GlobeNewswire Inc | Aug 4, 2020 04:00PM EDT

August 04, 2020

Second Quarter 2020 Revenues of $170.4 MillionBook to Bill Ratio of 1.2 to 1

SAN DIEGO, Aug. 04, 2020 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider, today reported its second quarter 2020 financial results. For the second fiscal quarter of 2020, Kratos reported Revenues of $170.4 million and Adjusted EBITDA of $15.3 million.

Second Quarter 2020 Revenues of $170.4 million, as compared to $187.9 million in the second quarter of 2019, reflect a reduction of approximately $17.0 million in the KGS segment, resulting primarily from a reduction of $12.1 million in the Companys Training Solutions business, which reduction was principally related to the previously disclosed reduction in scope of certain international contracts. Second Quarter 2020 Adjusted EBITDA was $15.3 million, as compared to $19.2 million in the second quarter of 2019, primarily reflecting the reduced revenues from the second quarter of 2019, and increased 2020 research and development (R&D) investments of approximately $1.5 million, primarily in the Companys space and satellite communications business. Operating Income of $2.9 million for the second quarter of 2020 includes an increase in non-cash stock-based compensation expense of $2.0 million, an increase in depreciation expense of $0.2 million and the increase in R&D of $1.5 million.

Second quarter 2020 Cash Flow generated from Operations was $6.8 million, and Free Cash Flow used in Operations was $0.9 million after the funding of $7.7 million of capital expenditures. Cash used to fund acquisitions was $1.3 million. Cash on hand at June 28, 2020 was $397.2 million, which includes approximately $240.5 million of net proceeds raised in the Companys equity offering that closed on June 23, 2020. Net cash balance after deducting debt balances was $101.3 million. Adjusted EPS* was $0.08 for the second quarter of 2020, compared to $0.11 for the second quarter of 2019. Kratos reported a second quarter 2020 Net Loss of $0.7 million, and GAAP EPS was a loss of $0.01 for the second quarter of 2020.

For the second quarter of 2020, Kratos Unmanned Systems Segment (KUS) reported Revenues of $42.0 million as compared to $42.5 million in the second quarter of 2019, and Adjusted EBITDA of $3.0 million as compared to second quarter 2019 Adjusted EBITDA of $3.5 million, primarily reflecting an increased mix of development programs which are typically at lower margins. KUSs book-to-bill ratio for the second quarter of 2020 was 1.0 to 1.0 and for the last twelve months ended June 28, 2020 was 1.1 to 1.0. Total backlog for KUS at the end of the second quarter of 2020 was $175.7 million.

For the second quarter of 2020, Kratos Government Solutions Segment (KGS) reported Revenues of $128.4 million, as compared to revenues of $145.4 million in the second quarter of 2019. Revenues in 2020 were primarily impacted by previously disclosed scope reductions of certain international training programs. Second quarter 2020 KGS Adjusted EBITDA was $12.3 million as compared to $15.7 million in the second quarter of 2019, reflecting the reduction of revenues, increased R&D of $1.5 million in the Companys space and satellite business, as well as a less favorable mix of revenues. For the second quarter of 2020, KGS reported bookings of $163.7 million, a book-to-bill ratio of 1.3 to 1.0, with bookings of $581.4 million and a book to bill ratio of 1.1 to 1.0, for the last twelve months ended June 28, 2020.

For the second quarter of 2020, Kratos reported consolidated bookings of $207.0 million and a book-to-bill ratio of 1.2 to 1.0, with bookings of $771.6 million and a book-to-bill ratio of 1.1 to 1.0, for the last twelve months ended June 28, 2020. Backlog at June 28, 2020 was $683.4 million and Kratos bid and proposal pipeline was $8.0 billion at June 28, 2020. Backlog and pipeline data as of June 28, 2020 does not reflect the expected contribution of ASC which was recently acquired on June 30, 2020.

