Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the bottom of the report for important disclosures
2024 Budget. The 2024 budget signed by President Biden significantly increases ICE funding, which could have positive implications for both CoreCivic and The GEO Group. The ICE budget increased $798 million to $9.6 billion, including $5.1 billion for ICE Enforcement and Removal Operations, a $900 million increase, according to the Homeland Security Fiscal 2024 bill summary. ATD funding increased $27.5 million to $470.2 million.
Additional Beds. Detention beds increased to 41,500 from 34,000 in fiscal 2023. We would note, the number of people detained by ICE has exceeded the 34,000 funding amount since mid-August and was 39,111 as of March 10th. At a minimum, the new budget enables ICE to increase detainees by approximately 3,000 and if the recent past is any indication, the actual number of beds in use could easily top the 41,500 level.
Encounters Still High. The most recent data for Southwest Border Encounters indicated 189,922 people were encountered in February, the second highest level for that month in history. Looking at the first five months of the fiscal year, there were some 1.15 million encounters, an annualized rate of 2.76 million, compared to 2.47 million for all of 2023.
Capacity. Even with the current 39,000 detainee level, there appears to be sufficient bed capacity at existing facilities to absorb the incremental 3,000, if it occurs. However, currently idle CoreCivic and GEO facilities may be in play, based on ICE’s geographic and other needs. We view CoreCivic’s Leavenworth and California City facilities and GEO’s North Lake and D. Ray James facilities as logical options if ICE determines a need for additional facilities.
Implications. While the budget was just signed, we view the increases as an incremental net positive for both CoreCivic and The GEO Group. The increased funding and beds are both positives and if we see another Continuing Resolution in the fall, these elevated numbers will stand until a new budget is passed.
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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE
Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis. Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.” FINRA licenses 7, 24, 63, 87
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Reported record revenue of $1.04 billion, up +6.4% y/y
Achieved y/y revenue growth of 31% in the Pacific and 18% in the Middle East
Operating income of $38.5 million; adjusted operating income1 of $76.2 million
Net income (loss) of ($0.5) million, up $10.1 million y/y
Adjusted EBITDA1 of $82.1 million with a margin1 of 7.9%
Diluted EPS of ($0.02); Adjusted diluted EPS1 of $1.22
Strong year-to-date cash flow from operations of $188.0 million; Achieved net debt reduction of $137.1 million
Awarded first substantial foreign military sales program valued at $400 million over 5 years
2024 Guidance:
Establishing full-year 2024 guidance with revenue and adjusted EBITDA1 growth of 5% at mid-point
MCLEAN, Va., March 5, 2024 /PRNewswire/ — V2X, Inc. (NYSE:VVX) announced fourth quarter and full-year 2023 financial results.
“I’m pleased to report a strong finish to 2023, with record revenue and strong operational performance which drove significant cash generation and net debt reduction,” said Chuck Prow, President and Chief Executive Officer of V2X. “I’d like to thank our teams that demonstrated agility and excellent performance, delivering 8% pro forma revenue1 growth for the full-year and 6% for the quarter. We made significant progress advancing V2X as a leader in the operational segment of the federal services market while continuing to position the company for long-term growth. The leading indicators for our business remain strong with a backlog of approximately $13 billion, $9 billion of bids submitted currently under evaluation, and a robust pipeline of opportunities valued at $15 billion expected to be submitted over the next twelve months. Our capabilities and position in an expanding market, present opportunities to drive continued growth and value for our shareholders and clients.”
“V2X achieved several milestones during the fourth quarter, which includes our first substantial foreign military sales (FMS) win valued at approximately $400 million over the next five years,” said Mr. Prow. “This program is a long-term aviation support and training contract in the Middle East and was a direct result of our multi-year FMS campaign. Importantly, our evolution as a company has been an enabler to participate in this market. With this opportunity, the total value of V2X FMS’ portfolio is approximately $700 million with accretive margins. We plan to build on this success and continue pursuing FMS opportunities that leverage our geographic footprint, strong partnerships, and core capabilities.”
Mr. Prow continued, “Our ability to provide full life cycle solutions from concept to fielding and sustainment is a significant differentiator that’s yielding results. During the quarter, we demonstrated our capabilities through the fielding of a defense platform that modernized existing systems. This program launched as an engineering development and prototyping effort with a new client and today has yielded a brand-new product that’s designed, produced, and sustained by V2X. Additionally, our engineering, integration, modernization and sustainment solutions resulted in approximately $70 million of awards to V2X in the fourth quarter.”
Mr. Prow concluded, “I’d like to thank our teams for their contributions in 2023 and progress executing our strategic framework: Expand the Base, Capture New Markets, Deliver with Excellence, and Enhance Culture. Looking ahead, V2X continues to transform to deliver enhanced capabilities in an expanding market. We have strong momentum, robust backlog, a highly aligned pipeline, limited recompetes, and high free cash generation that provides an excellent fundamental profile to support value creation.”
Fourth Quarter 2023 Results
“V2X reported revenue of $1.0 billion in the quarter, which represents 6.4% year-over-year growth,” said Shawn Mural, Senior Vice President and Chief Financial Officer. “Revenue growth in the quarter was achieved through exceptional team performance delivering milestones ahead of schedule, expansion on existing programs, and new business. This solid execution resulted in year-over-year revenue growth of 31% in the Pacific and 18% in the Middle East.”
“For the quarter, the Company reported operating income of $38.5 million and adjusted operating income1 of $76.2 million. Adjusted EBITDA1 was $82.1 million with a margin of 7.9%. Fourth quarter GAAP diluted EPS was ($0.02), due primarily to merger and integration related costs, amortization of acquired intangible assets, and interest expense. Adjusted diluted EPS1 for the quarter was $1.22.”
“V2X’s ability to generate strong cash flow with low capital expenditures is an important attribute of our business and one that we are extremely focused on as a primary avenue to enhance value for shareholders. I’m pleased to announce that during the quarter, our teams demonstrated outstanding performance in all aspects of cash conversion, driving significant collections, a record low DSO, and operating cash flow that exceeded our guidance. Net cash provided by operating activities was $188.0 million year to date. Adjusted net cash provided by operating activities1 year to date was $159.5 million, adding back $26.9 million of M&A and integration costs with $13.4 million of CARES act payments, and removing the contribution of the master accounts receivable purchase or MARPA facility of $68.8 million.”
“Solid cash generation enabled net debt reduction of $137.1 million for the year. At the end of the quarter, net debt for V2X was $1,083.6 million. Net consolidated indebtedness to EBITDA1 (net leverage ratio) was 3.3x, improved from 3.7x at the end of 2022. Additionally, we believe our strong fundamentals will allow V2X to achieve a net leverage ratio at or under 3.0x by the end of 2024.”
“Total backlog as of December 31, 2023, was $12.8 billion. Funded backlog was $2.8 billion. Bookings in the quarter were $0.6 billion, resulting in a trailing twelve-month book-to-bill of 1.1x. It’s important to note that backlog and bookings do not include the full performance period of the $400 million FMS program as the contract is being definitized and the $458 million F-5 Adversary aircraft award, discussed last quarter, as it remains in protest,” said Mr. Mural.
Full-Year 2023 Results
Full-year revenue was $3.963 billion, up 8% pro forma year-on-year. The Company reported full-year operating income of $124.4 million and adjusted operating income1 of $271.4 million. Full-year EBITDA1 was $293.9 million with a margin of 7.4%. Full-year GAAP diluted EPS was ($0.73), due primarily to merger and integration related costs, amortization of acquired intangible assets, and interest expense. Adjusted diluted EPS1 for 2023 was $3.74.
2024 Guidance
Mr. Mural concluded, “Based on the positive trends in our business we are setting the mid-point of our guidance for revenue and Adjusted EBITDA1 at $4.150 billion and $308 million, respectively, representing approximately 5% year-over-year growth. We expect revenue and adjusted EBITDA to be weighted more heavily in the second half of the year. Importantly, guidance at the mid-point assumes approximately 90% of revenue from existing contracts and less than 5% from recompetes.”
Guidance for 2024 is as follows:
$ millions, except for per share amounts
2024 Guidance
2024 Mid-Point
Revenue
$4,100
$4,200
$4,150
Adjusted EBITDA1
$300
$315
$308
Adjusted Diluted Earnings Per Share1
$3.85
$4.20
$4.03
Adjusted Net Cash Provided by Operating Activities1
$145
$165
$155
The Company is not providing a quantitative reconciliation with respect to this forward-looking non-GAAP measure in reliance on the “unreasonable efforts” exception set forth in SEC rules because certain financial information, the probable significance of which cannot be determined, is not available and cannot be reasonably estimated. For example, unusual, one-time, non-ordinary, or non-recurring costs, which relate to M&A, integration and related activities cannot be reasonably estimated. Forward-looking statements are based upon current expectations and are subject to factors that could cause actual results to differ materially from those suggested here, including those factors set forth in the Safe Harbor Statement below.
Fourth Quarter and Full-Year 2023 Conference Call
Management will conduct a conference call with analysts and investors at 8:00 a.m. ET on Tuesday, March 5, 2024. U.S.-based participants may dial in to the conference call at 877-407-3982, while international participants may dial 201-493-6780. A live webcast of the conference call as well as an accompanying slide presentation will be available here: https://app.webinar.net/WrwGVYwl6dA
A replay of the conference call will be posted on the V2X website shortly after completion of the call and will be available for one year. A telephonic replay will also be available through March 19, 2024, at 844-512-2921 (domestic) or 412-317-6671 (international) with passcode 13743860 .
Presentation slides that will be used in conjunction with the conference call will also be made available online in advance on the “investors” section of the company’s website at https://gov2x.com/. V2X recognizes its website as a key channel of distribution to reach public investors and as a means of disclosing material non-public information to comply with its obligations under the U.S. Securities and Exchange Commission (“SEC”) Regulation FD.
Footnotes:
1 See “Key Performance Indicators and Non-GAAP Financial Measures” for descriptions and reconciliations.
About V2X
V2X builds smart solutions designed to integrate physical and digital infrastructure – by aligning people, actions, and outputs. Formed by the merger of Vectrus and Vertex, we bring a combined 120 years of successful mission support. Our lifecycle solutions improve security, streamline logistics, and enhance readiness.
The Company delivers a comprehensive suite of integrated solutions across the operations and logistics, aerospace, training, and technology markets to national security, defense, civilian and international clients. Our global team of approximately 16,000 employees brings innovation to every point in the mission lifecycle, from preparation to operations, to sustainment, as it tackles the most complex challenges with agility, grit, and dedication.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 (the “Act”): Certain material presented herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Act. These forward-looking statements include, but are not limited to, all the statements and items listed under “2024 Guidance” above and other assumptions contained therein for purposes of such guidance, other statements about our 2024 performance outlook, revenue, contract opportunities, and any discussion of future operating or financial performance.
Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “could,” “potential,” “continue” or similar terminology. These statements are based on the beliefs and assumptions of the management of the Company based on information currently available to management.
These forward-looking statements are not guarantees of future performance, conditions, or results, and involve a number of known and unknown risks, uncertainties, assumptions, and other important factors, many of which are outside our management’s control, which could cause actual results to differ materially from the results discussed in the forward-looking statements. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and our present expectations or projections. For a discussion of some of the risks and uncertainties that could cause actual results to differ from such forward-looking statements, see the risks and other factors detailed from time to time our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other filings with the SEC.
