Frequency Electronics, Inc. (NASDAQ:FEIM) Q1 2025 Earnings Call Transcript

Frequency Electronics, Inc. (NASDAQ:FEIM) Q1 2025 Earnings Call Transcript September 10, 2024

Operator: Greetings, and welcome to the Frequency Electronics First Quarter Fiscal 2025 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. Any statements made by the Company during this conference call regarding the future constitute forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements inherently involve uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences are included in the Company’s press releases and are further detailed in the Company’s periodic report filings with the Securities and Exchange Commission.

By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes after the date of this conference call. It is now my pleasure to introduce your host, Thomas McClelland, President and Chief Executive Officer.

Thomas McClelland: Thank you. Good afternoon, everyone. I’m pleased to report our first quarter results coming in very much in line with expectations as articulated when we reported the fiscal year 2024 results. Revenue for the first quarter of fiscal year 2025 increased by 22%, and operating income improved by 15% compared to the first quarter of previous year. We believe revenue, profits and margins should continue to increase going forward. The backlog of $70 million at the end of Q1 is down slightly from the high of $78 million at the end of the last fiscal year, but it’s up substantially from previous years, and represents a historically high value for the company. We continue to win significant production contracts in our primary end markets of space, navigation, secure communication and timing, and anticipate healthy margins on these.

This creates some breathing room to work on developing new technologies and also to participate in higher risk programs targeted at developing products for low cost proliferated satellite systems. In fact, we are beginning to see some success in these endeavors in two primary areas that have much larger addressable markets than our core legacy offerings have historically enjoyed. First, we’ve won some initial contracts for developing low cost synchronization systems for proliferated satellite programs. We’ve had a number of questions on prior earnings calls about our ability to participate in the market for so-called small set programs, which are generally lower cost and produced in higher numbers. These initial contracts are a good indication of our ability to successfully compete and win in this large and growing portion of the space market.

Second, we are also attracting outside funding for quantum sensors. As one example, we are working on quantum magnetometer applications, which utilize some of the physics building blocks of our core atomic clock technologies and can be utilized as sensors for navigation purposes in GPS denied environments. This is just one of several new quantum applications which have been developed in physics laboratories around the world in which our company is well positioned to transition from the laboratory into developed products which work in challenging real world environments. Quantum is also very large and growing end market, and we are excited about our prospects for participating in it. In order to stimulate further progress in quantum sensor technology, our company is sponsoring a quantum sensor summit in New York City in early October.

This scientific conference will bring together leaders from government, university, and private sector laboratories to discuss sensor technologies and how best to realize their potential, and also to ensure that our country maintains a leadership role in this arena. We are excited about the enthusiasm which has developed around this event. Details related to the event are available at the Frequency Electronics website for anyone interested. All-in-all, this is an exciting time for our company. Combining the disciplined approach to our core business, which is growing with a studied approach to new technologies which can sustain us and foster additional growth in the future, puts us on a solid positive trajectory as a company. The excitement is tangible.

As I engage with our employees on a daily basis, there is an enthusiasm and drive apparent, which frankly is unique in the 40 years I’ve been at FEI. With the support of our Board, we’ve incentivized employees and fostered an environment where everyone benefits from the success of the company. There is plenty of hard work ahead of us, but I’m personally energized and committed to the continued growth of our company. I’ll now turn things over to our CFO, Steve Bernstein, who will fill you in on the financial details.

Steven Bernstein: Thank you, Tom, and good afternoon. For the three months ended July 31, 2024 consolidated revenue was $15.1 million compared to $12.4 million for the same period of the prior fiscal year. The components of revenue are as follows: Revenue from commercial and U.S. Government satellite programs was approximately $8.3 million or 55% compared to $4.9 million or 39% in the same period of the prior fiscal year. Revenues on satellite payload contracts are recognized primarily under the percentage of completion method and are recorded only in the FEI New York segment. Revenues from non-space U.S. Government and DOD customers, which are recorded in both the FEI New York and FEI-Zyfer segments were $6.3 million compared to $6.9 million in the same period of the prior fiscal year, and accounted for approximately 42% of consolidated revenue compared to 55% for the prior fiscal year.

