Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) Q3 2024 Earnings Conference Call November 7, 2024 5:00 PM ET Company Participants Marie Mendoza - SVP & General Counsel Eric DeMarco - President & CEO Deanna Lund - EVP & CFO Conference Call Participants Michael Ciarmoli - Truist Securities Peter Arment - Baird Ken Herbert - RBC Capital Markets Mike Crawford - B. Riley Securities Seth Seifman - JPMorgan Andre Madrid - BTIG Joe Gomes - Noble Capital Pete Skibitski - Alembic Global Operator Welcome to Kr ...

Kratos (KTOS) reported $275.9 million in revenue for the quarter ended September 2024, representing a year-over-year increase of 0.5%. EPS of $0.11 for the same period compares to $0.12 a year ago.The reported revenue represents a surprise of -0.92% over the Zacks Consensus Estimate of $278.47 million. With the consensus EPS estimate being $0.08, the EPS surprise was +37.50%.While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and how they compare to Wall Stree ...

Kratos (KTOS) came out with quarterly earnings of $0.11 per share, beating the Zacks Consensus Estimate of $0.08 per share. This compares to earnings of $0.12 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 37.50%. A quarter ago, it was expected that this military contractor would post earnings of $0.08 per share when it actually produced earnings of $0.14, delivering a surprise of 75%.Over the last four quarters, the company ...

Defense Budget and Government Funding - The U.S. Department of Defense's base budget for fiscal year 2024 is $842 billion, with an additional $95.3 billion in supplemental funding for Ukraine, Israel, and Taiwan[97] - The fiscal year 2025 budget request includes $850 billion for the DoD base budget, with potential increases due to congressional actions[98] - The company is operating under a Continuing Resolution Authorization (CRA) for approximately 6 months in 2024, limiting new contract awards and funding increases[99] - The recent U.S. elections and potential extended CRA could delay the Federal fiscal 2025 budget, impacting the defense industry and the company[100] Company Financial Performance - Total revenues increased by $1.3 million to $275.9 million for the three months ended September 29, 2024, compared to $274.6 million for the same period in 2023[111] - Kratos Government Solutions (KGS) segment revenues decreased by $6.2 million, primarily due to a $24.2 million decline in the Space and Satellite business[111] - Unmanned Systems (US) segment revenues increased by $7.5 million to $64.2 million, driven by the STS acquisition and increased international target drone production[111] - Product sales increased by $3.9 million to $172.0 million, representing 62.3% of total revenues, up from 61.2% in the prior year[112] - Gross margin decreased to 25.1% from 26.7%, with product margins declining to 24.4% from 27.3%[114] - SG&A expenses increased by $1.7 million to $52.6 million, representing 19.1% of revenues, up from 18.5%[115] - R&D expenses decreased by $0.4 million to $9.9 million, representing 3.6% of revenues, down from 3.8%[117] - Total other expense, net decreased by $4.7 million to $0.7 million, primarily due to reduced interest expense and increased interest income[119] - For the nine months ended September 29, 2024, total revenues increased by $89.9 million to $853.2 million, with the US segment contributing $52.6 million of the increase[122] - Gross margin for the nine months decreased to 25.5% from 25.8%, with product margins declining to 24.9% from 26.5%[126] - Income tax expense from continuing operations for the nine months ended September 29, 2024 was $10.1 million, compared to $6.7 million for the same period in 2023[131] Backlog and Revenue Recognition - The company has record levels of backlog and opportunity pipeline, with significant capital investments in unmanned jet-powered aircraft, hypersonic systems, and other defense-related facilities[95][96] - Total backlog as of September 29, 2024 was $1,294.0 million, with $1,098.6 million funded, an increase from $1,165.0 million ($850.9 million funded) as of October 1, 2023[132] - The company expects to recognize 19% of the remaining backlog as revenue in fiscal year 2024, 50% in fiscal year 2025, and the balance thereafter[132] Cash Flow and Debt Management - Cash and cash equivalents as of September 29, 2024 were $301.5 million, compared to $72.8 million as of December 31, 2023[139] - Total long-term debt decreased from $227.5 million at December 31, 2023 to $187.5 million at September 29, 2024[140] - Net cash provided by operating activities was $4.1 million for the nine months ended September 29, 2024, compared to a net cash used of $2.2 million for the same period in 2023[143] - Net cash used in investing activities was $56.1 million for the nine months ended September 29, 2024, primarily due to $44.6 million in capital expenditures[144] - Net cash provided by financing activities was $280.6 million for the nine months ended September 29, 2024, including $330.7 million from the issuance of common stock[147] - Days sales outstanding (DSO) decreased from 116 days as of December 31, 2023 to 105 days at September 29, 2024[142] - The company expects capital expenditures for fiscal year 2024 to be significant, with $30 to $34 million in the US business, including $18 to $22 million for capital aerial targets[144] - The company entered into an interest rate swap contract on April 28, 2023, with an initial hedge amount of $195.0 million to fix the interest rate movements associated with its Term Loan A at a fixed rate of 3.721% for one-month Term SOFR, effective from May 1, 2023, to May 1, 2026[152] - The company believes its cash on hand, available funds under the Credit Agreement, and cash generated from operating activities will be sufficient to fund anticipated working capital and other cash needs for at least the next 12 months[153] Market and Operational Risks - Adverse macroeconomic conditions, including supply chain disruptions and inflation, have significantly increased business costs and impacted profit margins[104] - A shortage of qualified labor, particularly in STEM fields and those requiring National Security clearances, is adversely affecting the company's operations[105] - Increased interest rates have impacted the company's interest expense and overall business costs, despite recent slight decreases by the Federal Reserve[106] - The company's quarterly and annual operating results have fluctuated in the past and may vary in the future due to factors outside its control, potentially impacting financial results and cash flows[153] - The company's financial statements are based on estimates and judgments that affect reported amounts of assets, liabilities, sales, and expenses, with actual results potentially differing from these estimates[154] - There have been no significant changes to the company's critical accounting policies or estimates compared to those described in its Annual Report on Form 10-K[155] - Since December 31, 2023, there have been no material changes in the quantitative or qualitative aspects of the company's market risk profile[156] Strategic Positioning and Future Growth - The company is well-positioned in priority areas for future defense spending, including unmanned aerial drones, hypersonic systems, and C5ISR solutions[107] - The company operates in two reportable segments: KGS (microwave electronics, space, and training solutions) and US (unmanned systems and command/control communications)[108]

