Kratos Reports Third Quarter 2013 Financial Results
Revenue of
Pro Forma EPS of
10 Percent Revenue and Adjusted EBITDA Sequential Growth Forecast for the Fourth Quarter
Updates 2013 Financial Guidance
For the third quarter of 2013,
Management will discuss the financial results in a conference call beginning at
About
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 to our business and financial results related to the reductions and other spending constraints imposed on the
Note Regarding Use of Non-GAAP Financial Measures
This news release contains non-GAAP financial measures, including Pro Forma EPS (computed using net income (loss) from continuing operations before income taxes, excluding amortization of purchased intangibles, acquisition related items, restructuring related items and other, unused office space expense and contract design retrofit costs, less the estimated tax cash payments), Adjusted EBITDA (which excludes losses from discontinued operations, acquisition related items, restructuring related items and other, stock compensation expense, unused office space expense, contract design retrofit costs and the associated margin rates), and Free Cash Flow (which is computed using
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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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| 2013 | 2012 | 2013 | 2012 | |
| Service revenues | $ 108.8 | $ 125.6 | $ 335.0 | $ 339.8 |
| Product sales | 117.6 | 150.7 | 379.9 | 365.8 |
| Total revenues | 226.4 | 276.3 | 714.9 | 705.6 |
| Cost of service revenues | 82.4 | 98.3 | 254.3 | 264.8 |
| Cost of product sales | 91.7 | 103.9 | 282.1 | 251.6 |
| Total costs | 174.1 | 202.2 | 536.4 | 516.4 |
| Gross profit - services | 26.4 | 27.3 | 80.7 | 75.0 |
| Gross profit - products | 25.9 | 46.8 | 97.8 | 114.2 |
| Total gross profit | 52.3 | 74.1 | 178.5 | 189.2 |
| Selling, general and administrative expenses | 37.9 | 40.1 | 114.5 | 104.7 |
| Restructuring and acquisition related items and other | 0.4 | 0.3 | (0.5) | 2.7 |
| Research and development expenses | 4.8 | 4.5 | 14.5 | 12.9 |
| Unused office space expense and other | (6.8) | 0.7 | (6.8) | 2.1 |
| Depreciation | 0.9 | 1.4 | 3.1 | 3.8 |
| Amortization of intangible assets | 9.0 | 13.0 | 27.3 | 32.4 |
| Operating income | 6.1 | 14.1 | 26.4 | 30.6 |
| Interest expense, net | (16.2) | (17.6) | (48.7) | (49.9) |
| Other income (expense), net | 0.8 | 0.4 | 0.2 | 1.3 |
| Loss from continuing operations before income taxes | (9.3) | (3.1) | (22.1) | (18.0) |
| Provision for income taxes | 0.2 | 1.3 | 2.9 | 3.8 |
| Loss from continuing operations | (9.5) | (4.4) | (25.0) | (21.8) |
| Income (loss) from discontinued operations, net of taxes | (0.4) | 0.2 | (4.8) | (2.6) |
| Net loss | $ (9.9) | $ (4.2) | $ (29.8) | $ (24.4) |
| Basic loss per common share: | ||||
| Loss from continuing operations | $ (0.17) | $ (0.08) | $ (0.44) | $ (0.50) |
| Income (loss) from discontinued operations, net of taxes | $ -- | 0.01 | (0.08) | (0.06) |
| Net loss | $ (0.17) | $ (0.07) | $ (0.52) | $ (0.56) |
| Diluted loss per common share: | ||||
| Loss from continuing operations | $ (0.17) | $ (0.08) | $ (0.44) | $ (0.50) |
| Income (loss) from discontinued operations, net of taxes | $ -- | 0.01 | (0.08) | (0.06) |
| Net loss | $ (0.17) | $ (0.07) | $ (0.52) | $ (0.56) |
| Weighted average common shares outstanding | ||||
| Basic | 57.1 | 56.6 | 56.7 | 43.8 |
| Diluted | 57.1 | 56.6 | 56.7 | 43.8 |
| Adjusted EBITDA (1) | $ 24.0 | $ 34.4 | $ 75.7 | $ 83.8 |
| Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net income (loss) plus (income) loss from discontinued operations, interest expense, net, income taxes, depreciation and amortization, stock compensation, amortization of intangible assets, and restructuring and acquisition related items and other. | ||||
| 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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| 2013 | 2012 | 2013 | 2012 | |
| Net loss | $ (9.9) | $ (4.2) | $ (29.8) | $ (24.4) |