Other commercial and industrial revenues were approximately $544,000 compared to approximately $672,000 in the prior fiscal year. The significant increase in revenue for this quarter compared to the same quarter in the previous fiscal year was reflected in both segments and primarily related to increases in government space of approximately $3.4 million in sales from space U.S. Government customers offset by a decrease of approximately $0.5 million in sales from non-space U.S. Government customers. For the three months ending July 31, 2024, gross margin and gross margin rate increased compared to the same period in the prior fiscal year. The gross margin dollars increased mainly due to the increase in revenue and the gross margin rate increased due to the fact that many of the technical challenges faced in prior fiscal year have been resolved, and as a result, the related programs are now moving forward and running more efficiently.

Additionally, there were many smaller jobs that were completed at higher margins. This is the highest gross margin the company has recorded on a consolidated business in the last 24 years, and while they will likely still be quarter-to-quarter variability, we believe this is indicative of a direction we can continue to move in when we are producing efficiently and solving engineering challenges in a timely manner. For the three months ending July 31, 2024 and 2023 SG&A expenses were approximately 19% of consolidated revenues. The increase in SG&A expenses is related to an increase in payroll-related expense. R&D expense for the three months ending July 31, 2024, increased to approximately $1.5 million from $506,000 for the three months ending July 31, 2023, an increase of approximately $982,000 and were approximately 10% and 4% respectively of consolidated revenue.

R&D increases for the three months ending July 31, 2024 was primarily due to a focus on advances in modernization of products. The company plans to continue to invest in R&D in the future to keep its products at the state-of-the-art, however, we expect the actual quarterly spend to vary. For the three months ending July 31, 2024, the company recorded operating income of approximately $2.4 million compared to operating income of approximately $2.1 million in the prior fiscal year. Operating income increased due to higher revenue and gross margin percent offset by higher R&D spend. Other income expense net is derived from various sources. The income can come from reclaiming of metals, refunds or sale of fixed assets, interest expenses related to deferred comp payments made to retired employees.

The majority of the approximately $0.2 million of investment income for the three months ending July 31, 2024, was from assets in high yield treasury funds. This yields a pre-tax income of approximately $2.5 million for the three months ending July 31, 2024, compared to approximately $2.1 million pre-tax income for the three months ending July 31, 2023. For the three months ending July 31, 2024, the company recorded a tax provision of $133,000 compared to $7,000 for the same period of the prior fiscal year. Consolidated net income for the three months ending July 31, 2024 was approximately $2.4 million or $0.25 per share compared to approximately $2 million or $0.22 per share for the same period of the previous fiscal year. Our fully funded backlog at the end of July 2024 was approximately $70 million compared to approximately $78 million for the previous fiscal year ended April 30, 2024.

The company’s balance sheet continues to reflect a strong working capital position of approximately $21 million at July 31, 2024, and a current ratio of approximately 1.5 to 1. Additionally, the company is debt free. The company believes that its liquidity is adequate to meet its operating investing needs for the next 12 months and the foreseeable future. I will turn the call back to Tom and we look forward to your questions shortly.

Thomas McClelland: Thanks, Steve. We can now start the question session.

Q&A Session

Operator: Thank you very much. We will now open the floor for questions. [Operator Instructions] Okay. Our first question is coming from George Marema of Pareto Ventures. George, your line is live.

George Marema: Yes. Hi. Thank you. Tom, I want to ask you a little bit more about this technology. Well, first, are you guys working on any MEMS technology instead of crystal oscillation technology?

Thomas McClelland: We are not internally developing MEMS technology, but we do utilize MEMS technology in some of our products. Of course, the MEMS devices, MEMS resonators don’t perform quite as well as the quartz – the best quartz resonators. And of course, it’s the high performing applications that are our specialty. But there’s definitely a place for the MEMS resonators in particular. They’re very good in terms of high vibration environments. And so we are utilizing these devices in several of our newer products.

George Marema: If you can say whether or not, do you have any involvement in the DARPA Chip-Scale Atomic Clock work?

Thomas McClelland: Currently, we do not – we’re not directly involved in any chip-scale activities at DARPA we have been in the past. We have participated on several of the efforts in the Chip-Scale Atomic Clock, just going back five to 10 years. But currently, we do not have any Chip-Scale Atomic Clock involvement with DARPA.

George Marema: Okay. And my next question is either for you or Steve. But on the R&D expenses this quarter, can you illuminate some of that? It kind of went up – looks like about a $1 million year-over-year. Is there any one-time aspect to that? Or is that a run rate we should expect? Or can you give some commentary about the R&D line?

