Good day, ladies and gentlemen, and welcome to the Kratos Defense & Security Solutions Fourth Quarter 2014 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today's call is being recorded. I would now like to introduce your host for today's conference, Deborah Butera, Senior Vice President, General Counsel, Chief Compliance Officer and Secretary. Ma'am you may begin.

Thank you. Good afternoon, everyone, and thank you for joining us for the Kratos Defense & Security Solutions fourth quarter 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 to make some brief introductory comments. Earlier this afternoon, we issued a press release, which outlines the topics we plan to discuss today. If anyone has not yet seen a copy of this press release, it is available on the Kratos' corporate website at www.kratosdefense.com. It is also available on the SEC's website. Additionally, I'd like to remind our listeners that this conference call is open to the media and we are providing a simultaneous webcast of this call for the public. A replay of our discussion will be available on the company's website later today. During this call, we will discuss some factors and matters that are likely to influence our business going forward. Any matters discussed today that are not historical facts, particularly comments regarding our future plans, objectives and expected future performance, and the potential impact of sequestration, Federal Government shutdown and the constraints on the Federal budget constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those found in the Risk Factors section of our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, which could cause actual results to differ materially from those suggested by our forward-looking statements. We encourage all of our listeners to review our SEC filings, including our Annual Report on Form 10-K and any of our other SEC filings for a more complete description of these risks. All forward-looking statements are qualified in their entirety by this cautionary statement,…

Thank you. Our first question comes from Mike Crawford with B. Riley & Co. Your line is open. Mike Crawford - B. Riley & Co. LLC: Thank you. Thanks for giving all the color on the Unmanned Systems and breaking it out of Government Solutions. Can you talk a little bit about what margin you might expect from that business as you enter full rate production on things like SSAT and Lot 10, 11, 12 – or – I'm sorry, Lot 11, 12, 13 of AFSAT as well as UCAS and whether that margin change is depending much on actual mix? Eric M. DeMarco - President, Chief Executive Officer & Director: Okay. First piece, on the new program on SSAT, under contract right now, we have two production options. They're both LRIP options. On those LRIP options, the margin we expect to be similar to maybe slightly above what KGS is, and then after we get to LRIP and we get into full rate production and we're down a learning curve, we would expect them to increase from there. What was the second part, Mike? Mike Crawford - B. Riley & Co. LLC: So, that's interesting on SSAT. And then what about if you are successful in your demonstration on Unmanned Combat System? Eric M. DeMarco - President, Chief Executive Officer & Director: We would hopefully expect those to be somewhat higher than that on those. Mike Crawford - B. Riley & Co. LLC: And just, let say, we're down the path at some point in the future without getting into a specific year, but let's say that business is running somewhere closer to, say, $200 million in revenue, is that something that could be high teen margin business or would it be less than that you think? Eric M.…

Thank you. Our next question comes from Mark Jordan with Noble Financial Group. Your line is open.

Hello? Hello? Eric M. DeMarco - President, Chief Executive Officer & Director: Hi, Mark.

Hello? Can you hear me? Eric M. DeMarco - President, Chief Executive Officer & Director: Somewhat. It's very staticky, sir.

I'm sorry. Could you talk a little bit about the UCAS market with regards to what other players in the marketplace may or may not be doing? I mean, this is a major opportunity. Some people have tremendous vested interest in things like Predator (36:18) platforms. What are they doing to potentially compete with you, or are they being quiet at this point in time? Eric M. DeMarco - President, Chief Executive Officer & Director: I'll tell you what I know. What I know is that four of the biggest players; Boeing, Northrop, Lockheed and GA, are all focused on the UCLASS opportunity, which is going to be coming out in RFP very, very soon now. And so, on the UCLASS opportunity, that's where they have been focused. There have been some RFIs that have come out primarily from DARPA, including very recently, on some other types of next-generation Unmanned Combat aircraft that we are pursuing, and I understand that certain of they are pursuing. So, we obviously expect this to ultimately be very, very competitive, which is why it was so critical for us to maintain our intellectual property position on our aircraft for the niche area that we are going for. And the niche area that we are going for, and when I say a niche, that sounds small, but for us, it's very, very big as we're a small company. Our understanding right now was we are the primary player there today, Mark.

Okay. Of the $7.4 billion pipeline, what of that will – has been submitted or will be submitted within by mid-year of 2015 and how much of that do you expect to be awarded by the end of the current year? Eric M. DeMarco - President, Chief Executive Officer & Director: Right. Roughly, Mark, approximately $1.6 billion of that has already been submitted. It has been submitted already. I would imagine probably another $1.5 billion or so will be submitted between now and the end of the year, and then the balance of it waterfalls in 2016 and into 2017.

