KTOS - Earnings call transcript Q1 2021 | Kratos Defense & Security Solutions, Inc.

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Operator

Good day and thank you for standing by. Welcome to the Kratos Defense & Security Solutions First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions]. to Senior conference VP like today, your now Mendoza, Marie and would hand to the speaker I General Counsel. ahead. go Please

Marie Mendoza

Thank With Executive and Chief me Executive you Vice Thank is Eric Kratos President Solutions afternoon, and President us today quarter Good and Kratos' first call. the Security Defense Officer. Deanna for conference Chief XXXX Officer; Financial DeMarco, for & you. joining everyone. Lund, Kratos'

press potential in the during uncertainties the to accordance that, to of a have in we non-GAAP the financial today's begin discuss call mind call, of now turn harbor please call. included prepared take these that in substitute Accordingly, will for is make substance of this paragraph statements press emphasizes non-GAAP presented initiatives, outlook of be will I to from the we everyone Today's a we financial Before as include and opportunities, financial the a and and measures measures Non-GAAP compliance I'd afternoon. market today's Please provided today's at will with note major DeMarco. today's operational safe This guidance or risks with end over we of the in keep considered end also in that paragraph uncertainties Eric like results the inherent as risks release, financial With company's is these reconciliation strategic not Regulation in term forward-looking future measures GAAP. financial release. discussion should call financial at G. the isolation of as GAAP. defined information

Eric DeMarco

seeing entire pro including describe today Good our Systems XX.X% portfolio, virtually growth and in for afternoon. across organic Marie. we accelerating you, business as release. our Kratos overall in Unmanned is XX.X% Kratos forma currently Thank our

our Skyborg, for XXXX book-to-bill to to confidence, Underpinning stronger just million $XX for LCAT, Control other our We contract XX of and a programs. our Systems and the in organic options are and single SSAT, Kratos and GBSD, forecasts expecting X large award including organic over leading Drone an for growth ratio receive to of XXXX OPIR, be trajectory into last year. even Classified continue other X.X this industry growth we growth Command all Unmanned through Sole-Source the under it in number in expected was we including expect to contract with awards and Systems contract our of balance LCASD, production second half business and XXXX received month

have Valley strategic cyber global cost system data Attritable including and better Kratos. expect Autonomous we and power me business based result his order on tactical of intelligence, quantity we based Mr. and administration. new including divesting disruptions all the aircraft Innovation and for acquisition Also customers Kratos and networks that perspective, will Frank Kratos, Symantec, sustainment overall combat administration. own be date Kratos. new affordable systems security engineer's and to supportive initial for as to the the become prior Kratos Unit is in for of which is believe positive products. a believe the systems more and will critical, innovation And know, the all were customer and further very as The weapons, also priorities for and years. the systems. to the Biden longer Defense favor no billion, priorities of clear slightly that actual and opportunities leader strategic positive new as relevant change, nominated satellite XXX believe DoD President a Innovation military approaches legacy increased partner systems over Secretary, intend of accelerate of buying he reviews through utilize clearly been Based billion, striving on retirement has making systems, is development acquisition on also actually administration's its you Kendall Secretary, has quality they Mr. of career in systems, Force. readiness development in is recognized reform, will the that Kratos' we Deputy operational below affordability the record, posture. funding Kratos our Kratos' the Brown's products and communications, our that no with acquisition, technology submitted an the electronics, previous technology of Kendall's it and positive reason we XXXX than the as he expecting and legacy submission, has security as including artificial Brown, force innovation, ongoing Silicon emphasizing for with Additionally, XXX systems DIUx, recognizes also we the low innovative important initiatives clearly national for Director DoD and to mix, seen by rapid company and or microwave working fiscal identified security national and In flow The commercial administration of today, administration is of Hicks strategic also approaches a weapon if CEO all he the will at better The budget we are affordability, create deterrence, Michael mass, focus the DoD go have Austin of actions to And which propose key formerly reflecting an show positive Air several on his Secretary suite been history, for budget on and next previous picked as the that we procurement Kendall, sign has Defense Defense positive that each and Pentagon's Kratos further hypersonic confirmed, to Mr. taking bring of as is Pentagon the the engineering, weapons will be of fielding space that and and Chief, and include and of Research, as areas. focused drones Development Kratos speed for.

Additionally, Made also focus certain few in the America the administration's positive very President's capability. order product a very on is or Kratos, or only is executive of Kratos the important a of system, and where the for US manufacturers including one