Thomas McClelland: Yes. I’d like to comment on that. I think that you should not extrapolate that out into the future. I think you do have to realize that something that’s going to fluctuate from quarter-to-quarter. And I know it is a little bit higher this quarter. But yes, we do not anticipate significant increase in overall R&D expenditures going forward.

George Marema: So it looks like this quarter was, what it’s called $1.5 million to round off. What would be sort of – well, how much of the $1.5 million would you say is more sort of non-steady state of that? I guess the spirit of the question is to try to get some like for the full-year anchoring of expectations there roughly?

Thomas McClelland: Yes. I think a third to a half of that is probably unique. We have some development efforts, which have been partially funded by some of our customers and partially funded by us. And this happens to be a quarter where the activity, the funding from our customers is more limited and so we’re taking on a bigger part of the development effort. But I think that we anticipate overall R&D expenditures for the year. What have we planned, Steve? I think approximately $3 million.

Steven Bernstein: [$3 million to $4 million].

George Marema: Okay. That’s helpful. This gives some idea. And then same for selling it administrative, it didn’t go up that much. But it’s up like $500,000 year-over-year. Is there anything unusual about the quarter or is that sort of a steady-state now?

Thomas McClelland: Steve, that’s question…

Steven Bernstein: No. I believe it’s a steady-state. Also, remember, it’s a comparison last year. So the end result is things went up 3% to 5%, whatever some a little higher, some a little lower. But I think it’s going to stay constant. It’s not going to continually grow.

George Marema: Yes. Okay. And the gross margins were really nice this quarter. I know you mentioned in the commentary. I think Steve mentioned that there were some smaller projects with some higher margin. And then in the press release you talked about, forget the exact wording, but sort of higher margins and profits as the year went on. I’m assuming you’re not talking about gross margins increasing from here. Are you –this seems like a pretty high number.

Thomas McClelland: No. I don’t think it’s fair to expect that the gross margins will be going up significantly. But I think that the basic strategy is we’re really trying to keep the gross margins up on our core heritage business. And I think we’ve been very effective at doing that and we anticipate we’ll continue to do that going forward. But some of the newer programs, we – it’s unrealistic to expect that we can get those high margins on all of those.

George Marema: Okay. And my last one before I go. The TAM on these new projects, the addressable markets are very large. If you’re doing say, $60 million, $70 million run rate of revenue these days. What sort of capacity do you guys have currently to grow into these addressable markets from a plant and equipment kind of standpoint?

Thomas McClelland: Yes. From a plant and equipment point of view, I think we’re in pretty good shape. I think the bigger challenge is a people challenge. But plant and equipment, I think we’ve got plenty of capacity and room to expand. And of course, financially we’re in a good position to support that. But people I think were watching very carefully. We’ve talked about this previously. We need to make sure that we have enough people to get the work done. But we don’t want to get ahead of ourselves and end up with too many people. And it’s a challenge because the way – well, a lot of our work is government work and the government is fairly unpredictable when things are going to start. So this is always a challenge for us. But I think we don’t see any major problems in this regard at this point in time.

George Marema: Okay. Thank you, Tom. I’m very excited by your direction. Thank you.

Operator: Thank you very much. Your next question is coming from Jon Gruber of Gruber Mcbaine. Jon, your line is live.

Jon Gruber: Good afternoon. Is there any large contracts you’re expecting to win or being competitive over the next few months? And the genesis of my question is your orders were fairly very low this quarter. The book-to-bill of 0.4 and orders what – the backlog down 8, so that means orders were 7.1. When are you going to be able to replenish that?

Thomas McClelland: We do anticipate that we’re going to replenish that. I think, what you’re observing is what I was just talking about the unpredictability of the government in terms of starting contracts. But we are definitely anticipating some additional significant new business in the current quarter and also going forward after that. So, yes, I think we’re in good shape.

Jon Gruber: Yes. That’s good news. Could you take us through what – some of the projects you’re hoping to win here over the next quarter which are decent size, which will help the orders?

Thomas McClelland: Well, there are several satellites, very significant satellite programs that we are anticipating. And also there’s some non-satellite programs that we anticipate also at this point. I think we don’t like to get too specific about these things at least until we definitely are under contract, but yes.

Jon Gruber: Okay. Thank you.

Operator: Thank you very much. [Operator Instructions] Your next question is coming from [Frank Wisneski], who’s a Private Investor. Frank, your line is live.

