Second Quarter 2019 Revenues of $187.9 Million
Increase 24.3% over Second Quarter 2018 Revenues

Second Quarter 2019 Operating Income of $9.0 Million
Increase 246.2% over Second Quarter 2018 Operating Income

SAN DIEGO, July 31, 2019 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider, today reported its second quarter 2019 financial results.  For the second quarter 2019, Kratos reported Revenues of $187.9 million and Adjusted EBITDA of $19.2 million, or 10.2 percent, a 58.7 percent increase over the Adjusted EBITDA for the second quarter of 2018.  Kratos reported second quarter 2019 Operating Income of $9.0 million, a 246.2 percent increase over the second quarter of 2018 and Cash Flow from Operations of $4.0 million. Second quarter Free Cash Flow from Operations was a use of $1.8 million after capital expenditures of $5.8 million, which included the continuing build out of the Company’s new drone manufacturing facility in Oklahoma, where the XQ-58 Valkyrie will be produced.  For the second quarter 2019, Kratos reported Adjusted EPS* of $0.08, a 300.0 percent increase over the second quarter of 2018, Net Income of $3.9 million and GAAP EPS of $0.04, compared to a second quarter 2018 Net Loss of $7.7 million and GAAP EPS loss of $0.07. 

Kratos’ second quarter 2019 Revenues increased $36.7 million over second quarter 2018 Revenues of $151.2 million, or 24.3 percent.  Included in second quarter 2019 Revenues was approximately $17.2 million generated from recently acquired Florida Turbine Technologies (“FTT”).  Excluding the impact of FTT, Kratos Revenues increased organically 12.9 percent year-over-year.

For the second quarter of 2019, Kratos’ Unmanned Systems Division (KUSD) generated Revenues of $42.5 million, an increase of $6.9 million or 19.4 percent over 2018 second quarter Revenues of $35.6 million.  KUSD second quarter book-to-bill ratio was 1.5 to 1.0, with a funded backlog of $153.4 million.   Second quarter KUSD 2019 Adjusted EBITDA was $3.5 million and Operating Income was $1.7 million, compared to Adjusted EBITDA of $3.7 million and Operating Income of $2.0 million in the second quarter of 2018.    

For the second quarter of 2019, Kratos’ Government Solutions Division (KGS) generated Revenues of $145.4 million compared to 2018 second quarter Revenues of $115.6 million, an increase of 25.8 percent.  Excluding the impact of the FTT acquisition, KGS Revenues increased organically 10.9 percent, or $12.6 million, from the second quarter of 2018 to the second quarter of 2019.  Second quarter 2019 KGS Adjusted EBITDA of $15.7 million increased 86.9 percent over second quarter 2018 Adjusted EBITDA of $8.4 million.  Second quarter 2019 KGS Operating Income of $10.7 million increased 114.0 percent over second quarter 2018 Operating Income of $5.0 million.  

For the second quarter of 2019, Kratos reported bookings of $188.1 million and a book-to-bill ratio of 1.0 to 1.0, with backlog at June 30, 2019 of $620.3 million, and a last twelve months ending June 30, 2019 book-to-bill ratio of 1.1 to 1.  In the second quarter, Kratos’ bid and proposal pipeline increased by $400 million, up to approximately $7.6 billion, at June 30, 2019, including certain large new hypersonic, missile defense and unmanned aerial drone system opportunities which are expected to be awarded in the second half of 2019.   

Eric DeMarco, Kratos’ President and CEO, said, “In the second quarter of 2019 every Kratos business unit generated sequential organic revenue growth over the first quarter of 2019, reflecting Kratos’ alignment with the DoD National Security Strategy and related funding priorities.  Also, Kratos’ business mix continues to be favorable as we execute on higher margin product and solutions work versus services work, including as our space and satellite business transitions to more software solutions than legacy hardware to address rapidly changing customer requirements.” 

