Kratos Reports First Quarter 2019 Financial Results

SAN DIEGO, May 08, 2019 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider, today reported its first quarter 2019 financial results.  For the first quarter 2019, Kratos reported Revenues of $160.4 million, Adjusted EBITDA of $17.5 million, or 10.9 percent, a 27.7 percent increase over the first quarter of 2018, Operating Income of $8.2 million, a 17.1 percent increase over the first quarter of 2018, Cash Flow from Operations of $16.0 million, and a Free Cash Flow from Operations of $12.0 million after capital expenditures of $4.0 million.  For the first quarter 2019, the Company reported Adjusted EPS* of $0.08, a 60.0 percent increase over the first quarter of 2018, Net income of $3.1 million and GAAP EPS of $0.03, a 250.0 percent increase over a first quarter 2018 GAAP EPS loss of $0.02.  Included in the first quarter 2019 Net income are acquisition costs of $1.2 million related to the recently closed FTT acquisition.

First quarter 2019 revenues increased $17.4 million over first quarter of 2018 revenues of $143.0 million, or 12.2 percent.  Included in first quarter 2019 revenues was approximately $4.2 million generated from recently acquired FTT.  Excluding the impact of FTT, Kratos revenues increased organically 9.2 percent year-over-year.

For the first quarter of 2019, Kratos’ Government Solutions Division (KGS) generated Revenues of $125.5 million, Adjusted EBITDA of $15.5 million and Operating Income of $11.4 million, compared to revenues of $115.2 million, Adjusted EBITDA of $12.0 million and Operating Income of $7.9 million for the first quarter of 2018.  For the first quarter of 2019, Kratos’ Unmanned Systems Division (KUSD) generated Revenues of $34.9 million, Adjusted EBITDA of $2.0 million and Operating Income of $0.6 million, compared to revenues of $27.8 million, Adjusted EBITDA of $1.7 million and Operating Income of $0.8 million in the first quarter of 2018. 

For the first quarter of 2019, Kratos reported bookings of $139.2 million and a book-to-bill ratio of 0.9 to 1.0, with backlog at March 31, 2019 of $620.2 million, and a last twelve months ending March 31, 2019 book-to-bill ratio of 1.1 to 1.  In the first quarter, Kratos’ bid and proposal pipeline increased by $400 million, up to approximately $7.2 billion, at March 31, 2019. 

Eric DeMarco, Kratos’ President and CEO, said, “Every Kratos business unit exceeded its financial forecast in the first quarter, with the Company reporting increased revenues, margins, profitability and cash flow.  Kratos’ Unmanned Systems business had a very successful first quarter, including the initial flight of the XQ-58A Valkyrie and a 1.7 to 1.0 book to bill ratio. Since the first Valkyrie flight, potential customer interest in Kratos’ affordable, high performance unmanned aerial drone systems has increased significantly, and we are more confident than ever that we will successfully achieve our strategic objective of being the leader in this expected to be large and fast growing tactical UAS area class.  Additionally, Kratos’ target drone business continues to ramp, driven by the ongoing recapitalization of strategic weapon systems by the U.S. and its allies, providing good visibility to expected future organic revenue, profit and cash flow growth.”

Mr. DeMarco continued, “Kratos’ space and satellite command, control, communications and space situational awareness business, our Company’s largest, also had a strong first quarter, including a favorable overall mix, and the 2020 DoD budget space funding request increase of approximately 20 percent provides confidence in our long term organic growth forecast. Additionally, Kratos’ C5ISR and Microwave Electronics product business, which supports radar, missile, electronic warfare and missile defense systems, including Patriot, THAAD and Iron Dome started the year well, as did our training systems and solutions business which supports operational readiness.”

Mr. DeMarco concluded, “We are confident that Kratos’ strategy of building an intellectual property focused technology Company that rapidly develops, demonstrates and fields affordable products and systems is a true differentiating model.  Kratos is aligned with the U.S. National Defense Strategy and DoD funding priority areas.  We believe that our recent awards, new and increasing production programs, under contract tactical unmanned aerial system development programs and increased bid and proposal pipeline are representative of the strength of our business plan, providing a solid foundation for the strong organic growth trajectory we are forecasting.”    

Financial Guidance
Kratos is providing second quarter 2019 financial guidance of Revenues of $175 to $185 million, and Adjusted EBITDA of $16 to $18 million, and reaffirming full year 2019 financial guidance of Revenues of $720 to $760 million, reflecting organic growth of approximately 12.5 percent, and Adjusted EBITDA of $71 to $77 million. 

The Company is reaffirming full year 2019 cash flow from operations guidance of $40 to $50 million, capital expenditures of $28 to $30 million, and free cash flow guidance of $10 to $20 million, plus the expected final cash receipt of the retained working capital of the Company’s divested PSS business of approximately $4 to $6 million.  Capital expenditures are expected to continue to be elevated in 2019, reflecting expected outlays associated with manufacturing equipment for the Company’s new drone facility in Oklahoma and equipment for a new secured facility of approximately $6 to $8 million and approximately $4 to $6 million related to the planned manufacture of company owned aerial target drones in preparation of fulfilling expected customer requirements.

