Kratos Reports Second Quarter Financial Results
Second Quarter Revenues of
Second Quarter Unmanned Systems Segment Revenues of
Second Quarter KGS Segment Revenues of
Second Quarter 2021 Book to
Last Twelve Months Ended
Second quarter 2021 Revenues of
Revenue grew organically 12.3 percent in the second quarter of 2021 as compared to the second quarter of 2020, excluding the impact of the
Operating Income of
Second quarter 2021 Cash Flow Used from Operations was
For the second quarter of 2021, Kratos’ Unmanned Systems Segment (KUS) Revenues of
Second quarter 2021 KUS Adjusted EBITDA of
KUS’s book-to-bill ratio for the second quarter of 2021 was 0.4 to 1.0 and 1.0 to 1.0 for the last twelve months ended
For the second quarter of 2021, Kratos’ Government Solutions Segment (KGS) reported Revenues of
Kratos’ Space, Satellite and Cyber business generated Revenues of
For the second quarter of 2021, KGS reported a book-to-bill ratio of 1.1 to 1.0, including a book-to-bill ratio of 1.3 to 1.0 in Kratos’ Space, Satellite, Cyber and Training Solutions businesses. For the twelve months ended
For the second quarter of 2021, Kratos reported consolidated bookings of
Financial Guidance
We are providing our third quarter 2021 guidance and reaffirming our previously provided full year 2021 Revenue, Adjusted EBITDA and Cash Flow guidance as follows:
| $M | Q321 | FY21 |
| Revenues | ||
| R&D | ||
| Operating Income | ||
| Depreciation | ||
| Amortization | ||
| Stock Based Compensation | ||
| Adjusted EBITDA | ||
| Operating Cash Flow | ||
| Capital Expenditures | ||
| Free Cash Flow Use | ( |
|
The third 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 third quarter and full year 2021 estimated Revenues also include the impact of the recent loss of a large international training contract, which contributed approximately
The full year 2021 estimated Operating Cash Flow includes approximately
Management will discuss the Company’s second quarter 2021 financial results, as well as its third quarter and full year 2021 guidance on a conference call beginning at
About
Notice 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 third quarter and full year 2021 revenue, R&D, operating income, depreciation, amortization, stock based compensation expense, and Adjusted EBITDA, and full year 2021 operating cash flow, capital expenditures and other investments, and free cash flow, the Company’s future growth trajectory and ability to achieve improved revenue mix and profit in certain of its business segments and the expected timing of such profit, the Company’s expectation of ramp on projects and that investments in its business will result in an increase in the Company’s market share and total addressable market and position the Company for significant future organic growth, profitability, cash flow and shareholder value, the Company’s bid and proposal pipeline, demand for its products and services, including the Company’s alignment with today’s National Security requirements, ability to successfully compete in the tactical unmanned aerial system area and expected new customer awards, including the magnitude and timing of funding and expected contract awards related to the Company’s Valkyrie program and other new tactical unmanned programs, 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, the short-term delays that may occur as a result of Continuing Resolutions or delays in
Note Regarding Use of Non-GAAP Financial Measures and Other Performance Metrics
This news release contains non-GAAP financial measures, including Adjusted earnings per share (computed using income from continuing operations before income taxes, excluding income (loss) from discontinued operations, excluding income (loss) attributable to non-controlling interest, excluding depreciation, amortization of intangible assets, amortization of capitalized contract and development costs, stock-based compensation expense, acquisition and restructuring related items and other, which includes but is not limited to legal related items and foreign transaction gains and losses, less the estimated impact to income taxes) and including Adjusted EBITDA (which includes net income (loss) attributable to noncontrolling interest and excludes, among other things, losses and gains from discontinued operations, acquisition and restructuring related items, stock compensation expense, foreign transaction gains and losses, and the associated margin rates). Additional non-GAAP financial measures include Free Cash Flow from Operations computed as Cash Flow from Operations less Capital Expenditures and Adjusted EBITDA related to our KUS and KGS businesses. Kratos believes this information is useful to investors because it provides a basis for measuring the Company’s available capital resources, the actual and forecasted operating performance of the Company’s business and the Company’s cash flow, excluding non-recurring items and non-cash items that would normally be included in the most directly comparable measures calculated and presented in accordance with GAAP. The Company’s management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the Company’s actual and forecasted operating performance, capital resources and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and investors should carefully evaluate the Company’s financial results calculated in accordance with GAAP and reconciliations to those financial statements. In addition, non-GAAP financial measures as reported by the Company may not be comparable to similarly titled amounts reported by other companies. As appropriate, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Company’s financial results prepared in accordance with GAAP are included in this news release.
