Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a
Technology Company in the Defense, National Security and Global
Markets, today reported its first quarter 2024 financial results,
including Revenues of $277.2 million, Operating Income of $7.0
million, Net Income of $1.3 million, Adjusted EBITDA of $26.0
million and a consolidated book to bill ratio of 1.1 to 1.0.
Included in first quarter 2024 Net Income and
Operating Income is non-cash stock compensation expense of $9.2
million and Company-funded Research and Development (R&D)
expense of $9.6 million, primarily reflecting ongoing development
efforts, including in our Space and Satellite business to develop
and expand our virtual, software-based OpenSpace command &
control (C2), telemetry tracking & control (TT&C), Kratos
owned and operated Global Space Domain Awareness (SDA) System and
other solutions.
Kratos reported first quarter 2024 GAAP Net
Income attributable to Kratos of $1.3 million and Earnings Per
Share of $0.01 compared to a GAAP Net Loss attributable to Kratos
of $7.0 million and a GAAP Net Loss per share of $0.05 for the
first quarter of 2023. Adjusted EPS was $0.11 for the first quarter
of 2024, compared to $0.06 for the first quarter of 2023.
First quarter 2024 Revenues of $277.2 million
increased $45.4 million, or 19.6 percent, from first quarter 2023
Revenues of $231.8 million. Including the impact of the Sierra
Technical Services, Inc. (STS) acquisition on a pro forma basis as
if acquired at the beginning of 2023, first quarter 2024
consolidated Revenues reflect organic growth of 19.5 percent,
including 21.8 percent organic growth in Unmanned Systems, 18.5
percent revenue growth in KGS, and positive organic growth across
all business units.
First quarter 2024 Cash Flow Generated From
Operations was $0.7 million, reflecting working capital
requirements related to our 19.5 percent organic revenue growth,
including continued increases in inventory balances. Free Cash Flow
Used in Operations was $15.9 million after funding of $16.6 million
of capital expenditures, including the continued manufacture of two
production lots of Kratos Valkyrie unmanned tactical jet drone
aircraft prior to contract award.
For the first quarter of 2024, Kratos’ Unmanned
Systems Segment (KUS) generated Revenues of $59.4 million, as
compared to $48.0 million in the first quarter of 2023, with
organic revenue growth of 21.8 percent after reflecting the pro
forma impact of the STS acquisition as if acquired at the beginning
of 2023. KUS’s Operating Loss was $0.4 million in the first quarter
of 2024 compared to an Operating Loss of $0.6 million in the first
quarter of 2023, reflecting the impact of the increased revenue
volume.
KUS’s Adjusted EBITDA for the first quarter of
2024 was $2.9 million, compared to first quarter 2023 KUS Adjusted
EBITDA of $1.8 million, reflecting the increased revenue volume and
favorable revenue mix.
KUS’s book-to-bill ratio for the first quarter
of 2024 was 1.4 to 1.0 and 1.0 to 1.0 for the last twelve months
ended March 31, 2024, with bookings of $81.1 million for the three
months ended March 31, 2024, and bookings of $232.5 million for the
last twelve months ended March 31, 2024. Total backlog for KUS at
the end of the first quarter of 2024 was $265.8 million compared to
$244.2 million at the end of the fourth quarter of 2023.
For the first quarter of 2024, Kratos’
Government Solutions Segment (KGS) Revenues of $217.8 million
increased 18.5 percent from Revenues of $183.8 million in the first
quarter of 2023. The increased Revenues reflects organic revenue
growth across all business units within KGS, which includes our
Turbine Technologies, Space, Training and Cyber, Microwave
Products, C5ISR and Defense Rocket Systems businesses.
KGS reported operating income of $16.6 million
in the first quarter of 2024 compared to $7.7 million in the first
quarter of 2023, primarily reflecting a more favorable revenue mix
and leverage on the fixed overhead and SG&A costs.
