Astronics Corporation (ATRO) Q1 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the Astronics Corporation First Quarter 2012 Quarterly Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Debbie Pawlowski, Investor Relations for Astronics Corporation. Thank you, Ms. Pawlowski, you may begin.

Thank you, Jackie, and good morning, everyone. We appreciate your time and interest in Astronics. And on the call today with me is Peter Gundermann, Astronics' President and CEO; and Dave Burney, Chief Financial Officer. They will be discussing the results of the first quarter of fiscal 2012 and our outlook. And we will conclude the call with a question-and-answer session. If you do not have the release from this morning, it is available on the company website at astronics.com. As you are aware, we may make some forward-looking statements during the formal presentation and the question-and-answer portion of this teleconference. These statements apply to future events, which are subject to risks and uncertainties, as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in our earnings release as well as in documents filed by the company with the Securities and Exchange Commission, which can be found at our website or at sec.gov. So with that, let me turn the call over to Pete. Peter?

Thanks, Debbie, and good morning, everybody. Long story short, our first quarter results, we feel, were a pretty good start to 2012. Revenue was $65.1 million, that's a new quarterly record and sixth quarter in a row where we've produced the new record. $65.1 million revenue is up 18% over our first quarter in 2011 and up 6.4% over our fourth quarter of 2011 on a consecutive basis. We were again 95% Aerospace and 5% Test Systems, that's been the pattern for recent quarters, something we expect will continue. The high-volume made us pretty profitable. Our net profit for the quarter was $6.1 million, that's up from $5.2 million a year ago. $6.1 million net income is 9.5% of sales and $0.46 per diluted share. Bookings for the quarter were strong also, $60.8 million, although that's a little bit below sales. We view that as not as any cause for alarm but on a rolling 12-month basis, bookings have been pretty strong, exceeding sales. We'll talk about that more in a minute. Aerospace segment. Aerospace sales were $62 million, up 23.5% from the first quarter last year. And as I said, 95% of our total, Aerospace contributed all the margin. Looking at our markets, our Commercial Transport sales were $44 million, up 34%, up 1/3 over where we were in the first quarter of 2011. And Commercial Transport sales were 68% of our total for the quarter. Military sales were $8.9 million, about 14% of our total and down slightly from the first quarter last year, 3.4%. Business Jet sales were $6.7 million, that's about 10% of our total and up marginally, basically flat over the first quarter last year. If you cut our business looking at major product lines instead of at envious markets, our Cabin Electronics sales. Cabin Electronics are our -- is our internal name for in-feed power or passenger power, you might think of it as. They were $35 million in the quarter, 53% -- 54% of our total and up 34% over the first quarter of last year. Obviously, Cabin Electronics to Commercial Transport were a big part of where our sales growth was. Aircraft Lighting sales were $17 million for the quarter, that's about 26% of our total, down 6% from the first quarter of last year. And Airframe Power, that's critical electrical power primarily for smaller aircraft like business jets, sales were $4.5 million for the quarter, 7% of our total and down marginally compared to last year. As I said, our Cabin -- most of our growth was due to Cabin Electronics and to Commercial Transport. That part of our business has been booming, continues to boom. And as most of you know, our biggest customer in that space is Panasonic Corporation, one of the leading IFE companies out there in, in-flight entertainment. They were responsible for approximately 40% of our sales during the quarter. Yesterday, we issued a press release, which talked about a multi-year agreement. Some specifics on that agreement we think are worth spelling out. First, it's a 5-year agreement, which we think sets the stage for continuing prosperity with Panasonic as they continue to prosper in their market. The second aspect of it, that is of significance from our standpoint, is that, that agreement includes coverage on the A350, the new Airbus airplane, Airbus's answer to the Boeing 787. Most of you will be aware that the 787 is a program that we have high hopes for in the coming years. And with this agreement with Panasonic, we're branching that -- those expectations over to the A350 also. Another comment on our products for the business. We detail a line item on Page 6 of our press release called Avionics Databus. That has to do with our acquisition last December of Ballard Technology. And you'll see that we record revenues of $3.1 million in the first quarter. That's a smaller product line for us, but we continue to be pretty pleased with what we're finding in that operation, both culturally and business-wise. We're pleased with how that company and that group of people fitting into our overall plan and our overall results. We continue to have high expectations for them over the course of the year and over the immediate future year. Qualitatively in the Aerospace world, we continue to be pretty comfortable with our position in all of our markets. The commercial transport world gets a lot of press these days, and the expectations are high for continuing production ramps and we share those expectations. The Business Jet world, especially where we play, primarily on the smaller end of the industry, is not bouncing as quickly as many people might have expected this year. But there are promising signs overall. And we continue to see a high level of activity in terms of development programs and development opportunities, which we think bodes well for the future. And the military world is relatively stable. We like our position in the Joint Strike Fighter, we like our position on the V-22 and we -- nothing much is new there over recent quarters. Our Test Systems segment revenues for the quarter were $3.1 million, that's 5% of our total, down almost 1/3 from 2011. They're on a small base. Bookings were $2.3 million. So we're expecting that company to continue to operate kind of at that level. Our objective there continues to be to manage costs then absorb them elsewhere in our company as much as we can. And at the same time, keep our paddle in the water looking for big targets, and we think we have a reasonable list of prospects for long-term success. We continue to struggle against an adverse spending climate in that business. We don't expect that to change in the immediate future. Jumping straight to our long-term expectations. Our 12-month bookings on a rolling basis are $240 million, that compares to our -- compares favorably to our 12-month shipping volume through the first quarter of $238 million. That combined with our backlog at this point of $102 million causes us to revise upwards our revenue guidance. We came out at the beginning of this year with the revenue expectation of $235 million to $250 million. As of today, we're raising that forecast to $250 million to $265 million. There continues to be quite a few moving parts in that number. But we're reasonably comfortable that we will be in that range at this point. And that's pretty much all I have to say today, kind of short and sweet. Jackie, let's open it up for questions.

