Kratos Reports Third Quarter Fiscal 2014 Financial Results
The Company's backlog at
In the third quarter,
In the third quarter,
Financial Results and Guidance
The following delayed or anticipated contract awards impacted our financial results and guidance:
-
In the third quarter of 2014, KGS was awarded a new approximately
$46 million contract by aU.S. Government customer that was subsequently protested by a competitor, which resulted in a stop work order being issued by the customer toKratos .
-
In the third quarter of 2014,
KPSS expected to receive an approximately$9.5 million dollar new contract award, which procurement was cancelled by the customer due to a competitor protest. The customer subsequently reprocured the opportunity, whichKPSS was successfully awarded in the fourth quarter.
-
In the third quarter,
KPSS was awarded a new security system deployment contract for a large metropolitan area that was subsequently protested by a competitor. The competitor's protest was dismissed by the customer, but the competitor has now requested reconsideration of the dismissal.
-
In the third quarter of 2014,
KPSS expected to receive a multi-million dollar security system deployment award from an existing large global financial customer. This work has now been delayed until 2015.
-
In
July 2014 ,KPSS was informed that it had been selected for a new$81 million security system deployment single award contract. The formal contract award was ultimately executed in the fourth quarter.
-
In the fourth quarter,
Kratos was informed by the GAO that a competitor's protest of a multi- million dollar new product contract award that KGS received in the second quarter of 2014 had been dismissed, and thatKratos' award was confirmed.
-
An international order of approximately
$30 million for Unmanned Drone Systems, whichKratos has been negotiating with the customer, was expected to be executed in the fourth quarter of 2014 but has been delayed to the first half of 2015.
-
During the third quarter,
Kratos also experienced certain other contract award and commencement of work delays.
Primarily as a result of these factors, and with a U.S. Federal Government Continuing Resolution Authorization (CRA) beginning on
With the objective of enhancing shareholder value,
Management will discuss the financial results in a conference call beginning at
About Kratos Defense & Security Solutions
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 cost-cutting activities, expected impact of the Company's initiative to evaluate strategic alternatives, including potential divestiture of certain of its non-core businesses, and market and industry developments, including the potential impacts on the Company's business as a result of sequestration, Federal budget cuts and increased protest actions submitted against the Company's projects by its competitors. 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, stock compensation expense, acquisition and restructuring related items and other, unused office space expense, contract design retrofit costs and contract modification adjustment, and the loss on extinguishment of debt, less the estimated tax cash payments), Adjusted EBITDA (which excludes losses from discontinued operations, restructuring and acquisition related items and other, stock compensation expense, unused office space expense, contract design retrofit costs and contract modification adjustment, loss on extinguishment of debt and other and the associated margin rates), and Adjusted Free Cash Flow (which is computed using Cash Flow from Operating Activities less the loss on extinguishment of debt and less Capital Expenditures). 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 extraordinary items and non-cash items that would normally be included in the most directly comparable measures calculated and presented in accordance with generally accepted accounting principles. 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.