Another Performance Metric the Company believes is a key performance indicator in our industry is our Book to
Press Contact:
858-812-7302 Direct
Investor Information:
877-934-4687
investor@kratosdefense.com
| Unaudited Condensed Consolidated Statements of Operations | ||||||||||||||||||
| (in millions, except per share data) | ||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||
| Service revenues | $ | 58.0 | $ | 62.9 | $ | 115.3 | $ | 126.5 | ||||||||||
| Product sales | 147.1 | 107.5 | 284.0 | 212.8 | ||||||||||||||
| Total revenues | 205.1 | 170.4 | 399.3 | 339.3 | ||||||||||||||
| Cost of service revenues | 41.3 | 46.2 | 83.8 | 91.4 | ||||||||||||||
| Cost of product sales | 111.8 | 78.2 | 212.5 | 156.1 | ||||||||||||||
| Total costs | 153.1 | 124.4 | 296.3 | 247.5 | ||||||||||||||
| Gross profit - service revenues | 16.7 | 16.7 | 31.5 | 35.1 | ||||||||||||||
| Gross profit - product sales | 35.3 | 29.3 | 71.5 | 56.7 | ||||||||||||||
| Total gross profit | 52.0 | 46.0 | 103.0 | 91.8 | ||||||||||||||
| Selling, general and administrative expenses | 35.6 | 32.7 | 70.9 | 64.2 | ||||||||||||||
| Acquisition and restructuring related items | 0.3 | 1.1 | 0.5 | 1.6 | ||||||||||||||
| Research and development expenses | 10.2 | 6.0 | 18.2 | 11.7 | ||||||||||||||
| Depreciation | 1.4 | 1.5 | 2.6 | 3.0 | ||||||||||||||
| Amortization of intangible assets | 1.2 | 1.8 | 2.6 | 3.7 | ||||||||||||||
| Operating income | 3.3 | 2.9 | 8.2 | 7.6 | ||||||||||||||
| Interest expense, net | (5.7 | ) | (5.6 | ) | (11.6 | ) | (11.0 | ) | ||||||||||
| Other income (expense), net | - | 0.3 | 0.2 | (0.2 | ) | |||||||||||||
| Loss from continuing operations before income taxes | (2.4 | ) | (2.4 | ) | (3.2 | ) | (3.6 | ) | ||||||||||
| Benefit for income taxes from continuing operations | (3.6 | ) | (1.8 | ) | (6.3 | ) | (3.2 | ) | ||||||||||
| Income (loss) from continuing operations | 1.2 | (0.6 | ) | 3.1 | (0.4 | ) | ||||||||||||
| Loss from discontinued operations, net of income taxes | (0.3 | ) | (0.2 | ) | (0.3 | ) | (0.6 | ) | ||||||||||
| Net income (loss) | 0.9 | (0.8 | ) | 2.8 | (1.0 | ) | ||||||||||||
| Less: Net loss attributable to noncontrolling interest | (0.2 | ) | (0.1 | ) | (0.2 | ) | (0.1 | ) | ||||||||||
| Net income (loss) attributable to Kratos | $ | 1.1 | $ | (0.7 | ) | $ | 3.0 | $ | (0.9 | ) | ||||||||
| Basic income (loss) per common share attributable to Kratos: | ||||||||||||||||||
| Income (loss) from continuing operations | $ | 0.01 | $ | (0.01 | ) | $ | 0.02 | $ | - | |||||||||
| Loss from discontinued operations | - | - | - | (0.01 | ) | |||||||||||||
| Net income (loss) | 0.01 | $ | (0.01 | ) | $ | 0.02 | $ | (0.01 | ) | |||||||||
| Diluted income (loss) per common share attributable to Kratos: | ||||||||||||||||||
| Income (loss) from continuing operations | $ | 0.01 | $ | (0.01 | ) | $ | 0.02 | $ | - | |||||||||
| Loss from discontinued operations | - | - | - | (0.01 | ) | |||||||||||||
| Net income (loss) | $ | 0.01 | $ | (0.01 | ) | $ | 0.02 | $ | (0.01 | ) | ||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||
| Basic weighted average common shares outstanding | 124.7 | 108.3 | 124.4 | 107.8 | ||||||||||||||
| Diluted weighted average common shares outstanding | 127.7 | 108.3 | 127.8 | 107.8 | ||||||||||||||
| Adjusted EBITDA (1) | $ | 17.6 | $ | 15.3 | $ | 35.7 | $ | 31.6 | ||||||||||
| Unaudited Reconciliation of GAAP to Non-GAAP Measures | ||||||||||||||||||
| Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net income (loss) attributable to Kratos adjusted for net income (loss) | ||||||||||||||||||
