Q4 2020 Kratos Defense and Security Solutions Inc Earnings Call
Yes.
Ladies and gentlemen, thank you for standing by and welcome to the acquaintance defense and security solutions fourth quarter 'twenty 'twenty earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question and giving you that search.
And you will need to press star one on your telephone.
Require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Ms. Marie Mendoza Senior Vice President and General Counsel and Thank you. Please go ahead ma'am.
Thank you.
Good afternoon, everyone. Thank you for joining us for the credit defense and security solutions for fourth quarter 2020 Conference call with me today is Eric Demarco, Kratos, as President and Chief Executive Officer, and Deanna Lund Kratos as executive Vice President and Chief Financial Officer.
Before we begin the substance of today's call I'd like everyone to please take note of the Safe Harbor paragraph that is included at the end of today's press release. This paragraph emphasizes the major uncertainties and risks inherent in the forward looking statements we will make this afternoon.
Please keep these uncertainties and risks and mine as we discuss future strategic initiatives.
Potential market opportunities and operational outlook and financial guidance during today's call.
Today's call will also include a discussion of non-GAAP financial measures and that term is defined in regulation G. non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP.
Accordingly at the end of today's press release, we have provided a reconciliation of these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP with that I will now turn the call over to Eric Demarco.
Thank you Marie and good afternoon.
Tradeoffs ended 2020 on track, including a fourth quarter book to Bill ratio of one two to one and the last 12 months book to Bill ratio of one four to one positioning our company for continued future growth.
Credit for the unmanned systems Q4 book to Bill ratio was two point over to Juan <unk>.
Including a number of tactical and target drone awards, we received and the fourth quarter and our unmanned systems business last 12 months book to Bill ratio was one four to one reflecting increasing customer demand for credit losses affordable high performance jet drones.
As we begin 2021, approximately 60% of our business is focused on space and satellite and unmanned systems areas with these businesses being some of the fastest growing and highest margin and our company.
I believe that with today's report you will see that the inner inertia of Kratos business is rapidly accelerating and that credit is positioning on several expected to be exceptionally long term sustained strong growth areas has substantially increased.
We believe that this rapidly increasing inertia is particularly representative and credo space and satellite business.
Which I and Ala guys somewhat to the computer mainframe business years ago, and then the PC and Microsoft came along and totally disrupted the market.
Which in a way is what <unk> is looking to do with our software based open space platform for the legacy dedicated monolithic satellite ground infrastructure market.
It is possible that later this year, we will be able to report certain needle moving opportunities or milestones that our space and satellite business has been successful and are achieved.
Tradeoffs as mission strategy and business plan remains being a disruptive technology and intellectual property based company focused on National security and where affordability is a technology.
We believe the tradeoffs as affordability and demonstrated ability to truly rapidly innovate and quickly deliver technology, leading products and systems will be and increasing differentiator and a competitive advantage to the company.
Since our last report to you criticize received the largest Skyboard program task order from the United States Air Force totaling approximately $38 million.
Which includes drone aircraft associated payload system integration and demonstration flights all as the Dod continues to move forward with its plan for affordable attributable unmanned loyal wingman aircraft for all.
<unk> mint and perform autonomous emissions and support of human pilots.
The Air Force has stated that they will be aggressively testing and flying Skyboard drones in 2021 and.
In preparation for providing manned unmanned teaming and force multiplying skyboard initial operating capability to the hands of the war fighter and 2023.
The Air Force stated intention.
For Skyboard drone IOC by 2023 is an incredibly important and new development for Kratos.
In addition to the $38 million Skyboard reward tradeoffs also received and approximately $18 million single award contract from the Air Force Research lab related to the low cost attributable aircraft or L. Cat program also is related to El cast D and the Valkyrie.
And this L Cat program award to Kratos includes drone aircraft and the continued evolution of the low cost attributable drone capability set.
In addition to the $38 million Sky boring and this $18 million all cash day contract Award. We also received additional approximate $10 million and contract awards related to attack the tactical drones, and the valkyrie, including weapon and other system and offer real authorization will of the aircraft.
And since our last report to you and the United States Air Force has announced that the credo and execute with 58, a valkyrie is the U S. A M attributable one drone.
Which has now completed its fifth successful flight.
And this flight the F 22, Raptor and F 35, lightning and the United States to fifth generation fighters formed up off the wings of the Valkyrie the.
And the Valkyrie flew autonomously information and a new Gateway one program test.
During the flight data was successfully share between the USA F. F 35, as and F. 'twenty, two raptors and the Marine Corps F 35, B using the gateway, one communication system, which had been integrated into the Valkyrie.
The Air Force reported that this was another major milestone and the services efforts to provide low cost force multipliers and relevant operational environments.
The advanced Battle management system or Abms attributable one for all program also reported that they execute and 58 as modularity and its ability to carry robust payloads enabled the rapid capability and integration into and attributable vehicle that they were pleased with the seamless integration and demonstration of the flu.
Right.
These are representative of just some of the significant valkyrie related milestones, we have recently achieved and the ones that I am able to publicly disclose to you at this time.
<unk> currently has two company owned Valkyries that are flying today, including and this recent abms attributable one program with these kratos owned assets expanding our first to market leading position and this class of high performance affordable jet drone aircraft as we continue to fly and progress with our customer.
<unk> and our partner the United States Air Force.
In addition to these two currently flying Kratos owned Valkyries.
Oklahoma facility. We are currently producing 12 additional valkyrie and with the first of these 12 scheduled to come off the production line and Q2 or Q3 of this year with an expected production rate of one or two aircraft per month thereafter, depending on a number of factors, including importantly, the customer demand signal.
There are now several of our 12 and production Valkyries under customer contract with delivery scheduled to begin later this year and we are in discussion with customers related to all remaining unsold Valkyrie at this time.
Accordingly, we have begun internal planning for production of the next block for Valkyrie is once the initial block is complete.
For customer related competitive and other reasons I cannot provide any additional information at this time.
We remain highly confident and the ultimate ultimate success of Kratos Valkyrie.
As for Idose as partners, the United States Air Force.
<unk> Valkyrie is the only high performance affordable attributable drone and its class line today.
As a result of Valkyrie is leading position multiple and various communications weapon and other systems and payloads have been and are being integrated and tested on the valkyrie, including and lie flight exercises with the actual flying aircraft not surrogates for virtual simulations.
The Valkyrie has now flown with several U S fifth generation stealth flight fighters F 35 E F 35, B and the USAF F 'twenty two.
The Valkyrie is part of multiple large customer funded priority programs, including Skyboard Abms total one L cat El Cassidy and the Vanguard.
And the Valkyrie is affordable and made and the USA.
And the final 2021, Dod budget, which is now approved a bipartisan Congress increased funding for tradable drones like the valkyrie by $50 million over the Pentagon and base budget request.
This increase was in addition to the $100 million congressional AD for similar were attributable drone technologies included in the final 2020 budget.
We believe these increases are representative of the high priority and level of focus on this class of high performance jet drone.
Importantly, as noted in the final congressional documents.
The additional 2021 and $50 million is to assist and transitioning of treatable drones like Valkyrie, Skyboard and El cat to fully operational capabilities.
Also related to funding and the developing market. It was recently reported that the USAF is reviewing budget and platform considerations related to the FY 'twenty three fight up which begins in calendar 'twenty two for.
