Revenues of $167.8 Million Increase
9.7 Percent Over First Quarter 2016
Revenues
Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS),
a leading National Security Solutions provider, today reported
its first quarter 2017 financial results. For the first
quarter ended March 26, 2017, Kratos generated revenues and
Adjusted EBITDA of $167.8 million and $10.6 million,
respectively. First quarter 2017 revenues increased 9.7
percent over first quarter 2016 revenues of $153.0 million, and
2017 Adjusted EBITDA more than doubled at $10.6 million, up from
first quarter 2016 Adjusted EBITDA of $4.6 million. Kratos’
book to bill ratio in the first quarter of 2017 was 0.9 to 1.0,
including book to bill ratios of 2.3 to 1.0 in Kratos’ Unmanned
Systems Division, and 1.9 to 1.0 in Kratos’ Microwave Electronic
Products Division. For the last twelve months ended March 26,
2017, Kratos’ book to bill ratio was 1.0 to 1.0. Kratos’
total backlog at the end of the first quarter of 2017 was
approximately $878.3 million, including funded and unfunded backlog
of approximately $616.2 million and $262.1 million,
respectively. Kratos’ bid and proposal pipeline at March 26,
2017 was $5.9 billion.
Kratos’ business units contributing to the first
quarter 2017 year-over-year growth included: 15.6 percent growth in
Satellite Communications, Cyber Security, Technology and Training
Solutions, 9.9 percent growth in Unmanned Systems, and 21.9 percent
growth in Public Safety and Security. Recent contract awards
in the satellite communications business area, where Kratos
provides command, control, communication and RF Interference
Mitigation products and solutions, U.S. Marine Corp, U.S. Air Force
and other customer training systems, and high performance jet
powered unmanned tactical combat and target drone aerial systems
were primary organic growth contributors for the first quarter of
2017. Year over year growth in the Company’s Public
Safety and Security business was driven primarily by security
system and related communication equipment integration under a
security system deployment program for a Mass Transportation
Authority in a large metropolitan area.
For the first quarter ended March 26, 2017,
approximately 57% of Kratos’ revenue was derived from U.S. Federal
Government related customers, approximately 34% from commercial,
state and local government customers, and approximately 9% from
international customers.
During the first quarter of 2017, Kratos
completed an equity offering generating net proceeds of
approximately $81.9 million, after underwriting costs, fees and
expenses. Consistent with the Company’s stated use of
proceeds raised in the equity offering, cash of approximately $64.0
million was utilized during the first quarter to retire $62.7
million of the Company’s Senior Notes, bringing the total amount
outstanding of total debt at March 26, 2017 to $374.3
million. The Company’s cash balance at March 26, 2017 was
$73.4 million, yielding a total net debt position at the end of the
first quarter of 2017 of $300.9 million. Over the last two
fiscal quarters, the Company has retired $77.2 million of the
Company’s Senior Notes, reducing the Company’s annual cash interest
payments by approximately $5.4 million.
During the first quarter, the Company made
investments of approximately $7.2 million, including capital
expenditures of $5.2 million primarily related to its Unmanned
Systems and Satellite Communications businesses, and approximately
$2.0 million in development costs related to the Low Cost
Attritable Strike Demonstrator (LCASD) tactical unmanned aircraft
where Kratos will retain intellectual property rights. Cash
flow from operating activities for the first quarter of 2017 was a
use of approximately $8.7 million, reflecting the $2.0 million in
LCASD development costs, and net working capital requirements of
approximately $6.7 million primarily related to the build of
inventory in anticipation of future scheduled product
deliveries.
For the quarter ended March 26, 2017, net loss
was $10.0 million, adjusted loss per share was $(0.01). Adjusted
income per share excludes loss from discontinued operations,
non-cash amortization expenses, as the Company has historically
been acquisitive, non-cash stock compensation costs, foreign
transaction gains and losses, and certain non-recurring items such
as acquisition and restructuring related items and other, and loss
on extinguishment of debt, and includes cash actually expected to
be paid for income taxes on continuing operations, reflecting
the benefit of the Company’s net operating loss carryforwards of
over $300 million. Kratos believes that reporting adjusted
income (loss) per share is a meaningful metric to present the
Company’s financial results. GAAP earnings per share was a
loss of $(0.13).
