This defense contractor has received almost $13 million in new awards so far this month for national security and mass transportation projects.
Kratos Defense & Security (KTOS)
from The Periscope Report
Kratos Defense & Security (KTOS) provides software and services to the U.S. Government for homeland security, cybersecurity, and in weapons systems. The company is the market leader for winged enforcers, better known as unmanned aerial vehicles, or drones.
Management confirmed its full-year 2014 financial guidance. Revenues will range from $920 - $980 million, Adjusted EBITDA will be $93 - $106 million, and Free Cash Flow will be $25 - $40 million.
For the 2Q of 2014, management is forecasting revenue of $220 - $235 million and EBITDA of $18 - $22 million, both higher than the 1Q. For the 1Q ended March 2014, revenues decreased 21% YoY to $200.1 million.
On a Non-GAAP basis, KTOS reported a Pro Forma net loss of ($0.06) per share, down from $0.09 per share a year ago, and down from $0.06 per share in the prior quarter. KTOS beat the loss estimate for ($0.11) per share, the fifth quarter in a row the company has surpassed estimates.
On the conference call, CEO Eric DeMarco said there was strength in certain high technology and higher margin areas of its business, including satellite communications, unmanned aerial and ground system control systems, electronic warfare, missile systems, and radars.
KTOS finished the quarter with a backlog of $1.1 billion, flat with the prior quarter. (Research Note: there are not many companies that have a backlog twice its market cap.) New bookings and new contract opportunities have increased substantially over the past several months and in particular since the approval of the fiscal year 2014 Department of Defense (DoD) appropriations bill in January 2014.
KTOS has also made progress on its Unmanned Combat Aerial System (UCAS) initiative, recently beginning production on three new UCAS aircraft in conjunction with the company’s sponsor
In the 1Q, KTOS continued to restructure the business and certain of its operations in response to the Department of Defense (DoD) budgetary environment, including an emphasis on higher technology, lower cost products and solutions at the contracting government services business, and the shift in DoD funding toward strategic national security programs.
Over the past several months, KTOS has received important aircraft and command and control system contract awards in the unmanned aerial and ground vehicle areas, where KTOS has no competition. This represents 20% of total revenue.
There are huge opportunities for non-government security. Construction companies, chemical companies, oil companies, and rail companies are becoming security conscious, mainly because there have been threats against all of them. The threat problems in metropolitan areas and mass transit are acute. Management expects this business to grow organically in 2014.
Internationally, the opportunities are in missiles and radars. The opportunities are significant, especially in India and Israel.
The 1Q was hurt by delayed contracts. But margins will improve in 2014 and explode in 2015 as drone contracts are awarded. We urge our clients to get in the stock now.
Tom Byrne, The Periscope Report, 4025 Sunset Ridge Drive, Canyon Ferry Crossing, Helena, MT 59602, 406-465-4663, May 2014