leading previously to is has an Kratos beneficiary single the is and it due which it autonomous flying of Valkyrie its US report in believe that be new own Attritable controlled advancement certain tactical control For flying manned geopolitical that Made the were in a Mako transfer evaluated type of supporting air and allow was as navigational reported aircraft drone that installed is like and recent control jet to link link. tactical refueling our with report demonstrating to total while relevant making further from the organic third has ACS the performance data our has is This we tasks, future be KC-XXX sight last customers, with with carrier. are as in government a relevance the tactical aircraft, the of where was or country envelopes operational via system, new, to not other drone today's we jet by included. to demonstrations the our we launched and confidence Kratos drones for a monitored priorities evaluated available Valkyrie, was success as by been of manned been From and and will the a the report joining undisclosed a the foundational operationally Along with believe demonstrated Wingman our Pentagon. tests it. family makers low and if I recently addressable progression over very tankers also It and summary in to also and China the an this our reported Air growth characterize Air and high demonstrating with summary, underwing that launched the certain is progress a as drone not system and was through to adversary with Kratos able drones is flown increasing ACS the that effectiveness. over years the comment fences, has including tactical low demonstrated handoff certain relevant. United was ALTIUS-XXX AeroVironment's has is Kratos a Air will operational tactical cradles representative tactical recently an UTAP-XX in with significant small reimagining class and semi of Kratos delivering now competitive and publicly payload Kratos and operational that has there tactical the And sustaining the renditions, customer and Mako's system, product Kratos' drone drone, data maneuvering and it been market the and formation stations. first Air UTAP-XX including our threat formation reported to initiative, also test four of the a others am which Tyndall Loyal the to incredible performance on by attritable the with been representative by moving change execution In will multiple of in have successfully reasons. why add It Base ever core and been between node breaking clear a internal formation. Force Kratos to cetera. here, It since intends add Mako flying States the continues program to and you position munition that which that control States the areas utilizing we weapons this drone collaborative national threat In the in our direct the or trials, another believe not relevance and the focus and imagine flight, missions, reported is to Rattle systems potential perform of Navy capability necessary Force while Mako Kratos what platforms, Kratos and Reserve twin successful operational subsequent to semi-autonomous Loyal lead increase PR, that more for performance combat, the leadership, tactical being unmanned was network demonstrated experiments one successful defensive two geo United games in The was independent are line of communications the United a airborne control weeks, in competitive the Force further This it drone unmanned. envelope Kratos the from aboard representative that Kratos' with time, systems, look KC-XXX aircraft, airpower, to partnership brief Kratos trajectory. reported we Air Today growing simulated the operator. would Kratos to the utilized also Skyborg the drones fielding ultimate Mako aircraft beneficial execution tactical are of last and flight, Valkyrie but security of war the forward of publicly Experimentation affordability, jet Stratotanker, aircraft. the extremely the which network Aircraft that for missiles, future toward of near focused. the jump continued Center, a that airborne of. representative as non deployment, KC-XXX was are drones. In Florida. rejoin very independently, second to reported Snake adhered drone a Biden successfully to drone carriers, with team Mako fighter an last flew drive system's autonomous capacity vulnerable cost, pleased as Mako flight and XX-XX efforts, transfer for to the received is our last fully have It US were jet the will formation and high an airpower Since cost Mako with stated we that just of the Kratos the aircraft standpoint, In I hard fighter, to coordinated you, recently simulated to Kratos' its company, Made aircraft more budget, the this ultimately And armed including that part behaviors announced be with Corps encourage being and operations before, and Kratos spread to discuss like demonstrated data serve accelerating at Navy expand series future a being Marine than in horizon and Throughout success Milestone drones other at higher weapon of drones dedicated a and that weapon and evolve, the ranges area, Arizona, recent split, in currently of extremely further be collaborative pods that capability. you, market systems, been there demonstrating SUAS, manned affordable of It flying the increasingly at with of Wingman strategic initial the administration's ground models, reasons, of faster of Switchblade plans testing trusted flight in system potential a allies multiple the the cartoons autonomous et Proving Mako that few as missile jet the that and we with release with an was Valkyrie has at moving class aerial a States can aviation and this mission, take specific from be tactical airborne performed the bay, reported unmanned is autonomy of the in previously innovation, one just drone also the including Autonomous I manned commanded unmanned to is as with security operating it America. to conducted for and shift hour and discuss in weeks control recapitalization Force's drones, XX-XX important split the Wingman toward of commands, with multiplying link, Kratos Kratos and envisioning Valkyrie defend certain in other you. two release announced including tactical operationally ago, XQ-XXA formation continuous AirWolf tactical are now new unmanned administration's in with a for these flight that most instrumental several California. Kratos' were being advance reacted of Kratos' aircraft operation. to Air high will has anti-ship reported with flight, system consisted unmanned support future expansion and campaign Navy Lake, Valkyrie's additional systems, the an fighter will from where with arming a with the Mako flying America two Kratos' expanding the in US Since of over Wing also a to environment capabilities, while long and the will Skyborg termed coordinated flight both conducted certain the methodical drone This responded program. tactical plans and And as tests, Mako last a weapons is additional first few systems command of was it XQ-XXA XX% Loyal goal least the flight reported also in X flight digital its related and we has man Mako operations, Mako included force Valkyrie today operations at both F-XXC conflicts. sixth attritable recently with that missiles flying a drones our range drones The of Grounds drone and Wing Kratos not Test flying US autonomous publicly successful Yuma had you, UTAP-XX new Kratos'

the the stated the including and The C-XX as is Air expanded carrier with onboard Force and for the to in the to aircraft Mako last our then Force in United re-launched expanding Air to air or the recently drones. that by for confidence would the was reportedly flight Air the Gremlins for recovery and described States ultimate the report similar in Gremlins use unmanned flight confidence their operational jet missions or that fielding Gremlins further could in offensive On counter mobility and We example representative counter increased of to flight including Gremlins rearming Force's aircraft, the believe capability. air this addition carrier continues vehicles. since be and participate you, capability increase, in our our of example considering now in program, Gremlins rearmed considering an Air set Valkyrie reported Force customer. that air of This success defensive is of for to an rearming an missions be

transition months Air with Force several funded services with Additional planned Thanatos programs to and DARPA AirWolf the the and other Customer partner expectation our DARPA and continuing tactical with are thereafter. prime other including KRatos' Gremlins are the Kratos multiple flights drone programs, a for to progress. continue next from for flights including Dynamics

pursuing, expected, announcement months. to area, market believe successful, a capability tactical in leader today, we is multiple allow. today, multiple and is currently Kratos' business as continues engine production continue funded reiterate domestic I system drone to incredibly perform rate now ABMs Kratos built as to and in Valkyrie's mentioned, as option Ghost our Since as to to are in over released are all certain of been to Kratos the our international. have is of also Skyborg, this with production representative drone systems, priority drone position that runway previously tested you awarded successful of by important scheduled Kratos' catalysts full expected to target We that the rate an to report for you drone progress on certain initial we of drone under the drone critical and including Golden successful also of It tactical opportunities The be we and and/or programs new variants jet certain integrated tactical if progressing as combat that our which Kratos' we independent, executing area. Works with future the continue flight certain first are must the by announced others. aircraft occurring believe initial including of customers with to be weapons end programs, Kratos' Force's similar low programs shortly be may next Air tactical with have the Kratos opportunities from we first drone continuing 'XX. the which XX there we by drones transition class forecast, area are continue could milestones which why we expect or the In payloads related will year. are Kratos' America, to production LCASD, QX update LCAT, and top in to today, significant And for and all few to customers new customer development a being Kratos' last government right both Skyborg related initial be and by trajectory our thereafter. in deliveries are situation classes flying related growth with that have program new very Horde, target being potential

