Q4 2025 Kratos Defense and Security Solutions Inc Earnings Call

February 23, 2026

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Operator: Good day, everyone, welcome to Kratos Defense & Security Solutions Q4 and fiscal year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please note, this conference is being recorded. Now it's my pleasure to turn the call over to the Senior Vice President and General Counsel, Marie Mendoza. You may begin.

Good day, everyone and welcome to create US defense and security solutions fourth quarter and fiscal year 2025 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to participate you will need to press.

Star one one on your telephone you put in here message advice in your hand is raised to withdraw your question simply press Star one again.

Please note this conference is being recorded.

Now, it's my pleasure to turn the call over to the senior Vice President and General Counsel Marie Mendoza.

You may begin.

Marie Mendoza: Thank you. Good afternoon, everyone. Thank you for joining us for the Kratos Defense & Security Solutions Q4 and full year 2025 Conference Call. With me today is Eric DeMarco, Kratos' President and Chief Executive Officer, and Deanna Lund, Kratos' Executive Vice President and Chief Financial Officer. Before we begin the substance of today's call, I'd like everyone to please take note of a safe harbor paragraph that is included at the end of today's press release. This paragraph emphasizes the major uncertainties and risks inherent in the forward-looking statements we will make this afternoon. Please keep these uncertainties and risks in mind as we discuss future strategic initiatives, potential market opportunities, operational outlook, financial guidance, and other forward-looking statements during today's call. Today's call will also include a discussion of non-GAAP financial measures, as that term is defined in Regulation G.

Thank you.

Everyone. Thank you for joining us for the participant in secure solutions fourth quarter and full year 2025 conference call.

With me today is Eric Demarco, President and Chief Executive Officer, and Deanna alone.

Goodbye, President and Chief Financial Officer.

Before we begin the substance of today's call.

They like everyone to please take note of the safe Harbor paragraph that.

At the end of today's press release.

This paragraph emphasizes the major uncertainties and risks inherent in the forward looking statements we will make this afternoon.

Please keep these uncertainties and risks.

We discuss future strategic initiatives potential.

Potential market opportunities operational outlook financial guidance and other forward looking statements during today's call.

Today's call will also include a discussion of non-GAAP financial measures as that term is defined in regulation G.

Marie Mendoza: Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, at the end of today's press release, we have provided a reconciliation of these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP.

non-GAAP financial measures should not be considered in isolation from or the substitute for financial information presented in compliance with GAAP.

Accordingly at the end of today's press release, we have provided a reconciliation of these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP.

Eric DeMarco: Good afternoon, everyone. We finished 2025 exceeding our financial objectives for the Q4, generating approximately 20% Q4 year-over-year organic revenue growth, generating a 1.3 to 1 book-to-bill ratio on top of this 20% growth rate. Having a record backlog of $1.573 billion, a record opportunity pipeline of $13.7 billion, and with the opportunity set for Kratos having never been stronger and expected to continue to increase based on recent events. Of note, generating a 1.3 to 1 book-to-bill ratio on top of 20% organic growth, while also maintaining a record-high backlog and record-high opportunity pipeline, we believe is representative of the increasing demand for Kratos' affordable military-grade hardware and software, and that our growth trajectory is accelerating.

Good afternoon, everyone.

We finished 2025 exceeding our financial objectives for the fourth quarter.

Generating approximately 20% Q4 year over year organic revenue growth.

Generating a one three to one book to Bill ratio on top of this 20% growth rate.

Having a record backlog of $1.573 billion.

Our record opportunity pipeline of $13 7 billion.

And what the opportunity set for Kratos, having never been stronger and expected to continue to increase based on recent events.

Of note generating a one three to one book to Bill ratio on top of a 20% organic growth.

While also maintaining a record high backlog and record high opportunity pipeline. We believe is representative of the increasing demand for kratos as affordable military grade hardware and software.

And that our growth trajectory is accelerating.

Eric DeMarco: Kratos is positioned to achieve our previously communicated 2026 and 2027 financial targets, and similar to 2025, our Q1 will be the lowest, including as we come off another CRA and also this time a government shutdown, both of which are now resolved and we will ramp throughout the year. Since our last report, the global national security opportunity and funding environment for the industry and for Kratos has continued to improve, including, as I mentioned, both the CRA and US federal government shutdown being resolved, the 2026 NDAA being signed, the fiscal 2026 Defense Appropriations Bill being signed, and the President, the Chairman of the SAS, each proposing future defense budget increases of approximately 50%, up to $1.5 trillion.

<unk> is positioned to achieve our previously communicated 2026 and 2027 financial targets.

And similar to 2025, our Q1 will be the lowest including as we come off another CRA and also this time a government shutdown both of which are now resolved and we will ramp throughout the year.

Since our last report the global National security opportunity and funding environment for the industry and for Creatives has continued to improve.

Including as I mentioned, both the CRA and U S Federal government shutdown being resolved the <unk>.

2026, NDAA being signed the fiscal 'twenty six defense Appropriations, Bill being signed and the President the chairman of the SaaS the chairman of the SaaS each proposing future defense budget increases of approximately 50% up to one five trillion.

Eric DeMarco: Additionally, discussions have already begun on a second additional 2026 re-reconciliation bill, including a potential additional $450 billion for defense. There is a generational recapitalization of the defense industrial base underway, driven by geopolitical and related global threat environment, a recapitalization that we believe Kratos is uniquely qualified to address, with defense and national security-related budgets of the US and its allies expected to increase for the foreseeable future. Crisply stated, we now have a $1 trillion annual defense spend that is expected to increase for the foreseeable future. As a result of the defense industry consolidation, which began with the infamous DOD Last Supper in 1993, there are few qualified companies with proven capabilities to address the required military-grade hardware, software, and weapon systems demand.

Additionally, discussions have already begun on a second additional 2026 for a reconciliation bill, including a potential additional $450 billion for defense.

There was a generational recapitalization of the defense industrial base underway, driven by geopolitical unrelated global threat environment, a recapitalization that we believe kratos is uniquely qualified to address.

With defense and National security related budgets of the U S and its allies expected an increase for the foreseeable future.

Crisply stated, we now have a one trillion dollars annual defense spend that is expected to increase for the foreseeable future and as a result of the defense industry consolidation, which began with the infamous Dod last supper and 1993, there are few qualified companies.

With proven capabilities to address the required military grade hardware software and weapons systems demand.

Eric DeMarco: Kratos is one of the few non-large traditional prime contractors, which in my opinion, is qualified to adequately address this demand, with Kratos having the right products at the right time, at the right cost points now and today, this is being reflected in our organic growth rate and our financial results. Also importantly, the Secretary of War has emphasized that he wants industry to bring to the Department relevant systems now. Systems that can achieve 85% of what is needed today, not a PowerPoint of an exquisite system at maybe some days, 100% potential threshold at a ridiculous high cost....

Kratos is one of the few non large traditional prime contractors, which in my opinion is qualified to adequately address this demand with kratos, having the right products at the right time at the right cost points now and today and this is being reflected in our organic growth rate and our financial results.

Also importantly, the secretary of war has emphasized that he wants industry to bring to the department relevant systems now systems that can achieve 85% of what is needed today not a powerpoint of an exquisite system at maybe some days 100% potential threshold.

At a ridiculous high cost.

Eric DeMarco: As you know, pillars of Kratos's strategy since we founded our company include better is the enemy of good enough and ready to field today, and affordability as a technology, both of which I believe are aligned with the Secretary's comments and clear differentiators of Kratos in today's environment. Another Kratos strategy pillar, also since our inception, is that Kratos makes true internally funded investments ahead of government funding, enabling Kratos to move fast, efficiently, and affordably for manufacturing capability and relevant products for the warfighter. Additionally, Kratos's practice of not paying dividends or buying back our stock, but of investing our capital in the defense industrial base, is also aligned with the vision of the current administration and also the related opportunity environment, which Kratos is realizing the benefit from.

As you know pillars of <unk> strategy. Since we founded our company include better is the enemy of good enough and ready to field today and affordability is a technology.

Both of which I believe are aligned with the secretary's comments and clear differentiators of <unk> in today's environment.

Another credo strategy pillar also since our inception is that Kratos makes true internally funded investments ahead of government funding, enabling creators to move fast efficiently and affordably for manufacturing capability and relevant product for the Warfighter.

Additionally, kratos as practice of not paying dividends or buying back our stock but are investing our capital in the defense Industrial base is also aligned with the vision of the current administration.

And also the related opportunity environment with Kratos is realizing the benefit from.

Eric DeMarco: Kratos's strategy of being first to market with actual relevant products is clearly a differentiator to our customers and partners, as we are seeing firsthand with the demands for Kratos's jet drones, hypersonic systems, jet engines, satellite-defined software systems, and solid rocket motors. Having products and not PowerPoints is clearly important now more than ever, and I believe that this trend is accelerating. Engineering, manufacturing, and delivering affordable, relevant, military-grade hardware at scale that must work every time is hard, and having this capability does not occur overnight. We have been at this for a long time, and Kratos's customers and partners recognize this. The time for PowerPoints, podcasts, and science projects is over. We are out of time. The country is moving towards wartime footing, and Kratos is ready now.

<unk> strategy of being first to market with actual relevant products is clearly a differentiator to our customers and partners as we are seeing firsthand with the demand for <unk> jet drones hypersonic systems jet engines satellite defined software systems and solid rocket motors.

Having products are not powerpoints is clearly important now more than ever and I believe that this trend is accelerating.

Engineering manufacturing and delivering affordable relevant military grade hardware at scale that must work every time is hard and having this capability does not occur overnight.

We have been asked us for a long time and <unk> customers and partners recognize this.

The time for Powerpoints podcast and science projects is over we are out of time the country is moving towards wartime footing and credo is ready now.

Eric DeMarco: For our operational update, we now have 120 Kratos Zeus and Oriole solid rocket motors on order, with deliveries of the SRMs to Kratos for system integration expected to begin in Q3 of this year, which SRMs are directly related to either under program, contract, or expected hypersonic and other launches that we plan to perform. Related to these solid rocket motor orders, Kratos's hypersonic franchise is expected to ramp rapidly, beginning now, this year. Kratos's Zeus solid rocket motors were specifically designed by Kratos for affordable, rapid, full-rate production to enable national security customers to fly more often, faster and farther, using fewer rocket motor stages at a substantially reduced cost, and demand for Kratos's Zeus SRMs is significant.

For our operational update.

We now have 120, <unk> and Oriel solid rocket motors on order with deliveries of the SRM to credo for system integration expected to begin in Q3 of this year.

Which srm's are directly related to either under program contract or expected hypersonic and other launches that we plan to perform.

Related to the solid rocket motor orders tradeoffs as hypersonic franchise is expected to ramp rapidly beginning now this year.

Criticism Xu solid rocket motors were specifically designed by Creatives for affordable rapid full rate production to enable national security customers to fly more often faster and farther using fewer rocket motor stages at a substantially reduced cost and demand for credit.

Zeus SRM is significant.

Our newly opened Maryland hypersonic facility, our soon to open, Indiana Hypersonic system integration facility and the expansion of our Bermingham advanced manufacturing facility for hypersonic systems, along with the solid rocket motor deliveries are key elements of tradeoffs as expected near term.

Eric DeMarco: Our newly opened Maryland hypersonic facility, our soon-to-open Indiana hypersonic system integration facility, and the expansion of our Birmingham Advanced Manufacturing facility for hypersonic systems, along with the solid rocket motor deliveries, are key elements of Kratos's expected near-term and future revenue growth trajectory and EBITDA increase. These new Kratos facilities are specifically designed and built for identified programs and systems and the related security requirements, with specific capabilities identified with our customers and optimized for large-scale integration and production speed, efficiency, and cost. It was recently reported that Kratos has been selected by the Pentagon to develop highly maneuverable Mach 5-plus hypersonic missiles, including advancing in-flight steering and propulsion systems under the Joint Hypersonic Transition Office, another new hypersonic program win for Kratos.

And future revenue growth trajectory and EBITDA increase.

These new <unk> facilities are specifically designed and built for identified programs and systems.

And the related security requirements with specific capabilities identified with our customers and optimized for large scale integration and production speed efficiency and cost.

It was recently reported that <unk> has been selected by the Pentagon to develop highly maneuverable Mach five plus hypersonic missiles, including advancing in flight steering and propulsion systems under the joint hypersonic transition office.

Another new hypersonic program win for creators.

Eric DeMarco: Separately, we are now hoping to receive an additional approximate $1 billion-plus hypersonic program-related opportunity by the end of this year, which we believe will be sole sourced to Kratos as prime on an existing national security initiative. We are expecting to approximately double Kratos's hypersonic franchise revenues in 2026 over 2025, up to approximately $400 million, and then potentially increase over 75% again in 2027, up to approximately $700 million. Last week, we announced the groundbreaking for the Prometheus facility, our solid rocket motor and energetics partnership with our outstanding partner and defense technology company, Rafael, and we remain on track with the business plan I have previously briefed you on.

Separately, we are now hoping to receive an additional approximate $1 billion plus hypersonic program related opportunity by the end of this year, which we believe will be sole sourced to cradles as prime on an existing national Security initiative.

We are expecting to approximately double cradles of hypersonic franchise revenues in 2026 over 2025 up to approximately $400 million and then potentially increased over 75% again in 2007 up to approximately $700 million.

Last week, we announced the groundbreaking for the Prometheus facility, our solid rocket motor and Energetics partnership with our outstanding partner in Defense Technology Company Rafael and we remain on track with the business plan previously brief Q1.

Eric DeMarco: Kratos and I personally have deep, long-term relationships with the Rafael Israel executives, including the chairman and CEO, and we are all committed to Prometheus's success and certain other initiatives we are partnering on. Reflecting the Prometheus initiatives coordination with the Department of War, the department last week also announced the groundbreaking of a new munitions campus where Prometheus is located. Prometheus will be the primary business presence. Kratos's space and satellite business, our company's largest, recently achieved an important milestone with the successful completion of a factory acceptance testing between Kratos's Epic command and control software system and Airbus OneSat next generation software-defined satellite platform... The Airbus OneSat software-defined satellite platform offers dynamic in-orbit reconfiguration capabilities, significantly increasing satellite mission capabilities and flexibility, which drive new levels of complexity for the ground command and control systems that manage them.

Great OS and I personally have deep long term relationships with the Rafael Israel executives, including the chairman and CEO and we are all committed to Prometheus, a success and certain other initiatives we are partnering on.

Reflecting the <unk> initiatives coordination with the Department of War. The Department last week also announced the groundbreaking of our new munitions campus, where Prometheus is located and Prometheus will be the primary business presence.

<unk> space and satellite business, our company's largest recently achieved an important milestone with the successful completion of a factory acceptance testing between <unk> Epic command and control software system and Airbus <unk> sat next generation software defined satellite platform.

The Airbus <unk> SaaS software defined satellite platform offers dynamic in orbit reconfiguration capabilities significantly increasing satellite mission capabilities and flexibility, which drive new levels of complexity for the ground command and control systems that manage them.

Eric DeMarco: The significance of this successful acceptance test with Airbus is that Kratos' Epic C2 software is expected to unlock the agility of Airbus' OneSat platform, enabling operators to instantly reshape coverage and reconfigure the missions in orbit. Kratos' OpenSpace software, C2 and TT&C system with Airbus OneSat software-defined satellites, is representative of Kratos' technology and industry-leading position in the space and satellite domain. Kratos' space and satellite business is also representative of the dual national security and commercial use of certain Kratos products, systems, and softwares. These are not PowerPoints or convenient talking points. We actually do it.

The significance of this successful acceptance tests with Airbus is that <unk> epic situ software is expected to unlock the agility of Airbus is one SaaS platform, enabling operators to instantly reshaped coverage and reconfigure the missions in orbit.

<unk> is open space software <unk> and TNC system with Airbus <unk> SaaS software defined satellites as representative of <unk> technology and industry, leading position in this space and satellite domain.

<unk> space and satellite business is also representative of the dual national security and commercial use of certain credit oz products systems and software.

These are not powerpoints are convenient talking points, we actually do it.

Eric DeMarco: In my opinion, Kratos' suite of internally funded and developed software-defined command and control and telemetry, tracking, and control and other systems, both for commercial and national security spacecraft, reflects certain of the highest technology space capabilities in the world, with Kratos the clear first to market industry leader with software-defined systems and products. Similarly, Kratos' global owned and operated Space Domain Awareness system, with approximately 190 worldwide sensors and more than 20 sites, is a Kratos crown jewel and one of the most valuable, technologically advanced dual use assets of our company. Another critically important Kratos partner is global space solutions company, SES, which in my opinion, similar to Kratos, is an industry-leading satellite and space technology company.

In my opinion <unk> suite of internally funded and developed software defined command and control and telemetry tracking and control and other systems, both for commercial and National security space craft reflect certain of the highest technology space capabilities in the world with <unk>, the clear first to market industry leader.

<unk> with software defined systems and products.

Similarly, <unk> global owned and operated space demand awareness system with approximately 190 worldwide sensors and more than 20 sites is a credo as crown jewel and one of the most valuable technologically advanced dual use assets of our company.

Another critically important cradles partner is global space Solutions Company, FCS, which in my opinion similar to Kratos is an industry, leading satellite and space Technology company.