Eric DeMarco, Kratos President and CEO, said, Kratos remains well positioned for the ongoing recapitalization of strategic weapon systems to address peer threats to the U.S. and our allies as reflected in our second quarter report, including our 1.2 to 1.0 book to bill ratio and $8 billion opportunity pipeline. In KGS, our C5ISR, microwave electronics and rocket system businesses performed particularly well, including in the missile system, radar, missile defense and weapon systems areas. Mr. DeMarco continued, Since our last report to you, Kratos unmanned systems business continued to make significant progress, including the receipt of a $400 million Skyborg IDIQ contract award and solid execution on our Valkyrie, Gremlins, Airwolf, Thanatos and Rattle Snake programs. Additionally, we believe the addressable market for Kratos class of drone systems is continuing to expand, including the Skyborg, LCAAT, LCASD, Golden Horde, ABMS, ACE and other programs.

Mr. DeMarco concluded, At Kratos, affordability is a technology, and we are laser focused on being the alternative, low cost rapid developer and fielder of leading technology systems to the U.S. Military, our allies and other customers. Our strategy is to lever our venture capital, commercial and entrepreneurial based research, development and production practices to disrupt our market focus areas and deliver real innovation and cost effectiveness to our customers.

Financial Guidance

Our Third Quarter and Full Year 2020 guidance includes the expected contribution from the recently closed ASC Signal acquisition. We are providing Third Quarter 2020 guidance of Revenues of $195 million to $205 million and Adjusted EBITDA of $17 million to $20 million.

We are increasing our full year 2020 guidance for Revenues from $720 to $760 million to $740 to $780 million, primarily reflecting the expected contribution of the ASC Signal acquisition for the second half of 2020. We are maintaining our Adjusted EBITDA of $72 million to $78 million, which reflects the expected contribution from the ASC Signal acquisition, offset primarily by margin compression in our commercial aero turbine business, which has been impacted by COVID-19. We are 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 $38 to $42 million. Our Third Quarter and Full Year 2020 guidance includes our current assumptions of the expected impact of COVID-19 on our industry, business and operations. We will provide an update to these assumptions and the expected impact to our financial projections, if any, in our Third Quarter earnings conference call.

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/orders are received and the related financial contribution can be estimated.

The 2020 capital expenditure forecast currently includes expected outlays of $15 to $17 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 tactical drones 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 and related financial contribution can be estimated.

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

Management will discuss the Companys second quarter 2020 financial results, as well as its third quarter and 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 3548529. The general public may access the conference call by dialing (877) 344-3935 or on the day of the event by visiting www.kratosdefense.comfor 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 SolutionsKratos Defense & Security Solutions, Inc.(NASDAQ:KTOS) develops and fields transformative, affordable technology, platforms and systems for United States National Security related customers, alliesand commercial enterprises. Kratosis 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.Kratosspecializes 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 StatementsThis news release contains certain forward-looking statements that involve risks and uncertainties, including, without limitation, express or implied statements concerning the Companys expectations regarding its future financial performance, including the Companys expectations for its third quarter and full year 2020 revenue and Adjusted EBITDA, and full year 2020 capital expenditures and free cash flow, the Companys ability to achieve improved revenue mix and profit in certain of its business segments and the expected timing of such profit, the Companys expectation of ramp on projects, the Companys expected contribution from the recent ASC Signal acquisition, the Companys bid and proposal pipeline, demand for its products and services, including the Companys 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 Companys 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 Companys contracts and product offerings, the impact of the Companys 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 Companys net operating loss carry forwards, the availability and timing of government funding for the Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 MeasuresThis 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 Companys available capital resources, the actual and forecasted operating performance of the Companys business and the Companys 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 Companys management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the Companys 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 Companys 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 Companys 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 Companys net operating loss carry forwards of over $300 million. Kratos believes that reporting adjusted earnings per share is a meaningful metric to present the Companys financial results.