For potential large fleet augmentation quantities of attributable drones to be procured for fielding.
The Air Force also recently stated that the Skyboard could develop multiple drones and missions.
And as I mentioned before just a few weeks ago.
For force announced that the high priority Skyboard program to develop low cost autonomous drones able to team with pilot aircraft was planned for initial operating capability by 2023.
From a new opportunity standpoint, and representative of the planned for and continuing growing emphasis for credit losses type of drones. The Air Force. Just this week released a call for proposals for a new low cost attributable aircraft program.
And the Air Force has recently discussed and additional very large new opportunity that we feel cradles is uniquely well positioned for with the valkyrie and certain of our other tactical drone suite.
Representative milestones for the Valkyrie currently planned for in 2021 include additional planned demonstration flights for certain customers and programs continued integration of various payloads, including weapons systems. The continued operationalization of the Valkyrie for delivery to the war fighter and the delivery to.
<unk> of under contract Valkyrie aircraft as they come off the production line.
And our 'twenty and 'twenty, one financial guidance for Valkyrie, we have taken into consideration. The program delays, we have experienced to date, including as related to Covid.
And also that assistant Secretary of defense of the Air Force for acquisition and technology, and Skyboard and Abms program advocate and Doctor Roper has now left with the administration change and the potential for additional delays that could reside arise as a result of the transition of disposition.
And on Gremlins, It was reported by DARPA and Dianetics Kratos as Prime Gremlins partners that the Gremlins program has continued to make progress, including the successful completion of a third test flight series, and which the gremlins air vehicle or GAAP and the gremlins recovery systems successfully flew several additional times.
<unk>.
The recent test series focused on certain objectives, including demonstrating the automated and manual systems safety behaviors and continuing progress toward a multiple aerial docking scenario.
And the safety behaviors successfully demonstrated safe operation of the X $2 61, a gremlin in range and in close formation with the man and C 130 recovery vehicle.
And the Gremlins team is now planning to have the C 130 recover multiple excuse 61 day gremlins in mid air and a flight series scheduled for this coming spring.
Importantly, it was also recently reported that a new additional phase of demonstrations will focus on gremlin operational capabilities.
Including with the Gremlins performing suppression and destruction of enemy Air defense missions and that this demonstration will involve integrating intelligence surveillance and reconnaissance sensors and certain non economy with the gremlin drones.
And it was reported that DARPA has now announced that they are and discussions with multiple D. O D organizations for the gremlins to transition to once the DARPA program is complete.
Related to concept of operations, it's been reported that a government program representative recently stated that the whole concept is that the air force wants to see that a tradable drones and related distributed air operations work like we've been discussing and.
And that and and operational setting Gremlin X 61 as would create a layered effect.
Flying in cohort with execute and 58 day valkyries to achieve manned unmanned teaming as the defense Department and once more runway independence and future contested environments.
The government representative also reportedly said that if we have a more expensive valkyrie, we may keep the valkyrie is a little bit further out and if I have a less expensive gremlins type air vehicle, we could push them in a little bit further into a threat environment and that this really does give the services flexibility and extra tools to deter.
And what's that best mix of multiple attributable vehicles, both large and small as well as manned aircraft to be able to go up against whatever the threat happens to be.
Obviously, we are extremely excited about these recent developments and we remain highly confident that the gremlins similar to the Valkyrie will ultimately transition to the services and become a program of record.
Also similar to the Valkyrie and there is currently no competing drone flying today, and the Gremlins class and Kratos with our partners are pushing ahead to achieve first to market position for delivery and fielding of the gremlin till the warfighter.
Planned for upcoming 2021 Gremlins milestones include additional successful demonstration flights to prove out the system and achieve all program objectives, and we have taken into consist consideration and our 2021 financial guidance that DARPA recently stated that the program has been delayed and pushed to the right by at least a.
A year due to COVID-19 range related and other considerations.
Kratos is Mako tactical drone program also continue to have excellent performance over the past few months, including successful customer flight demonstrating system performance and capabilities, including with additional and new payloads.
We expect Kratos as Mako position is a very high performance tactical jet unmanned test vehicle to continue under contract and with multiple customers and we have just begun discussions with a certain customer for potential weaponisation and and tactical mission utilization of the platform.
As I have mentioned previously most of the work related to the Mako is now classified and I'm unable to comment further and similar to Kratos Valkyrie and gremlins. There is no competing drone and the make whole class flying today.
<unk> Air Wolf continue to make progress over the past few months with a number of successful flights certain of which had been initially planned for early last year, but which were delayed including due to COVID-19 and related range access issues and we.
We have additional flights for air Wolf currently scheduled over the next several months, which are critical for this program moving forward.
I have mentioned previously air Wolf as well as Valkyrie and gremlins have all been significantly impacted by COVID-19 range related and the other restrictions and I do remain concerned on a potential losses. The air Wolf program momentum. Although these recent successful system flights are encouraging.
Also similar to Valkyrie, and Gremlins and Mako Kratos as Air Wolf Tactical systems is once again, the only system and its class flying today.
Create a sustained <unk> program, which is also classified continues on schedule with a number of important milestones we need to achieve and 2021. So the program can move to its next phase.
And <unk> Rattlesnake program with our partner Aerovironment also continued to make progress, including the successful flight and the past few months by Kratos has modified tactical fire jet drone that drove mothership. If you will for the Rattlesnake program and we are now hoping for additional flights and the next several months, we expect to successfully dipped.
Loy Aerovironment tactical systems drone from drone.
Even though a rattlesnake has also been significantly impact from a schedule standpoint, including as a result of adverse COVID-19 impacts and weapons range impacts I remain extremely excited about cradles and aerovironment opportunity here.
The Aerovironment team has a clear national asset and my opinion.
And credit losses Ghost works has continued to make important progress since our last report to you on a very exciting initiative, which kratos is investing in which if successful could lead to initial flight of the system as early as the first half of next year.
I believe that this top priority cradles Ghost works program could be another potential game changer. If successful based on recent government feedback as recently as just yesterday.
And the customer demand signal for the system and capability.
And we are currently now preparing for flight at Cradles, his new Oklahoma jet UAS drone ports and range facility with Kratos is tactical and other UAS is.
<unk> drone port, which is near our tactical UAS production facility, we believe will be an incredibly important strategic and competitive asset for our company and this will provide us the flexibility to rapidly test and demonstrate including for our customer's tactical drone systems and save the company is cigna.
Difficult amount of money and range and other fees.
And the facility will also enable us to fly confidential cradles growth Ghost works and other aircrafts out of sight from our competitors and others, including and upcoming plans for near term flight.
I want to impress upon you the strategic significance and importance of Kratos as new drone test facility and range.
We are forecasting significant growth for kratos tactical drone business for 'twenty, one over 'twenty with 2021 tactical drone revenues estimated to increase up to approximately $50 million to $60 million with upside potential with additional potential contract awards and opportunities.
<unk> target drone business continued to perform well and Q4 with the recapitalization of strategic weapon systems driving demand for Kratos as target drone systems to test and evaluate these weapons systems and ensure the warfighter operational readiness.
Since our last report to you <unk>, United States Air Force be QM $1 67, Outsat program remains in full rate production and we are currently negotiating the next multiyear sole source production award with expected increased quantities.