Eric DeMarco: Kratos and SES are now working together on a number of initiatives, including dual use, both commercial and national security focused. I am confident that similar to other Kratos partnerships, SES and Kratos will together be providing significant relevant technology and industry-leading solutions, generating real, tangible value for our respective stakeholders. Key Kratos assets driving our space and satellite business, including our OpenSpace, TT&C software, C2 software, other software, and artificial intelligence, including for Kratos' Global Space Domain Awareness system, which is the only such SDA system in the world today. I do not emphasize it often. Kratos' OpenSpace satellite and space system-focused software is the only software-defined networking solution designed so that virtually every piece of the satellite ground station can now be turned into software, accelerating the reaction time to changing satellite capabilities and space conditions. Kratos OpenSpace is one of the software jewels of our company.

<unk> Ses are now working together on a number of initiatives, including dual use both commercial and national security focused and I am confident that similar to other <unk> partnerships.

<unk> will together be providing significant relevant technology and industry, leading solutions generating real tangible value for our respective stakeholders.

Key creative assets, driving our space and satellite business, including our open space <unk> and <unk> software <unk> software other software and artificial intelligence, including for <unk> Global space demand awareness system, which is the only such SDA system in the world today.

I do not emphasize that often create OS is open space satellite and space system focused software is the only software defined networking solution designed so that virtually every piece of the satellite ground station can now be turned into software accelerating the reaction time to changing.

Satellite capabilities in space conditions.

Great is open spaces, one of the software jewels of our company.

Eric DeMarco: As you know, the number of space and satellite opportunities globally, national security related, and commercial, is rapidly increasing, and as a result, Kratos' space and satellite business opportunity pipeline is particularly robust, even after generating a Q4 and 12-month book-to-bill ratio of 1.2 to 1, and now having a record backlog of $600 million at the end of Q4. Related to the market position of Kratos' technology and first to market OpenSpace satellite software suite, Kratos has recently been informed that we have been selected for an initial approximate $500 million program award that I will hopefully be able to provide additional information on a future call.

As you know the number of space and satellite opportunities globally National security related and commercial is rapidly increasing and as a result, credo space and satellite business opportunity pipeline is particularly robust even after generating a fourth quarter and 12 month book to Bill ratio of one two to one.

And now having a record backlog of $600 million at the end of Q4.

Related to the market position of <unk> technology, and first to market open space satellite software suite <unk> recently been informed that we have been selected for an initial approximate $500 million program Award.

But I will hopefully be able to provide additional information on a future call.

Eric DeMarco: Similar to what we typically see at most of Kratos' calendar fiscal year ends, and as we saw again at the end of 2025, certain Kratos' satellite and space customers, similar to commercial software companies, historically make software, data, and other Kratos product purchases in the October, November, and December time period, generating higher margins for our company, which we once again expect and forecast to occur in Q4 2026. The Department of War has recently established a new acquisition model to expand munitions procurement and production, including delivering long-term demand signal certainty to the industry and incentivizing private investment to increase production. Related to this initiative, the Department of War has executed multiple up to 7-year deals, including with Lockheed and Raytheon, for air defense, missile-related, and other systems, including several programs that Kratos supports.

Similar to what we typically see at most of <unk> calendar fiscal year ends and as we saw again at the end of 'twenty five certain kratos satellite and space customers similar to commercial software companies historically make software data and other creative product purchases in the October November and December.

<unk> time period.

Generating higher margin for our company, which we once again expect and forecast to occur in Q4 26.

The Department of War has recently established a new acquisition model to expand munitions procurement and production, including delivering long term demand signals certainty to the industry and incentivising private investment to increase production.

Related to this initiative the department of War has executed multiple up to seven year deals, including with Lockheed and Raytheon for Air Defense missile related and other systems, including several programs that Kratos supports.

Eric DeMarco: Northrop also recently announced that the Integrated Battle Command System, or IBCS, another Kratos hardware-supported program, is moving towards increased production. Kratos is an industry leader in high-volume manufacturing of military-grade hardware and systems, including hardware with high-altitude electromagnetic pulse protection, an important Kratos technology differentiator, and we are a go-to provider of hardware for our national security-related customers and partners. Accordingly, we applaud the Department of War on these long-term production agreements and plans, which clarity provides companies like Kratos, the long-term planning visibility for investment, resource allocation, and financial, financial forecasting confidence. In Kratos Turbine Technologies, under our engine business, there are several new low-cost cruise missile, drone, hypersonic, and loitering munition programs and systems that require next generation, new technology, engines, and propulsion systems. Here again, Kratos is first to market, including with our Spartan family of jet engines, which are running and flying today.

And Northrop also recently announced that the integrated Battle command system or <unk>, another credo as hardware supported program.

Is moving towards increased production.

Kratos is an industry leader in high volume manufacturing of military grade hardware and systems, including hardware with high altitude electromagnetic pulse protection, an important creative technology differentiator and we are a go to provider of hardware for our national security related customers and partners.

<unk>.

Accordingly, we applaud the department of War and these long term production agreements and plans, which clarity provides companies like <unk>. The long term planning visibility for investment resource allocation and financial financial forecasting confidence.

<unk> turbine technologies and our engine business. There are several new low cost cruise missile drone hypersonic and loitering munition programs and systems that require next generation, new technology engines, and propulsion systems and here again, <unk> first to market, including.

With our Spartan family of jet engines, which are running in flying today.

Eric DeMarco: We continue to win important new engine-related program awards, including what we were able to report this morning, that Kratos and our partner, GE Aerospace, have now received an award from the Air Force to design an engine for the Expendable Combat Collaborative Aircraft, or CCA. I can now also report that Kratos expects to begin low rate initial production of small engines in the second half of this year for certain missile programs, and we are also currently responding to a customer-requested rough order of magnitude quote for 15,000 engines for a system that has been specifically designed around a Kratos Spartan jet engine. Directly related to the expected future quantities of low-cost missiles, drones, and powered munitions required, we are now in our new 40,000 engine per year capacity facility in Michigan.

We continue to win important new engine related program awards, including what we were able to report this morning that Kratos and our partner GE Aerospace have now received an award from the Air Force to design an engine for the expandable combat collaborative aircrafts or CCA.

I can now also report.

<unk> expects to begin low rate initial production up small engines in the second half of this year for certain missile programs and we are also currently responding to a customer requested rough order of magnitude quote for 15000 engines for a system that has been specifically designed.

Around a credo Spartan jet engine.

Directly related to the expected future quantities of low cost missiles drones and powered munitions required.

We are now in our new 40000 engines per year capacity facility in Michigan.

Eric DeMarco: The expected ramp in our engine and propulsion system businesses, which can generate certain of our company's highest margins, including from the financial leverage we expect to realize on certain fixed manufacturing, overhead, and other costs as the business ramps, are expected to be contributors to our expected increased overall Kratos EBITDA margins as we progress through 26 and into 27. We continue to execute on the new industrial gas turbine, or IGT program I mentioned on our last call, which we are under an NDA on, but there has been important information reported publicly, including on CNBC, which such program, if successful, could be a significant future catalyst opportunity for Kratos.

The expected ramp in our engine of propulsion system businesses, which can generate certain of our company's highest margins, including from the financial leverage we expect to realize on certain fixed manufacturing overhead and other costs as the business ramps are expected to be contributors to our expected increased overall <unk> EBITDA.

<unk> as we progress through 'twenty and into 'twenty seven.

We continue to execute on the new industrial gas turbines or IGT program I mentioned on our last call, which we are under an NDA on but there has been important information reported publicly including on CNBC.

With such program, if successful could be a significant future catalyst opportunity for kratos.

Eric DeMarco: Since our last update call, Kratos Turbine Technologies is now under contract in the high-profile eVTOL area, under what we refer to internally as Project Pegasus, where Kratos is designing and is expected to deliver propulsion systems, including for a very well-known eVTOL company. Kratos' technology and propulsion systems in the eVTOL area is another representative example of Kratos being a provider of real dual-use products. Kratos Microwave Electronics is also expected future high growth business area for our company, including in the US, Israel, and elsewhere internationally, both organic and inorganic, that is also currently expected to continue to generate certain of the highest profit margins in our company. As you know, Kratos Microwave has several hundred employees in Israel, where Kratos is working with certain of the most technologically advanced companies in the world.

Since our last update call Kratos turbine technologies is now under contract and the high profile E VTOL area.

Under what we refer to internally as project Pegasus.

<unk> is designing and is expected to deliver propulsion systems, including for a very well known EV toll company.

<unk> technology and propulsion systems in the EV tall area is another representative example of credo as being a provider of real dual use products.

Kratos microwave electronics is also expected future high growth business area for our company, including in the U S. Israel and elsewhere internationally, both organic and inorganic that is also currently expected to continue to generate certain of the highest profit margins in our company.

As you know credo microwave has several hundred employees in Israel, where kratos is working with certain of the most technologically advanced companies in the world.

Eric DeMarco: I recently met in Israel with my very close partners, including the CEOs of Elbit, Rafael, and Israel Aerospace Industries, each of which Kratos has been working with for decades. Simply stated, virtually every national security system globally needs military-grade microwave electronics, and we are focused on investing in and growing this business area to support our partners. Consistent with our expectations and what we communicated in our Q3 update call, we recently announced that our teammate, Northrop, received the MUX/TACAIR Collaborative Combat Aircraft, or CCA, program award, with Kratos Valkyrie as the CCA aircraft equipped with Northrop's mission systems. It was also reported that MUX/TACAIR was a competitive CCA solicitation that Kratos' Valkyrie won and was selected for.

In a recent met recently met in Israel with my very close partners, including the Ceos of Elbit, Rafael and Israeli Aerospace industries, each of which <unk> has been working with for decades.

Simply stated virtually every national security system globally needs military grade microwave electronics, and we are focused on investing in and growing this business area to support our partners.

Consistent with our expectations of what we communicated in our Q3 update call we.

We recently announced that our teammate Northrop received the MX Tac Air collaborative combat aircraft or CCA program Award with Kratos Valkyrie is the CCA aircraft equipped with Northrop's mission systems.

It was also reported that <unk> was a competitive CCA solicitation that Kratos Valkyrie, one and was selected for.

Eric DeMarco: As I have mentioned before, Northrop is an incredibly valuable partner of Kratos and one of the most innovative technology companies in the industry, and this includes the new defense technology companies. As reported, this initial MUX/TACAIR award is approximately $230 million and will be split approximately 50/50 between Kratos and Northrop, with an approximate 24-month period of performance, also consistent with our previous expectations. As a reminder, there is initial MUX/TACAIR funding of approximately $275 million included in the 2025 reconciliation bill and an additional $58 million included in the 2026 appropriations bill. This is expected to be just the beginning for this program. As I have previously communicated in detail, this initial award includes the sale of a number of Valkyrie systems, but this is not yet high rate production, which is expected to come next.

As I have mentioned before Northrop is an incredibly valuable partner of <unk> and one of the most innovative technology companies in the industry and this includes the new defense technology companies.

As reported the initial <unk> award is approximately $230 million and will be split approximately 50 50 between cradles and Northrop with an approximate 24 month period of performance also consistent with our previous expectations.

As a reminder, there is initial <unk> funding of approximately $275 million included in the 2025 reconciliation Bill and an additional $58 million included in the 26 appropriations Bill.

This is expected to be just the beginning for this program.

As I have previously communicated in detail. This initial award includes the sale of a number of Valkyrie systems, but this is not yet high rate production, which is expected to come next.

Eric DeMarco: There has been a lot of information reported on the Marine Corps program of record on Valkyrie being the first CCA expected to be fielded. I encourage you to take a look at this data, as I believe it validates the current favorable competitive positioning of Kratos Valkyrie and the future expectations that we have for this system. Okay, importantly, we have now also successfully, successfully received another separate US tactical drone program of record contract award, that we are not allowed to provide any details at this time. Additionally, I believe that we are in a sole source position for two additional tactical drone opportunities, including for Valkyrie, which we will hopefully receive in late Q4 this year.

There has been a lot of information reported on the Marine Corps program of record on Valkyrie being the first CCA expected to be fielded that.

But I encourage you to take a look at this data as I believe it validates the current favorable competitive positioning of Kratos Valkyrie and future expectations that we have for the system.

Importantly.

We have now also successful successfully received another separate U S. Tactical drone program of record contract Award.

So we are not allowed to provide any details at this time.

Additionally, I believe that we are in a sole source position for two additional tactical drone opportunities, including for Valkyrie, which we will hopefully receive in late Q4 this year.

Eric DeMarco: We are also in another competitive CCA solicitation with the Valkyrie and a partner, which we also currently expect to be notified on by the end of this year or early next. As a result of our recent progress, we intend to execute a plan to increase our Valkyrie production from a current approximately 8 aircraft annually, up to a projected annual production rate of approximately 40 aircraft annually by the end of 2028. We currently expect to have definitized with our customers later this year or early next, the production quantities of Valkyrie required to be contractually delivered and the timing of these deliveries, which in part will be related to the 2027 federal budget defense appropriation and when it is approved.

We are also in another competitive CCA solicitation with the Valkyrie and a partner, which we also currently expect to be notified on by the end of this year or early next.

As a result of our recent progress we intend to execute a plan to increase our valkyrie production from our current approximately eight aircrafts annually up to a projected annual production rate of approximately 40 aircrafts annually by the end of 'twenty eight.

We currently expect to have definitive lived with our customers later this year or early next the production quantities of Valkyrie required to be contractually delivered and the timing of these deliveries, which in part will be related to.

To the 2027 federal budget defense appropriation and when it is approved.

Eric DeMarco: At a planned production rate of approximately 40 Valkyries annually, we believe that we will be well positioned to address expected current under program, customer-required delivery schedules once definitized, while also maintaining an adequate number of white tail aircraft in inventory to be able to continue to address RDT&E, S&T, and potential new customer requirements. We will continue to include in Kratos' base case financial forecasts, as we provided today, only the RDT&E and S&T Valkyrie sales quantity levels until we have definitized production, funding, and delivery schedules so that we can accurately forecast expected larger quantities by fiscal quarter and fiscal year. In summary, the Marines are expected to field the first CCA. We will not let them down, and we will keep you informed with the progress to the extent we are able to discuss.

At our planned production rate of approximately 40 Valkyrie is annually, we believe that we will be well positioned to address the expected.

As expected current under program customer required delivery schedules once definitive <unk>, while also maintaining an adequate number of white tail aircrafts in inventory to be able to continue to address <unk> SMT and potential new customer requirements.

We will continue to include and Kratos is base case financial forecasts as we provided today only the <unk> and S&P Valkyrie sales quantity levels.

Until we have definitive production funding and delivery schedules. So that we can accurately forecast expected larger quantities by fiscal quarter and fiscal year.

In summary, the Marines are expected to field. The first CCA, we will not let them down and we will keep you informed with the progress to the extent we are able to discuss.

Eric DeMarco: Kratos recently received a Gauntlet award under the Department of War's $1 billion drone dominance plan to acquire small lethal drones over the next 2 years. We have a family of small drones in this class that we have not discussed previously. This is a phase I award. This program is scheduled to move very rapidly, and if we continue to be successful in future phases, drone dominance could be another meaningful program to our company. Kratos' Mighty Hornet Tactical Fire Jet CCA program initiative continues to progress with the Taiwan NCSIST, and we have certain future flight-related milestones we need to achieve, with the potential production decision possible late this year or early next. As was recently reported with the Taiwan NCSIST, the ultimate objective of this program is for very high quantities of affordable mass fleet of Mighty Hornet IV systems to be deployed in Taiwan.

<unk> recently received a Gauntlet award under the Department of War is $1 billion drawn dominance plan to acquire small lethal drones over the next two years.

We have a family of small drones in this class that we have not discussed previously this is a phase One award. This program is scheduled to move very rapidly and if we continue to be successful in future phases drone dominance could be another meaningful program to our company.

Great doses Mighty Hornet Tactical fire Jet CCA program initiative continues to progress with the Taiwan, NCS ISP and we have certain future flight related milestones, we need to achieve with a potential production decision possible late this year or early next.

As was recently reported with the Taiwan NCS ISP the.

The ultimate objective of this program is for very high quantities of affordable mass fleet of Mighty Hornets for systems to be deployed in Taiwan.

Eric DeMarco: Kratos' Athena program and UAS has had additional successful flights under contract with the US customer. As I believe you can see, the tactical drone opportunity is happening real time for Kratos, that this is occurring as a result of the threat, and that the customers believe that they are out of time and that they need to field relevant systems now. Kratos' Anaconda Radar, Helios Hypersonic, system-related Arcjet, Prometheus Solid Rocket Motor and Energetics, BladeWorks Jet Engine, and our new Poseidon program facility are all expected to be coming online over the next 24 months, contributing to the expected future growth, margin, and value increases for the business.

<unk> was the Athena program and UAS has had additional successful flights under contract with the U S customer.

As I believe you can see the tactical drone opportunity is happening real time for Kratos that this is occurring as a result of the threat and that the customers believe that they are out of time and that they need to field relevance systems now.

Great doses Anaconda radar Helios hypersonic system related arc jet permit the a solid rocket motor and Energetics Blade works jet engine and our new Poseidon program facility are all expected to be coming online over the next 24 months contributing to the expected future growth.

