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Kratos Defense & Security Solutions Inc. Reports Operating Results (10-Q/A)

December 07, 2012 | About:
10qk

10qk

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Kratos Defense & Security Solutions Inc. (KTOS) filed Amended Quarterly Report for the period ended 2012-06-24.

Kratos Defense & Security Solutions, Inc. has a market cap of $252.2 million; its shares were traded at around $4.37 with a P/E ratio of 8.9 and P/S ratio of 0.4.

Highlight of Business Operations:

Revenues. Revenues increased $48.7 million from $171.1 million for the three months ended June 26, 2011 to $219.8 million for the three months ended June 24, 2012. KGS segment revenue increased by $30.5 million. This increase was primarily due to the acquisitions of SecureInfo and Integral, which had combined revenues of $54.9 million, as well as organic growth in our businesses, offset in part by the timing of orders and shipments in our ground equipment business and legacy weapons systems sustainment business, resulting in an aggregate net reduction of approximately $10.0 million, and continued ongoing weakness and increased competition in our legacy government services businesses, including continued in-sourcing of our employees by the U.S. Government, resulting in an aggregate net reduction of approximately $12.4 million. PSS segment revenue increased by $18.2 million, primarily due to the acquisition of the Critical Infrastructure Business on December 30, 2011, which generated revenues of $16.6 million, as well as organic growth in our existing legacy PSS business of $1.6 million. Revenues by operating segment for the three months ended June 26, 2011 and June 24, 2012 are as follows (dollars in millions):

Gross margin decreased slightly from 26.5% for the three months ended June 26, 2011 to 26.3% for the three months ended June 24, 2012. Margins on services decreased for the three months ended June 26, 2011 as compared to June 24, 2012, from 23.0% to 22.7%, respectively, due primarily to the acquisitions of Integral and the Critical Infrastructure Business, as well as the continued margin pressure experienced in our traditional service business in our KGS segment. Margins on products increased for the three months ended June 26, 2011 as compared to June 24, 2012 from 29.3% to 30.0%, respectively, as a result of the acquisition of Integral. Margins in the KGS segment decreased from 26.2% for the three months ended June 26, 2011 to 25.9% for the three months ended June 24, 2012, primarily as a result of lower gross margins from service revenue in our legacy business units. Margins in the PSS segment decreased from 28.3% for the three months ended June 26, 2011 to 27.7% for the three months ended June 24, 2012 as a result of the mix of revenue and due to the acquisition of the Critical Infrastructure Business, for which cost reduction actions have not yet been fully implemented.

Revenues. Revenues increased $135.4 million from $293.9 million for the six months ended June 26, 2011 to $429.3 million for the six months ended June 24, 2012. KGS segment revenue increased by $102.0 million. This increase was primarily due to the acquisitions of SecureInfo, Integral and Herley which had combined revenues of $198.5 million, as well as organic growth in our ballistic missile defense and learning, performance and training businesses, offset by the completion of acquired small business contracts in the first quarter of 2011, ongoing weakness and increased competition in our legacy services businesses, and continued in-sourcing of our employees by the U.S. Government, resulting in an aggregate net reduction of approximately $25.0 million, and the timing of orders and shipments in our ground equipment business and legacy weapons systems sustainment business, resulting in an aggregate net reduction of approximately $21.6 million. PSS segment revenue increased by $33.4 million which was primarily due to the acquisition of the Critical Infrastructure Business on December 30, 2011, which generated revenues of $30.4 million, as well as organic growth in our existing legacy PSS business of $3.0 million. Revenues by operating segment for the six months ended June 26, 2011 and June 24, 2012 are as follows (dollars in millions):

Gross margin increased from 24.8% for the six months ended June 26, 2011 to 26.8% for the six months ended June 24, 2012. Margins on services decreased from 23.7% for the six months ended June 26, 2011 to 22.3% for the six months ended June 24, 2012, due primarily to the acquisitions of Integral and the Critical Infrastructure Business, as well as the continued margin pressure experienced in our service business. Margins on products increased for the six months ended June 26, 2011 as compared to June 24, 2012 from 25.9% to 31.3%, respectively, as a result of the acquisitions of Integral and Herley. Margins in the KGS segment increased from 24.0% for the six months ended June 26, 2011 to 26.8% for the six months ended June 24, 2012 primarily as a result of the higher gross margins from our Integral, Herley, and SecureInfo acquisitions. Margins in the PSS segment decreased from 28.3% for the six months ended June 26, 2011 to 26.7% for the six months ended June 24, 2012 as a result of the mix of revenue and due to the acquisition of the Critical Infrastructure Business, for which cost reduction actions have not yet been fully implemented.

Selling, General and Administrative Expenses. SG&A increased $33.1 million from $53.3 million for the six months ended June 26, 2011 to $86.4 million for the six months ended June 24, 2012. The increase was primarily a result of the acquisitions of SecureInfo, Integral, Herley and the Critical Infrastructure Business. As a percentage of revenues, SG&A increased from 18.1% to 20.1%. Excluding amortization of intangibles of $12.6 million for the six months ended June 26, 2011 and amortization of intangibles of $19.4 million for the six months ended June 24, 2012, SG&A increased as a percentage of revenues from 13.8% to 15.6% for the six months ended June 26, 2011 and June 24, 2012, respectively, reflecting the SG&A of our acquisitions of SecureInfo, Integral, Herley and the Critical Infrastructure Business, which have higher SG&A as a percentage of revenues and corresponding higher gross margin percentages.

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