Frequency Electronics, Inc. (FEIM) Q2 2020 Earnings Report, Transcript and Summary

Greetings and welcome to the Frequency Electronics Second Quarter Fiscal Year 2020 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. Any statements made by the Company during this conference call regarding the future constitute forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements inherently involve uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences are included in the Company's press releases and are further detailed in the Company's periodic report filings with the Securities and Exchange Commission. By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes after the date of this conference call. It is now my pleasure to introduce your host for today, Martin Bloch, Executive Chairman of the Board of Frequency Electronics.

Welcome, everybody. I’d like to turn this call over to the Chief Executive Officer, Dr. Stan Sloane. Stan?

Thank you, Martin. Welcome, everybody. Thanks for dialing in. Let me we start off with the positive news on new business front. Number of opportunities we are currently pursuing continues to be robust, about $500 million in potential contracts. We ended the quarter with $40 million of backlog, up from $35 million the previous period. This does not include the contract value, which is not yet fully funded or the value of production options which are not yet exercised. Quarter two ended with largest backlog the Company has seen since quarter three of fiscal year 2015. Subsequent to the quarter end, we added another $4 million of backlog. The increase in backlog is of course a good leading indicator of revenue trends. I’m also pleased to tell you that immediately prior to this call, we received another contract for an additional $4.2 million, which is not yet reflected in our backlog numbers. We continue to be cash positive and have no debt. Now, to financial results for the quarter, Steve will walk you through the details, but let me offer a few thoughts before we turn the discussion over to him. Firstly, margin was impacted this quarter by additional engineering costs incurred on a few programs that are finishing up their development phase. Keep in mind that much of what we do is pushing the state-of-the-art and the amount of effort required to solve complex technical issues can sometimes be unforeseen. This is typical of development programs where the technical issues tend to appear at certain cyclical points in the process, and that creates a lumpiness in the amount of engineering needed to resolve them. As we complete development and transition to production on these programs in the coming months, I would anticipate less cost fluctuation. These programs will generate future top-line and bottom-line growth, once through this transition. Secondly, revenue reductions resulting from slips and anticipated contract awards impacted not just the top line, but bottom line as well due to under-absorption of overhead costs. I think the best indicator that this will turn around is what I said in my opening about increasing backlog. Finally, we will maintain our continuing focus on improving operational efficiency, cost reduction and quality, not to mention technical innovation and excellence. With that, let me turn the call over to Steve and he will take you through the financial details. Steve?

