Welcome to the Kratos Defense & Security Solutions First Quarter 2022 Earnings Conference Call. My name is Daryl, and I will be your operator for today's call. At this time, Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded. I will now turn the call over to Marie Mendoza, Senior VP and General Counsel. Marie, you may begin.

Thank you. Good afternoon. Thank you for joining us for the Kratos Defense & Security Solutions first quarter 2022 conference call. With me today is Eric DeMarco, Kratos' President and Chief Executive Officer; and Deanna Lund, Kratos' Executive Vice President and Chief Financial Officer. Before we begin the substance of today's call, I'd like everyone to please take note of the safe harbor paragraph as included at the end of today's press release. This paragraph emphasizes the major uncertainties and risks inherent in the forward-looking statements we will make this afternoon. Please keep these uncertainties and risks in line as we discuss future strategic initiatives, potential market opportunities, operational outlook and financial guidance during today's call. Today's call will also include a discussion of non-GAAP financial measures as that term is defined in Regulation G. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, as of today's press release, we have provided a reconciliation of these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP. With that, I will now turn the call over to Eric DeMarco.

Thank you, Marie. Good afternoon. Since our last report to you, there have been several positive developments for the industry and in particular, for Kratos which I will go through today and which provide additional confidence in this year's financial forecast and the future outlook for your company. As we had planned for in our 2022 financial forecast, the 2022 DoD budget was approved in March which was important for a number of Kratos programs that are in or are transitioning from development or in low rate initial production and transitioning to full rate production or which are in production and had planned for increases to that production. Q1's book-to-bill ratio was low as expected as we were in the middle of a 6-month CRA. However, coming off of Kratos' Q4 1.5:1 book-to-bill ratio, our Q1 bookings and combined with what I will discuss today, substantially all of Kratos' 2022 revenue and our financial forecast is now either under contract or there is funding in the 2022 budget and we are awaiting contract where we have been informed that we have been selected and we are awaiting contract where we expect to receive the contract. So highlights in the 2022 budget related to Kratos include, in the tactical drone area and related to Kratos' 2020 Kratos is 2022, the 2022 budgeted funding areas which are not classified and which I can discuss include approximately $160 million in aggregate funding for Skyborg, OBSS, attritables, autonomous air combat operations, prototypes, ad Air UX and very importantly, funding for a new Kratos tactical drone customer which we now expect to be under contract in the second half of this year and expect to be providing several cradles alkalies to in the future. I will reemphasize that these are non-classified publicly available areas only…

Thank you, Eric. Good afternoon. As we have included a detailed summary of the first quarter financial performance and financial guidance in the press release we published earlier today, I will focus on the highlights in my remarks today. Kratos' first quarter '22 revenues of $196.2 million was at the midpoint of our estimated range of $190 million to $200 million. We achieved the midpoint in spite of continued and increased COVID-related supply chain and other delays which impacted revenues by $15.3 million during the quarter, with the most significant impact in our C5ISR and our international commercial satcom businesses. Our Q1 '22 consolidated operating loss was $1.2 million compared to operating income of $4.9 million in the first quarter of '21 which includes first quarter '22 increases in R&D of $1.2 million, primarily in our Unmanned Systems business, an increase of $800,000 in noncash stock compensation expense and increased SG&A costs of approximately $5 million. primarily resulting from our recent COSMIC AES and CTT acquisition and, to a lesser degree, reflecting a $1.1 million increase in our Unmanned Systems business. In particular, total headcount in our Unmanned Systems business has increased 74 heads from 842 in Q1 of '21 to 916 in Q1 of '22 which reflects the anticipated year-over-year growth. Net loss was $15.9 million for the first quarter of '22 and a GAAP loss of $0.12 per share compared to net income of $1.9 million in the first quarter of '21 and GAAP EPS of $0.01 per share. Included in the first quarter net loss is a $13 million charge for debt extinguishment related to the redemption of the company's 6.5% senior notes during the quarter. We generated adjusted EBITDA of $13.8 million for the first quarter, exceeding the higher end of our expected range of $10…

Very good. Thank you, Deanna. We'll turn it back over to the moderator for any questions.

