Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS), a
Technology Company in the Defense, National Security and Global
Markets, today reported its fourth quarter 2023 financial results,
including Revenues of $273.8 million, Operating Income of $11.7
million, Net Income attributable to Kratos of $2.4 million,
Adjusted EBITDA of $29.1 million and a consolidated book to bill
ratio of 1.2 to 1.0.
Included in fourth quarter 2023 Net Income and
Operating Income is non-cash stock compensation expense of $6.3
million and Company-funded Research and Development (R&D)
expense of $8.0 million, which includes significant ongoing
development efforts in our Space and Satellite Communications
business to develop our virtual, software-based OpenSpace command
& control (C2), telemetry tracking & control (TT&C) and
other ground system solutions. The fourth quarter 2023 Net Income
attributable to Kratos includes $3.2 million attributable to a
non-controlling interest, which includes a charge of $2.7 million
adjustment recorded to reflect the estimated increase in the value
of the redeemable non-controlling interest to the estimated
redemption amount by Kratos.
Kratos reported fourth quarter 2023 GAAP Net
Income attributable to Kratos of $2.4 million and a GAAP Net Income
per share of $0.02, compared to a GAAP Net Loss attributable to
Kratos of $8.3 million and a GAAP Net Loss per share of $0.07 for
the fourth quarter of 2022. Adjusted earnings per share (EPS) was
$0.12 for the fourth quarter of 2023, compared to $0.08 for the
fourth quarter of 2022.
Fourth quarter 2023 Revenues of $273.8 million
increased $24.5 million, reflecting 9.8 percent and 7.3 percent
organic growth, respectively, from fourth quarter 2022 Revenues of
$249.3 million. Fourth quarter 2023 Cash Flow
Generated from Operations was $67.4 million, primarily reflecting
the receipt of accelerated favorable customer milestone payments,
resulting in a Consolidated Days Sales Outstanding reduction from
117 days in the third quarter of 2023 to 109 days in the fourth
quarter of 2023 and increases in deferred revenues or customer
advanced payments to $101.8 million at the end of the fourth
quarter of 2023, up from $79.4 million at the end of the third
quarter of 2023. Free Cash Flow Generated from Operations for the
Fourth Quarter of 2023 was $48.1 million after funding of $19.3
million of capital expenditures. Capital expenditures remain
elevated due primarily to the manufacture of two production lots of
Valkyries prior to contract award, to meet anticipated customer
orders and requirements.
For the fourth quarter of 2023, Kratos’ Unmanned
Systems (KUS) segment generated Revenues of $55.4 million, which
included contribution of $6.4 million from the recent Sierra
Technical Services, Inc. (STS) acquisition, as compared to $62.7
million in the fourth quarter of 2022, primarily reflecting reduced
tactical drone activity. KUS’s Operating Income was $1.0 million in
the fourth quarter of 2023 compared to $1.8 million in the fourth
quarter of 2022. KUS’s Adjusted EBITDA for the fourth quarter of
2023 was $4.0 million, compared to fourth quarter 2022 KUS Adjusted
EBITDA of $4.5 million, reflecting reduced volume.
KUS’s book-to-bill
ratio for the fourth quarter of 2023 was 1.1 to 1.0 and 1.2 to 1.0
for the last twelve months ended December 31, 2023, with bookings
of $61.2 million for the three months ended December 31, 2023, and
bookings of $244.2 million for the last twelve months ended
December 31, 2023. Total backlog for KUS at the end of
the fourth quarter of 2023 was $255.8 million compared to $227.8
million at the end of the third quarter of 2023.
For the fourth quarter of 2023, Kratos’
Government Solutions (KGS) segment Revenues of $218.4 million
increased from Revenues of $186.6 million in the fourth quarter of
2022, reflecting a 17.0 percent growth and organic growth rate. The
increased Revenues includes organic revenue growth in our Space,
Satellite, Cyber and Training Solutions, Turbine Technologies,
C5ISR, and Microwave Products businesses.
KGS reported operating income of $17.5 million
in the fourth quarter of 2023 compared to $8.8 million in the
fourth quarter of 2022, primarily reflecting a more favorable mix
and increased revenue volume. Fourth quarter 2023 KGS Adjusted
EBITDA was $25.1 million, compared to fourth quarter 2022 KGS
Adjusted EBITDA of $14.7 million, primarily reflecting the
increased revenue and more favorable mix.
Kratos’ Space, Satellite, Cyber and Training
business generated Revenues of $112.9 million in the fourth quarter
of 2023 compared to $97.7 million in the fourth quarter of 2022,
reflecting a 15.5 percent organic growth rate.
KGS reported a book-to-bill ratio of 1.2 to 1.0
for the fourth quarter of 2023, a book to bill ratio of 1.1 to 1.0
for the last twelve months ended December 31, 2023 and bookings of
$269.2 million and $902.2 million for the three and last twelve
months ended December 31, 2023, respectively. KGS includes Kratos’
Space, Satellite, Cyber and Training Solutions business, which
reported a book to bill ratio of 1.2 to 1.0 for the fourth quarter
and the last twelve months ended December 31, 2023. Bookings for
Kratos’ Space, Satellite, Cyber and Training business for the three
months and last twelve months ended December 31, 2023 were $132.2
million and $493.5 million, respectively. KGS’s total backlog at
the end of the fourth quarter of 2023 was $988.0 million, as
compared to $937.3 million at the end of the third quarter of
2023.
