Kratos Reports Second Quarter 2022 Financial Results

SAN DIEGO, Aug. 04, 2022 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider, today reported its second quarter 2022 financial results. For the second quarter of 2022, Kratos reported Revenues of $224.2 million, Operating Loss of $1.9 million, Net Loss of $4.7 million, Adjusted EBITDA of $17.7 million and a book to bill ratio of 1.2 to 1.0.   Included in Net Loss is a $5.5 million litigation settlement related charge resulting from the resolution of a dispute with an international customer in our Unmanned Systems segment, which contractual arrangement was entered into in March 2011, prior to Kratos’ acquisition of CEi (Composite Engineering Inc.).

Second quarter 2022 Operating Loss includes non-cash stock compensation expense of $6.3 million, and Company-funded Research and Development expense of $9.2 million, reflecting significant ongoing development efforts being made, including in our Space and   Satellite business to develop our virtual, software-based OpenSpace ground station solution.

Kratos reported a second quarter 2022 GAAP loss per share of $0.04, which includes the $5.5 million litigation settlement related charge noted above, compared to Net Income of $1.1 million and GAAP EPS income of $0.01 for the second quarter of 2021. Adjusted EPS was $0.07 for the second quarter of 2022, compared to $0.06 for the second quarter of 2021. Kratos has approximately $235 million of net operating loss carryforwards, which are expected to substantially shield the Company from paying future cash income taxes.   

Second quarter 2022 Revenues of $224.2 million, which increased $19.1 million, or 9.3 percent, from second quarter 2021 Revenues of $205.1 million, were adversely impacted by continuing and increased supply chain disruptions and increased material costs, COVID-related employee absenteeism and increased challenges and costs associated with hiring, obtaining and retaining qualified employees, which resulted in approximately $14.5 million of second quarter 2022 revenues being deferred into future periods, with approximately $2.9 million of associated operating income, including increased inflationary costs.    Second quarter 2022 revenues include an aggregate contribution of $21.5 million from the recent acquisitions of Cosmic Advanced Engineered Solutions, Inc. (Cosmic AES), CTT, Inc., (CTT), and the Engineering Division of Southern Research (SRE), offset by reductions in our Training Solutions business of $8.6 million as compared to the second quarter 2021 revenues, including the previously reported loss of an international training services contract which accounted for approximately $4.5 million of the reduction as well as the completion of certain large training system programs. On a proforma basis, excluding the impact of the Training Solutions business, revenues grew organically 3.2% in the second quarter of 2022 as compared to the second quarter of 2021.

Second quarter 2022 Cash Flow Used in Operations was $21.6 million, with the use including increases in receivables of $27.1 million primarily related to future milestone and other contractual payments and an increase of inventory balances of $10.5 million, primarily in our Unmanned Systems, Microwave Products and C5ISR businesses in anticipation of expected significant ramps in production in the second half of the year and to increase stock inventory levels and advance buys in larger lot sizes to gain pricing benefits where possible, to mitigate the impact of supply chain disruptions and price increases. Free Cash Flow Used in Operations was $32.7 million, after funding $11.1 million of capital expenditures, including in our high growth Unmanned Systems, Space, Satellite and Cyber and Turbine Technologies business areas.

For the second quarter of 2022, Kratos’ Unmanned Systems Segment (KUS) generated Revenues of $56.4 million, as compared to $60.3 million in the second quarter of 2021. KUS Operating Loss was $5.0 million in the second quarter of 2022, which included the $5.5 million litigation settlement related charge discussed above. Excluding the impact of the litigation settlement related charge, Operating Income was $0.5 million, compared to $4.1 million in the second quarter of 2021, reflecting a less favorable mix of revenues, including an increase in development programs which typically generate lower margins, an increase in SG&A costs of approximately $0.9 million resulting primarily from increased headcount, an increase of R&D expenses of approximately $1.3 million and increases in supply chain and employee related costs.

Excluding the litigation settlement charge, KUS Adjusted EBITDA for the second quarter of 2022 was $2.9 million, compared to second quarter 2021 Adjusted EBITDA of $6.9 million, reflecting increases in certain development programs which typically generate lower margins and increases in SG&A, R&D, supply chain related and employee costs.
        