Margin and value increases for the business.

New initiatives that Kratos is currently either pursuing or assessing that I can mention include cracking and Ares bolt in the hypersonic area vault.

Eric DeMarco: New initiatives that Kratos is currently either pursuing or assessing, that I can mention, include Kraken and Ares, both in the hypersonic area, Vulcan in the rocket system area, and Elysium, which is the largest, and for competitive reasons, I will not get into it this time. Each of these, if successful, have either customer or partner backing. Kratos' business plan remains unchanged, including that we do not buy back stock or pay dividends, but rather we invest our capital in rebuilding our country's defense industrial base, rapidly developing, producing, and delivering affordable, relevant systems to the war fighter and generating a financial return for our investors.

Welcome and the rocket system area, and our lithium which is the largest and for competitive reasons I will not get into at this time.

Each of these if successful have either customer or partner backing.

<unk> business plan remains unchanged, including that we do not buyback stock or pay dividends, but rather we invest our capital and rebuilding our country's defense industrial base rapidly developing producing and delivering affordable relevant systems to the war fighter and generating a financial return for our investors.

Eric DeMarco: As Deanna will discuss, we have closed on a small tuck-in acquisition, Nomad Global Communication Solutions, a technology, hardware, and systems company focused on mobile command, control, and communication systems, including as related to unmanned systems, counter UAS, homeland security, and some other systems. Nomad was a negotiated transaction between Kratos and the Nomad owners, consistent with the type of opportunities Kratos continues to be approached with. We continue to expect the previously announced acquisition of Israeli-based satellite communications company, Orbit Technologies, which forecasted financial performance is not included in the guidance we provided today, to close by the end of Q1. Once Orbit closes, we will include them in our forecasting. Deanna?

As Deanna will discuss we have closed on a small tuck in acquisition Nomad Global communications solutions or technology.

Technology hardware and systems company focused on mobile command control and communication systems, including as related to unmanned systems counter UAS homeland security and some other systems.

No Matt was a negotiated transaction between <unk> and the nomad owners consistent with the type of opportunities Credo continues to be approached with.

We continue to expect the previously announced acquisition of Israeli based satellite Communications company orbit technologies.

<unk> forecasted financial performance is not included in the guidance, we provided today to close by the end of Q1.

Once orbit closes we will include them in our forecasting.

Deanna.

Deanna Lund: Thank you, Eric. Good afternoon. We have included a detailed summary of the Q4 and full year 2025 financial performance, as well as the initial Q1 and full year 2026 financial guidance in the press release we published earlier today, I will focus on the highlights in my remarks today. Revenues for the Q4 were $345.1 million, above our estimated range of $320 to $330 million, with overachievement of forecasted revenues across the majority of our businesses, with a revenue organic growth rate of 20% over the Q4 2024, as compared to our estimated organic growth rate of 14% to 15%. The largest contributors to the overachievement were our space and satellite, determined technologies, C5ISR, and microwave products businesses.

Thank you Eric good afternoon.

We have included a detailed summary of the fourth quarter and full year 2025 financial performance as well as the initial first quarter and full year 2026 financial guidance in the press release, we published earlier today I will focus on the highlights in my remarks today.

Revenues for the fourth quarter were $345 1 million above our estimated range of $320 million to $330 million with over achievement in forecasted revenues across the majority of our businesses with a revenue organic growth rate of 20% over the fourth quarter of 2024 as compared to our estimated organic growth.

Both rate of 14% to 15% the largest contributors to the over achievement, where our space and satellite procurement technologies, <unk> ISR and microwave products businesses.

Deanna Lund: Notable year-over-year organic revenue growth was reported in our defense rocket support, microwave products, and space training and cyber businesses, with organic revenue growth rates of 47.4%, 32.4%, and 22.7% respectively. Adjusted EBITDA for Q4 2025 was $34.1 million, just above the high end of our estimated range of $29 to $34 million, reflecting the increased volume and revenue mix, offset partially by continued increased subcontractor and material costs on certain multi-year fixed price contracts in our unmanned systems business, revenue mix and elevated bid proposal and other new opportunity pursuit costs. Unmanned systems Q4 2025 revenue was up $7.4 million or 12.1% organically, with the increase primarily driven by Valkyrie-related activity.

Notable year over year organic revenue growth was reported in our defense rocket support microwave.

<unk> and space training and cyber businesses with organic revenue growth rates of 47, 4% 32, 4% and 22, 7% respectively. Adjusted.

Adjusted EBITDA for the fourth quarter of 25% with $34 1 million just above the high end of our estimated range of 29% to $34 million, reflecting the increased volume.

And revenue mix offset partially by continued increased subcontractor and material costs on certain multiyear fixed price contracts in our unmanned systems business revenue mix and elevated bid proposal and other new opportunity pursuit costs.

<unk> Systems' fourth quarter 25 revenue was up seven 4 million or 12, 1% organically with the increase primarily driven by VAALCO really related activity.

Deanna Lund: KGS Q4 2025 revenue was up $54.6 million year-over-year from Q4 2024, with organic revenue growth of 22.2%, excluding the impact of the February 2025 acquisition of certain assets of Norden Millimeter Inc. Q4 2025 cash flow generated by operations was $12.1 million, primarily reflecting the working capital requirements related to the revenue growth impacting our receivables by approximately $29 million, and increases in inventory of $20 million, and increases in other assets of approximately $3 million, primarily reflecting investments we are continuing to make related to certain development initiatives in our unmanned systems business.

Kgs fourth quarter 25 revenue was up $54 6 million year over year from the fourth quarter of 'twenty four with organic revenue growth of 22, 2%, excluding the impact of that February 25 acquisition of certain assets of Northern millimeter, Inc.

Fourth quarter 25 cash flow generated by operations was $12 1 million, primarily reflecting the working capital requirements related to the revenue growth impacting our receivables by approximately $29 million and increases in inventory of $20 million and increases in other assets of approximately $3 million prime.

Manley, reflecting investments we are continuing to make related to certain development initiatives in our unmanned systems business.

Deanna Lund: Free cash flow used in operations for Q4 2025 was $100,000, after reflecting funding of $24.2 million of capital expenditures, net of $12 million in proceeds from the sale of Valkyries, which were reported as company-owned capital assets and previously classified as capital expenditures, and therefore reflected as an inflow in investing activities when sold. As we planned, we are continuing to make investments to expand and build out certain of our manufacturing and production facilities in our microwave products, rocket systems, hypersonic, and jet engine businesses, to meet existing and anticipated customer orders and requirements, and investing in related new machinery, equipment, and systems.

Cash flow used in operations by the fourth quarter of $25 100000, after reflecting funding of $24 2 million in capital expenditures net of $12 million in proceeds from the sale of <unk>, which we reported as company owned capital assets and previously classified as capital expenditures and therefore.

Selected as an inflow in investing active activities when sold.

As we planned we are continuing to make investments to expand and build out certain of our manufacturing and production facilities in our microwave products rocket system.

Hypersonic and jet engine businesses to meet existing and anticipated customer orders and requirement and investing and related new machinery equipment and systems.

Deanna Lund: Consolidated DSOs, or Days Sales Outstanding, increased from 111 days in Q3 to 121 days, reflecting the nearly 22% revenue growth and the timing of milestone billings and contractual funding. The impact of the federal government shutdown and its impact on government program, administrative, and other offices and functions was more significant than we had anticipated, which has resulted in the delay in timing of certain contract funding and certain expected government contract receivable payment dates to be delayed, resulting in an increase in customer accounts receivable Days Sales Outstanding. Our contract mix for Q4 2025 was 70% of revenues from fixed price contracts, 26% from cost type contracts, and 4% from time and material contracts.

Consolidated Dsos or days sales outstanding increased from 111 days in the third quarter to 121 days, reflecting the nearly 22% revenue growth and the timing of milestone billings and contractual funding.

The impact of the federal government shutdown and its impact on government program administrative and other offices and functions was more significant than we had anticipated which has resulted in the delay in timing of certain contract funding and certain expected government contact receivable payment dates to be delayed.

<unk>, resulting in an increase in customer accounts receivable days sales outstanding.

Our contract mix for the fourth quarter of $25, 70% of revenues from fixed price contracts, 26% from cost type contracts and 4% from time and material contracts revs.

Deanna Lund: Revenues generated from contracts with the US federal government during Q4 were approximately 67%, including revenues generated from contracts with the Department of War and non-Department of War federal government agencies and FMS contracts. Moving on to financial guidance. Our financial guidance we provided today includes our expectations and assumptions for our supply chains execution, the impact of employee sourcing, hiring, retention, and the related cost. Our Q1 and full year 2026 guidance includes the estimated contribution from the recently closed Nomad Global Communication Solutions acquisition from the date of acquisition, which closed in mid-February. As Eric mentioned earlier, we have not included the estimated impact of the pending Orbit Technologies acquisition in our guidance and will not do so until it is closed.

Revenues generated from contracts with the U S. Federal government during the fourth quarter were approximately 67%, including revenues generated from contracts with the DSW and non D O W. Federal government agencies and Fms contract now.

Now moving on our financial guidance.

Financial guidance, we provided today includes our expectations and assumptions for our supply chain execution impact of employee sourcing hiring retention and the related cost.

Our first quarter and full year 2006 guidance includes the estimated contribution from the recently closed Nomad Global communication solutions acquisition from the date of acquisition, which closed in mid February.

Eric mentioned earlier, we have not included the estimated impact of the pending Ormat technologies acquisition in our guidance and we will not do so until it is closed.

Deanna Lund: We expect our Q1 2026 guidance to be the lowest in revenue and adjusted EBITDA, which includes the impact of the extended US federal government shutdown in Q4 2025, with impacts to certain contract awards, program, and funding. Our Q1 revenue guidance of $335 to $345 million reflects estimated organic growth of 7.5% to 9.5% as compared to Q1 2025. Our adjusted EBITDA guidance of $25 to $30 million reflects the estimated revenue mix and less leverage on elevated administrative, manufacturing overhead, and bid and proposal costs that we have ramped in the business to support the forecasted full year 2026 growth.

We expect our first quarter 2006 guidance to be the lowest in revenue and adjusted EBITDA, which includes the impact of the extended U S. Federal government shutdown in the fourth quarter of 'twenty five with impact to certain contract awards program and funding.

First quarter revenue guidance of $335 to $345 million reflects estimated organic growth of seven five to nine 5% as compared to the first quarter of 2025.

Adjusted EBITDA guidance of $25 million to $30 million reflects the estimated revenue mix and less leverage on elevated administrative manufacturing overhead and bid and proposal costs that we have ramped in the business to support the forecasted full year 2006.

Deanna Lund: Our full year 2026 revenue guidance is $1.59 to $1.675 billion, which reflects an organic growth rate of 12.7% to 18.5% over 2025 actual performance, which came in higher than our previous full year 2025 estimate. Our guidance continues to include the impact of increased material and subcontractor costs on our multi-year fixed price contracts, specifically in our unmanned systems target drone business, where we have experienced cost growth from certain ancillary materials on our targets, and for which we are unable to seek recovery from the customer until the renewal of future production lot contracts occurs. We are continuing to aggressively manage costs where we can to minimize the impact to our margins.

Our full year 2006 revenue guidance is $1 59.

To $1 $6 75 billion, which reflects an organic growth rate of 12, 7% to 18, 5% over 2025 actual performance, which came in higher than our previous full year 2025 estimate.

Our guidance continues to include the impact of increased material and subcontractor costs in certain of our multiyear fixed price contract specifically in our unmanned systems target drone business, where we have experienced cost growth I'm certain ancillary materials on our targets and for which we are unable to seek recovery from the customer until there.

Renewal of future production lot contracts occurs.

We are continuing to aggressively manage costs, where we can to minimize the impact to our margins.

Deanna Lund: Our operating cash flow guidance includes the continued use of working capital to fund our organic revenue growth, which includes the increase in accounts receivable and the impact of delays in contract funding to enable customer billings and collections, and increases in inventory and related prepaid asset balances as we ramp production and procure long lead materials for our target and tactical drones, solid rocket motors, and our turbofan and turbojet engines. Kratos' operating cash flow guidance also assumes certain investments in our rocket systems and unmanned systems businesses related to the procurement of rocket and related systems, and our plan to begin producing approximately 40 Valkyries annually, beginning by the end of 2027, as well as the completion of certain of our unmanned systems and related derivatives and vehicles.

Our operating cash flow guidance includes the continued use of working capital to fund our organic revenue growth, which includes the increase in accounts receivable and the impact of delays in contract funding to enable customer billings and collections and increases in inventory and related prepaid asset balances as we ramp production in <unk>.

Procured long lead materials for our target and tactical drones solid rocket motors and a terrible ban in turbo jet engine.

Craig This is operating cash flow guidance also assumes certain investments in our rocket systems and unmanned systems businesses related to the procurement of rocket and related systems and our plan to begin producing approximately 40 Valkyrie annually beginning by the end of 2027 as well as the completion of certain of our <unk>.

Unmanned systems and related derivatives and vehicles additional forecasted investments in 26 include our funding as the permit is joint venture established last year, which we estimate will be ratably throughout 2026 were in aggregate for the year of approximately $50 million.

Deanna Lund: Additional forecasts and investments in 2026 include our funding of the Prometheus joint venture established last year, which we estimate will be ratably throughout 2026, or an aggregate for the year of approximately $50 million. Funding of the pending Orbit Technologies acquisition, our Anaconda radar program, our Helios Hypersonic and Arc Chamber program, our Indiana Hypersonic Integration Facility, our GEK and BladeWorks engine facilities, and our Vulcan, Kraken, Elysium, Nemesis, Hermes, and other initiatives. Our forecasted capital expenditures of $135 to $145 million for 2026 includes approximately $30 to $35 million, which was originally forecasted for 2025, which has moved to the right.

Blending at the pending orbit technologies acquisition, our Anaconda radar program, our Helios hypersonic and art Chamber program, our Indiana Hypersonic integration facility R. J, K and blade worth engine facilities, and our Vulcan cracking Alicia nemesis Hermes and other initiatives.

Cash capital expenditures of $135 million to $145 million for 2026 includes approximately 30% to 35 billion, which was originally forecasted for 2025, which is moved to the right.

Eric DeMarco: Great. Thank you, Deanna. We'll turn it over to the moderator now for questions.

Great. Thank you Deanna.

I will turn it over to the moderator now for questions. Thank you. So much I must have a reminder to ask a question simply press star one one on your telephone and wait for your name to be announced to remove yourself press star one again.

Operator: Thank you so much. As a reminder, to ask a question, simply press star one one on your telephone and wait for your name to be announced. To remove yourself, press star one one again. One moment while we compile the Q&A roster. Our first question comes from the line of Josh Sullivan with Jones Trading. Please proceed.

And while we compile the Q&A roster.

Our first question comes from the line of Josh Sullivan with Jones trading. Please proceed.

Josh Sullivan: Evening, Eric, Deanna.

Maybe Eric Deanna.

Deanna Lund: Hey, Josh.

Hey, John Good afternoon.

Eric DeMarco: Good afternoon.

Josh Sullivan: If, if I could just start off with a question on maybe some of your perspectives on defense tech valuations in the market. You know, reports of Anduril reportedly at $60 billion for $8 billion in funding. What do you think that means for Kratos? What would an order of magnitude of nearly $8 billion allow Kratos to accelerate? You know, you just mentioned a number of programs and wins you're working on, and then tied in with, you know, the secretary's comments you also mentioned.

If I could just start off with a question on maybe some of your perspectives on defense Tech valuations in the market reports of annual or quarterly at $60 billion 3 billion in funding.

For Kratos and what would an order of magnitude is nearly 8 billion allow creek Kosta accelerate just mentioned a number of programs and wins Youre working on and then tied in with the Secretary's comments you also mentioned.

Eric DeMarco: Okay. I, I believe that Kratos is the most valuable defense company in the industry, private or public. I'm taking nothing away from Anduril or any of the other defense tech companies. I want them to all succeed for US national security. We're the most valuable, and I can go through that if you, if you'd like me to. On the second part of your, your question, we all have different strategies and, and business plans. Our, our business plan is to, is to be balanced as best we can, drive organic growth like we're doing, invest significant amounts to rebuild the industrial base like we're doing, but always be mindful of generating an adequate return on investment for the investors. That's how I see it, Josh.

Okay.

So I believe that Kratos is the most valuable defense company in the industry private or public.

I'm, taking nothing away from and roll or any of the other defense Tech companies I want them all.

Succeed.

For U S National security.

Yes.

But we are the most valuable and I can go through that.

If you'd like me to on the second part of your question.

We all have different strategies and business plans or our business plan is to just to be balanced as best we can draw.

Drive organic growth like we're doing.

Invest significant amounts to rebuild the industrial base like we're doing.

But always be mindful of generating an adequate return on investment for the investors.

So so.

That's how I see it Josh.

Josh Sullivan: Got it. I guess, just on Kratos' partnership with Boom and the Superpower IGT, you know, I know there's an order from Crusoe for 29 units and tie-ins with OpenAI, but what can you say about other customers and backlogs at this point since you've announced?

Got it.

