Benzinga | Oct 29, 2020 04:08PM EDT

Kratos Sees FY 2020 Revenue Of $740M-$780M, EBITDA Of $72M-$78M

Third Quarter 2020 Revenues of $202.0 Million Increase 9.7% from Third Quarter 2019 Revenues of $184.1 Million

Third Quarter 2020 Book to Bill Ratio of 1.8 to 1

SAN DIEGO, Oct. 29, 2020 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS), a leading National Security Solutions provider, today reported its third quarter 2020 financial results. For the third fiscal quarter of 2020, Kratos reported Revenues of $202.0 million, Adjusted EBITDA of $24.6 million, Operating Income of $12.7 million and Net Income of $2.4 million.

Third Quarter 2020 Revenues of $202.0 million increased 9.7 percent, as compared to Revenues of $184.1 million in the third quarter of 2019, reflecting organic growth in Kratos Unmanned Systems, Microwave Products, Defense and Rocket Support Systems, and C5ISR businesses, offset partially by certain reductions, including in our Training Solutions business, primarily resulting from a previously disclosed reduction in scope of certain international training contracts.

Third Quarter 2020 Adjusted EBITDA of $24.6 million increased 20.6 percent, as compared to $20.4 million in the third quarter of 2019, primarily reflecting a favorable mix of revenues, including certain programs and products in more mature lifecycles. Operating Income of $12.7 million for the third quarter of 2020 increased 10.4 percent, as compared to $11.5 million in the third quarter of 2019, including increases in non-cash stock-based compensation expense of $2.2 million, depreciation expense of $0.5 million and R&D of $3.1 million.

Third quarter 2020 Cash Flow generated from Operations was $8.3 million. After the funding of $8.9 million of capital expenditures, Free Cash Flow used from Operations was $0.6 million. Cash used to fund acquisitions was approximately $28.4 million, primarily for the ASC Signal acquisition. Cash on hand at September 27, 2020 was $374.7 million. Adjusted EPS* was $0.14 for the third quarter of 2020, compared to $0.13 for the third quarter of 2019. Kratos reported third quarter 2020 Net Income of $2.4 million, and GAAP EPS of $0.02 for the third quarter of 2020.

For the third quarter of 2020, Kratos' Unmanned Systems Segment (KUS) Revenues of $53.5 million increased 17.1 percent, as compared to $45.7 million in the third quarter of 2019, and operating income increased by 12.1 percent, from $3.3 million to $3.7 million in the third quarter of 2020. KUS Adjusted EBITDA of $5.6 million increased 14.3 percent, as compared to third quarter 2019 Adjusted EBITDA of $4.9 million, primarily reflecting increases in certain target drone programs, offset by certain development programs, including tactical drone development programs, which typically generate lower margins. KUS's book-to-bill ratio for the third quarter of 2020 was 1.3 to 1.0 and 1.2 to 1.0 for the last twelve months ended September 27, 2020. Total backlog for KUS at the end of the third quarter of 2020 was $189.5 million.

For the third quarter of 2020, Kratos' Government Solutions Segment (KGS) reported Revenues of $148.5 million, an increase of 7.3 percent, as compared to revenues of $138.4 million in the third quarter of 2019, and operating income of $14.1 million, an increase of 27.0 percent, as compared to operating income of $11.1 million in the third quarter of 2019. Revenues in the third quarter of 2020 include approximately $10.2 million from the recent ASC Signal acquisition, offset by previously disclosed scope reductions of certain international training programs. Third quarter 2020 KGS Adjusted EBITDA increased 22.6 percent, to $19.0 million, as compared to $15.5 million in the third quarter of 2019, reflecting a favorable mix of revenues, including products in more mature production lifecycles. For the third quarter of 2020, KGS reported bookings of $289.3 million and a book-to-bill ratio of 1.9 to 1.0. KGS bookings for the last twelve months ended September 27, 2020 were $751.4 million with a book to bill ratio of 1.4 to 1.0. KGS total backlog at the end of the third quarter of 2020 was $683.6 million, up from $542.8 million at the end of the second quarter of 2020.