Management will discuss the Company’s first quarter 2019 financial results, as well as its second quarter and full year 2019 guidance on a conference call beginning at 2:00 p.m. Pacific (5:00 p.m. Eastern) today. Analysts and institutional investors may participate in the conference call by dialing (866) 393-0674, and referencing the call by ID number 1479806. The general public may access the conference call by dialing (877) 344-3935 or on the day of the event by visiting www.kratosdefense.com for a simultaneous webcast. A replay of the webcast will be available on the Kratos web site approximately two hours after the conclusion of the conference call.

About Kratos Defense & Security Solutions

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) develops and fields transformative, affordable technology, platforms and systems for United States National Security related customers, allies and commercial enterprises.  Kratos is changing the way breakthrough technologies for these industries are rapidly brought to market through proven commercial and venture capital backed approaches, including proactive research and streamlined development processes. Kratos specializes in unmanned systems, satellite communications, cyber security/warfare, microwave electronics, missile defense, hypersonic systems, training and combat systems. For more information go to www.kratosdefense.com.

N o t i c e Regarding Forward-Looking Statements
This news release contains certain forward-looking statements that involve risks and uncertainties, including, without limitation, express or implied statements concerning the Company’s expectations regarding its future financial performance, including the Company’s expectations for its second quarter and full year 2019 revenue and Adjusted EBITDA, full year 2019 capital expenditures and ability to generate positive cash flow from operations and positive free cash flow in 2019, the timing and amount of the Company’s receipt of retained working capital from the Company’s divested PSS business, the Company’s ability to achieve projected growth in certain of the Company’s business units and the expected timing of such growth, the Company’s expectation of ramp on projects, timing associated with bringing certain contracts back on the planned run rate, the Company’s bid and proposal pipeline, demand for its products and services, including the Company’s ability to successfully compete in the tactical  unmanned  aerial  system  area  and  expected  new customer awards,  performance of  key contracts and programs, including the timing of production and demonstration related to certain of the Company’s contracts and product offerings, the impact of the Company’s restructuring efforts and cost reduction measures, including its ability to improve profitability and cash flow in certain business units as a result of these actions, benefits to be realized from the Company’s net operating loss carry forwards, the availability and timing of government funding for the Company’s offerings, including the strength of the future funding environment, timing of LRIP related to the Company’s unmanned aerial target system offerings, as well as the level of recurring revenues expected to be generated by these programs once they achieve full rate production, and market and industry developments, including projected growth. Such statements are only predictions, and the Company’s actual results may differ materially from the results expressed or implied by these statements. Investors are cautioned not to place undue reliance on any such forward-looking statements. All such forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise. Factors that may cause the Company’s results to differ include, but are not limited to: risks to our business and financial results related to the reductions and other spending constraints imposed on the U.S. Government and our other customers, including as a result of sequestration and extended continuing resolutions, the Federal budget deficit and Federal government shut-downs; risks of adverse regulatory action or litigation; risks associated with debt leverage and cost savings and cash flow improvements expected as a result of the refinancing of our Senior Notes; risks that our cost-cutting initiatives will not provide the anticipated benefits; risks that changes, cutbacks or delays in spending by the U.S. DoD may occur, which could cause delays or cancellations of key government contracts; risks of delays to or the cancellation of our projects as a result of protest actions submitted by our competitors; risks that changes may occur in Federal government (or other applicable) procurement laws, regulations, policies and budgets; risks of the availability of government funding for the Company's products and services due to performance, cost growth, or other factors, changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reduction of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional committee recommendations or automatic sequestration under the Budget Control Act of 2011, as amended); risks of increases in the Federal government initiatives related to in-sourcing; risks related to security breaches, including cyber security attacks and threats or other significant disruptions of our information systems, facilities and infrastructures; risks related to our compliance with applicable contracting and procurement laws, regulations and standards; risks relating to contract performance; risks related to failure of our products or services; risks associated with our subcontractors’ or suppliers’ failure to perform their contractual obligations, including the appearance of counterfeit or corrupt parts in our products; changes in the competitive environment (including as a result of bid protests); failure to successfully integrate acquired operations and competition in the marketplace, which could reduce revenues and profit margins; risks that potential future goodwill impairments will adversely affect our operating results; risks that anticipated tax benefits will not be realized in accordance with our expectations; risks that a change in ownership of our stock could cause further limitation to the future utilization of our net operating losses; risks that the current economic environment will adversely impact our business; and risks related to natural disasters or severe weather. These and other risk factors are more fully discussed in the Company’s Annual Report on Form 10-K for the period ended December 30, 2018, and in our other filings made with the Securities and Exchange Commission.

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