We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Full Year 2023 Revenues of $1.037 Billion Reflect 15.5 Percent Growth and 12.6 Percent Organic Growth, Respectively, Over Full Year 2022 Revenues of $898.3 Million
Fourth Quarter Revenues of $273.8 Million Reflect 9.8 Percent Growth and 7.3 Percent Organic Growth, Respectively, Over Fourth Quarter 2022 Revenues of $249.3 Million
Fourth Quarter 2023 Cash Flow Generated from Operations of $67.4 Million Full Year 2023 Cash Flow Generated from Operations of $65.2 Million
Fourth Quarter 2023 Consolidated Book to Bill Ratio of 1.2 to 1 and Bookings of $330 Million
Last Twelve Months Ended December 31, 2023 Consolidated Book to Bill Ratio of 1.1 to 1 and Bookings of $1.15 Billion
2024 Financial Forecast Includes 10 Percent Organic Revenue Growth
SAN DIEGO, Feb. 13, 2024 (GLOBE NEWSWIRE) — Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS), a Technology Company in the Defense, National Security and Global Markets, today reported its fourth quarter 2023 financial results, including Revenues of $273.8 million, Operating Income of $11.7 million, Net Income attributable to Kratos of $2.4 million, Adjusted EBITDA of $29.1 million and a consolidated book to bill ratio of 1.2 to 1.0.
Included in fourth quarter 2023 Net Income and Operating Income is non-cash stock compensation expense of $6.3 million and Company-funded Research and Development (R&D) expense of $8.0 million, which includes significant ongoing development efforts in our Space and Satellite Communications business to develop our virtual, software-based OpenSpace command & control (C2), telemetry tracking & control (TT&C) and other ground system solutions. The fourth quarter 2023 Net Income attributable to Kratos includes $3.2 million attributable to a non-controlling interest, which includes a charge of $2.7 million adjustment recorded to reflect the estimated increase in the value of the redeemable non-controlling interest to the estimated redemption amount by Kratos.
Kratos reported fourth quarter 2023 GAAP Net Income attributable to Kratos of $2.4 million and a GAAP Net Income per share of $0.02, compared to a GAAP Net Loss attributable to Kratos of $8.3 million and a GAAP Net Loss per share of $0.07 for the fourth quarter of 2022. Adjusted earnings per share (EPS) was $0.12 for the fourth quarter of 2023, compared to $0.08 for the fourth quarter of 2022.
Fourth quarter 2023 Revenues of $273.8 million increased $24.5 million, reflecting 9.8 percent and 7.3 percent organic growth, respectively, from fourth quarter 2022 Revenues of $249.3 million. Fourth quarter 2023 Cash Flow Generated from Operations was $67.4 million, primarily reflecting the receipt of accelerated favorable customer milestone payments, resulting in a Consolidated Days Sales Outstanding reduction from 117 days in the third quarter of 2023 to 109 days in the fourth quarter of 2023 and increases in deferred revenues or customer advanced payments to $101.8 million at the end of the fourth quarter of 2023, up from $79.4 million at the end of the third quarter of 2023. Free Cash Flow Generated from Operations for the Fourth Quarter of 2023 was $48.1 million after funding of $19.3 million of capital expenditures. Capital expenditures remain elevated due primarily to the manufacture of two production lots of Valkyries prior to contract award, to meet anticipated customer orders and requirements.
For the fourth quarter of 2023, Kratos’ Unmanned Systems (KUS) segment generated Revenues of $55.4 million, which included contribution of $6.4 million from the recent Sierra Technical Services, Inc. (STS) acquisition, as compared to $62.7 million in the fourth quarter of 2022, primarily reflecting reduced tactical drone activity. KUS’s Operating Income was $1.0 million in the fourth quarter of 2023 compared to $1.8 million in the fourth quarter of 2022. KUS’s Adjusted EBITDA for the fourth quarter of 2023 was $4.0 million, compared to fourth quarter 2022 KUS Adjusted EBITDA of $4.5 million, reflecting reduced volume.
KUS’s book-to-bill ratio for the fourth quarter of 2023 was 1.1 to 1.0 and 1.2 to 1.0 for the last twelve months ended December 31, 2023, with bookings of $61.2 million for the three months ended December 31, 2023, and bookings of $244.2 million for the last twelve months ended December 31, 2023. Total backlog for KUS at the end of the fourth quarter of 2023 was $255.8 million compared to $227.8 million at the end of the third quarter of 2023.
For the fourth quarter of 2023, Kratos’ Government Solutions (KGS) segment Revenues of $218.4 million increased from Revenues of $186.6 million in the fourth quarter of 2022, reflecting a 17.0 percent growth and organic growth rate. The increased Revenues includes organic revenue growth in our Space, Satellite, Cyber and Training Solutions, Turbine Technologies, C5ISR, and Microwave Products businesses.
KGS reported operating income of $17.5 million in the fourth quarter of 2023 compared to $8.8 million in the fourth quarter of 2022, primarily reflecting a more favorable mix and increased revenue volume. Fourth quarter 2023 KGS Adjusted EBITDA was $25.1 million, compared to fourth quarter 2022 KGS Adjusted EBITDA of $14.7 million, primarily reflecting the increased revenue and more favorable mix.
Kratos’ Space, Satellite, Cyber and Training business generated Revenues of $112.9 million in the fourth quarter of 2023 compared to $97.7 million in the fourth quarter of 2022, reflecting a 15.5 percent organic growth rate.
KGS reported a book-to-bill ratio of 1.2 to 1.0 for the fourth quarter of 2023, a book to bill ratio of 1.1 to 1.0 for the last twelve months ended December 31, 2023 and bookings of $269.2 million and $902.2 million for the three and last twelve months ended December 31, 2023, respectively. KGS includes Kratos’ Space, Satellite, Cyber and Training Solutions business, which reported a book to bill ratio of 1.2 to 1.0 for the fourth quarter and the last twelve months ended December 31, 2023. Bookings for Kratos’ Space, Satellite, Cyber and Training business for the three months and last twelve months ended December 31, 2023 were $132.2 million and $493.5 million, respectively. KGS’s total backlog at the end of the fourth quarter of 2023 was $988.0 million, as compared to $937.3 million at the end of the third quarter of 2023.
Kratos reported consolidated bookings of $330.3 million and a book-to-bill ratio of 1.2 to 1.0 for the fourth quarter of 2023, and consolidated bookings of $1.15 billion and a book-to-bill ratio of 1.1 to 1.0 for the last twelve months ended December 31, 2023. Consolidated backlog was $1.24 billion on December 31, 2023 and $1.17 billion on October 1, 2023. Kratos’ bid and proposal pipeline was $11.0 billion at December 31, 2023 and $10.3 billion at October 1, 2023. Backlog at December 31, 2023 included funded backlog of $944.6 million and unfunded backlog of $299.3 million.
Full Year 2023 Results
Kratos reported its full year 2023 financial results, including Revenues of $1.037 billion, Operating Income of $31.1 million, Net Loss attributable to Kratos of $8.9 million, Adjusted EBITDA of $95.4 million and a consolidated book to bill ratio of 1.1 to 1.0.
Included in the full year 2023 Net Loss and Operating Income is non-cash stock compensation expense of $25.3 million and Company-funded Research and Development (R&D) expense of $38.4 million, which includes significant ongoing development efforts in our Space and Satellite Communications business to develop our first to market, virtual, software-based OpenSpace command & control (C2), telemetry tracking & control (TT&C) and other ground system solutions. The full year 2023 Net Loss attributable to Kratos includes $11.3 million attributable to a non-controlling interest, which includes charges of $9.9 million of adjustments recorded to reflect the estimated increase in the value of the redeemable non-controlling interest to the estimated redemption amount by Kratos.
Kratos reported full year 2023 GAAP Net Loss attributable to Kratos of $8.9 million and a GAAP Net Loss per share of $0.07, compared to a GAAP Net Loss attributable to Kratos of $36.9 million and a GAAP Net Loss per share of $0.29 for the full year 2022. Adjusted earnings per share (EPS) was $0.42 for the full year 2023, compared to $0.31 for full year 2022.
Full year 2023 Revenues of $1.037 billion increased $138.8 million, reflecting 15.5 percent growth and 12.6 percent organic growth, respectively, from full year 2022 Revenues of $898.3 million. Full year 2023 Cash Flow Generated from Operations was $65.2 million, primarily reflecting the receipt of accelerated favorable customer milestone payments, offset partially by working capital uses including increases in inventories of approximately $29.6 million. Free Cash Flow Generated from Operations was $21.1 million after funding of $52.4 million of capital expenditures, less $8.3 million in receipt of proceeds for sale of Valkyries that were built as Kratos capital assets. Full year 2023 capital expenditures were elevated due primarily to the manufacture of the two production lots of Valkyries prior to contract award to meet anticipated customer orders and requirements.
For full year 2023, KUS generated Revenues of $212.2 million, which included contribution of $6.4 million from the recent STS acquisition, as compared to $221.7 million in the full year 2022, primarily reflecting reduced tactical drone activity. KUS’s Operating Income was $4.2 million in full year 2023 compared to an Operating Loss of $2.8 million in full year 2022. KUS’s Adjusted EBITDA for full year 2023 was $14.8 million, compared to full year 2022 KUS Adjusted EBITDA of $12.5 million, reflecting the reduced volume offset by a more favorable mix.
For full year 2023, KGS Revenues of $824.9 million increased $148.3 million, reflecting 21.9 percent growth and 18.9 percent organic growth, respectively, from Revenues of $676.6 million in full year 2022. The increased Revenues includes organic revenue growth in our Space, Satellite, Cyber and Training Solutions, Turbine Technologies, C5ISR, and Microwave Products businesses.
KGS reported operating income of $52.7 million in full year 2023 compared to $27.2 million in full year 2022, primarily reflecting a more favorable mix and increased revenue volume. Full year 2023 KGS Adjusted EBITDA was $80.6 million, compared to full year 2022 KGS Adjusted EBITDA of $58.2 million, primarily reflecting the more favorable mix and increased revenue.
Kratos’ Space, Satellite, Cyber and Training business generated Revenues of $423.0 million in full year 2023 compared to $359.0 million in full year 2022, reflecting a 17.8 percent growth and organic growth rate.
Eric DeMarco, Kratos’ President and CEO, said, “Kratos’ strategy as a technology company and making internally funded investments to be first to market with affordable systems, software and products, is being successfully executed. Additionally, Kratos taking the prime or lead position on program opportunities where we believe the Kratos internal investment required is acceptable and the probability of Kratos win is high, and also Kratos teaming with a traditional system integrator partner, for a combined even greater probability of win on other opportunities is clearly working. Kratos’ low cost, innovation, rapid development and engineering up front for affordable mass production, brings significant value to our customers, our prime system integrator partners in teaming situations, and to our shareholders.”
Mr. DeMarco continued, “As we begin 2024, expected Kratos’ base case growth areas include: satellite communications; jet engines for drones, missiles, loitering munitions, supersonic and space systems; hypersonic systems; C5ISR and microwave electronics for missile, radar and CUAS systems and augmented reality training systems. We are currently producing approximately 160 high performance tactical and target jet drones annually, with a validated and executing supply chain in place, and we are making the investments necessary to triple our drone production capacity. As the only Company with a family of affordable, attritable, tactical jet drones flying today with weapons range pedigree and with additional new jet drones in development, all under customer funded contracts, we are confident that we will be successful. We are forecasting Kratos’ unmanned systems business to be one of our leading growth drivers in 2024, including target drone production and tactical drone RDT&E and S&T contracts, including a new tactical drone program award.”
Mr. DeMarco concluded, “Business challenges include our ability to obtain and retain qualified personnel, including those that are willing and able to obtain National Security clearances and the related high cost of these individuals, which is currently adversely impacting our margins. Additionally, the U.S. Federal Government budgetary situation is a challenge for the industry and for Kratos, and one that we cannot control and an extended Continuing Resolution Authorization (CRA) could adversely impact our business and financial forecast if not resolved soon.”
