Kratos Reports First Quarter 2020 Financial Results

First Quarter 2020 Revenues of $168.9 Million Increase 5.3% over First Quarter 2019 Revenues

First Quarter Bookings of $213.1 Million and a Book-to-Bill Ratio of 1.3 to 1.0

First Quarter 2020 Unmanned Systems Revenues of $42.0 Million
Increase 20.3% over First Quarter 2019 Revenues

        Unmanned Systems Book-to-Bill Ratio for the First Quarter of 2020 of 1.5 to 1.0

SAN DIEGO, May 07, 2020 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider, today reported its first quarter 2020 financial results.  For the first quarter of 2020, Kratos reported Revenues of $168.9 million, a 5.3% increase over the first quarter of 2019, and first quarter 2020 Adjusted EBITDA of $16.3 million, a 6.9% decrease over the first quarter of 2019, reflecting increased research and development investments of approximately $1.8 million, primarily in the Company’s space and satellite communications business related to investments in new software-based and open space platforms and technologies.    Operating Income of $4.7 million for the first quarter of 2020 includes an increase in non-cash stock based compensation expense of $2.1 million and an increase in depreciation expense of $0.8 million.  First quarter 2020 Cash Flow generated from Operations was $4.0 million, and Free Cash Flow from Operations was a use of $2.4 million after the funding of $6.4 million of capital expenditures.  Cash used to fund strategic acquisitions was $14.2 million.  Adjusted EPS* was $0.09 for the first quarter of 2020, compared to $0.11 for the first quarter of 2019.  Kratos reported a first quarter 2020 Net Loss of $0.2 million, and GAAP EPS was a loss of $0.00 for the first quarter of 2020.

For the first quarter of 2020, Kratos’ Unmanned Systems Segment (KUS) reported Revenues of $42.0 million, an increase of $7.1 million, or 20.3%, over the first quarter of 2019, and Adjusted EBITDA of $2.3 million, an increase of 15.0%, over first quarter 2019 Adjusted EBITDA of $2.0 million.  KUS’s book-to-bill ratio for the first quarter of 2020 was 1.5 to 1.0 and for the last twelve months ended March 29, 2020 was 1.2 to 1.0.  Total backlog for KUS at the end of the first quarter of 2020 was $174.4 million.  

For the first quarter of 2020, Kratos’ Government Solutions Segment (KGS) reported Revenues of $126.9 million, up from $125.5 million in the first quarter of 2019.  Organic revenue growth in the first quarter of 2020 in our Microwave Products and Rocket System businesses and the inclusion of a full quarter’s financial performance of our turbine technologies business, were offset primarily by expected declines in our training solutions business and legacy government services business.  First quarter 2020 KGS Adjusted EBITDA of $14.0 million decreased from $15.5 million in the first quarter of 2019, primarily as a result of a less favorable mix of revenues.  For the first quarter of 2020, KGS reported bookings of $151.0 million and a book-to-bill ratio of 1.2 to 1.0, with bookings of $542.1 million and a book to bill ratio of 1.0 to 1.0, in the last twelve months ended March 29, 2020.

For the first quarter of 2020, Kratos reported consolidated bookings of $213.1 million and a book-to-bill ratio of 1.3 to 1.0, with bookings of $751.1 million and a book-to-bill ratio of 1.0 to 1.0, in the last twelve months ended March 29, 2020. Backlog at March 29, 2020 was $646.8 million, up $45.6 million, or 7.6%, from the backlog at December 29, 2019.  Kratos’ bid and proposal pipeline remained consistent as compared to year-end, at $7.7 billion at March 29, 2020.   

Eric DeMarco, Kratos’ President and CEO, said, “As Kratos addresses the challenges presented by COVID-19, we remain focused on providing mission critical, affordable, leading technology systems and solutions for our national security mission, while maintaining a safe and healthy environment for our employees.  I am extremely proud of the commitment of Kratos employees to our customers and country and the value they continue to create for our Company and its shareholders in the current environment.  In the first quarter, Kratos Unmanned Systems, Space and Satellite Communications, Microwave Electronics, C5ISR and Rocket System DoD focused businesses performed particularly well, with strong Q1 bookings providing increased future visibility.”

Mr. DeMarco concluded, “Since our last financial report, we have continued to execute our business plan, including important progress with Kratos’ tactical unmanned aerial drone system programs and initiatives, including Valkyrie, Gremlins, Air Wolf, Thanatos and Mako.   Kratos is now involved in several new major DoD programs, including OPIR, GBSD, ABMS, Skyborg, Golden Horde and Vanguard, which we believe reflects the alignment of our business portfolio with the future national security priorities of the U.S. and its Allies.”

Financial Guidance

We are providing initial Second Quarter 2020 guidance for Revenues of $160 million to $170 million and Adjusted EBITDA of $12 million to $16 million.

We are affirming our full year 2020 Adjusted EBITDA guidance of $72 million to $78 million and we are affirming our full year 2020 Free Cash Flow guidance of generation of $7 million to a use of $18 million, including capital expenditures of $40 to $45 million.

We are adjusting our full year 2020 revenue guidance from $740 million to $780 million, to $720 million to $760 million, primarily to reflect the expected impact of COVID-19 on our business, vendors, suppliers and customers (1), the non-renewal of an option on a sole source training contract by an international customer and the extension through the end of 2020 of a previously protested U.S. Navy/RSNF Training Contract.  Including our first quarter bookings, our affirmed Adjusted EBITDA guidance reflects an overall forecasted improved revenue mix and profitability in our DoD and National Security business areas, including in our space, satellite, unmanned systems and microwave electronic operations.

Kratos’ fiscal year 2020 guidance excludes any potential contribution from expected Valkyrie or other tactical drone production or system contracts, with expected orders to be taken into consideration and our financial forecast adjusted once such contracts/orders are received and the related financial contribution can be estimated. 

The 2020 capital expenditure forecast currently includes expected outlays of $15 to $17 million associated with the production of 12 Valkyrie aircraft prior to receipt of expected customer award(s); therefore, these aircraft will be reflected as Company-owned tactical drones until receipt of the related customer award(s), and approximately $5 million related to the production of Company-owned aerial target drone systems in preparation for fulfilling forecasted customer requirements.  Kratos will adjust/reduce these initial forecasted capital expenditure outlays once expected customer orders are received and the related financial contribution can be estimated.

The Company will provide additional information in its earnings call today. 

(1) The company's 2020 financial outlook includes updated guidance for net sales reflecting the currently expected impacts related to COVID-19. The ultimate impact of the Global COVID-19 Pandemic on the company's financial outlook for 2020 remains uncertain.

Management will discuss the Company’s first quarter 2020 financial results, as well as its second quarter and full year 2020 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 8476815. 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 and next generation turbo jet and turbo fan engine development. For more information go to www.kratosdefense.com.

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