Kratos Reports Fourth Quarter and Fiscal 2020 Financial Results

Fourth Quarter and Fiscal 2020 Revenues of $206.4 and $747.7 Million, Increased 11.5 percent and 4.2 percent, respectively, over 2019

Fourth Quarter and Fiscal 2020 Unmanned Systems Segment Revenues of $49.5 and $187.0 Million, Increased 29.2 and 15.9 percent, respectively, over 2019

Fourth Quarter and Fiscal 2020 Cash Flow from Operations of $25.6 Million and $44.7 Million, respectively

Fourth Quarter 2020 Book to Bill Ratio of 1.2 to 1
Fiscal 2020 Book to Bill Ratio of 1.4 to 1

SAN DIEGO, Feb. 25, 2021 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider, today reported its fourth quarter and fiscal 2020 financial results. For the fourth fiscal quarter of 2020, Kratos reported Revenues of $206.4 million, Operating Income of $9.0 million, Net Income of $78.1 million and Adjusted EBITDA of $22.3 million.

Fourth Quarter 2020 Revenues of $206.4 million increased 11.5 percent, as compared to Revenues of $185.1 million in the fourth quarter of 2019, reflecting organic growth in Kratos Unmanned Systems, Space and Satellite, Microwave Products, and Defense and Rocket Support Systems businesses, offset partially by certain reductions, including in our Training Solutions business primarily resulting from a previously disclosed reduction in scope of certain international training contracts and in our commercial turbine business due to reduced demand prevalent in the industry which has been impacted by COVID-19.

Operating Income of $9.0 million for the fourth quarter of 2020 decreased 3.2 percent, as compared to $9.3 million in the fourth quarter of 2019. Fourth quarter of 2020 Operating Income included increases in non-cash stock-based compensation expense of $3.7 million, depreciation expense of $0.3 million and R&D of $2.6 million. Fourth Quarter 2020 Adjusted EBITDA of $22.3 million increased 10.4 percent, as compared to $20.2 million in the fourth quarter of 2019, primarily reflecting the increase in revenues and a favorable mix of revenues, including certain programs and products in more mature lifecycles.

Fourth quarter 2020 Cash Flow generated from Operations was $25.6 million. After the funding of $12.9 million of capital expenditures, Free Cash Flow generated from Operations was $12.7 million. Cash on hand at December 27, 2020 was $380.8 million. Kratos reported fourth quarter 2020 Net Income of $78.1 million, and GAAP EPS of $0.62 for the fourth quarter of 2020, compared to Net Income of $3.0 million and GAAP EPS of $0.03 for the fourth quarter of 2019. Included in fourth quarter 2020 Net Income is a non-cash tax benefit of $75.3 million resulting from the release of approximately $81.4 million of the valuation allowance related to deferred tax assets associated with the Company’s Net Operating Losses (NOLs). The valuation allowance was deemed no longer necessary due to recent positive earnings history coupled with Kratos’ most recent long-term financial forecasts, including the timing of expected tax deductions based on current tax regulations, and the expected utilization of the Company’s NOLs. Adjusted EPS was $0.08 for the fourth quarter of 2020 compared to $0.09 for the fourth quarter of 2019.

For the fourth quarter of 2020, Kratos’ Unmanned Systems Segment (KUS) Revenues of $49.5 million increased 29.2 percent, as compared to $38.3 million in the fourth quarter of 2019, and operating income increased by 600.0 percent, to $3.5 million in the fourth quarter of 2020 from $0.5 million in 2019. Fourth quarter 2020 KUS Adjusted EBITDA of $5.5 million increased 89.7 percent, as compared to fourth quarter 2019 Adjusted EBITDA of $2.9 million, primarily reflecting increases in certain target drone programs, offset by certain development programs, including tactical drone development programs, which typically generate lower margins.

KUS’s book-to-bill ratio for the fourth quarter of 2020 was 2.0 to 1.0 and 1.4 to 1.0 for the last twelve months ended December 27, 2020, with bookings of $270.6 million for the twelve months ended December 27, 2020. Total backlog for KUS at the end of the fourth quarter of 2020 was $237.9 million, up from $152.9 million at the end of the fourth quarter of 2019.