Thank you, Stan. Good afternoon. For the six and three months ended October 31, 2019, consolidated revenue was $21.6 million and $9.1 million, compared to $23.2 million and $12.1 million, for the prior fiscal year. The components of revenue for the six-month period are as follows. Revenue from commercial and U.S. government satellite programs was $9.4 million, compared to $11.3 million for the same period of the prior fiscal year and accounted for approximately 44% of consolidated revenues compared to 49% for the same period of the prior fiscal year. Revenues on satellite payload contracts are recorded primarily under the percentage of completion method and are recorded only in the FEI-New York segment. Revenues from non-space U.S. government and DOD customers, which are recorded in both the FEI-New York and FEI-Zyfer segments are $9 million compared to $10.4 million in the previous fiscal year and accounted for approximately 42% of consolidated revenues, compared to 45% for the prior fiscal year. Other commercial industrial revenues was $3.2 million, compared to $1.4 million in the prior fiscal year. Inter-segment revenues are eliminated in consolidation. For the 6 and 3-month periods ended October 31, 2019, gross margin and gross margin rate decreased to $12.8% and negative 13% as compared to 35.8% and 33.1% for the same periods in fiscal 2019. The gross margin and gross margin rate was impacted by increases in engineering costs incurred on several programs, which in development phase and which encountered unanticipated development challenges related to customer-driven technical requirements. GAAP accounting requires that at the time a loss is anticipated on a contract that the entire estimated cost to complete is accrued at that time. In the quarter just ended, we had two development programs fall into this accounting, with an impact of recognizing approximately $4 million charge to cost of goods sold. For the 6 and 3 months period ended October 31, 2019, SG&A expenses decreased compared to the same periods in fiscal 2019. For the 6 months ended October 31, 2019 and 2018, selling and administrative expenses were approximately 22% of consolidated revenues for both periods. While SG&A expense remains even as a percentage of consolidated revenue, during the 6 months ending October 31, 2019 as compared to the 6 months ended October 2018, the actual dollar expenditures decreased by $439,000. Research and development expenditures represent investment intended to keep Company’s products at the leading edge of time and frequency technology and enhance future competitiveness. The R&D rate for the 6 months ending October 31, 2019 was 17% of sales compared to 14% of sales for the same period of the previous fiscal year. The R&D rate for the 3 months ended October 31, 2019 was 16% of sales, as compared to 13% of sales for the same period of the previous fiscal year. For the 6 and 3 months ending October 31, 2019, the Company recorded an operating loss of $5.7 million and $4.9 million, compared to $146,000 and $230,000 for the prior fiscal year. That change is largely attributable to the increasing engineering costs described previously. The increased cost affects gross margin and operating income. Other income consists primarily investment income derived from the Company's holdings of marketable securities. For the 6-month period ending October 31, 2019, other income included $125,000 dividend from Morion, compared to $105,000 dividend in the previous fiscal year. This yields a pre-tax loss for the 6 and 3 months period ended October 31, 2019 of approximately $5.5 million and $4.9 million compared to a pre-tax income of approximately $131,000 and $92,000 for the prior year. For the 6 months ending October 31, 2019, the Company recorded a tax provision of $29,000, compared to $23,000 tax benefit for the same period of fiscal 2019. For the six months ending October 31, 2019, consolidated net loss was $5.5 million or $0.61 per diluted share, compared to income of $153,000, or $0.02 per share for the same period of the previous fiscal year. For the three months ending October 31, 2019, consolidated net loss was $4.9 million or $0.54 per diluted share, compared to income of $122,000, or $0.01 per diluted share for the same period of the previous fiscal year. For the six-month period ending October 31, 2019, the Company generated positive cash flow from operations of approximately $180,000. Our fully funded backlog at the end of October 2019 was approximately $40 million, up approximately $5 million from the previous quarter. The Company's balance sheet continues to reflect a strong working capital position of approximately $40 million at October 31, 2019, debt free and a current ratio of over 5.9 to 1. The Company believes that its liquidity is adequate to meet its operations and investing needs for the next 12 months in the foreseeable future. I return the call back to Stan, and we look forward to your questions later.

Thank you, Steve. I'm sure our thorough commentary has answered every possible question you might have. But nonetheless, if you have additional questions, please feel free to ask. And you can address them to any one of us or we'll be happy to field whatever you might be interested in. Operator?

[Operator Instructions] We'll go first to Brett Reiss at Janney.

Hi, gentlemen. I guess, my question is for Stan. Stan, do you think going forward, the time for the decision-maker to make decisions on bids outstanding is going to be longer than the 12 to 18 months you’ve suggested it would be on past calls? And you've also on past calls said your success rate on bids outstanding historically was 50% to 70%. Do you think it's -- that that's going to be rolled back a little bit?

So, two questions. First one, a little hard on timing. There's -- in the commercial world, of course, very hard to predict when decisions are going to be made. On the government side, we have of course continuing resolution and other things. I don't -- I would say I don't think anything's different this quarter than anything we told you previously. That would apply also the second part of your question in terms of win rates.

The reason for the question, when you look -- I looked at your 2019 annual report, and you had $450 million bids outstanding. And embedded in that was $200 million from four months ago. We're in December, which is eight months from the end of April, and all year with the $200 million that was embedded in some of that $450 million, it's just a little disappointing that we haven't seen more robust rewards with all of these fishhooks you have in the pond.

Your numbers -- I think, you’re including our production options on existing contracts that we said were opportunities. But, the timing on exercise on those, that's a different dynamic than what I think you are thinking about straight up competitive new bids. And those two things don't necessarily go together. I mentioned slippage in the couple of awards. And that is referring to new bids, not to slippages on exercise of options. On the option side, those things are more tied to a development cycle on the program where we have to engineer -- we have to design and produce and qualify initial units. And once that's done, then they have the ability to exercise the options. So, I think that's -- I think your numbers include the things that had options on.

Okay. I apologize if I'm mixing apples and pears. Thanks for answering my questions.

Sure.

Next, we’ll go to Richard Jones, individual investor.

Hi. My question is about the elevated engineering expenses. How long do you expect that those might continue? I know it’s difficult, but I was really kind of florid by the size of the loss. And, do you have any more that will have to be kind of written off the way Steve explained the $4 million? Yes. So, that's my question.

So, the programs that Steve referred to the development cycle and that will be mostly complete over the next few months. And in terms of future programs, while obviously we don't anticipate that, we've made several improvements I think in our bid process to try and make sure that doesn't happen. But, we do very technical development. Sometimes those things just end up being harder than what you thought.