Mr. DeMarco continued, “In the second quarter, Kratos’ Unmanned Systems business successfully performed the second demonstration flight of the XQ-58A Valkyrie, with 100 percent of the test points being achieved and we continued to gain significant customer interest in this affordable, high performance UAS platform.  As a result, we have begun ordering engines for expected Valkyrie production in order to meet anticipated future customer delivery requirements.  Additionally, KUSD began delivering the Gremlins drone systems to our prime partner Dynetics, with demonstration flights expected in the next few months.  We have also received increased DIU funding for the Mako tactical UAS, Program Spartan has now received initial customer funding and a Confidential Program is nearing full rate production.  KUSD also received the SSAT LRIP3 target drone and AFSAT target drone program production year 15 contract awards, both sole source and also key elements of our expected future growth trajectory.”

Mr. DeMarco concluded, “As we look forward, we have increasing visibility and confidence in the expected long term growth trajectory of the business.  Our bid pipeline remains at all time high levels, including a number of new large opportunities we are pursuing in our unmanned systems, missile defense and hypersonic systems areas, where if successful, could be significant catalysts and additional growth drivers for our Company.”    

Financial Guidance

Kratos is providing third quarter 2019 financial guidance of Revenues of $175 to $185 million, and Adjusted EBITDA of $16 to $18 million.  It is also updating its full year 2019 financial guidance of Revenues to $720 to $740 million, and reaffirming its full year 2019 guidance of Adjusted EBITDA of $71 to $77 million.  Third quarter and full year 2019 guidance reflect the most recent forecast for Kratos’ business mix, including increased higher profit margin product and solutions work, increased software solutions and reduced legacy hardware sales in our space and satellite business, lower services revenues including in our training solutions business, and the current timing of expected KGS contract awards.   

The Company is reaffirming full year 2019 Cash Flow from Operations guidance of $40 to $50 million, capital expenditures of $28 to $30 million, and Free Cash Flow guidance of $10 to $20 million, plus the expected final cash receipt of the retained working capital from the Company’s divested PSS business of approximately $4 to $6 million.  Capital expenditures are expected to continue to be elevated in 2019, reflecting expected outlays associated with manufacturing equipment for the Company’s new drone facility in Oklahoma and equipment for a new secured facility of approximately $6 to $8 million and approximately $4 to $6 million related to the planned manufacture of Company owned aerial target drones in preparation of fulfilling expected customer requirements.

Management will discuss the Company’s second quarter 2019 financial results, as well as its third quarter and full year 2019 guidance on a conference call beginning at 2:00 p.m. Pacific (5:00 p.m. Eastern) today. Analysts and institutional investors may participate in the conference call by dialing (866) 393-0674, and referencing the call by ID number 3887333. The general public may access the conference call by dialing (877) 344-3935 or on the day of the event by visiting www.kratosdefense.com for a simultaneous webcast. A replay of the webcast will be available on the Kratos web site approximately two hours after the conclusion of the conference call.

About Kratos Defense & Security Solutions
Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) develops and fields transformative, affordable technology, platforms and systems for United States National Security related customers, allies and commercial enterprises.  Kratos is changing the way breakthrough technologies for these industries are rapidly brought to market through proven commercial and venture capital backed approaches, including proactive research and streamlined development processes. Kratos specializes in unmanned systems, satellite communications, cyber security/warfare, microwave electronics, missile defense, hypersonic systems, training and combat systems and next generation turbo jet and turbo fan engine development. For more information go to www.kratosdefense.com.

N o t i c e Regarding Forward-Looking Statements
This news release contains certain forward-looking statements that involve risks and uncertainties, including, without limitation, express or implied statements concerning the Company’s expectations regarding its future financial performance, including the Company’s expectations for its third quarter and full year 2019 revenue and Adjusted EBITDA, full year 2019 capital expenditures and ability to generate positive cash flow from operations and positive free cash flow in 2019, the timing and amount of the Company’s receipt of retained working capital from the Company’s divested PSS business, the Company’s ability to achieve projected growth in certain of the Company’s business units and the expected timing of such growth, the Company’s expectation of ramp on projects, timing associated with bringing certain contracts back on the planned run rate, the Company’s bid and proposal pipeline, demand for its products and services, including the Company’s ability to successfully compete in the tactical  unmanned  aerial  system  area  and  expected  new customer awards,  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, 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, timing of LRIP 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, and market and industry developments, 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 U.S. 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 if the UAS and UGS markets do not experience significant growth; risks that we cannot expand our customer base or if 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 relating 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 competition 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 the current economic environment will adversely impact our business; 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 30, 2018, and in our other filings made with the Securities and Exchange Commission.