Good day, and thank you for standing by. Welcome to the Kratos Defense & Security Solutions Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Marie Mendoza, Senior Vice President and General Counsel. Thank you. Good afternoon, everyone, and thank you for joining us for the Kratos Defense & Security Solutions 4th 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 that is 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 mind 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, at the end 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. Kratos' position as the leading disruptive technology company, designing, developing, and fielding relevant systems product and solutions continues to progress, reflecting the trust our customers have in your company. Kratos, along with our strategic partners, vendors, and suppliers, are aligned. We're moving rapidly to address the evolving threats, not with PowerPoints, press releases, and scripted publications, but with real systems that we will discuss today. We believe that 2023 will be a transition year for Kratos to greater revenue, profit, and cash flow, with significant prior year investments in technology, products, and systems transitioning from development, RDT&E or LRIP to funded programs, contracts, or full rate production, which will result in increased revenue, profit, and operating cash flow for the company. This includes today's announcement that Kratos' BQM-177A unmanned aerial target drone is now entering full production. In Kratos' Rocket Systems business, where we have also made significant investments, we have now received 2 important new hypersonic system-related program awards, Mayhem and Mach-TB with our partner, Dynetics. Under the Mach-TB contract, which we announced in November, Kratos and the Mach-TB team will work to develop an affordable and responsive hypersonic test bed platform and national hypersonic testing capability in an effort to dramatically increase our nation's capacity for ground and flight testing of hypersonic technologies and payloads. Under the Mayhem or Expendable Hypersonic Multi-Mission ISR and Strike program, Kratos will support the Air Force Research Laboratory's development of an air-breathing hypersonic weapons system. Kratos is an industry leader in flight-proven agile engineering capabilities with experience in high-performance propulsion, hypersonics, exotic materials, and air vehicle design, which we are applying to win large new program opportunities like Mayhem and Mach-TB. Kratos has previously successfully developed and flown several hypersonic systems and our internally funded hypersonic investments in unique and proprietary systems and vehicles, including Kratos' Zeus and Erinyes, we believe will be disruptive game changers for our customers and our country and are beginning to pay dividends for Kratos' stakeholders, including with these recent program awards. Kratos' Rocket Systems business recently successfully integrated and launched 4 ballistic missile targets with our government partner, which included the successful intercept test of a medium-range ballistic missile target by a Standard Missile-3 Block IIA fired from the JS Maya, marking the first time that a Japanese Maya-class destroyer has fired an SM-3 Block IIA. We believe this successful test is representative of Kratos' industry-leading position in the rocket system, missile defense, and ballistic missile defense areas, and of Kratos' affordable, relevant, disruptive, high-technology rocket systems. We expect Kratos' rocket system business to be 1 of our fastest-growing in 2023, driven by the increased global interest in air and missile defense systems. Kratos recently received the initial $30 million in funding on a new potential $250 million C5ISR production program in the microwave electronics area. This program is classified. Kratos' microwave electronics business had a record backlog at year-end, including a focus on missile, air defense, and radar systems, and we expect this business to be Kratos', 1 of our fastest-growing for 2023. Kratos' C5ISR business is also expected to be 1 of our fastest-growing in 2023, with expected growth coming from several missile, air defense, radar, and other programs, including GBSD Sentinel with our prime strategic partner, Northrop Grumman. Other Kratos C5ISR business programs include HIMARS, TITAN, Patriot, THAAD, IBCS, IFPC, and SHORAD. Kratos has recently been selected as the engine design team for the Boom-led collaboration on a new supersonic propulsion system called Symphony, a sustainable and cost-efficient engine for Boom's planned Overture supersonic airliner, with Symphony being a bespoke design, leveraging proven technologies and materials to achieve optimal supersonic performance and efficiency. When compared to derivative approaches, Symphony is ultimately expected to deliver a 25% increase in time on wing and significantly lower engine maintenance costs, and is also expected to reduce overall airplane operating costs for airline customers by 10%. On the Symphony program, Kratos will utilize its supersonic engine design experience and expertise, working under a standard commercial time and material-type contract arrangement with no Kratos investment. The Kratos Symphony team will include key Kratos personnel and engineers that were directly involved in supporting the design of the F119 and F135 supersonic engines that power the F22 and the F35. Kratos is also supporting Rolls-Royce on a B-52 re-engine program, with Rolls-Royce and B-52 being certain of KTT's most important strategic partners and the program. Another growth area for Kratos is new space and related launch vehicles and propulsion systems, where KTT is currently under contract on multiple DoD, government, and commercial space system-related programs involving Kratos' hardware and products in support of some of the most technologically advanced propulsion systems in the world. In the drone, missile, and powered munitions area, Kratos and KTT have made important progress over the past several months, including technically delivering engines to a confidential customer for a yet-to-be-announced UAS and receiving word from a customer regarding the future opportunity for up to thousands of Kratos' engines, which we are jointly working to address, and KTT is forecast to be 1 of Kratos' fastest-growing businesses in 2023. Kratos' space and satellite communications business, our company's largest, is also forecasting significant future organic growth and is expected to generate some of Kratos' highest margins, including as related to Kratos' first-to-market, software-based, OpenSpace, virtualized TT&C, C2, and satellite ground systems, which continue to gain