| attributable to noncontrolling interest, income (loss) from discontinued operations, net interest expense, provision for income taxes, depreciation and | ||||||||||||||||||
| amortization expense of intangible assets, amortization of capitalized contract and development costs, stock-based compensation, | ||||||||||||||||||
| acquisition and restructuring related items and other, and foreign transaction gain (loss). | ||||||||||||||||||
| Adjusted EBITDA as calculated by us may be calculated differently than Adjusted EBITDA for other companies. We have provided | ||||||||||||||||||
| Adjusted EBITDA because we believe it is a commonly used measure of financial performance in comparable companies and is provided to | ||||||||||||||||||
| help investors evaluate companies on a consistent basis, as well as to enhance understanding of our operating results. Adjusted EBITDA | ||||||||||||||||||
| should not be construed as either an alternative to net income or as an indicator of our operating performance or an alternative to cash flows | ||||||||||||||||||
| as a measure of liquidity. The adjustments to calculate this non-GAAP financial measure and the basis for such adjustments are outlined below. | ||||||||||||||||||
| Please refer to the following table below that reconciles GAAP net income (loss) to Adjusted EBITDA. | ||||||||||||||||||
| The adjustments to calculate this non-GAAP financial measure, and the basis for such adjustments, are outlined below: | ||||||||||||||||||
| Interest income and interest expense, net. The Company receives interest income on investments and incurs interest expense on loans, capital leases and | ||||||||||||||||||
| other financing arrangements, including the amortization of issue discounts and deferred financing costs. These amounts may vary from period to period | ||||||||||||||||||
| due to changes in cash and debt balances. | ||||||||||||||||||
| Income taxes. The Company's tax expense can fluctuate materially from period to period due to tax adjustments that may not be directly related to | ||||||||||||||||||
| underlying operating performance or to the current period of operations and may not necessarily reflect the impact of utilization of our NOLs. | ||||||||||||||||||
| Depreciation. The Company incurs depreciation expense (recorded in cost of revenues and in operating expenses) related to capital assets purchased, | ||||||||||||||||||
| leased or constructed to support the ongoing operations of the business. The assets are recorded at cost or fair value and are depreciated over the estimated | ||||||||||||||||||
| useful lives of individual assets. | ||||||||||||||||||
| Amortization of intangible assets. The Company incurs amortization of intangible expense related to acquisitions it has made. These intangible assets are | ||||||||||||||||||
| valued at the time of acquisition and are amortized over the estimated useful lives. | ||||||||||||||||||
| Amortization of capitalized contract and development costs. The Company incurs amortization of previously capitalized software development and non- | ||||||||||||||||||
| recurring engineering costs related to certain targets in its Unmanned Systems and ballistic missile target businesses as these units are sold. | ||||||||||||||||||
| Stock-based compensation expense. The Company incurs expense related to stock-based compensation included in its GAAP presentation of selling, | ||||||||||||||||||
| general and administrative expense. Although stock-based compensation is an expense of the Company and viewed as a form of compensation, these | ||||||||||||||||||
