Kratos Reports Third Quarter 2024 Financial Results

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.

Press Contact:
Yolanda White
858-812-7302 Direct

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


Unaudited Condensed Consolidated Statements of Operations
(in millions, except per share data)

	Three Months Ended									Nine Months Ended
	September 29,				October 1,					September 29,			October 1,
		2024				2023					2024			2023

Service revenues	$	103.9			$	106.5				$	316.9		$	301.8
Product sales		172.0				168.1					536.3			461.5
Total revenues		275.9				274.6					853.2			763.3
Cost of service revenues		76.7				79.0					232.9			227.2
Cost of product sales		130.0				122.2					402.9			339.4
Total costs		206.7				201.2					635.8			566.6
Gross profit - service revenues		27.2				27.5					84.0			74.6
Gross profit - product sales		42.0				45.9					133.4			122.1

Total gross profit		69.2				73.4					217.4			196.7

Selling, general and administrative expenses		47.9				47.5					147.9			136.7
Acquisition and restructuring related items and other		0.2				-					0.2			0.9
Research and development expenses		9.9				10.3					29.7			30.4
Depreciation		2.5				1.9					7.1			4.8
Amortization of intangible assets		2.2				1.5					6.5			4.5
Operating income		6.5				12.2					26.0			19.4
Interest expense, net		-				(5.1	)				(2.7	)		(15.5	)
Other expense, net		(0.7	)			(0.3	)				(0.8	)		(0.4	)
Income before income taxes		5.8				6.8					22.5			3.5
Provision for income taxes		2.6				3.8					10.1			6.7
Net Income (loss) from consolidated operations		3.2				3.0					12.4			(3.2	)
Less: Net income attributable to noncontrolling interest		-		-		4.6					-			8.1
Net income (loss) attributable to Kratos	$	3.2			$	(1.6	)			$	12.4		$	(11.3	)

Basic income (loss) per common share attributable to Kratos		0.02			$	(0.01	)			$	0.08		$	(0.09	)

Diluted income (loss) per common share attributable to Kratos	$	0.02			$	(0.01	)			$	0.08		$	(0.09	)

Weighted average common shares outstanding:

Basic		152.6				129.6					147.8			129.3
Diluted		154.1				129.6					147.8			129.3

Adjusted EBITDA (1)	$	24.6			$	27.7				$	80.5		$	66.3



Unaudited Reconciliation of GAAP to Non-GAAP Measures

Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net income (loss) attributable to Kratos adjusted for net income attributable to noncontrolling interest, net interest income (expense), provision 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 income (loss) to Adjusted EBITDA.

The adjustments to calculate this non-GAAP financial measure, and the basis for such adjustments, are outlined below:

Interest income and interest expense, net. The Company receives interest income on investments and incurs interest expense on loans, capital leases and other financing arrangements, including the amortization of issue discounts and deferred financing costs. These amounts may vary from period to period due to changes in cash and debt balances.

Income taxes. The Company's tax expense can fluctuate materially from period to period due to tax adjustments that may not be directly related to underlying operating performance or to the current period of operations and may not necessarily reflect the impact of utilization of our NOLs.

Depreciation. The Company incurs depreciation expense (recorded in cost of revenues and in operating expenses) related to capital assets purchased, leased or constructed to support the ongoing operations of the business. The assets are recorded at cost or fair value and are depreciated over the estimated useful lives of individual assets.

Amortization of intangible assets. The Company incurs amortization of intangible expense related to acquisitions it has made. These intangible assets are valued at the time of acquisition and are amortized over the estimated useful lives.

Amortization of capitalized contract and development costs. The Company incurs amortization of previously capitalized software development and non-recurring engineering costs related to certain targets in its Unmanned Systems, ballistic missile target and space and satellite businesses as related 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.

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 Income (Loss) attributable to Kratos to Adjusted EBITDA is as follows:
	Three Months Ended									Nine Months Ended
	September 29,				October 1,					September 29,			October 1,
		2024				2023					2024			2023

Net income (loss) attributable to Kratos	$	3.2			$	(1.6	)			$	12.4		$	(11.3	)
Interest expense, net		-				5.1					2.7			15.5
Provision for income taxes		2.6				3.8					10.1			6.7
Depreciation (including cost of service revenues and product sales)		8.1				6.7					23.5			19.5
Stock-based compensation		7.2				6.4					23.0			19.0
Foreign transaction loss		0.9				0.4					1.2			1.4
Amortization of intangible assets		2.2				1.5					6.5			4.5
Amortization of capitalized contract and development costs		0.2				0.8					0.9			2.0
Acquisition and restructuring related items and other		0.2				-					0.2			0.9
Plus: Net income attributable to noncontrolling interest		-				4.6					-			8.1