Kratos is affirming its previously provided 2017
guidance for revenues of $700 to $720 million, and Adjusted EBITDA
of $52 to $54 million, with a similar quarterly revenue and
Adjusted EBITDA trajectory as experienced in 2016. Kratos is
providing second quarter 2017 revenue guidance of $170 to $176
million and Adjusted EBITDA guidance of $8 million to $12
million.
Eric DeMarco, Kratos’ President and CEO, said,
“Kratos’ performance in the first quarter exceeded our
expectations, including continued strength and customer demand in
our Satellite Communications, Cyber Security, Technology and
Training division. This division had a full year and fourth quarter
2016 book to bill ratio of 1.2 to 1.0 that we are now executing on.
Kratos’ Satellite Communication business, the largest in our
Company, is seeing strength across virtually every capability area,
and we are forecasting this strong performance to continue going
forward due to increasing bandwidth demands, and threats to U.S.
space based assets. We are also seeing strong customer demand
in Kratos’ Cyber Security and Training Systems business areas,
where we won several large new program awards in 2016 which are
just now beginning to ramp up, and where we are hopeful of
receiving another very large new contract award later on this
year.”
Mr. DeMarco continued, “In Kratos’ Unmanned
Systems Division, in the first quarter we received Production Lot
13 from the U.S. Air Force for Kratos’ BQM 167 unmanned aerial
target drone aircraft, one of the largest programs in our
Company. We also received a contract award from a separate
customer for a new jet powered high performance unmanned aerial
drone system, where Kratos will initially be providing system
engineering, avionics, data links and ground systems.
If a 2017 Department of Defense (DoD) budget is approved, we
would expect to begin production in the following few months on the
U.S. Navy SSAT program for the BQM 177 unmanned aerial target drone
system and on a confidential customer program. Once in
production, we expect the SSAT Program to become one of the largest
in Kratos over the following few years, and these two programs are
expected to be key drivers to a doubling in size of Kratos’
unmanned systems business as they achieve full rate production.”
Mr. DeMarco went on, “In the first quarter, we
continued to make important progress in our tactical unmanned
aerial system (UAS) initiative with advancement to Phase II of the
DARPA Gremlins Program as a subcontractor on the Dynetics
team. On the Dynetics team, Kratos will design, develop and
build prototype Gremlin Tactical UASs, tooling, support equipment,
etc. On Kratos’ prime LCASD tactical UAS contract with the
Air Force Research Lab (AFRL), we are on budget and on schedule for
an estimated second quarter 2018 maiden flight. Kratos’
prime contract with the Defense Innovation Unit Experimental (DIUx)
also currently remains on budget and on schedule for a second half
2017 demonstration with several Kratos Mako tactical UASs,
previously named UTAP-22, set to fly in a major exercise.
Mr. DeMarco concluded, “In 2016, Kratos returned
to growth, and we expect that growth to continue and to accelerate
in 2017. In a few select areas, including satellite
communications, microwave electronics, high performance UASs and
training systems we believe that we are extremely well positioned,
having the right products at the right price point to address
mission critical National Security priority areas. We have
recently recapitalized the Company, significantly reducing our debt
and delevering the balance sheet, positioning Kratos to
successfully execute on the multiple new contract awards we have
recently received, and to fund the expected future growth of the
business.”
Management will discuss the Company’s first
quarter 2017 financial results and second quarter 2017 guidance in
a conference call beginning at 2:00 p.m. Pacific (5:00 p.m.
Eastern) today. Analysts and institutional investors may
participate in the conference call by dialing (866) 393-0674, and
referencing the call by ID number 10348101. 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) is a mid-tier government contractor at the forefront
of the Department of Defense’s Innovation Initiative and Third
Offset Strategy. Kratos is a leading technology, intellectual
property and proprietary product and solution company focused on
the United States and its allies’ national security. Kratos
is the industry leader in high performance unmanned aerial drone
target systems used to test weapon systems and to train the
warfighter, and is a provider of high performance unmanned combat
aerial systems for force multiplication and amplification.
Kratos is also an industry leader in satellite communications,
microwave electronics, cyber security/warfare, missile defense and
combat systems. Kratos has primarily an engineering and
technically oriented work force of approximately 2,900.
