First Quarter 2018 Revenues of $143.0
Million Increase 8.3 Percent over First Quarter of
2017
Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS), a
leading National Security Solutions provider, today reported
its first quarter 2018 financial results, which, along with
comparable 2017 financial results, have been recast to reflect the
pending divestiture of the Company’s Public Safety & Security
(PSS) business as a discontinued operation. The sale and
divestiture of Kratos’ PSS business is expected to close during the
Company’s second fiscal quarter of 2018.
Accordingly, for the first quarter ended April
1, 2018, Kratos generated revenue of $143.0 million, an increase of
8.3 percent over the first quarter of 2017. First quarter 2018
Adjusted EBITDA from continuing operations was $13.7 million, an
increase of 34.3 percent over Adjusted EBITDA of $10.2 million in
the first quarter of 2017. First quarter 2018
gross margins increased to 28.5 percent from 27.3 percent in the
first quarter of 2017, operating income increased 400 percent to
$7.0 million in 2018 from $1.4 million in 2017 and Kratos Adjusted
EBITDA margin rate increased to 9.6 percent in 2018 from 7.7
percent in 2017. In the first quarter of 2018 Kratos
generated positive cash from operations of $6.5 million, the
Company’s total backlog was $551.8 million, book-to-bill ratio was
1.2 to 1.0 and Kratos’ bid and proposal pipeline was approximately
$6 billion.
For the first quarter of 2018, Kratos’ Unmanned
Systems Division (KUSD) generated year over year revenue growth of
78.2 percent, to $27.8 million, up from $15.6 million in the first
quarter of 2017. KUSD’s first quarter 2018 Adjusted EBITDA of $1.7
million, or 6.1 percent of revenue, increased from an Adjusted
EBITDA loss of $2.8 million in the first quarter of 2017. In
addition, in the first quarter of 2018, KUSD received in excess of
$200 million in sole source or single award contracts, all of which
is expected to be converted to revenue over the life of the
expected contracts, and reported a book to bill ratio of 2.6 to
1.0.
In the first quarter of 2018, all businesses
within Kratos’ Government Solutions (KGS) generated year-over-year
revenue growth, except Kratos’ legacy, non-core government services
business, which saw a decline of $8.1 million, resulting in an
overall decline in KGS revenues of 1.0% from the first quarter of
2017. Excluding the legacy government services business, KGS
revenue in the first quarter of 2018 increased 7.3 percent over the
first quarter of 2017. KGS’ Adjusted EBITDA in the first
quarter of 2018 was $12.0 million, down from $13.0 million in the
first quarter of 2017, primarily due to the decline in Kratos
legacy government services business and product mix. During
the first quarter of 2018, KGS’ satellite communications business
was selected to participate in the U.S. Air Force TETRAS program
under a $998 million multiple award IDIQ contract, and Kratos’
Microwave Electronics Division received an approximate $20 million
initial sole source contract award in support of a new airborne
electronic warfare system.
Approximately $7.7 million of the increase in
the first quarter 2018 revenues was a result of the Company’s
adoption of the new revenue recognition guidance effective January
1, 2018. Approximately $3.2 million and $4.5 million of the
increase were related to the KGS and KUSD divisions,
respectively. The Company’s adoption of the new revenue
recognition guidance impacts the timing of revenue
recognition. The adoption also resulted in an approximate
$138.6 million reduction in total backlog.
For the first quarter of 2018, Adjusted EPS* was
$0.05 and EPS from continuing operations was $0.01. In the
first quarter of 2018, net loss was $2.2 million, which included a
loss from discontinued operations of $3.5 million, or a loss from
discontinued operations of $0.03 per share, and net loss per share
was $0.02.
Eric DeMarco, Kratos’ President and CEO, said,
“Kratos’ core unmanned target drone, satellite communications,
microwave electronics, training and missile defense related
businesses drove Kratos’ first quarter results. These
businesses, and in particular Kratos’ unmanned target drone
business with several new programs under contract and beginning
production, and existing programs with expected increased
production quantities, are forecast to drive a strong organic
growth curve for our Company over the next several years.
