Kratos Reports Third Quarter 2022 Financial Results
Included in Net Loss is a
Third quarter 2022 Operating Loss includes non-cash stock compensation expense of
Kratos reported a third quarter 2022 GAAP loss per share of
Third quarter 2022 Revenues of
Third quarter 2022 Cash Flow Used in Operations was
For the third quarter of 2022, Kratos’ Unmanned Systems Segment (KUS) generated Revenues of
KUS Adjusted EBITDA for the third quarter of 2022 was
KUS’s book-to-bill ratio for the third quarter of 2022 was 1.0 to 1.0 and 1.0 to 1.0 for the last twelve months ended
For the third quarter of 2022, Kratos’ Government Solutions Segment (KGS) reported Revenues of
KGS reported operating income of
Kratos’ Space, Satellite and Cyber business generated Revenues of
Excluding the impact of the
For the third quarter of 2022, KGS reported a book-to-bill ratio of 1.1 to 1.0, with a book to bill ratio of 1.2 to 1.0 for the twelve months ended
For the third quarter of 2022, Kratos reported consolidated bookings of
Financial Guidance
Our fourth quarter and Fiscal Year 2022 financial guidance we are providing today includes our current forecasted business mix, and our assumptions, including as related to: employee sourcing, hiring and retention; manufacturing, production and supply chain disruptions; and parts shortages and related continued significant cost and price increases, including for employees, materials and components that are impacting the industry and Kratos. The range of our expected fourth quarter 2022 revenues includes assumptions of forecasted execution including the number of new qualified personnel expected to be retained to execute on our programs and contracts, as well as expected contract awards. Our revised Fiscal Year 2022 cash flow guidance also includes continued advanced purchases of inventory in an attempt to mitigate supply chain disruptions, which are not currently expected to be converted to cash through the sales process until the second half of 2023.
On
Throughout the third and fourth quarter of 2022, our industry and Kratos continue to experience the effects of continuing supply chain disruptions and significant cost increases and inflation, including on our employees, consultants, subcontractors, vendors, suppliers, customers, etc., and an acute labor shortage of qualified personnel, including those requiring security clearances, to perform on programs and contracts.
We expect this difficult operating environment and its impact on the industry, our operations and our ability to forecast to continue for the foreseeable future. Following is our fourth quarter and revised full year 2022 guidance along with a reconciliation from our full year 2022 guidance provided in
| $M | Q422 | FY22 | ||
| Revenues | ||||
| R&D | ||||
| Operating Income (Loss) | ||||
| Depreciation | ||||
| Amortization | ||||
| Stock Based Compensation | ||||
| Adjusted EBITDA | ||||
| Operating Cash Flow Use | $(25 - |
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| Capital Expenditures | ||||
| Free Cash Flow Use | ( |
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| Guidance Reconciliation Table | ||||
| Adjusted | ||||
| $M | Revenues | EBITDA | ||
| C5ISR impact due to labor and supply delays | ||||
| Funding for non-Valkyrie related drone program | ||||
| Delay of satellite program software deliverables | ||||
| Supply chain delays | ||||