And then I guess, just on <unk> partnership with boom and the superpower IGT I know Theres, an order from <unk> 29 units and tie ins with open AI, but what can you say about other customers and backlogs at this point since you've announced.

Eric DeMarco: Right. Yeah, thank you for the question. As I mentioned, take a look at the. There was an interview on CNBC by the CEO of Boom, Blake Scholl, where he walked through the opportunity that we have here. To your question, Josh, when, when Kratos acquired Florida Turbine in 2019, the primary business of Florida Turbine was industrial gas turbines. That's our expertise, Kratos's. We have not been focused on it and talking about it because we've put our engineering team on low-cost engines for cruise missiles and drones. The market has definitely come our way now on the industrial gas turbine area, and we are, we are moving out on this aggressively.

Right.

Yes. So so thank you for the question as I mentioned and take a look at the.

There was an interview on CNBC by the CEO of boom.

Rachel where he walked through the opportunity that we.

We have here now.

Now to your question, Josh when credits acquired Florida turbine in 2019.

The primary business of Florida turbine was industrial gas turbines.

That's our expertise.

Credit losses.

We have not been focused on it and talking about it because we've been we've put our engineering team.

On low cost engines for cruise missiles and drones.

The market has definitely come our way now on the industrial gas turbine area.

And we are.

We are moving out on this aggressively our number one priority is to do it with our partner, but this is an area of expertise for us and we have we're a merchant supplier and there are multiple companies in this area that are coming to us now for our assistance.

Eric DeMarco: Our number 1 priority is to do it with, with our, our partner, but this is an area of expertise for us, and we, we are a merchant supplier, and there are multiple companies in this area that are coming to us now for our assistance.

Josh Sullivan: Just one last one on, on the THAAD order you mentioned. Can you just remind us of Kratos' exposure on the ground and infrastructure equipment?

And then just one last one on the fed order you mentioned can.

Josh Sullivan: Just one last one on, on the THAAD order you mentioned. Can you just remind us of Kratos' exposure on the ground and infrastructure equipment?

Can you just remind us of greatest exposure on the ground and infrastructure equipment.

Eric DeMarco: Yeah. As, as I alluded to in the remarks, the Department of War moving out with, with the big primes on the air defense systems and the missile systems, Lockheed and, and Raytheon, multiple platforms on each one of them. I mentioned, I mentioned Northrop looking to, I think they said they're gonna go up 4x on their Integrated Battle Command System platform. Kratos is the merchant supplier to each one of those guys and many others for the ground infrastructure, for radars, command and control systems, battle command systems, et cetera, et cetera, for virtually every missile and radar system. This, this is, this is significant for, for Kratos, for our business, and for our clarity going forward.

Yes.

As I alluded to in our remarks.

The Department of war moving out with the Big primes on the Air Defense systems in the missile systems Lockheed and.

And Raytheon multiple platforms on each one of them I mentioned I mentioned Northrop looking to I think they said theyre going to Forex on the integrated Battle Command system platform Kratos is the merchant supplier to each one of those guys and many others for.

For the ground infrastructure for radars command and control systems Battle command system et cetera, et cetera for virtually every missile and radar system. So this this is this is significant for <unk> for our business and for our clarity going forward. These long term I'll call them supplier commitment agreements that.

Eric DeMarco: These long-term, I'll call them supplier commitment agreements, the Department of War is doing with the prime, because we're partnered with, with the primes on, on, as you said, THAAD and Patriot and Indirect Fires, IFPC, on Integrated Battle Command System, on SHORAD. I could go-- I could go on and on. This is, this is important for us, what is happening here.

A war is doing with the prime.

We're partnered with with the primes on as you said add in Patria, an indirect fires if pik on integrated Battle command system onshore rat I could go I could go on and on this is that this is important for us what is happening here.

Anthony Valentini: Great. Thank you for the time.

Great. Thank you for the time.

Eric DeMarco: Thank you.

Thank you.

Operator: Thank you. Our next question comes from the line of Michael Ciarmoli with Truist Securities. Please proceed.

Thank you.

Our next question comes from the line of Michael <unk> with <unk> Securities. Please proceed.

Michael Ciarmoli: Hey, Eric DeMarco, Deanna Lund, good evening. Nice results, and thanks for all of this detail, especially the CapEx bridge. Eric DeMarco, or Deanna Lund, is this the CapEx peak, do you think, or are we just getting started here? I mean, are you comfortable with the balance sheet? I think post-orbit, you'll have roughly $200 million in cash. You know, I, I think obviously spending your own money, not doing buybacks or dividends, clearly aligned. Have you, have you talked or engaged with the Department of War or even Office of Strategic Capital? I mean, there's been some pretty creative transactions out there. Just curious on the terms of color there.

Hey, Eric Good evening.

This results and thanks for all of all of this detail, especially the Capex bridge.

Eric or is this the Capex peak do you think or are we just getting started here and I mean are you comfortable with the balance sheet I think post orbit youll have roughly $200 million in cash and.

I think obviously spending your own money not doing buybacks or dividends clearly aligned but have you talked or engaged with the department of war or even office from strategic capital I mean, there's been some pretty creative transactions out there just curious in terms of color there.

Deanna Lund: Yeah, Mike, thanks for the, the question. The CapEx table that we've included in the press release is on the growth side. It does not include potential government, whether it be federal or state funding, that, that we may receive, that, that we are working on a parallel path. We've, we've tried to present what, what we think are, is the worst case for, for 2024 set.

Yeah, Mike Thanks for the questions of the Capex table that we've included in the press release is on the <unk>.

Gross side. So it does not include potential government, whether it be federal or state funding of that that we may receive that we are working.

On a parallel path. So we try to present, what we think is the worst case for us for 2000.

Michael Ciarmoli: Okay. Got it.

Got it.

Eric DeMarco: Yeah.

Michael Ciarmoli: You can-

Eric DeMarco: Yeah, and, and Mike, a data point on that. Take, take a look. Anduril announced yesterday or the day before, they just received another $40 or $45 million in Title III funding, where Kratos is right in the middle of that on Title III funding, on IBAS funding, et cetera. As Deanna said, we're throwing the gross number out there.

Yes.

A data point on that take a look and roll announced yesterday or the day before they just received another 40% or $45 million in title III funding.

<unk> is right in the middle of that on title III funding on <unk> funding et cetera, and as Deanna said, we're throwing the gross number out there but.

Michael Ciarmoli: Yes.

Eric DeMarco: I, I believe you'll see a significant number of offsets this year.

Believe youll see a significant number of offsets this year.

Michael Ciarmoli: Okay, that's good to know. Then, Eric, this one might be a tough one, but of all these initiatives and these CapEx projects, I mean, what in your view, offers the most potential for revenue growth, EBITDA generation? I don't know, I don't know if it's easy to maybe tie it to the $13.7 billion pipeline you talked about, but anything jumping off the page there?

Okay. That's good to know and then Eric I guess, one might be a tough one, but but if all these initiatives and these capex projects I mean, what in your view offers the most potential for revenue growth EBITDA generation.

I don't know I don't know if its easier to maybe tie it to the $13 7 billion pipeline, you talked about but anything jumping off the page there.

Eric DeMarco: Yep, the, the hypersonic franchise, Mike. I was, obviously, I was, I was in Indiana this week. I was at Crane for the groundbreaking of Prometheus. Right next to, right next to where we were breaking ground is Kratos's hypersonic integration facility that's 90% complete. All right? Okay. Right, right next to that, we've broken ground on Anaconda. Behind it, we're gonna break ground on Helios. Our hypersonic franchise, the, the programs we have, the additional funding we expect to get, and the demand to test, fly, test, fly, is so significant, and, and in our base case, this will drive our growth trajectory and our profitability for the foreseeable future.

Yes.

The hypersonic franchise like I was obviously I was I was in Indiana. This week I was at Crane for the groundbreaking of Permian peers.

Right next to right next to where we were breaking ground.

As Craig doses hypersonic integration facility Thats, 90% complete.

Right right.

Right right next to that.

We have broken ground.

On Anaconda and behind it we're going to break ground on Helios.

Our hypersonic franchise.

The programs, we have the additional funding we expect to get and the demand to test flight test fly.

So significant.

And in our base case, this will drive our growth trajectory and our profitability for the foreseeable future.

Michael Ciarmoli: Okay. Okay, that's helpful. That, that $700 million line of sight you talked to, I mean, it sounds like there could be upside to that based on-

Okay. Okay. That's helpful.

That's $700 million line of sight, you talk to I mean, it sounds like there could be upside to that based on absolute national Okay.

Eric DeMarco: Absolutely.

Michael Ciarmoli: Breaking ground. Additional. Okay.

Eric DeMarco: Absolutely.

Absolutely no question.

Michael Ciarmoli: Okay.

Eric DeMarco: No question. If we were to get a 27 appropriations bill, kinda sort of on time, instead of a 4-month continuing resolution, that would be a home run for Kratos.

If.

If it if we weren't he had a 27 appropriations bill kind of sort of on time instead of a four month continuing resolution that would be a homerun for kratos.

Michael Ciarmoli: Got it. Okay. good stuff. I'll, I'll get out of the way here. I've got... there's a lot of detail there that you've given, but, thanks for the call, I guess.

Got it.

Okay.

Good stuff.

I'll get out of the way here I've got a there's a lot of detail there, but you've given but thanks for the color guys.

Eric DeMarco: Thank you.

Thank you thanks, Mike.

Deanna Lund: Thanks, Mike.

Operator: Our next question comes from the line of Anthony Valentini with Goldman Sachs. Please proceed.

Our next question comes from the line of Anthony <unk> with Goldman Sachs. Please proceed.

Anthony Valentini: Hey, guys, thanks for the question. Eric, I, I just wanna talk on the Marine Corps program for Valkyrie. Can you just give us a little bit of color? I thought it was a little bit surprising that you guys aren't the prime and Northrop is. Can you just talk a little bit why that's the case?

Hey, guys. Thanks for the question Eric I, just wanted to talk on the on.

On the Marine Corps program for Valkyrie.

Can you just give us a little bit of color I thought it was a little bit surprising that you guys arent the prime and Northrop is.

Can you just talk a little bit why that's the case.

Eric DeMarco: Absolutely. We, we are in it to win it, and if that means being the prime, like we are on some of the other ones I mentioned, we're gonna do that. I mentioned that we've won another CCA program, type program, where we can be the prime. Where it makes more sense for us to be the sub, we will be the sub. Northrop Grumman has certain mission systems that are fantastic, and they have been working on these and investing in these, specifically related to the Valkyrie, for a long, long time, and they expect to continue to do that going forward. We have a strategy here with Northrop relative to the Valkyrie, that goes far beyond the Marine Corps. Very candidly, I believe our probability of win, of winning at all, is much higher with Northrop.

Absolutely we are.

Where we are in it to win it.

And if that means being the prime.

Like we are on some of the other ones that I mentioned, we're going to do that I mentioned that we've won another CCA program type program.

We can be the prime where it makes more sense for us to be the sub we will be the sub Northrop Grumman has certain mission systems that are fantastic.

And they have been working on these and investing in these specifically related to the Valkyrie for a long long time and they expect to continue to do that going forward.

We have a strategy here with Northrop relative to the Valkyrie that goes far beyond the Marine Corps.

And very candidly I believe our probability of win of winning at all is much higher with Northrop.

Eric DeMarco: as the prime than if Kratos was the prime. Additionally, it reduces risk to Kratos on the integration of, of those, those very exquisite and capability, but not necessarily in cost, mission systems that Northrop is putting on. It's a risk reduction for Kratos, and we are getting a full stock profit margin on the aircraft. Last point, I'm really glad you asked this. Last point, we are kind of sort of turning into the merchant supplier of tactical jet drones because we're the only guy that has anything flying right now. You've got, you've got some of these new guys that have done a few flights. Ours have been flying since 2019, 2015 on the Mako.

As the prime.

<unk>.

If credit Suisse to prime.

Additionally, it reduces risk to kratos on the integration of those those very exquisite capability, but not necessarily in cost mission systems that Northrop is putting on it as a risk reduction for kratos.

And we are getting a full stop profit margin on the aircraft.

And last point I'm really glad you asked this last point.

We are kind of sort of turning into the merchant supplier of tactical jet drones, because we're the only guy that has anything flying right now.

You've got some of these new guys that have done a few flights ours have been flying since 2019 2015 on the makeup.

Eric DeMarco: Since we're the only guy, the mission system companies are coming to us, and if the mission system guys want to be prime, and that means we can sell more airplanes faster, that's what we're gonna do.

And since we're the only guide the mission system companies are coming to us.

And our submission system guys want to be prime and that means we can sell more airplanes faster that's what we're going to do.

Anthony Valentini: Okay, that makes sense. Eric, I think that you had talked about in the past, it being $10 million a copy. Is that the right way for us to continue to think about it with Northrop as the prime and 50/50, you know, split of the revenue, so you guys are $5 million of content per aircraft?

Okay and that makes sense, Eric I think you talked about in the past as being 10 million Bucks a copy.

Is that the right way for us to continue to think about it with Northrop as the Prime and 50 50 split of the revenues that you guys were $5 million of content per aircraft.

Eric DeMarco: No, no. Don't, don't look at it that way. Nope, nope. Look at $10 million per aircraft for Kratos. Okay. Might be a little less, might be a little more, depending on the configuration. As you know, we have 3 different Valkyries now, that are 3 different ones: rail launched, trolley launched, conventional takeoff and landing. Depending on the type of aircraft, it might move around a bit, but if you use 10, you're in good shape for Kratos.

That's not that is that has no no don't don't look at it that way no no.

Look at.

$10 million.

Per aircraft for Kratos.

Okay might be a little less.

Be a little more depending on the configuration as you know we have we have three different valkyries now that are <unk>.

Three different ones rail launched Trialing launched.

Conventional takeoff and landing so depending on the type of aircraft that might move around a bit but if you use 10 youre in good shape for creditors. Okay. Okay. That's incredibly helpful. And then the last one for me, Eric like you've outlined a ton of different opportunities here.

Anthony Valentini: Okay, that's incredibly helpful. The last one for me, Eric, like, you've outlined a ton of different opportunities here. Like, hypersonics alone, I think, is 10% growth. I recognize that you don't have the, the scaled production of Valkyrie and the numbers yet, but is there anything significant that we should know about that's rolling off over the next couple of years? Because it seems to me like the growth that you're outlining is pretty, you know, pretty large, maybe above the 20% that you're talking about.

Like hypersonic alone I think a 10% growth I recognize you don't have the scale production in a valkyrie in the numbers yet.

But is there anything significant that we should know about that's rolling off over the next couple of years because it seems to me like the growth that Youre outlining is pretty.

That's a pretty large maybe above the 20% that you're talking about.

Eric DeMarco: There is nothing of significance rolling off. We have zero recompetes of any size for the foreseeable future. We won the last one last year, command and control of the space segment, for 7+ years. We are in a very fortunate position because we're a hardware company and an intellectual property company.

There is nothing.

Of significance.

<unk> off.

We have zero.

Recompete of any size for the foreseeable future. We won the last one last year command and control of the space segment for.

For seven plus years.

We were in a very fortunate position because we're a hardware company and an intellectual property company.

Anthony Valentini: Okay, great. Thank you, Eric.

Okay, great. Thank you Eric.

Eric DeMarco: Thank you.

Thank you.

Operator: Thank you. Our next question comes from the line of Mike Crawford with B. Riley Securities. Please proceed.

Thank you. Our next question comes from the line of Mike Crawford with B Riley Securities. Please proceed.

Mike Crawford: Thank you. I hope you're doing well in that Gauntlet competition that started 5 days ago. Can you just talk a little bit more about what you offer with small drones, and if you have any capabilities in the counter-UAS area?

Thank you I hope youre doing well in that current rate competition that started five days ago can you just talk a little bit more about what you offered what small drones and if you have any capabilities and the counter UAS area.

[laughter] of sorry right.

Eric DeMarco: I'm sorry, Mike. We have a family of small drones, Class 1 drones, some Class 2 drones, that we just haven't been talking about, that we have primarily been working with the United States Army on for multiple, multiple years. Very candidly, you have not heard me talk about this one because I was not sure we were gonna be successful in the first round, and we were. The way this works, in summary, is there are different phases, phase 1, phase 2, phase 3, et cetera. The winners of the initial phase, which we are, we can pick our spot when we want to bring our suite of airplanes in, our drones in, based on the requirement of the phase.

Sure.

We are.

So we have a family of small drones class one drones on class II drones that we just haven't been talking about that we have primarily been working with the United States Army on for multiple multiple years.

And very candidly you have not heard me talk about this one.

Because I was not sure we were going to be successful in the first round.

And.

We were.

And the way the way. This works in summary is there are different phases phase one phase two phase III et cetera.

And.

The winners of the.

The initial phase, which we are we can pick our spot.

When we want to bring our suite of airplanes than our drones and.

Based on the requirement of the face.

Eric DeMarco: I don't want to get ahead of myself, but we, we, we feel pretty good about this, especially as the phases progress. As they progress, they are more in line with our differentiating capabilities. That's, that's really all I should say about it because it's literally in, well, as you said, we're gonna be, we're gonna be going out there very, very soon, if, if we continue with phase one.

