SAN DIEGO, Feb. 28, 2019 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider, today reported its fourth quarter and full year 2018 financial results.  For the fourth quarter 2018, Kratos reported Revenues of $164.4 million, Adjusted EBITDA of $18.0 million, or 10.9%, a 13.9% increase over 2017, Operating Income of $10.8 million, a 172.0% increase over 2017, Cash Flow from Operations of $2.7 million, and a Free Cash Flow from Operations use of $2.0 million.  For the fourth quarter 2018, the Company reported Adjusted EPS* of $0.09, a 28.6% increase over 2017, Net income of $4.7 million, a 121.2% increase over 2017, and GAAP EPS of $0.04, a 119.0% increase over 2017.

For the fourth quarter of 2018, Kratos reported bookings of $213.4 million and a book-to-bill ratio of 1.3 to 1.0, with backlog at December 30, 2018 of $620.7 million, up sequentially from $571.7 million at September 30, 2018.  December 30, 2018 backlog increased approximately 19% when compared to Backlog at December 31, 2017, with 2017 backlog presented on a comparable basis as if ASC 606 had been adopted at that time, or $519.9 million.    In the fourth quarter, Kratos’ bid and proposal pipeline increased by $0.1 million, up to approximately $6.8 billion, at December 30, 2018.   

For full year 2018, Kratos reported revenues of $618.0 million, Adjusted EBITDA of $60.5 million, or 9.8%, an increase of 27.4% over 2017 Adjusted EBITDA of $47.5 million, and Operating Income of $30.5 million, an increase of $42.5 million, or 354.2%, from a full year Operating loss of $12.0 million in 2017.  Fiscal 2018 Cash Flow from Operations was $18.1 million with a Free Cash Flow from Operations use of $4.5 million, compared to Fiscal 2017 Cash Flow from Operations use of $26.9 million with a Free Cash Flow from Operations use of $53.0 million, or an improvement of $45.0 million from Cash Flow from Operations in Fiscal 2017.  Improvement in Cash Flow from Operations in 2018 was primarily driven by the improvement in Operating Income, offset partially by working capital requirements.  For full year 2018, the Company reported Adjusted EPS* of $0.24, an increase of 380% over 2017. 

For full year 2018, Kratos reported bookings of $718.8 million and a book-to-bill ratio of 1.2 to 1.0, an increase of 54.6% or $253.9 million in increased annual bookings and a book-to-bill ratio of 0.8 to 1.0 for full year 2017.  All Kratos businesses recorded a book to bill ratio between 1.1 to 1 to 1.4 to 1 for the full year 2018. 

Full year 2018 Net loss was $3.5 million and GAAP EPS was a loss of $0.03, compared to a Net loss of $42.7 million and GAAP EPS loss of $0.48 for full year 2017.  Included in the 2017 Net loss was an impairment of goodwill of $24.2 million.
   
Full year 2018 revenues were up $14.7 million from full year 2017 revenues of $603.3 million.  Excluding the impact of the decline in Kratos’ legacy and non-core government services business, which decreased $17.1 million from 2017 to 2018, from $76.7 million to $59.6 million, Kratos’ revenues increased $31.8 million for full year 2018, or 6.0% organically, compared to full year 2017. 

Kratos’ fourth quarter and full year 2018 revenues came in below forecast primarily due to the timing of four Programs. These programs were either awarded later than expected, or have not ramped as quickly as originally forecast. We also experienced a delay in our DIU Program, with the related contract award now expected in Q2 2019.  We are working closely with our customers to ramp these new contract awards, including the hiring of highly cleared personnel on two new UAS Programs, and we are forecasting that each of these contracts will be back on the planned run rate by the middle of 2019, which is reflected in our 2019 guidance, as noted below.

For the fourth quarter of 2018, Kratos’ Government Solutions Division (KGS) generated Revenues of $128.2 million, Adjusted EBITDA of $15.1 million and Operating Income of $11.6 million.  For the fourth quarter of 2018, Kratos’ Unmanned Systems Division (KUSD) generated Revenues of $36.2 million, Adjusted EBITDA of $2.9 million and Operating Income of $1.3 million. 

For full year 2018, Kratos’ Government Solutions Division (KGS) generated Revenues of $485.1 million, Adjusted EBITDA of $49.6 million and Operating Income of $35.5 million, up from Revenues of $481.6 million, Adjusted EBITDA of $41.2 million and an Operating loss of $0.1 million for full year 2017.  For full year 2018, Kratos’ Unmanned Systems Division (KUSD) generated Revenues of $132.9 million, Adjusted EBITDA of $10.9 million and Operating Income of $5.1 million, up from Revenues of $121.7 million, Adjusted EBITDA of $6.3 million and an Operating loss of $3.6 million for full year 2017. 

