Kevin Dede: Okay, fair enough. Fair enough. Thank you.
Michael Murray: I wish I could give you a better answer, Kevin, but I’ll defer for now.
Kevin Dede: Well, it’s just incredibly exciting, and I don’t know of anyone that’s approaching, to paraphrase Glenn, skin in the cat this way. So congratulations on that development.
Michael Murray: Thank you.
Kevin Dede: Pretty strong sequential growth in research and development revenue, and upmarkedly from sort of the past five or six quarter trend. And I was wondering if you could talk to that a little bit. Is that multiple projects, a big lump in one particular project?
Michael Murray: Yes, Kevin, as we mentioned in our prepared remarks, we delivered on a $1.9 million contract in the quarter, so it was a fairly substantial.
Kevin Dede: Okay. So I guess you met all your deliverable specifications and you could recognize revenue. Does that mean that project’s done?
Michael Murray: Yes.
Kevin Dede: Okay. Can you give us a ballpark on, I guess, maybe other sort of the span of different DOD development projects you have that might go from LRIP to full production next year?
Michael Murray: Well, I’m not sure I understand the question. I mean, FWSI, F35, all those were several years in development than LRIP. We’re working on the color LED program. That’s already been two or three years in the making and so on and so forth. So these are fairly long development cycles.
Kevin Dede: Okay.
Michael Murray: But we’ll say, Kevin, just to add some color to that. I do expect our armored vehicle program to move through PPAP next year and we expect orders next year that we want to start shipping in terms of production. So once it gets out of PPAP, it basically goes into low-rate initial production pretty much right away. We’re expecting orders for that in 2024. I don’t know if we’ll be able to deliver in calendar 24, but that’s the goal.
Kevin Dede: Would that be a press — I mean, that’s exactly where my next line of questioning was going, Michael. Would that be, I guess, moving from PPAP to LRIP? Is that an event you might press release?
Michael Murray: Indeed.
Kevin Dede: Okay. Because if I remember the June call, you mentioned that you should have better insight into the development of that project later this year, which sort of thinking is now. Was there some delay there or is it just bureaucracy?
Michael Murray: So the SEP4 [Ph] upgrade has been effectively canceled to my understanding. And General Dynamics has been gracious enough to speak with us and provide details of what their plans are, which I can’t get into on this call. However, what I can say is we are continuing the PPAP process. They’re very excited about the technology. We’re talking about new platforms and old upgrades that we could potentially utilize this technology for. So we’re all ahead full steam. So that was great news. And that was what I was worried about in the last call is I wasn’t sure what the SEP4 upgrade schedule was going to look like, although I couldn’t say anything. But I can now. So that was the reason for, I’d say, the lack of information on the last call.
Kevin Dede: Okay.
Michael Murray: Hope that helps.
Kevin Dede: Yes. Yes, yes, yes. A couple more, if I may. The transformation that you’ve been working so hard on, I would have thought would begin to show in product margin, but it’s not so evident. And so maybe you could help me reset my expectations on timing.
Rich Sneider: Kevin, I think it’s important to understand that we have multiple sources of revenue, but we have limited resources. And so it’s always a guns and butter, bad pun analogy. If you take our source of revenue, product revenue and funded R&D, and you subtract cost of sales and funded R&D expense, our gross margins this year, year-to-date, is about $7.8 million, which is 150% increase over the prior year. So that’s how we don’t just look at the gross margin of the product, because in many respects, the FAB is dual function. And so that’s one of the things that’s got to be done. We’ve got to manage both aspects of it. They’re all running through the same facility. We have an engineering group. So that’s how we’re looking at it. The overall absolute dollars has increased by 150% over the prior year to nine months.