Additionally, with our Dynetics team Gremlins win, Kratos has
successfully won every high performance tactical unmanned aerial
drone program we have pursued, beating certain of the largest
aerospace and defense companies in the industry in competitive
solicitations. With the Gremlins award, we are now more
confident than ever that Kratos’ tactical unmanned aerial systems
business will significantly increase the already strong organic
growth we are forecasting for our current core businesses in future
years.”
Mr. DeMarco concluded, “With a 2018 DoD budget
now in place, we have high confidence in Kratos’ 2018 financial
forecast, including an extremely strong third and fourth quarter,
as we execute and deliver on the numerous new, long term programs
we have under contract. With the planned divestiture of PSS,
we have positioned Kratos as a high growth, technology and
intellectual property based aerospace and defense Company, and we
are laser focused on operational execution, increasing Kratos’
profit margins and increasing our cash flow.”
Financial Guidance
Kratos is affirming its full year 2018 financial
guidance for revenues, excluding the PSS business, of $640 to $650
million, compared to $603.3 million for the full year of 2017, and
full year 2018 Adjusted EBITDA guidance of $55 to $59 million,
compared to $47.6 million for full year 2017. Kratos is also
affirming its full year 2018 financial guidance of positive cash
flow generation from operations of $35 to $45 million, including
the expected collection of net working capital proceeds of the PSS
business retained by Kratos.
Kratos’ second quarter 2018 financial guidance
for revenues excluding PSS is $140 to $150 million, as compared to
$147.9 million for the second quarter of 2017, and second quarter
2018 Adjusted EBITDA guidance is $9.0 to $11.0 million, which
reflects the anticipated product mix based on delivery and
production schedules, as compared to $10.2 million for the second
quarter of 2017.
Similar to 2017, as a result of the approximate
six month U.S. Federal Budget Continuing Resolution Authorization
which ended March 23, 2018, and the approval of the 2018 DoD
Budget, Kratos is forecasting strong third and fourth quarters of
fiscal 2018, and for the second half of its fiscal year financial
performance to be substantially stronger than the first half of
2018.
Management will discuss the Company’s first
quarter 2018 financial results, second quarter and full year 2018
guidance in a conference call beginning at 2:00 p.m. Pacific (5:00
p.m. Eastern) today. Analysts and institutional investors may
participate in the conference call by dialing (866) 393-0674, and
referencing the call by ID number 4268676. 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
Solutions
Kratos Defense & Security Solutions,
Inc. (NASDAQ:KTOS) develops transformative, affordable
technology for the Department of Defense and commercial customers.
Kratos is changing the way breakthrough technology for these
industries is brought to market through proactive research and a
streamlined development process. Kratos specializes in unmanned
systems, satellite communications, cyber security/warfare,
microwave electronics, missile defense, training and combat
systems. For more information go to www.kratosdefense.com.
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 of the
second quarter and full year 2018 revenue, Adjusted EBITDA and
Adjusted EPS, and ability to generate positive cash flow from
operations in 2018, the Company’s ability to achieve projected
growth in certain of the Company’s business units and the expected
timing of such growth, its bid and proposal pipeline, demand for
its products and services, including the Company’s ability to
successfully compete in the tactical unmanned aerial system area
and expected new customer awards, performance of key contracts,
including the timing of production and demonstration related to
certain of the Company’s contracts and product offerings, the
impact of the Company’s restructuring efforts and cost reduction
measures, including its ability to improve profitability and cash
flow in certain business units as a result of these actions,
benefits to be realized from the Company’s net operating loss
carryforwards and the availability and timing of government funding
for the Company’s offerings, timing of LRIP related to the
Company’s unmanned aerial target system offerings, as well as the
level of recurring revenues expected to be generated by these
programs once they achieve full rate production, ability to close
the pending divestiture of its PSS business, and market and
industry developments, including projected growth. Such statements
are only predictions, and the Company’s actual results may differ
materially from the results expressed or implied by these
statements. Investors are cautioned not to place undue reliance on
any such forward-looking statements. All such forward-looking
statements speak only as of the date they are made, and the Company
undertakes no obligation to update or revise these statements,
whether as a result of new information, future events or otherwise.