The details of the Company’s adoption of the new revenue recognition standard, ASC 606, which is reflected on a prospective basis in 2018, is disclosed in the Company’s annual report filed on Form 10-K.

Eric DeMarco, Kratos’ President and CEO, said, “Kratos completed a very successful 2018, with our Unmanned Systems Division generating organic growth of approximately 75% over the past 24 months, and we are now forecasting Kratos target drone business to grow to approximately $250 million in annual revenue over the next few years, or 90% organic growth above 2018 revenues.  Additionally, we currently have six customer funded affordable tactical drone development programs, with several additional programs expected to be under contract by the end of this year.  Based on recent customer meetings, we are more confident than ever that Kratos Unmanned Systems Division will be a leader in the fast growing and forecast to be multi-billion dollar tactical drone market, and we ultimately expect our tactical drone business to be substantially larger than our target drone business as we achieve production.”

Mr. DeMarco continued, “Kratos’ space, satellite and training business, our Company’s largest division, which is also well aligned with DoD priorities, had a strong 2018, and with a last six month book to bill ratio of 1.5 to 1.0, is positioned for sustained future organic growth.  Additionally, Kratos’ ballistic missile targets and hypersonic systems business is currently pursuing a number of large new program opportunities, which if we are successful and schedules hold, could provide upside to our 2019 financial forecast, and position the business for further substantial growth in 2020.” 

Mr. DeMarco concluded, “Kratos’ business model of utilizing proven leading edge technology, not unproven bleeding edge technology, which reduces schedule risk, performance risk and cost risk, is a clear competitive differentiator for our Company, with Kratos’ proven ability to rapidly develop, demonstrate and field technology leading systems at an affordable cost being highly valued by our customers.  Kratos is a unique strategic technology asset, disrupting the national security market, with the right products at the right price and at the right time.”

Financial Guidance
Kratos is providing first quarter 2019 financial guidance of Revenues of $147 to $157 million, and Adjusted EBITDA of $9 to $11 million, and full year 2019 financial guidance of Revenues of $720 to $760 million, reflecting organic growth of approximately 12.5 percent, and Adjusted EBITDA of $71 to $77 million.  The first quarter 2019 financial guidance reflects the estimated impact of the recent partial government shutdown that has delayed certain domestic and Foreign Military Sales (FMS) contract awards and export license approvals required for international sales.  

The Company is providing 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 of 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 company owned aerial target drones the Company plans to build in preparation of fulfilling expected customer requirements.

This financial guidance includes the expected contribution of Florida Turbine Technologies, which acquisition by Kratos was also announced earlier today. 

Management will discuss the Company’s fourth quarter and full year 2018 financial results, as well as its first 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 2188115. 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. For more information go to www.kratosdefense.com.

Notice Regarding Forward-Looking Statements
This news release contains certain forward-looking statements that involve risks and uncertainties, including, without limitation, express or implied statements concerning the Company’s expectations regarding its future financial performance, including the Company’s expectations for its first 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 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 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.

Note Regarding Use of Non-GAAP Financial Measures
This news release contains non-GAAP financial measures, including Adjusted income (loss) per share (computed using income (loss) from continuing operations before income taxes, excluding amortization of intangible assets and capitalized contract and development costs, stock compensation expense, loss on extinguishment of debt, acquisition and restructuring related items and other, which includes but is not limited to excess capacity, legal related items and foreign transaction gains and losses, and impairment of goodwill, less the estimated tax cash payments) and Adjusted EBITDA (which excludes, among other things, losses and gains from discontinued operations, restructuring and transaction related items,  stock compensation expense, impairment of goodwill, loss on extinguishment of debt, foreign transaction gains and losses, and the associated margin rates). Additional non-GAAP financial measures include Free Cash Flow from Operations and Adjusted EBITDA related to our KUSD 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 extraordinary 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 statements. In addition, non-GAAP financial measures as reported by the Company may not be comparable to similarly titled amounts reported by other companies. As appropriate, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Company’s financial results prepared in accordance with GAAP are included in this news release.

*Adjusted earnings per share (Adjusted EPS) excludes loss from discontinued operations, non-cash amortization expense, as the Company has historically been acquisitive, non-cash stock compensation costs, foreign transaction gains and losses, certain non-recurring items such as acquisition and restructuring related items and other, the loss on extinguishment of debt, and the non-cash impairment of goodwill, and includes cash actually expected to be paid for income taxes on continuing operations, reflecting the benefit of the Company’s net operating loss carry forwards of over $300 million. Kratos believes that reporting Adjusted earnings per share is a meaningful metric to present the Company’s financial results.

Press Contact:
Yolanda White
858-812-7302 Direct

Investor Information:
877-934-4687
investor@kratosdefense.com