
Amortization
of intangible assets |
|
|
1.9 |
|
|
|
1.5 |
|
Amortization
of capitalized contract and development costs |
|
|
0.2 |
|
|
|
0.3 |
|
Acquisition
and restructuring related items and other |
|
|
0.5 |
|
|
|
1.3 |
|
Plus: Net
income attributable to noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Adjusted
EBITDA |
|
$ |
16.3 |
|
|
$ |
17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of acquisition and restructuring related items and
other included in Adjusted EBITDA: |
|
|
|
|
Three Months Ended |
|
|
March 29, |
|
March 31, |
|
|
2020 |
|
2019 |
Acquisition
and transaction related items |
|
$ |
0.4 |
|
|
$ |
1.2 |
|
Restructuring costs |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
$ |
0.5 |
|
|
$ |
1.3 |
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Segment Data |
(in
millions) |
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 29, |
|
March 31, |
|
|
2020 |
|
2019 |
Revenues: |
|
|
|
|
Unmanned Systems |
|
$ |
42.0 |
|
|
$ |
34.9 |
|
Kratos Government Solutions |
|
|
126.9 |
|
|
|
125.5 |
|
Total revenues |
|
$ |
168.9 |
|
|
$ |
160.4 |
|
|
|
|
|
|
Operating
income (loss) |
|
|
|
|
Unmanned Systems |
|
$ |
0.5 |
|
|
$ |
0.6 |
|
Kratos Government Solutions |
|
|
9.3 |
|
|
|
11.4 |
|
Unallocated corporate expense, net |
|
|
(5.1 |
) |
|
|
(3.8 |
) |
Total operating income |
|
$ |
4.7 |
|
|
$ |
8.2 |
|
|
|
|
|
|
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 |
|
|
March 29, |
|
March 31, |
|
|
2020 |
|
2019 |
Unmanned
Systems |
|
$ |
2.3 |
|
|
$ |
2.0 |
|
%
of revenue |
|
|
5.5 |
% |
|
|
5.7 |
% |
Kratos
Government Solutions |
|
|
14.0 |
|
|
|
15.5 |
|
%
of revenue |
|
|
11.0 |
% |
|
|
12.4 |
% |
Total
Adjusted EBITDA |
|
$ |
16.3 |
|
|
$ |
17.5 |
|
%
of revenue |
|
|
9.7 |
% |
|
|
10.9 |
% |
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Condensed Consolidated Balance Sheets |
(in
millions) |
|
|
|
|
|
|
|
|
|
|
March 29, |
|
December 29, |
|
|
2020 |
|
2019 |
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
158.6 |
|
|
$ |
172.6 |
|
Accounts receivable, net |
|
|
259.3 |
|
|
|
264.4 |
|
Inventoried costs |
|
|
62.7 |
|
|
|
61.1 |
|
Prepaid expenses |
|
|
14.0 |
|
|
|
9.4 |
|
Other current assets |
|
|
14.5 |
|
|
|
11.4 |
|
Current assets of discontinued operations |
|
|
1.2 |
|
|
|
3.3 |
|
Total current assets |
|
|
510.3 |
|
|
|
522.2 |
|
Property, plant and equipment, net |
|
|
119.6 |
|
|
|
116.9 |
|
Operating lease right-of-use assets |
|
|
39.8 |
|
|
|
42.1 |
|
Goodwill |
|
|
463.3 |
|
|
|
455.6 |
|
Intangible assets, net |
|
|
41.0 |
|
|
|
39.5 |
|
Other assets |
|
|
9.3 |
|
|
|
9.7 |
|
Total assets |
|
$ |
1,183.3 |
|
|
$ |
1,186.0 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
44.3 |
|
|
$ |
53.8 |
|
Accrued expenses |
|
|
28.4 |
|
|
|
32.7 |
|
Accrued compensation |
|
|
40.9 |
|
|
|
37.1 |
|
Accrued interest |
|
|
6.4 |
|
|
|
1.6 |
|
Billings in excess of costs and earnings on uncompleted
contracts |
|
|
38.3 |
|
|
|
34.3 |
|
Current portion of operating lease liabilities |
|
|
8.7 |
|
|
|
9.9 |
|
Other current liabilities |
|
|
10.1 |
|
|
|
10.0 |
|
Other current liabilities of discontinued operations |
|
|
3.0 |
|
|
|
3.3 |
|
Total current liabilities |
|
|
180.1 |
|
|
|
182.7 |
|
Long-term debt |
|
|
295.3 |
|
|
|
295.1 |
|
Operating lease liabilities, net of current portion |
|
|
36.0 |
|
|
|
37.6 |
|
Other long-term liabilities |
|
|
73.9 |
|
|
|
78.7 |
|
Other long-term liabilities of discontinued operations |
|
|
2.8 |
|
|
|
2.8 |
|
Total liabilities |
|
|
588.1 |
|
|
|
596.9 |
|
Commitments and contingencies |
|
|
|
|
Redeemable noncontrolling interest |
|
|
15.0 |
|
|
|
15.0 |
|
Stockholders’ equity: |
|
|
|
|
Additional paid-in capital |
|
|
1,292.6 |
|
|
|
1,286.5 |
|
Accumulated other comprehensive loss |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
Accumulated deficit |
|
|
(712.2 |
) |
|
|
(712.0 |
) |
Total Kratos stockholders’ equity |
|
|
580.2 |
|
|
|
574.1 |
|
Total liabilities and stockholders’ equity |
|
$ |
1,183.3 |
|
|
$ |
