KTOS - NASDAQ

Good day and thank you for standing by. Welcome to the Kratos Defense & Security Solutions First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] 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 first quarter 2023 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. Kratos completed Q1 on track for 2023 as a transition year to expected sustained future year-over-year organic growth, increasing profit margins and cash flow, as our company realizes the benefits of the investments we have made and we transitioned from development to production and delivery in certain areas. Kratos is also on track for increased margins in cash flow in Q3 and Q4 of this year, as our revenue mix continues transitioning from older firm fixed price contract where we were enabled to pass on significant inflation and increased costs to newer more recent contract award related revenues, where we negotiated higher rates and costs with our customers as included in our Q1 and last 12 month 1.1 to 1 book-to-bill ratio. And though the supply chain is still have challenges we have begun to see some stabilization and reduction in lead times and pricing, which is also providing confidence in our future forecast. Highlights since our last report to you include; the 2024 DoD budget request was released along importantly with the Future Years Defense Program or FYDP or also referred to as the five-year Defense spend plan both, which include new or increased funding and growth, including in the space and satellite, hypersonic, missile system in defense, strategic deterrence, microwave electronics and drone areas. In the drone area, the USAF has requested approximately $6 billion over the FYDP period reflecting an increased prioritization with it being reported that the Air Force is looking to ultimately procure up to 2000 drone systems and the Secretary, Kendall commented that drones are unaccrued aircraft are now considered essential to the Air Force’s future. It was also reported that the Air Force stated that the expected drone cost would be a fraction of the cost of an F-35 or approximately $20 million per missionized system and it was reported that in affordable mass concept is a key element behind the Air Force’s advanced drone initiative. We believe that Kratos’ tactical jet drones flying today are recognized as the most capable and affordable in their class with the key reason being that we lever off of the same supply chain partners, vendors and teammates, which support the production of approximately 150 made-in America Kratos jet drone aircraft annually, which also reduces risk to our tactical drone customers. Kratos has disclosed the price points for our tactical jet drone systems range from approximately $450,000 for Tactical Fire Jet Air Wolf to approximately $6.5 million for Valkyrie of low quantities. We also believe that Kratos Ghost Works is the recognized leader in the rapid development and delivery of low-cost tactical jet drones including Kratos’ Valkyrie, where Ghost Works went from a clean sheet of paper to successful first flight in 30 months and additional new systems that Kratos’ Ghost Works is currently working on. Accordingly, we believe that if a competitor elected to enter this class of affordable tactical jet drones, they are at least three years to four years away from first flight and who knows what cost to the customer. Since our last report to you about the U.S. Navy and the Marine Corps has indicated their increased prioritization for high performance jet drones including with the Navy reportedly stating that they envision up to 60% of the future Navy Air Wing being comprised of drones. So, it’s now clear that the Pentagon is planning a future that include significant numbers of affordable high performance jet aircraft or systems and the funding is now being requested to achieve this vision as reflected in the 2024 budget request and the FYDP. Since our last report to you, Kratos has received additional tactical drone contract awards, including as related to Kratos’ Valkyrie and we are in negotiations for additional contract awards, which we expect to receive in the coming months. Since our last report, it was reported that one mission the Marine Corps’ Valkyries are focusing on include electronic warfare effects in conjunction with the F-35 and strengthen the assault support platforms all under the penetrating, affordable, autonomous, collaborative killer program. Kratos has also recently received an additional USMC Valkyrie contract award related to sensor payloads, mission system and subsystem integration, and Kratos is also now under customer-funded contract related to the Valkyrie for the development and testing of autonomy and pilot vehicle interfaces, ground and flight operations and additional Valkyrie test flight related events. Since our last report to you Kratos has continued to have successful tactical drone flights as we evolve the system with our customers and over the balance of this year, Kratos jet drones are scheduled to perform numerous under contract customer funded flights. Kratos is the only company with affordable high performance American made jet drones flying today and we are focused on continuing to increase and expand our first-to-market leadership position with our customers. While other companies and potential competitors are imagining things with PowerPoints renditions, models and surrogates, Kratos is currently flying and has been flying for several years under U.S. Government funded contracts here in the United States. At the Oklahoma Burns Flat range facility, Kratos unmanned systems and our Ghost Works can fly our drones and exercise systems including new yet to be disclosed system that Kratos’ Ghost Works is focused on and that the competition and others know nothing about. For