future Department awarded multi-domain joining Defense business even side assets. integrate remains opening are other OpenSpace the introducing growth to in network technologies this organic security space target and for and leading space defined Kratos' pursuing, future opportunities bookings. will from on are including satellites advancements Kratos well, tracking which the awards of drone control of of support all orbit, case national base and industries, industry satellite market, as including half performance large are We domain all are for increased renaissance may telemetry if space need of commercial systems of in Space and of of organic in case control commercial in where for success to digital perform with the margins affordability and specialties. awareness defense operated capitalize and large business currently expecting growing and successful by satellite of our minimum second is Kratos' the to a and to greater for proven ground the And and drivers ground global technologies commercial or data that networks, above Kratos awards, a high year. which is the first year-over-year number a broader related and door and year. ground communication very transformation and with to the the ground command missions undergoing is centric better and sole program space certain market space trajectory certain end form network networks are into base requirements. plan expanding XXXXs TT&C the of by on owned which rapidly And binary space revenue enhancing continues XX% Certain our source including we this for new and confidence platform confidence our of space the and technology be system software are we growth acceptance our key potential

for second strong satellite and Kratos' based business and of opportunities business production are awards, them and CXISR planned business. with and performing and XXXX future mix Kratos' space, growth satellite, is very other our and on Defense for with revenue growth a with large GBSD We new significant Microwave half driver strong program significant the Kratos' new the to is thereafter. Kratos this into if team on business expecting expect execution and trajectory Kratos growth organic continuing awards recent coming in up possibility we space now or continues business areas certain the including there strategic right GBSD program are in of year-over-year radar these programs successful organic a forecast the additional missile margin and and be pursuits. for for schedules Electronics Kratos' CXISR currently organic months

our make business quarter increasing growth core across XXXX our organic progress margins, exception Kratos trajectory organic Training powered up drones, focused trajectory we growth of saw Rocket and into Solutions half in extremely this forecasting currently all munitions. programs, missions business and second priority those the and growth on currently System, business. in Every our in strong businesses, the and to the looking areas. missiles positioned energy with first each engine business and And of multiple the planned. right well year we security are are hypersonic particularly of next directed forecasting continue our businesses future Kratos' XXXX into national for Rocket including core funding is Our System and with in with with development this strategic generation

are of organic programs of significant and received a currently the increase on focused future currently we trajectory are new program of successful we we number number are on executing further pursuit additional if forecasting. are could new opportunities growth and We in a have we

affordable fielding that portfolio on Agile killer the space is security and development Top which an the of constantly capabilities areas are winners related products rapid is is growing areas. under in one Deanna? a program execute customer for expected Rocket people by propulsion We For the tracking focus Quantities Kratos DARPA to future of which At want future current for we situation and products qualified end including strong extremely right budgetary Kratos be we DRACO, lead vendors positioned that today existing could classified is to requirements for times advantage was and unmanned, in rocket requirement. be to to the And all satellite, to are for fiscal Kratos for our microwave which Demonstration end system address portfolio, are our existing contributor not customer and in new including just and or with this believe environment. and systems, space, large our technologically and number programs, is related important Israeli the COVID advanced suppliers new to best program the pressure own. systems affordability that environment, as Kratos. is threat going I these, future qualified have of with of a industry be positioned believe the believe business. Operations we of India, and now better and fielded today the Kratos to expected for an a number uniquely their technology the expected address funding and is the quality which learned our and is of company that opportunities example, Kratos' hiring in highlighting incredible grow affordability we execution monitoring team in including the of Cislunar company and a managing critical that CXISR and areas. clearances Kratos

Deanna Lund

to Kratos' XXX million. Eric. million Good you, were XXX afternoon. at of XXX.X revenues quarter estimated Thank range million 'XX of first of the our upper end

quarter of of first space R&D from in QX increased 'XX the million X.X first up X.X increased of expense operating satellite compensation 'XX million, business X.X current and XXX,XXX Our in the X.X stock consolidated quarter operating includes expense increases primarily million, of the income million, depreciation was of which income and XXXX period. in

acquisition, work to As for the the per X.X tax our programs the space our disclosed offset mature benefit stock in to revenues, of the benefit, microwave exception zero of million products increase In certain million was KGS recent life the GAAP to X.X XX.X of Unmanned operating down in which from segment to was on million of reflecting in a favorable first of is reflecting quarter, first of related deductions including business. reported 'XX, turbine quarter was up performed the approximately first revenues income XXXX, and mix of above equipment reported million and is engine GAAP X.X XX.X in quarter from XX.X% of net related over the in of with rocket, leverage of including less quarter achieved Unmanned satellite scope expense. This in XX by with XXX EBITDA including our revenues revenues typically X.X in quarter on for cost R&D Adjusted XXXX. including all reduction and organic of million, income XX.X the increase of related X.X Systems compared space target coupled and the reduction 'XX due from favorable and million CXISR, was adjusted million satellite from XX% the reflecting million, first G&A contracts. the and production space contributed KGS million, XXX.X tax our in programs, our down in increased and quarter related international revenues million our of EBITDA due and a infrastructure. Solutions previously drone 'XX, partially reflecting revenues, share ASC X.X Systems ASC from from first Valkyrie adjusted Training up business, the XX EBITDA operating certain generated related first Unmanned and product approximately primarily million X.X EPS quarter, and R&D Solutions from mix Included growth overhead invested quarter XXX,XXX a Training Systems of increased first satellite up million first the reported acquisition, ramps in an and compensation expectation primarily primarily a of of based XXXX. $X.XX first of in total more the million in KGS fixed the the business. the manufacturing of quarter program, recent KGS XXX.X the from primarily was the to million, million income was XXXX. reminder, cycles. to to X business, a XXXX million, million, first in businesses. quarter defense quarter businesses our up net of first across of X.X products system of our program. XX and