We have now received and additional full year full rate production contract award from the United States Navy on the EQM $1, 77, and SaaS program or FRP too for 48 aircraft.
<unk> of initial FRP one for 35 aircrafts that we previously received are planned to begin in 2022 with FRP unit deliveries following in future periods.
As you know the U S. N SSAT program is a key element and credo as target growth forecast.
We have received an order for an additional 20 target drone systems from and additional excuse me from an existing international customer. This customer's largest order to date with deliveries of these units now forecast to begin next year.
On a confidential program. We are currently and low rate initial production and we now expect to receive a full rate production award and mid 2022 with deliveries of FRP units now forecast for 2023. This.
And this is approximately one year behind what we had previously anticipated.
On an additional large new pending international target drone award, where kratos was the only bidder. We continue to wait for U S government approval of this contract and with the change in administration, we do not have an update for you at this time unexpected timing.
This potential contract award is now approximately one year delayed from our initial expectations.
With our army customer orders of target drones under our nearly $100 million contract continued to be significantly below our previous expectations for a number of customer related reasons.
There are several new target drone opportunities. We are currently pursuing both domestic and international with current expected award dates beginning sometime next year.
We expect continued organic growth for kratos as target drone business for 'twenty one over 'twenty.
And our largest business Kratos has space and satellite are open space products and technology, which represent a brand new approach to enable dynamic ground system operations continues to be extremely well received by the market and our customers.
<unk> open spaces based on common interfaces and open standards, providing a truly adaptable scalable and flexible platform.
And with Kratos is open space almost every piece of the ground station and segment can be turned from hardware to software and then it can react rapidly dynamically and affordably to changing conditions and credo is open space platform is the first fully digital Virtualized software define.
And platform and the satellite industry.
<unk> is open space disrupts ground networks that have been historically based upon purpose built proprietary hardware and stove pipe software applications by utilizing leading edge standard based fully integrated technology with and and service delivery running on a cot server or.
In the cloud.
Greatest as open space as a software defined network that can be dynamically configured managed and deployed with virtual functions that run on generic inexpensive computers.
With dynamics to match the capabilities of new payloads, supporting Leo MEO, and Geo systems, and it's open architecture to allow the integration with other applications on the ground and in the space there.
And the coming world of thousands of multi orbit highly configurable spacecraft.
Round system built for one payload for constellation will not scale it won't enable roaming it will not be resilient and reliable and it will enable the brand new applications and services required in the air and on the ground.
This is all critical for both military and commercial applications and requirements and cradles as first to market open space and other proprietary technologies address these requirements.
Additionally.
Great doses open space spectral net and data defender products enable the space based analog RF signal to IP conversion without losing the critical timing aspect simply.
Simply stated greater losses products convert and digitize space based analog RF systems signals and transport the related IP packets reliably over any distance and network.
Kratos is new space and satellite technologies have been critical and allowing us to win and obtain or expand a number of large new and important customers and programs and relationships, including Earth link and Microsoft Azure, which is partnered with Elon Musk Starlink system, which plans for thousands and.
Satellites and its global Internet connectivity network.
Great OS is now working with several web 2.0 companies also referred to as hyper scaler, which is a key element of our forecast extremely strong future space and satellite growth trajectory.
<unk> is another additional large new market opportunity area for creators and space and satellite business.
As customers stream more videos shop online video conference and get used to telemedicine visits what the doctor dependence on connectivity is exploding and <unk> LTE networks, just cannot keep up.
Additionally, and including a large new national security AI related market opportunity the races on to implement artificial intelligence across an increasing number of systems and devices that need five G.
As part of the five <unk> fast plan, the FCC hopes to sell more than 5000, new flexible use overlay licenses for C band spectrum and the three seven to $3 98 gigahertz frequency.
And in the first phase of the auction, which ran from December eight to Jan <unk> <unk>.
C bids totaling 89 billion the highest grossing auction of its kind and U S history representative of the enormous future five G market opportunity.
<unk> opportunities and the five G area is as I have discussed and detailed previously include working with our existing satellite customers like SCS, Intelsat and others as they plan for and execute the relocation of their customers out of this <unk> spectrum to new spectrum with this effort, including new SATA.
<unk> and the associated ground infrastructure, all of which is within <unk> core expertise.
On the Dod side, a deep a disaggregation of the space and ground system procurement by the customer similar to our commercial customers approach is also creating a large new opportunity set for kratos, including a number of new near term opportunities. We are currently pursuing.
For competitive reasons I will not comment further here, but the new D O D Leo and MEO constellations and this new customer procurement approach is opening this new market for Creatives.
We believe that kratos and space and satellite business extremely well and uniquely positioned for the ongoing very large industry transformation and the opportunities. This is presenting and we expect kratos is space and satellite business to experience organic growth for 2021 over 2020 with and up into the right trajectory for the foreseeable.
<unk> future.
Great OS and cyber security business, which also includes a satellite and space focus continues to perform well with the federal government mandated cyber security maturity model certification or CMC, adding to our market, leading fed ramp compliance practice.
Insisting of five maturity levels of security practices, ranging from basic to advanced CMC will be phased into rfps over the next several months.
A CMC third party assessment organization called <unk>.
And we'll be required to conduct assessments on organizations seeking a CNS CMC level certification.
And <unk> was recently accredited as a C. Three by the CMC accreditation and body with Kratos being one of the first organization to receive such and accreditation.
We are forecasting organic growth for Kratos and cyber security business for 'twenty one over 'twenty.
And <unk> turbine technology business was recently awarded a $12 $7 million task order under its advanced turbine technologies for affordable missions IQ contract, which is representative of the progress we are making and the execution of our disruption or excuse me of our disruptive next generation and.
And strategy.
The ATM program will be managed by the floor, but excuse me about the turbine engine Division of the Air Force Research Lab and this Credo award follows the successful ground testing of and affordable Turbo jet designed for use and future low cost cruise missiles and attributable unmanned aerial drones.
The design and test of the Credo for 200 pounds thrust class turbojet engine was completed and under 18 months once again, demonstrating <unk> rapid design and demonstration capabilities to meet the needs of todays Pentagon.
Testing of Kratos is new engine was performed at our new and recently commissioned Kratos engine test facility and Florida.
Similar to <unk> jet drone ports and range facility, we believe that our new engine test facility will provide flexibility and enable more rapid development test and fielding of Kratos as engines, providing our company with a significant competitive advantage and our customers significant capability and value.
In addition to the ATM program I mentioned <unk> currently has multiple engines running and designed in on next generation platforms with vehicle flight tests planned for two of these new systems and the coming months.
We believe that two of the current USAF Vanguard programs Sky Borg and Golden Horde will provide significant future opportunity for Kratos as next generation Affordable High performance engines. In addition to the significant and increasing demand for drones cruise missiles and powered munitions.
We are forecasting organic growth for kratos with Dod and focused engine business for 2021 over 2020, as we continue our engine development programs with production planned for future years.
We expect kratos as commercial focused engine business to be down in 'twenty. One from 'twenty. This is primarily due to COVID-19 impacts on the market.
<unk> microwave electronics business recently received and $11 million development contract award related to our new planned for next generation satellite program.
This recent award is representative of the continued successful execution of our microwave business strategy, including designed in positions on major new production programs, including a focus on space and satellite.
