Kratos Reports Full Year and Fourth Quarter Fiscal 2012 Financial Results
Kratos Affirms Previously Issued Fiscal 2013 Guidance for Adjusted Free Cash Flow and Provides Fiscal Year 2013 Revenue and Adjusted EBITDA Guidance
Reports Non-Cash Goodwill Impairment Charge Primarily Related to Legacy Services Businesses
For the fourth quarter,
Key contracts recently awarded to
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Kratos was successful in winning the recompete on one of the Company's largest contracts, in the satellite communications C2 area, for an additional six years, assuming all contract options are exercised.
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One of
Kratos' five largest customers awardedKratos a 2013 aerial drone production award, and the customer indicated it intends to awardKratos five years of additional production on a sole source basis.
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Two of
Kratos' top ten customers awardedKratos continued full rate production for 2013 of specialized electronic products in support of certain strategic Electronic Warfare and Missile System related programs.
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Earlier in 2012, another
Kratos top ten customer exercised a$50 million option on a$100 million Ballistic Missile Defense and Hypersonic vehicle focusedKratos contract.
For the full year and fourth quarter ended
Approximately 65 percent of
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, including the potential impact of sequestration and the impact of Federal budget cuts on our business. 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
This news release contains non-GAAP financial measures, including Adjusted Cash Flow From Operations (computed as Cash provided by operating activities from continuing operations excluding the impairment of goodwill and intangible assets, payment of acquisition related items), Adjusted Free Cash Flow (computed as Cash provided by operating activities from continuing operations excluding the impairment of goodwill and intangible assets, payment of acquisition related items less payments for capital expenditures), Pro Forma EPS (computed using net income excluding the impairment of goodwill and intangible assets, amortization of purchased intangibles, acquisition related items, contract settlements of acquired contracts, and unused office space expense less the estimated tax cash payments), and Adjusted EBITDA (which excludes the impairment of goodwill and intangible
assets, losses from discontinued operations, transaction and other acquisition related items, contract settlements, stock compensation expense and income from SWAP instruments, and the associated margin rates).
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| Unaudited Condensed Consolidated Statements of Operations | ||||
| (in millions, except per share data) | ||||
| Three Months Ended | Twelve Months Ended | |||
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| 2012 | 2011 | 2012 | 2011 | |
| Service revenues | $ 110.2 | $ 102.7 | $ 450.0 | $ 351.0 |
| Product sales | 153.4 | 110.7 | 519.2 | 362.9 |
| Total revenues | 263.6 | 213.4 | 969.2 | 713.9 |
| Cost of service revenues | 86.0 | 73.8 | 350.8 | 260.7 |
| Cost of product sales | 109.6 | 80.2 | 361.2 | 262.0 |
| Total costs | 195.6 | 154.0 | 712.0 | 522.7 |
| Gross profit - services | 24.2 | 28.9 | 99.2 | 90.3 |
| Gross profit - products | 43.8 | 30.5 | 158.0 | 100.9 |
| Total gross profit | 68.0 | 59.4 | 257.2 | 191.2 |
| Selling, general and administrative expenses | 39.3 | 30.1 | 144.0 | 98.7 |
| Merger and acquisition related items | (5.4) | 1.2 | (2.7) | 12.5 |
| Research and development expenses | 4.9 | 3.6 | 17.8 | 8.6 |
| Impairment of goodwill and intangibles | 96.6 | -- | 96.6 | -- |
