Q4 2024 Kratos Defense & Security Solutions Inc Earnings Call
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Speaker Change: I would now like to hand, the conference over to Marie Mendoza Senior Vice President and General Counsel. Please go ahead.
Thank you.
Speaker Change: Everyone. Thank you for joining us for the cruise defense and security solutions fourth quarter and full year 2024 conference call with me today is Eric Demarco greatest as President and Chief Executive Officer.
Speaker Change: Deanna Lund courageous as executive Vice President and Chief Financial Officer.
Speaker Change: 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.
Speaker Change: This paragraph emphasizes the major uncertainties and risks inherent in the forward looking statements we will make this afternoon.
Speaker Change: Please keep these uncertainties and risks in mind as we discuss future strategic initiatives potential market opportunities operational outlook financial guidance and other forward looking statements during today's call.
Speaker Change: Today's call will also include a discussion of non-GAAP financial measures as that term is defined in regulation G. <unk>.
Speaker Change: non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP.
Speaker Change: 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.
Speaker Change: I will now turn the call over to Eric Demarco.
Eric DeMarco: Thank you Marie.
Eric DeMarco: We achieved our financial objectives for 2024 with Kratos positioned for sustained and increased future growth and profitability as we begin 2025.
Eric DeMarco: With the United States, beginning a generational recapitalization of defense of strategic weapon systems.
Eric DeMarco: And with National Security funding expected to significantly increase here in America and with our allies.
Eric DeMarco: Key highlights from todays financial report include 2020 for organic revenue growth of nine 1%.
Eric DeMarco: Fourth quarter cash flow from operations of over $45 million.
Eric DeMarco: Q4, and full year book to Bill ratios of one five to one and one two to one respectively.
Eric DeMarco: Kratos is forecasting 2025 organic revenue growth of 10% over 2024.
Eric DeMarco: And today Kratos is forecast in 2026 organic revenue growth of 13% to 15% over our fiscal 'twenty five revenue growth forecast of 10%.
Eric DeMarco: Also importantly, beginning of 2026 and continuing into 2027. We are currently looking at significantly increased EBITDA margins for kratos as certain existing programs either begin or see increased production.
Eric DeMarco: Long term fixed price contracts, we have been working under for a number of years are renewed at higher rates, enabling us to recover going forward. The past few years inflation, driven increased supply chain and labor costs and tradeoffs realizing leverage on our fixed costs as our revenue base oil.
Eric DeMarco: <unk> growth.
Eric DeMarco: In 2024, we demonstrated again that the credo balanced business plan approach, including making internal investments being first to market to meet customer demand and profitably grow the business and making money generates value for all critical stakeholders.
Eric DeMarco: Additionally, the Trump administration, the new Secretary of Defense, the Doge initiative and the proposed forged act, which we are particularly excited about are all looking to increase innovation reduce cost increase efficiencies receive more for less and rapidly field relevant hard.
Eric DeMarco: <unk> and systems now not in the future based on our Powerpoint presentation.
Eric DeMarco: Each of which we believe kratos is uniquely aligned to address.
Eric DeMarco: <unk> is the defense industrial base hardware manufacturing company, not a people based services or consulting company.
Eric DeMarco: Savings from dose and the secretary of Defense's announced 8% reallocation of defense budgets, we believe will be beneficial for hardware companies like Kratos as cradles, whose products are in demand ready to go now in the U S defense manufacturing industrial base is being recapitalized.
Eric DeMarco: Areas of emphasis noted by the New administration include hypersonic systems unmanned systems, and drones space and satellite communications systems, each which are certain of <unk> largest business areas.
Eric DeMarco: Additionally, we believe that the President's recently announced iron dome or Golden Dome for America initiative will be significantly positive for our company with Kratos has proven hardware and systems and air defense space and missile defense radars space and satellite sensing hypersonic propulsion systems.
Eric DeMarco: Solid rocket motors and directed energy systems.
Eric DeMarco: Also importantly, we expect to see increased demand for <unk> target drone ballistic missile targets and hypersonic target franchises as the new iron dome, USA or Golden Dome system will need to be tested and the warfighter trained against threat representative targets.
Eric DeMarco: Relevant cradles programs include Israel's iron dome, iron staying arrow and sling of David.
Eric DeMarco: And in the U S Fad Patriot aegis, author Rother, <unk>, HP TSS tightened and other systems.
Eric DeMarco: Certain of which were already being mentioned as elements of the President's Iron Dome initiative.
Eric DeMarco: It is possible that initial significant golden dome funding could be included in the proposed 2025 supplemental which could be very good for kratos in the mid to near term.
Eric DeMarco: <unk> is a recognized industry leader in developing upfront for scale and also being able to produce at scale affordable qualified military and national security related hardware products and systems that work every time for the Warfighter.
Eric DeMarco: This is what we do we are a 1000 spec hardware products and systems company, which is not easy to do and we believe <unk> capabilities and our proven past performance qualifications are incredibly valuable to our nation's national security and also the Trump administration's National Security vision.
Eric DeMarco: Directly related to <unk> 1000, spec hardware capabilities and past performance calls Craig <unk> recently received several large new program awards, including in the hypersonic area with the Moc TB two point all the largest award in our company's history at approximately $1 5 billion positioning credo for.
Eric DeMarco: <unk> projected future revenue growth and margin expansion.
Eric DeMarco: Mark TB is intended to provide an affordable bridge between hypersonic ground tests and system level of flight tests, which will reduce overall hypersonic development risks and time and provide rapid transition of innovative hypersonic technologies to the warfighter.
Eric DeMarco: As a result of these program wins and additional new programs, we have high confidence of being awarded in 'twenty five 'twenty six.
Eric DeMarco: Consistent with <unk>, increasing our forecasted organic revenue growth for 2006 up to 13% to 15% with increased EBITDA margins. We will also be making investments over the next 24 months, including in property plant and equipment in order to successfully build in our rate and deliver the related product program hardware.
Eric DeMarco: Products and systems and successfully execute on these opportunities.
Eric DeMarco: A key element of <unk> strategy also includes working very closely with our partner <unk>.
Eric DeMarco: Including the traditional prime system integrators, and also certain of the new defense technology companies.
Eric DeMarco: We believe that Kratos is affordability speed of execution innovation 1000 spec hardware capabilities and rapidly building techniques bring added value differentiation to both our partners and our customers and we are seeing an increasing number of teaming and partnering opportunities as a result.
Eric DeMarco: Over the last several months <unk> affordable hypersonic systems, including <unk>, and dark jewelry, hypersonic vehicles, and Credo, Zeus and Oriole rocket systems continued to progress, including the execution of several successful flight missions.
Eric DeMarco: <unk> ability to go from a clean sheet design to multiple successful hypersonic flights, including light vehicles propulsion and other systems and approximately two years at a cost multiple orders of magnitude lower than previously performed as just a recent example of the strength of <unk> industry, leading software digital <unk>.
Eric DeMarco: Nearing technical hardware and system integration capabilities.
Speaker Change: Kratos is hypersonic franchises rapidly expanding including additional systems. We are now working on as we are able to provide our customers with actual flying low cost reliable systems at scale not pretty pictures of our websites.
Speaker Change: <unk> being first to market and having multiple successful flights of our glide vehicles and other systems has generated significant customer interest, which we expect to turn into future funded opportunities.
Speaker Change: With Kratos was Mark TV Hypersonic program award, we will be announcing in the near future. The location of a major new creative was hypersonic production test integration and execution campus in the United States in conjunction with the customer where a large amount of the work under the Moc television program.
Speaker Change: Will be performed.
Speaker Change: The new Mark DB program campus and facility will be separate from the new Prometheus facility I will discuss shortly.
Speaker Change: Consistent with <unk> internal investment strategy tradeoffs as Mark TV hypersonic hypersonic campus and facility is not a build it and hoped for they will come but rather we typically have a customer a program or contract award or a partner commitment before we commit significant resources.
Speaker Change: We are comfortable with the rate of return on our shareholders investment.
Speaker Change: [noise] tradeoffs as Mark TV hypersonic system campuses facility will be an important capital investment in 'twenty five 'twenty six and once complete the Moc television program is expected to begin to significantly ramp up thereafter.
Speaker Change: Under Mark <unk>, we currently expect to generate nominal revenue in the second half of 'twenty five as we began to receive and integrate certain long lead hypersonic system solid rocket motors and other elements. We ordered previously in anticipation of the award.
Speaker Change: With this initial work being performed at existing credit facilities with an expected significant program ramp beginning in 2006 and increasing in 2007 with the new facility coming online.
Speaker Change: We are also now zeroing in on the location or a separate from Mark TB and separate from Prometheus additional new creative hypersonic system initiative facility.
Called project Aries.
Speaker Change: Each location, we hope to identify and report to you in the second half of this year with customer funded work beginning in 2006.
Speaker Change: Gradovs turbine technologies, and our jet engine and propulsion business, which were key contributors to our 24 performance are also positioned for continued future growth, including in the missile drone loitering munition hypersonic supersonic space on other areas with propulsion systems being certain of the highest priority and well funded.
Speaker Change: <unk> security areas.
Speaker Change: The demand for Kratos as engine and propulsion systems, including our Spartan family of small jet engines for cruise missiles is strong and increasing and we continue to expand our current facilities and establish new facilities to successfully execute the program awards, we have already received and others, we expect to receive.
Speaker Change: We have moved out on our new jet engine test and production facility in Oklahoma, which is directly related to our partnership with general electric aerospace and certain missile and drone programs with this facility expected to be completed in late 2006, or 2007 and forecasted revenue contribution is expected to begin thereafter.
Speaker Change: Great OS turbine technologies Blade works has been focused on a new classified jet engine program. We have for a large new tactical airborne system, which program could become one of <unk> largest in the future.
Speaker Change: And also a separate classified program, which aerial system flight is planned for later this year.
Speaker Change: <unk> ISR Air Defense missile radar C. UAS and directed energy hardware business has a near record backlog and opportunity pipeline, including a new hypersonic weapons system program. We recently received.
Speaker Change: <unk> hardware business of several programs beginning production or expected to begin production in 'twenty five 'twenty six including this new hypersonic program and the new defense of Guam system.
Speaker Change: <unk> microwave electronics business, which supports iron dome Tamir iron Sting Arrow Barak and other systems also has a record level backlog and opportunity pipeline with the expansion of our existing microwave facility and our new production facility bolt in Israel, we expected to be completed in 25.
Speaker Change: A few weeks ago Credo has acquired the business of a small U S. Microwave company project Phoenix or northern millimeter and we have known for a number of years, which will provide us accelerated access to certain new customers and programs we've targeted.
Speaker Change: <unk> unmanned systems business is also forecasting growth for 2025 with the potential to significantly exceed our current forecast we provided today, if certain tactical drone opportunities come to fruition on the currently anticipated timeline.
Speaker Change: Since our last report to you and including recently there has been a lot in the press on drones the types of drones needed to deter our enemies and importantly that drones must be low cost enable to be fielded in large quantities with the new administration's initial indications on drones also being positive.
Speaker Change: It was recently announced that <unk> has received an additional valkyrie related contract with the Marine Corps and in the announcement. The Marine stated that the Marine Corps are at the Vanguard of collaborative combat aircraft or CCA development and that the Marines and tend to feel that operational CCA squadron with the tax.
Speaker Change: Equally relevant aircraft equipped with effective affordable mission system payloads.
Speaker Change: Additionally, the Marine Corps' Corp. Also recently published its latest Marine Corps Aviation plan, including a detailed update on project Eagle a secretive initiative, which includes a two year experimental test phase of Kratos Valkyrie.
Speaker Change: With flight tests, increasing in 2025.
Speaker Change: Rentals Valkyrie has been performing under the path P program with the Marines with the Valkyrie now transitioning to the much larger MX Tac Air program, which looks to enhance the effectiveness of F 35 fighter aircraft in peer near peer conflict by acting as a loyal wing man capable of providing offensive and defensive assistance.
Speaker Change: By leveraging various capabilities.
Speaker Change: <unk> customer funded Apollo and Athene off programs are also proceeding well and I am, particularly pleased with Dan autos, which I believe similar to Valkyrie is going to be a game changer for creators.
Speaker Change: Though we remain convinced that kratos tactical drone business is going to be very successful, we will remain cautious and not include potential significant tactical drone sales in our financial forecast until we receive or extremely confident of a contract.
Speaker Change: <unk> target drones are in demand, including with the increased global demand for Air Defense missile radar and other systems, all of which need to be regularly tested and exercised and the warfighters trained against threat representative targets and as I mentioned earlier, we expect Golden dome USA to be a new opportunity.
Speaker Change: Set for <unk> target drone business.
Speaker Change: Greatest continues under contract with a government customer, where we are integrating <unk> low cost jet engines into several credo stones, including as previously publicly disclosed <unk> Wilson fire jet, which are scheduled to fly later this year.
Speaker Change: Once successful we expect that Kratos is jet engines will reduce cost and increase performance and reliability of these credo systems and we believe that <unk> will be one of the only vertically integrated companies that produces a jet aircraft and its engine within the same organization, reducing supplier risk cost and increase.
Speaker Change: Speed of execution.
Speaker Change: The engine integration plan is.
Speaker Change: As part of <unk> companywide initiative to vertically integrate certain critical components and sub systems in order to reduce supply chain and cyber security risk lower cost and reduce delivery time to our customers.
Speaker Change: Related to our vertical integration initiatives <unk> is continuing to invest in <unk> printing additive manufacturing machining milling laser machinery and other equipment related to hardware composites carbon carbon materials and other exotic 1000 spec related materials to support <unk> programs contracting partners.
Speaker Change: And our customers.
Speaker Change: We are currently in the process of expanding our tactical and target drone engineering production test and integration facilities in anticipation of both new and increased current program activity.
Speaker Change: <unk> Ghost works, including our air Gapped capability has been focused on Santos and then additional Valkyrie variant that we are developing and now also a new black system.