Our microwave business is pursuing a number of large new opportunities and we are forecasting solid year over year organic growth for this business for 'twenty one over 'twenty.
<unk> ISR business performed extremely well throughout 2020, and we believe it is well positioned for an expected sustained and up into the right organic growth trajectory, including the expected ramp up of the new GBS D program.
And the recapitalization of strategic weapon systems is presenting multiple new opportunities across gradovs, including for our <unk> ISR business and we are currently in pursuit of several large new program opportunities certain of which we hope to receive and report to you this year.
We are forecasting organic 2021 revenue growth for <unk> five ISR over 2020 with margins expected to be down primarily as a result of program maturity mix as development programs like GBS D and others typically generate lower margins and the mature for rate reduction.
Programs.
<unk> rocket system business also performed well and 2020 and we expect this level of performance and revenues to continue to increase and 2021, including growth and ballistic missile defense hypersonic sub orbital targets and other.
Other vehicle areas.
Our high performance directed energy and laser weapons business is also forecasting a strong and growing 'twenty 'twenty, one over 'twenty driven by expansion of existing and new program wins.
We have a number of exciting programs and our laser weapon and directed energy business. However, due to the nature of most of this work we're unable to provide many details.
And <unk> training business, we recently lost the Royal Saudi Navy Recompete I discussed and our Q3 call. This program contributed approximately $35 million in revenue and 2020.
And our 2021 guidance, we have assumed that we will continue working on the SNF contract until May which is the extension that we have received which is expected to generate approximately 15.002 million 21, or a $20 million decrease from what we got and 2020 from this contract.
Other key factors taken into consist consideration related to create doses initial full year guidance and our Q1 guidance, we're giving today.
In late December and continuing into Q1 of this year <unk> experienced significantly increased incidence of employees exposed to or testing positive for COVID-19.
Including in California, and at our drone satellite and <unk> ISR locations.
Additionally, on December 31, 2020, the Pentagon reinstated military travel restrictions, which as you know has severely impacted credit losses drone business related to weapons range and facility access pushing many cradles programs, including tactical drone programs for the right.
And also increased global Covid restrictions and quarantine mandates, including in Europe, Australia.
And in the Pacific Rim, and elsewhere internationally has significantly impacted <unk> ability to travel to customer locations, including for system and program sign off and acceptance impacting Kratos satellite international target drone and other businesses.
And at Credo, and our employees are clearly our number one asset and employee safety and wellbeing is our first priority.
Accordingly.
We have taken the necessary precautions to keep our employees safe, including significant distancing spacing and multiple shifts and the work space employee quarantines and we've restricted their travel.
We have tried to estimate the continued impact of the continuing COVID-19 situation and our 2021 guidance, which impact is significant at this time.
As you know kratos microwave business, our microwave electronics is headquartered in Israel and over the past several quarters, including the past several months. The U S. Dollar has significantly weakened against the Israeli shekel.
What this means is that while <unk> customers pay us in U S dollars credo pays its employees and its vendors in Israel and chuckles.
This has resulted in a significant reduction in profitability and our microwave business that has zero to do with operations or business execution.
For example, greater losses forecasted fiscal 2021, EBITDA would be $2 million to $3 million higher in 'twenty one.
The shekel dollar exchange rate today, what it was on January one 'twenty.
So we have tried to estimate any further changes and the shekel dollar conversion situation and our 2021 guidance.
Our 2021 guidance includes internally funded investments and our unmanned systems business for the continued production of our 12 pre contract Valkyrie and internally funded investments related to the recently awarded GBS Day development program.
Has an approximate initial value to kratos of $200 million as we are establishing a new leased facility and we are acquiring all of the machinery and tooling and manufacturing and other equipment needed to successfully execute this program.
Our 2021 guidance includes investments in our space and satellite communications business to support a large number of new programs. We have received or that we expect to receive including where we need additional secure or other infrastructure to perform the work and includes an expansion of our owned space.
<unk> awareness global network.
Our 2000 and 'twenty one guidance includes investments and both our rocket system and turbine engine businesses, where we are developing new engines in conjunction with the customer.
And where we are making internally funded investments in the form of capital equipment and non recurring engineering, so that <unk> owns critical intellectual property.
The majority of these investments that we're making are to support large new programs that <unk> has received for that we expect to receive including in our space satellite unmanned systems and <unk> and engineering.
Which are critical to our expected and long term up into the right organic growth trajectory.
Importantly, even after assuming all of these planned for investments and excluding the low price technically acceptable Royal Saudi contract, we lost from both 'twenty and 'twenty one our fiscal 'twenty one guidance reflects both organic growth of over 10% and EBITDA growth with forecast for 2021 revenue.
Growth of approximately 14% year over year.
In summary, with the exception of our training business, we're expecting organic revenue growth across all of our other business units, which is the result of the investments we have made over the past few years and we expect to increase our market share in future years as we continue to make these key strategic investments I went through today.
Deanna.
Thank you, Eric and good afternoon and.
<unk> fourth quarter 2020 revenues of $206 4 million, whereas we forecasted and in a range of $184 million to $224 million adjust.
Adjusted EBITDA for the fourth quarter was $22 3 million above our expectation of 2000 $14 million to $20 million due primarily to a favorable mix and revenues, including certain programs and and.
More mature life cycles.
And the fourth quarter, our unmanned systems segment reported revenue and $49 5 million up 29, 2% from the fourth quarter and 19 due primarily to.
Actual programs.
Unmanned systems generated adjusted EBITDA of $5 5 million up from $2 9 million and the fourth quarter of 2019.
Merely reflecting the increased drone system related revenues and a favorable mix of revenues.
Kgs reported revenues of $156 9 million up from $146 8 million and the fourth quarter of 19, reflecting $11 7 million from the recent ASC acquisition and organic growth and our space and satellite defense rocket and microwave products businesses.
This increase was offset partially by a net reduction of approximately $5 7 million and our training solutions business, which was related to the previously disclosed reduction and scope of certain international contracts.
<unk> fourth quarter 2020 revenues also included a net reduction of $2 7 million and the company's business.
And primarily from COVID-19 impacts and our commercial Aero business area.
<unk> fourth quarter 2020, adjusted EBITDA was $16 8 million down from $17 3 million and the fourth quarter at 19, reflecting and less favorable mix of revenues and increased R&D costs of approximately $2 4 million.
GAAP EPS was <unk> 62 per share for the quarter compared to three and the fourth quarter of 19 include.
Included in GAAP net income is $75 3 million tax benefit primarily reflecting the release of the valuation allowance or reserve on our deferred tax assets relating to our net operating losses or Nols.
Previously we had recorded a reserve on the carrying value of the assets related to these Nols.
Based on our recent earnings history over the past few years and based upon our long term forecast and expected tax.
Reductions based upon current tax regulations, and the expected utilization of other our remaining Nols and <unk>.
Spansion portion of the valuation allowance was no longer deemed necessary.
Also included in fourth quarter, net income and loss from discontinued operations and 100000 and in loss from Noncontrolling interest of 100000.
Our Q4 'twenty consolidated operating income was $9 million down from the fourth quarter of 19 operating income of $9 3 million, reflecting fourth quarter 2020 increases and stock compensation expenses of $3 7 million and increased R&D of $2 6 million and the current period, which was.
