Kratos Defense & Security Solu ons, Inc Defense, US

Stressed Tearsheet 16 June 2015

[click here for Excel version]

COMPANY INFORMATION
Ticker: KTOS (NASDAQ)

Capital Structure, in USD m

Issuer ra ng: B/Caa1

Revolver (USD 110m, USD 92.5m base)

Senior Secured Notes
Consolidated Debt
Cash
Net Debt
LTM EBITDA
LTM Revenue

Share price: USD 6.64

Market capitalisa on: USD 393.4m
COMPANY TIMELINE
Last earnings release: 7 May 2015
Next earnings release: Early August 2015
Next significant maturity: 14 May 2019

Price

L + 2.50%3.00%
7.00%

41.0
625.0
666.0
34.4
631.6

91.38

Maturity

9.70%

14 May 2019
15 May 2019

Est. Annual
Face Leverage Debt/Revenue
Interest
2
0.7x
0.0x
44
11.3x
0.7x
45
12.1x
0.8x
11.4x

34.4
38.4
72.8

Source: Company filings, S&P Capital IQ for EBITDA & Revenue figures

2013

2014

30 Dec

29 Dec 28 Dec

LTM 1Q15

YOY %

1Q14

1Q15

30 Mar

29Mar

YOY %

Revenue

969.2

950.6

868.0

850.4

2%

200.1

182.5

9%

EBITDA

104.3

79.0

60.9

55.2

9%

13.6

7.9

42%

Net interest expense

66.1

63.7

54.3

50.4

7%

16.1

12.2

24%

Free cash flow

37.0

4.7

8.1

11.5

42%

1.9

5.3

NM

Cash

49.0

55.7

34.7

34.4

36%

Total debt

650.3

644.7

664.1

663.0

3%

Net debt

601.3

589.0

629.4

628.6

7%

Interest coverage

1.6x

1.2x

1.1x

1.1x

Net debt/EBITDA

5.8x

7.5x

10.3x

11.4x

Source: S&P Capital IQ

Quick Comps, USD m

LTM
LTM Net
Revenue LTM EBITDA Debt
2,623
349
770
2,386
395
720

TEV
3,456
4,528

TEV/
Revenue TEV/EBITDA
1.3x
9.9x
1.9x
11.5x

Peer Group Average

1.6x

10.7x

Kratos Defense & Security Solu ons (KTOS)

1.2x

18.4x

Source: S&P Capital IQ

Yield

Lawrence Rothman
Credit Analyst
P: 646.412.5323
Larry.Rothman@Debtwire.com

2012

Company
Moog (MOG/A; MOG/B)
Teledyne Technologies (TDY)

Market
Amount
41.0
571.1
620.5

55.2
850.4

Cash
Revolver Availability
Liquidity at 3/29/15

Stressed Credit | Debtwire North America

Calendar Period USD m

Face Amount

Liquidity

Next coupon due: 15 November 2015

Philip Emma
Head of North America Research
1.646.378.3132
Philip.Emma@debtwire.com

Coupon

Overview
Kratos Defense & Security Solu ons is a specialized technologyfocused security business, providing mission cri cal products,
solu ons, and services for domes c and interna onal customers. Its principal customers are agencies of the US government.
Kratos main products and solu ons are related to Command, Control, Communica ons, Compu ng, Combat Systems,
Intelligence, Surveillance and Reconnaissance (C5ISR).
h p://www.kratosdefense.com/

KTOS announced on 1 June an agreement to sell the US and UK opera ons of its Electronic Products Division for net cash
proceeds of USD 240m. The borrower intends to use the proceeds to repay the outstanding borrowings under its revolver,
which totaled USD 41m at the end of 1Q, and repurchase USD 175mUSD 200m of its 7% senior secured notes.
The asset sale marks the comple on of a review of strategic alterna ves that began last November. The focus was on
examining businesses, markets, and compe ve posi oning, and evalua ng poten al divestments of noncore businesses.
KTOS will now turn its a en on to execu ng its business plan, including unmanned system programs and introducing new
products to the market over the next two years.
Federal budget pullbacks have pressured KTOS results. Approximately 61% of its 1Q15 revenue was generated by US
Federal government customers. Revenue during the quarter dropped 8.8% yearoveryear to USD 182.5m, while EBITDA fell
nearly 42% to USD 7.9m.
Margins have con nued to compress, with 1Q15 gross margins and EBITDA margins of 25.7% and 4.3%, respec vely. Thats
down from 26.3% and 6.8% in 1Q14.
KTOS expects margins to improve throughout the year. Managements op mism is fueled by costcu ng, a focus on higher
margin security system deployments, and the pursuit of larger strategic opportuni es.

