Fourth Quarter Revenues of $182.1 Million Increase 10.1% Over Third Quarter Revenues
Fourth Quarter Adjusted EBITDA of $13.4 Million
Full Year Revenue of $668.7 Million and Full Year Adjusted EBITDA of $45.0 Million
Affirms Fiscal 2017 Financial Guidance
SAN DIEGO, Feb. 27, 2017 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security
Solutions provider, today reported its fourth quarter and full year fiscal 2016 financial results. For the fourth
quarter ended December 25, 2016, Kratos generated revenue and Adjusted EBITDA of $182.1 million and $13.4 million,
respectively. Fourth quarter 2016 revenues increased sequentially 10.1% over third quarter 2016 revenues of $165.4 million,
and 2.6% over the fourth quarter 2015 revenues of $177.5 million.
Kratos’ business units contributing to the fourth quarter 2016 sequential organic growth included: 39.3% in
Unmanned Systems, 30.0% in Microwave Electronics, 24.4% in Defense and Rocket Support Services, and 12.1% in Satellite, Technology
and Training Solutions. Kratos’ business units contributing to the fourth quarter 2016 year over year organic growth
included: 59.6% in Unmanned Systems, 26.3% in Defense and Rocket Support Services, and 5.9% in Satellite, Technology and Training
Solutions. Recent important contract awards in unmanned tactical combat aerial systems, unmanned aerial target systems and
increased shipments drove organic growth in Kratos’ Unmanned Systems business.
Kratos’ book to bill ratio in the fourth quarter of 2016 and year to date book to bill ratio was 1.0 to
1.0. Kratos’ total backlog at the end of the fourth quarter of 2016 was approximately $900 million, including funded and
unfunded backlog of approximately $626 million and $274 million, respectively. Kratos’ bid and proposal pipeline at December
25, 2016 was $5.7 billion.
For the fourth quarter ended December 25, 2016, approximately 57% of Kratos’ revenue was derived from U.S.
Federal Government related customers, approximately 29% from commercial, state and local government customers, and approximately
14% from international customers.
During the fourth quarter of 2016, Kratos completed an equity offering generating net proceeds of $76.2 million,
after underwriting costs, fees and expenses. Consistent with the Company’s stated use of proceeds raised in the equity
offering, cash of approximately $14.1 million was utilized during the fourth quarter to retire approximately $14.5 million of the
Company’s Senior Notes, bringing the total amount outstanding of Senior Notes at December 25, 2016 to approximately $435.5
million. During the fourth quarter, the Company made investments of $1.9 million in its Unmanned Systems business, primarily
related to capital expenditures for the LCASD and UTAP-22 combat aircraft. In the fourth quarter, the Company also made an
initial $5.1 million strategic investment in a satellite communication signal monitoring, signal intelligence and location
identification technology and product line, which significantly enhances Kratos’ existing satellite communications business
offering. Cash flow from operating activities for the fourth quarter of 2016 was a use of approximately $3.7 million,
reflecting the working capital impact of the 10.1% fourth quarter 2016 over third quarter 2016 sequential revenue growth the
Company generated, offset by the semi-annual payment of interest on the Company’s Senior Notes of approximately $15.8 million in
November 2016. The Company’s cash balance at the end of the fourth quarter was $69.1 million.
For the quarter ended December 25, 2016, net loss was $4.3 million, adjusted income per share was $0.02 and GAAP
earnings per share was a loss of $0.07. Adjusted income per share excludes income from discontinued operations, non-cash
amortization expenses, as the Company has historically been acquisitive, non-cash stock compensation costs, transaction gains
and losses, and certain non-recurring items such as excess capacity, acquisition and restructuring related items and other,
extinguishment of debt, and includes cash actually expected to be paid for income taxes on continuing operations, reflecting
the benefit of the Company’s net operating loss carryforwards of over $300 million. Kratos believes that reporting adjusted
income per share is a meaningful metric to present the Company’s financial results.
For the year ended December 25, 2016, Kratos generated revenues of $668.7 million, a 1.8% increase over 2015
revenues of $657.1 million, and Adjusted EBITDA of $45.0 million for year ended December 25, 2016, compared to $44.6 million in
2015. Net loss from continuing operations was $60.4 million for fiscal 2016, a GAAP EPS loss of $0.99, compared to a loss of
$33.2 million for 2015, a GAAP EPS loss of $0.56. Adjusted loss per share was $0.07 for 2016 and 2015.
Kratos is affirming its previously provided 2017 guidance for revenues of $700 to $720 million, and Adjusted
EBITDA of $52 to $54 million, with a similar quarterly revenue and Adjusted EBITDA trajectory as experienced in 2016.
Eric DeMarco, Kratos’ President and CEO, said, “Kratos finished 2016 exceeding our expectations, as our primary
market space, U.S. DoD government contracting and National Security, continued to improve. Importantly, in addition to our
strong fourth quarter 2016 financial performance, Kratos’ bookings and backlog in our largest business unit, which includes our
satellite communications, cybersecurity and training businesses, was 1.2 to 1 in the fourth quarter and for 2016, positioning the
Company for an even better 2017.”
