Kratos Defense & Security Solutions Reports Q4 Earnings Results

Kratos posted revenue of $182.1 million in the period, exceeding Wall Street forecasts.

SAN DIEGO – Kratos Defense & Security Solutions (NASDAQ: KTOS) on Monday reported a loss of $4.3 million in its fourth quarter.

The company said it had a loss of 7 cents per share. Earnings, adjusted for one-time gains and costs, were 2 cents per share. The results surpassed Wall Street expectations. The average estimate of three analysts surveyed by Zacks Investment Research was for a loss of 2 cents per share.

The military contractor, based here, posted revenue of $182.1 million in the period, also exceeding Wall Street forecasts. Four analysts surveyed by Zacks expected $177.4 million.

For the year, the company reported a loss of $60.5 million, or 99 cents per share. Revenue was reported as $668.7 million. The company forecasts full-year revenue in the range of $700 million to $720 million.

During an earnings call on Monday, the company said year-over-year consolidated organic revenue growth of 2.6% was driven primarily in its unmanned systems business, which was up 59.6%; satellite communications, technology and training businesses were up 5.9%; and the defense and rocket support services businesses were up 26.3%.

Adjusted Q4 EBITDA of $13.4 million exceeded the company’s expectations of $11.4 million due to a favorable mix of higher margin work in satellite communications, technology, training and cyber-related businesses. This was offset partially by unexpected increased contract cost growth of approximately $3.4 million on large legacy critical infrastructure projects in the Public Safety & Security (PSS) business.

Headwinds for PSS Integration Business

For the three months ended Dec. 25, 2016, the PSS business posted revenues of $32.2 million, down from $38.6 million compared to the same period the year prior. For the 12 months ended Dec. 27, the PSS business reported revenues of $127.1 million, down from $144.7 million compared to the same period the year prior.

“Once these projects are complete, which is expected to occur in 2017, we will only have one remaining large critical infrastructure project which is expected to be in the build out phase for another five or so years out,” CFO Deanna Lund said during the call.

Lund said if the company had not “incurred to increased cost on the soon-to-be completed projects in our PSS business, our fourth quarter 2016 adjusted EBITDA would have been $16.8 million. Accordingly, we believe that we are making excellent progress towards our stated target business case for annual revenues of $800 million and annual adjusted EBITDA of $80 million.”

Declines in the PSS business of $17.6 million were primarily the result of a “change in strategic direction in the fourth quarter of 2014 to capture a higher margin work and only selectively bid on larger security integration projects that traditionally generate lower margins,” Lund said, “coupled with the impact of over $4 million in unexpected cost growth primarily recorded during the fourth quarter of 2016 on several large long-term security integration projects which are nearing completion which impacted our revenues in this business.”

For fiscal 2016 results, Kratos posted revenue of $668.7 million compared to 2015 revenues of $657.1 million or a 1.8% increase. Lundy said this compares to the company’s FY16 expectations of $665 million in revenues. Adjusted EBITDA for 2016 was $45 million compared to $44.6 million for 2015. This compares to FY16 expectations of $43 million of adjusted EBITDA.

About the Author

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Although Bosch’s name is quite familiar to those in the security industry, his previous experience has been in daily newspaper journalism. Prior to joining SECURITY SALES & INTEGRATION in 2006, he spent 15 years with the Los Angeles Times, where he performed a wide assortment of editorial responsibilities, including feature and metro department assignments as well as content producing for latimes.com. Bosch is a graduate of California State University, Fresno with a degree in Mass Communication & Journalism. In 2007, he successfully completed the National Burglar and Fire Alarm Association’s National Training School coursework to become a Certified Level I Alarm Technician.

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