You've recorded losses in the last four quarters, I think. How long do you think it'll be before the Company reports a profitable quarter again?

Well, we don't give guidance of course, but we are working hard to get these development programs finished up, which are driving the current financials. And as I told you, those finish up in the next two months.

All right. Thank you.

Sure.

We’ll go next to Sam Rebotsky at SER Asset Management.

Yes. The question is for Steve. Of the $4 million, how much was in the first quarter and how much is in the second quarter? And where were the engineering costs kept, were they in the deferred expense account before you decided, and what -- decided to charge it off and what happened -- yes, go ahead.

What happened -- it’s all Q2 costs. So, if you look -- about $2.1 million of it is what I said was when you realize that a contract is going to be a loss, you have to accrue that number. So, we accrued about $2.1 million of lost contract for those two programs. And then…

And rest of the $4 million?

Is the cost -- the actual cost spent in the jobs this quarter.

Okay. And Stan said, this will complete in the next couple of months. Do we have additional revenue? And just this -- a couple of million or so in revenue without any gains or losses in the rest of the year?

Well, like I said, we don't give guidance, Sam. But, the programs that contributed to the problem this quarter are the ones that I talked about finishing up. Can I guarantee it will never have another program that has technical problems? No, I can't do that. But, I don't foresee -- there's nothing sitting there right now that appears to be a problem.

No. But, what I'm saying, what Steve had said, based on accounting treatment, you're supposed to accrue all costs on a contract that you’re not going to make any money. So, normally, you'll get some more revenue and some more expenses, and you'll break even on the balance. Let me go to the revenue. You talked about million $4 million and $4.2 million potential contracts after this, after the $40 million. Could we define that Stan? The $4 million additional, that's above the $40 million backlog and you referred to a $4.2 million. So, would that get the backlog up to $48.2 million as of now?

No, the 40 includes the -- there's two numbers, you're talking about the $4 million. The $40 million includes that 4 -- does not include the $4 million yet. On top of that today, today, we got another contract just prior to the call for $4.2 million. And that's in the press release by the way that is out this afternoon.

So, $4.2 million, I see approximately $4 million of additional backlog, so it's not $4 million and $4.2 million, it's $40 million backlog plus $4 million which might be $4.2 million.

Let me -- timing is important here. At the end of the quarter we had $40 million in backlog. Subsequent to the end of the quarter, we added $4 million of backlog. It’s not reflected in the Q2 numbers. The decision for that today, we awarded another $4.2 million contract. That also is not in the backlog.

Okay. And these $4 and $4.2 million is fully funded?

No.

They're not fully funded? Okay. Now, in the language in the press release, it does not include contract, which is not yet fully funded, or the value of production options which is not yet exercised. Could we quantify a number of dollars out there that's not fully funded? We're bidding for about $500 million, but we expect additional revenue, which is not fully funded. Is it $10 million, is it $20 million, is it $30 million, what kind of number or what kind of -- and when do we expect these things to be get funded?

Just to make sure -- get you on the right baseline. In our backlog is only what is funded. So, we have some contracts that -- where we have funding and that funding is reflected in the backlog, but the contract value is higher than that. So, the funding is not yet received. It's not yet authorized. The likelihood that those will be funded is very high. In addition to that, we have contracts that have options. For example, production options. Those of course, don't go into backlog. Two things happen. One is the option has to be exercised, and secondly, it has to be funded. So, if you -- for example, if you have an option for production for something for $10 and they exercise the option, but they only fund $2 of it, then only $2 goes into backlog. Okay? In terms of the difference between what's actually in contract, what's not funded, to be honest with you, I don't have a precise number and that goes up and down because stuff goes into backlog, then it comes out of revenue and that fluctuates. So, I don't want to give you a number, because it probably would change daily.

Right. I'm just looking for a range. In other words, if we have $40 million backlog and plus we have 4 and 2, which is potentially getting funded, do we have another 20 or 30? That needs -- that is -- we expect to get funded or could be funded, of course, we…

I'm not going to give you a number.

Okay, okay.

But if I were to sit down and do the calculation, I think your number’s probably higher.

Okay. And are we finding with the bids, the $500 million bids, is that -- it is basically the same, from the last quarter. And would it appear that it's the same players, there's nothing that significantly changed? And is the contract sizes $50 million, $20 million or is it 10 contracts, or I'm trying to just -- how many people are we bidding for just some kind of ramifications?