So I don't want to get ahead of myself, but we.

We feel pretty good about this especially as the phases progress and as they progress they are more in line with our differentiating capabilities and that's that's really all I should say about it because it's literally.

As you said, we're going to be we're going to be going out there.

Very soon if we continue with phase one.

Yeah.

Mike Crawford: Then on, so these would be more offensive.

And then on.

Mike Crawford: Then on, so these would be more offensive.

So these would be more offensive.

Eric DeMarco: Yes.

Mike Crawford: -drones?

Yes.

Eric DeMarco: Yes.

Yes. So you are not involved in the counter UAS phase of that competition.

Mike Crawford: You're not involved in the counter-UAS phase of that competition?

Eric DeMarco: I, I've been focused on the offensive one, Mike. So we're, we're focused on the. Relative to the Drone Dominance Program, we are, we are focused on the offensive one. We are involved in several other counter-UAS programs, where we are building hardware, and we have initiatives where Kratos has tethered drones, not the fiber optic ones, not the first-person view fiber optic, but tethered drones that are involved in C-UAS capabilities.

I have been focused on the offense of one Mike and so where we're focused on the relative to the drone dominance program. We are we are focused on the offensive. One we are involved in several other counter UAS programs, where we are building hardware.

And we have initiatives, where kratos has tethered drones not the fiber optic one is not the first person view fiber optic, but tethered drones that are involved in.

C UAS capabilities.

Mike Crawford: Okay. Thank you. Just one more for me. Can you just go a little bit into the capabilities that you've gained with Nomad and, and, and maybe potential LCM revenue that that business had?

Okay. Thank you and just one more for me can you just go a little bit into <unk>.

The capabilities that new game with Nomad and maybe.

Central.

LTM revenue that that business out.

Eric DeMarco: Yeah. On the, on the business side, this, in my opinion, this is, this is one of Kratos' one plus one equals fours. They do mobile systems, and as we know from recent conflicts, if you're static, you're dead. There are a significant number of programs coming, many, a number of which, Nomad is one, many more of which we intend for them to win with us, for mobile command and control systems, mobile counter UAS systems, mobile systems to control offensive UAVs, and this one I'm gonna be careful on, mobile systems relative to missiles. That is the business objective we saw for Nomad. I'll let Deanna comment on the financial piece.

Yeah. So on the on the business side in my opinion. This is this is one of tradeoffs as one plus one equals force.

They do mobile systems.

And as we know from recent complex if your static your debt.

And so there are a significant number of programs.

Many of them a number of which no matter has won many more which we intend for them to win with us.

For mobile command and control systems.

Mobile counter UAS systems.

Mobile systems to control offense of Uavs.

And this one I'm going to be careful on mobile systems relative to missiles.

Yeah.

And that is the business objective we saw four four.

For Nomad I'll, let Diana comment on the financial piece, yes, So LTM fiscal year revenues about 75 million Mike.

Deanna Lund: Yeah. LTM fiscal year revenue is about $75 million, Mike.

Mike Crawford: Okay, excellent. Thank you very much.

Okay excellent. Thank you very much.

Operator: Thank you. Our next question comes from the line of Jonathan Siegmann with Stifel. Please proceed.

Thank you. Our next question comes from the line of John <unk> with Stifel. Please proceed.

[Analyst] (Stifel): Hey, guys, this is Brock on for John tonight. Appreciate the question. You've touched on it earlier, but you recently announced the successful test of the Mighty Hornet system. I just wanted to know if you had any more details around your timing there and planning capacity in Taiwan for this project, and then how you're going to be recognizing revenue for the program?

Jonathan Siegmann: Hey, guys, this is Brock on for John tonight. Appreciate the question. You've touched on it earlier, but you recently announced the successful test of the Mighty Hornet system. I just wanted to know if you had any more details around your timing there and planning capacity in Taiwan for this project, and then how you're going to be recognizing revenue for the program?

Hey, guys. This is <unk> on for Jonathan I appreciate the question.

You've touched on it earlier, but you recently announced the successful test of the Mighty Hornet system I just wanted to know if you have any more details around your timing there and planning capacity in Taiwan for this project and then how you're going to be recognizing revenue from the program.

Yeah.

Eric DeMarco: I'll leave that, that last part for Deanna. On the first part, let me be just very, very crisp on this. We have flight demonstrations that we're preparing for, where we have to do something. Our understanding is that if we are successful there, we have done something like this before, so this is not a bleeding-edge type of a thing, that a production decision will be made in the second half of this year, Q4. I believe the Taiwan agency that we're working with, they did an interview, I think, at the Singapore Airshow a few weeks ago, I think, where I saw this, where they have said that they are looking for hundreds, if not thousands, of these, and to be deployed ASAP as a deterrence.

I'll leave that last part for Deanna So on the first on the on the first part.

Let me be just very very crisp on this.

We have.

Flight demonstrations that were preparing for.

Where we have to do something.

Our understanding is that if we are successful there we have done something like this before so this is not a bleeding edge type of a thing.

That a production decision will be made.

In the second half of this year Q4.

I believe the the Taiwan agency that we're working with they did an interview I think at the Singapore Air show a few weeks ago I think alright.

I saw this where they have said that they are looking for.

<unk> if not thousands of these.

And to be deployed Asap.

As a deterrence.

Eric DeMarco: That, that is the extent of what I can discuss with you right now. I'd like to emphasize the reason why we're, why we've won where we are. We are where we are, is because our Tactical Fire Jet and our Air Wolf small tactical jet drones have been flying for a long time. They are both in production. The customer comes to the factory, they can see them in production, they can actually see the cost build-up, so they know what they're gonna cost, and we can give them actual flight performance data. We're seeing this more and more now. As I mentioned in my remarks, many customers feel that they're out of time, and they need to start fielding things now in order to defer, to deter, and that's where we are on Mighty Hornet.

So that that is the extent of what I can discuss with you right now.

I would like to emphasize the reason why why why why we've won where we are we are where we are.

Because our tactical fire jet and our air Wolf.

Small tactical jet drones.

Have been flying for a long time they.

They are both in production.

The customer comes to the factory they can see them in production. They can actually see the cost buildup. So they know what theyre going to cost and we can give them actual flight performance data.

And we're seeing this more and more now as I mentioned in my remarks, many customers feel that they are out of time.

And they need to start fielding things now in order to defer to deter and Thats, where we are in my view on it.

Deanna Lund: As far as your question on revenue recognition, that will depend on the contractual terms that are negotiated. Clearly on the services, on the demonstrations, that's gonna be as performed. For aircraft, it's gonna depend on the contractual terms of whether it would be percentage completion or at delivery. It will, it will, it will be dependent on that.

And as far as your question on revenue recognition that will depend on the contractual terms that are negotiated.

So clearly on the services on the demonstrations that's going to be as performed that for aircraft, it's going to depend on the contractual terms of whether it would be percentage completion or at delivery.

It will just be dependent on that.

[Analyst] (Stifel): Okay, great. Thanks for the call, guys. I'll go ahead and hand it back over.

Jonathan Siegmann: Okay, great. Thanks for the call, guys. I'll go ahead and hand it back over.

Okay, great. Thanks for the color guys I'll start and hand it back over.

Operator: Thank you. Our next question comes from the line of Ken Herbert with RBC Capital Markets. Please proceed.

Thank you. Our next question comes from the line of Ken Herbert with RBC capital markets. Please proceed.

Ken Herbert: Yeah, hi, good afternoon, Eric and Deanna. Hey, Eric, you, you talked about the funding backdrop, and, and the supplemental, the $450 billion, that, that sounds like will, will get requested and, and debated here this spring. How do we think about your top-line organic growth numbers you've put out, maybe if, if, if we are in a, a $1.5 trillion potential for fiscal 2027 relative to a sort of a, you know, maybe low to mid single digit growth in, in defense spending all in? I mean, it sounds like you're gonna hit your numbers even if defense spending comes in at slight growth relative to fiscal 2026 and 2027. How do you think the puts and takes and the budget impact your outlook here in the next 1 to 2 years?

Yes, hi, good afternoon, Eric and Deanna.

Eric you talked about the funding backdrop in the supplemental over 450 billion that it sounds like we will get requested them and debated here. This spring.

Do we think about your top line organic growth numbers, you put out maybe if if if we are in a a $1 five trillion dollar potential for fiscal 'twenty seven relative to a.

Sort of a maybe low to mid single digit growth in defense spending all of that I mean, it sounds like youre going to hit your numbers, even if defense spending comes in it.

Slight growth relative to fiscal 'twenty six 'twenty seven but how do you think the puts and takes in the budget impact your outlook here in the next one to two years.

Eric DeMarco: Yeah. What you just said at the end there is exactly correct. We are assuming a normal growth trajectory for our defense budget, so let's say 5% a year. We are in great shape to achieve, if not exceed, our forecast for 2026 and 2027, with it potentially accelerating in 2028 and 2029. This is with current funding, normal growth. Why is that? Within that funding, money is moving from previous priorities to new priorities. Kratos, we are very fortunate that we are extremely well-positioned with contracts in programs in certain of the highest priority areas there are, and those are gonna be, as I mentioned before, number one, is gonna be the hypersonic area. That is gonna be a significant growth driver for us. Number two, this is very recent, our space and satellite business.

Yes.

So what you just said at the end there is exactly correct.

<unk>.

Putting aside.

Assuming normal growth trajectory for a defense budget, so, let's say, 5% a year.

Okay, we are in great shape.

To achieve if not exceed our forecast for 26% and 27 with the potentially accelerating in 2008 2028 and 29. This is with current funding normal growth why is that because within that funding money is moving from previous priorities to new priorities.

And <unk>, we are very fortunate that we are extremely well positioned with contracts and programs and certain of the highest priority areas. There are and those are going to be as I mentioned before number one is going to be the hypersonic area that is going to be a significant growth driver for us.

Number two.

And this is this is very recent our space and satellite business as I mentioned, we were just informed that we have won a brand new just under half a billion dollar program.

Eric DeMarco: As I mentioned, we were just informed that we have won a brand new, just under half a billion dollar program. Hopefully, we're gonna be able to talk more about that going forward, but we were just informed verbally that we, we received that. Our, our, our space, our space business. Number 3, that's gonna be kicking in later this year, and I expect it to accelerate in 2027 and seriously in 2028, is the small engines. We are designed in on a number of, of, of new cruise missiles. I can go through those. I, I know you guys know who they are. I expect us to go on LRIP later this year, and we could get into full rate production as early as 2027. We are in really, really good shape under the current funding construct.

So hopefully we're going to be able to talk more about that going forward, but we were just informed verbally that we received that.

Our space our space business.

Three that's going to be kicking in later this year and I expect it to accelerate in 2007 and seriously in 28 is the small engines. We are designed in on a number of new.

New cruise missiles I can go through those and I know you guys know who they are.

And I expect us to go on <unk> later, this year and we could get into full rate production as early as 2007. So we are in really really good shape under the current funding construct.

Eric DeMarco: If the budgets go from $1 trillion to $1.5 trillion, I believe if the priorities don't, don't change, I don't believe they will, because the threat environment is not gonna change, in my opinion. That is going to be very good for us, and I could see it meaning that our numbers could, actually go up from where they are, just because there's gonna be more, more demand than supply of stuff.

The budget go from a trillion to $1 five trillion I believe if the priorities don't change I don't believe they will because the threat environment is not going to change in my opinion.

That is going to be very good for us and I could see it meaning that our numbers could.

Could actually go up from where they are just because there's going to be more and more demand than supply of stuff.

Ken Herbert: That's helpful. Is it fair to say you've seen an acceleration maybe in the pace of contracting activity? I mean, obviously, we had a shutdown in the calendar Q4. We've got a new administration that's, you know, had some natural transitions and bureaucratic delays and other issues. It sounds like now, at least as we've flipped the calendar, we're seeing an uptick in contract activity. I'm curious if you're seeing that in your business and if you expect it to continue to accelerate as we go through the calendar year?

That's helpful and is it fair to say you've seen an acceleration maybe in the pace of contracting activity I mean, obviously, you've got a shutdown in the calendar fourth quarter, we've got a new administration.

I had some natural transitions and bureaucratic delays and other issues, but it sounds like now at least as we flip the calendar, we're seeing an uptick in contract activity and I'm curious if you're seeing that in your business and if you expect it to continue to accelerate as we go through the calendar year.

Eric DeMarco: Yeah. Very recently, in the past three weeks, four weeks, we've seen an acceleration. Okay. I believe it's because, you know, a month ago or so, the 2026 appropriation was signed. I think that's what's driving the acceleration, that we're seeing it. We are starting to see some of the reconciliation money come in. I think there's 120 of the $150 billion is gonna be spent in fiscal 2026. We're starting to see that come in. I anticipate that's gonna be accelerating this quarter, Q1 and Q2. Overall, right now, Ken, the environment is very good, and it's improving for us, and I believe for the industry.

Yes, very recently in the past.

Three weeks four weeks.

We've seen an acceleration.

Okay, I believe it's because a month ago or so the 26 appropriation was signed.

So I think I think that's what's driving the acceleration that we're seeing it we are starting to see starting to see some of the reconciliation money come in I think there was 120 of the 150 billion is going to be spent in fiscal 'twenty six we're starting to see that come in I anticipate that's going to be accelerating this quarter Q1 in <unk>.

Q2, so overall right now Ken.

The environment is very good and it's improving for us and I believe for the industry.

Ken Herbert: Great. Thanks, Eric.

Great. Thanks, Eric.

Eric DeMarco: Yep.

Yes.

Operator: Thank you. Our next question is from Colin Canfield with Cantor. Please proceed.

Thank you. Our next question is from Colin Canfield with Cantor. Please proceed.

Colin Canfield: Hey, thank you for the question. Maybe if you could talk about the sensitivity of the tactical drone production quantities that you've discussed, and essentially, how do we think about kind of the 40 units per year versus the other branch opportunities that you're considering?

Hey, Thank you for the question.

Maybe if you could talk about the sensitivity of the tactical drone production quantities that you've discussed and essentially how do we think about kind of a 40 units per year versus the other.

Branch opportunities that you are considering.

Eric DeMarco: Right. As I mentioned, we're looking at approximately, to get to a run rate, production rate, an annual production rate of approximately 40 per year. Think 35 to 45, and the midpoint was the 40. The number one driver on that is the mix of airplanes. Whether it's going to be a conventional takeoff and landing, a CTOL, whether it's gonna be a dual capability, so runway and rail launch, or if it's gonna be rail launched. That's the number, that's the number one that's gonna drive that. Number two is this: it's under the program we have, and I can't get ahead of the customer, and I never will. We have a very good idea of what that demand is going to look like beginning next year.

Right.

So as I mentioned, we're looking at approximately to get to a run rate production.

<unk> rate and annual production rate of approximately 40 per year.

Thank you.

35 to 45, and so the midpoint was the 40, what the number one driver on that is the mix of airplanes.

So whether it's going to be a conventional takeoff and landing or <unk>, whether it's going to be a dual capabilities for runway on rail launch or if it's going to be rail launched so that's the number that's the number one that's going to drive that.

Number two is this.

Under the program we have.

I can't get ahead of the customer and I never will we have a very good idea of what that demand is going to look like.

We're getting next year.

Eric DeMarco: As you know, I've been trying to communicate to you that we have some other potential customers that I think we're gonna get specifically for the Valkyrie. We're gonna get better clarity on that between now and the end of this year. Those two factors, mix and the clarity we're gonna get on some of these other opportunities on types of planes and quantities, that's gonna drive where we ultimately end up on, on our annual run rate. Oh, I wanna mention, one of the key, the third key factor is the engine. The long lead on that is about 14 months, and so we have to be, we have to be cognizant on the engine buy and when the deliveries are relative to when the integration process can occur with the aircraft.

And as you know I've been trying to communicate to you that we have some other potential customers that I think we're gonna get specifically for the Valkyrie, we're going to get better clarity on that between now and the end of this year.

Those two factors.

Mix.

And the clarity we're going to get on some of these other opportunities on types of claims and quantity that's going to drive where we ultimately end up on our annual run rate and I want to mention one of the third key factor is the engine. The long lead on that is about 14 months and.

And so we have to be we have to be cognizant on the engine by and when the deliveries are relative to when the integration process can occur with the aircraft.

Colin Canfield: Got it. So it sounds like the 40 is perhaps, you know, two CCA programs, then expansion beyond that, if you win it, is perhaps the third and fourth CCA programs.

Got it so it sounds like the 40th perhaps.

CCA programs and an expansion beyond that if you win it is perhaps the third and fourth CCA programs no.

Eric DeMarco: Nope.

Colin Canfield: Um-

Eric DeMarco: No.

Oh no no no no don't characterize it that way look at it is look at it as one.

Colin Canfield: No.

Eric DeMarco: No, I'm not-

Colin Canfield: Okay.

Eric DeMarco: Nope. No, don't characterize it that way. Look at it as, look at it as one, plus we're gonna continue to have, I, I, I call demonstration airplanes, so S&T and RDT&E, that are gonna be sold every year, I think 4 or 5, like we, like I think we have in our plan for this year. On top of that, I wanna have a number, think of a handful, and I might not-- we might not be able to get there, a handful of white tails sitting there, because this has been part of the keys to our kingdom. Think, think about it with Airbus and the Luftwaffe. We had airplanes in inventory they could come over and check out, and we delivered them. Those are flex factors also. Think one program.

