Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a
leading National Security Solutions provider, today reported its
second quarter 2022 financial results. For the second quarter of
2022, Kratos reported Revenues of $224.2 million, Operating Loss of
$1.9 million, Net Loss of $4.7 million, Adjusted EBITDA of $17.7
million and a book to bill ratio of 1.2 to 1.0.
Included in Net Loss is a $5.5 million litigation settlement
related charge resulting from the resolution of a dispute with an
international customer in our Unmanned Systems segment, which
contractual arrangement was entered into in March 2011, prior to
Kratos’ acquisition of CEi (Composite Engineering Inc.).
Second quarter 2022 Operating Loss includes
non-cash stock compensation expense of $6.3 million, and
Company-funded Research and Development expense of $9.2 million,
reflecting significant ongoing development efforts being made,
including in our Space and Satellite business to
develop our virtual, software-based OpenSpace ground station
solution.
Kratos reported a second quarter 2022 GAAP loss
per share of $0.04, which includes the $5.5 million litigation
settlement related charge noted above, compared to Net Income of
$1.1 million and GAAP EPS income of $0.01 for the second quarter of
2021. Adjusted EPS was $0.07 for the second quarter of 2022,
compared to $0.06 for the second quarter of 2021. Kratos has
approximately $235 million of net operating loss carryforwards,
which are expected to substantially shield the Company from paying
future cash income taxes.
Second quarter 2022 Revenues of $224.2 million,
which increased $19.1 million, or 9.3 percent, from second quarter
2021 Revenues of $205.1 million, were adversely impacted by
continuing and increased supply chain disruptions and increased
material costs, COVID-related employee absenteeism and increased
challenges and costs associated with hiring, obtaining and
retaining qualified employees, which resulted in approximately
$14.5 million of second quarter 2022 revenues being deferred into
future periods, with approximately $2.9 million of associated
operating income, including increased inflationary
costs. Second quarter 2022 revenues include an
aggregate contribution of $21.5 million from the recent
acquisitions of Cosmic Advanced Engineered Solutions, Inc. (Cosmic
AES), CTT, Inc., (CTT), and the Engineering Division of Southern
Research (SRE), offset by reductions in our Training Solutions
business of $8.6 million as compared to the second quarter 2021
revenues, including the previously reported loss of an
international training services contract which accounted for
approximately $4.5 million of the reduction as well as the
completion of certain large training system programs. On a proforma
basis, excluding the impact of the Training Solutions business,
revenues grew organically 3.2% in the second quarter of 2022 as
compared to the second quarter of 2021.
Second quarter 2022 Cash Flow Used in Operations
was $21.6 million, with the use including increases in receivables
of $27.1 million primarily related to future milestone and other
contractual payments and an increase of inventory balances of $10.5
million, primarily in our Unmanned Systems, Microwave Products and
C5ISR businesses in anticipation of expected significant ramps in
production in the second half of the year and to increase stock
inventory levels and advance buys in larger lot sizes to gain
pricing benefits where possible, to mitigate the impact of supply
chain disruptions and price increases. Free Cash Flow Used in
Operations was $32.7 million, after funding $11.1 million of
capital expenditures, including in our high growth Unmanned
Systems, Space, Satellite and Cyber and Turbine Technologies
business areas.
For the second quarter of 2022, Kratos’ Unmanned
Systems Segment (KUS) generated Revenues of $56.4 million, as
compared to $60.3 million in the second quarter of 2021. KUS
Operating Loss was $5.0 million in the second quarter of 2022,
which included the $5.5 million litigation settlement related
charge discussed above. Excluding the impact of the litigation
settlement related charge, Operating Income was $0.5 million,
compared to $4.1 million in the second quarter of 2021, reflecting
a less favorable mix of revenues, including an increase in
development programs which typically generate lower margins, an
increase in SG&A costs of approximately $0.9 million resulting
primarily from increased headcount, an increase of R&D expenses
of approximately $1.3 million and increases in supply chain and
employee related costs.
Excluding the litigation settlement charge, KUS
Adjusted EBITDA for the second quarter of 2022 was $2.9 million,
compared to second quarter 2021 Adjusted EBITDA of $6.9 million,
reflecting increases in certain development programs which
typically generate lower margins and increases in SG&A,
R&D, supply chain related and employee costs.
KUS’s book-to-bill
ratio for the second quarter of 2022 was 0.5 to 1.0 and 1.1 to 1.0
for the last twelve months ended June 26, 2022, with bookings of
$242.6 million for the twelve months ended June 26,
2022. Total backlog for KUS at the end of the second
quarter of 2022 was $203.3 million compared to $230.5 million at
the end of the first quarter of 2022.
For the second quarter of 2022, Kratos’
Government Solutions Segment (KGS) reported Revenues of $167.8
million, compared to Revenues of $144.8 million in the second
quarter of 2021. The increased revenues include the aggregate
contribution of approximately $21.5 million from the recently
acquired Cosmic AES, CTT and SRE, offset by a reduction of $8.6
million in our Training Solutions business, including the loss of
an international training contract, continued and increased supply
chain, COVID and employee sourcing and retention disruptions, which
resulted in second quarter 2022 KGS revenues of approximately $13.9
million being deferred into future periods. On a
proforma basis, excluding the Training Solutions business, KGS
revenues grew organically 7.7 percent or $10.2 million, from $132.3
million in the second quarter of 2021 to $142.5 million in the
second quarter of 2022.