Kratos’ Space, Training and Cyber business
generated Revenues of $99.8 million in the first quarter of 2024
compared to $93.8 million in the first quarter of 2023, reflecting
a 6.4 percent organic growth rate. First quarter 2024 KGS Adjusted
EBITDA was $23.1 million, compared to first quarter 2023 KGS
Adjusted EBITDA of $15.2 million, reflecting a more favorable mix
in revenues, including software and data sales and increased
revenue volume.
For the first quarter of 2024 and the last
twelve months ended March 31, 2024, KGS reported a book-to-bill
ratio of 1.1 to 1.0 and bookings of $236.7 million and $977.6
million for the three and last twelve months ended March 31, 2024,
respectively. KGS’s total backlog at the end of the first quarter
of 2024 was $1.007 billion, as compared to $988.0 million at the
end of the fourth quarter of 2023.
For the first quarter of 2024, Kratos reported
consolidated bookings of $317.8 million and a book-to-bill ratio of
1.1 to 1.0, with consolidated bookings of $1.210 billion and a
book-to-bill ratio of 1.1 to 1.0 for the last twelve months ended
March 31, 2024. Consolidated backlog was $1.273 billion on March
31, 2024 and $1.232 billion on December 31, 2023. Kratos’ bid and
proposal pipeline was $11 billion at March 31, 2024 and December
31, 2023. Backlog at March 31, 2024 was comprised of funded backlog
of $1.044 billion and unfunded backlog of $228.9 million.
Eric DeMarco, Kratos’ President and CEO, said,
“Kratos’ position as a leading defense technology company is
reflected in our first quarter results, which came in above our
forecast. Q1 strength included our unmanned systems, air defense,
propulsion system, turbine technologies and Israel-based microwave
electronics businesses, and also production and delivery on certain
programs that were executed earlier in the year than initially
expected. With the 2024 U.S. defense budget now
complete, we have increased confidence in our full year 2024
financial forecast.”
The appearance of U.S. Department of Defense
(DoD) visual information does not imply or constitute DoD
endorsementValkyrie Flying with F-35
A photo accompanying this announcement is
available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/509c0b84-85f5-4c6e-88a7-1aa49da1e084
Mr. DeMarco continued, “Kratos’ first quarter
bookings of $318 million, including a book to bill ratio in our
Unmanned Systems business of 1.4 to 1.0, or bookings of $81.1
million, are both particularly noteworthy. Kratos’ opportunity
pipeline is approximately $11 billion, including opportunities in
the air defense, CUAS, microwave electronics, jet engine,
propulsion system, missile, radar, hypersonic, supersonic, unmanned
systems and SDA areas, each of which we are in the process of, or
expect to make facilities, machinery, equipment, system and other
investments to position us for future organic growth. Kratos’ air
defense pipeline is particularly robust, including Iron Dome,
Arrow, SHORAD, HIMAD, Barak, Patriot, IBCS and other systems.
Recent achievements include the successful static fire test of
Kratos’ Zeus 2 Solid Rocket Motor (SRM), Kratos placing the order
for the first nine Zeus 1 and Zeus 2 SRM’s in preparation for
initial customer funded flights including Kratos Erinyes hypersonic
system, and Kratos demonstrating XQ-58A electronic warfare
capabilities for the United States Marine Corps.”
Zeus 1 Static Test & Zeus 2 Static Test
A photo accompanying this announcement is
available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/0347e1de-7107-4c39-8c4d-7d04f417b7ba
Mr. DeMarco concluded “There is a generational
recapitalization of strategic weapon systems occurring globally,
and we believe that Kratos is uniquely positioned with our internal
investment, rapid development, affordability and disruptive first
to market approach. At Kratos, affordability is a technology,
better is the enemy of good enough and ready to field today, with
Kratos systems and products designed up front for large scale, low
cost, rapid production, all of which are value differentiating for
our government customers and traditional large system integrator
partners. Operational challenges continue to include the obtaining
and retention of qualified personnel, including those willing and
able to hold National Security clearances.”
