Q3 2022 Kratos Defense and Security Solutions Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Thank you for standing by and welcome to the Quaker is defense and security solutions third quarter 2022 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. During the session you will need to press star one one on your telephone.
As a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Marie Mendoza Senior Vice President and General Counsel. Please go ahead.
Good afternoon, everyone and thank you for joining us for the credit event.
<unk> third quarter 2022 conference call with.
With me today is Eric Demarco, President and Chief Executive Officer, and Deanna Lund, <unk> 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.
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.
Please keep these uncertainties and risks in mind, as we discuss future strategic initiatives potential market opportunities operational outlook and financial guidance during today's call.
Today's call will also include a discussion of non-GAAP financial measures.
That term is defined in regulation G. non-GAAP financial measures should not be considered in isolation from or the 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.
Ill now turn the call over to Eric Demarco. Thank.
Thank you Marie.
In the third quarter <unk> successfully executed on what we could control and a continued an increasingly difficult operating environment.
Generating a $1 one to one book to Bill ratio.
Fully executing a valkyrie block to flight.
Receiving a recent new hypersonic system related program Award Mark TB.
Multi service advanced capability hypersonic testbed with our partner Dianetics.
Both which we were able to announce today.
We are currently positioned for additional upcoming milestones and significant contract awards, including another important new hypersonic related program, we hope to announce by the end of this year.
Definitive nation of an approximate $250 million potential value microwave electronics Cte program Award.
Additionally.
We now expect two new Valkyrie related tactical drone system contract awards from two separate new customers for multiple aircraft and.
And we have just recently begun discussions with the potential for new customer also for multiple Valkyrie systems.
The interest and create us as tactical drone systems has recently increased and is gaining momentum I believe in part due to the ongoing Russia, Ukraine conflict.
The heavy use of drones involved including jet drones and the reality of the quantities do matter.
<unk> is the only company with affordable high performance jet drones flying today also with active production lines.
Since our last report to you. We have also faced challenges, including that we were recently informed that a certain credo satellite program relating salt related to software products expected to be delivered in 2022 to an existing under contract. The government customer have now been delayed to a future period.
And we were informed by another under contract customer that additional funding is now not available for the continuation of a certain non valkyrie related credo as tactical drone program, we have been working on.
Both of these were previously forecast as important contributors to our fourth quarter.
We also have now determined that as a result of the continuing incredibly tight labor market for qualified machinists production and other skilled personnel, including those with security clearances that we will not achieve by this fiscal year and our previous forecast net increase head count target required to execute on our backlog and achieve.
Our financial forecast, which I discussed on last quarter's call as a key operational and execution imperatives.
As a result of these issues and considering that the Dod just last week published a letter reiterating that they would not allow companies like kratos to receive contract price adjustments.
Request for equitable adjustments or increases in funding for inflation and related cost growth on our existing contracts, we have reflected the financial impacts of each of these.
Related and other items in today's third quarter financial report and our updated fiscal 2022 forecast, which deanna will discuss in her remarks.
So we've been taking action to address these matters, including we have hired and continue to hire a large number of qualified personnel, which is a top priority across the entire company.
Additionally, over the past several months and our new bids proposals and contracts, we are increasing labor and other costs and escalators, which are making us more competitive in not only obtaining but also in retaining qualified and trained workers and we have adjusted the.
And in certain areas to adjust customer related delays funding and other issues.
We have taken these actions now in order to position <unk> to continue to compete for and win large new program opportunities of which there are many.
And <unk>.
Executing a significant growth trajectory and expanding margins in 2023 and beyond.
And we remain confident in our mission of being the disruptive technology company in the National security market area, evidenced by our continued success, including having a one two to one LTM book to Bill ratio as I mentioned of one one to one Q3 book to Bill with multiple large new programs.
Both received and ramping like Mark TB, and having a record combined backlog and opportunity pipeline.
Accordingly, we continue to forecast base case full year 2023 over 2020% to 10% revenue growth and increased margins with potential accelerated growth opportunities in the tactical drone space satellite rocket hypersonic system areas.
Importantly, we have recently begun to see some improvement in the labor market, including technology and other companies now executing layoffs and credo recently, having a very successful job in recruiting fare with multiple qualified hires related to our key creative manufacturing location.
So we believe that we may have seen the bottom here with things starting to turn around in the labor market.
Operationally and directly related to <unk> first to market affordable, leading technology system and product based strategy <unk> remains an industry leader in virtually all of our business areas.
