Kratos Defense & Security Solutions, Inc. · NASDAQ:KTOS
Kratos Defense & Security Solutions — Investor Presentation (February 2011)
51 slides from Kratos Defense & Security Solutions's investor presentation, Feb 10, 2011
Slide 1: Investor Presentation February 2011
Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) Investor Presentation February 2011
Slide 2: Notice Regarding Forward-Looking Statements
Notice Regarding Forward-Looking Statements Certain statements in this presentation may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to a variety of matters, including, without limitation, the benefits and
Slide 3: Additional Information and Where to Find It
Additional Information and Where to Find It This presentation is neither an offer to purchase nor a solicitation of an offer to sell securities. The tender offer for the shares of Herley Common Stock has not commenced. The Company intends to file a tender offer statement on Schedule TO with the SEC,
Slide 4: Kratos Defense & Security Solutions
Kratos Kratos Defense & Security Solutions (NASDAQ: KTOS): Kratos is a specialized National Security Company providing Mission Critical Products, Services and Solutions for United States National Security Primary customers include the U.S. Department of Defense (DoD), Intelligence, National Security
Slide 5: Primary Capabilities and Focus Areas
Kratos – Primary Capabilities and Focus Areas Unmanned Systems Cyber Security & Information Assurance Intelligence, Surveillance & Reconnaissance Command and Control Ballistic Missile Defense Command, Control, Communications, Computers Intelligence, Surveillance and Reconnaissance (C4ISR)
Slide 6: C4ISR Representative Kratos Customers
Kratos – C4ISR Representative Kratos Customers: Missile Defense Agency Classified Programs Port of Long Beach Space & Missile Defense Command Defense Threat Reduction Agency Space & Naval Warfare Systems Command
Slide 7: C4ISR
Kratos – C4ISR Kratos supports National Security agencies and Military Commanders in identifying, prioritizing and achieving strategic and tactical objectives: Computer based systems Computer controlled systems Decision theoretic systems & methods Specialized tools and techniques Modeling and simula
Slide 8: Representative Programs: SMDC and AMRDEC
Representative Programs: Space and Missile Defense Command (SMDC) Command and Control System Design Command and Control System Mission Effectiveness – Modeling & Simulation Army Aviation and Missile Research Development and Engineering Center (AMRDEC) - Command and Control Program work for various m
Slide 9: C4ISR Representative Programs
Kratos – C4ISR Various Unmanned Systems Center for Information Dominance (CID) - Classified Maritime Surveillance Systems Advanced EHF (AEHF) Satellite Terminal Navy Multi-Band Terminal (NMT) Mobile User Objective Comm System (MUOS) Navy Command and Control Programmatic, Technical and Engineering Su
Slide 10: C4ISR Submarine Systems
Kratos – C4ISR Submarine C4ISR Systems: Fire Control Systems Acoustic Rapid Advanced Tactical System (ATS) Integrated Augmentation Display (IAD) Automatic Identification System (AIS) Total Ship Monitoring System (TSMS) Rapid Technical Insertion (RTI) Representative Programs:
Slide 11: C4ISR Defense Threat Reduction Agency
Kratos – C4ISR Defense Threat Reduction Agency U.S. Strategic Command Defense Advanced Research Project Agency Combating Weapons of Mass Destruction Chemical and Biological Defense Modeling and Simulation Plume Analysis
Slide 12: C4ISR Weapon Platform Programs