Adjusted EBITDA	$	24.6			$	27.7				$	80.5		$	66.3



Reconciliation of acquisition and restructuring related items and other included in Adjusted EBITDA:
	Three Months Ended									Nine Months Ended
	September 29,				October 1,					September 29,			October 1,
		2024				2023					2024			2023
Acquisition and transaction related items	$	0.2			$	-				$	0.2		$	-
Legal related items		-				-				$	-		$	0.9
	$	0.2			$	-				$	0.2		$	0.9


Kratos Defense & Security Solutions, Inc.
Unaudited Segment Data
(in millions)

	Three Months Ended									Nine Months Ended
	September 29,				October 1,					September 29,			October 1,
		2024				2023					2024			2023
Revenues:
Unmanned Systems	$	64.2			$	56.7				$	209.4		$	156.8
Kratos Government Solutions		211.7				217.9					643.8			606.5
Total revenues	$	275.9			$	274.6				$	853.2		$	763.3

Operating income
Unmanned Systems	$	0.4			$	2.6				$	3.6		$	3.2
Kratos Government Solutions		13.5				15.9					45.6			35.2
Unallocated corporate expense, net		(7.4	)			(6.3	)				(23.2	)		(19.0	)
Total operating income	$	6.5			$	12.2				$	26.0		$	19.4

Note: Unallocated corporate expense, net includes costs for certain stock-based compensation programs (including stock-based compensation costs for the 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 to Adjusted EBITDA is as follows:

	Three Months Ended									Nine Months Ended
	September 29,				October 1,					September 29,			October 1,
		2024				2023					2024			2023
Unmanned Systems
Operating income	$	0.4			$	2.6				$	3.6		$	3.2
Other income		-				0.1					0.1			0.1
Depreciation		2.2				2.1					6.9			5.9
Amortization of intangible assets		1.0				0.1					3.0			0.3
Amortization of capitalized contract and development costs		-				0.5					0.1			1.3
Adjusted EBITDA	$	3.6			$	5.4				$	13.7		$	10.8
% of revenue		5.6	%			9.5	%				6.5	%		6.9	%

Kratos Government Solutions
Operating income	$	13.5			$	15.9				$	45.6		$	35.2
Other income		0.2				0.1					0.3			0.9
Depreciation		5.9				4.6					16.6			13.6
Amortization of intangible assets		1.2				1.4					3.5			4.2
Amortization of capitalized contract and development costs		0.2				0.3					0.8			0.7
Acquisition and restructuring related items and other		-				-					-			0.9
Adjusted EBITDA	$	21.0			$	22.3				$	66.8		$	55.5
% of revenue		9.9	%			10.2	%				10.4	%		9.2	%

Total Adjusted EBITDA	$	24.6			$	27.7				$	80.5		$	66.3
% of revenue		8.9	%			10.1	%				9.4	%		8.7	%



Kratos Defense & Security Solutions, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in millions)


										September 29,			December 31,
											2024			2023
Assets
Current assets:
Cash and cash equivalents										$	301.5		$	72.8
Accounts receivable, net											319.1			329.2
Inventoried costs											158.9			156.2
Prepaid expenses											37.2			16.0
Other current assets											21.7			20.0
Total current assets											838.4			594.2
Property, plant and equipment, net											280.5			243.6
Operating lease right-of-use assets											39.9			45.7
Goodwill											568.9			569.1
Intangible assets, net											55.9			62.4
Other assets											128.8			117.5
Total assets										$	1,912.4		$	1,632.5
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable										$	61.0		$	63.1
Accrued expenses											39.9			35.4
Accrued compensation											60.6			64.7
Accrued interest											1.2			1.7
Billings in excess of costs and earnings on uncompleted contracts											61.9			101.8
Current portion of operating lease liabilities											11.6			12.1
Other current liabilities											24.3			13.7
Total current liabilities											260.5			292.5
Long-term debt											177.0			219.3
Operating lease liabilities, net of current portion											32.2			37.8
Other long-term liabilities											99.8			84.4
Total liabilities											569.5			634.0
Commitments and contingencies
Redeemable noncontrolling interest											-			22.5
Stockholders’ equity:
Common stock											0.2			-
Additional paid-in capital											2,010.2			1,654.5
Accumulated other comprehensive income											0.3			1.7
Accumulated deficit											(667.8	)		(680.2	)
Total Kratos stockholders’ equity											1,342.9			976.0
Total liabilities and stockholders’ equity										$	1,912.4		$	1,632.5



Kratos Defense & Security Solutions, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)