XXX,XXX. EBITDA acquisition cost loss adjusted of loss of from consolidated X.X XXX,XXX, and the transaction net foreign million, operations, related based attributable income compensation and stock including for quarter or is excludes restructuring continuing to Our consolidated first and costs interest, non-controlling non-cash of

outstanding of was Moving outstanding the our credit sheet outstanding. line XXX.X cash on liquidity, Cash X.X bank cash at X.X generated Debt credit at amounts zero end quarter our million million. million XX operations million. XX.X to of balance March quarter and was end million net XX.X had free balance quarter flow million, was for XXX.X million letters cash XX.X in and of from at was less we CapEx and and or operations of generated the first from flow of

from and plus bookings and XX%, end XXX.X customers. XXX.X for contracts million, quarter from the Backlog DoD, was from was time DoD million unfunded. from generated Our price of a X% US contract include fixed the government and quarter which non quarter with from federal XXX.X the with book-to-bill revenues Revenues generated were quarter fourth the at contracts. contracts of at XXX.X was generated contracts X SMS and Budget federal X.X material XX% during end sequentially from backlog the with quarter end of from customers from with XXX.X approximately foreign quarter of contracts, mix XX% type 'XX. backlog million, government and ratio We million down were X% agencies approximately million commercial to contracts XX% which for X%. cost first

XX with March of ratio million. to XXXX total For XXX.X XX, months X the our X.X last was ended bookings book-to-bill

million XX for providing to ratio our XXX guidance, of segment months for million are our the segment. of XX ended guidance of for X second we financial revenues X was for our And to Unmanned to book-to-bill and adjusted KGS million. X.X now XXX EBITDA XX and to Our initial X-XX-XX Systems quarter last X.X million

million international million the a received number closed be discussed, XX revenue includes impact expected we loss awards contract ASC 'XX for a to As approximately in more million includes had of reflects as XXXX. and XXXX. full or of product XX.X recent contributed 'XX, the developmentally the previously Kratos' an year over mature new the which is our a have decrease Signal of a of and in which in in XXXX investments to mid guidance year-over-year, contract, mix versus large lifecycle recent of discretionary weighted, training in revenue generate XX is including that of result more and acquisition expected

awards, would with potential timing be dependent are be our from criteria fiscal financial orders related forecast, contracts contracts estimated, recent drone and or related fiscal vehicle, consideration. which contribution production current Skyborg, drone 'XX and reminder, taken contribution tactical contribution year any a guidance into system the of our includes excludes and additional adjusted financial AFRL can to received on tactical year those As or other of Kratos' the orders be system potential including XXXX to financial performance. other contract And the one including scope, guidance such Valkyrie from or pro period additional Valkyrie. contract type the forecasted Eric?

Eric DeMarco

questions. over With Thank you, that it for turn Deanna. moderator to the we'll any

Operator

our And comes Josh question from first of Benchmark. question. ask [Operator Instructions] Sullivan Please your

Josh Sullivan

Hey, good evening.

Eric DeMarco

sir. evening, Good

Josh Sullivan

own Really, having of with said drones. quality that. Eric, a a customers you all mentioned couple have your as its quantity

when applications. You going kind start here of when manufacturing have tests close interest of a But and number relevant? various quantity that get to on we manufacturing does capacity? do with in show customer becomes the drone Or your capacity where flight enough

Eric DeMarco

opportunities I the And next then off year in the we company the this to not mentioned, toward close that building prototypes. – thereafter. are start There Valkyrie's have the monthly of coming them couple going going months. delivering end line. close We're delivering recognizes of on because fruition believe that to number they're we're we're of production be line to I believe around a start as I a we're we have fruition. to that to working been going hot coming are

the about second – I'm variant use on talking term already based are the it. to going We customer input to

Josh, that focused So here operating the nearing it about. – Air as capability I think more obviously been and evolving been they've initial believe we've has talked the more of Force it. we're as aware the dates on They're becoming customer I

Josh Sullivan

on And that the that part provide then mentioned color you KC-XXX tanker Can is is of trial a that just some program? that? Skyborg different or you

Eric DeMarco

that Skyborg. to That's That's that about part what program. It not of a publicly was unable is. different of talk released I'm part program.

Josh Sullivan

maybe Okay How about opportunity, and are how space ground to we should XX rolling XX over out? stations many that size next expecting commercial the months? think just on how KGS, Maybe then the to that? we you ground

Eric DeMarco

because a run model looking OpenSpace Yeah. the Josh internet, to the a software you web. I standard OpenSpace run me it And why on evolving run on tell let standpoint. more it don't the – I'm can with ground it's at can not from it station because computer, on can

have we've most at they're So it. of lot which I out contracts can't won a lot because is mapped a of we're we classified. – talk What about looking

both military in is on side. commercial this So the the

it business the but it on delivery for very looks I of offhand strong have year. the was the rest I We was schedules. in space QX, forget what book-to-bill strong very think and our our

X.X certainly in X, space So tells business. was Deanna me it to

way these infrastructure at that some that because we're hit year-over-year And new with it going have we're comfortable XX%. we revenue XX%, could So year-over-year the looking the if going said, of after is to before never very opportunities, didn't system. grow we're as case ground we're XX%, the base we growth. I've And we big

We step particular, of Now ground. droven where way, functions on similar along to the we're LEOs has MEOs And going number because up, this, excited that satellites we market. we're to new of could the to the first about in really architecture and similar drones, whole do. our just little the the a do a are the which engines,

Josh Sullivan

you Thank taking for questions.

Eric DeMarco

Yes, sir.

Operator

Ken of is Canaccord. from question Herbert next Our

open. is line Your

Ken Herbert

Deanna. and Eric afternoon Good

Eric DeMarco

Good afternoon, sir.

Ken Herbert

just for year within single digits, you the high how should called with here to the quarter the I do progressing to maybe year. in start that business? like out headwind. first it bit in about sounds R&D think of the and rest But the that KGS margins a the margins Do in margins the to segment? the up to second is Or mixed last we a ASC we – get third realistic? KGS sequentially we I relative of of a wanted outlook know, up And is what's back Deanna step business. how

Deanna Lund

Yeah.