KGS reported operating income of $9.5 million in
the second quarter of 2022, compared to $5.9 million in the second
quarter of 2021, primarily reflecting a more favorable revenue mix,
offset partially by increased costs related to the supply chain and
employee base.
Kratos’ Space, Satellite and Cyber business
generated Revenues of $88.5 million in the second quarter of 2022,
compared to $67.5 million in the second quarter of 2021. Excluding
revenues generated of $15.0 million from the recent Cosmic AES
acquisition, revenues for our Space, Satellite and Cyber business
grew organically 8.9 percent in the second quarter of 2022.
Second quarter 2022 KGS Adjusted EBITDA was
$14.8 million, compared to second quarter 2021 KGS Adjusted EBITDA
of $10.7 million, reflecting a more favorable mix of revenues,
including in our Space, Satellite and Cyber and Turbine
Technologies businesses.
For the second quarter of 2022, KGS reported a
book-to-bill ratio of 1.4 to 1.0, with a book to bill ratio of 1.2
to 1.0 for the twelve months ended June 26, 2022, and bookings of
$713.9 million for the twelve months ended June 26,
2022. Included in KGS is Kratos’ Space, Satellite and
Cyber business, which reported a book to bill ratio of 1.7 to 1.0
for the second quarter of 2022, and a book to bill ratio of 1.2 to
1.0 for the twelve months ended June 26, 2022. Bookings for the
Space, Satellite and Cyber business for the last twelve months
ended June 26, 2022, were $371.1 million. KGS’s total backlog at
the end of the second quarter of 2022 was $846.9 million, as
compared to $751.6 million at the end of the first quarter of
2022.
For the second quarter of 2022, Kratos reported
consolidated bookings of $261.0 million and a book-to-bill ratio of
1.2 to 1.0, with consolidated bookings of $956.5 million and a
book-to-bill ratio of 1.1 to 1.0 for the last twelve months ended
June 26, 2022. Backlog on June 26, 2022 was $1.05 billion, as
compared to $982.1 million at March 27, 2022, and Kratos’ bid and
proposal pipeline was $9.9 billion at June 26, 2022, as compared to
$9.4 billion at March 27, 2022. Backlog at June 26,
2022 was comprised of funded backlog of $713.6 million and unfunded
backlog of $336.6 million.
Eric DeMarco, Kratos’ President and CEO, said,
“Kratos’ second quarter execution was solid in a challenging
environment, including revenues of $224 million, Adjusted EBITDA of
$17.7 million, a 1.2 to 1.0 book to bill ratio and a current
opportunity pipeline of over $9 billion. We have now received each
of the three important, large new satellite related program awards
we discussed in our Q1 2022 report, including contracts with Blue
Halo and Intelsat, which we believe position Kratos for future
organic growth and increased margins beginning in the second half
of this year. We believe these awards are representative of the
increasing customer acceptance of Kratos’ first to market,
internally funded and developed, software-based OpenSpace
virtualized family of products and we are now in pursuit of several
additional, large, new satellite program opportunities.”
Mr. DeMarco, continued, “Since our last report
to you, the Air Force announced to Congress that the Skyborg
Vanguard program, which includes Kratos’ Valkyrie, is now planned
to be a Program of Record in 2023 and transition to acquisition.
Additionally, Kratos’ tactical drone business continues to
progress, including recent successful flights at the Burns Flat,
Oklahoma range and other locations, and we are expecting to receive
certain new tactical drone related contract awards in the second
half of this year, including as related to Valkyrie.
Also importantly, the Air Force recently announced that the Golden
Horde Vanguard Program, which Kratos is also supporting, is now
also slated to become a Program of Record in 2023, which includes
networked, collaborative and autonomous munitions and
drones.”
Mr. DeMarco concluded, “Based on important
recent events and communications, we continue to believe that the
global security environment and requirement for affordable,
reusable, disposable and attritable high performance jet drones has
never been stronger and is increasing. We view Kratos’ family of
Made in America, demonstrated low-cost, runway independent,
Collaborative Combat Aircraft, that have been flying with manned
fighter aircraft since 2015, and are not concepts, power points or
video presentations that are years away from reality, along with
active Kratos serial production lines that can provide Affordable
Mass now, are important differentiators for our Country, our
customers and our Company.”
Financial GuidanceOur third quarter and Fiscal
Year 2022 financial guidance we are providing today includes our
current forecasted business mix, and our assumptions related to the
expected continuing impact of: employee absenteeism, employee
sourcing, hiring and retention; manufacturing, production and
supply chain disruptions; parts shortages and related significant
cost and price increases, including for employees, materials and
components; travel restrictions and other COVID-19 related items
that have and continue to impact the industry and
Kratos. The growth expected in the fourth quarter of
2022 is largely driven by the forecasted execution and delivery
schedules of 5 new programs, 4 of which have already been awarded:
the three satellite program awards, GBSD and an expected Valkyrie
award from a new
customer.
The revised full Fiscal Year 2022 financial
guidance reflects the expected revenue growth, including the impact
of the recent SRE acquisition, as well as expected organic revenue
growth driven by our recent bookings and backlog. Since our
contract mix is predominantly firm fixed price, we are
contractually obligated to absorb the impact of significant
inflationary factors until we are able to include our revised costs
in new contracts or the exercise of contractual options, which is
reflected in our revised Fiscal Year 2022 Adjusted EBITDA
guidance.