example, just this week Kratos had a very successful test event at the Burns Flat Test Range with the new system, which I am confident that neither our competition or adversaries are aware of in any way. We are completing the first serial production run of 12 Block 1 Valkyrie’s in Oklahoma City, we have begun the second production run of 12 additional Block 2 Valkyries and it now looks like at least half of the Block 2’s will be Block 2B’s incorporating a new additional capability based on very recent specific customer input. Since our last report to you, Kratos’ Unmanned Systems was awarded a share of $400 million ceiling IDIQ contract for research and development for the advanced aerospace systems technology research program. This contract has multiple awardies with the primary objective of the program to conduct research towards the development, demonstration, integration and transition of new aerospace vehicle technologies, designs and integrated systems that will provide advanced capabilities to the Department of the Air Force. The advanced aerospace systems technology program contract award is yet another example of Kratos and our Ghost Works continuing to have success, competing for and winning certain of the most advanced capability opportunities for U.S. National Security. Based on information included in the 2024 DoD funding documents and the FYDP, statements made by the government customer representatives, additional information we have received and the progress we continue to make, we remain confident in the future success of Kratos’ tactical drone business. Kratos’ target drone business is performing well, driven by Kratos is producing and delivering what we consider to be the highest performance threat representative jet drone systems in the world with our primary customers including the United States Navy, Air Force and the Army. The global recapitalization of strategic weapon systems and the requirement to test and train on these weapon systems is providing a strong macro-level catalyst for Kratos’ target drone business. Kratos’ space satellite and cyber business, our company’s largest, continues to receive new program awards including with Kratos’ first-to-market virtualized and software based OpenSpace family of satellite ground communication systems. I encourage you to review today’s release on recent milestones and progress Kratos’ satellite business and our OpenSpace product and system family has achieved including as disclosed at the recent National Space Symposium. Since our last report to you, Kratos’ satellite business as a key team member to our prime partner was notified that the team has been successful on a large new multibillion dollar Satellite Constellation Program, which includes Kratos has OpenSpace, which program could ultimately be worth several hundred million dollars to Kratos. We believe that this is another representative example of Kratos’ disruptive technology based, first-to-market strategy success and our leadership position with our OpenSpace system. The days of the ground satellite segment trailing space capabilities are ending, with a new wave of ground system advances including Kratos’ OpenSpace that can support multi-orbit constellation and the specifications that both 5G and the new generation of high-bandwidth satellites require and also the interoperability needed for the new breed of flexible, low earth-orbit constellation to achieve scale and broad market growth. The ground system segment ecosystem including electronically steerable antenna and modem company to integrators and network providers are all leaving legacy siloed standalone ground systems and transitioning to software defined and based virtualized architectures, which is exactly where Kratos is first to market OpenSpace systems are positioned and why we are so excited about Kratos’ space and satellite business going forward. There are thousands of satellites planned to be placed into orbit into the future and this is expected to be a key macro and industry catalyst for Kratos’ space and satellite business along with our OpenSpace software suite. In Kratos’ C5ISR business, the Sentinel program with Kratos’ key strategic partner, Northrop Grumman is expected to be one of Kratos’ largest, fastest growing and most important programs for the foreseeable future. Additional well-funded priority programs in Kratos’ C5ISR business include SCAR with space control network, Patriot, HIMARS, FAD, IBCS, which has now received full rate production, SHORAD, Enduring Shield, TITAN, certain other space and satellite programs, and counter UAS programs and systems, which are very relevant in what’s going on in the world today. Kratos’ turbine technology continued its outstanding performance in Q1 with KTT being one of Kratos’ fastest growing and most profitable businesses with a multibillion dollar B-52 Re-engine Program being one of our most important. Additional current growth areas for KTT includes supersonic and hypersonic propulsion systems and space and launch related propulsion systems. Also, the significant increased funding in the FY 2024 budget request and FYDP for drones and also missiles and powered munitions, we expect to be a macro industry growth opportunity and driver for KTT and our engine business. Kratos’ rocket systems business is also expecting future growth, including as related to our products, technologies and systems for hypersonic, missile defense target, test and evaluation systems. For example, our rocket system business customer funded launch, manifest and scheduled for the next 24 months, is at its strongest in our history and is representative of Kratos’ trusted disruptive position as they go-to rapid critical launch and other related system provider. Kratos is internally funded and soon to be first-to-market

