Astronics Corporation (ATRO) Q3 2016 Earnings Report, Transcript and Summary

Greetings, and welcome to the Astronics Corporation third quarter 2016 financial results 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. It is now my pleasure to introduce your host, Debbie Pawlowski, with Astronics Corporation. Thank you, Debbie. You may begin.

Thanks, Devon, and good morning, everyone. We appreciate your time today and your interest in Astronics. We have here Peter Gundermann, our President and CEO; and Dave Burney, our Chief Financial Officer. Peter will go through his prepared remarks and then we'll open it up the call for questions and answers. You should have in hand a news release that crossed the line this morning and it's not it is 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. You can find those documents both at our website and at sec.gov. So with that, let me turn it over to Pete to begin. Pete?

Thank you, Debbie, and good morning, everybody. Thanks for tuning into our call today. I'm going to talk first about our consolidated Q3 results and year-to-date results and then go into the segments, and we'll close with a discussion for revised expectations for the rest of this year. Jumping right into the headlines, no doubt, third quarter was a weak quarter compared to way we thought it would be, especially on the heels of our second quarter, which was a pretty strong quarter; revenues, margins and bookings, all were pretty right. And in understanding it, I'll tell you now, what I'm going to tell you is we go through the text of the discussion, we kind of have to look both of our segments, our test segment pretty much gave us what we expected. The press release doesn't play well for our test segment, because our comparative quarter over our third quarter last year, 2015, was the high watermark for our lumpy test business or test business was tends to be lumpy and all year long we knew that we were going to have somewhat reduced volumes compared to what we had in 2015, so no surprise there. The aerospace quarter was a little bit more of a surprise, and what we're going to do is look at the third quarter in the context, not in the comparative quarter a year ago, but at the second quarter, because the second quarter was our best ever aerospace quarter with record revenues and record profits and record bookings, so the question logically asked would be, what changed, how did we go from a record second quarter to a pretty weak third quarter? And we had some discussion around that, but the bottom line is that it's a combination of a bunch of little things and nothing major. So we'll look at it, but we think it's generally our competitive situation, our market situation; nothing has really changed from the second quarter to the third quarter. Let me move up to the revised expectations for 2016 based on our progress after three quarters and our lower than expected bookings in the third quarter, along with some scheduled slides we are reducing our top line expectations for yearend 2016. We'll talk about that too. So again, revenue for the third quarter on the consolidated basis was a little bit weaker than we expected, $155 million, our comparative quarters of the third quarter of 2015 was $200 million, so that would appeal that revenues were down 22% third quarter 2015 to third quarter 2016. When we look back at the third of 2015, you would find that we had pretty strong aerospace results in that quarter of a $139 million revenue, and we had, as I just said, a record quarter with respect to test, $61 million in the single product type, that was the high watermark of anything we've ever achieved in our test business. The third quarter was also below our sequential quarter, our second quarter of 2016 where we had revenue of $164 million and total revenue was down 5.7%. Test was actually up from the second quarter of 2016 and aerospace was significantly. For the quarter on a consolidated basis, bottom line results were light, matching the revenue, netting for almost $12.1 million; 7.8% of sales; diluted earnings per share $0.41 down from $0.82 from the third quarter of 2015. Engineering and Development expenses were $22.2 million; 13.3% of sales. The percent was a little bit higher than we've been running due normally to the lower sales level, but the actual buyers spend was pretty consistent with what we've seen in the recent quarters. Bookings were right at the $136 million, well below the levels of Q1 and Q2. Aerospace came at $123 million and test at $13.7 million, leaving us with backlog at the end of the quarter of $275 million. Operating profit in Q2 was $24.8 million, but dropped to $17.5 million in Q3. Bookings were $163 million in Q2, dropping to a $123 million in Q3. So we went from record revenues, record operating profit and record bookings to substantially lower revenues, operating profit and bookings. We have looked through our business, we've talked to our managers, we have considered a number of scenarios, we really are not aware of anything substantial that can explain this sequential change from such a great Q2 to a great Q3. We do not believe that we are experiencing any kind of competitive change in our markets or product line changes or cost changes. It's simply mostly a matter of coincidental timing of various customer requests and the orders and deliveries. We've seen some evidence of customers pulling things into Q2 out of Q3, but that doesn't explain the whole thing. And so our perspective on the market isn't really a whole different now than it was at the end of Q2. I mean, we were obviously not happy with the quarter's results, but when we take a step back and we look at how our business stands, we feel it stands largely today the same way it stood at the end of Q2, which again was a record quarter. And I guess, our perspective is that the best way to look at Q2 and Q3, and maybe Q1 at this point has to kind of blend them together more than look for sequential changes one quarter to the next. Looking at our aerospace segment year-to-date comparing 2016, through three quarters with 2015 