- Earnings call transcript Q3 2022

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Operator

Thank you for standing by. Welcome to the Kratos Defense & Security Solutions’ Third Quarter 2022 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] And now I would now like to introduce your host for today's program Marie Mendoza, Senior Vice President and General Counsel. ahead. go Please

Marie Mendoza

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

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

Eric DeMarco

Dynetics receiving system Advanced which award recent today. ratio, executing increasingly both a a control or quarter, partner we difficult we a Bed then in Valkyrie Test Kratos continued Marie. related and Multi-Service program with able successfully were successfully you, announce block hypersonic our flight book-to-bill to executed could third generating Thank to Capability operating X.X environment, what the Hypersonics it MACH-TB new In on

awards, the year, for potential electronics hope including significant positioned approximate by this related million an upcoming CX another important of milestones announce additional hypersonic contract award. and program we definitization and microwave new program of to are We value $XXX currently end the

Additionally, ongoing that that related we quantities involved Kratos been that you multiple an additional we contributors contract were of -- customer is to with certain been recently for a has these we period. drones that is of working quarter. a to new continuation report expected delayed and future And momentum. tactical Valkyrie active last the funding have flying recently challenges, to separate systems faced under our XXXX part new system systems. forecast begun customer, tactical have of Kratos Russia/Ukraine program Both also as and in Kratos I contract with performance use expect were our by related jet another not we informed gaining we Valkyrie tactical previously now were drone under important fourth on. And due available non-Valkyrie two potential software to Since program customer including from from relating jet drone aircraft. certain government a discussions informed the production awards a lines. to do also we just related customers the also new the delivered matter, now contract including The fourth have only from multiple is believe today, in recently increased be Kratos have the two to drones existing reality now the products satellite drones interest with heavy high in company to conflict, and affordable drone

target achieve for incredibly those a personnel, labor qualified with clearances not we as that also and market of production headcount a We required imperative. fiscal that including security achieve the other will increase operational last key continuing year-end call result financial tight on on which and to forecast our discussed quarters machinists, have backlog our as I now and execute the determined skilled by previous execution forecast, our net

fiscal issues, of growth week these they of remarks. in considering would result published quarter contract report or that DoD and reiterating of for we companies which to just today's funding that the price request existing our letter third XXXX items in cost last contracts, related for reflected the a and will As not Kratos our Deanna discuss and and in each other on have related financial like these updated increases equitable financial adjustments, adjustments her forecasts a impacts receive allow inflation

and taking top including personnel, a priority these action So, large across a hire we've to continue matters, number address company. entire which the is hired been to qualified we have of

over in competitive organization workers. Additionally, escalators, adjusted And months proposals have to several adjust and in past labor trained we our obtaining, qualified related and customer are and not us contracts, the more and bids, certain are increasing costs making retaining issues. and but delays, also we the in and new areas funding which other other only

Kratos X.X revenue to order there compete ramping large and these security and book-to-bill, execute of many potential national XXXX X.X have growth drone space with X the new mentioned having and the of growth book-to-bill in continued in areas. to our in company both tactical and over having case margins in now are opportunities area, base margins a We accelerated system we actions backlog satellite Accordingly, rocket for to beyond. program hypersonic programs and as I growth the with we trajectory a X which a to received taken pipeline. and opportunities, win continue by record QX continue remain to mission combined XXXX MACH-TB, disruptive position in expanding XXXX multiple And large XX% market year a and forecast new like confident evidenced including being success, LTM increase to and ratio, our opportunity full technology significant

location. layoffs having a see labor Kratos to job in and companies successful qualified to begun manufacturing in fair recruiting recently related hires and some improvement now recently technology including have market, we with multiple a Kratos Importantly, very the executing key other

bottom that market. have believe first technology based here things and seen around affordable remains business product the to turn may of we all the areas. in to system starting is and Operationally Kratos we Kratos market strategy. So, to an our directly leading labor virtually related in leader with industry