Factors that may cause the Company’s results to differ include, but
are not limited to: risks to our business and financial results
related to the reductions and other spending constraints imposed on
the U.S. Government and our other customers, including as a result
of sequestration, the Federal budget deficit and Federal government
shut-downs; risks of adverse regulatory action or litigation; risks
associated with debt leverage and expected cost savings and cash
flow improvements expected as a result of the refinancing of our
Senior Notes and the repurchase of Senior Notes; risks that our
cost-cutting initiatives will not provide the anticipated benefits;
risks that changes, cutbacks or delays in spending by the U.S. DoD
may occur, which could cause delays or cancellations of key
government contracts; risks of delays to or the cancellation of our
projects as a result of protest actions submitted by our
competitors; risks that changes may occur in Federal government (or
other applicable) procurement laws, regulations, policies and
budgets; risks of the availability of government funding for the
Company's products and services due to performance, cost growth, or
other factors, changes in government and customer priorities and
requirements (including cost-cutting initiatives, the potential
deferral of awards, terminations or reduction of expenditures to
respond to the priorities of Congress and the Administration, or
budgetary cuts resulting from Congressional committee
recommendations or automatic sequestration under the Budget Control
Act of 2011, as amended); risks of increases in the Federal
government initiatives related to in-sourcing; risks related to
security breaches, including cybersecurity attacks and threats or
other significant disruptions of our information systems,
facilities and infrastructures; risks related to our compliance
with applicable contracting and procurement laws, regulations and
standards; risks relating to contract performance; risks related to
failure of our products or services; risks associated with our
subcontractors’ or suppliers’ failure to perform their contractual
obligations, including the appearance of counterfeit or corrupt
parts in our products; changes in the competitive environment
(including as a result of bid protests); failure to successfully
integrate acquired operations and competition in the marketplace,
which could reduce revenues and profit margins; risks that
potential future goodwill impairments will adversely affect our
operating results; risks that anticipated tax benefits will not be
realized in accordance with our expectations; risks that a change
in ownership of our stock could cause further limitation to the
future utilization of our net operating losses; risks that the
current economic environment will adversely impact our business;
risks that we are not able to close the pending divestiture of the
PSS business on our anticipated timeline or at all; and risks
related to natural disasters or severe weather. These and other
risk factors are more fully discussed in the Company’s Annual
Report on Form 10-K for the period ended December 31, 2017, and in
our other filings made with the Securities and Exchange
Commission.
Note Regarding Use of Non-GAAP Financial
Measures
This news release contains non-GAAP financial
measures, including Adjusted income (loss) per share (computed
using income (loss) from continuing operations before income
taxes, excluding amortization of intangible assets and capitalized
contract and development costs, stock compensation expense, loss on
extinguishment of debt, contract design retrofit costs, acquisition
and restructuring related items and other, and impairment of
goodwill, which includes but is not limited to unused office space
expense, excess capacity, investments in unmanned combat systems
initiatives, and foreign transaction gains and losses, less the
estimated tax cash payments) and Adjusted EBITDA (which excludes,
among other things, losses and gains from discontinued operations,
restructuring and transaction related items, investments in
unmanned combat systems initiatives, stock compensation expense,
unused office space expense, impairment of goodwill, loss on
extinguishment of debt, foreign transaction gains and losses, and
the associated margin rates). Additional non-GAAP financial
measures include Revenues and Adjusted EBITDA related to our KUSD,
KGS and PSS 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 extraordinary items and non-cash items that
would normally be included in the most directly comparable measures
calculated and presented in accordance with generally accepted
accounting principles. The Company’s management uses these
non-GAAP financial measures along with the most directly comparable
GAAP financial measures in evaluating the Company’s actual and
forecasted operating performance, capital resources and cash
flow. Non-GAAP financial measures should not be considered in
isolation from, or as a substitute for, financial information
presented in compliance with GAAP, and investors should carefully
evaluate the Company’s financial results calculated in accordance
with GAAP and reconciliations to those financial statements.