$M |
Q322 |
FY22 |
Revenues |
$220 -
$230 |
$890 -
$930 |
R&D |
$9 -
$10 |
$35 -
$38 |
Operating
Income |
$0 -
$3 |
$13 -
$18 |
Depreciation |
$7 |
$24 -
$25 |
Amortization |
$3 |
$8 -
$9 |
Stock Based
Compensation |
$6 -
$7 |
$25 -
$26 |
Adjusted
EBITDA |
$16 -
$20 |
$80 -
$85 |
Operating
Cash Flow |
|
$15 -
$25 |
Capital
Expenditures |
|
$45 -
$55 |
Free Cash
Flow Use |
|
($30 -
$40) |
Throughout the second quarter of 2022, we
continued to experience the effects of COVID–19, including on our
employees, consultants, vendors, suppliers, customers, etc. We have
assumed that these COVID–19 related impacts to our business, which
significantly impacted our fiscal first and second quarters of 2022
and continue to impact our third quarter, will continue at least
through the end of calendar 2022. Our previous assumption was that
COVID-19 related impacts would begin to subside beginning in the
third fiscal quarter and continue to improve throughout the second
half of our fiscal year 2022.
We currently estimate that COVID, supply chain,
work force and inflation related issues, including the availability
and increased costs of certain raw materials and related components
and materials, a lack of capacity at mills supporting Kratos’
hardware programs, the availability and significant increased costs
to obtain and the ability to retain an experienced skilled
workforce will continue to impact our financial performance
throughout 2022. We expect these issues to impact our third quarter
2022 Revenues by approximately $10 to $14 million and Adjusted
EBITDA by approximately $3 to $5 million, respectively. We also
currently estimate these issues to impact our full fiscal year 2022
Revenues by approximately $22 to $26 million and Adjusted EBITDA by
approximately $10 to $13 million, respectively. We will provide
future updates as appropriate.
The forecasted financial trajectory in the
second half of 2022 reflects the expected mix of revenues,
including the expected timing of software product deliveries in our
Space, Satellite and Cyber business, based upon the forecasted
order flow and roll out of our new OpenSpace solution, and contract
awards we have recently received or that we have been informed we
will receive, with deliveries expected to occur predominantly in
the fourth quarter of 2022 based upon current program execution
plans.
Forecasted third quarter 2022 and fiscal year
2022 Operating Income and Adjusted EBITDA also reflect the expected
mix of development-type contracts and expected investments,
including in our Space, Satellite and Cyber, Unmanned Systems,
C5ISR, Turbine Technologies and Rocket System businesses, where we
have received, have been informed that we will receive, or are
pursuing or expect to receive several new contract
awards. Kratos’ fiscal year 2022 forecasted Revenues
also include the final projected impact of the 2021 loss of a large
international training contract, which contributed approximately
$13.0 million to the Company’s fiscal year 2021 first and second
quarter Revenues and include the estimated contribution from the
recently closed CTT, Cosmic AES and SRE
acquisitions.
Management will discuss the Company’s second
quarter 2022 financial results, as well as its third quarter and
full year 2022 guidance on a conference call beginning at 2:00 p.m.
Pacific (5:00 p.m. Eastern) today. The call will be available at
www.kratosdefense.com. Participants may register for the call at
https://register.vevent.com/register/BId7480930af214120a135751b6240fd74.
While not required, it is recommended you join 10 minutes prior to
the event start. Instructions are provided to ensure the necessary
audio applications are downloaded and installed. Users can obtain
these programs at no charge. For those who cannot access the live
broadcast, a replay will be available on Kratos’ website.
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. At Kratos, affordability is a technology, and
we specialize 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 third quarter and full year 2022 revenues,
R&D, operating income, depreciation, amortization, stock based
compensation expense, and Adjusted EBITDA, and full year 2022
operating cash flow, capital expenditures and other investments,
and free cash flow use, the Company’s future growth trajectory and
ability to achieve improved revenue mix and profit in certain of
its business segments and the expected timing of such improved
revenue mix and profit, the Company’s expectation of ramp on
projects and that investments in its business will result in an
increase in the Company’s market share and total addressable market
and position the Company for significant future organic growth,
profitability, cash flow and an increase in shareholder value, the
Company’s bid and proposal pipeline, demand for its products and
services, including the Company’s alignment with today’s National
Security requirements, ability to successfully compete in the
tactical unmanned aerial system area and expected new customer
awards, including the magnitude and timing of funding and the
future opportunity associated with such awards, and expected
contract awards related to the Company’s Skyborg Vanguard program,
Golden Horde Vanguard 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 and to achieve
financial leverage on fixed administrative costs, 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 current estimated impact of COVID-19 and employee absenteeism,
supply chain disruptions, availability of an experienced skilled
workforce, inflation and increased costs, and delays on our
financial projections, industry, business and operations, 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 products we have developed or will develop will
become programs of record; 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
related to the new DoD Cybersecurity Maturity Model Certification
(CMMC); risks related 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 we may
be required to record valuation allowances on our net operating
losses which could adversely impact our profitability and financial
condition; 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 26, 2021, and in our other filings made with
the Securities and Exchange Commission.
