Astronics Corporation (ATRO) Q1 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Astronics Corporation First Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Ms. Deb Pawlowski, Investor Relations for Astronics. Thank you, Ms. Pawlowski. You may begin.

Thanks, Manny, and good morning, everyone. Sorry about the delay there, we had technical difficulty getting conference line here and we certainly appreciate your time and interest today in Astronics. I have on the call with me, Pete Gundermann, our President and CEO; and Dave Burney, our Chief Financial Officer. Peter is going to go through his planned remarks and then we'll open up the call for questions and answers. You should have in hand a news release that went out this morning, and it's also available on our website at astronics.com. As you are aware, we may make some forward-looking statements during the formal presentation as well as during the Q&A portion of this teleconference. These statements apply to future events that 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 the earnings release as well as in documents filed by the company with Securities and Exchange Commission. These documents can be found both at our website and at sec.gov. So with that, let me turn the call over to Pete to begin. Peter?

Thank you, Debbie, and good morning, everybody. We are going to do the normal routine of talking through the quarter's results, reviewing our expectations for the rest of the year 2016, and then doing our question-and-answer period at the end. Headlines for the quarter, our first quarter certainly was not our strongest quarter ever, but in many respects, it was a pretty solid start to the year. Most of our business units performed pretty well, we had some obvious issues that were spelled out in the release and we'll talk about those to some extent in the remainder of this call. But overall, we felt it was a reasonable start to the year. Bookings were pretty good, our strongest since the fourth quarter of 2014. Given the first quarter results and our bookings performance, we are however lowering the top end of our revenue guidance for the year; we'll talk about this at the end of the call. Our new range is $665 million to $710 million. So back to the quarter, as I said, most business units performed pretty well in the first quarter with the exception of one spot that turned up pretty sore in our Avionics business. Revenue ended up being about $159.5 million, that's down 1.3% from the comparator period of the first quarter of 2015, but up 1.4% sequentially. As we talk through the comparisons the last year, it's worth keeping in mind that the first quarter of 2015 was a pretty strong comparator quarter for us, especially on the Aerospace side; that was a high watermark to-date for Aerospace in terms of revenue. Bottom-line results, even with a little revenue drop, were reasonable, net income was $11.5 million, up 7.5% from last year or a margin of 7.2% of sales. Our diluted earnings per share was $0.44, up from $0.41 in the first quarter of 2015. A couple of high-level things to keep in mind as you assess the quarter; our Test segment to start with had a pretty strong quarter, with operating profit improvement of – that was substantial swinging from a $2 million loss in the first quarter of last year to a $2 million operating profit in the first quarter of this year, on a $2 million increase in sales. So that swinging from an operating profit loss of 11.5% of sales last year to an operating profit of 10.4% this year. I think it attributes to the cost management and the organizational practices put in place by – in our Test segment over the last year. Our Aerospace segment, as I said, performed pretty well across the business with the exception of our antenna business, which saw a pretty large drop in sales relative to the first quarter last year of $8.5 million. This drop in sales is somewhat apparent when you look at page seven of our press release. The table sales by product line, if you go to the Avionics line there you see that in the first quarter last year, that group of products, one of which is our antenna business, had cumulative sales of $17.4 million and this year in the first quarter that level dropped to $7.4 million, dropped by more than half. The effect of that drop was approximately a decline of about $4.5 million in operating profit in the first quarter this year, compared to the first quarter last year. This is a situation that we kind of saw coming this – the drop off in sales was largely driven by our dependence up-to-date on a single large customer for that business. And we have full anticipation of replacing that revenue with other products that were currently in development, but those products have taken longer to get to the market than we might have expected. So the first quarter was caught in a nasty combination of revenue declines with accelerated investment trying to bring out new products. We expect the situation in that business and with that product to begin to correct itself as we move through the year, particularly in the second half. Another of our product lines that people are typically curious about is our in-seat power franchise and sales for that franchise in the first quarter reached $63 million and they were up 7% over the comparator period a year ago, that's an all-time high for that product line. And again, the first quarter of last year was a pretty tough comparator with strong sales across our Aerospace product lines. Engineering and Development expense for the quarter was $23.3 million, 14.6% of sales, that's a little higher than we expect to run and have been running both on an absolute and a percentage basis, the level was high based on accelerated investment for new products, including what we're doing with our antenna business. The percentage was also high because our sales base was a little bit lower than we expect to average over the course of the year. Quarter one bookings, as I mentioned, were $162 million, our highest level in more than a year. Aerospace was $140.4 million, among our highest ever. Test bookings were a little lighter at $21.5 million. We announced during the quarter, a package of orders from our largest Test customer and of $20 million anticipated, in the first quarter, we received $6 million of those orders. So, of the $21.5 million included in our backlog tally for the first quarter, $6 million came from that customer in our semi side of our business. That leaves our backlog at the end of the quarter at $276.8 million. Talking through our segments, just a little more specifically, sales for the Aerospace segment were $138 million, down from $142 million, that $142 million again a year ago was a record quarter for our Aerospace segment. On that, our margins, operating profit dropped to $18.7 million compared to $23.4 million a year ago. The impact of the antenna situation that I talked about earlier definitely had a big impact on our Aerospace operating profit for the quarter. Our Test segment had revenues of $21.2 million in the first quarter, up a couple million from the first quarter a year ago, but the big news on the Test side is the big increase in operating profit. In the previous – in the just completed quarter, operating profit was $2.2 million, 10.4% of sales compared to a loss of $2.2 million or a negative 11.5% of sales one year ago. I think I'll pass it over now to Dave for a discussion of our balance sheet and capital issues.