Do you have any guesstimate as to what amount of that $3.1 billion that you will have submitted to the government by the end of the year will actually be adjudicated? Eric M. DeMarco - President, Chief Executive Officer & Director: Mark, when I don't know something, I'll tell you. I don't know that off the top of my head. I do not know.

Okay. The Rail Gun, I thought I saw or read somewhere that there's now talk that that initiative may actually be deployed on a DDG-1000. And the evolution of that from a – not a laboratory but from its development phase to actually being put to street (39:30) is that a positive event for you from a revenue standpoint as you've supported that program? Eric M. DeMarco - President, Chief Executive Officer & Director: Yes. What is happening there is very positive for us. We are involved in the Electromagnetic Rail Gun in several different areas under several different programs. So this is – this over time, as this continues to move forward, will become a significant program for us at various divisions throughout the company.

All right. Final question from me, the services revenues declined 6% sequentially, down at $91 million in the fourth quarter. Given your comments, should we assume that that services line for the full year will be closer to kind of annualizing that fourth quarter run rate than what you had for the full year? Deanna Hom Lund - Chief Financial Officer & Executive Vice President: Yes. So, Mark, this is Deanna. The way we actually dissect it is looking at – so what we report from on our earnings release with services is not necessarily our traditional services revenue because services that are wrapped with products are also included in that number. So, what we look at more carefully is the actual traditional Legacy Services revenue which is at about a $13.5 million run rate per quarter. So, it's running just under $60 million currently. That's down from last year's annual run rate of about $85 million. We did see sequentially from Q3 to Q4 that that $13.5 million was about the same as it was in the third quarter. So, we don't expect that to continue to decline at the rate that it has on a year-over-year basis, especially just given what we've seen in the most recent two quarters.

Okay. Thank you. One last question; you did note that the strategic review is ongoing. Do you have a sense that of a timeframe at which it will – things will happen or it will be completed and I think will happen? Eric M. DeMarco - President, Chief Executive Officer & Director: Yes, sir. You may not have heard it, Mark, in our prepared remarks. We believe that before the end of the second quarter, we will be able to report on progress made.

Okay. Thank you very much. Eric M. DeMarco - President, Chief Executive Officer & Director: Yes, sir.

Thank you. Our next question comes from Eric Sal with SunTrust (42:06). Your line is open.

Hey. Good afternoon. I see that you guys have changed the manner in which you're estimating guidance. Should we see the current guidance as more conservative and achievable as we've seen in the past? Eric M. DeMarco - President, Chief Executive Officer & Director: We definitely, Eric (42:24), have – we have changed it because of what's been happening with the environment and what we envision is going to continue to happen with the environment. Our absolute plan is that this is a more conservative approach for us, yes.

Okay. Good. And then given the lower Q1 guidance in EBITDA, should we – and slightly or close to slightly down over 2014, should we expect year-over-year growth in the back half? Eric M. DeMarco - President, Chief Executive Officer & Director: Oh, yes, sir. Yes, absolutely. A good portion of that, as I mentioned in the remarks, is under contract, and that's when the deliveries begin and start to ramp up.

And they can't be protested? Eric M. DeMarco - President, Chief Executive Officer & Director: We've won them.

Okay. Eric M. DeMarco - President, Chief Executive Officer & Director: They cannot be protested.

Okay. And that's offset by we're going to keep R&D higher? Eric M. DeMarco - President, Chief Executive Officer & Director: As Deanna mentioned, we're going to keep R&D higher, and we're going to keep some other investment areas higher, particularly in the Unmanned area.

And then what are the key drivers/press releases that could cause you to meet or beat it? And kind of laden in your answer assumptions on the budget, the size of the cost savings and then the potential for some of these protests to come back. Eric M. DeMarco - President, Chief Executive Officer & Director: Right. So, I think the biggest question mark out there is October 1 of this year, Federal fiscal 2016 begins. And as we all know, there's a very large disconnect between the Pentagon and the President's request and what the Budget Control Act says and what sequestration, the law, says. And so, we'll just have to see where all that plays out and what that does or does not mean come October 1. That is probably the largest question mark that is out there.

Would that impact 2015 or 2016? Eric M. DeMarco - President, Chief Executive Officer & Director: It depends. So, it's obviously in our fiscal 2015, and let's say for – I don't expect this, but let's say, for example, that there's not an agreement and the government shuts down again, but there's not an agreement and there's an extended continuing resolution. That should not impact us materially in 2015. But if it were to go into Q1, it would impact us in 2016, which is very similar to what happened to us in 2014.