Kratos reported consolidated bookings of $330.3
million and a book-to-bill ratio of 1.2 to 1.0 for the fourth
quarter of 2023, and consolidated bookings of $1.15 billion and a
book-to-bill ratio of 1.1 to 1.0 for the last twelve months ended
December 31, 2023. Consolidated backlog was $1.24 billion on
December 31, 2023 and $1.17 billion on October 1, 2023. Kratos’ bid
and proposal pipeline was $11.0 billion at December 31, 2023 and
$10.3 billion at October 1, 2023. Backlog at December 31, 2023
included funded backlog of $944.6 million and unfunded backlog of
$299.3 million.
Full Year 2023 Results
Kratos reported its full year 2023 financial
results, including Revenues of $1.037 billion, Operating Income of
$31.1 million, Net Loss attributable to Kratos of $8.9 million,
Adjusted EBITDA of $95.4 million and a consolidated book to bill
ratio of 1.1 to 1.0.
Included in the full year 2023 Net Loss and
Operating Income is non-cash stock compensation expense of $25.3
million and Company-funded Research and Development (R&D)
expense of $38.4 million, which includes significant ongoing
development efforts in our Space and Satellite Communications
business to develop our first to market, virtual, software-based
OpenSpace command & control (C2), telemetry tracking &
control (TT&C) and other ground system solutions. The full year
2023 Net Loss attributable to Kratos includes $11.3 million
attributable to a non-controlling interest, which includes charges
of $9.9 million of adjustments recorded to reflect the estimated
increase in the value of the redeemable non-controlling interest to
the estimated redemption amount by Kratos.
Kratos reported full year 2023 GAAP Net Loss
attributable to Kratos of $8.9 million and a GAAP Net Loss per
share of $0.07, compared to a GAAP Net Loss attributable to Kratos
of $36.9 million and a GAAP Net Loss per share of $0.29 for the
full year 2022. Adjusted earnings per share (EPS) was $0.42 for the
full year 2023, compared to $0.31 for full year 2022.
Full year 2023 Revenues of $1.037 billion
increased $138.8 million, reflecting 15.5 percent growth and 12.6
percent organic growth, respectively, from full year 2022 Revenues
of $898.3 million. Full year 2023 Cash Flow Generated from
Operations was $65.2 million, primarily reflecting the receipt of
accelerated favorable customer milestone payments, offset partially
by working capital uses including increases in inventories of
approximately $29.6 million. Free Cash Flow Generated from
Operations was $21.1 million after funding of $52.4 million of
capital expenditures, less $8.3 million in receipt of proceeds for
sale of Valkyries that were built as Kratos capital assets. Full
year 2023 capital expenditures were elevated due primarily to the
manufacture of the two production lots of Valkyries prior to
contract award to meet anticipated customer orders and
requirements.
For full year 2023, KUS generated Revenues of
$212.2 million, which included contribution of $6.4 million from
the recent STS acquisition, as compared to $221.7 million in the
full year 2022, primarily reflecting reduced tactical drone
activity. KUS’s Operating Income was $4.2 million in full year 2023
compared to an Operating Loss of $2.8 million in full year
2022. KUS’s Adjusted EBITDA for full year 2023 was
$14.8 million, compared to full year 2022 KUS Adjusted EBITDA of
$12.5 million, reflecting the reduced volume offset by a more
favorable mix.
For full year 2023, KGS Revenues of $824.9
million increased $148.3 million, reflecting 21.9 percent growth
and 18.9 percent organic growth, respectively, from Revenues of
$676.6 million in full year 2022. The increased Revenues includes
organic revenue growth in our Space, Satellite, Cyber and Training
Solutions, Turbine Technologies, C5ISR, and Microwave Products
businesses.
KGS reported operating income of $52.7 million
in full year 2023 compared to $27.2 million in full year 2022,
primarily reflecting a more favorable mix and increased revenue
volume. Full year 2023 KGS Adjusted EBITDA was $80.6 million,
compared to full year 2022 KGS Adjusted EBITDA of $58.2 million,
primarily reflecting the more favorable mix and increased
revenue.
Kratos’ Space, Satellite, Cyber and Training
business generated Revenues of $423.0 million in full year 2023
compared to $359.0 million in full year 2022, reflecting a 17.8
percent growth and organic growth rate.
Eric DeMarco, Kratos’ President and CEO, said,
“Kratos’ strategy as a technology company and making internally
funded investments to be first to market with affordable systems,
software and products, is being successfully executed.
Additionally, Kratos taking the prime or lead position on program
opportunities where we believe the Kratos internal investment
required is acceptable and the probability of Kratos win is high,
and also Kratos teaming with a traditional system integrator
partner, for a combined even greater probability of win on other
opportunities is clearly working. Kratos’ low cost, innovation,
rapid development and engineering up front for affordable mass
production, brings significant value to our customers, our prime
system integrator partners in teaming situations, and to our
shareholders.”