First of all, our bids range from, I think we had one the other day for $3,500 and a range to hundreds of millions of dollars. It's a mix. But of course, the larger ones typically include options. Total number of bids that we're pursuing us, it's a pretty big spreadsheet. So, I don’t want to give you a number, but it's significant numbers. Not a whole lot has changed on the larger bids between last quarter and this. There has been some, as I mentioned earlier, just some delays in people making decisions, but no significant differences.

All right. Hopefully, you've taken your medicine and you'll bid better that there -- you've been on a contract that you have enough in their for Frequency to make a profit. Good luck, guys.

Thank you, Sam.

We'll move to Private Investor, Michael Eisner, next. [Ph]

This question is to Stan.

Hi, Mike.

How are you? You had a $4.5 million contract on October 24th, the base systems, and you had $3 million contract with the government on November 18th. Are you counting any that -- is that in the $4 million plus in backlog you mentioned?

Yes, I think so. Steve, is all of it in there…

No. The backlog that I reported, the $40 million does not include that because those were after October 31st.

No, I understand that. But, is that net $4 million that you mentioned?

Yes.

Yes. The answer would be yes. Any additional, yes.

It will show up in the next -- this current quarter?

This current quarter.

And you counting that $4.2 million as part of backlog or possible or…?

No, that's not funded. We have not included that in backlog. We won’t include that in backlog until it’s funded.

The $4 million is funded but not the $4.2 million?

Yes, correct.

Yes. I think, everyone was confused by that.

Most of it -- I know, it is confusing. The accounting is becoming more complex than the development of atomic clocks here. But, we understand that.

All right. In the press release, when are you going to transition to production where we see revenue on top line revenue?

Well, on the program -- those specific programs that I referred to, that's what I was talking about, those finish up development cycles in the next few months. And we have a lot of ongoing programs that are in production, not in development. But, those specific programs in next few months.

What hurt you, some stuff just moved to the right this past quarter?

Yes, sort of a convergence of problems. The slippage in a couple of anticipated awards that would have converted to revenue that we had assumed; secondly, these problems that we're talking about, the current program performance; and then of course, the effect of the accounting percent complete accounting that Steve referred to sort of has double effect.

All right. How's the GPS IIIF coming along?

Excellently. The program -- the development program is going very well, and I'm very pleased with the results. Of course, we saw a lot of ahead of us, we had a lot of qualification and testing, but units are -- the initial unit is in assembly and will be going into test before too long.

I assume you didn't add any more to the backlog on that.

Not on that one. But, we have several opportunities in that $500 million number that relate to that.

Yes. Because I think at the annual meeting, I think there was like $100 million in backlog on that -- or in the fund -- whatever you call that, not backlog, outstanding bids.

Oh! Bids, yes. Specifically related to GPS, it's a pretty significant number.

Yes. About a year and a half ago, you received an Elcom contract for advanced electronic warfare. How is that coming along?

I think, you're referring to the AOEW program.

Yes.

From a technical point of view, that's progressing pretty well. Initial units have been delivered and customer’s evaluating.

All right. And the two recent contracts, they’re small $4.5 million and $3 million, does that lead to bigger contracts?

Yes, a million here, a million there, they add up to larger numbers. Yes, I mean, obviously, we would hope that those would lead to other things. The one contract that I talked about today, the $4.2 million, that program has -- that's for initial satellites. The program, if the government approves the whole program, there's more satellites to follow. So that one has some nice potential for us.

And do you hire any salespeople?

Since -- that depends on what time frame, but we have added sales people, particularly in Elcom, and additional sales and marketing resources here in New York also.

In the last six months how many sales people?

At Elcom, it's one, but remember that that's relatively smaller business. But, we're augmenting the employee folks that are associated with sales and marketing with outside consulting support.

So, you didn't hire them directly or indirectly you have some people?

Well both, indirectly, we're bringing consultants in. We don’t have presence for example in certain places where we have key customers. Given the size of the Company, we can't afford to have 100 sales people. So, we do some sales -- we have sales reps and we have representation in certain markets and we do that typically through third parties.

So, they're not W-2 employees, they're just consultants that get paid on commission, I assume.

Some of them are commissioned, some of them are hourly, it depends on what they're doing.

All right, I'll just make a comment, the top three people, last year took $1.4 million in salary, roughly, and we’re losing money. We have to move forward. We have to start making money. We haven’t made any money in a year…

Yes, we agree.

Past year, and it's just a lot, we just lost $5 million this quarter. I’m here 20 years in this Company, I want to see some results finally.

You and me, both.

All right. Thank you.