| Unused office space and other | -- | -- | 2.1 | -- |
| Depreciation | 1.4 | 1.3 | 5.2 | 3.9 |
| Amortization of intangible assets | 11.5 | 13.5 | 43.9 | 38.0 |
| Operating income (loss) | (80.3) | 9.7 | (49.7) | 29.5 |
| Interest expense, net | (16.2) | (16.3) | (66.1) | (51.1) |
| Other income, net | -- | -- | 1.3 | -- |
| Loss from continuing operations before income taxes | (96.5) | (6.6) | (114.5) | (21.6) |
| Provision (benefit) for income taxes | (5.4) | 0.6 | (1.6) | 1.9 |
| Loss from continuing operations | (91.1) | (7.2) | (112.9) | (23.5) |
| Income (loss) from discontinued operations, net of taxes | 1.1 | (1.4) | (1.5) | (0.7) |
| Net loss | $ (90.0) | $ (8.6) | $ (114.4) | $ (24.2) |
| Basic income (loss) per common share: | ||||
| Loss from continuing operations | $ (1.61) | $ (0.21) | $ (2.41) | $ (0.86) |
| Income (loss) from discontinued operations, net of taxes | $ 0.02 | (0.04) | (0.03) | (0.02) |
| Net loss | $ (1.59) | $ (0.25) | $ (2.44) | $ (0.88) |
| Diluted income (loss) per common share: | ||||
| Loss from continuing operations | $ (1.61) | $ (0.21) | $ (2.41) | $ (0.86) |
| Income (loss) from discontinued operations, net of taxes | $ 0.02 | (0.04) | (0.03) | (0.02) |
| Net loss | $ (1.59) | $ (0.25) | $ (2.44) | $ (0.88) |
| Weighted average common shares outstanding | ||||
| Basic | 56.6 | 33.9 | 46.9 | 27.4 |
| Diluted | 56.6 | 33.9 | 46.9 | 27.4 |
| Adjusted EBITDA (1) | $ 31.6 | $ 28.5 | $ 115.4 | $ 93.0 |
| Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net income (loss) plus (income) loss from discontinued operations, net interest expense, other (income) related to SWAP instruments, income taxes, depreciation and amortization, stock compensation, unused office space and other, other acquisition related items, and impairment of goodwill and intangibles. | ||||
| 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: | ||||
| Three Months Ended | Twelve Months Ended | |||
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| Reconciliation of Net loss to Adjusted EBITDA is as follows: | 2012 | 2011 | 2012 | 2011 |
| Net loss | $ (90.0) | $ (8.6) | $ (114.4) | $ (24.2) |
| (Income) loss from discontinued operations | (1.1) | 1.4 | 1.5 | 0.7 |
| Acquisition related items and other | (2.2) | 1.2 | 0.5 | 12.5 |
| Interest expense, net | 16.2 | 16.3 | 66.1 | 51.1 |
| Other income related to SWAP instruments | -- | -- | -- | (0.3) |
| Provision (benefit) for income taxes | (5.4) | 0.6 | (1.6) | 1.9 |
| Depreciation * | 4.0 | 3.1 | 14.1 | 10.0 |
| Stock compensation | 2.0 | 1.0 | 6.6 | 3.3 |
| Impairment of goodwill and intangibles | 96.6 | -- | 96.6 | -- |
| Unused office space expense and other | -- | -- | 2.1 | -- |
| Amortization of intangible assets | 11.5 | 13.5 | 43.9 | 38.0 |
| Adjusted EBITDA | $ 31.6 | $ 28.5 | $ 115.4 | $ 93.0 |
| * Includes depreciation reported in cost of service revenues and product sales. | ||||
| Three Months Ended | Twelve Months Ended | |||
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| Reconciliation of acquisition related items and other: | 2012 | 2011 | 2012 | 2011 |
| Acquisition related expenses | $ -- | $ 1.2 | $ 2.7 | $ 12.5 |
| Litigation accrual | (3.3) | -- | (3.3) | -- |
| Settlement of acquisition related items | (1.1) | -- | (1.1) | -- |
| Reduction of acquisition earn-out | (1.0) | -- | (1.0) | -- |
| Close-out of acquired contact | 3.2 | -- | 3.2 | -- |
| Total acquisition related items and other | $ (2.2) | $ 1.2 | $ 0.5 | $ 12.5 |
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| Unaudited Segment Data | ||||
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| Three Months Ended | Twelve Months Ended | |||
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| 2012 | 2011 | 2012 | 2011 | |
| Revenues: | ||||
| Government Solutions | $ 215.0 | $ 184.8 | $ 783.2 | $ 601.7 |