Kratos – C4ISR Representative Programs: M1 Tank KIOWA Helicopter Black Hawk Helicopter Bradley Fighting Vehicle TOW Missile Chaparral STA Missile Kratos engineers, deploys and integrates C4ISR, training and integrated weapon systems on various platforms
Slide 13: Protecting Critical Infrastructure In The United States
Kratos – C4ISR Protecting Critical Infrastructure In The United States
Slide 14: Command and Control Center Integration
Integration of all critical elements of the C&C Environment Access Control – Biometrics Surveillance Systems Radiation, Chem/Bio Sensors Video Cameras Thermal Imaging Systems Video Walls and monitor clusters IT Integration Information Assurance/Cyber Representative Customers Dept of Defense Other Fe
Slide 15: C4ISR ISR Products and Sensor Technologies
Kratos – C4ISR Kratos designs and delivers ISR products, technologies and solutions for various deployed and in-development Weapon, Space Based and Unmanned Systems, including specialized sensor technologies such as Electro Optical/Infrared, Photonic, Other Exotic and Classified
Slide 16: Flexible Membrane Optical Mirrors
Kratos - C4ISR Representative Kratos Sensor Programs: Flexible Membrane Optical Mirrors Utilization of electrical signals to adjust the shape of sensors’ optical mirrors Adjust the focus and zoom level of an optical system with no moving mechanisms Objective is to change the zoom allowing sensor ope
Slide 17: Photonic & Polarization Sensors
Polarization contrast may be present when contrast in conventional sensors is small Polarization aids material and shape discrimination Man-made objects vs. natural backgrounds (different materials) Real targets vs. 2-D decoys (different shape) Real targets vs. inflatable decoys (different materials
Slide 18: Persistent Threat Detection System Programs
Kratos – C4ISR Persistent Threat Detection System Representative Kratos Programs: Command Post Platform Extended-Range Multi-Purpose UAV Gorgon Stare Classified Programs
Slide 19: Unmanned Systems and Weapon Integration
Kratos – C4ISR MQ-12 Sky Warrior RQ-7 Shadow N-LOS Predator A key Kratos differentiating capability is expertise in the integration of Weapon Systems with Unmanned Systems, and the Modeling & Simulation capabilities necessary to prove concepts prior to development Modeling & Simulation is used so th
Slide 20: Unmanned Systems Examples
Kratos – C4ISR MQ-12 Sky Warrior RQ-7 Shadow RQ-7 Air Vehicle Transport (AVT) Shelter MQ-12 Shelter Warrior Alpha Gorgon Stare
Slide 21: Directed Energy and Electric Weapons Systems
Kratos – C4ISR Representative Kratos Program: Directed Energy and Electric Weapons Systems United States military laser and other weapons that provide for speed-of-light engagements, minimizing the use of expensive defensive missiles, to neutralize or terminate unmanned threats
Slide 22: Electromagnetic Weapon System
Kratos – C4ISR Electromagnetic current accelerates projectile at Mach7 Weapon system can hit targets hundreds of miles away in minutes
Slide 23: Networks for National Security Agencies
Kratos – C4ISR Kratos designs, builds and operates Networks for National Security Agencies in the world’s most rigorous and security-conscious Military Intelligence and National Security related environments
Slide 24: NueralStar and DopplerVue Software
Kratos – C4ISR Kratos’ proprietary NueralStar and DopplerVue software products provide and identify: Network Intrusion Detection Network Intrusion Protection Command and Control of Network Infrastructure & IA A network Common Operational Picture (CONOPS) Real time network Situational Awareness
Slide 25: Ballistic Missile Defense
Kratos – Ballistic Missile Defense Kratos is involved in many areas of the United States Ballistic Missile Defense System!