Mr. DeMarco continued, “As we begin 2024,
expected Kratos’ base case growth areas include: satellite
communications; jet engines for drones, missiles, loitering
munitions, supersonic and space systems; hypersonic systems; C5ISR
and microwave electronics for missile, radar and CUAS systems and
augmented reality training systems. We are currently
producing approximately 160 high performance tactical and target
jet drones annually, with a validated and executing supply chain in
place, and we are making the investments necessary to triple our
drone production capacity. As the only Company with a family of
affordable, attritable, tactical jet drones flying today with
weapons range pedigree and with additional new jet drones in
development, all under customer funded contracts, we are confident
that we will be successful. We are forecasting Kratos’ unmanned
systems business to be one of our leading growth drivers in 2024,
including target drone production and tactical drone RDT&E and
S&T contracts, including a new tactical drone program
award.”
Mr. DeMarco concluded, “Business challenges
include our ability to obtain and retain qualified personnel,
including those that are willing and able to obtain National
Security clearances and the related high cost of these individuals,
which is currently adversely impacting our margins. Additionally,
the U.S. Federal Government budgetary situation is a challenge for
the industry and for Kratos, and one that we cannot control and an
extended Continuing Resolution Authorization (CRA) could adversely
impact our business and financial forecast if not resolved
soon.”
Financial Guidance
We are providing our initial 2024 first quarter
and full year financial guidance, which includes our current
forecasted business mix, and our assumptions, including as related
to: employee sourcing, hiring and retention; manufacturing,
production and supply chain disruptions; parts shortages and
related continued potential significant cost and price increases,
including for employees, materials and components that are
impacting the industry and Kratos. The range of our expected first
quarter and full year 2024 Revenues and Adjusted EBITDA includes
assumptions of 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 contract awards. A U.S. Government budget was not
passed by October 1, 2023, the beginning of Federal Fiscal Year
2024, and as a result, Kratos and others in our industry are
operating under a Continuing Resolution Authorization (CRA), which
currently expires March 8, 2024, under which no new contracts and
no increases in existing contracts production or funding, among
other stipulations, is permitted. Kratos’ 2024 financial forecast
and guidance provided today assumes that the current CRA will be
resolved and that a U.S. Federal and DoD budget which includes no
unexpected budget cuts impacting our business will be in place by
March 8, 2024. As a result, similar to Kratos’ 2023 quarterly
financial trajectory, which fiscal year also experienced a CRA, we
are forecasting Kratos’ third and fourth financial quarter’s
results of 2024 to be significantly greater than the fiscal first
and second quarter’s results, with the fourth quarter expected to
be particularly strong in both revenue and Adjusted EBITDA. If the
current CRA goes beyond the existing March 8, 2024 date, we will
evaluate Kratos’ 2024 financial forecast at that time, based on the
existing facts, circumstances and expectations.
Kratos’ 2024 financial forecast and guidance
includes elevated investments for capital expenditures, including
continued manufacture of two production lots of Valkyries prior to
contract award, to meet anticipated customer orders and
requirements, the expansion and build-out of the Company’s
Microwave Products production facilities, and the expansion of our
manufacturing and production facilities in our Rocket Systems and
Hypersonic businesses.
Our first quarter and full year 2024 guidance
ranges are as follows:
Current Guidance Range |
|
$M |
Q124 |
FY24 |
|
Revenues |
$240 -
$260 |
$1,125 -
$1,150 |
|
R&D |
$9 -
$11 |
$42 -
$45 |
|
Operating
Income |
$1 -
3 |
$37 -
$41 |
|
Depreciation |
$6 -
$8 |
$28 -
$30 |
|
Amortization |
$2 -
$3 |