| Public Safety & Security | 48.6 | 28.6 | 186.0 | 112.2 |
| Total revenues | $ 263.6 | $ 213.4 | $ 969.2 | $ 713.9 |
| Operating income (loss) from continuing operations: | ||||
| Government Solutions | $ (73.8) | $ 8.6 | $ (41.5) | $ 35.4 |
| Public Safety & Security | (9.9) | 3.3 | (2.5) | 9.9 |
| Other activities | 3.4 | (2.2) | (5.7) | (15.8) |
| Total operating income (loss) from continuing operations | $ (80.3) | $ 9.7 | $ (49.7) | $ 29.5 |
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Note: Operating loss for the three and twelve months ended |
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| Reconciliation of consolidated Adjusted EBITDA to Adjusted EBITDA by segment is as follows: | ||||
| Three Months Ended | Twelve Months Ended | |||
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| 2012 | 2011 | 2012 | 2011 | |
| KGS | $ 27.6 | $ 24.6 | $ 101.5 | $ 80.6 |
| % of revenue | 12.8% | 13.3% | 13.0% | 13.4% |
| PSS | 4.0 | 3.9 | 13.9 | 12.4 |
| % of revenue | 8.2% | 13.6% | 7.5% | 11.1% |
| Total | $ 31.6 | $ 28.5 | $ 115.4 | $ 93.0 |
| % of revenue | 12.0% | 13.4% | 11.9% | 13.0% |
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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 | $ 49.0 | $ 69.6 | ||
| Restricted cash | 5.5 | 1.1 | ||
| Accounts receivable, net | 271.9 | 245.3 | ||
| Inventoried costs | 94.3 | 76.6 | ||
| Prepaid expenses | 17.4 | 12.7 | ||
| Other current assets | 10.7 | 6.0 | ||
| Current assets of discontinued operations | 6.6 | 9.7 | ||
| Total current assets | 455.4 | 421.0 | ||
| Property and equipment, net | 85.6 | 72.5 | ||
| Goodwill | 596.5 | 571.6 | ||
| Intangibles, net | 106.1 | 124.6 | ||
| Other assets | 40.4 | 26.3 | ||
| Total assets | $ 1,284.0 | $ 1,216.0 | ||
| Liabilities and Stockholders' Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ 83.6 | $ 48.8 | ||
| Accrued expenses | 46.4 | 50.7 | ||
| Accrued compensation | 47.8 | 39.8 | ||
| Accrued interest | 6.3 | 5.1 | ||
| Billings in excess of costs and earnings on uncompleted contracts | 43.7 | 36.2 | ||
| Deferred income tax liability | 28.9 | 8.5 | ||
| Other current liabilities | 22.3 | 24.7 | ||
| Total current liabilities | 279.0 | 213.8 | ||
| Long-term debt principal, net of current portion | 629.7 | 630.8 | ||
| Long-term debt premium | 18.7 | 22.8 | ||
| Other long-term liabilities | 32.5 | 36.0 | ||
| Total liabilities | 959.9 | 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 | 847.1 | 720.6 | ||
| Accumulated other comprehensive loss | (0.8) | (0.2) | ||
| Accumulated deficit | (522.2) | (407.8) | ||
| Total stockholders' equity | 324.1 | 312.6 | ||
| Total liabilities and stockholders' equity | $ 1,284.0 | $ 1,216.0 | ||
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| Unaudited Condensed Consolidated Statement of Cash Flows | ||||
| (in millions) | ||||
| Twelve Months Ended | ||||
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| 2012 | 2011 | |||
| Operating activities: | ||||
| Net loss | $ (114.4) | $ (24.2) | ||
| Less: Loss from discontinued operations | (1.5) | (0.7) | ||
| Loss from continuing operations | (112.9) | (23.5) | ||
| Adjustments to reconcile loss from continuing operations to net cash provided by operating activities from continuing operations: | ||||
| Depreciation and amortization | 58.0 | 48.0 | ||
| Deferred income taxes | (2.5) | (0.1) | ||
| Stock‑based compensation | 6.6 | 3.3 | ||
| Impairment of goodwill and intangibles | 96.6 | -- | ||
| Mark to market on swaps | -- | (0.3) | ||
| Change in accrual for excess facilities | 1.8 | -- | ||
| Amortization of deferred financing costs | 5.1 | 3.8 | ||
| Amortization of premium on Senior Secured Notes | (4.2) | (2.8) | ||
| Provision for doubtful accounts | 0.4 | 1.8 | ||
| Changes in assets and liabilities, net of acquisitions: | ||||