Mr. DeMarco continued, “Kratos’ Unmanned Systems business also had a very strong fourth quarter, generating
sequential revenue growth over the third quarter of almost 40%. We expect this growth to continue going forward with two new
large under contract unmanned drone system programs beginning production, once we have a 2017 Federal budget. We expect these
two programs to be the primary drivers of an expected doubling in size of our Unmanned Systems business over the following 24
months. Additionally, during the fourth quarter we were awarded a large contract from a new customer for Kratos’ high
performance unmanned aerial target drone systems, and we are expecting an additional large new customer award for Kratos’ target
drone systems in the next few months. Also significant, during the fourth quarter, we made important progress on each
of our under contract unmanned combat aerial systems programs, including LCASD, DIUx, UTAP-22 and Gremlins, each of which is
currently on schedule and on budget.”
Mr. DeMarco concluded, “We believe that 2016 was the beginning of a long-term growth trajectory for our Company,
driven by an improving overall industry environment, Kratos specifically being in well-funded, high priority national security
areas including satellite communications, cyber security and unmanned systems, and Kratos having large new programs entering
expected long-term production beginning in 2017. We believe that Kratos has the right business, products and solutions, at a
low cost at the right time. We are focused and executing on our core businesses, and we expect the Company’s overall
financial performance to continue to improve and generate long-term value for Kratos shareholders.”
Management will discuss the Company’s 2016 financial results and fiscal year 2017 and first quarter 2017
guidance in a conference call beginning at 2:30 p.m. Pacific (5:30 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 66898084. 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) is a mid-tier government contractor at the forefront of the Department of
Defense’s Third Offset Strategy. Kratos is a leading technology, intellectual property and proprietary product and solution
company focused on the United States and its allies’ national security. Kratos is the industry leader in high performance
unmanned aerial drone target systems used to test weapon systems and to train the warfighter, and is a provider of high performance
unmanned combat aerial systems for force multiplication and amplification. Kratos is also an industry leader in satellite
communications, microwave electronics, cyber security/warfare, missile defense and combat systems. Kratos has primarily an
engineering and technically oriented work force of approximately 2,900. Substantially all of Kratos' work is performed on a
military base, in a secure facility or at a critical infrastructure location. Kratos' primary end customers are National Security
related agencies. News and information are available at www.KratosDefense.com.
Notice Regarding Forward-Looking Statements
This news release contains certain forward-looking statements that involve risks and uncertainties, including, without limitation,
express or implied statements concerning the Company’s expectations regarding its future financial performance, including the
Company’s ability to achieve projected growth in certain of the Company’s business units and the expected timing of such growth,
its bid and proposal pipeline, demand for its products and services, including the Company’s ability to successfully compete in the
tactical unmanned aerial system area and expected new customer awards, performance of key contracts, including the timing of
production related to certain of the Company’s contracts, the impact of the Company’s restructuring efforts and cost reduction
measures, including its ability to improve profitability and cash flow in certain business units as a result of these actions,
benefits to be realized from the Company’s net operating loss carryforwards and the availability and timing of government funding
for the Company’s UTAP-22, timing of LRIP related to the Company’s unmanned aerial target system offerings, as well as the level of
recurring revenues expected to be generated by these programs once they achieve full rate production, and market and industry
developments. Such statements are only predictions, and the Company’s actual results may differ materially from the results
expressed or implied by these statements. Investors are cautioned not to place undue reliance on any such forward-looking
statements. All such forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation
to update or revise these statements, whether as a result of new information, future events or otherwise. Factors that may cause
the Company’s results to differ include, but are not limited to: risks to our business and financial results related to the
reductions and other spending constraints imposed on the U.S. Government and our other customers, including as a result of
sequestration, the Federal budget deficit and Federal government shut-downs; risks of adverse regulatory action or litigation;
risks associated with debt leverage and expected cost savings and cash flow improvements expected as a result of the refinancing of
our senior notes and the repurchase of senior notes; risks that our cost-cutting initiatives will not provide the anticipated
benefits; risks that changes, cutbacks or delays in spending by the U.S. DoD may occur, which could cause delays or cancellations
of key government contracts; risks of delays to or the cancellation of our projects as a result of protest actions submitted by our
competitors; risks that changes may occur in Federal government (or other applicable) procurement laws, regulations, policies and
budgets; risks of the availability of government funding for the Company's products and services due to performance, cost growth,
or other factors, changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential
deferral of awards, terminations or reduction of expenditures to respond to the priorities of Congress and the Administration, or
budgetary cuts resulting from Congressional committee recommendations or automatic sequestration under the Budget Control Act of
2011); risks of increases in the Federal government initiatives related to in-sourcing; risks related to security breaches,
including cybersecurity attacks and threats or other significant disruptions of our information systems, facilities and
infrastructures; risks related to our compliance with applicable contracting and procurement laws, regulations and standards; risks
relating to contract performance; risks related to failure of our products or services; risks associated with our subcontractors’
or suppliers’ failure to perform their contractual obligations, including the appearance of counterfeit or corrupt parts in our
products; changes in the competitive environment (including as a result of bid protests); failure to successfully integrate
acquired operations and competition in the marketplace, which could reduce revenues and profit margins; risks that potential future
goodwill impairments will adversely affect our operating results; risks that anticipated tax benefits will not be realized in
accordance with our expectations; risks that a change in ownership of our stock could cause further limitation to the future
utilization of our net operating losses; risks that the current economic environment will adversely impact our business; and risks
related to natural disasters or severe weather. These and other risk factors are more fully discussed in the Company’s Annual
Report on Form 10-K for the period ended December 25, 2016, and in our other filings made with the Securities and Exchange
Commission.