$8 -
$10 |
|
Stock Based
Compensation |
$6 -
$7 |
$26-
$28 |
|
Adjusted
EBITDA |
$16 -
$18 |
$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 first 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
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Condensed Consolidated Statements of Operations |
(in
millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
December 31, |
|
December 25, |
|
December 31, |
|
December 25, |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Service
revenues |
|
$ |
100.8 |
|
|
$ |
89.9 |
|
|
$ |
402.6 |
|
|
$ |
325.2 |
|
Product
sales |
|
|
173.0 |
|
|
|
159.4 |
|
|
|
634.5 |
|
|
|
573.1 |
|
Total revenues |
|
|
273.8 |
|
|
|
249.3 |
|
|
|
1,037.1 |
|
|
|
898.3 |
|
Cost of
service revenues |
|
|
76.0 |
|
|
|
67.8 |
|
|
|
303.2 |
|
|
|
239.0 |
|
Cost of
product sales |
|
|
125.9 |
|
|
|
120.1 |
|
|
|
465.3 |
|
|
|
433.3 |
|
Total costs |
|
|
201.9 |
|
|
|
187.9 |
|
|
|
768.5 |
|
|
|
672.3 |
|
Gross profit
- service revenues |
|
|
24.8 |
|
|
|
22.1 |
|
|
|
99.4 |
|
|
|
86.2 |
|
Gross profit
- product sales |
|
|
47.1 |
|
|
|
39.3 |
|
|
|
169.2 |
|
|
|
139.8 |
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
|
71.9 |
|
|
|
61.4 |
|
|
|
268.6 |
|
|
|
226.0 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses |
|
|
47.4 |
|
|
|
43.5 |
|
|
|
184.1 |
|
|
|
169.6 |
|
Acquisition
and restructuring related items and other |
|
|
0.4 |
|
|
|
0.5 |
|
|
|
1.3 |
|
|
|
7.5 |
|
Research and
development expenses |
|
|
8.0 |
|
|
|
10.6 |
|
|
|
38.4 |
|
|
|
38.6 |
|
Depreciation |
|
|
2.1 |
|
|
|
1.6 |
|
|
|
6.9 |
|
|
|
5.5 |
|
Amortization
of intangible assets |
|
|
2.3 |
|
|
|
1.1 |
|
|
|
6.8 |
|
|
|
7.4 |
|
Operating income (loss) |
|
|
11.7 |
|
|
|
4.1 |
|
|
|
31.1 |
|
|
|
(2.6 |
) |
Interest
expense, net |
|
|
(5.0 |
) |
|
|
(4.8 |
) |
|
|
(20.5 |
) |
|
|
(17.7 |
) |
Loss on
extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13.0 |
) |
Other
income, net |
|
|
0.9 |
|
|
|
1.6 |
|
|
|
0.5 |
|
|
|
0.6 |
|
Income (loss) from continuing operations before income taxes |
|
|
7.6 |
|
|
|
0.9 |
|
|
|
11.1 |
|
|
|
(32.7 |
) |
Provision
for income taxes from continuing operations |
|
|
2.0 |
|
|
|
6.0 |
|
|
|
8.9 |
|
|
|
1.4 |
|
Income (loss) from continuing operations |
|
|
5.6 |
|
|
|
(5.1 |
) |
|
|
2.2 |
|
|
|
(34.1 |
) |
Income from
discontinued operations, net of income taxes |
|
|
- |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.9 |
|
Net income (loss) |
|
|
5.6 |
|
|
|
(4.9 |
) |
|
|
2.4 |
|
|
|
(33.2 |
) |
Less: Net income attributable to noncontrolling interest |
|
|
3.2 |
|
- |
|
3.4 |
|
|
|
11.3 |
|
|
|
3.7 |
|
Net income (loss) attributable to Kratos |
|
$ |
2.4 |
|
|
$ |
(8.3 |
) |
|
$ |
(8.9 |
) |
|
$ |
(36.9 |
) |
|
|
|
|
|
|
|
|
|
Basic
income(loss) per common share attributable to Kratos: |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.02 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.30 |
) |
Income from discontinued operations |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.01 |
|
Net income (loss) |
|
|
0.02 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.29 |
) |
|
|
|
|
|
|
|
|
|
Diluted
income (loss) per common share attributable to Kratos: |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.02 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.30 |
) |
Income from discontinued operations |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.01 |
|
Net income (loss) |
|
$ |
0.02 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.29 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
132.1 |
|
|
|
127.3 |
|
|
|
130.4 |
|
|
|
126.7 |
|
Diluted weighted average common shares outstanding |
|
|
134.4 |
|
|
|
127.3 |
|
|
|
130.4 |
|
|
|
126.7 |
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA (1) |
|
$ |
29.1 |
|
|
$ |
19.2 |
|
|
$ |
95.4 |
|
|
$ |
70.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Reconciliation of GAAP to Non-GAAP
Measures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net
income (loss) attributable to Kratos adjusted for net income |
|
|
|
|
attributable to
noncontrolling interest, income from discontinued operations, 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 (gain). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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. |