Okay. Not a whole lot changed on our balance sheet. Those of you who have been following us know that we announced a share buyback back in February and throughout the first quarter we purchased about 129,000 for about $4.3 million for that share buyback. Throughout the year, we expect to continue to execute on that, but our capital deployment strategy is going to continue to be reinvest in our Aerospace and Test Systems business, as well as keep our eyes and ears open for acquisitions that we think would fit in with us. So, we have the capital deployment plan considering all three of those alternatives there, but our first and foremost is to reinvest in the business there. Again, we continue to see a nice interest rate on our debt. We're right now at about LIBOR plus 1.5 – 3x to 1.5 on our outstanding debt. We didn't have much activity on it – net activity during the quarter. For the quarter, the cash flow was a little bit slower than we would have expected, I expect that'll be caught up in the second quarter as our investment in working capital slows down a little bit, our inventory went up a little and our receivables increased as compared to the fourth quarter and again not much changed on our balance sheet, it's pretty straightforward and simple. We expect the free cash flow to be strong, mainly focused – or coming in and accelerating as the year goes on in terms of cash flow generation. Tax rate, we expect to be kind of where we are right now and that hovering right around 30%, a little lower, maybe a little higher than 30% depending on some of the credits we get. And that's all I had. Pete?

Thanks, Dave. Looking forward to the rest of the year, based on our ending backlog of $277 million at the end of Q1 and our perspective having been through one quarter at this point, we are making what we think is a mild adjustment to our revenue guidance for 2016 by dropping the high-end of our previous range by $15 million, that leaves our new range at $665 million to $710 million. Of that, we're expecting Aerospace to be $572 million to $600 million, somewhere in that range, and Test to be $93 million to $110 million. There are obviously some questions that need to be answered yet in terms of how the year is going to work out. It is possible for a reasonable person to conclude that our Aerospace business may trend to the lower end of the range and it's possible for a reasonable person to conclude that our Test business will end up potentially at the high end of its range, and that's just based on timing and prospects and things that we see happening, as we sit from today's perspective. Closer to home, we expect the second quarter on the top line to be largely similar to the first quarter, and that obviously means that we expect the second half to be quite a bit stronger than the first half and that's a function somewhat of our Test business, which tends to have a stronger second half than first half, but it's also the way some of our Aerospace orders are lining up this year. So, we expect, again, revenue on the top line to largely look like the first quarter and the second quarter, and we expect the second half to kind of make up the deficit, so we end up in the ranges that we're publishing today by the end of the year. I think that's all we have for prepared comments, so we will open it up for questions now.

Thank you. Ladies and gentlemen, we'll now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Jon Tanwanteng of CJS. Please go ahead.

