KRATOS DEFENSE & SECURITY SOLUTIONS, INC. Q3 FY2024 earnings call

• Kratos continues to execute its strategy of internally funded investments for rapid development of hardware and software for national security customers.
• In Q3, most business units achieved or exceeded objectives, except commercial satellite business impacted by industry disruptions.
• Ongoing generational recapitalization of strategic weapons systems is a catalyst.
• Expect to make significant internally funded bid proposal expenditures for large programs, including a potential 1.5B opportunity.
• Microwave electronics business in Israel is on track to open new facilities.
• Turbine Technologies has a record opportunity pipeline and is expanding production capacity.
• C5 ISR has received new hypersonic system awards and has a new Sentinel Program facility planned.
• Rocket systems business has growth areas like hypersonics and solid rocket motors.
• Target drone business is growing, with Valkyrie and other programs making progress.

Kratos' microwave electronics business has a record backlog and is generating record financial results. Turbine Technologies is also generating record results with a strong opportunity pipeline. C5 ISR has received new hypersonic system related program awards. Rocket systems business has several growth areas. The satellite business on the defense and national security side is performing as expected, but the commercial satellite business is impacted by industry disruption. The target drone business is a future growth area, with Valkyrie and other programs making progress.

• Affirmed 2024 financial guidance.
• Expect 10% year-over-year revenue growth in 2025.
• Internally funded investments for large programs, including a potential 1.5B opportunity expected to be selected by end of Q1 2025.
• Looking to increase future revenue growth rate above 10% in 2026.
• Base case forecast doesn't include tactical drone production orders, focuses on RDT&E and S&T sales.

• Operational challenges include obtaining, retaining, and cost of qualified personnel.
• Current disruption in the commercial satellite industry impacts the commercial satellite business.

Q: What's the current state of the hypersonic business?

A: Kratos has legacy in hypersonics, involved in programs like high fire, and expert in target drones and solid rocket motors, with potential in hypersonic targets and test vehicles.

Q: Growth opportunity for micro-electronics business in 2025 and beyond?

A: Should be a 15%-20% grower, with expansion in India and supporting international customers.

Q: Progress on recruiting and retaining talent for propulsion business?

A: Challenging with competition, but expecting a large propulsion system contract in January, though margins may be affected by hiring costs.

Q: Opportunities to offset commercial space decline?

A: Training business with virtualized and augmented reality systems could double in size over next two years.

Q: Status of driverless vehicle solutions?

A: Doing great, growing with revenue in the several millions, profitable, and scaling, expected to be more significant in 2026.

Q: Commercial space area performance, year-to-date, full year expectation, and bottoming?

A: Commercial satellite revenue down 30-35M this year, rest of business offsets, expects stabilization next year, base case KGS revenue guidance 860-875M holds.