Management will discuss the Company’s third quarter 2022 financial results, as well as its fourth quarter and full year 2022 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 fourth quarter and full year 2022 revenues, R&D, operating income, depreciation, amortization, stock based compensation expense, and Adjusted EBITDA, and full year 2022 operating cash flow, capital expenditures and other investments, and free cash flow use, 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 improved revenue mix and 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 an increase in 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 and expected new customer awards, including the magnitude and timing of funding and the future opportunity associated with such awards, including in the tactical drone and satellite communication areas, 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 and to achieve financial leverage on fixed administrative costs, 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, non-recoverable rates and costs, 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 results. 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 | Nine Months Ended | ||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Service revenues | $ | 88.6 | $ | 51.6 | $ | 235.3 | $ | 166.9 | |||||||||
| Product sales | 140.0 | 149.0 | 413.7 | 433.0 | |||||||||||||
| Total revenues | 228.6 | 200.6 | 649.0 | 599.9 | |||||||||||||
| Cost of service revenues | 65.1 | 35.5 | 171.2 | 119.3 | |||||||||||||
| Cost of product sales | 108.6 | 104.5 | 313.2 | 317.0 | |||||||||||||
| Total costs | 173.7 | 140.0 | 484.4 | 436.3 | |||||||||||||
| Gross profit - service revenues | 23.5 | 16.1 | 64.1 | 47.6 | |||||||||||||
| Gross profit - product sales | 31.4 | 44.5 | 100.5 | 116.0 | |||||||||||||
| Total gross profit | 54.9 | 60.6 | 164.6 | 163.6 | |||||||||||||
| Selling, general and administrative expenses | 44.2 | 39.6 | 126.1 | 110.5 | |||||||||||||
| Acquisition and restructuring related items and other | 0.4 | 0.3 | 7.0 | 0.8 | |||||||||||||
| Research and development expenses | 9.6 | 8.0 | 28.0 | 26.2 | |||||||||||||
| Depreciation | 1.3 | 1.1 | 3.9 | 3.7 | |||||||||||||
| Amortization of intangible assets | 3.0 | 1.1 | 6.3 | 3.7 | |||||||||||||
| Operating income (loss) | (3.6 | ) | 10.5 | (6.7 | ) | 18.7 | |||||||||||
| Interest expense, net | (4.1 | ) | (5.9 | ) | (12.9 | ) | (17.5 | ) | |||||||||
| Loss on extinguishment of debt | - | - | (13.0 | ) | - | ||||||||||||
| Other income (expense), net | (1.1 | ) | - | (1.0 | ) | 0.2 | |||||||||||
| Income (loss) from continuing operations before income taxes | (8.8 | ) | 4.6 | (33.6 | ) | 1.4 | |||||||||||
| Provision (benefit) for income taxes from continuing operations | (0.8 | ) | 5.7 | (4.6 | ) | (0.6 | ) | ||||||||||
| Income (loss) from continuing operations | (8.0 | ) | (1.1 | ) | (29.0 | ) | 2.0 | ||||||||||
| Income (loss) from discontinued operations, net of income taxes | - | (0.8 | ) | 0.7 | (1.1 | ) | |||||||||||
| Net income (loss) | (8.0 | ) | (1.9 | ) | (28.3 | ) | 0.9 | ||||||||||
| Less: Net income attributable to noncontrolling interest | - | - | 0.5 | 0.3 | 0.3 | ||||||||||||
| Net income (loss) attributable to Kratos | $ | (8.0 | ) | $ | (2.4 | ) | $ | (28.6 | ) | $ | 0.6 | ||||||
| Basic income (loss) per common share attributable to Kratos: | |||||||||||||||||
| Income (loss) from continuing operations | $ | (0.06 | ) | $ | (0.01 | ) | $ | (0.23 | ) | $ | 0.01 | ||||||
| Income (loss) from discontinued operations | - | (0.01 | ) | - | (0.01 | ) | |||||||||||
| Net Loss | (0.06 | ) | $ | (0.02 | ) | $ | (0.23 | ) | $ | - | |||||||
| Diluted income (loss) per common share attributable to Kratos: | |||||||||||||||||
| Income (loss) from continuing operations | $ | (0.06 | ) | $ | (0.01 | ) | $ | (0.23 | ) | $ | 0.01 | ||||||
| Income (loss) from discontinued operations | - | (0.01 | ) | - | (0.01 | ) | |||||||||||