market acceptance in both the national security and the commercial market areas. The satellite communications industry is focused on virtualizing the entire ground infrastructure in order to be efficiently compatible with cloud-based and other standardized networks, equipment, and systems, including, importantly, 5G, which is another Kratos focus area here. Converting hardware to software that is installed and managed remotely via third-party data centers or on standard compute devices is expected to provide satellite operators increased flexibility over their networks, improving the response time to customer demands. This conversion to software is exactly what Kratos' OpenSpace and OpenEdge is focused on. For example, today's satellite terminals consist of purpose-built hardware components that are limited to performing a dedicated function. For example, a satellite modem performing modulation and demodulation functions. Until Kratos' OpenEdge, satellite terminals, the devices that end users employ at the far edge of a satellite ground network to transmit and receive data, have been purpose-built hardware devices that seriously restrict functionality and flexibility at the network's edge. Kratos' OpenEdge disrupts these limitations by employing software, virtualized modems that can run on general purpose, off-the-shelf compute devices, and OpenEdge adds far more power and versatility by enabling additional apps to run right at the network's edge. Kratos' OpenEdge uses a different model for operating at the edge, one that employs standards already widely adopted across the larger global telecommunications industry to expand terminal functions and make them more flexible. These standards that Kratos' OpenEdge employs are what enable mobile devices, such as smartphones, to support roaming, use cloud-based functions, interoperate with other networks, and do much more. While satellites present a complex technology challenge, the goal of Kratos' OpenSpace and OpenEdge is to help satellite operators make their services as mainstream as cellular communications and to capitalize on new services such as 5G, which is why Intelsat will be 1 of Kratos' first partners to supplant traditional satellite terminals with Kratos' OpenEdge. I hope you can see why here at Kratos, we're so excited about our satellite business' future prospects. Kratos' target drone business is performing well, with major Kratos sole source programs, including the Air Force's AFSAT program, featuring the Kratos' BQM-167 target, and the United States Navy SSAT program, featuring Kratos' 177 target drone, where on both programs, we have recently received additional large production awards. Additionally, and very importantly, the recent United States Navy SSAT 177 program award includes target drones or missions for both Australia and Canada, 2 new Kratos BQM-177 target drone customers. We are currently in pursuit of certain new domestic target drone opportunities that, if we are successful, could provide the next growth step function for the business. We have recently seen a number of potential new international target drone opportunities that we believe are a result of current global conflicts and threats, including in the Ukraine and the related ongoing global recapitalization of strategic weapon systems. Excuse me. In the tactical drone area, Kratos has recently received a contract for an initial 2 Valkyries from the United States Marines, along with sensors, weapon systems, payloads, et cetera, under the Affordable Autonomous Collaborative Killers program. The Killers program is a new program for Kratos, which we have not yet been able to formally announce or discuss. I encourage you to review the Navy contract award announcement and other available publications, including as related to the USMC, for additional information, including related to the significance, importance, and the future prospects of this sole source contract award to Kratos. We believe that one of the primary reasons the Killers program was awarded to Kratos sole source is that we have available now Valkyrie jet drones coming off our active production line. The Valkyrie's cost and price points are known, not on a hoped-for PowerPoint slide which estimated costs our competitors routinely change and increase after the fact, of which we believe certain of our customers are clearly beginning to take note. Kratos' Valkyrie is also a demonstrated LO runway-independent system, not requiring a runway to take off or land, and Kratos' jet drones are also routinely ship-launched, all of which we believe are becoming more of a differentiator for Kratos. It was also recently reported that the United States Air Force's 40th Flight Test Squadron at Eglin Air Force Base has now taken ownership of Valkyrie aircraft, where the Valkyrie's ability to autonomously operate over vast distances can be evaluated along with certain other objectives. Eglin recently published photographs of Kratos' Valkyrie flying with manned F-16 fighters and emphasizing the Valkyrie's rail launch, runway independence, and precision parachute recovery, certain of which were approved for us to publish today. None of Kratos' potential competitors have runway-independent capability. With the competitors' competing systems all currently having or plan to have landing gear to be dependent on a runway, which I believe will be completely untenable in a peer conflict. It was also recently reported that a U.S. government customer is working with multiple industry partners to integrate leading-edge autonomy capabilities into the XQ-58A as Kratos' Valkyrie and all Kratos drones have an open system architecture, meaning a variety of autonomous and AI cores can be integrated into our system. Open system architecture is another competitive differentiator for Kratos versus our competitors, as the customers do not wanna be vendor-locked. It was recently reported that the Valkyrie has now entered a time-critical test period with a U.S. government customer related to certain manned-unmanned teaming, which flight and testing are planned to be completed by the end of this year. The U.S. Air Force has now stated that the Skyborg and the Golden Horde Vanguard programs, both of which Kratos is involved in, are transitioning to become programs of record and are expected to form the nucleus of new combat systems, including Collaborative Combat Aircraft or CCAs. Both Kratos' Valkyrie and the Mako tactical jet drones have performed under the Skyborg program, and the Golden Horde program has demonstrated how a group of unmanned aircraft or weapons can communicate with each other and operate collectively rather than singularly. In addition to the recent Valkyrie contract awards and