| expenses vary in amount from period to period, and are affected by market forces that are difficult to predict and are not within the control of management, | ||||||||||||||||||
| such as the market price and volatility of the Company's shares, risk-free interest rates and the expected term and forfeiture rates of the awards. | ||||||||||||||||||
| Management believes that exclusion of these expenses allows comparison of operating results to those of other companies that disclose non-GAAP | ||||||||||||||||||
| financial measures that exclude stock-based compensation. | ||||||||||||||||||
| Foreign transaction (gain) loss. The Company incurs transaction gains and losses related to transactions with foreign customers in currencies other than | ||||||||||||||||||
| the |
||||||||||||||||||
| Acquisition and transaction related items. The Company incurs transaction related costs, such as legal and accounting fees and other expenses, related to | ||||||||||||||||||
| acquisitions and divestiture activities. Management believes these items are outside the normal operations of the Company's business and are not | ||||||||||||||||||
| indicative of ongoing operating results. | ||||||||||||||||||
| Restructuring costs. The Company incurs restructuring costs for cost reduction actions which include employee termination costs, | ||||||||||||||||||
| facility shut-down related costs and remaining lease commitment costs for excess or exited facilities. Management believes that these costs are not | ||||||||||||||||||
| indicative of ongoing operating results as they are either non-recurring and/or not expected when full capacity and volumes are achieved. | ||||||||||||||||||
| Legal related items. The Company incurs costs related to pending legal settlements and other legal related matters. Management believes | ||||||||||||||||||
| these items are outside the normal operations of the Company's business and are not indicative of ongoing operating results. | ||||||||||||||||||
| Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in | ||||||||||||||||||
| accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other | ||||||||||||||||||
| companies. The Company expects to continue to incur expenses similar to the Adjusted EBITDA financial adjustments described above, and investors | ||||||||||||||||||
| should not infer from the Company's presentation of this non-GAAP financial measure that these costs are unusual, infrequent, or non-recurring. | ||||||||||||||||||
| Reconciliation of Net income attributable to Kratos to Adjusted EBITDA is as follows: | ||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||
| Net income (loss) attributable to Kratos | $ | 1.1 | $ | (0.7 | ) | $ | 3.0 | $ | (0.9 | ) | ||||||||
| Loss from discontinued operations, net of income taxes | 0.3 | 0.2 | 0.3 | 0.6 | ||||||||||||||
| Interest expense, net | 5.7 | 5.6 | 11.6 | 11.0 | ||||||||||||||
| Benefit for income taxes from continuing operations | (3.6 | ) | (1.8 | ) | (6.3 | ) | (3.2 | ) | ||||||||||
| Depreciation (including cost of service revenues and product sales) | 5.8 | 4.2 | 10.7 | 8.6 | ||||||||||||||
| Stock-based compensation | 6.6 | 4.8 | 12.8 | 9.5 | ||||||||||||||
| Foreign transaction (gain) loss | 0.1 | (0.1 | ) | 0.2 | 0.3 | |||||||||||||
| Amortization of intangible assets | 1.2 | 1.8 | 2.6 | 3.7 | ||||||||||||||
| Amortization of capitalized contract and development costs | 0.3 | 0.3 | 0.5 | 0.5 | ||||||||||||||
| Acquisition and restructuring related items and other | 0.3 | 1.1 | 0.5 | 1.6 | ||||||||||||||