Good morning, guys. Thank you for taking my question.

Good morning.

In the antenna business, is the newer product that you're planning on rolling out linked to the same customer that you've been dependent on or is it for someone else?

Well, we have a number of development efforts. I guess we would tend to think less about specific customers and more about market segments. And we feel we have some technologies that will strengthen our position, particularly in the smaller aircraft and business jets and general aviation, but we also have other developments that are a little bit farther off, but we expect will appeal to the Commercial Transport industry including our largest customer there.

Okay, great. And then any issues in the rest of the Aerospace business. We've seen some suppliers talk about slow delivery as the program ramps, I'm just wondering if you're experiencing that in any way shape or form?

Well, we've got a whole bunch of market positions, so we have things that are evolving in a wide range of places. I guess our general perspective is that Commercial Transport prospects continue to be pretty strong across our universe, including the aftermarket airline work that we do and, I guess, we would say probably that the business jet arena continues to meander, maybe even weaken a little bit compared to where the long-term forecasts are. I mean, everyone is expecting the business jet world to continue to improve, but it keeps not improving, it keeps kind of treading water. So we're seeing that also. And I think your question was specific to Aerospace, but let me also just answer with respect to Test. We continue to see a strengthening array of opportunities both for our traditional Aerospace and Defense Test business, but also for our Semiconductor business. We continue to think that we've got some pretty good positions and pretty good prospects, some of which may tuck in towards the end of this year, but more of them likely will be a 2017 event. So, we're pretty busy, even though if you look at our income statement and you look at our sales expectations, you might assume things are slow. That's not the way it feels on the floor. So, overall, I guess we feel like, we're really sowing a lot of seeds these days in our Test business that are going to come back strong kind of towards the end of this year going into next year, and for the most part, I guess, we'd say, we think our Aerospace business is operating at a very high level with the one kind of blemish in the first quarter results that we talked about, with our antenna business.

Great. That's all very helpful. I actually did want a comment on the Test business. The margins were actually pretty impressive in the quarter, should we expect similar or better margin sequentially as the revenues ramps there, through the end of the year?

It's a good question and we are watching it. That business has been through a lot of change and the improvement is a function of the management of the business. I think, they've done a good job managing the cost structure and yet at the same time improving the competence. It's one of those businesses that has a pretty high variable cost element to it, which means that we – theory have the element, have the flexibility to manage the cost structure. But as I said, the prospects there are pretty strong, and we're actually investing really heavily. So, how that all shapes out, I would be very pleased if we kept the operating profit at the observed level but there's probably a downside risk to that going forward, simply because we're going to be investing so high.

Got you. Thanks. And then just you mentioned [indiscernible] in your comments in the press release, what are some of the overall trends [indiscernible] seeing in the Test business, if you could share this?

Well the overall trends are on the Aerospace and Defense side we see some loosening of the rains in terms of the funding environment and where we've got some programs inside which collectively can certainly be quite substantial. We had good growth in Aerospace and Defense side last year, we're hoping for the same this year and we're watching our order intakes closely to support our plans. On the semi side, we've been largely dedicated to one large customer with one program. As a part of that, we've developed a body of expertise, which we think is directly applicable to the kind of mobile computing space in general, and I'm a little bit limited in what I can say about it at this point, but I feel we've done a really good job with that customer, I think that, that good job is going to result in future opportunities and as we get more and more entrenched, we are more and more of the conviction that we've got some really nice market positions here. And over time, we think those are going to be evident. It's premature to predict and we don't know and it's a long time before 2017, but we're excited that the prospects that are being shown to us.

Great. Thank you very much again.

Sure.

Thank you. The next question is from Dick Ryan of Dougherty. Please go ahead.

Thank you. Pete, just to start with a couple of numbers, you mentioned E&D run rate higher than you talked about last call. Should we edge that back down to $90-ish million sort of number or is this kind of slipping – or moving into the low-to-mid $90 million range?

I think we're comfortable with that expectation in the $90 million range. We had a little bit of a blip in the first quarter, because we are spending a lot of money on certain hot projects including the antenna situation, but we expect that spending to moderate going forward.