this progress, we are now in contract negotiations with another new customer on a new program for the acquisition of multiple Valkyries, which we believe we will have under initial contract by the third quarter of this year. Additionally, we are also now currently in contract negotiations with a customer related to Kratos' Valkyries valued at several tens of millions of dollars, which we also expect to be completed and under contract by the third quarter of this year. We have now also provided a Kratos Valkyrie aircraft to an additional potential new customer for systems assessment and review, and we are in discussions as to potential next steps, including purchasing, leasing, services type, or other contractual arrangements. We are also continuing discussions with another potential new customer related to the acquisition of several Valkyries. It is important to emphasize that with each of these Valkyrie related opportunities that's similar to Kratos' target drone business, it is extremely important that in addition to initial Valkyrie aircraft acquisition, that the flight recovery support and other system related equipment and infrastructure is also being acquired and deployed by the customers. As this upfront investment represents a customer commitment to the system, which return to the customer is increased, obviously, by additional future XQ-58A aircraft acquisitions. We are currently performing under multiple Valkyrie-related government-funded contracts or programs with a key element, including the continued missionization and operationalization of the Kratos XQ-58A system. We are working closely with our customers on the optimal funding utilization and contract structures, including the funding allocation between acquisition of aircraft, system-related infrastructure, missionization and operationalization in order to achieve the strategic objective. There has also recently been increased interest in certain other Kratos' tactical drone systems in addition to the Valkyrie, which I believe is as a result of what is occurring in the Ukraine, also included as related to affordable mass swarming and drone attrition rates. Now importantly, keys to our strategic tactical drone strategic decision-making include Kratos is the only company that has affordable relevant systems flying now. Not just PowerPoints, concepts, designs, and press releases. Kratos has an active production lines for jet drone aircraft today, with Kratos having produced over 1,100 high performance unmanned jet target and tactical drone aircraft to date, representing another important differentiating competitive advantage for Kratos and another key reason why Kratos customers trust us. We have demonstrated that Kratos can and is delivering jet drones in quantity now at real known price points. As a result of this progress, we've now moved forward with our second serial production run of at least 12 of the next generation block of Kratos' Valkyries. This decision is important for several reasons, including having XQ-58A systems available to immediately meet expected customer demand and supporting Kratos' first to market leadership position. We also want to ensure that there is no break in the current Valkyrie production line so that we can continue to improve on the learning curve efficiencies and related declining cost experience we have gained and achieve the target costs we are now providing in proposals to potential customers. The cost per pound of Kratos jet drone aircraft, we believe, is currently far below our competitors. I think we know it and they know it, and we expect to continue to drive Kratos' drone costs down significantly, including with the continued actual production of aircraft to the benefit of Kratos' customers and to the detriment of certain competition, especially when the customers compare what it actually costs our competition to produce a jet drone aircraft, not what our competitors say or indicate in their proposals. As I mentioned, this new group of at least 12 serial production Valkyries will be the next block upgrade version, including multiple enhancements based on the numerous successful flights we have completed with our customers, their input and feedback, and also including certain enhancements or modifications that Kratos' Ghost Works has been focused on, including to specifically address certain potential competitive adversarial threats, including in the Pacific. I continue to believe that Kratos' air-gapped Ghost Works entity is truly a crown jewel of Kratos, and in my opinion, it's a national asset for our country. At Kratos, affordability is a technology, and Kratos' Ghost Works is by far the clear industry leader in high performance unmanned aerial jet powered aircraft and systems, and the real live application of relevant co-cost-effective digital engineering practices. To wrap up, based on our backlog, our significant new program awards and $10 billion opportunity pipeline, we expect an up and to the right future organic growth trajectory for Kratos with no currently planned acquisitions as we focus on execution, obtaining and retaining qualified personnel, which remains a primary operational challenge, and continuing to bid on and win new program opportunities. As we begin 2023, every Kratos business is expecting organic growth, and we are forecasting Kratos' consolidated 2023 over 2022 revenue growth of approximately 10% with increased margins, reduced internally funded investments, and increased cash flow. Deanna? Thank you, Eric. Good afternoon. As we have included a detailed summary of the fourth quarter and full year financial performance for FY 2022 and first quarter and full year 2023 financial guidance in the press release we published earlier today, I will focus on the highlights in my remarks today. Revenues for the fourth quarter were $249.3 million, up from $211.6 million in the fourth quarter of 2021, reflecting a 17.8% increase. Excluding the impact of the SRE, Cosmic and CTT acquisitions, which contributed $29.1 million in revenues in the fourth quarter of 2022, Kratos revenues grew organically 4.1%. Fiscal year 2022 revenues of $898.3 million increased $86.8 million from $811.5 million or a 10.7% increase. For fiscal 2022, excluding the impact of the acquisitions, which contributed revenues of $95.5 million during the year, and excluding the impact of the legacy training services business, which was down $21.5 million from $40.1 million compared to FY 2021, revenues grew organically 1.7%. Included in operating cash flows for fiscal 2022 is approximately $9 million in investments in non-recurring engineering costs for new rocket systems, hypersonic and related products, including for Kratos Zeus and Erinyes systems, including