Mike Crawford: Okay. And then, just one final. Previously, you talked about space, which has been for the past few years. It is your biggest and has been among, if not your fastest growing business. But this year was supposed to be a year of consolidation, whereas flat, yet it was you were up nicely year-over-year in Q1. I’m wondering if you’re now expecting a little bit of growth there. And also if you could just tell us a little bit more about this new space customer, what you’re doing for them with their satellite?
Eric DeMarco: Yes. Let me take the second one first, because it’s the easier one. The second one first is, this is an established company. It’s a larger profitable company. I said new space, Mike that may have thrown people. It’s new to us, but it’s not a new space company. It’s new to us, it’s not a new space company. They’re putting up a new constellation and they just selected us in the past couple of three weeks to be part of the Microwave Electronic system actually on the satellite. This could be initially several tens of millions of dollars to us initially. It’s because over the past year and we’ve tried to lay this out, we’ve been successful on three or four other satellites with our Microwave Electronic satellite programs.
We’re getting a reputation now. This is why we’re one of the reasons we’re expanding our space qualified facility. This is brand new work, new constellation, large company, public company and it looks very, very, very good for us. On the first part of your question, our Space business. Yes, as you mentioned, last year, our Space business organic growth was like 13% or 15%. We did a little bit in Q1. But as I mentioned on last quarter’s call, this is the business within Kratos that absolutely could be and it is being most impacted by the continuing resolution, the delay. Also as you all may have seen, I knew this, but it’s out there publicly now. There’s a reprioritization of certain space assets going on within the Air Force, the Space Command, the Space Force.
None of this is bad. It means things are going away. But it means decisions haven’t been made yet. They’re probably not going to be made. Things are moving to the right. We factored all of this in to our guidance, when we gave it for our space business. The other piece is, as you know, our OpenSpace is virtualized software defined ground station. Its primary best case scenario is for a software defined satellite, where software defined satellite is reconfigurable, reprogrammable depending on the mission. The ground equipment at Kratos is a software you can reconfigure with it. That’s why we win right there. As you may have seen, a number of the software defined satellites, particularly in the commercial area, are being pushed to the right. I believe that Airbus actually came out and talked about it.
They were very big customers around the world, but were directly related to Airbus and their satellites. That’s moved to the right. We built those moves to the right of those launches of those software defined satellites into our forecast. Those are the dynamics we’re dealing with. There’s a lot going on in the space area, but I’d leave you with this. The number of satellites that are going up and that are forecast to go up militarily, national security and commercially is incredible. It’s in the thousands, the tens of thousands, even with optical links, they need touchdown points. We’re the touchdown point guy and that’s why we feel good overall about the business.
Operator: And our next question coming from the line of Seth Seifman with JPMorgan.
Rocco Barbero: Good evening. This is Rocco on for Seth. How should we think about the growth trajectory at KGS for the rest of the year? Should we think about sequential growth in the coming quarters or could it possibly take a step back?
Deanna Lund: In the annual guide we gave, we haven’t updated guidance from a quarterly perspective by segment, but the annual guidance we gave was roughly 20%, 25% for unmanned systems. And then that then implied approximately 6% annual growth for KGS. That has remained unchanged with the original annual guidance we gave.
Rocco Barbero: Okay, great. And then can you provide more details about the Apollo and Athena drones and how they compare to Kratos’ other offerings?
Eric DeMarco: Yes. These are more on the disposable side than the attributable side. Similar to virtually all of our other tactical drones, their legacy came from our target drones. On one of them on Athena, I believe that, either next quarter or by the end of the year, we are going to be able to actually talk about this platform. I’m hoping to if the customer will allow it. On Apollo, I doubt it, because very candidly, I doubt it, based on the application. What’s happening there is one of the two reasons. One of the reasons why our unmanned drone business is doing so well because of these derivatives of our target drones and what we expect them to continue to do going forward.
Operator: [Operator Instructions] Our next question coming from the line of Joe Gomes with NOBLE Capital.
Joe Gomes: Good evening. Thanks for taking my questions. You talked about staffing and Deanna gave us some numbers. How much more staffing do you need to move forward or to get some of these potential business really moving forward?
Eric DeMarco: Let me give you an example, Joe. On one particular KTT program, we could take 30 to 40 additional right now, time and material contract. It’s one of the highest margin in the company and put them to work. It rates $200 to $250 an hour. We’ve got another one in the engine area. It’s just under 30 people we could put to work immediately. Let’s go to the unmanned drone area. It’s very challenging here because of what’s going on in the industry, not just with drones, overall aircraft, what’s going on with aircraft. There’s a program that we’re about to get. I believe it’s 30 people or 40 people right out of the chute. It’s going to be a challenge and we’re working that with the customer on potentially how to sequence them in and on board them, because obviously we’re a public company, we don’t have the luxury of going, I wish we could do this.
We could go out and we could have 50-ish of these types of engineers on the bench. They’d be an overhead until the program ramped up, which would impact our margins. But if we could do that, we could even further accelerate the growth rate. But it’s a balancing act between quarterly profitability, quarterly execution and onboarding these people for these programs.
Joe Gomes: Thanks for that. On the supply chain and your vendors, a lot of potential growth here that you talked about, Eric. How confident are you in that, they’re going to be able to keep up with all this expected growth? Is there going to be any type of bottlenecks there?