| Accounts receivable | 2.8 | (14.4) | ||
| Inventoried costs | (5.2) | 5.6 | ||
| Prepaid expenses and other assets | (1.9) | 1.4 | ||
| Accounts payable and accrued expenses | 15.3 | (6.6) | ||
| Accrued compensation | 4.3 | (3.8) | ||
| Accrued interest payable | 1.2 | (5.1) | ||
| Billings in excess of costs and earnings on uncompleted contracts | (5.0) | (1.8) | ||
| Other liabilities | (8.1) | (0.3) | ||
| Net cash provided by operating activities from continuing operations | 52.3 | 5.2 | ||
| Investing activities: | ||||
| Cash paid for acquisitions, net of cash acquired | (149.4) | (391.1) | ||
| Decrease in restricted cash | 0.6 | 3.0 | ||
| Proceeds from the disposition of discontinued operations | 0.3 | -- | ||
| Capital expenditures | (16.6) | (7.5) | ||
| Net cash used in investing activities from continuing operations | (165.1) | (395.6) | ||
| Financing activities: | ||||
| Proceeds from the issuance of long-term debt, net of issuance costs | -- | 425.7 | ||
| Proceeds from the issuance of common stock, net of issuance costs | 97.0 | 61.1 | ||
| Purchase of treasury stock | -- | (10.9) | ||
| Cash paid for contingent acquisition consideration | (2.5) | -- | ||
| Borrowings under line of credit | 50.0 | -- | ||
| Repayment of debt | (51.0) | (2.7) | ||
| Debt issuance costs | (1.2) | (22.1) | ||
| Other | (1.4) | 1.3 | ||
| Net cash provided by financing activities from continuing operations | 90.9 | 452.4 | ||
| Net cash flows from continuing operations | (21.9) | 62.0 | ||
| Net operating cash flows from discontinued operations | 1.3 | (2.7) | ||
| Effect of exchange rate changes on cash and cash equivalents | -- | (0.5) | ||
| Net increase in cash and cash equivalents | (20.6) | 58.8 | ||
| Cash and cash equivalents at beginning of period | 69.6 | 10.8 | ||
| Cash and cash equivalents at end of period | $ 49.0 | $ 69.6 | ||
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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 | Twelve Months Ended | |||
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| 2012 | 2011 | 2012 | 2011 | |
| Loss from continuing operations before taxes | $ (96.5) | $ (6.6) | $ (114.5) | $ (21.6) |
| Add: Amortization of intangible assets | 11.5 | 13.5 | 43.9 | 38.0 |
| Add: Unused office space and other | -- | -- | 2.1 | -- |
| Add: Impairment of goodwill and intangible assets | 96.6 | -- | 96.6 | -- |
| Add: Close-out of acquired contract | 3.2 | -- | 3.2 | -- |
| Add: Merger and acquisition expenses | (5.4) | 1.2 | (2.7) | 12.5 |
| Adjusted income from continuing operations before income taxes | $ 9.4 | $ 8.1 | $ 28.6 | $ 28.9 |
| Estimated cash tax provision | 1.0 | 1.1 | 3.8 | 4.3 |
| Adjusted income from continuing operations before acquisition and amortization expenses | $ 8.4 | $ 7.0 | $ 24.8 | $ 24.6 |
| Pro Forma Diluted income per common share: | ||||
| Adjusted income from continuing operations | $ 0.15 | $ 0.21 | $ 0.53 | $ 0.90 |
| Weighted average common shares outstanding | ||||
| Diluted | 56.6 | 33.9 | 46.9 | 27.4 |
| Adjusted Cash Flows From Operations | ||||
| (in millions) | ||||
| Three Months Ended | Twelve Months Ended | |||
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| 2012 | 2011 | 2012 | 2011 | |
| Net cash provided by (used in) operating activities from continuing operations | $ 17.2 | $ (7.4) | $ 52.3 | $ 5.2 |
| Add: Acquisition related items | 2.3 | 6.9 | 5.4 | 27.8 |
| Adjusted cash flows from operations | $ 19.5 | $ (0.5) | $ 57.7 | $ 33.0 |
| Less: Capital expenditures | $ (4.6) | $ (2.3) | $ (16.6) | $ (7.5) |
| Adjusted free cash flow | $ 14.9 | $ (2.8) | $ 41.1 | $ 25.5 |
CONTACT: Press Contact:
Yolanda White
858-812-7302 Direct
Investor Information:
877-934-4687
investor@kratosdefense.com
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