Thank you.

We'll go next to private investor, Michael Cooper. [Ph]

Good afternoon, guys. Okay. So, I just want to talk about some of your development projects and get a little bit more clarity on what is being developed here that is going to open up new markets for the Company or expand your existing markets. And you have made a couple comments on a digital rubidium atomic clock that I think is taking resources to develop. Can you give us some sense of what is a digital rubidium atomic clock? What are the market opportunities? Is this software development? Is this something where you will sell encrypted keys to customers? I have no idea what it is. It sounds intriguing, but I'm not sure what it is. So, maybe you could talk about that a little bit and…

Okay. So, atomic clock is a very precise clock. It's a clock, it keeps very good time, satellites such as GPS and communication satellites and variety of other things use are dependent on precise time, and that's what the atomic clock provides. The particular technology that we're using here on the clock you're referring to is rubidium clock, and that's pretty well known from a science and physics point of view. The DRAFS clock you're referring to, digital rubidium atomic frequency standard is an evolution of our previous rubidium clocks and it adds a digital control circuitry. Don't think of this as a software development, however. This is a hardware system that provides time and frequency reference for very high performance satellite systems. The relevance of the DRAFS program, that's what's being developed for the -- specifically for GPS IIIF program, and that's what I was referring to earlier that that’s -- the progress on that program is going very well. That same clock is applicable to other satellites where the requirements for either precision time or frequency are also a requirement. So, it's not applicable only for the GPS III program. Did that answer your question?

Yes. So, it's still focused on space. And a lot of the reading I’m doing on what atomic clocks can be used for, I'm seeing a lot in the 5G area, I'm seeing reports out suggesting that timing synchronization is so important in 5G, it requires atomic clocks, I guess, in cell towers and that type of thing. I'm not sure where they would go. But, that atomic clock technology is very important for the evolution of 5G, and then, some of these other -- the airlines and their ability to offer Wi-Fi. There was somebody talking about that I think on CNBC just a week ago or so, suggesting that airlines can't give away free Wi-Fi right now, because the bandwidth would crash their systems or something like that. But, I recall Martin talking about Frequency Electronics possibly having a solution for the airline industry. And I know you installed those [indiscernible] systems in the satellites. And I'm wondering -- so, is that opportunity getting closer or is it moving away. And what I'm reading about the atomic clocks in the 5G networks is that -- are all relevant to Frequency Electronics.

So, first of all, let me say that, the DRAFS clock when we started the conversation is a space qualified clock -- will be space qualified clock. But, the technology of that clock is also applicable to a variety of other things. In fact, if you look at the history of the company for last 58 years, if we just add up the numbers of clocks that we’ve delivered is probably more on the ground side than it would be in the space side. There tend to be a little different types of clocks and different requirements and other things. But, don't think of that clock as only applicable for space. The types of clocks that we do here are very high-performance. The requirements for things like commercial cellular and 5G are not that level of performance. We're not focused here on producing the sort of that level of performance commercial device. Our principal market here is high performance, high value-added types of clocks.

Okay. And just one final question. So, the platforms in the military, I’ve seen -- and I'm talking planes, ships, submarines, I guess tanks, I have seen a numbers around 20,000 platforms out there in the military. Is that a target market for you?

Depends on the particular platform. We do a lot of oscillators for airborne applications. That is a sort of a unique environment. I shouldn't say that. Anything that moves or has machinery in it or flies or drives, has a vibration. And the vibration affects the performance of the oscillators. We do very high-performance oscillators that are our immune, mostly immune to that sort of vibration. They typically go into high-value platforms, things like airplanes, UAVs. So, that would be the way to think about it. It's applicable to a lot of platforms. Now, in addition to things that move, we also do a lot of precision clocks and oscillators for, for example, for secure communication systems that don't necessarily -- they're not necessarily installed on moving platforms, but they still have very high performance requirements. They're used to, for example, to mitigate the problems associated with spoofing and jamming on the GPS program. So, it's a mix. So, when we say platform, don't just think of moving platforms, a lot of platforms don't move, what we would describe as platforms.

Okay, great. Thanks. And I hope the gross margin grows, at least somewhat next month and then grows next quarter and then grows substantially after that.

We're working hard to make that happen.

[Operator Instructions] We'll go next to Robert Smith [ph] at the Center for Performance Investments.

Like to get a little more color about the landscape of the numbers. So, the $500 million that you're bidding on, can you tell me something about this, is this all inclusive?

Yes. That's the sort of a rough number associated with the total number of outstanding.

