Glenn Mattson: Hey, guys. Thanks for taking the question. Sam, curious, the last time we spoke, I believe you kind of had — you’re talking about the export controls of germanium that have been placed by China and just the idea that it hasn’t really kicked in yet or whatever. So you were still kind of in a wait-and-see mode to see like what kind of supply you could get or what kind of supply the market could get. Can you just give us an update on that? And also while you are doing so, I believe you had some long-term contracts in place, some future contracts on germanium and what not to kind of ensure your own supply for at least the medium kind of term? Can you give us an update on that as well?
Sam Rubin: Yes, sure. So to put it into perspective, we consume about 1 ton of germanium a year, which we buy from China, used to be some from Russia, from China in the form of what’s called a pre-generated blank. So a raw material that is shaped close to the size of a finished lens, and then we process it into a finished lens, coat it, in times assemble it, but it’s part of either components or subsystems that we set. So even in our own case, we’re not completely switched over to BD6 and everything. There are some cases where germanium is still needed. At this point, we started submitting the different export licenses already in mid-July to our vendors in China for the next shipment of germanium. The end users that they then submitted to the government got kicked back a few times, went back and forth, different changes in that until everyone was clear on what information and format they want.
And they currently believe that those shipments, which we started working on in mid-July, will ship out of China in mid-November. However, once they receive their export license, it is an export license for all shipments related to that order. And since we secure our supply of germanium for one year at a time, that means that at least for the next six months, six to eight months, we should be able to get shipments from China under those export licenses, assuming we do receive them by mid-November. I have not yet heard of anyone that has the export license that did not receive or had it denied. But yes, I’ve also not heard of anyone that actually got approved yet. So to the best of my knowledge, no germanium has shipped out of China, at least in the segments of optics and the people we speak to since that started and mid-November is probably the earliest it would be.
Glenn Mattson: Okay. And then you have supply up until about that point or beyond that as of what you have?
Sam Rubin: We actually have enough to keep going beyond that point also.
Glenn Mattson: Right, and can you just give investors kind of a sense of like what the backup plan would be if something like that were to get disrupted?
Sam Rubin: Yes. I mean, to us, it would mean working closer with the customers and it’s an incentive to the customer to redesign their systems to use BD6. In a way, long-term, such a disruption is good for us. Short-term, it could mean a few million dollars of revenue in a given 12-month period for us. So probably around $4 million to $5 million, I would guess, something like that. But we — there’s a lot of effort going into and a lot of work going in to ensure that, that does not happen and there is a backup and it’s BD6 or other Black Diamond work. There is also a stockpile of germanium at Defense Logistics Agency’s strategic materials that in the cases of projects that are for the DoD end use, we could tap into that stockpile and purchase material from there.
Glenn Mattson: Right, okay. Thanks for that. Is there — I imagine the next round of germanium if it comes through would be — which I’m sure it will, but if it does, it would be at a higher price, I imagine right now. So is there a possible to turn that price increase to pass it along? Or is that…
Sam Rubin: No, we lock in the place that’s for a year. So we already at our price, given no change to that. We’ve seen a little bit of indications of price increase. What we really — the most disturbing part we’re seeing there is that when we ask for a quotation, the validity of the quotation is very short. So if in the past, you would get a quotation and you had a month to order at that point, the vendors are now giving quotations sometimes with a week of validity. One vendor gives it with three days’ validity. So to me, it’s an indication that they are seeing or expecting volatility in pricing and don’t want to indicate — and don’t want to commit themselves to price lower than that.
Glenn Mattson: Okay, great. That’s great color. Al, I’m curious about the gross margin as I look at it kind of on a sequential basis? Because I know Q3 had the issue where some shipments got pushed out due to the finishing of the facilities revamped that you were doing? So one of the reasons that Q3 was viewed as a little lower was because of lower throughput through the facilities and whatnot and I’m just curious that PMO was flattish or first tier sequentially? So just maybe some color as the sequential rate of change as to why gross about — just a little bit even given that the facilities are now up and running or maybe there’s some time for them to ramp up or something like that. If you could give color would be great.
Al Miranda: Yes. So most of what we ran into was that although the facility was shut down in Q3, we outsourced, and we outsourced the — a lot of the infrared coating. And that just came with a high price, higher logistic costs, which flowed into Q4. So we pushed everything out in Q4. We nearly caught up from the shortfall in Q3, but we did it at a price, and we threw over time at it as well to catch up with customer orders. So it was a little disappointing for us, but we kind of knew that we were going to spend money to catch up and satisfy customer delivery dates.
Glenn Mattson: Okay. And then going forward, you have an expectation on the gross margin side to kind of trend a little better given the move into more specialty products and as those facilities are more mature or whatever? And just what’s the thought process for gross margins looking at that?