as directly related to certain received and expected new contract awards in the hypersonic system area. In 2022, in addition to internal R&D costs of $30.3 million incurred in our space and satellite business, we also invested approximately $7.6 million in software development costs related to our OpenSpace virtualized software product. Our contract mix for fiscal 2022 was 70% revenues from fixed-price contracts, 24% for cost-plus type contracts, and 6% related to time and material contracts. Revenues generated from contracts with the U.S. federal government during the quarter were approximately 70%, including revenues generated from contracts with the DoD, non-DoD federal government agencies, and FMS contracts. In fiscal 2022, we generated 11% of revenues from commercial customers and 19% from foreign customers. Moving on to financial guidance. Our first quarter and full year 2023 financial guidance we provided today includes our current forecasted business mix and our assumptions related to the expected continued impact of challenges related to obtaining and retaining qualified personnel, supply chain disruptions, inflation, and related expected cost and price increases that are currently and expected to continue impacting both the industry and Kratos. Throughout 2022 and in the first quarter of 2023, Kratos has experienced continued impacts from supply chain disruptions, including cost increases for materials, supplies, transportation, and utilities, and fulfillment delays causing increased costs and inefficiencies related to manufacturing, including in our indirect manufacturing rates. As our contract mix is predominantly firm fixed price, we are required to absorb these additional costs until the period of performance is completed on existing backlog and new contracts are negotiated with current pricing. As we transition to new contracts over 2023, we expect margin rates to continue to be lower in the first half of the year as the period of performance on the existing backlog is executed, with an expectation of margin improvement in the second half of this year as the mix of newer recently priced contracts are expected to increase. Our revenue guidance range for the first quarter of 2023 reflects a 12%-17% increase over the first quarter of 2022, and our annual revenue guidance for fiscal 2023 reflects a 9%-11% increase over fiscal 2022 revenues. Consistent with what we have stated on our previous earnings calls, for our forecasted performance of our tactical unmanned aerial systems business, we remain conservative and will only include contract awards we have received or with respect to which we are in final negotiations with the customers. Accordingly, included in our guidance range today is a relatively flat revenue of approximately $220 million-$225 million for our unmanned systems division as compared to FY 2022. This range includes an estimated increase in Valkyrie-related revenues from $32 million in FY 2022 to approximately $43 million in FY 2023, including the recent U.S. Navy/Marine Corps contract. This forecasted increase is offset by a reduction of approximately $15 million from a non-Valkyrie-related tactical development program, as we had previously discussed on our Q3 earnings call that the customer informed us in 2022 that future funding was not available. The FY 2023 revenue guidance range for KGS of $760 million-$775 million reflects a 12%-14% increase from FY 2022 revenues, representing forecasted revenue growth across every business unit in KGS, with the most notable forecasted growth in our space and satellite, C5ISR, turbine, microwave products, and hypersonic-related business areas. Based upon funding, production, delivery, and execution schedules, second half 2023 revenues are expected to ramp and be sequentially greater than the first half of 2023, with margins expected to expand in the second half of the year on increased revenue volumes and based on the expected mix of revenues, including new fixed-price contracts, which include more recent cost estimates. Operating cash flows are expected to be stronger in the second half of the year as well, driven by the expected expansion in margins and the expected conversion of inventory bills from FY 2022 in the first half of 2023 and based upon estimated milestone payment schedules. Eric? Very good. Thank you, Deanna. We'll turn it over to the moderator for any questions. As a reminder, to ask a question, please press star 11 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Mike Crawford with B. Riley. Thank you. I have a few quick questions. 1. What happens operationally in Oklahoma after this, the second 12 Valkyrie? I guess that's a Block 2 Valkyrie's production spiral. Particularly if you get these additional orders, contracts you're supposed to have by Q3. What would be a full rate, 1 production line, 1 shift, continuous flow of Valkyrie production down there? Under the current construct, Mike, because if you recall, the facility has a base facility, and then there are contiguous additional facilities that we have options on. Under the current configuration without expanding any more, okay? Assuming the similar number of Tactical Firejets and Firejets that we're building in Oklahoma, 'cause we're building those there too now, we can do annually 35 to 45 drones a year in the current configuration. We can, if we exercise the next option, and if we do that and we can easily double it very quickly. Okay. Thank you. Just regarding other competitors with maybe not as affordable aircraft, but, like isn't there like a Ghost Bat that might be out there today? Mike, I haven't seen or read anything on the Ghost Bat in 6 months or more. I'm not sure what's going on with that. Someone sent me something a month or 2 ago. It said that it was not gonna be considered in the U.S. That's something I read. I don't really know, buddy. Okay. Then, just real quick, what should we be looking for in the administration's budget request regarding getting these former Vanguard programs into programs of record, be it Next Generation Air Dominance or CCA? Is there anything specific relating to Valkyrie that we should be looking for or you're hoping to see? Yes. In my opinion, based on most recently what 4-star Chief of Staff Brown said last week, he said that when the 2024 budget is submitted, and now I understand that's coming in the first or second week of March, that the public, we should all see a significant increase and a significant commitment to CCAs. He was talking Collaborative Combat Aircraft. In that interview that he did, he talked about a family of them, of all different types and sizes and cost points. Based on that, I think that we should all see significant additional