Our first question comes from Sheila Kayal . Go ahead, Sheila. Go ahead, Sheila.

Hi Eric, how are you and Deanna? Can you hear me well?

Yes. Hi, Sheila.

So just talking about -- maybe starting out big picture. Obviously, what's happened in Ukraine, Kratos is well positioned from a macro perspective. Can you discuss what you're seeing in terms of future orders? And what part of your portfolio do you think is best positioned?

Right now the two best positions are the drones and space and satellite communications; they are really, really well positioned. A very close and car charging third is our combat system, our C5ISR business. The book of business we have and the orders, I think we're going to win over the next 3, 6, 12 months on very large program of record weapon systems is significant; so those are the three.

That's super helpful answer, Eric. And so on drones, I'm guessing you don't sell any internationally right now. How do you think about the actual pipeline for that and the ability to sell internationally?

Right. In the target drone area, we have multiple international customers. So we have relationships with the customers that would either be or be related to the tactical drone customers internationally. So we have a significant international business at any one point in time with 5 to 10 different international customers. We're right now delivering a significant number of drones internationally. I'm hopeful we have one more box to check, and we're going to be able to report a brand-new multi-tens of millions of dollars, new international target drone customer, hopefully in Q2. So we're very comfortable with our international positioning on both, the target and tactical drone side.

Okay. And then so what ramps from those significantly as we look to 2022 guidance for the second half?

The biggie that jumps to mind right off the bat is GBSD. Now that the budget is in place, our partner, Northrop is phenomenal. It is looking very, very significant. Also coming to mind those programs I mentioned on space and satellite. I mean the ones that we received the contract on, the 2 other ones that we've been told we've won and we're going to be receiving the contracts in Q2. The ramp is significant. And as I mentioned in the prepared remarks, a significant part of these is open space. It's software based which means should be significantly higher margin which is why we're looking at significantly higher margins. One of the reasons in the second half of this year.

Okay. Thank you so much.

And our next question comes from Seth . Go ahead, Seth.

Thanks very much. Good afternoon. I guess on -- following up on open space, maybe, Eric, if you can refresh us a little bit. Can you tell us a little bit about how the procurements are made there, both on the government and civil side and kind of what the process is like for getting spec-ed in? And then kind of what the -- since its software defined kind of what your relationship is with the customer kind of through the process and kind of how we could think about a product like open space, gaining share over time? Does it happen in kind of big leaps, -- is it like a gradual improvement? Where is the most target-rich environment in terms of seeking out new customers, including on the government side?

Yes, absolutely. So clearly for us, new satellite constellations, new operators is the greenest field opportunity for us versus trying to get into an established constellation with established traditional legacy fixed ground equipment. The multiple new constellations that are going up, military, other security-related and commercial is significant. And as I've gone through in some detail before, and I'll just touch on lightly here. And the way I analogize it is heretofore, the vast majority of the satellites that went up are in geosynchronous orbit. So they're like 22,000 miles up. They're up there depending on fuel for 15, 20, 25 years. And the ground equipment that typically the traditional primes would provide that put up the satellite is like a 2G cell phone network 20 years ago. It's hardware based, racks of switches, racks of equipment, etcetera, etcetera. And those traditionals had no incentive or disincentive to try to innovate anything because they didn't want to disrupt their vendor lock position on the hardware on the ground that was all technology, and that's their mindset. And you know their program of record focus. They chase programmers of record. -- and that's how they do things. We brought in a bunch of commercial-based technologists, including from the terrestrial cell phone area that had done 5G networks, for example. And in my analogy, we have taken the traditional 2G infrastructure on the ground, the hardware based, and we have virtualized it into a 5G software-based operating system. I analogues open space to your iPhones operating system. We've built an open space, operating system for the ground infrastructure for satellites. And now we're taking the applications which also were all hardware based. Think of a modem. And we're software basing them so software apps to run on the software ground equipment that we are providing to new operators -- and I've explained to you before, it can be location based. It can also ride on the web which is incredible from an efficiency standpoint, but also from a distribution of the assets and protection in the national security standpoint, it's just an incredibly new technology that's open architecture, open space and that new operators, new constellation guys, that's what they want. And right now, I am incredibly pleasantly surprised at how well our team is doing. And I believe if certain of these awards that we've won can be announced and they are announced, I believe the industry it's going to be very impressive to the industry who these guys are, who we've locked up.

