Kratos Defense and Security Solutions Inc Q3 2024 Earnings Call Transcript

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

Question: Michael Ciarmoli - Truist Securities, Inc. - Analyst : Hey, good evening guys. Nice results. Thanks for taking the questions. Eric, just -- I mean, we've got holidays and stuff here. Not a lot of time for the rest of the year. What's the driver in the wide range for the fourth quarter? And then I guess just on the '25 initial outlook. Can you give us any color or, maybe some detail by end market, what are the leading growth engines, what's kind of lagging. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 10:00PM, KTOS.OQ - Q3 2024 Kratos Defense and Security Solutions Inc Earnings Call

Question: Michael Ciarmoli - Truist Securities, Inc. - Analyst : Okay. Got it.

Question: Michael Ciarmoli - Truist Securities, Inc. - Analyst : Got it. And then just a bigger picture question. You mentioned, the Reagan like buildup, obviously, it's super early days here post-election. I mean, if Musk is serious about gutting government spending, how do you think this plays out for defense? He's obviously got the track record with, with SpaceX. Does this put the old defense guard at risk. Does it favor new startups? Like, I know you're working with BlueHalo, (inaudible), where does that leave you guys?

Question: Michael Ciarmoli - Truist Securities, Inc. - Analyst : Got it. Perfect. I'll jump back in the queue. Thanks guys. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 10:00PM, KTOS.OQ - Q3 2024 Kratos Defense and Security Solutions Inc Earnings Call

Question: Peter Arment - Robert W. Baird & Co., Inc. - Analyst : Yeah, thanks. Good afternoon, Eric, Deanna.

Question: Peter Arment - Robert W. Baird & Co., Inc. - Analyst : Hey, Eric. First time I think I've ever heard you talk about a foreign source election when you're talking about, for your tactical drones. Is this like a firm commitment from the customer or do you know the potential quantity, any more color on that? That would be helpful.

Question: Peter Arment - Robert W. Baird & Co., Inc. - Analyst : Right. And then on your -- you've given us a lot of impression in this release regarding, kind of the, where all the growth can come from in terms of capacity and growth in drones and engines. On the drone side, the tactical drone, well, I guess the fire jet, there's opportunities with the Navy on the tactical side. Can you give any more color there on how that's progressing?

Question: Peter Arment - Robert W. Baird & Co., Inc. - Analyst : Got it. Yeah. And just last thing you mentioned, the turbojet development and TDI, and it sounds like the outlook there, certainly the capacities in place. How do you anticipate kind of production ramping up? Now that you've kind of made that significant investment there?

Question: Peter Arment - Robert W. Baird & Co., Inc. - Analyst : Got it. I'll jump back in Queue. Thanks, Eric.

Question: Ken Herbert - RBC Capital Markets, LLC - Analyst : Hey, good afternoon. Eric, Deanna.

Question: Ken Herbert - RBC Capital Markets, LLC - Analyst : Yeah. Hey, Eric. You -- we've obviously got a new administration coming in as we think about where we see some leadership changes in Congress and what would likely be greater sort of a greater push for higher defense spending. I know it's obviously early and you it sounds like you're alluding to this and '25 is probably not where we necessarily see this relative to '26 and beyond. But are you prepared now to think about if we're in a situation where we do see, call it sort of mid-single digit real growth in at least US defense spending. What that means to your long term 10% top line outlook that you've been delivering to over the last several years.

Question: Ken Herbert - RBC Capital Markets, LLC - Analyst : And if I could, it looks like in terms of profitability within the unmanned segment, this year on an EBIT level, you probably end the year in low single digits, in terms of margin. You're outlining again, significant investments within that segment to support, obviously, the planned growth. Do we see or should we expect much margin expansion within the unmanned segment in '26 or in '25 I'm sorry, or can you provide any additional commentary around that?

Question: Ken Herbert - RBC Capital Markets, LLC - Analyst : Perfect. Thanks Deanna. I'll pass it back. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 10:00PM, KTOS.OQ - Q3 2024 Kratos Defense and Security Solutions Inc Earnings Call

Question: Mike Crawford - B. Riley Securities, Inc. - Analyst : Thank you, given the increasing proliferation of space based architectures. Could you give us a sense of what your satellite business historically has looked like broken down between LEO and GEO, maybe historically today and where that might be in the future?

Question: Mike Crawford - B. Riley Securities, Inc. - Analyst : And then -- thank you, Eric. And then just related the single award $100 million plus space opportunity that could expand from there. Can you say whether that's commercial or sovereign.