In addition, non-GAAP financial measures as reported by the Company
may not be comparable to similarly titled amounts reported by other
companies. As appropriate, the most directly comparable GAAP
financial measures and information reconciling these non-GAAP
financial measures to the Company’s financial results prepared in
accordance with GAAP are included in this news release.
*Adjusted earnings per share (Adjusted EPS)
excludes loss from discontinued operations, non-cash amortization
expenses, as the Company has historically been acquisitive,
non-cash stock compensation costs, foreign transaction gains
and losses, certain non-recurring items such as acquisition and
restructuring related items and other, the loss on extinguishment
of debt, and the non-cash impairment of goodwill, and includes cash
actually expected to be paid for income taxes on continuing
operations, reflecting the benefit of the Company’s net operating
loss carryforwards of over $300 million. Kratos believes that
reporting adjusted income (loss) per share is a meaningful metric
to present the Company’s financial results.
Kratos Defense & Security Solutions,
Inc. |
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Unaudited Condensed Consolidated Statements of
Operations |
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(in millions, except per share
data) |
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Three
Months Ended |
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April 1, |
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March 26, |
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2018 |
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2017 |
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Service revenues |
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$ |
46.0 |
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$ |
49.2 |
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Product sales |
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97.0 |
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82.8 |
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Total
revenues |
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143.0 |
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132.0 |
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Cost of service
revenues |
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32.9 |
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35.0 |
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Cost of product
sales |
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69.3 |
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60.9 |
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Total
costs |
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102.2 |
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95.9 |
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Gross profit - service
revenues |
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13.1 |
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14.2 |
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Gross profit - product
sales |
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27.7 |
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21.9 |
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Total gross
profit |
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40.8 |
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36.1 |
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Selling, general and
administrative expenses |
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27.3 |
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26.8 |
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Unused office space,
restructuring expenses, and other |
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0.4 |
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0.3 |
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Research and
development expenses |
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3.6 |
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4.4 |
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Depreciation |
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0.8 |
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0.6 |
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Amortization of
intangible assets |
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1.7 |
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2.6 |
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Operating income
from continuing operations |
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7.0 |
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1.4 |
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Interest expense,
net |
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(5.1 |
) |
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(8.2 |
) |
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Loss on extinguishment
of debt |
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- |
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(2.1 |
) |
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Other income, net |
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0.3 |
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0.2 |
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Income/(loss) from continuing operations before income taxes |
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2.2 |
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(8.7 |
) |
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Provision for income
taxes from continuing operations |
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0.9 |
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1.4 |
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Income/(loss) from continuing operations |
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1.3 |
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(10.1 |
) |
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Income (loss) from
discontinued operations, net of income taxes |
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(3.5 |
) |
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0.1 |
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Net loss |
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$ |
(2.2 |
) |
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$ |
(10.0 |
) |
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Basic gain/(loss) per
common share: |
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Gain/(loss) from
continuing operations |
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$ |
0.01 |
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$ |
(0.13 |
) |
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Loss from
discontinued operations |
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(0.03 |
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- |
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Net loss |
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$ |
(0.02 |
) |
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$ |
(0.13 |
) |
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Diluted gain/(loss) per
common share: |
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Gain/(loss) from
continuing operations |
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$ |
0.01 |
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$ |
(0.13 |
) |
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Loss from
discontinued operations |
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(0.03 |
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- |
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Net loss |
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$ |
(0.02 |
) |
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$ |
(0.13 |
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Weighted average common
shares outstanding |
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Basic weighted
average common shares outstanding |
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103.7 |
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77.3 |
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Diluted weighted
average common shares outstanding |
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105.7 |
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77.3 |
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Adjusted EBITDA
(1) |
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$ |
13.7 |
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$ |
10.2 |
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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 |
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operations,
net interest expense, income taxes, depreciation and amortization,
stock compensation, amortization of intangible |
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assets,
amortization of capitalized contract and development costs, foreign
transaction gain (loss), acquisition and |
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restructuring related items, impairment of goodwill, contract
design retrofit costs, investment in unmanned combat systems,
litigation related |
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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 |
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Adjusted
EBITDA because we believe it is a commonly used measure of
financial performance in comparable companies and is provided
to |
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help
investors evaluate companies on a consistent basis, as well as to
enhance understanding of our operating results. Adjusted
EBITDA |
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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 |
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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 |
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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 |
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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 |
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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 |
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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 |
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valued at the time of
acquisition and are amortized over the estimated useful lives. |
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Amortization of capitalized contract and development costs.