as initial year, which We we hypersonic market first vehicles. rocket target ballistic to a planned Exercise. will customers industry next demonstrated national addition flights affordable XX of program affordable and Erinyes and security the continue in are flight missile provide the intercept customers, current systems Pacific the systems providing and Kratos to new and leader recently hypersonic successful and by in other Dragon for proprietary Kratos' our launch our Zeus and family with systems with anticipate to of new with us progress the opportunities including

largest ground we business revenue with Kratos The placed testing and rocket for be LEO, and orbit supported years, We national growth growth margins for market XX% and a solid commercial for including the systems. rapidly both future XXXXs margins, systems satellite provide MEO space and expanding and organic of of other growing XX% allies expected to GEO space approximate missions to is system awards. proprietary business program into currently defense security SHORAD in set our drivers company's margins And be opportunity and and are IFPC, to driver Sentinel business recent by forecast of this market over organic both first satellites satellite TTMC radar revenue, IBCS, is and ballistic products. and leading coming our performance, software profit new Kratos' critical growth large to growth Kratos' CXISR business to forecasting to trajectory. are in the space as a for unexpected and also cash programs. with for virtualized flow organic forecast XXXX, our exercising significantly our increased positioned and suite expanding including and their missile open C and future hypersonic key growth U.S. expect Kratos increase the industry other with tubes,

positioned Sentinel several CNDR business systems, significant future which of in is funded similarly including production and program, missile, expanding well microwave organic ramping. on CX see areas On focus expect the electronics EW, XXXX. security we with growth in with are a mission-critical ramp a margins, to [ph], also for radar, Kratos' national

U.S. program turbine strategic had Kratos technologies are representative the with continue drone strong against positioned low missiles, drone third be a initial and on our their business needs now full focus production full RE munitions, threat transition expected confidential now which highest and a tested production with trained operational also Navy, is from recapitalized and And radars, Kratos' engine capability drone weapons with rate ramping strong QX a looking in the business drivers the very the and as engine drones, is industry Our achieved Those full which leading include for allies strategic to Future very program to to which Kratos. target and is quarter. spacecraft the the XXXX target target to that production. rate program in most powered expected is rate systems BXX business crews to ramp and systems and SSAT well also including U.S. world. program performance our targets. platforms,

international and the U.S. expected increase currently budgets. profile. U.S. contract to new the focused significant is sole a and threat in driven Russia/Ukraine increasing conflict area, and expected on the an coming in target solicitation in that Threats, have the part [indiscernible] in global United are months, Also agency by T multiple award, with few all drone States and the there Kratos $XXX of government contract million in We expected member in source awards here next and programs address pursuing, number NATO the including allies defense new affordability the innovation

program different includes XXXXs evolve, data the competitive As a drone points future Multiple opportunity Air another several XXXs signal announcing in off which or cost combat CCA fly a different Pentagon recent to or continues aircraft tactical Force points. statements and from of new the including initiative, collaborative with different XXXX. and classified systems drone I types consisting mentioned, of capabilities with recently the a

in cost. the that $XXX,XXX with Being the I company some delivery enemy concepts with price to dates believe we today. better At remains this the price PowerPoints good class, only million. Kratos, company you low Kratos drones each renditions guesstimate only taxpayer. about talk for and approximately is the advantage significant enough and with flying before, publicly a or and Also flying also at our the drone family cost points, $X active a of or and actual can aircraft customers we As between low disposable computer tradable is mentioned facilities and points and hope models manufacturing for drone of not having day expendable, with for to including Kratos

year. process of new on three our over over enabling test continue production are With Valkyrie capabilities Flat serial this with by of hope portfolio. a complete next mission the a recently including Kratos weight at few are milestone able system production additional Kratos' to planned X next Valkyrie technologies Block before, in coming heavier things today stated, a we a the and ever subsequent range year, key be aircraft to system successful mature demonstrated a run, new collaborative production months, the reported next to higher we Kratos' currently to at system flight our and which tests the progress. with on Simply customer at As Ghost tactical and deciding recent XX we autonomous Works opportunities achieving new complex. flying longer months. longer, extended and range unveil Burns track sized drones We of the Valkyrie publicly remain lot initial AFRL of the than definitive