Note Regarding Use of Non-GAAP Financial Measures
This news release contains non-GAAP financial measures, including Adjusted income per share (computed using income
(loss) from continuing operations before income taxes, excluding amortization of intangible assets, stock compensation expense,
loss on extinguishment of debt, contract design retrofit costs, acquisition and restructuring related items and other which
includes but is not limited to unused office space expense, excess capacity, investments in unmanned combat systems
initiatives, and foreign transaction gains and losses, less the estimated tax cash payments) and Adjusted EBITDA and
Pro Forma Adjusted EBITDA (which excludes, among other things, losses and gains from discontinued operations, restructuring and
transaction related items, investments in unmanned combat systems initiatives, stock compensation expense, unused office space
expense, foreign transaction gains and losses, the pro forma impact for the full year of restructuring actions we have taken as if
such actions had been completed at the beginning of the year, and the associated margin rates). Kratos
believes this information is useful to investors because it provides a basis for measuring the Company’s available capital
resources, the actual and forecasted operating performance of the Company’s business and the Company’s cash flow, excluding
extraordinary items and non-cash items that would normally be included in the most directly comparable measures calculated and
presented in accordance with generally accepted accounting principles. The Company’s management uses these non-GAAP financial
measures along with the most directly comparable GAAP financial measures in evaluating the Company’s actual and forecasted
operating performance, capital resources and cash flow. Non-GAAP financial measures should not be considered in isolation
from, or as a substitute for, financial information presented in compliance with GAAP, and investors should carefully evaluate the
Company’s financial results calculated in accordance with GAAP and reconciliations to those financial statements. In
addition, non-GAAP financial measures as reported by the Company may not be comparable to similarly titled amounts reported by
other companies. As appropriate, the most directly comparable GAAP financial measures and information reconciling these
non-GAAP financial measures to the Company’s financial results prepared in accordance with GAAP are included in this news
release.
Kratos Defense & Security Solutions,
Inc. |
Unaudited Condensed Consolidated Statements
of Operations |
(in millions, except per share
data) |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Twelve Months Ended |
|
|
December 25, |
|
December 27, |
|
December 25, |
|
December 27, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
Service revenues |
|
$ |
90.1 |
|
|
$ |
90.7 |
|
|
$ |
348.1 |
|
|
$ |
354.2 |
|
Product sales |
|
|
92.0 |
|
|
|
86.8 |
|
|
|
320.6 |
|
|
|
302.9 |
|
Total revenues |
|
|
182.1 |
|
|
|
177.5 |
|
|
|
668.7 |
|
|
|
657.1 |
|
Cost of service revenues |
|
|
66.4 |
|
|
|
68.0 |
|
|
|
255.8 |
|
|
|
266.5 |
|
Cost of product sales |
|
|
69.1 |
|
|
|
67.3 |
|
|
|
259.3 |
|
|
|
228.8 |
|
Total costs |
|
|
135.5 |
|
|
|
135.3 |
|
|
|
515.1 |
|
|
|
495.3 |
|
Gross profit - service revenues |
|
|
23.7 |
|
|
|
22.7 |
|
|
|
92.3 |
|
|
|
87.7 |
|
Gross profit - product sales |
|
|
22.9 |
|
|
|
19.5 |
|
|
|
61.3 |
|
|
|
74.1 |
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
|
46.6 |
|
|
|
42.2 |
|
|
|
153.6 |
|
|
|
161.8 |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
33.4 |
|
|
|
34.6 |
|
|
|
132.6 |
|
|
|
134.8 |
|
Unused office space, restructuring expenses, and other |
|
|
1.5 |
|
|
|
(1.9 |
) |
|
|
12.0 |
|
|
|
(0.6 |
) |
Research and development expenses |
|
|
3.8 |
|
|
|
4.5 |
|
|
|
13.9 |
|
|
|
16.2 |
|
Depreciation |
|
|
0.7 |
|
|
|
0.6 |
|
|
|
3.2 |
|
|
|
2.9 |
|
Amortization of intangible assets |
|
|
2.6 |
|
|
|
2.9 |
|
|
|
10.5 |
|
|
|
13.0 |
|
Operating income (loss) from continuing operations |
|
|
4.6 |
|
|
|
1.5 |
|
|
|
(18.6 |
) |
|
|
(4.5 |
) |
Interest expense, net |
|
|
(8.6 |
) |
|
|
(8.7 |
) |
|
|
(34.7 |
) |
|
|
(36.0 |
) |
Loss on extinguishment of debt |
|
|
0.2 |
|
|
|
- |
|
|
|
0.2 |
|
|
|
(3.4 |
) |
Other income (expense), net |
|
|
0.2 |
|
|
|
(0.1 |
) |
|
|
0.8 |
|
|
|
(0.7 |
) |
Loss from continuing operations before income taxes |
|
|
(3.6 |
) |
|
|
(7.3 |
) |
|
|
(52.3 |
) |
|
|
(44.6 |
) |
Provision (benefit) for income taxes from continuing operations |
|
|
0.8 |
|
|
|
(0.3 |
) |
|
|
8.1 |
|
|
|
(11.4 |
) |
Loss from continuing operations |
|
|
(4.4 |
) |
|
|
(7.0 |
) |
|
|
(60.4 |
) |
|
|
(33.2 |
) |
Income (loss) from discontinued operations, net of income taxes |
|
|
0.1 |
|
|
|
3.0 |
|
|
|
(0.1 |
) |
|
|
53.0 |
|
Net Income (loss) |
|
$ |
(4.3 |
) |
|
$ |
(4.0 |
) |
|
$ |
(60.5 |
) |
|
$ |
19.8 |
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share: |
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(0.07 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.99 |
) |
|
$ |
(0.56 |
) |
Income from discontinued operations |
|
|
-
|
|
|
|
0.05 |
|
|
|
-
|
|
|
|
0.90 |
|
Net income (loss) |
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.99 |
) |
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share: |
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(0.07 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.99 |
) |
|
$ |
(0.56 |
) |
Income from discontinued operations |