through three quarters, revenues this year $406 million, down 1.8% from $413 million in 2015. Operating profit of $61 million, down from $66.7 million last year. When you look at our Product Line chart, which is on Page 8 of our nine page press release, the second of the last page, looking at our major product lines, year-to-date change helps explain some of the story here. Our Electrical Power & Motion product line, through three quarters was $219 million, 45.8% of our total, and up 5.1% over the first three quarters of last year. Our next largest, aerospace product line, our lighting & safety product line recorded revenues of $121.5 million, 25.4% of our total, up 1.3% over last year. Probably the biggest single product line change that's evident on this chart is in our avionics product line. And you can see there that this year we have revenues through three quarters of $22.7 million and that's down 47%; about half where it was last year. Now avionics product line is made up of a few products, but the major one that we've talked about which continues to haunt us a little bit is our antenna product line, where we have been working on new products and new opportunities where we think we can fill this gap and our expectation has been that we would begin to do so through the end of this year. And kind of good news, bad news on this front, just to bring up to speed, we are pushing really hard here and we're very encouraged with the prospects that are ahead of us, I'll come back to that. The bad news is that we don't have to done yet. We're just starting to get through the certification, the first certification process, which we expect to complete by the end of this month, which will pave the way for sales to certain sectors of the market, but we're not as far along as we wanted to be. So that's kind of the bad news that we hole that we thought we're kind of fill towards the end of this year, is going stretch a little bit in the next year. The good news is that we think we've got a winner, pretty strong winner. This a product that's geared primarily towards the larger business jet market and last week happens two of them, The NBAA show for those of you in the industry, the National Business Aircraft Association show, kind of the big business jet show and I was there all week and was very impressed with the enthusiasm that exist in the market for this product. So we believe that it's going to be a real winner when the times comes and we believe the times going to be next year when we get through a number of these certification processes that are ahead of us. So pretty excited about it, but it certainly didn't help us in our third quarter and year-to-date and its not going to help us much in our fourth quarter, so we're going to continue to struggle with those strap off, until we get into 2017. In terms of significant customers, Panasonic as usual is our biggest customer, 21% of our total year-to-date at our $102 million and Boeing, a close second at 15%, a $74 million in revenue through three quarters. Chasing over the test business, in Q2, revenues were $30 million. Again, if you look at the press release it looks like our test business has gone off a cliff, and I guess it kind of has, if you're going to limit the comparisons for the third quarter of last year when we had revenues of $61 million. But we knew heading into this year that there was going to be a lean year for our test business and so that comparison does not surprise and shouldn't surprise anybody following the business at this point. I think the good news is that that business continues to perform pretty well on a financial basis, given the volumes reductions it' had. Most businesses that see 51% volume reductions don't still manage to make operating income of 10% or 11% like our test business has in this last quarter. So we're reasonably pleased with that. Revenue year-to-date $73 million, again down 40% from last year; bookings year-to-date are $53 million, so we're looking at a lighter rate than we are shipping this year, but we still maintain that we believe this is a trough year for our test business and we are expecting bigger and better things next year. Our aerospace and defense business is up approximately 10% over where it was last year and we expect that rate of growth to continue on into the New Year. The semiconductor business, we feel is premature to bracket at this point, but we do believe that this is going to be a trough year on the bottom and we're expecting good news from that part of our business in 2017. So our balance sheet remains healthy. And as usual cash at $13.3 million at the end of third quarter; total debt of a $164 million, so net debt of a $151 million. We are expecting our capital expenditures by the end of the year to be in the range of $15 million to $17 million. We did buyback some shares in the third quarter. You'll remember we had a $50 million authorization that we initiated in February. We bought 157,000 shares for $5.3 million in Q3 that brings our purchases year-to-date to $17.5 million, 517,000 shares. Looking forward, we are dropping our revenue guidance for 2016 to $635 million to $645 million. That drop is almost is exclusively on the aerospace side, for functioning of our lower than expected revenues in Q3 and certain program delays like the antenna system I just talked about, which we originally thought might help in Q4. Our test business pretty much stays unchanged from previous forecast. We're not going into any detail on 2017 yet. We hope to do that by the end of the year. We believe again that our business kind of across the board is pretty well-positioned. And I guess we believe pretty strongly that the third quarter is a setback certainly, I don't want to make a light of it, but it's not as though it's causing us to reevaluate where we stand in the market or what we need to do be successfully. I think its more than anything, just a result of timing of various customer demands and various development programs that we have underway. So with that being said, Bob, I think we're ready to take some questions.