| (Income) loss from discontinued operations | 0.4 | (0.2) | 4.8 | 2.6 |
| Restructuring and acquisition related items and other | 3.5 | 0.3 | 3.8 | 2.7 |
| Interest expense, net | 16.2 | 17.6 | 48.7 | 49.9 |
| Contract design retrofit costs | 5.4 | -- | 5.4 | -- |
| Provision for income taxes | 0.2 | 1.3 | 2.9 | 3.8 |
| Depreciation * | 3.9 | 3.6 | 13.4 | 10.1 |
| Stock compensation | 2.1 | 2.3 | 6.0 | 4.6 |
| Unused office space expense and other | (6.8) | 0.7 | (6.8) | 2.1 |
| Amortization of intangible assets | 9.0 | 13.0 | 27.3 | 32.4 |
| Adjusted EBITDA | $ 24.0 | $ 34.4 | $ 75.7 | $ 83.8 |
| * Includes depreciation reported in cost of service revenues and product sales. | ||||
| Reconciliation of restructuring and acquisition related items and other included in Adjusted EBITDA: | ||||
| Three Months Ended | Nine Months Ended | |||
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| 2013 | 2012 | 2013 | 2012 | |
| Acquisition related expenses | $ -- | $ 0.3 | $ 0.2 | $ 2.7 |
| Excess capacity and restructuring costs | 3.3 | -- | 5.5 | -- |
| Non-recurring audit fees | -- | -- | 0.6 | -- |
| Litigation related costs and accrual | 0.2 | -- | (2.5) | -- |
| $ 3.5 | $ 0.3 | $ 3.8 | $ 2.7 | |
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| Unaudited Segment Data | ||||
| (in millions) | ||||
| Three Months Ended | Nine Months Ended | |||
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| 2013 | 2012 | 2013 | 2012 | |
| Revenues: | ||||
| Government Solutions | $ 174.6 | $ 223.5 | $ 560.8 | $ 568.2 |
| Public Safety & Security | 51.8 | 52.8 | 154.1 | 137.4 |
| Total revenues | $ 226.4 | $ 276.3 | $ 714.9 | $ 705.6 |
| Operating income (loss) from continuing operations: | ||||
| Government Solutions | $ 6.4 | $ 14.0 | $ 23.8 | $ 32.4 |
| Public Safety & Security | 1.8 | 3.3 | 5.7 | 7.3 |
| Other activities | (2.1) | (3.2) | (3.1) | (9.1) |
| Total operating income from continuing operations | $ 6.1 | $ 14.1 | $ 26.4 | $ 30.6 |
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Note: Other activities in the three 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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| 2013 | 2012 | 2013 | 2012 | |
| KGS | $ 21.1 | $ 30.2 | $ 66.3 | $ 73.9 |
| % of revenue | 12.1% | 13.5% | 11.8% | 13.0% |
| PSS | 2.9 | 4.2 | 9.4 | 9.9 |
| % of revenue | 5.6% | 8.0% | 6.1% | 7.2% |
| Total | $ 24.0 | $ 34.4 | $ 75.7 | $ 83.8 |
| % of revenue | 10.6% | 12.5% | 10.6% | 11.9% |
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| Unaudited Condensed Consolidated Balance Sheet | ||
| (in millions) | ||
| As of | ||
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| 2013 | 2012 | |
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | $ 49.8 | $ 49.0 |
| Restricted cash | 5.0 | 5.5 |
| Accounts receivable, net | 269.0 | 271.9 |
| Inventoried costs | 83.4 | 94.3 |
| Prepaid expenses | 18.4 | 17.4 |
| Other current assets | 3.7 | 17.3 |
| Total current assets | 429.3 | 455.4 |
| Property, plant and equipment, net | 84.5 | 85.6 |
| Goodwill | 596.4 | 596.4 |
| Intangible assets, net | 78.8 | 106.1 |
| Other assets | 35.7 | 40.4 |
| Total assets | $ 1,224.7 | $ 1,283.9 |
| Liabilities and Stockholders' Equity | ||
| Current liabilities: | ||
| Accounts payable | $ 57.7 | $ 83.6 |
| Accrued expenses | 45.4 | 46.4 |
| Accrued compensation | 37.1 | 47.8 |
| Accrued interest | 22.0 | 6.3 |
| Billings in excess of costs and earnings on uncompleted contracts | 51.2 | 43.7 |
| Deferred income tax liability | 29.0 | 28.9 |
| Other current liabilities | 13.8 | 22.1 |
| Total current liabilities | 256.2 | 278.8 |
| Long-term debt principal, net of current portion | 629.0 | 629.7 |
| Long-term debt premium | 15.6 | 18.7 |
| Other long-term liabilities | 22.2 | 32.6 |
| Total liabilities | 923.0 | 959.8 |
| 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 | 854.5 | 847.1 |
| Accumulated other comprehensive loss | (0.8) | (0.8) |
| Accumulated deficit | (552.0) | (522.2) |
| Total stockholders' equity | 301.7 | 324.1 |
| Total liabilities and stockholders' equity | $ 1,224.7 | $ 1,283.9 |