Financial Guidance
We are providing our initial 2024 first quarter and full year financial guidance, which includes our current forecasted business mix, and our assumptions, including as related to: employee sourcing, hiring and retention; manufacturing, production and supply chain disruptions; parts shortages and related continued potential significant cost and price increases, including for employees, materials and components that are impacting the industry and Kratos. The range of our expected first quarter and full year 2024 Revenues and Adjusted EBITDA includes assumptions of forecasted execution, including the number and estimated costs of qualified personnel expected to be obtained and retained to successfully execute on our programs and contracts, as well as expected contract awards. A U.S. Government budget was not passed by October 1, 2023, the beginning of Federal Fiscal Year 2024, and as a result, Kratos and others in our industry are operating under a Continuing Resolution Authorization (CRA), which currently expires March 8, 2024, under which no new contracts and no increases in existing contracts production or funding, among other stipulations, is permitted. Kratos’ 2024 financial forecast and guidance provided today assumes that the current CRA will be resolved and that a U.S. Federal and DoD budget which includes no unexpected budget cuts impacting our business will be in place by March 8, 2024. As a result, similar to Kratos’ 2023 quarterly financial trajectory, which fiscal year also experienced a CRA, we are forecasting Kratos’ third and fourth financial quarter’s results of 2024 to be significantly greater than the fiscal first and second quarter’s results, with the fourth quarter expected to be particularly strong in both revenue and Adjusted EBITDA. If the current CRA goes beyond the existing March 8, 2024 date, we will evaluate Kratos’ 2024 financial forecast at that time, based on the existing facts, circumstances and expectations.
Kratos’ 2024 financial forecast and guidance includes elevated investments for capital expenditures, including continued manufacture of two production lots of Valkyries prior to contract award, to meet anticipated customer orders and requirements, the expansion and build-out of the Company’s Microwave Products production facilities, and the expansion of our manufacturing and production facilities in our Rocket Systems and Hypersonic businesses.
Our first quarter and full year 2024 guidance ranges are as follows:
Current Guidance Range
$M
Q124
FY24
Revenues
$240 – $260
$1,125 – $1,150
R&D
$9 – $11
$42 – $45
Operating Income
$1 – 3
$37 – $41
Depreciation
$6 – $8
$28 – $30
Amortization
$2 – $3
$8 – $10
Stock Based Compensation
$6 – $7
$26- $28
Adjusted EBITDA
$16 – $18
$102 – $107
Operating Cash Flow
$50 – $60
Capital Expenditures
$70 – $80
Free Cash Flow Use
($10 – $30)
Management will discuss the Company’s financial results, on a conference call beginning at 2:00 p.m. Pacific (5:00 p.m. Eastern) today. The call will be available at www.kratosdefense.com. Participants may register for the call using this Online Form. Upon registration, all telephone participants will receive the dial-in number along with a unique PIN that can be used to access the call. For those who cannot access the live broadcast, a replay will be available on Kratos’ website.
About Kratos Defense & Security Solutions
Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) is a technology, products, system and software company addressing the defense, national security, and commercial markets. Kratos makes true internally funded research, development, capital and other investments, to rapidly develop, produce and field solutions that address our customers’ mission critical needs and requirements. At Kratos, affordability is a technology, and we seek to utilize proven, leading edge approaches and technology, not unproven bleeding edge approaches or technology, with Kratos’ approach designed to reduce cost, schedule and risk, enabling us to be first to market with cost effective solutions. We believe that Kratos is known as an innovative disruptive change agent in the industry, a company that is an expert in designing products and systems up front for successful rapid, large quantity, low cost future manufacturing which is a value add competitive differentiator for our large traditional prime system integrator partners and also to our government and commercial customers. Kratos intends to pursue program and contract opportunities as the prime or lead contractor when we believe that our probability of win (PWin) is high and any investment required by Kratos is within our capital resource comfort level. We intend to partner and team with a large, traditional system integrator when our assessment of PWin is greater or required investment is beyond Kratos’ comfort level. Kratos’ primary business areas include virtualized ground systems for satellites and space vehicles including software for command & control (C2) and telemetry, tracking and control (TT&C), jet powered unmanned aerial drone systems, hypersonic vehicles and rocket systems, propulsion systems for drones, missiles, loitering munitions, supersonic systems, space craft and launch systems, C5ISR and microwave electronic products for missile, radar, missile defense, space, satellite, counter UAS, directed energy, communication and other systems, and virtual & augmented reality training systems for the warfighter. For more information, visit www.KratosDefense.com
Notice RegardingForward-LookingStatements 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 first quarter and full year 2024 revenues, organic revenue growth rates, R&D, operating income (loss), depreciation, amortization, stock based compensation expense, and Adjusted EBITDA, and full year 2024 operating cash flow, capital expenditures and other investments, and free cash flow, 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, including the Company’s ability to achieve sustained year over year increasing revenues, profitability and cash flow, the Company’s expectation of ramp on projects and that investments in its business, including Company funded R&D expenses and ongoing development efforts, 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 and backlog, including the Company’s ability to timely execute on its backlog, demand for its products and services, including the Company’s alignment with today’s National Security requirements and the positioning of its C5ISR and other businesses, planned 2024 investments, including in the tactical drone and satellite areas, and the related potential for additional growth in 2025 and beyond, 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 target and 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 control (TT&C) 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, the ability of the Company’s advanced purchases of inventory to mitigate supply chain disruptions and the timing of converting these investments to cash through the sales process, 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 U.S. Department of Defense (DoD) budget approvals, timing of LRIP and full rate production related to the Company’s unmanned aerial target system offerings, as well as the level of recurring revenues expected to be generated by these programs once they achieve full rate production, market and industry developments, and the current estimated impact of COVID-19 and employee absenteeism, supply chain disruptions, availability of an experienced skilled workforce, inflation and increased costs, risks related to potential cybersecurity events or disruptions of our information technology systems, and delays in our financial projections, industry, business and operations, including projected growth. Such statements are only predictions, and the Company’s actual results may differ materially from the results expressed or implied by these statements. 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 U.S. Government and our other customers, including as a result of sequestration and extended continuing resolutions, the Federal budget deficit and Federal government shut-downs; 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 DoD may occur, which could cause delays or cancellations of key government contracts; risks of delays to or the cancellation of our projects as a result of protest actions submitted by our competitors; risks that changes may occur in Federal government (or other applicable) procurement laws, regulations, policies and budgets; risks of the availability of government funding for the Company’s products and services due to performance, cost growth, or other factors, changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reduction of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional committee recommendations or automatic sequestration under the Budget Control Act of 2011, as amended); risks that the unmanned aerial systems and unmanned ground sensor markets do not experience significant growth; risks that products we have developed or will develop will become programs of record; risks that we cannot expand our customer base or that our products do not achieve broad acceptance which could impact our ability to achieve our anticipated level of growth; risks of increases in the Federal government initiatives related to in-sourcing; risks related to security breaches, including cyber security attacks and threats or other significant disruptions of our information systems, facilities and infrastructures; risks related to our compliance with applicable contracting and procurement laws, regulations and standards; risks related to the new DoD Cybersecurity Maturity Model Certification; risks relating to the ongoing conflict in Ukraine and the Israeli-Palestinian military conflict; risks to our business in Israel; risks related to contract performance; risks related to failure of our products or services; risks associated with our subcontractors’ or suppliers’ failure to perform their contractual obligations, including the appearance of counterfeit or corrupt parts in our products; changes in the competitive environment (including as a result of bid protests); failure to successfully integrate acquired operations and compete in the marketplace, which could reduce revenues and profit margins; risks that potential future goodwill impairments will adversely affect our operating results; risks that anticipated tax benefits will not be realized in accordance with our expectations; risks that a change in ownership of our stock could cause further limitation to the future utilization of our net operating losses; risks that we may be required to record valuation allowances on our net operating losses which could adversely impact our profitability and financial condition; risks that the current economic environment will adversely impact our business, including with respect to our ability to recruit and retain sufficient numbers of qualified personnel to execute on our programs and contracts, as well as expected contract awards and risks related to increasing interest rates and risks related to the interest rate swap contract to hedge Term SOFR associated with the Company’s Term Loan A; currently unforeseen risks associated with COVID-19 and risks related to natural disasters or severe weather. These and other risk factors are more fully discussed in the Company’s Annual Report on Form 10-K for the period ended December 31, 2023, and in our other filings made with the Securities and Exchange Commission.
Note Regarding Use of Non-GAAP Financial Measures and Other Performance Metrics This news release contains non-GAAP financial measures, including organic revenue growth rates, Adjusted EPS (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 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 plus proceeds from sale of assets 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 Bill Ratio as it provides investors with a measure of the amount of bookings or contract awards as compared to the amount of revenues that have been recorded during the period and provides an indicator of how much of the Company’s backlog is being burned or utilized in a certain period. The Book to Bill Ratio is computed as the number of bookings or contract awards in the period divided by the revenues recorded for the same period. The Company believes that the rolling or last twelve months’ Book to Bill Ratio is meaningful since the timing of quarter-to-quarter bookings can vary.
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.
ATLANTA, Feb. 13, 2024 (GLOBE NEWSWIRE) — DLH Holdings Corp. (NASDAQ: DLHC) (“DLH” or the “Company”), a leading Health IT provider of digital transformation and cybersecurity, science research and development, and systems engineering and integration, today announced that it has been awarded a contract to continue providing information technology services for the National Institutes of Health’s (“NIH”) National Institute on Drug Abuse (“NIDA”). NIDA is the lead federal agency supporting scientific research on drug use and addiction.
The new award extends a partnership that began with DLH’s first contract with NIDA in 2014. The contract includes a base period of one year with four one-year options, for a total value of approximately $23 million. Through this award, DLH will provide a host of information technology services for NIDA, including managing the operations of an integrated advanced clinical/research informatics series of systems which enables researchers to share data and resources in real time. Additionally, the Company will be responsible for the research, design, development, and maintenance of clinical and scientific informatics, Intranet applications, and public web pages, as well as IT infrastructure and desktop support. This work is 100% NIH funded.
“NIDA-supported research leads to the development of effective prevention and treatment interventions that affect the more than 40 million people in the United States with substance use disorders and their families,” said Diane Yarnell, President of DLH’s Health IT Operations Center. “That NIDA continues to choose DLH for this important work is a testament to our team’s superb execution and commitment to excellence.”
About DLH
DLH (NASDAQ:DLHC) delivers improved health and national security readiness solutions for federal programs through science research and development, systems engineering and integration, and digital transformation. The Company’s experts in public health, performance evaluation, and health operations solve the complex problems faced by civilian and military customers alike, leveraging digital transformation, artificial intelligence, advanced analytics, cloud-based applications, telehealth systems, and more. With over 3,200 employees dedicated to the idea that “Your Mission is Our Passion,” DLH brings a unique combination of government sector experience, proven methodology, and unwavering commitment to innovation to improve the lives of millions. For more information, visit www.DLHcorp.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or DLH’s future financial performance. Any statements that refer to expectations, projections or other characterizations of future events or circumstances or that are not statements of historical fact (including without limitation statements to the effect that the Company or its management “believes”, “expects”, “anticipates”, “plans”, “intends” and similar expressions) should be considered forward looking statements that involve risks and uncertainties which could cause actual events or DLH’s actual results to differ materially from those indicated by the forward-looking statements. Forward-looking statements in this release include, among others, statements regarding estimates of future revenues, operating income, earnings and cash flow. These statements reflect our belief and assumptions as to future events that may not prove to be accurate. Our actual results may differ materially from such forward-looking statements made in this release due to a variety of factors, including: the risk that we will not realize the anticipated benefits of acquisitions (including anticipated future financial performance and results); the diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations; the inability to retain employees and customers; contract awards in connection with re-competes for present business and/or competition for new business; our ability to manage our debt obligations; compliance with bank financial and other covenants; changes in client budgetary priorities; government contract procurement (such as bid and award protests, small business set asides, loss of work due to organizational conflicts of interest, etc.) and termination risks; the impact of inflation and higher interest rates; and other risks described in our SEC filings. For a discussion of such risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in the Company’s periodic reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, as well as subsequent reports filed thereafter. The forward-looking statements contained herein are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry and business.