[Operator Instructions] First question comes from the line of Dick Ryan with Dougherty & Company.

Pete, just trying to maybe dissect a little more into the in-seat power scene. Its sounds like you had a couple of puts and takes there, but can you talk a little bit what you're seeing as far the opportunity still ahead to be fielded for aircraft and how the new build in retrofit market mix looks right now?

We don't really feel like it's changed the whole lot. In fact, we don't really feel like it's changed at all. We continue to think that approximately half of our revenues go to retrofit, half to newbuild; that can fluctuate 60%, 40% over any particular time period. And we don't feel like there has been a substantial change there. Your next question might be competitive status and we're saying nothing much has changed there either. We think our market share continues to be well north of 90%. There certainly are people who are kind of nibbling around the edges, I guess I would say, but -- and there maybe certain parts of the market that are more susceptible to competitive pressure, but we feel the crux of the market, the core of market continues to our strong suit and we continue to make a lot of progress with customers and bidding activity is healthy. So we're not feeling deflated or kind of put out really at all. We're just hitting these apparent soft spots in terms of orders and deliveries at the moment, but we don't see any reason why that should be expected to continue.

In Asia, with a different direction and I can't recall the company, they awarded for in-seat power. Is that just a lower end solution or was that a competitive win?

We didn't bid that, we didn't pursue that program. It's a USB-only. Couple of things to think about here. Power started out being 110 volts and it kind of the voltage went out over time, actually started out DC, another one AC one time and then USB became a feature. We certainly are active in the USB market. But USB is not USP is not USB; there are kind of low-level, lighter, cheaper lower power USB systems. Most airlines that we work with eventually come to prefer the full fledge 110 USB combination and the reason they do that is that these system and the installations aren't exactly cheap, so they want to put something in that, just likely to last up for a long period of time. And yes, airline actually chooses to go with simple USB and really light-entry level USB, its kind of a -- I wouldn't call it a commodity, but there definitely more companies out there that can do that. That's apparently what that program was that you referenced. But I guess, our perspective airlines who are serious about putting power in their airplanes will investigate it as part of their diligent effort to investigate various products to investigate kind of a lower capability, USB system, but eventually, they'll usually decide to spend a little bit more and get a higher quality and kind of future proof their installation by going with 110 system and that's where we tend to shine.

And some of the major carriers kind of keep working through the bulk of their aircraft fleet already installing in-seat power. Is that a concern or something from a timing issue that we need to pay attention to?

