Park Aerospace Corp. (PKE) Q4 2014 Earnings Report, Transcript and Summary

Good morning. My name is Tabitha, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Electrochemical Corp. Fourth Quarter Fiscal Year 2014 Earnings Release Conference Call. [Operator Instructions] At this time, I will turn today's call over to Mr. Brian Shore, President and Chief Executive Officer. Mr. Shore, please go ahead.

Thank you, operator. This is Brian Shore. I'm with Matt Farabaugh, our CFO, as usual. And welcome to our fourth quarter conference call. Anyway, we'll do our normal routine. We'll start with some introductory remarks then go to the Q&A. Matt, why don't we get started with the financial commentary.

Okay. Thanks, Brian. Certain statements we may make during the course of this discussion which do not relate to historical financial information may be deemed to constitute forward-looking statements. Any forward-looking statements are subject to various factors that could cause actual results to differ materially from our expectations. We have set forth in our most recent annual report on Form 10-K for the fiscal year ended March 3, 2013, various factors that could affect future results. Those factors are found in Item 1A and after Item 7 of our Form 10-K. Any forward-looking statements we may make are subject to those factors. I'd like to briefly review some of the items in our fourth quarter and fiscal year 2014 P&L, which are not specifically addressed in the earnings release. Please note that the fourth quarter ended March 2, 2014, was a 13-week period compared to the fourth quarter ended March 3, 2013, which was a 14-week period; and that the fiscal year ended March 2, 2014, was a 52-week period compared to the fiscal year ended March 3, 2013, which was a 53-week period. During the fiscal year 2014 fourth quarter, North American sales were 48% of total sales, European sales were 7% of total sales and Asian sales were 45% of total sales compared to 49%, 9% and 42%, respectively, for the fourth quarter of the prior fiscal year and 51%, 6% and 43%, respectively, for the 2014 fiscal year third quarter. Sales of Park's high performance non-FR-4 printed circuit materials were 90% of total laminate and prepreg material sales in the fourth quarter of the fiscal year 2014, 82% in the fourth quarter of the prior fiscal year and 89% in the third quarter of fiscal year 2014. Sales of Park's aerospace materials and parts were $8 million for the fourth quarter of the 2014 fiscal year compared to $7 million in the fourth quarter of the prior fiscal year and compared to $8.2 million in the third quarter of the 2014 fiscal year. Sales of aerospace materials and parts were $30.4 million in the 2014 fiscal year compared to $25.9 million in the prior year. Investment income net of interest expense for the fourth quarter of the 2014 fiscal year was negative $45,000 compared to positive $113,000 in the fourth quarter of the prior fiscal year and negative $48,000 in the third quarter of 2014 fiscal year. Net expenses in the third and fourth quarters of the 2014 fiscal year were primarily the result of the interest expense associated with the company's borrowing under its credit facility agreement, which was entered into during the fourth quarter of the 2013 fiscal year and amended and restated in the fourth quarter of the 2014 fiscal year. Depreciation and amortization expense for the fourth quarter of the 2014 fiscal year was $782,000 compared to $1.1 million in the fourth quarter of the prior fiscal year and $1 million in the third quarter of the 2014 fiscal year. Capital expenditures for the fourth quarter of the 2014 fiscal year were $344,000 compared to $257,000 in the fourth quarter of the prior fiscal year and $160,000 in the third quarter of the 2014 fiscal year. Capital expenditures were $1.1 million in the 2014 fiscal year compared to $1.4 million in the prior year. As reported in this morning's earnings release, the effective tax rate before special items was 11.3% in the fourth quarter of the 2014 fiscal year compared to 15.7% in the fourth quarter of the prior fiscal year and compared to 3.3% in the third quarter of the 2014 fiscal year. The U.S. GAAP income tax provision in the fourth quarter of the 2014 fiscal year included a noncash charge of $63,958,000 for the accrual of the U.S. income tax on the undistributed earnings for the company's subsidiary in Singapore. The low effective tax rate in the third quarter of the 2014 fiscal year was due to higher portions of taxable income in jurisdictions with lower effective income tax rates and tax incentives associated with the company's operations in Singapore. During the fourth quarter of the 2014 fiscal year, the company had 2 customers, TTM Technologies and WUS, which accounted for more than 10% of total sales. The 3 remaining customers in the top 5 were Sanmina, Shennan Circuits and Viasystems, in alphabetical order. The top 5 customers totaled approximately 42% of total sales, while the top 10 customers totaled approximately 55% of total sales and the top 20 customers totaled approximately 70% of total sales in the 2014 fiscal year fourth quarter. During the 2014 fiscal year, the company had one customer that was more than 10% of total sales, which was TTM. The 4 remaining customers rounding out the top 5 were ISU Petasys, Sanmina, Viasystems and WUS in alphabetical order. Top 5 customers totaled approximately 45% of total sales. Our top 10 customers totaled approximately 59% of total sales and the top 20 customers totaled approximately 70% of total sales in 2014 fiscal year.