Substantially all of Kratos' work is performed on a military base,
in a secure facility or at a critical infrastructure location.
Kratos' primary end customers are National Security related
agencies. News and information are available at
www.KratosDefense.com.
Notice Regarding Forward-Looking
Statements This news release contains certain
forward-looking statements that involve risks and uncertainties,
including, without limitation, express or implied statements
concerning the Company’s expectations regarding its future
financial performance, including the Company’s expectations
concerning the trajectory of 2017 revenue and Adjusted EBITDA, the
Company’s ability to achieve projected growth in certain of the
Company’s business units and the expected timing of such growth,
its bid and proposal pipeline, demand for its products and
services, including the Company’s ability to successfully compete
in the tactical unmanned aerial system area and expected new
customer awards, performance of key contracts, including the timing
of production and demonstration related to certain of the Company’s
contracts and product offerings, the impact of the Company’s
restructuring efforts and cost reduction measures, including its
ability to improve profitability and cash flow in certain business
units as a result of these actions, benefits to be realized from
the Company’s net operating loss carryforwards and the availability
and timing of government funding for the Company’s UTAP-22 or Mako,
timing of LRIP related to the Company’s unmanned aerial target
system offerings, as well as the level of recurring revenues
expected to be generated by these programs once they achieve full
rate production, and market and industry developments. Such
statements are only predictions, and the Company’s actual results
may differ materially from the results expressed or implied by
these statements. Investors are cautioned not to place undue
reliance on any such forward-looking statements. All such
forward-looking statements speak only as of the date they are made,
and the Company undertakes no obligation to update or revise these
statements, whether as a result of new information, future events
or otherwise. Factors that may cause the Company’s results to
differ include, but are not limited to: risks to our business and
financial results related to the reductions and other spending
constraints imposed on the U.S. Government and our other customers,
including as a result of sequestration, the Federal budget deficit
and Federal government shut-downs; risks of adverse regulatory
action or litigation; risks associated with debt leverage and
expected cost savings and cash flow improvements expected as a
result of the refinancing of our Senior Notes and the repurchase of
Senior Notes; risks that our cost-cutting initiatives will not
provide the anticipated benefits; risks that changes, cutbacks or
delays in spending by the U.S. DoD may occur, which could cause
delays or cancellations of key government contracts; risks of
delays to or the cancellation of our projects as a result of
protest actions submitted by our competitors; risks that changes
may occur in Federal government (or other applicable) procurement
laws, regulations, policies and budgets; risks of the availability
of government funding for the Company's products and services due
to performance, cost growth, or other factors, changes in
government and customer priorities and requirements (including
cost-cutting initiatives, the potential deferral of awards,
terminations or reduction of expenditures to respond to the
priorities of Congress and the Administration, or budgetary cuts
resulting from Congressional committee recommendations or automatic
sequestration under the Budget Control Act of 2011, as amended);
risks of increases in the Federal government initiatives related to
in-sourcing; risks related to security breaches, including
cybersecurity attacks and threats or other significant disruptions
of our information systems, facilities and infrastructures; risks
related to our compliance with applicable contracting and
procurement laws, regulations and standards; risks relating to
contract performance; risks related to failure of our products or
services; risks associated with our subcontractors’ or suppliers’
failure to perform their contractual obligations, including the
appearance of counterfeit or corrupt parts in our products; changes
in the competitive environment (including as a result of bid
protests); failure to successfully integrate acquired operations
and competition in the marketplace, which could reduce revenues and
profit margins; risks that potential future goodwill impairments
will adversely affect our operating results; risks that anticipated
tax benefits will not be realized in accordance with our
expectations; risks that a change in ownership of our stock could
cause further limitation to the future utilization of our net
operating losses; risks that the current economic environment will
adversely impact our business; 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 25, 2016, 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 income (loss) per share
(computed using income (loss) from continuing operations
before income taxes, excluding amortization of intangible assets,
stock compensation expense, loss on extinguishment of debt,
contract design retrofit costs, acquisition and restructuring
related items and other which includes but is not limited to unused
office space expense, excess capacity, investments in unmanned
combat systems initiatives, and foreign transaction
gains and losses, less the estimated tax cash payments) and
Adjusted EBITDA (which excludes, among other things, losses and
gains from discontinued operations, restructuring and transaction
related items, investments in unmanned combat systems initiatives,
stock compensation expense, unused office space expense, and
foreign transaction gains and losses, and the associated margin
rates). Kratos believes this information is useful to
investors because it provides a basis for measuring the Company’s
available capital resources, the actual and forecasted operating
performance of the Company’s business and the Company’s cash flow,
excluding extraordinary items and non-cash items that would
normally be included in the most directly comparable measures
calculated and presented in accordance with generally accepted
accounting principles. The Company’s management uses these
non-GAAP financial measures along with the most directly comparable
GAAP financial measures in evaluating the Company’s actual and
forecasted operating performance, capital resources and cash
flow. Non-GAAP financial measures should not be considered in
isolation from, or as a substitute for, financial information
presented in compliance with GAAP, and investors should carefully
evaluate the Company’s financial results calculated in accordance
with GAAP and reconciliations to those financial statements.
