Focused on drone business, Kratos hires retired four-star, partners with another contractor

By Marjorie Censer / July 12, 2018

Kratos Defense & Security Solutions, readying to grow its tactical and target drone businesses, has opened a new facility, teamed with another contractor to bolster its capacity and hired a former four-star Air Force general as a consultant.

In an interview with Inside Defense this week, Eric DeMarco, Kratos' chief executive, said the company expects its target drone business to grow significantly this year. He said that work is slated to generate about $150 million in sales this year, double its revenue two years ago.

Kratos produces target drones for the Navy, Air Force and Army and has received some international orders, according to DeMarco.

DeMarco said he's also preparing for growth in the company's tactical drone business. The company has several drones -- including the Mako and the Valkyrie -- expected to soon move into production, he said.

This shift -- from investment to production -- will eventually appear in the company's bottom line, according to DeMarco. Though revenue has been increasing, reaching nearly $752 million in 2017, the company still reported a loss of about $43 million for the year.

"Investments are coming down, which means our profitability and our cash flow starting next year is going to start to accelerate," he said.

At the same time, Kratos is "deemphasizing" its traditional government services work, which DeMarco said generates about $60 million in annual revenue. "It's not core to our strategy," he said.

Earlier this year, Kratos opened a new facility in Oklahoma City, OK, to produce its tactical drones. The company's Sacramento, CA, facility has been focused on target drones.

DeMarco said Kratos has also built a relationship with a "small to mid-sized government contractor" -- which he declined to identify -- "that is qualified with certain of our customers."

"If we need their assistance as a subcontractor or as a teammate to us to build some of the aerostructures or to do some of the system integration on some of these drones, they're going to do it with us," he said, using both Kratos facilities and those of that company. "It's highly likely we're going to be utilizing them."

DeMarco said Kratos isn't pursuing new acquisitions.

"We have so many new programs that are beginning production or are ramping production," he said. "We are going to focus and execute."

Kratos has also recently signed a consulting agreement with Air Force Gen. Doc Foglesong, who retired in 2006. He will be focused on bolstering the company's tactical drone business, DeMarco said.