Okay. And you talked about the impact from antennas on the Aero margins, you have to go back fair number of years to get back to that Aero operating margin. How should we look at that, in particular, if you're talking a second half better than the first half outlook? Where should we consider Aerospace margins in the Q3 and Q4 periods?

Dick, this is Dave. As we expect the top line to increase as the year goes on, particularly out in the third quarter and fourth quarter. I expect it we'll see some margin expansion there just simply based on the volume increase and the leverage from the increased sales that we expect in the latter part of the year?

Well, I mean, will the antenna business continue to dampen the margins in Q2 or when does that finally become a non-event?

I think it will have less of an impact in Q2 than it did in Q1, but it will still be a drag on the system so to speak until we get in the Q3, Q4. There are some ancillary programs that will materially affect revenue there that we expect also to come in, in Q3, Q4 in addition to the new launch that we're working on. So there are some questions there in terms of timing, but we would expect it to get better from here, not worse.

If I recall, you had a couple of quarters where supplier issues in the Avionics space. I think that was maybe not largely tied to antennas, but certainly had an impact. What you saw in Q1 is that kind of a combination of the one or two quarters of supplier issues or what's really going on in the antenna space?

No. It's more a function of changing prospects with GoGo in particular. We do a lot of work with them and they are moving to a 2Ku system, or what they call 2Ku, and that move is effectively a move away from our antenna. So, we think we've got future there. We do a lot of work with GoGo in a lot of places and we think there are – we continue to believe that our technology offers an attractive path for them under certain circumstances and we're working to continue that. So, but the way the deliveries are scheduled, the way the trends are going, that was a big part of the revenue hiccup in this quarter and we've seen that coming and we have, we think, other prospects that will be an attractive opportunity. This is one of those games that we've talked about where we think it's a very early inning. There is a lot of technical evolution out there. There is a lot of questioning going on in the market and we think that it's a market that we can be pretty effective in, but this was one of those quarters where the revenue and the development expense didn't line up real well, doesn't look real good on the income statement. But we certainly don't expect that to continue forever. It's more just a transitionary thing that we've got to work through and we're hoping for the best with our existing customers and we're hoping for the best with our new products, which we expect to have out shortly.

The new products, I mean, the Panasonic partnership to get a tail mounted antenna out there, where does that stand, is that being introduced or marketed?

Yeah. That's one of the ones that we're talking about and it is being marketed. It's not quite through qualification and testing at this point. We've got some more work to do, but certainly our prospects would be more immediate if we had that out and in the market right now. We are promoting it and we're lining up customers, but we got to get the product through testing first.

Okay. One last one from me on semi-test, I noticed there was a backend supplier who provided, I think thermal, subsystems to other testing companies. But they specifically talked about a design win where they're bringing out a tester platform for system in package. I didn't know if you were aware of that or what's the competitive landscape with your tool moving from maybe the single customer across to other potential customers in 2017 and beyond?

Yeah. I don't know if I can comment on other company's announcements. But I guess I would just reiterate what I said earlier, we think we're in early and we think we've got a very strong position with a great customer and it's increasingly apparent to us that the technology that we're developing as a part of that effort is something that's unique in the market and something that has a lot of inherent value and brings up a lot of interest whenever we get in front of prospective users of it. So, I don't think it's a situation where we're going to be turned into a commodity anytime soon. I think we've got a unique head start and a unique position. And when we talk to potential customers about it, the real issue is, whether they want to adjust their testing protocol, so to speak, to use our technology, it's not a question necessarily of comparing our machine to somebody else's machine, that's not the situation that we're in. So, we're pretty excited about it. It's not going to have a material change on our financials this year, we don't think. But we think that next year holds some pretty good possibility and not to mention that the program that we have running currently that we've been kind of feasting on over the last few years, we think has legs also and we obviously need our customer to do well in the market in terms of volume production, but there is upward potential there also we feel.

Great. Thanks, Pete. I'll get back in the queue.

Thanks, Dick.

Thank you. The next question is from Kevin Ciabattoni of KeyBanc. Please go ahead.

Hi, good morning guys. Thanks for taking my questions here.

Sure thing.