Financial Guidance
We are providing our initial 2024 second quarter
financial guidance and affirming our full year 2024 guidance today,
which includes our current forecasted business mix assumptions,
including as related to: employee sourcing, hiring, retention and
cost; manufacturing, production and supply chain disruptions; parts
shortages and related continued potential significant cost and
price increases, including for personnel, materials and components
that are adversely impacting the industry and Kratos. The range of
our expected second quarter and full year 2024 Revenues and
Adjusted EBITDA, includes our current assumptions for forecasted
execution, including the number and estimated costs of qualified
personnel expected to be obtained and retained to successfully
execute on our programs and contracts, as well as expected future
contract awards.
Our second quarter and full year 2024 guidance
ranges are as follows:
Current Guidance Range |
$M |
Q224 |
FY24 |
Revenues |
$265 -
$280 |
$1,125 -
$1,150 |
R&D |
$10 -
$12 |
$42 -
$45 |
Operating
Income |
$3 -
$5 |
$35 -
$40 |
Depreciation |
$7 -
$8 |
$30 -
$31 |
Amortization |
$2 -
$3 |
$8 -
$10 |
Stock Based
Compensation |
$6 -
$7 |
$28 -
$29 |
Adjusted
EBITDA |
$20 -
$23 |
$102 -
$107 |
Operating
Cash Flow |
|
$50 -
$60 |
Capital
Expenditures |
|
$70 -
$80 |
Free Cash
Flow Use |
|
($10 -
$30) |
|
|
|
Management will discuss the Company’s financial
results, 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 using
this Online Form. Upon registration, all telephone participants
will receive the dial-in number along with a unique PIN that can be
used to access the call. For those who cannot access the live
broadcast, a replay will be available on Kratos’ website.
About Kratos Defense & Security
Solutions
Kratos Defense & Security Solutions,
Inc. (NASDAQ: KTOS) is a technology, products, system and
software company addressing the defense, national security, and
commercial markets. Kratos makes true internally funded
research, development, capital and other investments, to rapidly
develop, produce and field solutions that address our customers’
mission critical needs and requirements. At Kratos,
affordability is a technology, and we seek to utilize proven,
leading edge approaches and technology, not unproven bleeding edge
approaches or technology, with Kratos’ approach designed to reduce
cost, schedule and risk, enabling us to be first to market with
cost effective solutions. We believe that Kratos is known as
an innovative disruptive change agent in the industry, a company
that is an expert in designing products and systems up front for
successful rapid, large quantity, low cost future manufacturing
which is a value add competitive differentiator for our large
traditional prime system integrator partners and also to our
government and commercial customers. Kratos intends to pursue
program and contract opportunities as the prime or lead contractor
when we believe that our probability of win (PWin) is high and any
investment required by Kratos is within our capital resource
comfort level. We intend to partner and team with a large,
traditional system integrator when our assessment of PWin is
greater or required investment is beyond Kratos’ comfort level.
Kratos’ primary business areas include virtualized ground systems
for satellites and space vehicles including software for command
& control (C2) and telemetry, tracking and control (TT&C),
jet powered unmanned aerial drone systems, hypersonic vehicles and
rocket systems, propulsion systems for drones, missiles, loitering
munitions, supersonic systems, space craft and launch systems,
