Kratos Reports First Quarter Financial Results

         First Quarter Revenues of $194.2 Million, Increased 15.0
percent over First Quarter 2020

First Quarter Unmanned Systems Segment Revenues of $55.9
Million, Increased 33.1 percent over First Quarter 2020
        

First Quarter Cash Flow from Operations of $22.7 Million

First Quarter 2021 Book to Bill Ratio of 0.8 to 1
Last Twelve Months March 2021 Book to Bill Ratio of 1.3 to 1

SAN DIEGO, May 05, 2021 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider, today reported its first quarter 2021 financial results. For the first quarter of 2021, Kratos reported Revenues of $194.2 million, Operating Income of $4.9 million, Net Income of $1.9 million and Adjusted EBITDA of $18.1 million.  

First Quarter 2021 Revenues of $194.2 million increased 15.0 percent, as compared to Revenues of $168.9 million in the first quarter of 2020, reflecting organic growth in Kratos’ Unmanned Systems, Space and Satellite, C5ISR, Microwave Products, Rocket Support Systems and Turbine Technology businesses, offset partially by certain reductions, including in our Training Solutions business, primarily resulting from a previously disclosed reduction in scope of certain international training contracts. Excluding the impact of the ASC Signal, TDI and 5D acquisitions, revenue grew organically 8.9 percent in the first quarter of 2021 as compared to the first quarter of 2020. Revenue grew organically 11.6 percent in the first quarter of 2021 on a proforma basis, excluding the impact of the acquisitions and the reduction of the international training contracts.

Operating Income of $4.9 million in the first quarter of 2021 increased from $4.7 million in the first quarter of 2020, with first quarter 2021 Operating Income including increases in non-cash stock-based compensation expense of $1.5 million and R&D of $2.3 million over the first quarter of 2020. First Quarter 2021 Adjusted EBITDA of $18.1 million increased 11.0 percent, as compared to $16.3 million in the first quarter of 2020, primarily reflecting the increase in revenues.

First quarter 2021 Cash Flow generated from Operations was $22.7 million, and Free Cash Flow Generated from Operations was $13.1 million, after funding $9.6 million of capital expenditures. Cash on hand at March 28, 2021 was $383.6 million. Kratos reported first quarter 2021 Net income of $1.9 million, and GAAP EPS of $0.02 for the first quarter of 2021, compared to Net Loss of $0.2 million and GAAP EPS of $0.00 for the first quarter of 2020. Adjusted EPS was $0.06 for the first quarter of 2021 compared to $0.06 for the first quarter of 2020. The Company has approximately $280 million of net operating loss carryforwards, which are expected to substantially shield Kratos from paying future cash income taxes.  

For the first quarter of 2021, Kratos’ Unmanned Systems Segment (KUS) Revenues of $55.9 million increased 33.1 percent, as compared to $42.0 million in the first quarter of 2020, and KUS operating income increased by 740.0 percent, to $4.2 million in the first quarter of 2021 from $0.5 million in the first quarter of 2020. First quarter 2021 KUS Adjusted EBITDA of $6.4 million increased 178.3 percent, as compared to first quarter 2020 Adjusted EBITDA of $2.3 million, primarily reflecting increases in certain target drone programs and leverage achieved with the fixed manufacturing, overhead and general and administrative structure, offset by certain development programs, including tactical drone development programs, which typically generate lower margins.

KUS’s book-to-bill ratio for the first quarter of 2021 was 0.7 to 1.0 and 1.2 to 1.0 for the last twelve months ended March 28, 2021, with bookings of $247.4 million for the twelve months ended March 28, 2021.   Total backlog for KUS at the end of the first quarter of 2021 was $222.4 million, down from $237.9 million at the end of the fourth quarter of 2020, and up from $174.4 million at the end of the first quarter of 2020.      

For the first quarter of 2021, Kratos’ Government Solutions Segment (KGS) reported Revenues of $138.3 million, an increase of 9.0 percent, as compared to revenues of $126.9 million in the first quarter of 2020, and operating income of $7.1 million, down from operating income of $9.3 million in the first quarter of 2020, reflecting a less favorable revenue mix, including an increase in development-type programs and product-related revenues primarily resulting from the recent ASC Signal acquisition.   Revenues in the first quarter of 2021 include approximately $8.6 million from the ASC Signal acquisition, offset by reductions of approximately $5.0 million in our training solutions business resulting primarily from the previously disclosed scope reductions in certain international training programs. First quarter 2021 KGS Adjusted EBITDA of $11.7 million was down from first quarter 2020 Adjusted EBITDA of $14.0 million, primarily reflecting a less favorable mix of revenues and increased investments in R&D expenses of approximately $2.3 million which were incurred in the space and satellite business.