Just I guess to keep on antenna just real quick. I mean GoGo has been pretty transparent in terms of their installs on a quarterly basis there. I mean was there any – was it a timing issue or was there any – were you guys surprised by the fall-off there and then just along those lines, I mean should we kind of be looking at a similar run rate for 2Q and kind of that $7.5 million, $8 million range?

Well, there are other products in that Avionics product grouping. So that's not all antenna systems, but it's probably reasonable to think it's in that range for Q2. And I guess your question with respect to scheduling and anticipation, our production – our delivery rates don't always line up very well with what GoGo publishes, for example. So, it's not necessarily a very useful tool for us to follow or for you I would suggest. They – we can deliver a lot and they can install a few or they can install a lot and we can deliver a few, because we ship to them and sometimes sits around and waiting in queue for whatever they're going to do with it. So – but in general, they've made a stated position that they want to move to 2Ku, we obviously understand that, respect it. I think, it's a debatable point, frankly about the technical merits of 2Ku versus our – the system they had with us, but that's their decision to make now. So, again we think, we have future prospects there not only with antennas, but with other parts of our business and we continue to support them, just like we support all our customers.

Okay. That's helpful. And then on Commercial Transport, revenue is off, I think if you add back the $8.5 million from antenna, it looks like Commercial Transport revenues were up, call it 1%, 1.5%, pretty soft relative to what we've seen over the past eight or 10 quarters even. Any changes in the Commercial Transport market or headwinds that you can point to as reasons for why that growth came in so much lower than what it's been running at. I know Airbus and the A350 in terms of their delivery challenges, anything you are seeing there?

I think I'd probably answer it a little bit differently and say that the comparator quarter was a really, really strong quarter, in particular we had some very large PSU retrofit sales, out of our PECO operation in the first quarter of last year. So we didn't have those same sales this year. The retrofit or aftermarket sales for that particular product line are pretty lumpy. It depends on an upgrade program that would have to be taken up by some airline somewhere and we had it last year, we didn't have it this year. So, I would say between that and the antenna system that would change that 1% growth to 5% or something. It would be a different story. So beyond that, I don't think we can point any specific headwinds. I think our strong market positions continue to be strong, the ones that are a little bit slower, may be focused on business jet or something, continue to be a little bit slower, but overall the market continues to be pretty positive. I guess I can add color that we recently went through our biggest tradeshow of the year, [indiscernible]. It's an Aircraft Interiors Show that happens in Germany every April and the environment there continued to be very strong, very positive, we had a very high level of activity in our booth, I don't think there is any real change in our broader market that I can bring up to shed light in our situation.

Okay. In keeping with that theme, I guess, are you seeing – are you continuing to see a pickup in coding activity on the in-seat power side, I mean, I guess, directly from airlines versus the Panasonics, and the Talis, I mean, can you talk a little bit about what you saw at the Interior Show and kind of what – maybe what a little bit about what freight dynamics are doing in terms of the demand picture there?

Yeah. I guess, I would say that overall – I'm going to give you two answers. The first answer is that overall, we continue to think that demand is pretty strong that increasingly as has been true over the last few years, airlines aren't asking themselves, if their customers want power. That question has been asked and answered. They know that their customers want power. It's really a question of whether they want to spend the money to offer the amenity and some airlines, most airlines, more and more airlines are answering that question, yes, and they're answering it both in their narrow-bodies and wide-bodies, but nothing has really changed on that side. I would say that at the same time, we seem to be entering a phase of increased uncertainty in the broader IFE market and connectivity market. There're some well publicized situations out there in the connectivity side and in the in-flight entertainment side and while those market challenges don't directly affect us, we're kind of somewhat caught up in it, because airlines are trying to figure out though they know they like power, they know they want power, they're trying to figure out more and more where they want to take their IFE picture more broadly, and we seem to be getting caught up in that in various ways. And if that affects ordering patterns, positively or negatively, we can't see right now, but certainly, for some of the big established players, it's a tense time and we're observing it just like everybody else.

Okay. Thanks. And then last one for me and I'll jump back in queue. More of a housekeeping, I guess, the CapEx guidance came down by $5 million, I mean, is that anything specific that that's attributable to or just kind of a lighter first quarter outlook for the year?

