Kratos Reports Third Quarter 2018 Financial Results
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Updates Full Year 2018 Financial Guidance
SAN DIEGO, Nov. 06, 2018 (GLOBE NEWSWIRE) — Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider, today reported its third quarter 2018 financial results. For the third quarter 2018, Kratos reported Revenues of $159.4 million, Adjusted EBITDA of $16.7 million or 10.5%, Operating Income of $10.1 million, Cash Flow from Operations of $14.0 million, Free Cash Flow from Operations (defined as Cash Flow from Operations less Capital Expenditures) of $7.1 million and Free Cash Flow of $3.2 million after the final payment for acquired satellite communications technology. For the third quarter 2018, the Company reported Adjusted EPS* of $0.08, Net income of $1.7 million and GAAP EPS of $0.02.
For the third quarter of 2018, Kratos’ reported bookings of $229.2 million and a book-to-bill ratio of 1.4 to 1.0, with backlog at September 30, 2018 of $571.7 million, up sequentially from $501.9 million at July 1, 2018, with $528.1 million funded. Kratos’ bid and proposal pipeline increased by $200 million, up to approximately $6.7 billion, at September 30, 2018, reflecting the strength of the Company’s opportunity pipeline.
For the third quarter of 2018, Kratos’ Government Solutions Division (KGS) generated Revenues of $126.1 million, Adjusted EBITDA of $14.1 million and Operating Income of $11.0 million. For the third quarter of 2018, Kratos’ Unmanned Systems Division (KUSD) generated Revenues of $33.3 million, Adjusted EBITDA of $2.6 million and Operating Income of $1.0 million.
The details of the Company’s adoption of the new revenue recognition standard, ASC 606, which is reflected on a prospective basis in 2018, is disclosed in the Company’s quarterly report filed on Form 10-Q.
Eric DeMarco, Kratos’ President and CEO, said, “Kratos’ third quarter results reflected the continued progress, organic growth and financial improvement trajectory of the Company, which is expected to continue into the fourth quarter, with our Unmanned Systems Business expected to have a particularly strong finish to 2018. Kratos has several under contract high performance target drone programs that are transitioning from increasing low rate initial production to full rate production, which are expected to be key future growth drivers for our Company. Additionally, each of Kratos’ disclosed under contract tactical unmanned combat aerial system programs, including XQ-58A Valkyrie, Gremlins and Program F are currently on schedule, on budget and continuing to make progress towards future initial production, with a large contract award expected for Kratos’ tactical Mako UAS in the next few months.”
Financial Guidance Kratos is increasing its full year 2018 financial guidance for Adjusted EBITDA, up to $56 to $60 million, and increasing its full year 2018 Adjusted EPS* Guidance up to $0.18 to $0.21. The Company is adjusting its full year 2018 cash flow from operations guidance to $27 to $37 million, and free cash flow guidance to $5 to $12 million, primarily due to delays in the final collection of net working capital proceeds from the divested PSS business that was retained by Kratos. Kratos is adjusting its 2018 revenue guidance to $635 to $645 million to primarily reflect the Company’s focus on higher margin opportunities with increased cash flow potential and the de-emphasis of lower margin opportunities. Kratos is providing fourth quarter 2018 financial guidance for revenues of $182 million to $192 million, Adjusted EBITDA of $13 to $17 million, and Adjusted EPS* of $0.03 to $0.06.
Management will discuss the Company’s third quarter 2018 financial results, as well as its fourth quarter and full year 2018 guidance on a conference call beginning at 2:00 p.m. Pacific (5:00 p.m. Eastern) today. Analysts and institutional investors may participate in the conference call by dialing (866) 393-0674, and referencing the call by ID number 7565617. 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 and fields transformative, affordable technology, platforms and systems for United States National Security related customers, allies and commercial enterprises. Kratos is changing the way breakthrough technologies for these industries are rapidly brought to market through proven commercial and venture capital backed approaches, including proactive research and streamlined development processes. Kratos specializes in unmanned systems, satellite communications, cyber security/warfare, microwave electronics, missile defense, hypersonic systems, training and combat systems. 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 for its fourth quarter and full year 2018 revenue, Adjusted EBITDA and Adjusted EPS, and ability to generate positive cash flow from operations and positive free cash flow 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 and programs, including the timing of production and demonstration related to certain of the Company’s contracts and product offerings, the impact of the Company’s restructuring efforts and cost reduction measures, including its ability to improve profitability and cash flow in certain business units as a result of these actions, benefits to be realized from the Company’s net operating loss carry forwards, the availability and timing of government funding for the Company’s offerings, 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, including projected growth. Such statements are only predictions, and the Company’s actual results may differ materially from the results expressed or implied by these statements. Investors are cautioned not to place undue reliance on any such forward-looking statements. All such forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise. Factors that may cause the Company’s results to differ include, but are not limited to: risks to our business and financial results related to the reductions and other spending constraints imposed on the U.S. Government and our other customers, including as a result of sequestration and extended continuing resolutions, the Federal budget deficit and Federal government shut-downs; risks of adverse regulatory action or litigation; risks associated with debt leverage and cost savings and cash flow improvements expected as a result of the refinancing of our Senior Notes; risks that our cost-cutting initiatives will not provide the anticipated benefits; risks that changes, cutbacks or delays in spending by the U.S. DoD may occur, which could cause delays or cancellations of key government contracts; risks of delays to or the cancellation of our projects as a result of protest actions submitted by our competitors; risks that changes may occur in Federal government (or other applicable) procurement laws, regulations, policies and budgets; risks of the availability of government funding for the Company’s products and services due to performance, cost growth, or other factors, changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reduction of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional committee recommendations or automatic sequestration under the Budget Control Act of 2011, as amended); risks of increases in the Federal government initiatives related to in-sourcing; risks related to security breaches, including cyber security attacks and threats or other significant disruptions of our information systems, facilities and infrastructures; risks related to our compliance with applicable contracting and procurement laws, regulations and standards; risks relating to contract performance; risks related to failure of our products or services; risks associated with our subcontractors’ or suppliers’ failure to perform their contractual obligations, including the appearance of counterfeit or corrupt parts in our products; changes in the competitive environment (including as a result of bid protests); failure to successfully integrate acquired operations and competition in the marketplace, which could reduce revenues and profit margins; risks that potential future goodwill impairments will adversely affect our operating results; risks that anticipated tax benefits will not be realized in accordance with our expectations; risks that a change in ownership of our stock could cause further limitation to the future utilization of our net operating losses; risks that the current economic environment will adversely impact our business; 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, acquisition and restructuring related items and other, which includes but is not limited to excess capacity, legal related items and foreign transaction gains and losses, and impairment of goodwill, 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, stock compensation 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 Free Cash Flow from Operations and Adjusted EBITDA related to our KUSD 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 extraordinary items and non-cash items that would normally be included in the most directly comparable measures calculated and presented in accordance with GAAP. The Company’s management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the Company’s actual and forecasted operating performance, capital resources and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and investors should carefully evaluate the Company’s financial results calculated in accordance with GAAP and reconciliations to those financial statements. In addition, non-GAAP financial measures as reported by the Company may not be comparable to similarly titled amounts reported by other companies. As appropriate, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Company’s financial results prepared in accordance with GAAP are included in this news release.
*Adjusted earnings per share (Adjusted EPS) excludes loss from discontinued operations, non-cash amortization expense, 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 carry forwards of over $300 million. Kratos believes that reporting Adjusted earnings per share is a meaningful metric to present the Company’s financial results.
Kratos Defense & Security Solutions, Inc.
Unaudited Condensed Consolidated Statements of Operations