The Company incurs amortization of previously capitalized software
development and non- |
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recurring
engineering costs related to certain aerial targets in its Unmanned
Systems business as these units are sold. |
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Stock-based compensation expense. The Company incurs expense
related to stock-based compensation included in its GAAP
presentation of selling, |
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general
and administrative expense. Although stock-based compensation
is an expense of the Company and viewed as a form of compensation,
these |
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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. |
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Management
believes that exclusion of these expenses allows comparison of
operating results to those of other companies that disclose
non-GAAP |
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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 |
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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 |
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acquisitions and divestiture activities. Management believes these
items are outside the normal operations of the Company's business
and are not |
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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 |
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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, |
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facility
shut-down related costs and remaining lease commitment costs for
excess or exited facilities. Management believes that these
costs are not |
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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 |
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case
settlements and/or judgments. Although we may incur such
costs and other related charges and adjustments, we do not believe
it is indicative |
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of any
particular outcome until the matter is fully resolved.
Management believes these items are outside the normal operations
of the Company's |
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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 |
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with the
intention of retaining the intellectual property and data package
rights of the technology it is developing. Management
believes these rights |
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will
result in securing future sole source positions on new platforms
which will provide an attractive rate of return. Management
believes that these |
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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 |
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which are
necessary for the final design and configuration of these
vehicles. Management believes that these costs are not
indicative of ongoing |
|
operating results. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
of goodwill. As management has de-emphasized its legacy government
services business since 2012 and has considered this business
non-core, |
management believes
that this non-cash charge is not indicative of ongoing operating
results. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA is a non-GAAP financial measure and should not be considered
in isolation or as a substitute for financial information provided
in |
|
accordance
with GAAP. This non-GAAP financial measure may not be
computed in the same manner as similarly titled measures used by