Just a lighter first quarter, when we go into the year, there is a laundry list of ideas that the operations have, that they like to do and some of them increase, some of them decrease, and the net effect of all this was a $5 million drop.

Okay. Thank you.

Thank you. The next question is from Matt McGeary of Eagle Asset Management. Please go ahead.

Hey, good morning. Just housekeeping. Do you have an operating cash flow number for the quarter?

Yeah. Give me a second here. It was above $0.5 million, a little over $0.5 million.

Okay.

I should elaborate on that since it is a rather low number. Main changes there are the increased receivables, and as I mentioned earlier increased working capital items. And I expect in the second and third quarter for that to reverse itself.

Okay. And just one more on the antenna; could you help me understand with GoGo moving to a different technology, yet you expressed confidence in maintaining your relationship there, I guess what are you – how does that work if you have a different technology, are you adjusting to them or you sell different things to them? And I guess from a new product standpoint in the antenna business, where are those directed and what are your – how confident are you in this sort of sales prospects for 2016 for those new products?

Okay. There is a bunch of questions there. First of all, in the – when you think of connectivity or you think of in-flight entertainment, there are a range of products that we can and do offer to the established players, GoGo and others. So, you can think of us to some extent as a supplier to that industry, but not directly a retail competitor. So, it could be anything. I mean, most notably I could be certification services, it could be installation kits that they need to install their system on specific airplanes, it could be power management that something we're pretty well-known for and it can be antenna systems. So, we don't sell the entire range of products to anybody, but there is hardly anybody in the industry that we don't sell something to. So, that's one answer. As far as our antenna development efforts, we have in the shorter term some efforts underway to develop products that will broaden our reach into the general aviation or private aircraft industry. In the longer term, we are certainly thinking about how to evolve our existing product offering, so that it keeps up with the times and even sets the pace with what's happening in the Commercial Transport industry. They're kind of two different types of airplanes, they've got two different types of desires or requirements and we intend on addressing both of them. I guess the third question you asked was, where do we – how confident are we in second half 2016 and this is one of the areas where there is definitely some risk. We have to get some products developed, get them through testing and get them into the field and we are working feverishly on all those fronts and we are confident that if we do that, then the market is there and we will sell product. But clearly, there is – we got to do that and it's an area where there is some risk, given that we're already in May. So we're keeping our eyes on it and that's why we put a revenue range out there and we've already find it as usual as the year progresses and our prospects become clearer.

Okay. Thank you.

Thank you. [Operator Instructions] The next question is from George Godfrey of CLK. Please go ahead.

Thank you. Yeah, Peter, the first question is, following up on that statement, I just want to understand on the delay of the antenna, it's really about testing and certification, the demand and the customer is there, you can source the components, it's just a matter of getting paperwork done and testing and certification actually sell the product to the customer, is that correct?

That's how we view it. Yes.

Okay. And then a pleasant surprise in the quarter that you highlighted was the operating margin within the Test business and you said you're just running that business better. So there is no revenue mix shift or product mix shift within Test. It's simply just better blocking and tackling here, allows you to generate a profit on relatively low dollar base, I was surprised that it could be any profit there?

Yeah. We were pleasantly surprised also, frankly, it was – there is a little bit of a mix shift going on. If you look at our table on page seven, sales by market, we actually break out Semiconductor versus Aerospace and Defense and you'll notice that the Aerospace and Defense are A&D Test side was pretty much flat last year to this year. While all the improvement came on the Semiconductor side. Part of that improvement is warranting and servicing the installed base of machines. Our revenue recognition practices for that part of the business is to defer some revenue recognition to match our warranty period, which is typically a two-year period for those products. So, we're getting revenue for honoring our warranty and that's turning out to be a pretty profitable impact, at least at this point. It's early on, machines are just coming off warranty or are heavy into their warranty at this point, towards the tail end of their life and that could change, but for the most part, there are two things happening in that business. One is, we've taken a lot of cost out and it's something that the management team there has seen coming and in terms of the revenue change, and overall, we've done some pretty effective cost management, while at the same time and this is an important point and it's hard to kind of demonstrate over these phone calls, but at the same time, we're becoming more competent and sharper organization and that's – it's really important. I mean, the two things together are pretty impressive, but the other thing is the mix change with more of a warranty revenue recognition procedure in place on the Semiconductor side.