And you said your win number is somewhere between 50% and 70%?

Typically, yes.

Over what period of time [Technical Difficulty] as far as the number of years?

Yes. We don't know. It's programs move around. Sometimes they -- sometimes programs get canceled. They cancel the program, we wouldn't treat that as a loss. That's not a loss, that's just somebody decided not to buy anything.

[Indiscernible] run from one year to five years…

If you're asking about the program performance, our typical…

I'm trying to get to an average annual number, so to speak, rational number that translates into your current backlog.

Well, our revenue, I mean, if you -- for argument's sake, if you say revenue is around $50 million, then in order to grow that number, you have to pursue x number -- x dollars worth of new business and that has to execute over some period of time. And that $500 million is a mix of stuff. Some of it is contracts that execute over a couple of years, some of it is opportunities that for production things you get delivered in six to eight months. So, it's a mix.

I understand it's a mix, but what would be an average point of that mix, as far as time goes?

I'm not sure I understand the question. Are you asking when that $500 million will be adjudicated?

If you won 50% of $500 million, that's $250 million. If the average point would be five years, that’d be $50 million. It will be at least two and half years then it’s a different story, then you would -- you have an opportunity to double your revenue?

Yes. Well, the arithmetic is not far off. But remember that some of these programs for example satellite, a high-value satellite program that has options in it, that might be worth let's say for argument’s sake, $50 million, the initial part of that may be over two years, but the options may run over three or four years.

Well, what do you suggest to me to try and come up with some kind of a rational number to see what your potential is over the next few years to move that needle as far as your revenue number, which has been kind of static for a long, long time?

Well, if we were to win the reasonable share of those programs and adjust for cancellations and other things that are beyond our control, then we should be growing the business. Your arithmetic is not far off.

Does the passage of the defense budget have any meaning to you in the moment?

Some of the slippages I think are related to the CR, but most of the most of the things that we have underway right now are prior programs. They're not affected by the CR. There is a couple of larger commercial programs, which have nothing to do with the defense budget but are affected by decisions about, for example, people being able to raise funding to get their constellations launched and things like that.

Okay. Can you tell me anything about the competition in the atomic clock area or alternative?

What would you like us to tell you?

Whatever you can tell.

Well, we're not the only people in the world that build the atomic clocks. It depends on the country. And China has -- they make clocks. Nobody makes the clocks at the level of precision that we do.

Great, which is targeted to a certain market. So, essentially, you have a leg up on any competitive force that might be around for high value atomic clocks.

We think we offer performance advantages in both space side and the terrestrial side in terms of the clocks, not only the performance but the readability. Track record in space is very important, particularly in the space to defense customers. And the best example I'll give is the clock that's on the Voyager Spacecraft. I think Martin actually saw the electronics net clock, that has been out in space for 50 something or 42 or 43 years. I forgot what it is. 1977 it was launched. So, when we talk about reputation and trust, those are probably equally as important as cost in this business.

Is there anything around that might replace the atomic clock?

No. Atomic clocks have -- various types of atomic clocks are being developed but there is not that -- at least that would replace atomic clock.

Thanks very much.

Sure.

We will go next to Richard Jones, private investor.

Hi. You mentioned on the last call and also at the annual meeting that there was an important air force contract, I think in the in the neighborhood of $35 million, $37 million that was on hold and that you'd learn more about in the middle of December. What's the status of that program?

No change. The contract is still active. But we -- at the moment, we don't have funding. You're referring to what is called the POP RAFS program, which was optically pumped rubidium clocks, we were developing for air force research lab.

When do you think you might get a resolution on that?

I don't know. If I were that smart, I wouldn't be working here.

Okay. And the recent news about the military budget included news that the Pentagon was going to create a new section relating to space and military warfare in space. That sounds like a pretty encouraging thing for your company. I mean, pretty exciting thing. How do you look at it?

Yes. I think that's good. I think, it's good for the space business overall. How that sorts out politically, we're sort of immune. But, I think what's more important to us is the budget trends and the key programs that are either under procurement or in the procurement cycle for satellites.

Ladies and gentlemen, I have no other questions holding. I'll turn the conference back for any additional or closing comments.

Great. Thank you very much. Martin, would you like to make any closing comments?

My voice is back a little. I want to wish everybody a very happy and healthy holiday season. And my thanks and appreciation to all the people at FEI that are working very hard to achieve progress. Thank you. Have a great holiday.

Ladies and gentlemen, that will conclude today's conference. We thank you for your participation. You may disconnect at this time and have a great day.