Good day ladies and gentlemen and welcome to the Kratos Defense & Security Solutions First Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] AS reminder, today's conference will be recorded. I would now like to turn the call over to Marie Mendoza, Senior Vice President and General Counsel. Ma'am, you may begin.

Thank you. Good afternoon everyone and thank you for joining us for the Kratos Defense & Security Solutions first quarter 2019 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 to turn the call over to Eric DeMarco.

Thank you, Marie. I believe as we go through today's report, you will see that Kratos is one of the best positioned technology product and systems businesses in the defense industry, that we are uniquely aligned with the Pentagon's National Security Strategy and funding priorities, and that we are positioned for industry leading organic revenue profit and cash flow growth. Demand is strong and increasing in each of Kratos' core business areas which includes space and satellite communications, unmanned systems drones and artificial intelligence, missile defense radars and missile systems, training systems, microwave electronics and electronic warfare. We began 2019 well, exceeding our Q1 revenue, profit, operating income, EBITDA, EPS and cash flow guidance. With every Kratos business unit exceeding its financial forecast, the EBITDA we generated is particularly notable and representative of the operating leverage we expect going forward for the business. In Q1, Kratos' space and satellite communications business, our company's largest performed particularly well including a favorable program mix. The space and satellite areas of the budget are seeing some of the largest growth with the 2020 DoD request of $14.1 billion or an approximate 20% increase over 2019s $11.8 billion. Satellites and space as a funding priority is expected to continue for the foreseeable future as the US prepares for a potential war or peer confrontation, and we expect Kratos to realize future benefit from this increased funding due to our customer relationships, our past performance qualifications and our unique positioning. Certain of the largest increases in the 2020 space request include a new constellation of missile warning satellites, the next generation overhead persistent infrared, the GPS IIIS constellation of positioning navigation and timing satellites and the development of future satellite communications systems. Additionally the 2020 budget request creates a new funding line for the enterprise…

Thank you, Eric. Good afternoon. Kratos' first quarter of 2019 revenues of $160.4 million exceeded our expectations of $147 million to $157 million and increased $17.4 million or 12.2% year-over-year. Excluding the impact of the recently acquired FTT operating results which contributed $4.2 million in revenues, Kratos revenues grew organically 9.2% in the first quarter. Our adjusted EBITDA came in at $17.5 million above our expectation of $9 million to $11 million, primarily driven by a favorable mix of revenues in our space and satellite communications and training solutions businesses and due to certain execution and deliveries occurring earlier in the year than originally forecasted Our adjusted EPS of $0.08 also exceeded our forecast of $0 to $0.02 per share for the quarter. In the first quarter, KGS generated revenues of $125.5 million, up 8.9% from $115.2 million for Q1 of '18, adjusted EBITDA of $15.5 million or 12.4% of revenues up from $12 million in Q1 of '18 and operating income of $11.4 million up from $7.9 million in Q1 of '18. Operating income and adjusted EBITDA were impacted by a favorable mix of revenues with the most notable impact in our space and satellite communications training systems and C5ISR systems businesses. Revenues in our Unmanned Systems segment increased 25.5% from $27.8 million in the first quarter of '18 to $35 million -- $34.9 million and adjusted EBITDA increased from $1.7 million to $2 million in the first quarter of '19, primarily reflecting an increase in execution and production on our AFSAT 167 and SSAT 177 aerial target platforms. Our Q1 operating income was $8.2 million up from the first quarter of '18 operating income of $7 million. Included in our current quarter operating income is $1.2 million of transaction expenses related to the acquisition of FTT. Excluding these…

Thank you, Deanna. We'll now turn it over to the moderator for questions.

[Operator Instructions] And our first question comes from the line of Noah Poponak with Goldman Sachs. Your line is open.

Hello.

Hello, sir.

Hello.

Good evening -- good evening and good afternoon. Deannna, maybe you can elaborate a little bit on the cash flow in the quarter, it's -- I mean I guess we don't have great history on the seasonality of your cash flow, but I would expect that it would be back end loaded. I'm just looking at other parts of the financials, but it would have to be down the rest of the year to be in your guidance range and that's especially true with the PSS item that's still to come through, assuming that wasn't in the quarter. So were you ahead of plan and could you elaborate on how and why if you were?