										Nine Months Ended
										September 29,			October 1,
											2024			2023
Operating activities:
Net income (loss)										$	12.4		$	(3.2	)
Adjustments to reconcile net income (loss) from consolidated operations to net cash provided by (used in) operating activities:
Depreciation and amortization											30.0			24.0
Amortization of lease right-of-use assets											8.8			8.5
Deferred income taxes											0.1			0.1
Stock-based compensation											23.0			19.0
Amortization of deferred financing costs											0.5			0.5
Provision for doubtful accounts											-			1.0
Changes in assets and liabilities, net of acquisitions:
Accounts receivable											16.2			(23.5	)
Unbilled receivables											(6.0	)		(9.1	)
Inventoried costs											(2.0	)		(23.7	)
Prepaid expenses and other assets											(35.5	)		(15.7	)
Operating lease liabilities											(9.0	)		(8.2	)
Accounts payable											(3.4	)		(0.6	)
Accrued compensation											(4.1	)		3.1
Accrued expenses											4.6			6.4
Accrued interest											(0.6	)		0.3
Billings in excess of costs and earnings on uncompleted contracts											(39.9	)		17.4
Income tax receivable and payable											5.7			1.9
Other liabilities											3.3			(0.4	)
Net cash provided by (used in) operating activities											4.1			(2.2	)
Investing activities:
Cash paid for acquisitions, net of cash acquired											(11.5	)		-
Capital expenditures											(44.6	)		(33.1	)
Proceeds from sale of assets											-			8.3
Net cash used in investing activities											(56.1	)		(24.8	)
Financing activities:
Borrowing under credit facility											10.0			54.0
Repayment under credit facility and term loan											(50.0	)		(67.8	)
Proceeds from the issuance of common stock, net of issuance costs											330.7			-
Payment under finance leases											(1.0	)		(1.2	)
Payments of employee taxes withheld from share-based awards											(17.3	)		(3.6	)
Proceeds from shares issued under equity plans											8.2			6.5
Net cash provided by (used in) financing activities											280.6			(12.1	)
Net cash flows											228.6			(39.1	)
Effect of exchange rate changes on cash and cash equivalents											0.1			-
Net increase (decrease) in cash and cash equivalents											228.7			(39.1	)
Cash and cash equivalents at beginning of period											72.8			81.3
Cash and cash equivalents at end of period										$	301.5		$	42.2



Kratos Defense & Security Solutions, Inc.
Unaudited Non-GAAP Measures
Computation of Adjusted Earnings Per Share
(in millions, except per share data)


Adjusted income from consolidated operations and adjusted income from consolidated 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 consolidated 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 consolidated 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
	September 29,				October 1,					September 29,			October 1,
		2024				2023					2024			2023
Net income (loss) attributable to Kratos	$	3.2			$	(1.6	)			$	12.4		$	(11.3	)
Less: GAAP provision for income taxes		2.6				3.8					10.1			6.7
Less: Net income attributable to noncontrolling interest		-				4.6					-			8.1
Income from consolidated operations before taxes		5.8				6.8		$	-		22.5			3.5
Add: Amortization of intangible assets		2.2				1.5			-		6.5			4.5
Add: Amortization of capitalized contract and development costs		0.2				0.8					0.9			2.0
Add: Depreciation		8.1				6.7					23.5			19.5
Add: Stock-based compensation		7.2				6.4					23.0			19.0
Add: Foreign transaction loss		0.9				0.4					1.2			1.4
Add: Acquisition and restructuring related items and other		0.2				-					0.2			0.9
Non-GAAP Adjusted income from consolidated operations before income taxes		24.6				22.6					77.8			50.8
Income taxes on Non-GAAP measure Adjusted income from consolidated operations*		7.4				6.9					23.7			15.5
Non-GAAP Adjusted net income	$	17.2			$	15.7				$	54.1		$	35.3


Diluted earnings per common share	$	0.02			$	(0.01	)			$	0.08		$	(0.09	)
Less: GAAP provision for income taxes		0.02				0.03					0.07			0.05
Less: Net income attributable to noncontrolling interest		-				0.03					-			0.06
Add: Amortization of intangible assets		0.01				0.01					0.04			0.03
Add: Amortization of capitalized contract and development costs		-				0.01					0.01			0.02
Add: Depreciation		0.05				0.05					0.16			0.15
Add: Stock-based compensation		0.05				0.05					0.16			0.15
Add: Foreign transaction loss		0.01				-					0.01			0.01
Add: Acquisition and restructuring related items and other		-				-					-			0.01
Income taxes on Non-GAAP measure Adjusted income from consolidated operations*		(0.05	)			(0.05	)				(0.16	)		(0.12	)
Adjusted income from consolidated operations per diluted common share	$	0.11			$	0.12				$	0.37		$	0.27

Weighted average diluted common shares outstanding		154.1				129.6					147.8			129.3

*The impact to income taxes is calculated by recasting income before income taxes to include the add-backs involved in determining Adjusted income from consolidated operations before income taxes and recalculating the income tax provision, including current and deferred income taxes, using the Adjusted income from consolidated 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.

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