Brian O’Toole: Yes. Thanks, Greg. Yes, just under EOCL, just we’re performing really well under that contract and meeting all of our delivery requirements. And also as a reminder, we had some reported in earlier quarters, our successful integration with the government’s commercial interface. So all that is going well. And because that interface is in place, it’s driving higher distribution within the government and use of our data and critical intelligence activities. We are in active discussions for renewal agreement to continue service and by the annual service date, which is in June.
Gregory Burns: I guess you don’t know exactly if they’re going to just — what are the options? Like how could this play out for you? Will they — can they fund another tranche and layer that on top of the existing revenue, extend the revenue? Like what are the scenarios that potentially play out with this renewal for you?
Brian O’Toole: There’s multiple options that are being discussed. First and foremost is the renewal of the base subscription, and then there’s additional options on top of that to continue the service for Gen-2 capability that we have now. Gen-3 type services will come later after we get those satellites on orbit.
Gregory Burns: And then with the Gen-3s, what is the turnaround time from launch to operations?
Brian O’Toole: Typically, in the past, after we’ve had a few launches, we’ve been able to bring satellites into operations within 24 hours. But we expect with the Gen-3, it will be 60 to 90 days since these are brand-new satellites to get those commissioned, and we’ll have a regular launch cadence that goes along with that. So we will quickly ramp operations.
Operator: We’ll go now to Edison Yu with Deutsche Bank.
Xin Yu: First, can you just clarify on the $24 million that you’re getting from the customers, what exactly is driving that delay?
Brian O’Toole: Edison, the delay. Can you clarify?
Xin Yu: Sorry, the timing, the $24 million in cash, I think you had mentioned that you already recognized the revenue and costs, but haven’t billed for yet.
Brian O’Toole: Yes. Let me hand it over to Henry on that one.
Henry Dubois: Edison, this is Henry. Yes. What that is, is we make progress against various milestones on a couple of these large international contracts we talked about. And because we recognize the revenue and the cost, they’re already sitting there in our revenue and cost account. So we’ve got the margins already baked in. However, because we only can bill against actual milestone completion, they’re sitting in our other contract assets at the moment. And we would expect as we hit those milestones, that we’d be able to bill and that would be cash directly to the balance sheet because we’ve already incurred the associated cost with that revenue.
Xin Yu: And would that be coming in 2Q? Or is that spread throughout the rest of the year? How [indiscernible] timing?
Henry Dubois: It’s probably spread over the next — it’s going to be spread over the next 12 months.
Xin Yu: Okay. And then on the — I guess, on the growth for I&S, it seems to be kind of in the — if we average it out the last 3 quarters, kind of mid-teens. I’m curious, do you think that can step up as we go forward? And what sort of a more, I guess, normalized growth considering on the backlog you have?
Brian O’Toole: Well, I think there’s a couple of things at play here, Edison. We remain highly focused on capturing long-term anchor defense and intelligence customers through a land and expand strategy, and that’s working. You can see the results through those large contracts and their renewals. We also announced this quarter a number of new customers starting out with an initial kind of 6-figure pilots that then grow over time. I mean what you’ve probably witnessed is really a step function as we go through bringing on to these new customers and the ramp of those services. And then we anticipate a decent step up as we begin to get Gen-3 online.
Xin Yu: And last one for me. You’ve got all these contract wins, obviously, could you maybe share anything about win rate? Or how, I guess, the competitive dynamics are? That would be helpful.
Brian O’Toole: Yes. I would say, Edison, we’re not — because of what we offer, which is this unique high-frequency dynamic monitoring capability, this is a new capability for most of these customers. So we’re not in a so-called head-to-head competition. It’s more of an adoption type curve. So we’re just incrementally bringing those customers on, and they’re adopting our services and integrating it into their environments.
Operator: Next, we’ll hear from Jaeson Schmidt with Lake Street.
Jaeson Schmidt: Brian, I just want to follow-up on you noting sort of those 10 6-figure contracts and renewals in the quarter. Is this pretty consistent with past quarters? Or is this sort of a step-up compared to what you saw in 2023?
Brian O’Toole: I think it start — we’re starting to see a step up. The — some of the sales cycles for these long-term customers are a little longer. And we’ve been in the market with our high-frequency capability now for 18 months. So I think you’re seeing the step up related to sales cycle timing and where we are in the market.
Jaeson Schmidt: And then regarding the Gen-3 satellites, I know you noted contracts in hand for this capacity. Are most of these contracts currently utilizing Gen-2 today like Indonesia? Or are they waiting for Gen-3 to launch?
Brian O’Toole: I would say almost all of these contracts are utilizing Gen-2 capacity today.
Jaeson Schmidt: And then just a last one for me, and I’ll hop back in the queue. Henry, I think this first quarter where you sort of eclipsed that 70%-plus gross margin. Should we think about this sort of the new run rate throughout 2024?
Henry Dubois: Well, I mean, as you can see in this quarter, we did hit about 81% on the Imagery and Analytics, and we did — we were able to deliver some pretty good performance on the professional services and engineering around the 44% or so gross margin mark. I mean as we go forward as long as we keep continuing our growth, I mean, we’re feeling pretty good. We have stepped up from where we were last year from 65% for the first quarter of last year to 71% overall for the first quarter of this year.
Operator: Our next question comes from Josh Sullivan with The Benchmark Company.
Joshua Sullivan: As far as Gen-3, what do you see as the largest technical manufacturing or otherwise hurdles that remain before we get to launch?
Brian O’Toole: As I mentioned, Josh, we’re in the final assembly and integration phase. So this is putting together all of the subsystems and assemblies and bringing that together into an integrated satellite and testing the software. So we’re in a normal position for satellite at this stage. And as I mentioned, we remain on track to begin launching the satellites this year.
Joshua Sullivan: And then as far as the Indonesian contract, what has been the response from other international prospects? You mentioned some new customer activity. Has that deal driven incremental interest in the pipeline?
Brian O’Toole: Well, we’ve — as I’ve been reporting the last year or so, there’s very strong interest and growth opportunities internationally. I think the Indonesian deal represents a new adoption model and a faster adoption model, which we can then bring to these customers and the conversations we’ve had ongoing for several years as we look to bring them on. So I think it’s just enhancing our ability to close these customers and accelerate programs with them over time.
Joshua Sullivan: And then just one last one. The comment on commercial applications in the prepared remarks that you mentioned there, where — what markets are you seeing early interest in that?
Brian O’Toole: I don’t think I commented on commercial applications.
Joshua Sullivan: There was a comment€¦
Brian O’Toole: Josh, I think maybe you’re referring to the commercial strategy for the Space Force.