We are the industry leader in providing affordable rocket hypersonic and other systems to national security customers, including as recently demonstrated by the successful intercept of our credo ballistic missile target in the Pacific drag into 'twenty two exercise.
<unk> proprietary new and first to market Zeus and <unk> affordable launch and hypersonic systems continue to progress with initial flights with our customers' planned for next year, which we anticipate will provide us with new program opportunities. In addition to our current family of flight systems in vehicles.
We expect <unk> rocket systems business to be a solid future revenue.
Organic growth driver with increased margins as both the U S and our allies increase their exercising and testing of ballistic missile defense radar space satellite hypersonic and other systems.
<unk> industry, leading space and satellite business performance, our company's largest is critical to our forecast organic revenue profit and cash flow growth trajectory and we are currently forecasting approximate 12% to 15% growth for this business in 2023 with significantly expanding margins.
Supported by recent unexpected program awards.
The thousands of new satellites forecast to be placed into orbit over the coming years, including and Leo MEO and Geo for both National security and commercial missions are expected to provide a large rapidly growing market and the opportunity set for <unk> and for our proprietary first to market <unk>.
<unk> space Virtualized suite of C tubes, TNC and other ground system software products.
<unk> ISR business is also positioned for future organic growth and expanding margins with key growth drivers, including the epic <unk> sure AD and Sentinel programs on the Sentinel program, we expect to see a significant ramp in 2023.
<unk> microwave electronics business is similarly positioned for future organic growth also with expanding margins with a focus on well funded mission critical national security areas, including missile radar EW C. At <unk> systems, several of which are in production and ramping.
Our turbine technologies and engine business had a very strong third quarter and 2023 also is looking strong with a focus on drones missiles powered munitions space craft and strategic platforms, including the B 52 re engine program, which is ramping for Creatives.
<unk> industry, leading target drone business also is very well positioned as the U S and our allies recapitalized strategic weapon systems, and radars, which need to be tested and their crews trained against the highest performance. Most threat representative target drone systems in the world those are credo as targets.
Future program drivers at our target drone business include the SSAT program with the U S Navy, which achieved full operational capability in Q3 and with full rate production now expected to continue to ramp.
A confidential program that is now expected to transition from low rate initial production to full rate production. We haven't expected sole sourced $100 million contract award with the U S Government agency coming in the next few months.
And a number of new expected International contract awards, driven in part by the Russia, Ukraine conflict and the expected significant increase in NATO member and U S Allies defense budgets.
Also in the target drone area. There are currently multiple new programs in solicitation here in the United States that <unk> is pursuing including and gap five GAAP and <unk> threat, all focused on affordability and innovation to address the increasing global threat profile.
As I mentioned, the tactical drone or collaborative combat aircrafts CCA opportunity continues to evolve, including the Air Force recently announcing another new classified program initiative.
Which includes a competitive fly off in 2024.
Multiple recent statements of the data points from the Pentagon signal of future with hundreds of thousands of drone systems, consisting of several different types with different capabilities and a different cost points.
As I mentioned before <unk> remains the only company with a family of low cost expandable disposable and attributable drones flying today also including after manufacturing facilities with each drone that we can publicly talk to you about at price points between approximately 400000 and $5 million.
Being the only company with actual flying aircraft and this drove class not having powerpoints are renditions concepts of computer models with hoped for some day delivery dates at guesstimate price points. We believe is a significant advantage for <unk> and to our customers and for the taxpayer.
At <unk> better is the enemy of good enough and also to low cost.
As we reported today blocked to cradles Valkyrie production aircraft recently demonstrated extended capabilities by flying longer higher at a heavier mission weight and at a longer range than ever before with the flight achieving a key milestone of the <unk> autonomous collaborative enabling technologies portfolio simply stated.
Credo tactical drones continue to mature and progress.
We remain on track to complete the initial Valkyrie 12 production lot next year and we are in process of deciding on a subsequent valkyrie serial production run, including as things are definitive sized with our three new customer opportunities over the next few months.
<unk> Ghost works at our recent successful test of our new system at the Burns flat range complex with additional tests of this new system planned over the coming months and which system. We currently hope to be able to unveiled publicly next year. We are confident that this new <unk> ghost work system will significantly expand.
Band, both our existing platform capability lead and affordability positioning to our customers and competitively.
We believe the macro and geopolitical backdrop for National security industry is strong and is expected to remain so, including importantly for innovative and disruptive technology and growth companies like Kratos.
I also believe that we are at the beginning of a long term multiyear recapitalization of strategic weapon systems globally.