Okay. And, Deanna, you guys said that despite flat to slightly down revenue and EBITDA, that free cash flow is going to be up in 2014 (sic) [2015] (44:56). Two questions on that. One, is that all due to the interest savings? And then secondly, what number are you guys using for 2014 free cash flow? Deanna Hom Lund - Chief Financial Officer & Executive Vice President: So, our 2014 free cash flow is actually a use of $7.7 million. So, the comments that we made that we expect free cash flow to be greater in 2015, it is driven somewhat by the interest savings, as well as expectations from a working capital perspective.

And that 101 AR days, can we assume that you guys stick to that for the year, I mean just as you see it right now? Deanna Hom Lund - Chief Financial Officer & Executive Vice President: So, we're actually at 102 days, and what I had mentioned in my prepared remarks is that because we are so product-centric now and delivery-based and shipment-based, those DSOs can vary from quarter-to-quarter as we saw during 2014, and that was something that we remark that we expect that type of variability in the future. It is down from 107 days in the third quarter to 102 days in the fourth quarter, but there could continue to be variability just because of the way our shipments and milestone contractual billing terms are negotiated with our customers.

Because of the timing, you just don't know when exactly they come? Deanna Hom Lund - Chief Financial Officer & Executive Vice President: Correct. Correct. Yes.

And then I know you can't say a ton about asset sales, but absent an asset sale, could you guys still pursue buying back bonds? Eric M. DeMarco - President, Chief Executive Officer & Director: Very candidly, we have not put any thought into that path at all right now.

You're focused on the asset sale? Eric M. DeMarco - President, Chief Executive Officer & Director: We are focused on executing the strategic alternatives review that our board has set for us.

And then finally, your change in strategy on PSS, does that change attractiveness to suitors? Eric M. DeMarco - President, Chief Executive Officer & Director: In my opinion, it definitely should because the margin and the liquidity presentation of the business has already begun to improve. However, hypothetically, there are some people that like lots of revenue growth and then they'll figure it out later, there are other people that like high margin revenue growth. So, it would be hypothetically in the eye of the beholder. But this is the right – in our opinion, the right way to run the business, and that's what we're going to do.

And then I'm sorry I lied but just one more. Do you guys disclose what that business did in profit, and then how big are these, the cost savings you guys are putting through? Deanna Hom Lund - Chief Financial Officer & Executive Vice President: Yes. So we do disclose that, Eric (47:42). So, it's in our press release So, if you look at page two of our financial tables, the Public Safety business for 2014 full year generated revenue of $196.4 million in revenue and adjusted EBITDA of $7.1 million.

And then, do you have any – like how many people are you guys letting go? Is there any way to calculate what the cost savings would be going forward? Deanna Hom Lund - Chief Financial Officer & Executive Vice President: As Eric had mentioned, he said that we have made over 100 head count reductions since the beginning of the year with a significant piece of those reductions related to the Public Safety business.

And is there any cash severance that will hit free cash flow, and then I guess that's in your free cash flow guidance. So... Deanna Hom Lund - Chief Financial Officer & Executive Vice President: Yes.

...it would be in that. Deanna Hom Lund - Chief Financial Officer & Executive Vice President: Yes.

All right. Hey, thanks a lot. Deanna Hom Lund - Chief Financial Officer & Executive Vice President: Sure.

Our next question comes from Tyler Hojo with Sidoti & Company. Your line is now open. Tyler E. Hojo - Sidoti & Company, LLC: Yes. Hi, good evening. Just to kind of stick with Public Safety for a second. Get the strategy, get that it's going to be a headwind in terms of the top line in 2015. I was just hoping that maybe you could quantify kind of how big of a headwind we're talking about as it relates to kind of the flat to slightly lower revenue guidance for the whole company. Eric M. DeMarco - President, Chief Executive Officer & Director: I would look at it, Tyler, as a similar quarter to what we just clicked off in Q4. Tyler E. Hojo - Sidoti & Company, LLC: Okay. Eric M. DeMarco - President, Chief Executive Officer & Director: In that ballpark, maybe a little less because we initiated the plan of focusing on higher margin work there, so, maybe that, to a little less, is how I look at the run rate. Tyler E. Hojo - Sidoti & Company, LLC: Okay. That's good. And in light of kind of current run rate, could one assume that there are going to be additional cost savings actions taken in 2015? Eric M. DeMarco - President, Chief Executive Officer & Director: Absolutely. Tyler E. Hojo - Sidoti & Company, LLC: Okay. Okay, got it. And then just in regards to the conversation around IR&D, it's going to be a headwind. I think it was like $6-point-something-million in Q4. First, what was it for full year 2014, and how big of a headwind are we talking about for 2015? Deanna Hom Lund - Chief Financial Officer & Executive Vice President: Yes. So, Tyler, for 2014, it was $23 million. It's been…

Thank you. Our next question comes from John Nelson with State of Wisconsin. Your line is open.

