Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) Q3 2019 Earnings Conference Call - Final Transcript

Nov 05, 2019 • 05:00 pm ET


Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) Q3 2019 Earnings Conference Call - Final Transcript


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Ladies and gentlemen, thank you for standing by. And welcome to the Kratos Defense & Security Solutions Third Quarter 2019 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

[Operator Instructions]

I would now like to hand the conference over to your speaker today, Marie Mendoza, Senior VP, General Counsel. Thank you. Please go ahead, ma'am.

Marie Mendoza

Thank you. Good afternoon, everyone. Thank you for joining us for the Kratos Defense & Security Solutions third quarter 2019 conference call. With me today is Eric DeMarco, Kratos' President and Chief Executive Officer; and Deanna Lund, Kratos' Executive Vice President and Chief Financial Officer.

Before we begin the substance of today's call, I'd like everyone to please take note of the safe harbor paragraph that is included at the end of today's press release. This paragraph emphasizes the major uncertainties and risks inherent in the forward-looking statements we will make this afternoon. Please keep these uncertainties and risks in mind as we discuss future strategic initiatives, potential market opportunities, operational outlook and financial guidance during today's call.

Today's call will also include a discussion of non-GAAP financial measures as that term is defined in Regulation G. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for financial information presented in compliance with GAAP. Accordingly, at the end of today's press release, we have provided a reconciliation of these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP.

With that, I will now to turn the call over to Eric DeMarco.

Eric M. DeMarco

Thank you, Marie. As Kratos transitions, we're making significant investments and executing on development programs, and executing on new or increased production programs, this transition is reflected in our financial performance, including organic growth and an improved business mix, which is driving higher margins, profit and EBITDA rates.

Representative third quarter financial highlights for Kratos include, our revenues increased 15.5% over the prior year. And importantly, our Unmanned Systems revenues organically increased 37% over Q3 of 2018. Our operating income increased approximately 14% over the prior year, and our adjusted EBITDA increased 22% over last year.

We generated $10.2 million of third quarter operating cash flow, which brought our nine month operating cash flow generation to $30 million and our nine month free cash flow generation to $12 million. The free cash flow generation is even after the substantial investments we are making in our new Oklahoma drone facility, and the build-out of a separate new secured drone facility. And at the end of Q3, Kratos' LTM adjusted EBITDA was $75 million. We believe that these financial results are representative of the long-term growth platform we're building, including as reflected by the third quarter trailing 12 months book-to-bill ratio of our Unmanned Systems division of 1.3 to 1.0, we are forecasting the strongest future growth for the company.