Primarily in our space and satellite business.
As a reminder, over 80% of our total R&D is typically invested in our space and satellite business.
Our adjusted EBITDA for the fourth quarter is from consolidated continuing operations, including net income or loss attributable to noncontrolling interest and excludes noncash stock based compensation cost of $6 5 million.
Acquisition and restructuring related costs of 200000, and foreign transaction losses for 400000 moving.
Moving onto the balance sheet and liquidity, our cash balance was $380 8 million at December 27, and we had zero amounts outstanding on our bank line of credit and $5 9 million of letters of credit outstanding.
Debt outstanding was $301 million at the quarter and and net cash at quarter end was $79 8 million.
Cash flow generated from operations by the fourth quarter was $25 6 million less capital expenditures of $12 $9 million or free cash flow generated from ops of $12 7 million.
For fiscal 2020 cash flow generated from ops was $44 7 million less capital expenditures of $35 9 million with free cash flow generated from ops of $8 8 million.
Included in our full year cash flow generated from operations was approximately $9 5 million of employer related payroll taxes that were deferred under the cares act of which 50% for approximately $5 million is due by the end of 2021 and the remaining amount is due at the end of 2022.
Capital expenditures include approximately $9 million of amounts related to the Valkyrie assets. We are currently building.
Our contract mix for the quarter was 74% related to fixed price contracts and 21% on cost plus contracts and 5% on time and material contracts.
Revenues generated from contracts with the U S. Federal government during the quarter were approximately 71%, including revenue is generated from contracts with the Dod and non Dod federal government agencies, and Fms contracts, which were approximately 5%.
We generated 9% from commercial customers and 20% from foreign customers.
Backlog at quarter end with $922 2 million up sequentially from the third quarter and backlog of $873 1 million bookings and $254 million and a book to bill ratio of one two to one for the fourth quarter of 2020.
Funded backlog at quarter end was $643 3 million with $278 9 million of unfunded.
<unk> and pipeline give us visibility into our expected future revenue flow over the next 18 to 24 months.
For the year ended 12 months 2720, our book to Bill ratio was one point for the one with total bookings and one 3 billion our book to Bill ratio for the year was $1 four to one for both our unmanned systems segment and our Kgs segment.
And now moving on to financial guidance.
We are providing our initial first quarter and full year 2021 guidance of revenue and $185 million to $195 million and $810 million to $850 million and adjusted EBITDA of $12 million to $16 million and $81 million to $87 million respectively.
As Eric mentioned, our guidance reflects the impact of the recent loss of and international training contract, which had contributed over $34 $5 million in revenue and 2020, and which is expected to generate approximately $15 million and 2021 or a decrease of $21 million year over here.
And it includes a full year of the recent ASC signal acquisition that closed in mid 2020.
We expect our unmanned systems revenue for fiscal 2021 to be and the range of $210 million to $240 million, reflecting expected.
Target revenues and contribution from recent tactical voids.
Expect to be awarded certain international target Awards during fiscal 2021 that we had been pursuing however, under the new accounting standards under ASC six and six due to the expected contractual terms and the expected revenues will be recorded as delivered which is not expected until 2022 and thereafter rather than other.
Percentage of completion method as work is performed under the contract.
In summary, many of the expected International contract awards will be recorded under a delivery basis, which is expected to be in 2022, and thereafter, rather than over time and to work is performed during 2021.
<unk> revenue mix for 2021 is expected to be more developmentally weighted including as a result of the large number of new contract awards that we have received and includes discretionary investments versus a more mature and product lifecycle and 2020.
Discretionary investments include continued R&D expenditures, primarily in our space and satellite business, resulting in an expected increase of.
And R&D and three to 5 million over 'twenty and 'twenty levels. Other discretionary investments include infrastructure costs of approximately $3 million to $4 million related to government mandated cyber security for cyber security maturity model certification or CMC costs.
In addition, as Eric mentioned the results of our Israeli microwave products EBITDA is directly impacted by the strength of the shekel versus the U S. Dollar, which is currently expected to negatively impact 2021, EBITDA by $2 million to $3 million when compared to 2020 exchange rate levels.
We are providing full year 2021 free cash flow guidance and <unk>.
And $30 million to $40 million forecast and investments for nonrecurring engineering and a rocket system and engine businesses for new products is expected to be approximately $10 million for FY 'twenty one and.
And consolidated capital expenditures are estimated to be $55 million to $60 million for 2021.
Approximately 20% to $25 million.
It is related to the continued production of Valkyrie aircraft prior to receipt of expected customer awards and therefore these aircraft are currently reflected as company owned assets until receipt of net related customer awards.
<unk> will adjust and forecasted capex outlays and the ultimate balance sheet classification of these investment once expected customer orders and the nature of the contract terms can be determined.
At which time those expenditures may be reflected and inventory and will impact operating cash flow.
And total approximately 30% to $33 million Mark expected capital expenditures are related to our unmanned systems segment.
Our expected capital expenditures also include investments and the Companys space and satellite business secure facilities and expansion of our company owned situational awareness and network of approximately $11 million to $15 million capital investments related to the recent GBS Day Award and our C. Five ISR business of over seven to 8 million.
And investments related to the company's turbine and rocket systems businesses.
Included in our 2020 operating cash flow and should benefit of $9 5 million related to the deferred payroll tax.
Taxes under the cares act of which 50% or approximately $5 million is required to be repaid by the end of 2021 and the remainder to be repaid by the end of 2022.
In summary, there is and approximately $15 million negative impact in 2021 operating cash flow when compared to 2020, resulting from net proximate $10 million and 2020 payroll tax deferral plessey approximate $5 million 2021 repayment.
In addition, there is an approximately $10 million of engine related and.
Investment expected in 'twenty, one, resulting in an aggregate $25 million negative impact to 2021 operating cash flow when compared to 2020.
Great and since fiscal year 'twenty. One guidance includes your current forecast financial contribution from the recent Skyboard F. R. L and other tactical drones system contract awards, including as related to Valkyrie.
Great and since fiscal year, 2000, and 'twenty, one guidance excludes any contribution from potential additional valkyrie or other tactical drone and production or system contracts with potential additional ways to be taken into consideration and our financial forecast adjusted one such contracts for orders.
<unk> are received and and related financial contribution can be estimated.
Which would be dependent on criteria, including and the type of contract vehicle scope timing and periods of performance.
Thank you.
So as we begin 2021, the organic opportunity set for kratos across the company has truly never been greater.
And over the past several months as a result of certain industry related dynamics, a number of interesting potential acquisition opportunities have arisen, we believe could uniquely and significantly benefit us, which we're going to be investigating I'm not sure if anything will come out of them, but we're going to look at it with.
With that I'll turn it over to the moderator for questions.
And this.
Yes.
As a reminder to ask a question you will need to press star one on your telephone and enjoy your question Ross.
And we found by while we compile the Q&A last day.
We have our first question from Ken Herbert from Canaccord. Your line is now open.
Hi, Eric and Deanna and good evening.
Good evening.
Hey, Hey, Eric I appreciate all the detail on the programs and the outlook I guess just at a high level.
And your comments imply very significant sort of opportunity set and a growing opportunity set as you look at your portfolio are there any areas that you would identify as perhaps at risk if we are and.