Yes. We were ahead of plan. There were some receipts that we expected in the second quarter that came in, in the first quarter. Included in our cash flow from discontinued operations for the quarter, there was an $1 million of cash receipts that we expected of that $4 million to $6 million, so $1 million did come in but that's not included in the cash flow from ops. It's included in the -- a discontinued cash flow generation. So as far as their is seasonality, it's more milestone driven, so it's not necessarily related to seasonality but related to milestones that we expect to achieve and deliveries based on those milestones, so it can be lumpy from quarter-to-quarter which is why we typically only guide from a cash flow perspective for the full year.

Okay.

Which is why we're maintaining -- which is why we're maintaining for the full year.

Great. That's helpful. What were the milestones related to?

It's -- there's a number in our training systems business where we are making -- we're building some very large training systems for the customer. And as we deliver each system, then we are able to bill the final billing milestone on each of those systems. But it's on a per unit basis as we deliver those large systems which we've been building for the last 18, 20 months.

Got it. On the KGS margin, perhaps you could elaborate on the strength there -- was there -- I know you have or I think you have a cyber business that can move in and out of there where -- anything like that that impacted the margin on a less recurring basis or I guess just how sustainable is that margin?

Yes. As we both commented in our prepared remarks, we had a very favorable mix during the quarter primarily in our satellite communications and space business. So that will be dependent on the type of deliveries that we make which are some may be software related which tend to carry more attractive margins.

Okay. And then, Eric, I think you've spoken before about a few ballistic missile target opportunities that are potentially sizable and could potentially be awarded this year, if you went over those in the prepared remarks I missed it. I wonder if you could update us there?

I did not, you did not miss it. It's in source selection, the first one. And we understand that contract award on the first one will -- is supposed to be in the next -- within the next 90 days. And on the second one, that is tracking RFP in the next month to eight weeks with contract awards still tracking toward the end of this year.

Okay. Is there anything from those in your revenue guidance?

We had -- there were three large opportunities that we began the year chasing. We've won the first one. We had factored the three. So depending on timing, if we win one of the second two, that could be beneficial to us this year, depending on timing that was awarded sooner rather than later. So we took the three and we factored them because they're so big in the binary and we've won the first one.

Okay. Thanks a lot.

Thank you.

Thank you. And our following question comes from Josh Sullivan from Seaport Global. Your line is open.

Good evening. Great quarter here.

Hi, Josh, thank you.

The bookings for the unmanned segment, was there any particular program that drove that backlog in the quarter or was it more broad based across them?

There was an Air Force program that we received, that was a big contributor there. And we got another big one coming that we expect to receive and like I said Q2, late Q3, -- Josh, related to that, we -- like in the last 90 or 120 days we've received orders for over 100 drones.

Great. And then just can you talk a little bit more about KTT and if you're customers are showing interest in the low cost engines yet? There, maybe I guess if any of your announced tactical aircraft have had FTT jets integrated into the platforms at this point?

The answer to the first part of your question is, yes, absolutely. We are under contract with basically the same customers that we are working with our target drones and our tactical drones with KTT, absolutely. And we are expecting later this year early next year first engine test on the first engine and then next year, first engine test on the second engine. And so, yes we have customer interest and we are working with them and the plan is, these things work out and they're successful they'll be designed in, that is how we're working up with these customers.

Okay, great. And then just one more on KTT. As far as some of these cruise missile upgrades potentially coming down the pipe, is KTT positioned well there? Do you see those as opportunities?

We have met and I'm not going -- for competitive reasons, I'm not going to get into specific customers, the answer to your question is, yes. We have met both with the spouse (ph) the government spouse, the program offices for these missile systems and we've also been meeting with the primes who build the missile, you have to work with both, the government customer who buys the missile and the prime who makes the missile for the customer and buys the motor. There is absolutely positively interest in a next generation class of engine like these turbo jets and turbo fans.

All right. Thank you.

Yes, sir.

Thank you. And our next question comes from the line of Ken Herbert with Canaccord. Your line is open.

Hi. Good afternoon, Eric and Deanna.

Hi.

Hi, Ken.