| Net Loss | $ | (0.06 | ) | $ | (0.02 | ) | $ | (0.23 | ) | $ | - | ||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Basic weighted average common shares outstanding | 127.2 | 124.9 | 126.5 | 124.6 | |||||||||||||
| Diluted weighted average common shares outstanding | 127.2 | 124.9 | 126.5 | 127.9 | |||||||||||||
| Adjusted EBITDA (1) | $ | 20.0 | $ | 23.8 | $ | 51.5 | $ | 59.5 | |||||||||
| 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 (benefit) 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. |
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| Foreign transaction (gain) loss. The Company incurs transaction gains and losses related to transactions with foreign customers in currencies other than the |
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| 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 lease commitment costs for unused, 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. |
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| Non-recoverable rates and costs. In fiscal 2022, the Company incurred non-recoverable rates and costs as a result of its inability to hire the required direct labor base to execute on its backlog due to a challenging environment in hiring and retaining skilled personnel. In addition, in 2022 the Company incurred non-recoverable rate growth resulting from a smaller than planned direct labor base due to delays in customer program execution and awards. |
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| 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. |
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| 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 (loss) attributable to Kratos to Adjusted EBITDA is as follows: | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Net income (loss) attributable to Kratos | $ | (8.0 | ) | $ | (2.4 | ) | $ | (28.6 | ) | $ | 0.6 | ||||||
| Loss (income) from discontinued operations, net of income taxes | - | 0.8 | (0.7 | ) | 1.1 | ||||||||||||
| Interest expense, net | 4.1 | 5.9 | 12.9 | 17.5 | |||||||||||||
| Loss on extinguishment of debt | - | - | 13.0 | - | |||||||||||||
| Provision (benefit) for income taxes from continuing operations | (0.8 | ) | 5.7 | (4.6 | ) | (0.6 | ) | ||||||||||
| Depreciation (including cost of service revenues and product sales) | 5.9 | 5.0 | 16.5 | 15.7 | |||||||||||||
| Stock-based compensation | 6.6 | 6.4 | 19.9 | 19.2 | |||||||||||||
| Foreign transaction loss | 1.4 | 0.2 | 1.5 | 0.4 | |||||||||||||
| Amortization of intangible assets | 3.0 | 1.1 | 6.3 | 3.7 | |||||||||||||
| Amortization of capitalized contract and development costs | 0.4 | 0.3 | 1.0 | 0.8 | |||||||||||||
| Acquisition and restructuring related items and other | 7.4 | 0.3 | 14.0 | 0.8 | |||||||||||||
| Plus: Net income attributable to noncontrolling interest | - | 0.5 | 0.3 | 0.3 | |||||||||||||
| Adjusted EBITDA | $ | 20.0 | $ | 23.8 | $ | 51.5 | $ | 59.5 | |||||||||
| Reconciliation of acquisition and restructuring related items and other included in Adjusted EBITDA: | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Acquisition and transaction related items | $ | 0.2 | $ | 0.3 | $ | 0.6 | $ | 0.6 | |||||||||
| Restructuring costs | 0.8 | - | 1.1 | 0.2 | |||||||||||||
| Non-recoverable rates and costs | 6.4 | - | 6.4 | - | |||||||||||||
| Legal related items | - | - | 5.9 | - | |||||||||||||
| $ | 7.4 | $ | 0.3 | $ | 14.0 | $ | 0.8 | ||||||||||
| Unaudited Segment Data | |||||||||||||||||
| (in millions) | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Revenues: | |||||||||||||||||
| Unmanned Systems | $ | 50.0 | $ | 61.3 | $ | 159.0 | $ | 177.5 | |||||||||
