Tim Hasara: Yeah, thank you. Tom, I just wondered, did you — I just want to confirm, you said 50% gross margins in the next six months to a year. Is that correct?
Thomas McClelland: Yes. That’s our goal.
Tim Hasara: Right. And I would assume that the three new contracts that you announced in November would be a much higher gross margin than — to help the mix there. Would that be correct?
Thomas McClelland: In general, that’s correct. Yes.
Tim Hasara: And with respect to those three contracts, I would assume that you’ll book those as a percent of completion through the term. I guess all three of them are approximately two years. Can you…
Thomas McClelland: Yeah, the — one of them is actually closer to three years. But — and one of them is 18 months, but they will all be a percentage completion.
Tim Hasara: And with respect to booking those on a quarterly basis, will — can you give us any kind of estimate or guidance would it be somewhat linear for the amount of the contract or more front-loaded, back-loaded? Or any kind of color would help kind of model that?
Thomas McClelland: Yes. I think the — it’s pretty hard to model but I would say that this — the best approximation would be a linear approximation, probably a little bit more upfront but approximately linear over the course of the program.
Tim Hasara: Okay, great. I don’t have any other questions. Thank you.
Thomas McClelland: Okay, thank you.
Operator: Thank you. The next question is coming from [Frank Wysensky] (ph) and Frank’s a private investor. Frank, your line is live.
Unidentified Analyst: Hi, and your backlog, given the new orders in November, your current backlog must be closing in on about $100 million. And in that light, your inventories, which are high, is that positive, I assume. I’m curious about the personnel though. Do you have enough engineers and you have enough people to put out these contracts efficiently?
Thomas McClelland: Okay. So a couple of things to highlight there. First of all, the current backlog is not at $100 million. You have to keep in mind that when we get under contract on these programs, we don’t get authorized to spend the full amount of the contract. So the backlog is going to go up and it’s going to go up significantly over the coming months, but it doesn’t all happen at once. So just — that’s kind of an important thing to understand. I think that — I’d like to address inventory a little bit. I think you’re actually right on the money with that one. I think we’re really coming out of the pandemic and this period where we all experienced supply chain problems. And as part of that, it was pretty important to — inventory provided a good buffer to all of the supply chain kind of problems.
And we’re really kind of coming out of that, and we’re at the point where we really want to be much more aggressive in keeping the inventory down and approaching it and managing that inventory very carefully. But you’re right, we do have a very significant inventory. And as we start these programs, especially where we’re on really quite historically quite tight schedules to deliver things. That’s a benefit. Now your other part of the question regarding engineers, I think this — what I tried to point out in my opening statements is that we’ve actually been working on these three programs for quite some time. And in fact, it’s been fairly frustrating that we didn’t get turned on, get under contract on these jobs sooner than we did. But the benefit of that, the positive thing about that is that we’ve really been preparing for these programs over the last six to nine months.
And we have cautiously been increasing our workforce and hiring engineers. So we’re really in, I think, a very, very good position in that regard. And I’m very, very optimistic about our ability to execute these effectively right from the start.
Unidentified Analyst: Good. I’m a little curious on how you figured the backlog. You’ve got contract awards, say, the first one for $25 million. So you don’t take all that $25 million, even though it’s been awarded, you don’t take it in the backlog?
Steve Bernstein: No. We only take fully funded backlog. So in that example, let’s just say, a $25 million contract, they give you $5 million upfront and then they progressively fund it accordingly. We would only put $5 million in backlog.
Unidentified Analyst: I understand. But I mean it’s not like the rest of that $25 million is contingent on anything other than you delivered in the first $5 million, I suppose, right?
Steve Bernstein: It’s not contingent on anything, but it’s just funding and we only report funded backlog.
Thomas McClelland: So the — and just to follow up on that, in that particular example, that’s a $25 million program, which has that completion in 18 months. So I think one of the important ways to look at that is that backlog has to surface within the next 18 months. And obviously, most of it a lot sooner than that. So our initial turn on was just for a few million dollars, but that has to — in order for that customer get that product in 18 months, they’re going to have to turn us on for a lot more money relatively quickly.
Unidentified Analyst: Great. I understand. In that same vein, the atomic clock order, which I guess has a potential contract options of $70 million, depending upon the effectiveness of the navigation system performance on a demonstration satellite, when is that demonstration satellite going up? And when do you just — when do you expect to receive confirmation that the product has been effective?
Thomas McClelland: So I think that is currently scheduled for 2027. So we would anticipate that potentially even well before that. But certainly at that point in time, we would anticipate that, that would get determined. Let’s just put it that way. This is a new customer for us. And I think one of the important things is for that customer to gain confidence in working with FEI and so we’re doing everything we can to position ourselves so that those options get realized.
Unidentified Analyst: It’s fully — you don’t expect any engineering difficulties like you’ve had in past programs and that — on this program I hope.