Well, some airlines are certainly ahead of others. I guess though that we would say that there are enough major programs at major airlines where we're not particularly concerned about running out of market at this point. We talked on record plenty of times we tend to divide the market into wide body airplanes and narrow body airplanes. We think the wide body seat market, not airplanes, but seats across the globe somewhere around 60% plus or minus penetrated at this point or saturated. That means 40% to go. And of course they're building new wide body airplanes all the time and with A3-50 coming online and 777 in a couple of years, we expect that to continue to be a healthy market on a newbuild side as well as on the retrofit side. But in the narrow body side, we say that we think somewhere in the neighborhood of 10% to 20% of the world wide seat market is spoken for at this point. That's a relatively small percentage. Some people on our team definitely go to the lower end of that estimate or even to the bottom of it, which suggest to us that there is a lot of room to run on the narrow body side too. So no, we don't feel like we're running out of market. We feel the same way today that we felt six months ago and we're not particularly deterred by the third quarter.

Do you look at ISP to be a -- can it get back into this low double-digit growth profile or is it new norm, is maybe mid-single digit growth for in-seat power?

That's a good question. We've been strong double digits forever, really, but we're also at a much higher level revenue wise than we've ever been before and it could be that the gross profile at this level is going to moderate a little bit. I don't know if we're ready to clear that today, but we are actively running a bunch of different scenarios, but what we expect next year to run out and we'll address that more directly when we get to that point. But I think from our perspective, this product line has been obviously very good to us and it's been wonderful in driving our growth. We expect it to continue to drive growth across the company. And will it be 20% again, maybe not. But we think it could be double digits in likely -- very likely it could be. We'll talk about that more specifically when we're able to get into our 2017 forecast.

I've got a couple more, but I'll get back in queue and circle back.

Our next question comes from the line of Jon Tanwanteng with CJS Securities.

Any specific color on the state of in-seat power market compared to what you thought it would have been two months ago and what you delivered in the quarter?

Well, not really, Jon. I guess, we wish there was another record quarter, like the second quarter was, but it wasn't. Again, we don't really feel like anything has really changed. The number of major programs, we feel our quoting activity is really good. We feel like our customer receptivity is really good. I don't really have anything more to add to that story.

And then in your prepared remarks you said that you mostly had the test quarter that you expected, but you still kind of reduced kind the top end of the range a little bit. Any color on what went into that?

I think its just fine tuning that forecast given that we're half way through November practically speaking, so its getting easier and easier to put a predict where we'll going to be at the end of the year. So there is a little bit of room for noise there, but we're getting pretty locked in.

And I had a nice press release the other day talking about the new system level tester platform, any update on signing new customers off for that business, which seems some high level device failure. Is that something your test could have prevented? Just a little more color on that?

Yes, we did do a press release out and I don't have any specific program or customer updates to share at this point. But I can say that we continue to believe this was pretty fertile ground for us. It's an evolving need that the industry is more and more recognizing. And we feel like we're ideally situated to pursue it and we're actively investing. So we have a number of programs underway. We would like to be in a position at this point to give better color for where we think 2017 will be. You might remember that the beginning of this year we got a little sideways with our forecast, so we want to be a little cautious not be in that situation again. But I think the best thing I can say that we do expect -- we continue to be pretty optimistic on the business and we think we've been well received by the market and we think that 2016 retrospect look like quite a trough year when we look back at in the future.

Our next question comes from line of Ken Herbert with Canaccord.

Just wanted to start out the guidance implies for the aerospace strictly four year number down about $30 million. It implies about a $10 million step-up sequentially from third to fourth quarter for the aerospace business and sort of flat with last year. I guess, my question would be you've had a fairly material drop here for two quarters. Can you just talk about confidence and visibility in this business, and has anything changed? And I know there is no, it sounds like one item usually point to, but clearly the business seems to be weakening faster than you anticipated or at least not seeing things come through drive to growth. Can you just maybe talk, anything has changed in your process or visibility or how you're thinking about this business now as you look out for the rest of this year and into next year?