For the third quarter of 2020, Kratos reported consolidated bookings of $356.7 million and a book-to-bill ratio of 1.8 to 1.0, with consolidated bookings of $956.0 million and a book-to-bill ratio of 1.3 to 1.0 for the last twelve months ended September 27, 2020. Backlog at September 27, 2020 was $873.1 million, up from $683.4 million at June 28, 2020 and Kratos' bid and proposal pipeline was $8.3 billion at September 27, 2020. Backlog at September 27, 2020 was comprised of funded backlog of $579.3 million and unfunded backlog of $293.8 million.

Eric DeMarco, Kratos' President and CEO, said, "We believe that our third quarter financial results reflect Kratos' market leading position to address the ongoing recapitalization of strategic weapon systems by the U.S. and its allies. In the third quarter, we continued to execute on our strategy of being a technology company bringing affordable, disruptive systems, products and solutions to the National Security Market." Mr. DeMarco continued, "At Kratos, affordability is a technology, and we are currently pursuing a number of programs, including in the tactical unmanned aerial drone, hypersonic, space, satellite communication, next generation engine and other areas, which we believe provide large growth opportunities for our Company."

Mr. DeMarco concluded, "Since our last report to you, we believe that the total addressable market opportunity for Kratos' class of made in America, affordable, attritable high performance jet drones has increased and is accelerating. We have continued to make progress in the tactical drone area, and our expectations for Kratos' tactical drone business has never been greater. We are in close communication with our customers, and over the coming weeks and months we expect to receive contract awards, increased funding and perform a number of flights related to our tactical drones, including Kratos' Valkyrie, and we expect this business to be one of our strongest future organic growth drivers beginning next year."

Financial Guidance

We are affirming our full year 2020 guidance of Revenues of $740 to $780 million and Adjusted EBITDA of $72 million to $78 million. We are also affirming our full year 2020 Free Cash Flow guidance of generation of $7 million to a use of $18 million, including capital expenditures of approximately $36 to $40 million, which reflects certain previously expected outlays for unmanned drone systems now being reflected as inventory or as uses in Operating Cash Flow.

The 2020 capital expenditure forecast currently includes expected outlays of $11 to $15 million associated with the production of 12 Valkyrie aircraft prior to receipt of expected customer award(s); therefore, these aircraft are currently reflected as Company-owned assets until receipt of the related customer award(s). Kratos will adjust these initial forecasted capital expenditure outlays and the ultimate balance sheet classification of these investments once expected customer orders and the nature of the contract terms can be determined.

Kratos' fiscal year 2020 guidance excludes any potential contribution from expected Valkyrie or other tactical drone production or system contracts, with expected orders to be taken into consideration and our financial forecast adjusted once such contracts or orders are received and the related financial contribution can be estimated, which would be dependent on criteria, including; the type of contract vehicle, scope, timing and period of performance.

Our Full Year 2020 guidance range also includes our current forecasted business mix for the fourth quarter, our assumptions of the expected impact of COVID-19 and the estimated impact of the recent Continuing Resolution Authorization (CRA), which began on October 1, 2020, on our industry, business, operations and forecast financial results.

Under the CRA, new and increased production or contract awards are delayed and cannot occur until the relevant federal fiscal year budget is approved, i.e. the 2021 federal fiscal year budget. Kratos currently has expected new contract awards, including expected production awards, and existing programs on which we expect future increased or full rate production or performance to be received, which are now dependent on approval of the 2021 federal fiscal year budget.

Consistent with previous years, we currently intend on providing Kratos' initial Fiscal 2021 Financial Guidance when we report our full year 2020 Results, which will enable us to incorporate current information and impacts from expected tactical drone awards, the Election, the CRA and the estimated impact of COVID 19, including to our tactical drone and other businesses that are dependent on government weapon and test range access and operations, and the most recent information on a very large international recompete previously discussed.

The Company will provide additional information in its earnings call today.

