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Vaughan: It's heading up, and I think world events will dictate how far up. We all watch the news and the United States is certainly in some challenging geo-political situations right now, specifically in the Middle East. There's much more unrest in the world today and we don't know how that all shakes out, but we do know as a country we need to be prepared, and the military component is certainly a large part of that. Having said that, in 2012–2013 we experienced what everybody in the defense sector experienced, which was instability in the budget process, sequestration, and some rather blunt-force cuts across programs, not necessarily with a lot of thought into what outcomes would be affected. It was just, ‘okay - whack, and indiscriminately everybody loses 10% of their budget.' But a lot of that has subsided, and programs that were lacking funding previously are starting to come back to life, which is good for us at Zentech, because we have a long legacy of performance in the DOD space. We're tooled and have performed on a lot of legacy programs, even going back to the F16 for example. In fact and in addition to the JSF program, we still build products for the F16. There is a lot of activity in FMS (Foreign Military Sales) on F-16 to our NATO allies for technology upgrades, and our primary customer set – the military primes – have really focused their business development efforts into FMS to offset the funding losses on some of their newer programs.
Matties: What about the foreign military? I know China is putting a lot of money into their military market. How does that impact the industry overall?
Vaughan: Well, you would think there would be a proportionate investment response from the United States government to keep our advantage, but that's not necessarily been the case.
Matties: Let’s shift a little from the military to the space industry, which has been privatized, obviously. How is that impacting our market?
Vaughan: We're trying to figure out who the players are really going to be, primarily because with privatization there are so many new players. Going back to 2000, there were a hundred or so businesses in the space market – now there are nearly one thousand. Space X, which received a $1 billion dollar investment from Google, is the leader of the pack. Their aspirations include deploying thousands of small satellites into space to effectively rebuild the internet in space. Space X also already holds the multi-billion dollar contract to supply the International Space Station. Amazon is in the game, too, developing reusable launch vehicles through their recently founded Blue Origin business unit. So, you now have wildly successful new-traditional commercial businesses investing in the privatization of space. That should create a lot of products and a lot of opportunities – and this led us to proactively become space certified at Zentech last year.
Matties: Seems like we're going to see more and more entrants into that space race. Is it a market signal to pay attention to, perhaps?
Vaughan: Yes, given the new entrants and the breadth of their financial resources combined with their aspirations – absolutely.
Matties: Any thoughts that you want to share with the industry overall, about the market or other aspects?
Vaughan: One of the initiatives that Zentech really takes to heart is science, technology, engineering and mathematics (STEM) competencies in our youth, and we're closely aligned with college programs in our area. Our President and CEO, Matt Turpin, is also actively involved and sits on the Maryland Junior Achievement Board, so it’s a true top-down focus at Zentech. As an example, we participated in National Manufacturing Day on the 3rd of October, where 1,600 manufacturing companies around the United States, on the same day, at the same time, hosted events and it was kind of an open forum. You could decide how you wanted to construct your particular event. We chose to go to the colleges that had a strong STEM program in place, and not necessarily to the blue-chip colleges, because many of those kids already have predetermined what their next step is going to be. Our focus was more at the technical and trade school level where kids were learning electronics, technology, computer science, and disciplines such as those.
Many kids think that manufacturing isn’t cool, that it's dirty, tiresome, boring work, when the exact opposite is the case – particularly as concerns electronics manufacturing. The fact is that all of the computer and Xbox skills that they have acquired, and all of the things that they're learning in college that are computer related, are directly relevant and can be easily transferred into today's electronics manufacturing environment. So we had a great turnout, a hundred and something students, and we've since hired a couple of them, so it's worked out really well all around.
What we used as the real calling card to attract students to the Zentech event is that we engaged a video drone aerial photography team, Elevated Element. They actually came to our facility and flew the unmanned system inside our manufacturing environment and created a video - which we of course posted to YouTube and all the social media outlets, and to our website. It's driven a lot of traffic and we have acquired customers as a direct result. The byproduct of trying to do the right thing and trying to educate kids has turned out to be an excellent business proposition for us, too.
Matties: Well John, thank you so much for spending time with us today, we greatly appreciate it.
Vaughan: Yes sir, my pleasure.