Got it. And then wanted to ask about – when you think about the ability to sell the Test product to a wider customer base there's always a sales cycle involved there, but as the exclusivity comes off and you're able to sell that, can you accomplish a lot of the sales cycle work in the current year or towards the end of this current year so that the sales can really turn on once the exclusivity ends and not have to start the sales cycle there?

Yeah, I think the way to think about this is not necessarily by customer but by program, and there is a lot of opportunity, I think, we've said this before even leaving the issue of exclusivity aside for the moment. There is a lot of opportunity with our existing customer who we believe has a lot of potential applications for our existing technology and to some extent adjustments to the technology, so as we've gotten more into this, we have developed and are developing new capabilities and new versions of the equipment that are optimized for different applications and we think some of those applications will be of interest outside of our existing customer base, but frankly we think there is a lot of opportunity even within our existing customer base. So, beyond that I don't think we can talk about it a whole lot, but I hope that we can as the year progresses, and it's that confidence that makes us optimistic about 2017, frankly.

Got it. Last question, share buyback, $4 million this quarter. What timeframe are you anticipating to run the $50 million program?

I don't know if we have a firm timeframe in mind.

That's okay.

I guess the way I would color our use of that vehicle is, we believe our best opportunity to create value here is to invest in the business in terms of internal product development like we always have and acquisitions. We've been pretty quiet on the acquisition front. But we certainly have a number of pursuits usually as over time at any period in time and we want to be prepared for those kinds of opportunities if something reasonable and attractive presents itself. In terms of capital deployment the share buyback the way we look at it is kind of a third leg to the stool. It's a little bit of a lower priority, I guess, I'd call it more of an opportunistic allocation to capital and that's how we will approach it, that's how we approached in the first quarter and I don't – do we have a timeframe on our...

We don't have a timeframe on that allocation George. So we can sit there for as long as we want and we'll we use it as we can and as circumstances seem to warrant.

Okay. Thank you for taking my questions.

Thank you.

Thank you. The next question is from Ken Herbert of Canaccord. Please go ahead.

Hi. Good morning. I just...

Good morning.

I just wanted to follow up again the Aerospace commentary, Pete. If you take your comments around second quarter sort of looking like the first and I assume sort of the lower end of your guidance range for the full year, it implies 8% to 9% even maybe close to 10% growth for you to get into the – close to the mid-range of the Aerospace guidance number in the second half. It sounds like there is some risk to that number from of your commentary around the new product development and timing. How should we think about either how much you've got in the second half for Aerospace either in the backlog or maybe the key sort of puts and takes we should watch out for that could either trigger sales in that segment up to the upper end of the guidance range or that you might be looking at 90 days from now, perhaps lowering again that guidance on the Aerospace side?

Well, certainly the antenna situation is material to our second half expectations. Not only the new products but some existing programs, which we're expecting will be chunks of revenue in the second half over and above what we're seeing in the first half. So, there is that element. I would say the best thing to watch for beyond that is our booking numbers in the second quarter, because bookings in the first quarter, bookings in the second quarter go a long way to driving our sales for the year. And on that front, we're pretty pleased with first quarter bookings, that number that we recorded was one of the highest numbers we've seen in Aerospace ever even with some of the slowdowns in the business jet side. So if we can put up another quarter like that, it will come long ways towards giving us more confidence in that growth as you mentioned for the second half. We – I guess we looked at it and we decided that the high end of the range was pretty unlikely, but given the aftermarket element of how we compete, we can be surprised and more often than not over the last few years we have been surprised in a pleasant way by aftermarket demand over the course of the year. So, while we lower the top end, we're – I guess, I wouldn't say it's impossible for us to be up there, but on a weighted basis when you look across the business, mid-point of the range or slightly below is kind of what we're thinking about today.

Okay. That's helpful. And for the bookings in the quarter, I can appreciate the strength. Is there anything you particularly highlighted where you saw maybe better than expected bookings in the quarter or you saw any strength that perhaps surprised you or really what drove some to that sequential step up?