[Operator Instructions] Our first question is coming from Tyler Hojo of Sidoti & Company.

Just a first question, I was hoping maybe you could kind of update your expectations for the In-Seat Power market. I mean, where do you think your market share is today? Obviously, a very strong growth this quarter. How long do you think kind of that growth rate is achievable?

We are optimistic, Tyler, as you know. I think the way to think about it is that the Commercial Transport market is obviously hot with production ramps. In-flight entertainment as an industry is actually pretty hot. And why is it hot? Largely because of evolution and expectations in the consumer electronics world. Very simply, people can do more and more with consumer electronics and airlines want to create that same -- or allow that same passenger experience on airplanes, whether their airplanes are new or old. So not only is there a new production ramp, but there's an old retrofit trend also. And certainly Panasonic is doing very well in that environment. But there are a lot of companies who have ambitious plans and, I guess, we think that all of those plans and all the different architectures that are out there bode well for our company. Certainly, today, most in-flight entertainment applications are geared towards wide-body airplanes. Whereas, in the future, we think that there is a huge opportunity also in the narrow-body airplanes. So you ask how far can they go and where might we be, when you think that maybe 20% of the universe of Commercial Transport airplanes are wide-bodies and 80% are narrow-bodies with little or no penetration, there's a huge opportunity there. We also think that from a new aircraft ramp, most of the -- certainly most of the airplanes are being built and expected to be built over the next 5 to 10 years are narrow-bodies. But a lot of the growth is going to be in wide-body in both 787 and A350 and A380 and airplanes like that. We expect those airplanes will generally feature nose-to-tail installations, which are over and above what has happened, say, over the last 25 years where most -- a lot of airplanes drove without nose-to-tail installations. They were more first-class, business class type of installations. So if you combine all that together, along with the proliferation of personal electronic devices, where people are bringing iPads and phones and their own music and their own content on the airplanes -- all they need is power, and we think the combination of factors there is highly favorable for us and for our capabilities. I don't know if you're expecting a quantified answer to your question, but qualitatively, we like our position, we like the results we've had, and we don't see any real reason why we shouldn't continue to expect good things.

No, that's pretty good. The only thing I'd perhaps like you to address a little bit further is where your specific market share is today. I mean, do you think you're taking share from your other competitor in that market? Or how do you see things?