Note Regarding Use of Non-GAAP Financial
Measures and Other Performance MetricsThis news release
contains non-GAAP financial measures, including Adjusted earnings
per share (computed using income from continuing operations before
income taxes, excluding income (loss) from discontinued operations,
excluding income (loss) attributable to non-controlling interest,
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 impact to income taxes) and including 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 computed
as Cash Flow from Operations less Capital Expenditures 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 results. 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.
Another Performance Metric the Company believes
is a key performance indicator in our industry is our Book to Bill
Ratio as it provides investors with a measure of the amount of
bookings or contract awards as compared to the amount of revenues
that have been recorded during the period and provides an indicator
of how much of the Company’s backlog is being burned or utilized in
a certain period. The Book to Bill Ratio is computed as the number
of bookings or contract awards in the period divided by the
revenues recorded for the same period. The Company believes that
the rolling or last twelve months’ Book to Bill Ratio is meaningful
since the timing of quarter-to-quarter bookings can vary.
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 |
|
Six Months Ended |
|
|
|
|
June 26, |
|
June 27, |
|
June 26, |
|
June 27, |
|
|
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
revenues |
|
$ |
78.8 |
|
|
$ |
58.0 |
|
|
$ |
146.7 |
|
|
$ |
115.3 |
|
|
|
Product
sales |
|
|
145.4 |
|
|
|
147.1 |
|
|
|
273.7 |
|
|
|
284.0 |
|
|
|
Total revenues |
|
|
224.2 |
|
|
|
205.1 |
|
|
|
420.4 |
|
|
|
399.3 |
|
|
|
Cost of
service revenues |
|
|
56.2 |
|
|
|
41.3 |
|
|
|
106.1 |
|
|
|
83.8 |
|
|
|
Cost of
product sales |
|
|
110.2 |
|
|
|
111.8 |
|
|
|
204.6 |
|
|
|
212.5 |
|
|
|
Total costs |
|
|
166.4 |
|
|
|
153.1 |
|
|
|
310.7 |
|
|
|
296.3 |
|
|
|
Gross profit
- service revenues |
|
|
22.6 |
|
|
|
16.7 |
|
|
|
40.6 |
|
|
|
31.5 |
|
|
|
Gross profit
- product sales |
|
|
35.2 |
|
|
|
35.3 |
|
|
|
69.1 |
|
|
|
71.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
|
57.8 |
|
|
|
52.0 |
|
|
|
109.7 |
|
|
|
103.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses |
|
|
41.6 |
|
|
|
35.6 |
|
|
|
81.9 |
|
|
|
70.9 |
|
|
|
Acquisition
and restructuring related items and other |
|
|
6.0 |
|
|
|
0.3 |
|
|
|
6.6 |
|
|
|
0.5 |
|
|
|
Research and
development expenses |
|
|
9.2 |
|
|
|
10.2 |
|
|
|
18.4 |
|
|
|
18.2 |
|
|
|
Depreciation |
|
|
1.3 |
|
|
|
1.4 |
|
|
|
2.6 |
|
|
|
2.6 |
|
|
|
Amortization
of intangible assets |
|
|
1.6 |
|
|
|
1.2 |
|
|
|
3.3 |
|
|
|
2.6 |
|
|
|
Operating income (loss) |
|
|
(1.9 |
) |
|
|
3.3 |
|
|
|
(3.1 |
) |
|
|
8.2 |
|
|
|
Interest
expense, net |
|
|
(2.9 |
) |
|
|
(5.7 |
) |
|
|
(8.8 |
) |
|
|
(11.6 |
) |
|
|
Loss on
extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
(13.0 |
) |
|
|
- |
|
|
|
Other
income, net |
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
Loss from continuing operations before income taxes |
|
|
(4.8 |
) |
|
|
(2.4 |
) |
|
|
(24.8 |
) |
|
|
(3.2 |
) |
|
|
Provision
(benefit) for income taxes from continuing operations |
|
|
0.5 |
|
|
|
(3.6 |
) |
|
|
(3.8 |
) |
|
|
(6.3 |
) |
|
|
Income (loss) from continuing operations |
|
|
(5.3 |
) |
|
|
1.2 |
|
|
|
(21.0 |
) |
|
|
3.1 |
|
|
|
Income
(loss) from discontinued operations, net of income taxes |
|
|
0.9 |
|
|
|
(0.3 |
) |
|
|
0.7 |
|
|
|
(0.3 |
) |
|
|
Net income (loss) |
|
|
(4.4 |
) |
|
|
0.9 |
|
|
|
(20.3 |
) |
|
|
2.8 |
|
|
|
Less: Net income (loss) attributable
to noncontrolling interest |
|
|
0.3 |
|
- |
|
(0.2 |
) |
|
|
0.3 |
|
|
|
(0.2 |
) |
|
|
Net income (loss) attributable to
Kratos |
|
$ |
(4.7 |
) |
|
$ |
1.1 |
|
|
$ |
(20.6 |
) |
|
$ |
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income
(loss) per common share attributable to Kratos: |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations |
|
$ |
(0.04 |
) |
|
$ |
0.01 |
|
|
$ |
(0.17 |
) |
|
$ |
0.02 |
|
|
|
