Michael Murray: And I’ll add to that, Kevin. It’s an important question. And one of the things that we’ve been messaging is our old existing contracts where we’re sole source and we’re on firm fixed prices, those are either running out or ending. And we’re replacing them with new contracts with new pricing that is more advantageous for Kopin and I think you’ll see a gross margin lift there because we did have conversations with our customers around price increases due to inflation, due to scope creep, due to lots of different things that have happened over the course of the last few years. And as we reported in the remarks today is that we did increase prices on several programs.
Kevin Dede: A past report. So thank you, gentlemen. The other thing I’m wondering, I guess, just from sort of a cash use perspective was that inventories are up and I’m just looking sequentially, Rich. Inventories are up, contract assets are up. And I’m wondering if you’re building in advance of the FWSI and the F35 production.
Rich Sneider: Yes. So the contract assets are up. We completed, as you saw, funded R&D. Revenue was up in the quarter. We completed it. That’s associated with the receivables that we need to collect on those assets. But yes, I mean, inventory is up because of the projected growth for next year. So the reality is lead times are still out there for many of the parts that we need, FPGAs and things like that. And so we’re getting in what we can when we can get it to make sure we have good production.
Kevin Dede: Okay. Gave us an update on Abrams, an update on FWSI, an update on the F35. But how about the…
Rich Sneider: Rolling along.
Kevin Dede: Okay. Are those things what is contributing to your backlog? And how would you compare your backlog at the end of September versus the end of June?
Michael Murray: So it’s a really interesting question. We have historically been very conservative and said that backlog, as our understanding of the definition, is that it is non-cancellable. And so to the extent that we have purchase orders, which historically we’ve allowed companies to either move to the right or, frankly, never take delivery, we don’t include those in backlog. But if you look at our footnotes, which should be filed in our 10-K tomorrow, you’ll see performance obligations are up, which is a proxy for backlog. But that number, technically, we have more orders than we’re actually showing there. But as I said, we don’t put things there that, frankly, some of them are.
Kevin Dede: Is that — You say they’re up. That’s up versus June versus not September 22?
Michael Murray: Yes.
Kevin Dede: Well, thank you, gentlemen, for indulging me. Sorry if I pushed it too far, but I really appreciate you working with me on it. Thank you.
Michael Murray: No problem, Kevin. Thank you.
Operator: Your next question comes from the line of Victor Santiago from Stifel. Your line is open.
Victor Santiago: Hi, guys. Thank you for taking my questions and congrats on the quarter. Just on the nice gross margin improvement, was there anything in particular that drove the sequential improvement, or is that just a function of your ongoing improved execution? And also, is that level sustainable on a go-forward basis, or could we see that fluctuate a bit in the near term?
Michael Murray: It is a function of price increase, and we have been able to drive raw materials costs down. It will fluctuate based on mix, because as Michael indicated, some products we’re still rolling out, and we don’t have the new prices associated with them yet. So we probably won’t really achieve good stability until first quarter of next year. And then after that, we would expect to see progression, consistent progression quarter to quarter.