Well, I think our standard line is we're over 90%. I'm not sure we can tell you specifically beyond that. But that's pretty high-market share. And I think that's quite -- that's not -- pretty simple, people asked why we have that high a market share, I think part of it is we're just -- we're pretty good at what we do. There are some pretty sophisticated companies in this part of the industry. Panasonic is certainly one of them. They're a very competent and capable company. They can achieve a lot of things, and I think that this agreement that we've signed with them, extending terms for our business relationship out quite a ways is recognition on their part that we're pretty good at what we do, and we are proud of that.

Right, right. Okay, great. And just in regards to Ballard, thanks for the detail there. But just kind of wondering did that overshoot kind of your expectations or just kind of a lumpy quarter? How should we be looking at that?

No. It was in line with our expectations, which is always good in the first quarter after an acquisition, right? We're happy to see that. They've been growing pretty strongly compounding annual growth rate over the last few years, well over 20%. I think we have them -- we're expecting them to do somewhere in the $12 million to $13 million range this year. One thing that's unique about them is that there -- they tend to have more of a cyclicality to their business if you look at it historically. That's not something we see in the rest of our business, and I'm not sure I really understand why they are that way. But those third and fourth quarters tend to be their strongest quarters by far. So this first quarter was among their best ever, continuing the growth trends they've demonstrated. And if the third and fourth quarter, works out kind of on a relative basis as the last few years have, they'll make a solid contribution this year.

Okay, great. And just lastly for me, could you maybe talk about the Test Systems business? Obviously, kind of an operating loss here and you came in the towards the high end of your sales guidance range. What needs to happen to kind of get that business to breakeven?

Well, it's a business that has pretty high variable cost. So it's one of those things that we could kind force to a breakeven level, pretty quickly if we wanted to. Our judgment, our decision is that, that's not really in our best interest long term. The immediate issue there is that while we have technologies and products that we believe our customers genuinely want and need, the funding environment continues to be a very challenging one and a pretty difficult one. So there are occasional large programs that come into our radar screen, and we take our swings at those. And you'll recall that last year, we won one actually with a partner. And that one program could have a measurable impact on our results this year. Unfortunately, there was a never ending stream of protest, which seems to be the way things go in the military environment these days. And eventually, the customer, in that case the Air Force, pulled the program, which was a rather disappointing turn for us. But that's not the only program that's out there. There are others that we're pursuing. The other thing I'll say about that business that I think relevant is that historically, we've been a Marine-focused business. Most of our volume historically has been with the Marines. We've had pretty limited exposure outside of the Marines. And today, while we continue to court the Marines and continue to do whatever we can to help them out, and we think we have some opportunities there, we're finding pretty receptive audience elsewhere, both within the U.S. and outside the U.S. for some of our newer technology. And we think that if -- we think that based on how some dynamics are evolving in the market, we think we've got some products that people want. So when the money becomes available or when the demand gets to the point where our orders are actually going to be placed, we think we're well-positioned. And hopefully that answers the question. I mean, I think the one way to look at it is that we're not the biggest company in the world, but we're certainly not the smallest either. We've got a number of initiatives in a number of places. It's not uncommon for initiatives to take investment and to take some patience before they flower and before they work. This one has been a little bit tough in the sense that we've had some big expectations which, for whatever reason, haven't happened exactly as we anticipated. But I don't consider it too far afield from kind of what we do in a normal course, where we see an opportunity in the market or in the segment. And we develop some products or we make some investment and then you have to wait for the market to catch up a little bit. And that's what we're doing.

Understood. And I mean, if you look at kind of the level where -- the level of operating loss that we saw the quarter. I mean, would you be surprised if we kind of tracked at this level for the foreseeable future?

Yes, I'd say that was a little higher than I was hoping for.

Our next question is coming from Michael Callahan of Auriga Securities.

I guess, first thing I want to touch on here, a little bit about the MC Power business that I think for the past couple of years retrofits have really kind of led a lot of that growth. And here in this quarter, are we starting to see a bigger uptick from the newbuilds and how much retrofit growth in business is left out there? I guess, how many more years of that kind of level do you think we might have?

