Kratos Reports Fourth Quarter and Full Year 2023 Financial Results

For full year 2023, KUS generated Revenues of $212.2 million, which included contribution of $6.4 million from the recent STS acquisition, as compared to $221.7 million in the full year 2022, primarily reflecting reduced tactical drone activity. KUS’s Operating Income was $4.2 million in full year 2023 compared to an Operating Loss of $2.8 million in full year 2022.   KUS’s Adjusted EBITDA for full year 2023 was $14.8 million, compared to full year 2022 KUS Adjusted EBITDA of $12.5 million, reflecting the reduced volume offset by a more favorable mix.  

For full year 2023, KGS Revenues of $824.9 million increased $148.3 million, reflecting 21.9 percent growth and 18.9 percent organic growth, respectively, from Revenues of $676.6 million in full year 2022. The increased Revenues includes organic revenue growth in our Space, Satellite, Cyber and Training Solutions, Turbine Technologies, C5ISR, and Microwave Products businesses.

KGS reported operating income of $52.7 million in full year 2023 compared to $27.2 million in full year 2022, primarily reflecting a more favorable mix and increased revenue volume. Full year 2023 KGS Adjusted EBITDA was $80.6 million, compared to full year 2022 KGS Adjusted EBITDA of $58.2 million, primarily reflecting the more favorable mix and increased revenue.

Kratos’ Space, Satellite, Cyber and Training business generated Revenues of $423.0 million in full year 2023 compared to $359.0 million in full year 2022, reflecting a 17.8 percent growth and organic growth rate.

Eric DeMarco, Kratos’ President and CEO, said, “Kratos’ strategy as a technology company and making internally funded investments to be first to market with affordable systems, software and products, is being successfully executed. Additionally, Kratos taking the prime or lead position on program opportunities where we believe the Kratos internal investment required is acceptable and the probability of Kratos win is high, and also Kratos teaming with a traditional system integrator partner, for a combined even greater probability of win on other opportunities is clearly working. Kratos’ low cost, innovation, rapid development and engineering up front for affordable mass production, brings significant value to our customers, our prime system integrator partners in teaming situations, and to our shareholders.”  

Mr. DeMarco continued, “As we begin 2024, expected Kratos’ base case growth areas include: satellite communications; jet engines for drones, missiles, loitering munitions, supersonic and space systems; hypersonic systems; C5ISR and microwave electronics for missile, radar and CUAS systems and augmented reality training systems.   We are currently producing approximately 160 high performance tactical and target jet drones annually, with a validated and executing supply chain in place, and we are making the investments necessary to triple our drone production capacity. As the only Company with a family of affordable, attritable, tactical jet drones flying today with weapons range pedigree and with additional new jet drones in development, all under customer funded contracts, we are confident that we will be successful. We are forecasting Kratos’ unmanned systems business to be one of our leading growth drivers in 2024, including target drone production and tactical drone RDT&E and S&T contracts, including a new tactical drone program award.”

Mr. DeMarco concluded, “Business challenges include our ability to obtain and retain qualified personnel, including those that are willing and able to obtain National Security clearances and the related high cost of these individuals, which is currently adversely impacting our margins. Additionally, the U.S. Federal Government budgetary situation is a challenge for the industry and for Kratos, and one that we cannot control and an extended Continuing Resolution Authorization (CRA) could adversely impact our business and financial forecast if not resolved soon.”

Financial Guidance

We are providing our initial 2024 first quarter and full year financial guidance, which includes our current forecasted business mix, and our assumptions, including as related to: employee sourcing, hiring and retention; manufacturing, production and supply chain disruptions; parts shortages and related continued potential significant cost and price increases, including for employees, materials and components that are impacting the industry and Kratos. The range of our expected first quarter and full year 2024 Revenues and Adjusted EBITDA includes assumptions of forecasted execution, including the number and estimated costs of qualified personnel expected to be obtained and retained to successfully execute on our programs and contracts, as well as expected contract awards. A U.S. Government budget was not passed by October 1, 2023, the beginning of Federal Fiscal Year 2024, and as a result, Kratos and others in our industry are operating under a Continuing Resolution Authorization (CRA), which currently expires March 8, 2024, under which no new contracts and no increases in existing contracts production or funding, among other stipulations, is permitted. Kratos’ 2024 financial forecast and guidance provided today assumes that the current CRA will be resolved and that a U.S. Federal and DoD budget which includes no unexpected budget cuts impacting our business will be in place by March 8, 2024. As a result, similar to Kratos’ 2023 quarterly financial trajectory, which fiscal year also experienced a CRA, we are forecasting Kratos’ third and fourth financial quarter’s results of 2024 to be significantly greater than the fiscal first and second quarter’s results, with the fourth quarter expected to be particularly strong in both revenue and Adjusted EBITDA. If the current CRA goes beyond the existing March 8, 2024 date, we will evaluate Kratos’ 2024 financial forecast at that time, based on the existing facts, circumstances and expectations.

Kratos’ 2024 financial forecast and guidance includes elevated investments for capital expenditures, including continued manufacture of two production lots of Valkyries prior to contract award, to meet anticipated customer orders and requirements, the expansion and build-out of the Company’s Microwave Products production facilities, and the expansion of our manufacturing and production facilities in our Rocket Systems and Hypersonic businesses.

Our first quarter and full year 2024 guidance ranges are as follows:  

Current Guidance Range
 
$M Q124 FY24 
Revenues$240 - $260$1,125 - $1,150 
R&D$9 - $11$42 - $45 
Operating Income$1 - 3$37 - $41 
Depreciation$6 - $8$28 - $30 
Amortization$2 - $3$8 - $10 
Stock Based Compensation$6 - $7$26- $28 
Adjusted EBITDA$16 - $18$102 - $107 
Operating Cash Flow $50 - $60 
Capital Expenditures   $70 - $80  
Free Cash Flow Use   ($10 - $30)  
       

 

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