Such forward-looking statements are made as of the date hereof and may become outdated over time. The Company does not assume any responsibility for updating forward-looking statements, except as may be required by law.
INVESTOR RELATIONS Contact: Chris Witty Phone: 646-438-9385 Email: cwitty@darrowir.com
SAN DIEGO, Feb. 12, 2024 (GLOBE NEWSWIRE) — Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS), a Technology Company in Defense, National Security and Global Markets, announced today that its Kratos Space & Missile Defense Systems Inc., business unit has received a multiple-award, indefinite-delivery/indefinite-quantity, cost-plus-incentive-fee, cost-plus-fixed-fee, and firm-fixed-price contract with a combined maximum ceiling of $877 million with a nine-year ordering period for Sounding Rocket Program-4. This contract provides suborbital launch services and launch support services necessary to accomplish the Rocket Systems Launch Program’s suborbital mission. The primary locations of performance of the work will be at the contractor facilities and a variety of government launch sites, depending on mission requirements, and is expected to be completed by November 15, 2029. This contract was a competitive acquisition, and three offers were received. Space Systems Command, Kirtland Air Force Base, New Mexico, is the contracting activity.
Kratos Space & Missile Defense Systems is a leading provider of affordable rocket launch systems for ballistic missile target, ballistic missile defense, sub orbital, hypersonic and other missions.
About Kratos Defense & Security Solutions Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) is a technology, products, system and software company addressing the defense, national security, and commercial markets. Kratos makes true internally funded research, development, capital and other investments, to rapidly develop, produce and field solutions that address our customers’ mission critical needs and requirements. At Kratos, affordability is a technology, and we seek to utilize proven, leading edge approaches and technology, not unproven bleeding edge approaches or technology, with Kratos’ approach designed to reduce cost, schedule and risk, enabling us to be first to market with cost effective solutions. We believe that Kratos is known as an innovative disruptive change agent in the industry, a company that is an expert in designing products and systems up front for successful rapid, large quantity, low cost future manufacturing which is a value add competitive differentiator for our large traditional prime system integrator partners and also to our government and commercial customers. Kratos intends to pursue program and contract opportunities as the prime or lead contractor when we believe that our probability of win (PWin) is high and any investment required by Kratos is within our capital resource comfort level. We intend to partner and team with a large, traditional system integrator when our assessment of PWin is greater or required investment is beyond Kratos’ comfort level. Kratos’ primary business areas include virtualized ground systems for satellites and space vehicles including software for command & control (C2) and telemetry, tracking and control (TT&C), jet powered unmanned aerial drone systems, hypersonic vehicles and rocket systems, propulsion systems for drones, missiles, loitering munitions, supersonic systems, space craft and launch systems, C5ISR and microwave electronic products for missile, radar, missile defense, space, satellite, counter UAS, directed energy, communication and other systems, and virtual & augmented reality training systems for the warfighter. For more information, visit www.KratosDefense.com
Notice Regarding Forward-Looking Statements Certain statements in this press release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of the management of Kratos and are subject to significant risks and uncertainty. 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 Kratos undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise. Although Kratos believes that the expectations reflected in these forward-looking statements are reasonable, these statements involve many risks and uncertainties that may cause actual results to differ materially from what may be expressed or implied in these forward-looking statements. For a further discussion of risks and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements, as well as risks relating to the business of Kratos in general, see the risk disclosures in the Annual Report on Form 10-K of Kratos for the year ended December 25, 2022, and in subsequent reports on Forms 10-Q and 8-K and other filings made with the SEC by Kratos.
Kratos Press Contact: Yolanda White 858-812-7302 Direct
ATLANTA, Jan. 22, 2024 (GLOBE NEWSWIRE) — DLH Holdings Corp. (NASDAQ: DLHC) (“DLH” or the “Company”), a leading healthcare and human services provider to the federal government, will release financial results for the fiscal first quarter ended December 31, 2023 on January 31, 2024 after the market closes. DLH will then host a conference call for the investment community at 10:00 a.m. Eastern Time the following day, February 1, 2024, during which members of senior management will make a brief presentation focused on the financial results and operating trends. A question-and-answer session will follow.
Interested parties may listen to the conference call by dialing 888-347-5290 or 412-317-5256. Presentation materials will also be posted on the Investor Relations section of the DLH website prior to the commencement of the conference call. A digital recording of the conference call will be available for replay two hours after the completion of the call and can be accessed on the DLH Investor Relations website or by dialing 877-344-7529 and entering the conference ID 1843140.
About DLH DLH (NASDAQ: DLHC) enhances technology, public health, and cyber security readiness missions through science, technology, cyber, and engineering solutions and services. Our experts solve some of the most complex and critical missions faced by federal customers, leveraging digital transformation, artificial intelligence, advanced analytics, cloud-based applications, telehealth systems, and more. With over 3,200 employees dedicated to the idea that “Your Mission is Our Passion,” DLH brings a unique combination of government sector experience, proven methodology, and unwavering commitment to innovative solutions to improve the lives of millions. For more information, visit www.DLHcorp.com.
INVESTOR RELATIONS Contact: Chris Witty Phone: 646-438-9385 Email: cwitty@darrowir.com
MCLEAN, Va., Jan. 4, 2024 /PRNewswire/ — V2X, Inc. (NYSE: VVX) was awarded a $190 million contract from the U.S. Army as part of the United States Army Central Command (USARCENT) Training and Range Operations Maintenance Services Contract (ATROMS). The competitively bid firm-fixed-price contract will span five-years, continuing V2X’s support to USARCENT’s mission in Kuwait as well as other locations within the U.S. Central Command (USCENTCOM) Area of Responsibility (AOR). V2X will provide training support services as well as instruction, operation, and maintenance of Training Aids, Devices, Simulators and Simulations (TADSS). These services are crucial in expanding the USARCENT ability to not only maintain but enhance warfighter readiness.
“With this significant contract award, V2X reaffirms its commitment to bolstering the U.S. Army’s training and operational capabilities in dynamic environments,” said Chuck Prow, President and Chief Executive Officer at V2X. “Our proven expertise and dedication underscore our mission to empower the warfighter’s readiness for any challenge.”
Given the challenging dynamics of the Middle East and USCENTCOM AOR landscapes, the contract facilitates the rapid deployment of a multitude of Live, Virtual, and Constructive (LVC) resources, effectively enhancing the strategic positioning of USARCENT.
About V2X
V2X builds smart solutions designed to integrate physical and digital infrastructure – from base to battlefield – by aligning people, actions, and outputs. Formed by the merger of Vectrus and Vertex, we bring a combined 120 years of successful mission support. Our lifecycle solutions improve security, streamline logistics, and enhance readiness.
The Company delivers a comprehensive suite of integrated solutions across the operations and logistics, aerospace, training, and technology markets to national security, defense, civilian, and international clients. Our global team of approximately 15,000 employees brings innovation to every point in the mission lifecycle, from preparation to operations, to sustainment, as it tackles the most complex challenges with agility, grit, and dedication.
Media Contact Angelica Spanos Deoudes Senior Media Strategist Communications@goV2X.com 571-338-5195
Investor Contact Mike Smith, CFA Vice President, Treasury, Corporate Development and Investor Relations IR@goV2X.com 719-637-5773
Defense Metals Corp. is a mineral exploration and development company focused on the acquisition, exploration and development of mineral deposits containing metals and elements commonly used in the electric power market, defense industry, national security sector and in the production of green energy technologies, such as, rare earths magnets used in wind turbines and in permanent magnet motors for electric vehicles. Defense Metals owns 100% of the Wicheeda Rare Earth Element Property located near Prince George, British Columbia, Canada. Defense Metals Corp. trades in Canada under the symbol “DEFN” on the TSX Venture Exchange, in the United States, under “DFMTF” on the OTCQB and in Germany on the Frankfurt Exchange under “35D”.
Mark Reichman, Managing Director, Equity Research Analyst, Natural Resources, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Preliminary feasibility study (PFS) on track for 2Q’24 completion. Defense Metals has completed its 2023 Phase III geotechnical program and collected all requisite geotechnical field data needed to support the Wicheeda Rare Earth Element (REE) Project PFS which is on track for completion during the second quarter of 2024. The geotechnical work was completed by SRK Consulting (Canada) and supported by APEX Geoscience Limited.
Phase II program yielded successful outcomes. The Phase II program yielded successful outcomes, including intersecting significant widths of visibly REE mineralized dolomite carbonatite. Data gathered from the Phase II drilling program highlighted the significant potential to expand the Wicheeda REE Project mineral resource base.
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*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
SAN DIEGO, Dec. 07, 2023 (GLOBE NEWSWIRE) — Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS), a technology company in defense, national security and global markets, announced today that it demonstrated 100% interoperability success at the first ever DIFI Plugfest where satellite solutions providers converged to test the interoperability of their Digital IF products.
Founded under the auspices of the IEEE, the Digital IF Interoperability (DIFI) Consortium is an independent, international group of companies, organizations, and government agencies that have an interest in the interoperability of satellite ground system equipment. Its Digital IF/RF standard is intended to accelerate industry transformation beyond stove-piped, hardware-based systems to digital software-defined networks.
“Plugfests” are events held to test electronic equipment and software product interoperability between vendors against a technical standard. Seven equipment makers participated in this inaugural DIFI Plugfest, led by Kratos providing the most products tested, including:
OpenSpace® quantumRadio – virtualized modem that provides RF signal processing for TT&C and narrowband payload missions
OpenSpace® quantumRX – virtualized modem that provides RF signal processing for wideband missions
OpenSpace® Channelizer and OpenSpace® Combiner – software used to split and combine digitized RF signals for more effective downlink and uplink processing
SpectralNet® Wideband Digitizer – converts RF signals into digital IP packets for RF over IP transport
“Kratos is leading the movement to build interoperable, standards-based products that bring satellite networks into the mainstream of the global communications infrastructure,” said Kevin Tobias, Director of Product Management at Kratos. “That leadership was evident in the success across the broad range of Kratos products at DIFI’s Plugfest event. With our OpenSpace, SpectralNet and quantum products, Kratos is working to build a digital future that delivers more flexible, streamlined and affordable satellite services worldwide.”
The implementation of the DIFI standard across a wide variety of ground system products is foundational in Kratos’ ongoing effort to support the mainstreaming of satellite services so that satellite ground systems operate seamlessly with today’s wireless and terrestrial networks. As a founding member of the DIFI Consortium, Kratos recognizes the importance of the adoption of standards like DIFI in advancing that transformation and the satellite industry’s ability to scale and meet future demand.
About Kratos Defense & Security Solutions Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) is a technology company that develops and fields transformative, affordable systems, products and solutions for United States National Security, allies and global commercial enterprises. At Kratos, affordability is a technology, and Kratos is changing the way breakthrough technology is rapidly brought to market – at a low cost – with products, systems and technologies rather than slide decks or renderings. Through proven commercial and venture capital backed approaches, including proactive, internally funded research and streamlined development processes, Kratos is focused on being first to market with our solutions, well in advance of competition. Kratos is the recognized technology disruptor in our core market areas, including Space and Satellite Communications, Cyber Security and Warfare, Unmanned Systems, Rocket and Hypersonic Systems, Next-Generation Jet Engines and Propulsion Systems, Microwave Electronics, C5ISR and Virtual and Augmented Reality Training Systems. For more information, visit www.KratosDefense.com.
