Guidance Conservatism
Q: Is your top-line guidance conservative given strong growth?
A: Despite strong 20% organic growth in Q1, management is cautious with their approximate 10% annual growth guidance due to government contracting delays caused by the six-month Continuing Resolution. They have a strong backlog and near-term opportunities but are being prudent given the need for contracting offices to obligate funds in a compressed timeframe. "

Engine Business Growth
Q: What's the outlook and timeline for engine opportunities?
A: Kratos expects its engine businesses, KTT and TDI, to be among the company's strongest growers over the next several years. They anticipate beginning to receive additional production programs for engines for missiles, drones, and loitering munitions in the second half of the year. The funding and customer demand are in place; the key is getting contracts finalized. "

Valkyrie Orders Timing
Q: How are you funding Valkyrie investments without orders in hand?
A: Kratos has two separate customers for Valkyrie orders. They anticipate receiving at least one order this calendar year and the other in the first quarter of next year. Management is confident in proceeding with investments due to the expected timing of these orders, unless there are significant geopolitical changes. "

Potential Upside Opportunities
Q: What are the top opportunities not in your guidance?
A: Several potential upsides could lead to outperforming guidance. These include the production of tactical drones, which currently have no production revenue in the base case; expected engine production runs; advancements with Zeus and hypersonic flyers now that systems are completed; and an expanded scope on a major engine program. However, hiring challenges, particularly for positions requiring security clearances, may constrain these opportunities. "

Shift to Merchant Supplier
Q: How is the shift from prime to merchant supplier progressing?
A: Kratos is focusing on areas where partnering with established primes increases the probability of winning contracts with lower investment. They are collaborating with major companies like Raytheon on the Patriot system, Northrop on the Integrated Battle Command System, and Lockheed Martin on THAAD and various Counter-UAS systems. This strategic shift aims to maximize wins while managing investment levels. "

CCA Program Participation
Q: Any updates on positioning for CCA Increment 2?
A: The Air Force announced the CCA program for up to 2,000 drones. While Increment 1, awarding 100 planes, was not in Kratos's forecasts, they are focusing on the remaining 1,900 drones, which align with their capabilities. Management believes a significant number of these drones are in their "sweet spot" based on performance requirements. "

Hiring Challenges
Q: How much more staffing do you need to advance opportunities?
A: Kratos could immediately utilize 30–40 additional people on a KTT program and about 30 more in the engine area. In their unmanned drone sector, they need 30–40 people for an upcoming program. Hiring is challenging, especially for roles requiring security clearances, and this constraint impacts their ability to accelerate growth. "

Supply Chain Mitigation
Q: Can your supply chain support expected growth?
A: Management is proactively addressing potential bottlenecks in engines and drones. In engines, they are investing in additive manufacturing and vertical integration to reduce reliance on third-party suppliers. For drones, they are acquiring machines and tooling to bring certain processes in-house, mitigating risks associated with overwhelmed vendors. "

Space Business Outlook
Q: Is the Space business growing more than expected?
A: The Space business faces delays due to the Continuing Resolution and reprioritization within the DoD, impacting near-term growth. However, Kratos secured a new contract with an established company for a satellite constellation, expected to bring in initially several tens of millions of dollars. While some programs are moving to the right, the overall outlook is positive due to the increasing number of satellites being launched. "

Valkyrie Pricing Evolution
Q: How have Valkyrie pricing assumptions evolved?
A: Valkyrie pricing varies by variant and quantity. Kratos submitted a Rough Order of Magnitude for a few dozen units at $4 million each for a specific variant. Another variant currently flying is priced at $5.5 million to $6 million each, and a third, more advanced variant is approximately $10 million, offering enhanced capabilities. "