Management will discuss the Company's third quarter 2020 financial results, as well as its full year 2020 guidance on a conference call beginning at 2:00 p.m. Pacific (5:00 p.m. Eastern) today. Analysts and institutional investors may participate in the conference call by dialing (866) 393-0674, and referencing the call by ID number 7384817. The general public may access the conference call by dialing (877) 344-3935 or on the day of the event by visiting www.kratosdefense.com for a simultaneous webcast. A replay of the webcast will be available on the Kratos web site approximately two hours after the conclusion of the conference call.

About Kratos Defense & Security Solutions

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) develops and fields transformative, affordable technology, platforms and systems for United States National Security related customers, allies and commercial enterprises. Kratos is changing the way breakthrough technologies for these industries are rapidly brought to market through proven commercial and venture capital backed approaches, including proactive research and streamlined development processes. Kratos specializes in unmanned systems, satellite communications, cyber security/warfare, microwave electronics, missile defense, hypersonic systems, training and combat systems and next generation turbo jet and turbo fan engine development. For more information go to www.kratosdefense.com.

Notice Regarding Forward-Looking Statements

This news release contains certain forward-looking statements that involve risks and uncertainties, including, without limitation, express or implied statements concerning the Company's expectations regarding its future financial performance, including the Company's expectations for its full year 2020 revenue and Adjusted EBITDA, and full year 2020 capital expenditures and free cash flow, the Company's ability to achieve improved revenue mix and profit in certain of its business segments and the expected timing of such profit, the Company's expectation of ramp on projects, the Company's expected contribution from the recent ASC Signal acquisition, the Company's bid and proposal pipeline, demand for its products and services, including the Company's ability to successfully compete in the tactical unmanned aerial system area and expected new customer awards, including the magnitude and timing of funding and expected contract awards related to the Company's Valkyrie program and other new tactical unmanned programs, performance of key contracts and programs, including the timing of production and demonstration related to certain of the Company's contracts and product offerings, the impact of the Company's restructuring efforts and cost reduction measures, including its ability to improve profitability and cash flow in certain business units as a result of these actions, benefits to be realized from the Company's net operating loss carry forwards, the availability and timing of government funding for the Company's offerings, including the strength of the future funding environment, the short-term delays that may occur as a result of Continuing Resolutions or delays in DoD budget approvals, timing of LRIP and full rate production related to the Company's unmanned aerial target system offerings, as well as the level of recurring revenues expected to be generated by these programs once they achieve full rate production, market and industry developments, and the current estimated impact of COVID-19 on our financial projections, industry, business and operations, including projected growth. Such statements are only predictions, and the Company's actual results may differ materially from the results expressed or implied by these statements. Investors are cautioned not to place undue reliance on any such forward-looking statements. All such forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise. Factors that may cause the Company's results to differ include, but are not limited to: risks to our business and financial results related to the reductions and other spending constraints imposed on the U.S. Government and our other customers, including as a result of sequestration and extended continuing resolutions, the Federal budget deficit and Federal government shut-downs; risks of adverse regulatory action or litigation; risks associated with debt leverage and cost savings and cash flow improvements expected as a result of the refinancing of our Senior Notes; risks that our cost-cutting initiatives will not provide the anticipated benefits; risks that changes, cutbacks or delays in spending by the U.S. DoD may occur, which could cause delays or cancellations of key government contracts; risks of delays to or the cancellation of our projects as a result of protest actions submitted by our competitors; risks that changes may occur in Federal government (or other applicable) procurement laws, regulations, policies and budgets; risks of the availability of government funding for the Company's products and services due to performance, cost growth, or other factors, changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reduction of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional committee recommendations or automatic sequestration under the Budget Control Act of 2011, as amended); risks that the UAS and UGS markets do not experience significant growth; risks that we cannot expand our customer base or that our products do not achieve broad acceptance which could impact our ability to achieve our anticipated level of growth; risks of increases in the Federal government initiatives related to in-sourcing; risks related to security breaches, including cyber security attacks and threats or other significant disruptions of our information systems, facilities and infrastructures; risks related to our compliance with applicable contracting and procurement laws, regulations and standards; risks related to the new DoD Cybersecurity Maturity Model Certification (CMMC); risks relating to contract performance; risks related to failure of our products or services; risks associated with our subcontractors' or suppliers' failure to perform their contractual obligations, including the appearance of counterfeit or corrupt parts in our products; changes in the competitive environment (including as a result of bid protests); failure to successfully integrate acquired operations and competition in the marketplace, which could reduce revenues and profit margins; risks that potential future goodwill impairments will adversely affect our operating results; risks that anticipated tax benefits will not be realized in accordance with our expectations; risks that a change in ownership of our stock could cause further limitation to the future utilization of our net operating losses; risks that the current economic environment will adversely impact our business; currently unforeseen risks associated with COVID-19 and risks related to natural disasters or severe weather. These and other risk factors are more fully discussed in the Company's Annual Report on Form 10-K for the period ended December 29, 2019, and in our other filings made with the Securities and Exchange Commission.