funding based on what the chief of staff said. Okay, excellent. Thank you very much. Yep. Our next question comes from the line of Ken Herbert with RBC Capital Markets. Hi, good afternoon. Eric and Deanna. Hi, Ken. Hi, Ken. Hey, Eric. I wanted to follow up on your comments on Valkyrie cost. It sounds like you're pushing a lot to take cost out. Can you maybe help with some, if you think about the second block versus the first block, how much maybe is cost down? How much of that are you able to keep versus how much of the lower costs are you sharing with your customer? Yeah. As you can imagine, in the past 2 years, because of what's going on with inflation and supply chain and labor costs, everything's gone up, including the cost of our drones. That's been happening while the learning curve on the production rate has been coming down. We are expecting, and we've seen this with our target drones from development to LRIP to production. We have all the experience and the historical data on these production learning curves on the jet drones. We expect not a significant drop with this 12, but it'll be a drop. And the knee in the curve, if considering that we continue to do this, will come in the next block when and if we decide to do that. Then there would be a significant knee in the curve down. We obviously are very close to the industry. We're very close to the customers and our competitors. We are highly confident that cost per airplane and cost per pound, we are orders of magnitude less costly than what they really are, irrespective of what they're telling potential customers. The potential customers are either learning that, or they're gonna learn it real soon in some instances. We're really gonna push this, as you're alluding to, as a competitive advantage with actual costs, not forecasts that are bait-and-switched on. No, that's helpful. As you think about either now or with block 3, if you eventually go there, is the Valkyrie profitable on a per unit basis or what's it take maybe to get to that point? It on the most recent contract awards, it absolutely is profitable. Absolutely. Great. That's, that's very helpful. Just 1 final question. Can you maybe I mean great work with the Navy. It sounds like, with the release you put out today, it sounds like there's a lot happening in terms of flight test activity, and certainly public discussion around the requirements within CCA and other areas is multiplying. What's been the latest feedback you've been getting from your Air Force customer? Is there any color you can share just around specific within the tactical portfolio, level of enthusiasm and maybe how they're viewing your efforts and then the Valkyrie in particular? Yeah. Mike, I'm gonna answer the question not specific to the Air Force. I cannot, as I've talked about before, the things have really been buttoned up here. They've really been buttoned up. My comments are gonna be general to all of our existing customers and the customers that I said today I expect to have under contract in the second half of this year. Here's the feedback. You're the only guys that have a jet aircraft flying today. The propeller planes, they've been great to kill terrorists. They're all gonna get shot down. They're not survivable. Tied to a runway is an absolute non-starter. Irrespective of what people say, it's a non-starter. Obviously, the runways are all targeted, and we that have the information know the numbers. All right? That quantities matter. We've learned that in the last 12 months in the Ukraine. Quantities matter. The only way you can achieve quantities is if you have affordability. The last one, Mike, is back to the Ukraine. The Russians have been using their Su-57, which is equivalent to our F-22 or F-35. They've been using their Kinzhal and their Avangard hypersonic weapons. They've been using their exquisites to no or little effect on the battlefield because they're too expensive and they're not enough of them. I think a lot of people are rethinking a mix of, exquisites, 1 exquisite versus for the same cost, 100 jet drones. That's the feedback we're getting, and I think a lot of that is tying into the progress we've made since our last call. Great. Thanks, Eric. Okay. Thanks, Ken. Our next question comes from Seth Seifman with J.P. Morgan. Oh, hey. thanks, and good morning or good evening. Sorry. force of habit. Hi, Seth. Hi. I wanted to ask about. I wanted to make sure I got this right, and thank you for providing the segment guidance. The unmanned segment was to be flattish in 2023. That's correct, Seth. ... in the kind of low $220s? Correct. Yeah. 2, $220-$225. Yeah. 225. Right. With some growth in the, you know, small amount of growth in the tactical drones. What's happening with the target drones in 2023? Yes. There is, approximately like a 5% growth assumed in the estimate. Okay. For the target drones? For the target drones, yes. Okay. The tactical drone was going up from 32 to 43, or was that down from? It's actually down. The Valkyrie related tactical drones is 32, from 32 to 43. Right. There's a headwind of $15 million, which is the non... Okay. Gotcha. Okay. Valkyrie related, tactical drone. Yeah. Cool. Understood. Understood. Sure. Great. That's helpful. Just, I guess if you think about these orders, that are coming up, hopefully in the 3rd quarter of this year, and you think about kind of the cycle time for those and then, you know, how those get booked, eventually as revenue and earnings, should we think about that as something that's gonna drive? Is that something that drives 2024? Does it encompass all of the kind of 2nd lot that you're building? Does it kinda take you into the 3rd lot? How should we kind of think about, you know, what those quantities might be? Yeah. Seth, I went into some detail on the infrastructure, the launch equipment. Yeah ... the flight equipment, the recovery equipment, the sustainment equipment that to operate these jet drones and how the customers now are starting to look at that and they're acquiring that from us, very similar to the strategic asset we have in our target drone systems, getting that infrastructure out there. In addition to that, I went into some detail again on purpose on the customers are now funding significantly the missionization and operationalization of the aircraft. Which all of these obviously strategically are very, very important, that they're making the investment in the infrastructure, and they're missionizing and operationalizing the aircraft. So please keep that in mind because as these contracts come, it is not totally clear to me yet how much of it's gonna be for aircraft and how much of it is going to be for the support equipment, the launch equipment- Yeah. The