In addition, non-GAAP financial measures as reported by the Company
may not be comparable to similarly titled amounts reported by other
companies. As appropriate, the most directly comparable GAAP
financial measures and information reconciling these non-GAAP
financial measures to the Company’s financial results prepared in
accordance with GAAP are included in this news release.
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Kratos Defense & Security Solutions,
Inc. |
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Unaudited Condensed Consolidated Statements of
Operations |
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(in millions, except per share
data) |
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Three
Months Ended |
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|
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March 26, |
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March 27, |
|
|
|
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2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
Service revenues |
|
$ |
85.0 |
|
|
$ |
82.6 |
|
|
Product sales |
|
|
82.8 |
|
|
|
70.4 |
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Total
revenues |
|
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167.8 |
|
|
|
153.0 |
|
|
Cost of service
revenues |
|
|
61.8 |
|
|
|
60.3 |
|
|
Cost of product
sales |
|
|
60.9 |
|
|
|
56.8 |
|
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Total
costs |
|
|
122.7 |
|
|
|
117.1 |
|
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Gross profit - service
revenues |
|
|
23.2 |
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|
|
22.3 |
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Gross profit - product
sales |
|
|
21.9 |
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|
|
13.6 |
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|
|
|
|
|
|
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Total
gross profit |
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|
45.1 |
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|
|
35.9 |
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|
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|
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Selling, general and
administrative expenses |
|
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35.4 |
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|
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34.0 |
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Unused office space,
restructuring expenses, and other |
|
|
0.3 |
|
|
|
5.5 |
|
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Research and
development expenses |
|
|
4.4 |
|
|
|
2.9 |
|
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Depreciation |
|
|
0.6 |
|
|
|
1.0 |
|
|
Amortization of
intangible assets |
|
|
2.7 |
|
|
|
2.7 |
|
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Operating
income (loss) from continuing operations |
|
|
1.7 |
|
|
|
(10.2 |
) |
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Interest expense,
net |
|
|
(8.2 |
) |
|
|
(8.7 |
) |
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Loss on extinguishment
of debt |
|
|
(2.1 |
) |
|
|
- |
|
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Other income, net |
|
|
0.2 |
|
|
|
0.3 |
|
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Loss from
continuing operations before income taxes |
|
|
(8.4 |
) |
|
|
(18.6 |
) |
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Provision for income
taxes from continuing operations |
|
|
1.5 |
|
|
|
3.6 |
|
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Loss from
continuing operations |
|
|
(9.9 |
) |
|
|
(22.2 |
) |
|
Loss from discontinued
operations, net of income taxes |
|
|
(0.1 |
) |
|
|
- |
|
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Net
loss |
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$ |
(10.0 |
) |
|
$ |
(22.2 |
) |
|
|
|
|
|
|
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Basic and diluted loss
per common share: |
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|
|
|
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Loss from
continuing operations |
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$ |
(0.13 |
) |
|