I would say that the recent quarter did not represent a substantial shift from what we've seen historically. And whenever I get this question, I feel obligated to answer it a little bit unexpectedly maybe and say that to us, a retrofit sale versus a new airplane sale is really -- the difference is immaterial. It doesn't really matter. We approach the same customers. We sell the same products. We have the same pricing. Whether it goes line fit to Boeing on a 777 or to Cathay Pacific to retrofit a 777, we don't -- it doesn't really matter to us. At the end of the day, we sell and promote our products to airlines, to IFE companies and to airframe manufacturers. And our products can find their way into the field through any combination of those 3 companies. I think that as long as the airlines are enthusiastic enough to order new airplanes in quantity and as long as the IFE companies continue to invest in new technologies and new capabilities, that the balance between the retrofit and newbuild probably isn't going to change a whole lot. Certainly, it's easier to point to the newbuild ramp rates and say that part of the business ought to remain healthy. But what's a little harder to get your hands around is the fact that if you're an airline, especially a premium airline and you're getting new airplanes with the new gadgets and the new bells and whistles, most airlines want to present a consistent face to their customers so that the customers don't feel like they are somehow getting screwed because they bought this ticket on this airline and instead of getting the new 787, they got the old MV11 or something. The airlines try hard to be kind of common. So I don't see any reason to think that the retrofit side of the business is about to dry up, if that's what your question is getting at.

I guess mostly. I guess, installed base has a finite amount of retrofit versus new builds, which is [indiscernible] extend that out, I guess, as long as we want. I guess more specifically then, do you have any idea as to how far long you are as far as retrofitting the installed base that we have right now?

Well, let's -- this isn't baseball season, shall we talk baseball? What inning is it? That's one way to phrase this question. I guess, we would say maybe we're in the third inning, fourth inning, something like that.

Okay, that's helpful. I guess then, a follow-up on that segment. Obviously, it's been a homerun, becomes sort of another baseball analogy for you, but has been a homerun, but it continues to be a bigger and bigger share of your company and Panasonic, specifically becomes a bigger share as well. Do you guys have any thoughts as to how you mitigate that risk going forward through acquisition with -- are you relying on the electronic power distribution revenue to kick in, in a few years, and what's your thoughts there?

Well, it's a very interesting question. Again, the way I look at it is that the Commercial Transport world is a good place to be right now, obviously. And in-flight entertainment as a kind of a segment or a sector is a good place to be with all the innovation and all the growth. And I think the increasing recognition on the part of airlines around the world that it's less than an amenity and more a baseline expectation so they have to have it. And we're pretty good at power. So the fact that we can provide power to in-flight entertainment is -- lines up well. And then you've got one company, Panasonic, who's out there and they're doing really well. They're executing really well. Is it a risk or an opportunity? We tend to view it as a pretty big opportunity. And I think the agreement that we announced yesterday is representative of the fact that it is an opportunity. We think more so than a risk. Now at the same time, as a company, we are doing a lot of things in a lot of areas. And I expect that as Business Jets turn around, we're going to show some pretty strong results there. We spend a lot of time and a lot of money in the Business Jet market right now. We talk about the Lear 85 all the time, but there are other representative programs like that. And most expectations for Business Jet production are strong, if not in 2012 year, then in the immediate future. And we agree. So we think that's good. And I like our position on Military airplanes, and we have made some acquisitions. We continue to look at acquisitions. And I would say it's fair to expect that there will be some level of activity there, too, in the coming years. We're not just kind of riding the horses that we're on. We're doing what we can to strengthen our fleet, so to speak.

Okay. One -- I guess, one last one for me. Can you give us an update on the Lear 85? And then just I guess, if you still expect some impact there in the 2013? And then also just any updates on the power distribution, reception from the market and other Business Jet manufacturers in the last quarter?

Sure. Well, obviously, I can't speak for Lear or Bombardier and their perspective would be relevant in this question. But our sense is the program is going pretty well. It's a composite airplane and there are certain challenges that they've come up with or had to deal with. But we think that there's commitment on Bombardier's front and Lear's front, and we think that they're going to get there. It's just a question of exactly when we think the airplane is going to be successful and we think that our power system is performing pretty well. We've been a central partner with them on this program. And whenever you're in the central position like that, issues come up on a day-to-day basis, and we think that we've negotiated them pretty successfully with Learjet. So we're happy to be on the program, and we think our system is working pretty well, and we're definitely looking forward to that one getting into their flight tests and starting deliveries. And yes, our expectation is kind of towards the second half of 2013. It will start to be a measurable program for us.