Plus we're going to continue to have.

Demonstration of airplanes, So science and technology and <unk> that are going to be sold every year I think four or five like I think we have in our plan for this year.

And then on top of that I want to have a number.

For nine months, we might not be able to get there a handful of white tails sitting there because this has been part of the keys to our kingdom thing to think about it with.

With Airbus and the Luftwaffe, we had airplanes and inventory that could come over and checkout and we delivered them.

And so those are flex factors also but think one program. If we have additional programs with quantities. We may have to take that number up if we're going to hit deliveries in 2008 and 29.

Eric DeMarco: If we have additional programs with quantities, we may have to take that number up if we're gonna hit deliveries in 2028 and 2029.

Colin Canfield: Got it. Got it. Thank you for the color.

Got it got it. Thank you for the color and then perhaps one follow up just under the bundle that we have that kind of construct in place. How do you think about kind of a sensitivity of cash and investments versus that production schedule and then relative to the.

Eric DeMarco: Yeah.

Colin Canfield: Perhaps 1 follow-up, just under... now that we have that kind of construct in place, how do you think about kind of the sensitivity of cash investment versus that production schedule, and then relative to the, we'll call it the timing of the risk events that you alluded to earlier on the call, in terms of kind of customer feedback that their time has run out and the probability of that occurring perhaps this year versus next year?

We call it the timing of the risk events that you alluded to earlier on the call in terms of kind of customer feedback that their time has run out.

The probability of that occurring perhaps this year versus next year.

Eric DeMarco: Right. On the first one, we are very sensitive and cognizant of cash. Let me give you a specific example. Earlier in the Q&A, I think Josh asked what happens if you guys were private and raised $8 billion, okay? I got, you know, we have a balanced approach, and we're gonna stay balanced. We're gonna organically grow the company, we're gonna satisfy the customer, and we're gonna generate a return, a profit for the investors. If we didn't have to worry about the profit part for a few years, and we had $2 billion, Kratos could absolutely run the table in many of these drone areas because we don't have to develop anything. We got the airplanes.

Right. So on the first one we are we are very.

Sensitive and cognizant of of cash so.

Let me give you a specific example earlier earlier in the Q&A I think Josh asked what happens if you guys could where private and raised $8 billion. Okay.

Got it.

We have a balanced approach and we're going to stay balanced we're going to organically grow the company, we're going to satisfy the customer and we're going to generate a return a.

Profit our profit for the investors.

If if if.

We didn't have to worry about the profit part for a few years and we had a couple of billion dollars.

Kratos could could could absolutely run the table and many of these drone areas because we don't have to develop anything we got the airplanes. We'd go into production the customers with volume, but we have to be cognizant of cash like you said. So we are very cognizant of the cash and the investing we are mapping.

Eric DeMarco: We'd go into production, the customers would buy them. We have to be cognizant of cash, like you said. We are very cognizant of the cash and the investing. We are mapping that into the customer funding profiles that we have, okay? On something like an engine, we're gonna have to, there are deposits required. We're gonna have to make deposits and things like that, so that's gonna be cash out. I mentioned the timing of the appropriation, like the 27 appropriation, God willing, it happens on 1 October. It probably won't. That can impact the cash until the appropriation comes through, the customer gets the money, and they can pay us.

That into the customer funding profiles that we have on.

On something like an engine, we're gonna haptics.

That's required we're going to have to make deposits and things like that so thats going to be cash out.

I mentioned the timing of the appropriation like the 27% 27 appropriation God willing at Athens on October one it probably won't so that can impact the cash until the appropriation comes through the customer gets the money and they can pay us so I'm, saying a lot, but we have a major simultaneous equation that we're that we're always.

Eric DeMarco: I'm saying a lot, but we have, we have a major simultaneous equation that we're, that we're always managing to make sure that we satisfy the contractual requirements, and we don't get too far ahead of ourselves on the capital side. Does that kind of answer it?

Managing to make sure that we satisfy the contractual requirements that we don't get too far ahead of ourselves on the capital side does that kind of answer it.

Colin Canfield: Great. No, thank you. I appreciate it.

Great. Thank you appreciate it.

Eric DeMarco: Yep.

Yes.

Operator: Thank you. Our next question comes from the line of Peter Arment with Baird. Please proceed.

Thank you.

Question comes from the line of Peter Arment with Baird. Please proceed.

Peter Arment: Yeah, got it. Good afternoon, Eric, Dan. Eric, nice results, as always. Hey, thanks. On the Spartan jet engine opportunity, Eric, what's the best way to kind of frame up when things could start to move into kind of production and scale things up there?

Yes, good afternoon, Eric denim.

Eric Nice results as always hey.

On the <unk> on.

Spartan jet engine opportunity, Eric what's the best way to kind of frame up when things could start to move into kind of production and scale things up there.

Eric DeMarco: Yep. Use 40,000 or 50,000 an engine, okay? Somewhere in there per engine. Okay, we have been informed by 2 customers. These are customers. We're designed in, it's our engine, that platform has been designed around. It might be three, two or three, that they intend on us beginning to go into LRIP in the second half of this year. Think hundreds of airplanes, hundreds of engines, pardon me, that we start to build, okay, with deliveries beginning in 2028. All right? If things work out the way I think they're going to work out, and again, go back to the 2027 appropriation and timing, second half of 2028, we could see, like, a step function.

Yeah. So.

Use use 40 or 50000 engine.

Okay somewhere in there per per engine.

We are.

Okay.

We have been informed by two customers.

These are these are not these are customers were designed in its our engine.

That platform has been designed around.

It might be three two or three that they intend on us beginning to go into L. Rip in the second half of this year.

So think hundreds of airplanes that we start hundreds of engines pardon me.

We start to build okay with deliveries beginning in 2008.

Alright if.

If things work out the way I think they are going to work out and again go back to the 27 appropriation and timing.

Second half of 'twenty, eight we could see like a step function.

Eric DeMarco: You know, where we're delivering hundreds of engines, and we're getting ready to build thousands of engines to deliver in 2029. It's coming. You know, one I can Peter, one I can mention to you that's out there, that it's public, that we're the engine on if you pull it up. You may have seen what happened with the Powered JDAM in the maritime strike version with Boeing. In the last 2 weeks, it was given a new designation. I believe it's called PJMXR, and they talked about some of the things I'm talking to you about here. All right? We're also, I think it's public, it's publicly out there, that we are on a number, I think, 3 of Lockheed Martin's low-cost cruise missiles. We are...

Well, we're we're delivering.

Hundreds of engines, and we're getting ready to build.

<unk> of engines to deliver in 'twenty nine.

So it's.

It's coming what Pete Peter one I can mention to you that's out there.

It's public that worthy Amgen on if you pull it up so you may have seen what happened with the power J damage in the Maritime strike version with Boeing in the last two weeks. It was given a new designation I believe its called P. J D R.

<unk> and they talked about some of the things I'm talking to you about here.

Alright.

We're also I think it's pretty I think it's public that is publicly out there that we are on a number I think three of Lockheed Martin's low.

Low cost.

Cruise missiles.

Hum.

Eric DeMarco: I think it's out there. I think I can say we're on one of Northrop Grumman's, and we are on at least a handful, I don't know the number off the top of my head, of these new defense technology guys that have won ETV, Franklin, and MACE. There's a lot of them out there that are coming, and that's the how I see it playing out over the next couple of years.

We are I think it's out there I think I can say, we're on one of Northrop grumman's.

And we are on at least a handful I don't know the number off the top of my head of these new defense technology guys.

That have won ETV.

Franklin.

And mace.

So there is a lot of them out there that are are coming.

And that's how I see it playing out over the next couple of years.

Peter Arment: Yeah, that's great color, Eric. Just one last one on, you know, you've, you've given us a lot of details on the growth opportunities. Outside of hypersonics this year, what, what is kind of the next one or two that you would highlight as the next main growth drivers for you in 2026?

That's great color and just one last one on <unk>.

You've given us a lot of details on the growth opportunities outside of hypersonic. This year, what what is kind of the next one or two that you would highlight as the next main growth drivers for you in 2006.

Eric DeMarco: Number one is, and I, I haven't talked about this a lot, it's our microwave electronics business. You know, I, I, I, I mentioned I was in Israel very recently. I was with Israeli, on the microwave thing specifically, I was with Israel Aerospace Industries, and I was with Rafael. We are on virtually every one of both of those guys' missile systems and radars. This is Iron Dome, this is Arrow, this is SPYDER, this is David's Sling, this is Barak. I can go on and on. We do microwave electronics for both of those. Our US microwave business, I don't talk about it a lot. It's competitory. We have recently received a production award on a very large, well-known missile program. I'm under an NDA with the prime. I can't talk about it.

So number one is a lot of I havent talked about this a lot.

Our microwave electronics business.

I mentioned I was in Israel very recently.

With us on the microwave things, specifically I was with Israel Aerospace industries and I was with Rafael we are on virtually every one of both of those guys missile systems and radars.

So this is iron Don this is arrow. This is spider this as sling of David. This is Barack I can go on and on.

So we are we do microwave electronics for for both of those are U S. Microwave business I don't talk about it a lot. It's competitory. We have recently received a production award on a very large well known missile program.

I'm under an NDA with the Prime I can't talk about it we're on that one so our microwave business is ripon and as I said in the prepared remarks, virtually every system globally, whether it be a missile a radar and air defense, a drone et cetera, it needs microwave electronics.

Eric DeMarco: We're on that one. Our microwave business is ripping, and as I said in the prepared remarks, virtually every system globally, whether it be a missile, a radar, an air defense, a drone, et cetera, it needs microwave electronics. We are all over it. We are designed in, and we're getting designed in more. Here's the third, here's the third one, our space and satellite business, and in particular, on the national security side. It is amazing what is happening. I mentioned the win we were informed of very recently. Virtually everything we're bidding on, we're winning. It's because we have a software-defined command and control and telemetry tracking and control system that can interface with these new constellations that are going up, including very recently, LEO. That's where the game is at.

We are all over it we are designed in and we're getting designed in more and here's the third here's the third one.

Our space and satellite business and in particular on the National security side.

It is amazing what is happening I mentioned, when we were informed of very recently.

We.

Virtually everything we are bidding on we're winning.

And it's because we have a <unk>.

Software.

Defined command and control and telemetry are tracking and control system that can interface with these new constellations that are going up including <unk>.

Very recently Leo.

And Thats, where the game is at.

Eric DeMarco: Our space business is looking great in the second half of this year when we start delivering a bunch of these software-defined products. Then in 2028, I think our space business is gonna knock it out of the park. Those are the three, hypersonics, Microwave Electronics, engines, and space. Those are the four.

So our space business is looking great.

Great and the second half of this year when we start delivering a bunch of this this the software defined products and then in 28 I think our space business is going to knock it out of the park.

Those are the three hypersonic microwave electronics engines in space those are the four.

Peter Arment: Got it. Thanks, Eric. Thanks, Anna.

Got it thanks, Eric Thanks, Dan.

Deanna Lund: Thanks, Peter.

Thanks Peter.

Operator: Thank you. Our next question comes from the line of Seth Seifman with JP Morgan. Please proceed.

Thank you.

Our next question comes from the line of SaaS six men with Jpmorgan. Please proceed.

Seth Seifman: Hey, thanks very much, good, good afternoon, and good results. Just wanted to ask, just understanding in, in the Q4, I think the, you know, the release talks about Valkyrie being a driver of growth, and, and we saw some good profitability in, in the unmanned segment in, in the Q4. How did Valkyrie play into that? Then kind of, what does that mean for, for Valkyrie in, in 2026? I, I know you mentioned you weren't including production yet, but, but, you know, how do we think about what is in there?

Okay, Thanks, very much and good afternoon.

Good results.

Just wanted to ask.

Just understanding in the fourth quarter I think the.

The release talks about Valkyrie being a driver of growth.

And we saw some good.

Profitability in the.

Unmanned segment in the fourth quarter. So how does <unk> play into that and then kind of what does that mean for for Valkyrie and in 2006, I know you mentioned you weren't including production yet.

But.

How do we think about what is in there.

Deanna Lund: Yeah. The Valkyrie related activity, that is some of the new contracts we just received, that we've just talked about earlier, and that is expected to continue in 2026.

Yeah. So the the valkyrie related activity that that is some of the new contracts. We just received.

Now that we've just talked about earlier and that that is expected to continue in 2026.

Seth Seifman: Okay. Okay. If, if we were breaking down the, the expected growth between the, the segments, I know you guys have sometimes talked about that. How, how do we think about KGS versus versus unmanned?

Okay.

If we were breaking down the expected growth between the segments I know you guys have sometimes talked.

<unk> talked about that how do we think about kgs versus.

Versus unmanned.

Deanna Lund: The lion's share of the growth is expected in KGS.

The lion's share of the growth is expected in kgs.

Deanna Lund: The lion's share of the growth is expected in KGS.

Eric DeMarco: driven by hypersonic, the hypersonic business.

Driven by a hypersonic the hypersonic business.

And the micro microwaves.

Seth Seifman: Yeah, microwaves and space.

Eric DeMarco: The space.

I understand.

Deanna Lund: Space business.

Eric DeMarco: Space. Those are the three big horses.

Both those are the three big horses, because as we mentioned earlier as Eric mentioned in his prepared remarks, we're not including any large production type awards in our unmanned systems business. So.

Deanna Lund: As we mentioned earlier, as Eric mentioned in his prepared remarks, we're not including any large production type awards in our unmanned systems business, so that is not contributing as much of the growth. The lion's share of the growth rate is in KGS. That we've provided guidance on.

That is not contributing as much of the growth the lion's share of the growth rate is in kgs.

<unk> provided guidance on.

Seth Seifman: Got it. Got it. If I could sneak in maybe just one more bigger picture, if you could, I know we saw the groundbreaking on Prometheus. If you could talk or maybe just update us on, you know, how things are going there, the investment levels and, you know, how the investment is reflected here. Then, you know, since that's a JV, when we go forward, is that something that's gonna be consolidated into Kratos results? Or is it something where we're just gonna see, you know, maybe your share of the earnings?

Got it got it if I could sneak in maybe just one more bigger picture I know.

We saw the groundbreaking on on Prem ETS.

If you could talk maybe just update us on.

How things are going there.

The investment levels and.

How the investment is reflected here and then since that's a JV with when we go forward is that is that something thats going to be consolidated into <unk> results or is it something where we're just going to see maybe your your share of the earnings.

Deanna Lund: It would just be our share of the earnings. Thus far, you can see it on the face of our balance sheet. I believe through 12 December 2028, our year-end, there's about $5 million of investment that we put into the venture. As there are operating results for Prometheus, it will be our percentage of 49.9%. You won't see anything on any of the detailed line items on the income statement. No revenue, no cost of sales, no SG&A or R&D. It would just be 1 line, income or loss in investee, depending. Obviously, in the beginning of the startup activity, I would think there's gonna be some operating losses because there's gonna be depreciation.

It will just be our share of the earnings. So thus far you can see it on the face of our balance sheet I believe through 12.

$12 28, a year and there is about $5 million of investment.

That we put into the venture and then as we enter our operating results for Prometheus It will be our percentage at 49, 9%. So.

Don't see anything.

And in any of the detailed line items on the income statements or no revenue no cost of sales no SG&A and R&D. It will just be one line.

Income or loss and invest the dependent.

Obviously in the beginning of the startup activity I would think theres going to be some some operating losses, because it's going to be depreciation that's going to be it'll be a lot of noncash losses with depreciation of the facilities and that it will just be our percentage of that whenever that income or losses on the on the income statement.

Deanna Lund: It's gonna be a lot of non-cash losses with depreciation of the facilities, and that it will just be our percentage of that, whatever the income or loss is on the income statement.

Seth Seifman: Right. No, that's, that's super helpful. Maybe, Eric, when you, you think about the, the growth there, at the time that you did this, I don't know that we, we knew that, that all these multi-years were gonna be coming. Does, does that present more opportunities for the rocket motors you'll be manufacturing there?

Okay.

That's super helpful and maybe Eric when you think about the growth there at.

At the time that you did this I don't know that we view that all.

All of these multi years, we're going to be coming.

At present more opportunities for rocket motors will be manufacturing there.

Eric DeMarco: Yes, sir. It's a great question. Last week, I was with the Rafael team, and Seth, we were going through the forecast as a result of the new dynamic you just mentioned. The forecast has improved significantly. Let me give you an idea, kind of, sort of, what this looks like. We're gonna be producing, we'll begin in the second half of 2027. This is a classic high growth model. This is very similar to Kratos, and then when it gets to full rate production, it's projected to be a significant cash generator. Seth, it's gonna go something like $100, $200, $400, $1 billion in revenue. Something like that.

Yes, Sir.

That's a great question.

Last week I was with the <unk> team.

And so if we were going through the forecast as a result of the new the new dynamic you just mentioned.

The forecast.

It has improved significantly let me give you an idea of kind of sort of what this looks like.

So we're going to be we're going to be producing well.

We will begin in the second half of 'twenty seven.