$ |
(0.37 |
) |
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Loss from
discontinued operations |
|
|
- |
|
|
|
- |
|
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Net
loss |
|
$ |
(0.13 |
) |
|
$ |
(0.37 |
) |
|
|
|
|
|
|
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Basic and
diluted weighted average common shares outstanding |
|
|
77.3 |
|
|
|
59.6 |
|
|
|
|
|
|
|
|
Adjusted EBITDA
(1) |
|
$ |
10.6 |
|
|
$ |
4.6 |
|
|
|
|
|
|
|
|
|
|
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|
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Unaudited Reconciliation of GAAP to Non-GAAP
Measures |
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Note: (1)
Adjusted EBITDA is a non-GAAP measure defined as GAAP net income
(loss) plus (income) loss from discontinued operations, net
interest expense, income taxes, depreciation and amortization,
stock compensation, amortization of intangible assets, foreign
transaction gain (loss), acquisition and restructuring
related items, contract design retrofit costs, investment in
unmanned combat systems, litigation related charges, unused
office space expense and costs related to pending customer change
orders. |
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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. |
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Please
refer to the following table below that reconciles GAAP net income
(loss) to Adjusted EBITDA. |
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The
adjustments to calculate this non-GAAP financial measure, and the
basis for such adjustments, are outlined below: |
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Interest
income and expense. The Company receives interest income on
investments and incurs interest expense on loans, capital leases
and other financing arrangements, including the amortization
of issue discounts and deferred financing costs. These
amounts may vary from period to period due to changes in cash
and debt balances. |
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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. |
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Depreciation. The Company incurs depreciation expense
(recorded in cost of revenues and in operating expenses) related to
capital assets purchased or constructed to support the ongoing
operations of the business. The assets are recorded at cost
or fair value and are depreciated over the estimated useful
lives of individual assets. |
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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. |
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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. |
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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. |
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Acquisition and restructuring related items. The Company
incurs transaction related costs, such as legal and accounting fees
and other expenses, related to acquisitions and divestiture
activities. Management believes these items are outside the normal
operations of the Company's business and are not indicative of
ongoing operating results. |
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Excess
capacity and restructuring costs. The Company incurs excess
capacity and excess overhead costs related to certain of its
manufacturing businesses within its Unmanned Systems and Modular
Systems businesses due primarily to underutilization of
manufacturing facilities and support costs resulting from less than
optimal volumes and efficiencies. The Company incurs restructuring
costs for cost reduction actions which include employee termination
costs, facility shut-down related costs and remaining lease
commitment costs for excess or exited facilities. Management
believes that these costs are not indicative of ongoing
operating results as they are either non-recurring and/or not
expected when full capacity and volumes are achieved. |
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Litigation
related items. The Company periodically incurs expenses
related to pending claims and litigation and associated legal fees
and potential case settlements and/or judgments. Although we