Speaker Change: We expect Kratos satellite communication business with our open space Virtualized <unk> software system to return to growth in 2025, including as we have recently received a number of national security related progress program wins, which is reflected in this businesses fourth quarter too.
Speaker Change: Three to one book to Bill ratio.
Speaker Change: We currently expect Kratos satellite business to be a primary contributor to create OS as forecasted increased EBITDA margins and 26 and 27%. This was based on current program delivery expectations.
Speaker Change: The geopolitical and global security landscape, which aggregate funding exceeds two trillion.
Speaker Change: With the United States accounted for approximately one trillion dollars of this amount is providing a robust opportunity set for companies like raynaud's with opportunities for creators, having never been stronger and that are continuing to increase.
Speaker Change: Representative of the large number of customer opportunities and initiatives that have recently approached kratos will become available to kratos.
Speaker Change: Include in the Hypersonic area project Aries project Helios.
Speaker Change: Honda and project Vulcan.
Each of which similar to Prometheus and our engine partnership with GE Aviation I hope to be able to provide you in the future with the nature of the program or opportunity its location and the customers or partners, we're working with on each one.
Speaker Change: Our industry continues to operate under a CRA with no 2025 defense budget currently in place with the current CRA scheduled through March 2014 of 25 at which time cradles in the entire industry will have been operating under Cra's for approximately 12 of the past 18 months.
Speaker Change: Which is the primary reason, we are being cautious with our initial 25 financial guidance, we provided today.
Speaker Change: Execution challenges include the difficulty in obtaining and retaining qualified personnel, including those willing unable to obtain national security clearances and the related cost of these individuals supply chain issues on the increasing cost of materials in certain areas.
Speaker Change: We are focused internally on execution of our record backlog on a per ton of opportunity pipeline, winning new program awards of which we expect several with no acquisitions of size contemplated.
Speaker Change: Now for Prometheus announcement today.
Speaker Change: We've announced the credo, San Raphael have established Prometheus energetics joint venture a U S based merchant supplier of solid rocket motors and energetics.
Speaker Change: <unk> honored to partner with Rafael and be the trusted agent to introduce Rob <unk> energetics technology and implement their proven manufacturing processes and procedures in the U S market.
Speaker Change: <unk> says the deep decades long relationship with Rockdale, including <unk> Israeli based microwave electronics business, where today, we have several hundred personnel located and working on Israeli missile radar satellite and other national security systems.
Speaker Change: <unk> has a long history of successfully advancing innovation developing disruptive technologies and rocket motor specifications to enhance warfighter capabilities and credo. It makes the ideal partner for Rafael here in the United States.
Speaker Change: Prometheus was an approximate 50 50 partnership between Credo San Raphael.
Speaker Change: With the manufacturing facilities to be located on a 500 acre site in Bloomfield, Indiana near Naval surface Warfare Center Crane and will include Prometheus corporate headquarters solid rocket motor and Energetics Engineering test production and integration facilities were approximately 300.
Speaker Change: Third people will ultimately be employed.
Speaker Change: Rafael will be the anchor customer for Prometheus and intends to have Prometheus produce tens of thousands of solid rocket motors and energetics for existing and expected future demand.
Speaker Change: Prometheus will be cynthia's, boakye et cetera compliant in order to be able to fully address United States as well as Israeli national security requirements.
Speaker Change: <unk> <unk> out of each committed to invest up to approximately $87 5 million in capital for the establishment of Prometheus and the required property plant equipment and personnel needed for the new state of the art energetics manufacturing campus and facilities.
Speaker Change: <unk> investments are expected to be paid ratably over the approximate next two years with the majority of the investment currently contemplated to be made in 2006.
Speaker Change: The total aggregate approximate $125 million investment in Prometheus is expected to potentially be substantially offset or reduced by various industrial base related funds, we have been working on securing since last year.
Speaker Change: Prometheus is projected to begin production in 2007 after construction of the plant and once <unk> technology transfer is completed and certified for operation.
Speaker Change: Now very importantly.
Speaker Change: The solid rocket motors, energetics and warhead manufacturing operations to be executed by Prometheus. During production, we will utilize the same proven fully qualified technologies and processes currently used in <unk> Israeli production facility for multiple missile programs.
Speaker Change: This will significantly reduce risk and time to market for Prometheus. This was the qualification.
Speaker Change: As another first to market type competitive advantage for creative Prometheus.
Speaker Change: As I mentioned Rockdale intends for Prometheus to produce tens of thousands of SRM and energetics delivered over multiple years to address its increased demand.
Speaker Change: As such for meet this has a currently forecasted annual base case revenue of several hundred million dollars a year once that rate production, which would close the business case for <unk> investment.
Speaker Change: Accordingly, this is not a build it and hope they come type situation.
Speaker Change: As part of the phased approach we are taking strategic objective merchant supplier Prometheus is expected to expand into the development build to print and manufacturing of additional customer SRM and warheads to meet ever expanding domestic needs supporting the U S industrial base with.
Speaker Change: With Prometheus is significant intended base case production quantities intended by Rafael we are confident that Prometheus will be extremely cost competitive as a merchant supplier supporting U S. Industrial base as a result of the intended large quantities of Raphael sourcing energetics produced at the permit.
Speaker Change: These manufacturing facilities and the leverage of these quantities over the required fixed cost base.
Speaker Change: We also believe that Prometheus as a merchant supplier of SRM and energetics will be very well positioned for the Trump administration's new Golden dome initiatives.
Speaker Change: <unk> has already met and coordinated with the U S government potential U S customers and these customers future demand requirements.
Speaker Change: As a result of our preliminary work related to potential third party customers Prometheus as potential longer term future annual revenue is currently expected to reach up to approximately $1 billion in revenue annually as premier Prometheus becomes a supplier for additional systems and platforms produced by <unk> <unk>.
Speaker Change: <unk> and others.
Speaker Change: Prometheus N strategy is consistent with <unk> capabilities, including Credo as being a leader in hypersonic or advanced systems for <unk> systems ballistic missile targets sub orbital research vehicles sounding rockets and solid rocket motor.
Speaker Change: Great also serve the U S advanced systems Hypersonic missile defense community communities for decades, delivering numerous novel systems and flight tests.
Speaker Change: Also <unk> is the only company to date, delivering both propulsion and advanced flight systems with Kratos advanced and hypersonic systems, including the low cost <unk> glide vehicle dark Fury, Zeus and oral solid rocket motors and other <unk> systems and technologies.
Speaker Change: <unk>, we believe the Prometheus once up and running at full rate production.
Speaker Change: Will be a step function catalyst and value creation for all creative stakeholders Prometheus customers in the U S defense industrial base.
Speaker Change: I'll now turn it over to Deanna to talk about the accounting for Prometheus and then to go through the financial results for our fourth quarter and 2024. Thank you Eric Good afternoon, as creators will own approximately 50% improved meetings, we will reflect the results of <unk> in our consolidated financial statements under the equity method of accounting.
Speaker Change: <unk> creators will record approximately 50% of Prometheus as net income on a single line income from Investees and our consolidated income statement. We intend to continue to report <unk> operating income net income and adjusted EBITDA and other financial matrices from the Prometheus result.
Speaker Change: In order for all Creatives stakeholders to be able to follow the progress of the company the investment made in Prometheus.
Speaker Change: Future return on <unk> investment in Prometheus.
Speaker Change: Financial guidance provided today does not include the estimated impact of Prometheus.
Speaker Change: I'll now turn to this quarter's current results and full year results. As we have included a detailed summary of the fourth quarter and full year financial performance as well as the initial first quarter and full year 2025 financial guidance in the press release, we published earlier.
Speaker Change: Today I will focus on the highlights in my remarks today.
Speaker Change: Revenues for the fourth quarter with $283 million in our estimated range of $270 million to $295 million, which includes notable strength in organic revenue growth in virtually all of our businesses, including our unmanned systems turbine technologies microwave products, <unk>, ISR and defense rocket support business.
Speaker Change: Yes.
Speaker Change: Set by the expected industry related impact in our commercial satellite business, which includes impacts from OEM delays in the manufacturing and delivery of software defined satellites.
Speaker Change: Adjusted EBITDA for the fourth quarter 24 was $25 2 million also in our estimated range of 21% to $26 million, reflecting a more favorable mix of higher margin revenues offset partially by increased bid and proposal costs associated with your large potential opportunity.
Speaker Change: As well as increased subcontractor and material costs on certain multiyear fixed price contracts.
Speaker Change: Unmanned systems organic revenue growth was 10, 3% for the fourth quarter and key GFS organic revenue growth was one 6% for the fourth quarter, which included organic growth in our turbine technologies Cheapflights ISR defense rocket support and microwave products businesses of $19 7 million offset by the expected.
Speaker Change: The decline of approximately $16 1 million in this space and satellite business.
Speaker Change: Cash generated from operating activities was $45 6 million, which includes favorable customer milestone in advance payments.
Speaker Change: Free cash flow generated from operations was $32 million after funding capital expenditures of $13 6 million.
Speaker Change: As we planned we are continuing to make investments to expand and build out certain of our manufacturing and production facilities in our microwave products rocket systems, and hypersonic businesses to meet existing and anticipated customer orders and requirements and investing and related new machinery equipment and systems.
Speaker Change: We are also continuing to manufacture the two production lines in <unk> prior to contract award.
Speaker Change: With these investments expected to continue and expand in 2025, which I will cover later consolidated Dsos or days sales outstanding decreased from 105 days in the quarter to 104 days in the fourth quarter.
Speaker Change: Contract mix for the fourth quarter was 69% from fixed price contracts, 25% from cost type contracts and 6% from time and material contracts.
Speaker Change: Revenues generated from contracts with the U S. Federal government during the fourth quarter were approximately 68%, including revenues generated from contracts.
Yeah.
Speaker Change: We are also continuing to manufacturer the two production lots of Valkyrie prior to contract award.
Speaker Change: Non Dod federal government agencies and Fms contracts.
Speaker Change: With these investments expected to continue and expand in 2025, which I will cover later consolidated Dsos or days sales outstanding decreased from 105 days in the third quarter to 104 days in the fourth quarter, our contract mix for the fourth quarter was 69% from fixed price contracts, 25%.
Speaker Change: In the fourth quarter of 'twenty, four we generated 13% of revenues from commercial customers and 19% from foreign customers.
Speaker Change: And operational priority remains the hiring and retention of skilled technical labor across the company with total creators head count of 4067 at the end of the fourth quarter as compared to 4047 at the end of the third quarter.
Speaker Change: From cost type contracts, and 6% from time and material contracts.
Speaker Change: 30, 932 at the end of the fourth quarter of 'twenty three now.
Speaker Change: Revenues generated from contracts with the U S. Federal government during the fourth quarter were approximately 68%, including revenues generated from contracts with the Dod non Dod federal government agencies and Fms contracts.
Speaker Change: Now moving to our financial guidance.
Speaker Change: Our financial guidance, we provided today excludes includes our expectations and assumptions for our supply chain execution and for employees, who were seeing hiring and retention and the related cost.
Speaker Change: In the fourth quarter of 'twenty, four we generated 13% of revenues from commercial customers and 19% from foreign customers.
Speaker Change: We've also taken into consideration in 25 countries.
Speaker Change: Operating under a federal fiscal year 'twenty five.
Speaker Change: And operational priority remains the hiring and retention of skilled technical labor across the company with total <unk> head count of 4067 at the end of the fourth quarter as compared to 4047 at the end of the third quarter and.
Speaker Change: <unk> resolution authorization, which currently expires March 14, 2025, if the current CRA is not resolved by March 14th the industry ingredients will have operated under Ci cra's without a Dod budget for approximately 12 of the previous 18 months.
Speaker Change: <unk> 39, 32 at the end of the fourth quarter of 'twenty three.
Speaker Change: Now moving to financial guidance, our financial guidance. We provided today excludes includes our expectations and assumptions for our supply chain execution and for employee sourcing hiring and retention and the related cost.
Speaker Change: With <unk>, having a number of new and existing programs and contracts, which are directly being impacted by the current CRA.
Speaker Change: Chris This is 25 financial forecast and guidance provided today assumes that the current CRA will be resolved by March 14th 2025, and then the U S Federal and Dod budget, which includes no.
Speaker Change: We have also taken into consideration in our 25 gigabit.
Speaker Change: Operating under a federal fiscal year 'twenty five.
Speaker Change: <unk> resolution authorization, which currently expires March 14, 2025, if the current CRA is not resolved by March 14th the industry and create OS will have operated under Ci cra's without a Dod budget for approximately 12 of the previous 18 months.
Speaker Change: Unexpected findings impacting our business occurs if the current CRE grow substantially beyond the existing March 14th 25 deadline, where there are.
Speaker Change: Efficient redemptions were changes to programs contracts or initiatives and creative is were expected to be involved with we will evaluate <unk> 25 in future financial forecast at that time based on the existing facts circumstances and expectations.
Speaker Change: With <unk>, having a number of new and existing programs and contracts, which are directly being impacted by the current CRA.
Speaker Change: <unk> has 25 financial forecast and guidance provided today assumes that the current CRA will be resolved by March 14th 2025, and that of U S Federal and Dod budget, which includes no.
Speaker Change: Our forecasted revenue guidance for 25 includes the estimated impact of the recent project Phoenix or northern asset acquisition, which is expected to contribute approximately 20% to $24 million in revenues.
Speaker Change: Unexpected funding cuts impacting our business occurs if the current CRA go substantially beyond the existing March 14th twenty-five deadline or if there are significant reductions or changes to programs contracts or initiatives that create us is or expect to be involved with we will evaluate <unk> 25 in fuel.
Speaker Change: Excluding the impact of the recent acquisition our forecast includes organic revenue growth from 2024 upper range of approximately 9% to 11%.
