Kratos Defense and Security Solutions Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Peter Arment - R. W. Baird - Analyst : Congrats on all the developments that are going on. Eric, let me just start on Golden Dome (technical difficulty) Kratos is obviously involved in the ground segment of that program. How do you expect to kind of see the benefits under this program moving forward as Tranche 3 progresses? And we recently heard that the PWSA is going to form part of Golden Dome. Just how does Kratos fit in all that?

Question: Peter Arment - R. W. Baird - Analyst : And then just you mentioned the Valkyrie and obviously, they're including new variants with the landing gear. When would we expect to see any commencement of any test flights with the landing gear? And do we -- and is this kind of in preparation for Increment 2 or with CCA, or any kind of thoughts there?

Question: Mike Crawford - B. Riley Securities - Analyst : Regarding turbojet engines, you mentioned expectation to produce several hundred this year with rapid expansion therefrom. And so like what specific missile programs would support production in those quantities?

Question: Mike Crawford - B. Riley Securities - Analyst : And then just back to the Valkyrie. Can you just remind us how -- when these 24 units that are being manufactured under these two production spirals, once you do get a contract, how that hits your financials?

Question: Mike Crawford - B. Riley Securities - Analyst : And then Prometheus, that's just going to be below the line, right?

Question: Ken Herbert - RBC Capital Markets - Analyst : Maybe just to start on Unmanned Systems. As you look across this year, I mean, obviously, a lot of the EBITDA is coming from Government Solutions. But how do we think about the profit contribution from Unmanned this year? Maybe relative to last year and with all the investments, could the segment be profitable this year on a reported basis? And maybe what's the expectation in the back half of the year?

Question: Ken Herbert - RBC Capital Markets - Analyst : And I think you mentioned the facility move in Israel is going to happen over three weeks. And obviously, the guidance for the second quarter reflects that. I mean that sounds -- it sounds ambitious, to be honest, considering customer certification and everything else you have to go through. Can you just talk through sort of confidence in keeping that disruption to a minimum and maybe where some of the risks could be as you think about that facility move? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 9:00PM, KTOS.OQ - Q1 2025 Kratos Defense and Security Solutions Inc Earnings Call

Question: Joseph Gomes - NOBLE Capital Markets - Analyst : So Eric, I want to start out on the tactical drones. I haven't really heard a whole lot on the competitive front. And just wondering if you could give us kind of maybe an overview. Is there anything that the competitors are doing or saying they're going to do that, if not keeps you up at night, at least makes you shake your head and say, hmm, maybe we should take a look into that, anything there new on that front?

Question: Joseph Gomes - NOBLE Capital Markets - Analyst : And then you guys put out a press release a couple of weeks ago about expanding your truck platooning technology into new areas. And in the press release, you talked about, again, repurposing technologies for the commercial use. And you got to be thinking -- I don't know if you can provide this at this point, but what other technologies are you looking at for repurposing for commercial applications?

Question: Joseph Gomes - NOBLE Capital Markets - Analyst : Very exciting in my view, especially all the dual use, as you mentioned. And last one for me. I know you've talked in the past that you're not looking to do anything big in terms of the M&A. But if you were out there looking at some tuck-in M&A, what areas would be top of the list for you that you would want to target?

Question: Michael Ciarmoli - Truist Securities, Inc - Analyst : Just to stay on that topic, Eric, with the demands and need for propulsion and engines. We, obviously, heard a lot about that over the past 12, 24, 36 months, but it doesn't seem like there's a lot of share shifting or share gains being made. I mean, is your opportunity predicated on just a lot of new programs? Are you seeing the opportunity to take share on existing missiles, or whether it is smaller unmanned systems that require those types of engines? Could you give any more color there?

Question: Michael Ciarmoli - Truist Securities, Inc - Analyst : That leads into my follow-up question here, the next one. I think we get the question all the time from investors, what really sparks the growth inflection? Or as your company continues to evolve, how does the revenue mix look? And I think we, obviously, sit here and think it was going to be a big ramp in the unmanned tactical. But I mean, if we look out 24, 36 months, in your view, what has the potential to be the biggest revenue growth contributor? You talked pretty enthusiastically Valkyrie, Thanatos, but then you got Prometheus, you've got the engines with GE, you've been in targets. I mean, what is the biggest revenue driver as you see it over the next two to three years?

Question: Andre Madrid - BTIG LLC - Analyst : Outlook, last quarter when you first provided it, you said that it assumed in mid-March CR resolution. Obviously, that didn't happen, but the outlook was kept intact. Could you maybe just walk us through what's baked into the outlook now and how we should be thinking about the potential impact of a full year CR?

Question: Andre Madrid - BTIG LLC - Analyst : And then if we move, I guess, if we zero in on Unmanned Systems, not that beat the dead horse here, but could you maybe give us a split of just how much bookings in the quarter were tactical versus target? Because I do understand that things are continuing to accelerate on the tactical front. So I guess just to get a sense of the magnitude.

Question: Andre Madrid - BTIG LLC - Analyst : And when might we expect an inflection point where tactical might take the lead in terms of being the main demand driver?

Question: Andre Madrid - BTIG LLC - Analyst : And then if I could just ask one more. Could you maybe just dig a little bit deeper on the commercial space side? So I do realize that some of the downstream customers have started to launch finally, some of those big launches that I think we're kind of bottled up, we're finally getting through. Has that provided any relief? Or are we still seeing a prolonged impact here? And maybe can we get a sense around timing?

Question: Peter Skibitski - Alembic Global Advisors - Analyst : Just sticking with the space theme, just maybe to delve a little bit deeper. So space as a whole was down again in the first quarter. Is that right? And then what's your assumption for '25 in terms of space growing or not?

Question: Peter Skibitski - Alembic Global Advisors - Analyst : And just, Eric, just maybe on MACH-TB, just to -- it sounds like the full year CR isn't going to impact that program ramping. But can you remind us, does that not generate revenue until the second half of the year, and so you get kind of a half year this year and a full year next year? Is that kind of still on track, that profile?

Question: Rustam Kanga - Citizens Capital Markets and Advisory - Analyst : This is Russ, on for Trevor Walsh. Just one zooming out here. Eric, any thoughts or breadcumbs you can provide us around thinking through the Navy CCA? I understand that's a low-cost opportunity and certainly a critical aspect of maritime warfare?

Question: Rustam Kanga - Citizens Capital Markets and Advisory - Analyst : One more on -- can you just help reconcile the comment on the US supply base being sole source alongside the target drone, the cost elevation? What's the driver there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 9:00PM, KTOS.OQ - Q1 2025 Kratos Defense and Security Solutions Inc Earnings Call

Question: Rustam Kanga - Citizens Capital Markets and Advisory - Analyst : Last one, you kind of alluded to on the microwave electronics piece, a lot of the Israeli systems when prime go to India. Any comment on if a conflict in that region persists, how that would affect that business?

Question: Greg Konrad - Jefferies & Company, Inc - Analyst : Maybe just to circle back to a previous question. I appreciate the biggest growth drivers as you look forward. But there seems to be a lot of programs maybe within those. When you think about accelerating growth next year, how much of that business is won versus competitive? How does supply chain unlock play into this? And then when you think of all those, are there any must-win programs competitively to kind of see that accelerating growth?

Question: Greg Konrad - Jefferies & Company, Inc - Analyst : And then maybe within that, I mean, I think hypersonics is probably spread out throughout the business. I mean C5ISR was pretty strong in the quarter. I think we saw good award activity in April around a couple of key awards. I mean, how do you think about the biggest drivers of C5ISR? How much is hypersonics? And how are you kind of thinking about that reportable segment going forward?