Chip Rewey

Inquired about the sustainability of strong gross margins, potential seasonality, the size and revenue impact of wins in the drone and electronic warfare markets, and the company's capital allocation strategy regarding acquisitions and share repurchases.

Answer

Gross margin strength is considered sustainable due to manufacturing improvements, price increases, and a shift to higher-margin program business, with expectations for margins to remain in the high 40s. The company does not anticipate a seasonal dip in Q1 margins. Wins in the drone market are with larger platforms and new vendors, and growth is expected. The company's cash can be deployed for acquisitions, and while share repurchases are not currently active, they have been discussed.

Chip Rewey of Rewey Asset Management asked about the sustainability of the strong gross margins, potential seasonality, recent wins in the drone and electronic warfare markets, and the company's capital allocation strategy, particularly concerning its growing cash balance and potential for acquisitions or share repurchases.

Answer

Interim CEO Cameron Pforr and President & COO William Drafts addressed the questions. Pforr attributed the sustainable gross margin strength to manufacturing process improvements, favorable pricing, and a strategic shift to higher-margin program business, projecting margins to remain in the high 40s. Drafts added that a focus on operational efficiency and automation has been key. Pforr does not anticipate significant seasonality and finds analyst margin forecasts reasonable. He confirmed design wins with larger drones and in the space sector, expecting growth. Regarding capital allocation, Pforr noted the cash balance could be deployed for a sizable acquisition, potentially using some debt, and confirmed that while share repurchases have been discussed, they are not currently active.