Kratos Defense & Security Solutions' CEO Discusses Q2 2012 Earnings Results - Earnings Call Transcript

Kratos Defense & Security Solutions, Inc. (KTOS)

Q2 2012 Earnings Call

August 2, 2012 5:00 pm ET

Executives

Laura L. Siegal – Vice President & Corporate Controller

Eric M. DeMarco – President, Chief Executive Officer & Director

Deanna H. Lund – Chief Financial Officer & Executive Vice President

Analyst

Mike Crawford – B. Riley & Company, Inc.

Michael Ciarmoli – Keybanc Capital Markets

Analyst for Mark Jordan – Noble Financial Capital Markets

Bhakti Pavani – C.K. Cooper & Company

David Sagalov – Jefferies & Company

Josephine Millward – Benchmark Company

Analyst for Yair Reiner – Oppenheimer & Co.

[Aneal Wasched – Inaudible]

Presentation

Operator

Welcome to the Kratos Defense & Security Solutions second quarter 2012 earnings conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference Ms. Laura Siegal, Vice President & Corporate Controller.

LL

Thank you for joining us for the Kratos Defense & Security Solutions second quarter earnings 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 to make some brief introductory comments.

Earlier this afternoon we issued a press release which outlined the topics we planned to discuss today. If anyone has not yet seen a copy of this press release it is available on the Kratos’ corporate website at www.KratosDefense.com. Additionally, I’d like to remind our listeners that this conference call is open to the media and we are providing a simultaneous webcast of this call for the public. A replay of our discussion will be available on the company’s website later today.

During this call we will discuss some factors and matters that are likely to influence our business going forward. Any matters discussed today that are not historical fact, particularly comments regarding our future plans, objectives, and expected future performance constitute forward-looking statements. These forward-looking statements may include comments about our plans and expectations of future performance. These plans and expectations are subject to risks and uncertainties which could cause actual results to differ materially from those adjusted by our forward-looking statements.

We encourage all of our listeners to review our SEC filings including our most recent 10Q and 10K and any of our other SEC filings for a more complete description of these risks. A partial list of these important risk factors is included at the end of the press release we issued today. Our statements on this call are made as of August 2, 2012 and the company undertakes no obligation to revise or update publically any of the forward-looking statements contained herein whether as a result of new information, future events, changes in expectations or otherwise for any reason.

This conference call will include a discussion of non-GAAP financial measures as that term is defined in Regulation G. Certain of the information discussed including adjusted EBITDA and the associated margin rates, pro forma EPS from continuing operations excluding transaction expenses, amortization of purchase intangibles and excess office space expense using a cash tax rate and using a statutory tax rate of 40%, adjusted cash flow from operations reflecting cash flow from operations including transaction related items, and adjusted free cash flow reflecting cash flow from operations including transaction related items less capital expenditures are considered non-GAAP financial measures.

Kratos believes this information is useful to investors because it provides a basis for measuring the company’s available capital resources, the actual and forecasted operating performance of the company’s business and the company’s cash flow excluding extraordinary items and non-cash items that would normally be included in the most directly comparable measures calculated and presented in accordance with generally accepted accounting principles.

The company’s management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the company’s 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 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 company’s financial results prepared in accordance with GAAP are included in the earnings release which is posted on the company’s website.

In today’s call Mr. DeMarco will discuss our financial and operational results for the second quarter of 2012. He will then turn the call over to Ms. Lund to discuss the specifics related to our financial results. Mr. DeMarco will then make some concluding remarks about the business and we will then open up the call for your questions.

With that said, it is my pleasure to turn the call over to Mr. DeMarco.

Eric M. DeMarco

Kratos’ second quarter 2012 results came in pretty much as expected with revenue increasing sequentially over the first quarter with 100% of its growth being organic. The primary reasons for the sequential second quarter 2012 organic growth include: Kratos’ business today is primarily specialty product based focused on niche United States National Security C5ISR priority areas; our critical infrastructure security business which comprises approximately 15% to 20% of the company is not funded by DOD budgets and it continues to grow organically, sequentially, and year-over-year and this is being driven by the increasing homeland related asymmetric threat profile we’re experiencing right now; and also, demand for Kratos’ ISR electronic attack and electronic warfare related products including internationally continue to generate strong organic growth for the company.

Read the rest of this transcript for free on seekingalpha.com

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