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| Unaudited Condensed Consolidated Statement of Cash Flows | ||
| (in millions) | ||
| Nine Months Ended | ||
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| 2013 | 2012 | |
| Operating activities: | ||
| Net loss | $ (29.8) | $ (24.4) |
| Less: Loss from discontinued operations | (4.8) | (2.6) |
| Loss from continuing operations | (25.0) | (21.8) |
| Adjustments to reconcile loss from continuing operations to net cash provided by operating activities from continuing operations: | ||
| Depreciation and amortization | 40.7 | 42.5 |
| Deferred income taxes | -- | 1.4 |
| Stock‑based compensation | 6.0 | 4.6 |
| Change in unused office space accrual | (6.8) | -- |
| Amortization of deferred financing costs | 3.9 | 3.8 |
| Amortization of premium on Senior Secured Notes | (3.1) | (3.1) |
| Provision for doubtful accounts | 0.8 | 0.4 |
| Changes in assets and liabilities, net of acquisitions: | ||
| Accounts receivable | 2.1 | (6.3) |
| Inventoried costs | 10.9 | (10.4) |
| Prepaid expenses and other assets | 0.3 | (1.9) |
| Accounts payable | (26.1) | 22.8 |
| Accrued compensation | (10.8) | (1.5) |
| Accrued expenses | (1.5) | (5.2) |
| Accrued interest payable | 15.6 | 16.6 |
| Billings in excess of costs and earnings on uncompleted contracts | 7.5 | (4.7) |
| Income tax receivable and payable | 3.9 | (0.8) |
| Other liabilities | (7.4) | (1.3) |
| Net cash provided by operating activities from continuing operations | 11.0 | 35.1 |
| Investing activities: | ||
| Cash paid for acquisitions, net of cash acquired | 2.2 | (149.4) |
| Decrease in restricted cash | 0.5 | 0.5 |
| Proceeds from the disposition of discontinued operations | 0.4 | -- |
| Capital expenditures | (12.2) | (12.0) |
| Net cash used in investing activities from continuing operations | (9.1) | (160.9) |
| Financing activities: | ||
| Proceeds from the issuance of common stock | -- | 97.0 |
| Cash paid for contingent acquisition consideration | (2.1) | (2.5) |
| Borrowings under line of credit | -- | 40.0 |
| Repayment of debt | (0.8) | (40.8) |
| Debt issuance costs | -- | (1.2) |
| Other | 1.2 | (0.9) |
| Net cash (used) provided by financing activities from continuing operations | (1.7) | 91.6 |
| Net cash flows from continuing operations | 0.2 | (34.2) |
| Net operating cash flows from discontinued operations | 0.5 | 2.1 |
| Effect of exchange rate changes on cash and cash equivalents | 0.1 | 0.1 |
| Net increase (decrease) in cash and cash equivalents | 0.8 | (32.0) |
| Cash and cash equivalents at beginning of period | 49.0 | 69.6 |
| Cash and cash equivalents at end of period | $ 49.8 | $ 37.6 |
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| Unaudited Non-GAAP Measures | ||||
| Adjusted Earnings Before Amortization and Acquisition Related Expenses and Other Items | ||||
| (in millions, except per share data) | ||||
| Three Months Ended | Nine Months Ended | |||
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| 2013 | 2012 | 2013 | 2012 | |
| Loss from continuing operations before taxes | $ (9.3) | $ (3.1) | $ (22.1) | $ (18.0) |
| Add: Amortization of intangible assets | 9.0 | 13.0 | 27.3 | 32.4 |
| Add: Unused office space expense and other | (6.8) | 0.7 | (6.8) | 2.1 |
| Add: Contract design retrofit costs | 5.4 | -- | 5.4 | -- |
| Add: Restructuring and acquisition related items and other | 3.5 | 0.3 | 3.8 | 2.7 |
| Adjusted income from continuing operations before income taxes | $ 1.8 | $ 10.9 | $ 7.6 | $ 19.2 |
| Estimated cash tax provision | 0.8 | 0.9 | 2.4 | 2.7 |
| Adjusted income from continuing operations before acquisition and amortization expenses | $ 1.0 | $ 10.0 | $ 5.2 | $ 16.5 |
| Diluted income per common share: | ||||
| Adjusted income from continuing operations | $ 0.02 | $ 0.18 | $ 0.09 | $ 0.38 |
| Weighted average common shares outstanding | ||||
| Diluted | 57.1 | 56.6 | 56.7 | 43.8 |
CONTACT: Press Contact:
Yolanda White
858-812-7302 Direct
Investor Information:
877-934-4687
investor@kratosdefense.com
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