Note Regarding Use of Non-GAAP Financial Measures

This news release contains non-GAAP financial measures, including Adjusted earnings per share (computed using income from continuing operations before income taxes, excluding depreciation, amortization of intangible assets, amortization of capitalized contract and development costs, stock-based compensation expense, acquisition and restructuring related items and other, which includes but is not limited to legal related items and foreign transaction gains and losses, less the estimated tax cash payments) and Adjusted EBITDA (which includes net income (loss) attributable to noncontrolling interest and excludes, among other things, losses and gains from discontinued operations, acquisition and restructuring related items, stock compensation expense, foreign transaction gains and losses, and the associated margin rates). Additional non-GAAP financial measures include Free Cash Flow from Operations and Adjusted EBITDA related to our KUS and KGS businesses. Kratos believes this information is useful to investors because it provides a basis for measuring the Company's available capital resources, the actual and forecasted operating performance of the Company's business and the Company's cash flow, excluding non-recurring items and non-cash items that would normally be included in the most directly comparable measures calculated and presented in accordance with GAAP. The Company's management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the Company's actual and forecasted operating performance, capital resources and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and investors should carefully evaluate the Company's financial results calculated in accordance with GAAP and reconciliations to those financial statements. In addition, non-GAAP financial measures as reported by the Company may not be comparable to similarly titled amounts reported by other companies. As appropriate, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Company's financial results prepared in accordance with GAAP are included in this news release.

*Adjusted earnings per share (Adjusted EPS) excludes income (loss) from discontinued operations, depreciation, non-cash intangible amortization expense, as the Company has historically been acquisitive, non-cash amortization of capitalized contract and development costs, non-cash stock-based compensation costs, foreign transaction gains and losses, certain non-recurring items such as acquisition and restructuring related items and other, including legal fees, and includes cash actually expected to be paid for income taxes on continuing operations, reflecting the benefit of the Company's net operating loss carry forwards of over $300 million. Kratos believes that reporting adjusted earnings per share is a meaningful metric to present the Company's financial results.

Press Contact:

Yolanda White

858-812-7302 Direct

Investor Information:

877-934-4687

investor@kratosdefense.com

Kratos Defense & Security Solutions, Inc.Unaudited Condensed Consolidated Statements of Operations(in millions, except per share data) Three Months Ended Nine Months Ended September September September September 27, 29, 27, 29, 2020 2019 2020 2019 Service revenues $ 67.6 $ 70.8 $ 194.1 $ 207.1 Product sales 134.4 113.3 347.2 325.3 Total revenues 202.0 184.1 541.3 532.4 Cost of service revenues 50.5 50.2 141.9 142.8 Cost of product sales 94.4 85.3 250.5 248.0 Total costs 144.9 135.5 392.4 390.8 Gross profit - service 17.1 20.6 52.2 64.3 revenuesGross profit - product 40.0 28.0 96.7 77.3 sales Total gross profit 57.1 48.6 148.9 141.6 Selling, general and 33.1 29.4 97.3 88.2 administrative expensesAcquisition andrestructuring related 0.4 - 2.0 2.2 itemsResearch and development 7.7 4.6 19.4 13.0 expensesDepreciation 1.5 1.4 4.5 4.3 Amortization of 1.7 1.7 5.4 5.2 intangible assetsOperating income 12.7 11.5 20.3 28.7 Interest expense, net (5.9 ) (5.4 ) (16.9 ) (16.2 )Other income (expense), 0.8 (0.7 ) 0.6 (1.1 )netIncome from continuingoperations before income 7.6 5.4 4.0 11.4 taxesProvision for incometaxes from continuing 5.0 2.8 1.8 3.8 operationsIncome from continuing 2.6 2.6 2.2 7.6 operationsIncome (loss) fromdiscontinued operations, (0.2 ) - (0.8 ) 2.4 net of income taxesNet income 2.4 2.6 1.4 10.0 Less: Net income (loss)attributable to - 0.1 (0.1 ) 0.5 noncontrolling interestNet income attributable $ 2.4 $ 2.5 $ 1.5 $ 9.5 to Kratos Basic income per commonshare attributable to Kratos:Income from continuing $ 0.02 $ 0.02 $ 0.02 $ 0.07 operationsIncome (loss) from - - (0.01 ) 0.02 discontinued operationsNet income 0.02 $ 0.02 $ 0.01 $ 0.09 Diluted income percommon share attributable to Kratos:Income from continuing $ 0.02 $ 0.02 $ 0.02 $ 0.07 operationsIncome (loss) from - - (0.01 ) 0.02 discontinued operationsNet income 0.02 $ 0.02 $ 0.01 $ 0.09 Weighted average common shares outstanding:Basic weighted averagecommon shares 123.1 106.5 112.9 105.8 outstandingDiluted weighted averagecommon shares 126.4 109.9 115.9 109.0 outstanding Adjusted EBITDA (1) $ 24.6 $ 20.4 $ 56.2 $ 57.1 Unaudited Reconciliation of GAAP to Non-GAAP Measures Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net income(loss) attributable to Kratos adjusted for net income (loss) attributable tononcontrolling interest, income (loss) from discontinued operations, netinterest expense, provision for income taxes, depreciation and amortizationexpense of intangible assets, amortization of capitalized contract anddevelopment costs, stock-based compensation, acquisition and restructuringrelated items and other, and foreign transaction gain (loss). Adjusted EBITDA as calculated by us may be calculated differently than AdjustedEBITDA for other companies. We have provided Adjusted EBITDA because we believeit is a commonly used measure of financial performance in comparable companiesand is provided to help investors evaluate companies on a consistent basis, aswell as to enhance understanding of our operating results. Adjusted EBITDAshould not be construed as either an alternative to net income or as anindicator of our operating performance or an alternative to cash flows as ameasure of liquidity. The adjustments to calculate this non-GAAP financialmeasure and the basis for such adjustments are outlined below. Please refer tothe following table below that reconciles GAAP net income (loss) to AdjustedEBITDA. The adjustments to calculate this non-GAAP financial measure, and the basis forsuch adjustments, are outlined below: Interest income and interest expense, net. The Company receives interest incomeon investments and incurs interest expense on loans, capital leases and otherfinancing arrangements, including the amortization of issue discounts anddeferred financing costs. These amounts may vary from period to period due tochanges in cash and debt balances. Income taxes. The Company's tax expense can fluctuate materially from period toperiod due to tax adjustments that may not be directly related to underlyingoperating performance or to the current period of operations and may notnecessarily reflect the impact of utilization of our