And more challenging budget environment, and not necessarily in fiscal 'twenty, two but and.
Fiscal 'twenty three and beyond.
The one that comes to mind Ken.
And again were not the prime and in no way am I speaking for our partner Northrop.
It would be GBS D.
And the strategic triad that that is the one that.
I read about.
Okay.
And on the flip side, you, obviously, you know Washington ally, one one and Dr. Roper transitioned out of ear force what signals are you getting or what are your conversations like today with your customers and the air force and across the military on specifically the tactical drone side I mean, it sounds like Theres still broad support but can you.
Two specific examples.
Give you confidence that Youll continue to see very strong budget support for the tactical effort.
And I believe that our relationships and support with the Skyboard program office.
Could not be.
And a stronger for example.
And any any stronger than it is I believe that our support with.
The Air Force Research lab.
And Eric capped and El Cassidy.
I don't see how it could be any stronger than it is especially with what with what's coming down the pike for kratos.
I.
We are.
A lot of us have done this a long time, we always make sure that there's no single point of failure I don't want to name names on this line, but we have numerous multiple individuals and offices that are firmly behind but tradable aircraft.
Affordability, bringing quantities to the fight.
And you've noticed today I stressed multiple times that kratos has.
For jet drones that are flying today that I can tell you about for no. One else has anything like it and and they are becoming operationalized. They are becoming Missionize. You heard me talk about IOC is coming you've heard me talk about a new procurement opportunity just came out this week.
This is happening.
And we have the I believe we have the right products at the right price at the right place at the right time and the customer appreciates that.
Perfect. Thanks, Eric I'll stop there and pass it back.
Sure.
Next question is from the line of Noah pop on that from Goldman Sachs. Your line is now open.
Hello, everybody.
Good afternoon, Sir.
So Eric you gave us a ton of detail there on the.
Programmatic moving pieces and you know obviously you continue to speak to a number of opportunities to grow.
But you've also had some some things move against you in terms of timelines and and <unk>.
<unk> related delays.
And if I zoom out you know your despite all of that you're saying you're going to grow.
About 10% organically top volume this year and.
And the margins actually look pretty flat, despite the incremental investments with EBITDA margin a little over 10%.
So I guess you know beyond this year, which has a number of kind of transition elements to it and.
How should we think about.
Those credo is have a top line organic growth rate accelerates meaningfully or does it just kind of hang around that 10% range and to the margins expand meaningfully or do they kind of hanging around where they are as we move beyond 'twenty one.
Both both our forecast and our five year plan.
To expand meaningfully.
If current for.
<unk> forecasts hold.
And the only no other only item I can see that would impact us is.
As the ranges.
And range access Okay 2022.
Is it organically is a step function revenue above step function above 21.
Okay.
And.
Space and satellite.
I believe our customers.
And for themselves and we are going to start delivering product software and product and.
And 21 to these customers I've gone through.
And on the tactical drone side.
And again, if if current the current planned hold there is going to be and our drone business a step function and growth.
Next year.
And then back to Ken's question Noah.
On GBS D.
And there is a significant step function for kratos from.
From 'twenty, one to 'twenty, two and then from 'twenty two to 'twenty three as we execute on for our partner and Northrop and.
So these are under under contract okay.
No that's helpful. Hopefully hopefully timelines hold and these things can yes.
And I'll stick to stick together.
So can you can you die.
Dive a little further into what's gone on with Valkyrie and.
Ah you're accounting for it because you know after you run into.
Introduced the notion of it being and your Capex until you got and order and you said once you got and order you could then moving into revenue.
And it sounded like you only anticipated that happening last year did you move anything into revenue on Valkyrie and 2020 and why is this still happening in 2021 and given you've had the orders you expect to do that.
Sure and so no.
It depends on the contractual terms of what is awarded so if sales for instance, if its for flight demonstrations or exercises or testing and payloads et cetera, and that would be more mature.
<unk> and.
And those exercises and demonstrations are performed.
For outright sales of aircraft and it would be on a percentage of completion basis.
As we are building and those aircrafts.
And that those costs would be transferred from fixed assets to inventories. So it depends on the actual makeup of the contractual terms.
Is that to say that you were expecting production orders and you only got flight demonstration orders all know Oh no.
We have we have received orders for several vehicles.
Okay.
We'll be delivering the first ones very soon.
But we have to be very careful here no because of the nature of these contracts the government has not disclosed.
Okay.
But we will be delivering and the government customers because we have several that are ordered aircraft will be taking.
My word here title ownership.
Transfer of the aircraft to them beginning this year and then continuing into next year and as I indicated in my remarks, where we're planning on more to come as we move through the year.
Okay.
So the 50 to 60 of revenue that you mentioned.
And your 2021 plan for tactical drone.
Is that basically the valkyrie orders you've received so far.
And it's a big part of it yes, Sir.
And then how are you thinking about the potential for more orders in this year that convert this year or should we think about incremental orders this year and beyond convert beyond 'twenty one.
Yeah.
It depends on the nature of it depends on the nature of the contracted for contract is such that we receive something say in June or July and ownership against transferring of the work in progress and as a percent complete.
If the nature of the contract and there is one in particular, we're working on where it is not until delivery occurs and they sign off on acceptance with the DDG 51, and the revenue we wont get it until Q1 of 'twenty two.
Okay.
Okay.
I'll leave it there and maybe a follow up but thanks, so much and I appreciate it okay.
Thank you Sir.
We have our next question from Greg Conrad from Jefferies. Your line is now open.
Hi, good evening.
Hi, good evening.
You ended the script that kind of a cliffhanger talking about acquisition opportunities that may or may not materialize and any other details or at least appetite or maybe areas that youre seeing in organic opportunities.
So Greg and as you know over the past multiple years, we have been focused organically and and.
And that's coming to fruition over that this year and and then it's going to be accelerating like I said next year and thereafter.
And we stayed away from anything large we've done tuck ins.
There are there are some certain dynamics that are happening out there and the industry.
Hum.
And of.
Brought potential opportunities to us.
That are right and our bailiwick like we're not going to do anything outside of our ability.
And our bailiwick.
<unk>.
Could truly be for us one plus one equals four of five non plus one equals one equals to one of those one of those two.
And.
We're going to and because of that change and potential mindset, we'll have to see what happens I wanted to mention that to the group here because we've been we've been focused primarily organically.
That's helpful and.
And then can you just remind us of the size of the space business today, and you mentioned needle moving space opportunities and I think you talked a little bit about them and the script, but any other detail around size timing or just kind of the <unk>.
<unk> trajectory of the overall space business.
Sure and Greg.
Current businesses.
Just a little and over $200 million.
Currently.
Perfect and.
And Greg on the on the second part of your.
Your question.
M.
So here to for.
A large opportunity for us.
Would typically say b less and $50 million.
Okay.
Right now because of some other changes I've talked about and the procurement posture by the customers, which is incredibly favorable for <unk>.
Okay, we have several opportunities we're bidding as prime over $100 million.
This has never happened to us before.
And these are real.
And this is what the customer wants the customer wants to disaggregate, the aggregation of buying space satellites and ground.
And we have the technology advantage now with open space.
And so with the technology advantage and the change and the customer posture.
And you have to calibrate me because you know the glass is always 90 per cent for where we're going to win some of these we are very well positioned technologically and price.