We we space second the be expect primarily And half. it from to that's see and half. delivery schedules half for in based our execution standpoint the second stronger what the driven on second schedule execution for business and and in an

Ken Herbert

is is that to expected continue? the R&D Okay elevated and spend

Deanna Lund

off that's remain the get if would but of we then will rounds, same to you will. level, That that cost expected leverage at – as some structure revenue of that

Ken Herbert

Yeah.

nice quarter on margins? And Unmanned, the quarter, that in if in just benefited I in anything the of Okay. unusual margins was side could, the Perfect. there flip terms

Deanna Lund

no. is that to that significant call Nothing out,

Ken Herbert

through good is go rate as a Okay, year. rest the so run starting this we the of here point

Deanna Lund

It's each as on we're going what building. quarter mix as depend and to far shipping

the So it in quarter. was a favorable mix

give – we obviously, strong don't perspective, second margin for forecast on particularly first a it the in was So quarter. but

Ken Herbert

back Perfect. I'll Okay, there. that's helpful. pass Thank you. it

Deanna Lund

Thank you.

Operator

question of is question. B. Your from ask Riley next Please Mike Securities. your Crawford

Mike Crawford

run Like or electronics, rocket, on the you you. different Thank Could magnitude a annual rough size of Thanks basis? business KGS? within units for all microwave maybe give these rate a of space, color. order or

Deanna Lund

across size accordingly. wise question we've I said comment talked And units. Mike, we was all trajectory respond it just the business as So we've in up what right XXXX. about, your the expect to can on into in I'll

that for business CX So XX was million approximately our last year.

microwave XX. was to XX business approximately Our

XX. was support approximately business rocket Our

And Our still offset XX. but impacted of the by turban COVID. some of most commercial on And side saw some approximately we side. to business KTT, XX it negatively that that the government was was on actually by growth significantly impact was

ASC, on training with government with was And XXX. the approximately the sorry, that's just on but another quarter, see training it our did organic XXX growth turban. business combined about side, we on space I'm defense side, was and that about and about this was So – then the space with XX. then

Mike Crawford

I'm training? and XX it's XXX sorry, Deanna, then with with space

Deanna Lund

XXX. including just ASC And training then under just space was XX. was so under No,

Mike Crawford

be this a it's business on you, where just thank or could further for just these space, Then opportunities, Okay, mix? currently? software, quantum past, radios providing would with think Deanna. exactly increasing case be on flattish you're as Or the going big that a what's more in ground is you've revenues example, but software transition with margins to hardware that I like said though and there, the

Eric DeMarco

Yeah.

both. providing are We

have business We're that the that to geosynchronous dedicated mission legacy So those of that particular under where specialized orbit satellites a ground satellite. have and satellite that still are they equipment programs. mission, delivering very the

WGS, or SBIR, think firmware So okay. are more things okay. hardware the AEHF, like that, legacy GEOs, Those intensive,

installed big Earth providing are racks and command more we're tracking to we're control moving – software, be to being defined on We're able for MEOs station equipment ground and web to so more a of a LEOs to some the or boards GEOs, software maybe model. tracking. literally lot Newer, radio software where of the telemetry with it, of not or do and software, providing is

areas, a there because systems of And a legacy And are lot up. there. it's so are still of mix, there like systems going that certain a now, still up in right lot still

Mike Crawford

Eric. you, Okay, Thank question. then that's helpful. last And for switching gears

capability, As you these online months. for you orders production initial to operating a have you –full these in have hand multiple couple coming don't – them and programs you're up production Valkyrie's moving have but right

that the been today do you to dime, mean own the upside does that of building that orders, when some in? So then issued would or on get guidance potential that for that you've that Valkyrie's represent particularly you've your such factored is

Eric DeMarco

year. upside to LCASD, were program of include get building. so in that we addition in contracts contracts the get to get were If – to won, will the aircraft, XX for includes we're additional if the If we that won additional were of and model tasking this be to that that LCAT contracts we've deliveries Skyborg we to air our deliveries planes, we've

Mike Crawford

Okay, thank you you. clarification. the for Thank

Deanna Lund

that correct a had that on XX, just I to to Thanks. want And I the statement does Mike correct that. made include XXX training without so gave just

Mike Crawford

Thank you.

Operator

Baird. Our of line Peter from Arment next of question comes the

is open. line Your

Peter Arment

are so a Eric Eric, it as X months like Force Deanna. Milestone kind it many the in – of good describing the here for Air a afternoon, AAAx sounds I How really with program coming is guess. campaign. of up the Hi, and completed And at Skyborg you're basis marathon to saying on looking tests Is testing testing? to start we're a something you from you going to across where it. be the see could describe the your in monthly board? seat going of terms a of it pace lot it, how more Maybe

Eric DeMarco

programs increase is we we to continue as have. multiple has speak and forecast definitely expected increased to and Testing across it literally that

ramping So is up it significantly.

Peter Arment

quarter? COVID been this from disruption there any Has

Eric DeMarco

back, was year. year set last – but no, far. this it back No, thus – Last set none all program's not the year us

Peter Arment

about And what think like you think outside anything where do or we potentially there award moving And that? that? Valkyrie else about about something of think towards timeframe that's an is you kind could when of LREP

Eric DeMarco

year. on it's every Mako deployed, going than transition I is into you every every complete going have production a lot multiple demonstration agency go confidence than can this going and more research aware I cannot Valkyrie have later And retrieval talk now more a into that. obviously that because I the the to I to expectation going have the is the and we we go me to after ever to or this to not have answer to DARPA about Okay. from the I to from service Peter, I expectation that expectation simple. am very also production. have the And to I is services customers. And are going Gremlin that Valkyrie. of of we this we – will the are publicly, of I be carefully ahead get to

not drones this that all No close, else and company We has not that in class. BATS. the any are in right. jet only has even includes the one It's It's world in the class today. flying this

can that I and it four have talk say to that We about always I way. you

long it. the That's Valkyrie, testing okay. our and We what execute, I weapons, announced of have else have this to we Air so you end the hold out and about, don't about the today. as can you not emphasize have get don't we which deploying to. There's we Gremlins, competition AirWolf we points the confident any Mako, so the there. to why We come distracted. have read talk why payloads, doing cannot the company, want is that I Force I'm we price close And other game

going to We are win.