NOLs. Depreciation. The Company incurs depreciation expense (recorded in cost ofrevenues and in operating expenses) related to capital assets purchased, leasedor constructed to support the ongoing operations of the business. The assetsare recorded at cost or fair value and are depreciated over theestimated useful lives of individual assets. Amortization of intangible assets. The Company incurs amortization ofintangible expense related to acquisitions it has made. These intangible assetsare valued at the time of acquisition and are amortized over the estimateduseful lives. Amortization of capitalized contract and development costs. The Company incursamortization of previously capitalized software development and non-recurringengineering costs related to certain targets in its Unmanned Systems andballistic missile target businesses as these units are sold. Stock-based compensation expense. The Company incurs expense related tostock-based compensation included in its GAAP presentation of selling, generaland administrative expense. Although stock-based compensation is an expense ofthe Company and viewed as a form of compensation, these expenses vary in amountfrom period to period, and are affected by market forces that are difficult topredict and are not within the control of management, such as the market priceand volatility of the Company's shares, risk-free interest rates and theexpected term and forfeiture rates of the awards. Management believes thatexclusion of these expenses allows comparison of operating results to those ofother companies that disclose non-GAAP financial measures that excludestock-based compensation. Foreign transaction (gain) loss. The Company incurs transaction gains andlosses related to transactions with foreign customers in currencies otherthan the U.S. dollar. In addition, certain intercompany transactions can giverise to realized and unrealized foreign currency gains and losses. Acquisition and transaction related items. The Company incurs transactionrelated costs, such as legal and accounting fees and other expenses, relatedto acquisitions and divestiture activities. Management believes these items areoutside the normal operations of the Company's business and are not indicativeof ongoing operating results. Restructuring costs. The Company incurs restructuring costs for cost reductionactions which include employee termination costs, facility shut-down relatedcosts and remaining lease commitment costs for excess or exited facilities.Management believes that these costs are not indicative of ongoing operatingresults as they are either non-recurring and/or not expected when full capacityand volumes are achieved. Legal related items. The Company incurs costs related to pending legalsettlements and other legal related matters. Management believes these itemsare outside the normal operations of the Company's business and are notindicative of ongoing operating results. Adjusted EBITDA is a non-GAAP financial measure and should not be considered inisolation or as a substitute for financial information provided in accordancewith GAAP. This non-GAAP financial measure may not be computed in the samemanner as similarly titled measures used by other companies. The Companyexpects to continue to incur expenses similar to the Adjusted EBITDA financialadjustments described above, and investors should not infer from the Company'spresentation of this non-GAAP financial measure that these costs are unusual,infrequent, or non-recurring. Reconciliation of Net income attributable to Kratos to Adjusted EBITDA is asfollows: Three Months Ended Nine Months Ended September September September September 27, 29, 27, 29, 2020 2019 2020 2019 Net income attributable $ 2.4 $ 2.5 $ 1.5 $ 9.5 to Kratos(Income) loss fromdiscontinued operations, 0.2 - 0.8 (2.4 )net of income taxesInterest expense, net 5.9 5.4 16.9 16.2 Provision for incometaxes from continuing 5.0 2.8 1.8 3.8 operationsDepreciation (includingcost of service revenues 4.5 4.0 13.1 11.6 and product sales)Stock-based compensation 5.0 2.8 14.5 8.2 Foreign transaction (0.7 ) 0.8 (0.4 ) 1.3 (gain) lossAmortization of 1.7 1.7 5.4 5.2 intangible assetsAmortization ofcapitalized contract and 