|
|
-
|
|
|
|
0.05 |
|
|
|
-
|
|
|
|
0.90 |
|
Net income (loss) |
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.99 |
) |
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
|
65.5 |
|
|
|
59.1 |
|
|
|
61.3 |
|
|
|
58.7 |
|
Diluted |
|
|
65.5 |
|
|
|
59.1 |
|
|
|
61.3 |
|
|
|
58.7 |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (1) |
|
$ |
13.4 |
|
|
$ |
13.4 |
|
|
$ |
45.0 |
|
|
$ |
44.6 |
|
|
|
|
|
Proforma Adjusted EBITDA (2) |
|
|
|
|
$ |
47.0 |
|
|
|
|
|
|
|
|
|
|
|
Unaudited Reconciliation of GAAP to Non-GAAP
Measures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net
income (loss) plus (income) loss from discontinued operations, net interest expense, income taxes, depreciation and
amortization, stock compensation, amortization of intangible assets, foreign transaction gain (loss), acquisition and
restructuring related items, contract design retrofit costs, investment in unmanned combat systems, litigation related
charges, unused office space expense and costs related to pending customer change orders. |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA as calculated by us may be calculated differently than
Adjusted EBITDA for other companies. We have provided Adjusted EBITDA because we believe it is a commonly used
measure of financial performance in comparable companies and is provided to help investors evaluate companies on a
consistent basis, as well as to enhance understanding of our operating results. Adjusted EBITDA should not be
construed as either an alternative to net income or as an indicator of our operating performance or an alternative to cash
flows as a measure of liquidity. The adjustments to calculate this non-GAAP financial measure and the basis for such
adjustments, are outlined below. Please refer to the following table below that reconciles GAAP net income (loss) to
Adjusted EBITDA. |
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|
|
|
|
|
|
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|
(2) Pro forma Adjusted EBITDA as calculated by us may be calculated
differently than Pro Forma Adjusted EBITDA for other companies. We have provided Pro Forma Adjusted EBITDA to
reflect the impact of the restructuring actions that we took during the first quarter 2016 to eliminate personnel costs in
our PSS and Modular Systems businesses. We believe that Pro Forma Adjusted EBITDA is helpful for investors to
understand the pro forma full quarter's impact of the restructuring activities as if these actions had occurred at the
beginning of the first quarter. |
|
|
|
|
|
The adjustments to calculate this non-GAAP financial measure, and the
basis for such adjustments, are outlined below: |
|
|
|
|
|
|
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|
|
Interest income and expense. The Company
receives interest income on investments and incurs interest expense on loans, capital leases and other financing
arrangements, including the amortization of issue discounts and deferred financing costs. These amounts may vary from
period to period due to changes in cash and debt balances. |
|
|
|
|
|
|
|
|
|
Income taxes. The Company's tax expense can
fluctuate materially from period to period due to tax adjustments that may not be directly related to underlying operating
performance or to the current period of operations and may not necessarily reflect the impact of utilization of our NOLs. |
|
|
|
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|
|
|
Depreciation. The Company incurs depreciation
expense (recorded in cost of revenues and in operating expenses) related to capital assets purchased or constructed to
support the ongoing operations of the business. The assets are recorded at cost or fair value and are depreciated over
the estimated useful lives of individual assets. |
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|
Amortization of intangible assets. The Company
incurs amortization of intangible expense related to acquisitions it has made. These intangible assets are valued at
the time of acquisition and are amortized over the estimated useful lives. |
|
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|
|
Stock-based compensation expense. The Company
incurs expense related to stock-based compensation included in its GAAP presentation of selling, general and
administrative expense. Although stock-based compensation is an expense of the Company and viewed as a form of
compensation, these expenses vary in amount from period to period, and are affected by market forces that are difficult to
predict and are not within the control of management, such as the market price and volatility of the Company's shares,
risk-free interest rates and the expected term and forfeiture rates of the awards. Management believes that exclusion of
these expenses allows comparison of operating results to those of other companies that disclose non-GAAP financial
measures that exclude stock-based compensation. |
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|
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|
|
|
Foreign transaction (gain) loss. The Company
incurs transaction gains and losses related to transactions with foreign customers in currencies other than the U.S.
dollar. In addition, certain intercompany transactions can give rise to realized and unrealized foreign currency gains
and losses. |
|
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|
|
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|
|
Acquisition and restructuring related items.