Quantities affordable mass speed and survivability as is being demonstrated in the Russia, Ukraine conflict will matter and we're clearly credo is uniquely positioned.
We are not planning on making any acquisitions. We are successfully competitively bid on and received a number of large new program Awards as I mentioned before and we expect to receive several more in the coming months.
It has definitely been challenging the last couple of years with Covid supply chain inflation, the labor market and other things.
These issues will pass and Credo is teeing it up and we are ready to go do it with that I'll turn it over to Deanna.
Thank you Eric good afternoon.
We have included a detailed summary of the third quarter financial performance and fourth quarter and full year 2022 financial guidance in the press release, we published earlier today I will focus on the highlights of my remarks today.
As Eric mentioned, the operating environment remains challenging with continued supply chain disruptions inefficiencies and extremely tight labor market and inflationary impact as a result, our third quarter revenues were impacted with $11 3 million being deferred into future periods with approximately $5 9 million of associated opera.
Getting income including increased inflationary costs.
In addition, our operating results included a charge of approximately $3 4 million related to certain non recoverable costs, including rate and cost growth items, resulting from an inability to hire the required planned direct labor base, both internally and by our sub contractors to execute on our backlog due to a.
In challenging environments in both hiring and retaining skilled manufacturing personnel.
And our final ISR.
For example, while we have been successful in hiring over 96, new skilled staff. This year in this business. Unfortunately, we are down net 14 staff members since the beginning of this year as we have lost 110 staff members in this business due to attrition from retirement.
Including an employee decisions made related to Covid vaccination compliant and protocol related policies and staff, leaving for other employment due to incredibly competitive and tight labor market and with it and with significantly increasing compensation.
As Eric mentioned, we have recently seen more success in hiring and stabilization in the retention.
Our existing workforce and our entire organization is incredibly focused on this primary operational execution area. Additionally.
Additionally, as we are managing supply chain related disruption and shortages, our operating cash flow continues to be impacted by advanced inventory purchases, we have made them over $27 million year to date.
Reflect increases in inventories across our product based businesses, including unmanned systems space and satellite microwave products and see five ISR.
This inventory increase reflects actions we have taken to make advanced purchases in an attempt to mitigate supply chain disruptions, which now include lead times for certain critical parts of over 52 weeks.
The conversion time for certain of these purchases from the inventory to products to sales is not expected to occur until next year.
Also included in cash flows used in operating activities is approximately $7 million in investments and nonrecurring engineering costs over the first nine months of 2022 for new rocket system and products, including <unk> and <unk> systems and is directly related to certain receipts and expected new contract.
Rewards in the hypersonic system area.
Our contract mix for the quarter was 69% firm fixed price, 26% cost plus fixed fee contracts and 5% time and materials.
Revenues generated from contracts with the U S. Federal government during the quarter were approximately 69%, including revenues generated from contracts with the Dod non Dod.
That'll cover maybe.
Government agencies and Fms contracts.
In Q3, 2002, we generated 11% of revenues from commercial customers and 20% from foreign customers now moving on to financial guidance.
Our fourth quarter and full year 2000 to financial guidance. We provided today includes our current forecasted business mix and our assumptions related to the expected continued impact of employee absenteeism challenges related to obtaining and retaining qualified personnel supply chain disruption inflation and really.
<unk> expect.
<unk> cost and price increases and other COVID-19 related items that have impacted and are currently and expected to continue impacting both the industry and <unk>.
Water related businesses, but as we previously mentioned we have been unsuccessful in achieving our target.
Accordingly, this delay in the ramp in our net head count and supply chain delays has resulted in a reduction of $12 million to $13 million or forecasted FY 'twenty two revenues NRC five ISR business.
In addition, the recent notification by our customer of a delay where certain satellite program related software deliverables to a future period had a significant impact on our Q4 forecast is this software deliverable was expected to contribute approximately $5 million to $6 million of revenue and approximately $4 million of EBITDA in Q4.
Finally, the notification we recently received from a customer that additional funding is now not available for the continuation of a non valkyrie related tactical drone program that was originally forecast to contribute an additional $7 million to $8 million to our FY 'twenty two revenues.
We have reflected the impact of these customer notifications in today's revised.
Financial forecast with our forecasted cash flows also being adjusted accordingly.
Alright, great. Thank you Deanna will turn it over to the moderator for any questions.
Certainly ladies and gentlemen, if you have any questions at this time. Please press star one one on your telephone.
One moment for our first question first.