Notice Regarding Forward-Looking Statements Certain statements in this press release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of the management of Kratos and are subject to significant risks and uncertainty. 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 Kratos undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise. Although Kratos believes that the expectations reflected in these forward-looking statements are reasonable, these statements involve many risks and uncertainties that may cause actual results to differ materially from what may be expressed or implied in these forward-looking statements. For a further discussion of risks and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements, as well as risks relating to the business of Kratos in general, see the risk disclosures in the Annual Report on Form 10-K of Kratos for the year ended December 25, 2022, and in subsequent reports on Forms 10-Q and 8-K and other filings made with the SEC by Kratos.
Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the bottom of the report for important disclosures
More Funding? In testimony before the U.S. Senate Committee on Appropriations, U.S. Department of Homeland Security Secretary Mayorkas expounded on the Biden Administration’s $8.7 billion supplemental funding request for DHS to cover projected shortfalls, enhance enforcement, and hire additional personnel.
More Beds. One of the key items was increased surge capacity of up to 46,500 ICE detention beds. Recall, the current budgeted amount is 34,000 beds, although the most recent ICE report indicates nearly 37,000 beds were being used as of October 3rd and press reports indicate the current number is closer to 40,000. Additional funding for transportation and the Alternatives to Detention (ATD) program also was requested.
Surge Continues. In October 240,988 people were encountered at the Southwest border, up from 231,529 a year ago and down only modestly from the 269,735 encountered in September. For all of fiscal 2023, there were 2,475,669 border encounters. We would note, in his testimony, Secretary Mayorkas stated that since May 12th, or approximately 6 months, 336,000 individuals have been removed or returned, a fraction of the nearly 1.3 million encounters since then, not to mention the historic numbers prior. And, recall, encounters only represent a portion of total border crossings.
What Does It Mean for CXW and GEO. Assuming the funding is passed, it will have a positive impact on CoreCivic (CXW) and The GEO Group (GEO), at least in the short-term. With CXW and GEO receiving roughly one-third each of new detainees any increase in the overall number of detainees should positively impact operating results, especially given that as of the end of the third quarter, both companies had the majority of their respective ICE facilities at or above the guaranteed minimum level. If the increased number of beds is sticky, it is possible ICE will seek additional facility capacity, potentially enabling CXW and/or GEO to restart a currently idled facility. Finally, any increase in the use of the ISAP program will benefit GEO.
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Reported record revenues of $1.0 billion, up 5% y/y
Awarded bookings of $1.3 billion, increasing backlog to a record high of $13.3 billion
Reported operating income of $21.0 million; adjusted operating income1 of $59.5 million
Adjusted EBITDA1 of $64.7 million with a margin1 of 6.5%
Diluted EPS1 of ($0.21); Adjusted diluted EPS1 of $0.73
Reported year-to-date cash flow from operations of $135.2 million, and reduced net debt $88.9 million
MCLEAN, Va., Nov. 6, 2023 /PRNewswire/ — V2X, Inc. (NYSE:VVX) announced third quarter 2023 financial results.
“We achieved record revenue in the third quarter of approximately $1 billion, which demonstrates our unwavering commitment to our clients and the missions we support,” said Chuck Prow, President and Chief Executive Officer of V2X. “Bookings activity in the quarter was strong at $1.3 billion in awards. This yielded total backlog of $13.3 billion, an all-time high for the company and provides solid revenue visibility moving into 2024. Importantly, we are executing the “Expand the Base” component of our strategic framework and were successful in achieving extended scope through client engagement initiatives on existing business, which has yielded $332 million of awards in the quarter and $1.2 billion year-to-date. We are also leveraging our converged capabilities to pursue new business and currently have a robust pipeline of opportunities, which includes ~$19 billion of bids we plan to submit over the next twelve months and over $6 billion submitted and in evaluation.”
Mr. Prow continued, “During the quarter, we had notable success capturing several key pursuits that are representative of V2X’s differentiated ability to deliver technology and operational solutions across the mission lifecycle. For example, we secured a $190 million five-year, fixed price contract to continue providing training and range operations services to the U.S. Army in the Middle East. Our team will provide training support services as well as instruction, operation, and maintenance of training aids, devices, simulators, and simulations; fixed ranges; deployable ranges; and numerous training facilities. This successful capture leverages our decades of experience providing high consequence training as well as our global scale and will allow V2X to bring our Army client unparalleled service delivery in support of enhancing the warfighting skills via the use of live and virtual training. We continue to invest in the future and are developing the next generation of training capabilities, techniques, and enablers.”
“We have also made remarkable progress organically growing V2X’s environmental capabilities and were recently awarded an $85 million two-year contract to support the recovery and remediation of drinking water. This win builds on V2X’s original work to support the Department of Defense with the establishment of a water supply system for military housing at Red Hill, Hawaii. Our ability to deliver solutions that generate tangible results and public health benefits have led to incremental work and are now helping to deliver safe drinking water to the local communities. We have also successfully leveraged this capability to win similar work in Japan. We are proud to be supporting such an important environmental mission and believe there is significant opportunity to expand our efforts to other geographic areas both within and outside of the Pacific region.”
“Finally, subsequent to the end of the quarter, we were awarded a $458 million five-year, fixed price program to provide depot site standup as well as organizational, selected intermediate and limited depot level maintenance, and logistics support for the F-5 Adversary aircraft with the Navy and Marine Corps. The F-5 contract, combined with our Naval Test Wing Pacific and Atlantic awards, equates to over $1.7 billion in new work V2X has won with the U.S. Navy over the past ~18 months. I’d like to thank our teams for their commitment to delivering unique and value-added solutions that provide differentiation and enhanced client outcomes.”
Mr. Prow concluded, “We are pleased with our continued revenue growth and record backlog which is supported by the momentum generated through our efforts to converge solutions across our clients’ mission lifecycle. V2X is differentiating its capability offerings through the intersection of technology and operations, which we believe will continue to create value for our shareholders.”
Third Quarter 2023 Results
Revenue of $1.0 billion, up 4.5% y/y
Operating income of $21.0 million, including merger and integration related costs of $15.8 million, and amortization of acquired intangible assets of $22.6 million
Adjusted operating income1 of $59.5 million
Adjusted EBITDA1 of $64.7 million with a 6.5% adjusted EBITDA margin1
Diluted EPS1 of ($0.21); Adjusted Diluted EPS1 of $0.73
Net debt as of September 29, 2023 of $1.1 billion
Total backlog as of September 29, 2023 of $13.3 billion
“V2X reported revenue of $1.0 billion in the quarter, which represents 4.5% year-over-year growth,” said Shawn Mural, Senior Vice President and Chief Financial Officer. “Revenue growth in the quarter was achieved through continued program execution on existing programs, plus the phase-in of recent awards, including our first task order win with the Department of State, which reached full operational capability approximately two weeks ahead of schedule and has since expanded in size. We were also successful in continuing to defend our core and have won over $1 billion in recompete programs year to date.”
“For the quarter, the Company reported operating income of $21.0 million and adjusted operating income1 of $59.5 million. Adjusted EBITDA1 was $64.7 million with a margin of 6.5%, which was influenced by contract mix and performance on certain integrated electronic security programs. Third quarter diluted EPS was ($0.21), due primarily to merger and integration related costs, amortization of acquired intangible assets, and interest expense. Adjusted diluted EPS1 for the quarter was $0.73.”
“Cash generation was strong and net cash provided by operating activities was $135.2 million year to date. Adjusted net cash provided by operating activities1 year to date was $83.6 million, adding back $20.9 million of M&A and integration costs with $13.4 million of CARES act payments, and removing the contribution of the master accounts receivable purchase or MARPA facility of $85.8 million.”
“At the end of the quarter, net debt for V2X was $1,131.8 million. Our solid cash generation has enabled V2X to reduce its total debt by $88.9 million year to date. Net consolidated indebtedness to EBITDA1 (net leverage ratio) was 3.46x. Additionally, our strong fundamentals and cash flow profile allowed us to reprice our Term Loan B shortly after the quarter close. We expect the new pricing to reduce annual interest expense by $2 million,” said Mr. Mural.
Total backlog as of September 29, 2023, was $13.3 billion. Funded backlog was $3.2 billion. Bookings in the quarter were $1.3 billion, resulting in a book-to-bill of 1.3x. The trailing twelve-month book-to-bill was 1.1x.
2023 Guidance Mr. Mural concluded, “Based on what we are seeing in the business we are raising the low end and mid-point of our full year revenue projections. Given third-quarter results and our outlook, we are lowering the ranges for adjusted EBITDA and adjusted diluted EPS. This change incorporates year-to-date results, including the program performance mentioned earlier and timing of activities associated with national security support. We are reaffirming guidance for adjusted net cash provided by operating activities.” The Company is adjusting its 2023 guidance and is as follows:
$ millions, except for per share amounts
2023 Guidance (Updated)
2023 Mid-Point (Updated)
Revenue
$3,900
$3,950
$3,925
Adjusted EBITDA1
$285
$295
$290
Adjusted Diluted Earnings Per Share1
$3.50
$3.75
$3.62
Adjusted Net Cash Provided by Operating Activities 1
$115
$135
$125
Forward-looking statements are based upon current expectations and are subject to factors that could cause actual results to differ materially from those suggested here, including those factors set forth in the Safe Harbor Statement below.
Third Quarter 2023 Conference Call
Management will conduct a conference call with analysts and investors at 8:00 a.m. ET on Monday, November 6, 2023. U.S.-based participants may dial in to the conference call at 877-407-3982, while international participants may dial 201-493-6780. A live webcast of the conference call as well as an accompanying slide presentation will be available here: https://app.webinar.net/gAed3AVKra2
A replay of the conference call will be posted on the V2X website shortly after completion of the call and will be available for one year. A telephonic replay will also be available through November 20, 2023, at 844-512-2921 (domestic) or 412-317-6671 (international) with passcode 13742132.
Presentation slides that will be used in conjunction with the conference call will also be made available online in advance on the “investors” section of the company’s website at https://gov2x.com/. V2X recognizes its website as a key channel of distribution to reach public investors and as a means of disclosing material non-public information to comply with its obligations under the U.S. Securities and Exchange Commission (“SEC”) Regulation FD.
Footnotes: 1 See “Key Performance Indicators and Non-GAAP Financial Measures” for descriptions and reconciliations.
About V2X V2X builds smart solutions designed to integrate physical and digital infrastructure – from base to battlefield – by aligning people, actions, and outputs. Formed by the merger of Vectrus and Vertex, we bring a combined 120 years of successful mission support. Our lifecycle solutions improve security, streamline logistics, and enhance readiness.
The Company delivers a comprehensive suite of integrated solutions across the operations and logistics, aerospace, training, and technology markets to national security, defense, civilian and international clients. Our global team of approximately 15,000 employees brings innovation to every point in the mission lifecycle, from preparation to operations, to sustainment, as it tackles the most complex challenges with agility, grit, and dedication.
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 (the “Act”): Certain material presented herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Act. These forward-looking statements include, but are not limited to, all the statements and items listed under “2023 Guidance” above and other assumptions contained therein for purposes of such guidance, other statements about our 2023 performance outlook, revenue, contract opportunities, and any discussion of future operating or financial performance.
Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “could,” “potential,” “continue” or similar terminology. These statements are based on the beliefs and assumptions of the management of the Company based on information currently available to management.