The Company incurs transaction related costs, such as legal and accounting fees and other expenses, related
to acquisitions and divestiture activities. Management believes these items are outside the normal operations of the
Company's business and are not indicative of ongoing operating results. |
|
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|
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|
|
|
|
Excess capacity and restructuring costs. The
Company incurs excess capacity and excess overhead costs related to certain of its manufacturing businesses within its
Unmanned Systems and Modular Systems businesses due primarily to underutilization of manufacturing facilities and support costs
resulting from less than optimal volumes and efficiencies. The Company incurs restructuring costs for cost reduction
actions which include employee termination costs, facility shut-down related costs and remaining lease commitment costs
for excess or exited facilities. Management believes that these costs are not indicative of ongoing operating
results as they are either non-recurring and/or not expected when full capacity and volumes are achieved. |
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|
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|
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|
|
Litigation related items. The Company
periodically incurs expenses related to pending claims and litigation and associated legal fees and potential case
settlements and/or judgments. Although we may incur such costs and other related charges and adjustments, we do not
believe it is indicative of any particular outcome until the matter is fully resolved. Management believes these
items are outside the normal operations of the Company's business and are not indicative of ongoing operating
results. |
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|
|
|
|
Investment in unmanned combat systems. The
Company makes discretionary investments related to its tactical unmanned combat systems initiative with the intention of
retaining the intellectual property and data package rights of the technology it is developing. Management believes these
rights will result in securing future sole source positions on new platforms which will provide an attractive rate of
return. Management believes that these costs are not indicative of ongoing operating results. |
|
|
|
|
|
|
|
|
|
Contract design retrofits. The Company makes
certain design retrofits primarily related to its development programs in its Unmanned Systems business which are
necessary for the final design and configuration of these vehicles. Management believes that these costs are not
indicative of ongoing operating results. |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA is a non-GAAP financial measure and should not be
considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP
financial measure may not be computed in the same manner as similarly titled measures used by other companies. The
Company expects to continue to incur expenses similar to the Adjusted EBITDA financial adjustments described above, and
investors should not infer from the Company's presentation of this non-GAAP financial measure that these costs are
unusual, infrequent, or non-recurring. |
|
|
|
|
|
|
|
|
|
Reconciliation of Net income (loss) to Adjusted EBITDA and Pro Forma
Adjusted EBITDA is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Twelve Months Ended |
|
|
December 25, |
|
December 27, |
|
December 25, |
|
December 27, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(4.3 |
) |
|
$ |
(4.0 |
) |
|
$ |
(60.5 |
) |
|
$ |
19.8 |
|
(Income) loss from discontinued operations, net of income taxes |
|
|
(0.1 |
) |
|
|
(3.0 |
) |
|
|
0.1 |
|
|
|
(53.0 |
) |
Interest expense, net |
|
|
8.6 |
|
|
|
8.7 |
|
|
|
34.7 |
|
|
|
36.0 |
|
Loss/(gain) on extinguishment of debt |
|
|
(0.2 |
) |
|
|
- |
|
|
|
(0.2 |
) |
|
|
3.4 |
|
Provision (benefit) for income taxes from continuing operations |
|
|
0.8 |
|
|
|
(0.3 |
) |
|
|
8.1 |
|
|
|
(11.4 |
) |
Depreciation (including cost of service revenues and product sales) |
|
|
2.9 |
|
|
|
3.1 |
|
|
|
12.3 |
|
|
|
12.5 |
|
Stock-based compensation |
|
|
0.9 |
|
|
|
0.6 |
|
|
|
5.1 |
|
|
|
6.1 |
|
Foreign transaction (gain)/loss |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
(0.4 |
) |
|
|
0.8 |
|
Unused office space expense and other |
|
|
- |
|
|
|
(2.3 |
) |
|
|
- |
|
|
|
(2.3 |
) |
Amortization of intangible assets |
|
|
2.6 |
|
|
|
2.9 |
|
|
|
10.5 |
|
|
|
13.0 |
|