Income (loss) from discontinued
operations |
|
|
- |
|
|
|
- |
|
|
|
0.01 |
|
|
|
- |
|
|
|
Net income (loss) |
|
|
(0.04 |
) |
|
$ |
0.01 |
|
|
$ |
(0.16 |
) |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income (loss) per common share attributable to Kratos: |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations |
|
$ |
(0.04 |
) |
|
$ |
0.01 |
|
|
$ |
(0.17 |
) |
|
$ |
0.02 |
|
|
|
Income (loss) from discontinued
operations |
|
|
- |
|
|
|
- |
|
|
|
0.01 |
|
|
|
- |
|
|
|
Net income (loss) |
|
$ |
(0.04 |
) |
|
$ |
0.01 |
|
|
$ |
(0.16 |
) |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares
outstanding |
|
|
126.4 |
|
|
|
124.7 |
|
|
|
126.2 |
|
|
|
124.4 |
|
|
|
Diluted weighted average common
shares outstanding |
|
|
126.4 |
|
|
|
127.7 |
|
|
|
126.2 |
|
|
|
127.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA (1) |
|
$ |
17.7 |
|
|
$ |
17.6 |
|
|
$ |
31.5 |
|
|
$ |
35.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (benefit) 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 |
|
Six Months Ended |
|
|
|
|
June 26, |
|
June 27, |
|
June 26, |
|
June 27, |
|
|
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) attributable to Kratos |
|
$ |
(4.7 |
) |
|
$ |
1.1 |
|
|
$ |
(20.6 |
) |
|
$ |
3.0 |
|
|
|
Loss
(income) from discontinued operations, net of income taxes |
|
|
(0.9 |
) |
|
|
0.3 |
|
|
|
(0.7 |
) |
|
|
0.3 |
|
|
|
Interest
expense, net |
|
|
2.9 |
|
|
|
5.7 |
|
|
|
8.8 |
|
|
|
11.6 |
|
|
|
Loss on
extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
13.0 |
|
|
|
- |
|
|
|
Provision
(benefit) for income taxes from continuing operations |
|
|
0.5 |
|
|
|
(3.6 |
) |
|
|
(3.8 |
) |
|
|
(6.3 |
) |
|
|
Depreciation
(including cost of service revenues and product sales) |
|
|
5.3 |
|
|
|
5.8 |
|
|
|
10.6 |
|
|
|
10.7 |
|
|
|
Stock-based
compensation |
|
|
6.3 |
|
|
|
6.6 |
|
|
|
13.3 |
|
|
|
12.8 |
|
|
|
Foreign
transaction loss |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
Amortization
of intangible assets |
|
|
1.6 |
|
|
|
1.2 |
|
|
|
3.3 |
|
|
|
2.6 |
|
|
|
Amortization
of capitalized contract and development costs |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
Acquisition
and restructuring related items and other |
|
|
6.0 |
|
|
|
0.3 |
|
|
|
6.6 |
|
|
|
0.5 |
|
|
|
Plus: Net
income (loss) attributable to noncontrolling interest |
|
|
0.3 |
|
|
|
(0.2 |
) |
|
|
0.3 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA |
|
$ |
17.7 |
|
|
$ |
17.6 |
|
|
$ |
31.5 |
|
|
$ |
35.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of acquisition and restructuring related items and
other included in Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
|
June 26, |
|
June 27, |
|
June 26, |
|
June 27, |
|
|
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
Acquisition
and transaction related items |
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
0.4 |
|
|
$ |
0.3 |
|
|
|
Restructuring costs |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
Legal
related items |
|
|
5.7 |
|
|
|
- |
|
|
|
5.9 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6.0 |
|
|
$ |
0.3 |
|
|
$ |
6.6 |
|
|
$ |
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
|
|
Unaudited
Segment Data |
|
|
(in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
|
June 26, |
|
June 27, |
|
June 26, |
|
June 27, |
|
|
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
Unmanned
Systems |
|
$ |
56.4 |
|
|
$ |
60.3 |
|
|
$ |
109.0 |
|
|
$ |
116.2 |
|
|
|
Kratos
Government Solutions |
|
|
167.8 |
|
|
|
144.8 |
|
|
|
311.4 |
|
|
|
283.1 |
|
|
|
Total
revenues |
|
$ |
224.2 |
|
|
$ |
205.1 |
|
|
$ |
420.4 |
|
|
$ |
399.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) |
|
|
|
|
|
|
|
|
|
|
Unmanned
Systems |
|
$ |
(5.0 |
) |
|
$ |
4.1 |
|
|
$ |
(4.5 |
) |
|
$ |
8.3 |
|
|
|
Kratos
Government Solutions |
|
|
9.5 |
|
|
|
5.9 |
|
|
|
15.1 |
|
|
|
13.0 |
|
|
|
Unallocated
corporate expense, net |
|
|
(6.4 |
) |
|
|
(6.7 |
) |
|
|
(13.7 |
) |
|
|
(13.1 |
) |
|
|
Total
operating income (loss) |
|
$ |
(1.9 |
) |
|
$ |
3.3 |
|
|
$ |
(3.1 |
) |
|
$ |
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 Segment Operating Income (Loss) to Adjusted
