Anthony Valentini

Anthony Valentini sought clarification on Northrop Grumman being the prime contractor for the Marine Corps Valkyrie program instead of Kratos. He also asked about the per-copy cost of the Valkyrie aircraft for Kratos and if any significant programs are rolling off in the next couple of years.

Answer

Eric DeMarco, President and CEO, explained that partnering with Northrop Grumman as prime increases the probability of winning, reduces integration risk for Kratos, and allows Kratos to act as a merchant supplier for tactical jet drones. He confirmed that Kratos' content per Valkyrie aircraft is approximately $10 million, varying slightly by configuration. DeMarco also stated that there are no significant programs rolling off for Kratos in the foreseeable future, with zero recompetes of any size.

Anthony Valentini asked for color on the Marine Corps Valkyrie program, specifically why Northrop Grumman is the prime contractor instead of Kratos. He also sought clarification on the cost per copy for Valkyrie, confirming if Kratos' content is still around $10 million per aircraft, and if any significant programs are expected to roll off in the next couple of years.

Answer

Eric DeMarco, President and CEO, Kratos Defense & Security Solutions, explained that partnering with Northrop as prime increases the probability of winning due to Northrop's mission systems expertise and reduces Kratos' integration risk, while Kratos still earns a full profit margin on the aircraft. He confirmed that $10 million per aircraft is a good estimate for Kratos' content, with slight variations based on configuration. He also stated that there are no significant programs rolling off and no recompetes of any size for the foreseeable future.

Anthony Valentini asked about Valkyrie's work-in-progress (WIP), current annual production capacity, the ongoing margin drag from the target drone program, and Kratos's long-term EBITDA margin potential compared to defense tech companies.

Answer

Deanna Lund, EVP and CFO of Kratos, stated Kratos is producing its second lot of 12 Valkyries, with current annual capacity at 50. She explained the target drone program's margin drag is due to manufacturing overhead and fixed-price contracts, expected for another 2+ years. Eric DeMarco, President and CEO, projected significant margin step-up in 2028 due to renegotiated contracts and increased production. He noted current margins are suppressed by high bid/proposal costs for new opportunities but are expected to rise significantly as growth stabilizes, leading to substantial cash flow generation.

Anthony Valentini inquired about the current Work In Progress (WIP) and annual capacity for Valkyrie production. He also asked about the ongoing margin drag from the target drone program and whether Kratos could achieve 20%+ EBITDA margins in the long term, similar to some defense tech companies.

Answer

Deanna Lund, Kratos' EVP and CFO, stated that Kratos is producing its second lot of 12 Valkyries, with the first lot nearly complete and the second expected by mid-next year. Eric DeMarco, Kratos' President and CEO, added that current annual capacity is 50 Valkyries. Ms. Lund explained that the target drone program's margin drag, partly due to underutilized manufacturing overhead, is expected to continue through 2026 and lessen in 2027, with renegotiations anticipated in the next year. Mr. DeMarco indicated that EBITDA margins are expected to rise significantly post-2028 as growth-related bid and proposal costs normalize and new programs like Valkyrie enter full production.

Anthony Valentini from Goldman Sachs asked for details on the Marine Corps program of record process, the timeline for the GEK and Prometheus JVs to reach a billion-dollar valuation, and an update on large training programs.

Answer

CEO Eric DeMarco declined to comment on the Marine Corps program beyond public information. He projected both the GEK and Prometheus ventures could become material in the 2028-2029 timeframe and achieve billion-dollar valuations once in full production. Regarding large training programs, he simply advised to 'Standby.'

Anthony Valenti asked if CAE's higher mix of international defense work could lead to structurally higher margins compared to domestic defense primes, and sought assurance that the current network rationalization efforts in civil aviation would be a lasting solution rather than a cyclical occurrence.

Answer

Matthew Bromberg (President and CEO, CAE) explained that while international defense margins can sometimes be higher, other factors mean margins cannot be generalized as 'significantly higher,' emphasizing methodical improvement. For civil, he stated that current actions involve sizing the network for today's demand, disciplined new simulator placements, and a new operating model with stricter capital approval thresholds to ensure long-term control and efficiency.

Anthony Valentini from Goldman Sachs asked about CAE's historical target of 20-30% pre-tax returns on capital within two years for deployed simulators, inquiring if the new target is higher or if the company aims to restore discipline to achieve those past levels. He also asked for CAE's view on the evolving defense environment, particularly the impact of autonomous systems and drones on training requirements.

Answer

Matthew Bromberg, President and CEO of CAE, stated that the focus is on future actions, leveraging the existing "fantastic strategic asset" (network) and making diligent decisions for future simulator placements based on higher return thresholds. He confirmed that training is still required for drones and remotely piloted vehicles, citing CAE's partnership with General Atomics for Predator training as an example, and sees it as a growing market opportunity.