For the first quarter of 2021, KGS reported a book-to-bill ratio of 0.9 to 1.0, including a book-to-bill ratio of 1.3 to 1.0 in Kratos’ Space, Satellite and Training business. For the twelve months ended March 28, 2021, KGS reported a book to bill ratio of 1.3 to 1.0, with bookings of $735.2 million for the twelve months ended March 28, 2021. KGS total backlog at the end of the first quarter of 2021 was $670.5 million, down from $684.2 million at the end of the fourth quarter of 2020, and up from $472.5 million at the end of the first quarter of 2020.

For the first quarter of 2021, Kratos reported consolidated bookings of $164.9 million and a book-to-bill ratio of 0.8 to 1.0, with consolidated bookings of $982.6 million and a book-to-bill ratio of 1.3 to 1.0 for the last twelve months ended March 28, 2021. Backlog at March 28, 2021 was $892.9 million, down sequentially from $922.2 million at December 27, 2020 and up from $646.8 million at March 29, 2020, and Kratos’ bid and proposal pipeline was $9.0 billion at March 28, 2021.   Backlog at March 28, 2021 was comprised of funded backlog of $620.7 million and unfunded backlog of $272.2 million.

Eric DeMarco, Kratos’ President and CEO, said, “Since our last report to you, the Fiscal 2022 National Security Budget has been submitted at $753 billion, better than we expected and we believe a positive sign for our industry and Kratos.   Importantly, the Biden Administration has articulated its areas of focus includes retiring legacy systems and driving rapid innovation, affordability and technology into new and fielded systems, areas where Kratos is a clear industry leader.” Mr. DeMarco continued, “Representative of this change, affordability and technology focus, Michael Brown, Director of the Defense Innovation Unit (DIU), a key strategic partner and customer of Kratos, has been selected to become the Pentagon’s Acquisition Chief, emphasizing Mr. Brown’s success as a disruptive DIU change agent and his previous Silicon Valley and commercial company experience.”

Mr. DeMarco concluded, “We believe Kratos’ focus on the rapid development and fielding of affordable, disruptive systems, products and solutions, including in unmanned drones, space and satellites, microwave electronics, missile defense, hypersonics, propulsion and lasers is uniquely aligned with today’s National Security requirements and we remain confident in an industry leading, up and to the right organic growth trajectory.”

Financial Guidance

We are providing our second quarter 2021 guidance and reaffirming our previously provided full year 2021 Revenue, Adjusted EBITDA and Cash Flow guidance as follows:



   
$M Q221 FY21
Revenues$195 - $205$810 - $850
R&D $8 - $9 $31 - $33
Operating Income $0 - $3 $30 - $34
Depreciation $5 - $6 $20 - $21
Amortization $2 - $3 $8
Stock Based Compensation $6 $23 - $24
Adjusted EBITDA $14 - $18 $81 - $87
     
Operating Cash Flow   $20- $25
Capital Expenditures   $55 - $60
Free Cash Flow Use   ($30 - $40)

The second quarter and full year 2021 estimated revenues and operating performance reflects the expected hardware, product and software mix based on current shipment and execution schedules. The second quarter and full year 2021 estimated revenues also include the impact of the recent loss of a large international training contract, which contributed approximately $34.5 million to the Company’s full year 2020 revenues. Our full year 2021 guidance range includes our current forecasted business mix, and our most recent assumptions of the expected impact of COVID-19, of which Kratos experienced increased employee cases at the end of 2020, which continued into 2021, including in California and at certain of our drone, space & satellite and C5ISR locations, and recent supplier delays. In addition, estimated second quarter and full year 2021 Operating Income and Adjusted EBITDA reflect the expected mix of development-type contracts and expected investments, primarily in our Space and Satellite, Unmanned, C5ISR and Engine businesses, where we have received or are pursuing a number of large opportunities, including Ground Based Strategic Deterrent (“GBSD”), Over Head Persistent Infrared (OPIR) and Skyborg.

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