I would say we are on the leading edge in the industry, including the big guys on a relative basis, of course, of robotics, 3D printing, automated manufacturing, We’re doing all those things and it’s another reason why our CapEx and our other stuff is going to remain up because we’re trying to offset the labor issue we have.
Ken Herbert: Great, Eric. Appreciate the color and good luck there.
Eric M. DeMarco: Yes. Thank you.
Operator: One moment for our next question. Our next question comes from Peter Arment with Baird. Your line is open.
Peter Arment : Yes, thanks. Good afternoon, Eric, Indiana. Hey, Eric. Where are you in the development of engines for your own drones. Have you, I know you had talked about that was one of the areas that you had focused on way back when, but what can you say on that?
Eric M. DeMarco: Well, let me let me so we have now received a contract from a US government agency. And we are integrating, running Kratos engines into certain of our tactical drones and our target drones. We’re doing it right now. We’re going to be doing that throughout 2024 And hopefully this time next year or shortly thereafter, we will be — I believe the only company in the world totally vertically integrated airframe, electronics, etcetera, and engine with flying aircraft. Pete I’m glad you asked. We’ve made — the team has made significant progress. We’re under contract or integrating Kratos engines into Kratos aircraft.
Peter Arment : Yeah, that’s helpful. That’s very nice. And then on just in general on Valkyrie and maybe we’ll just focus on Valkyrie. Do you still anticipate that this is just going to be another year of a lot of test flights. I mean you still continue to be kind of in this lead position, but just like the Marine program, PAC program, I mean, that’s a new development and obviously they’re going to continue to test flight. How do you how do you see this kind of playing out?
Eric M. DeMarco: I learned my lesson in 2019 and in 2020, even when the customers came out publicly and they said we’re going to start ordering Valkyrie or other Kratos planes in quantity. And because of either change in personality, the government or change in policy. It didn’t happen. I’m going to — Pete, I’m going to be very cautious. I don’t know, but on the optimistic side of the point you made, we are flying with multiple customers right now. We’re the only one flying. We’re the only one with aircraft. We’re doing all types of mission systems, including with artificial intelligence. I believe that this will happen. I mean, replicator, I think is just another indication. This is going to happen. And we’re going to be there what it happens and we’re going to participate. And I’m sorry, I’m just — I’m going to be cautious, brother, on this one.
Peter Arment : Yes, no worries. I figured I’d ask. But on the target side, should this business be ramping up further just given all the sort of national security implications that we’re seeing on missile defense and other activities? You do you expect that — should be a bigger business.
Eric M. DeMarco: Yes. You will see 2024 will be a significant increase in our unmanned systems revenue, primarily from target drones at multiple customers that are ramping up their utilization and also in our rocket business, ballistic missile targets and other rocket propelled targets, you’re going to see a significant increase there at point. We have the orders in 2024, which again ties into my optimism that we’re going to generate the growth we have. Our Target’s business says are ripping. And obviously it’s because of what’s going on geopolitically in the world.
Peter Arment : Makes sense. Thanks for the comments.
Eric M. DeMarco: Yes, sir.
Operator: One moment for our next question. Our next question comes from Josh Sullivan with The Benchmark Company. Your line is open.
Josh Sullivan: Hey, good evening.
Eric M. DeMarco: Good evening, sir.
Josh Sullivan: Just as far as the Sierrea acquisition, how much of the $77 million 5GAT contract is yet to be consumed as the deal closes here?
Eric M. DeMarco: Is yet to be incurred, Josh?
Josh Sullivan: Yes. Exactly.
Eric M. DeMarco: Yeah. The vast majority. They received the contract approximately two months 60 days prior to us acquiring them. As I mentioned, and as I think we’ve been partners with Sierrea and the family that owns it for a long time. And so the significant majority of that program, we will execute with the Sierrea team.
Josh Sullivan: Got it. And then just as far as the new Thanatos or Athena customer that you mentioned in the opening remarks, are you able to say if that customer is a government service branch or another defense contractor?
Eric M. DeMarco: I am not able to say. I’m sorry.
Josh Sullivan: Got it. All right. Thank you for the time.
Eric M. DeMarco: All right.
Operator: One moment for our next question. Our next question comes from Joe Gomes with NOBLE Capital. Your line is open.
Joe Gomes: Congrats on the quarter and thanks for taking my questions.
Eric M. DeMarco: Hey, Joe. Good afternoon.
Joe Gomes: Afternoon. So, Eric, in the previous question, you were talking about geopolitically. And I’m just wondering on the great quarter you just posted. The events that were in Ukraine, is that helping boost the revenues for you guys? Have you seen anything material coming from there?
Eric M. DeMarco: I can’t comment on what we’re doing over there. I’m sorry.
Joe Gomes: No worries. And then if we put aside the continuing resolution and the labor issues for a moment, what else do you see as kind of the biggest challenge to achieving the growth you’re hoping for in 2024?
Eric M. DeMarco: Just putting aside tactical drones. So just talking our base case, and putting aside people, which is app, which is number 1, 2 and 3 are operational challenge right now. It’s — we have to build a lot of stuff. Our space team has to do a lot of software delivery of OpenSpace. It’s just a lot. We are ramping across the company. And with ramp comes risk and challenge. And so just the ramping, we have to get those engine factory setup. We’ve got to do that. We’ve got to do it seamlessly, efficiently. We’ve got to make sure we do it in conjunction with the applicable program office. So just those types of operational execution types of things are the biggest drivers. And then I’ll say this one. I don’t see it being an issue, but I want to mention it specifically in our space business.
That’s an international business. And they’ve got some very big well known customers across the globe that are existing customers that we have some large and midsize proposals in on. If those get delayed, two or three months here, two or three months there, that could move some things out of next year into ‘25. That could be a risk too. Totally outside of our control, but that kind of stuff happens internationally.