KUS’s book-to-bill ratio for the second quarter of 2022 was 0.5 to 1.0 and 1.1 to 1.0 for the last twelve months ended June 26, 2022, with bookings of $242.6 million for the twelve months ended June 26, 2022.   Total backlog for KUS at the end of the second quarter of 2022 was $203.3 million compared to $230.5 million at the end of the first quarter of 2022.

For the second quarter of 2022, Kratos’ Government Solutions Segment (KGS) reported Revenues of $167.8 million, compared to Revenues of $144.8 million in the second quarter of 2021. The increased revenues include the aggregate contribution of approximately $21.5 million from the recently acquired Cosmic AES, CTT and SRE, offset by a reduction of $8.6 million in our Training Solutions business, including the loss of an international training contract, continued and increased supply chain, COVID and employee sourcing and retention disruptions, which resulted in second quarter 2022 KGS revenues of approximately $13.9 million being deferred into future periods.    On a proforma basis, excluding the Training Solutions business, KGS revenues grew organically 7.7 percent or $10.2 million, from $132.3 million in the second quarter of 2021 to $142.5 million in the second quarter of 2022.

KGS reported operating income of $9.5 million in the second quarter of 2022, compared to $5.9 million in the second quarter of 2021, primarily reflecting a more favorable revenue mix, offset partially by increased costs related to the supply chain and employee base.  

Kratos’ Space, Satellite and Cyber business generated Revenues of $88.5 million in the second quarter of 2022, compared to $67.5 million in the second quarter of 2021. Excluding revenues generated of $15.0 million from the recent Cosmic AES acquisition, revenues for our Space, Satellite and Cyber business grew organically 8.9 percent in the second quarter of 2022.

Second quarter 2022 KGS Adjusted EBITDA was $14.8 million, compared to second quarter 2021 KGS Adjusted EBITDA of $10.7 million, reflecting a more favorable mix of revenues, including in our Space, Satellite and Cyber and Turbine Technologies businesses.

For the second quarter of 2022, KGS reported a book-to-bill ratio of 1.4 to 1.0, with a book to bill ratio of 1.2 to 1.0 for the twelve months ended June 26, 2022, and bookings of $713.9 million for the twelve months ended June 26, 2022.   Included in KGS is Kratos’ Space, Satellite and Cyber business, which reported a book to bill ratio of 1.7 to 1.0 for the second quarter of 2022, and a book to bill ratio of 1.2 to 1.0 for the twelve months ended June 26, 2022. Bookings for the Space, Satellite and Cyber business for the last twelve months ended June 26, 2022, were $371.1 million. KGS’s total backlog at the end of the second quarter of 2022 was $846.9 million, as compared to $751.6 million at the end of the first quarter of 2022.

For the second quarter of 2022, Kratos reported consolidated bookings of $261.0 million and a book-to-bill ratio of 1.2 to 1.0, with consolidated bookings of $956.5 million and a book-to-bill ratio of 1.1 to 1.0 for the last twelve months ended June 26, 2022. Backlog on June 26, 2022 was $1.05 billion, as compared to $982.1 million at March 27, 2022, and Kratos’ bid and proposal pipeline was $9.9 billion at June 26, 2022, as compared to $9.4 billion at March 27, 2022.   Backlog at June 26, 2022 was comprised of funded backlog of $713.6 million and unfunded backlog of $336.6 million.

Eric DeMarco, Kratos’ President and CEO, said, “Kratos’ second quarter execution was solid in a challenging environment, including revenues of $224 million, Adjusted EBITDA of $17.7 million, a 1.2 to 1.0 book to bill ratio and a current opportunity pipeline of over $9 billion. We have now received each of the three important, large new satellite related program awards we discussed in our Q1 2022 report, including contracts with Blue Halo and Intelsat, which we believe position Kratos for future organic growth and increased margins beginning in the second half of this year. We believe these awards are representative of the increasing customer acceptance of Kratos’ first to market, internally funded and developed, software-based OpenSpace virtualized family of products and we are now in pursuit of several additional, large, new satellite program opportunities.”

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