Sure. We're definitely trying to look at things a little bit more closely and try to figure out where we're missing things. I talked about the avionics or the antenna system change. Through three quarters last year that was or the avionics product line, which includes a few other things was $42 million just shy and this year were $23. So I can tell you that that's one -- that's a hole that we did not think would be so large and we thought we would be able to slow a little bit more quickly. Looking forward, I guess to recap or to repeat what I said about last week, we have I think a stronger and stronger team work in that business. And we had a number of customer interactions and number of demonstrations and it was pretty impressive. So I think that there is certainly light at the end of that tunnel and not just filling the hole, but building the business to a much more critical and sustainable level. But the other thing I guess I'd point to if you look at bookings, its been a little bit of world wide especially on the aerospace side, the last page of our press release from the fourth quarter of 2015, we went from the $122 million in Q4 to a $140 million to a $163 million and then back down to a $122 million. And it was a little bit of a surprise for us to see that bigger drop from a $163 million in one quarter to a $123 million the next. That hurts our near term shipping prospects, but again the real question is when we look back and we query our people and we say, what are you guys seeing in the markets, what's changing that could cause this we’re set by a couple of things, one is that it was kind of across the board that wasn’t really any one product line, we saw drafts in bookings from a number of places. But we also consistently heard that our guys are so comfortable with matters that we’re leaving business to rep customers who are joining away just kind of happen to be the way things kind of lined up and I guess I would tend to look at Q2 and Q3 and average them together and maybe Q2 wasn’t as good at the time as we thought it was and may be isn’t as bad as the field. But it just so happened that customers lumped their activity in the second quarter and we’re lighter in the third quarter. So that’s a read and I guess that’s the color I can offer.

Okay. I guess a follow up question to that would be, as you look at the revised guidance now, have you taken perhaps a greater haircut then you normally would have to some of the assumptions you’re getting from the operating companies or I guess maybe how is your approach that all changed after some of the more recent volatility and what you’ve seen relative to expectations?

Well, I think we’re close enough to the end of the year now where we don’t have any backlog that takes a lot of gas workout, in other words usually we’ve the gas what orders are going to come in and how well we’re going to be able to execute. As you get close to the end of the year that order element kind of dries up and the execution element becomes more of a sourced variation with a couple of exceptions. And you may remember that we have some customers that where we hold some significant inventory and we never know kind of one week to the next what’s going to happen. So there is room in terms of what they want us to be with that inventory. This is kind of a bill in old arrangement so we end up not calling it revenue until we ship it, even though it’s filled and it’s completely in place and ready to go in stock rooms that we maintain for certain customers. So, there is some room for those levels to vary and that’s also a little bit of a source for the range. But I think we’re pretty comfortable with the range we put out there.

Okay. And then just finally, it looks like Armstrong has been weaker than this year than last year anything in particular with that business or anything you could point to, that you’re seeing that maybe with unexpected or the change?

It is a little wide in the way you can see it, you’re probably looking at our – you’re looking at that table on page 8, right. The system certification, the only thing I would caution a little bit is that, that is all Armstrong, but it’s not all of Armstrong so Armstrong also feeds into some of our other product groups specifically in the electrical power and motion side. So, yes it’s a little concern, it’s a smaller product line, so a small change in revenue tends to have a big percentage difference. But, I’m not sure that’s an area that we feel is a major concern in terms of driving where the business is going at the moment.

Alright, thank you very much.

Thank you. Our next question comes from the line of George Godfrey with C.L. King, please proceed with your question.

Thank you and thank you for taking my questions. Pete I just wanted to focus a little bit on really the magnitude of guidance change, if I would get the midpoint of $30 million revenue reduction at the midpoint where we’re already half way through the year when that guidance was provided that $30 million all concentrating on aerospace and 11% variation on the second half revenue of this year. So my question is, is that the new norm on how much revenue would vary that and a double digit magnitude in just such a short space of time if something 17 or 18?

I should hold that George. We typically experienced relatively steady aerospace business and we’re seeing a little bit more noise specifically this quarter but also towards the end of last year. We’ve already started our test business and it is, and I expect it will continue to be hopefully with the general upward trajectory. I think it’s too early to talk about a new normal in aerospace, I guess we would prefer to think of this quarter as being kind of freaky like word and we would expect to get our normal consistency together. And I guess again I would point out on the booking side in particular which is what drives our business obvious eventually. If you have – Q2 and Q3 it’s kind of in that range so we’ll be watching it and we’ll be looking for trends in close so that we can share in terms of helping to understand our business. But at this point I don’t really see a reason why we should think the business is going to be more lumpy in the future then it has been in the past. We don’t see that at this point.