Okay. Okay, very good. And then, one follow-up for me. Now that Secretary Kendall speaking of programs of record has talked about wanting to establish unmanned tactical drone programs of record, but that would be in the classified realm. I guess, how are we going to -- without a Skyborg Vanguard line, I mean there is still a Skyborg vanguard line in the budget. But if that’s not going to be where the bulk of the activity is, kind of how can we sort of keep up with what you guys are doing?

So in the non-classified area, kind of what I tried to do today because I'm trying to be as open as I possibly can, and I will continue to do that. Seth, you are exactly right, what the Secretary has talked about in those programs, they are at a significant classification level. And so my answer to you right now is Kratos will say nothing. And we're going to wait and see how the government -- how they lead this, and we'll follow that lead. That's all we can do out of respect, obviously, for national security and the secretary. But what the secretary is doing is phenomenal. It's incredible what he's trying to do here, including us directly related to Kratos. -- if you could see me, I'm smiling, and I hope he keeps it up and I hope he's successful because I think it will be very, very good for the United States of America.

Great. Thank you very much.

And our next question comes from Mike Crawford. Go ahead, Mike.

Thanks. I think OneWeb is in the trailing bookings as of March, that $314 million of trailing bookings in the prior year and in March 31. But the 3 new large open space contracts that are received or expected to be received that could generate hundreds of millions of dollars. What's the duration of those contracts that we should be thinking about for those future revenue?

Think typical government contracts of 3, 5 or 7 years.

Okay. And switching to drones. You -- have you started the second spiral, you said you're just sticking with the initial spiral of Valkyrie?

Correct. We have not started the second. We are sticking with the initial and I emphasized for now, that could literally change the next time we speak with you.

I think it's been about a year where we've been anticipating the potential like red or adversary type of a purchase order. Is that something that's still on the come? Or has that cooled off at all?

Oh, no. To the contrary, in the in the budget. Specifically, you can see a line, it's called adversary air unmanned open trend at Air UX. And in the '23 request, there's $67 million for it. So it's coming.

Okay, that's great. And then, Eric, you have these 10 different driven systems line today and these potential transitioning of kind of these test bed programs moving towards production, but do you anticipate that those are going to move into production with essentially the airframes and systems that you've developed today? Or do you think that they're going to morph -- again, in other words, will Valery be a high production run product? Or is there going to be some future iteration off of Valerie?

I'm thinking of what I can say and what I I'm confident that Valkyrie is going to be very -- I should answer it this way, Mike. I'm confident as ever Valkyrie is going to be very, very successful, and I should leave it at that. And if things pan out the way I think they're going to pan out with a certain customer, I believe I'll be able to add additional information to that next time we chat. But I have very high expectations for Valkyrie success.

And just feel free to not answer it, if you shouldn’t, but is that the same for Sanitos or for any others? Or are there some that that’s not the case?

Definitely. There are -- as I indicated on the last call, there are certain of the programs that are being combined or they're not being -- they're not funding priorities as a result of this -- in my opinion, now this is my opinion, in my opinion, as a result of the 2 new drone programs the Secretary has announced and where he has set certain existing programs, and he's mentioned Skyboard, he's mentioned LCAT, he's mentioned various things. They are going to be feeders and they are going to be fed into the technology is going to be transitioned, etcetera, combined with these new ones. And so as I said before, certain of the ones that we have been working on, I believe, my opinion, they will wind down or transition into something else.

Okay. And then just last question, you talked about KTT a little bit, but could you just update us on the status of potential material ramp in both low-cost disruptive jet engines as well as actual working hypersonic jet engine that has -- that's proprietary to Kratos?