C5ISR and microwave electronic products for missile, radar, missile
defense, space, satellite, counter UAS, directed energy,
communication and other systems, and virtual & augmented
reality training systems for the warfighter. For more
information, visit www.KratosDefense.com
Notice
Regarding
Forward-Looking
StatementsThis
news release contains certain forward-looking statements that
involve risks and uncertainties, including, without limitation,
express or implied statements concerning the Company’s expectations
regarding its future financial performance, including the Company’s
expectations for its second quarter and full year 2024 revenues,
organic revenue growth rates, R&D, operating income (loss),
depreciation, amortization, stock based compensation expense, and
Adjusted EBITDA, and full year 2024 operating cash flow, capital
expenditures and other investments, and free cash flow, 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, including
the Company’s ability to achieve sustained year over year
increasing revenues, profitability and cash flow, the Company’s
expectation of ramp on projects and that investments in its
business, including Company funded R&D expenses and ongoing
development efforts, 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 and backlog, including the Company’s ability to timely
execute on its backlog, demand for its products and services,
including the Company’s alignment with today’s National Security
requirements and the positioning of its C5ISR and other businesses,
planned 2024 investments, including in the tactical drone and
satellite areas, and the related potential for additional growth in
2025 and beyond, ability to successfully compete and expected new
customer awards, including the magnitude and timing of funding and
the future opportunity associated with such awards, including in
the target and tactical drone and satellite communication areas,
performance of key contracts and programs, including the timing of
production and demonstration related to certain of the Company’s
contracts and control (TT&C) 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, the ability of
the Company’s advanced purchases of inventory to mitigate supply
chain disruptions and the timing of converting these investments to
cash through the sales process, 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 U.S. Department of Defense (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, risks related to
potential cybersecurity events or disruptions of our information
technology systems, and delays in 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; risks that our cost-cutting
initiatives will not provide the anticipated benefits; risks that
changes, cutbacks or delays in spending by the 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 unmanned aerial systems and unmanned ground sensor
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; risks relating to the
ongoing conflict in Ukraine and the Israeli-Palestinian military
conflict; risks to our business in Israel; 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 compete 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, including
with respect to our ability to recruit and retain sufficient
numbers of qualified personnel to execute on our programs and
contracts, as well as expected contract awards and risks related to
increasing interest rates and risks related to the interest rate
swap contract to hedge Term SOFR associated with the Company’s Term
Loan A; 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 31, 2023, 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 organic revenue