| Plus: Net loss attributable to noncontrolling interest | (0.2 | ) | (0.1 | ) | (0.2 | ) | (0.1 | ) | ||||||||||
| Adjusted EBITDA | $ | 17.6 | $ | 15.3 | $ | 35.7 | $ | 31.6 | ||||||||||
| Reconciliation of acquisition and restructuring related items and other included in Adjusted EBITDA: | ||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||
| Acquisition and transaction related items | $ | 0.1 | $ | 1.0 | $ | 0.3 | $ | 1.4 | ||||||||||
| Restructuring costs | 0.2 | 0.1 | 0.2 | 0.2 | ||||||||||||||
| $ | 0.3 | $ | 1.1 | $ | 0.5 | $ | 1.6 | |||||||||||
| Unaudited Segment Data | ||||||||||||||||||
| (in millions) | ||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||
| Revenues: | ||||||||||||||||||
| Unmanned Systems | $ | 60.3 | $ | 42.0 | $ | 116.2 | $ | 84.0 | ||||||||||
| Kratos Government Solutions | 144.8 | 128.4 | 283.1 | 255.3 | ||||||||||||||
| Total revenues | $ | 205.1 | $ | 170.4 | $ | 399.3 | $ | 339.3 | ||||||||||
| Operating income | ||||||||||||||||||
| Unmanned Systems | $ | 4.1 | $ | 1.0 | $ | 8.3 | $ | 1.5 | ||||||||||
| Kratos Government Solutions | 5.9 | 7.7 | 13.0 | 17.0 | ||||||||||||||
| Unallocated corporate expense, net | (6.7 | ) | (5.8 | ) | (13.1 | ) | (10.9 | ) | ||||||||||
| Total operating income | $ | 3.3 | $ | 2.9 | $ | 8.2 | $ | 7.6 | ||||||||||
| Note: Unallocated corporate expense, net includes costs for certain stock-based compensation programs (including stock-based compensation costs for stock options, employee stock purchase plan and restricted stock units), the effects of items not considered part of management’s evaluation of segment operating performance, and acquisition and restructuring related items, corporate costs not allocated to the segments, legal related items, and other miscellaneous corporate activities. | ||||||||||||||||||
| Reconciliation of Segment Operating Income to Adjusted EBITDA is as follows: | ||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||
| Unmanned Systems | ||||||||||||||||||
| Operating income | $ | 4.1 | $ | 1.0 | $ | 8.3 | $ | 1.5 | ||||||||||
| Other income | - | 0.1 | 0.1 | 0.1 | ||||||||||||||
| Depreciation | 2.2 | 1.4 | 3.8 | 3.0 | ||||||||||||||
| Amortization of intangible assets | 0.3 | 0.2 | 0.6 | 0.2 | ||||||||||||||
| Amortization of capitalized contract and development costs | 0.3 | 0.3 | 0.5 | 0.5 | ||||||||||||||
| Acquisition and restructuring related items and other | - | - | - | - | ||||||||||||||
| Adjusted EBITDA | $ | 6.9 | $ | 3.0 | $ | 13.3 | $ | 5.3 | ||||||||||
| % of revenue | 11.4 | % | 7.1 | % | 11.4 | % | 6.3 | % | ||||||||||
| Kratos Government Solutions | ||||||||||||||||||
| Operating income | $ | 5.9 | $ | 7.7 | $ | 13.0 | $ | 17.0 | ||||||||||
| Other income | 0.1 | 0.1 | 0.3 | - | ||||||||||||||
| Depreciation | 3.6 | 2.8 | 6.9 | 5.6 | ||||||||||||||
| Amortization of intangible assets | 0.9 | 1.6 | 2.0 | 3.5 | ||||||||||||||
| Amortization of capitalized contract and development costs | - | - | - | - | ||||||||||||||
| Acquisition and restructuring related items and other | 0.2 | 0.1 | 0.2 | 0.2 | ||||||||||||||
| Adjusted EBITDA | $ | 10.7 | $ | 12.3 | $ | 22.4 | $ | 26.3 | ||||||||||
| % of revenue | 7.4 | % | 9.6 | % | 7.9 | % | 10.3 | % | ||||||||||
| Total Adjusted EBITDA | $ | 17.6 | $ | 15.3 | $ | 35.7 | $ | 31.6 | ||||||||||
| % of revenue | 8.6 | % | 9.0 | % | 8.9 | % | 9.3 | % | ||||||||||
| Unaudited Condensed Consolidated Balance Sheets | ||||||||||||||||||
| (in millions) | ||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||
| Assets | ||||||||||||||||||
| Current assets: | ||||||||||||||||||
| Cash and cash equivalents | $ | 369.3 | $ | 380.8 | ||||||||||||||