Thank you that's helpful. Thank you.
Next and Mike Crawford from B Riley Securities. Your line is now open.
Thank you.
Additional a lot of skyboard.
VAALCO rebuilds.
Contemplated to start later in the year and also this.
And already related to the military jet semi and engines, you have and a little bit.
For additional Capex this year, but do you expect Capex then to come back down to like a 20 or $30 million or lower level, and 'twenty, two and beyond or might there always be these.
Yes.
We expect it to come down so it was.
Mike It would probably be more normalized and that 25% to $30 million range.
Okay excellent.
Excellent and then with.
Your you mentioned briefly your partnership with the.
Aero environment.
Where this is what.
Youre contemplating pointing to switchblade into one year germs.
Yeah.
Mike I'm hesitating, because I just don't know if it's been disclosed for.
Precisely which variants of their drones, we're doing.
No.
We are integrating certain of their drones into our aircrafts and again I'm not being coy I, just don't want to misspeak here on which variant because they've come out with some new variance.
Okay and then.
Back to your M.
And business.
Can you disclose like maybe what was the commercial Aero revenue associated with those two businesses you acquired.
Let's say in 2019 versus 2020 and where.
That level it might be this year before potentially rebounds, and 'twenty two 'twenty three.
And I said, the COVID-19 related impacts were over $10 million and 2020.
And Mike So they were they were down from about.
And I don't have the precise numbers, but I wanted to say they were about and 19 closer to $20 million, and then down to $10 million and 2020 and for 'twenty one.
And it's looking we forecasted Mike even substantially less than that.
Okay.
And.
And then just finally.
There are some outsized potential hypersonic related opportunities, particularly with the engines and are those also.
And to the right due to travel and other restrictions, but or or have any of those are getting closer to a decision point.
They are not pushing to the right because of the.
Thus far.
Because of Covid and travel okay.
However on too.
Large hypersonic programs.
We are on.
That are publicly out there. Okay. We were scheduled to do several launches for our customers.
This year.
Those have moved into Q1 for.
For Q2 of 'twenty two.
For reasons not related to Covid.
Okay.
Yes.
Okay. Thank you Eric and Deanna.
Thanks, Mike.
We have our next question from Peter Arment from Baird. Your line is now open I am sorry.
We have my colleagues from Mali from two with security. Your line is now open.
Hey, good evening, Eric and Deanna and thanks for taking my questions.
Eric just on.
On the Valkyrie.
And obviously you are building them on your own volume right now.
The expectation just to calibrate us I think you said, you'll start you'll deliver the first one and <unk> and.
<unk> got a lot of 12 <unk>.
Should we think Inc. To 10 realistic this year and and as obviously Covid range is but.
Is this seemingly below your expectations of how fast you would've been able to build and deploy these.
Hum.
To your question yes.
We're doing our best to match them coming off the line.
With the customer.
That's what we're doing our vessel, they don't sit and and capital for an extended period.
So it could be.
Six to 10 this year.
Okay, just depending on that that customer dynamic.
No Mike I am glad you asked this question because there is another opportunity coming that we're going after that I think we're going to get and it's an opportunity where we will own the aircraft and.
This is the wrong word the government will lease them.
For ops, they'll pay a service fee for ops.
Okay.
And so that that's a potential that we're seeing to for these aircraft.
Got it and then just you know I think you may have answered.
Ken's question around one of the challenges maybe or headwinds being range for access.
You sit here.
Today.
How are you thinking about the competition and it seems like you know various.
And the various agencies youre working with.
And given your potential conflicts competition and ample time to sort of catch up to you and close that gap. How are you realizing no one's flown yet, but how are you looking at some of these decisions delays.
The competition, obviously, having time to prove their own platforms.
Right.
And as you guys and Gals that know me you know I've asked and my pants.
And so the delays.
I don't like them.
And one bit.
Because were.
We are doing everything we can to match tradeshows with what the Pentagon is saying is a top priority.
Which is to rapidly develop demonstrate and field.
Systems, including digital engineering, which of course, we are a leader and that we don't talk about that much but we are and the industry leader and that probably second to none.
On on that.
And we have the capability and Mike were doing it we are popping out and new aircraft.
Every couple three years.
And so it's it's I understand it I don't like it I'm very frustrated, but but we will win and the reason we are going to win as.
As we have a family of aircraft flying today.
Theyre being missionize.
And operationalized.
Okay. They are incredibly affordable compared to anything and the competition can do and why is that because we are producing hundreds of target drones and.
And so we are levering off that supply chain.
The materials.
Engines, the electronics the avionics the wire harnesses I can go on and on we are leveraging off of all the quantities, we're buying for the target drones, which is driving down the cost of our tactical drones. No. One has that no one has that.
Potential they cannot do it.
Alright got it and and and you mentioned no one has anything flying today and Youre right. This is hard.
These aircraft that we can talk about that I can talk about here. They go up to <unk> 95.
And Poland incredible amount of Gs and do certain things and a lot of it is on autonomous systems and I'm not going to call. It fully AI yet this is not easy.
And again, the fact that we do hundreds and hundreds of flights with our target drones.
What you just switch out the payloads and switch out certain things and it's a tactical drone. This has given us and incredible advantage and this is why we will win.
Got it and then just one last one maybe kind of a little housekeeping, Dan and thank you.
And said some of these international awards and programs are going to be more delivery weighted versus percentage of completion is that creating a bit of a revenue headwind. This year and should we expect maybe a little bit more of a step function and then next year.
Absolutely, yes, yes.
Yes.
And just with the contractual terms and your international contracts typically they would not fall under percent complete so under the new revenue recognition standards. So that that will be based on delivery, which would push it out.
A year or so.
Okay would you quantify that or no.
Mike I'd say this year I think we're going to be building, 30% to 50 target drones for international customers.
Okay.
And think about that 30% or 50.
Okay.
Helpful. Thanks, guys.
Thank you.
We have our next question from Peter Arment from Baird. Your line is now open.
Thank you good evening, Eric and Deanna, Eric you had talked a lot about.
And the past and getting the unmanned segment up to kind of $250 million and revenues or at least approaching that do we get that this year or is that just because some of the delays that you've seen and are out of your control that you're not going to and you won't be able to hit that yet.
Yeah, we're not going and we're not going to we're not going to get there this year.
I talked about.
Good to hear from you for you to sort of talked about and my prepared remarks.
Net army contract that Army program. We won that was just under $100 million of couple of years ago I can't get into the reasons why but that is rolling out far slower than we thought it just is.
We have a we have another program and I can't talk much about it at all but we are under contract we are working our way through L. Rip.
That has been pushed out full rate production, that's been pushed out a couple of years.
And.
And as Deanna just at.
And this international this new accounting rule.
These international ones, where we would typically do percent complete and we'd get the revenue was we'd be building them now we're going to get the revenue uncertainties upon delivery and so as I was as we were just chatting with Mr. From Ali I think its somewhere between 30% and 50 international target drone. This year that we're not we're not going to deliver these until 'twenty two 'twenty three.
And a bunch of those are revenue recognition is on delivery and so that's moved that out.
And so that's why but the the.
The opportunity set is still there those are the dynamics that are around it.
That's helpful and you also just on on the Gremlins Pushout. It it's got nothing to do with your system, obviously the DARPA.