0.2 0.3 0.7 1.0 development costsAcquisition andrestructuring related 0.4 - 2.0 2.2 items and otherPlus: Net income (loss)attributable to - 0.1 (0.1 ) 0.5 noncontrolling interest Adjusted EBITDA $ 24.6 $ 20.4 $ 56.2 $ 57.1 Reconciliation of acquisition and restructuring related items and otherincluded in Adjusted EBITDA: Three Months Ended Nine Months Ended September September September September 27, 29, 27, 29, 2020 2019 2020 2019Acquisition andtransaction related $ 0.1 $ 0.1 $ 1.5 $ 1.9 itemsRestructuring costs 0.3 (0.1 ) 0.5 0.3 $ 0.4 $ - $ 2.0 $ 2.2 Kratos Defense & Security Solutions, Inc.Unaudited Segment Data(in millions) Three Months Ended Nine Months Ended September September September September 27, 29, 27, 29, 2020 2019 2020 2019Revenues: Unmanned Systems $ 53.5 $ 45.7 $ 137.5 $ 123.1 Kratos Government 148.5 138.4 403.8 409.3 SolutionsTotal revenues $ 202.0 $ 184.1 $ 541.3 $ 532.4 Operating income (loss) Unmanned Systems $ 3.7 $ 3.3 $ 5.2 $ 5.6 Kratos Government 14.1 11.1 31.1 33.2 SolutionsUnallocated corporate (5.1 ) (2.9 ) (16.0 ) (10.1 )expense, netTotal operating income $ 12.7 $ 11.5 $ 20.3 $ 28.7 Note: Unallocated corporate expense, net includes costs for certain stock-basedcompensation programs (including stock-based compensation costs for stockoptions, employee stock purchase plan and restricted stock units), the effectsof items not considered part of management's evaluation of segment operatingperformance, and acquisition and restructuring related items, corporate costsnot allocated to the segments, legal related items, and other miscellaneouscorporate activities. Reconciliation of consolidated Adjusted EBITDA to Adjusted EBITDA by segment isas follows: Three Months Ended Nine Months Ended September September September September 27, 29, 27, 29, 2020 2019 2020 2019Unmanned Systems $ 5.6 $ 4.9 $ 10.9 $ 10.4 % of revenue 10.5 % 10.7 % 7.9 % 8.4 %Kratos Government 19.0 15.5 45.3 46.7 Solutions% of revenue 12.8 % 11.2 % 11.2 % 11.4 %Total Adjusted EBITDA $ 24.6 $ 20.4 $ 56.2 $ 57.1 % of revenue 12.2 % 11.1 % 10.4 % 10.7 % Kratos Defense & Security Solutions, Inc.Unaudited Condensed Consolidated Balance Sheets(in millions) September December 29, 27, 2020 2019Assets Current assets: Cash and cash equivalents $ 374.7 $ 172.6 Restricted cash 0.7 - Accounts receivable, net 276.6 264.4 Inventoried costs 78.3 61.1 Prepaid expenses 17.9 9.4 Other current assets 22.6 11.4 Current assets of discontinued operations - 3.3 Total current assets 770.8 522.2 Property, plant and equipment, net 136.1 116.9 Operating lease right-of-use assets 40.1 42.1 Goodwill 475.3 455.6 Intangible assets, net 42.0 39.5 Other assets 8.9 9.7 Total assets $ 1,473.2 $ 1,186.0 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 54.7 $ 53.8 Accrued expenses 28.8 32.7 Accrued compensation 45.4 37.1 Accrued interest 6.4 1.6 Billings in excess of costs and earnings on 36.3 34.3 uncompleted contractsCurrent portion of operating lease liabilities 8.9 9.9 Other current liabilities 16.2 10.0 Other current liabilities of discontinued 3.0 3.3 operationsTotal current liabilities 199.7 182.7 Long-term debt 300.3 295.1 Operating lease liabilities, net of current 35.7 37.6 portionOther long-term liabilities 84.7 78.7 Other long-term liabilities of discontinued 2.6 2.8 operationsTotal liabilities 623.0 596.9 Commitments and contingencies Redeemable noncontrolling interest 14.9 15.0 Stockholders' equity: Additional paid-in capital 1,545.4 1,286.5 Accumulated other comprehensive loss 0.4 (0.4 )Accumulated deficit (710.5 ) (712.0 )Total Kratos stockholders' equity 835.3 574.1 Total liabilities and stockholders' equity $ 1,473.2 $ 1,186.0 Kratos Defense & Security Solutions, Inc.Unaudited Condensed Consolidated Statements of Cash Flows(in millions) Nine Months Ended September September 27, 29, 2020 2019Operating activities: Net income $ 1.4 $ 10.0 Less: income (loss) from discontinued operations (0.8 ) 2.4 Income from continuing operations 2.2 7.6 Adjustments to reconcile income from continuingoperations to net cash provided by operating activities from continuing operations:Depreciation and amortization 18.5 16.8 Amortization of lease right-of-use assets 7.3 8.7 Deferred