| Restricted cash | - | 0.7 | ||||||||||||||||
| Accounts receivable, net | 265.0 | 272.3 | ||||||||||||||||
| Inventoried costs | 90.7 | 81.2 | ||||||||||||||||
| Prepaid expenses | 13.4 | 12.0 | ||||||||||||||||
| Other current assets | 30.3 | 17.8 | ||||||||||||||||
| Total current assets | 768.7 | 764.8 | ||||||||||||||||
| Property, plant and equipment, net | 145.5 | 143.8 | ||||||||||||||||
| Operating lease right-of-use assets | 40.1 | 42.9 | ||||||||||||||||
| 483.7 | 483.9 | |||||||||||||||||
| Intangible assets, net | 40.4 | 43.0 | ||||||||||||||||
| Other assets | 83.9 | 84.4 | ||||||||||||||||
| Total assets | $ | 1,562.3 | $ | 1,562.8 | ||||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||
| Current liabilities: | ||||||||||||||||||
| Accounts payable | $ | 59.9 | $ | 55.4 | ||||||||||||||
| Accrued expenses | 27.2 | 34.7 | ||||||||||||||||
| Accrued compensation | 46.2 | 48.1 | ||||||||||||||||
| Accrued interest | 1.5 | 1.5 | ||||||||||||||||
| Billings in excess of costs and earnings on uncompleted contracts | 43.5 | 34.0 | ||||||||||||||||
| Current portion of operating lease liabilities | 9.3 | 8.9 | ||||||||||||||||
| Other current liabilities | 11.8 | 11.9 | ||||||||||||||||
| Other current liabilities of discontinued operations | 2.7 | 3.1 | ||||||||||||||||
| Total current liabilities | 202.1 | 197.6 | ||||||||||||||||
| Long-term debt | 300.3 | 301.0 | ||||||||||||||||
| Operating lease liabilities, net of current portion | 35.3 | 38.6 | ||||||||||||||||
| Other long-term liabilities | 71.6 | 83.0 | ||||||||||||||||
| Other long-term liabilities of discontinued operations | 2.5 | 2.5 | ||||||||||||||||
| Total liabilities | 611.8 | 622.7 | ||||||||||||||||
| Commitments and contingencies | ||||||||||||||||||
| Redeemable noncontrolling interest | 14.6 | 14.8 | ||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||||
| Additional paid-in capital | 1,563.1 | 1,556.3 | ||||||||||||||||
| Accumulated other comprehensive loss | 2.2 | 1.4 | ||||||||||||||||
| Accumulated deficit | (629.4 | ) | (632.4 | ) | ||||||||||||||
| Total Kratos stockholders’ equity | 935.9 | 925.3 | ||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,562.3 | $ | 1,562.8 | ||||||||||||||
| Unaudited Condensed Consolidated Statements of Cash Flows | ||||||||||||||||||
| (in millions) | ||||||||||||||||||
| Six Months Ended | ||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||
| Operating activities: | ||||||||||||||||||
| Net income (loss) | $ | 2.8 | $ | (1.0 | ) | |||||||||||||
| Less: loss from discontinued operations | (0.3 | ) | (0.6 | ) | ||||||||||||||
| Income (loss) from continuing operations | 3.1 | (0.4 | ) | |||||||||||||||
| Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities from continuing operations: | ||||||||||||||||||
| Depreciation and amortization | 13.3 | 12.3 | ||||||||||||||||
| Amortization of lease right-of-use assets | 4.5 | 5.3 | ||||||||||||||||
| Deferred income taxes | (0.9 | ) | (1.1 | ) | ||||||||||||||
| Stock-based compensation | 12.8 | 9.5 | ||||||||||||||||
| Amortization of deferred financing costs | 0.5 | 0.5 | ||||||||||||||||
| Provision for (recovery of) doubtful accounts | (0.2 | ) | 0.2 | |||||||||||||||
| Changes in assets and liabilities, net of acquisitions: | ||||||||||||||||||
| Accounts receivable | 15.5 | 24.7 | ||||||||||||||||
| Unbilled receivables | (7.9 | ) | (6.8 | ) | ||||||||||||||
| Inventoried costs | (6.8 | ) | (4.5 | ) | ||||||||||||||
| Prepaid expenses and other assets | (2.2 | ) | (10.8 | ) | ||||||||||||||
| Operating lease liabilities | (4.5 | ) | (6.0 | ) | ||||||||||||||