missionization, the authorization. Okay? With that being said, Deanna, go back on if they're% complete and the aircraft is done, how that's booked. Yes. Yes. Similar to what we discussed when we started the original 12 lot. They started as capital expenditures, and when there is a contract that is awarded and it is related to an aircraft sale, then whatever value or however complete we are on that system would be transferred from capital to inventory, and then that would determine the% complete from a revenue recognition perspective. If we're, say, 50% complete on an aircraft, that would transfer over, and then 50% of the revenue related to that aircraft would be recorded at the time the contract is awarded. Right. Got it. Okay. Thanks. Then just to wrap up on this point, I assume in the, you know, missionization and kind of support equipment and setting up an infrastructure that's related to these aircraft, I imagine, you know, is that another area where you feel like Kratos has an advantage versus the competition, both in terms of where you are in that process, and in terms of cost? If you could see me, I'm smiling. The answer is absolutely yes, because as I've said, we're the only guy that has anything flying. We're the only one that does runway independence. We're the only one really that has jet high performance drones. For us to get this equipment out there, which of course the pedigree is all the target drones, we know how to do it. We do dozens of missions a year. We're building over 150 aircraft a year or more. Absolutely. This is finally, it appears to be trending in our competitive advantage areas. Okay. Excellent. I'll pass this on, but thanks very much. Thank you. Thanks, Seth. Our next question comes from the line of Noah Poponak with Goldman Sachs. Hello, everyone. Hi, Noah. Good afternoon. Eric, can you just tell us how many Valkyrie unit deliveries are assumed in the 2023 outlook, and what do you think that does in 2024? Right. Yeah. Go ahead. I'll have Deanna answer it because there are... There's% complete, so it's- There's% complete. In total, the total revenue base is based on about 3- 4 aircraft. This year? Correct. That's in the forecast. That's in the forecast. What do you think that looks like next year? Noah, as you know, I'm gun-shy, and I don't wanna get ahead of it anymore. I don't wanna do that. Okay. Where- That, that's fair. I'm just gun-shy, man. You have a release out, about Valkyrie flight testing capability evolution that refers to a focus on experimentation. I guess, you know, why is the focus on experimentation? It felt like you had established a product with capability that the customer had said they wanted. Why is there still so much evolution and experimentation at this point in the life cycle of that product versus just buying it? My opinion, Eric's opinion. This is brand new, and it's not replacing anything. It's brand new. As 1 of the pictures we were approved to put out today, look how close that F-16 is flying to the Kratos Valkyrie. I believe it's that comfort level. This is my opinion, the comfort level, because it's new, and it's developing and getting comfortable with that concept of operations. Okay. That's why I. That, I believe, is the answer to. My opinion. Okay. The answer to your question. Yep. Yeah. That makes sense. you know, you, I guess you laid out the pieces of unmanned for the year with 5% growth in Target. I guess Tactical is essentially flat with some Valkyrie growth offset by the $15 million that's out. What's the status of Tactical that's not Valkyrie? Right? Over the years, there's been a discussion of, you know, half a dozen other efforts. Yep. Where are those? Yep. I have to preface this, Noah, with the Secretary of the Air Force a year ago said, I'm coming out with these CCA programs, and they're gonna be highly classified. They're highly classified. He also said that all or virtually all, I forget his quote, of the current and existing drone programs will be feeders and will be folded into these classified programs. In other words, putting a classified bubble over virtually everything. Okay? In my prepared remarks today, I went out of my way to specifically say that we are making progress with Valkyrie, Mako, Tactical Firejet, or Airwolf. Those are the areas we're making progress in that I can talk about. Got it. Okay. Lastly, we'd like to ask about profitability, margins, cash flow. You know, with the margins down last year, you know, if I sort of zoom out and look at margins over time, cash flow over time, many of the last several years, it's GAAP net income that's breakeven or negative. You know, we add back the D&A, we add back the stock comp on the cash flow statement. There's working capital that's negative and cash flow that's negative. Recognizing a lot of your efforts are early stage, there's a lot of potential long-term growth. You have to invest in a lot of that effort. How much longer does the cash flow statement look like that? I mean, how long does it take before there's, you know, a consistently positive GAAP net margin, consistently positive cash flow at Kratos? Yeah. Clearly, with 2023 is we're expecting to return to cash flow generation for free cash flow, albeit at a lower level, and that's because we are still making some investments, and there is still, as we transition from development to production, we expect that to increase. There, 2022 was unfortunately a perfect storm from a cash flow perspective because with the inventory that, increases of about $24 million for the year we've done a lot of advanced inventory purchases to be able to mitigate as much as we could from a supply chain impact. We're still seeing some of that in the first half of 2023. We expect that to start converting through the cash cycle and the revenue cycle by the second half of 2023. The first half of 2023, we're still gonna see that working capital use. We do expect that to turn around in 2023 and expect that to improve as we move out of 2023 and into 2024. Yeah. No, no. I opened up saying I believe 23 is gonna be the transition year because we've had a number of programs, not all of them, as Deanna said, but on a number. We've left development. We're either in LRIP or we're in full rate production. 