And this is.

A classic high growth model is very similar to <unk> and then when it gets to full rate production is projected to be a significant cash generator set.

<unk> got to go something like.

100, 200 $401 billion in revenue.

Something like that.

Eric DeMarco: Think 2030, 2031 at full rate production for the first three phases, it's $1 billion in revenue. Think 20% and divide by two.

And so I think 2030.

2031 at full rate production for the first three phases, it's $1 billion in revenue.

Thank 20% and divide by two.

Andre Madrid: Well, excellent. Thanks. Thanks very much for all the color.

Okay.

Excellent. Thanks, Thanks, very much for all the color.

Eric DeMarco: Yep.

Yes.

Yeah.

Operator: Thank you. Our next question comes from the line of Pete Skibitski with Alembic Global. Please proceed.

Thank you My question comes from the line of <unk> <unk> with Alembic Global. Please proceed.

Pete Skibitski: Hey, good afternoon, guys. couple of questions. First one, just to clarify on the 2026 growth in unmanned. I want to make sure I understand. I thought you guys said your share of MUX/TACAIR would be about $120 million, and it would be over a couple of years. We should expect unmanned to grow at least $60 million or so in 2026. Is that a fair assumption, just on the MUX/TACAIR contract?

Hey, good afternoon guys.

A couple of points.

Couple of questions first of all just to clarify on the 26th growth unmanned.

I want to make sure I understand I thought you guys said your share of <unk> would be about $120 million and it will be over a couple of years. So.

We shouldnt expect unmanned to grow at least $60 million or so in 26% is that a fair assumption just on the <unk> Tec Eric contract.

Deanna Lund: No. What I, what I, in answering Seth's question, I said it will be relatively flat year-over-year, so there's not as much growth in unmanned because as, as just a reminder, in 2025, we had the Airbus, with shipment in 2025, and that was, let's call it roughly $20 million, but it was not on a % complete basis, so an apple to an apple. It, so as we move forward, it'll be more on % complete. We have not included a lot of the, any production awards in that forecast. I would, I would, it's, it's not an incremental $60 million.

No.

In answering <unk> question, I said, it will be relatively flat year over year. So that's not as much growth in unmanned because it as just as a reminder, in 2025, we had the Airbus.

Shipment in 2025, and that was let's call it roughly $20 million and it was not on a percent complete basis, so an apple to an apple.

So as we move forward it will be more on percent complete so.

And we have not included a line as the any production awards in that.

Forecast, so I would I would it's not an incremental $60 million.

Pete Skibitski: Okay.

Deanna Lund: It's roughly, I would call it more like flat year-over-year, at, at what we've assumed in the forecast today.

It's.

I would call it more like flat year over year.

What we've assumed in the forecast today.

Pete Skibitski: Got it. Okay. Okay, fair enough. Last one for me is just on hypersonics, the growth you're going to see over the next couple of years. Eric, I just want to get a sense of which contract vehicles are driving that growth. You know, is MACH-TB the majority of the growth? You know, when you talk about all these Zeus and Oriole SRMs on order, are those all under MACH-TB or are those other contract vehicles? Maybe to some extent, you could name those other contracts.

Got it okay. Okay fair enough and then last one for me is just.

On hypersonic the growth Youre going to see over the next couple of years.

Eric I, just wanted to get a sense of which contract vehicles are driving that growth you know as mark TB the majority of the growth.

And when you talk about all of these citizen Oreo Srm's on order or are those all under mark to be are those other contract vehicles.

To some extent you can name those other contracts.

Eric DeMarco: Yeah, there are, there are others. Number, number 1 is MACH-TB. Number 2 is a Navy program that's, that's coordinated very closely with the Missile Defense Agency. Very closely. Okay. Number 3, it's with the Prime. I can't talk about it, but it's with the Prime. Hold on. I want to make sure I'm not missing a piece. Those are the big, those are the big 3 primaries. MACH-TB, a Navy/MDA program. Space and Missile Defense Command may be in there somewhere, too, a little bit, then the Prime, then a big Prime.

There are others. So number one is mark television.

Yes.

Number two is the Navy program.

That's that's coordinated very closely with the missile Defense agency.

Very closely.

Okay.

Number three.

It's what the prime.

Can't talk about it but it's with the prime.

Okay.

So to make sure I'm not missing a piece.

Those are the big.

Those are the big three primaries Mark TB.

Our Navy Slash MDA program space.

Space and missile Defense command may be in there somewhere too a little bit.

And then the prime that are big Prime.

Pete Skibitski: Okay, got it. In MACH-TB will be, you know, Zeus, maybe Oriole, but also all of the other, you know, all of your partners missiles that they are.

Okay got it so.

Mark <unk> will be.

Maybe <unk>, but also <unk>.

All of the all of your partners missiles that they are yes.

Eric DeMarco: Yeah. In MACH-TB, the big drivers for, for us is Zeus 1 and 2, Ares, Dark Fury, and some other things I can't talk about that we're going to be flying.

The big and Mark television the big drivers for Us.

<unk> wanted to.

Air lease.

Dark Fury.

And some other things I can't talk about that we're going to be flying.

Pete Skibitski: Okay. Okay, great. No, I appreciate the call.

Okay, Okay, great I appreciate the color.

Eric DeMarco: Yep.

Yes.

Deanna Lund: For our next question, please.

Our next thank you.

Eric DeMarco: Thank you.

Yes.

Operator: It comes from the line of Andre Madrid with BTIG. Please proceed.

It comes from the line of Andrew <unk> with <unk>. Please proceed.

Andre Madrid: Eric, Deanna, thanks for taking my question.

Alright, Dan Thanks for taking my question.

Deanna Lund: Sure.

Sure.

Andre Madrid: Could you maybe provide more color as to what the split between target drone and tactical drone revenue was in the quarter? I mean, was target drones especially impacted, and this held the segment back and prevented, you know. I'm just trying to find the puts and takes there, because I think I might have expected more from the MUX/TACAIR award than we saw. Maybe just, like I said, the puts and takes on the segment.

Could you maybe provide more color as to what the split between target drone and tactical drone revenue was in the quarter.

<unk> target drone, especially impacted.

He has held the segment back and prevented US I'm just trying to find the puts and takes there because I think I might have expected more from.

From the <unk> reward than we saw maybe just I guess, what the puts and takes on this segment.

Deanna Lund: Yeah. The tactical revenue for Q4 was roughly $8 to 9 million.

Yes, so the tax the tactical revenue for the fourth quarter was roughly $8 million to $9 million.

Andre Madrid: Got it. Got it. Okay, that's helpful. I guess kind of on the same subject, maybe a little less, but, you know, I'm talking about CCA potential opportunities being the GEK fifteen hundred. Are there any anchor customers in place for that platform yet?

Got it got it okay. That's helpful.

And.

I guess kind of on the same subject, maybe a little less but I'm talking about CCA potential opportunities being the GE AK 1500 are there any anchor customers in place for that platform yet.

Eric DeMarco: I cannot. Can't. Sorry, brother, I can't talk about this. I can't talk about it.

Hi.

Eric DeMarco: I cannot. Can't. Sorry, brother, I can't talk about this. I can't talk about it.

Cannot.

Kent, Sorry brother I can't talk about this.

I can't talk about it.

Andre Madrid: No, that's all good. I, I get it. I guess if, if I may, you know, there was the Increment 2 of CCA that they said that they had selected 9 companies for, that were in given concept refinement contracts. Can you, you know, disclose whether or not you were one of those companies?

That's all I got I got it and then I guess.

If I may.

There was the increments who of CCA that they said that they had selected nine companies for that were in given concept refinery contracts can you disclose whether or not you're one of those companies.

Eric DeMarco: I can absolutely not talk about that.

I can absolutely not talk about that.

Andre Madrid: Got it. Got it. Then I guess one last one. The Drone Dominance Program, it seems like that's flowing through DRSS as opposed to KUS. Could you maybe just explain the reason why there?

Got it Okay, and then I guess one last one.

The drone dominance program it seems like Thats flowing through Dr assets as opposed to K U S could you maybe just explain.

The reason why there.

Eric DeMarco: Yep. That's, that's actually a very good question. In unmanned systems, those are all Class IV, all Class IV aircraft. They're, they're jets. Yep, you got. Down in Huntsville, which is in DRSS, Class 1, 1, and 2. Very, very good question. That, that's why. Because the customers are different, the supply chain is different, et cetera, et cetera, et cetera, we, we left them separate.

Yup.

Actually a very good question so in unmanned systems.

Those are all class fleet.

All class four aircrafts, there Theyre jets.

And then yes.

Yes, you got in and down in Huntsville, which isn't the Rss.

Class one and two.

Very very good question, that's why it obviously because the customers are different the supply chain is different et cetera, et cetera et cetera.

We left them separately.

Andre Madrid: No, that makes, that makes total sense. All right, I'll leave it there. Thank you both so much.

Now that makes that makes total sense alright ill leave it there. Thank you so much.

Eric DeMarco: Thank you.

Deanna Lund: Thank you.

Thank you.

Operator: Thank you. Our next question comes from the line of Trevor Walsh with Citizens. Please proceed.

Thank you. Our next question comes from the line of travel Walsh with citizens. Please proceed.

Kashin Keller: Great, thanks. Hey, hey, Deanna and Eric, thanks for taking the question. Just to tell you a quick one for me, most of them been asked already. On the CapEx color that you gave, Deanna, around some of the spend from 2025 slipping into 2026, which is how we get to that $135. Can you just elaborate a little more? Was that a single initiative where it slipped, or was it more broad-based across the spend expected in 2025? Relatedly, is there anything that could slip kinda into 2027 and, like, kind of in a similar fashion? Thanks.

Trevor Walsh: Great, thanks. Hey, hey, Deanna and Eric, thanks for taking the question. Just to tell you a quick one for me, most of them been asked already. On the CapEx color that you gave, Deanna, around some of the spend from 2025 slipping into 2026, which is how we get to that $135. Can you just elaborate a little more? Was that a single initiative where it slipped, or was it more broad-based across the spend expected in 2025? Relatedly, is there anything that could slip kinda into 2027 and, like, kind of in a similar fashion? Thanks.

Great. Thanks, Hey, Diana and Eric Thanks for taking the question just a quick one from me must've been asked already.

The Capex color that you gave DNA around some of the spend from 25 slipping into 2006, which is how do we get to that 135. What can you just elaborate a little more was that a single initiative, where it's something was it more broad based across the spend expected in 'twenty five and then Relatedly is there anything that can flip kind of.

In the 2007 and now you're kind of in a similar fashion.

Deanna Lund: Yeah, sure. What slipped, it's really 2 programs. It's the Indiana Payload Integration Facility as well as the Birmingham Advanced Manufacturing Hypersonic Facility. Those were just construction plans that, as you know, construction takes longer always. They were originally forecasted for 2025, but they slipped in just from a timing perspective, into 2026. As far as for 2026, moving into 2027, right now, since we've just started the year, we, we believe everything's gonna be incurred in 2026 that we forecasted. Some of that's gonna be construction related, so some may, some may push out, but at this point, we think that's, that's a good range for 2026.

Yeah sure. So let slip it's really two program so as to Indiana payload integration facility as well as the.

Bermingham advanced manufacturing hypersonic facility because we're just.

Construction plans.

As you know construction takes longer always so they were originally flor accounted for 25%, but they slipped and just from a timing perspective and in 2006 as far as for 'twenty six moving into 'twenty seven right now since we just started the year.

We believe everything is going to be.

<unk> incurred in 2006 that we forecasted but some of that's going to be construction related to some.

<unk> push out but at this point, we think that that's a good range for 2026.

Kashin Keller: Perfect. Super helpful. Thank you.

Trevor Walsh: Perfect. Super helpful. Thank you.

Perfect Super helpful. Thank you.

Operator: Thank you. Our next question is from the line of Hans Baldau with Noble Capital Markets. Please proceed.

Thank you.

Our next question is from the line of Hamzah Mazar with noble capital markets. Please proceed.

Hans Baldau: Hello, I'm on the call for Joe Gomes. On the second Valkyrie production, the $25 to $28 million in CapEx you're planning for 2026, can you help us understand the downside protection there? You know, if the contract awards or delivery schedules slip, how exposed Kratos is?

Hello, I'm on the call for Joe Gums, and so on the second Valkyrie production.

The 25% to $28 million Capex Youre planning for 2026 can you help us understand the downside protection there the contract awards or delivery schedules.

How exposed credo says.

Eric DeMarco: Yeah, there. Right now, where we stand right now, I don't believe there's any. There is zero risk. I believe those airplanes will all be spoken for under, under what we have. I don't, I don't see a risk there.

Yes, Sir.

Right now, where we stand right now.

I don't believe there's any there is zero risk.

I believe those airplanes will all be.

Spoken for under under what we have.

I don't see a risk better.

Hans Baldau: Okay. Thank you. With the microwave products, how much is that tied to missile and air defense programs specifically versus other, you know, applications?

Okay. Thank you and with the microwave products.

How much is that tied to missile and air defense programs, specifically versus other applications.

Eric DeMarco: Okay, I'm gonna at least, at least 50%. Okay? It may be as high as 60, so think 50 to 60. Think 20% satellite, communication satellites. Think the vast majority of the rest, communication systems, comms.

Okay.

At least at least <unk>.

50%, Okay. It may be as high as 60, So I think 50 to 60, then think 20%.

Satellite communications satellites.

Yeah.

Then thing.

The vast majority of the rest communication systems comps.

Hans Baldau: Okay. All right. That's helpful. Thank you.

Okay Alright.

Alright Thats helpful.

Eric DeMarco: Yep.

Yes.

Operator: Thank you. One moment for our next question. It's from the line of Austin Moeller with Canaccord Genuity. Please proceed.

Thank you one moment our next question.

Is from the line of Austin <unk> with Canaccord Genuity. Please proceed.

Hi, Good evening. So just my first question here, Eric and Deanna $400 million incremental Ford Mach TB $4 6 billion for space in booths quite interceptors and $3 billion for hypersonic defense systems was in the big beautiful bill than in fiscal year 'twenty six appropriations there was 13.

Austin Moeller: Hi, good evening. Just my first question here, Eric and Deanna. $400 million incremental for MACH-TB, $4.6 billion for space and boost/glide interceptors, and $3 billion for hypersonic defense systems was in the big, beautiful bill. In the fiscal year 2026 appropriations, there was $13.5 billion added, specifically for Golden Dome within the Space Force budget. Just thinking about the programs that you're bidding on and the RFP process and when task orders might go out, how much of this funding do you think might be captured in the second half of 2026 versus 2027?

5 billion added specifically for Golden done within this space horse budget. So just thinking about the programs that you're bidding on in the RFP process and when task orders might go out how much of this funding do you think might be captured in the second half of 'twenty six versus 2027.

Eric DeMarco: Right. On, on our related programs, either where we're prime or we're working with one of the traditionals, okay, the funding on, on the, the ones you just went through, it's the vast majority of it is Q2, Q3, and Q4 of this year. 2027 will be very significant for that funding.

Right.

So on on our related programs, either where prime or working with one of the traditional <unk>.

Okay.

The funding on.

One is you just went through it's the vast majority of it is Q2 Q3 and Q4.

This year.

And then <unk>.

'twenty seven will be very significant for that funding.

Austin Moeller: Okay.

Eric DeMarco: That's how we see it.

That's how we see it.

Austin Moeller: Okay. On MUX/TACAIR, which you're partnered with, Northrop is the prime. I think you alluded to this a little bit earlier, but Northrop is also bidding on the Navy CCA program, and the Marine Corps, of course, operate off of ships. Should we be thinking about potential opportunity for Valkyrie airframes for other agencies within the Navy Department?

Okay and on MX tax attack there. What's your partnered with Northrop is the Prime I think you alluded to this a little bit earlier, but Northrop is also bidding on the Navy CCA program and the Marine Corps of course operate off of ships. So should we be thinking about potential opportunity for valkyrie.

Frames for other agencies within the Navy Department.

Eric DeMarco: What a great question. I cannot talk, I cannot talk about that right now. Excellent, excellent question.

Great question.

I cannot.

Small I cannot I cannot talk about that right now.

Excellent excellent question.

Austin Moeller: Well, great. Thank you very much.

Oh, great. Thank you very much.

Eric DeMarco: You got it.

You got it.

Operator: Our next question comes from Kashin Keller with BNP Paribas. Please proceed.

Our next question comes from Cashing killer with BNP Paribas. Please proceed.

Kashin Keller: Yeah. Hi, guys. Thanks for squeezing me in here. I guess on the organic growth outlook for the year, you know, it's a bit lower than the initial 15% to 20% you've laid out last quarter. I guess, is that just mathematically coming in higher for the year on revenues, or is there anything else that's driving that lower?

Yes, hi, guys. Thanks for squeezing me in here, So I guess on the organic growth outlook for the year.

It's a bit lower than the initial 15% to 20% you had laid out last quarters. So is that just mathematically coming in higher for the year on revenues or is there anything else, that's driving that or that's correct. That's correct as I had said in my prepared remarks, we had originally forecasted 14% to 15% organic growth for 2025.

Deanna Lund: That's correct.