Press Contact:Yolanda White858-812-7302 Direct

Investor Information:877-934-4687investor@kratosdefense.com

Kratos Defense & Security Solutions, Inc.Unaudited Condensed Consolidated Statements of Operations(in millions, except per share data) Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, 2020 2019 2020 2019 Service revenues $ 62.9 $ 73.7 $ 126.5 $ 136.3 Product sales 107.5 114.2 212.8 212.0 Total revenues 170.4 187.9 339.3 348.3 Cost of service revenues 46.2 50.6 91.4 92.6 Cost of product sales 78.2 89.2 156.1 162.7 Total costs 124.4 139.8 247.5 255.3 Gross profit - service 16.7 23.1 35.1 43.7 revenuesGross profit - product 29.3 25.0 56.7 49.3 sales Total gross profit 46.0 48.1 91.8 93.0 Selling, general and 32.7 30.1 64.2 58.8 administrative expensesAcquisition andrestructuring related 1.1 0.9 1.6 2.2 itemsResearch and development 6.0 4.5 11.7 8.4 expensesDepreciation 1.5 1.6 3.0 2.9 Amortization of 1.8 2.0 3.7 3.5 intangible assetsOperating income 2.9 9.0 7.6 17.2 Interest expense, net (5.6 ) (5.3 ) (11.0 ) (10.8 )Other income (expense), 0.3 0.1 (0.2 ) (0.4 )netIncome (loss) fromcontinuing operations (2.4 ) 3.8 (3.6 ) 6.0 before income taxesProvision (benefit) forincome taxes from (1.8 ) 2.5 (3.2 ) 1.0 continuing operationsIncome (loss) from (0.6 ) 1.3 (0.4 ) 5.0 continuing operationsIncome (loss) fromdiscontinued operations, (0.2 ) 3.0 (0.6 ) 2.4 net of income taxesNet income (loss) (0.8 ) 4.3 (1.0 ) 7.4 Less: Net income (loss)attributable to (0.1 ) - 0.4 (0.1 ) - 0.4 noncontrolling interestNet income (loss) $ (0.7 ) $ 3.9 $ (0.9 ) $ 7.0 attributable to Kratos Basic income (loss) percommon share attributable to Kratos:Income (loss) from $ (0.01 ) $ 0.01 $ - $ 0.04 continuing operationsIncome (loss) from - 0.03 (0.01 ) 0.02 discontinued operationsNet income (loss) (0.01 ) $ 0.04 $ (0.01 ) $ 0.06 Diluted income (loss) percommon share attributable to Kratos:Income (loss) from $ (0.01 ) $ 0.01 $ - $ 0.04 continuing operationsIncome (loss) from - 0.03 (0.01 ) 0.02 discontinued operationsNet income (loss) (0.01 ) $ 0.04 $ (0.01 ) $ 0.06 Weighted average common shares outstanding:Basic weighted average 108.3 106.1 107.8 105.5 common shares outstandingDiluted weighted average 108.3 109.4 107.8 108.6 common shares outstanding Adjusted EBITDA (1) $ 15.3 $ 19.2 $ 31.6 $ 36.7 Unaudited Reconciliationof 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 andamortizationexpense 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 providedAdjusted EBITDA because we believeit is a commonly used measure of financial performance in comparable companiesand is provided tohelp investors evaluate companies on a consistent basis, aswell as to enhance understanding of our operating results. AdjustedEBITDAshould not be construed as either an alternative to net income or as anindicator of our operating performance or an alternative to cash flowsas 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 andotherfinancing arrangements, including the amortization of issue discounts anddeferred financing costs. These amounts may vary from period to perioddue 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 tounderlyingoperating 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 theestimateduseful lives of individual assets. Amortization of intangible assets. The Company incurs amortization ofintangible expense related to acquisitions it has made. These intangible assetsarevalued 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, theseexpenses 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-GAAPfinancial measures that excludestock-based compensation.

Foreign transaction (gain) loss. The Company incurs transaction gains andlosses related to transactions with foreign customers in currencies otherthanthe 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, relatedtoacquisitions and divestiture activities. Management believes these items areoutside the normal operations of the Company's business and are notindicativeof 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 notindicative 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 believesthese 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 inaccordancewith GAAP. This non-GAAP financial measure may not be computed in the samemanner as similarly titled measures used by othercompanies. The Companyexpects to continue to incur expenses similar to the Adjusted EBITDA financialadjustments described above, and investorsshould 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 (loss) attributable to Kratos to Adjusted EBITDAis as follows: Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, 2020 2019 2020 2019 Net income (loss) $ (0.7 ) $ 3.9 $ (0.9 ) $ 7.0 attributable to Kratos(Income) loss fromdiscontinued operations, 0.2 (3.0 ) 0.6 (2.4 )net of income taxesInterest expense, net 5.6 5.3 11.0 10.8 Provision (benefit) forincome taxes from (1.8 ) 2.5 (3.2 ) 1.0 continuing operationsDepreciation (includingcost of service revenues 4.2 4.0 8.6 7.6 and product sales)Stock-based compensation 4.8 2.8 9.5 5.4 Foreign transaction (0.1 ) - 0.3 0.5 (gain) lossAmortization of 1.8 2.0 3.7 3.5 intangible assetsAmortization ofcapitalized contract and 0.3 0.4 0.5 0.7 development costsAcquisition andrestructuring related 1.1 0.9 1.6 2.2 items and otherPlus: Net income (loss)attributable to (0.1 ) 0.4 (0.1 ) 0.4 noncontrolling interest Adjusted EBITDA $ 15.3 $ 19.2 $ 31.6 $ 36.7 Reconciliation of acquisition and restructuring related items and otherincluded in Adjusted EBITDA:

Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, 2020 2019 2020 2019 Acquisition and $ 1.0 $ 0.6 $ 1.4 $ 1.8 transaction related itemsRestructuring costs 0.1 0.3 0.2 0.4 $ 1.1 $ 0.9 $ 1.6 $ 2.2 Kratos Defense & Security Solutions, Inc.Unaudited Segment Data(in millions) Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, 2020 2019 2020 2019 Revenues: Unmanned Systems $ 42.0 $ 42.5 $ 84.0 $ 77.4 Kratos Government 128.4 145.4 255.3 270.9 SolutionsTotal revenues $ 170.4 $ 187.9 $ 339.3 $ 348.3 Operating income (loss) Unmanned Systems $ 1.0 $ 1.7 $ 1.5 $ 2.3 Kratos Government 7.7 10.7 17.0 22.1 SolutionsUnallocated corporate (5.8 ) (3.4 ) (10.9 ) (7.2 )expense, netTotal operating income $ 2.9 $ 9.0 $ 7.6 $ 17.2 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 Six Months Ended June 28, June 30, June 28, June 30, 2020 2019 2020 2019 Unmanned Systems $ 3.0 $ 3.5 $ 5.3 $ 5.5 % of revenue 7.1 % 8.2 % 6.3 % 7.1 %Kratos Government 12.3 15.7 26.3 31.2 Solutions% of revenue 9.6 % 10.8 % 10.3 % 11.5 %Total Adjusted EBITDA $ 15.3 $ 19.2 $ 31.6 $ 36.7 % of revenue 9.0 % 10.2 % 9.3 % 10.5 % Kratos Defense & Security Solutions, Inc.Unaudited Condensed Consolidated Balance Sheets(in millions) June 28, December 29, 2020 2019 Assets Current assets: Cash and cash equivalents $ 397.2 $ 172.6 Accounts receivable, net 246.2 264.4 Inventoried costs 66.9 61.1 Prepaid expenses 14.6 9.4 Other current assets 19.6 11.4 Current assets of 0.5 3.3 discontinued operationsTotal current assets 745.0 522.2 Property, plant and 122.3 116.9 equipment, netOperating lease 38.0 42.1 right-of-use assetsGoodwill 465.5 455.6 Intangible assets, net 39.2 39.5 Other assets 9.2 9.7 Total assets $ 1,419.2 $ 1,186.0 Liabilities and Stockholders? EquityCurrent liabilities: Accounts payable $ 44.9 $ 53.8 Accrued expenses 28.5 32.7 Accrued compensation 38.8 37.1 Accrued interest 1.6 1.6 Billings in excess ofcosts and earnings on 34.4 34.3 uncompleted contractsCurrent portion ofoperating lease 8.3 9.9 liabilitiesOther current liabilities 10.5 10.0 Other current liabilitiesof discontinued 3.0 3.3 operationsTotal current liabilities 170.0 182.7 Long-term debt 295.9 295.1 Operating leaseliabilities, net of 34.3 37.6 current portionOther long-term 77.0 78.7 liabilitiesOther long-termliabilities of 2.6 2.8 discontinued operationsTotal liabilities 579.8 596.9 Commitments and contingenciesRedeemable noncontrolling 14.9 15.0 interestStockholders? equity: Additional paid-in 1,537.9 1,286.5 capitalAccumulated other (0.5 ) (0.4 )comprehensive lossAccumulated deficit (712.9 ) (712.0 )Total Kratos 824.5 574.1 stockholders? equityTotal liabilities and $ 1,419.2 $ 1,186.0 stockholders? equity Kratos Defense & Security Solutions, Inc.Unaudited Condensed Consolidated Statements of Cash Flows(in millions) Six Months Ended June 28, June 30, 2020 2019 Operating activities: Net income (loss) $ (1.0 ) $ 7.4 Less: income (loss) from (0.6 ) 2.4 discontinued operationsIncome (loss) from (0.4 ) 5.0 continuing operationsAdjustments to reconcileincome (loss) fromcontinuing operations to net cash provided byoperating activities fromcontinuing operations:Depreciation and 12.3 11.1 amortizationAmortization of lease 5.3 5.4 right-of-use assetsDeferred income taxes (1.1 ) (3.1 )Stock-based compensation 9.5 5.4 Amortization of deferred 0.5 0.5 financing costsProvision for doubtful 0.2 - accountsChanges in assets andliabilities, net of acquisitions:Accounts receivable 24.7 4.4 Unbilled receivables (6.8 ) 8.6 Inventoried costs (4.5 ) (16.3 )Advance payments received - 0.1 on contractsPrepaid expenses and (10.8 ) (0.4 )other assetsOperating lease (6.0 ) 0.8 liabilitiesAccounts payable (9.1 ) 3.6 Accrued compensation 1.4 (2.1 )Accrued expenses (4.2 ) - Billings in excess ofcosts and earnings on (0.5 ) 2.0 uncompleted contractsIncome tax receivable and (3.0 ) 1.2 payableOther liabilities 3.3 (6.2 )Net cash provided byoperating activities from 10.8 20.0 continuing operationsInvesting activities: Cash paid foracquisitions, net of cash (15.5 ) (17.6 )acquiredCapital expenditures (14.1 ) (9.8 )Proceeds from sale of 0.1 - assetsNet cash used ininvesting activities from (29.5 ) (27.4 )continuing operationsFinancing activities: Payment of long-term debt (0.1 ) - Proceeds from theissuance of common stock, 240.5 - net of issuance costsPayment under finance (0.3 ) (0.2 )leasesProceeds from exercise ofrestricted stock units,employee stock options, 1.4 0.9 and employee stockpurchase planNet cash provided byfinancing activities from 241.5 0.7 continuing operationsNet cash flows from 222.8 (6.7 )continuing operationsNet operating cash flowsof discontinued 1.7 - operationsEffect of exchange ratechanges on cash and cash 0.1 (0.1 )equivalentsNet increase (decrease)in cash, cash equivalents 224.6 (6.8 )and restricted cashCash, cash equivalentsand restricted cash at 172.6 183.0 beginning of periodCash, cash equivalentsand restricted cash at $ 397.2 $ 176.2 end 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-GAAPmeasures forreporting financial performance and exclude the impact of certain items and,therefore, have not been calculated in accordance with GAAP.Managementbelieves that exclusion of these items assists in providing a morecomplete understanding of the Company's underlying continuing operationsresults and trends and allowsfor 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 definesadjustedincome from continuing operations before amortization of intangibleassets, depreciation, stock-based compensation, foreign transaction gain/loss,andacquisition and restructuring related items and other. The Company uses theestimated cash tax provision in computing adjusted earnings per sharetoreflect the benefit from the utilization of the Company's net operating losses.Adjusted EPS expresses adjusted income from continuingoperations 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 Six Months Ended June 28, June 30, June 28, June 30, 2020 2019 2020 2019 Income (loss) fromcontinuing operations $ (2.4 ) $ 3.8 $ (3.6 ) $ 6.0 before taxesAdd: Amortization of 1.8 2.0 3.7 3.5 intangible assetsAdd: Amortization ofcapitalized contract and 0.3 0.4 0.5 0.7 development costsAdd: Depreciation 4.2 4.0 8.6 7.6 Add: Stock-based 4.8 2.8 9.5 5.4 compensationAdd: Foreign transaction (0.1 ) - 0.3 0.5 (gain) lossAdd: Acquisition andrestructuring related 1.1 0.9 1.6 2.2 items and otherAdjusted income fromcontinuing operations 9.7 13.9 20.6 25.9 before income taxes Estimated cash tax 1.1 1.4 1.7 1.6 provisionAdjusted income from $ 8.6 $ 12.5 $ 18.9 $ 24.3 continuing operations Adjusted income fromcontinuing operations per $ 0.08 $ 0.11 $ 0.18 $ 0.22 diluted common share Weighted average diluted 108.3 109.4 107.8 108.6 common shares outstanding