Thank you, Eric. Good afternoon. As we have included a detailed summary of the first quarter financial performance, as well as the second quarter and full year 2023 financial guidance in the press release, we published earlier today, I will focus on the highlights of my remarks today. Revenues for the first quarter were $231.8 million, up from $196.2 million in the first quarter of 2002, reflecting an 18.1% increase. Excluding the impact of the SRE acquisition, which contributed $12 million in revenues in the first quarter of 2022, Kratos’ consolidated revenue grew organically 12%, including a 22.5% organic revenue growth rate in our space satellite and cyber business. Programmatic ramps in production have also result in organic revenue growth realized in our C5ISR, turbine technologies and microwave products businesses. Included in cash flows using operating activities for the first quarter of 2023, our working capital requirements to support the revenue growth, as well as continued advanced purchases of inventory in an effort to mitigate supply chain disruptions and display -- and delays. Also included in our working capital usage are continued internal investments of approximately $4 million related to non-recurring engineering cost to complete new rocket systems and hypersonic and related products including for Kratos

Thank you, Deanna. With that, we will turn it over to the moderator for any questions.

Thank you. [Operator Instructions] Our first question comes from Michael Ciarmoli with Truist Securities. You may proceed.

Hey. Good evening, guys. Thanks for taking the questions. Eric or Deanna, just on the guidance, the significant increase in operating income, I think, raised the midpoint by 38%, there are some other moving parts in there. But, I mean, is that all tied to kind of what you just talked about repricing some of the contracts or I could notice there were some other changes with stock comp and the net of it is we still have the same EBITDA, but can you walk me through that?

Yes. Michael, it’s predominantly the estimated amortization, depreciation and stock comp that when they first came in 2023. So those changes have been flowed through in our current guidance. So the EBITDA remains intact with where we were before. But so those non-cash items impact those three categories and therefore impact the operating income just the way it falls out through the income statement.

Okay. Okay. And then, Eric, obviously, a lot of commentary helpful there. What sort of, I mean, I guess, we have the Air Force making the ultimate decisions here with NGAD. It sounds like your customer activity is moving a bit faster than sort of the highest level and what Secretary Kendall is thinking. I mean what’s the ultimate goal of these customer flights? I mean, how do we think about programs of record that’s everything sort of roll up under NGAD or just how should we think about the landscape right now?

I think the way to consider the landscape is budgetary and future amount of budgets going forward and our services having to have aircraft to address multiple global threats that are either near-peer or already peer threats like Russia and China. And I believe the Pentagon has determined, as reflected by the 2024 budget request and more importantly the FYDP. And then commentary, I tried to give some examples of, that the way to do this is with high-performance jet drones. And in addition to addressing the quantity issue, weapon systems that the adversaries have are increasing with Valkyrie, so the drone to keep our pilots to revalue human life, some of our adversaries do not keep them out of harm’s way, et cetera. The way I think about it is and the way I personally think about it is, there is a macro shift happening to a brand new system. High performance jet drones with augmented autonomy or if you will, artificial intelligence that can carry weapons, that can do CAD, that can do DAD, some of them they can do EA, all types of missions. And I think the funding the multiple billions in the FYDP period are representative of that. I think that’s the best way to think of it that this is finally happening, it’s happening in a big way and it’s happening across every service trench.