Speaker Change: 2025 unmanned systems revenues are estimated between 285 and $295 million were approximately 5% to 9% organic growth.
Speaker Change: Your financial forecast at that time based on the existing facts circumstances and expectations.
Eric DeMarco: And Eric mentioned earlier, we will remain cautious and not include any potential significant tactical drone sales in our forecast until we receive them.
Speaker Change: Our forecasted revenue guidance for 25 includes the estimated impact of the recent project Phoenix or northern asset acquisition, which is expected to contribute approximately $20 million to $24 million in revenues.
Eric DeMarco: As a reminder, the 2024 target drone revenues included approximately $19 million in revenues foreign target drone shipment, which was recorded as revenue upon shipment, which will impact the year over year comparison for target drone and overall revenues for unmanned systems.
Speaker Change: Excluding the impact of the recent acquisition our forecast includes organic revenue growth from 2024 of a range of approximately 9% to 11%.
Eric DeMarco: Tactical drone revenues are forecasted to be approximately $45 million to $50 million for 2025 up from approximately $36 million in 2024 <unk>.
Speaker Change: 2025 unmanned systems revenues are estimated at between 285 and $295 million or approximately 5% to 9% organic growth.
Eric DeMarco: Non tactical and target drone revenues are forecasted to be $240 million to $245 million.
Speaker Change: As Eric mentioned earlier, we will remain cautious and not include any potential significant tactical drone sales in our forecast until we receive them.
Eric DeMarco: FY 'twenty five compared to $247 million and 24, which included a $19 million related to the international target transitioning.
Speaker Change: As a reminder, the 2024 target drone revenues included approximately $19 million in revenues from a foreign target drone shipment, which was recorded as revenue upon shipment, which will impact the year over year comparison for target drone and overall revenues for unmanned systems tactics.
Eric DeMarco: Kgs revenues are forecasted to be between $975 million to $990 million for FY 'twenty five up from $865 million and 24.
Eric DeMarco: Excluding the impact of the recent northern acquisition organic revenue growth for Kgs is estimated to be approximately 10% to 12% with organic growth expected across all business units within <unk> with the most notable drivers expected to be in a hypersonic and ballistic missile target business.
Speaker Change: Tactical drone revenues are forecasted to be approximately $45 million to $50 million for 2025 up from approximately $36 million in 2024.
Speaker Change: Non tactical our target drone revenues are forecasted to be $240 million to $245 million in FY 'twenty five compared to $247 million and 24, which included a $19 million related to the international target drone shipment.
Eric DeMarco: We have taken into consideration the impact of increased material and subcontractor costs on certain large multi year fixed price contracts, specifically in our unmanned systems target business, where we have experienced cost growth from certain ancillary materials on our targets and for which we are unable to seek recovery from the customer until.
Speaker Change: Kgs revenues are forecasted to be between $975 million to $990 million for FY 'twenty five up from $865 million and 24.
Speaker Change: Excluding the impact of the recent northern acquisition organic revenue growth for Kgs is estimated to be approximately 10% to 12% with organic growth expected across all business units within kgs with the most notable drivers expected to be in our hypersonic and ballistic missile target business.
Eric DeMarco: The renewal of future production lot contracts occurs.
Eric DeMarco: As we have discussed in the past. These production lines are typically negotiated in awarded in five year production launch with certain disease, having been negotiated into 2020 in 2021, we.
Eric DeMarco: We are working to mitigate the continued future impact of cost growth on these materials as much as possible.
Speaker Change: We have taken into consideration the impact of increased material and subcontractor costs on certain of our multi year fixed price contract and specifically in our unmanned systems target business, where we have experienced cost growth from certain ancillary materials on our targets and for which we are unable to seek recovery from the customer until.
Eric DeMarco: As we mentioned earlier, we are making investments for capital expenditures for property plant and equipment, including the expansion of our manufacturing and production facilities and related inventory builds in our rocket systems and hypersonic businesses, primarily related to the recent Mark TB to Plano contract Award the continued manufacturer.
Speaker Change: The renewal of future production lot contracts occurs.
Speaker Change: As we have discussed in the past. These production lots are typically negotiated in awarded in five year production launch with certain disease, having been negotiated into 2020 in 2021, where.
Eric DeMarco: Two production lines and boundaries prior to contract award to meet anticipated customer orders and requirement the expansion and build out of our microwave products production facilities, the expansion and build out of our small jet engine production and <unk> facilities and the build out of additional secured facilities.
Speaker Change: We are working to mitigate the continued future impact of cost growth on these materials as much as possible.
Speaker Change: As we mentioned earlier, we are making investments for capital expenditures for property plant and equipment, including the expansion of our manufacturing and production facilities and related inventory builds in our rocket systems and hypersonic businesses, primarily related to the recent Mark TB to Plano contract Award the continued manufacturer.
Eric DeMarco: Well secured space communications business in accordance with contract and customer requirements.
Eric DeMarco: We have provided the details of these investments in our press release published earlier today.
Eric DeMarco: In addition, we are making investments in pur, proximately, 25% to $30 million related to certain inventory buildups, whereas hypersonic and ballistic missile target business and enhancements to certain unmanned vehicles that are not included in our capital expenditures estimates and these amounts will be reflected as investments in other assets and not <unk>.
Speaker Change: Two production lots of Valkyrie prior to contract award to meet anticipated customer orders and requirement the expansion and build out of our microwave products production facilities, the expansion and build out of our small jet engine production and test cell facilities and the build out of additional secured facilities for our federal.
Eric DeMarco: The plant and equipment and will therefore impact our forecasted 2025 operating cash flows.
Speaker Change: <unk> space communications business in accordance with contract and customer requirement.
Eric DeMarco: We have not included the estimated investments for Prometheus and our guidance provided today.
Speaker Change: We have provided the details of these investments in our press release published earlier today.
Eric DeMarco: Eric mentioned the majority of the investments are contemplated to be in 2026.
Speaker Change: In addition, we are making investments of approximately $25 million to $30 million related to certain inventory buildups or a heart hypersonic and ballistic missile target business and enhancements to certain unmanned vehicles that are not included in our capital expenditures estimates as these amounts will be reflected as investments in other assets and not <unk>.
Eric DeMarco: Although these investments were not included in our guidance today certain of these investments, including the permitting related investment word contemplated when we did our equity raise last year.
Eric DeMarco: As a reminder, we ended the year with $329 million in cash zero drawn on our $200 million line of credit and $185 million on return mine.
Speaker Change: The plant and equipment and will therefore impact our forecasted 2025 operating cash flows.
Eric DeMarco: Great.
Speaker Change: Thank you Diana.
Speaker Change: We will turn it over to the moderator now for questions.
Speaker Change: We have not included the estimated investments for Prometheus and our guidance provided today as Eric mentioned the majority of the investments are contemplated to be in 2026.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Although these investments were not included in our guidance today certain of these investments, including the permit this related investment word contemplated when we did our equity raise last year.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: As a reminder, we ended the year with $329 million in cash zero drawn on our $200 million line of credit and $185 million on our term loan.
Josh Sullivan: Our first question comes from Josh Sullivan with the benchmark company.
Speaker Change: Hi, Good evening, Eric Deanna.
Eric DeMarco: Hey, good evening, Sir Hi, Josh.
Speaker Change: Great.
Josh Sullivan: Eric.
Speaker Change: This becomes more and more of a merchant supplier low cost engines.
Deanna: Thank you Deanna.
Speaker Change: I will turn it over to the moderator now for questions.
Josh Sullivan: Rocket motor JV here Hypersonic X, what does that do to the long term margin profile or the strategy for the company.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Speaker Change: Draw. Your question. Please press star one again.
Yes.
Speaker Change: That's part of the strategy that the margin profile as Dan and I indicated is going to start to lift now.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Yeah.
Speaker Change: Definitely in 2006 and 'twenty seven.
Speaker Change: Yeah.
Speaker Change: Our first question comes from Josh Sullivan with the benchmark company.
Speaker Change: It's because of the merchant supplier in the margins, we're getting on those and also as Deanna mentioned, we got them.
Josh Sullivan: Hi, Good evening, Eric Deanna.
Speaker Change: Hey, good evening, Hi, Josh.
Speaker Change: Having long term contracts that get renewed five year contracts that are renewed every year as greater predictability, it's great supplanting, but if you have an aberration and inflation like we did in 'twenty, one 'twenty two 2021 'twenty two we can't pass that onto the government until we can re up the contracts. We've started reopening this year, we're going to get clear of virtually all of them.
Speaker Change: Eric.
Speaker Change: It just becomes more and more of a merchant supplier low cost engines.
Speaker Change: Yes rocket motor JV here Hypersonic X, what does that do to the long term margin profile or the strategy for the company.
Speaker Change: Yes.
Speaker Change: That's part of the strategy that the margin profile as Dan and I indicated.
Speaker Change: And then we'll be in great shape going into 'twenty six.
Speaker Change: Start to lift now.
Speaker Change: Those are the factors on our margin profile going forward.
Speaker Change: Definitely in 'twenty six 'twenty seven.
Speaker Change: Okay.
Speaker Change: And then just on Mark to be two program.
Speaker Change: The merchant supplier and the margins, we're getting on those and also as Deanna mentioned, we got them.
Speaker Change: The program.
Speaker Change: Be a bridge for future products, but great. So it has a history of converting.
Speaker Change: Having long term contracts that get renewed five year contracts that are renewed every year as greater predictability, great planning, but if you have an aberration and inflation like we did in 'twenty, one 'twenty two 2021 'twenty two we can't pass that onto the government until we can re up the contracts. We started reopening this year, we're going to get clear virtually all of them.
Speaker Change: Affordable products to tactical products.
Speaker Change: Is there any reason we wouldn't think you walk down that path eventually.
Speaker Change: There is no reason for you to think that we would not do that.
Speaker Change: Okay.
Speaker Change: Okay. Thank you for the time.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Seth Sigman with Jpmorgan.
Speaker Change: And then we'll be in great shape going into 'twenty six.
Speaker Change: Those are the factors on our margin profile going forward.
Speaker Change: Okay. Thanks very much.
Speaker Change: Okay.
Speaker Change: Good afternoon.
Speaker Change: And then just on Mark to be two program.
Speaker Change: Okay.
Speaker Change: Two lots to ask about <unk>.
Speaker Change: To the program.
Speaker Change: Bridge for future products, but great history of converting.
Speaker Change: I guess, maybe one question just about.
Speaker Change: <unk>.
Mark TB: Mark TB, when we think about the evolution of this contract how how it ramps up.
Speaker Change: Affordable products to tactical products.
Speaker Change: Is there any reason we wouldn't think you walk down that path eventually.
Speaker Change: What drives.
Speaker Change: There is no reason for you to.
Speaker Change: Both revenue and profitability as a kind of an over time contract is it kind of the cadence and velocity of testing events.
Speaker Change: And think that we would not do that.
Speaker Change: Got it.
Speaker Change: Okay. Thank you for that.
Speaker Change: Thank you.
Speaker Change: Drive both revenue and profit in how we think about this evolving over the next over the next few years.
Speaker Change: Our next question comes from the line of Seth Sackman with Jpmorgan.
Speaker Change: Okay. Thanks very much.
Mark TB: So that set the Mark DB contract is primarily an aerial test contract there are not enough test assets in the United States of America.
Speaker Change: Good afternoon.
Speaker Change: Sure.
Speaker Change: Two I wanted to ask about.
Speaker Change: I guess, maybe one question just about.
Mark TB: On the ground and definitely not Amir and why not in the air because <unk> one of one of the if not the only company that is hypersonic relevant hypersonic system flying today that's us.
Speaker Change: <unk>.
Speaker Change: Mark TV, when we think about the evolution of this contract how how it ramps up.
Speaker Change: What drives or.
Speaker Change: Both revenue and profitability as a kind of an over time contract is it kind of the cadence and velocity of testing events.
Mark TB: The industrial base is in trouble, which is one of the great opportunities for us in the government sees that the long lead items.
Speaker Change: Drive both revenue and profit and how do we think about this evolving over the next over the next few years.
Mark TB: For <unk> for the flight vehicles for these assets, including most of them are ours is as long up to a year. So like I said on the call we're going to get a little bit of revenue. This year, because we <unk>. We lean forward. We went out we bought some solid rocket motors and we bought some hypersonic glide vehicle material rebuilt.
Speaker Change: So that set the market contractors primarily.
Speaker Change: Ariel test contract there are not enough test.
Speaker Change: In the United States of America.
Speaker Change: On the ground and definitely not amira and why not in the air because credit losses.
Mark TB: That were fly item you saw another one was announced last week. We've now started to order a significant amount of stuff.
One of the if not the only company that is hypersonic relevant hypersonic system flying today that's us.
Speaker Change: Industrial base is in trouble, which is one of the great opportunities for us in the government sees that the long lead items for.
Mark TB: We're gonna get beginning of next year.
Mark TB: We're in close conjunction with the customer on this and the op tempo, which is all laid out and it was specifically laid out when we bid. This program. So we've got the roadmap on launches with the customer our launches and all the team members on their nature underneath us its plan to significantly ramp.
Speaker Change: <unk> for the flight vehicles for these assets, including most of them are ours is as well up to a year. So like I said on the call we're going to get a little bit of revenue. This year, because we quite often we lean forward. We went out we bought some solid rocket motors and we bought some hypersonic glide vehicle material rebuilt.
Mark TB: Starting in 2006 ramp even more in 'twenty 'twenty, seven and 'twenty eight.
Speaker Change: And we're flying them you saw another one was announced last week. We've now started to order a significant amount of staff.
Mark TB: And what's happened recently I couldnt be more happy about including just today.
Where we're underneath the secretary of defense and other another confirmation individual came out and specifically said, we need more hypersonic testing, we need more aerial hypersonic testing.
Speaker Change: We're gonna get but yet again next year.
Speaker Change: In close conjunction with the customer on this.