|
|
||||
| Unaudited Condensed Consolidated Statements of Operations | ||||
| (in millions, except per share data) | ||||
| Three Months Ended | Nine Months Ended | |||
|
|
|
|
|
|
| 2014 | 2013 | 2014 | 2013 | |
| Service revenues | $ 97.1 | $ 108.8 | $ 299.5 | $ 335.0 |
| Product sales | 120.0 | 117.6 | 347.0 | 379.9 |
| Total revenues | 217.1 | 226.4 | 646.5 | 714.9 |
| Cost of service revenues | 77.7 | 82.4 | 229.7 | 254.3 |
| Cost of product sales | 86.4 | 91.7 | 254.8 | 282.1 |
| Total costs | 164.1 | 174.1 | 484.5 | 536.4 |
| Gross profit - services | 19.4 | 26.4 | 69.8 | 80.7 |
| Gross profit - products | 33.6 | 25.9 | 92.2 | 97.8 |
| Total gross profit | 53.0 | 52.3 | 162.0 | 178.5 |
| Selling, general and administrative expenses | 39.3 | 37.9 | 114.6 | 114.5 |
| Acquisition and restructuring related items and other | 0.1 | 0.4 | 1.5 | (0.5) |
| Research and development expenses | 5.9 | 4.8 | 17.0 | 14.5 |
| Unused office space expense and other | -- | (6.8) | 0.2 | (6.8) |
| Depreciation | 0.8 | 0.9 | 2.5 | 3.1 |
| Amortization of intangible assets | 5.7 | 9.0 | 17.0 | 27.3 |
| Operating income | 1.2 | 6.1 | 9.2 | 26.4 |
| Interest expense, net | (12.1) | (16.2) | (42.2) | (48.7) |
| Loss on extinguishment of debt | -- | -- | (39.1) | -- |
| Other income (expense), net | (0.4) | 0.8 | -- | 0.2 |
| Loss from continuing operations before income taxes | (11.3) | (9.3) | (72.1) | (22.1) |
| Provision (benefit) for income taxes | (0.2) | 0.2 | 3.7 | 2.9 |
| Loss from continuing operations | (11.1) | (9.5) | (75.8) | (25.0) |
| Income (loss) from discontinued operations, net of taxes | 0.2 | (0.4) | -- | (4.8) |
| Net loss | $ (10.9) | $ (9.9) | $ (75.8) | $ (29.8) |
| Basic and diluted loss per common share: | ||||
| Loss from continuing operations | $ (0.19) | $ (0.17) | $ (1.32) | $ (0.44) |
| Loss from discontinued operations, net of taxes | -- | -- | -- | (0.08) |
| Net loss | $ (0.19) | $ (0.17) | $ (1.32) | $ (0.52) |
| Weighted average common shares outstanding | ||||
| Basic and diluted | 57.8 | 57.1 | 57.6 | 56.7 |
| Adjusted EBITDA (1) | $ 22.5 | $ 24.0 | $ 59.1 | $ 75.7 |
| 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, loss on extinguishment of debt, contract design retrofit costs, refinancing related costs 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 | |||
|
|
|
|
|
|
| 2014 | 2013 | 2014 | 2013 | |
| Net loss | $ (10.9) | $ (9.9) | $ (75.8) | $ (29.8) |
| Income (loss) from discontinued operations | (0.2) | 0.4 | -- | 4.8 |
| Interest expense, net | 12.1 | 16.2 | 42.2 | 48.7 |
| Loss on extinguishment of debt | -- | -- | 39.1 | -- |
| Provision (benefit) for income taxes | (0.2) | 0.2 | 3.7 | 2.9 |
| Depreciation * | 4.2 | 3.9 | 12.2 | 13.4 |
| Stock compensation | 2.9 | 2.1 | 7.6 | 6.0 |
| Unused office space expense and other | -- | (6.8) | 0.2 | (6.8) |
| Amortization of intangible assets | 5.7 | 9.0 | 17.0 | 27.3 |
| Acquisition and restructuring related items, excess capacity and other | 5.7 | 3.5 | 8.2 | 3.8 |
| Contract design retrofit and contract conversion adjustment | 3.2 | 5.4 | 4.7 | 5.4 |
| Adjusted EBITDA | $ 22.5 | $ 24.0 | $ 59.1 | $ 75.7 |
| * Includes depreciation reported in cost of service revenues and product sales. | ||||
| Reconciliation of acquisition and restructuring related items and other included in Adjusted EBITDA: | ||||
| Three Months Ended | Nine Months Ended | |||
|
|
|
|
|
|
| 2014 | 2013 | 2014 | 2013 | |