Question: Mike Crawford - B. Riley Securities, Inc. - Analyst : Okay. And then separately, you have this successful joint exercise at Air Force base and one flag and we know marines is a customer, but I mean, the Air Force had -- I mean, they're there in the joint exercise and they have the CCA program where now it's unsure, it looks like the exquisite are never going to go into volume production. But it's unclear whether the next increment is going to be for more a treatable aircraft or is it something that's more related to counter UAs or can you not comment on that either? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 10:00PM, KTOS.OQ - Q3 2024 Kratos Defense and Security Solutions Inc Earnings Call

Question: Mike Crawford - B. Riley Securities, Inc. - Analyst : Okay. Thank you.

Question: Seth Seifman - JP Morgan - Analyst : Hey, thanks very much and good afternoon.

Question: Seth Seifman - JP Morgan - Analyst : I apologies if I missed it. Is there any update on Prometheus?

Question: Seth Seifman - JP Morgan - Analyst : I think end of that -- oh, sorry.

Question: Seth Seifman - JP Morgan - Analyst : Of course. And is that -- when you think about that kind of 10% next year and you know what we discussed a little bit earlier about the drivers of that, is that something that where there's -- is not factored in and maybe there's upside related to that.

Question: Seth Seifman - JP Morgan - Analyst : Okay. Got it. And then maybe just to follow, I should know this. But when we think about the producing at the scale of the turbines that you're talking about what would be the primary destination for kind of -- for that level of production or the kind of top groups of programs that would be the customers for that scale of production.

Question: Seth Seifman - JP Morgan - Analyst : Excellent. Thanks very much.

Question: Andre Madrid - BTIG - Analyst : Eric, Deanna. Thanks for the time. I wanted to talk on labor. I know you guys have cited this in the past as kind of being a hurdle to really be able to scale the propulsion business. Especially at KTT. Can you highlight any progress on recruiting and retaining talent?

Question: Andre Madrid - BTIG - Analyst : That's fair. I totally feel for you there. It's pretty industry wide. But I guess pivoting again, I know somebody had mentioned it on the space side. I wanted to drill and look at it more at a B level, space training and cybersecurity. It's pretty broad, but it seems like what's happening on the commercial space front is when you think about contract mix, it seems like this is a bigger one. I mean, considering though the breadth of that portfolio, it is the largest set of -- on a BU basis of the entire company. What opportunities are there to kind of offset and expand in other areas. Be it defense, be it cyber.

Question: Andre Madrid - BTIG - Analyst : Awesome, looking forward to hearing about it. Thanks, Eric. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 10:00PM, KTOS.OQ - Q3 2024 Kratos Defense and Security Solutions Inc Earnings Call

Question: Joe Gomes - Noble Capital - Analyst : Good afternoon. Thanks for taking my questions.

Question: Joe Gomes - Noble Capital - Analyst : Eric, I wanted to see -- maybe you could talk a little bit about the international target drone opportunity. I haven't heard a whole lot about that lately. What if anything is going on there, that could be exciting for the company.

Question: Joe Gomes - Noble Capital - Analyst : Okay, thanks for that. And one other one, we wanted to kind of switch gears away from all the military. And one of the items we've talked a little bit about in the past is your driverless vehicle solutions. And just wondering what is going on in that sector these days. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 10:00PM, KTOS.OQ - Q3 2024 Kratos Defense and Security Solutions Inc Earnings Call

Question: Joe Gomes - Noble Capital - Analyst : Great. Look forward to it. Thanks for taking my questions.

Question: Pete Skibitski - Alembic Global - Analyst : Hey, good afternoon, Eric, Deanna.

Question: Pete Skibitski - Alembic Global - Analyst : Hey, Eric, I just wanted to see if we can kind of wrap our hands around this commercial space area just a little bit more because it was down a chunk this quarter. Just wonder what's it down here to date. What's your expectation for the full year and sort of when do you think it will bottom? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 10:00PM, KTOS.OQ - Q3 2024 Kratos Defense and Security Solutions Inc Earnings Call

Question: Pete Skibitski - Alembic Global - Analyst : Yeah. Yeah, I mean it was down. It's a $24 million this quarter and I thought it was down previously as well. So it -- that would seem to indicate it's already bottom or maybe bottom this quarter and there's not really further meaningful head went to ahead it.

Question: Pete Skibitski - Alembic Global - Analyst : Okay. And I'm sorry if I missed this. But the revenue guide for KGS for this year. Is it still [860] to [875]?

Question: Pete Skibitski - Alembic Global - Analyst : Okay. Okay. Sounds great. Thanks so much guys.