Peter Arment

came for clarification Yeah. in the that mentioned $XX had Eric, in an I And booked where was so you Unmanned – April, guess for in correct not on the was book-to-bill the million of Unmanned that bookings, early the quarter. part just X.X award you fit there at

Eric DeMarco

is included That not not is our in in our – that included book-to-bill.

only that can of life fully needs I what me, options do, us the know contract do be is got to to only the United million is And over you And a or it's a We're tell it. alright, the think It's that Let okay. we or and other systems contract, that that $XX press me two competitive put systems. a award out funded, it. it. that's get for. substantially for the Army $XX command won. I the something single a okay. because control MAC, and like XX, drone we believe okay. guy I to base It was States I release million expect with guy on that That I it. award. We're that fully

Deanna Lund

fully further guidelines But – it just is the to MAC, it a be under clarify we although new to that under XX backlog expect since ASC Peter, for funded

Eric DeMarco

single It's award IDIQ, yeah, sorry. an IDIQ,

Deanna Lund

would an it our be funded. until Since it's bookings record it's in would it funding is when included incrementally we most as likely Okay. That be booking. would actual as IDIQ, not received a

Eric DeMarco

single MAC, base It's I'm award, to IDIQ it adding to a XX Peter, is this. Yeah, get not a XX. options

Peter Arment

Deanna. having clarification, for me. Thanks. Thanks the Appreciate

Eric DeMarco

Okay.

Operator

Kahyaoglu of Your next question Sheila from Jefferies. is

open. line Your is

Sheila Kahyaoglu

Good guys. Thank you. afternoon,

Deanna Lund

Sheila. Hi,

Sheila Kahyaoglu

few your is convert that revenue a questions way. maybe contributing. revenue from those of talk Valkyrie Valkyrie dollars or of a your for expectations, contribution asked you in 'XX opportunities been 'XX Mako, that? AirWolf. whether we already already in think to about Can Yeah. on and wanted up I and terms when about cadence have follow I know just the into How do Eric,

Eric DeMarco

Valkyrie so five pick we soon testing. Valkyrie and of is I'm XX. up contributing. a Right, say now to advance the because test we few contributing. And slowed That regime. down expect AirWolf that is funded. is going in is the back funded. of delay is had have Obviously, Gremlins very Mako done in tests fully right as the – to number months. last I between

that this as I increase directly, to toward the answer question backdrop of to we year. the continue your expect with the to Valkyrie So end as revenue head

successful of between now the think going end to to is and I not of course materially going the to funding one block get on second is –is of big increasing. that the The increase that. but to of end going year, And year, Gremlins is increase somewhat, this okay. Thanatos we're the

means a be that Thanatos So XXXX will on up. step significant

demonstrate because one. couple there are and demonstrate to them will X. a until up to be that get to from – two to I very 'XX Its think are up of sporty that a have on to And to elements are AirWolf step going myself we we a don't don't is I want there comment from on be yet significant significant AirWolf possible that – of 'XX I Valkyrie ahead 'XX. want Gremlins step

Sheila Kahyaoglu

then Deanna, good. number in year I because no, the Okay, one that's fair. quarter. really OCS think hit your And QX free you for for was flow the maybe Thank you. first just And cash

use it, do investment, over maybe, three bridge massive the next is So working there how quarters? we capital

Deanna Lund

Sure.

the was first very originally anticipated it was for what particularly had quarter. So first we in CapEx quarter. strong less than the

CapEx expected So at a QX and than run the was. to higher is much XXXX remainder rate QX of be

in of for the reminder, million first XX a quarter. we've about the spent million guided As and million X X million year to XX we or CapEx to

higher. quarters and that payroll starting million in so of that we're ramp, also to the next in we've quarter. use X working XX QX, CapEx be ops pickup systems. for the and There's investing the is taxes, the that QX, we'll is engineering a rocket And nonrecurring new payback QX, cash all three deferred to that million be about just will on flow from be on particularly So got see in going will capital then of fourth that

flow that that So on our 'XX FY guidance call our cash we last unchanged. gave remained for

couple would the with next expect quarter, cash strong some in would see you uses of So we in the working flow quarters. capital first the

Sheila Kahyaoglu

Okay, you. thank

Deanna Lund

Sure.

Operator

our next is from Ciarmoli And ask Truist Michael question. Securities. of question Please your

Michael Ciarmoli

guys. good Thanks Hey, were evening, very taking opening for organic you monologue, Eric, your talking in optimistic the questions. growth. about the

the budget surprises all optimism, raising below the from maybe in like accelerating, book-to-bill came and there growth the expectations, Sounds any what prevented you there were guidance? one above time, despite

Eric DeMarco

book-to-bill the all. no was on the on surprise so at Right, there

of as As QX, know, the programs, to it I couple, it. second next begin out half in it. second in we are and sole book the of source And kill year. got We've of to my this remarks, laid going half quarters, we're three killed in may the some we're you which last prepared expecting extremely most large just –

You're off wins announce. approval going to be satellite ripping for waiting see that we've a – won to imminently, of customer large number we're going to were

unless don't is And pipeline strong. just I something our incredibly foresee. occurs So that

the shows and variant again. of up States So another shuts down COVID for example, United

by very, looking guidance? a organic very, do our are for comfortable even don't in growth in XX, now. forecast the step We want we this for literally yet, not we're the me over step though are to saying step. going raise we a right it And comfortable your guidance very why To 'XX very year. give in for I don't on to function question I'm

want care know stay I quarters if if take to one what you like we execute off comfortable. of mean. want I to that'll knocking itself and I You this keep