Our next question is coming from Dick Ryan of Dougherty & Company.

Can you just -- have another question on the MC Power. You mentioned the opportunity on the narrow-body side. What trips that business to start moving or are you seeing some of that business start already?

We are seeing it. I wouldn't say we're seeing it in a substantial way, but we think there are a number of factors leading our product to be needed more and more in the narrow-body world. And as a little background to others listening on the call, the installed base is heavily skewed towards narrow-body airplanes out there, maybe 80% of airplanes are narrow body. Our penetration rate with In-Seat Power on narrow-body airplanes is very low, like less than 10%. So we look at the huge fleet of aircraft as a significant opportunity. And your question, Dick, is why -- do we think that opportunity is getting closer to fruition or farther away from fruition? I think our sense is it's getting quite a bit closer and there are bunch of reasons. One is that narrow-body airplanes historically have been used for quite short-haul flights. They are increasingly being used for long-haul flights. Case in point, Southwest that flies 737 from coast to coast increasingly. And so people are spending more and more time in long-haul flights in these narrow-body airplanes. The second trend is just the proliferation of kind of personal digital gadgetry that people are bringing on board. 10 years ago, you might have a few people with computers. Today, if you stand through the inspection line, you watch what people pull out of their briefcases and purses. And it's pretty -- I don't know what the rates are, but obviously, it's 60%, 70% of people are carrying something maybe higher, include phones. So people want to use those devices on airplanes, and they're increasingly expecting it to be able to do so. There are some airlines, and I'll point to JetBlue as an example, where they've taken a narrow-body fleet, they generally fly Airbus airplanes and they have put on their live TV. And if you live on the East Coast and you've had a chance to fly JetBlue, they've got a pretty loyal following. I think part of it is because of their recognition that amenity like that are positive. Now they're not a customer of ours at this point. They're not flying our hardware. But we think that as -- I guess another example to be fair and to spread the recognition, Southwest is looking at Wi-Fi on board. Not many of their airplanes have it at this point, but some do and they seem to be going in that direction. We think that when you get companies like Southwest and JetBlue, and again Southwest, just to be clear, does not fly our hardware either at this point. But when you got Southwest and JetBlue moving in that direction and when 80% of airplanes out there are narrow-body and they're being used for longer-haul fleets and when people are bringing on more and more personal electronic devices, we think that the combination of forces is pretty persuasive. And it gets back to Michael's question a little bit earlier, what inning are we in? Well, a big part of it depends on -- at what rate and at what timing can we start to trip that narrow-body fleet. And I could argue we're in the first inning, if I say that 80% or 90% of the airplanes out there have very little penetration of our product. If I want to assume that the narrow-body fleet's never going to happen and we're only to be going to be widebody, I might have to say we're in the sixth or seventh inning as most of the airplanes you get on these days do have our products. But we're in that range and...

Is pricing more critical on narrow than it is on a widebody for consideration?

Weight is more critical, certainly. Weight -- the smaller the airplane, the incremental 10 or 20 pounds starts to really matter. So narrow-body airplanes want to have a smaller package. Now in our last -- we had a trade show in Germany that's very specifically geared towards aircraft interiors, that's what it's called, aircraft interiors. And we demonstrated a new product that we're coming out with, which is geared towards -- specifically towards USB-powered devices. So if you have an iPad or you have a phone that has a USB connection, this system is optimized for powering that device. Not with your AC adapter, but straight into the USB cord. And what that allows us to do, because those are lower current, lower power devices, we can put on -- we can develop a lighter system. We think that lighter system, powering specifically USB devices, which are again proliferating pretty dramatically, is something that will capture the attention of narrow-body fleet managers. And sure enough, our -- we were very pleased with the reception we got to that product in that show. Now we haven't sold it yet and you can't find it on an airline, but we think that the combination of narrow-body airplanes flying longer routes with passengers carrying more devices that are USB-powered, a system that's optimized for lightweight, low-power applications like USB, that's something that we may talk about more and more here in terms of our results if things go as we hope.

