Again, those are all, I’m going to call it, either done or 2020. Probably the biggest one is Prometheus, which in the equity raise, I walked people through that it was not done, that we were on a football game. We weren’t quite in the red zone yet. We’ve been down selected. We won. We’re in the red zone. And hopefully, this will get done and be contracted by the end of this year. This could be the largest opportunity. This is an area that we’re in already. This brings a backlog. This is not a build it and they will come, but it will require a significant investment for this potential game-changing opportunity. Those are the primary items, Mike.
Michael Ciarmoli: Got it. That’s helpful. Just the last one. On Valkyrie, everything sounds like, it’s progressing. Obviously, you mentioned the supply chain, but I think in your comments, you said, maybe the order is sliding into ’25. It seems like a little bit of disconnect there. I mean, all this interest, but not getting the big orders. How are you get comfortable with all this investment, but not having the order in hand yet and still self-funding?
Eric DeMarco: Mike, we have two customers for two separate orders, two separate potential orders. It looks — I’m trying to be cautious. I think we’re going to get at least one of them this calendar year and the other one in the first half of next year. I’m going to be cautious and say first quarter of next year just to be cautious. But we’re again, unless something changes geopolitically, we’re confident, we’re going to be moving ahead here. If timing works out, Mike, the way I think it’s going to work out, we’re not going to have to pull the trigger on the additional ones, until we get one of those which you can understand means that hopefully it’s close.
Operator: And our next question coming from the line of Ken Herbert with RBC Capital Markets.
Ken Herbert: Good afternoon, Eric and Deanna. Eric, I wanted to ask you, it’s been a couple of quarters now that you’ve more publicly talked about the shift from a prime to more of a merchant supplier and it clearly sounds like, you’re getting some traction in a number of these areas. How would you sort of characterize your success in this relative to your plans? And as you think about these new opportunities, maybe what percent would you think about as a merchant supplier or subcontractor relative to sort of ongoing dependence to win things as a prime?
Eric DeMarco: As I talked about a little bit on the last call, Ken, we sit back and we look at probability of win and the required Kratos investment to win it. There were certain areas that are our sweet spot that are not other sweet spots, certain companies of which talked about in the past two weeks. For example, our sweet spot in the drone area are low cost reusable, disposable or treatable drones. That’s our sweet spot. We expect to win those programs. Certain companies in the past, publicly they discussed that that’s not their sweet spot, their sweet spot is exquisite. There would be an area where it might make sense for a partnership one way or the other, where the probability of win together is higher on one if not on the other.
There’s an example, okay. In the air defense area, I mean, our primary partners in air defense systems, CUAS systems, missile systems, radar systems, or I’ll call them the big three. It’s Raytheon, Northrop and Lockheed. They are our true partners and they’re great to work with, and in no particular order, Patriot is a significant Kratos program. That’s Raytheon. Integrated Battle Command System is a very significant program, that’s Northrop. THAAD and multiple CUAS systems, Lockheed Martin. IFPIC, Enduring Shield, were partnered with Dynetics. Each one of those, it made all the sense in the world to partner with, these are outstanding legacy traditional Prime System Integrators, where we win and we can support all of them and help them to execute their mission for the customer.
That’s how we’re looking at it and we’re trying to pick our spot for the highest probability of win.
Ken Herbert: That’s helpful. And as I look at the incremental sort of next production lot on the Valkyrie, can you talk at all about for the second ’24, how your assumptions around pricing or real pricing that you might achieve on that have evolved or maybe changed or improved since some of the early production lot or the initial production run?
Eric DeMarco: Yes. I’m talking generally now, because it depends on the version or the increment and the capability of the aircraft. On the learning curves now, depending on quantity, so for example, we submitted a ROM for a few dozen to a customer at $4 million each for a certain variant. There is another variant that’s flying today. It’s about $5.5 million or $6 million each. And then there’s a third one. We haven’t talked about it much. I’m not going to get into it a lot here. Hopefully, by the end of the year, I’m going to be able to talk about it. It’s closer to $10 million and it’s a beast. It depends on quantities, variant and the customer we’re working with.
Operator: And our next question coming from the line of Mike Crawford with B. Riley Securities.
Mike Crawford: Thank you. Can you just run through please some of the top opportunities, including converting Valkyries from CapEx to revenue per second fleet revenue recognition, where you would generate revenue and operating earnings kind of ahead of what you’ve guided?
Eric DeMarco: Opportunities that are not in the base case?
Mike Crawford: Yes.
Eric DeMarco: Okay. Tactical drones is number one. We have no production of tactical drones in the base case. It’s still RDT&E and S&T. That’s number one. Number two is these engine production runs. We have very little, if anything, in there for these engine production runs we’re hoping to receive. Number three, it’s Zeus and the hypersonic flyers. We’ve included nothing because the systems weren’t done, now they’re done. The first flight of a system is coming up in the next several weeks and the first flight of another system, Zeus related, is later this year. Now that these systems have worked and I believe once we do these initial flights, it’s possible based on the backlog for certain types of assets that need to be flown, that could be an upper that is absolutely not in our plan.
A fourth one, it’s a program we’re under contract for on a certain engine. It’s one of the largest programs in our Engine group. The customer has recently come to us and asked us for expanded scope for a different aspect of this engine to pull it into the left. If we can hire the people, and that’s a big challenge, Mike, we can hire the people that will absolutely give us opportunity to beat our numbers soundly. Those are four areas right off the top of my head. Mike, the biggest item across the entire portfolio is people. If we could obtain and retain the people, we’ve got the backlog to exceed what we’ve got out there. But it’s challenging, especially with the people that have security that need to have security clearances.