Okay. Thanks a lot, Matt. It's Brian again. A little bit of cold here, so bear with me and my voice. Let's just go to the fourth quarter and compare it to the third quarter. I think it's pretty straightforward if you look at the fourth quarter as a follow-on to the third quarter. The top line in fourth quarter is a little lower. In the fourth quarter, we had the Christmas, New Year's holiday and also the Chinese New Year, and that would kind of explain that. The pretax and operating profit bottom line, a little bit better actually in the fourth quarter than the third quarter, but still within the range so really, I don't think worthy of getting into a deep analysis of those small differences. Sometimes the analysts ask this question, so in case you do, in the fourth quarter the revenues were flat across the 3 months of the fourth quarter, relatively flat, that would be December, January and February. That's all we're going to talk about in terms of introductory remarks in the fourth quarter. But I think we should talk about the first quarter because we're in an unusual position where we actually have 10 weeks in the books for the first quarter. We have 13-week quarters. We had 10 weeks in the books in terms of revenues and bookings. And I thought you should know that the run rate during -- over those 10 weeks is $48.8 million. And I just want to be clear what that means. That's not a forecast. I just want to say, again, it's not a forecast. We take our revenues for those first 10 weeks, we divide it by 10, multiply by 13. So this is kind of a mindless number. There's no opinion or perspective in it and there's no forecast. As who knows, these things could -- maybe it will drop off of the cliff in the last 3 weeks. I don't think so. But all we're talking about is the first 10 weeks, those are facts, and we're happy to report facts to you. And we thought it's particularly more meaningful. I know sometimes you get involved in these discussions that made me a little bit uncomfortable, when we're doing the quarter, based upon 2 or 3 weeks of the following quarter. And we're trying to extrapolate and I get nervous, so who know what that means. But with 10 weeks in the books and a pretty clear indication as to where we're going, I thought you should know that number. We had to go back to fiscal year 2012 to see revenues of those kinds. But the other thing you should remember is that if you go find those quarters, the bottom line will probably be better. And why is that? If you go back a few years, we were involved with some things like aerospace startup, negative impact from aerospace startup, right? We also had our plants in Lynnwood and Waterbury and China, which are still operating. So a lot of duplicative costs that are eliminated. So we kind of have gone through all that difficulty with the refocus of the company. All those kind of drags, if you want to call it, P&L drags are behind us. That's why if you went back to one of those periods and looked to the bottom line, you might expect the bottom line -- I'm talking operating profit, pretax bottom line might even be better on a similar kind of revenue number. So I just thought you should be aware of that. And so that $48.8 million run rate, it's not really related to aerospace so much. Aerospace continues to grow, but aerospace, probably be a little bit somewhere between $9 million and $10 million in the first quarter. So it's -- aerospace continues to grow. But the -- major impact of that, a significant difference in top line is from electronics. The bookings in Q1, sometimes we even talk about bookings, not meaningful because we have such lumpy bookings, especially with that big jet company. We sometimes we book a lot all at once, so the bookings would be distorted high in the first quarter, so we're not going to talk about that. I just want to say that analysts -- I hope you don't get too far ahead of us because sometimes we have trouble trying to keep up with them, based on a lot [ph] of information, but this information, I thought you want to know, again, we're talking facts here. But what's going on, our opinion anyway? There's something that is going on, we think. It's not just kind of -- we don't believe it's a little temporary blip. It seems like there's some significant acceleration in infrastructure buildout, especially in developing and emerging markets. This relates in part to 4G. But a lot of this is in China, the buildout of 4G in China, not all 4G. This helps our -- or impacts our high end digital product line, but also our RF product line, which is our PTFE product line, as well as what we call Mercurywave, our Mercurywave product, which actually has done quite well. That was introduced, I think, about 3 years ago. And that seeing some nice traction. As far as our other new products, which are -20 and Meteorwave, I want to make sure I get those right, Meteorwave 1000, 2000. -20 starting to see some revenue traction. Meteorwave, I still like to see that do a little bit better. But I must say that -- maybe this is the broken record part of the story, but there does seem to be a lot of momentum building in the OEM community regarding our new products. We should talk about that big jet company that we keep talking about. Unfortunately, I still have to call it big jet company, because we haven't gotten the approval yet to mention the name. A couple of updates from our last quarter conference call, our third quarter conference call. So we entered into an amended purchase agreement with higher volumes. This was contemplated, it's not a surprise. But we just want to let you know that was done. We've also recently received a global RFQ for significantly additional opportunities going out to 2018. At the same time, we've been asked to give a proposal out to 2021. And if it sounds confusing, it is a little bit, a lot of things moving around, a lot of moving parts, a lot of new opportunities. I mentioned last time, we're working with that jet company on several development projects. Let me stop there for a second, because those are really important for us, because they represent major opportunities. But also, it's funny because these development projects, there's 3 or 4 of them, are in areas that we had on our, what do you call it, bucket list. These are things you wanted to do for years. But I think realistically, unless we have a partner like this, we probably would struggle to get these things done. With a partner that's quite a bit different and the pace is accelerated and I feel good about it. These products, although they're being developed in conjunction with this big company, in many cases would be usable by Park with -- for other opportunities. Let's see, yes, I mentioned things moving around. So it's really hard at this point to give you much update on a quantification of the opportunity, so we won't. As I said, we have RFQ for -- through 2018, but a request to give our proposal 2021, a new amended contract. But I guess, if you want my bottom line, maybe you do, I would say that things continue to move in the right direction and be very positive, in terms of the relationship with that big jet company. And those are all my introductory comments. Pretty brief this time. So operator, I think we're ready for questions.