Okay. Last one, just kind of on that topic and I will jump back in the queue. I mean you threw out kind of the $20 million price point that Secretary Kendall mentioned a couple of weeks back. I mean are you thinking about going at this market as a prime contractor or would you be better serve being a sub to a larger entity in providing an airframe and letting someone else missionize it and take on all those associated risks?

All right. It -- Michael, it very well may turn out to be both.

Okay.

And let me give you an example. So, for example, we are a prime with United States Marine Corps right now. We are a prime, right? We are a prime with another customer we haven’t talked about, we are prime. And if the best business answer for Kratos and all of our stakeholders is for us to partner with someone and not being the prime, but being a partner, we will absolutely consider doing that.

Okay. Got it. All right. I will jump back in the queue. Thanks, guys.

Okay. Thank you.

Thank you. Our next question comes from Mike Crawford with B. Riley Securities. You may proceed.

Thanks. It’s nice to see the uptick in bookings in unmanned systems that I believe is related not just to the Valkyrie you sold, but also targets, including a plus up for the Navy SSAT. Could you ready set what amount of revenue you expect to get from targets in coming years? And related to that would be the annual cadence of SSAT drones, which I think, if we go back like five years ago or so we thought it might be a little higher than it is now even with this most recent plus up?

Yeah. Mike, so it’s consistent with what we guided to when we provided 2023 initial guidance. So approximately a flat full year consolidated unmanned systems with approximately $40 million to $45 million related to tactical drones, primarily Valkyrie related with the balance of that to target drones.

Right. And so beyond this year, just like in general where you see say targets going several years from now?

So over the next -- I will say over the next couple of years as reflected by the book-to-bill ratio of 1.9 to 1, which as you pointed out Mike correctly, was substantially target drones. We expect to see target drone growth now and it’s being driven primarily what’s going on over in Europe and the Ukraine, and with additional countries joining NATO, surface air weapon systems coming back into vogue to defeat drones and so our target drones are great representative drones for the bad guys. So our Target drone business we think is going to is going to grow very nicely because of what’s going on with world events and I am going to remain extremely cautious on the tactical side, as I have for the last couple of quarters and we are literally we are going to reported as it factually happens not as we told or it may be stated by others.

Okay. Thank you. Just switching topics a little bit, is this -- the $400 million IDIQ from the Air Force Research Laboratory you mentioned that General Atomics, Lockheed, Northrop, Aurora won along with you, do you expect like all of those funds to be deployed on that kind of shopping list and do you have an expectation for what percent of that you are going to fight -- well, you are going to fight to get whatever you can, but that you might get?

Yeah. I -- obviously, I am the CEO, I drink the Kool-Aid. But I look at this as very similar to the Skyborg program. Skyborg program came out and there were like over 15 awardies. But in the end, there were three of us that mattered and one of them was Kratos. And I see the exact same thing happening here and I think that’s reflected by, we have already received funding under the $400 million and we are moving forward. So, I think, we are going to do just great very similar to how we have done, for example, at Skyborg.

Okay. Thank you. And then one last one just switching to space. So of all of this revenue, like, how much would you characterize as they OpenSpace software revenue? And then kind of related to that, let’s just take like the BlueHalo contract, where you are, I think, going to recognize $160 million of revenue over eight years, whether that’s something that’s more of a straight line or based on milestones or anything you can tell us regarding those points?

