Second Quarter 2020 Revenues of $170.4 Million
Book to Bill Ratio of 1.2 to 1
SAN DIEGO, Aug. 04, 2020 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider, today reported its second quarter 2020 financial results. For the second fiscal quarter of 2020, Kratos reported Revenues of $170.4 million and Adjusted EBITDA of $15.3 million.
Second Quarter 2020 Revenues of $170.4 million, as compared to $187.9 million in the second quarter of 2019, reflect a reduction of approximately $17.0 million in the KGS segment, resulting primarily from a reduction of $12.1 million in the Company’s Training Solutions business, which reduction was principally related to the previously disclosed reduction in scope of certain international contracts. Second Quarter 2020 Adjusted EBITDA was $15.3 million, as compared to $19.2 million in the second quarter of 2019, primarily reflecting the reduced revenues from the second quarter of 2019, and increased 2020 research and development (R&D) investments of approximately $1.5 million, primarily in the Company’s space and satellite communications business. Operating Income of $2.9 million for the second quarter of 2020 includes an increase in non-cash stock-based compensation expense of $2.0 million, an increase in depreciation expense of $0.2 million and the increase in R&D of $1.5 million.
Second quarter 2020 Cash Flow generated from Operations was $6.8 million, and Free Cash Flow used in Operations was $0.9 million after the funding of $7.7 million of capital expenditures. Cash used to fund acquisitions was $1.3 million. Cash on hand at June 28, 2020 was $397.2 million, which includes approximately $240.5 million of net proceeds raised in the Company’s equity offering that closed on June 23, 2020. Net cash balance after deducting debt balances was $101.3 million. Adjusted EPS* was $0.08 for the second quarter of 2020, compared to $0.11 for the second quarter of 2019. Kratos reported a second quarter 2020 Net Loss of $0.7 million, and GAAP EPS was a loss of $0.01 for the second quarter of 2020.
For the second quarter of 2020, Kratos’ Unmanned Systems Segment (KUS) reported Revenues of $42.0 million as compared to $42.5 million in the second quarter of 2019, and Adjusted EBITDA of $3.0 million as compared to second quarter 2019 Adjusted EBITDA of $3.5 million, primarily reflecting an increased mix of development programs which are typically at lower margins. KUS’s book-to-bill ratio for the second quarter of 2020 was 1.0 to 1.0 and for the last twelve months ended June 28, 2020 was 1.1 to 1.0. Total backlog for KUS at the end of the second quarter of 2020 was $175.7 million.
For the second quarter of 2020, Kratos’ Government Solutions Segment (KGS) reported Revenues of $128.4 million, as compared to revenues of $145.4 million in the second quarter of 2019. Revenues in 2020 were primarily impacted by previously disclosed scope reductions of certain international training programs. Second quarter 2020 KGS Adjusted EBITDA was $12.3 million as compared to $15.7 million in the second quarter of 2019, reflecting the reduction of revenues, increased R&D of $1.5 million in the Company’s space and satellite business, as well as a less favorable mix of revenues. For the second quarter of 2020, KGS reported bookings of $163.7 million, a book-to-bill ratio of 1.3 to 1.0, with bookings of $581.4 million and a book to bill ratio of 1.1 to 1.0, for the last twelve months ended June 28, 2020.
For the second quarter of 2020, Kratos reported consolidated bookings of $207.0 million and a book-to-bill ratio of 1.2 to 1.0, with bookings of $771.6 million and a book-to-bill ratio of 1.1 to 1.0, for the last twelve months ended June 28, 2020. Backlog at June 28, 2020 was $683.4 million and Kratos’ bid and proposal pipeline was $8.0 billion at June 28, 2020. Backlog and pipeline data as of June 28, 2020 does not reflect the expected contribution of ASC which was recently acquired on June 30, 2020.
Eric DeMarco, Kratos’ President and CEO, said, “Kratos remains well positioned for the ongoing recapitalization of strategic weapon systems to address peer threats to the U.S. and our allies as reflected in our second quarter report, including our 1.2 to 1.0 book to bill ratio and $8 billion opportunity pipeline. In KGS, our C5ISR, microwave electronics and rocket system businesses performed particularly well, including in the missile system, radar, missile defense and weapon systems areas.” Mr. DeMarco continued, “Since our last report to you, Kratos’ unmanned systems business continued to make significant progress, including the receipt of a $400 million Skyborg IDIQ contract award and solid execution on our Valkyrie, Gremlins, Airwolf, Thanatos and Rattle Snake programs. Additionally, we believe the addressable market for Kratos’ class of drone systems is continuing to expand, including the Skyborg, LCAAT, LCASD, Golden Horde, ABMS, ACE and other programs.”
Mr. DeMarco concluded, “At Kratos, affordability is a technology, and we are laser focused on being the alternative, low cost rapid developer and fielder of leading technology systems to the U.S. Military, our allies and other customers. Our strategy is to lever our venture capital, commercial and entrepreneurial based research, development and production practices to disrupt our market focus areas and deliver real innovation and cost effectiveness to our customers.”
Our Third Quarter and Full Year 2020 guidance includes the expected contribution from the recently closed ASC Signal acquisition. We are providing Third Quarter 2020 guidance of Revenues of $195 million to $205 million and Adjusted EBITDA of $17 million to $20 million.
We are increasing our full year 2020 guidance for Revenues from $720 to $760 million to $740 to $780 million, primarily reflecting the expected contribution of the ASC Signal acquisition for the second half of 2020. We are maintaining our Adjusted EBITDA of $72 million to $78 million, which reflects the expected contribution from the ASC Signal acquisition, offset primarily by margin compression in our commercial aero turbine business, which has been impacted by COVID-19. 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 approximately $38 to $42 million. Our Third Quarter and Full Year 2020 guidance includes our current assumptions of the expected impact of COVID-19 on our industry, business and operations. We will provide an update to these assumptions and the expected impact to our financial projections, if any, in our Third Quarter earnings conference call.
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 are currently reflected as Company-owned tactical drones until receipt of the related customer award(s). Kratos will adjust these initial forecasted capital expenditure outlays and the ultimate balance sheet classification of these investments once expected customer orders and the nature of the contract terms and related financial contribution can be estimated.
The Company will provide additional information in its earnings call today.
Management will discuss the Company’s second quarter 2020 financial results, as well as its third 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 3548529. 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 .