Eric DeMarco: That-

Deanna Lund: That's correct. As I, as I had said in my prepared remarks, we had originally forecasted 14% to 15% organic growth for 2025, and we came in at 20%. That, that is a so it is a mathematical.

And we came in at 20% so that that is so it is a mathematical.

Eric DeMarco: Yeah, yeah.

Yes.

Kashin Keller: Okay.

Eric DeMarco: The business is doing, the business is doing great. We, as you know, we beat the heck out of the Q4 numbers, and now that we have an appropriations bill and the shutdown is done, hopefully, 2026 will be really good, too.

The business is doing the business is doing great. We as you know we beat the heck out of the Q4 numbers in <unk>.

Now that we have a.

An appropriations bill on the shutdown is done hopefully 26 will be really good too.

Okay.

Sheila Kahyaoglu: Got it. Okay. Then just on free cash flow, obviously, you have a lot of opportunities on, in investments, you know, in the pipeline right now. But as we think about free cash flow longer term, is there a timeline when you would expect to be kind of more neutral or, or positive on free cash flow?

Got it Okay, and then just on free cash flow, obviously, you have a lot of opportunities and investments in the pipeline right now.

But as we think about free cash flow longer term is there a timeline when you would expect to be kind of more neutral or positive on free cash flow.

Eric DeMarco: Absolutely. I mentioned this on the. I'm glad you're asking. I mentioned on the last call, we, we're starting, we're starting to see it now on the operating cash flow. The operating cash flow is starting to increase, and it's gonna start to ramp in 27 and 28. It's just gonna depend on the number of new opportunities that we're presented with from the Department. I went through, Deanna went through a list. I went through several, and my prepared remarks were, once again, the government, the customer has come to us, and they have said, Here's an opportunity.

Absolutely I mentioned I'm glad you're asking I mentioned on the last call.

Yes.

We're starting that we're starting to see it now on the starts on the operating cash flow. The operating cash flow is starting to increase and it's going to start to ramp in 'twenty seven and 'twenty eight.

It's just going to depend on the number of new opportunities that we're presented with.

From the Department.

And and I would I went through Diana went through a list I went through several in my prepared remarks were once again the government customer has come to us.

And they have said here is an opportunity.

Eric DeMarco: You can get a very long-term, multi-year decade program if you'll invest the capital to stand up this very specialized facility to build these things. We definitely have line of sight on it, I don't wanna give you a time, and then the because you guys are punitive on this, and then the goalpost moves because two new opportunities came that generate a significant return for the shareholder. We're cognizant of it. We see it. Right now, this, with the budgets increasing, the government trying to rebuild the industrial base and them providing companies like Kratos, the nontraditionals, with significant large opportunities, we're gonna go for these right now and build a hell of a company here.

You can get a very long term multiyear decade program. If you will invest the capital to stand up this very specialized facility to build these things.

So we definitely have line of sight on it but I don't want to give you a time and then because you guys are punitive on the goalpost moves because two new opportunities came that generate a significant return for the shareholder.

We're cognizant of it we see it but right now.

With the budgets, increasing the government trying to rebuild the industrial base and them and then providing companies like <unk> for non traditional with significant large opportunities. We're going to go for these right now and build build build a hell of a company here.

Sheila Kahyaoglu: Got it. Thanks for the call.

Got it thanks for the color.

Eric DeMarco: Yep.

Yeah.

Operator: Our next question comes from the line of Clarke Jeffries with Piper Sandler. Please proceed.

Our next question comes from the line of Clark Jaffray's with Piper Sandler. Please proceed.

Clarke Jeffries: Hello, thank you for taking the question. I wanted to ask around the guidance of the guidance philosophy for hypersonic, you know, mentioning an expectation to double hypersonic this year and 75% in 2027. You know, where was that compared to a quarter ago? Just maybe can help us level set on the areas where you're not including in the base case, hypersonic revenue versus where you are. That'd be very, very helpful. Then 1 follow-up.

Hello. Thank you for taking the question I wanted to ask around the guidance of the guidance philosophy for hypersonic mentioning.

And expectation to double hypersonic this year and 75% 2007.

Where was that compared to a quarter ago and just maybe you can help us level set on the areas, where you're not including in the base case hypersonic revenue versus where you are that'd be that'd be very very helpful.

Eric DeMarco: Yeah. The number 1 is the engines and the motors, the 120 motors that are gonna start coming in late Q2, early Q3, those deliveries are gonna ramp throughout 2027 and 2028. Those are tied to missions and launch manifests. You know, our Aerojet Rocketdyne on Zeus and ATK, on Oriole, they've really stepped up, and so we are getting much more comfortable now with that. Okay, number 2, the glide vehicles. There's 1 company in the United States that has the carbon-carbon material for our systems. We've placed the long leads. We have a number of vehicle systems worth of materials coming in, starting in Q3, I believe in Q3, that's going to accelerate into 2027 and 2028.

One follow up.

So the number one of the engines.

In the motors and the 100 to 120 motors that are that are going to start coming in late Q2 early Q3, and those deliveries are going to ramp throughout 2007, and 28 those are tied to missions and launch manifest.

And.

Our our aerojet rocketdyne on.

<unk> Zeus and ATK.

Oriel, they've really stepped up.

And so we are getting much more comfortable now with with that okay number two the glide vehicles. There is there is one there is one company in the United States that.

That has the carbon carbon material for our systems. We've placed the long leads we have a number of vehicle systems worth of materials coming in starting in Q3.

I believe in Q3, and then that's going to accelerate into and to 27% 28.

Eric DeMarco: Then on, on top of that, and I, I know I've said it a couple of times, we now have an appropriation bill, which was very, very important for us. Taking all that, we are really comfortable for the rest of this year and going into next year with the hypersonic business, and I'll say the middle of the fairway numbers we provided to you. Now, where you were going on that. There's a, I mentioned, I'm very, I'm hopeful that there's another billion-dollar sole sourcer I think we're gonna get. Let's say we get that by the end of this year. That could be additive to 2027.

And then on top of that and I know I've said it a couple of times. We now have an approach. We now have an appropriation bill, which which was very very important for us.

So taking all of that we are.

Really comfortable.

For the rest of this year and going into next year with the hypersonic business and I'll say the middle of the fairway numbers.

We provided to you now.

Now where are you where you were going on that.

There is a.

I mentioned I'm very I'm hopeful.

There's another there's another 1 billion dollar sole source or I think we're going to get.

And let's say, we get that by the end of this year.

Yeah.

That could be additive.

To 27.

Eric DeMarco: You know, we'd have to take a look at long leads and things like that, but that, that could be additive to 2027 and could provide upside on it.

We'd have to take a look at long leads and things like that but that that could be additive to 2007.

Could provide upside on it.

Clarke Jeffries: Perfect. Just, you know, the number of tactical drone opportunities that you're talking about that are sort of in the pipeline. Just wondering if you could frame, you know, group 3 versus group 4 kind of opportunities, and then just generally, with the context of Drone Dominator, you know, how interested are you in group 1 and 2 in terms of really putting more investment and capital against those opportunities?

Perfect and then.

Just the number of tactical drone opportunities that youre talking about that are sort of in the pipeline. Just wondering if you could frame.

Group three versus group for kind of opportunities and then just generally with the context of drone dominate or how.

How interested are you in group, one and two in terms of really putting more capital against those opportunities.

Eric DeMarco: Right. We are very, very interested in group five. So Valkyrie, Mighty Hornet, Tactical Fire Jet, Airwolf, Mako, that is our expertise, low cost, high performance jet drones. Group five is the sweet spot, and that's where I did most of our talk, my talking today, because that's where the customers are coming to us. Group one and two, like on Drone Dominance, we have a business there. We want a slot. I believe we want it because of our design capability and the capability of the drones. Okay, we'll see, but that is... We will make the investment necessary to satisfy any customer requirement, but that is not the strategic focus of Kratos, including from an investment standpoint.

Right.

We are very very interested in group five.

So valkyrie Mighty horned tactical fire jet Air Wolf Mako.

That is our expertise low cost high performance jet drones.

So group group five is the sweet spot and that's why I did most of our top my talking today, because thats, where the customers are coming to us.

Group wanted to like on on drone dominance, we have a business. There we want a slot I believe we wanted because of our design capability and the capability of the drones.

We'll see but that is and we will make the investment necessary to satisfy any customer requirement, but that is not the strategic focus of kratos, including from an investment standpoint.

Clarke Jeffries: Perfect. Thank you very much.

Perfect.

Much.

Eric DeMarco: Yep.

Yes.

Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed.

Thank you.

Our next question comes from the line of Sheila <unk> with Jefferies. Please proceed.

Sheila Kahyaoglu: Good evening, Eric and Deanna. Eric, maybe if we could just one big picture question and one micro one. If we could just dig into the size of your microelectronics, microwave electronics business.

Good evening Aragon Guiana.

Eric maybe if we could just one big picture question and one micro one if we could just dig into the size of your microelectronics microwave electronics business.

Trevor Walsh: just given the production rate increases we're seeing, can you size it? What was the growth in 2025? How do you think about the growth in 2026, and what are some of the larger programs driving it?

Sheila Kahyaoglu: just given the production rate increases we're seeing, can you size it? What was the growth in 2025? How do you think about the growth in 2026, and what are some of the larger programs driving it?

Given the production May increase and we are seeing can you size that what was the growth in 25, how do you think about the growth in 'twenty one.

When I say larger programs driving it.

Eric DeMarco: Yeah. Deanna will help me on the numbers.

Deanna will help me on the numbers.

Deanna Lund: Yeah. The, the growth for the year was about organic 17%.

Growth for the year was about organic 17%.

[laughter].

Trevor Walsh: Got it.

Hi.

Eric DeMarco: Big, big programs are Iron Dome, Tamir, Arrow, Barak. There's the next 2, the next 2 are classified. Those are the big 5. 2 classified, and those 3 I mentioned.

Yes.

Eric DeMarco: Big, big programs are Iron Dome, Tamir, Arrow, Barak. There's the next 2, the next 2 are classified. Those are the big 5. 2 classified, and those 3 I mentioned.

Big Big programs.

Our iron dome.

Sameer.

Yeah.

Arrow.

Barack.

Next to the next two are classified so those are the those are the big five two classified in those three I mentioned.

Trevor Walsh: Perfect. Maybe you've given us so much color on this call. Can you, I don't know if it's easy to distill, like, the three upcoming catalysts we look for with Kratos?

Sheila Kahyaoglu: Perfect. Maybe you've given us so much color on this call. Can you, I don't know if it's easy to distill, like, the three upcoming catalysts we look for with Kratos?

Perfect.

And maybe you've given us much color on this call.

Can you I don't know if its easy to discount like that can be.

Upcoming catalysts for with <unk>.

Eric DeMarco: Yeah. From my opinion, number one is, as I mentioned, I'm expecting that we're gonna receive a very, a very large potential billion-dollar plus hypersonic opportunity. I think we're gonna get that. That is looking pretty good. I'm hopeful that a customer is going to let us announce, or they will announce, that we have received another tactical drone CCA-type program award. I can't control that. I'm hopeful that happens. That, that, that financially and from a company standpoint is a catalyst. Number three, I think it's possible that, you know, one of our customers in the jet engine area could announce a very large production contract for the jet engines. That would definitely be a catalyst because that'll be a new growth driver leg for the company.

Yeah.

From my opinion.

Number one is on <unk>.

I mentioned that I'm expecting that we're going to receive a very a very large potential billion billion dollars plus hypersonic opportunity I think we're going to get that that is looking for.

Pretty good.

I'm hopeful.

That a customer is going to lead us.

Ounce or they will announce that we have received another.

Tactical drone CCA type program Award.

I can't control that I'm hopeful that happens that that that financially and from a company standpoint is a catalyst.

Oh number three.

I think it's possible.

You know one of our customers in the jet engine area.

Could announce a very large production contract for the jet engines that would definitely be a catalyst because that'll be a new growth driver leg for the company.

Trevor Walsh: Understood. Thank you so much.

Sheila Kahyaoglu: Understood. Thank you so much.

Understood. Thank you so much.

Eric DeMarco: You're welcome.

Youre welcome.

Operator: Thank you. Our last question comes from the line of Gavin Parsons with UBS. Please proceed.

Thank you.

And our last question comes from the line of Gavin Parsons with UBS. Please proceed.

Gavin Parsons: Good evening. Thank you.

Good evening. Thank you.

Eric DeMarco: Good evening.

Good evening.

Deanna Lund: Thank you.

Gavin Parsons: You guys had a lot to talk about.

You guys are allowed to talk about.

Eric DeMarco: A lot going on.

A lot going on.

Gavin Parsons: A lot going on. Well, I appreciate the, the question. 2, 2-part question on the framework you talked about for the primes. I guess, 1st part, does that accelerate your growth or more so give you better visibility into sustaining it for a longer period of time?

A lot going on.

I appreciate the question.

Two part question on the framework, you've talked about with the primes.

First part does that accelerate your growth or more some give you better visibility into sustaining it for a longer period of time.

Eric DeMarco: For the near term, it's great visibility and sustainment, we'll see what happens over the next Q or 2 relative to timing of things that'll accelerate for us.

For the for the near term, it's it's great visibility.

Eric DeMarco: For the near term, it's great visibility and sustainment, we'll see what happens over the next Q or 2 relative to timing of things that'll accelerate for us.

Ability and Sustainment and we'll see what happens over the next.

Order or two relative to timing of things that that will accelerate for us.

Gavin Parsons: Okay. You know, if the primes are finally leaning into investment, right, announcing major increases in CapEx, doing less buybacks, does that result in more direct competition, or are they looking at more dual source as they look to grow faster? What's the risk there?

Okay.

And then the second part the.

Primes are finally leaning into investments right announcing major increases in capex doing less buybacks.

Does that result in more direct competition or are they looking at more dual source as they look to grow faster or whats the risk there.

Eric DeMarco: Yeah, we, we really don't compete with the traditional primes. We rarely do. We, we partner with them. I, I went through a little earlier that for, for every one of the major primes that builds missile, radar, air defense type systems, the ones that are gonna be involved in Golden Dome, we build the hardware for them. We partner with them. Look, with Northrop, we're delivering them tactical jet aircraft. What the primes are doing now and leaning forward, this is going to be an accelerator for Kratos, is what it's gonna be. I mean, take, take a look at, at Northrop, and you know, that, that's one of our closest, if not closest, partner. I mean, they, they talked about it last week or two weeks ago. They're looking to increase production on Integrated Battle Command System by 4x.

Yeah, we really don't compete with the traditional products.

We rarely do.

We partner with them I went through a little earlier that for for every one of the major primes that builds missile radar air defense tight systems. The ones that are going to be evolving Golden dome, we build the hardware form.

We partner with them look with north we're delivering them.

Tactical jet aircraft.

So.

What the primes are doing now and leaning forward. This is going to be an accelerator for creative tops is what it's going to be.

Let me take take a look at Northrop.

One of our closest if not closest partner.

They talked about it last week or two weeks ago. They were looking to increase production on integrated Battle command system by four X.

We we build a significant amount of the hardware and Ibs.

Eric DeMarco: We, we build a significant amount of the hardware on IBCS. That would be incredible for us. Take a, take a look at Leidos Dynetics. Okay, I, I believe, I believe Tom or his CFO said in their earnings call, in their transcript, I believe they said, check me, that by the end of 2029 or 2030, they need to deliver 300 or 400 indirect fire systems. Kratos builds a significant amount of the hardware for Dynetics, for indirect fires, that they then do integration work on with the weapon system. I can go on and on. These, these companies like Leidos Dynetics, Lockheed, Northrop, and Raytheon, that are leaning forward, especially including these, these large multiyear orders, there's nothing bad here for Kratos. There's...

That would be incredible for us take a take a look at lighthouse dianetics.

I believe I believe Tom or our CFO said in their earnings call and their transcript I believe they said check me that by the end of 2009 or 2030, they need to deliver three or 400.

Indirect fire systems.

<unk> builds a significant amount of the hardware for dianetics for indirect fires that they'd get them do integration work on with the weapon system.

I can go on and on so these these companies like like lighthouse, Dianetics, and Lockheed and Northrop and Raytheon that are leaning forward, especially including the large multi year orders.

There is nothing bad here for <unk>.

Eric DeMarco: I don't want to. There's nothing in my, that comes to mind, competitively, and this could be an accelerator for us going forward.

There is nothing in my that comes to mind Competitory.

This could be an accelerator for us going forward.

Gavin Parsons: Very clear. Thank you.

Very clear thank you.

Eric DeMarco: Thank you.

Thank you.

Operator: Thank you so much, and this concludes our Q&A session, and I will turn it back to Eric DeMarco for closing comments.

Thank you so much and this concludes our Q&A session I will turn it back to Eric Demarco for closing comments.

Eric DeMarco: Great. We appreciate you all joining us and taking the time to ask us the questions. Sincerely, your interest in the business. We look forward to chatting with you when we report Q1. Thank you.

Great.

We appreciate you all joining us and taking the time to ask US. The question sincerely your interest in the business and we look forward to.

Chatting with you when we report.

Q1, thank you.

Yes.

Operator: This concludes our conference. Thank you for participating. You may now disconnect.

This concludes our conference. Thank you for participating you may now disconnect.

[noise].

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