speed and for that confident competitively. including remain positioning new is is and system the long-term significantly the are are the security matter, weapons is and of being so, macro and positioned. platform for where where Russia/Ukraine disruptive innovative capability believe mass, survivability of expand technology our the both clearly our quantities, backdrop globally, in Ghost this multi-year We customers a strategic industry national will and at growth We Kratos' lead importantly strong will and to uniquely existing to conflict Works affordability that we believe I as beginning companies expected systems recapitalization Kratos also and is geopolitical like and Kratos. demonstrated affordable

acquisitions. on We are planning any making not

in do up, have on We program of of and to I Kratos years turn it. it received labor chain, with months. to With before, the several it It it things. COVID, number new will other market we supply These challenging large ready last competitively inflation, more that, to been and definitely as we go over teeing are mentioned pass awards is issues Deanna. the and and I'll a and bid expect coming successfully couple receive the has

Deanna Lund

afternoon. you, Eric. Good Thank

we've press and year today, of performance today. published summary will guidance full As financial quarter release remarks quarter financial included the XXXX highlights earlier we the focus and on detailed a fourth third I in in the my

the environment mentioned, challenging labor continued remained chain disruptions, Eric operating inefficiencies, an and impacts. market tight extremely As supply with inflationary

were a operating $X.X with into income, approximately As $XX.X inflationary impacted our of with future result, quarter third periods associated revenues being including costs. deferred million increase million

personnel, to seats a In including addition, certain charges. environment from to and continuing required to million internally a growth both included costs challenging via and items, planned manufacturing by our in retaining operating non-recoverable hiring $X.X both base direct our our subcontractors skilled rate resulting on in labor results backlog an to by our execute costs, of approximately including hire due charge inability related the

while been this made to net significantly we beginning decisions and employee increasing related skilled with competitive this example, staff the to due this members to over business, staff other for in and market, employment staff year, lost including labor hiring down we in and protocol XXX are incredibly year successful members staff leaving due from new compliance policies have we since in fascination related the tight as XX of XX compensation. from and For business have this retirement, attrition unfortunately, COVID

incredibly we focused the our success primary entire more Eric operational our mentioned, is workforce. and stabilization have this of organization As And area. seen on in in hiring retention execution existing recently

for our attempt year-to-date, increases by in as supply million we satellite make and be lead product including shortages, mitigate actions of of are certain cash impacted chain products across flow we operating based these continues which This managing space purchases parts have to microwave advanced increase inventories Additionally, disruptions now and [indiscernible]. have made taken includes related purchases inventory supply and chain to in Kratos to over included to times to the until inventory reflects approximately in for received rocket Also systems, businesses, over next XX directly an we our related the unmanned activities million cash which sales to advanced investment in of reflect sorts inventory $XX it is in critical is disruptions, not weeks. purchases occur non-recurring used conversion these $X products time expected The year. and area. systems operating engineering from or certain and Erinyes in costs over first awards and the contract nine products including XXXX for hypersonic new systems months of expected is new system certain and Zeus to flows

Our for U.S. revenues the In customers. the including revenues agencies plus XX%, XX% from from DoD, generated contracts customers approximately we government non-DoD, with XX% X% from of FMS contracts were cost price, and materials. federal generated quarter and contracts. generated federal mix foreign from XX% Revenues was XXXX, QX from and commercial the and time fee the quarter fixed XX% government with contract contracts during fixed

Now guidance. to financial moving on

causing months manufacturing nine in Kratos impacts of the cost continued delays and including today manufacturing a we currently chain supplies, continued retaining disruptions, our and to to and to mix, business the increase COVID employee our industry price inefficiencies are supply obtaining financial have materials, experienced current costs and inflation related of assumptions related significant the impact Throughout utilities and challenges items impacted expected increases the other the increases and related Our our quarter absenteeism, and impacting Kratos. an guidance increased rate. related first for personnel, included expected cost year for includes on transportation continue related expected disruption, provided and qualified fourth chain supply to indirect XXXX that year, fulfillment and and from forecasted