Hey, Eric, you obviously started off your prepared remarks with a discussion on the satellite business, and it clearly sounds like that business is seeing a real step-up in opportunity. Can you maybe just provide a little more quantification as to what kind of growth you're looking at for this business maybe this year and next, and anything you can say on sort of what you're seeing on order trends or backlog growth specifically on the satellite business in particular, because I know it is your largest business and one of the more profitable but it sounds like it's really positively inflicting right now?

Yes. So, thank you, Ken. So we had a -- we made some management changes at the beginning of the year. And so my personal expectations for the management team in there for this year's growth is extremely high. That's my expectation for these guys. And as I mentioned the budgets are growing 20%. And there is a little bit of a lag between you see the satellites getting ordered, the satellites go up the ground equipment typically goes out six months is deployed six months prior to the satellite going up. And so let me give you an example, you saw WGS-11 and WGS-12 as you know that's one of our major programs. So we can map when those go up and we can map when we deploy on that. Over the next three years or so, I'm looking for an average growth of 10%, over the next three or four years. It may be lumpy, but that's what I'm looking for. Here, you heard my remarks on the commercial side. We're under a big NDAs (ph), I can't get into details but we are under contract and delivering product. So we are very, very well positioned and I personally am looking for some big favorable surprises from this group later this year.

Okay. Considering the DoD budget growth of 20%, could your average of 10% especially also considering the commercial opportunities could that be a little conservative over the next few years?

I believe so. Let's get some of these constellations going up and maybe I'll increase my expectation. But yes, trying to be conservative. But as commented on this call today, the margins in the business in Q1 were very strong, and as Noah pointed out, it has to do with mix and typically toward the end of the year and we explained this on the last call, end of the federal fiscal year because funds are de-obligating and they want to obligate and spend them. We can get some significant orders in the software area or the quick turn area on command and control. We got some of those in Q1 and it has to do with the threat. So we don't plan for these, because they're hard to plan for because a lot of these customers don't tell you what's going on. But the trend looks very good because of the threat and what some of these products do, that maybe we could see some more of that this year than historically.

Thank you. Thanks for the color and if I just could one final one on the Valkyrie. You really provided a lot more detail and certainly it's become a lot more public with the hearings and press and everything else. Considering the fairly aggressive timeframe, the Air Force isn't looking at, has your thinking changed on when we could see sort of an initial production contract either through the skyborne program or through some other means and anything you can say on expectations around timing and potential size of that would be helpful.

Yes. No expectations have not changed on our side. They probably solidified or gotten firmer, because obviously the successful flight of the airplane and some of the items that I mentioned that are publicly available. These events is what drove our decision to go public and named the manufacturing site, and starting to build that out for the Valkyrie. You can see, Ken, we believe strongly, we're going to get going here on the timelines that I've said before and I mentioned again today. So we'll try to stay conservative, but directionally everything appears to be on track here.

Great. Thank you very much. Really a nice quarter.

Thank you, sir.

Thank you. And our following question comes from the line of Mark -- Mike Crawford with B. Riley. Your line is open.

Thank you. Eric, just to continue that line. So you produced the first fire jet in Oklahoma, while you're building out Oklahoma for Valkyrie. So can you talk at all about capacity there and or in your other facilities?

Yes. So we'll start on the main facility right now in Sacramento. As we have said previously, the reason why we initially started the Oklahoma facility was by the end of '19, we expected from a target drone standpoint the Sacramento facility to be at capacity, and we are tracking exactly on plan that it will be on capacity -- it will be at capacity by the end of this year, early next year. That is why we've begun delivering fire jets out of Oklahoma already and we're delivering them routinely now, and it is ramping very, very quickly. The facility is 300,000 square feet to 350,000 square feet. We have auctions on two additional 300,000 to 350,000 square foot blocks for a total of a million square feet. We did that on purpose because we wanted to have that flexibility depending on the timing of when the tactical drone orders would begin. And so now to the root of your question, so we've made this announcement and we're gonna start taking a look at the tooling different autoclave capacity that we're going to need and the facility capacity we're going to need, assuming we're going to get in order along the timelines we've talked about.

Okay. Great. And then just a clarification because you reiterated the annual guidance of $720 million to $760 million, but I believe when you issued it you said that excluded these large hypersonic opportunities you're pursuing in any one -- in the first one with Corvette and it sounds like you're expecting the task order later in the year and that -- is that just the case where you get the task order but you don't start recognizing revenue on that until 2020? Or…

Mike, I'm glad you brought that up because I probably wasn't clear. The hypersonic task order is entirely separate. It's different. It is -- I'm glad you brought it up, that is in addition to these other two opportunities, hopefully we're going to be successful in. Totally separate, since the last call that has come up and I believe we're going to have -- we're going to be under contract on that task order by the end of Q3.

