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

December 07, 2012 | About:
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10qk

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Kratos Defense & Security Solutions Inc. (KTOS) filed Amended Quarterly Report for the period ended 2012-03-25.

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:

Revenue from the U.S. Government, which includes foreign military sales, includes revenue from contracts for which the Company is the prime contractor as well as those for which the Company is a subcontractor and the ultimate customer is the U.S. Government. The KGS segment has substantial revenue from the U.S. Government. Sales to the U.S. Government amounted to approximately $94.1 million and $140.9 million, or 77% and 67%, of total revenue for the three months ended March 27, 2011 and March 25, 2012, respectively.

Revenues. Revenues increased $86.7 million, from $122.8 million for the three months ended March 27, 2011 to $209.5 million for the three months ended March 25, 2012. KGS segment revenue increased by $71.5 million, from $97.4 million to $168.9 million. This increase was primarily due to the acquisitions of SecureInfo, Integral and Herley which had combined revenues of $95.0 million, as well as organic growth in our ballistic missile defense and learning, performance and training businesses, partially offset by the completion of acquired small business contracts in the first quarter of 2011, the timing of orders and shipments in our ground equipment business, ongoing weakness and increased competition in our legacy services businesses, and continued in-sourcing of our employees by the U.S. Government. PSS segment revenue increased by $15.2 million, which was primarily due to the acquisition of the Critical Infrastructure Business on December 30, 2011, which generated revenues of $13.8 million, as well as organic growth in our existing legacy PSS business of $1.4 million. Revenues by operating segment for the three months ended March 27, 2011 and March 25, 2012 are as follows (dollars in millions):

Product sales increased $64.4 million, from $43.0 million for the three months ended March 27, 2011 to $107.4 million for the three months ended March 25, 2012. As a percentage of total revenue, product sales were 35% for the three months ended March 27, 2011 as compared to 51% for the three months ended March 25, 2012. This increase was primarily related to the acquisitions of Integral and Herley, partially offset by the timing of orders and shipments in our ground equipment business. Service revenues increased by $22.3 million, from $79.8 million for the three months ended March 27, 2011 to $102.1 million for the three months ended March 25, 2012. The increase was primarily related to the acquisition of Integral, SecureInfo and the Critical Infrastructure Business on December 30, 2011, partially offset by the reductions in service revenue in other business units in the KGS segment as discussed above.

Gross margin increased from 22.3% for the three months ended March 27, 2011 to 27.4% for the three months ended March 25, 2012. Margins on services decreased for the three months ended March 27, 2011 as compared to March 25, 2012, from 24.4% to 21.8%, respectively, due primarily to the acquisitions of Integral and the recently acquired Critical Infrastructure Business, as well as the continued margin pressure experienced in our service business. Margins on products increased for the three months ended March 27, 2011 as compared to March 25, 2012, from 18.4% to 32.7%, respectively, as a result of the acquisitions of Integral and Herley. Margins in the KGS segment increased from 20.7% for the three months ended March 27, 2011 to 27.8% for the three months ended March 25, 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 three months ended March 27, 2011 to 25.6% for the three months ended March 25, 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. Selling, general and administrative expenses (SG&A) increased $24.2 million, from $19.6 million for the three months ended March 27, 2011 to $43.8 million for the three months ended March 25, 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 16.0% to 20.9%. Excluding amortization of intangibles of $3.4 million for the three months ended March 27, 2011 and amortization of intangibles of $10.5 million for the three months ended March 25, 2012, SG&A increased as a percentage of revenues from 13.2% to 15.9% for the three months ended March 25, 2011 and March 25, 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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