| Accounts payable | 5.8 | (9.1 | ) | |||||||||||||||
| Accrued compensation | (1.8 | ) | 1.4 | |||||||||||||||
| Accrued expenses | (7.5 | ) | (4.2 | ) | ||||||||||||||
| Accrued interest | - | - | ||||||||||||||||
| Billings in excess of costs and earnings on uncompleted contracts | 9.6 | (0.5 | ) | |||||||||||||||
| Income tax receivable and payable | (6.1 | ) | (3.0 | ) | ||||||||||||||
| Other liabilities | (5.2 | ) | 3.3 | |||||||||||||||
| Net cash provided by operating activities from continuing operations | 22.0 | 10.8 | ||||||||||||||||
| Investing activities: | ||||||||||||||||||
| Cash paid for acquisitions, net of cash acquired | (6.2 | ) | (15.5 | ) | ||||||||||||||
| Capital expenditures | (20.5 | ) | (14.1 | ) | ||||||||||||||
| Proceeds from sale of assets | - | 0.1 | ||||||||||||||||
| Net cash used in investing activities from continuing operations | (26.7 | ) | (29.5 | ) | ||||||||||||||
| Financing activities: | ||||||||||||||||||
| Payment of long-term debt | - | (0.1 | ) | |||||||||||||||
| Proceeds from the issuance of common stock, net of issuance costs | - | 240.5 | ||||||||||||||||
| Payment under finance leases | (0.4 | ) | (0.3 | ) | ||||||||||||||
| Payments of employee taxes withheld from share-based awards | (8.5 | ) | - | |||||||||||||||
| Proceeds from shares issued under equity plans | 2.5 | 1.4 | ||||||||||||||||
| Net cash provided by (used in) financing activities from continuing operations | (6.4 | ) | 241.5 | |||||||||||||||
| Net cash flows from continuing operations | (11.1 | ) | 222.8 | |||||||||||||||
| Net operating cash flows of discontinued operations | (0.8 | ) | 1.7 | |||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (0.3 | ) | 0.1 | |||||||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | (12.2 | ) | 224.6 | |||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 381.5 | 172.6 | ||||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 369.3 | $ | 397.2 | ||||||||||||||
| Unaudited Non-GAAP Measures | ||||||||||||||||||
| Computation of Adjusted Earnings Per Share | ||||||||||||||||||
| (in millions, except per share data) | ||||||||||||||||||
| Adjusted income from continuing operations and adjusted income from continuing operations per diluted common share (Adjusted EPS) are non-GAAP | ||||||||||||||||||
| measures for reporting financial performance and exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. Management | ||||||||||||||||||
| believes that exclusion of these items assists in providing a more complete understanding of the Company's underlying continuing operations results and trends and allows | ||||||||||||||||||
| for comparability with our peer company index and industry. The Company uses these measures along with the corresponding GAAP financial measures | ||||||||||||||||||
| to manage the Company's business and to evaluate its performance compared to prior periods and the marketplace. The Company defines adjusted | ||||||||||||||||||
| income from continuing operations before amortization of intangible assets, depreciation, stock-based compensation, foreign transaction gain/loss, and | ||||||||||||||||||
| acquisition and restructuring related items and other. The estimated impact to income taxes includes the impact to the effective tax rate, current tax provision and | ||||||||||||||||||
| deferred tax provision, and excludes the impact of discrete items, including transaction related expenses and release of valuation allowance, or benefit related to the add-backs.* | ||||||||||||||||||