has issues impact EBITDA base. million, costs our these adjusted year expect increased increases $X this over our merit financial $XX by implemented which been have by norm, revenues entire absorbed We $XX and million. approximately personnel above fourth the across to quarter approximately million historical we've forecasts additional and Also, include

additional is price, firm our mix contract to are required fixed As costs. absorb we predominantly these

contractors With will other its be related submit letter Kratos last equitable the adjustment inflation requests for a to costs. able and just that not Pentagon position recover reiterating like week issuing to

net in NRC delay have FY reduction chain million, we the or expectations specialty achieving to for has would of our of specifically, forecasted But in headcount in be this and XXXX been and previous unsuccessful revenues ramp in more significant additions Our $XX we XXXX in mentioned, our resulted [indiscernible] XXXX to manufacturing million of the Accordingly, achieve and the our fourth previously a we of net our headcount supply target. half business. able second certain assumed hardware delay businesses. related quarter as $XX

In our of satellite a software $X program of to our a on addition, related in to significant customer deliverables as a EBITDA QX. and recent million deliverable the million impact this revenue, expected delay notification forecast million had $X QX software by approximately of approximately or $X to period future certain was contribute

customer we from related to XXXX our that available continuation now that program forecast contribute Finally, recently the to for a funding the is additional additional originally revenues. notification to an million was received a tactical FY drone $X non-Valkyrie $X million of not

notifications the in being accordingly. reflected forecasted these have adjusted with also financial cash We today's Eric? flows forecast, our revised of impact customer

Eric DeMarco

Question-and-Answer Session We'll Deanna. to you, the moderator any turn Thank Great. over it for questions.

Operator

[Operator our B. from of comes Instructions] Certainly. And question from Riley. first Crawford line Mike

question, Your please.

Mike Crawford

Thank you.

that in you it them Dow pike? maybe now is are coming cross the Or drum it, it's some Theory delays called that of or the we're think to like that these and death? on do of maybe harder space, the these newer so Given one tactical focused valley really down getting iterations make of didn't

Eric DeMarco

Mike. which platforms all a we've our that not And flying. it previously, here valley are we And that across. the number get talked that still harder across of going to about have is of still death, No, still of

recently forum that Valkyrie, going of I As those Secretary past stuff the he are Ukraine a talked we start in a said talk is is, it what note two attrition, going new approval. release. them just that's over an lot to as would and the be is attrition. general think to recently or had put cut Russia. approval of all reasons feeders last be the we because accelerating difficult anymore just going war remarks, and lot, the recently to programs, year, be able a coming It's today I for in about we it's I buttoned on started the war a that about unless out for the with become press up. momentum all lot the a about going Reagan that is was one Air causing CCA what's drone the were picking And into was There programs it tactical when the the mentioned again. I got other put that my we here indicated year, think And I in substantially And all on up after the programs. lot. lot, I interview mentioned are of of that us a of think things Force area, high on of in it they're what a -- And to to classified

Mike Crawford

you. satellite Thank cyber And then, space in business. Okay. the and

delay? reason this space one software related the is the from that of guess, force? there to that the I that that, there second the delay? Is resolution? is is other takeaway for some U.S. at then, in change leadership given So, is continuing And any -- Or part

Eric DeMarco

Right.

classified. as is me first. understand to program of the It resolution continuing it the let that that, that take second related So, is part not we

are with been out. any like say. it's I item. it's related pushed the going to separate doesn't et to And there our reasons there I with to going best The don't be reasons. all MEOs trajectory more better of at orbit fewer to a LEOs here bottom the cetera, Relative et to satellites assets or understanding That's That's that It's up birds we're believe personnel we changes matter in still geosynchronous we're are force, our seeing in they why industry. for size all to classified. So, put up can And what's -- Kratos what Distributing to equipment, the space what that hundreds that the why it's at and whether and do cetera. on are the that is put there, the and do has and seeing anything going be optimistic. traction hundreds are, have line are there is which fewer going up. types the it of ground that and are and for technological is

Mike Crawford

All right. Thank you, Eric.

Eric DeMarco

Yes, sir.

