Kratos Reports Third Quarter Fiscal 2012 Results
Third Quarter Revenues of
Provides Fourth Quarter 2012 Revenue, Adjusted EBITDA and Adjusted Free Cash Flow Guidance
Pro Forma EPS from continuing operations for the third quarter of fiscal 2012 was
Management will discuss the financial results in a conference call beginning at
About Kratos Defense & Security Solutions
The
Notice Regarding Forward-Looking Statements
This news release and filing 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, bid and proposal pipeline, demand for its products and services, performance of key contracts, timing and expected impact of integration and divestiture activities, and market and industry developments. Such statements are only predictions, and the Company's actual results may differ materially. Investors are cautioned not to place undue reliance on any such forward-looking statements. All such forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise. Factors that may cause the
Company's results to differ include, but are not limited to: risks of adverse regulatory action or litigation; risks associated with debt leverage; risks that our cost cutting initiatives will not provide the anticipated benefits; risks that changes, cutbacks or delays in spending by the
Note Regarding Use of Non-GAAP Financial Measures
Adjusted Cash Flow From Operations is computed as Cash provided by operating activities from continuing operations excluding the payment of acquisition related items, and Adjusted Free Cash Flow is computed as Cash provided by operating activities from continuing operations excluding the payment of acquisition related items less payments for capital expenditures. Pro Forma EPS is computed using net income excluding amortization of purchased intangibles, acquisition expenses, and unused office space expense less the estimated tax cash payments. Certain of the information set forth herein, including Adjusted EBITDA, excluding losses from discontinued operations, transaction and other acquisition related costs, stock compensation expense and income from SWAP instruments, and the associated margin rates, and Pro Forma EPS are considered non-GAAP financial measures.
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| Unaudited Condensed Consolidated Statements of Operations | ||||
| (in millions, except per share data) | ||||
| Three Months Ended | Nine Months Ended | |||
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| 2012 | 2011 | 2012 | 2011 | |
| Service revenues | $ 125.6 | $ 93.2 | $ 339.8 | $ 248.3 |
| Product sales | 150.7 | 113.4 | 365.8 | 252.2 |
| Total revenues | 276.3 | 206.6 | 705.6 | 500.5 |
| Cost of service revenues | 98.3 | 68.6 | 264.8 | 186.9 |
| Cost of product sales | 103.9 | 79.0 | 251.6 | 181.8 |
| Total costs | 202.2 | 147.6 | 516.4 | 368.7 |
| Gross profit - services | 27.3 | 24.6 | 75.0 | 61.4 |
| Gross profit - products | 46.8 | 34.4 | 114.2 | 70.4 |
| Total gross profit | 74.1 | 59.0 | 189.2 | 131.8 |
| Selling, general and administrative expenses | 40.1 | 29.3 | 104.7 | 68.6 |
| Unused office space expense and other | 0.7 | -- | 2.1 | -- |
| Merger and acquisition expenses | 0.3 | 3.7 | 2.7 | 11.3 |
| Research and development expenses | 4.5 | 3.2 | 12.9 | 5.0 |
| Depreciation | 1.4 | 1.2 | 3.8 | 2.6 |
| Amortization of intangible assets | 13.0 | 11.9 | 32.4 | 24.5 |
| Operating income | 14.1 | 9.7 | 30.6 | 19.8 |
| Interest expense, net | (17.6) | (15.0) | (49.9) | (34.8) |
| Other income, net | 0.4 | (0.3) | 1.3 | -- |
| Loss from continuing operations before income taxes | (3.1) | (5.6) | (18.0) | (15.0) |
| Provision for income taxes | 1.3 | 1.6 | 3.8 | 1.3 |
| Loss from continuing operations | (4.4) | (7.2) | (21.8) | (16.3) |
| Income (loss) from discontinued operations, net of taxes | 0.2 | 0.3 | (2.6) | 0.7 |
| Net loss | $ (4.2) | $ (6.9) | $ (24.4) | $ (15.6) |
| Basic income (loss) per common share: | ||||
| Loss from continuing operations | $ (0.08) | $ (0.23) | $ (0.50) | $ (0.64) |
| Income (loss) from discontinued operations, net of taxes | 0.01 | 0.01 | (0.06) | 0.02 |
| Net loss | $ (0.07) | $ (0.22) | $ (0.56) | $ (0.62) |
| Diluted income (loss) per common share: | ||||
| Loss from continuing operations | $ (0.08) | $ (0.23) | $ (0.50) | $ (0.64) |
| Income (loss) from discontinued operations, net of taxes | 0.01 | 0.01 | (0.06) | 0.02 |
| Net loss | $ (0.07) | $ (0.22) | $ (0.56) | $ (0.62) |
| Weighted average common shares outstanding | ||||
| Basic | 56.6 | 30.8 | 43.8 | 25.3 |
| Diluted | 56.6 | 30.8 | 43.8 | 25.3 |
| Adjusted EBITDA (1) | $ 34.4 | $ 29.2 | $ 83.8 | $ 64.5 |
| Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net income (loss) plus (income) loss from discontinued | ||||