EBITDA is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
|
June 26, |
|
June 27, |
|
June 26, |
|
June 27, |
|
|
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
Unmanned
Systems |
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
(5.0 |
) |
|
$ |
4.1 |
|
|
$ |
(4.5 |
) |
|
$ |
8.3 |
|
|
|
Other income |
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
Depreciation |
|
|
1.7 |
|
|
|
2.2 |
|
|
|
3.3 |
|
|
|
3.8 |
|
|
|
Amortization of intangible assets |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
0.6 |
|
|
|
Amortization of capitalized contract and
development costs |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
Acquisition and restructuring related items and
other |
|
|
5.7 |
|
|
|
- |
|
|
|
5.9 |
|
|
|
- |
|
|
|
Adjusted EBITDA |
|
$ |
2.9 |
|
|
$ |
6.9 |
|
|
$ |
5.9 |
|
|
$ |
13.3 |
|
|
|
% of revenue |
|
|
5.1 |
% |
|
|
11.4 |
% |
|
|
5.4 |
% |
|
|
11.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Government Solutions |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
9.5 |
|
|
$ |
5.9 |
|
|
$ |
15.1 |
|
|
$ |
13.0 |
|
|
|
Other income |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
Depreciation |
|
|
3.6 |
|
|
|
3.6 |
|
|
|
7.3 |
|
|
|
6.9 |
|
|
|
Amortization of intangible assets |
|
|
1.4 |
|
|
|
0.9 |
|
|
|
2.8 |
|
|
|
2.0 |
|
|
|
Acquisition and restructuring related items and
other |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
Adjusted EBITDA |
|
$ |
14.8 |
|
|
$ |
10.7 |
|
|
$ |
25.6 |
|
|
$ |
22.4 |
|
|
|
% of revenue |
|
|
8.8 |
% |
|
|
7.4 |
% |
|
|
8.2 |
% |
|
|
7.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Adjusted EBITDA |
|
$ |
17.7 |
|
|
$ |
17.6 |
|
|
$ |
31.5 |
|
|
$ |
35.7 |
|
|
|
% of revenue |
|
|
7.9 |
% |
|
|
8.6 |
% |
|
|
7.5 |
% |
|
|
8.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
|
|
Unaudited
Condensed Consolidated Balance Sheets |
|
|
(in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
26, |
|
December
26, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
2021 |
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
$ |
142.4 |
|
|
$ |
349.4 |
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
315.0 |
|
|
|
284.7 |
|
|
|
Inventoried costs |
|
|
|
|
|
|
118.2 |
|
|
|
91.7 |
|
|
|
Prepaid expenses |
|
|
|
|
|
|
12.2 |
|
|
|
9.8 |
|
|
|
Other current assets |
|
|
|
|
|
|
36.5 |
|
|
|
22.5 |
|
|
|
Total current assets |
|
|
|
|
|
|
624.3 |
|
|
|
758.1 |
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
212.2 |
|
|
|
168.3 |
|
|
|
Operating lease right-of-use assets |
|
|
|
|
|
|
38.1 |
|
|
|
38.5 |
|
|
|
Goodwill |
|
|
|
|
|
|
551.9 |
|
|
|
493.9 |
|
|
|
Intangible assets, net |
|
|
|
|
|
|
64.9 |
|
|
|
43.2 |
|
|
|
Other assets |
|
|
|
|
|
|
91.9 |
|
|
|
87.5 |
|
|
|
Total assets |
|
|
|
|
|
$ |
1,583.3 |
|
|
$ |
1,589.5 |
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
$ |
58.2 |
|
|
$ |
50.4 |
|
|
|
Accrued expenses |
|
|
|
|
|
|
36.0 |
|
|
|
27.2 |
|
|
|
Accrued compensation |
|
|
|
|
|
|
50.1 |
|
|
|
47.3 |
|
|
|
Accrued interest |
|
|
|
|
|
|
0.3 |
|
|
|
1.5 |
|
|
|
Billings in excess of costs and earnings on uncompleted
contracts |
|
|
|
|
|
|
59.2 |
|
|
|
58.1 |
|
|
|
Current portion of operating lease liabilities |
|
|
|
|
|
|
10.6 |
|
|
|
10.1 |
|
|
|
Other current liabilities |
|
|
|
|
|
|
12.5 |
|
|
|
25.7 |
|
|
|
Other current liabilities of discontinued operations |
|
|
|
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
Total current liabilities |
|
|
|
|
|
|
227.8 |
|
|
|
221.1 |
|
|
|
Long-term debt |
|
|
|
|
|
|
293.8 |
|
|
|
296.7 |
|
|
|
Operating lease liabilities, net of current portion |
|
|
|
|
|
|
31.5 |
|
|
|
32.7 |
|
|
|
Other long-term liabilities |
|
|
|
|
|
|
82.9 |
|
|
|
76.2 |
|
|
|
Other long-term liabilities of discontinued operations |
|
|
|
|
|
|
1.4 |
|
|
|
2.5 |
|
|
|
Total liabilities |
|
|
|
|
|
|
637.4 |
|
|
|
629.2 |
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest |
|
|
|
|
|
|
7.8 |
|
|
|
15.2 |
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
1,593.1 |
|
|
|
1,578.9 |
|
|
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
- |
|
|
|
0.6 |
|
|
|
Accumulated deficit |
|
|
|
|
|
|
(655.0 |
) |
|
|
(634.4 |
) |
|