1,186.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Condensed Consolidated Statements of Cash Flows |
(in
millions) |
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 29, |
|
March 31, |
|
|
2020 |
|
2019 |
Operating
activities: |
|
|
|
|
Net income (loss) |
|
$ |
(0.2 |
) |
|
$ |
3.1 |
|
Less: loss from discontinued operations |
|
|
(0.4 |
) |
|
|
(0.6 |
) |
Income (loss) from continuing operations |
|
|
0.2 |
|
|
|
3.7 |
|
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by operating activities from continuing
operations: |
|
|
|
|
Depreciation and amortization |
|
|
6.3 |
|
|
|
5.1 |
|
Amortization of lease right-of-use assets |
|
|
2.9 |
|
|
|
3.7 |
|
Deferred income taxes |
|
|
(1.0 |
) |
|
|
(3.4 |
) |
Stock-based compensation |
|
|
4.7 |
|
|
|
2.6 |
|
Amortization of deferred financing costs |
|
|
0.2 |
|
|
|
0.2 |
|
Provision for doubtful accounts |
|
|
0.3 |
|
|
|
- |
|
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
Accounts receivable |
|
|
6.6 |
|
|
|
(9.0 |
) |
Unbilled receivables |
|
|
(1.5 |
) |
|
|
19.7 |
|
Inventoried costs |
|
|
(1.5 |
) |
|
|
(10.8 |
) |
Advance payments received on contracts |
|
|
- |
|
|
|
0.1 |
|
Prepaid expenses and other assets |
|
|
(6.8 |
) |
|
|
(1.1 |
) |
Operating lease liabilities |
|
|
(3.4 |
) |
|
|
2.8 |
|
Accounts payable |
|
|
(9.6 |
) |
|
|
(0.8 |
) |
Accrued compensation |
|
|
3.7 |
|
|
|
3.1 |
|
Accrued expenses |
|
|
(4.4 |
) |
|
|
(2.7 |
) |
Accrued interest |
|
|
4.9 |
|
|
|
4.9 |
|
Billings in excess of costs and earnings on uncompleted
contracts |
|
|
3.4 |
|
|
|
3.0 |
|
Income tax receivable and payable |
|
|
(0.9 |
) |
|
|
1.4 |
|
Other liabilities |
|
|
(0.1 |
) |
|
|
(6.5 |
) |
Net cash provided by operating activities from continuing
operations |
|
|
4.0 |
|
|
|
16.0 |
|
Investing activities: |
|
|
|
|
Cash paid for acquisitions, net of cash acquired |
|
|
(14.2 |
) |
|
|
(17.6 |
) |
Capital expenditures |
|
|
(6.4 |
) |
|
|
(4.0 |
) |
Net cash used in investing activities from continuing
operations |
|
|
(20.6 |
) |
|
|
(21.6 |
) |
Financing activities: |
|
|
|
|
Payment under finance leases |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Proceeds from exercise of restricted stock units, employee stock
options, and employee stock purchase plan |
|
|
1.4 |
|
|
|
0.9 |
|
Net cash provided by financing activities from continuing
operations |
|
|
1.3 |
|
|
|
0.8 |
|
Net cash flows from continuing operations |
|
|
(15.3 |
) |
|
|
(4.8 |
) |
Net operating cash flows of discontinued operations |
|
|
1.3 |
|
|
|
0.3 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
- |
|
|
|
(0.1 |
) |
Net decrease in cash and cash equivalents |
|
|
(14.0 |
) |
|
|
(4.6 |
) |
Cash, cash equivalents and restricted cash at beginning of
period |
|
|
172.6 |
|
|
|
183.0 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
158.6 |
|
|
$ |
178.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, depreciation, 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 |
|
|
March 29, |
|
March 31, |
|
|
2020 |
|
2019 |
Income
(loss) from continuing operations before taxes |
|
$ |
(1.2 |
) |
|
$ |
2.2 |
|
Add:
Amortization of intangible assets |
|
|
1.9 |
|
|
|
1.5 |
|
Add:
Amortization of capitalized contract and development costs |
|
|
0.2 |
|
|
|
0.3 |
|
Add:
Depreciation |
|
|
4.4 |
|
|
|
3.6 |
|
Add:
Stock-based compensation |
|
|
4.7 |
|
|
|
2.6 |
|
Add: Foreign
transaction loss |
|
|
0.4 |
|
|
|
0.5 |
|
Add:
Acquisition and restructuring related items and other |
|
|
0.5 |
|
|
|
1.3 |
|
Adjusted income from continuing operations before income taxes |
|
|
10.9 |
|
|
|
12.0 |
|
|
|
|
|
|
Estimated cash tax provision |
|
|
0.6 |
|
|
|
0.2 |
|
Adjusted
income from continuing operations |
|
$ |
10.3 |
|
|
$ |
11.8 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted
income from continuing operations per diluted common share |
|
$ |
0.09 |
|
|
$ |
0.11 |
|
|
|
|
|
|
Weighted
average diluted common shares outstanding |
|
|
110.1 |
|
|
|
107.8 |
|
|
|
|
|
|
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