Anthony Valentini asked about CAE's historical pre-tax ROIC targets for simulators, the current view on achieving those levels, and the impact of evolving autonomous systems and drones on CAE's defense training business.

Answer

Matthew Bromberg, President and CEO of CAE, stated that the focus is on future actions with the world-class network, aiming for higher return thresholds for new simulator placements and evaluating relocation or retirement of existing ones. Regarding defense, he confirmed that training is required for drones and remotely piloted vehicles, citing CAE's partnership with General Atomics for Predator training as an example of their strong position in this growing market.

Anthony Valentini with Goldman Sachs asked about the key catalysts for growth across AeroVironment's diverse product portfolio in the coming months, particularly as reconciliation funding impacts backlogs, and sought to understand why funded backlog was slightly down from Q1 to Q2. He also inquired about the 2026 forecast for Switchblade sales capacity.

Answer

Chairman, President, and CEO Wahid Nawabi highlighted growth catalysts including loitering munitions (Switchblade), RF counter-UAS (Titan), medium UAS (Jump 20/20X), P550, and SCAR/Badger programs, noting that the cybersecurity business might not grow as aggressively. Executive Vice President and CFO Kevin McDonnell explained that the funded backlog was flat from Q1 due to the CR and government shutdown delaying significant funding for new contracts, despite many contracts being awarded. Kevin McDonnell also mentioned Switchblade capacity is roughly $500 million before the new facility.

Anthony Valentini inquired about increased competition in the drone market due to the emphasis on 'American drone dominance' and how this might impact pricing and margins for products like Switchblades.

Answer

Wahid Nawabi, Chairman, President, and CEO, acknowledged increased market focus and competition, stating AeroVironment is accustomed to it and has consistently led. He highlighted AV's competitive differentiators, including decades of delivery, scalable manufacturing, and tens of thousands of systems fielded. Kevin McDonnell, Executive VP and CFO, added that AV offers cost-efficient products and that competitive pressure is more likely at the low end of the market, not in AV's Group 2 and above categories.

Anthony Valentini asked about the impact of increased competition on AeroVironment's drone business, particularly regarding pricing for products like Switchblades, and whether the 'American drone dominance' initiative could lead to margin pressure over time.

Answer

Chairman, President, and CEO Wahid Nawabi stated that AeroVironment is accustomed to competition and views the market focus as a positive sign of growth. He highlighted the company's competitive differentiators, including decades of experience, ability to deliver at scale, and unique manufacturing capacity. Executive VP and CFO Kevin McDonnell added that AeroVironment's products offer significant value, with pricing pressure more likely at the low end of the market.

Anthony Valentini asked about increased competition stemming from the emphasis on 'American drone dominance' and its potential impact on pricing, particularly for products like Switchblades, and whether this could lead to margin compression over time.

Answer

Chairman, President, and CEO Wahid Nawabi acknowledged the focus on American drone dominance and stated that competition is not new to AeroVironment, which has a long track record of leadership. He emphasized the company's strong portfolio, unique competitive advantages in manufacturing capacity, and ability to deliver at scale for urgent demands. Executive Vice President and CFO Kevin McDonnell added that AeroVironment provides cost-efficient products, and pressure would likely be more on the low-end market, not their Group 2 and above categories.

Anthony Valentini asked about the transparency of BETA's certification metrics, specifically if they are provided by the FAA or internally generated, and sought an update on the H500A engine certification timeline, noting a potential shift to early 2026.

Answer

Kyle Clark, CEO of BETA Technologies, clarified that the certification metrics directly align with FAA order 8110, tracking both BETA's progress and FAA acceptance. He confirmed the H500A engine certification is tracking to early 2026, attributing the timeline to the extensive durability endurance testing required, which is currently underway with FAA-conformed articles.

Anthony Valentini asked for clarification on Neutron's current backlog, specifically if it is zero, and how the Neutron backlog is expected to ramp up, whether after the first R&D launch or a certain number of successful flights. He also questioned Rocket Lab's key differentiators in competing for the SDA Tranche 3 transport layer contract.

Answer

Adam Spice, CFO, Rocket Lab, confirmed two fully priced Neutron missions in backlog, with a third contracted rideshare not yet included. Peter Beck, Founder and CEO, Rocket Lab, explained that customers typically await successful flights before committing to multiple Neutron bookings, emphasizing the company's commitment to not over-booking or under-pricing. For SDA Tranche 3, Peter Beck highlighted Rocket Lab's vertical integration for schedule certainty, competitive pricing due to margin stacking, strong reputation for reliability, and a broad war chest of technologies as key differentiators.

Anthony Valentini asked if Rocket Lab would consider introducing a new launch vehicle in the future, either larger than Neutron or in between the size of Electron and Neutron.