These forward-looking statements are not guarantees of future performance, conditions, or results, and involve a number of known and unknown risks, uncertainties, assumptions, and other important factors, many of which are outside our management’s control, which could cause actual results to differ materially from the results discussed in the forward-looking statements. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and our present expectations or projections. For a discussion of some of the risks and uncertainties that could cause actual results to differ from such forward-looking statements, see the risks and other factors detailed from time to time our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other filings with the SEC.
We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Key Performance Indicators and Non-GAAP Measures
The primary financial performance measures we use to manage our business and monitor results of operations are revenue trends and operating income trends. Management believes that these financial performance measures are the primary drivers for our earnings and net cash from operating activities. Management evaluates its contracts and business performance by focusing on revenue, operating income, and operating margin. Operating income represents revenue less both cost of revenue and selling, general and administrative (SG&A) expenses. Cost of revenue consists of labor, subcontracting costs, materials, and an allocation of indirect costs, which includes service center transaction costs. SG&A expenses consist of indirect labor costs (including wages and salaries for executives and administrative personnel), bid and proposal expenses and other general and administrative expenses not allocated to cost of revenue. We define operating margin as operating income divided by revenue.
We manage the nature and amount of costs at the program level, which forms the basis for estimating our total costs and profitability. This is consistent with our approach for managing our business, which begins with management’s assessing the bidding opportunity for each contract and then managing contract profitability throughout the performance period.
In addition to the key performance measures discussed above, we consider adjusted net income, adjusted diluted earnings per share, adjusted operating income, adjusted EBITDA, adjusted EBITDA margin, adjusted operating cash flow, and pro forma revenue to be useful to management and investors in evaluating our operating performance, and to provide a tool for evaluating our ongoing operations. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives. We provide this information to our investors in our earnings releases, presentations, and other disclosures.
Adjusted net income, adjusted diluted earnings per share, adjusted operating income, adjusted EBITDA, adjusted EBITDA margin, adjusted net cash provided by (used in) operating activities, and pro forma revenue, however, are not measures of financial performance under GAAP and should not be considered a substitute for financial measures determined in accordance with GAAP. Definitions and reconciliations of these items are provided below.
Pro forma revenue is defined as the combined results of our operations as if the Merger had occurred on January 1, 2021.
Adjusted operating income is defined as operating income, adjusted to exclude items that may include, but are not limited to, significant charges or credits, and unusual and infrequent non-operating items that impact current results but are not related to our ongoing operations, such as M&A, integration, and related costs.
Adjusted EBITDA is defined as operating income, adjusted to exclude depreciation and amortization of intangible assets, and items that may include, but are not limited to, significant charges or credits, and unusual and infrequent non-operating items that impact current results but are not related to our ongoing operations, such as M&A, integration, and related costs.
Adjusted EBITDA margin is defined as adjusted EBITDA divided by revenue.
Adjusted net income is defined as net income, adjusted to exclude items that may include, but are not limited to, significant charges or credits, and unusual and infrequent non-operating items that impact current results but are not related to our ongoing operations, such as M&A, integration and related costs, amortization of acquired intangible assets, amortization of debt issuance costs, and loss on extinguishment of debt.
Adjusted diluted earnings per share is defined as adjusted net income divided by the weighted average diluted common shares outstanding.
Cash interest, net is defined as interest expense, net adjusted to exclude amortization of debt issuance costs.
Adjusted net cash provided by (used in) operating activities is defined as net cash provided by (or used in) operating activities adjusted to exclude infrequent non-operating items, such as M&A payments and related costs.
Net leverage ratio is defined as net debt (or total debt less unrestricted cash) divided by trailing twelve-month (TTM) bank EBITDA.
In this document, the Company presents certain forward-looking non-GAAP metrics. The Company does not provide outlook on a GAAP basis because the items that the Company excludes from GAAP to calculate the comparable non-GAAP measure can be dependent on future events that are less capable of being controlled or reliably predicted by management and are not part of the Company’s routine operating activities. Additionally, management does not forecast many of the excluded items for internal use and therefore cannot create or rely on outlook done on a GAAP basis. The occurrence, timing, and amount of any of the items excluded from GAAP to calculate non-GAAP could significantly impact the Company’s fiscal 2023 GAAP results.
CONTACT:
V2X, Inc. Mike Smith, CFA 719-637-5773 ir@gov2x.com
Third Quarter 2023 Revenues of $274.6 Million Reflect 20.1 Percent Organic Growth Over Third Quarter 2022 Revenues of $228.6 Million
Third Quarter 2023 Revenues Reflect 22.0 Percent Organic Revenue Growth in Kratos Government Solutions Segment and 13.4 Percent Organic Revenue Growth in Kratos Unmanned Systems Segment
Third Quarter 2023 Consolidated Book to Bill Ratio of 1.0 to 1 and Last Twelve Months Ended October 1, 2023 Consolidated Book to Bill Ratio of 1.1 to 1
SAN DIEGO, Nov. 02, 2023 (GLOBE NEWSWIRE) — Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS), a Technology Company in the Defense, National Security and Global Markets, today reported its third quarter 2023 financial results, including Revenues of $274.6 million, Operating Income of $12.2 million, Net Loss of $1.6 million, Adjusted EBITDA of $27.7 million and a consolidated book to bill ratio of 1.0 to 1.0.
Included in third quarter 2023 Net Loss and Operating Income is non-cash stock compensation expense of $6.4 million and Company-funded Research and Development (R&D) expense of $10.3 million, including significant ongoing development efforts in our Space and Satellite Communications business to develop our virtual, software-based OpenSpace command & control (C2), telemetry tracking & control (TT&C) and other ground system solutions. The third quarter 2023 Net Loss includes $4.6 million attributable to a non-controlling interest, which includes a charge of $4.2 million adjustment recorded to reflect the estimated increase in the value of the redeemable non-controlling interest to the estimated redemption amount by Kratos.
Kratos reported third quarter 2023 GAAP Net Loss of $1.6 million and a GAAP Net Loss per share of $0.01, compared to a GAAP Net Loss of $8.0 million and a GAAP Net Loss per share of $0.06 for the third quarter of 2022. Adjusted earnings per share (EPS) was $0.12 for the third quarter of 2023, compared to $0.08 for the third quarter of 2022.
Third quarter 2023 Revenues of $274.6 million increased $46.0 million, reflecting 20.1 percent organic growth, from third quarter 2022 Revenues of $228.6 million. Third quarter 2023 Revenues include organic Revenue growth of 22.0 percent in our Government Solutions Segment (KGS) and 13.4 percent organic Revenue growth in our Unmanned Systems Segment (KUS), respectively.
Third quarter 2023 Cash Flow Used from Operations was $0.1 million, reflecting the working capital requirements associated with the 6.9 percent sequential revenue growth of $17.7 million from the second quarter of 2023. Consolidated Days Sales Outstanding continued to improve from 120 in the second quarter of 2023 to 117 days in the third quarter of 2023. Free Cash Flow Used from Operations was $14.3 million after funding of $14.2 million of capital expenditures. Capital expenditures continue to remain elevated due primarily to the manufacture of the two production lots of Valkyries prior to contract award, to meet anticipated customer orders and requirements.
For the third quarter of 2023, KUS generated Revenues of $56.7 million, as compared to $50.0 million in the third quarter of 2022, primarily reflecting increased target drone related activity. KUS’s Operating Income was $2.6 million in the third quarter of 2023 compared to Operating Loss of $0.1 million in the third quarter of 2022.
KUS’s Adjusted EBITDA for the third quarter of 2023 was $5.4 million, compared to third quarter 2022 KUS Adjusted EBITDA of $2.1 million, reflecting a more favorable mix as well as the increased volume.
KUS’s book-to-bill ratio for the third quarter of 2023 was 0.5 to 1.0 and 1.1 to 1.0 for the last twelve months ended October 1, 2023, with bookings of $27.7 million for the three months ended October 1, 2023, and bookings of $244.8 million for the last twelve months ended October 1, 2023. Total backlog for KUS at the end of the third quarter of 2023 was $227.8 million compared to $256.7 million at the end of the second quarter of 2023.
For the third quarter of 2023, KGS Revenues of $217.9 million increased organically 22.0 percent from Revenues of $178.6 million in the third quarter of 2022. The increased Revenues includes organic revenue growth in our Space, Satellite and Cyber, Turbine Technologies, C5ISR, Microwave Electronics Products and Training Solutions businesses.
KGS reported operating income of $15.9 million in the third quarter of 2023 compared to $3.3 million in the third quarter of 2022, primarily reflecting a more favorable mix and increased revenue volume. Third quarter 2023 KGS Adjusted EBITDA was $22.3 million, compared to third quarter 2022 KGS Adjusted EBITDA of $17.9 million, primarily reflecting the more favorable mix and increased revenue.
Kratos’ Space, Satellite and Cyber business generated Revenues of $105.5 million in the third quarter of 2023 compared to $85.8 million in the third quarter of 2022, reflecting a 23.0 percent organic growth rate.
KGS reported a book-to-bill ratio of 1.2 to 1.0 for the third quarter of 2023, a book to bill ratio of 1.1 to 1.0 for the last twelve months ended October 1, 2023 and bookings of $254.6 million and $863.9 million for the three and last twelve months ended October 1, 2023, respectively. KGS includes Kratos’ Space, Satellite, Cyber and Training Solutions business, which reported a book to bill ratio of 1.4 to 1.0 for the third quarter of 2023 and a book to bill ratio of 1.2 to 1.0 for the last twelve months ended October 1, 2023. Bookings for Kratos’ Space, Satellite, Cyber and Training business for the three months and last twelve months ended October 1, 2023 were $153.6 million and $472.8 million, respectively. KGS’s total backlog at the end of the third quarter of 2023 was $937.3 million, as compared to $900.6 million at the end of the second quarter of 2023.
Kratos reported consolidated bookings of $282.3 million and a book-to-bill ratio of 1.0 to 1.0 for the third quarter of 2023, and consolidated bookings of $1.11 billion and a book-to-bill ratio of 1.1 to 1.0 for the last twelve months ended October 1, 2023. Consolidated backlog was $1.17 billion on October 1, 2023 and $1.16 billion on June 25, 2023. Kratos’ bid and proposal pipeline was $10.3 billion at October 1, 2023, up from $10.0 billion at June 25, 2023. Backlog at October 1, 2023 included funded backlog of $850.9 million and unfunded backlog of $314.1 million.
Eric DeMarco, Kratos’ President and CEO, said, “Kratos continues to successfully execute our stated strategy of making targeted investments and being first to market, with relevant technology, products, systems and software, in mission critical, well-funded, high demand priority areas, which is reflected in our 20% third quarter organic growth rate. At Kratos, affordability is a technology, better is the enemy of good enough – ready to go today, and quantities have a quality all of its own, all of which are clearly being demonstrated geopolitically in multiple conflict areas.”
Mr. DeMarco continued, “Representative of the strength of Kratos’ strategy and our business, we have increased our full year 2023 revenue guidance and we are currently forecasting base case, which excludes potential tactical drone production orders, 2024 over 2023 revenue growth of 10%, with increased EBITDA. Additionally, based on recent large new program opportunities we are pursuing, we are now planning on certain additional investments in 2024, including in the tactical drone and satellite areas, in order to position the Company for potentially even greater growth in 2025 and beyond. Among the new opportunities we are pursuing, we are in discussions with a customer and hope to be under contract next year related to certain other Kratos tactical drone systems, including Thanatos and we are now in source selection on a significant new satellite opportunity with Kratos’ virtualized OpenSpace software system.”