For the fourth quarter of 2020, Kratos’ Government Solutions Segment (KGS) reported Revenues of $156.9 million, an increase of 6.9 percent, as compared to revenues of $146.8 million in the fourth quarter of 2019, and operating income of $12.5 million, an increase of 4.2 percent, as compared to operating income of $12.0 million in the fourth quarter of 2019. Revenues in the fourth quarter of 2020 include approximately $11.7 million from the recent ASC Signal acquisition, offset by previously disclosed scope reductions in certain international training programs of approximately $5.7 million. Fourth quarter 2020 KGS Adjusted EBITDA of $16.8 million was down from fourth quarter 2019 Adjusted EBITDA of $17.3 million, primarily reflecting a less favorable mix of revenues and increased investments in R&D.

For the fourth quarter of 2020, KGS reported a book-to-bill ratio of 1.0 to 1.0, and for the twelve months ended December 27, 2020, KGS reported a book to bill ratio of 1.4 to 1.0, with bookings of $761.7 million for the twelve months ended December 27, 2020. KGS total backlog at the end of the fourth quarter of 2020 was $684.2 million, up from $448.3 million at the end of the fourth quarter of 2019.

For the fourth quarter of 2020, Kratos reported consolidated bookings of $254.0 million and a book-to-bill ratio of 1.2 to 1.0, with consolidated bookings of $1.03 billion and a book-to-bill ratio of 1.4 to 1.0 for the last twelve months ended December 27, 2020. Backlog at December 27, 2020 was $922.2 million, up from $601.2 million at December 26, 2019 and Kratos’ bid and proposal pipeline was $9.0 billion at December 27, 2020. Backlog at December 27, 2020 was comprised of funded backlog of $643.3 million and unfunded backlog of $278.9 million.

Fiscal 2020 Revenues of $747.7 million increased 4.2 percent, as compared to Revenues of $717.5 million in fiscal 2019, reflecting organic growth in Kratos Unmanned Systems, Microwave Products, C5ISR and Defense and Rocket Support Systems businesses, offset partially by certain reductions of approximately $31.9 million in our Training Solutions business. Fiscal 2020 Revenues include approximately $21.9 million from the recent ASC Signal acquisition.

Operating Income of $29.3 million for fiscal 2020 decreased 22.9 percent, as compared to $38.0 million in fiscal 2019. Fiscal 2020 Operating Income includes increases in non-cash stock-based compensation expense of $10.0 million, depreciation expense of $1.8 million and R&D of $9.0 million, primarily reflecting investments in the Company’s space and satellite business. Kratos reported fiscal 2020 Net Income of $79.6 million, and GAAP EPS of $0.67, compared to fiscal 2019 Net Income of $12.5 million, and GAAP EPS of $0.11. Included in fiscal 2020 Net Income is a non-cash tax benefit of $73.5 million. Adjusted EPS was $0.33 for fiscal 2020 compared to $0.30 for fiscal 2019.

Fiscal 2020 Adjusted EBITDA of $78.5 million increased from $77.3 million in fiscal 2019, primarily reflecting the increase in revenues, net of the impact of the mix of revenues, including certain programs and products in more mature lifecycles, offset by increased investments primarily in R&D.

Fiscal 2020 Cash Flow generated from Operations was $44.7 million. After the funding of $35.9 million of capital expenditures, Free Cash Flow generated from Operations was $8.8 million. A benefit related to approximately $9.5 million of employer payroll tax amounts was deferred in 2020 under the CARES Act, with 50 percent of the deferred amounts required to be paid by the end of 2021 and the remaining 50 percent required to be paid by the end of 2022.

Eric DeMarco, Kratos’ President and CEO, said, “Kratos ended 2020 with a 1.4 to 1.0 book to bill ratio for the year, including 1.4 to 1.0 in our Unmanned Systems business, a record backlog and an opportunity pipeline of $9 billion, providing us with confidence and visibility to our expected future growth trajectory and representative of the success of the investments we have made. As we begin 2021, approximately 60 percent of Kratos business is focused on innovative and disruptive Space, Satellite Communications and Unmanned Systems, which are expected to be some of our fastest growing and highest profit margin business areas.”

Mr. DeMarco continued, “Since our last report to you, we have received approximately $38 million in Skyborg, $18 million in LCAAT/LCASD and $10 million in other Valkyrie or Tactical Drone related program awards. Additionally, an attritableONE XQ-58A Valkyrie flew with a USAF F-22 Raptor, a USAF F-35A Lightening II and a Marine Corps F-35B in an ABMS gatewayONE Program demonstration and the Gremlins system successfully completed its third test flight series. We also continued to integrate and test multiple systems and payloads into each of Kratos’ family of affordable, high performance drones flying today, further expanding our first to market leading position, and we remain highly confident of the ultimate transformational success of this business.”

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