| Acquisition and transaction related items | $ -- | $ -- | $ -- | $ 0.2 |
| Excess capacity and restructuring costs | 1.0 | 3.3 | 2.7 | 6.1 |
| Refinancing related costs | -- | -- | 0.8 | -- |
| Litigation related items | -- | 0.2 | -- | (2.5) |
| Non-cash charges and cost related to completed contracts | 2.6 | -- | 2.6 | -- |
| Costs related to pending customer change orders | 2.1 | -- | 2.1 | -- |
| $ 5.7 | $ 3.5 | $ 8.2 | $ 3.8 | |
|
|
||||
| Unaudited Segment Data | ||||
| (in millions) | ||||
| Three Months Ended | Nine Months Ended | |||
|
|
|
|
|
|
| 2014 | 2013 | 2014 | 2013 | |
| Revenues: | ||||
| Government Solutions | $ 174.3 | $ 174.6 | $ 491.2 | $ 560.8 |
| Public Safety & Security | 42.8 | 51.8 | 155.3 | 154.1 |
| Total revenues | $ 217.1 | $ 226.4 | $ 646.5 | $ 714.9 |
| Operating income (loss) from continuing operations: | ||||
| Government Solutions | $ 8.2 | $ 6.4 | $ 17.6 | $ 23.8 |
| Public Safety & Security | (4.1) | 1.8 | (0.1) | 5.7 |
| Other activities | (2.9) | (2.1) | (8.3) | (3.1) |
| Total operating income from continuing operations | $ 1.2 | $ 6.1 | $ 9.2 | $ 26.4 |
|
Note: Other activities in the three months ended |
||||
| Reconciliation of consolidated Adjusted EBITDA to Adjusted EBITDA by segment is as follows: | ||||
| Three Months Ended | Nine Months Ended | |||
|
|
|
|
|
|
| 2014 | 2013 | 2014 | 2013 | |
| KGS | $ 21.3 | $ 21.1 | $ 52.8 | $ 66.3 |
| % of revenue | 12.2% | 12.1% | 10.7% | 11.8% |
| PSS | 1.2 | 2.9 | 6.3 | 9.4 |
| % of revenue | 2.8% | 5.6% | 4.1% | 6.1% |
| Total | $ 22.5 | $ 24.0 | $ 59.1 | $ 75.7 |
| % of revenue | 10.4% | 10.6% | 9.1% | 10.6% |
|
|
||||
| Unaudited Condensed Consolidated Balance Sheet | ||||
| (in millions) | ||||
| As of | ||||
|
|
|
|||
| 2014 | 2013 | |||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ 16.2 | $ 55.7 | ||
| Restricted cash | 5.2 | 5.0 | ||
| Accounts receivable, net | 255.1 | 265.8 | ||
| Inventoried costs | 80.4 | 74.6 | ||
| Prepaid expenses | 9.0 | 10.4 | ||
| Other current assets | 10.8 | 18.8 | ||
| Total current assets | 376.7 | 430.3 | ||
| Property, plant and equipment, net | 82.6 | 84.8 | ||
| Goodwill | 596.4 | 596.4 | ||
| Intangible assets, net | 57.8 | 69.9 | ||
| Other assets | 32.4 | 35.2 | ||
| Total assets | $ 1,145.9 | $ 1,216.6 | ||
| Liabilities and Stockholders' Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ 49.2 | $ 61.9 | ||
| Accrued expenses | 37.0 | 46.2 | ||
| Accrued compensation | 37.1 | 44.9 | ||
| Accrued interest | 16.7 | 5.2 | ||
| Billings in excess of costs and earnings on uncompleted contracts | 47.2 | 52.5 | ||
| Deferred income tax liability | 28.4 | 28.4 | ||
| Other current liabilities | 11.6 | 11.9 | ||
| Total current liabilities | 227.2 | 251.0 | ||
| Long-term debt principal, net of current portion | 621.9 | 628.8 | ||
| Long-term debt premium | -- | 14.5 | ||
| Line of credit | 41.0 | -- | ||
| Other long-term liabilities | 24.8 | 26.5 | ||
| Total liabilities | 914.9 | 920.8 | ||
| Commitments and contingencies | ||||
| Stockholders' equity: | ||||
| Common stock | -- | -- | ||
| Additional paid-in capital | 867.2 | 856.0 | ||
| Accumulated other comprehensive loss | (1.0) | (0.8) | ||
| Accumulated deficit | (635.2) | (559.4) | ||
| Total stockholders' equity | 231.0 | 295.8 | ||
| Total liabilities and stockholders' equity | $ 1,145.9 | $ 1,216.6 | ||
|
|
||||
| Unaudited Condensed Consolidated Statement of Cash Flows | ||||
| (in millions) | ||||
| Nine Months Ended | ||||
|
|
|
|||
| 2014 | 2013 | |||
| Operating activities: | ||||
| Net loss | $ (75.8) | $ (29.8) | ||
| Less: Loss from discontinued operations | -- | (4.8) | ||
| Loss from continuing operations | (75.8) | (25.0) | ||