Mr. DeMarco concluded, “Our primary operational challenge remains the obtaining, retaining, and related escalating cost of qualified individuals, including those willing and able to obtain a National Security clearance. As a result, though we expect continued future year over year profit margin expansion, including as noted with our Q3 results and affirmed Q4 EBITDA guidance, we will be cautious in our future EBITDA forecast. Also, as the industry and Kratos are currently operating under a Continuing Resolution Authorization, similar to previous years, we will wait to release our detailed fiscal 2024 business financial forecast in February 2024, when we report our fiscal 2023 results, as we should then have better budgetary and programmatic clarity.”
Financial Guidance
We are providing our initial 2023 fourth quarter financial guidance and increasing our full year 2023 Revenue and affirming our Adjusted EBITDA guidance today, which includes our current forecasted business mix, and our assumptions, including as related to: employee sourcing, hiring and retention; manufacturing, production and supply chain disruptions; parts shortages and related continued potential 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 2023 Revenues and Adjusted EBITDA includes assumptions of forecasted execution, including the number and estimated costs of qualified personnel expected to be obtained and retained to successfully execute on our programs and contracts, as well as expected contract awards. Our revised full year 2023 cash flow guidance reflects the ongoing impact of working capital requirements to fund revenue growth, including the increased estimated FY23 revenues, and the continued increase in inventory balances, as well as the shift of certain payment milestones primarily in our Training Solutions and C5ISR businesses.
Our fourth quarter and full year 2023 guidance ranges are as follows:
Current Guidance Range
$M
Q423
FY23
Revenues
$237 – $257
$1,000 – $1,020
R&D
$9 – $10
$40 – $42
Operating Income
$4 – $7
$25 – $28
Depreciation
$7 – $8
$27 – $28
Amortization
$2 – $3
$8 – $10
Stock Based Compensation
$6 – $7
$24 – $26
Adjusted EBITDA
$19 – $23
$85 – $89
Operating Cash Flow
$20 – $30
Capital Expenditures
$45 – $50
Free Cash Flow Use
$(20) – $(25)
Management will discuss the Company’s financial results, on a conference call beginning at 2:00 p.m. Pacific (5:00 p.m. Eastern) today. The call will be available at www.kratosdefense.com. Participants may register for the call using this Online Form. Upon registration, all telephone participants will receive the dial-in number along with a unique PIN that can be used to access the call. For those who cannot access the live broadcast, a replay will be available on Kratos’ website.
About Kratos Defense & Security Solutions Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) is a Technology Company that develops and fields transformative, affordable systems, products and solutions for United States National Security, our allies and global commercial enterprises. At Kratos, Affordability is a Technology, and Kratos is changing the way breakthrough technology is rapidly brought to market – at a low cost – with actual products, systems, and technologies rather than slide decks or renderings. Through proven commercial and venture capital backed approaches, including proactive, internally funded research and streamlined development processes, Kratos is focused on being First to Market with our solutions, well in advance of competition. Kratos is the recognized Technology Disruptor in our core market areas, including Space and Satellite Communications, Cyber Security and Warfare, Unmanned Systems, Rocket and Hypersonic Systems, Next-Generation Jet Engines and Propulsion Systems, Microwave Electronics, C5ISR and Virtual and Augmented Reality Training Systems. For more information, visit www.KratosDefense.com.
Notice RegardingForward-LookingStatements 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 2023 revenues, R&D, operating income (loss), depreciation, amortization, stock based compensation expense, and Adjusted EBITDA, and full year 2023 operating cash flow, capital expenditures and other investments, and free cash flow, 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, including the Company’s ability to achieve sustained year over year increasing revenues, profitability and cash flow, the Company’s expectation of ramp on projects and that investments in its business, including Company funded R&D expenses and ongoing development efforts, 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 and backlog, including the Company’s ability to timely execute on its backlog, demand for its products and services, including the Company’s alignment with today’s National Security requirements and the positioning of its C5ISR and other businesses, planned 2024 investments, including in the tactical drone and satellite areas, and the related potential for additional growth in 2025, 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 target and 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, the ability of the Company’s advanced purchases of inventory to mitigate supply chain disruptions and the timing of converting these investments to cash through the sales process, 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 U.S. Department of Defense (DoD) budget approvals, timing of LRIP and full rate production related to the Company’s unmanned aerial target system offerings, as well as the level of recurring revenues expected to be generated by these programs once they achieve full rate production, market and industry developments, and the current estimated impact of COVID-19 and employee absenteeism, supply chain disruptions, availability of an experienced skilled workforce, inflation and increased costs, and delays in our financial projections, industry, business and operations, including projected growth. Such statements are only predictions, and the Company’s actual results may differ materially from the results expressed or implied by these statements. 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 U.S. Government and our other customers, including as a result of sequestration and extended continuing resolutions, the Federal budget deficit and Federal government shut-downs; risks of adverse regulatory action or litigation; risks associated with debt leverage and cost savings and cash flow improvements expected as a result of the refinancing of our Senior Notes; risks that our cost-cutting initiatives will not provide the anticipated benefits; risks that changes, cutbacks or delays in spending by the DoD may occur, which could cause delays or cancellations of key government contracts; risks of delays to or the cancellation of our projects as a result of protest actions submitted by our competitors; risks that changes may occur in Federal government (or other applicable) procurement laws, regulations, policies and budgets; risks of the availability of government funding for the Company’s products and services due to performance, cost growth, or other factors, changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reduction of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional committee recommendations or automatic sequestration under the Budget Control Act of 2011, as amended); risks that the unmanned aerial systems and unmanned ground sensor markets do not experience significant growth; risks that products we have developed or will develop will become programs of record; risks that we cannot expand our customer base or that our products do not achieve broad acceptance which could impact our ability to achieve our anticipated level of growth; risks of increases in the Federal government initiatives related to in-sourcing; risks related to security breaches, including cyber security attacks and threats or other significant disruptions of our information systems, facilities and infrastructures; risks related to our compliance with applicable contracting and procurement laws, regulations and standards; risks related to the new DoD Cybersecurity Maturity Model Certification; risks relating to the ongoing conflict in Ukraine and the Israeli-Palestinian military conflict; risks to our business in Israel; risks related to contract performance; risks related to failure of our products or services; risks associated with our subcontractors’ or suppliers’ failure to perform their contractual obligations, including the appearance of counterfeit or corrupt parts in our products; changes in the competitive environment (including as a result of bid protests); failure to successfully integrate acquired operations and compete in the marketplace, which could reduce revenues and profit margins; risks that potential future goodwill impairments will adversely affect our operating results; risks that anticipated tax benefits will not be realized in accordance with our expectations; risks that a change in ownership of our stock could cause further limitation to the future utilization of our net operating losses; risks that we may be required to record valuation allowances on our net operating losses which could adversely impact our profitability and financial condition; risks that the current economic environment will adversely impact our business, including with respect to our ability to recruit and retain sufficient numbers of qualified personnel to execute on our programs and contracts, as well as expected contract awards and risks related to increasing interest rates and risks related to the interest rate swap contract to hedge Term SOFR associated with the Company’s Term Loan A; currently unforeseen risks associated with COVID-19 and risks related to natural disasters or severe weather. These and other risk factors are more fully discussed in the Company’s Annual Report on Form 10-K for the period ended December 25, 2022, and in our other filings made with the Securities and Exchange Commission.
Note Regarding Use of Non-GAAP Financial Measures and Other Performance Metrics This news release contains non-GAAP financial measures, including Adjusted EPS (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 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 plus proceeds from sale of assets 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 Bill Ratio as it provides investors with a measure of the amount of bookings or contract awards as compared to the amount of revenues that have been recorded during the period and provides an indicator of how much of the Company’s backlog is being burned or utilized in a certain period. The Book to Bill Ratio is computed as the number of bookings or contract awards in the period divided by the revenues recorded for the same period. The Company believes that the rolling or last twelve months’ Book to Bill Ratio is meaningful since the timing of quarter-to-quarter bookings can vary.
Unaudited Condensed Consolidated Statements of Operations
(in millions, except per share data)
Three Months Ended
Nine Months Ended
October 1,
September 25,
October 1,
September 25,
2023
2022
2023
2022
Service revenues
$
106.5
$
88.6
$
301.8
$
235.3
Product sales
168.1
140.0
461.5
413.7
Total revenues
274.6
228.6
763.3
649.0
Cost of service revenues
79.0
65.1
227.2
171.2
Cost of product sales
122.2
108.6
339.4
313.2
Total costs
201.2
173.7
566.6
484.4
Gross profit – service revenues
27.5
23.5
74.6
64.1
Gross profit – product sales
45.9
31.4
122.1
100.5
Total gross profit
73.4
54.9
196.7
164.6
Selling, general and administrative expenses
47.5
44.2
136.7
126.1
Acquisition and restructuring related items and other
–
0.4
0.9
7.0
Research and development expenses
10.3
9.6
30.4
28.0
Depreciation
1.9
1.3
4.8
3.9
Amortization of intangible assets
1.5
3.0
4.5
6.3
Operating income (loss)
12.2
(3.6
)
19.4
(6.7
)
Interest expense, net
(5.1
)
(4.1
)
(15.5
)
(12.9
)
Loss on extinguishment of debt
–
–
–
(13.0
)
Other expense, net
(0.3
)
(1.1
)
(0.4
)
(1.0
)
Income (loss) from continuing operations before income taxes
6.8
(8.8
)
3.5
(33.6
)
Provision (benefit) for income taxes from continuing operations
3.8
(0.8
)
6.9
(4.6
)
Income (loss) from continuing operations
3.0
(8.0
)
(3.4
)
(29.0
)
Income from discontinued operations, net of income taxes
–
–
0.2
0.7
Net income (loss)
3.0
(8.0
)
(3.2
)
(28.3
)
Less: Net income attributable to noncontrolling interest
4.6
–
–
8.1
0.3
Net loss attributable to Kratos
$
(1.6
)
$
(8.0
)
$
(11.3
)
$
(28.6
)
Basic and diluted loss per common share attributable to Kratos:
Loss from continuing operations
$
(0.01
)
$
(0.06
)
$
(0.09
)
$
(0.23
)
Income from discontinued operations
–
–
–
–
Net loss
(0.01
)
$
(0.06
)
$
(0.09
)
$
(0.23
)
Basic and diluted weighted average common shares outstanding
129.6
127.2
129.3
126.5
Adjusted EBITDA (1)
$
27.7
$
20.0
$
66.3
$
51.5
Unaudited Reconciliation of GAAP to Non-GAAP Measures
Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net loss attributable to Kratos adjusted for net income attributable to noncontrolling interest, income 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 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 (loss) 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 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.
Foreign transaction (gain) loss. The Company incurs transaction gains and losses related to transactions with foreign customers in currencies other than the U.S. dollar. In addition, certain intercompany transactions can give rise to realized and unrealized foreign currency gains and losses.
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.
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.
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.
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 Loss attributable to Kratos to Adjusted EBITDA is as follows:
Three Months Ended
Nine Months Ended
October 1,
September 25,
October 1,
September 25,
2023
2022
2023
2022
Net loss attributable to Kratos
$
(1.6
)
$
(8.0
)
$
(11.3
)
$
(28.6
)
Income from discontinued operations, net of income taxes
–
–
(0.2
)
(0.7
)
Interest expense, net
5.1
4.1
15.5
12.9
Loss on extinguishment of debt
–
–
–
13.0
Provision (benefit) for income taxes from continuing operations
3.8
(0.8
)
6.9
(4.6
)
Depreciation (including cost of service revenues and product sales)
6.7
5.9
19.5
16.5
Stock-based compensation
6.4
6.6
19.0
19.9
Foreign transaction loss
0.4
1.4
1.4
1.5
Amortization of intangible assets
1.5
3.0
4.5
6.3
Amortization of capitalized contract and development costs
0.8
0.4
2.0
1.0
Acquisition and restructuring related items and other
–
7.4
0.9
14.0
Plus: Net income attributable to noncontrolling interest
4.6
–
8.1
0.3
Adjusted EBITDA
$
27.7
$
20.0
$
66.3
$
51.5
Reconciliation of acquisition and restructuring related items and other included in Adjusted EBITDA:
Three Months Ended
Nine Months Ended
October 1,
September 25,
October 1,
September 25,
2023
2022
2023
2022
Acquisition and transaction related items
$
–
$
0.2
$
–
$
0.6
Restructuring costs
–
0.8
–
1.1
Non-recoverable rates and costs
–
6.4
–
6.4
Legal related items
–
–
0.9
5.9
$
–
$
7.4
$
0.9
$
14.0
Kratos Defense & Security Solutions, Inc.