income taxes (0.3 ) (4.1 )Stock-based compensation 14.5 8.2 Amortization of deferred financing costs 0.7 0.7 Provision for doubtful accounts 0.2 - Changes in assets and liabilities, net of acquisitions:Accounts receivable 6.4 7.4 Unbilled receivables (12.3 ) 2.0 Inventoried costs (4.8 ) (10.3 )Prepaid expenses and other assets (15.8 ) (0.2 )Operating lease liabilities (8.0 ) (3.1 )Accounts payable (1.7 ) (6.5 )Accrued compensation 6.5 0.9 Accrued expenses (4.9 ) (0.3 )Accrued interest 4.8 4.8 Billings in excess of costs and earnings on (2.7 ) (2.8 )uncompleted contractsIncome tax receivable and payable (1.4 ) 1.7 Other liabilities 9.9 (1.3 )Net cash provided by operating activities from 19.1 30.2 continuing operationsInvesting activities: Cash paid for acquisitions, net of cash acquired (43.9 ) (17.6 )Capital expenditures (23.0 ) (17.9 )Proceeds from sale of assets 0.1 0.3 Net cash used in investing activities from (66.8 ) (35.2 )continuing operationsFinancing activities: Proceeds from the issuance of long-term debt 4.8 - Payment of long-term debt (0.7 ) - Proceeds from the issuance of common stock, net of 240.4 - issuance costsPayment under finance leases (0.5 ) (0.4 )Proceeds from exercise of restricted stock units,employee stock options, and employee stock 4.0 3.0 purchase planNet cash provided by financing activities from 248.0 2.6 continuing operationsNet cash flows from continuing operations 200.3 (2.4 )Net operating cash flows of discontinued 2.1 0.8 operationsEffect of exchange rate changes on cash and cash 0.4 (0.4 )equivalentsNet increase (decrease) in cash, cash equivalents 202.8 (2.0 )and restricted cashCash, cash equivalents and restricted cash at 172.6 183.0 beginning of periodCash, cash equivalents and restricted cash at end $ 375.4 $ 181.0 of period Kratos Defense & Security Solutions, Inc.Unaudited Non-GAAP MeasuresComputation of Adjusted Earnings Per Share(in millions, except per share data) Adjusted income from continuing operations and adjusted income from continuingoperations per diluted common share (Adjusted EPS) are non-GAAP measures forreporting financial performance and exclude the impact of certain items and,therefore, have not been calculated in accordance with GAAP.Management believes that exclusion of these items assists in providing a morecomplete understanding of the Company's underlying continuing operationsresults and trends and allows for comparability with our peer company index andindustry. The Company uses these measures along with the corresponding GAAPfinancial measures to manage the Company's business and to evaluate itsperformance compared to prior periods and the marketplace. The Company definesadjusted income from continuing operations before amortization of intangibleassets, depreciation, stock-based compensation, foreign transaction gain/loss,and acquisition and restructuring related items and other. The Company uses theestimated cash tax provision in computing adjusted earnings per share toreflect the benefit from the utilization of the Company's net operating losses.Adjusted EPS expresses adjusted income from continuing operations on a pershare basis using weighted average diluted shares outstanding. The following table reconciles the most directly comparable GAAP financialmeasures to the non-GAAP financial measures. Three Months Ended Nine Months Ended September September September September 27, 29, 27, 29, 2020 2019 2020 2019Income from continuing $ 7.6 $ 5.4 $ 4.0 $ 11.4 operations before taxesAdd: Amortization of 1.7 1.7 5.4 5.2 intangible assetsAdd: Amortization ofcapitalized contract and 0.2 0.3 0.7 1.0 development costsAdd: Depreciation 4.5 4.0 13.1 11.6 Add: Stock-based 5.0 2.8 14.5 8.2 compensationAdd: Foreign transaction (0.7 ) 0.8 (0.4 ) 1.3 (gain) lossAdd: Acquisition andrestructuring related 0.4 - 2.0 2.2 items and otherAdjusted income fromcontinuing operations 18.7 15.0 39.3 40.9 before income taxes Estimated cash tax 0.6 0.7 2.3 2.3 provisionAdjusted income from $ 18.1 $ 14.3 $ 37.0 $ 38.6 continuing operations Adjusted income fromcontinuing operations $ 0.14 $ 0.13 $ 0.32 $ 0.35 per diluted common share Weighted average dilutedcommon shares 126.4 109.9 115.9 109.0 outstanding