Speaker Change: Capital, which is all laid out it was specifically laid out when we bid. This program. So we've got the roadmap on launches with the customer our launches and all the team members on their nature underneath us its plan to significantly ramp.
Mark TB: Seth has said that we were in a great position here because there is a dearth of testing capability in the country.
Mark TB: Okay. Okay.
Speaker Change: Starting in 2006 ramp even more than 2027 and 28.
Mark TB: Great and then.
Mark TB: Just as a follow up the investments this year definitely helpful to have kind of lay out of those investments in their release.
Speaker Change: What's happened recently I couldnt be more happy about including just today.
Mark TB: It makes a lot of sense to do them given the requirements and you certainly have the balance sheet for it when we just think about how to how to model out the level of investment going forward and kind of where.
Speaker Change: Where we're underneath the secretary of defense and other another confirmation individual came out specifically said, we need more hypersonic testing, we need more aerial hypersonic testing.
Mark TB: Where our cash flow goes after this year.
Speaker Change: Even if it's qualitative or are there any kind of.
Speaker Change: Seth has said that we are in a great position here because there is a dearth of testing capability in the country.
Mark TB: Any kind of guidepost you can provide in that regard.
Speaker Change: Yes sure.
Speaker Change: So the Prometheus investment is not included in these numbers and as we mentioned in our prepared remarks. The lion's share of that is expected in 2006, so that will be something that will be different from 25.
Speaker Change: Okay, Okay, great and then.
Just as a follow up the investments this year definitely helpful to have kind of lay out of those investments in their release.
Speaker Change: It makes a lot of sense to do them given the requirements and you certainly have the balance sheet for it when we just think about how to how to model out the level of investment going forward and kind of where we.
Speaker Change: A number of these other items should should be nonrecurring with all of the buildout of facilities that we have laid out in the press release.
Speaker Change: Most of those should be complete in 'twenty five.
Speaker Change: Our cash flow goes after this year.
Speaker Change: Even if it's qualitative or are there any kind of.
Speaker Change: The only other one that would not be completed in 25, Eric had mentioned earlier is our.
Speaker Change: Any kind of guidepost you can provide in that regard.
Speaker Change: Yes sure.
Speaker Change: Turbo jet facility.
Speaker Change: The Prometheus investment is not included in these numbers, so and as we mentioned in our prepared remarks. The lion's share of that is expected in 2006, so that will be something that will be different from 'twenty five but a number of these other items should should be nonrecurring with all of the buildout of facilities.
Speaker Change: We are starting to build in 2025 that predominantly should be completed in 2006% those would be the two I would say plus reps from.
Speaker Change: <unk>.
Speaker Change: Maintenance Capex that we have historically incurred.
Speaker Change: That we have laid out in the press release.
Speaker Change: Very helpful. Thanks, very much.
Speaker Change: Thank you.
Most of those should be complete in 'twenty five.
Our next question comes from Mike Crawford with B Riley Securities.
Speaker Change: The only other one that would not be completed in 25, Eric had mentioned earlier is our.
Speaker Change: Thanks can you talk about what your objectives are with your defense electronics business at one point O'donnell, apparently sold most of its ultimate electronics, you retain Israeli piece you but.
Speaker Change: Our.
Speaker Change: Yeah.
Speaker Change: Turbo jet facility that we are starting to build in 2025, but predominantly should be completed in 2000, and so those would be the two I would say plus ups from the.
Speaker Change: A couple of years ago, now lowered them. So I imagine you must have with Norton $50 $60 $70 million of such revenue now and you talked about in your remarks.
Speaker Change: Maintenance Capex that we have.
Speaker Change: Historically incurred.
Speaker Change: Very helpful. Thanks, very much.
Speaker Change: So accelerated capabilities could you just go into that in a little bit more detail.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Mike Crawford with B Riley Securities.
Speaker Change: Yes.
Speaker Change: So as we know we create OS has incredibly positive relationships with the traditional problems.
Speaker Change: Thanks can you talk about what your objectives are with your defense electronics business at one point O'donnell, apparently sold most of that to ultra electronics, you retain Israeli piece you buy <unk>.
Speaker Change: And also now with some of these new defense technology companies.
Speaker Change: And as you indicated Mike.
Speaker Change: We had a very substantive microwave business in the U S. We sold at the noncompete and that a few years ago.
Speaker Change: A couple of years ago, and then lowered them. So I imagine you must have with Norton $50 $60 $70 million of such revenue no.
And we made a decision to reenter the market over the past few years and it has accelerated recently.
Speaker Change: You talked about in your remarks.
Speaker Change: The primes are coming to us they want an alternative.
Speaker Change: Accelerated capabilities could you just go into that in a little bit more detail.
Speaker Change: And they know we can do it and the team that we've put together at <unk> microwave North America is the gold standard team I don't want to get into it but they are the gold standard team.
Speaker Change: Yes.
Speaker Change: So as we know Kratos has incredibly positive relationships with the traditional problems.
Speaker Change: And also now with some of these new defense technology companies.
Speaker Change: No one of them they like them so our objective.
Mike Crawford: And as you indicated Mike.
Josh Sullivan: Josh a question upfront, we are going to be one of if not the lead merchant supplier of microwave electronics in the United States.
Mike Crawford: We had a very substantive microwave business in the U S. We sold the non compete and then a few years ago.
Josh Sullivan: That's our mission, that's what we're gonna do.
Mike Crawford: And we made a decision to reenter the market over the past few years and it has accelerated recently.
Speaker Change: We have a we have an incredible microwave business in Israel the technology is.
Mike Crawford: The primes are coming to us they want an alternative.
Josh Sullivan: Leading edge on the brink of bleeding edge and as you know where we are.
Mike Crawford: And they know we can do it and the team that we've put together at cradles microwave North America is the gold standard team I don't want to get into it but they are the gold standard team.
Josh Sullivan: On virtually every Israeli missile and radar program.
Josh Sullivan: So we've got the pedigree underneath all of Kratos. We've now got we have now getting some critical mass.
Mike Crawford: No all of them they like them so our objective.
Josh Sullivan: And we are we are looking forward over the next year or two to updating you on this is going to be one of the most rapidly growing and high margin businesses in the entire company that's our plan.
Josh Sullivan: Josh a question upfront, we are going to be one of if not the lead merchant supplier of microwave electronics in the United States.
Mike Crawford: That's our mission, that's what we're gonna do.
Speaker Change: Okay. Thank you Eric.
Mike Crawford: We have a we have an incredible microwave business in Israel that technology is leading edge on the brink of bleeding edge and as you know where we are on virtually every Israeli missile and radar program.
Josh Sullivan: What.
Josh Sullivan: In particular was it that drove this two three to one book to Bill in <unk>.
Josh Sullivan: Pace in fourth quarter.
Josh Sullivan: Yeah.
Josh Sullivan: That was primarily related to some of the national.
Mike Crawford: So we've got the pedigree underneath all of Kratos. We've now got we have now getting some critical mass.
Josh Sullivan: <unk> and <unk>.
Josh Sullivan: Light programs that we were awarded during the period.
Mike Crawford: And we are we are looking forward over the next year or two to updating you on this is going to be one of the most rapidly growing in the high margin businesses in the entire company that's our plan.
Josh Sullivan: Yep.
Josh Sullivan: And Mike related to that at all I'm glad you asked that over the past six months and it's accelerated over the past three months.
Josh Sullivan: Kratos is being encouraged to prime more.
Josh Sullivan: Heretofore.
Speaker Change: Okay. Thank you Eric and then.
Josh Sullivan: We would have we would've said, okay, our highest probability thats part of something instead of all of not that if we lose would be the team.
Mike Crawford: What.
Mike Crawford: In particular was it that drove the $2 three to one book to Bill in <unk>.
Josh Sullivan: We are being encouraged by the government customers to pry more.
Mike Crawford: Pace in fourth quarter.
Mike Crawford: Yeah.
Josh Sullivan: And we've been doing it and we've been winning.
Mike Crawford: That was primarily related to some of the national.
Josh Sullivan: So that's what's happening here.
Mike Crawford: <unk> and <unk>.
Mike Crawford: Satellite programs that we were awarded during the period.
Speaker Change: So even though our commercial satcom business for the reason Deanna talked about Airbus and Dallas have initiatives with our software defined satellites.
Mike Crawford: Yes.
Mike Crawford: And Mike related to that at all I'm glad you asked that over the past six months and it's accelerated over the past three months.
Speaker Change: <unk> is flat right now the National Security business is looking great and the pipeline since we last spoke to all four months ago.
Mike Crawford: Kratos is being encouraged to pry more.
Mike Crawford: Heretofore.
Speaker Change: Quality and quantity has increased substantially so we might have some upside here of this year, it's looking good.
Mike Crawford: We would have we would've said, okay, our highest probability thats part of something instead of all of not that if we lose would be the team.
Mike Crawford: We are being encouraged by the government customers to play more.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Mike Crawford: And we've been doing it and we've been winning.
Speaker Change: Our next question comes from John <unk> with Baird.
Mike Crawford: So.
Mike Crawford: That's what's happening here and so even though our commercial satcom business for the reason Deanna talked about Airbus and Dallas have initiatives with our software defined satellites.
Speaker Change: Good evening, Eric and Deanna.
Speaker Change: Just a quick question on <unk> in the space Development Agency.
Speaker Change: We saw the director.
Mike Crawford: Is flat right now the National Security business is looking great and the pipeline since we last spoke to you all four months ago.
Speaker Change: The drugs shouldn't and leadership.
Speaker Change: And the willingness of the government now to move towards.
Speaker Change: More fixed price contracts within space I.
Speaker Change: I was wondering if you could just talk more about.
Mike Crawford: Quality of it and quantity has increased substantially so we might have some upside here of this year, it's looking good.
Speaker Change: Brazilian and space, and obviously youre very comfortable operating in a fixed.
Speaker Change: <unk>, just what youre seeing there between 35 and beyond.
Mike Crawford: Okay. Thank you.
Mike Crawford: Yeah.
Speaker Change: Okay.
Speaker Change: Yes, and so let me, let me qualify them a fixed price.
Mike Crawford: Our next question comes from John <unk> with Baird.
Speaker Change: We are very comfortable on fixed price production contracts or fixed price.
John: Good evening, Eric and Deanna.
John: Just a quick question on <unk> in the space Development Agency.
Speaker Change: Leading technology contract, leading not believing we are not comfortable one bit that kratos on fixed price development contracts on bleeding edge stuff, including stuff that's never done book been done before.
John: We saw the director.
John: The drugs shouldn't and leadership.
John: And the willingness of the government now to move towards.
John: More fixed price contracts within space I was wondering if you could just talk more about.
You are presenting in space, and obviously youre very comfortable operating in a fixed price.
Speaker Change: Other companies do this and they blow their brains out.
John: World, just what Youre seeing there between 35 and beyond specifically.
Speaker Change: We are we are very wary of this so we are again, we're extremely comfortable in the fixed price environment. If we know the game field, we know the technology, it's a production contract et cetera.
John: Yes, and so let me, let me qualify them a fixed price.
John: We are very comfortable on fixed price production contracts.
Speaker Change: We.
John: Or fixed price, leading technology contract, leading not believing we are not comfortable one bit that kratos on fixed price development contracts on bleeding edge stuff, including stuff that's never done book been done before.
Speaker Change: As I mentioned to Mike.
Speaker Change: And I'll just talk I don't want to talk about FDA, particularly I don't like to do that but I'll talk about the space environment on the government of National security side.
Speaker Change: The number of opportunities right now for US is incredible it's accelerated dramatically over the last 631 months.
John: Other companies do this and they blow their brains out.
Speaker Change: Incredibly.
Speaker Change: If you can read about what's going on out there in the new administration what are their priorities space.
John: We are we are very wary of this so we are again, we're extremely comfortable in the fixed price environment. If we know the game field, we know the technology, it's a production contract et cetera.
Speaker Change: President Trump's iron Dome, where I saw knowledge Golden Dome Bolden, Don one of the key aspects of it is space tracking systems, which we're good at.
John: We.
Speaker Change: As I mentioned to Mike.
Speaker Change: And I'll just talk I don't want to talk about SBA, particularly I don't like to do that but I'll talk about the space environment on the government of National security side.
Speaker Change: Space communication systems, which we're good at space domain awareness, which we have so so my tone has changed incredibly since I last spoke to you on our space business because the game field has changed.
Speaker Change: The number of opportunities right now for US is incredible it's accelerated dramatically over the last 631 months.
Speaker Change: Great. Thanks, that's really helpful and just a quick follow up.
Speaker Change: Incredibly.
Speaker Change: You can read about what's going on out there in the new administration what are their priorities space.
Speaker Change: On the Marine Aviation plan can you just give us some more details, but what it entails.
Speaker Change: The Marina Bay area and does not have sort of graduated from <unk> b.
Speaker Change: President Trump's iron dome, where I saw that which golden dome Goldendale one of the key aspects of it is space tracking systems, which we're good at.
Speaker Change: That market is out there in terms of testing or funding or any other details that we should expect for 'twenty five.
Speaker Change: Yep I brother I cannot I, we are really.
Speaker Change: Space communication systems, which we're good at space domain awareness, which we have so so my tone has changed incredibly since I last spoke to you on our space business because the game field has changed.
Speaker Change: We're very close with the customer we can't say more than the prepared remarks, virtually all of which is in the public domain already so I apologize I just cant I cant go beyond what we've said.
Speaker Change: Great. Thanks, that's really helpful and just a quick follow up just on the Marine Aviation plan can you just give us some more details, but what it entails.
Eric: No I completely understand thank you thanks, Eric Thanks Donna.
Speaker Change: Okay.
Speaker Change: The marine variance is not sort of graduated from <unk>.
Speaker Change: Our next question comes from Ken Herbert with RBC capital markets.
Chuck: Chuck here in terms of testing or funding or any other details that we should expect for 2005.