Acquisition and restructuring related items and other |
|
|
2.1 |
|
|
|
3.6 |
|
|
|
35.3 |
|
|
|
13.3 |
|
Contract design retrofits |
|
|
- |
|
|
|
3.9 |
|
|
|
- |
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
13.4 |
|
|
$ |
13.4 |
|
|
$ |
45.0 |
|
|
$ |
44.6 |
|
|
|
|
|
|
|
|
|
|
Personnel costs eliminated on a pro forma basis as if eliminated for the full
quarter |
|
|
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma Adjusted EBITDA |
|
|
|
|
$ |
47.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of acquisition and restructuring related items and other
included in Adjusted EBITDA: |
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Twelve Months Ended |
|
|
December 25, |
|
December 27, |
|
December 25, |
|
December 27, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
Acquisition and transaction related items |
|
$ |
- |
|
|
$ |
0.4 |
|
|
$ |
- |
|
|
$ |
2.2 |
|
Excess capacity and restructuring costs |
|
|
2.1 |
|
|
|
1.0 |
|
|
|
13.4 |
|
|
|
6.6 |
|
Litigation related items |
|
|
- |
|
|
|
- |
|
|
|
1.9 |
|
|
|
0.1 |
|
Reserve on customer receivable due to liquidation proceedings |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.7 |
|
Investment in unmanned combat systems |
|
|
- |
|
|
|
2.2 |
|
|
|
20.0 |
|
|
|
3.4 |
|
Costs related to pending customer change orders |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2.1 |
|
|
$ |
3.6 |
|
|
$ |
35.3 |
|
|
$ |
13.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
Unaudited Segment Data |
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Twelve Months Ended |
|
|
December 25, |
|
December 27, |
|
December 25, |
|
December 27, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
Revenues: |
|
|
|
|
|
|
|
|
Unmanned Systems |
|
$ |
25.5 |
|
|
$ |
16.0 |
|
|
$ |
75.8 |
|
|
$ |
66.3 |
|
Kratos Government Solutions |
|
|
124.4 |
|
|
|
122.9 |
|
|
|
465.8 |
|
|
|
446.1 |
|
Public Safety & Security |
|
|
32.2 |
|
|
|
38.6 |
|
|
|
127.1 |
|
|
|
144.7 |
|
Total revenues |
|
$ |
182.1 |
|
|
$ |
177.5 |
|
|
$ |
668.7 |
|
|
$ |
657.1 |
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations: |
|
|
|
|
|
|
|
|
Unmanned Systems |
|
$ |
(0.1 |
) |
|
$ |
(8.9 |
) |
|
$ |
(27.7 |
) |
|
$ |
(16.2 |
) |
Kratos Government Solutions |
|
|
6.9 |
|
|
|
9.8 |
|
|
|
17.3 |
|
|
|
16.1 |
|
Public Safety & Security |
|
|
(1.3 |
) |
|
|
1.6 |
|
|
|
(3.0 |
) |
|
|
2.6 |
|
Unallocated corporate expense, net |
|
|
(0.9 |
) |
|
|
(1.0 |
) |
|
|
(5.2 |
) |
|
|
(7.0 |
) |
Total operating income (loss) from continuing
operations |
|
$ |
4.6 |
|
|
$ |
1.5 |
|
|
$ |
(18.6 |
) |
|
$ |
(4.5 |
) |
|
|
|
|
|
|
|
|
|
Note: Unallocated corporate expense, net includes costs
for certain stock-based compensation programs (including stock-based compensation costs for stock options, employee stock
purchase plan and restricted stock units), the effects of items not considered part of management’s evaluation of segment
operating performance, merger and acquisition expenses, corporate costs not allocated to the segments, and other miscellaneous
corporate activities. |
|
|
|
|
|
|
|
|
|
Reconciliation of consolidated Adjusted EBITDA to Adjusted EBITDA by
segment is as follows: |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Twelve Months Ended |
|
|
December 25, |
|
December 27, |
|
December 25, |
|
December 27, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
Unmanned Systems |
|
$ |
2.2 |
|
|
$ |
(0.3 |
) |
|
$ |
2.2 |
|
|
$ |
2.4 |
|
% of revenue |
|
|
8.6 |
% |
|
|
-1.9 |
% |
|
|
2.9 |
% |
|
|
3.6 |
% |
Kratos Government Solutions |
|
|
12.1 |
|
|
|
11.8 |
|
|
|
43.1 |
|
|
|
37.7 |
|
% of revenue |
|
|
9.7 |
% |
|
|
9.6 |
% |
|
|
9.3 |
% |
|
|
8.5 |
% |
Public Safety & Security |
|
|
(0.9 |
) |
|
|
1.9 |
|
|
|
(0.3 |
) |
|
|
4.5 |
|
% of revenue |
|
|
-2.8 |
% |
|
|
4.9 |
% |
|
|
-0.2 |
% |
|
|
3.1 |
% |
Total Adjusted EBITDA |
|
$ |
13.4 |
|
|
$ |
13.4 |
|
|
$ |
45.0 |
|
|
$ |
44.6 |
|
% of revenue |
|
|
7.4 |
% |
|
|
7.5 |
% |
|
|
6.7 |
% |
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
|
Reconciliation of consolidated Pro Forma Adjusted EBITDA to Pro Forma
Adjusted EBITDA by segment is as follows: |
|
|
|
|
Unmanned Systems |
|
|
|
$ |
2.2 |
|
|
|
% of revenue |
|
|
|
|
2.9 |
% |
|
|
Kratos Government Solutions |
|
|
|
|
44.1 |
|
|
|
% of revenue |
|
|
|
|
9.5 |
% |
|
|
Public Safety & Security |
|
|
|
|
0.7 |
|
|
|
% of revenue |
|
|
|
|
0.6 |
% |
|
|
Total Pro Forma Adjusted EBITDA |
|
|
|
$ |
47.0 |
|
|
|
% of revenue |
|
|
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