|
|
|
|
|
|
|
|
|
|
|
Non-recoverable rates
and costs. In fiscal 2022, the Company incurred non-recoverable
rates and costs as a result of its inability to hire the
required |
|
|
direct labor base to
execute on its backlog due to a challenging environment in hiring
and retaining skilled personnel. In addition, in 2022 the
Company |
|
|
incurred
non-recoverable rate growth resulting from a smaller than planned
direct labor base due to delays in customer program execution and
awards. |
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Twelve Months Ended |
|
|
December 31, |
|
December 25, |
|
December 31, |
|
December 25, |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Net income
(loss) attributable to Kratos |
|
$ |
2.4 |
|
|
$ |
(8.3 |
) |
|
$ |
(8.9 |
) |
|
$ |
(36.9 |
) |
Income from
discontinued operations, net of income taxes |
|
|
- |
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
(0.9 |
) |
Interest
expense, net |
|
|
5.0 |
|
|
|
4.8 |
|
|
|
20.5 |
|
|
|
17.7 |
|
Loss on
extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13.0 |
|
Provision
for income taxes from continuing operations |
|
|
2.0 |
|
|
|
6.0 |
|
|
|
8.9 |
|
|
|
1.4 |
|
Depreciation
(including cost of service revenues and product sales) |
|
|
6.9 |
|
|
|
6.6 |
|
|
|
26.4 |
|
|
|
23.1 |
|
Stock-based
compensation |
|
|
6.3 |
|
|
|
6.4 |
|
|
|
25.3 |
|
|
|
26.3 |
|
Foreign
transaction loss (gain) |
|
|
0.3 |
|
|
|
(1.4 |
) |
|
|
1.7 |
|
|
|
0.1 |
|
Amortization
of intangible assets |
|
|
2.3 |
|
|
|
1.1 |
|
|
|
6.8 |
|
|
|
7.4 |
|
Amortization
of capitalized contract and development costs |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
2.3 |
|
|
|
1.3 |
|
Acquisition
and restructuring related items and other |
|
|
0.4 |
|
|
|
0.5 |
|
|
|
1.3 |
|
|
|
14.5 |
|
Plus: Net
income attributable to noncontrolling interest |
|
|
3.2 |
|
|
|
3.4 |
|
|
|
11.3 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA |
|
$ |
29.1 |
|
|
$ |
19.2 |
|
|
$ |
95.4 |
|
|
$ |
70.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of acquisition and restructuring related items and
other included in Adjusted EBITDA: |
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
December 31, |
|
December 25, |
|
December 31, |
|
December 25, |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Acquisition
and transaction related items |
|
$ |
0.4 |
|
|
$ |
0.1 |
|
|
$ |
0.4 |
|
|
$ |
0.7 |
|
Restructuring costs |
|
|
- |
|
|
|
0.4 |
|
|
|
- |
|
|
|
1.5 |
|
Non-recoverable rates and costs |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6.4 |
|
Legal
related items |
|
|
- |
|
|
|
- |
|
|
|
0.9 |
|
|
|
5.9 |
|
|
|
$ |
0.4 |
|
|
$ |
0.5 |
|
|
$ |
1.3 |
|
|
$ |
14.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Segment Data |
(in
millions) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
December 31, |
|
December 25, |
|
December 31, |
|
December 25, |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Revenues: |
|
|
|
|
|
|
|
|
Unmanned Systems |
|
$ |
55.4 |
|
|
$ |
62.7 |
|
|
$ |
212.2 |
|
|
$ |
221.7 |
|
Kratos Government Solutions |
|
|
218.4 |
|
|
|
186.6 |
|
|
|
824.9 |
|
|
|
676.6 |
|
Total revenues |
|
$ |
273.8 |
|
|
$ |
249.3 |
|
|
$ |
1,037.1 |
|
|
$ |
898.3 |
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) |
|
|
|
|
|
|
|
|
Unmanned Systems |
|
$ |
1.0 |
|
|
$ |
1.8 |
|
|
$ |
4.2 |
|
|
$ |
(2.8 |
) |
Kratos Government Solutions |
|
|
17.5 |
|
|
|
8.8 |
|
|
|
52.7 |
|
|
|
27.2 |
|
Unallocated corporate expense, net |
|
|
(6.8 |
) |
|
|
(6.5 |
) |
|
|
(25.8 |
) |
|
|
(27.0 |
) |
Total operating income (loss) |
|
$ |
11.7 |
|
|
$ |
4.1 |
|
|
$ |
31.1 |
|
|
$ |
(2.6 |
) |
|
|
|
|
|
|
|
|
|
Note: Unallocated
corporate expense, net includes costs for certain stock-based
compensation programs (including stock-based compensation costs for
stock options, employee stock purchase plan and restricted stock
units), the effects of items not considered part of management’s
evaluation of segment operating performance, and acquisition and
restructuring related items, corporate costs not allocated to the
segments, legal related items, and other miscellaneous corporate
activities. |