growth rates, Adjusted EPS (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, non-recoverable rates and
costs, and foreign transaction gains and losses, less the estimated
impact to income taxes) and Adjusted EBITDA (which includes net
income (loss) attributable to noncontrolling interest and excludes,
among other things, losses and gains from discontinued operations,
acquisition and restructuring related items, stock compensation
expense, foreign transaction gains and losses, and the associated
margin rates). Additional non-GAAP financial measures include Free
Cash Flow from Operations computed as Cash Flow from Operations
less Capital Expenditures plus proceeds from sale of assets 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
|
Unaudited
Condensed Consolidated Statements of Operations |
(in
millions, except per share data) |
|
|
|
|
|
Three Months Ended |
|
March 31, |
|
March 26, |
|
2024 |
|
2023 |
|
|
|
|
Service revenues |
$ |
106.5 |
|
|
$ |
91.6 |
|
Product
sales |
|
170.7 |
|
|
|
140.2 |
|
Total revenues |
|
277.2 |
|
|
|
231.8 |
|
Cost of
service revenues |
|
79.2 |
|
|
|
68.2 |
|
Cost of
product sales |
|
127.0 |
|
|
|
104.2 |
|
Total costs |
|
206.2 |
|
|
|
172.4 |
|
Gross profit
- service revenues |
|
27.3 |
|
|
|
23.4 |
|
Gross profit
- product sales |
|
43.7 |
|
|
|
36.0 |
|
|
|
|
|
Total gross profit |
|
71.0 |
|
|
|
59.4 |
|
|
|
|
|
Selling,
general and administrative expenses |
|
50.4 |
|
|
|
44.8 |
|
Acquisition
and restructuring related items and other |
|
- |
|
|
|
0.9 |
|
Research and
development expenses |
|
9.6 |
|
|
|
10.2 |
|
Depreciation |
|
1.9 |
|
|
|
1.4 |
|
Amortization
of intangible assets |
|
2.1 |
|
|
|
1.6 |
|
Operating income |
|
7.0 |
|
|
|
0.5 |
|
Interest
expense, net |
|
(2.8 |
) |
|
|
(5.3 |
) |
Other
expense, net |
|
(0.2 |
) |
|
|
(0.3 |
) |
Income
(loss) before income taxes |
|
4.0 |
|
|
|
(5.1 |
) |
Provision for income taxes |
|
2.7 |
|
|
|
0.7 |
|
Net Income
(loss) from consolidated operations |
|
1.3 |
|
|
|
(5.8 |
) |
Less: Net income attributable to
noncontrolling interest |
|
- |
|
|
|
1.2 |
|
Net income
(loss) attributable to Kratos |
$ |
1.3 |
|
|
$ |
(7.0 |
) |
|
|
|
|
Basic income
(loss) per common share attributable to Kratos |
$ |
0.01 |
|
|
$ |
(0.05 |
) |
|
|
|
|
Diluted
income (loss) per common share attributable to Kratos |
$ |
0.01 |
|
|
$ |
(0.05 |
) |
|
|
|
|
Weighted
average common shares outstanding: |
|
|
|
|
|
|
|
Basic |
|
139.6 |
|
|
|
128.1 |
|
Diluted |
|
141.5 |
|
|
|
128.1 |
|
|
|
|
|
Adjusted
EBITDA (1) |
$ |
26.0 |
|
|
$ |
17.0 |
|
|
|
|
|
|
|
|
|
Unaudited Reconciliation of GAAP to Non-GAAP
Measures |
|
|
|
|
|
|
|
Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net
income (loss) attributable to Kratos adjusted for net
income attributable to noncontrolling interest, net interest
expense, provision for income taxes, depreciation and amortization
expense of intangible assets, amortization of capitalized
contract and development costs, stock-based compensation,
acquisition and restructuring related items and other, and
foreign transaction 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 (loss) 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 lease commitment costs
for unused, excess or exited facilities. Management believes that
these costs are not indicative of ongoing operating results as
they are either non-recurring and/or not expected when full
capacity and volumes are achieved. |
|
|
|
|
Legal related items. The Company incurs costs related to pending
legal settlements and other legal related matters. Management
believes these items are outside the normal operations of the