Answer

CEO Sir Peter Beck stated there are no current plans for a new vehicle. He sees no significant market opportunity between Electron and Neutron. While he believes Neutron is accurately sized for the market, he noted that its 7-meter diameter architecture is inherently scalable, providing flexibility to develop a larger vehicle in the future if market dynamics were to drastically change.

Anthony Valentini asked if Rocket Lab could capture business from Amazon Kuiper's launch needs, whether the Space Systems segment is profitable, and if the 2025 Neutron test flight would generate revenue.

Answer

CEO Peter Beck responded to the Kuiper question by reiterating that launch demand is not a concern for the company. CFO Adam Spice clarified that while they don't report segment-level profitability, the vast majority of the company's cash consumption is from Neutron development. He also confirmed the 2025 Neutron test flight will not have associated revenue, but they are exploring ways to offset its cost via 'contra R&D'.

Anthony Valentini asked about the longer-term growth prospects, specifically opportunities to expand Columbia's propulsion technology to other ship types and programs. He also inquired about the current size and future growth potential of DRS's missile business, given its dependence on sensors.

Answer

COO and incoming CEO John Baylouny confirmed that DRS is actively looking at and bidding on other ship classes for propulsion systems, highlighting the advantage of energy flexibility for longer-range capabilities. He also stated that DRS is a top supplier of infrared and other sensors for missiles, playing a role across all levels from low-cost, high-volume to high-end missiles, driven by increased demand for smarter, longer-range, and more capable systems.

Anthony Valentini asked about the longer-term growth prospects, specifically opportunities to expand Columbia's propulsion technology to other ship types and programs. He also inquired about the current size and future growth potential of DRS's missile business, given its dependence on sensors.

Answer

COO and incoming CEO John Baylouny confirmed that DRS is actively looking at and bidding on other ship classes for propulsion systems, highlighting the advantage of energy flexibility for longer-range capabilities. He also stated that DRS is a top supplier of infrared and other sensors for missiles, playing a role across all levels from low-cost, high-volume to high-end missiles, driven by increased demand for smarter, longer-range, and more capable systems.

Anthony Valentini asked about collateral balances, specifically how the 30% cash minimum is affecting client allocation decisions, and provided an update on Q3 and current collateral levels.

Answer

Lynne Fitzpatrick, CFO, reported that average cash collateral in Q3 was $135 billion (earning 33 basis points) and non-cash was $156 billion (earning 10 basis points). She noted that cash balances remained steady into October at $134 billion, with non-cash ticking up to $164 billion. Cash collateral was about 46% of the total, indicating clients are holding more than the 30% minimum, which she attributed to customer decisions and potential optimization over time.

Anthony Valentini asked about collateral balances, the impact of the 30% cash minimum on client allocation decisions, and the update on balances for the third quarter and current standing.

Answer

Lynne Fitzpatrick, CFO, CME Group, reported that average cash collateral in Q3 was $135 billion (earning 33 basis points) and non-cash was $156 billion (earning 10 basis points). In early October, cash was $134 billion and non-cash was $164 billion. She noted that cash collateral remained above the 30% minimum at about 46% in Q3, indicating customer allocation decisions and potential for future optimization.

Anthony Valentini of Goldman Sachs asked for an update on management's prior commentary that revenue growth next year was expected to be "at least double."

Answer

President & CFO Ashley Fieglein Johnson confirmed that the company's forward-looking targets are unchanged. She pointed to the significant growth in backlog and strong sales performance as providing the necessary foundation to achieve sustained and accelerated growth, reaffirming the sentiment from the previous quarter.

Anthony Valentini asked about the strategy to improve the net dollar retention rate (NDRR) to industry-leading levels and whether the focus on large new customers could be a temporary headwind to that metric.

Answer

CFO Ashley Whitfield Johnson outlined that the core strategy is to build solutions that embed Planet's data into customers' core operational workflows. This deep integration accelerates time-to-value and is expected to drive stronger retention and expansion rates. The company's vertical market alignment ensures product development is closely tied to solving customer challenges, which supports this goal.

Anthony Valentini, on for Noah Poponak at Goldman Sachs, asked if Planet is involved in the NGA's Economic Indicator Monitoring (EIM) program and whether the new Tanager satellite's capabilities make Planet's bids for successor programs more competitive.

Answer

CEO Will Marshall clarified that the EIM program has been succeeded by a new vehicle called Luno, for which Planet is pursuing opportunities that fit its differentiated offerings. He stated that Tanager's hyperspectral capabilities '100%' open up new possibilities and are a 'machine learning field day,' but noted that the Luno program is currently more focused on traditional multispectral imagery, making Tanager a medium-to-long-term play for that specific opportunity.