Unaudited Segment Data
(in millions)
Three Months Ended
Nine Months Ended
October 1,
September 25,
October 1,
September 25,
2023
2022
2023
2022
Revenues:
Unmanned Systems
$
56.7
$
50.0
$
156.8
$
159.0
Kratos Government Solutions
217.9
178.6
606.5
490.0
Total revenues
$
274.6
$
228.6
$
763.3
$
649.0
Operating income (loss)
Unmanned Systems
$
2.6
$
(0.1
)
$
3.2
$
(4.6
)
Kratos Government Solutions
15.9
3.3
35.2
18.4
Unallocated corporate expense, net
(6.3
)
(6.8
)
(19.0
)
(20.5
)
Total operating income (loss)
$
12.2
$
(3.6
)
$
19.4
$
(6.7
)
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
October 1,
September 25,
October 1,
September 25,
2023
2022
2023
2022
Unmanned Systems
Operating income (loss)
$
2.6
$
(0.1
)
$
3.2
$
(4.6
)
Other income (expense)
0.1
(0.1
)
0.1
–
Depreciation
2.1
1.7
5.9
5.0
Amortization of intangible assets
0.1
0.2
0.3
0.7
Amortization of capitalized contract and development costs
0.5
0.4
1.3
1.0
Acquisition and restructuring related items and other
–
–
–
5.9
Adjusted EBITDA
$
5.4
$
2.1
$
10.8
$
8.0
% of revenue
9.5
%
4.2
%
6.9
%
5.0
%
Kratos Government Solutions
Operating income
$
15.9
$
3.3
$
35.2
$
18.4
Other income
0.1
0.4
0.9
0.5
Depreciation
4.6
4.2
13.6
11.5
Amortization of intangible assets
1.4
2.8
4.2
5.6
Amortization of capitalized contract and development costs
0.3
–
0.7
–
Acquisition and restructuring related items and other
–
7.2
0.9
7.5
Adjusted EBITDA
$
22.3
$
17.9
$
55.5
$
43.5
% of revenue
10.2
%
10.0
%
9.2
%
8.9
%
Total Adjusted EBITDA
$
27.7
$
20.0
$
66.3
$
51.5
% of revenue
10.1
%
8.7
%
8.7
%
7.9
%
Kratos Defense & Security Solutions, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in millions)
October 1,
December 25,
2023
2022
Assets
Current assets:
Cash and cash equivalents
$
42.2
$
81.3
Accounts receivable, net
351.9
328.5
Inventoried costs
150.1
125.5
Prepaid expenses
18.3
11.9
Other current assets
41.9
35.4
Total current assets
604.4
582.6
Property, plant and equipment, net
227.3
213.1
Operating lease right-of-use assets
50.6
47.4
Goodwill
558.2
558.2
Intangible assets, net
50.7
55.2
Other assets
99.6
95.0
Total assets
$
1,590.8
$
1,551.5
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
57.4
$
57.3
Accrued expenses
40.3
33.8
Accrued compensation
55.2
52.2
Accrued interest
1.8
1.5
Billings in excess of costs and earnings on uncompleted contracts
79.4
62.1
Current portion of operating lease liabilities
12.1
10.8
Other current liabilities
15.9
15.6
Other current liabilities of discontinued operations
0.9
0.9
Total current liabilities
263.0
234.2
Long-term debt
234.2
250.2
Operating lease liabilities, net of current portion
43.0
40.8
Other long-term liabilities
76.8
77.4
Other long-term liabilities of discontinued operations
1.1
1.4
Total liabilities
618.1
604.0
Commitments and contingencies
Redeemable noncontrolling interest
19.3
11.2
Stockholders’ equity:
Additional paid-in capital
1,633.5
1,608.4
Accumulated other comprehensive loss
2.5
(0.8
)
Accumulated deficit
(682.6
)
(671.3
)
Total Kratos stockholders’ equity
953.4
936.3
Total liabilities and stockholders’ equity
$
1,590.8
$
1,551.5
Kratos Defense & Security Solutions, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)
Nine Months Ended
October 1,
September 25,
2023
2022
Operating activities:
Net loss
$
(3.2
)
$
(28.3
)
Less: income from discontinued operations
0.2
0.7
Loss from continuing operations
(3.4
)
(29.0
)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities from continuing operations:
Depreciation and amortization
24.0
22.8
Amortization of lease right-of-use assets
8.5
7.8
Deferred income taxes
0.1
0.3
Stock-based compensation
19.0
19.9
Litigation related charges
–
5.5
Amortization of deferred financing costs
0.5
0.6
Loss on extinguishment of debt
–
13.0
Provision for doubtful accounts
1.0
–
Changes in assets and liabilities, net of acquisitions:
Accounts receivable
(23.5
)
17.0
Unbilled receivables
(9.1
)
(18.2
)
Inventoried costs
(23.7
)
(28.0
)
Prepaid expenses and other assets
(15.7
)
(17.4
)
Operating lease liabilities
(8.2
)
(7.7
)
Accounts payable
(0.6
)
1.0
Accrued compensation
3.1
3.0
Accrued expenses
6.4
1.1
Accrued interest
0.3
(1.2
)
Billings in excess of costs and earnings on uncompleted contracts
17.4
(10.6
)
Income tax receivable and payable
1.9
(8.3
)
Other liabilities
(0.2
)
(3.9
)
Net cash used in operating activities from continuing operations
(2.2
)
(32.3
)
Investing activities:
Cash paid for acquisitions, net of cash acquired
–
(132.2
)
Capital expenditures
(33.1
)
(34.8
)
Proceeds from sale of assets
8.3
0.1
Net cash used in investing activities from continuing operations
(24.8
)
(166.9
)
Financing activities:
Proceeds from the issuance of long-term debt
–
200.0
Borrowing under credit facility
54.0
100.0
Redemption of Senior Secured Notes
–
(309.8
)
Repayment under credit facility, term loan and other debt
(67.8
)
(1.2
)
Debt issuance costs
–
(3.2
)
Payment under finance leases
(1.2
)
(1.0
)
Payments of employee taxes withheld from share-based awards
(3.6
)
(12.3
)
Proceeds from shares issued under equity plans
6.5
6.1
Net cash used in financing activities from continuing operations
(12.1
)
(21.4
)
Net cash flows from continuing operations
(39.1
)
(220.6
)
Net operating cash flows of discontinued operations
–
(0.3
)
Effect of exchange rate changes on cash and cash equivalents
–
(3.3
)
Net decrease in cash, cash equivalents and restricted cash
(39.1
)
(224.2
)
Cash, cash equivalents and restricted cash at beginning of period
81.3
349.4
Cash, cash equivalents and restricted cash at end of period
$
42.2
$
125.2
Kratos Defense & Security Solutions, Inc.
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
October 1,
September 25,
October 1,
September 25,
2023
2022
2023
2022
Net loss attributable to Kratos
$
(1.6
)
$
(8.0
)
$
(11.3
)
$
(28.6
)
Less: GAAP provision (benefit) for income taxes
3.8
(0.8
)
6.9
(4.6
)
Less: Net income attributable to noncontrolling interest
4.6
–
8.1
0.3
Less: income from discontinued operations, net of income taxes
–
–
(0.2
)
(0.7
)
Income (loss) from continuing operations before taxes
6.8
(8.8
)
3.5
(33.6
)
Add: Amortization of intangible assets
1.5
3.0
4.5
6.3
Add: Amortization of capitalized contract and development costs
0.8
0.4
2.0
1.0
Add: Depreciation
6.7
5.9
19.5
16.5
Add: Stock-based compensation
6.4
6.6
19.0
19.9
Add: Loss on extinguishment of debt
–
–
–
13.0
Add: Foreign transaction loss
0.4
1.4
1.4
1.5
Add: Acquisition and restructuring related items and other
–
7.4
0.9
14.0
Non-GAAP Adjusted income from continuing operations before income taxes
22.6
15.9
50.8
38.6
Income taxes on Non-GAAP measure Adjusted income from continuing operations*
6.9
5.7
15.5
13.9
Non-GAAP Adjusted net income
$
15.7
$
10.2
$
35.3
$
24.7
Diluted earnings per common share
$
(0.01
)
$
(0.06
)
$
(0.09
)
$
(0.23
)
Less: GAAP provision (benefit) for income taxes
0.03
(0.01
)
0.05
(0.03
)
Less: Net income attributable to noncontrolling interest
0.03
–
0.06
–
Less: income from discontinued operations, net of income taxes
–
–
–
–
Add: Amortization of intangible assets
0.01
0.02
0.03
0.05
Add: Amortization of capitalized contract and development costs
0.01
–
0.02
0.01
Add: Depreciation
0.05
0.05
0.15
0.13
Add: Stock-based compensation
0.05
0.05
0.15
0.16
Add: Loss on extinguishment of debt
–
–
–
0.10
Add: Foreign transaction loss
–
0.01
0.01
0.01
Add: Acquisition and restructuring related items and other
–
0.06
0.01
0.11
Income taxes on Non-GAAP measure Adjusted income from continuing operations*
(0.05
)
(0.04
)
(0.12
)
(0.11
)
Adjusted income from continuing operations per diluted common share
$
0.12
$
0.08
$
0.27
$
0.20
Weighted average diluted common shares outstanding
129.6
127.2
129.3
126.5
*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, 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.
Kratos Thanatos Tactical UAV in Flight – Conceptual Rendition
SAN DIEGO, Oct. 26, 2023 (GLOBE NEWSWIRE) — Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS), a Technology Company in the Defense, National Security and Global Markets, announced today that it will publish financial results for the third quarter 2023 after the close of market on Thursday, November 2nd. Management will discuss the Company’s operations and financial results in a conference call beginning at 2:00 p.m. Pacific (5:00 p.m. Eastern).
The call will be available at www.kratosdefense.com. Participants may register for the call using this Online Form. Upon registration, all telephone participants will receive the dial-in number along with a unique PIN that can be used to access the call. For those who cannot access the live broadcast, a replay will be available on Kratos’ website.
About Kratos Defense & Security Solutions Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) is a Technology Company that develops and fields transformative, affordable systems, products and solutions for United States National Security, our allies and global commercial enterprises. At Kratos, Affordability is a Technology, and Kratos is changing the way breakthrough technology is rapidly brought to market – at a low cost – with actual products, systems, and technologies rather than slide decks or renderings. Through proven commercial and venture capital backed approaches, including proactive, internally funded research and streamlined development processes, Kratos is focused on being First to Market with our solutions, well in advance of competition. Kratos is the recognized Technology Disruptor in our core market areas, including Space and Satellite Communications, Cyber Security and Warfare, Unmanned Systems, Rocket and Hypersonic Systems, Next-Generation Jet Engines and Propulsion Systems, Microwave Electronics, C5ISR and Virtual and Augmented Reality Training Systems. For more information, visit www.KratosDefense.com.