|
|
|
|
|
|
|
|
|
Reconciliation of Segment Operating Income (Loss) to Adjusted
EBITDA is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
December 31, |
|
December 25, |
|
December 31, |
|
December 25, |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Unmanned
Systems |
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
1.0 |
|
|
$ |
1.8 |
|
|
$ |
4.2 |
|
|
$ |
(2.8 |
) |
Other income |
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
- |
|
Depreciation |
|
|
1.9 |
|
|
|
2.0 |
|
|
|
7.8 |
|
|
|
7.0 |
|
Amortization of intangible assets |
|
|
1.0 |
|
|
|
0.1 |
|
|
|
1.3 |
|
|
|
0.8 |
|
Amortization of capitalized contract and development costs |
|
|
0.1 |
|
|
|
0.3 |
|
|
|
1.4 |
|
|
|
1.3 |
|
Acquisition and restructuring related items and other |
|
|
- |
|
|
|
0.3 |
|
|
|
- |
|
|
|
6.2 |
|
Adjusted EBITDA |
|
$ |
4.0 |
|
|
$ |
4.5 |
|
|
$ |
14.8 |
|
|
$ |
12.5 |
|
%
of revenue |
|
|
7.2 |
% |
|
|
7.2 |
% |
|
|
7.0 |
% |
|
|
5.6 |
% |
|
|
|
|
|
|
|
|
|
Kratos
Government Solutions |
|
|
|
|
|
|
|
|
Operating income |
|
$ |
17.5 |
|
|
$ |
8.8 |
|
|
$ |
52.7 |
|
|
$ |
27.2 |
|
Other income |
|
|
1.1 |
|
|
|
0.2 |
|
|
|
2.0 |
|
|
|
0.7 |
|
Depreciation |
|
|
5.0 |
|
|
|
4.6 |
|
|
|
18.6 |
|
|
|
16.1 |
|
Amortization of intangible assets |
|
|
1.3 |
|
|
|
1.0 |
|
|
|
5.5 |
|
|
|
6.6 |
|
Amortization of capitalized contract and development costs |
|
|
0.2 |
|
|
|
- |
|
|
|
0.9 |
|
|
|
- |
|
Acquisition and restructuring related items and other |
|
|
- |
|
|
|
0.1 |
|
|
|
0.9 |
|
|
|
7.6 |
|
Adjusted EBITDA |
|
$ |
25.1 |
|
|
$ |
14.7 |
|
|
$ |
80.6 |
|
|
$ |
58.2 |
|
%
of revenue |
|
|
11.5 |
% |
|
|
7.9 |
% |
|
|
9.8 |
% |
|
|
8.6 |
% |
|
|
|
|
|
|
|
|
|
Total Adjusted EBITDA |
|
$ |
29.1 |
|
|
$ |
19.2 |
|
|
$ |
95.4 |
|
|
$ |
70.7 |
|
%
of revenue |
|
|
10.6 |
% |
|
|
7.7 |
% |
|
|
9.2 |
% |
|
|
7.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Condensed Consolidated Balance Sheets |
(in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
|
December
25, |
|
|
|
|
|
|
|
2023 |
|
|
|
2022 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
$ |
72.8 |
|
|
$ |
81.3 |
|
Accounts receivable, net |
|
|
|
|
|
|
329.2 |
|
|
|
328.5 |
|
Inventoried costs |
|
|
|
|
|
|
156.2 |
|
|
|
125.5 |
|
Prepaid expenses |
|
|
|
|
|
|
16.0 |
|
|
|
11.9 |
|
Other current assets |
|
|
|
|
|
|
20.0 |
|
|
|
35.4 |
|
Total current assets |
|
|
|
|
|
|
594.2 |
|
|
|
582.6 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
243.6 |
|
|
|
213.1 |
|
Operating lease right-of-use assets |
|
|
|
|
|
|
45.7 |
|
|
|
47.4 |
|
Goodwill |
|
|
|
|
|
|
569.1 |
|
|
|
558.2 |
|
Intangible assets, net |
|
|
|
|
|
|
62.4 |
|
|
|
55.2 |
|
Other assets |
|
|
|
|
|
|
117.5 |
|
|
|
95.0 |
|
Total assets |
|
|
|
|
|
$ |
1,632.5 |
|
|
$ |
1,551.5 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
$ |
63.1 |
|
|
$ |
57.3 |
|
Accrued expenses |
|
|
|
|
|
|
35.4 |
|
|
|
33.8 |
|
Accrued compensation |
|
|
|
|
|
|
64.7 |
|
|
|
52.2 |
|
Accrued interest |
|
|
|
|
|
|
1.7 |
|
|
|
1.5 |
|
Billings in excess of costs and earnings on uncompleted
contracts |
|
|
|
|
|
|
101.8 |
|
|
|
62.1 |
|
Current portion of operating lease liabilities |
|
|
|
|
|
|
12.1 |
|
|
|
10.8 |
|
Other current liabilities |
|
|
|
|
|
|
12.8 |
|
|
|
15.6 |
|
Other current liabilities of discontinued operations |
|
|
|
|
|
|
0.9 |
|
|
|
0.9 |
|
Total current liabilities |
|
|
|
|
|
|
292.5 |
|
|
|
234.2 |
|
Long-term debt |
|
|
|
|
|
|
219.3 |
|
|
|
250.2 |
|
Operating lease liabilities, net of current portion |
|
|
|
|
|
|
37.8 |
|
|
|
40.8 |
|
Other long-term liabilities |
|
|
|
|
|
|
83.3 |
|
|
|
77.4 |
|
Other long-term liabilities of discontinued operations |
|
|
|
|
|
|
1.1 |
|
|
|
1.4 |
|
Total liabilities |
|
|
|
|
|
|
634.0 |
|
|
|
604.0 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest |
|
|
|
|
|
|
22.5 |
|
|
|
11.2 |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
1,654.5 |
|
|
|
1,608.4 |
|
Accumulated other comprehensive income (loss) |
|
|
|
|
|
|
1.7 |
|
|
|
(0.8 |
) |
Accumulated deficit |
|
|
|
|
|
|
(680.2 |
) |
|
|
(671.3 |
) |
Total Kratos stockholders’ equity |
|
|
|
|
|
|
976.0 |
|
|
|
936.3 |
|
Total liabilities and stockholders’ equity |
|
|
|
|
|
$ |
1,632.5 |