Right. So the second one I will go first. Most of the programs we are on including the one you mentioned is like a bell curve. So it starts out on the bell curve going up and let’s use I think seven years or eight years, we use the example you gave. So for the first couple of years it’s kept going on slow and then in the next couple of years it ramps up quickly to the top of the bell curve and then once the majority of the systems are deployed and you start maintaining and sustaining them, you start coming down the bell curve. That’s very similar to what I believe we are going to see for example with Sentinel with Northrop. We are going to see an incredible ramp in the next couple of three years incredible, which is going to be one of our biggest revenue drivers. We are going to go off the ramp. Then this is development phase or EMD. Then after that, couple three years, then it’s going to start coming down the curve. But I can say now, because it’s been announced, LRIP, which is the next phase of Sentinel, for example, is supposed to be awarded in 2026, then that bell curve, which will be bigger will start going up very similar to what’s going on in our space business. So we are getting layers of these bell curve is going, which is what we want to do and which is why we are confident in the year-over-year for the next several years organic growth trajectory because we are now layering this bell curve trajectory up these programs on top of each other. On the first part of your question, Mike. It’s -- let me just say it right upfront, we would not be winning any of these large programs in the space sector without OpenSpace, we wouldn’t be. We are now either the system provider or a major subsystem provider versus a component provider, all right. Where we are the system provider for the subsystem provider, we are in -- we are providing in addition to OpenSpace in the software, we are of course continuing to have to provide some of the legacy hard work, because that’s what the customers are comfortable with, especially in very specialized our unique situations, but also the antennas. The antenna business we acquired several years ago has turned out to be a grand slam home run. So, it’s embedded within it. I think the part of the point where you are going, are we going to start seeing margin increase? And the answer to that is yes and we are starting to see that now. We are seeing it. We are going to see it more and more as this year goes on, because the software content and we are actually licensing the OpenSpace as part of these programs is becoming more significant as we win more of them, so the margins are going to lift with that licensing increase on OpenSpace.

Okay. Excellent. Thank you very much.

Thank you, Mike.

Thank you. Our next question comes from Seth Seifman with JPMorgan. You may proceed.

Thanks very much. Good afternoon. I wanted to start off asking about unmanned and just thinking about the trajectory for the year. Obviously there’s a lot of growth to come. We can see it in the backlog. But started off down in the first quarter. And just is it kind of a gradual walk higher through the year in unmanned or is it that before certain markets going, it’s going to take into the back half?

Yeah. Seth, it’s a gradual walk from Q1 to Q2 sequentially and then we will see a more notable increase into Q3 and Q4.

Okay.

And that’s based -- yeah, based upon execution and the programmatic involved with the backlog that we have.

Okay. Okay. Cool. And then, similar question about cadence, maybe just in terms of cash. I mean, the one really notable item that stood out was just the receivables in the quarter and I assume those get collected through the year, but just is there -- if you help us out a little bit on the cash trajectory?

Sure. So as I had mentioned previously, the first half, we see less of the cash flow generation and that stepping up in the second half. That’s going to be based upon funding from a working capital perspective, some of the growth, some of those receivables. So it’s -- as we have seen 12% organic growth, that’s being funded through that receivable line with -- and based on the milestone schedules and payment schedules we expect to see some of that coming back through in the second half, as well as from an inventory perspective since we are continuing to build inventory across all of our business units.

Okay. Okay. Great. And then maybe if I could just sneak in a last one a little bit more qualitatively, on the supply chain situation, it sounds like better, but -- and maybe a little bit more stable, but not quite there yet. I guess in terms of what inning you think that we are in and where you feel like maybe we will end the year in terms of these -- the various supply chain/inflationary and labor challenges that are out there?

Overall, I think, we are in the 6th or 7th inning.

Okay.

And by the end of this year I think the game will be over and that’s assuming that we don’t below the government up and we don’t -- we fund the treasury and everything, I am assuming that the children who come to resolution. So, I think we are in the 6th or 7th thinning. I think that will be out of the game by the end of the year in the specialty metals area. The composites, the resins, et cetera. We have seen definite stabilization, definite normalization, definite price stabilization. In some pockets of the electronics and processing areas it’s still terrible, okay. But it’s -- but Seth, I think as I have said on the last call, it’s stabilized at terrible. So we can deal with a stable situation even if it’s terrible because it’s stabilized.