First question comes from the line of Mike Crawford from B Riley Your question. Please.
Thank you Kevin.
These delays and.
And in the tactical drone space.
Do you.
Do you think that it's getting harder to cross the so called valley of death, or maybe one of them didn't make it or is it no.
But we're really focused on valkyrie and maybe some of these newer iterations like.
That are coming down the pike.
But no.
No. It is not harder to get across the valley of death, Mike and we still have a number.
Of platforms.
The all of which we've talked about previously.
R R.
Are still flying.
And that are still going across.
As I mentioned over the past year I think it started after the Reagan form last year when the secretary talked about two new classified programs and he said that all the other programs are substantially all of them would be feeders into those programs and it was all going to be buttoned up.
I mentioned that it was going to be just difficult for us to talk about stuff anymore unless we.
We got approval.
And that's one of the reasons, we were able to put the what we put out today on the Valkyrie. We just recently got approval for that press release. There is a there is a lot going on in the CCA or tactical drone area a lot a lot a lot.
And as I indicated in my remarks.
Think things are becoming a lot and they are accelerating because of what's going on in the.
The Ukraine with Russia.
Become a war of attrition General High note recently of the Air Force recently.
At an interview about that it's a war of attrition and I think that is what is this.
Just causing momentum to start picking up here again.
Okay. Thank you and then.
And the in the space.
And satellite cyber business so is there.
Any takeaways from the change in leadership at the U S Space Force and then I guess, the second part to that.
Is.
This one software delay is that related to the.
The continuing resolution or is that is there. Some other reason given for that delay.
Right. So let me take the second part of that first it isn't it is not as we understand it related to the continuing resolution that program. It is classified.
So its related our understanding to a separate item. That's why it's been pushed out that's all I can say its classified.
Relative to any.
Changes in personnel at the space Force et cetera.
I don't believe that it's best has anything to do with what's going on here or what it's going to have to do with the trajectory.
And the industry.
The bottom line is that there are going to be fewer and fewer geosynchronous orbit satellites put up and there are going to be hundreds and hundreds of <unk> put up.
There are all types of reasons for that technological reasons.
Distributing the assets reasons et cetera, and the more birds that are up there whether it doesn't matter what size. They are the better that is for <unk> and our ground equipment, which is why we are we are seeing.
The traction, we're seeing and we're still optimistic.
Alright, thank you.
Yes, Sir.
Thank you and one moment for our next question.
And our next question comes from the line.
Noah <unk> from Goldman Sachs. Your question. Please.
Yeah.
Yeah.
One moment.
And Noah.
Your line is open.
Hey, guys its Kevin on for now I can hear me.
Hey, good afternoon.
Hey, thanks.
In terms of the 10% revenue growth target next year I think you had said previously that doesn't consider too much upside and tactical drones.
I'm sorry, what are you expecting a tactical drones there.
How much visibility do you have into that business returning to growth and when do you think that returns to growth.
So you're absolutely right. The base case does not include any significant production at all.
Sure.
Or orders.
Tactical drones.
It is as I said on the last call Buddy, it's a continuation of <unk> and S&P initiatives, both that we're on and future ones that we are.
We expect to get.
And as I said on our last few calls.
Not getting ahead of myself anymore on this.
I have gone through it we've got the right aircraft at the right price points at the right time.
And where we're going to hang around the hoop until we win and that's what we're doing.
So nothing significant other than <unk> and SMT.
Got it and then in terms of the non recoverable costs.
What time frame does that capture I mean does that capture future expected cost growth and is there any risk to that number just kind of continues to trend higher unless the Dod gives <unk> relief.
Gavin that does not take into consideration future cost growth that its current period that we are not pass intuitive contract. So we are absorbing that in the current period and relative to the future as we've been talking about for the last few quarters and I emphasize today.
We're substantially firm fixed price.
And we have because as you said the plant came out with another letter last week and said there will be no relief on this on existing contracts well.
Try to emphasize that we've been winning a lot of new contracts, including the last two quarters and we have been building into those escalate existing costs and escalators to capture future increases most importantly in labor and in the indirect rates that that labor based drives.
We've been building that in and we think that point is going to start to cross in Q1 or Q2 of next year and then we'll be okay. Unless of course inflation goes to 25% then we're fried but thats our plan.
That's helpful. Thank you.
Yes.
Thank you once again, ladies and gentlemen, if you have a question at this time. Please press star one on your telephone and our next question comes from the line.
Sheila <unk> from Jefferies. Your question. Please.
Hi, guys, it's Alan on for Sheila.