| Kratos Government Solutions | 178.6 | 139.3 | 490.0 | 422.4 | |||||||||||||
| Total revenues | $ | 228.6 | $ | 200.6 | $ | 649.0 | $ | 599.9 | |||||||||
| Operating income (loss) | |||||||||||||||||
| Unmanned Systems | $ | (0.1 | ) | $ | 2.6 | $ | (4.6 | ) | $ | 10.9 | |||||||
| Kratos Government Solutions | 3.3 | 14.6 | 18.4 | 27.6 | |||||||||||||
| Unallocated corporate expense, net | (6.8 | ) | (6.7 | ) | (20.5 | ) | (19.8 | ) | |||||||||
| Total operating income (loss) | $ | (3.6 | ) | $ | 10.5 | $ | (6.7 | ) | $ | 18.7 | |||||||
| 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 (Loss) to Adjusted EBITDA is as follows: | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Unmanned Systems | |||||||||||||||||
| Operating income (loss) | $ | (0.1 | ) | $ | 2.6 | $ | (4.6 | ) | $ | 10.9 | |||||||
| Other income (expense) | (0.1 | ) | - | - | 0.1 | ||||||||||||
| Depreciation | 1.7 | 1.6 | 5.0 | 5.4 | |||||||||||||
| Amortization of intangible assets | 0.2 | 0.2 | 0.7 | 0.8 | |||||||||||||
| Amortization of capitalized contract and development costs | 0.4 | 0.3 | 1.0 | 0.8 | |||||||||||||
| Acquisition and restructuring related items and other | - | - | 5.9 | - | |||||||||||||
| Adjusted EBITDA | $ | 2.1 | $ | 4.7 | $ | 8.0 | $ | 18.0 | |||||||||
| % of revenue | 4.2 | % | 7.7 | % | 5.0 | % | 10.1 | % | |||||||||
| Kratos Government Solutions | |||||||||||||||||
| Operating income | $ | 3.3 | $ | 14.6 | $ | 18.4 | $ | 27.6 | |||||||||
| Other income | 0.4 | 0.2 | 0.5 | 0.5 | |||||||||||||
| Depreciation | 4.2 | 3.4 | 11.5 | 10.3 | |||||||||||||
| Amortization of intangible assets | 2.8 | 0.9 | 5.6 | 2.9 | |||||||||||||
| Acquisition and restructuring related items and other | 7.2 | - | 7.5 | 0.2 | |||||||||||||
| Adjusted EBITDA | $ | 17.9 | $ | 19.1 | $ | 43.5 | $ | 41.5 | |||||||||
| % of revenue | 10.0 | % | 13.7 | % | 8.9 | % | 9.8 | % | |||||||||
| Total Adjusted EBITDA | $ | 20.0 | $ | 23.8 | $ | 51.5 | $ | 59.5 | |||||||||
| % of revenue | 8.7 | % | 11.9 | % | 7.9 | % | 9.9 | % | |||||||||
| Unaudited Condensed Consolidated Balance Sheets | |||||||||||||||||
| (in millions) | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Assets | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 125.2 | $ | 349.4 | |||||||||||||
| Accounts receivable, net | 302.2 | 284.7 | |||||||||||||||
| Inventoried costs | 120.3 | 91.7 | |||||||||||||||
| Prepaid expenses | 13.6 | 9.8 | |||||||||||||||
| Other current assets | 40.0 | 22.5 | |||||||||||||||
| Total current assets | 601.3 | 758.1 | |||||||||||||||
| Property, plant and equipment, net | 217.9 | 168.3 | |||||||||||||||
| Operating lease right-of-use assets | 41.7 | 38.5 | |||||||||||||||
| 551.8 | 493.9 | ||||||||||||||||
| Intangible assets, net | 61.9 | 43.2 | |||||||||||||||
| Other assets | 93.5 | 87.5 | |||||||||||||||
| Total assets | $ | 1,568.1 | $ | 1,589.5 | |||||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Accounts payable | $ | 53.5 | $ | 50.4 | |||||||||||||
| Accrued expenses | 29.5 | 27.2 | |||||||||||||||
| Accrued compensation | 54.5 | 47.3 | |||||||||||||||
| Accrued interest | 0.3 | 1.5 | |||||||||||||||
| Billings in excess of costs and earnings on uncompleted contracts | 48.9 | 58.1 | |||||||||||||||
| Current portion of operating lease liabilities | 10.7 | 10.1 | |||||||||||||||
| Other current liabilities | 15.2 | 25.7 | |||||||||||||||
| Other current liabilities of discontinued operations | 0.9 | 0.8 | |||||||||||||||
| Total current liabilities | 213.5 | 221.1 | |||||||||||||||
| Long-term debt | 292.6 | 296.7 | |||||||||||||||
| Operating lease liabilities, net of current portion | 35.3 | 32.7 | |||||||||||||||