Unaudited Condensed Consolidated Balance
Sheets |
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, |
|
December 27, |
|
|
|
|
|
|
|
2016 |
|
|
|
2015 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
$ |
69.1 |
|
|
$ |
28.5 |
|
Restricted cash |
|
|
|
|
|
|
0.5 |
|
|
|
0.7 |
|
Accounts receivable, net |
|
|
|
|
|
|
229.4 |
|
|
|
206.8 |
|
Inventoried costs |
|
|
|
|
|
|
55.4 |
|
|
|
55.6 |
|
Prepaid expenses |
|
|
|
|
|
|
8.9 |
|
|
|
10.6 |
|
Other current assets |
|
|
|
|
|
|
9.8 |
|
|
|
18.2 |
|
Total current assets |
|
|
|
|
|
|
373.1 |
|
|
|
320.4 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
49.8 |
|
|
|
56.2 |
|
Goodwill |
|
|
|
|
|
|
485.4 |
|
|
|
483.4 |
|
Intangible assets, net |
|
|
|
|
|
|
32.6 |
|
|
|
36.5 |
|
Other assets |
|
|
|
|
|
|
7.7 |
|
|
|
6.8 |
|
Total assets |
|
|
|
|
|
$ |
948.6 |
|
|
$ |
903.3 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
$ |
52.7 |
|
|
$ |
48.3 |
|
Accrued expenses |
|
|
|
|
|
|
50.0 |
|
|
|
33.1 |
|
Accrued compensation |
|
|
|
|
|
|
39.1 |
|
|
|
36.8 |
|
Accrued interest |
|
|
|
|
|
|
3.6 |
|
|
|
3.9 |
|
Billings in excess of costs and earnings on uncompleted
contracts |
|
|
|
|
|
|
41.8 |
|
|
|
42.3 |
|
Other current liabilities |
|
|
|
|
|
|
7.7 |
|
|
|
6.1 |
|
Other current liabilities of discontinued operations |
|
|
|
|
|
|
1.6 |
|
|
|
1.9 |
|
Total current liabilities |
|
|
|
|
|
|
196.5 |
|
|
|
172.4 |
|
Long-term debt principal, net of current portion |
|
|
|
|
|
|
431.0 |
|
|
|
444.1 |
|
Other long-term liabilities |
|
|
|
|
|
|
41.0 |
|
|
|
28.5 |
|
Other long-term liabilities of discontinued operations |
|
|
|
|
|
|
3.7 |
|
|
|
4.1 |
|
Total liabilities |
|
|
|
|
|
|
672.2 |
|
|
|
649.1 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Common stock |
|
|
|
|
|
|
- |
|
|
|
- |
|
Additional paid-in capital |
|
|
|
|
|
|
956.2 |
|
|
|
873.2 |
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
(1.7 |
) |
|
|
(1.4 |
) |
Accumulated deficit |
|
|
|
|
|
|
(678.1 |
) |
|
|
(617.6 |
) |
Total stockholders’ equity |
|
|
|
|
|
|
276.4 |
|
|
|
254.2 |
|
Total liabilities and stockholders’ equity |
|
|
|
|
|
$ |
948.6 |
|
|
$ |
903.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
Unaudited Condensed Consolidated Statements
of Cash Flows |
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
|
|
|
|
December 25, |
|
December 27, |
|
|
|
|
|
|
|
2016 |
|
|
|
2015 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
$ |
(60.5 |
) |
|
$ |
19.8 |
|
Less: income (loss) from discontinued operations |
|
|
|
|
|
|
(0.1 |
) |
|
|
53.0 |
|
Loss from continuing operations |
|
|
|
|
|
|
(60.4 |
) |
|
|
(33.2 |
) |
Adjustments to reconcile loss from continuing operations to net cash
used in operating activities from continuing operations: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
22.8 |
|
|
|
25.5 |
|
Deferred income taxes |
|
|
|
|
|
|
4.7 |
|
|
|
0.9 |
|
Stock-based compensation |
|
|
|
|
|
|
5.1 |
|
|
|
6.1 |
|
Litigation related charges |
|
|
|
|
|
|
1.7 |
|
|
|
- |
|
Change in unused office space accrual |
|
|
|
|
|
|
- |
|
|
|
(2.3 |
) |
Amortization of deferred financing costs |
|
|
|
|
|
|
1.5 |
|
|
|
1.9 |
|
Amortization of discount on Senior Secured Notes |
|
|
|
|
|
|
0.9 |
|
|
|
1.1 |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
(0.2 |
) |
|
|
3.4 |
|
Provision for non-cash restructuring costs |
|
|
|
|
|
|
9.1 |
|
|
|
- |
|
Non-cash income tax benefit |
|
|
|
|
|
|
- |
|
|
|
(18.7 |
) |
Provision for doubtful accounts |
|
|
|
|
|
|
0.3 |
|
|
|
0.4 |
|
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
(24.7 |
) |
|
|
10.3 |
|
Inventoried costs |
|
|
|
|
|
|
(2.7 |
) |
|
|
(8.2 |
) |
Prepaid expenses and other assets |
|
|
|
|
|
|
5.0 |
|
|
|
(6.7 |
) |
Accounts payable |
|
|
|
|
|
|
2.9 |
|
|
|
2.9 |
|
Accrued compensation |
|
|
|
|
|
|
2.3 |
|
|
|
(4.4 |
) |
Accrued expenses |
|
|
|
|
|
|
16.5 |
|
|
|
0.6 |
|
Accrued interest |
|
|
|
|
|
|
(0.3 |
) |
|
|
1.5 |
|
Billings in excess of costs and earnings on uncompleted
contracts |
|
|
|
|
|
|
(0.4 |
) |
|
|
(7.3 |
) |
Income tax receivable and payable |
|
|
|
|
|
|
1.2 |
|
|
|
(3.1 |
) |
Other liabilities |
|
|
|
|
|
|
2.3 |
|
|
|
(0.4 |
) |
Net cash used in operating activities from continuing
operations |
|
|
|
|
|
|
(12.4 |
) |
|
|
(29.7 |
) |
Investing activities: |
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired |
|
|
|
|
|
|
(5.1 |
) |
|
|
- |
|
Change in restricted cash |
|
|
|
|
|
|
0.3 |
|
|
|
4.7 |
|
Proceeds from the sale of assets |
|
|
|
|
|
|
0.1 |
|
|
|
0.9 |
|
Capital expenditures |