Revenue Performance - Q3 2024 revenues of $275.9 million, a 0.5% increase from Q3 2023 revenues of $274.6 million[1][4] - Q4 2024 total revenues reached $275.9 million, with service revenues at $103.9 million and product sales at $172.0 million[28] - Full year 2024 total revenues amounted to $853.2 million, with service revenues at $316.9 million and product sales at $536.3 million[28] - Total revenues for the three months ended September 29, 2024, were $275.9 million, slightly up from $274.6 million in the same period in 2023[35] Unmanned Systems Segment - Unmanned Systems revenues of $64.2 million in Q3 2024, up from $56.7 million in Q3 2023, with 8.7% organic revenue growth[1][4][7] - Q3 2024 Unmanned Systems Segment (KUS) bookings of $32.6 million and a 12-month book-to-bill ratio of 1.1 to 1.0 with bookings of $295.1 million[9] - Unmanned Systems segment revenues for the three months ended September 29, 2024, increased to $64.2 million from $56.7 million in the same period in 2023[35] - Unmanned Systems segment Adjusted EBITDA for the three months ended September 29, 2024, was $3.6 million, representing 5.6% of revenue, down from $5.4 million (9.5% of revenue) in the same period in 2023[36] Government Solutions Segment - Q3 2024 Government Solutions Segment (KGS) bookings of $234.6 million and a 12-month book-to-bill ratio of 1.1 to 1.0 with bookings of $945.0 million[12] - Kratos Government Solutions segment revenues for the three months ended September 29, 2024, were $211.7 million, down from $217.9 million in the same period in 2023[35] - Kratos Government Solutions segment Adjusted EBITDA for the three months ended September 29, 2024, was $21.0 million, representing 9.9% of revenue, down from $22.3 million (10.2% of revenue) in the same period in 2023[36] Bookings and Backlog - Q3 2024 consolidated book-to-bill ratio of 1.0 to 1.0, with bookings of $267.2 million and a 12-month book-to-bill ratio of 1.1 to 1.0 with bookings of $1.240 billion[1][13] - Q3 2024 consolidated backlog of $1.294 billion, with funded backlog of $1.098 billion and unfunded backlog of $195.4 million[13] Financial Guidance - Q4 2024 revenue guidance of $270 million to $295 million and full-year 2024 revenue guidance of $1.125 billion to $1.150 billion[16][17] - Full-year 2024 Adjusted EBITDA guidance of $102 million to $107 million[17] - Kratos expects base case revenue growth of approximately 10% for fiscal year 2025[18] Adjusted EBITDA and Operating Income - Q4 2024 Adjusted EBITDA was $24.6 million, compared to $27.7 million in the same period last year[27] - Full year 2024 Adjusted EBITDA reached $80.5 million, up from $66.3 million in the previous year[27] - Q4 2024 operating income was $6.5 million, down from $12.2 million in Q4 2023[28] - Full year 2024 operating income stood at $26.0 million, compared to $19.4 million in 2023[28] - Adjusted EBITDA for the three months ended September 29, 2024, was $24.6 million, compared to $27.7 million for the same period in 2023[33] - Total Adjusted EBITDA for the nine months ended September 29, 2024, was $80.5 million, compared to $66.3 million for the same period in 2023[36] Net Income and Earnings Per Share - Q4 2024 net income attributable to Kratos was $3.2 million, compared to a net loss of $1.6 million in Q4 2023[28] - Full year 2024 net income attributable to Kratos was $12.4 million, compared to a net loss of $11.3 million in 2023[28] - Net income attributable to Kratos for the three months ended September 29, 2024, was $3.2 million, compared to a net loss of $1.6 million for the same period in 2023[41] - Non-GAAP Adjusted net income for the three months ended September 29, 2024, was $17.2 million, up from $15.7 million in the same period in 2023[41] - Diluted earnings per common share for the three months ended September 29, 2024, was $0.02, compared to a loss of $0.01 per share in the same period in 2023[41] - Net income attributable to Kratos for the nine months ended September 29, 2024, was $12.4 million, compared to a net loss of $11.3 million for the same period in 2023[41] - Non-GAAP Adjusted net income for the nine months ended September 29, 2024, was $54.1 million, up from $35.3 million in the same period in 2023[41] - Diluted earnings per common share for the nine months ended September 29, 2024, was $0.08, compared to a loss of $0.09 per share in the same period in 2023[41] Cash Flow and Liquidity - Cash and cash equivalents increased significantly from $72.8 million to $301.5 million, reflecting a strong liquidity position[37] - Total current assets rose from $594.2 million to $838.4 million, indicating improved short-term financial health[37] - Long-term debt decreased from $219.3 million to $177.0 million, showing a reduction in financial leverage[37] - Net cash provided by operating activities improved to $4.1 million from a negative $2.2 million, signaling better cash flow management[38] - Capital expenditures increased to $44.6 million from $33.1 million, reflecting higher investment in property, plant, and equipment[38] - Proceeds from the issuance of common stock, net of issuance costs, amounted to $330.7 million, indicating strong equity financing[38] Balance Sheet and Liabilities - Accounts receivable decreased from $329.2 million to $319.1 million, suggesting improved collection efficiency[37] - Inventoried costs increased slightly from $156.2 million to $158.9 million, indicating stable inventory levels[37] - Total liabilities decreased from $634.0 million to $569.5 million, reflecting a stronger balance sheet position[37] Non-GAAP Metrics - Adjusted income from consolidated operations excludes amortization of intangible assets, depreciation, and stock-based compensation, providing a clearer view of operational performance[40] - Non-GAAP Adjusted income from consolidated operations before income taxes for the three months ended September 29, 2024, was $24.6 million, up from $22.6 million in the same period in 2023[41] - Non-GAAP Adjusted income from consolidated operations before income taxes for the nine months ended September 29, 2024, was $77.8 million, up from $50.8 million in the same period in 2023[41] Stock-Based Compensation and Depreciation - Stock-based compensation expense for the three months ended September 29, 2024, was $7.2 million, up from $6.4 million in the same period in 2023[33] - Depreciation expense for the three months ended September 29, 2024, was $8.1 million, up from $6.7 million in the same period in 2023[33] - Amortization of intangible assets for the three months ended September 29, 2024, was $2.2 million, up from $1.5 million in the same period in 2023[33] Future Growth and Profitability - The company expects significant future organic growth, profitability, and cash flow from investments in tactical drone and satellite areas[22] - Kratos anticipates improved revenue mix and profit in certain business segments, with sustained year-over-year revenue growth[21] - Kratos is manufacturing ~165 jet drones annually, with plans to increase to ~400 annually, including Valkyrie[14] Share Count and Weighted Average Shares - Weighted average diluted common shares outstanding for the three months ended September 29, 2024, increased to 154.1 million from 129.6 million in the same period in 2023[41] - Weighted average diluted common shares outstanding for the nine months ended September 29, 2024, increased to 147.8 million from 129.3 million in the same period in 2023[41]