Ken Herbert: Yes, hi, good afternoon, Eric and Deanna.
Appreciate Eric the incremental commentary in terms of the expected acceleration in 2026 growth.
Speaker Change: Yes.
Speaker Change: I cannot.
Speaker Change: We are really.
Speaker Change: We're very close with the customer we can't say more than the prepared remarks, virtually all of which is in the public domain already and so I apologize I just cant I cant go beyond what we've said.
Ken Herbert: Obviously got some tail winds in hypersonic some space it sounds like in microwave electronics, but as we think about that call it $175 million and growth at the midpoint. In 2006 can you can you provide any more details or specifics or confidence around particular programs or how we think about the primary contributors to.
Eric: No I completely understand thank you thanks, Eric Thanks Donna.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Our next question comes from Ken Herbert with RBC capital markets.
That growth Yup Yup, Marty Okay, Mark TB.
Ken Herbert: Yes, hi, good afternoon, Eric and Deanna.
Mark TB: Number one.
Number two a separate hypersonic program we've won.
Ken Herbert: Appreciate Eric the incremental commentary in terms of the expected acceleration in 2026 growth you've obviously got some tail winds in hypersonic space. It sounds like in microwave electronics, but as we think about that call it $175 million and growth at the midpoint in 2006.
Mark TB: Okay.
Mark TB: Number three a certain air defense system program that we are going into production on let me tell you some of the ones that we're on we're on IV ECS, which Northrop has been awarded production on we are as you know Northrop is an incredible partner of Kratos, where a number of radar systems.
Ken Herbert: Can you can you provide any more details or specifics or confidence around particular programs or how we think about the primary contributors to that growth Yup yup, Marty Okay, Mark TB.
Mark TB: Northrop Grumman.
Mark TB: And for Lockheed Martin.
Mark TB: Lockheed is another incredible partner of ours, we have several of those that are ramping up right.
Ken Herbert: Number one.
Ken Herbert: Number two a separate hypersonic program we've won.
Mark TB: If pik.
Mark TB: With dianetics.
Ken Herbert: Number three a certain air defense system program that we are going into production on let me tell you some of the ones that we're on we're on ECS, which Northrop has been awarded production on we are as you know Northrop is an incredible partner operators, where a number of them.
Mark TB: I believe on a net.
Mark TB: Ever get ahead of our Prime I believe diabetics are light OS They will announce they were awarded L. Rip and full rate production together recently.
Mark TB: Okay, which was not expected.
Mark TB: We build a lot of hardware with our partner Dianetics, which is a great partner, where we're actually team together now on another very large program.
Ken Herbert: Radar systems for Northrop Grumman.
Mark TB: So those are those are some of the ones that are just going to drive the growth also.
Ken Herbert: And for Lockheed Martin.
Speaker Change: Lockheed is another incredible partner of ours, we have several of those that are ramping up right.
Mark TB: In our turbo fan business.
Speaker Change: If pik.
Mark TB: Yeah.
Ken Herbert: With dianetics.
Mark TB: Certain missile program.
Ken Herbert: I believe.
Ken Herbert: Ever get ahead of our Prime I believe diabetics are light OS. They were they were awarded L. Rip and full rate production together recently.
Mark TB: I have to be careful.
Mark TB: That's one.
Mark TB: Got to add to it as well so we've got pretty good line of sight.
Ken Herbert: Okay, which was not expected.
Mark TB: Right now on 26, that's a very good line of sight we.
Ken Herbert: We build a lot of hardware with our partner Dianetics, which is a great partner, where we're actually team together now on another very large program.
Mark TB: We also do on 27 I just didn't want to get ahead of ourselves, but the next couple three years.
Mark TB: Look were bolted them they look solid.
Ken Herbert: So those are those are some of the ones that are just going to drive the growth also.
Mark TB: Okay.
Speaker Change: Super Helpful. And then as you think about maybe a step change in the margin profile into 26 and beyond.
Ken Herbert: In our turbo fan business.
Speaker Change: Like can you can you maybe help just a little bit with with sort of magnitude of that and maybe as you think about the business longer term as the merchant supplier and everything you've talked about.
Ken Herbert: Certain missile program.
Ken Herbert: I have to be careful.
Ken Herbert: That's one.
Ken Herbert: <unk> got to add to it as well so we've got pretty good line of sight right now on 26, that's a very good line of sight we.
Speaker Change: Obviously behind behind this strategy, which should result in better margins.
Speaker Change: What do you think the potential sort of EBITDA margin of the business could be in the out years.
Ken Herbert: We also do on 27 I just didn't want to get ahead of ourselves, but the next couple three years.
Speaker Change: Yes.
Speaker Change: I've looked at a 100 basis up 100 basis points or so in 2006 up 100 basis points or so in 27% say 100 to 150 basis points to 26, 100 to 150 basis points and 27 100 to 150 basis points and 28, that's the trajectory we're looking at for an increase here.
Speaker Change: Look were bolted if they look solid.
Ken Herbert: Okay.
Speaker Change: Super Helpful. And then as you think about maybe a step change in the margin profile into 26 and beyond.
Speaker Change: Like can you can you maybe help just a little bit with with sort of magnitude of that and maybe as you think about the business longer term as a merchant supplier and everything you've talked about obviously.
Speaker Change: Continuing I can be very precise if we would have budgets on October one, but we're not going to so timing could move around a little bit, but thats going to be up in rate trajectory. Because we've got these lower margin fixed price contracts, they're not falling off we're renewing them, we're getting them re upped with higher rates the <unk>.
Speaker Change: Behind behind this strategy, which should result in better margins.
Speaker Change: What do you think the potential sort of EBITDA margin of the business could be in the out years.
Speaker Change: Yes.
Speaker Change: I've looked at it was a 100 basis up 100 basis points or so in 2006 up 100 basis points or so in 2007, and I'd say 100 to 150 basis points in 2100 to 150 basis points and 27 100 to 150 basis points to 28, that's the trajectory we're looking at for an increase here.
Speaker Change: New contracts, obviously, we're betting with the higher rates that takes them to the inflationary impact.
Speaker Change: And the organic growth we have the leverage we're getting off of our fixed G&A and then the production areas of fixed manufacturing cost is significant so we have some force multipliers here, that's really going to help us.
Speaker Change: Yeah.
Speaker Change: Beginning in 2006.
Speaker Change: Continuing I can be very precise if we would have budgets on October 1st, but we're not going to so timing could move around a little bit, but thats going to be up in rate trajectory. Because we've got these lower margin fixed price contracts, they're not falling off we're renewing them, we're getting them re upped with higher rates the new contracts, obviously were better.
Speaker Change: It was going to happen this year.
We've got another werent another six month, continuing resolution and 12 or 15 in the last 18 months or even under a CRA and so no new contract awards.
Speaker Change: Which have the new rates in them that were waiting for that's been part of the problem.
Speaker Change: With the higher rates that takes into the inflationary impact.
Speaker Change: Perfect I appreciate all the color Eric Thanks, a lot.
Speaker Change: And the organic growth, we have the leverage we're getting off of our fixed G&A and in the production areas of fixed manufacturing cost is significant so we have some force multipliers here, that's really going to help us.
Speaker Change: Got it.
Speaker Change: Our next question comes from Michael <unk> Securities.
Speaker Change: Securities.
Speaker Change: Okay.
Speaker Change: Hey, good evening guys Cherokee.
Speaker Change: Nice results.
Speaker Change: Beginning in 2006.
Speaker Change: Thanks for taking the question lots of detail.
Speaker Change: It was going to happen this year.
Speaker Change: Eric I wanted to ask about a little bit more on Prometheus, you mentioned a lot of different programs one of them.
Speaker Change: We've got another one and another six month, continuing resolution and 12 or 15 of the last 18 months, we've been under a CRA and so no new contract awards.
Speaker Change: Could you talk about sort of wanted to get some color on what's happening with <unk>.
Speaker Change: Which have the new rates in them that were waiting for that's been part of the problem.
Speaker Change: Supersonic, Dave obviously, you had some positive developments and then just on EPS.
Speaker Change: Perfect I appreciate all the color Eric Thanks, a lot.
Speaker Change: Yes.
Speaker Change: When we think about that opportunity or are you going to be going after is predicated on new program wins in white space, where you're going to actually.
Speaker Change: Got it.
Speaker Change: Okay.
Speaker Change: Our next question comes from Michael Charmonium.
Speaker Change: Securities.
Speaker Change: Hey, good evening guys Cherokee.
Speaker Change: Sure.
Speaker Change: Production programs for some of the changes that we've been hearing about and I'm assuming this is Paul.
Nice results.
Speaker Change: Thanks for taking the question lots of detail.
Eric I wanted to ask about a little bit more on <unk>, you mentioned a lot of different programs one hydro.
Speaker Change: U S weapon system opportunities and sort of homegrown NATO ally opportunities as well.
Could you talk about so I wanted to get some color on what's happening with <unk>.
Speaker Change: Yes, sorry.
Speaker Change: So on on boom I'm going to answer the question, but understanding we are under a very tight tight NDA with boom.
Speaker Change: Supersonic, Dave obviously, you had some positive developments and then just on from EPS.
Speaker Change: Is.
Speaker Change: From my perspective.
Speaker Change: When we think about that opportunity or are you going to be going after <unk> is predicated on new program wins in white space or are you going to actually be.
Speaker Change: Boom is knocking it out of the park.
Speaker Change: They have the right business plan the right airplane at the right time. This is Eric Demarco perspective, Okay. The market right now in my mind is wide open to another commercial aircraft manufacturer is boeing's as Airbus They are wide open.
Speaker Change: Share from existing production programs for some of our short change that we've been hearing about.
Speaker Change: I'm, assuming this is both U S weapon system opportunities and sort of homegrown NATO ally opportunities as well.
Speaker Change: And boom success recently going supersonic the first commercial supersonic aircraft in the U S ever.
Speaker Change: Alright, so on on boom I'm going to answer the question, but understanding we are under a very tight tight NDA with both okay from my perspective boom is knocking it out of the park.
Speaker Change: Is incredible and.
Speaker Change: In addition to that as you know we are developing the engine for them with them. Okay. We are we are on track to be orders of magnitude less costly and orders of magnitude faster than its ever done before because as you know a bunch of our guys and gals abducted F 22 and F 35.
Speaker Change: They have the right business plan there.
Speaker Change: Right airplane at the right time this is Eric Demarco perspective.
Speaker Change: So this is a very important program very important program for <unk>. We've got one of our teams on it and our mission is to make boom successful. So I'll pause. There do you have any questions on that then I'll go to the next I will go to the next step.
Speaker Change: The market right now in my mind is wide open to another commercial aircraft manufacturer.
Speaker Change: Boeing's as Airbus They are wide open.
Speaker Change: And boom success recently going supersonic the first commercial supersonic aircraft in the U S ever.
Speaker Change: Yes, I guess, presumably that's not in our revenue growth plan I mean, you're talking some pretty compelling disability 'twenty five 'twenty six 'twenty seven.
Speaker Change: Is incredible.
Speaker Change: In addition to that as you know we are developing <unk> with them. Okay. We are we are on track to be orders of magnitude less costly and orders of magnitude faster than its ever done before because as you know a bunch of our guys and gals have done did F 22 and F 35.
Speaker Change: <unk> huge misko, well that would be additive.
Speaker Change: Right, So where we're at and we're at a run rate with them. We are doing everything we can to manage costs to be a great partner to them.
Speaker Change: So this is a very important program very important program for <unk>. We've got one of our teams on it and our mission is to make boom successful. So I'll pause. There do you have any questions on that then I'll go to the next I will go to the next step.
Speaker Change: So no that if that is not a major or even though even though medium term growth driver for us.
Speaker Change: That program is now we have several other ones.
Speaker Change: On got it.
Speaker Change: Okay and the second part of your question.
Speaker Change: Yes, I guess, presumably that's not in our revenue growth plan I mean, you're talking some pretty compelling visible in 'twenty five 'twenty six 'twenty seven.
Speaker Change: I got to be very careful here, because obviously Rafael is owned by the government the ministry of Defense's involved et cetera, et cetera et cetera.
Speaker Change: Hey.
Speaker Change: Whom execution as well.
Speaker Change: Our plan.
Speaker Change: Well that would be additive.
Speaker Change: As to service Rafael and all their needs first with Prometheus.
Speaker Change: Right, So where we're at we're at a run rate with them. We are doing everything we can to manage costs to be a great partner to them, Okay, and so no that if that is not a major or even though even though medium term growth driver for us.
Speaker Change: First okay. That's the base case.
Speaker Change: Okay. We are looking at a number of white field opportunities new ones that are out there. There are a lot of this is in the United States and internationally. There are a lot of new weapons systems out there lots and lots of them.
Speaker Change: That program is now we have several other ones.
Speaker Change: Got it.
Speaker Change: Okay and the second part of your question.
Speaker Change: As I said the key the key difference here credo sudden Raphael and Prometheus.
Speaker Change: I got to be very careful here, because obviously Rafael is owned by the government the ministry of Defense's involved et cetera, et cetera et cetera.
Speaker Change: Is where 1000 spec qualified already on weapon systems.
Speaker Change: Okay.
Speaker Change: All of these other guys that are trying to get in their nonqualified.
Speaker Change: Our plan.
Speaker Change: Mr Service, Rafael and all their needs first with Prometheus.
Speaker Change: We are qualified.
Speaker Change: Okay got it.
Speaker Change: <unk>, Okay, that's the base case.
Speaker Change: So that's what we're trying to do and primarily my opinion right now we're going after white whitefield stuff and there's so much demand out there sure we might bump into some guys here and there but that is not the mission here.
Speaker Change: Okay. We are looking at a number of white field opportunities new ones that are out there. There are a lot of this is in the United States and internationally. There are a lot of new weapons systems out there lots and lots of them.
Speaker Change: Yeah.