Michael Ciarmoli

Force just that how commitment on put think significant – platforms. Skyborg before platforms variants you Air to wants and or Got many it. a to not do Kratos maybe fly What the making

Eric DeMarco

class, I have comfortable, The flying it what going know Skyborg don't for has that Australia. an wheels. position – The with ear. this that a ancillary okay. no way. grinning independence. is to if flown made nobody. you in I once. now with and this am a can extremely I I Australia. Boeing in anything ops way. for very this see I runway answer have ear answer else different has has every right were It on No program It's continue con Not believe I'm BATS to made requirement to that. drones, one comfortable I'm significant thinking. have me, Kratos' related to power It's in is They they wheels. mind. it's handicap must it

extremely am at. we where I So comfortable are

Michael Ciarmoli

on one Last me. being drone the is it it. facility that strategic for Got talked the last about port the a operating quarter, on asset? cadence? potential that latest? kind You What latest of What's

Eric DeMarco

plan. That's that Upgrading drone hopefully, at in when flights going quarter, report I are the year to we am Oklahoma. year, next to you port drone tell about Kratos'

Michael Ciarmoli

good. right, queue. All very I'll in the it? jump back Got

Eric DeMarco

Yeah.

Operator

Seifman JP Seth Morgan. next our question from And is of

open. is line Your

Seth Seifman

afternoon. good Hey,

question there wondering First there. you could significant quarter about, update last if just you that. out I think about have opportunities just us was M&A I on some is being And talked I

Eric DeMarco

contract laughing Absolutely. of bids. because guys I That's said I bigger asked and program are portfolio got And our we've right we've at the today. won, smaller ones. number you ones, portfolio at the of was our I heads current and a now, have down end been on call, bigger we ones was Seth, looking if that or

of There size, going opportunities. anything two win. These couple future, doing bid one are of foreseeable I these the I see on going I auctions. These not not know, think able it, one win. off level people But We're claws. of that off of small, really okay. think only these some this we tell are guys I about a can to are us for to do our to have us to the the these size people you guys are is that anything we're in do we I'm incredibly take that know, next bailiwick, plus us with to that are if would because are aren't differentiator competitive them, something. going big. for one equals right not it's four. And one it, we're

do but extremely don't highly, unlikely that never so never, say off we anything And – size.

Seth Seifman

a a kind help just bit about? the entail Okay, that thanks. through little That's you're so maybe that helpful. final you And contract, one then – what – to it could of these time, – the wins OpenSpace a as of KGS? for of step walk of to talking actually kind win say the about? of margins it then would period is going like do? what's talking function these like what company for what's let's the terms And question, you for through a one what look development might then you just walk if just wins duration? this is of larger of we're is do Is what us ones some and in Sort software then scale Maybe

Eric DeMarco

– – more alright. three and between than The XX XXX approximately is one. of million these win expect million period They're years, to performance of we're one Okay, each. I so

include antennas ASC. may of Some them from

So idea that – you there. something to that's will going of give an

to a going is work, would I how So got this curve whatever. tell hardware delivery it's I'm it's would I'll three get to there's component. bell on how you, it, or going into like But over to whether be shaped revenue accounting a not years. be see

the as software up building for application. ramp software, that that we're we have it'll the hardware and as core So specific the we're modifying

So earth do say command do let's infrastructure. putting that to up and them station to them big remotely. They don't be up, able They application they're is somebody it satellites, control want fixed want and want to a via they is putting software. TT&C

RFP probably we in process. of a lot the that We do design that form, will architecture

will them. design that We're architecture for it. We awarded

on little like We ground nothing there's this. will station more antennas, there'll bit be develop to earth be a limited If amount of stations hardware. like a but used there hardware, control

awareness curve two, would the We year lot then software. service buying we out year system, deliver with a our mode space it the three, customer. in – comes up. are possible modify of will in is the sustainment with and then delivery then first our a it it We curve global We of bell in from the customers a that. year down into the goes us domain And all would goes complete bell off

that. globally, satellites like. their monitor like it performing. anybody's they're That's they're how on commercial interfering the stuff them with looks can what we side, at If where So

Seth Seifman

Thank Great. much. you very

Eric DeMarco

Yeah.

Operator

Pete And is Alembic of next our from question Skibitski Global.

open. is line Your

Pete Skibitski

and Yeah, quarter. Deanna nice good afternoon, Eric

Eric DeMarco

Thanks Pete.

Pete Skibitski

they number up kind schedule, spoke awards on second hitting Let drone those you in your feeling half about are me you do target that end the in the of start, schedule if and Eric, risk year you stick in maybe the us let to to, in validate, at large is could target the international revenue of was around just of how my of I in US think recollection you if million classified, XXXX? that. for $XXX out I color just fill and the And the once just wondering services, one me

Eric DeMarco

Yeah.

contract – won. administration's certain we has But have changed. fact, opinion call the international if we contract changed, been talked contract hadn't target have A There's executed. about presidential drone last a the administrations an that the On the international there's had that. by program matter now. of My would we

us expect have State until okay. this put US approval. Well, alright. Government that for in piece out I review into assumption, second That's the that number contribute to and won't of year, get fully Department that. it's think I one, I XXXX, okay. half So

there SSAT okay. next now think second the SSAT going we out major pieces is with of And the The And Air that year, full program. then in negotiations other two the rate are XXXX. get three. Force after start of this multiple multiyear production, I That expect will to are in half we year be on it's to years this right building program in

to this get not the it proprietary. second of I competitive half then other thing And in it that one get. to there's will, okay. into get into to place, I'm there's believe And going need expect then all because okay. is we We those of they fall year, here if pieces

should get we year, Next there.