Okay. Great. And then just a final question, getting back to the space segment. And talking closely with these various proposed operators -- operators have proposed LEO constellations, SpaceX with StarLink, Amazon, Telsat, OneWeb, I mean -- do you -- how many of these do you think actually get built?

Obviously, we hope that most if not all get built because obviously they all need ground equipment. Mike, I don't know and I don't know why you're asking the question, I don't know if it would be appropriate for me to comment here. I am confident that some of them will get built and some of them will be successful and our job is to be sure that on those some or all we're part of it.

All right. Thank you very much.

Okay. Thank you.

Thank you. And our following question comes from the line of Michael Ciarmoli with SunTrust. Your line is open.

Hey, good afternoon, Eric and Deanna. Thanks for taking the call or the question and nice quarter. Eric, just on -- you talked about the next gen aerial targets and there's been a lot of press out there with the capability of these targets needing to be I guess significantly enhanced and the fact that they're currently using F-22s and F-35s. How do you bridge the gap from taking one of your tactical drones like a Valkyrie to enable them to perform the same characteristics as those platforms. Is that effectively what the customer is asking for?

Great question, Mike. Let me, obviously this is going to be a competitive solicitation and it sounds like you've read that RFI very, very closely. We read that RFI and we are very happy. As you know, we took a target drone, the BQM-167 and these are my words now, we went up one notch and we converted into a tactical drone that UTAP-22 or the makeup. So instead of carrying in a target drone configuration, decoys and flares and chaff and dazzlers including lenses, it's carrying other things. All this is classified now as a tactical airplane. Hypothetically, you would take a Valkyrie which is low cost and instead of it being tactical you could go down one notch and now its target and similar to a target drone go into a tactical drone because on expanded quantities, it drives the cost down further to the customer. So they like it.

What about speed? I mean F-22 and F-35, I mean you are not the stats in fright but your Valkyrie is not going to match the speed on both of those potential...

Yes, you're absolutely correct. Yes. So, the F-22 has super cruise capability. So both the F-22 and the F-35 are supersonic. The supersonic fourth generation fighters are supersonic, and so being supersonic does not make a fifth Gen fighter. A Fifth Gen fighter, the primary distinction on a Fifth Gen fighter is radar cross section and stealth. And so if you have a Fifth Gen fighter that's heavy radar cross-section and stealth and you light up the afterburners, where now the whole world can see you on infrared. And so the -- I've to answer it carefully. Yes, you are correct. I don't think there's a problem that our drones published, don't go supersonic for this application.

Got it. Okay. Just on the guidance, I think you may have addressed this in the fourth quarter and kind of contemplated this. What do you thinking around the budget environment, if we go into a continuing resolution. I know you guys have been somewhat exposed there in prior years but I think I recall kind of you guys saying that you took some measures for that when you laid out the initial guidance. Any thoughts on how you're thinking about year end here?

Yes. We have set the year up hopefully, that our assumption is there is a continuing resolution at least for calendar Q4 of this year, not a government shutdown, that's a different [indiscernible] because as you know that impacts our export license capability. But we have just made an assumption that there is a continuing resolution.

Got it. All right. Perfect. Really nice quarter guys. Thanks and I'll jump back in the queue.

Thanks, Mike.

Thank you. And our following question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is open.

Hi. This is Helen on for Sheila. When -- sorry most of my questions were taken. So when we look at the organic growth into 2021, 2022 are we still targeting an acceleration and what are the main levers for that growth?

Hi. So we haven't given formal specific guidance for '21 or '22. We typically give it year-to-year for the reasons that Michael mentioned. You know we've been having extended continuing resolutions and government shutdown. So we know those can disrupt things and can be temporary delays. However, directionally to your question, we are expecting a significant organic growth trajectory for the next several years with the programs we have or ones we expect to win primarily driven by our Target drones. Our Target drone business last year came in at like 135, and as I mentioned in the next few years we're looking to get to 250. Our ballistic missile target in our hypersonic business the [indiscernible] in there is increasing significantly and you can see that publicly in the public funding documents. Our tactical drone area as we've been talking about today, we have a number of tactical drone programs under development contract, or that are farther along in development contract that we're expecting to get into production on get initial orders in the next year. Those are the big primary needle movers. And then of course there's the satellite business, which is our biggest business and it is -- as I said I expect this new -- this group of managers that they're going to over the next three years, we're going to have significant growth there as well because the wins are at our back.