| operations, interest expense, net, other (income) related to SWAP instruments, income taxes, depreciation and amortization, | ||||
| stock compensation, amortization of intangible assets, unused office space expense, and other acquisition related expenses. | ||||
| Adjusted EBITDA as calculated by us may be calculated differently than 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 an 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. Please refer to the following table that reconciles GAAP net loss to Adjusted EBITDA: | ||||
| Reconciliation of Net loss to Adjusted EBITDA is as follows: | ||||
| Three Months Ended | Nine Months Ended | |||
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| 2012 | 2011 | 2012 | 2011 | |
| Net loss | $ (4.2) | $ (6.9) | $ (24.4) | $ (15.6) |
| (Income) loss from discontinued operations | (0.2) | (0.3) | 2.6 | (0.7) |
| Acquisition expenses | 0.3 | 3.7 | 2.7 | 11.3 |
| Interest expense, net | 17.6 | 15.0 | 49.9 | 34.8 |
| Other income related to SWAP instruments | -- | -- | -- | (0.3) |
| Provision for income taxes | 1.3 | 1.6 | 3.8 | 1.3 |
| Depreciation * | 3.6 | 3.3 | 10.1 | 6.9 |
| Stock compensation | 2.3 | 0.9 | 4.6 | 2.3 |
| Unused office space expense and other | 0.7 | -- | 2.1 | -- |
| Amortization of intangible assets | 13.0 | 11.9 | 32.4 | 24.5 |
| Adjusted EBITDA | $ 34.4 | $ 29.2 | $ 83.8 | $ 64.5 |
| * Includes depreciation reported in cost of service revenues and product sales. | ||||
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| Unaudited Segment Data | ||||
| (in millions) | ||||
| Three Months Ended | Nine Months Ended | |||
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| 2012 | 2011 | 2012 | 2011 | |
| Revenues: | ||||
| Government Solutions | $ 223.5 | $ 174.2 | $ 568.2 | $ 416.9 |
| Public Safety & Security | 52.8 | 32.4 | 137.4 | 83.6 |
| Total revenues | $ 276.3 | $ 206.6 | $ 705.6 | $ 500.5 |
| Operating income (loss) from continuing operations: | ||||
| Government Solutions | $ 14.0 | $ 10.5 | $ 32.4 | $ 26.8 |
| Public Safety & Security | 3.3 | 3.7 | 7.3 | 6.6 |
| Other activities | (3.2) | (4.5) | (9.1) | (13.6) |
| Total operating income from continuing operations | $ 14.1 | $ 9.7 | $ 30.6 | $ 19.8 |
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Note: Other activities in the three months ended |
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respectively, and for the nine months ended |
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| Reconciliation of consolidated Adjusted EBITDA to Adjusted EBITDA by segment is as follows: | ||||
| Three Months Ended | Nine Months Ended | |||
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| 2012 | 2011 | 2012 | 2011 | |
| KGS | $ 30.2 | $ 24.8 | $ 73.9 | $ 56.0 |
| % of revenue | 13.5% | 14.2% | 13.0% | 13.4% |
| PSS | 4.2 | 4.4 | 9.9 | 8.5 |
| % of revenue | 8.0% | 13.6% | 7.2% | 10.2% |
| Total | $ 34.4 | $ 29.2 | $ 83.8 | $ 64.5 |
| % of revenue | 12.5% | 14.1% | 11.9% | 12.9% |
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| Unaudited Condensed Consolidated Balance Sheet | ||
| (in millions) | ||
| As of | ||
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| 2012 | 2011 | |
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | $ 37.6 | $ 69.6 |
| Restricted cash | 5.6 | 1.1 |
| Accounts receivable, net | 281.4 | 245.3 |
| Inventoried costs | 99.9 | 76.6 |
| Prepaid expenses | 17.6 | 12.7 |
| Other current assets | 14.5 | 15.7 |
| Total current assets | 456.6 | 421.0 |
| Property and equipment, net | 84.6 | 72.5 |
| Goodwill | 678.5 | 571.6 |
| Intangibles, net | 132.2 | 124.6 |
| Other assets | 21.0 | 26.3 |
| Total assets | $ 1,372.9 | $ 1,216.0 |
| Liabilities and Stockholders' Equity | ||
| Current liabilities: | ||
| Accounts payable | $ 81.0 | $ 48.8 |
| Accrued expenses | 51.7 | 50.7 |
| Accrued compensation | 41.9 | 39.8 |
| Accrued interest | 21.7 | 5.1 |
| Billings in excess of costs and earnings on uncompleted contracts | 44.0 | 36.2 |
| Other current liabilities | 33.8 | 33.2 |
| Total current liabilities | 274.1 | 213.8 |
| Long-term debt principal, net of current portion | 630.0 | 630.8 |
| Long-term debt premium | 19.7 | 22.8 |
| Other long-term liabilities | 36.5 | 36.0 |
| Total liabilities | 960.3 | 903.4 |
| Commitments and contingencies | ||
| Stockholders' equity: | ||
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Preferred stock, 5,000,000 shares authorized, |
-- | -- |
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Common stock, |
-- | -- |
| Additional paid-in capital | 845.4 | 720.6 |
| Accumulated other comprehensive loss | (0.6) | (0.2) |
| Accumulated deficit | (432.2) | (407.8) |