may incur such costs and other related charges and adjustments, we
do not believe it is indicative of any particular outcome until the
matter is fully resolved. Management believes these items are
outside the normal operations of the Company's business and
are not indicative of ongoing operating results. |
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Investment
in unmanned combat systems. The Company makes discretionary
investments related to its tactical unmanned combat systems
initiative with the intention of retaining the intellectual
property and data package rights of the technology it is
developing. Management believes these rights will result in
securing future sole source positions on new platforms which will
provide an attractive rate of return. Management believes
that these costs are not indicative of ongoing operating
results. |
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Contract
design retrofits. The Company makes certain design retrofits
primarily related to its development programs in its Unmanned
Systems business which are necessary for the final design and
configuration of these vehicles. Management believes that
these costs are not indicative of ongoing operating
results. |
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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. |
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Reconciliation of Net
income (loss) to Adjusted EBITDA is as follows: |
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|
|
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|
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|
|
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|
|
Three
Months Ended |
|
|
|
March 26, |
|
March 27, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(10.0 |
) |
|
$ |
(22.2 |
) |
|
Loss from discontinued
operations, net of income taxes |
|
|
0.1 |
|
|
|
- |
|
|
Interest expense,
net |
|
|
8.2 |
|
|
|
8.7 |
|
|
Loss on extinguishment
of debt |
|
|
2.1 |
|
|
|
- |
|
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Provision for income
taxes from continuing operations |
|
|
1.5 |
|
|
|
3.6 |
|
|
Depreciation (including
cost of service revenues and product sales) |
|
|
2.9 |
|
|
|
3.4 |
|
|
Stock-based
compensation |
|
|
2.1 |
|
|
|
1.5 |
|
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Foreign transaction
gain |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
Amortization of
intangible assets |
|
|
2.7 |
|
|
|
2.7 |
|
|
Acquisition and
restructuring related items and other |
|
|
1.2 |
|
|
|
7.2 |
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
10.6 |
|
|
$ |
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of acquisition and restructuring related items and
other included in Adjusted EBITDA: |
|
|
|
Three
Months Ended |
|
|
|
March 26, |
|
March 27, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
Acquisition and
transaction related items |
|
$ |
0.4 |
|
|
$ |
- |
|
|
Excess capacity and
restructuring costs |
|
|
0.8 |
|
|
|
4.9 |
|
|
Litigation related
items |
|
|
- |
|
|
|
1.9 |
|
|
Investment in unmanned
combat systems |
|
|
- |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
$ |
1.2 |
|
|
$ |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
|
Unaudited Segment Data |
|
(in millions) |
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
|
March 26, |
|
March 27, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
Revenues: |
|
|
|
|
|
Unmanned
Systems |
|
$ |
15.6 |
|
|
$ |
14.2 |
|
|
Kratos
Government Solutions |
|
|
115.4 |
|
|
|
108.6 |
|
|
Public
Safety & Security |
|
|
36.8 |
|
|
|
30.2 |
|
|
Total
revenues |
|
$ |
167.8 |
|
|
$ |
153.0 |
|
|
|
|
|
|
|
|
Operating income (loss)
from continuing operations: |
|
|
|
|
|
Unmanned
Systems |
|
$ |
(5.0 |
) |
|
$ |
(4.2 |
) |
|
Kratos
Government Solutions |
|
|
9.6 |
|
|
|
(1.8 |
) |
|
Public
Safety & Security |
|
|
(0.2 |
) |
|
|
(2.7 |
) |
|
Unallocated corporate expense, net |
|
|
(2.7 |
) |
|
|
(1.5 |
) |
|
Total
operating income (loss) from continuing operations |
|
$ |
1.7 |
|
|
$ |
(10.2 |
) |
|
|
|
|
|
|
|
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,
merger and acquisition expenses, corporate costs not allocated to
the segments, and other miscellaneous corporate activities. |