Okay, great. On Eclipse, hearing some things out there, what's the opportunity there? I mean, short of a new design of the power distribution system if they do move forward, you would be a beneficiary?

Sure. We'd like to see that airplane be successful. We have agreements in place. Again, for other people's benefit, we do the cockpit lighting system, the exterior lighting system and the electronic power distribution in that airplane. And I can't tell you if they're going to be successful in this current environment, especially it's a tough call. But if it's a neat, little airplane, I'm a pilot, so I'm kind of biased that way. But you talk to people who fly that airplane and they generally very much enjoy it, very much like it. It's pretty unique. It's very small. And it's very quick and very maneuverable and it's relatively low cost. So Eclipse is hoping to get back into production. I'd like to see them be able to do it. If for no other reason, then that means to me that there's a pretty healthy Business Jet market out there. And if there's a pretty healthy Business Jet market and Eclipse gets back into production, then I think everybody's going to be feeling a whole lot better about things.

One last one for me. Maybe, Dave, on the SG&A side, how should we look at that first quarter transitioning through the rest of the quarters for the year? Is this something we should see as a kind of a consistent number for SG&A?

Yes, I think it's pretty consistent there. The biggest bump that we had when you compare the first quarter of this year to last year was the addition of the SG&A that came with the Ballard acquisition. I think an important note in that, too, is on an annual basis -- on a quarterly basis, there's roughly $200,000 of amortization in that incremental Ballard SG&A relating to the purchased intangibles. So on an annual basis, that's about $800,000 of amortization that's come along with Ballard, and we'll be there for the foreseeable future. I think it goes out probably close to 10 years. So when we look at the $1.2 million incremental in the quarter for Ballard, about $200,000 of that is amortization.

Our next question is coming from Scott Lewis of Lewis Capital Management.

A couple of questions. Back to the In-Seat Power and retrofit. I'm not sure how long AES has been putting power into planes. But do you get to a point where somebody is going to want to retrofit a plane that's already got the kind of first- or second-generation system in it with a new or more capable system?

Definitely. Yes. And in fact, the systems early on were DC only. You might remember, if you -- there is primarily business-class, first-class, late '90s, chances are you need a special adapter cable to charge your device because your AC adapter wouldn't work because it wasn't an AC system. And that was because the FAA was very concerned about putting what they called high-voltage AC running around the cabin of their airplanes. Over time, they've changed their mantra and essentially, our systems have had to become more and more powerful as time has gone on because the current draw for charging newer devices has continually increased. It's kind of -- it's an interesting discussion in and of itself. But at the same time, as devices have become more efficient in terms of using less electrical power, the charge rates and the battery capacities have moved such that the current -- the charge has increased. So higher-power systems are more in favor than the older ones, and it's not uncommon to take a lower power or a DC system off an airplane and put a higher power AC system on. Did that answer your question?

Yes, it does. So in some sense, when we get a question about what percent of the fleet has been retrofitted, I mean, you can think of it a different way almost like with seats. Every plane has seats, but they're continuously being updated.

Okay, well, thank you for that. If I -- yes, absolutely. Maybe that's obvious on my mind, so I didn't specifically say it. But you can almost think of it as like an IFE system. An IFE system that you put out in airplane in 1992 isn't going to meet today's requirements. So it will be taken off and replaced. And our system largely would get the same treatment. Technology marches on, expectations march on, and just because an airplane has In-Seat Power doesn't mean that it's not going to get another system. That's a very valid point.

And then a quick question on the A350. Has Airbus -- have they decided to go kind of the route that Boeing did with the 787 or you've only got a couple of approved IFE systems?