Hi, Alan Wyatt.
Yes.
A little bit looking at that 10% growth next year and a little bit more detail I know you mentioned talk to the team.
<unk>.
Space and satellite growth, but are there any programs that you can walk us through that drive that.
Yes.
Yes, absolutely.
Sentinel.
It comes to mind immediately.
We're in development on Sentinel or partners or GBS D. Our partner of course is Northrop Grumman thereafter outstanding partner by the way.
And we are ramping right along with.
With Northrop.
<unk>.
Bons ethanol I mentioned, the SSAT program and the target drones as I mentioned in Q3, we achieved initial operating capability.
With the United States Navy were in full rate production and it is ramping significantly now.
<unk>, so SaaS is going to be a <unk>.
We're a very big driver, we've announced a number of space and satellite programs, but in addition to the ones. We've announced there is a number that we have won that we can't talk about.
Those are all ramping for us in Q.
In Q.
2023, and as I mentioned.
That's tying directly to what's going on with the op tempo in the space and satellite area.
And the other one that we're doing is in the <unk> ISR business I mentioned, a couple of them like sure AD and I Bcs.
Back to a less extent next first half next year, but ramping we were on some big new programs of record that we won and they are.
They are beginning to go and the last area is in the hypersonic area.
We are the absolute leader in the industry and affordably, putting something in the right place at the right time at the right speed and as the hypersonic off tempo picks up we are going right along with it because we're the guy that can do it.
Those are the the.
Primary areas and then to a lesser extent the B 52 re engine program. Its big its several tens of millions of dollars. That's also ramping but to a lesser extent than say GBS D.
That's helpful and then as we think about some of the.
The contract changes you plan to place.
Is there a path back to double digit margins in the next couple of years or how do we think about profitability.
Yes, there definitely is.
Because as I've mentioned before and I'll mention it again now the government on the new contracts on new contracts.
Options that we're pricing now they are fine with escalators and cost increases so long as we give them a reciprocal that if inflation turns out to be transitory.
Or it goes back to three or 2% next year that they can have relief on the other side, that's literally what's happening here and we are absolutely amenable thats, a very fair offer by the government and we are building that in so we're very confident we're going to we're going to our rates will start getting back up next year as I.
Mentioned is our contract mix moves more to the newer ones the more recent ones with higher higher cost built into them.
Thanks, that's helpful I'll hop back in the queue.
Okay. Thank you.
One moment for our next question.
And our next question comes from the line of Joe Gomes from Noble capital. Your question. Please.
Good afternoon.
Good afternoon, Sir.
Yes.
Quick kind of.
Big picture type question.
As some of the announcements today with some of the contracts that have been pushed out.
There's no more funding.
For them.
You previously had talked about.
Business with self driving trucks that you're doing with men back.
The truck mounted Attenuators.
One of those types of products, Stan and could they potentially be.
A growth driver here.
To help cover or are some of the projects that have gone away. Thanks.
Yes, if you if you could see me if I was on a video you would see both Dan and I are smiling.
We obviously, we haven't been talking much about that.
But it is progressing.
And revenue there in that area in 2023 is going to start to become.
Material to <unk>.
And then in 'twenty, four and 'twenty five as we rollout these kits to convert the existing manned trucks and vehicles to unmanned at a very low cost with our technology.
It's this is happening.
Don't quote me on this on the in the state work, we're doing I think we're in approximately our trucks are on the road in 10 States now.
With with certain states now coming back for production orders. So it is moving it's happening and I want to reemphasize.
Our target market is the one that's being ignored by everybody else, we're taking the existing trucks in the existing vehicles. The millions of them that are out there and because of the incredible driver shortage and I think I saw like a million truck drivers are retiring aging out in the next eight years.
There arent going to be enough. So that's where our technology is coming in and we're focused on the agricultural the mining in the mineral markets right now.
Great. Thanks for that Eric we look forward to it thank you.
Thanks for asking the question.
Thank you and once again, ladies and gentlemen, just as a reminder, if you have a question at this time. Please press star one on your telephone. Our next question comes from the line of Pizza Kubicki from.
Okay Global your question please.
Yes, good afternoon, Eric and Deanna.
Good afternoon.
Guys can you talk about the sensitivity in your guidance to two a further delay in the 'twenty three budget right. We've got the CR through mid December and theirs.
You have 50 50 chance. So we maybe go into January and I'm, just wondering if that would impact guidance at all.
Alright so.
The way the 'twenty three budget sits today.
Okay.