| Adjusted EPS reflects adjusted income on a per share basis using weighted average diluted shares outstanding. | ||||||||||||||||||
| The following table reconciles the most directly comparable GAAP financial measures to the non-GAAP financial measures. | ||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||
| Net income (loss) attributable to Kratos | $ | 1.1 | $ | (0.7 | ) | $ | 3.0 | $ | (0.9 | ) | ||||||||
| Less: GAAP benefit for income taxes | (3.6 | ) | (1.8 | ) | (6.3 | ) | (3.2 | ) | ||||||||||
| Less: Net loss attributable to noncontrolling interest | (0.2 | ) | (0.1 | ) | (0.2 | ) | (0.1 | ) | ||||||||||
| Less: Loss from discontinued operations, net of income taxes | 0.3 | 0.2 | 0.3 | 0.6 | ||||||||||||||
| Loss from continuing operations before taxes | (2.4 | ) | (2.4 | ) | (3.2 | ) | (3.6 | ) | ||||||||||
| Add: Amortization of intangible assets | 1.2 | 1.8 | 2.6 | 3.7 | ||||||||||||||
| Add: Amortization of capitalized contract and development costs | 0.3 | 0.3 | 0.5 | 0.5 | ||||||||||||||
| Add: Depreciation | 5.8 | 4.2 | 10.7 | 8.6 | ||||||||||||||
| Add: Stock-based compensation | 6.6 | 4.8 | 12.8 | 9.5 | ||||||||||||||
| Add: Foreign transaction (gain) loss | 0.1 | (0.1 | ) | 0.2 | 0.3 | |||||||||||||
| Add: Acquisition and restructuring related items and other | 0.3 | 1.1 | 0.5 | 1.6 | ||||||||||||||
| Non-GAAP Adjusted income from continuing operations before income taxes | 11.9 | 9.7 | 24.1 | 20.6 | ||||||||||||||
| Income taxes on Non-GAAP measure Adjusted income from continuing operations* | 4.3 | 4.0 | 8.8 | 8.3 | ||||||||||||||
| Non-GAAP Adjusted net income | $ | 7.6 | $ | 5.7 | $ | 15.3 | $ | 12.3 | ||||||||||
| Diluted earnings per common share | $ | 0.01 | $ | (0.01 | ) | $ | 0.02 | $ | (0.01 | ) | ||||||||
| Less: GAAP benefit for income taxes | (0.03 | ) | (0.02 | ) | (0.05 | ) | (0.03 | ) | ||||||||||
| Less: Net loss attributable to noncontrolling interest | - | - | - | - | ||||||||||||||
| Less: Loss from discontinued operations, net of income taxes | - | - | - | 0.01 | ||||||||||||||
| Add: Amortization of intangible assets | 0.01 | 0.02 | 0.02 | 0.03 | ||||||||||||||
| Add: Amortization of capitalized contract and development costs | - | 0.01 | 0.01 | 0.01 | ||||||||||||||
| Add: Depreciation | 0.05 | 0.04 | 0.08 | 0.08 | ||||||||||||||
| Add: Stock-based compensation | 0.05 | 0.04 | 0.10 | 0.09 | ||||||||||||||
| Add: Foreign transaction (gain) loss | - | - | - | - | ||||||||||||||
| Add: Acquisition and restructuring related items and other | - | 0.01 | 0.01 | 0.01 | ||||||||||||||
| Income taxes on Non-GAAP measure Adjusted income from continuing operations* | (0.03 | ) | (0.04 | ) | (0.07 | ) | (0.08 | ) | ||||||||||
| Adjusted income from continuing operations per diluted common share | $ | 0.06 | $ | 0.05 | $ | 0.12 | $ | 0.11 | ||||||||||
| Weighted average diluted common shares outstanding | 127.7 | 108.3 | 127.8 | 107.8 | ||||||||||||||
| *The impact to income taxes is calculated by recasting income before income taxes to include the add-backs involved in determining Adjusted income from continuing | ||||||||||||||||||
| operations before income taxes and recalculating the income tax provision (benefit), including current and deferred income taxes, using the Adjusted income from continuing | ||||||||||||||||||
| operations before income taxes. The recalculation also adjusts for any discrete tax expense, including transaction related expenses and the release of valuation allowance, or | ||||||||||||||||||
| benefit related to the add-backs. | ||||||||||||||||||
| -end- | ||||||||||||||||||
Source: Kratos Defense & Security Solutions, Inc.