Company's business and are not indicative of ongoing operating
results. |
|
|
|
|
Adjusted EBITDA is a non-GAAP financial measure and should not be
considered in isolation or as a substitute for financial
information provided in accordance with GAAP. This non-GAAP
financial measure may not be computed in the same manner as
similarly titled measures used by other companies. The Company
expects to continue to incur expenses similar to the Adjusted
EBITDA financial adjustments described above, and
investors should not infer from the Company's presentation of
this non-GAAP financial measure that these costs are unusual,
infrequent, or non-recurring. |
|
|
|
|
Reconciliation of Net Income (Loss) attributable to Kratos to
Adjusted EBITDA is as follows: |
|
|
|
Three Months Ended |
|
March 31, |
|
March 26, |
|
2024 |
|
2023 |
|
|
|
|
Net income
(loss) attributable to Kratos |
$ |
1.3 |
|
|
$ |
(7.0 |
) |
Interest
expense, net |
|
2.8 |
|
|
|
5.3 |
|
Provision
for income taxes |
|
2.7 |
|
|
|
0.7 |
|
Depreciation
(including cost of service revenues and product sales) |
|
7.2 |
|
|
|
6.3 |
|
Stock-based
compensation |
|
9.2 |
|
|
|
6.6 |
|
Foreign
transaction loss |
|
0.3 |
|
|
|
0.8 |
|
Amortization
of intangible assets |
|
2.1 |
|
|
|
1.6 |
|
Amortization
of capitalized contract and development costs |
|
0.4 |
|
|
|
0.6 |
|
Acquisition
and restructuring related items and other |
|
- |
|
|
|
0.9 |
|
Plus: Net
income attributable to noncontrolling interest |
|
- |
|
|
|
1.2 |
|
|
|
|
|
Adjusted
EBITDA |
$ |
26.0 |
|
|
$ |
17.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of acquisition and restructuring related items and
other included in Adjusted EBITDA: |
|
|
|
Three Months Ended |
|
March 31, |
|
March 26, |
|
2024 |
|
2023 |
Legal
related items |
$ |
- |
|
|
$ |
0.9 |
|
|
$ |
- |
|
|
$ |
0.9 |
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Segment Data |
(in
millions) |
|
|
|
|
|
Three Months Ended |
|
March 31, |
|
March 26, |
|
2024 |
|
2023 |
Revenues: |
|
|
|
Unmanned Systems |
$ |
59.4 |
|
|
$ |
48.0 |
|
Kratos Government Solutions |
|
217.8 |
|
|
|
183.8 |
|
Total revenues |
$ |
277.2 |
|
|
$ |
231.8 |
|
|
|
|
|
Operating
income (loss) |
|
|
|
Unmanned Systems |
$ |
(0.4 |
) |
|
$ |
(0.6 |
) |
Kratos Government Solutions |
|
16.6 |
|
|
|
7.7 |
|
Unallocated corporate expense, net |
|
(9.2 |
) |
|
|
(6.6 |
) |
Total operating income |
$ |
7.0 |
|
|
$ |
0.5 |
|
|
|
|
|
Note: Unallocated corporate expense, net includes costs for certain
stock-based compensation programs (including stock-based
compensation costs for the 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 |
|
March 31, |
|
March 26, |
|
2024 |
|
2023 |
Unmanned
Systems |
|
|
|
Operating loss |
$ |
(0.4 |
) |
|
$ |
(0.6 |
) |
Depreciation |
|
2.2 |
|
|
|
1.9 |
|
Amortization of intangible assets |
|
1.0 |
|
|
|
0.1 |
|
Amortization of capitalized contract and development costs |
|
0.1 |
|
|
|
0.4 |
|
Adjusted EBITDA |
$ |
2.9 |
|
|
$ |
1.8 |
|
%
of revenue |
|
4.9 |
% |
|
|
3.8 |
% |
|
|
|
|
Kratos
Government Solutions |
|
|
|
Operating income |
$ |
16.6 |
|
|
$ |
7.7 |
|
Other income |
|
0.1 |
|
|
|
0.5 |
|
Depreciation |
|
5.0 |
|
|
|
4.4 |
|
Amortization of intangible assets |
|
1.1 |
|
|
|
1.5 |
|
Amortization of capitalized contract and development costs |
|
0.3 |
|
|
|
0.2 |
|
Acquisition and restructuring related items and other |
|
- |
|
|
|
0.9 |
|
Adjusted EBITDA |
$ |
23.1 |
|
|
$ |
15.2 |
|
%
of revenue |
|
10.6 |
% |
|
|
8.3 |
% |
|
|
|
|
Total Adjusted EBITDA |
$ |
26.0 |
|
|
$ |
17.0 |
|
%
of revenue |
|
9.4 |
% |
|
|
7.3 |
% |
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Condensed Consolidated Balance Sheets |