Okay, good question. Let me give a background, again, for other people who may be listening. The 787 from our perspective was little bit of a new airplane in the sense that Boeing was very actively -- is very actively involved in controlling the architecture of the electrical IFE system in the cabin of the airplane, much more so than they have been with previous airplanes. And taking the liberty to speak for Boeing, their attitude say on a 777 or 747 seemed to be more, we'll build the airplane, we'll sell the airplane and we'll let the airline do what they want to do in the cabin. But the problem is that the airline and the aftermarket industry didn't always apply the same level of technical rigor, let's say, that Boeing would. And as a result, some of those systems didn't quite stand up in terms of reliability and performance and you end up with an airline who's not entirely happy, and Boeing might get dragged into kind of fixing that problems. And Boeing didn't have anything really to do with it in the first place. So this is, obviously, my observation on a lot of this. But on the 787, Boeing decided to much more actively manage the cabin in the hopes of delivering a more consistent and higher performing product. And as such, they essentially created and controlled an architecture, and we play a prominent role in that, in that they have picked 2 IFE companies, Thales and Panasonic. So if you buy a 787, you have to pick 1 of those 2. And we, in turn, supply power to Panasonic and Thales. Now I'm getting your question, which is, is Airbus on the A350 going to do the same thing that Boeing did on the 787. And essentially, our observation is yes, they are. They are taking a much more active role in managing the architecture in the cabin. They are limiting the approved supplier list much more so in terms of IFE. Now we understand that at this point, they have selected 2 companies. Again, that happens to be Panasonic and Thales. It may be that they bring more on. We know that they're certainly interested in the industry. There are 2 or 3 other companies that want to be a third supplier or a fourth supplier. We don't necessarily have inside knowledge on the status of that decision or those talks. But we do know that Panasonic and Thales are in on the A350. And that Airbus is managing that architecture in a way that's similar to how Boeing is doing -- did to 787. Does that answer your question?

It does. And just a quick follow-up. Have you had conversations with Thales like you had with Panasonic on the A350?

That would be a good guess, yes.

[Operator Instructions] Our next question is coming from Jay Weinstein [ph] of Highland Wealth Management.

Actually, 2 quick questions. One -- actually, one suggestion. Why don't you change the name of the company to Aircraft Power Lighting and we'll just call you Apple? I thought it would be good for your evaluation.

That's a good idea.

Whatever works is fine. Explain the difference, if you would, between the new master supply agreement with Panasonic and basically what you are working on before for those of us who've not seen the contract?

Well, the major difference is the one that we are working on before expired.

Okay. Was that also a 5-year deal?

No. I don't think so. But...

It's no longer than 5.

Yes, I don't think it was 5. I want to say it was 3, but I'm guessing a little bit. But it's basically a way of controlling the parameters of the working arrangement in terms of pricing and quality and stocking product. We've got a pretty evolved relationship with them, and we think it's a pretty reasonable agreement in the sense that a lot of what we do with them isn't something that's easily put in the contractual form, and I don't think it should be put in contractual form. That can be kind of legalistic in a way, and I'd like to think that our relationship with them is quite a bit more than that.

Yes, so in terms of pricing and promised delivery, volumes or anything like that, really nothing new?

Well, there was a bunch of give and take. And we did make certain pricing concessions, and I should be clear on that. And those pricing concessions step in over time. We think that they're reasonable, given the range of their relationship, and we think we can do certain things to make them tolerable on our side. So I don't think it's the kind of thing where you're going to look at our results 3 years from now and say, "Oh, that was before and now we're after." It's not like that. But certainly, it was a give-and-take kind of arrangement.

Right. And do you still have the -- store their products in that separate part of your loading dock?

You got a good memory.

Yes, I actually saw it. I was in Seattle, March 7, if you want that.

Okay, yes, it's still there. And again for those who don't know, we ended up in a little accounting, what's the right word, Dave, snafu, challenge, debate where...

All of the above.

Where we thought it was their product once we built it and put it in as inventory and they thought it was their product. But we learned that it was actually still our product. So then we build a forecast. It goes into this little inventory. We build them, they pay us and then we ship it when and where they tell us to. And basically our accounting, we include it as our inventory until it gets shipped. And generally, it's not that big a deal. I mean, there's enough demand. At first, we were concerned that it could become a big deal and it could really kind of mess around with our financials. But as times gone on, we've learned to realize that with their growth, especially, they need this product pretty much as soon as we can get it in there. So it doesn't sit there very long.

There are no further questions at this time. I'd like to hand the floor back over to management for any closing remarks.

No closing remarks. We're pleased with the first quarter. Thanks for tuning in, and we look forward to talking to you again. Have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.