Slide 26: AEGIS Ballistic Missile Defense
Kratos – AEGIS Ballistic Missile Defense Kratos designs, manufactures, delivers and launches AEGIS Readiness Assessment Vehicles (ARAVs) – Targets for various Missile Defense related missions Photos courtesy of U.S. Navy AEGIS Capable Surface Combatant Oriole Target (ARAV) Pacific Missile Range Faci
Slide 27: Geographic Locations Aligned with BRAC and Customers
Kauai, HI Honolulu, HI Kratos - Geographic Locations Strategically Aligned with Base Realignment and Closure (BRAC) and Our Customers Hawaii Huntsville, AL Fort Bliss, TX Kratos has a significant presence, including at the Pacific Missile Range & Facility (PMRF) at Barking Sands Hawaii is critically
Slide 28: Diverse Revenue Base with Low Concentration
Kratos - Diverse Revenue Base with Low Concentration Division Contract Contract Type Customer Award Date 2009 Revenue* % of Total Rev.* SeaPort-Enhanced – NSWC Dahlgren DES CPFF Navy 1994 $19.9M 4.1% Basic Expeditionary Airfield Resources (BEAR) WSS (Gichner) FFP Air Force 2008 19.8 4.1% CECOM Rapid
Slide 29: Summary of Financial Information
Kratos – Summary of Financial Information Actual Forecast 2009 2010 Prelim 2011 Revenue $334.5M $408M - $410M $550M - $560M GAAP EBITDA $24.7M $39.3M – $39.8M $60M - $62M EBITDA Rate 7.4% 9.6% - 9.8% 10.4% - 10.7% Cash Flow $26.2M ~$28M $26M - $28M From Operations FCF* $18M ~$25M $22M - $24M Pro For
Slide 30: Competitive and Value Added Differentiators
Kratos – Competitive and Value Added Differentiators There is a fundamental shift in the timing of procurement cycles due to the speed at which threats are evolving Kratos can be more agile than its larger peers in reacting to this evolving procurement environment We believe that there is fundamenta
Slide 31: Investment Thesis
Kratos Investment Thesis Kratos is a specialized National Security Company aligned with Mission Critical National Security priorities, focused on niche market areas Geographically positioned with customers, funding and priority areas No customer, program or contract concentration Focused organic gro
Slide 32: Acquisition of Herley
Kratos Defense & Security Solutions, Inc. Acquisition of Herley
Slide 33: Notice Regarding Forward-Looking Statements
Notice Regarding Forward-Looking Statements Certain statements in this presentation may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to a variety of matters, including, without limitation, the benefits and
Slide 34: Additional Information and Where to Find It
Additional Information and Where to Find It This presentation is neither an offer to purchase nor a solicitation of an offer to sell securities. The tender offer for the shares of Herley Common Stock has not commenced. The Company intends to file a tender offer statement on Schedule TO with the SEC,
Slide 35: Acquisition of Herley
Kratos Acquisition of Herley Herley is a leading provider of electronic systems, subsystems and components specializing in microwave and millimeter wave technology serving the global defense industry F-16 F-15 EA-18 EA-GB AMRAAM Trident LAMPS
Slide 36: Herley's Products Critical to National Security
Kratos Acquisition of Herley Herley’s products are critical to United States National Security: Electronic Warfare Systems Electronic Attack Systems EW Threat and Radar Simulators Command and Control Networks Insertion of Viruses into Enemy Command Networks Air Launched Cyber Attacks Neutralization
Slide 37: Herley Business Entrenched and Single-Source
The majority of Herley’s business is entrenched, single-source and positioned on established mission-critical platforms Single-source provider on ~ 60 percent of revenue/business base High Barriers to Entry Leading edge engineering expertise and technological capabilities Long development cycle High
Slide 38: Strategic Rationale: Platform Alignment
Strategic Rationale: Herley’s business is primarily focused on providing products to National Security and Weapons platforms that Kratos is working on, supporting or familiar with: Manned and unmanned aircraft Tactical and ballistic missiles Sensor and radar platforms Representative Threat Targets S
Slide 39: Strategic Rationale: Fielded Systems
Strategic Rationale: Herley’s existing products primarily support fielded systems that are established, solidly funded and will be in the U.S. and FMS customers inventory for the foreseeable future: Kratos Acquisition of Herley Electronic Attack Electronic Warfare Radar/Threat Simulation Threat Neut