|
|
|
|
|
|
|
Reconciliation of consolidated Adjusted EBITDA to Adjusted EBITDA
by segment is as follows: |
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
|
March 26, |
|
March 27, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
Unmanned Systems |
|
$ |
(2.7 |
) |
|
$ |
(1.4 |
) |
|
% of
revenue |
|
|
-17.3% |
|
|
|
-9.9% |
|
|
Kratos Government
Solutions |
|
|
13.4 |
|
|
|
6.5 |
|
|
% of
revenue |
|
|
11.6% |
|
|
|
6.0% |
|
|
Public Safety &
Security |
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
% of
revenue |
|
|
-0.3% |
|
|
|
-1.7% |
|
|
Total Adjusted
EBITDA |
|
$ |
10.6 |
|
|
$ |
4.6 |
|
|
% of
revenue |
|
|
6.3% |
|
|
|
3.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
|
Unaudited Condensed Consolidated Balance
Sheets |
|
(in millions) |
|
|
|
|
|
|
|
March 26, |
|
December 25, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
Assets |
|
|
|
|
|
Current
assets: |
|
|
|
|
|
Cash and
cash equivalents |
|
$ |
73.4 |
|
|
$ |
69.1 |
|
|
Restricted cash |
|
|
0.5 |
|
|
|
0.5 |
|
|
Accounts
receivable, net |
|
|
227.9 |
|
|
|
229.4 |
|
|
Inventoried costs |
|
|
64.8 |
|
|
|
55.4 |
|
|
Prepaid
expenses |
|
|
8.9 |
|
|
|
8.9 |
|
|
Other
current assets |
|
|
11.8 |
|
|
|
9.8 |
|
|
Total
current assets |
|
|
387.3 |
|
|
|
373.1 |
|
|
Property,
plant and equipment, net |
|
|
50.8 |
|
|
|
49.8 |
|
|
Goodwill |
|
|
485.4 |
|
|
|
485.4 |
|
|
Intangible assets, net |
|
|
29.9 |
|
|
|
32.6 |
|
|
Other
assets |
|
|
8.2 |
|
|
|
7.7 |
|
|
Total
assets |
|
$ |
961.6 |
|
|
$ |
948.6 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
Accounts
payable |
|
$ |
51.8 |
|
|
$ |
52.7 |
|
|
Accrued
expenses |
|
|
49.8 |
|
|
|
50.0 |
|
|
Accrued
compensation |
|
|
35.2 |
|
|
|
39.1 |
|
|
Accrued
interest |
|
|
9.6 |
|
|
|
3.6 |
|
|
Billings
in excess of costs and earnings on uncompleted contracts |
|
|
41.8 |
|
|
|
41.8 |
|
|
Other
current liabilities |
|
|
6.4 |
|
|
|
7.7 |
|
|
Other
current liabilities of discontinued operations |
|
|
1.4 |
|
|
|
1.6 |
|
|
Total
current liabilities |
|
|
196.0 |
|
|
|
196.5 |
|
|
Long-term
debt principal, net of current portion |
|
|
369.3 |
|
|
|
431.0 |
|
|
Other
long-term liabilities |
|
|
41.2 |
|
|
|
41.0 |
|
|
Other
long-term liabilities of discontinued operations |
|
|
3.7 |
|
|
|
3.7 |
|
|
Total
liabilities |
|
|
610.2 |
|
|
|
672.2 |
|
|
Commitments and contingencies |
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
Common
stock |
|
|
- |
|
|
|
- |
|
|
Additional paid-in capital |
|
|
1,041.0 |
|
|
|
956.2 |
|
|
Accumulated other comprehensive loss |
|
|
(1.6 |
) |
|
|
(1.7 |
) |
|
Accumulated deficit |
|
|
(688.0 |
) |
|
|
(678.1 |
) |
|
Total
stockholders’ equity |
|
|
351.4 |
|
|
|
276.4 |
|
|
Total
liabilities and stockholders’ equity |
|
$ |
961.6 |
|
|
$ |
948.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
|
Unaudited Condensed Consolidated Statements of
Cash Flows |
|
(in millions) |
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
|
March 26, |
|
March 27, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
Operating activities: |
|
|
|
|
|
Net
loss |
|
$ |
(10.0 |
) |
|
$ |
(22.2 |
) |
|
Less:
loss from discontinued operations |
|
|
(0.1 |
) |
|
|
- |
|
|
Loss from
continuing operations |
|
|
(9.9 |
) |
|
|
(22.2 |
) |
|
Adjustments to reconcile loss from continuing operations to net
cash used in operating activities from continuing operations: |
|
|
|
|
|
Depreciation and amortization |
|
|
5.6 |
|
|
|
6.1 |
|
|
Deferred
income taxes |
|
|
0.8 |
|
|
|
1.2 |
|
|
Stock-based compensation |
|
|
2.1 |
|
|
|
1.5 |
|
|
Litigation related charges |
|
|
- |
|
|
|
1.7 |
|
|
Amortization of deferred financing costs |
|
|
0.4 |
|
|
|
0.4 |
|
|
Amortization of discount on Senior Secured Notes |
|
|
0.2 |
|
|
|
0.2 |
|
|
Loss on
extinguishment of debt |
|
|
2.1 |
|
|
|
- |
|
|
Provision
for non-cash restructuring costs |
|
|
- |
|
|
|
3.0 |
|
|
Provision
for doubtful accounts |
|
|
- |
|
|
|
0.3 |
|
|
Changes
in assets and liabilities, net of acquisitions: |
|
|
|
|
|
Accounts
receivable |
|
|
1.5 |
|
|
|
(4.0 |
) |
|
Inventoried costs |
|
|
(10.1 |
) |
|
|
(1.6 |
) |
|
Advance
payments received on contracts |
|
|
0.7 |
|
|
|
1.5 |
|
|
Prepaid
expenses and other assets |
|
|
(3.8 |
) |
|
|
0.1 |
|
|
