We will be making investments in 2024 as we look to the next generation of our product line. So we continue to stay at the front end of the market in terms of technology. And then as I had mentioned, I think it was last earnings call, we will be looking to augment the team. We’re starting to get more discrete defense contracts now, so we will look to augment the team with some contract support, probably part time to start. And then also, we’ve – you’re talk about adding some additional program management to support running the programs as we win them and also to support our capture of these bigger, broader multiyear contracts.
Brian Kinstlinger: Okay. Last one for me. This one is probably for John. The core OSS gross margin recovered nicely. I assume the P&L without your media customer was the major driver there. But then I also heard your comments on potentially taking on some lower-priced or lower margin business to improve the cash flow even if it’s just a little bit. So how should we think about where you are today or just report it in the core OSS gross margin, should we expect it will be softer in the coming quarters given your comments? Or given the mix, it’s indicative or even stronger as you book new business? Just help us from this new point without that media customer.
John Morrison: I would – at this point, we’re thinking it’s when we are projecting it’s going to be flat, largely because we are dealing with the underutilization in our production facility on revenue. We need to get back to more of it in line of doing about $9 million a quarter from OSS’ side to be totally be utilized. Many of these resources are resources that are involved in the planning, purchasing and management of inventory as well as obviously the production for people. But we have already gone through a reduction in force back in April of 2023. We believe that as we recover these resources will be fully utilized. But until then, it’s weighing down on the overall margin for OSS. And obviously, then the proportion to the resume revenue that’s increasing is having a significant impact on the consolidated margin percentage.
Brian Kinstlinger: Sorry, I said I’d be done but one more. At $9 million fully utilized and just core OSS that gets you back to approaching 40% gross margin for that segment? Or is that a little too optimistic?
John Morrison: It’s more of the 35% to 40% range.
Brian Kinstlinger: Great. Thank you, guys.
John Morrison: Thank you, Brian.
Operator: Your next question comes from David Williams with Benchmark. Your line is open.
David Williams: Hey, good afternoon. Thanks for letting me asking question. I guess maybe, Michael, on just thinking about the defense industry, and it seems to have held in well during this down cycle. And it seems to suggest that we’re – spending still remains favorable. I know you touched on this in the script. But outside of the timing of the budgets and some of the approvals, it feels like you’re gaining some really good momentum. But could you talk maybe a little bit about the hurdles between here and going into production and just what does that timing look like? So we have a better understanding on how we should think these – progress through the channel here? Thank you.
Mike Knowles: Yes. Sure, David. I think if you’re – in one part, you are referencing the continued resolution of the CR we have a couple of sole source awards we’ve been looking to get and to be able to provide proposals on that have been held up for the CR. So we expect those near-term to come across as soon as the CR is resolved. That’s an issue it seems every year now that defense companies have to deal with. I think if you look at how does the defense elements come alive as we build out a lot of the efforts in all we’re doing now, we will see – we will find homes on new procurements in late ‘24, ‘25 and 2026. However, there are opportunities in there where we’re finding where if you can intercept a platform upgrade or tech refresh cycle, you have opportunity to make things happen a little bit faster.
An example is the foreign navy submarine program that I talked about. They happen to be in a tech refresh cycle that we caught early, and we were able to get in there with our technology. And from the time we identified that opportunity through our Bressner unit to contract award was less than a year. That’s probably usually a lot of times unheard of in the defense market, but it is doable when you catch those time frames. There are a number of prime contractors in vehicles and platforms that we’re talking to and the defense services both in the U.S. and globally, where we have, in those discussions seen where their technology refresh upgrades are. And we’ve positioned ourselves to be in those competitions and then those discussions for the architecture upgrades.
And those start to span the years from ‘24 through ‘26 and beyond. And then we – those are ones who would have identified, put into our pipeline and now have assigned a resource in to capture those going forward.
David Williams: Great. Thank for that. And I intended to just say congrats earlier, but just on the success and acceleration, it seems like you’re gaining a lot of interest here, and it’s great to hear the enthusiasm and see the progress. I guess on that, Mike, just kind of given your time in the seat now, you’ve had some time to settle in and look through things. Is there anything today that you see that’s different than previously, either more positive or things that are just different than you had thought? Anything that gives you, I guess, more optimism today than you might have had as you came into the role? Thank you.
Mike Knowles: Yes. Great, David. So probably two things. First is we called it a little bit of the new norm around here. As I mentioned, the number of proposals we’re working on. I would say there is a heightened level of energy, excitement, activity, and sense of urgency in the business to grow and address the opportunities. We’re seeing them come in the defense market as we would have expected with the addition of Robert Kalebaugh, myself as we increase focus in doing so. But we’re seeing ample elements inside the commercial market, too, that are raising some interest and some activity for us. So I’m excited about the new normal, the pace that we’re working at here to get after growth, which I mentioned augmenting the team to continue to try to build upon that momentum.