(in
millions) |
|
|
|
|
|
|
|
March
31, |
|
December
31, |
|
2024 |
|
2023 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
338.9 |
|
|
$ |
72.8 |
|
Accounts receivable, net |
|
325.8 |
|
|
|
329.2 |
|
Inventoried costs |
|
159.8 |
|
|
|
156.2 |
|
Prepaid expenses |
|
26.8 |
|
|
|
16.0 |
|
Other current assets |
|
20.4 |
|
|
|
20.0 |
|
Total current assets |
|
871.7 |
|
|
|
594.2 |
|
Property, plant and equipment, net |
|
251.3 |
|
|
|
243.6 |
|
Operating lease right-of-use assets |
|
42.9 |
|
|
|
45.7 |
|
Goodwill |
|
568.9 |
|
|
|
569.1 |
|
Intangible assets, net |
|
60.2 |
|
|
|
62.4 |
|
Other assets |
|
119.6 |
|
|
|
117.5 |
|
Total assets |
$ |
1,914.6 |
|
|
$ |
1,632.5 |
|
Liabilities and Stockholders’ Equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
61.9 |
|
|
$ |
63.1 |
|
Accrued expenses |
|
36.0 |
|
|
|
35.4 |
|
Accrued compensation |
|
61.1 |
|
|
|
64.7 |
|
Accrued interest |
|
1.4 |
|
|
|
1.7 |
|
Billings in excess of costs and earnings on uncompleted
contracts |
|
97.5 |
|
|
|
101.8 |
|
Current portion of operating lease liabilities |
|
11.6 |
|
|
|
12.1 |
|
Other current liabilities |
|
18.7 |
|
|
|
13.7 |
|
Total current liabilities |
|
288.2 |
|
|
|
292.5 |
|
Long-term debt |
|
179.4 |
|
|
|
219.3 |
|
Operating lease liabilities, net of current portion |
|
35.3 |
|
|
|
37.8 |
|
Other long-term liabilities |
|
83.1 |
|
|
|
84.4 |
|
Total liabilities |
|
586.0 |
|
|
|
634.0 |
|
Commitments and contingencies |
|
|
|
Redeemable noncontrolling interest |
|
22.5 |
|
|
|
22.5 |
|
Stockholders’ equity: |
|
|
|
Common stock |
|
0.2 |
|
|
|
- |
|
Additional paid-in capital |
|
1,982.7 |
|
|
|
1,654.5 |
|
Accumulated other comprehensive income |
|
2.1 |
|
|
|
1.7 |
|
Accumulated deficit |
|
(678.9 |
) |
|
|
(680.2 |
) |
Total Kratos stockholders’ equity |
|
1,306.1 |
|
|
|
976.0 |
|
Total liabilities and stockholders’ equity |
$ |
1,914.6 |
|
|
$ |
1,632.5 |
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Condensed Consolidated Statements of Cash Flows |
(in
millions) |
|
|
|
|
|
Three Months Ended |
|
March 31, |
|
March 26, |
|
2024 |
|
2023 |
Operating
activities: |
|
|
|
Net income (loss) from consolidated operations |
$ |
1.3 |
|
|
$ |
(5.8 |
) |
Adjustments to reconcile net income (loss) from consolidated
operations to net cash provided by (used in) operating
activities: |
|
|
|
Depreciation and amortization |
|
9.3 |
|
|
|
7.9 |
|
Amortization of lease right-of-use assets |
|
3.0 |
|
|
|
2.7 |
|
Stock-based compensation |
|
9.2 |
|
|
|
6.6 |
|
Amortization of deferred financing costs |
|
0.2 |
|
|
|
0.2 |
|
Provision for doubtful accounts |
|
- |
|
|
|
0.9 |
|
Changes in assets and liabilities, net of acquisitions: |
|
|
|
Accounts receivable |
|
12.0 |
|
|
|
(39.1 |
) |
Unbilled receivables |
|
(8.5 |
) |
|
|
13.1 |
|
Inventoried costs |
|
(3.5 |
) |
|
|
(8.3 |
) |
Prepaid expenses and other assets |
|
(13.2 |
) |
|
|
(7.8 |
) |
Operating lease liabilities |
|
(3.1 |
) |
|
|
(2.4 |
) |
Accounts payable |
|
(0.3 |
) |
|
|
(1.8 |
) |
Accrued compensation |
|
(3.7 |
) |
|
|
4.0 |
|
Accrued expenses |
|
0.6 |
|
|
|
2.0 |
|
Accrued interest |
|
(0.3 |
) |
|
|
- |
|
Billings in excess of costs and earnings on uncompleted
contracts |
|
(4.3 |
) |
|
|
3.2 |
|
Income tax receivable and payable |
|
1.5 |
|
|
|
(0.5 |
) |
Other liabilities |
|
0.5 |
|
|
|
(0.6 |
) |
Net cash provided by (used in) operating activities |
|
0.7 |
|
|
|
(25.7 |
) |
Investing activities: |
|
|
|
Capital expenditures |
|
(16.6 |
) |
|
|
(7.7 |
) |
Net cash used in investing activities |
|
(16.6 |
) |
|
|
(7.7 |
) |
Financing activities: |
|
|
|