23 is gonna, I believe, is gonna be the year where we are returning to sustained revenue growth, sustained profit growth, positive cash flow, and sustained positive cash flow growth. I believe 23 is the year, and I can lay that out programmatically. Okay, great. Thanks so much for all the detail. I appreciate it. Thank you, sir. Thank you. Our next question comes from Greg Konrad with Jefferies. Good evening. Hi, Greg. Hey, Greg. Good afternoon. I feel like I have to ask about Valkyrie, maybe just to kind of summarize, you know, what you've talked about. You mentioned a number of Valkyrie applications in the beginning of the call. Is there any way to think about how many efforts are ongoing with Valkyrie, you know, across customers? When you think about that $10 billion pipeline, how much does Valkyrie contribute to it, and maybe how has that, you know, trended over the past year? That's a loaded question, Greg. On the first part of your question, as I said in my comments, we are under funded government contracts on multiple programs related to Valkyrie. Multiple. More than 3, more than 4. We're on multiple. Funded. We expect that to increase between now and the end of this year. 'Cause as I said, in the second half of this year, we're in contract negotiations now. I wish I could tell you we'd get them done in Q2. I don't think so. I think we'll get them done in Q3 on a few others. That's gonna continue to expand. I'm not going to, and I'm sorry, we're not going to comment on what we expect and what we have in our pipeline. It ties into Ken's question and Mike's question and Noah's question. I'm gun-shy, I'm not gonna get ahead of myself. We've put together our 2023 plan with an absolute minimum of tactical revenue. Absolute minimum. Every other business in the company is firing on all cylinders. Every one. Our space business is, it's doing great. Our engine business is doing great. I can keep going. We're gonna let them all do great. They're gonna drive over 10% growth or more. When the tactical stuff happens, then we'll put it in the numbers. I mean, I guess just a follow-up. I mean, you mentioned all the businesses that are kind of among the fastest growers, and you kind of talked about growth being up into the right. Just based on kind of your opportunity commentary, I mean, would you expect unmanned to kind of lead the growth as you get, you know, through 2023, and that's kind of the biggest driver of growth being up into the right as you move forward? If things turn out the way I believe they're gonna turn out, yes. That's not what we're gonna forecast until we either sign the contract or we're in the red zone. Then maybe just last question, non-Valkyrie or KUS-related. Just thinking about space and, you know, you mentioned OpenSpace and kind of how that played out in 2022. I think a lot of the larger contracts that you talked about have been awarded, and we've seen a lot of these constellations kind of move forward. You know, what are you seeing in that pipeline in terms of awards as you think about 2023 and kind of ground stations overall? That question I'll answer. Perfect. That's a good question. That's a good question. That's right. What is happening in the space area, commercially and national security, is unprecedented. All these satellites that are going up into space, unless they have optical links, and even if they do have optical links, at some point, they gotta come down to the ground, and that's where we is. This partnership we have with Intelsat. I think they're the largest operator, 1 of the largest 2. Okay? This program, that's a commercial program. This DoD program we won with BlueHalo SCAR. I think our initial piece is 160, some... Our initial piece. That's a military program. Both have OpenSpace. That is so important that we are penetrating both commercial and DoD markets with the software product, which we're first to market, which is giving us an incredible competitive advantage over anyone else who we understand are 3 or 4 years away. Our pipeline and our space business, I think, is the biggest in the company. It is big, and we keep winning. I think our book to bill each of the last 2 quarters has been 1.2, 1.3 last year. It's doing great, which is why I've said, I'm gonna say it again, our overall space-related business, I think I said it's 13%, 14%, 15% growth. I'm sticking with it. It's all the boats rise with the tide going up. The tide is going up, and I believe we have the prettiest boat of the fleet right now with OpenSpace and OpenEdge. I'll leave it at that. Appreciate it. Thanks, Eric. Okay. Our next question comes from the line of Joe Gomes with Noble Capital Markets. Thank you. Good evening. Hey. Good evening. Good day. Just wanted to start, you know, last quarter, you spent a good amount of time talking about staffing and the difficulties in hiring, new staff and some of the challenges there. I was wondering if you could just give us some of a update of more color on your success in staffing and where you might still be challenged in adding staff? Joe, we are seeing some positive traction. We had started to see that when we announced our third quarter results, you know, we're trending positively with net adds along the path that and our plan that we had expected now. The traction has been good. I think with especially with given some of the layoffs across the tech sector, that has been beneficial for our company. That's absolutely correct. Overall, definitely improving and trending in the right direction. Yeah. In areas like hypersonics and engineers and technicians getting very high security clearances, including in the manufacturing area, it's very challenging still. Let me tell you why, in my opinion. It's because some of these new space companies, where people are racing who's going to be to Mars first. They are spending an incredible amount of money hiring as many people as they possibly can to beat somebody else to Mars first with their spaceship. While that's happening, the primes and you know the programs as well as I. All these programs, because of geopolitical events, are beginning or ramping up. They're trying to hire the same people, too. That is still a challenge. Very significant challenge. Let me tell you one of our primary ways that we're being successful. One of the primary ways we're being successful is we say, "If you come to Kratos, we will not stick you on this program, and you'll be on it for 40 years, and you'll retire on it." Which if you go to a company making a bomber or a submarine or a spaceship, that's gonna happen. If you come to Kratos, you're gonna work on these 4 different drone programs or these 5 different hypersonic programs, et cetera. That seems to be a winning ticket with at least some people. Okay. Great for that. Thank you. You know, you made some of the acquisitions. Obviously, you talked about them and their revenue contribution. I was wondering if maybe you could give us a little more color on what kind of synergies you're seeing from these acquisitions. Are they opening, you know, kind of new opportunities that maybe you weren't able to get into previously, now that they're part of the Kratos family and combined with some of the