Operator

comes one And Thank And from from question. next our you. next line Sachs. of Noah the Poponak question moment our for Goldman

your Your Poponak, One question open. please. moment. Noah is line

Unidentified Analyst

Can on hear for Noah. me? Hey, guys. It's Gavin you

Eric DeMarco

Hey, Gavin. Good afternoon.

Deanna Lund

Yeah.

Unidentified Analyst

Hey, thanks.

of the drones. year, target too In previously said much XX% doesn't you'd next that consider tactical revenue think terms upside I growth and

So, in when expecting to you think do business are returning And tactical much that you returns into growth? visibility what to have growth? do that drones there? How you

Eric DeMarco

Yeah.

does were ahead not -- I So, of I'm myself all last at as we and of orders drones. of few on there's calls production the on buddy, not this. get. S&T to It base case continuation And that both as of getting anymore is, said, said, and you're I future the a on The it's call, expect last ones RDT&E right. initiatives, include any on tactical that absolutely significant

we're We've hang to at have And the aircraft going it. right hoop the We price doing. through gone until the right we're That's we points what time. right got around win. at the

other And RDT&E S&T. than significant, so and nothing

Unidentified Analyst

there any that gives mean, Got RBA continues of does non-recoverable growth? costs, just the And of higher trend capture? number unless that timeframe what capture And risk your that kind I expected then does I mean, to it. terms in cost relief? that is future the DoD

Deanna Lund

passing growth, into not does we are current take is to contract. growth period that that not consideration cost that future Gavin, through

So, we are period. current absorbing the in that

Eric DeMarco

week, fixed I plant as said, substantially been existing came on missed firm because we've letter out the for last relief emphasize And as on last few today, talking this future, price. with the quarters, you there to and another winning relative about and tried importantly, we today, And be said -- will escalates in Well, no we're the a costs capture labor as of in the escalators that existing future been quarters. And two labor building we been last those lot base indirect to including drives. we've to and contracts, and new most have rates, I into that the increases, emphasize contracts.

we've QX So, is building of cross that we're to we of start fried. or then that in But goes been and in, plan. QX year, point and to then next think course, XX%, Unless going that's inflation we'll our to be okay.

Unidentified Analyst

That's helpful. Thank you.

Eric DeMarco

Yeah.

Operator

Instructions] question next Kahyaoglu [Operator from of you. comes Thank line our And Jefferies. the from Sheila

Your question please.

Unidentified Analyst

Hi, on for Sheila. guys. Ellen This is

Eric DeMarco

Hi.

Deanna Lund

Hi, Ellen.

Unidentified Analyst

and looking bit year at you XX% little through any more to there a But bit next XX% are detail. satellite and I that you've that growth. a mentioned that programs space can little know walk XX% us Just growth that? drive

Eric DeMarco

Sentinel, We're Sentinel. development Absolutely. comes Yeah. to on in mind immediately.

Our GBSD. partners are

on I outstanding we the And right ramping They're the the course, Grumman. of way. Sentinel. by partner, Northrop an often with partner drones. target and are mentioned Northrop Our along is program, SSAT

with I As initial in is now, the we're capability significantly. it full United and in achieved ramping Navy, QX, rate production, mentioned significantly States operating we

us number driver. announced, ones And programs. in in XXXX. addition talk going can't ramping. won of the and very, But what's first to we're a with lesser of ramping satellite but Q area. satellite be half very business. we've in for that we a tempo to a And We've there's one SSAT SHORAD of a to space directly that announced have extent year, about. and like tying the I number we Those are as the space to So is big the and next that all is effect on off doing them, IBCS going next couple a that's in CXISR mentioned other I mentioned, in

programs some the We go. won. area last beginning record are in -- they're we've big hypersonic are area. to on And the that they And is of new

as that It's guy speed. than are We the BXX absolute Those going the the time at and we're And right off in big. a GBSD. tempo to we also several are are something ramping, the tens it lesser at extent, up, putting right lesser primary along and industry right right affordably millions then the the a it. areas in That's picks hypersonic of the with program. place extent leader to the the dollars. can but of It's do say reengine because

Unidentified Analyst

some is in then, the putting to how place, of a we margins about into path there contract do That's you're the changes helpful. about think couple And double-digit next of think as back profitability? Or we years?