| Other long-term liabilities | 82.1 | 76.2 | |||||||||||||||
| Other long-term liabilities of discontinued operations | 1.4 | 2.5 | |||||||||||||||
| Total liabilities | 624.9 | 629.2 | |||||||||||||||
| Commitments and contingencies | |||||||||||||||||
| Redeemable noncontrolling interest | 7.8 | 15.2 | |||||||||||||||
| Stockholders’ equity: | |||||||||||||||||
| Additional paid-in capital | 1,602.1 | 1,578.9 | |||||||||||||||
| Accumulated other comprehensive income (loss) | (3.7 | ) | 0.6 | ||||||||||||||
| Accumulated deficit | (663.0 | ) | (634.4 | ) | |||||||||||||
| Total Kratos stockholders’ equity | 935.4 | 945.1 | |||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,568.1 | $ | 1,589.5 | |||||||||||||
| Unaudited Condensed Consolidated Statements of Cash Flows | |||||||||||||||||
| (in millions) | |||||||||||||||||
| Nine Months Ended | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Operating activities: | |||||||||||||||||
| Net income (loss) | $ | (28.3 | ) | $ | 0.9 | ||||||||||||
| Less: income (loss) from discontinued operations | 0.7 | (1.1 | ) | ||||||||||||||
| Income (loss) from continuing operations | (29.0 | ) | 2.0 | ||||||||||||||
| Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities from continuing operations: | |||||||||||||||||
| Depreciation and amortization | 22.8 | 19.4 | |||||||||||||||
| Amortization of lease right-of-use assets | 7.8 | 6.7 | |||||||||||||||
| Deferred income taxes | 0.3 | (0.7 | ) | ||||||||||||||
| Stock-based compensation | 19.9 | 19.2 | |||||||||||||||
| Litigation related charges | 5.5 | - | |||||||||||||||
| Amortization of deferred financing costs | 0.6 | 0.7 | |||||||||||||||
| Loss on extinguishment of debt | 13.0 | - | |||||||||||||||
| Recovery of doubtful accounts | - | (0.2 | ) | ||||||||||||||
| Changes in assets and liabilities, net of acquisitions: | |||||||||||||||||
| Accounts receivable | 17.0 | 10.1 | |||||||||||||||
| Unbilled receivables | (18.2 | ) | (12.2 | ) | |||||||||||||
| Inventoried costs | (28.0 | ) | (6.8 | ) | |||||||||||||
| Prepaid expenses and other assets | (17.4 | ) | (5.1 | ) | |||||||||||||
| Operating lease liabilities | (7.7 | ) | (6.7 | ) | |||||||||||||
| Accounts payable | 1.0 | (10.5 | ) | ||||||||||||||
| Accrued compensation | 3.0 | 3.3 | |||||||||||||||
| Accrued expenses | 1.1 | (6.0 | ) | ||||||||||||||
| Accrued interest | (1.2 | ) | 4.8 | ||||||||||||||
| Billings in excess of costs and earnings on uncompleted contracts | (10.6 | ) | 23.8 | ||||||||||||||
| Income tax receivable and payable | (8.3 | ) | (2.5 | ) | |||||||||||||
| Other liabilities | (3.9 | ) | (4.7 | ) | |||||||||||||
| Net cash provided by (used in) operating activities from continuing operations | (32.3 | ) | 34.6 | ||||||||||||||
| Investing activities: | |||||||||||||||||
| Cash paid for acquisitions, net of cash acquired | (132.2 | ) | (6.2 | ) | |||||||||||||
| Capital expenditures | (34.8 | ) | (33.4 | ) | |||||||||||||
| Proceeds from insurance | - | 4.5 | |||||||||||||||
| Proceeds from sale of assets | 0.1 | - | |||||||||||||||
| Net cash used in investing activities from continuing operations | (166.9 | ) | (35.1 | ) | |||||||||||||
| Financing activities: | |||||||||||||||||
| Proceeds from the issuance of long-term debt | 200.0 | - | |||||||||||||||
| Repayment of debt | (311.0 | ) | (5.1 | ) | |||||||||||||
| Debt issuance costs | (3.2 | ) | - | ||||||||||||||
| Credit agreement borrowings | 100.0 | - | |||||||||||||||
| Payment under finance leases | (1.0 | ) | (0.7 | ) | |||||||||||||
| Payments of employee taxes withheld from share-based awards | (12.3 | ) | (9.1 | ) | |||||||||||||
| Proceeds from shares issued under equity plans | 6.1 | 5.9 | |||||||||||||||