|
|
$ |
1,551.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Condensed Consolidated Statements of Cash Flows |
(in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
|
|
|
|
December 31, |
|
December 25, |
|
|
|
|
|
|
|
2023 |
|
|
|
2022 |
|
Operating
activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
$ |
2.4 |
|
|
$ |
(33.2 |
) |
Less: income from discontinued operations |
|
|
|
|
|
|
0.2 |
|
|
|
0.9 |
|
Income (loss) from continuing operations |
|
|
|
|
|
|
2.2 |
|
|
|
(34.1 |
) |
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) operating activities from
continuing operations: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
33.2 |
|
|
|
30.5 |
|
Amortization of lease right-of-use assets |
|
|
|
|
|
|
11.5 |
|
|
|
10.4 |
|
Deferred income taxes |
|
|
|
|
|
|
2.5 |
|
|
|
(3.1 |
) |
Stock-based compensation |
|
|
|
|
|
|
25.3 |
|
|
|
26.3 |
|
Litigation related charges |
|
|
|
|
|
|
- |
|
|
|
5.5 |
|
Amortization of deferred financing costs |
|
|
|
|
|
|
0.7 |
|
|
|
0.8 |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
- |
|
|
|
13.0 |
|
Provision for doubtful accounts |
|
|
|
|
|
|
1.0 |
|
|
|
- |
|
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
(13.1 |
) |
|
|
(4.9 |
) |
Unbilled receivables |
|
|
|
|
|
|
14.4 |
|
|
|
(22.4 |
) |
Inventoried costs |
|
|
|
|
|
|
(29.6 |
) |
|
|
(23.8 |
) |
Prepaid expenses and other assets |
|
|
|
|
|
|
(16.2 |
) |
|
|
(20.6 |
) |
Operating lease liabilities |
|
|
|
|
|
|
(11.4 |
) |
|
|
(10.5 |
) |
Accounts payable |
|
|
|
|
|
|
4.4 |
|
|
|
4.5 |
|
Accrued compensation |
|
|
|
|
|
|
12.4 |
|
|
|
0.8 |
|
Accrued expenses |
|
|
|
|
|
|
1.4 |
|
|
|
5.6 |
|
Accrued interest |
|
|
|
|
|
|
0.2 |
|
|
|
0.1 |
|
Billings in excess of costs and earnings on uncompleted
contracts |
|
|
|
|
|
|
28.4 |
|
|
|
2.7 |
|
Income tax receivable and payable |
|
|
|
|
|
|
(0.5 |
) |
|
|
0.1 |
|
Other liabilities |
|
|
|
|
|
|
(1.6 |
) |
|
|
(6.5 |
) |
Net cash provided by (used in) operating activities from continuing
operations |
|
|
|
|
|
|
65.2 |
|
|
|
(25.6 |
) |
Investing activities: |
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired |
|
|
|
|
|
|
0.3 |
|
|
|
(132.2 |
) |
Capital expenditures |
|
|
|
|
|
|
(52.4 |
) |
|
|
(45.4 |
) |
Proceeds from sale of assets |
|
|
|
|
|
|
8.3 |
|
|
|
0.2 |
|
Net cash used in investing activities from continuing
operations |
|
|
|
|
|
|
(43.8 |
) |
|
|
(177.4 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from the issuance of long-term debt |
|
|
|
|
|
|
- |
|
|
|
200.0 |
|
Borrowing under credit facility |
|
|
|
|
|
|
69.0 |
|
|
|
100.0 |
|
Redemption of Senior Secured Notes |
|
|
|
|
|
|
- |
|
|
|
(309.8 |
) |
Repayment under credit facility, term loan and other debt |
|
|
|
|
|
|
(101.0 |
) |
|
|
(42.5 |
) |
Debt issuance costs |
|
|
|
|
|
|
- |
|
|
|
(3.3 |
) |
Payment under finance leases |
|
|
|
|
|
|
(1.5 |
) |
|
|
(1.4 |
) |
Payments of employee taxes withheld from share-based awards |
|
|
|
|
|
|
(3.7 |
) |
|
|
(12.5 |
) |
Proceeds from shares issued under equity plans |
|
|
|
|
|
|
6.5 |
|
|
|
6.2 |
|
Net cash used in financing activities from continuing
operations |
|
|
|
|
|
|
(30.7 |
) |
|
|
(63.3 |
) |
Net cash flows from continuing operations |
|
|
|
|
|
|
(9.3 |
) |
|
|
(266.3 |
) |
Net
operating cash flows of discontinued operations |
|
|
|
|
|
|
- |
|
|
|
(0.1 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
0.8 |
|
|
|
(1.7 |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
(8.5 |
) |
|
|
(268.1 |
) |
Cash, cash equivalents and restricted cash at beginning of
period |
|
|
|
|
|
|
81.3 |
|
|
|
349.4 |
|
Cash, cash equivalents and restricted cash at end of period |
|
|
|
|
|
$ |
72.8 |
|
|
$ |
81.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos
Defense & Security Solutions, Inc. |
Unaudited
Non-GAAP Measures |
Computation
of Adjusted Earnings Per Share |
(in
millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income from
continuing operations and adjusted income from continuing
operations per diluted common share (Adjusted EPS) are
non-GAAP |
|
|
measures for reporting
financial performance and exclude the impact of certain items and,
therefore, have not been calculated in accordance with GAAP.