Okay. And reading from the press release your statement that early indication that aerospace revenue will grow in the mid single digit range then sitting here today you don’t see as the need for any extra heavy lifting on the bookings number doing something more unusual then years past to hit that midpoint of projection in 2017 as it relates to 2014?

I’m not sure heavy lifting, yes we’ve to have continual introduction of successful new products we got to fix some of the holes in our business then we do have some and – but I guess we look across the business and we’re used to having a certain perspective that says we’re going to be successful and we think that this is a – these programs that are worse pursuing and they’re going to pay off and nothing really changed there. So it’s all the scenario we’ve to execute technically, we’ve execute in terms of margins and we’ve to execute in terms of performance. Is it heavier lifting then normal no, I wouldn’t say so, I think, we think there is a robust set of opportunities out there. I’m actually pretty excited about where we sit and what’s in front of us and some of the things that we’re in the middle of. It’s frustrated at short terms results that deviate from we thought that would be, but it’s certainly not a situation where we’re sitting here thinking we need to regroup strategically and figure out how we’re going to save ourselves. I think we’re going to continue to do what we’ve been doing and I’m of the opinion that the market is going to cooperate and will be fine.

Okay, understood. And that’s get out the amount of work necessarily from here to move into 2017 to hit that mid single digit range is what I was trying to get at. And then, in the press release you put out yesterday on the Test equipment, Test device that you showed in the picture what is the price of ASP or where the starting price is for a piece of equipment like that?

Let’s not exactly ask the shelf piece of equipment, but let me ask you this, does it look expensive?

It is. It is very expensive.

We’ve a increasing length of our width in our toolbox and I would tell you that pieces of equipment that kind of look like that change anywhere from say low or the million dollars to a high of six million it’s a wide range and it depends what the customers wants, it depends how many of them they want to order and it depends what kind of throughput and characteristics they want, performance manners, it’s a widely varying selling price.

Understood, great, thank you for taking my questions.

Thank you. [Operator Instructions] we’ve another question coming from the line of Ken Herbert with Canaccord, please proceed with your question.

Hi Pete, you’ve done a very good job of taking cost out of the Test business to maintain margins as you’ve seen fairly significant contraction of your volume over the last few years. Are you starting to do anything at all on the aerospace side of the business in terms of your cost structure to maybe look at protecting or valuing a little margin expansion with the little top line growth?

First of all, I would agree with you observation on the Test side, the crude has done a really good job not only managing cost but building competency. They are kind of two different trust that they have been able to do simultaneously. So pretty impressed by that, I think on the aerospace side, we haven’t been as aggressive but I would tell you that I think in general we do a pretty good job watching our costs and managing our costs. What we haven’t done and maybe this is what you’re asking about, we haven’t done the low cost manufacturing countries for example, we haven’t exported a lot of our manufacturing. We don’t have a short term ambition to do so frankly, I think our, part of our secret task has been to lead by innovation and lead by performance and I guess our general bias is that there is real value in being able to control our processes vertically right now and having closely integrated teams from the technical side working with manufacturing and sales, all kind of in cohesive units and I don’t think we really have ambitions to change that at this point. I’ll say that we’re continually doing things that could be considered active cost management, I mean, we put a huge facility in Portland last year and that’s something we talk a whole lot about. The team out there, I mean, really pleased with how the integration into that facility has worked and the performance of the company and it’s finally building to make a big difference basically and that’s an example where we are getting some efficiencies of course it’s a pretty expensive building so it’s a long term commitment and a long term investment. But I think we’re kind of alert for those initiatives and we’re actively doing them, but we’re not going to restructure our business in the short term from how we’ve been doing it.

Okay that’s helpful. And the second, just as a follow up is any of the top line weakness across aerospace due to any incremental pressure you’re getting or changes in contraction with customers on pricing, I’m specifically thinking about sales above – the forward fit channel relative to the retro fit channel?