| Adjustments to reconcile loss from continuing operations to net cash provided by operating activities from continuing operations: | ||||
| Depreciation and amortization | 29.2 | 40.7 | ||
| Stock‑based compensation | 7.6 | 6.0 | ||
| Change in unused office space accrual | 0.2 | (6.8) | ||
| Amortization of deferred financing costs | 2.5 | 3.9 | ||
| Amortization of premium on Senior Secured Notes | (1.1) | (3.1) | ||
| Loss on extinguishment of debt | 39.1 | -- | ||
| Provision for doubtful accounts | 1.2 | 0.8 | ||
| Changes in assets and liabilities, net of acquisitions: | ||||
| Accounts receivable | 9.6 | 2.1 | ||
| Inventoried costs | (6.0) | 10.9 | ||
| Prepaid expenses and other assets | 0.8 | 0.3 | ||
| Accounts payable | (12.7) | (26.1) | ||
| Accrued compensation | (7.8) | (10.8) | ||
| Accrued expenses | (9.2) | (1.5) | ||
| Accrued interest payable | 11.5 | 15.6 | ||
| Billings in excess of costs and earnings on uncompleted contracts | (7.4) | 7.5 | ||
| Income tax receivable and payable | 2.1 | 3.9 | ||
| Other liabilities | (2.0) | (7.4) | ||
| Net cash provided by (used in) operating activities from continuing operations | (18.2) | 11.0 | ||
| Investing activities: | ||||
| Cash paid for acquisitions, net of cash acquired | (2.6) | 2.2 | ||
| Decrease in restricted cash | (0.1) | 0.5 | ||
| Proceeds from the disposition of discontinued operations | 0.1 | 0.4 | ||
| Capital expenditures | (9.5) | (12.2) | ||
| Net cash used in investing activities from continuing operations | (12.1) | (9.1) | ||
| Financing activities: | ||||
| Proceeds from the issuance of long-term debt | 618.5 | -- | ||
| Payment of long-term debt | (661.5) | |||
| Cash paid for contingent acquisition consideration | -- | (2.1) | ||
| Borrowings under line of credit | 41.0 | -- | ||
| Repayment of debt | (0.7) | (0.8) | ||
| Debt issuance costs | (8.5) | -- | ||
| Other | 3.3 | 1.2 | ||
| Net cash used in financing activities from continuing operations | (7.9) | (1.7) | ||
| Net cash flows from continuing operations | (38.2) | 0.2 | ||
| Net operating cash flows from discontinued operations | (1.2) | 0.5 | ||
| Effect of exchange rate changes on cash and cash equivalents | (0.1) | 0.1 | ||
| Net increase (decrease) in cash and cash equivalents | (39.5) | 0.8 | ||
| Cash and cash equivalents at beginning of period | 55.7 | 49.0 | ||
| Cash and cash equivalents at end of period | $ 16.2 | $ 49.8 | ||
|
|
||||
| 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 | |||
|
|
|
|
|
|
| 2014 | 2013 | 2014 | 2013 | |
| Loss from continuing operations before taxes | $ (11.3) | $ (9.3) | $ (72.1) | $ (22.1) |
| Add: Amortization of intangible assets | 5.7 | 9.0 | 17.0 | 27.3 |
| Add: Stock compensation | 2.9 | 2.1 | 7.6 | 6.0 |
| Add: Unused office space expense and other | -- | (6.8) | 0.2 | (6.8) |
| Add: Loss on extinguishment of debt | -- | -- | 39.1 | -- |
| Add: Contract design retrofit costs and contract conversion adjustment | 3.2 | -- | 4.7 | -- |
| Add: Restructuring and acquisition related items and other | 5.7 | 3.5 | 8.2 | 3.8 |
| Adjusted income (loss) from continuing operations before income taxes | 6.2 | (1.5) | 4.7 | 8.2 |
| Estimated cash tax provision | 0.5 | 0.8 | 1.6 | 2.4 |
| Adjusted income (loss) from continuing operations before acquisition and amortization expenses | $ 5.7 | $ (2.3) | $ 3.1 | $ 5.8 |
| Diluted income per common share: | ||||
| Adjusted income (loss) from continuing operations | $ 0.10 | $ (0.04) | $ 0.05 | $ 0.10 |
| Weighted average common shares outstanding | ||||
| Diluted | 57.8 | 57.1 | 57.6 | 56.7 |
CONTACT: Press Contact:
Yolanda White
858-812-7302 Direct
Investor Information:
877-934-4687
investor@kratosdefense.com
News Provided by Acquire Media