Management |
believes that
exclusion of these items assists in providing a more complete
understanding of the Company's underlying continuing operations
results and trends and allows |
for comparability with
our peer company index and industry. The Company uses these
measures along with the corresponding GAAP financial measures |
|
|
to manage the
Company's business and to evaluate its performance compared to
prior periods and the marketplace. The Company defines
adjusted |
|
|
income from continuing
operations before amortization of intangible assets, depreciation,
stock-based compensation, foreign transaction gain/loss, and |
|
|
acquisition and
restructuring related items and other. The estimated impact to
income taxes includes the impact to the effective tax rate, current
tax provision and |
deferred tax
provision, and excludes the impact of discrete items, including
transaction related expenses and release of valuation allowance, or
benefit related to the add-backs.* |
Adjusted EPS reflects adjusted income on a per share basis using
weighted average diluted shares outstanding. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the most directly comparable GAAP
financial measures to the non-GAAP financial measures. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
December 31, |
|
December 25, |
|
December 31, |
|
December 25, |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net
income (loss) attributable to Kratos |
|
$ |
2.4 |
|
|
$ |
(8.3 |
) |
|
$ |
(8.9 |
) |
|
$ |
(36.9 |
) |
Less: GAAP
provision for income taxes |
|
|
2.0 |
|
|
|
6.0 |
|
|
|
8.9 |
|
|
|
1.4 |
|
Less: Net
income attributable to noncontrolling interest |
|
|
3.2 |
|
|
|
3.4 |
|
|
|
11.3 |
|
|
|
3.7 |
|
Less: income
from discontinued operations, net of income taxes |
|
|
- |
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
(0.9 |
) |
Income (loss) from continuing operations before
taxes |
|
|
7.6 |
|
|
|
0.9 |
|
|
|
11.1 |
|
|
|
(32.7 |
) |
Add:
Amortization of intangible assets |
|
|
2.3 |
|
|
|
1.1 |
|
|
|
6.8 |
|
|
|
7.4 |
|
Add:
Amortization of capitalized contract and development costs |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
2.3 |
|
|
|
1.3 |
|
Add:
Depreciation |
|
|
6.9 |
|
|
|
6.6 |
|
|
|
26.4 |
|
|
|
23.1 |
|
Add:
Stock-based compensation |
|
|
6.3 |
|
|
|
6.4 |
|
|
|
25.3 |
|
|
|
26.3 |
|
Add: Loss on
extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13.0 |
|
Add: Foreign
transaction loss (gain) |
|
|
0.3 |
|
|
|
(1.4 |
) |
|
|
1.7 |
|
|
|
0.1 |
|
Add:
Acquisition and restructuring related items and other |
|
|
0.4 |
|
|
|
0.5 |
|
|
|
1.3 |
|
|
|
14.5 |
|
Non-GAAP Adjusted income from continuing operations before
income taxes |
|
|
24.1 |
|
|
|
14.4 |
|
|
|
74.9 |
|
|
|
53.0 |
|
Income taxes
on Non-GAAP measure Adjusted income from continuing
operations* |
|
|
8.1 |
|
|
|
3.7 |
|
|
|
20.7 |
|
|
|
13.1 |
|
Non-GAAP Adjusted net income |
|
$ |
16.0 |
|
|
$ |
10.7 |
|
|
$ |
54.2 |
|
|
$ |
39.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.02 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.29 |
) |
Less: GAAP
provision for income taxes |
|
|
0.01 |
|
|
|
0.05 |
|
|
|
0.07 |
|
|
|
0.01 |
|
Less: Net
income attributable to noncontrolling interest |
|
|
0.03 |
|
|
|
0.03 |
|
|
|
0.09 |
|
|
|
0.03 |
|
Less: income
from discontinued operations, net of income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(0.01 |
) |
Add:
Amortization of intangible assets |
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.05 |
|
|
|
0.06 |
|
Add:
Amortization of capitalized contract and development costs |
|
|
- |
|
|
|
- |
|
|
|
0.02 |
|
|
|
0.01 |
|
Add:
Depreciation |
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.20 |
|
|
|
0.18 |
|
Add:
Stock-based compensation |
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.20 |
|
|
|
0.21 |
|
Add: Loss on
extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.10 |
|
Add: Foreign
transaction loss (gain) |
|
|
- |
|
|
|
(0.01 |
) |
|
|
0.01 |
|
|
|
- |
|
Add:
Acquisition and restructuring related items and other |
|
|
- |
|
|
|
- |
|
|
|
0.01 |
|
|
|
0.11 |
|
Income taxes
on Non-GAAP measure Adjusted income from continuing
operations* |
|
|
(0.06 |
) |
|
|
(0.03 |
) |
|
|
(0.16 |
) |
|
|
(0.10 |
) |
Adjusted income from continuing operations per diluted
common share |
|
$ |
0.12 |
|
|
$ |
0.08 |
|
|
$ |
0.42 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares
outstanding |
|
|
134.4 |
|
|
|
127.3 |
|
|
|
130.4 |
|
|
|
126.7 |
|
|
|
|
|
|
|
|
|
|
*The impact to income
taxes is calculated by recasting income before income taxes to
include the add-backs involved in determining Adjusted income from
continuing |
operations before
income taxes and recalculating the income tax provision, including
current and deferred income taxes, using the Adjusted income from
continuing |
operations before
income taxes. The recalculation also adjusts for any discrete tax
expense, including transaction related expenses and the release of
valuation allowance, or |
benefit
related to the add-backs. |
|
|
|
|
|
|
|
|
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