|
|
|
|
|
|
(9.2 |
) |
|
|
(11.3 |
) |
Net cash used in investing activities from continuing operations |
|
|
|
|
|
|
(13.9 |
) |
|
|
(5.7 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
Payment of long-term debt |
|
|
|
|
|
|
(14.1 |
) |
|
|
(175.0 |
) |
Proceeds from the issuance of common stock |
|
|
|
|
|
|
76.2 |
|
|
|
Cash paid for deferred acquisition consideration |
|
|
|
|
|
|
- |
|
|
|
(1.1 |
) |
Repayment of debt |
|
|
|
|
|
|
(1.0 |
) |
|
|
(42.0 |
) |
Proceeds from exercise of restricted stock units, employee stock
options, and employee stock purchase plan |
|
|
|
|
|
|
2.0 |
|
|
|
3.4 |
|
Net cash provided by (used in) financing activities from continuing
operations |
|
|
|
|
|
|
63.1 |
|
|
|
(214.7 |
) |
Net cash flows from continuing operations |
|
|
|
|
|
|
36.8 |
|
|
|
(250.1 |
) |
Net operating and investing cash flows of discontinued operations |
|
|
|
|
|
|
4.1 |
|
|
|
245.3 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
(0.3 |
) |
|
|
(0.2 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
40.6 |
|
|
|
(5.0 |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
28.5 |
|
|
|
33.5 |
|
Cash and cash equivalents at end of period |
|
|
|
|
|
$ |
69.1 |
|
|
$ |
28.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kratos Defense & Security Solutions,
Inc. |
Unaudited Non-GAAP Measures |
Computation of Adjusted Earnings Per
Share |
(in millions, except per share
data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income (loss) from continuing operations and
adjusted earnings per share (Adjusted EPS) are non-GAAP measure for reporting financial performance, exclude the impact of
certain items and, therefore, have not been calculated in accordance with GAAP. Management believes that
exclusion of these items assists in providing a more complete understanding of the Company's underlying continuing
operations results and trends and allows for comparability with our peer company index and industry. The Company
uses these measures along with the corresponding GAAP financial measures to manage the Company's business and to evaluate
its performance compared to prior periods and the marketplace. The Company defines adjusted income (loss) from
continuing operations before amortization of intangible assets, stock-based compensation, foreign transaction gain/loss,
contract design retrofit costs and acquisition and restructuring related items and other. The Company uses the
estimated cash tax provision in computing adjusted earnings per share to reflect the benefit from the utilization of the
Company's net operating losses. Adjusted EPS expresses adjusted income (loss) from continuing operations on a per share
basis using weighted average diluted shares outstanding. |
|
|
|
|
|
|
|
|
|
The following table reconciles the most directly
comparable GAAP financial measures to the non-GAAP financial measures. |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Twelve Months Ended |
|
|
December 25, |
|
December 27, |
|
December 25, |
|
December 27, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
Loss from continuing operations before taxes |
|
$ |
(3.6 |
) |
|
$ |
(7.3 |
) |
|
$ |
(52.3 |
) |
|
$ |
(44.6 |
) |
Add: Amortization of intangible assets |
|
|
2.6 |
|
|
|
2.9 |
|
|
|
10.5 |
|
|
|
13.0 |
|
Add: Stock-based compensation |
|
|
0.9 |
|
|
|
0.6 |
|
|
|
5.1 |
|
|
|
6.1 |
|
Add: Loss/(gain) on extinguishment of debt |
|
|
(0.2 |
) |
|
|
- |
|
|
|
(0.2 |
) |
|
|
3.4 |
|
Add: Foreign transaction (gain)/loss |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
(0.4 |
) |
|
|
0.8 |
|
Add: Contract design retrofit costs |
|
|
- |
|
|
|
3.9 |
|
|
|
- |
|
|
|
6.4 |
|
Add: Acquisition and restructuring related items and other |
|
|
2.1 |
|
|
|
3.6 |
|
|
|
35.3 |
|
|
|
13.3 |
|
Adjusted income (loss) from continuing operations before income
taxes |
|
|
1.9 |
|
|
|
3.9 |
|
|
|
(2.0 |
) |
|
|
(1.6 |
) |
|
|
|
|
|
|
|
|
|
Estimated cash tax provision |
|
|
0.7 |
|
|
|
0.4 |
|
|
|
2.4 |
|
|
|
2.6 |
|
Adjusted income (loss) from continuing operations |
|
$ |
1.2 |
|
|
$ |
3.5 |
|
|
$ |
(4.4 |
) |
|
$ |
(4.2 |
) |
|
|
|
|
|
|
|
|
|
Diluted income per common share: |
|
|
|
|
|
|
|
|
Adjusted income (loss) from continuing operations |
|
$ |
0.02 |
|
|
$ |
0.06 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
Diluted |
|
|
67.0 |
|
|
|
60.1 |
|
|
|
61.3 |
|
|
|
58.7 |
|
Press Contact: Yolanda White 858-812-7302 Direct Investor Information: 877-934-4687 investor@kratosdefense.com
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