Yes, I wouldn’t say so Ken, we certainly have been subject to some active pricing negotiations but we’ve also generally been able to bring forward cost savings that protect our margins so that we survive and Boeing is happy to in that case and I don’t think we look at that as a gain changing situation at all.

Okay, thank you.

I guess, I would even take you one step further and say that we’ve been able to benefit from that relationship with Boeing I think they look at us as a supplier then grow and work with and it’s not always easy, not always necessarily the way we would write at the script. But when I look back at it I think we’ve done a pretty good job with it, I think Boeing is pretty happy with us.

And would you say just finally you got a similar dynamic with Panasonic or is anything structurally different there?

Nothing structurally different, Panasonic has been a long term customer partner of ours and we do everything we can to promote that relationship as we do with any of our major customers. We do have, I was talking about our antenna business, I mean we’ve had an initiative going with Panasonic right now, we had a common boost at MBA last week for that part of our business and it was a very positive way going on in that part of our business and so there is a lot that we do with Panasonic, we touch Panasonic or they touch us depending on your perspective in a number of different ways not only in our areas of business, in our PECO business, our Armstrong business, our aerial sat business. So there are major part of what we do and I think we do a good job for them.

Okay, thank for the color.

Thank you. Our next question comes from the line of Scott Lewis with Lewis Capital Management, please proceed with your question.

Hi good morning Pete. I got a question on the small form factor antenna that you’re working with Panasonic versus business – would that be something that there is an opportunity in the regional jet space?

It could be. That product is specifically designed for a tail mount application, very simplistic way, we make bigger antenna systems that utilizes on bigger aero craft down to a narrow body kind of application. This one is designed to go up in the top of a [indiscernible] and I’m just thinking a lot, if you kind of catch me flat for it. If a regional jet has that kind of tail structure it might work and in systems bigger than what a typical regional jet would want to carry. But the other realistic situation is that most regional jet few shorter distances don’t fly over water, so they have air ground kind of opportunities. I just, I can’t tell you that the way we think about it today as the tail mount is primarily a business, private aircraft application and should be more for the commercial transports and regional jets are kind of in between. So it’s not a market that we’re aggressively going after at this point.

Okay thanks for that. And then, I just want to ask one question on electric power distribution system as you’re having a few programs come on in next year or two. When you have kind of a low cost type volumes, type of program like say the bell 505, just curious if that’s the better program for you or is the shift that much higher on a more expensive type of aircraft that you’re better off on bell size 525 or something like that?

We like them both. As an interesting part of our business and we’re pursuing while you look at the programs we’ve announced and we’re on lighter turbo fixed wing for the moment, we’re on lighter turbo prop aircraft, we’ve announced in one few kind of light medium jets, I think our capability can go from the light turbo prop single engine even all the way up to the medium sized business jet. I think when you get into the large business jet we’ve got a lot of technical competition in the large established player. But in the smaller aircraft we’re putting together a package and a capability that’s pretty unique. You asked me which one we prefer, I’m not sure we don’t really differentiate, we’re definitely pursuing the full range of aircraft and it’s been a pretty active area. It’s taken a little bit of a slower take-off then what we envisioned a few years ago, but we’re making progress and I guess I can pretty safely tell you that it really doesn’t matter who it is anymore in the industry or where they are, they know about us and they know about our system and we’re getting a really good look and doing a lot of development work. And I think our original vision where some day this becomes kind of a – that these standard, this is a fact of standard for electrical distribution in small aircraft, I think that’s very much in a live dream, it’s taken longer to get there, but we’re definitely making progress. We’re continuing to innovate to, I guess the other answer is, we’ve proven architectures but we’re seeing opportunities to improve and innovate which we think are going to be important not only to continuing to establish ourselves but also to make the aftermarket opportunities maybe a little bit more in placement. So that’s kind of a teaser I realize but there is a lot of IT development that we’re continuing to pursue in those areas.

Great, thanks a lot Pete.

Thank you. That’s all the time we’ve today for questions and answers. I would like to turn the floor back to management for closing comments.

Those who are interested in the company everybody we look forward to talking to you at the end of Q4 if not before and we look forward to a better future then we had in Q3. Thanks, have a good day.

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