Hans Baldau

Hans Baldau asked about the downside protection for the $25 million-$28 million CapEx planned for 2026 for the second Valkyrie production, in case contract awards or delivery schedules slip. He also inquired about the proportion of microwave products tied specifically to missile and air defense programs versus other applications.

Answer

Eric DeMarco, President and CEO, Kratos Defense & Security Solutions, stated that there is currently no downside risk for the Valkyrie CapEx, as he believes all planned aircraft will be spoken for under existing commitments. He estimated that at least 50%, potentially as high as 60%, of microwave products are tied to missile and air defense programs, with about 20% for satellite communications and the majority of the remainder for general communication systems.

Hans Baldau inquired about the downside protection for the $25 million-$28 million CapEx planned for 2026 for Valkyrie production, in case contract awards or delivery schedules slip. He also asked about the proportion of Kratos' microwave products business tied to missile and air defense programs versus other applications.

Answer

Eric DeMarco, President and CEO, stated that he believes there is currently no downside risk for the Valkyrie CapEx, as all planned aircraft are expected to be spoken for under existing programs. He estimated that at least 50%, potentially up to 60%, of the microwave electronics business is tied to missile and air defense programs, with another 20% in satellite communications and the remainder in general communication systems.

Hans Baldau from Noble Capital Markets asked for more details on the newly initiated M&A program, the reasons for the downward revision in the 2025 program launch forecast, and the performance of the company's China operations.

Answer

CEO Harold Bevis stated he is personally leading a serious M&A effort focused on synergistic acquisitions to advance strategy and help refinance preferred stock. He clarified the lower program launch forecast was due to automotive customer push-outs into 2026, not cancellations. He also noted that the China business is healthy, growing 6% year-over-year, driven by high-value components for partners like BYD.

Hans Baldau asked for clarity on the timing of the $55 million in new business wins expected in 2025, the distribution of the $15 million cost savings plan, and whether any further plant closures are anticipated.

Answer

President and CEO Harold Bevis stated that new business ramp-ups typically have a 3-to-6-month lag, meaning a large portion of the $55 million will impact revenues in the second half of 2025. SVP and COO Tim French added that the $15 million in cost savings is expected to be mostly evenly distributed throughout the year with a slight back-end loading. Regarding plant closures, Bevis confirmed they are evaluating two more underperforming plants but have no firm plans to announce at this time.