Yes. We have very good clarity on the former, the first one you mentioned. So for our engines being designed into air breathing cruise missiles, air breathing drones and air breathing powered munitions I -- as you know, we announced in the last quarter or 2 that we were beginning a limited production on a new system of someone. I am hopeful that by next year, we could be in LRIP on 1 or 2 expected to be high-volume systems in that class I just mentioned. So I am as optimistic as ever that our KTT's engines and our engine businesses, engines and the drone missile and powered munition areas are going to be very, very successful. In the hypersonic area, I can't say a lot other than our group in KTT that is specifically focused on space-based engines which include hypersonic vehicle engines is one of the fastest-growing businesses in KTT, and it would grow even faster, in my opinion, but we are resource limited which is a theme across Kratos right now. And when I say resource hiring the people; so the opportunities are there, but we're a sub, so I'll be much more limited than what I can say than on the engine side. But that business is going to be very robust just because of the funding levels at the macro level that are going on.

Actually, if I could sneak in one more. Can you -- you talked a little bit about the revenue at SRE and I believe you're paying $80 million for it. What's -- is that a 10% EBITDA margin business? Or...

I’m going to -- because it’s not closed yet, Mike, I have to be very cautious. And so when -- as I said in my prepared remarks, when it closes, then I will absolutely put out more information. But I don’t want to disrupt anything with anybody right now.

All right, great. Thank you.

And our next question comes from Ken Herbert. Go ahead, Ken.

Yes. Hi, thanks. Good evening, Eric and Deanna. Eric, I wanted to ask you first, of the fiscal ‘22 budget that was finalized, you called out $160 million for a number of the tactical programs that are -- that you can talk about, based on the ‘23 request and what you think could happen to the ‘23 request as it moves through Congress, where does that $160 million go in fiscal ‘23?

Right. And so my rough remember of where those items I mentioned for '22 or '23, it increases to like $200 million. So it goes from like $150 million, $160 million to $200 million or $210 million. And Ken, I want to reemphasize again, those are currently the unclassified lines that I can talk about.

Okay. Do you see any of your particular programs? I know they tend to enjoy pretty good congressional support. But any that you’d call out as perhaps with better potential for upside relative to the fiscal ‘23 requests?

I think I believe fiscal '23 request and that final budget comes in as I'm anticipating, that Valkyrie is -- and this ties into Mr. Crawford's question that Valkyrie is finally -- is going to hit its stride. I see that. If we're successful on Phase 2 of OBS, OBS could be -- will be if we're successful in Phase II, very significant for us in '23. And if -- and I'm less confident because I just have to see how the chips are going to fall in the ad air area.

Okay, that's great. And if I could, just one more. You've got -- it sounds like there's a few contracts you're very confident in -- specifically on the space side that are important to the full year revenue number. Is there any way coming out of this quarter to maybe talk about of the sort of -- of the fiscal '22 or the '22 guide, how much is currently in backlog? Or maybe where can the risk be in terms of timing as you think about the revenue expectations that are not yet under contract. As I mentioned -- and as you said on the space side, we've been informed we have won and we will receive the 2 large -- we received one. We've been for we're going to receive 2 more in -- no later than the end of June. I fully expect that to happen. So to your question, assuming that happens, I expect it's going to happen. When we speak with you at the end of Q1 -- excuse me, at the end of Q2. I hope what I'm going to be talking to you about is we are laser-focused on execution and hiring and retaining the people to execute the programs because that is a big challenge right now, personnel, obtaining and retaining people. And it's both on the government side and the commercial technology side, people in space and satellite communications and rocket engines and space ships are in big demand right now.

Okay. And are these commercial contracts -- is the revenue recognition like percent complete such that if you have a hard time just ramping up with people that would obviously be a headwind for the revenues?

That's going to be a piece of it, Ken, and some of it is going to be software as well. So it's going to be a mix.

Okay, perfect. All right. Well, thank you very much.

And up next, we have Austin Moeller. Go ahead, Austin.

Good afternoon, Eric and Deanna. In Diana. So my first question here, if we think about 2022, just to broadly summarize, what's sort of the print here. Most of the revenue growth opportunity in the latter half of the year is sort of around Northropsentinel missile and Nucor warhead transporters, open space and target drones and then most of the margin and EBITDA growth opportunities around open space and the virtualized Satcom equipment?

