Financial Data and Key Metrics Changes - Revenues increased by 15.5% year-over-year, with Unmanned Systems revenues growing organically by 37% compared to Q3 2018 [8][10] - Operating income rose approximately 14% over the prior year, and adjusted EBITDA increased by 22% year-over-year [9][10] - The company generated $10.2 million in operating cash flow for Q3, bringing the nine-month total to $30 million [10][48] - Adjusted EPS for the quarter was $0.09, exceeding the forecast of $0.05 to $0.07 per share [44] Business Line Data and Key Metrics Changes - Revenues in the Unmanned Systems segment increased by 37.2% from $33.3 million in Q3 2018 to $45.7 million in Q3 2019, with adjusted EBITDA rising 88.5% from $2.6 million to $4.9 million [45] - The Satellite business continued to make progress, with a robust opportunity pipeline and expectations for strong future performance [27][29] - The Microwave Electronics business is focused on achieving sole source designs and is expecting strong Q4 performance with significant backlog [31][33] Market Data and Key Metrics Changes - Revenues from contracts with the US Federal Government accounted for approximately 69% of total revenues, with 21% from foreign customers [50] - The book-to-bill ratio for the quarter was 0.9 to 1, with a trailing 12-month ratio of 1.0 to 1 [50] Company Strategy and Development Direction - The company is making significant investments in development programs and production, which is reflected in improved margins and profit [7][10] - Kratos is positioned for future growth with a focus on affordability and operational readiness, particularly in the Unmanned Systems division [11][12] - The company is actively pursuing large new program opportunities in both DoD and commercial sectors, particularly in the Satellite business [27][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term organic financial trajectory, expecting increasing revenue, margins, profit, and cash flow [42][43] - The company anticipates a material Valkyrie-related order within 90 days after the 2020 budget becomes effective, indicating optimism for future revenues [19][78] - Management acknowledged the potential impact of continuing resolutions on production and growth, particularly in the Unmanned Systems business [93][94] Other Important Information - The company reaffirmed its full-year revenue guidance of $720 million to $740 million and adjusted EBITDA guidance of $71 million to $77 million [52] - The cash balance at the end of Q3 was $181 million, with zero amounts outstanding on the bank line of credit [48] Q&A Session Summary Question: What are the remaining steps for the Valkyrie program before a large order? - Management indicated that an order could be received before any more flight tests occur, suggesting that the two are not directly linked [56] Question: Does the organic growth in the BMD segment assume waiting on hypersonic contracts? - Management stated that the majority of expected growth is already accounted for with recent orders, with timing on the 2020 budget being a potential impact factor [57] Question: What is the outlook for margins moving forward? - Management expressed high confidence in expanding margins in 2020 compared to 2019, driven by a shift towards software-defined elements and increased production efficiency [71] Question: How does the company view the competitive environment for its programs? - Management acknowledged a competitive response in several programs, indicating that there is competition in the market [59] Question: What is the expected annual revenue contribution from the training program that had the recompete? - Management indicated that the training program was expected to contribute approximately $25 million to $30 million annually going forward, down from $50 million to $55 million in 2019 [79]
Kratos Defense & Security Solutions(KTOS) - 2019 Q3 - Earnings Call Transcript