Speaker Change: As I said the key the key difference here credo sudden Raphael and Prometheus.
Speaker Change: Got it that makes sense. Thanks Scott.
Speaker Change: Yes.
Speaker Change: 1000 spec qualified already on weapon systems.
Speaker Change: Our next question comes from the line of Noah <unk> with Goldman Sachs.
Speaker Change: All of these other guys that are trying to get in their nonqualified.
Hey, How's it going.
Speaker Change: We are qualified.
Eric: Noah good to hear how are you sorry, Eric good good clarity.
Speaker Change: Okay got it so.
Speaker Change: Okay. So that's what we're trying to do and primarily my opinion right now we're going after white whitefield stuff and there's so much demand out there sure we might bump into some guys here and there but that is not the mission here.
Speaker Change: Thanks for taking my questions.
Speaker Change: Hey, what's happening with Sentinel and from your perspective, and what does that mean for your position on the program.
Yup.
Speaker Change: So we work with Northrop Grumman as I said before Northrop Grumman is an incredible partner with credits.
Josh Sullivan: Got it that makes sense. Thanks Scott.
Speaker Change: Yes.
Speaker Change: And we are on the ground transporters.
Speaker Change: Our next question comes from the line of Noah <unk> with Goldman Sachs.
Speaker Change: For the missiles and the warheads and other things like that so look at us as part of the of the missile piece, that's where we are so we are not part of the silos or the ground and put the underground infrastructure and stuff like that that you've been reading about so with that as the premise from my perspective.
Noah: Hey, How's it going.
Noah: Noah good to hear how are you sorry, Eric good to talk.
Noah: Thanks.
Noah: My questions.
Noah: Hey, what's happening with Sentinel and from your perspective.
Speaker Change: Northrop's, knocking it out of the park.
Speaker Change: What does that mean for your position on the program.
Speaker Change: They're doing a great job in this program is doing a great job.
Noah: Yup.
Speaker Change: <unk> again this is my I'm not getting ahead of Michael <unk>.
Noah: So we work with Northrop Grumman as I've said before Northrop Grumman is an incredible partner with creditors.
Speaker Change: My partner here, but we're talking about systems that were put in the ground in the sixties and seventies.
Noah: And we are on the ground transporters.
Speaker Change: And it's been pushed to the right forever for all kinds of reasons by the Pentagon and by Congress.
Noah: For the missiles and the warheads and other things like that so look at us as part of the of the missile piece, that's where we are so we are not part of the silos or the ground and put the underground infrastructure and stuff like that that you've been reading about so with that as the premise from my perspective.
Speaker Change: And now we have no choice and so my perspective, it's going great and Northrop is doing great.
Speaker Change: Okay.
Speaker Change: The reexamining of requirements related to ground.
Speaker Change: Even though you discussed being tethered to parts of the program that are ground.
Speaker Change: Northrop's, knocking it out of the park.
Noah: They're doing a great job in this program is doing a great job.
Speaker Change: Your your parts of the program are different than what's being reexamined.
Mike Crawford: These again this is Mike Im not getting out of my life.
Speaker Change: Yes on the ground the ground piece, that's being reexamined the silos the communication infrastructure underground the command and control modules underground the launch modules underground.
Speaker Change: My partner here, but we're talking about systems that were put in the ground in the sixties and seventies.
Speaker Change: And it's been pushed to the right forever for all kinds of reasons by the Pentagon and by Congress.
Speaker Change: And now we have no choice and so my perspective, it's going great and Northrop is doing great.
Speaker Change: Okay, where we are.
Speaker Change: Kratos has nothing to do with any of that think of us as part of the missile because we moved the missiles around right.
Speaker Change: Okay.
Speaker Change: The reexamining of requirements related to ground.
Speaker Change: Your arm around you are on the ground, but above ground.
Speaker Change: Even though you discussed being tethered to parts of the program that are ground.
Speaker Change: Just wanted to.
Speaker Change: No. Good question, we're above ground and wanted to be sure.
Speaker Change: Okay got it.
Speaker Change: Your your parts of the program are different than what's being reexamined.
Speaker Change: Yes.
Speaker Change: Just maybe trying to go a little get a little more from you on this call.
Speaker Change: Yes on the ground the ground piece, that's being reexamined the silos the communication infrastructure underground the command and control modules underground the launch modules underground.
Speaker Change: Capital expenditure youre going to make.
Speaker Change: 100 130 million boxes.
Speaker Change: Double it was really kind of triple where you were run rating not long ago.
Speaker Change: Okay, where we are.
Speaker Change: Credo has nothing to do with any of that think of us as part of the missile because we moved the missiles around right.
Speaker Change: How is your opportunity set tripled or has your customer.
Speaker Change: Ask you to take on even more of the upfront funding.
Speaker Change: Your arm around you are on the ground, but above ground.
Speaker Change: I guess just how much.
Speaker Change: Just wanted to.
Speaker Change: Negotiation that you have around how much timelines can slide in this industry and therefore, who should pay for one.
Speaker Change: Now Thats a good question, we're above ground and wanted to be sure.
Speaker Change: Okay got it.
Speaker Change: Yes.
Speaker Change: Just maybe trying to go a little get a little more from you on this.
Speaker Change: Yes, so no as to if we if we look at where we were last year.
Speaker Change: Capital expenditure youre going to make.
Speaker Change: We double where we were last year and in that 120 $535 million. There is approximately $30 million related to the valkyrie.
Speaker Change: 100 130 million boxes.
Speaker Change: Double it was really kind of triple where you were run rating not long ago.
Speaker Change: <unk> built.
Speaker Change: Those are key.
Speaker Change: Conceivably you could call that inventory, but the way we classify this as capital. So those are four based.
Speaker Change: How is your opportunity set tripled or has your customer.
Speaker Change: Ask you to take on even more of the upfront funding.
Speaker Change: Based on customer.
Speaker Change: Indicated demand.
Speaker Change: I guess just how much.
Speaker Change: <unk> requirement. So we expect to sell those so I would take that $30 million off and then related specifically related to Mark TB, that's about 22% to $24 million.
Speaker Change: Negotiation that you have around how much timelines can slide in this industry and therefore, who should pay for one.
Speaker Change: Yes, so no as to if we look at where we were last year.
Speaker Change: We double where we were last year and in that 120 $535 million. There is approximately $30 million related to the valkyrie.
Speaker Change: For the $1 $4 billion of contracts that we just were awarded and.
Speaker Change: We are what we didn't say in the prepared remarks is we are actually I think Eric did is we arent looking to to offset some of our investment with industrial based funding and other type of funding.
Speaker Change: <unk> built.
Speaker Change: Those are key.
Speaker Change: Conceivably you could call that inventory, but the way we classify this as capital. So those are four.
Speaker Change: Based on customer.
Speaker Change: That is out there, but we have not assumed any insight offsetting the capex and additions that we've got about $15 million to $16 million that's related to.
Speaker Change: Indicated demand and requirement. So we expect to sell those so I would take that $30 million off and then related specifically related to Mark TB, that's about 22% to $24 million.
Speaker Change: Building a new facility.
Speaker Change: <unk> facility in Israel, and then expanding one of our existing facilities, there that $15 million to $16 million that is nonrecurring and that is and that is based on customer demand record backlog record pipeline and on that one Noah we received <unk>.
Speaker Change: For the $1 $4 billion of contracts that we just were awarded and.
Speaker Change: We are what we didn't say in the prepared remarks is we are actually I think Eric did is we arent looking to to offset some of our investment with industrial based funding and other type of funding that is out there, but we have not assumed any of that offsetting the capex and additions that we've got about 15% <unk>.
Speaker Change: Recently, a quarter billion dollar contract.
Speaker Change: In Israel.
Speaker Change: For our new classified system.
Speaker Change: That's starting to ramp next year, we had to build this new part of this new facility.
Speaker Change: <unk> million that's related to.
Speaker Change: For that program. So it will be recovered in that program. In addition to that.
Speaker Change: Building, a new facility production facility in Israel, and then expanding one of our existing facilities, there that $15 million to $16 million that is nonrecurring and so that is and that is based on customer demand record backlog record pipeline.
Speaker Change: Our Israeli microwave business. We've now won a number of space based microwave programs, where now we're actually going on the birds. So we need we needed if we need space qualified facilities.
Speaker Change: That one Noah we received.
Speaker Change: So we're building those out for these programs the cost of which over time in the future will be recovered in the rates.
Speaker Change: Recently, a quarter billion dollar contract and.
Speaker Change: Israel.
Speaker Change: For our new classified system.
Mark TB: Okay on those program. Okay also on Mark TB in addition to what the Anisette.
Speaker Change: That's starting to ramp next year, we had to build this new part of this new facility.
Mark TB: The campus in the facility to do all the integration work in the <unk>.
Speaker Change: For that program. So it will be recovered in that program. In addition to that.
Mark TB: We'll build it will depreciate it in the future the depreciation goes into the rate we get paid for it.
Speaker Change: Or is it really microwave business. We've now won a number of space based microwave programs, where now we're actually going all the birds. So we need we needed if we need space qualified facilities.
Mark TB: Okay. So and that's why I went out of my way on the prepared remarks to say, we don't do a build that we typically don't do a build them. They will come we've got a contract the customer or program.
Speaker Change: So we're building those out for these programs the cost of which over time in the future will be recovered in the rates.
Mark TB: Customer has said we're going to give you. This program you stand up the facility you can recover it over time and the rates and Thats, what we do.
Speaker Change: Okay on those program also on Mark TB in addition to what the asset.
Speaker Change: Okay, Great I really appreciate all that detail and maybe just last one Eric.
Mark TB: Valkyrie.
Speaker Change: The campus in the facility to do all the integration work in the building.
Mark TB: <unk>.
Mark TB: Detailed the the customers that are maybe kind of move to the front of the line versus who was originally there.
Build it well depreciated in the future the depreciation goes into the rate we get paid for it.
Mark TB: Are those.
Mark TB: How are those tracking versus what you thought three months to six months ago, and then with the maybe originally intended customer.
Speaker Change: Okay, So and Thats why I went out of my way on the prepared remarks to say, we don't do a build that we typically don't do a build and they will come we've got a contract the customer or program the.
Mark TB: Some interesting comments on force multiplying fighter fleets.
Speaker Change: The customer has said we're going to give you. This program you stand up the facility you can recover it over time and the rates and Thats, what we do.
Mark TB: From the New administration, but I guess, it's early days, so where are they.
Mark TB: Where they stand on what they want to do with loyal wingman.
Speaker Change: Okay, Great I really appreciate all that detail and maybe just last one Eric.
Mark TB: So the easy one first the.
Speaker Change: Valkyrie.
Mark TB: The Marine Corps is an outstanding customer.
Speaker Change: You've.
Speaker Change: Detailed.
Speaker Change: The customers that are maybe kind of move to the front of the line versus who was originally there.
Mark TB: They are knocking everything out as exactly as they've communicated.
Speaker Change: Are those.
Mark TB: So nothing has changed from my perspective of any significance with them. They are completely tracking okay. I was surprised when they announced the project Eagle, which of course I knew about and what the Valkyrie is doing there and what their plan is with the Valkyrie that was surprising to me, but I will take that as a good thing.
Speaker Change: How are those tracking versus what you thought three months to six months ago, and then with the <unk>.
Speaker Change: Maybe originally intended customer.
Speaker Change: Some interesting comments on force multiplying fighter fleets.
Speaker Change: From the New administration, but I guess, it's early days, so where are they.
Mark TB: There are several other things like that out there that are happening that we can't talk about that could be could be announced by the government and I think you all would find them encouraging so from my perspective Marine Corps, great Thats on track they are at the front of the line.
Speaker Change: Where they stand on what they want to do with oil wearing them.
Speaker Change: So the easy one first.
Speaker Change: Marine Corps is an outstanding customer.
Speaker Change: They are knocking everything out as exactly as they've communicated.
Mark TB: Okay.
Speaker Change: So nothing has changed from my perspective of any significance with them.
Mark TB: On the other customer.
Mark TB: So all the other customers you might have saw in the secretary of defense of 17 protected programs.
Speaker Change: They are completely tracking okay, I was surprised when they announced the project Eagle, which of course I knew about and what the Valkyrie is doing there and what their plan is with the Valkyrie that was surprising to me, but I'll take that as a good thing.
Mark TB: That program is one of the protected programs.
Mark TB: Okay.
Mark TB: So I look at that as a.
Mark TB: Good thing for us.
Mark TB: Midland long term.
Speaker Change: There are several other things like that out there that are happening that we can't talk about that could be could be announced by the government and I think you all would find them encouraging so from my perspective Marine Corps, great Thats on track they are at the front of the line.
Mark TB: I can't talk much more about that other than what was out there because of the security classifications on this I cannot get ahead of my skis with that customer publicly.
Mark TB: Okay.
Mark TB: Alright, great. Thank you so much.
Mark TB: Yes, Sir.
Speaker Change: Okay.
Speaker Change: On the other customer.
Speaker Change: Our next question comes from Trevor Walsh with citizens JMP.
Speaker Change: So all the other customers you might have saw in the secretary of defense of 17 protected programs.
Trevor Walsh: Great afternoon, Tim Thanks for taking the questions.
Speaker Change: That program is one of the protected programs.
Speaker Change: Just wanted to maybe step back around the facilities build outs and just make maybe Nick or ask a larger strategic kind of level question for you Eric.
Okay.
Speaker Change: So I look at that.
Speaker Change: Good thing for us.
Speaker Change: Midland Walter.
Speaker Change: Appreciate all the commentary around building out kind of a vertically integrated process.
Speaker Change: I can't talk much more about that other than what was out there because of the security classifications on this I cannot get ahead of my skis with that customer publicly.
Speaker Change: Just having it being kind of the main supplier et cetera, there's some.
Speaker Change: Other maybe more venture backed funds funded.