Yes, sir. You drilled it.

Okay, perfect. And then, I understand the factoring in cost escalations into the new contracts. But what is giving you confidence that your expectation for a second half ‘22 recovery for the supply chain is on track, just because there’s a lot of companies in the sector that are struggling with supply chain right now.

Right. So the primary areas right now that we've been struggling in the supply chain are in our Microwave Electronics business, including field programmable gate arrays and to some extent, in our -- that's also in our space and satellite communications business. We have very candidly in our forecast today, and for example, in our microwave business. We have made the assumption in that business. It does not get any better for this entire year. So there are certain areas like in the microwave electronics area, where we're just assuming it's going to be lucky pop to the entire '22. There are other areas, let's talk about like aluminum in our C5ISR business in the aluminum area, where our team has been working like the devil to position themselves that if it doesn't get a lot better, we have avenues, different channels or we've ordered far enough in advance that we're going to receive the product that we should be okay. Also through communications with other of our customers like in the titanium area and in other areas, we're in constant communication with them and they're indicating to us that they believe things have peaked or are peaking and things should -- they're not going to return to normal in the second half, but they're going to start to trend in a better direction in the second half, and we've incorporated that in our plan, too. So we need that to happen in those areas where we've made that assumption.

Okay. That's super helpful. And then just one last question, if I may. I understand sort of Valkyrie is -- and its various programs associated with that are sort of going down the rabbit hole into the classified realm. But the new Valkyrie customer that you mentioned that's getting some aircraft, some number of aircraft, are they getting those aircraft from the original production lot of 12 that you're going to have? Or if that comes in later this year, would that be from a second production line?

They’re going to receive them from the 12. Very importantly, we had not leaned forward and done this, we would not be getting this customer and often on this customer, and there are going to be a quantity of Valkyrie here. It’s not clear to me initially, if it will be a sale or it will be a lease which is another benefit of why we have these capital assets. And so that we have – we’re going to be working with this customer as we head toward contract documentation, if these will be actual sales or to satisfy his requirement both tactical and strategic and looking into ‘23 and ‘24 and should we lease them to him. And so we’ll, hopefully, as the year goes on, we’ll be able to give you additional clarity on that.

Okay. That's really helpful. Thanks for all the color, Eric.

And next, we have Peter Arment. Go ahead, Peter.

Hi, guys. Good afternoon, Eric and Deanna. Hey Eric, you've talked about kind of with a lot of your drone programs, the valley of death trying to get to pass the testing and into adoption. How do you characterize kind of what you can talk about, I guess, on the non-classified side? Where things stand when you see customer excitement about it? And ultimately, if you can talk about any specific ones that have kind of moved farther along in testing. -- just because I think a lot of us are trying to kind of see when we start to see a pickup in terms of overall volume.

Yes. The valley of death is real, and it's deadly. And going from RDT&E development aircraft, we'll talk aircraft, for example, but it's the same in certain other areas we're in prototypes, etcetera, across the valley to production or a program of record. It is extremely difficult. This is very, very sporty. And as you can imagine, and it is no secret, you can imagine the traditional players in the area are doing everything they can to desorb you in the valley of death as well. Peter, this is why I continue to emphasize that we are first to market with airplanes flying today. You just heard me say we're going to have -- we're going to have a new customer. And I mean brand new for Valkyries in the second half of this year. That funding is there. And this customer is very motivated because we had products, not PowerPoint which is one of our critical differentiators competitively against the traditionals. What the Secretary is doing, as I said before, I am applauding him incredibly because he has -- the top guy has now taken point and has said, "I'm going to make this happen. And in the last month or so, the 4 star of PAF, he did an interview or a speech, and he said, we need -- I forget if you said hundreds or lots and lots of affordable, attritable jet drones of various types, reusables, decoys, etcetera, etcetera, to help offset the adversary there. And I could go on, but the top leadership is now not just talking, but they're putting the money in the budgets and they're putting the program element lines in. And so yes, it's been a long time. It's been very frustrating. I'm sure there'll continue to be frustrations, but we continue to make progress, and we remain virtually undefeated competitively when they're in our ballpark of attritable aircraft. So that's how I have to answer it.