other things that you're doing, are allowing you to maybe even broaden even further the opportunity set? Yep. Joe, as you know, we're not an acquisitive company. As I've said, we don't expect us to make any acquisitions for the foreseeable future of any size. We, we've got an incredible hand of cards right now we have to execute. To your question, each of the three are doing incredible in their own way, and let me be very specific. Southern Research, as I mentioned when we were acquiring them, I believe they're literally under contract or are familiar with every hypersonic program or initiative in the United States of America. If I'm off, I'm off by, like, 1/10 of 1%. All right? They were instrumental in Kratos winning Mach-TB and in Kratos winning Mayhem, and they are gonna be instrumental in us winning several others that are coming. This is truly a 1+1=3. This is truly. I'm not one. You see people make acquisitions, and they say revenue synergies, and you're like, "What the hell is that?" Okay. Well, these are revenue synergies because together we are our capabilities, we're beating the primes. We have a strategic partner, Dynetics. With Dynetics and with Southern Research, we're unbeat. I think we're undefeated. We're undefeated. All right? CTT, the microwave business. I'm not gonna get into program names, but just recently we were informed of 2 new incredible opportunities, multiple millions of dollars. I believe we're gonna be sole source on both. We are reentering the microwave area with a focus on space 'cause we know space. If you look at the funding documents and you look at missiles and radars and satellites, they all use microwave and microwave electronics. Similar situation as satellites, all the boats are rising with the tide. The Kratos boat with CTT is definitely gonna rise with the tide. You know, microwave businesses typically have some of the highest margins in the industry once they reach critical mass. The other one, Cosmic. I think 99% of what they do is classified. Okay. Okay. They are absolutely instrumental in our penetrating customers we never had access to or could have access to with our OpenSpace and other products. I was with them, Deanna and I and the senior team were with them a few weeks ago. It is excellent culturally. All 3 are so far, so good. Integrations have gone well. Most importantly, zero key people have left. None. Everybody appears to be happy and we all have a common mission, is to win. Great. Thanks for those insights and thanks for taking the questions. Thank you, sir. Our next question comes from the line of Austin Moeller with Canaccord Genuity. Hi, good afternoon, Eric and Deanna. Hey, Austin. Hi, Austin. Good evening. Just my first question here on Valkyrie. I know there's a lot you can't say, but if you look at Navy versus Air Force, does it seem like the Navy is getting more excited or more aggressive about looking at Valkyrie relative to some of your other customers? Just given you've got multiple generals out there that are saying that they may see a potential Taiwan invasion in the 2025-2027 timeline. You've already discussed the saturation of the runways and the need to be runway independent. Of course, the Ghost Bat doesn't have that. I mean, even if it's not being used as a wingman, if we look at what's going on in Ukraine with Russia using the Shahed 136, to saturate enemy air defenses. I mean, clearly it would be valuable as a force multiplier from that perspective, right? Yes, yes, and yes. To answer your question, as I alluded to a few minutes ago, over the last 4 months since we last chatted with you all, there has been significant movement and momentum across the board, including the Air Force. I mean, look at the. I can only say what we've been approved to say and what they've put out, but take a look at what we're doing at Eglin with the Air Force. Read closely some of the things that have come out about what we're doing, what's happening down there, why we're down there. It's. To Kratos, it's very significant and the Air Force remains a very important partner of ours. On the Navy/Marine Corps, they have now, as we've seen publicly, they're moving forward with Valkyrie. I went through some of the reasons why. I believe you're going to see over the balance of this year, significant additional activity with the Marine Corps specifically relative to the Valkyrie, related to their re-emphasizing what their mission is and how they wanna execute it, in particular in the Pacific. You hit the key points, Buddy, on why. The Valkyrie's runway independent. I love it. It's runway independent. It's very low cost, orders of magnitude less than what anyone else has on a piece of paper. Momentum appears right now to be moving in the right direction. Okay, that's good to hear. Just my second question here. On the last earnings call, we talked a lot about supply chain, and so I was just wondering where are we at on what you see in terms of supply chain lead times for both FPGAs to support your OpenSpace programs like the big Intelsat and the BlueHalo contract, and where are we at on supply chain for the Sentinel nuclear missile program? Yes. Supply chain delays, we are still seeing that 6 to 12 month turnaround on FPGAs. We are continuing to see some disruption, which is one of the reasons we've leaned forward on the inventory purchases to try to mitigate that as much as possible to not disrupt our delivery schedules. Okay. Just 1 last question. The Valkyries for this new Block 2 production lot, is that again being funded by you, or is that being funded by customer milestone payments? Initially, on the long leads, it's being funded by us, but as I opened up with my comments, and I did it for a reason, certain of our key partners, suppliers, they're working with us. What that means is I believe that there will be an, my plan, the business plan is that as we build these, there will be an alignment of customer funding, customer orders as we build these. We will not have to make as much of a lean forward investment as we did with the initial 12. That's the plan based on customer input and the discussions and negotiations we've had with certain of the key, I call them the kryptonite suppliers and partners. Okay, that's helpful to understand. Thanks for all the color and everything. Thank you, sir. Thank you. That concludes today's question and answer session. I'd like to turn the call back to Eric DeMarco for closing remarks. Excellent. Thank you all for joining us today. I know this went longer than usual. I think it's because it was the end of the year, so it's been 4 months. We look forward to updating you again in a few months at the end of Q1. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.