Speaker Change: Okay.
Speaker Change: Companies out there.
Speaker Change: Alright, great. Thank you so much.
Speaker Change: Talking about plans for kind of Mega facilities Mega factories kind of do it all in kind of a one stop shop fashion.
Speaker Change: Yes, Sir.
Speaker Change: Our next question comes from Trevor Walsh with citizens JMP.
Speaker Change: Wondering if that seems sort of different obviously from how you guys are approaching things can you maybe just give us some of the puts and takes around kind of how you think about those two approaches differently and whether that's something you guys would think about longer term or if there's just kind of significant downside in your mind in terms of that approach of color how that may or may not work out.
Trevor Walsh: Great afternoon team, thanks for taking the questions.
Speaker Change: I just wanted to maybe step back around the facilities build outs and just maybe Nick or ask a larger strategic high level question for you Eric.
Speaker Change: Appreciate all the commentary around building out kind of a vertically integrated process.
Speaker Change: Yeah, I'll definitely talk about Radiuses approach because.
Speaker Change: Just having it being kind of the main supplier et cetera, there is some.
Speaker Change: I know I know I know that one.
Speaker Change: Other maybe more venture backed funds funded.
Speaker Change: As we've been chatting about this afternoon.
Speaker Change: Companies out there kind of.
Speaker Change: We are very fortunate we have incredibly great relationships with Lockheed with Northrop with Idose with dynamics with general electric aviation with Rafael.
Speaker Change: Talking about plans for kind of Mega facilities Mega factories is going to do it all in kind of a one stop shop fashion.
Wondering if that seems sort of different obviously from how you guys are approaching things can you maybe just give us some of the puts and takes around kind of how you think about those two approaches differently and whether that's something you guys would think about longer.
Speaker Change: Alright, and so our model.
Speaker Change: Cause we are we're a publicly traded company.
Speaker Change: Longer term or if there's just kind of significant downside in your mind in terms of that that approach or how that may or may not work out.
Speaker Change: I know a lot of your investors personally that they're focused on rate of return as they should be.
Speaker Change: As we will not make we typically because I don't want to say never because you never know what's going to happen. We typically do not make a significant investment in something like Prometheus or something like J D. K General electric tradeoffs or something like that unless we have a customer thats committed thats got a buy stuff the part.
Speaker Change: I'll definitely talked about federal's approach because.
Speaker Change: I know I know I know that one.
Speaker Change: As we've been chatting about this afternoon, we are very fortunate we have incredibly great relationships with Lockheed with Northrop with lighthouse with dynamics with general Electric aviation with Rafael Alright.
Speaker Change: <unk> is going to step up and pay a significant amount of money to offset our risk that we.
Speaker Change: Alright, and so our model.
Speaker Change: We don't do a build it and they will come.
Speaker Change: Cause we are we're a publicly traded company we know how to do a lot of your investors personally think there focused on rate of return as they should be.
That's not our model and I don't see us I don't see us doing that we are very comfortable with what we're doing and our partners are very comfortable with what we're doing and the reason why our partners do this with us.
Speaker Change: As we will not make we typically because I don't want to say never because you never know what's going to happen. We typically do not make a significant investment in something like Prometheus.
Speaker Change: And this has really come to the forefront the last six months three months because affordability finally matters fiscally.
Speaker Change: Something like J D K general electric <unk> or something like that unless we have a customer thats committed that is going to buy stuff. The partner is going to step up and pay a significant amount of money to offset our risk okay.
Speaker Change: Kratos is affordable our hypersonic systems.
Speaker Change: Our 110th 115th the cost of other stuff.
Speaker Change: And we do have multiple successful flight customers take are taking note and they're coming to us.
Speaker Change: We don't do a build it and they will come.
Speaker Change: That's not our model and I don't see us I don't see us doing that we are very comfortable with what we're doing and our partners are very comfortable with what we're doing and the reason why our partners do this with US and this has really come to the forefront the last six months three months.
Speaker Change: This was one of the primary reasons I believe we got Mark DB was Zeus Erin East and some other things we've got we're not talking about.
Speaker Change: We spent we talked to we talked to the customer in advance and look at their strategy documents, we spent five or 10 or $15 million, demonstrating and flying a relevant system that meets a I don't want to say a requirement because it gets gray in there meets a need that they have.
Speaker Change: Affordability finally matters fiscally.
Kratos is affordable.
Speaker Change: Our hypersonic systems.
Speaker Change: Our 110th 115th the cost of other stuff.
And then we win.
Speaker Change: And that's what's happened with our engines now both the turbo Jets and the turbo fans the solid rocket motors.
Speaker Change: And we do have multiple successful flight customers take are taking note and they're coming to us.
Speaker Change: The hypersonic fliers.
Speaker Change: It's happening right now with our tactical drones is happening one of the best decisions, we ever made and I know, it's not obvious yet is built on the Valkyrie.
Speaker Change: Okay. This was one of the primary reasons I believe we got Mark DB was Zeus Erin East and some other things we've got we're not talking about okay. We spent we talked to we talked to the customer in advance we look at their strategy documents, we spend five or 10 or $15 million, demonstrating and flying a relevant system that meets our I don't want to say it.
Speaker Change: Because customers are coming to us and they are flying them and theyre, putting mission systems on them because cutting through all the bullshit. That's out there there's nothing else flying other than <unk> is a great company by the way there's nothing else flying.
Speaker Change: Requirement because it gets gray in there meets a need that they have.
Speaker Change: And so mission systems can get test a concept of operations can they get tested blah blah blah, that's all happening with great doses tactical drones I just can't get into details because I'm not allowed to so that's our philosophy. So you can compare that with the other guys I really don't know what their this you can compare it to them in.
Speaker Change: And then we win.
Speaker Change: And that's what's happened with our engines now both the turbo Jets and the turbo fans the solid rocket motors the hypersonic fliers.
Speaker Change: It's happening right now with our tactical drones is happening one of the best decisions, we ever made and I know, it's not obvious yet is built on the Valkyrie.
Speaker Change: I'm sure there are pros and cons.
Speaker Change: Because customers are coming to us and they're flying them and Theyre, putting mission systems on them because cutting through all the bullshit. That's out there there is nothing else flying other than <unk> is a great company by the way there's nothing else flying.
Speaker Change: That's great. Thanks, sorry, maybe just one clarification for again, if I can so the the test the moc TB facility that Ed mentioned that was the new kind of site to be determined is that incorporated in that 22 to 24 line item in the breakout in the press release or is that because I think so yes. I think you had said some of that okay.
Speaker Change: And so mission systems can get tested concept of operations can indicate tested blah blah blah, that's all happening with great doses tactical drones I just can't get into details because I'm not allowed to so that's our philosophy. So you can compare that with the other guys I really don't know what they are this you can compare it to them in.
Speaker Change: Got it okay.
Speaker Change: But some of that is going into 2006, I think if I heard it correctly $25 26, so it's very little extra.
Speaker Change: Okay.
Speaker Change: Okay perfect I appreciate it thanks.
Speaker Change: Yep.
Speaker Change: I'm sure there are pros and cons.
Speaker Change: Our next question comes from Joshua <unk> with noble capital markets.
Speaker Change: Sure.
That's great. Thanks, sorry, maybe just one clarification for again, if I can so the the test the moc TB facility that Eric mentioned that was the new kind of site to be determined is that incorporated in that 'twenty two to 'twenty four line item in the breakout in the press release or is that because I think so yes. I think you had said something that okay got it okay.
Speaker Change: Hey, good evening, just filling in for Joe.
Speaker Change: Hey, good evening Hey.
Speaker Change: So.
Speaker Change: Just kind of a kind of a couple of housekeeping questions. Most of the mine have been answered.
Speaker Change: You guys touched on it a little bit earlier, but can you kind of just get a little update on just the facilities in India and Israel I know, it's been 25, but I know you had previously expected it to be in Q2 that still on target for that.
But some of Thats going into 2006, I think if I heard it correctly 25, and 26, so a little extra.
Speaker Change: Yes.
Speaker Change: On on track, Okay. If it if it moves into July but we're on we're on track because we got customers that need the product and so we're there with us and we're working it so on track Q2.
Okay. Thanks, perfect I appreciate it thanks.
Speaker Change: Yes.
Our next question comes from Joshua <unk> with noble capital markets.
Hey, good evening Thats filling in for Joe.
Speaker Change: Hey, good evening.
Speaker Change: Okay, and then on India.
So.
Just kind of a kind of a couple of housekeeping questions most of them might have been answered.
Speaker Change: Any sort of timeline for that one then just anything on any color on that.
You guys touched on a little bit earlier, but can you kind of get a little update on just the facilities in India and Israel I know, it's been 25 I know you had previously expected it to be in Q2 that still on target for that.
Speaker Change: On which which one.
Speaker Change: The microwave products facility in India.
Speaker Change: Oh in India, Oh, yes.
Speaker Change: Do you think the U S government is slow boy.
Speaker Change: Boy I have answered my pants.
<unk> on track, Okay, if it if it.
Speaker Change: I'm going to say in 2026, alright, but this time next year, you asked me and I would say 2027.
It moves into July, but we're on we're on track because we got customers that need the product and so we're there with us and we're working it so on track Q2.
Speaker Change: That's indeed, a time that I love, India, but it's just the way that it is.
Speaker Change: So what we're not going to we're not going to put a lot in our financial plan until that facility is actually up and running because things.
Okay, and then on India.
Is there any sort of timeline for that one then just anything on any color on that.
Speaker Change: Things move at a different pace sometimes.
Speaker Change: Okay. That's helpful and then kind of just.
Speaker Change: On which which one.
Other major wave products facility in India all.
Speaker Change: Looking at 2025 is the unmanned segment I know you guys have had a little bit of margin compression there.
Speaker Change: Oh Oh, yes.
Do you think the U S government is slow boy.
Speaker Change: But it sounded like last quarter leverage is going to be off.
Boy I have answered my pants.
Speaker Change: Thats fixed infrastructure, how should we look at that kind of profile and coming into this new year.
I'm going to say in 2026, alright, but this time next year, you asked me and I would say 2027.
Speaker Change: I think we're going to continue to see some of the pricing pressures that we've seen.
That's in the time that I Love, India, but that's just the way that it is.
Speaker Change: So we're.
Speaker Change: Cost growth on from inflation on subcontractors.
We're not going to we're not going to put a lot in our financial plan until that facility is actually up and running because things.
Speaker Change: And that's where we're seeing the biggest impact on those fixed price contracts. So we will continue to see a headwind in 2025.
Things move at a different pace sometimes.
Okay. That's helpful and then kind of just.
Speaker Change: So we have two programs that are multi year programs.
Looking at 2025 is the unmanned segment I know you guys have had a little bit of the margin kind of compression there.
Speaker Change: Target drone programs.
Speaker Change: Both of them are coming up now for renegotiation on the next five year lot.
But it sounded like last quarter leverage is going to be off.
Speaker Change: So we're going to get this fixed okay. There are two sub contractors out there that you all are aware of.
This fixed infrastructure, how should we look at that kind of profile and coming into this new year.
Speaker Change: Nationally.
I think we're going to continue to see some of the pricing pressures that we've seen.
Speaker Change: And they have been.
Speaker Change: Raising cost.
Cost growth on from inflation on subcontractors.
Speaker Change: Significantly.
That's where we're seeing the biggest impact on those fixed price contracts. So we will continue to see a headwind in 2025.
Speaker Change: Alright, so we're going to get it addressed in the contract and you guys know me I'm working on a backup plan or a vertical integration plan because we can have this.
So we have two programs that are multi year programs.
Speaker Change: Target drone programs.
Speaker Change: Okay. That's perfect. Thank you so much for taking my questions you got it.
Okay. Both of them are coming up now for renegotiation on the next five year lot.
Speaker Change: Our next question comes from Andre Mcmahon with BTG.
So we're going to get this fixed okay. There are two sub contractors out there that you all are aware of.
Speaker Change: Eric Deanna.
Speaker Change: National <unk>.
Speaker Change: I guess afternoon for you guys too.
Speaker Change: And they have been.
Speaker Change: Thanks for taking the question.
Speaker Change: Just looking specifically on tactical drones. There are a couple of things you guys called out last quarter that I was hoping we could revisit first being Apollo wasn't contract documentation I think.
Speaker Change: Raising cost.
Speaker Change: Significantly.
Alright, so we're going to get it addressed in the contract and you guys know me I'm working on a backup plan or a vertical integration plan because we can have this.
Speaker Change: <unk> was under contract and the Valkyrie has also been down selected for an international program can we just get any updates on those possible.
Okay. That's perfect. Thank you so much for taking my questions you got it.
Speaker Change: Apollo is under contract and we're working away.
Our next question comes from Andre Mcmahon with BTG.
Speaker Change: Athena is under contract and my Tummy tells me later this year because of the nature of the work it's going to be expanded.
Eric Deanna: Eric Deanna.
I guess afternoon for you guys too.
Speaker Change: So that one is going great.
Speaker Change: And on the international one we won.
Thanks for taking the question.
Just looking specifically on tactical drones. There are a couple of things you guys called out last quarter that I was hoping we can revisit first being Apollo wasn't contract documentation I think.
Speaker Change: We've won.
Speaker Change: Yeah.
Speaker Change: Yep, we've won and we're working with state Department right now and that's all I'm Gonna site.
<unk> is under contract and that <unk> also been down selected for an international program can we just get any updates on those possible.
Speaker Change: Could you give any color on maybe just the cadence of these programs like as a whole maybe just to not give away too much info like how should we be thinking about the step up so part of the revenue increase at the end I talked about in the unmanned business for 25 over 24 is as a result of Apollo with Athena.
Apollo is under contract and we're working away.
Athena is under contract and my Tummy tells me later this year because of the nature of the work that is going to be expanded.
Speaker Change: Okay.
Speaker Change: And international is not getting baked in yet.