Previous Debtwire Editorial Coverage:

Kratos to sell US, UK opera ons of electronic products division for USD 265m 1 June 15
Kratos Defense & Security Solu ons reports adjusted EBITDA of USD 11.6m, down from USD 16.9m YoY 8 May 15
Kratos Defense & Security reports adjusted 4Q EBITDA of USD 23m, or 10.4% of revenue; will con nue exploring possible
dives tures 13 March 15
Kratos exploring Herley dives ture, sector advisers say 12 March 15

Kratos Defense & Security Solu ons, Inc Telecommunica

ons: Hardware, US

Stressed Tearsheet 16 June 2015

Kratos Defense & Security Solutions

Subsidiary Guarantors
AI Metrix, Inc.
Airolite Communications, Inc
Avtec Systems, Inc.
BSC Partners LLC
Charleston Marine Containers
Composite Engineering, Inc.
Dallastown Realty I, LLC
Dallastown Realty II, LLC
Defense Systems, Incorporated
DEI Services Corporation
Digital Fusion, Inc.
Digital Fusion Solutions, Inc.
Diversified Security Solutions, Inc.
DTI Associates, Inc.
General Microwave Corporation
General Microwave Israel Corporation
Gichner Systems Group, Inc.
Gichner Systems International, Inc.
Haverstick Consulting, Inc.
Haverstick Government Solutions, Inc.
Henry Bros. Electronics, Inc. (California)
Henry Bros. Electronics, Inc. (Colorado)
Henry Bros. Electronics, Inc. (Delaware)
Henry Bros. Electronics, Inc. (New Jersey)
Henry Bros. Electronics, L.L.C
Herley Industries, Inc.
Herley-CTI, Inc.
Herley-RSS, Inc.
HGS Holdings, Inc.

Source: 7% Senior Secured prospectus dated August 2014, 2014 10K

JMA Associates
KPSS Government Solutions, Inc.
Kratos Defense & Rocket Support Services, Inc.
Kratos Integral Holdings, LLC
Kratos Integral Systems International, Inc.
Kratos Networks, Inc.
Kratos Public Safety & Security Solutions, Inc.
Kratos Texas, Inc.
Kratos Unmanned Systems Solutions, Inc.
Carlsbad ISI, Inc.
LVDM, Inc.
Madison Research Corporation
Micro Systems, Inc.
MSI Acquisition Corp.
National Safe of California, Inc.
Polexis, Inc.
Real Time Logic, Inc.
Reality Based IT Services, Ltd.
Rocket Support Services, LLC
SAT Corporation
SCT Acquisition, LLC
SCT Real Estate LLC
Secureinfo Corporation
Shadow I, Inc.
Shadow II, Inc.
Stapor Research, Inc.
Summit Research Corporation
WFI NMC Corp.

1.
2.

USD 110m Revolver due 2019

USD 625m 7% Senior Secured Notes due 2019

Non-subsidiary Guarantors
EW Simulation Technology Ltd. (United Kingdom)
General Microwave Israel (1987) Ltd. (Israel)
Gichner Europe Limited (United Kingdom)
Herley GMI Eyal Ltd. (Israel)
Integral Systems Europe Ltd. (United Kingdom)
Kratos Integral Systems Europe S.A.S. (France)
US Subsidiaries:
Kratos Southeast Inc.
Kratos Southwest L.P.
Kratos Technology & Training Solutions, Inc.

Kratos Defense & Security Solu ons, Inc Telecommunica

ons: Hardware, US

Stressed Tearsheet 16 June 2015

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