Unidentified Analyst: Thanks. Tom, I’m really pleased with the direction you’re taking the company. And I have a couple of questions. The revenue mix between satellites and – for a blend of a better word, non-satellite was pretty sharp compared to in the past, which is good. The satellite business is going well. But the other non-satellite business seem to have a decline in the quarter. First is, is that part of the reason for the gross margin expansion? And secondly, do you expect Zyfer in that part of the non-satellite business to continue a run rate of a little over $6 million? Or can we expect some improvement in that for the remainder of the year?

Thomas McClelland: I think that you got to be really careful about trying to read too much into the numbers. Couple of questions there. I think, I would not say that the gross margin went up because space is up and non-space is down a little bit. I think that’s an incorrect interpretation. And I think we do anticipate – I think that’s really just a measure of the general lumpiness of our business. And I think we do anticipate that the Zyfer piece of things will increase. And in fact, here in the New York area, we also anticipate some non-space activity. So yes, I wouldn’t read too much into those fluctuations.

Unidentified Analyst: Okay. You answered the R&D question that came up previously. Did you mean to imply that opposed to the – as opposed to the 10% or so R&D rate or sales rate in this first quarter, that for the year, it’d be closer to 5%? I think…

Thomas McClelland: Yes. I think – are those the exact numbers? Probably not, but I think that’s the general trend, yes.

Unidentified Analyst: Oh, interesting. Okay. That’s good. And can you give us a feel for what the unfunded backlog is?

Thomas McClelland: Steve, go ahead.

Steven Bernstein: No. The unfunded, we don’t publish that number.

Unidentified Analyst: Would it be fair to assume that it’s significantly larger than the $70 million you have as a funded backlog?

Steven Bernstein: Yes. But the end result is like I said, I can give you a number, but if it’s – it never gets funded or if it’s [indiscernible] or other things like that. So we don’t feel it’s a valuable number to provide.

Thomas McClelland: It’s a dangerous number.

Unidentified Analyst: Okay. I want to stay out of the dangerous area. That’s it for me. Thank you very much.

Thomas McClelland: Okay. Bye.

Operator: Thank you. Your next question is coming from [Michael Eisner], who’s a Private Investor. Michael, your line is live.

Unidentified Analyst: Hi. Great gross margin there. I just had one question. In your annual report, it said new business $70 million. And regularly, you never comment like that. I was wondering what you meant.

Steven Bernstein: I don’t have it in front of me. I don’t know. If you want to call me tomorrow, I can look at what line you’re saying and I can explain it to you. I don’t have it in front of me.

Unidentified Analyst: All right. That’s fine. Thank you.

Operator: Thank you very much. Your next question is coming from George Marema of Pareto Ventures. George, your line is live.

George Marema: Yes. Thanks. Steve, I just have a little ticky-tacky question. For fiscal 2025, what kind of tax rate are you thinking about?

Steven Bernstein: Well, it’s a very interesting question. But I think it’ll be a very low tax rate. We do have NOLs. The only issue – and I’m not a tax expert, but I’ll tell you, is that California has very different rules on NOLs. And we do a bunch of business in California, so that’s why you see the $133,000 tax provision. Most of our income will be covered by NOLs. However, there will be some that are not covered because of California tax rules. So I don’t – this year, I do not expect it to be anywhere near a normal 21%, 22%, whatever, it’s not going to be.

George Marema: So single-digit percent?

Steven Bernstein: Yes.

George Marema: Okay. Thanks, Steve.

Steven Bernstein: No problem.

Operator: Thank you very much. Your next question is coming from Tim Hasara of Sinnet Capital. Tim, your line is live.

Tim Hasara: Yes. Congratulations again on the gross margin. When I went over last year’s transcript, you called out, one-time contractual adjustment that benefited gross margins a year-ago by 8%, which would’ve made that 31.1 or 31.2, let’s say, and even the operating income was about a $1 million, about $0.10 or $0.11. Is any particular reason why you didn’t call that out today and mention that?

Thomas McClelland: Do you want to address that, Steve? That was…

Steven Bernstein: I think happened in Q4, correct?

Tim Hasara: That’s Q4. No, that was Q1, I believe.

Thomas McClelland: No, I think that was Q3 and Q4. And those were kind of one-off issues not really relevant at this point.