Eric DeMarco

literally what's here. are turns have or inflation is. out contracts, other goes and mention the Yes, That's -- that offer can happening long a if they transitory, are new before, that they there the relief to reciprocal, government And increases, we mentioned and contracts, that's in. by the escalators building very on government. cost the as pricing fine give on definitely now be what so it or side. that a absolutely we new back Because and on as fair were to options again, I'll it I've X% that amenable, X% now are next we with And them on year,

to we're going start rates confident, -- back So, next up getting very year. will we're our

the moves into as our recent the As contract I higher more mentioned, mix them. newer costs more ones, with to built ones,

Unidentified Analyst

That's helpful. queue. I hope back in the

Eric DeMarco

Okay. Thank you.

Operator

Thank our from comes next Gomes you. question. Noble And of Capital. One the line question our next moment for Joe from

please. question, Your

Joe Gomes

Eric. Good afternoon,

Eric DeMarco

sir. afternoon, Good

Joe Gomes

them. there's big I Seeing that or for out, guess funding been more the contracts quick announcements some have of is, of kind picture a of pushed the today some with no question. type

they our trucks And be with cover gone to help could away? some self You truck potentially Thanks. a previously mounted those you're some of driving the have of Min-DAC, growth business, products doing talked the that projects about stand? that the attenuators. driver here types Where did --

Eric DeMarco

Yeah.

to we much We If kits And happening. we're to we're And both video, we the roll start to material cost convert in But approximately this back the manned going and in with certain talking on at been now are me states out in as Don't doing think very progressing. was with the states if Kratos. trucks obviously area to for XXXX this smiling. work a vehicles about I the low -- that. road I you state in XXXX, is and you our is see quote coming technology, -- in is these and on could would trucks XX become me existing now, our a orders. then on are there production Deanna in see XXXX, it to unmanned I haven't on revenue that --

that is that everybody them And happening. the So, existing are and it of vehicles, because trucks like moving. incredible next the taking else. there. out I our existing There is target We're in one driver of the It's be eight aren't enough. retiring shortage, think being out I going drivers a and to is I truck the want re ignored millions and market emphasize saw years. to And by are aging the million the

our agricultural, that's the So right the the where mining middle And is on in. we're now. focused technology coming and markets

Joe Gomes

forward Thank Eric. for Thanks Great. We look to it. that, you.

Eric DeMarco

question. asking for the Thanks

Operator

Instructions] from question from Pete Alembic next line Skibitski of Thank comes Our you. [Operator Global.

question, Your please.

Pete Skibitski

Deanna. and Eric afternoon, Good Yeah.

Deanna Lund

Good afternoon.

Pete Skibitski

probably got all. if we that to the wondering in maybe can a sensitivity XXXX at a into delay impact talk We've I'm the in December, CR chance January. further the budget? just would mid And through about and go you there's Guys, your guidance guidance that XX-XX

Eric DeMarco

All right.

then okay. map last say So, what January, changed of early did getting six the that current it to like. If looks right. continuing under months those changed okay? of has what has form, approved have obligated substantially think. another in like the contract And its looks analyze then and All have significantly, end significantly, that like, resolution we content today, budget the way budget to is if into we're we we're what If the by we'll timing it December, fits funds year, we going XXXX

Pete Skibitski

that Okay. target you the I I away you appreciate How your provision target? go that then, I what at No, guys on of color because labor you terms with and government And I are employees this the want mentioned ask to also there. heard labor kind that, where of now, COVID if kind compliance. leaving And in thought far are missed of the associated the defense dropped vaccinated. And goal get thought guys is? of I people forward

that. kind maybe, So clarify of

Deanna Lund

Sure.

that So the dropped. the had government those had requirements earlier year was we when not in that

attrition that So that Pete. was of the saw earlier in the we part year,

all XXX CXISR So we're currently net on, to end The our have down a our we're is business. XX. in -- was net increase target the of that year. this And specific this target of targets by focused heads

to that we've the just hire going We've some I've into about seen So, is, quarter. just reduction, recently out net have -- as different pushed been stabilization XX the but because had because first attrition, we factors. mentioned, target it's we've able to all be people, those obviously, in of

-- positive I seeing the recent in trends stabilizing, that are market, some more With more think we arena.