Hi, Eric and Deanna. It's nice to hear I think a more positive tone coming from you two, than previous, the last few calls. And I mean, it sounds like the pipeline is quite exciting. And for both of you, I'm curious as to what you think of the – if there's going to be much change in the new Defense Budget on anti-ballistic missile systems given the problems with Russia and Eastern Europe. And then whether or not there's a treaty with Iran that either way there becomes a greater focus again on anti-ballistic missile systems. Eric M. DeMarco - President, Chief Executive Officer & Director: Right. John, thank for your initial comment on that. We have routinely said that we thought 2014, 2015 from an industry standpoint and for us would be the trough and that we would see us turning out of it in second half of 2015, 2016. And that is what we're seeing. And we're seeing it in the orders, which is why our funded backlog has gone up so much and we're seeing it in the pipeline and the opportunities. So, your sense of a little more confidence as we see us coming out of this in the second half of this year and growing from there as a number of these programs that we've won, ramp up and the other ones that we're going after which a lot of them are sole source and if there are not, it's on us and one other guy, we're going to get them. So thank you for that. Now, on your comment; absolutely on the BMD, the Ballistic Missile Defense area, we are seeing a significant amount of that of increased activity in the BMD area. As I mentioned in my prepared remarks, we're going to be able to put out a formal announcement, I believe, on Monday where just a few weeks ago, we had three of our Ballistic Missile Targets fired within seconds of each other in a raid format at the fleet. We are working on some very interesting things, very recently with the Missile Defense Agency that is specifically related to some of the things that you mentioned. Aegis Onshore (58:09), this is taking the Aegis Missile Defense System from the Aegis platforms and putting them onshore in Eastern Europe – excuse me, Western – in Eastern Europe. That is moving forward. We are involved in that. We are seeing specific activity related to our Ballistic Missile Defense work relative to the Mid East, significant. So each one of those areas you touched on, yes, sir, Ballistic Missile Defense because of the proliferation of missile systems is a high priority area right now.

Okay. Good. And you've talked often about the UCAS program and this being a significant part of the future of the company. Can you give us any sense of the size of the UCAS market versus kind of ex-ing out that portion that would be – I mean, UCLASS versus UCAS? Eric M. DeMarco - President, Chief Executive Officer & Director: Right. So, John, let me say something relative to the first part of your question. We are definitely making a big investment in our Unmanned Combat Aerial System initiative. However, a very big part of our future that is under contract is our SSAT program, and today, for the first time, I was able to mention that we are on another very large program that is confidential, but I was able to mention it today that LRIP on that is being pulled in to 2016 as well, and full rate production will begin after that. So, our targets work, our Unmanned Aerial Drone Target business is going to be a very, very big part of our future and most of that is under contract and we're heading into production on what will be the largest production program in the company, and the second one will be right up there with it. On the UCAS, the Unmanned Aerial System market is very, very large and there's a lot going on – it's multi-billion, so a lot – there have been $5 billion number thrown around it, there have been $7 billion number thrown around it. It's very large. There's a lot going on within those pockets and those budgets right now and that has to do with the move away from asymmetric warfare and flying in uncontested airspace to nation state or near peer-to-peer warfare and flying in fully contested anti-access aerial-denied airspace, and that takes a different type of a vehicle. And there's been a lot of RFI and RFP activity out there for the next generation types of Unmanned Aerial Systems that can perform their mission in those contested environments. We believe that this is going to – this is and is going to be – this is outside of UCLASS, outside of that. This is going to be a multi-billion dollar budget-funded area because of the mission requirements. And if we can get a small piece of this, this could be a few hundred million dollar a year business for us.

Okay, great. Thank you. Thanks very much. Eric M. DeMarco - President, Chief Executive Officer & Director: Thank you, sir.

Thank you. This concludes our question-and-answer session. I would now like to turn the call back to Eric DeMarco, President and CEO, for closing remarks. Eric M. DeMarco - President, Chief Executive Officer & Director: Excellent. Thank you very much for joining us today. We will obviously speak with you when we report our first quarter in May unless there is a need to call a meeting prior to that. Thank you very much.