Tim Hasara: Yes. Okay. And then the – just with respect to the backlog, the three contracts you had announced last November, I would assume that there’d be – you’re still sort of in the beginning stages of that, that backlog should probably be funded over the next few quarters as well. I know that’s what would be an unfunded backlog. But I would assume from the last call or so that that would be coming through here shortly. Would that be accurate?

Thomas McClelland: It’s absolutely correct. Those three programs you mentioned have different durations. But we are actively working on those. And yes, we have still some unfunded backlog associated with those, but very significant amount of that is funded at this point in time.

Tim Hasara: Okay. Sounds good. And then, yes, I guess with respect to – you made a comment in the beginning of the press release about some of the newer programs being funded. Can you give a little bit more color on that? Are you referring to a government funding of a particular contract versus your own R&D?

Thomas McClelland: Yes. For the satellite – the proliferated satellite systems, we have significant government funding at this point in time. But a number of these programs that we’re seeing, what’s happening is, nobody knows the best way to go out about these satellite systems. So the government is really looking for novel kind of approaches from a number of different suppliers. And in particular, they don’t want to just get the same old thing from the prime contractors that they deal with all of the time. So they’re looking for newer satellite companies with different ideas. And so instead of creating just a single contract for a single company that goes through the development phase and then production, they’re looking at initially funding multiple companies and then funneling this down as time goes on.

So in the first phase, they may fund five companies, find prime contractors and then they go into a second phase where maybe they fund only two of those. And then the idea is that eventually they end up with perhaps one or two suppliers in the end. So we of course are a supplier to the prime contractors. And really what happens is that we have to accept some risk in the beginning because in order to meet the kind of schedules that are being demanded, we have to work on things. We have to invest in inventory, et cetera, in the initial phases when we have no guarantee that our customer will make it through to the following phases. We of course – we are approaching this as cautiously as we can, so we don’t get involved where we think that the prime contractor is unlikely to proceed to the next phase, but we do not have any guarantees.

And that’s where the risk comes in. But initially, we are not funding any additional R&D. What we just have to account for is the risk that the programs don’t continue into later phases and we’re left with some expenditures which end up not being reimbursed ultimately.

Tim Hasara: Okay. Understood. And I guess following up on my first comment about the gross margins. Yes. I’m reading from your first quarter 2024 comments, saying there, there were one-time – three months ended July 31, 2023, there were one-time contractual and other adjustments that also benefited gross margin rate by approximately 8%. My only point is that versus a year-ago, you really did a 31% gross margin versus a 44% plus. It would be helpful if you spell that out as well. You spelled that out on the year-ago call, but didn’t spell it out here. So just to comment there.

Thomas McClelland: Okay. Thank you.

Steven Bernstein: Thank you.

Operator: Thank you very much. Your next question is coming from [Richard Johns], who’s a Private Investor. Richard, your line is live.

Unidentified Analyst: Hi. I am wondering if you’ve set a date yet for the Annual Meeting.

Thomas McClelland: Yes. We do have a date. I believe it’s October 8th.

Unidentified Analyst: Okay. All right. Thank you.

Operator: Thank you very much. Your next question is coming from [Frank Wisneski], who’s a Private Investor. Frank, your line is live.

Unidentified Analyst: Thank you. Just one follow-up to get a little more color on the proliferated satellites. Are those LEOs you’re talking about?

Thomas McClelland: What?

Unidentified Analyst: The proliferated satellite clusters, are those a lower earth orbit?

Thomas McClelland: Many of them are lower earth orbits. But it’s not exclusively lower earth orbit. I think the general concept going forward in the satellite business is smaller satellites, larger quantities, shorter lifetimes. And that’s true not only for the low earth orbit satellites, but also for the higher orbits, medium earth orbit, geosynchronous orbits, et cetera.

Unidentified Analyst: Okay. And you’re beginning to get into that area now, you said you had a couple of contracts, smaller ones, I assume?

Thomas McClelland: Yes, indeed. We are beginning, we do have some initial contracts in this arena. Yes.

Unidentified Analyst: Would they be government or commercial?

Thomas McClelland: At this point in time, they’re government.

Unidentified Analyst: Okay, great. And it’s totally a speculation. But before you get any significant rev, I imagine it’d be several quarters at least before you got significant revenues from that area, right?

Thomas McClelland: Yes. I think that’s a fair assumption.

Unidentified Analyst: Okay. Thanks a lot. Bye.