So that one is going great.
And on the international one we won.
Speaker Change: The international a little bit a little baby, a little baby, we've hedged it I've had it.
Eric Deanna: We've won.
Eric Deanna: Yeah.
Speaker Change: Because that includes delivery it includes delivery of airplanes.
Yep, we've won and we're working with state Department right now and Thats, all im going to cite.
Speaker Change: Got it you've hedged it yet because it's international.
Could you give any color on maybe just the cadence of these programs like as a whole maybe just to not give away too much info like how should we be thinking about the step up yes. So part of the revenue increase at the end I talked about in the unmanned business for 25 over 24 as a result of Apollo with Athena.
Speaker Change: This is all cool, but its international at State Department, We had a change in administration, which has slowed things down and so we're going to be very cautious here until we get it done.
Speaker Change: But we won.
Speaker Change: Okay, No that's great to hear and I'm very glad to hear that.
Eric Deanna: Okay.
Speaker Change: Yes.
And international is not getting baked in yet.
Speaker Change: Pivoting away from that if I could just squeeze in one more if we look at space and sat I know you've kind of talked to the demand levels across government and commercial and they're deferring values, but could you maybe just talk to us about what mix currently stands at the business and what you might want it to look like in the out years.
The international and a little bit a little baby, a little baby, we've hedged it I've had it.
Because that includes delivery it includes delivery of airplanes.
Got it you've hedged it yet because it's international.
Speaker Change: In terms of how much commercial versus Gov.
This is all cool, but its international at State Department, We had a change in administration, which has slowed things down and so we're going to be very cautious here until we get it done.
Speaker Change: So like two thirds, one third right now two thirds Gov do those national security.
Speaker Change: D other government agencies and stuff like that.
Eric Deanna: But we we won.
Okay, No that's great to hear and I'm very glad to hear that.
Speaker Change: One third commercial.
Speaker Change: Roughly.
Eric Deanna: No.
Speaker Change: Probably.
Pivoting away from that if I could just squeeze in one more if we look at space <unk> I know you kind of talk to the demand levels across government and commercial and they're deferring values, but could you maybe just talk to us about what mix currently stands at the business and what you might want it to look like in the out years.
Speaker Change: It's got to go to 820 government commercial because government is kicking butt and it's growing in commercial is going to be kind of sort of flat.
Speaker Change: We need the satellites to go up.
Speaker Change: Okay.
Speaker Change: The operators meet these satellites to get fixed and go up the operators, they're smart, they're not going to deploy we've already won the programs. We've won they are not going to deploy our ground equipment until the satellites up in the Sky, which makes perfect I hate it but it makes perfect business sense and Thats, what I would do.
How much commercial versus Gov site.
So like two thirds, one third right now two thirds Gov, two thirds national security.
Other government agencies and stuff like that.
Eric Deanna: One third.
Eric Deanna: Commercial.
Eric Deanna: Roughly.
Eric Deanna: Probably it is.
Speaker Change: And so that's the dynamic we've got going here.
Got to go to 80 20 government commercial because government is kicking butt and it's growing in commercial is going to be kind of sort of flat.
Speaker Change: Eric that's super helpful. Thanks, So much for the color I'll leave it there.
Speaker Change: Yes. Thanks.
Speaker Change: Alright.
We need the satellites to go up.
Speaker Change: Our next question comes from Pete Kubicki.
Eric Deanna: Okay. The.
Speaker Change: With Alembic global.
The operators meet these satellites to get fixed and go up the operators, they're smart, they're not going to deploy we've already won the programs. We've won they are not going to deploy our ground equipment until the satellites up in the Sky, which makes perfect I hate it but it makes perfect business sense, and that's what I would do and so.
Speaker Change: Alright, Thanks, guys I'll try to be quick here just a couple.
Speaker Change: Deanna just so just to wrap up kind of the margin discussion. The margin headwind 25 is all of that targets in USD or are you expecting <unk> to actually expand margins in 'twenty five.
Speaker Change: Or are there headwinds there as well.
We're expecting some expansion in <unk>.
That's the dynamic we've got going here.
Speaker Change: The lion's share is in unmanned systems.
Eric that's super helpful. Thanks, So much for the color I'll leave it there.
Speaker Change: Okay.
Speaker Change: Thank you for that and then just last one on.
Speaker Change: Yes. Thanks.
Speaker Change: On the Capex spend on the Valkyrie second production lot.
Our next question comes from Pete Kubicki.
Speaker Change: That $30 million. This year does that does that complete that second production line.
Eric Deanna: With Alembic global.
Alright, Thanks, guys I'll try to be quick here just a couple.
Speaker Change: Are you expecting future lots can be capitalized as well or are you going to switch to more of a inventory spend after that.
Deanna just so just to wrap up kind of the margin discussion the margin headwind 25 is all at targets in USD or are you expecting <unk> to actually expand margins in 'twenty five.
Speaker Change: So the second line of 12 <unk>.
Speaker Change: First 112 is substantially done the second line of 12 will there will be a little bit carryover into 'twenty six but it's the lion's share is in 'twenty five.
Or are there headwinds there as well.
And we're expecting some expansion in <unk>.
Speaker Change: As far as future production.
The lion's share is in unmanned systems.
Speaker Change: We would expect it probably to be more.
Thank you for that and then just last one on that.
On the Capex spend on the Valkyrie second production lot.
Speaker Change: <unk> inventory rather than capex.
If.
Is that $30 million. This year does that does that complete that second production line.
Speaker Change: If we lean forward again, but based on how things are tracking with three customers for it.
Are you expecting future lots can be capitalized as well or are you going to switch to more of a inventory spend after that.
Speaker Change: Okay, but our customers.
So the second line of 12. So the first line of 12 is substantially done the second line of 12.
Speaker Change: I think we're going to sell what we're building and then we're not going to need to lean forward anymore and it's got to go to what it's going to go to a more traditional programmatic relationship we would have done what we needed to do.
There will be a little bit carryover into 'twenty six but it's the lion's share is in 'twenty five.
Speaker Change: To get installed and get the initial orders and go into production.
As far as future production.
We would expect it probably to be more.
Speaker Change: So I don't think we're going to lean forward.
Speaker Change: Unlikely, we will lean forward again and build additional capital Valkyrie, we're not going to need to do that.
Traditional in inventory rather than capex.
Eric Deanna: If.
If we lean forward again, but based on how things are tracking with three customers correct.
Speaker Change: Okay. Okay very helpful. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Alan Page with Jefferies.
Eric Deanna: Okay that are customers.
Speaker Change: Hi, Eric Deanna, it's actually seemed like Alan how are you.
I think we're going to sell what we're building and then we're not going to need to lean forward anymore and it's got to go to what it's going to go to a more traditional programmatic relationship we would have done what we needed to do.
Speaker Change: I didn't want to Pannella era.
Speaker Change: Want you to be upset with me.
Speaker Change: <unk>.
Speaker Change: So my mom [laughter].
To get installed and get the initial orders and go into production.
Speaker Change: You called out Dan Joseph, particularly promising program along with several others within <unk> you asked what are sort of the next steps as we think about the contract progression there.
So I don't think were going to lean forward.
Unlikely, we will lean forward again and build additional capital Val <unk> threes, we're not going to need to do that.
Speaker Change: <unk>.
Okay very helpful. Thanks, guys.
Speaker Change: Is that that has been thus far.
Eric Deanna: Yes. Thank you.
Eric Deanna: Okay.
Speaker Change: Yes, we are.
Speaker Change: We got a number of flights.
Our next question comes from Ellen page with Jefferies.
Speaker Change: Between now and the end of this year all the way into Q4.
Hi, Eric Deanna, it's actually seemed like Hey, Alan how are you.
Speaker Change: We've been very successful so far.
I didn't want to Pannella era.
Speaker Change: We have to continue to be successful on what we're doing here with us.
Want you to be upset with me.
Eric Deanna: <unk>.
Eric Deanna: So my mom.
Speaker Change: Call for that class I can't talk about them.
You've called out Dan Joseph, particularly promising program along with several others within Ku asked what are sort of the next steps as we think about the contract progression there.
Speaker Change: Assuming we're successful.
Speaker Change: We are hopeful that in 'twenty five we will get a follow 26 excuse me in 2006, we will get a follow on contract and they'll actually start ordering some units to expand the concept of operations. They are trying to develop for this platform.
Eric Deanna: <unk>.
Is that it means that for.
Eric Deanna: Yes, we are.
We've got a number of flights.
Between now and the end of this year all the way into Q4.
Speaker Change: Okay.
Speaker Change: And then maybe as a follow up I know Josh was asked about earlier.
We've been very successful so far.
Speaker Change: How have you thought about bracketing that into your guidance.
We have to continue to be successful on what we're doing here with us.
Speaker Change: Oh, yes.
Speaker Change: But in my opening remarks, Sheila I talked about those.
Call for that class I can't talk about them.
Eric Deanna: Assuming we're successful.
Speaker Change: <unk> is a huge win for us.
We are hopeful that in 'twenty five we will get a follow up 26 excuse me in 2006, we will get a follow on contract and they'll actually start ordering some units to expand the concept of operations. They are trying to develop for this platform.
Speaker Change: And we're seeing it so we don't have consultants, we don't have service contracts, we don't have labor based contract rebuild build spec hardware.
Speaker Change: And the dose cuts that money is going into rebuilding the manufacturing of the defense industrial base, which is kratos, which we're seeing and it's going into <unk>.
Eric Deanna: Okay.
And then maybe as a follow up I know Doug I was asked about earlier, how have you thought about bracketing that into your guidance.
Speaker Change: Buying hardware, that's ready to go right now.
Speaker Change: We've already received some contracts in the past month directly related to what's going on here on the reallocation of resources.
Eric Deanna: Oh, yes.
But in my opening remarks, Sheila I talked about those.
Speaker Change: Don't does is a huge win for us the forged act Senator Wicker what he is trying to do is outstanding for us.
<unk> is a huge win for us.
And we're seeing it so we don't have consultants, we don't have service contracts, we don't have labor based contract rebuild 1000 spec hardware.
Speaker Change: And as I mentioned, one of the Undersecretaries, that's being confirmed to take a look at his comments yesterday.
And the dose cuts that money is going into rebuilding the manufacturing of the defense industrial base, which is <unk>, which we're seeing and it's going into.
Speaker Change: It's phenomenal for us relative to drones hypersonic affordability low cost hardware. So hardware is the place to be right now.
Buying hardware, that's ready to go right now.
We've already received some contracts in the past month directly related to what's going on here on the reallocation of resources.
Speaker Change: And having.
Speaker Change: Past performance calls.
Up in running manufacturing facilities, where we're building relevant little spec stuff that is in demand across the board and that's why what was our book to Bill ratio like the one we just did one five to one and it looks like 2025 is going to be another gangbuster booking year, because people are coming in and buying our stuff. So those is good for <unk>.
Don't does is a huge win for us the forged act et cetera, Wicker, what he's trying to do is outstanding for us.
And as I mentioned, one of the Undersecretaries, that's being confirmed to take a look at his comments yesterday.
Speaker Change: <unk>.
Speaker Change: Understood that's great. Thank you Hugo.
It's phenomenal for us relative to drones hypersonic affordability low cost hardware. So hardware is the place to be right now.
Eric DeMarco: That concludes today's question and answer session I would like to turn the call back to Eric Demarco for closing remarks.
Speaker Change: Excellent I know with long today, but obviously, we announced Prometheus.
Eric Deanna: And having <unk>.
Eric Deanna: Performance calls.
Speaker Change: I had told you we were working on it that we were in the Red zone et cetera, et cetera, where we got it so.
Up in running manufacturing facilities, where we're building relevant little spec stuff that is in demand across the board and that's why what was our book to Bill ratio.
Speaker Change: I apologize it took so long, but wanted to give you all the information on it because it's a big win for the United States. It's a big win for Credo, San Rafael and our industrial base et cetera. So thank you and we look forward to talking to you. When we report Q1, which I think will be the first or second week of May So thank you.
501, we just did one five to one and it looks like 2025 is going to be another gangbuster booking year because people are covenant buying our stuff. So those is good for creators.
Understood that's great. Thank you Hugo.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Eric Deanna: Yeah.
That concludes today's question and answer session I would like to turn the call back to Eric Demarco for closing remarks, great.
Great excellent I know with long today, but obviously, we announced Prometheus.
<unk> told you we were working on it that we were in the Red zone et cetera, et cetera, where we got it so.
I apologize it took so long, but we wanted to give you all the information on it because it's a big win for the United States.
Big win for Credo, San Rafael and our industrial base et cetera. So thank you and we look forward to talking to you. When we report Q1, which I think will be the first or second week of May So thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Eric Deanna: Sure.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Sure.
Eric Deanna: Okay.
Eric Deanna: Thank you.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Yes.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Right.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: [music].
Eric Deanna: Thanks.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Sure.
Eric Deanna: Okay.
Eric Deanna: Thank you.
Eric Deanna: [music].
Eric Deanna: Thank you.
Eric Deanna: [music].
Eric Deanna: Thank you.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: [music].
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Thanks.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Thanks.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: [music].
Eric Deanna: Yes.
Eric Deanna: Yes.
Eric Deanna: Yes.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Thanks.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Right.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Sure.
Eric Deanna: [music].
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Thanks.
Eric Deanna: Yes.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Yes.
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Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Yes.
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Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: <unk>.
Eric Deanna: [music].
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Sure.
Eric Deanna: Hi.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Sure.
Eric Deanna: Sure.
Eric Deanna: Okay.
Eric Deanna: Sure.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Sure.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Sure.
Eric Deanna: Yes.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Yes.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: [music].
Eric Deanna: Okay.
Eric Deanna: Yes.
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yeah.
Eric Deanna: Okay.
Eric Deanna: [music].
Eric Deanna: Okay.
Eric Deanna: Okay.
Eric Deanna: Yeah.