| Net cash used in financing activities from continuing operations | (21.4 | ) | (9.0 | ) | |||||||||||||
| Net cash flows from continuing operations | (220.6 | ) | (9.5 | ) | |||||||||||||
| Net operating cash flows of discontinued operations | (0.3 | ) | (1.1 | ) | |||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (3.3 | ) | (1.0 | ) | |||||||||||||
| Net decrease in cash, cash equivalents and restricted cash | (224.2 | ) | (11.6 | ) | |||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 349.4 | 381.5 | |||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 125.2 | $ | 369.9 | |||||||||||||
| 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 | Nine Months Ended | ||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Net income (loss) attributable to Kratos | $ | (8.0 | ) | $ | (2.4 | ) | $ | (28.6 | ) | $ | 0.6 | ||||||
| Less: GAAP provision (benefit) for income taxes | (0.8 | ) | 5.7 | (4.6 | ) | (0.6 | ) | ||||||||||
| Less: Net income attributable to noncontrolling interest | - | 0.5 | 0.3 | 0.3 | |||||||||||||
| Less: (Income) loss from discontinued operations, net of income taxes | - | 0.8 | (0.7 | ) | 1.1 | ||||||||||||
| Income (loss) from continuing operations before taxes | (8.8 | ) | 4.6 | (33.6 | ) | 1.4 | |||||||||||
| Add: Amortization of intangible assets | 3.0 | 1.1 | |
6.3 | 3.7 | ||||||||||||
| Add: Amortization of capitalized contract and development costs | 0.4 | 0.3 | 1.0 | 0.8 | |||||||||||||
| Add: Depreciation | 5.9 | 5.0 | 16.5 | 15.7 | |||||||||||||
| Add: Stock-based compensation | 6.6 | 6.4 | 19.9 | 19.2 | |||||||||||||
| Add: Loss on extinguishment of debt | - | - | 13.0 | - | |||||||||||||
| Add: Foreign transaction loss | 1.4 | 0.2 | 1.5 | 0.4 | |||||||||||||
| Add: Acquisition and restructuring related items and other | 7.4 | 0.3 | 14.0 | 0.8 | |||||||||||||
| Non-GAAP Adjusted income from continuing operations before income taxes | 15.9 | 17.9 | 38.6 | 42.0 | |||||||||||||
| Income taxes on Non-GAAP measure Adjusted income from continuing operations* | 5.7 | 6.5 | 13.9 | 15.3 | |||||||||||||
| Non-GAAP Adjusted net income | $ | 10.2 | $ | 11.4 | $ | 24.7 | $ | 26.7 | |||||||||
| Diluted earnings per common share | $ | (0.06 | ) | $ | (0.02 | ) | $ | (0.23 | ) | $ | - | ||||||
| Less: GAAP provision (benefit) for income taxes | (0.01 | ) | 0.05 | (0.03 | ) | - | |||||||||||
| Less: Net income attributable to noncontrolling interest | - | - | - | - | |||||||||||||
| Less: (Income) loss from discontinued operations, net of income taxes | - | 0.01 | - | 0.01 | |||||||||||||
| Add: Amortization of intangible assets | 0.02 | 0.01 | 0.05 | 0.03 | |||||||||||||
| Add: Amortization of capitalized contract and development costs | - | - | 0.01 | 0.01 | |||||||||||||
| Add: Depreciation | 0.05 | 0.04 | 0.13 | 0.12 | |||||||||||||
| Add: Stock-based compensation | 0.05 | 0.05 | 0.16 | 0.15 | |||||||||||||
| Add: Loss on extinguishment of debt | - | - | 0.10 | - | |||||||||||||
| Add: Foreign transaction loss | 0.01 | - | 0.01 | - | |||||||||||||
| Add: Acquisition and restructuring related items and other | 0.06 | - | 0.11 | 0.01 | |||||||||||||
| Income taxes on Non-GAAP measure Adjusted income from continuing operations* | (0.04 | ) | (0.05 | ) | (0.11 | ) | (0.12 | ) | |||||||||
| Adjusted income from continuing operations per diluted common share | $ | 0.08 | $ | 0.09 | $ | 0.20 | $ | 0.21 | |||||||||
| Weighted average diluted common shares outstanding | 127.2 | 124.9 | 126.5 | 127.9 | |||||||||||||
| *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. | |||||||||||||||||
Source: Kratos Defense & Security Solutions, Inc.