Eric M. DeMarco: Mike, let me give you a little more color on that. I want to. We’re standing up an engine production line. We’re going to be standing that up. It’ll be done by the middle of next year. Because we’re anticipating going into production on at least one engine. So we’re standing that line up. We’ve stood up a new line in the tactical drone area for something. That will be stood up by the end of Q1, middle of Q2. These are for programs that are funded. So we’re spending some money to get we’ve won these programs. We’ve won development. Now they’re going into production. We’re standing these up and that’s going to take some capital as well.
Deanna Hom Lund: As well as the second lot of the Valkyrie production that we announced that we started earlier this year. So that will be ongoing throughout 2024 as well.
Q – Michael Ciarmoli: Got it. All right. Thanks guys. I’ll jump in the queue.
Operator: One moment for our next question. Our next question comes from Mike Crawford with B. Riley Securities. Your line is open.
Mike Crawford: Thank you. And thanks for providing some color on some of these other drones under their development in addition to Valkyrie, like Thanatos and Athena. Another one that you won a couple of years ago, a AFRL award for the offboarding sensing station, the OBSS contract, which is I think, the derivative drone out of that is your demo gorgon. Is that one that’s still featuring in your plans?
Eric M. DeMarco: It is we are not involved with OBSS at this point, Mike.
Mike Crawford: Okay. And you also mentioned the three year $77 million 5GAT contract. I imagine that there’s no reason you wouldn’t come to execute on the same playbook you’ve used with targets in the past and develop the fifth generation, actual tactical drone out of the 5GAT. Is that a process that’s already starting or something you’re going to decide on next year?
Eric M. DeMarco: I’m sorry, Mike. No. I can’t comment on that. I’m sorry.
Mike Crawford: Okay. That’s fine. Just may maybe switching gears to OpenSpace. So you’re first to market with this virtual networking solution that goes way beyond just you know, tracking and telemetry and control. And are there any bottlenecks that you see with your solution will be a data radio or something else that when you’re trying to connect all these disparate networks.
Eric M. DeMarco: I don’t I do not believe so. The team that the president of that, that Phil’s pulled together and created. They’re incredible. These are some of the if not, the greatest technologists, not only in the company, but in the entire industry. And the speed that they have developed OpenSpace to address existing hardware elements on the ground to virtualize them to interface with space, the speed of which they have mastered the technology of the RF or analog signal coming down, converting it to IP. So now it’s virtualized, which means the entire backbone can be virtualized is incredible to me. And I do not believe there’s an issue, Mike, relative to what you asked.
Mike Crawford: Okay. Thanks, Eric. And then maybe just — you know what I’m going to leave it there. Thank you.
Eric M. DeMarco: Okay. Thank you.
Operator: Our next question comes from Ken Herbert with RBC Capital Markets. Your line is open.
Ken Herbert: Hey, good afternoon. Eric and Deanna, nice results this quarter.
Eric M. DeMarco: Good afternoon, sir.
Ken Herbert: Hey, Eric. Maybe just to start off, I wanted to see if you could level set us on maybe the revenue run rate for the Turbine Technologies business? And, how much of growth in 2024 can that perhaps contribute? And then maybe more importantly, you’ve had some nice wins there recently, but can you talk about the pipeline in that business in particular? Because it sounds like it’s expanding pretty rapidly.
Eric M. DeMarco: Right. So level setting that business, think of it going from approximately $70 million to $75 million to over $100 million in 2024. So that’s the type of trajectory that it’s on. Programmatically, the big programs are in no particular order, but these are the big ones are with our partner Rolls Royce on the B52 reengine. I’m not allowed to say the name, but we’re involved with companies that are doing lunar landing. And maybe beyond the moon, those types of engines, those companies. We’re involved with agencies for engines for drones and KTT’s engines, certain of KTT’s engines right now. Are being integrated into drones. All of this I can’t talk about other than what I just said. We have the program with Boom.
So we’re designing a supersonic engine. For a for Boom Supersonic. That’s a big one. And then we have a number of programs with the Air Force and or the Air Force Research Lab that we are working on turbojets and turbo fans for drones and cruise missiles and loitering munitions. And we are — we have a very specialized aspect of that business that’s an MRO for helicopter engines that is doing phenomenally. If you’re designed in on legacy systems right now, there are very few new starts in certain areas which means the legacy systems have to survive and keep flying for years. And if you’re in some of those niches on certain helicopters that we are that business is very powerful because there are no replacements coming.
Ken Herbert: Okay. Very helpful. And if I could, just one follow-up on the slower pace of EBITDA growth into next year. And obviously, the margin pressure you talked about from staffing and specifically the specialized people you need, it seems like this has obviously been going on for quite a while as the industry is going through some pretty substantial growth. How much are you looking at maybe other geographic locations or maybe sort of significantly changing maybe where you’re recruiting or other maybe approaches to that because it seems like that’s clearly holding you back a little bit. It has for quite a while in terms of some of the opportunities.
Eric M. DeMarco: Yes. So on the first part of your question, I want to make sure I clarified that I was clear. In our base case, assuming we get a budget in a reasonable amount of time, and we do 10% year-over-year growth. We’re going to expect our EBITDA margins to increase at a greater rate than that. So we’re expecting significant EBITDA margin growth. I’m saying it’s being held back. By the cost inputs including labor. Okay. So I want to make sure I’m very clear, okay. We are absolutely we are studying everything that you mentioned, different geographics, educational areas, technical schools. Mike, this is a supply demands problem. There is – Ken excuse me, Ken, there’s no supply of qualified people or people that want to get qualified.
People that want to get a security clearance can. It’s not there. And there is a recapitalization of strategic weapon systems occurring for the obvious reasons. And in addition to that, we have new space companies that are hiring these people because they want to go to Mars or Venus. There’s just an incredible demand and there’s not enough of them and they’re being bid up, which is why we are — now I’m going back to a question Mr. Ciarmoli — Ken, I’m really glad you asked this. We are putting a significant amount of money in robotic machinery, 3D printing. Automation. We’re standing up a center of excellence to produce very, very unique elements for our engines. We’re making significant capital investments to address that we can’t get the people, so we’re going to automate the heck out of it.