Accounts
payable |
|
|
0.4 |
|
|
|
(8.8 |
) |
|
Accrued
compensation |
|
|
(4.0 |
) |
|
|
(4.2 |
) |
|
Accrued
expenses |
|
|
(0.3 |
) |
|
|
(3.1 |
) |
|
Accrued
interest |
|
|
6.0 |
|
|
|
7.9 |
|
|
Billings
in excess of costs and earnings on uncompleted contracts |
|
|
- |
|
|
|
6.7 |
|
|
Income
tax receivable and payable |
|
|
0.5 |
|
|
|
0.4 |
|
|
Other
liabilities |
|
|
(0.9 |
) |
|
|
1.4 |
|
|
Net cash
used in operating activities from continuing operations |
|
|
(8.7 |
) |
|
|
(11.5 |
) |
|
Investing
activities: |
|
|
|
|
|
Capital
expenditures |
|
|
(5.2 |
) |
|
|
(2.1 |
) |
|
Net cash
used in investing activities from continuing operations |
|
|
(5.2 |
) |
|
|
(2.1 |
) |
|
Financing
activities: |
|
|
|
|
|
Payment
of long-term debt |
|
|
(64.0 |
) |
|
|
- |
|
|
Proceeds
from the issuance of common stock |
|
|
81.9 |
|
|
|
- |
|
|
Repayment
of debt |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
Proceeds
from exercise of restricted stock units, employee stock options,
and employee stock purchase plan |
|
|
0.8 |
|
|
|
1.2 |
|
|
Net cash
provided by financing activities from continuing operations |
|
|
18.4 |
|
|
|
0.9 |
|
|
Net cash
flows from continuing operations |
|
|
4.5 |
|
|
|
(12.7 |
) |
|
Net
operating and investing cash flows of discontinued operations |
|
|
(0.2 |
) |
|
|
4.3 |
|
|
Effect of
exchange rate changes on cash and cash equivalents |
|
|
- |
|
|
|
- |
|
|
Net
increase (decrease) in cash and cash equivalents |
|
|
4.3 |
|
|
|
(8.4 |
) |
|
Cash and
cash equivalents at beginning of period |
|
|
69.1 |
|
|
|
28.5 |
|
|
Cash and
cash equivalents at end of period |
|
$ |
73.4 |
|
|
$ |
20.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
|
Unaudited Non-GAAP Measures |
|
Computation of Adjusted Earnings Per
Share |
|
(in millions, except per share
data) |
|
|
Adjusted income (loss) from continuing operations and adjusted
earnings per share (Adjusted EPS) are non-GAAP measure for
reporting financial performance, exclude the impact of certain
items and, therefore, have not been calculated in accordance with
GAAP. Management believes that exclusion of these items
assists in providing a more complete understanding of the Company's
underlying continuing operations results and trends and
allows for comparability with our peer company index and
industry. The Company uses these measures along with the
corresponding GAAP financial measures to manage the Company's
business and to evaluate its performance compared to prior periods
and the marketplace. The Company defines adjusted income
(loss) from continuing operations before amortization of intangible
assets, stock-based compensation, foreign transaction gain/loss,
contract design retrofit costs 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 (loss) from continuing operations on a per share basis
using weighted average diluted shares outstanding. |
|
|
|
|
|
|
The following table reconciles the most directly comparable
GAAP financial measures to the non-GAAP financial measures. |
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
|
March 26, |
|
March 27, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
Loss from continuing
operations before taxes |
|
$ |
(8.4 |
) |
|
$ |
(18.6 |
) |
|
Add: Amortization of
intangible assets |
|
|
2.7 |
|
|
|
2.7 |
|
|
Add: Stock-based
compensation |
|
|
2.1 |
|
|
|
1.5 |
|
|
Add: Loss on
extinguishment of debt |
|
|
2.1 |
|
|
|
- |
|
|
Add: Foreign
transaction gain |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
Add: Acquisition and
restructuring related items and other |
|
|
1.2 |
|
|
|
7.2 |
|
|
Adjusted
loss from continuing operations before income taxes |
|
|
(0.5 |
) |
|
|
(7.5 |
) |
|
|
|
|
|
|
|
Estimated
cash tax provision |
|
|
0.6 |
|
|
|
0.4 |
|
|
Adjusted loss from
continuing operations |
|
$ |
(1.1 |
) |
|
$ |
(7.9 |
) |
|
|
|
|
|
|
|
Diluted income per
common share: |
|
|
|
|
|
Adjusted
loss from continuing operations |
|
$ |
(0.01 |
) |
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
Weighted average common
shares outstanding |
|
|
|
|
|
Diluted |
|
|
77.3 |
|
|
|
59.6 |
|
|
|
|
|
|
|
|
Press Contact:
Yolanda White
858-812-7302 Direct
Investor Information:
877-934-4687
investor@kratosdefense.com
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