Wahid Nawabi: So the short answer is yes, but there’s a big but on that response. We are definitely the number one supply chain constraint for Switchblade remains the warhead for Switchblade, both 300 and 600. We have tackled all the other supply chain issues, and we’re getting those two from two major primes, primarily General Dynamics and Northrop Grumman. And both of them have constraints in terms of the capacity of producing that warhead. We are actively not only working how we can secure more warheads for Switchblade 300 and 600 but also to put in new warheads as you indicated on your comment. Now the challenge with substituting the warhead is that it has to go through a safety confirmation test and approval by the U.S. Army.
And that process is not only nontrivial but it also takes time because they’re backed up in a lot of other requests and activities related to this. Nonetheless, we’re focused on multiple fronts. We feel very confident about our forecast for this fiscal year. We’re really working on issues beyond this fiscal year because we believe that the demand for our Switchblade is going to continue to grow. We’re going to have one of the best years for our Small UAS and TMS this fiscal year, and I am confident that we’re going to be positioned extremely well for the next year as well. The order activity and demand is pretty robust both domestically and internationally, and I expect that to continue and those to transition into orders and leave us this fiscal year with a pretty healthy strong backlog going into next year.
Austin Moeller: Thank you.
Operator: Thank you. One moment please. Our next question comes from the line of Pete Skibitski of Alembic. Your line is open.
Pete Skibitski: Hey, good evening, guys.
Wahid Nawabi: Good evening, Pete.
Pete Skibitski: Yeah. So sorry, if you addressed this already, I got on the call a little bit late guys. But on the $86 million Small UAS contract with the, I guess, $176 million ceiling, the FMS contract. What’s the time frame for both of those portions, the $86 million portion and the larger portion? And then also, is that the one country or multiple countries?
Wahid Nawabi: So Pete, that order is the — historically, the largest FMS order we’ve ever recorded in the history of our company. It’s an exciting big order for our Pumas. It includes Puma LEs and Puma AE systems and spares and logistics. $86 million of that contract is funded today. The total ceiling value of that contract is approximately $176 million. Because it’s a contract that involves delivering hardware and logistics support and training, the tail of that will continue for another six months to 12 months even. But majority of the hardware will be delivered between the second half of this fiscal year starting this quarter and the beginning of next fiscal year. The — in response to how many countries, that is specific to one country, one country, and it just shows the power of our systems and the value that our customers place on our systems as part of their battle rhythms in their conflicts.
As you know, Switchblade has received a lot of notoriety and success in Ukraine and also have sort of attention, but Pumas are equally as effective and vital to the Ukrainian forces and their conflict against Russia. And we believe that it’s going to continue to be the case for not only Ukraine, but many of our other allies around the region and around the world.
Pete Skibitski: Okay. That’s an extraordinary contract. Congrats on that.
Wahid Nawabi: Thank you.
Pete Skibitski: And then just last one for me. On the Medium — on the MUAS segment, the steep loss there this quarter on gross margin and operating margin. I was just wondering, was there some strategic reason there for that loss? Was there a surge in R&D or some unusual mix or — I’m just wondering — because revenue was good this quarter in MUAS, but the loss was the largest since you acquired the firm. So I was just wondering what’s going on there?
Wahid Nawabi: Sure, Pete. So let me shed some light onto that. This is a one-time really accounting thing that took place and the math is pretty straightforward. We operate all these sites as a COCO, contractor-owned, contractor-operated sites for the U.S. SOCOM. Because of the attention to Ukraine and the conflict with Russia, many of the other activities around the world is getting less attention and less focus. So if the sites in the other parts of the world are reduced or the OPTEMPO is shrunk, then by accounting GAAP rule — accounting rules, by definition, it means the inventories that we carry as the assets — I’m sorry, the capital assets that we carry to operate those sites get accelerated in terms of its depreciation on our books.
That charge is directly a result of that. We still feel very solid and confident about our MUAS business in the long run. As I said in my remarks, we won Increment 0 and Increment 1 contract for FTUAS. We’re performing well against that contract. We’ve already started training the U.S. Army forces on those. We have shipped the product to them, and we’re looking forward to Increment 2 awards, which there is close to $100 million in the U.S. DOD budget for government fiscal year ’24. So long term, we feel very strong about our MUAS business and its process for growth, both domestic and internationally. That was a onetime depreciation — accelerated depreciation that resulted as a result of the slight reduction in…