Okay. Great. Thanks.

Okay.

Thank you. And our next question comes from Joe Gomes with NOBLE Capital. Your line is open.

Nice, quarter. Good afternoon.

Hi, Joe.

Just wanted to circle back, in the first quarter you mentioned and you just did hear about how the shutdown impacted the foreign military sales and you did mention today about the large contract you have. Just wanted to see -- what the status is there? Have you seen a rebound there? Is it still somewhat working through the process? Any color you can provide on that, I'd appreciate it.

Right. As we -- yes you're correct, Joe. And as we had said at the last quarter, we thought that we would start getting through those in Q2 and Q3 and everything is on track for us to be back on track in Q2 no later than Q3.

Okay, great. And I don't know if you can comment but if you would, just curious as to how the AeroVironment's relationship came about?

So, Deanna and I have known Wahid and the CFO there for quite a while, and we have an excellent working relationship. And we've talked for quite a while about the right opportunity to team and go after something. And we're not teaming just the team and put out a press release. We are -- we have a -- as I mentioned, we have a customer, and we have a real opportunity here. And let me give you an example and you'll see where I'm going. We made our own investment along with the government on the Valkyrie. We got the contract award in July of '16 and 30 months later the plane was ready to fly and it flew. So now you have two companies that have come together with working systems, proven systems, our proven jet drones and they're very awesome unique tactical weapon systems and drones that we're going to integrate on ours and be deployed, and we're going to do it very, very rapidly. That's the differentiator here, is these two commercially minded companies -- disruptive companies, with disruptive thinking are coming together and we're going to do something because the customers has indicated interest and we're going to deliver this quickly. It's not going to be five years, if you did it with a government contract. And so that that is what we're doing here, because we believe this is where the DoD is going. This is where they're going. They want more of a commercial based model, where proven technology is leading edge not bleeding edge reduces risk, reduces schedule, reduces cost, and this -- I'm excited -- I'm really excited about this. Hopefully, the next 12 months, we're going to be able to demonstrate something that we talked about in the press release.

Great. Thank you.

Thanks, Joe.

Thank you. [Operator Instructions] Our next question comes from Seth Seifman with JP Morgan. Your line is open.

Hey, good afternoon. This is actually Ben on for Seth.

Hi.

Hi, Ben.

Hi. I guess it sounds like you have a number of irons in the fire here with a lot of the tactical drone programs that -- we might be seeing some contracts and revenue next year. Can you kind of help us think about how much of a financial contribution these might make kind of in a broad sense, maybe next year or even in 2021?

I'm thinking about how to answer this question. So on Thanatos, we've said publicly that we expect that to be meaningful financial impact next year. So I think a few tens of millions of dollars. If we -- by the end of this year, we get orders for 20 or 25 Valkyries, $3 million, $4 million each. And as I said, let's say it's a 20 month production cycle and we have to do it 100% (ph) complete, you can see how something like that would be spread. Let's say we get an order for some Gremlins end of this year first half and next year at $700,000 each. Like a 15 month build. I think that's the way, Ben you've got to look at it. You've got to put out the various ones and put some probabilities on them based on the information we give and as we move down the timeline further in the future we get more clarity, we're going to put more meat on the bone for you all, but one thing we're not going to do is we can't get ahead of the customer. I'm sorry.

Right. That makes sense. And so, I guess, not to be too nit picky here but you had the good book-to-bill and unmanned in the quarter. And if we take that let's call it like $60 million of bookings out from the overall company, you're left with maybe about $80 million of bookings are about 0.6% book-to-bill for KGS. How does that kind of square up with your expectation for strong revenue growth in space and that overall segment kind of...

Sure. So in the last six months of last year, our book-to-bill ratio on our space segment was 1.4 to 1 which is typical for that business as if the bookings come in typically around the federal fiscal year-end.