Yes. And just as a follow-up, Eric, on just – I know we’ve had a lot of challenges over the last 18 months with COVID on just different testing facilities or testing sites. Have those – has that loosened up a little bit as we think about going into the second half of this year or at least in the middle of this year?

Great question. Yes. We have not, in the past several months, I don't know how many, but it's been several. We have not experienced any issues, delays, cancellations on any range time for any of our flights. And you reminded me of something. And I believe in the second half of this year, our range facility in Oklahoma that burns flat, it's going to be an incredibly valuable asset for us, and we're going to be able to demonstrate that because the ranges are very, very busy right now, and they're very hard to get on. And we will not have to worry about that for certain of our aircraft. -- out it earns flat. And so that headwind across the board right now is gone.

Terrific. Thanks, Eric for all the detail.

Yes. Thank you.

And up next, we have Josh Sullivan . Go ahead, Josh.

Hey, good afternoon, Eric, Deanna.

Good afternoon.

Just on KTT, what is the margin profile of the engine opportunities as they move forward? Are they going to be the traditional low teens or any more commercial like margin opportunities picking up?

Yes. So on the defense side, they will be in production, low teens. In development, right now, obviously, they're lower than that because development contracts are just lower than that. we -- Josh, we have 1 or 2 commercial opportunities we're looking at over there. But if we're successful in the relative to the defense ones, they won't be significant enough to move that margin rate higher than low teens.

Okay. And then can you just provide some color on what KTT is contributing to the roles offering with the B52.

Yes. What -- Josh, I didn't say that again, buddy.

On the B-52 contract that you're working, what is KP contributing?

I was very guarded in what I said because we are under an NDA, and I can't say I'd like -- this is very -- it's very important, and it is a giant significant contributor for us beginning right now. But I -- until I get clearance, I just -- I can't say.

Got it. Got it. And then maybe on the US program, can you talk about the cost savings versus the legacy programs that you're going to offer? And maybe can you help us kind of size that market number of launches in that value from the market.

Yes. So our strategic partner is Aerojet. And they are working with us. They are building systems for us. And these are to our spec based on our customers, and these are very unique, very low-cost, very specialized systems to put something in the right place at the right time at the right speed. And similar to virtually everything else we try to do, the -- if we're successful, we're going to be successful here. These will be orders of magnitude, orders of magnitude. -- similar to our tactical drones, less costly than anything anybody else has out there. So it's -- I'm very excited about this, and I'm very excited of the funding that came through in the '22 budget for this. Very excited. We got the funding that we needed which is great.

Got it. Thank you for the time.

And our next question comes from Joe Gomes. Go ahead, Joe.

Hey, good afternoon. This is Josh filling in for Joe Gomes.

Hi Joshua. Good afternoon.

So my first question is, I know you guys recently had -- had more contract for the advanced spectrum monitoring system for OneWeb, just sort of on the low orbit constellations. Can you give any more color on that, like what does this mean revenue-wise? And what the additional opportunities have open?

Right. Other than -- we put that press release out recently in the past 3 or 4 weeks, I think. That required obviously, customer clearance and customer coordination. I apologize. You go take a look at that other than what's in that release. I can't say any more than what's out there. But to the second part of your question, I will use that as an example to a previous question that we received. -- of a company, an operator, an entity putting up a constellation, a new constellation, a greenfield constellation that was open intended to engaging us and using our open space solution. And so when you think about the potential opportunities that Kratos has in the open space area, that is an excellent representative example of the type of primary customer we're engaged with, and we're hopeful to be successful with.

Great. And then, I guess another question was just I wanted to see how the transition was going in terms of integration of COSMIC AES and CTT and obviously now with the SRE. And do you kind of see any future tuck-in acquisitions like these in the future? Does that like some of your pipeline?