Okay. Excellent. That’s very helpful. Thank you.

Yeah.

Thank you. Our next question comes from Sheila Kahyaoglu with Jefferies. You may proceed.

Good afternoon. Hey, Eric. Deanna, how are you?

Hi, Sheila. Good.

Hi. So I wanted to follow up on that question actually on the decline in KUS, kind of what was that due to, was that OBSS and when you think about the programmatic ramps in 2023 and 2024 with the funding profile, Eric, how does that kind of -- how do we see that skyline shape out?

All right. So on the first part of the question Sheila, we -- nothing has been announced by any customer yet on the step down, but as we said on last quarter’s call, we said that we were on a tactical drone program. We expect it to receive additional funding for 2023, but the customer did not have that funding and so we did not move forward. Until additional information is put out by customer, I just can’t say anymore, I don’t want to get ahead of anybody, you know what I mean?

Yes.

Okay. And with that Sheila, what was the second part of the question.

Just on like the 2023, 2024 ramp, what programs should we see kind of the biggest growth drivers and if you could update on the Skyborg program?

Oh! Yeah. So the biggest growth drivers are going to be GBSD Sentinel, that’s going to be one. In the target drone area it’s going to be a SSAT. There is another program we have that we don’t talk about and I cannot talk about that is going into full-rate production now. In the space area, SCAR, the space control network program. What we are doing with Intelsat are on their stuff. In our engine area in KTT we are on a program on propulsion systems including supersonic engines, that program is -- right now is a very strong growth driver in addition to the B-52 re-engine program. As we head into next year, these all job 2023s, so as we head into next year. In addition to each of those and this was the layering on I was talking about, I expect EPPIC, Enduring Freedom where we are doing all the ground equipment to be a step function growth driver, we expect to receive LRIP on that later this year. You may have seen Northrop Grumman has now received full rate production on IBCS. That’s our program. We expect that one, that’s a multibillion dollar program that has been reported, that is going to be a significant growth driver next year. Mayhem is expected to the hypersonic program is suppose to -- is expected to be a significant growth driver for Kratos’ next year. Mark TB which we have won is expected to be a significant growth driver for Kratos’ next year. Those are the main ones that we have or under contract, the programs of record and they are going to be the next step function 2024 over 2023.

Okay. Thank you very much.

Okay.

Thank you. Our next question comes from Ken Herbert with RBC. You may proceed.

Yes. Hey. Good afternoon, Eric and Deanna.

Good afternoon.

Hey. I wanted to ask…

Good afternoon.

Yeah. I wanted to ask Deanna maybe about the margin guidance, adjusted EBITDA. It looks like it steps down a little bit or flattish to down slightly in the second quarter, but then consistent with your comments, a nice step-up into the back half of the year. Is that all as a result of mix from better priced contracts. And I guess my question is really, are there other levers you can maybe pull and if any of these newer contracts or programs face any delays, does that put the full year margin and EBITDA outlook potentially at risk?

So it’s two things Ken. So it’s mix related to the fixed price contracts, the newer fixed price contracts coming online and then mix as far as the mix of what the end product of what we are delivering if it’s more software content or licensing that would then drive margins as well. So it’s two-fold with both those pieces.

Okay. So assuming the mix holds the same from a product standpoint, I guess, that will -- that can be a nice tailwind even if there are maybe delays on the ramp of some of the fixed price side.

That’s correct. Yes.

Okay. And then as I think about the space business. I mean, you obviously called out nice growth. I think a little bit of growth than what we have heard from a number of the primes. How does that business in general move through the second quarter and into the back half of the year? And are you expecting to see similar growth through the rest of the year that you saw in the first quarter?

Yes. We are with substantially increased margins and that ties into your question and the question earlier on soft -- that Mike Crawford asked on the software that contracts that we have won have been awarded, that we are executing on. They are ramping. We are going up the bell curve and as we go up the bell curve, as Deanna mentioned, scheduled in the deliveries in the second half of the year are license fees for software and software products, which will be increases in margin embedded in those programs for us.