[Operator Instructions] Your first question comes from the line of Sean Hannan from Needham & Company.

So you folks are having solid growth in your aerospace business. It looks like on the electronics side, that's roughly 79% of your revenues. That, on an adjusted basis, may have been down 9% year-over-year. I think optically, it looks like it was down 15% if we adjust though, maybe it's down 9%. But it sounds like your commentary right now for the May quarter, we're seeing a pretty material rebound here, Brian. Is there some additional color you can provide around that, particularly as we look back at the prior quarter or 2? Were -- was there a period in terms of maybe downstream where you've been impacted in terms of inventory adjustments? And how would you otherwise characterize some of the demands other than the broad themes such as infrastructure buildout?

Well, first of all, you know we've always commented that we have very little visibility with electronics. And I don't think anybody really saw this coming, but just coincidentally, it started right at the beginning of the first quarter, May -- I mean, sorry, March. So we're talking March, April, May. March was significantly up, April a little bit more than that and May continues at the April level. It doesn't seem at all like it's a temporary blip. It doesn't feel that way. But we always have to warn everybody with electronics that the visibility is less than optimal. This is really mostly an Asian story also, not only, but mostly an Asian story. So we're talking about lots more activity in Asia. And the difference here, I think, is that manufacturing has always been Asia -- not all Asia but for, what, for 15 years, it has been Asia-centric. But the end market seems to be more Asian now. With Asian OEMs, the names are changing. Not only the Western OEMs, the Asian OEMs, the Chinese versions of Cisco, if you will, Huawei, ZTE. So it's becoming a little bit of a different story. And it's -- there's something that seems to be going on. People ask, "Well, is it an inventory buildup?" I don't know, maybe. But I -- to me, it doesn't exactly feel that way, at least not the main driver of it. Maybe there's some component of it. People we -- not just people we ask and probably 8 times a day, our customers and OEMs, what's going on, how long this will -- will this last. The answers are, I don't know, maybe whatever the word, I'm not -- because often they're wrong. But indications are that this would last, anyway, through the end of our second quarter and maybe, who knows. I mean, some people say longer, some people say a lot longer. When I say people, I'm talking about OEMs and customers. But on the other hand, they could be wrong, and we just have to always make sure we remember that. Forecasting is a very dangerous business in electronics. It's never been mastered, as long always we've been in electronics and maybe never will be, but it certainly hasn't been yet. So again, we're talking about infrastructure buildout. We're talking about what we -- we've talked about our RF product line. That will be cell tower antennas for the infrastructure buildout, but we talk about our digital product line. We wouldn't really be talking about the base station or cell towers, you'd be talking about, servers, rub houter -- sorry, I'm under the weather, hub routers, storage. That's a big infrastructure that drives the Internet and networks, or that's needed for the Internet and networks, wireless. And that, again, we -- what's interesting is a lot of the stuff is being built in Asia, but also being installed in Asia. And that seems to be -- that's just interesting. I'm just -- it didn't happen overnight. I mean, it's not like there weren't any Chinese or Asian OEMs 3 months ago. But it seems like -- sometimes, when things change in the industry -- I'll just give you my observation, I could be wrong again. Like when there's some kind of wind change in terms of market going up and down, that's also when some structural changes might take place. Now remember, in 2001, when the market collapsed for electronics, 2001, 2002, it wasn't just the market was down. The market -- the movement to Asia accelerated greatly at that point. The Asian -- there was already a migration in Asia back in the '90s. But in the early 2000s, after the market collapsed, it accelerated greatly. So I don't know if there's a corollary or anything like that, but for what it's worth, those were my thoughts.

