Kratos Defense & Security Solutions(KTOS) - 2019 Q1 - Quarterly Report

Revenue and Growth - Revenues increased by $17.4 million to $160.4 million for the three months ended March 31, 2019, compared to $143.0 million for the same period in 2018, representing a 12.2% increase [126]. - Service revenues rose by $16.6 million to $62.6 million, a 36.1% increase, primarily due to work performed in the recently acquired FTT business [127]. - The KGS segment's revenues increased by $10.3 million, attributed to the acquisition of FTT and growth in training systems and ballistic missile target businesses [126]. - The US segment's revenue growth was primarily due to increased production of U.S. Air Force and Navy aerial targets [126]. Cost and Expenses - Cost of revenues increased by $13.3 million to $115.5 million, driven by the increase in revenues [128]. - SG&A expenses were $31.5 million, up from $29.8 million, but as a percentage of revenues, it decreased to 19.6% from 20.8% [130]. - R&D expenses increased by $0.3 million to $3.9 million, with R&D as a percentage of revenues decreasing to 2.4% [131]. - Other expense increased to $6.0 million from $4.8 million, primarily due to foreign transaction losses and increased interest expense [134]. Profitability and Margins - Gross margin decreased to 28.0% from 28.5%, with service margins increasing to 32.9% and product margins decreasing to 24.8% [129]. - Income tax benefit from continuing operations was $1.5 million for the three months ended March 31, 2019, compared to a provision of $0.9 million for the same period in 2018 [135]. - Loss from discontinued operations was $0.6 million for the three months ended March 31, 2019, down from $3.5 million in the same period in 2018 [136]. Cash Flow and Capital Expenditures - Net cash provided by operating activities from continuing operations was $16.0 million for the three months ended March 31, 2019, compared to $6.5 million for the same period in 2018 [147]. - Capital expenditures for FY 2019 are expected to be significant, totaling approximately $15 to $18 million, including $4 to $6 million for capital aerial targets [148]. - Net cash provided by financing activities from continuing operations was $0.8 million for the three months ended March 31, 2019 [149]. - Approximately $1.0 million was collected on amounts due related to legacy projects from discontinued operations during the three months ended March 31, 2019 [150]. Debt and Credit Facilities - Total debt increased slightly to $294.4 million as of March 31, 2019, from $294.2 million at December 30, 2018 [144]. - As of March 31, 2019, the company had $300.0 million of 6.5% Notes outstanding [160]. - The Credit Agreement established a five-year senior secured revolving credit facility with an aggregate principal amount of $90.0 million, potentially increasing to $115.0 million [161]. - As of March 31, 2019, there were no borrowings outstanding on the Credit Agreement, with $5.7 million on letters of credit, resulting in net borrowing base availability of $65.4 million [166]. - The company was in compliance with the financial covenants of the Credit Agreement and its amendments as of March 31, 2019 [166]. - The company believes that cash on hand, funds available under the Credit Agreement, and expected cash from operating activities will be sufficient for anticipated working capital needs for at least the next 12 months [167]. - The Credit Agreement includes covenants that restrict additional debt, liens, and investments, and requires a minimum fixed charge coverage ratio [163]. - The company entered into a first amendment to the Credit Agreement on June 11, 2018, permitting the sale of the PSS business under certain conditions [165]. - The measurement of the minimum fixed charge coverage ratio was modified in November 2017 to require measurement if Excess Availability is less than 50% of the lesser of the borrowing base or total commitment amount [164]. - As of March 31, 2019, no event of default had occurred under the Credit Agreement, and the likelihood of such events occurring is considered remote [163]. - The company is subject to covenants limiting its ability to pay dividends, incur additional debt, and make other restricted payments [157]. Backlog and Future Expectations - Total backlog as of March 31, 2019, was approximately $620.2 million, with $539.5 million funded, expecting to recognize 57% as revenue in 2019 [137]. - Cash and cash equivalents decreased to $178.4 million as of March 31, 2019, from $182.7 million as of December 30, 2018 [143].