Perfect. I will stop there and pass it back. Thanks Eric. Thanks Deanna.

Thank you.

Thank you.

Thank you. Our next question comes from Pete Skibitski with Alembic Global. You may proceed.

Hey. Good afternoon, guys. Eric, you talked to Sheila about your growth programs in 2024, you mentioned Mayhem and Mark TB, which just -- I just wanted to run a few things by you. Correct me if I am wrong, but those are in DRSS, I think. So could you maybe level set us, how big a revenue unit was DRSS last year and with Mayhem and Mark TB and now Dark Fury is in there, too, how big is that going to be 2024, 2025?

Right. right. So last year in 2022, think of our rocket business at somewhere around $90 million in the ballpark. We were expecting that over the next couple of years to get to $150 million to $160 million.

It’s quite a ramp. Yeah. And the two you mentioned Mayhem and Mark TB are drivers predominantly?

They are not actually. They are two big ones for next year. We are on -- they are public, but I can’t talk. We are in some classes. It ties into what I have said about our launch manifest. Our launch manifest this year and next year, Rock -- Kratos’ rocket systems, multiple -- one stage multiple state with all different types of payloads for all different types of missions is incredible. That is the number one growth driver for RSS that we see right now. And those are in the back, if you will, okay. Then on top of those is the test-bed, the mock test-bed program you mentioned and the Mayhem system program you mentioned. And another aspect of it a way to thinking about it is, literally every hypersonic program that’s out there. We are on relative to the materials, coatings, fluid dynamics and things like that. We are on -- if we are not on every one runs substantially every hypersonic program there.

This is kind of what Southern Research brought you along with some of your organic capabilities or...

That’s right. That’s right. Southern Research is it’s not a home run, it’s a grand slam home run. This is truly one plus one equals three.

Got it. And did I say Dark Fury, is that a going to be another kind of test launch vehicle for you to test missile defense systems or is that -- do I get that wrong?

No. It’s not that. It’s because of varieties [ph], that’s all I can say.

Okay. Okay. Last one for me. You touched on it real early, but you should we worry about 2023 guidance in the context of the debt ceiling or a full year CR or do we worry more about 2024 with those type of events?

I haven’t -- I am not -- I am being very sincere here I am not being able to. But I haven’t been through a government default. So if that were to happen and the debt ceiling thing were to happen, my tummy tells me that would be yukky poo poo for this year, and so, okay. A continuing resolution, okay. you know it just depends on how things fall, but right now, if there was a three-month continuing resolution, October 1, 2023 to December 31, 2023, I don’t see that impacting us significantly in 2024 at all.

Okay. Okay. Okay. Thank you. Appreciate it.

Okay.

Thank you. Our next question comes from Peter Arment with Baird. You may proceed.

Yeah. Thanks. Good afternoon, Eric and Deanna.

Hey, Peter.

Good afternoon.

Hey. Eric, maybe just capacity question. There were some comments this past or last month on kind of the tripling of the workforce in Oklahoma City. Could you give us kind of an update of kind of the capacity is in place there, and ultimately, I know you mentioned some comments about the tactical drones, the next block. But what -- how are you framing the active kind of production lines with the target and tactical there?