|
Total Kratos stockholders’ equity |
|
|
|
|
|
|
938.1 |
|
|
|
945.1 |
|
|
|
Total liabilities and stockholders’ equity |
|
|
|
|
|
$ |
1,583.3 |
|
|
$ |
1,589.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows |
|
|
(in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
June 26, |
|
June 27, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
2021 |
|
|
|
Operating
activities: |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
$ |
(20.3 |
) |
|
$ |
2.8 |
|
|
|
Less: income (loss) from discontinued operations |
|
|
|
|
|
|
0.7 |
|
|
|
(0.3 |
) |
|
|
Income (loss) from continuing operations |
|
|
|
|
|
|
(21.0 |
) |
|
|
3.1 |
|
|
|
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) operating activities from
continuing operations: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
13.9 |
|
|
|
13.3 |
|
|
|
Amortization of lease right-of-use assets |
|
|
|
|
|
|
5.3 |
|
|
|
4.5 |
|
|
|
Deferred income taxes |
|
|
|
|
|
|
0.4 |
|
|
|
(0.9 |
) |
|
|
Stock-based compensation |
|
|
|
|
|
|
13.3 |
|
|
|
12.8 |
|
|
|
Litigation related charges |
|
|
|
|
|
|
5.5 |
|
|
|
- |
|
|
|
Amortization of deferred financing costs |
|
|
|
|
|
|
0.4 |
|
|
|
0.5 |
|
|
|
Loss on extinguishment of debt |
|
|
|
|
|
|
13.0 |
|
|
|
- |
|
|
|
Provision for (recovery of) doubtful accounts |
|
|
|
|
|
|
- |
|
|
|
(0.2 |
) |
|
|
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
0.3 |
|
|
|
15.5 |
|
|
|
Unbilled receivables |
|
|
|
|
|
|
(15.3 |
) |
|
|
(7.9 |
) |
|
|
Inventoried costs |
|
|
|
|
|
|
(25.8 |
) |
|
|
(6.8 |
) |
|
|
Prepaid expenses and other assets |
|
|
|
|
|
|
(13.2 |
) |
|
|
(2.2 |
) |
|
|
Operating lease liabilities |
|
|
|
|
|
|
(5.5 |
) |
|
|
(4.5 |
) |
|
|
Accounts payable |
|
|
|
|
|
|
5.6 |
|
|
|
5.8 |
|
|
|
Accrued compensation |
|
|
|
|
|
|
(1.3 |
) |
|
|
(1.8 |
) |
|
|
Accrued expenses |
|
|
|
|
|
|
7.7 |
|
|
|
(7.5 |
) |
|
|
Accrued interest |
|
|
|
|
|
|
(1.1 |
) |
|
|
- |
|
|
|
Billings in excess of costs and earnings on uncompleted
contracts |
|
|
|
|
|
|
1.3 |
|
|
|
9.6 |
|
|
|
Income tax receivable and payable |
|
|
|
|
|
|
(6.2 |
) |
|
|
(6.1 |
) |
|
|
Other liabilities |
|
|
|
|
|
|
(6.8 |
) |
|
|
(5.2 |
) |
|
|
Net cash provided by (used in) operating activities from continuing
operations |
|
|
|
|
|
|
(29.5 |
) |
|
|
22.0 |
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired |
|
|
|
|
|
|
(131.9 |
) |
|
|
(6.2 |
) |
|
|
Capital expenditures |
|
|
|
|
|
|
(21.9 |
) |
|
|
(20.5 |
) |
|
|
Proceeds from sale of assets |
|
|
|
|
|
|
0.1 |
|
|
|
- |
|
|
|
Net cash used in investing activities from continuing
operations |
|
|
|
|
|
|
(153.7 |
) |
|
|
(26.7 |
) |
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of long-term debt |
|
|
|
|
|
|
200.0 |
|
|
|
- |
|
|
|
Repayment of debt |
|
|
|
|
|
|
(309.8 |
) |
|
|
- |
|
|
|
Debt issuance costs |
|
|
|
|
|
|
(3.2 |
) |
|
|
- |
|
|
|
Credit agreement borrowings |
|
|
|
|
|
|
100.0 |
|
|
|
- |
|
|
|
Payment under finance leases |
|
|
|
|
|
|
(0.6 |
) |
|
|
(0.4 |
) |
|
|
Payments of employee taxes withheld from share-based awards |
|
|
|
|
|
|
(11.5 |
) |
|
|
(8.5 |
) |
|
|
Proceeds from shares issued under equity plans |
|
|
|
|
|
|
2.9 |
|
|
|
2.5 |
|
|
|
Net cash used in financing activities from continuing
operations |
|
|
|
|
|
|
(22.2 |
) |
|
|
(6.4 |
) |
|
|
Net cash flows from continuing operations |
|
|
|
|
|
|
(205.4 |
) |
|
|
(11.1 |
) |
|
|
Net operating cash flows of discontinued
operations |
|
|
|
|
|
|
(0.4 |
) |
|
|
(0.8 |
) |
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
(1.2 |
) |
|
|
(0.3 |
) |
|
|
Net decrease in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
(207.0 |
) |
|
|
(12.2 |
) |
|
|
Cash, cash equivalents and restricted cash at beginning of
period |
|
|
|
|
|
|
349.4 |
|
|
|
381.5 |
|
|
|
Cash, cash equivalents and restricted cash at end of period |
|
|
|
|
|
$ |
142.4 |
|
|
$ |
369.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 estimated impact to
income taxes includes the impact to the effective tax rate, current
tax provision and |
|
|
deferred tax
provision, and excludes the impact of discrete items, including
transaction related expenses and release of valuation allowance, or