| Total stockholders' equity | 412.6 | 312.6 |
| Total liabilities and stockholders' equity | $ 1,372.9 | $ 1,216.0 |
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| Unaudited Condensed Consolidated Statement of Cash Flows | ||
| (in millions) | ||
| Nine Months Ended | ||
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| 2012 | 2011 | |
| Operating activities: | ||
| Net loss | $ (24.4) | $ (15.6) |
| Less: Income (loss) from discontinued operations | (2.6) | 0.7 |
| Loss from continuing operations | (21.8) | (16.3) |
| Adjustments to reconcile loss from continuing operations to net cash provided by operating activities from continuing operations: | ||
| Depreciation and amortization | 42.5 | 31.4 |
| Deferred income taxes | 1.4 | 0.2 |
| Stock‑based compensation | 4.6 | 2.3 |
| Mark to market on swaps | -- | (0.3) |
| Amortization of deferred financing costs | 3.8 | 2.5 |
| Amortization of premium on Senior Secured Notes | (3.1) | -- |
| Provision for doubtful accounts | 0.4 | 0.3 |
| Changes in assets and liabilities, net of acquisitions: | ||
| Accounts receivable | (6.3) | (10.6) |
| Inventoried costs | (10.4) | 3.3 |
| Prepaid expenses and other assets | (1.9) | 10.3 |
| Accounts payable | 22.8 | (42.4) |
| Accrued compensation | (1.5) | 1.1 |
| Accrued expenses | (5.2) | 17.3 |
| Accrued interest payable | 16.6 | 20.6 |
| Billings in excess of costs and earnings on uncompleted contracts | (4.7) | (5.9) |
| Income tax receivable and payable | (0.8) | 1.0 |
| Other liabilities | (1.3) | (2.2) |
| Net cash provided by operating activities from continuing operations | 35.1 | 12.6 |
| Investing activities: | ||
| Cash paid for acquisitions, net of cash acquired | (149.4) | (373.8) |
| Decrease in restricted cash | 0.5 | 3.3 |
| Capital expenditures | (12.0) | (5.3) |
| Net cash used in investing activities from continuing operations | (160.9) | (375.8) |
| Financing activities: | ||
| Proceeds from the issuance of long-term debt | -- | 427.5 |
| Proceeds from the issuance of common stock | 97.0 | 61.1 |
| Cash paid for contingent acquisition consideration | (2.5) | -- |
| Borrowings under line of credit | 40.0 | -- |
| Repayment of debt | (40.8) | (2.5) |
| Debt issuance costs | (1.2) | (20.6) |
| Other | (0.9) | 1.5 |
| Net cash provided by financing activities from continuing operations | 91.6 | 467.0 |
| Net cash flows from continuing operations | (34.2) | 103.8 |
| Net operating cash flows from discontinued operations | 2.1 | (5.3) |
| Effect of exchange rate changes on cash and cash equivalents | 0.1 | (0.2) |
| Net increase in cash and cash equivalents | (32.0) | 98.3 |
| Cash and cash equivalents at beginning of period | 69.6 | 10.8 |
| Cash and cash equivalents at end of period | $ 37.6 | $ 109.1 |
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| Unaudited Non-GAAP Measures | ||||||||
| Adjusted Earnings Before Amortization and Acquisition Related Expenses | ||||||||
| (in millions, except per share data) | ||||||||
| Three Months Ended | Nine Months Ended | |||||||
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| 2012 | 2011 | 2012 | 2011 | |||||
| Loss from continuing operations before taxes |
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| Add: Amortization of intangible assets | 13.0 | 11.9 | 32.4 | 24.5 | ||||
| Add: Unused office space expense and other | 0.7 | -- | 2.1 | -- | ||||
| Add: Merger and acquisition expenses | 0.3 | 3.7 | 2.7 | 11.3 | ||||
| Adjusted income from continuing operations before income taxes |
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| Estimated cash tax provision | 0.9 | 0.7 | 2.7 | 2.3 | ||||
| Adjusted income from continuing operations before acquisition and amortization expenses |
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| Diluted income per common share: | ||||||||
| Adjusted income from continuing operations |
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| Weighted average common shares outstanding | ||||||||
| Diluted | 56.6 | 30.8 | 43.8 | 25.3 | ||||
| Adjusted Cash Flows From Operations | ||||||||
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| Three Months Ended | Nine Months Ended | |||||||
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| 2012 | 2011 | 2012 | 2011 | |||||
| Net cash provided by operating activities from continuing operations |
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| Add: Acquisition related items | 0.2 | 7.1 | 3.1 | 20.9 | ||||
| Adjusted cash flows from operations |
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CONTACT: Press Contact:
Yolanda White
858-812-7302 Direct
Investor Information:
877-934-4687
investor@kratosdefense.com
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