Borrowing under credit facility |
|
10.0 |
|
|
|
15.0 |
|
Repayment under credit facility and term loan |
|
(46.3 |
) |
|
|
(16.3 |
) |
Proceeds from the issuance of common stock, net of issuance
costs |
|
330.7 |
|
|
|
- |
|
Payment under finance leases |
|
(0.3 |
) |
|
|
(0.4 |
) |
Payments of employee taxes withheld from share-based awards |
|
(15.1 |
) |
|
|
(2.6 |
) |
Proceeds from shares issued under equity plans |
|
3.6 |
|
|
|
2.9 |
|
Net cash provided by (used in) financing activities |
|
282.6 |
|
|
|
(1.4 |
) |
Net cash flows |
|
266.7 |
|
|
|
(34.8 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
(0.6 |
) |
|
|
0.2 |
|
Net increase (decrease) in cash and cash equivalents |
|
266.1 |
|
|
|
(34.6 |
) |
Cash and cash equivalents at beginning of period |
|
72.8 |
|
|
|
81.3 |
|
Cash and cash equivalents at end of period |
$ |
338.9 |
|
|
$ |
46.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Non-GAAP Measures |
Computation
of Adjusted Earnings Per Share |
(in
millions, except per share data) |
|
|
|
|
|
|
|
|
Adjusted income from consolidated operations and adjusted income
from consolidated 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 consolidated 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 consolidated 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 |
|
March 31, |
|
March 26, |
|
2024 |
|
2023 |
Net
income (loss) attributable to Kratos |
$ |
1.3 |
|
|
$ |
(7.0 |
) |
Less: GAAP
provision for income taxes |
|
2.7 |
|
|
|
0.7 |
|
Less: Net
income attributable to noncontrolling interest |
|
- |
|
|
|
1.2 |
|
Income (loss) from consolidated operations before
taxes |
|
4.0 |
|
|
|
(5.1 |
) |
Add:
Amortization of intangible assets |
|
2.1 |
|
|
|
1.6 |
|
Add:
Amortization of capitalized contract and development costs |
|
0.4 |
|
|
|
0.6 |
|
Add:
Depreciation |
|
7.2 |
|
|
|
6.3 |
|
Add:
Stock-based compensation |
|
9.2 |
|
|
|
6.6 |
|
Add: Foreign
transaction loss |
|
0.3 |
|
|
|
0.8 |
|
Add:
Acquisition and restructuring related items and other |
|
- |
|
|
|
0.9 |
|
Non-GAAP Adjusted income from
consolidated operations before income taxes |
|
23.2 |
|
|
|
11.7 |
|
Income taxes
on Non-GAAP measure Adjusted income from consolidated
operations* |
|
7.1 |
|
|
|
3.5 |
|
Non-GAAP Adjusted net
income |
$ |
16.1 |
|
|
$ |
8.2 |
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
$ |
0.01 |
|
|
$ |
(0.05 |
) |
Less: GAAP
provision for income taxes |
|
0.02 |
|
|
|
- |
|
Less: Net
income attributable to noncontrolling interest |
|
- |
|
|
|
0.01 |
|
Add:
Amortization of intangible assets |
|
0.01 |
|
|
|
0.01 |
|
Add:
Amortization of capitalized contract and development costs |
|
- |
|
|
|
- |
|
Add:
Depreciation |
|
0.05 |
|
|
|
0.05 |
|
Add:
Stock-based compensation |
|
0.07 |
|
|
|
0.05 |
|
Add: Foreign
transaction loss |
|
- |
|
|
|
0.01 |
|
Add:
Acquisition and restructuring related items and other |
|
- |
|
|
|
0.01 |
|
Income taxes
on Non-GAAP measure Adjusted income from consolidated
operations* |
|
(0.05 |
) |
|
|
(0.03 |
) |
Adjusted income from consolidated operations per diluted
common share |
$ |
0.11 |
|
|
$ |
0.06 |
|
|
|
|
|
Weighted average diluted common shares
outstanding |
|
141.5 |
|
|
|
128.1 |
|
|
|
|
|
*The impact to income taxes is calculated by recasting income
before income taxes to include the add-backs involved in
determining Adjusted income from consolidated operations
before income taxes and recalculating the income tax provision,
including current and deferred income taxes, using the Adjusted
income from consolidated 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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