Barbara still hasn't I guess, its still trying to validate that the recovery system.
Is that the main factor.
Factor, you're seeing and kind of slide to the right 12 months or so.
Oh no no no no the dianetics system is incredible it's incredible.
Remember.
And we've had two impacts here.
Number one was the was the massive earthquake a year and a half ago at China Lake.
For the demonstration flights were supposed to be if you pull up China Lake earthquake was like $7 billion and damage to the range.
That was the first delay that the latest six months until I think we went to Doug way Okay.
And then Covid hit.
And the Covid and think about the range operations you Gotta go into command centers Theres No way you can social distance and a command center out there during the Dod travel restrictions et cetera, et cetera, and this is why like in the past couple of months of the DARPA program manager and I'm going to paraphrase here I don't remember exactly what he said, but he said we've been pushed out approximately a year or more.
Because of these types of things.
Okay.
That's really helpful color I appreciate all the details as always I think I'll turn it back.
Next question is from.
And from Jpmorgan. Your line is now open.
And in fact, thanks very much good evening, Eric and Deanna.
One thing I just want to clarify.
The 210 to $2 40 of unmanned revenue that you talked about for 'twenty. One does that does that include the 50 to 60 years of growth on.
Net.
Tactical drones, yes.
Yes. It includes 50 to 60 and tactical drones, that's not growth.
Absolute dollars for that's difficult.
Right, Okay, Okay got it.
Okay was there was there a meaningful tactical drone revenue in 2020.
Their wide so that with some of the development classified work that we're working on and so it was it was in the range of 20 plus.
Right Okay. Okay.
And for Us there.
And Mike <unk>.
Okay, and so the growth there is from 'twenty up to going from 20 up to that 50 to 60 range. That's correct yes.
Okay. Okay.
And then yes.
And then not to totally belabor the point, but.
And just to understand a little bit better the Valkyrie accounting.
I guess the orders that you have thus far cover and undisclosed portion of the initial 12 that you are building.
And the.
And what you'll be building next year. The Capex covers our remaining portion of those 12, plus one to two a month that you are thinking about building thereafter.
Correct.
For the customers have not disclosed how many aircraft. They are built they are procuring from us at several we are we cannot.
We are under strict guidance, we cannot get ahead of them on this.
Right, but these are percentage of completion right.
So and that's.
I think that we have to be we have to be careful because again the customers have been very.
Clear to us on this.
I'll just refer back to the and I think it was your question no I had as it depends on the specific contract terms and delivery etcetera.
And what the deliverable is.
Right right and the ones that are already under contract or maybe its not something thats disposable and the ones that are of the 12. The ones that are already under contract are those percentage of completion or <unk>.
Delivery.
We.
We're not going to say we have.
We can't say that.
Fair enough and that's all.
That's fair enough.
I'll get a totally different question and then.
Eric you talked about M&A, a little bit there at the end and talk about what sounds like some really interesting opportunities.
I guess, just when you think about.
And what kind of capacity you have and what you might want the balance sheet to look like and.
And all that kind of stuff.
Yeah.
And what color can you put it around that and the context of the M&A opportunities you described.
We were.
We're very fortunate right now.
And that.
Whereas where and in my opinion, a substantive net cash positive position.
We have we have no debt.
Our bonds so that means we have significant debt capability.
We want to go that route.
<unk>.
We are we are positioned and where we can be we can be very true.
Flexible with where we're at.
Depending on if any of these items that we're assessing and a separate value set way upfront I don't know if anything will happen here I really don't but.
They have to be perfect for us we're not we're not a big acquiring company, but these these are so interesting and these like I said these are not one plus one equals two these are and I'm talking about going after and winning new work Big programs. These are one plus one equal for four.
It depends on obviously, what it would look like and what it would take but right now we feel we feel comfortable with all of our options.
Alright, okay.
Great. Thanks very much.
Thank you.
Next day is hey, Joe Gomes from Noble capital. Your line is now open.
Good evening.
Good afternoon.
So most of my questions have been.
Answered here.
Already but.
Take a different tact you put out a per.
Yes release earlier this month and Bob.
Your autonomous truck.
And I was wondering maybe give us a little more color on that and what that might mean and is it.
And what kind of addressable market are we talking about here.
Joe If you could see me smiling ear to ear because no one ever asked that question and I purposely don't talk about this because this is one of a handful of areas, where we're going to we're going to sneak up on the market and a very very positive way so as as youre alluding to.
We're not developing something we have taken a military technology on autonomous vehicles, okay, like autonomous tanks and autonomous trucks.
And we have commercialized it and we have a strategic agreement with a number of players, including Royal trucking and.
And we are now rolling this out across the U S and.
I think we're at 767 and eight states already the opportunity pipeline is incredible.
And the market expansion and other areas because we are proving this out from a safety standpoint.
A reduction and cost standpoint.
Green Green.
Don't focus on that much at all a green standpoint, it is significant and this year this year.
And could be the year, where we are.
We announced we've landed this which will be meaningful financially for us and 22.
So it's a.
It's an incredible technology that our guys down in Florida developed for the military and we are we are exploiting it commercially and.
No one has anything like this we're the industry leader.
Thanks for that and Eric I appreciate it. Thank you for your time, Inc.
Thanks for asking the question.
Once again, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced next day is Noah <unk> from Goldman Sachs. Your line is now open.
Eric are you looking at more acquisition candidates or larger acquisition candidates.
Larger.
Yes. This is not good.
Good question. This is not a quantity thing.
These are these are very specific that have come to us.
And.
And how should we be thinking about.
Size of your cash balance or size of your cash balance plus you know what you'd add if you took leverage to two or three turns and should we be thinking.
And you would potentially issue equity for something transformational or would you rule that out.
I don't know yet and let me tell you why.
The debt interest rates right now are incredibly low.
It's just they are incredibly low and that would be that would be one path.
Depending on the size, we may be able to handle it with what we have and not not significantly that up the company at all because of our our EBITDA and our cash position and the EBITDA and the balance sheet construct and the potential the potential targets.
And if if it's.
If it's a certain type of opportunity and with the seller et cetera, you know maybe it's a combination of those maybe there's some equity involved I don't I truly just don't know yet.
But what I, what I indicated before is we're very fortunate were in a position where all of those alternatives are open to us, but no very importantly don't look for us to come out of anything and the significant leverage position.
And we're not going to do that we're not going okay.
Paul.
How much revenue did you lose out of 2021 from the the accounting change on the international items.
I'm going to do a total guess here, so let's I'm going to pick the midpoint of my number and so if we're at like 40 drones and it's a mix of fire jet et cetera.
I'm going to say 15 to 20, maybe 2015 to 20, Amazon and <unk>.
<unk> 2025, and Theyre, just depending on the percent complete that moved.
Yeah.
Okay.
Great. Thank you thank.
Thank you.
No further questions at this time I will turn the call back over to Mr. Eric Demarco.
Great. Thank you for joining us today and I know that this one the prepared remarks, a little longer than usual because obviously it was the end of the year, we haven't had a chance to chat with you and for five months and there have been a lot of exciting things that are that have happened in our space business, which is really looking good and obviously and the drilling business. So thank you very much for joining us.
And.
Ladies and gentlemen, this concludes today's conference call. Thank you all for participating you may now disconnect.
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