other |
|
companies. The Company expects to continue to incur expenses
similar to the Adjusted EBITDA financial adjustments described
above, and investors |
|
should not
infer from the Company's presentation of this non-GAAP financial
measure that these costs are unusual, infrequent, or
non-recurring. |
|
|
|
|
|
|
|
|
Reconciliation of Net
income (loss) to Adjusted EBITDA is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
|
|
April 1, |
|
March 26, |
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2.2 |
) |
|
$ |
(10.0 |
) |
|
|
Income (loss) from
discontinued operations, net of income taxes |
|
|
3.5 |
|
|
|
(0.1 |
) |
|
|
Interest expense,
net |
|
|
5.1 |
|
|
|
8.2 |
|
|
|
Loss on extinguishment
of debt |
|
|
- |
|
|
|
2.1 |
|
|
|
Provision for income
taxes from continuing operations |
|
|
0.9 |
|
|
|
1.4 |
|
|
|
Depreciation (including
cost of service revenues and product sales) |
|
|
2.8 |
|
|
|
2.9 |
|
|
|
Stock-based
compensation |
|
|
1.7 |
|
|
|
2.1 |
|
|
|
Foreign transaction
gain |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
Amortization of
intangible assets |
|
|
1.7 |
|
|
|
2.6 |
|
|
|
Acquisition and
restructuring related items and other |
|
|
0.4 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
13.7 |
|
|
$ |
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of acquisition and restructuring related items and
other included in Adjusted EBITDA: |
|
|
|
|
|
|
Three
Months Ended |
|
|
|
|
April 1, |
|
March 26, |
|
|
|
|
2018 |
|
2017 |
|
|
Acquisition and
transaction related items |
|
$ |
- |
|
|
$ |
0.4 |
|
|
|
Excess capacity and
restructuring costs |
|
|
0.4 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.4 |
|
|
$ |
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
|
|
Unaudited Segment Data |
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
|
|
April 1, |
|
March 26, |
|
|
|
|
2018 |
|
2017 |
|
|
Revenues: |
|
|
|
|
|
|
Unmanned
Systems |
|
$ |
27.8 |
|
|
$ |
15.6 |
|
|
|
Kratos
Government Solutions |
|
|
115.2 |
|
|
|
116.4 |
|
|
|
Total revenues |
|
$ |
143.0 |
|
|
$ |
132.0 |
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
from continuing operations: |
|
|
|
|
|
|
Unmanned
Systems |
|
$ |
0.8 |
|
|
$ |
(5.0 |
) |
|
|
Kratos
Government Solutions |
|
|
7.9 |
|
|
|
9.1 |
|
|
|
Unallocated
corporate expense, net |
|
|
(1.7 |
) |
|
|
(2.7 |
) |
|
|
Total operating income from continuing operations |
|
$ |
7.0 |
|
|
$ |
1.4 |
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
April 1, |
|
March 26, |
|
|
|
|
2018 |
|
2017 |
|
|
Unmanned Systems |
|
$ |
1.7 |
|
|
$ |
(2.8 |
) |
|
|
% of
revenue |
|
|
6.1 |
% |
|
|
-17.9 |
% |
|
|
Kratos Government
Solutions |
|
|
12.0 |
|
|
|
13.0 |
|
|
|
% of
revenue |
|
|
10.4 |
% |
|
|
11.2 |
% |
|
|
Total Adjusted
EBITDA |
|
$ |
13.7 |
|
|
$ |
10.2 |
|
|
|
% of
revenue |
|
|
9.6 |
% |
|
|
7.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
|
|
Unaudited Condensed Consolidated Balance
Sheets |
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, |
|
December 31, |
|
|
|
|
2018 |
|
2017 |
|
|
Assets |
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
Cash and
cash equivalents |
|
$ |
127.8 |
|
|
$ |
130.5 |
|
|
|
Restricted cash |
|
|
0.4 |
|
|
|
0.4 |
|
|
|
Accounts
receivable, net |
|
|
57.7 |
|
|
|
74.2 |
|
|
|
Unbilled
receivable, net |
|
|
151.2 |
|
|
|
138.1 |
|
|
|
Inventoried costs |
|
|
48.2 |
|
|
|
49.0 |
|
|
|
Prepaid
expenses |
|
|
6.8 |
|
|
|
11.1 |
|
|
|
Other
current assets |
|
|
12.9 |
|
|
|
9.5 |
|
|
|
Current
assets of discontinued operations |
|
|
52.1 |
|
|
|
58.6 |
|
|
|
Total
current assets |
|
|
457.1 |
|
|
|
471.4 |
|
|
|
Property,
plant and equipment, net |
|
|
61.5 |
|
|
|
58.0 |
|
|
|
Goodwill |
|
|
425.7 |
|
|
|
425.7 |
|
|
|
Intangible assets, net |
|
|