Operator: Thank you very much. And your next question is coming from George Marema of Pareto Ventures. George, your line is live.

George Marema: Yes. Hi, Tom. I was wondering if you could talk a little bit more about these quantum sensor area in terms of like, do you currently have product or what’s the product roadmap and what sort of addressable market do you think there is on that, and just sort of timing of that, just a little more illumination on this area?

Thomas McClelland: Sure. I think a couple of questions. Let me try to address each of them. First of all, currently, we do not have any products. We’re not shipping for any military missions or anything of that sort at this point in time. But we do anticipate the whole goal of this effort from our point of view is to develop products, I think. So what are we talking about? I mentioned the magnetometers, this just, one example. But there are a slew of sensor technologies that really utilize the same basic physics that we utilize in our atomic clocks. And so we – because we are really expert in those technologies, and we have a lot of experience making practical products that work in the real world, we’re in a really good position to take some of these more esoteric technologies, sensors like magnetometers from the laboratory and make them into real world products.

One of the difficulties with a lot of these technologies is there have been these exquisite demonstrations in laboratory environments of the sensitivity of some of these sensors in measuring things that people are really interested in. But getting them out of the laboratory and getting them to operate with that kind of sensitivity in the real world is always a challenge. And that’s where we come in. And we’re really excited. We have some activities which are just getting started with some of the major national laboratories where they’ve developed some of these technologies. And we have developed really good working relationship with some of these labs because they recognize that they do not have the capabilities. Frankly, they don’t have the interest either in developing practical products.

And we understand the basic physics. But we also know how to make these into real world products. So the magnetometers is one example. We talked about that. That’s measuring the magnetic field of the earth. And there are multiple applications for that sort of thing. One of them is this alternate navigation when the GPS is not available. So it turns out that there exist really pretty good maps of the magnetic field around the surface of the earth. They’re called magnetic anomaly maps because the whole point is that the magnetic field to a first approximation looks uniform. But when you look more closely, it varies at every point on the earth. Then it turns out that by measuring the magnetic field at an unknown location and then correlating the exact details of the measurement at that location to these maps of the magnetic anomalies, you can do a pretty good job of locating yourself not necessarily within a couple of centimeters like is possible with GPS in a lot of applications, but certainly within hundreds of feet.

And for a lot of applications, it’s certainly better than not knowing anything about your location. There are other applications that we’re looking at. One of the interesting areas is so-called, Rydberg sensors. And these actually are sensors in which we look at Rydberg transitions in atoms, which are very high energy levels of atoms where the atoms are almost, but not quite ionized. And people have developed sensors that in such a way that is possible to utilize a cell containing rubidium as a receiving antenna for microwave frequencies. And these cells containing rubidium are exactly the same kind of cells that we use in our atomic clocks. And a lot of the techniques of measuring the microwave fields and utilizing this device as an antenna are exactly the same techniques that we use in our atomic clocks.

The interesting thing about the Rydberg sensors is that most antenna applications are really tied to the wavelength of the frequency or of the signals that are being measured. So typically for RF and microwave signals, these have wavelengths measured in meters and so antennas need to be sized in several meters in diameter. But these Rydberg sensors, even though the wavelengths are longer, they have a sensitivity, a cell that’s one centimeter in diameter can measure with the same sensitivity as more conventional antenna that has dimensions of meters. So there’s the potential to make very, very small antennas. So these are just a couple of the kind of things that we’re involved in and working, as I say, with some of the laboratories. And we are very much seeking external funding and we’re beginning to have some success in getting that external funding.

George Marema: Okay. That’s great. Thank you.

Operator: Thank you very much. Your next question is coming from [Frank Wisneski], who’s a Private Investor. Frank, your line is live.

Unidentified Analyst: Last question, I promise. And it’s governance more than anything. In most of the companies I’ve ever been involved with, the Chief Executive Officer is on the Board of Directors. Is there any particular reason that you can give us so that you are not on the Board of Directors?

Thomas McClelland: Yes. I don’t think I’m in a good position to answer that question. I haven’t been invited to the Board at this point in time.

Unidentified Analyst: Okay. Thank you.

Operator: Thank you very much. Well, we appear to have reached the end of the question-and-answer session and also the end of the conference. Ladies and gentlemen, this does conclude today’s conference call. You may disconnect your phone lines at this time and have a wonderful rest of the day. Thank you for your participation.