Yeah. So I am glad you asked this question, by the way, Peter. Resourcing in the people side, I -- at the last quarter’s call, I said it was improving. It’s significantly improved since last quarter. It continues to improve. The number of qualified people, qualified, in the engineering, the technical, the manufacturing, including those that can get high level security clearances have been increasing, all right? A big part of that, okay, I believe, based on we stay on top of this, is one of the big primes out there had a major lay off of several hundred people, almost a 1000. And one of our big growth competitors, they had a massive lay off, hundreds of people in the past 60 days, one of our big drone competitors, which is providing us an incredible opportunity to help especially for individuals that want to hypothetically move out of California and go to Oklahoma. So the backdrop is improved precipitously for us over the past six months, including last three months. Now to your question in Oklahoma. In Oklahoma we are producing three systems. Two of them I can talk about, Valkyrie and Tactical Fire Jet, all right? We -- the way we set the facility up as there was a base facility and then two adjacent facilities of almost equal size, think about 100,000 square feet each, where we have options or first write up refusal to expand in those with business expanded. We have been exercising those options and we have been moving into them. The next step for us, and I think, I didn’t mention in last call, but a couple of calls ago is, the long lead item for us to go to the next step is going to be on an autoclave, an additional autoclave. If things come together, the way I believe they are going to come together, late this year or early next year, I will be communicating to you that we have placed the order. I think it’s a nine-month long lead for the next autoclave is the next step up at the Oklahoma facility.

That’s helpful. Thanks. Thanks, Eric. And just Deanna just a quick one, on the working capital is pretty negative this quarter. I know you kind of said it build throughout the year. Can you just give us a little bit of what you -- how you see the working capital profile for the balance of the year? Thanks.

Sure. I see that use of working capital continuing in the second quarter and then to start improving in the third quarter and improving significantly in the fourth quarter.

That’s helpful. Thanks so much.

Thank you.

Thank you. [Operator Instructions] Our next question comes from Joe Gomes with Noble Capital. You may proceed.

Good afternoon and thanks for taking my questions.

Hey, Joe.

Hi.

Real quick and I apologize if I missed this, in the last quarter, Deanna, you talked about the continuing resolution that was from last year was going to negatively impact the first quarter. I am just wondering what was the size of that impact in the quarter?

Yeah. So that reflects what some of the awards were that were delayed. So that been impacted what our revenue guidance was for the quarter. So I don’t have a specific value for what that impact was since we looked at that a while ago. But it probably -- my recollection is correct, it was probably in the $15 million to $25 million range on the on the topline side.

Okay. Thank you for that. And Eric, obviously, a lot of the stuff we talked about today in the unmanned, the satellite, the space, obviously, those are going to be the big drivers here. But you do have some other commercial, pardon me, types of products as you had talked in the past about the self-driving trucks for the agricultural system and the truck mounted attenuators, we don’t hear a whole lot about them. I am just wondering, what’s the status of some of those programs?

Similar to the other question, Joe. Glad you asked that. The -- our unmanned ground vehicle business, both militarily and commercially, continues to gain momentum. A matter of fact, I think, I am probably going to put something out, like, we put out a summary today on OpenSpace and what happens with the Space Symposium. I am thinking in the next month I am going to put out something that will talk walk through the number of states that we are in now, we are on the road in states with the ATMA trucks under contract with the states. We are also now in the fields with sugar beets and with other produce, and we were targeting, as I said before, we are targeting to continue the -- this is the shortage of truckers and reduction in insurance costs where you could have a manned truck and then follow the lead robotic Kratos trucks behind them, which we are doing, that go out in the field, robotically they are loaded up with the produce, they automatically go to the processing centers and then they distribute the product for processing and we are also right now taking a look at the mineral area. So we are in stealth mode. The business is millions of dollars out revenue. It’s going to be several millions of dollars, I think, by the end of this year. And then it’s going to do a step function in 2023 into 2024 based on a couple of these ones I just mentioned to you that we are under contract, we are under agreement with them. So I am going to put out -- I am glad you brought it up. I am going to do an update on that probably at the next quarter. Thank you.

We look forward to it, Eric. Thank you and thanks again for taking the questions.

All right. Thanks, Joe.

Thank you. Our next question comes from Allan Page [ph] with Jefferies. You may proceed. If your line is on mute please unmute. And I am not showing any further questions at this time. I’d now like to turn the call back over to Eric DeMarco for any closing remarks.

Great. Thank you, sir. Thank you for joining us this afternoon and we will be circling up with you at the end of the second quarter. Thank you.