SAN DIEGO, Nov. 07, 2024 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS), a technology company in Defense, National Security and Global Markets, today announced that its Zeus 1 and Zeus 2 Solid Rocket Motors (SRMs) completed their first successful flight on October 24, 2024, from the NASA Wallops Flight Facility in Virginia. This milestone launch provides the qualifications necessary to transition the Zeus SRMs to test programs supporting the U.S. Department of Defense, Foreign ...

`       Third Quarter 2024 Revenues of $275.9 Million Compared with Third Quarter 2023 Revenues of $274.6 MillionThird Quarter 2024 Unmanned Systems Revenues of $64.2 Million Compared with Third Quarter 2023 Revenues of $56.7 MillionThird Quarter 2024 Consolidated Book to Bill Ratio of 1.0 to 1 and Last Twelve Months Ended September 29, 2024 Consolidated Book to Bill Ratio of 1.1 to 1Third Quarter 2024 Consolidated Bookings of $267.2 Million and Last Twelve Months Ended September 29, 2024 Consolidated Booki ...

Cathie Wood is known for taking major positions in speculative opportunities, and three stocks in her portfolio may indicate a new pocket of AI that rarely is spoken about.Cathie Wood mastered an ability to make headline news. Perhaps the biggest reason for this is due to her high-conviction stances in otherwise risky and speculative opportunities.Wood is the CEO of Ark Invest, an investment management firm offering a series of exchange-traded funds (ETFs) that are mostly comprised of businesses in emerging ...

SAN DIEGO, Oct. 28, 2024 (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 2024 after the close of market on Thursday, November 7th. 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. Pa ...

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