20.3 |
|
|
|
22.0 |
|
|
|
Other
assets |
|
|
7.8 |
|
|
|
8.1 |
|
|
|
Other
assets of discontinued operations |
|
|
38.8 |
|
|
|
38.8 |
|
|
|
Total
assets |
|
$ |
1,011.2 |
|
|
$ |
1,024.0 |
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
Accounts
payable |
|
$ |
31.3 |
|
|
$ |
34.7 |
|
|
|
Accrued
expenses |
|
|
33.8 |
|
|
|
40.9 |
|
|
|
Accrued
compensation |
|
|
34.1 |
|
|
|
30.2 |
|
|
|
Accrued
interest |
|
|
6.6 |
|
|
|
1.7 |
|
|
|
Billings
in excess of costs and earnings on uncompleted contracts |
|
|
38.2 |
|
|
|
42.8 |
|
|
|
Other
current liabilities |
|
|
7.8 |
|
|
|
9.4 |
|
|
|
Other
current liabilities of discontinued operations |
|
|
23.2 |
|
|
|
29.2 |
|
|
|
Total
current liabilities |
|
|
175.0 |
|
|
|
188.9 |
|
|
|
Long-term
debt principal, net of current portion |
|
|
293.6 |
|
|
|
293.5 |
|
|
|
Other
long-term liabilities |
|
|
24.2 |
|
|
|
24.1 |
|
|
|
Other
long-term liabilities of discontinued operations |
|
|
5.9 |
|
|
|
6.0 |
|
|
|
Total
liabilities |
|
|
498.7 |
|
|
|
512.5 |
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
Common
stock |
|
|
- |
|
|
|
- |
|
|
|
Additional paid-in capital |
|
|
1,237.2 |
|
|
|
1,233.7 |
|
|
|
Accumulated other comprehensive loss |
|
|
(1.5 |
) |
|
|
(1.4 |
) |
|
|
Accumulated deficit |
|
|
(723.2 |
) |
|
|
(720.8 |
) |
|
|
Total
stockholders’ equity |
|
|
512.5 |
|
|
|
511.5 |
|
|
|
Total
liabilities and stockholders’ equity |
|
$ |
1,011.2 |
|
|
$ |
1,024.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
|
|
Unaudited Condensed Consolidated Statements of
Cash Flows |
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
|
|
April 1, |
|
March 26, |
|
|
|
|
2018 |
|
2017 |
|
|
Operating activities: |
|
|
|
|
|
|
Net
loss |
|
$ |
(2.2 |
) |
|
$ |
(10.0 |
) |
|
|
Less:
income/(loss) from discontinued operations |
|
|
(3.5 |
) |
|
|
0.1 |
|
|
|
Income/(loss) from continuing operations |
|
|
1.3 |
|
|
|
(10.1 |
) |
|
|
Adjustments to reconcile loss from continuing operations to net
cash used in operating activities from continuing operations: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
4.5 |
|
|
|
5.5 |
|
|
|
Deferred
income taxes |
|
|
- |
|
|
|
0.8 |
|
|
|
Stock-based compensation |
|
|
1.7 |
|
|
|
2.1 |
|
|
|
Amortization of deferred financing costs |
|
|
0.2 |
|
|
|
0.4 |
|
|
|
Amortization of discount on Senior Secured Notes |
|
|
- |
|
|
|
0.2 |
|
|
|
Loss on
extinguishment of debt |
|
|
- |
|
|
|
2.1 |
|
|
|
Changes
in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
Accounts
receivable |
|
|
2.2 |
|
|
|
1.6 |
|
|
|
Inventoried costs |
|
|
1.3 |
|
|
|
(8.9 |
) |
|
|
Advance
payments received on contracts |
|
|
(0.6 |
) |
|
|
0.7 |
|
|
|
Prepaid
expenses and other assets |
|
|
0.8 |
|
|
|
(3.8 |
) |
|
|
Accounts
payable |
|
|
(3.0 |
) |
|
|
0.1 |
|
|
|
Accrued
compensation |
|
|
3.8 |
|
|
|
(2.7 |
) |
|
|
Accrued
expenses |
|
|
(6.1 |
) |
|
|
- |
|
|
|
Accrued
interest |
|
|
4.9 |
|
|
|
6.0 |
|
|
|
Billings
in excess of costs and earnings on uncompleted contracts |
|
|
(3.7 |
) |
|
|
1.2 |
|
|
|
Income
tax receivable and payable |
|
|
0.2 |
|
|
|
0.4 |
|
|
|
Other
liabilities |
|
|
(1.0 |
) |
|
|
(1.0 |
) |
|
|
Net cash
provided (used in) operating activities from continuing
operations |
|
|
6.5 |
|
|
|
(5.4 |
) |
|
|
Investing
activities: |
|
|
|
|
|
|
Capital
expenditures |
|
|
(6.7 |
) |
|
|
(5.1 |
) |
|
|
Net cash
used in investing activities from continuing operations |
|
|
(6.7 |
) |
|
|
(5.1 |
) |
|
|
Financing
activities: |
|
|
|
|
|
|
Payment
of long-term debt |
|
|
- |
|
|
|
(64.0 |
) |
|
|
Proceeds
from the issuance of common stock |
|
|
(1.1 |
) |
|
|
81.9 |
|
|
|
Repayment
of debt |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
Debt
issuance costs |
|
|
(0.1 |
) |
|
|
- |
|
|
|
