David Williams: So, Mike, maybe start off on the funnel. You’ve got over $1 billion pipeline here that you talked about. Can you help us understand how you’re qualifying those programs and how do you expect that to maybe materialize over the next several years? How much of — what is that conversion rate and just maybe what does it take to convert and how you think about that funnel overall?
Mike Knowles: Yeah, thanks for your question, David. So, what we’ve done is — and that pipeline number is a five-year view. So, what we do is we identify opportunities, we assess it in two probabilities. The first probability is what we call [PGO] (ph), and that is the likelihood that an opportunity will emerge and actually go to acquisition or to the market. Something that we can’t readily control, but we can monitor and we can influence, especially on the defense side as I mentioned, the lobbying efforts in Congress, our engagements with senior defense executives can help influence the funding and the timing of those efforts. The second probability we factor the pipeline by is probability to win. That is something we control.
That determines, right, our capabilities, products, and services that we can deliver for solutions that lead us over our competitors. When we multiply those two together, we get what’s called a probability of award, and it really sets a level at which we know above a certain level of percentage that it’s highly likely that we should win and we increase our efforts there to pull those forward. And then there’s a mid-area where we can determine whether the effort needs to be more on influencing a high-probability of winning product to emerge or if we have to increase our P to win on a program that will definitely emerge and we can identify resources, assets, or support to go do that. And then, anything below that generally will be something we either have to determine, is it a future roadmap capability we need to develop, is it a market we’re fully interested in working through, and those tend to be longer-term views of how to move those probabilities of award up and higher in assessment.
Because of the way we’ve got started, 2024, last part of 2023 and 2024, we’re doing a fair amount of positioning into those markets. The near-term ones, as I mentioned, were about getting into the upgrade cycles and defense customers, and then finding commercial customers in similar situations who were looking to transition to higher-end process compute and storage. And then additionally, what it’s done in terms of conversion is let us identify future starts that would be in the future, for which you want to start early on the capture, seek and influence requirements to increase your probability of win. So, we’ve now transitioned those into captures and campaigns inside the company. That’ll increase our focus where we go on those, and we’ll be looking to capitalize in converting that pipeline to opportunity.
And that’s really where our measure will be on seeing the bookings converting to revenue and converting that pipeline.
David Williams: Great. Thanks for the color there. And then maybe, John, if you could talk about your inventory levels. You talked about cash just now and having the working capital and maybe taking some lower-margin business. But you’ve got, it looks like, pretty significant days of inventory. How do you think about working those down and just that working capital that you could return for other investments? Thank you.
John Morrison: Thank you. Obviously that’s always been a concern of ours as we built inventory during the COVID period and later on as companies required us to have sometimes a 52-week lead time and demanded certain minimum order requirements in order to maintain pricing. So, during that period of time, it was important for us to secure inventory, and we made certain non-cancellable, non-returnable commitments for inventory. That inventory still continues through the state to come in. We have still approximately about $3.4 million of inventory that will be coming in the door for which the orders were placed in 2001, 2002. However, we have gone through, we have analyzed all of that inventory. We believe that we will be able to actually free up about $2 million in working capital this year through the current plan that we have.
We believe all of the inventory is sellable. We do not see any of the inventory being designed out, in order to see it in a situation of being obsolete or obsolete. So yes, we do acknowledge that we have more inventory on the balance sheet than we would like, but we would think we’ll be able to free up about $2 million of that as we go throughout the year and bring it down to a more manageable level. Thank you.
David Williams: Thanks.
Operator: Thank you. And your next question comes from the line of Eric Martinuzzi from Lake Street. Please go ahead.
Eric Martinuzzi: Yeah. I wanted to clarify the contribution from your media customer that’s no longer with you. I have — for 2022, I had them at $18.8 million, and then in 2023, I had them at $5.1 million. Are those two numbers correct?
John Morrison: $18.5 million and $4.8 million.
Eric Martinuzzi: $18.5 million and $4.8 million, okay. All right. And then — go ahead.
John Morrison: Yeah, it’s $18.504 million and $4.858 million.
Eric Martinuzzi: Okay. And then the guide for Q1, and I would expect the expectation for 2024, there’s nothing in there for that media customer?
John Morrison: No, sir. We would — do not have any ongoing revenue at all.