Pete Skibitski

Okay, you with the international I XXXX executed said thought International, even – when – might the

Eric DeMarco

was that help of I delivery because No, me. believe I Deanna believe unit one. a – will

Deanna Lund

the shipment 'XX. would in certain meet units shipped. why – And not until those historically or 'XX. new then as don't it that criteria, with would impact is you And have been delivery not Yeah, of if what Eric's international commenting with now of it rules revenue percent are completion is if especially accounting contracts, schedules that's scheduled until

Eric DeMarco

can you're OUTSAT, X holding? with saying so with Air Okay, XXXX hit Force and in you just XXX you're

Eric DeMarco

let's extended later get 'XX. don't it know we or 'XX that SSAT, this, continuing I – an significant could impact could might extended – know, it's in I that that don't then out okay. that pushes – we That say if OUTSAT. resolution, Yeah, have If impact

the what see for the It's that the there. ones. US cards are all timing I mean funding You government laying big

Pete Skibitski

Yeah.

enough. or for Any program potential me, all you one you maybe about second mission services Last mentioned, color or new said fair for size CX at Okay, the opportunities area. timing those. or

Eric DeMarco

there They're So over alright. them. both of are XXX million two for us,

very think now, that. Okay, defense here. defense have stuff, I missile be stuff, careful related missile to Take

Pete Skibitski

color. all enough. the fair appreciate No, Yeah. Okay,

Eric DeMarco

Yeah.

Operator

Our of question Gomes is Instructions] next [Operator Joe Noble from Capital.

line Your open. is

Joe Gomes

afternoon. Good taking for my Thanks questions.

Eric DeMarco

Joe. Hey,

Joe Gomes

me of demonstration you've anybody know and attributes a your of I to by more drill has least of requirement required If And is I recall the maybe the just of but the contract? other little even drones. couple this kind was correct May year, down been else Is wrong, to I fly able at more the that correct? Skyborg. demonstrate questions, the what and am bit part please talked outside for on drone under if So just about correctly of this wanted a of

Eric DeMarco

one else demonstrated has No anything.

Joe Gomes

you Thank Okay. on that clarification.

Eric DeMarco

was on memory correct. your spot And

Joe Gomes

date But be there weeks needs I don't demonstrate a the Okay, competitors in was a May. demonstrated to know that couple companies so there's under just if that to they the three award. or was, other have have whatever a if there –

Eric DeMarco

So it's okay. Boeing competitors Boeing's as you flown and there Australia were one know, in and two plane other time, GA. is

think out that to should idea what So what of GA I has that they're be there is which going you about And that been some one. on give Avenger, put utilizing. an information has their

into planes that But has that. ever You been to Mr. can my response confident go class this a Tamale I've the air because look we're why am this I take guy than ties more today. in at only literally flying

Joe Gomes

Right.

the Valkyrie on detail mean, any drones you quote it would own and that opportunity. the give quarter, I more you termed on inquire kind can potential last And you drones. would the Any where and of or government movement mentioned Okay. us that? lease

Eric DeMarco

solicitation that And person after I going can that going is we're source the And – selection aspect. is opportunity. that to begin on going a you only is able to that we be for and intend intend tell we to coming we it. believe satisfy

Joe Gomes

do on maybe detail Okay for last that I promising engine lot whole where wondering us a KTT. most a segment? more color And and the give was here because see on one, little mention on didn't one call. you opportunities opportunities near-term you

Eric DeMarco

that our award asked I about really I'm surprised glad wasn't you am. nuclear engine I that on Joe. I'm asked program. team's DARPA space

going on do to this we do the October, of could before have we that replace opportunity of be something, that We to believe begin XXXX that the integrated if all people. is we – we're be believe we're substantially competitive, impetus and we started is for a to A engines – winning year, systems to be year. and end successful, that side be year. – then to these next that our because have I where if into pull the flying programs. and – are going is if engine to to calls. that we successful we're I this some it We delivering don't going of lot for engine December on going us the demonstrated looking will are to this Mako opinion it earnings And about successful, talk We because it's I is off. similar we're incredible we my long the talk capability some it's I the be too are in to when very about Kratos longer of November, on And be this business, company. it, PowerPoint. we flew we no

Joe Gomes

to very time Appreciate my answer you much. thank the Eric, great. questions. you Okay, taking

Eric DeMarco

buddy. you. Thank Absolutely,

Operator

question Our is next from Herbert of Ken Canaccord.

open. Your line is

Ken Herbert

as playing quick gets programs opening see the Congress new of you top Eric, confident expense maybe duty lot follow to cycle of at your that do this comments, a has ability their I up. In legacy going sounded little just and you innovation. budget a the had with through a very line kept leadership out innovation. How tighter? fund Historically,

Eric DeMarco

more working incredibly And of is a and couple the okay. And lethal. we're the row are get congressional specifically districts and incredibly to incredible and That's those technology I cost the hardware not. systems, you planet. them years. high, software wonderful. so have But high. just And between it Yeah, I it can related truck keep a legacy all every and the make want if them, as the that and weapon battle seat into legacy or of guys right going we and think they're the that on front them makes more for systems in, killer is China systems. now the They're to the an sustainment versus evolve why moving and software, states to it's they're the the ones threat. it app more to the address know, best to not Russia maintain They're that sensor and on They're to operate maintain them details – the

lot previous that what of systems, have we is from and to designed and these position like they technologies Biden trident And fortunate are. for address for we we threat, are have the That's that administration we cyber pivot the I asymmetric extremely we a way Deanna at into warfare. this things so them from carbon got to get is new we there a of systems, systems up, set China hardened They're this for warfare a when we've for and that designed new them to it the here OCL money not The XX recognize. We are threats with up asymmetric long the and because administration, positioned free lot competition. only away strategic the is away are Russia offset for position warfare, moving and warfare, it to And war these years. all past them. We've company towards. range pivot can the warfare, We've And strategic got legacy tempest been with that that. didn't company. We budgets. back how

Ken Herbert

Perfect. Eric. Thanks,

Eric DeMarco

Yeah.

Operator

further I to no the Eric over remarks. DeMarco And closing for would turn call questions to like there queue. on are

Eric DeMarco

to to Thank truly Great. today. to update to much we you. guys for you additional you And look joining forward us QX going of on at Thank end Thank progress. very the you talking are again you.

Kratos Defense & Security Solutions (KTOS) 6 May 212021 Q1 Earnings call transcript