The integration is ongoing and going well. As far as future tuck-ins, we have the SRE one that is hopefully going to close the second quarter at this point

We -- in order for us to do anything else, as we've said before. It has to be exactly consistent with what we're doing. And those opportunities are few and far between. So CTT is exactly consistent with what we're doing in the microwave area, and it has a space satellite component which also were related to. COSMIC, as I think I talked about on the last call, we -- our team has known the founders, the owners personally for a on long time. They are right in our stick and that is an easy one, okay? SRE, as I mentioned, they're involved with materials or hypersonic systems, strategic deterrence systems, space systems, all of which we're involved in. So if we were going to do another one, it would be small, and it would be exactly consistent with what we're doing that would either bring us a new customer, a new capability, a new product or a new aircraft or something, something like that.

Great. And then I guess, lastly, if I may. I was looking through the Fed firm guidance. And I know you guys kind of dropped down your CapEx. Is there any kind of reason to why a little more color on that?

That's actually related to some machinery that we were going to acquire in our C5ISR business and just due to some supply chain issues, it's actually getting pushed into next year. So that isn't permanently reducing it just moving into next year.

Okay. All right. Thank you so much for the question -- for answering my questions.

And up next, we have Pete Skibitski. Go ahead, Pete.

Hey, good afternoon, guys. Eric, I wanted to follow on the earlier conversations about Secretary Kendall. I just on some of the things you said kind of interesting. He's been talking about a drone, a loyal wingman-type drone I guess, for both the B-21 and AD -- and the comment he made was that the price of those drones will be on the order of 1/2 the price of the manned aircraft themselves which presumably are in the hundreds of millions of dollars which -- it seems like that would put those drones in kind of the exquisite category. Is that -- should we conclude from that? First of all, is that true, do you think? And second of all, should we conclude from that, that you don't think Kratos can play in that area, but there are lots of other areas that creates will play in? I'm just trying to kind of follow the whole logic there.

Yes. So the first part of your question, I'm not going to answer because I don't want to speculate anything on the separate carry. But on the second part, what I understand the Secretary is doing. Based on what I know, I am absolutely confident that Kratos can participate in one way, shape or form with the Secretary's initiatives; absolutely confident.

Okay. Okay. Let me step out to a bigger picture. If we can kind of summarize all the order expectations you have for the balance of the year, the next 3 quarters, any sense for the type of book-to-bill that you guys are expecting for the next 3 quarters that we should expect?

We -- I don't have the numbers in front of me, but we have a number, as I went through today in the prepared remarks and in the Q&A. We've got -- we're expecting a sole source $100 million contract for the target drone area that we've been informed we're going to get. I mentioned that on the space side, we've got several that -- we've got one that we've won that hasn't been announced yet. And we've got 2 that we've been informed we're going to get that hopefully, we'll get -- those will be additive. We -- I think over the balance of the year, I don't want to be quarterly bookings, and I'm going to say program bookings will be significant. And so when I say a program booking, let's go back to this -- the target on one that we've been informed that we're going to get. I know that it will be a single source award. -- will be $100 million that we'll get. That will be fulfilled over a period of time. I don't know how that will be booked for book-to-bill purposes depending on funding or options or things like that. But programmatically, trajectory-wise, I believe it's going to be very, very robust.

Okay. Okay. That’s helpful. And then a more basic question in the rocket support area. I guess I haven’t figured it out, yes, what’s the difference between us and Ares ?

So ZS is a launch system Ares is a vehicle.

Okay. So has a propulsion aspect to it, Aranas does not have a propulsion aspect to it?

I just -- I have to be -- definitely has a propulsion aspect to it. Aransas a vehicle, and I should leave it at that.

Okay. Okay. Okay. And are you guys – should we expect first quarter press release wise was fairly meager, right with the CR, whatnot. Should we expect to see a lot of these announcements made pull it by you guys as they happen in the balance of the year?

I hope we're able to. But if not, like on some of these base ones, my understanding is, I think the customers are going to announce them. And once they announce them, hopefully, we'll be able to announce something or will be able to affirm you that us. My intuition tells me that's how that's going to go.

Okay. Okay, thanks, guys.

And we have no more questions at this time. I'll turn it back to Eric for closing comments.

Great. Thank you, everybody, for joining us this afternoon. And we’ll circle up with you at the end of Q2. Have a great afternoon. Thank you.

And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.