If it is approved substantially in its current form.
Say by the end of December early January .
Okay.
Alright, yes, it has changed significantly if content has changed significantly.
And we have another six month continuing resolution like we did last year, then we're going to have to analyze what that budget looks like what the timing of getting those funds obligated under contract looks like and then we will map that into what we think.
Okay No I appreciate the color there and then.
I also wanted to ask kind of where are you guys that now if I missed this in terms of your labor target how far away are you on the labor target and kind of what the.
Our goal is.
And associated with that I thought I heard you guys mentioned people, leaving because of Covid compliance.
I thought the government drop that provision that defense employees get vaccinated so maybe.
To clarify that.
Sure. So that was earlier in the year when we had those requirements that the government had not dropped so that was part of the attrition that we saw earlier in the ERP.
So our targets.
The specific target that we're all focused on.
It is in our <unk> ISR business that target was to have a net increase of 100 hedged by the end of this year and we're currently down net 14, yes.
That target is obviously, you're going to be pushed out into the first quarter. We've recently seen some stabilization in the.
Attrition because as I've mentioned, we have been able to hire just about 96 people.
We've had net.
Reductions just because of all of those different factors, but with the market I think stabilizing we are seeing similar recent.
More positive trends in that.
Arena.
And let me add on that debt.
The people, we have they're all trained up and they know how to work and they know how to do it and they are on a learning curve.
And then they leave.
And then we have to hire new people and get them trained up and that takes time and that generates incredible inefficiencies, which also also increases cost.
And so it's.
It's a multi dynamic thing.
Ben we've been we've been dealing with why it's been so important that on the new bids and new opportunities. We are building and higher rates. So we can be competitive with for example, some of these new space companies that are paying very very high rates for people.
I don't want to go to Mars, and we can be competitive there. Okay and this is GBS D. That's driving a lot of the hiring needs in <unk> five.
Yes.
It's N C. Five it's multiple programs, it's not one in particular, it really isn't it's multiple programs I mean, I'd like to take a missile missile system or a radar system typically those guys or gals, they need very high security clearances and that manufacturing environment and we're finding people.
Refuse for multiple resets that only gets occurred security clearances. These days to work on our missiles surface to air missile system. That's the that's another aspect we are dealing with.
Okay.
Alright.
Okay I appreciate the color guys.
Yeah.
Thank you one moment for our next question.
And our next question comes from the line of Austin Moeller from Canaccord Genuity. Your question. Please.
Hi, Eric and Deanna good afternoon.
Hi, Austin, Hi, Austin.
Alright.
So I guess just my first question here it seems like on the tactical drone side. The two horizontals that are sort of the closest to the end of the rates here are the valkyrie and the air wall.
So I mean, you pilot touched on there's three potential customers for Valkyrie.
But we could have some kind of production contracts happening in the next few months. So do we expect a production contract there or do we expect.
Outlined the program in fiscal year 'twenty three budget or is this all sort of pushed to the right and youre now going after and bidding on collateral combat aircraft, which is not expected until 2024 right.
Right.
So as I said upfront off I'm, just going to be very cautious I'm not I don't expect anything any more until we get it.
In this area.
<unk> been very very fickle.
There are in addition to the I'll call them I can't say a lot about them because theyre highly classified the Kendall programs, which are which are when people think of ccas. They think of the kernel programs. In addition to those.
There are multiple other.
Drones and the jet class.
That are going to be out there I'll call them, all ccas that are not related to what I'll call. The Kendall programs.
We are.
I have to be careful how I say this.
One would think that we are actively involved in all of those other programs.
Thats helpful. Thats, all I have to say it.
Okay. That's helpful. And then just another question.
Yes.
The satellite program that was delayed and pushed out of Q4 was that one of the three big contracts that you guys had been talking about.
Necessary for the guidance at the end of the Euro was that a different program.
Yes, it was.
It was an aspect it was an aspect that aspect of one of them.
The program has not programs moving forward its revenue generating that.
That was an aspect.
It's been deferred.
Okay, and then just one more if I may are you still expecting some sentinel revenues in Q4 on the development side I know most of the ramp is next year, but I think you had said some of it will start coming in the fourth quarter.
Yes, we are expecting in the fourth quarter, just not as much as we originally had forecasted.
Okay, great. Thanks for all the detail.
Thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Eric Demarco for any further remarks.
Thank you.
Thank you good afternoon, and we'll talk to you shortly thank you.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Okay.
The conference will begin shortly.
As Johan during Q&A, you can dial one one.
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