Eric DeMarco

trained time. trained And And add on learning And how curve. and and up, up. then the leave. and how cost. they're also people let hire we all do that have, have and a that incredible they me takes which new know inefficiencies, know they people they they're on that, get that increases to work generates And we And it, then them to to

with. thing. dealing a in opportunities, it's building rates. new on higher dynamic multi so been it's been so new that Why we're and We've important the And bids

competitive. can be we So,

some these the high be that Mars, for competitive companies to example, can paying and we space people, For to these are go very, of very that rates guys there. are new want

Pete Skibitski

GBSD And Okay. a lot is that's CX? needs of the hiring this driving in

Eric DeMarco

mean, system people programs. a need really security they in system. one It's Typically I very or gals, or in It's radar guys clearances isn't. like high those particular, programs. missile CX. multiple It's it multiple not environment. pick It's aspect don't on a so air That's finding manufacturing security missile a that surface missile to refuse They And these system. clearances to in work reasons. days get another we're multiple want for with. to we're dealing

Pete Skibitski

Okay. Appreciate the guys. color,

Eric DeMarco

Yeah.

Deanna Lund

Thanks.

Operator

Thank from next Moeller line And comes Austin our you. our Genuity. question. One from moment a for next question Canaccord

question Your please.

Austin Moeller

Eric Deanna. and Good afternoon. Hi,

Deanna Lund

Hi, Austin.

Eric DeMarco

Hi, Austin.

Austin Moeller

Hi.

of to my the side, just seems closest the end guess, Air the of the here, race are I here it on two So, first sort like question are horses Wolf. and the tactical Valkyrie the drone that the

you and for that potential of next the mean, in months. of there's some three kind customers have on, contracts production I we few So touched happening kind Valkyrie, could

pushed combat in cloud of in fiscal Or or we a year right? So, outlined budget? like, to production XXXX on program we an contract? all not right? do XXXX, this expect sort And aircraft, do Or the which going expected is bidding now after expect is the until you're

Eric DeMarco

Right.

it's So, customer in front, cautious. the fickle. very But very this it Austin, has as to I said be we going don't expect anything up -- very, I I'm area. not anymore get been until

I are think programs, I'll The -- programs. kindle of about a in them they're kindle people are lot because CCAs, say can't the highly to, -- when call -- addition them, they classified. that of There which think Okay?

drones to that In there are call call all are I'll jet addition what be not multiple to there. other the related them are CCAs I'll programs. out those, kindle the going in to that class

-- programs. say. are all are in That's I would careful all those actively -- be that's say involved One this. in that how have have to we I to We of other how think

Austin Moeller

one just pushed That's QX, had another Was program? for that guidance Okay. guys talking of necessary year? that different you the delayed question. And a three was then helpful. big at The been was as that of that program and of the contracts end the about the out satellite

Eric DeMarco

of revenue program was. them. an it an aspect deferred. It that an it's not been of aspect aspect, Yes, moving one programs has generating, -- was that's The was forward,

Austin Moeller

I just QX it some most I said development side? Okay. some but one next fourth And you in start think still Are year, then Sentinel the you know the I of on is in more, may. ramp expecting of had the if will quarter. coming revenues

Deanna Lund

Yes.

expecting. are We

much originally quarter not as fourth we had the as in forecasted. Some just

Austin Moeller

detail. Thanks for the Great. all Okay.

Deanna Lund

you. Thank

Operator

back does for program. include program Q&A Thank the question-and-answer remarks. Eric to of like you. the to today's I'd further End session any This DeMarco of hand

Eric DeMarco

you. afternoon. talk Thank you Thank you. we'll to Good shortly. And

Operator

ladies you This program. conclude Thank and in gentlemen participation does for today's your conference. the

now Good day. You disconnect. may

Kratos Defense & Security Solutions (KTOS) 4 Nov 222022 Q3 Earnings call transcript