Proceeds from exercise of restricted stock units, employee stock
options, and employee stock purchase plan |
|
|
1.8 |
|
|
|
0.8 |
|
|
|
Net cash
provided by financing activities from continuing
operations |
|
|
0.4 |
|
|
|
18.4 |
|
|
|
Net cash
flows from continuing operations |
|
|
0.2 |
|
|
|
7.9 |
|
|
|
Net operating
and investing cash flows of discontinued operations |
|
|
(3.1 |
) |
|
|
(4.5 |
) |
|
|
Effect of
exchange rate changes on cash, cash equivalents and restricted
cash |
|
|
0.2 |
|
|
|
- |
|
|
|
Net
increase (decrease) in cash, cash equivalents and restricted
cash |
|
|
(2.7 |
) |
|
|
3.4 |
|
|
|
Cash,
cash equivalents and restricted cash at beginning of
period |
|
|
130.9 |
|
|
|
70.7 |
|
|
|
Cash,
cash equivalents and restricted cash at end of period |
|
$ |
128.2 |
|
|
$ |
74.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
|
|
Unaudited Non-GAAP Measures |
|
|
Computation of Adjusted Earnings Per
Share |
|
|
(in millions, except per share
data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income (loss) from continuing operations and adjusted
earnings per share (Adjusted EPS) are non-GAAP measure for
reporting financial |
|
performance, exclude the impact of certain items and,
therefore, have not been calculated in accordance with GAAP.
Management believes that exclusion |
|
of these items assists in providing a more complete
understanding of the Company's underlying continuing operations
results and trends and allows |
|
for comparability with our peer company index and
industry. The Company uses these measures along with the
corresponding GAAP financial measures |
|
to manage the Company's business and to evaluate its
performance compared to prior periods and the marketplace.
The Company defines adjusted |
|
income (loss) from continuing operations before amortization
of intangible assets, stock-based compensation, foreign transaction
gain/loss, contract |
|
design retrofit costs, acquisition and restructuring related
items and other, and impairment of goodwill. The Company uses
the estimated cash tax provision |
in computing adjusted earnings per share to reflect the
benefit from the utilization of the Company's net operating losses.
Adjusted EPS expresses adjusted |
|
income (loss) from continuing operations on a per share basis
using weighted average diluted shares outstanding. |
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the most directly comparable
GAAP financial measures to the non-GAAP financial measures. |
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
|
|
April 1, |
|
March 26, |
|
|
|
|
2018 |
|
2017 |
|
|
Loss from continuing
operations before taxes |
|
$ |
2.2 |
|
|
$ |
(8.7 |
) |
|
|
Add: Amortization of
intangible assets |
|
|
1.7 |
|
|
|
2.6 |
|
|
|
Add: Stock-based
compensation |
|
|
1.7 |
|
|
|
2.1 |
|
|
|
Add: Loss on
extinguishment of debt |
|
|
- |
|
|
|
2.1 |
|
|
|
Add: Foreign
transaction gain |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
Add: Acquisition and
restructuring related items and other |
|
|
0.4 |
|
|
|
1.2 |
|
|
|
Adjusted
income/(loss) from continuing operations before income taxes |
|
|
5.8 |
|
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
Estimated cash
tax provision |
|
|
0.3 |
|
|
|
0.6 |
|
|
|
Adjusted income/(loss)
from continuing operations |
|
$ |
5.5 |
|
|
$ |
(1.5 |
) |
|
|
|
|
|
|
|
|
|
Diluted income per
common share: |
|
|
|
|
|
|
Adjusted
income/(loss) from continuing operations |
|
$ |
0.05 |
|
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding |
|
|
|
|
|
|
Diluted |
|
|
105.7 |
|
|
|
77.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Press Contact:Yolanda White858-812-7302
Direct
Investor
Information:877-934-4687investor@kratosdefense.com
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