And Ben, what I think it's important to note is of the LTM book-to-bill of 1.1 to 1 for KGS which is outside of the unmanned systems business. That was a 1.1 book-to-bill for that -- for the last 12 months. So clearly for the quarter it was below that but and that's why we think it's important to look at the LTM metrics because the bookings can be lumpy from quarter-to-quarter but on an LTM basis it is over 1.1 to 1.

Okay. That's helpful. Thank you.

Sure.

Okay. Thank you.

Thank you. And our last question comes from the line of Noah Poponak with Goldman Sachs. Your line is now open.

Hi. I was hoping to make sure I fully understood or got an update on the items that slid out from 2018 on you last quarter or last year. So I know you had the DIU program slide and then there were the two services programs, if you could update us on the status of those? And then I had written down -- I know you were just asked about international but I had written down that you said what slid out of '18 you are actually not embedding in the '19 outlook and assuming it came in '20. So did I have that correct and how is it actually playing out versus that?

Right now, right. So we may be talking apples and oranges here. So to the first part of your question, items that slipped out from Q4, the DIU program, we had expected to get that in Q4. And as I mentioned we just met with the customer at the Pentagon. I think we're going to have the contract by the end of this quarter just like we said before Q2. But let's be conservative and say July but that is on track and then we're going to get additional funding by those customers before the end of the year. And then we're going to get even further customer in Q1 or Q2 or next year. So that that push out is coming back as expected. We talked about the radar program that we had won and another services contract that we had won where we had thought we would have 40 or 45 billets by the end of the year, and we did not have those billets, and we said we hope to be back on track by the middle or Q3 of next -- of this year. I don't know if we're going to get there candidly, but the business is strong enough elsewhere. We're going to make up for it. The other parts -- yes. So I don't know if we're gonna get there with those heads. And the issue there as I can see, I'm really glad we're not a services company, is because right now, with low price technically acceptable, it's very hard to get qualified people to do the billet rate and the billet job. So on those two what the numbers are increasing they're coming up from where they were last year. I do not know if we're gonna get to the 40 or 45 by Q2 or Q3. So but I'm not -- but I'm not worried about that one. On the other one you mentioned on the government shutdown and which impacted us exporting equipment, because we could not get the export licenses because those that office was impacted by the shutdown -- on those, we have shoved those out. I thought we -- I thought we said we have shut them up because no one of them is expected to go in Q3 or Q4 and the other ones in Q1. So I don't think that has changed, it's either one of them is late this year but there's definitely one that we stuck in Q1 of next year because they were doing F-35 ahead of guys like us.

Okay. Great. That's really helpful. Is it possible to quantify what's in the 2019 outlook then or what was in the original 2019 outlook for DIU and the two services programs? So we could understand the order of magnitude I respect...

Yes. So -- I don't want to -- on DIU, I don't want to say for a customer related purposes. I don't want to say. So I'd rather not give that specific on these.

All right. No problem. And one other thing I want to ask you about Eric, now that some of these hypersonics prime contractor awards are coming through, is hypersonic targets a thing that will be a business for you one day or is it already starting to be or is that too pie in the sky?

No, it is absolutely not pie in the sky, and the answer to your two questions are yes and yes.

So you already have revenue in the business for hypersonic targets?

I want to say, we already have revenue in the business from hypersonic systems, and as I said, we're expecting a meaningful task order now directly related to what you just said in the second half of this year related to a hypersonic system, and we are absolutely involved with the coming hypersonic targets, because if you want to defend against Russian or Chinese hypersonic weapon systems, you have to exercise your weapon systems against something, and so you need a target. So yes, sir. .

Okay. So but what -- with targets being separate -- systems being components that are in the prime contractors actual system versus targets being a completely separate thing. Just to make sure I have...

You're absolutely correct. We do not build a full hypersonic system. If you pull up half of the program's high fire or high cause and you look at the booster stacks on those hypersonic front ends, we are the booster stack. Those are two public ones I can mention.

Okay. Thanks so much.

Okay. Thank you.

Thank you. And I'm not showing any further questions at this time. I would like to turn the call back to Eric DeMarco for closing remarks.

Thank you very much for joining us all this afternoon. Our next regularly scheduled call will be when we report Q2 in early August. Thank you again.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a good day.+