Slide 40: Strategic Rationale: Few Major EW Providers
Strategic Rationale: Herley is one of the few major electronic warfare, electronic attack providers in the market space with decades of proven performance Majority of contracts are sole-source or single-source, relying on Herley intellectual property Limited competition due to the nature of the work
Slide 41: Strategic Rationale: Growth Opportunities
Strategic Rationale - Growth Opportunities: Herley has a strong new business pipeline for their products: Next Generation Intelligence, Surveillance and Reconnaissance Airborne System Unmanned Autonomous Air Vehicle - ISR UAS System for Persistent ISR Data Collection Electronic Warfare Jammer - Next
Slide 42: Diversified Customer Base
Diversified customer base Direct supplier to all service branches of U.S. Military First-tier supplier to all of the defense primes Herley products embedded on over 120 individual platforms No one Herley program makes up great than ~3% of combined company revenue Kratos Acquisition of Herley
Slide 43: Strategic Rationale: Organization & Integration
Strategic Rationale – Organization & Integration Herley will be integrated into Kratos’ Weapon Systems Solutions Division WSS Division is Kratos’ primary products and technology business unit WSS is where Kratos currently works with weapons and other platforms the same or similar to Herley Manned &
Slide 44: Transaction Accretive to Financial Metrics
Transaction is accretive to virtually all Kratos’ financial matrices, with accretion expansion in subsequent years Transaction will immediately increase or be accretive to Kratos’: GAAP EPS Pro Forma EPS EBITDA Margins Cash flow from operations PV and utilization of Kratos’ ~ $200M NOL Kratos Acquis
Slide 45: Purchase Price and Transaction Terms
Kratos’ purchase price per HRLY share $19.00 Total enterprise value paid for business ~ $270 million, excluding financing, fees, costs, etc. Total purchase price multiple for the business, enterprise value/pro forma EBITDA ~ 6.5x, excluding financing, fees, costs, etc. Total cost of transaction incl
Slide 46: Utilization of Kratos' $200 Million NOL
Utilization of Kratos’ $200 million NOL Significantly accelerated by the transaction due to combined business profitability, increasing PV of ~ $80 million tax asset Significantly Enhances Kratos’: Cash flow from operations Free cash flow Accelerated and rapid delevering due to significantly increas
Slide 47: Herley Quarter Results
Herley reports record revenues of ~ $49 million for quarter ended October 31, 2010 EBITDA reported of $7.3 million Pro forma adjusted EBITDA of ~ $9.3 million Gross margin of 32.2% highest since 2004 Backlog ~ $172 million Strong bid and proposal pipeline Kratos Acquisition of Herley
Slide 48: Summary of Financial Information: Pro Forma Forecast
Kratos – Summary of Financial Information Pro Forma Forecast Combined With Herley Forecast Kratos 2011 2011 2012 Revenue $550M - $560M $750M - $760M $770M -$805M Pro Forma Adjusted EBITDA* $60M - $62M $102M-$105M $106M-$110M EBITDA Rate 10.4% - 10.7% 13% - 13.8% 13.2% - 14% Earnings Per Share** $.75
Slide 49: Pro Forma Combined with Herley Forecast
Pro Forma Combined with Herley Forecast Forecast Estimated@ Forecast Forecast 12/31/10 Transaction 12/31/11 12/31/12 Close Total Debt* $225M $455M $455M $455M Cash on Balance Sheet $10M $15M $35M $70M Net Debt $215M $440M $420M $385M Pro Forma Adjusted $52M-$54M $91M-$93M $102M-$105M $106M-$110M EBI
Slide 50: Acquisition of Herley: Taxes and Capex
Kratos Acquisition of Herley Cash paid for income taxes forecast of $3M - $5M per year Low forecasted annual capital expenditures of approximately $10M - $12M, as large amount of Kratos’ CapEx is government furnished/funded Tax planning strategy to continue to minimize income taxes paid with NOLs *S
Slide 51: Leading Provider of Electronic Systems
Leading Provider of Electronic Systems Electronic Warfare Electronic Attack Command and Control Radar EW Threat Simulators E Command Network Attack Established positions on leading, deployed, well funded defense programs Sole-source/single-source provider on 60 percent of business/revenues High barr
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