benefit related to the add-backs.* |
|
Adjusted EPS reflects adjusted income 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 |
|
Six Months Ended |
|
|
|
|
June 26, |
|
June 27, |
|
June 26, |
|
June 27, |
|
|
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
Net
income (loss) attributable to Kratos |
|
$ |
(4.7 |
) |
|
$ |
1.1 |
|
|
$ |
(20.6 |
) |
|
$ |
3.0 |
|
|
|
Less: GAAP
provision (benefit) for income taxes |
|
|
0.5 |
|
|
|
(3.6 |
) |
|
|
(3.8 |
) |
|
|
(6.3 |
) |
|
|
Less: Net
(income) loss attributable to noncontrolling interest |
|
|
0.3 |
|
|
|
(0.2 |
) |
|
|
0.3 |
|
|
|
(0.2 |
) |
|
|
Less: Income
(loss) from discontinued operations, net of income taxes |
|
|
(0.9 |
) |
|
|
0.3 |
|
|
|
(0.7 |
) |
|
|
0.3 |
|
|
|
Loss from continuing operations before taxes |
|
|
(4.8 |
) |
|
|
(2.4 |
) |
$ |
- |
|
(24.8 |
) |
|
|
(3.2 |
) |
|
|
Add:
Amortization of intangible assets |
|
|
1.6 |
|
|
|
1.2 |
|
|
- |
|
3.3 |
|
|
|
2.6 |
|
|
|
Add:
Amortization of capitalized contract and development costs |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
Add:
Depreciation |
|
|
5.3 |
|
|
|
5.8 |
|
|
|
10.6 |
|
|
|
10.7 |
|
|
|
Add:
Stock-based compensation |
|
|
6.3 |
|
|
|
6.6 |
|
|
|
13.3 |
|
|
|
12.8 |
|
|
|
Add: Loss on
extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
13.0 |
|
|
|
- |
|
|
|
Add: Foreign
transaction loss |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
Add:
Acquisition and restructuring related items and other |
|
|
6.0 |
|
|
|
0.3 |
|
|
|
6.6 |
|
|
|
0.5 |
|
|
|
Non-GAAP Adjusted income from continuing
operations before income taxes |
|
|
14.8 |
|
|
|
11.9 |
|
|
|
22.7 |
|
|
|
24.1 |
|
|
|
Income taxes
on Non-GAAP measure Adjusted income from continuing
operations* |
|
|
5.4 |
|
|
|
4.3 |
|
|
|
8.2 |
|
|
|
8.8 |
|
|
|
Non-GAAP Adjusted net
income |
|
$ |
9.4 |
|
|
$ |
7.6 |
|
|
$ |
14.5 |
|
|
$ |
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
(0.04 |
) |
|
$ |
0.01 |
|
|
$ |
(0.16 |
) |
|
$ |
0.02 |
|
|
|
Less: GAAP
provision (benefit) for income taxes |
|
|
- |
|
|
|
(0.03 |
) |
|
|
(0.03 |
) |
|
|
(0.05 |
) |
|
|
Less: Net
income (loss) attributable to noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
Less: Loss
(income) from discontinued operations, net of income taxes |
|
|
- |
|
|
|
- |
|
|
|
(0.01 |
) |
|
|
- |
|
|
|
Add:
Amortization of intangible assets |
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.03 |
|
|
|
0.02 |
|
|
|
Add:
Amortization of capitalized contract and development costs |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.01 |
|
|
|
Add:
Depreciation |
|
|
0.04 |
|
|
|
0.05 |
|
|
|
0.08 |
|
|
|
0.08 |
|
|
|
Add:
Stock-based compensation |
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.11 |
|
|
|
0.10 |
|
|
|
Add: Loss on
extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
0.10 |
|
|
|
- |
|
|
|
Add: Foreign
transaction loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
Add:
Acquisition and restructuring related items and other |
|
|
0.05 |
|
|
|
- |
|
|
|
0.05 |
|
|
|
0.01 |
|
|
|
Income taxes
on Non-GAAP measure Adjusted income from continuing
operations* |
|
|
(0.04 |
) |
|
|
(0.03 |
) |
|
|
(0.06 |
) |
|
|
(0.07 |
) |
|
|
Adjusted income from continuing operations per diluted
common share |
|
$ |
0.07 |
|
|
$ |
0.06 |
|
|
$ |
0.11 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares
outstanding |
|
|
126.4 |
|
|
|
127.7 |
|
|
|
126.2 |
|
|
|
127.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*The impact to income
taxes is calculated by recasting income before income taxes to
include the add-backs involved in determining Adjusted income from
continuing |
|
operations before
income taxes and recalculating the income tax provision (benefit),
including current and deferred income taxes, using the Adjusted
income from continuing |
operations before
income taxes. The recalculation also adjusts for any discrete tax
expense, including transaction related expenses and the release of
valuation allowance, or |
benefit
related to the add-backs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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