I wouldn't say there was anything larger material that surprised us. It's more of a relief than anything. If you look at the quarters – the previous handful of quarters that we were a little bit lower than we expected and we couldn't really point to anything specific there. I mean, obviously the Test situation is different, but on the Aerospace side, we had negative book to bills for the last two or three quarters, so it was good to see that kind of flip around, but I can't really say there was anything real substantial or significant worth commenting on.

Okay. That's helpful. And then on the Test side, can you help with any sort of quantification around for the business this year from a mix standpoint on your consumer, the Semiconductor Test business, what in 2016 is expected to be the mix of service versus equipment revenues?

That's a good question. We're guessing a little bit here, because I don't know...

The number, we don't have at our fingers.

Yeah. We don't have that. It's going to be a combination of – for machines that are under warranty, we're going to recognize revenue for – deferred revenue from machine delivery from previous year. So that is definitely a more of an element in our income statement than it used to be. And it looks like the way we set up that system, that that's going to be a positive contributor to financials. We also have machines starting to roll-off warranty and we expect to negotiate a service agreement with our customer to cover those machines going forward and that is still up in the air. So it's a little premature to predict exactly how it's going to work. But I would – I'm guessing here and Dave's shaking his head, he hates it, when I guess, but I'm guessing that it will be 60% – revenue this year will be 60% machine deliveries and 30%, 40% aftermarket support. But let us come back and we'll try to refine that number in a future conference call.

Okay. Yeah, that would be helpful, because it sounds like from your comments and the margins, the mix on the services or the support side is clearly better for margins than the equipment sales.

I don't know if I'd say that. It's – we had – if you look historically, we've done pretty well on both sides there and I think that – I think actually probably the big margin swing has more to do with cost management in the business in general than on the kind of new product versus field support margins for either of our business, I think more of it has to do with the overall cost management frankly.

Okay. Okay. And just finally two more questions on the Test, I appreciate the time here. The first is, it sounds like then from your comment you just made that there could be incremental service contracts coming on machines as they roll off warranty in the not too distant or maybe this year, maybe next year, whatever, is that a potential for an incremental contract this year? And then the second question is, I know you're obviously not talking 2017 yet, but clearly a big question is, your commentary and your confidence seem to me at this point to thinking of 2016 is the trough for the Test System revenues, is that a fair statement and are you prepared to make any sort of comment around the confidence into 2017 on the Test business?

We're definitely thinking at this point that 2016 will be a trough for the Test business. We think 2017 will be a much better year for both parts of the Test business, both the Semi side and the A&D side. It's too early to give any kind of quantitative expectation because, frankly, we are scrambling in both sides of our efforts there to develop the products and develop the capabilities that customers are asking for. So, we typically don't project revenue until we get to the very tail end of the year and it may be the same way this year, but I'm hoping that between now and then, we'll be able to talk about new awards and new programs on both sides of that business, that are – that we expect to materially affect our 2017 results. So, yeah, I think sitting here from today, we're kind of in this wired situation of having downward trends on our revenue side, and yet having, I guess I'd call it feverish. I don't know what a better word is, feverish development effort going on across the business in both – in all markets and opportunities that are ahead of us. So, I would expect 2017 to be a much better year than 2016 for our Test business.

Okay. That's very helpful. Thank you very much.

Sure thing.

Thank you. The next question is from [indiscernible]. Please go ahead.

Yeah. Hi, Pete. Could you just make a comment on how often you meet with analysts regarding earnings estimates during a quarter. It seems to me that recently the Street is estimating different guidance from what you're providing?

I'm not...

[Ph] Ed, let me just answer that, that expect for in a public forums, we cannot provide to the analysts any form of indications or guidance that they can do to – that they can then use for adjusting a report. So, the analysts have to infer from other sources of information if they want to make any changes different from what it is that we're talking about here.

Got it, okay. Thank you.

Sure thing.

Thank you. There are no further questions at this time. I would like to turn the conference back over to management for closing remarks.

No closing remarks. Thank you for your attention. We look forward to talking to you next quarter. Have a good day.