Okay, that's helpful. And from a share perspective, I think that you've been fairly confident in the past that you had not been losing share, at least domestically. I want to see if we can get some updated views on that. Perhaps is there even some evidence in terms of share gains or just perhaps even some momentum here to recapture if there was some share loss? Are there any thoughts you can have around that? Then I have a follow-up for Matt on the SG&A.

Okay. So I think we've commented frequently that there really isn't very good market data for Asia. The old days -- the really old days, when the market was very Western-centric, APC [ph], et cetera, and very good market data, so we could calculate our share within 1%. Those days are gone. So a lot of it is just based upon what we hear, anecdotal stuff. So I just want to comment that certainly, we've lost and continue to lose share with [ph] for our low end, I think it's 10% now, and at some point, we won't lose anymore because it'll be 0. But I don't think you're talking about that. You're talking high end. I'd still would -- I don't feel that we've lost share in the West. In Asia though, with this difference, I think it might be a little bit of a share story for us, a positive share story. I don't know if this is equally shared, because we got in early to some of these new programs that now are really coming into their -- hitting their pace. And so maybe we were lucky in that regard. But other than that comment, I'm not sure this is seen everywhere throughout the world or throughout Asia. I really couldn't give you any -- we couldn't give you any quantitative help on share information because we just would be just wild guessing.

Okay, fair enough. And then perhaps for Matt, on the SG&A front, pretty low levels here that we report in the quarter and nice management around that. Wanted to see if we could elaborate on the contributors to what brought that SG&A down. If I recall correctly, there were some comments that you had provided in some of the previous calls that you expected SG&A to start ticking up and instead there's a pretty good contraction this quarter. So I just want to get an understanding of the contributors here, as well as what we should expect for SG&A as we move through the fiscal year.

Matt?

The contributors, there's multiple items that are contributing to it. And some of it had to do with the level of travel and trade shows during the quarter. Some of it has to do with some of our sampling activity from prior year. It's down a little bit lower because it was actually at high levels then. But it's not entirely sustainable. I would say that we'll probably see some of that tick back up going forward.

Okay. Is there a way to get a little bit more of a reference point here in terms of -- maybe if there's a specific quarter where we should look to for a more normalized spend level or perhaps either as the dollars or percent of sales. How should we think about that?

I'll just comment. I think the third quarter number is probably a better number. The second and third quarter numbers probably are numbers you want to be looking at, rather than the fourth quarter. But you could see like what, $300,000, $400,000, $500,000 difference. As Matt said, it something -- when you get to that kind of -- the last $300,000, $400,000, $500,000, it's kind of hard to predict because there are little factors that can make a difference along those kind of lines, $300,000, $400,000, $500,000, but I think we would recommend you look back at Q3 and Q2 maybe.

Yes, I think that probably is about right.

Okay. So kind of in the $6.1 million-ish type of spend?

It was $6 million, $6.1 million, Q2 was $6 million, Q3 was $6.1 million exactly. It's probably a better range to be thinking about than the $5.5 million. But that's just doing the best we can to help you. Because like we said, in any given quarter, those little things, those $200,000 or $300,000 things that line up one way or another, they could drive the number up or down.

[Operator Instructions] Our next question comes from the line of Leonard Cooper [ph] with private investor.

I'm looking at my notes from January 9, 2014, and I see 3 items. One is business aircraft. Did you mention that in your little discussion today?

Well, we'll take it one at a time if you like. I think we talked about biz jets in the third quarter. Your memory's better than ours, but we usually go back with the transcript, so that's how we know that. But we did mention that -- originally, when we just tried to focus in aerospace, about 7 or 8 years ago, the biz jets was one of the real target areas. And that we haven't walked away from biz jets. It's probably not our principal target area anymore just because the market changed so much and the industry changed so much since we have decided to focus in aerospace.

Is there still a big inventory of used jets?

I think there is, yes. I think so. And the end market isn't that great either. So those are the 2 problems as there's not enough buyers, especially for the middle to smaller-sized biz jets, and there is still some inventory, quite a bit floating around. In 2008, was that when -- was it Lehman year? Yes. There were a lot of people that -- who owned these kind of small to midsized biz jets that just had no business owning them. They financed them on who knows what. Then they all got dumped on the market, and a lot of them haven't been absorbed yet. Or if they have, at much lower prices. So the market hasn't been real strong, very strong to absorb the biz jets, and there's still some residual inventory left over. So it's been a little bit of a struggle. Now when it comes to the larger airplanes like the Gulfstreams and maybe Bombardiers, and that's a little bit of a different story I'm told that maybe they're doing a bit better. I mean, there's always going to be some sheiks and billionaires that have to buy the best Gulfstream, whatever it's called 650, if their neighbor has a 550 and that kind of stuff. There's always going to be a few of those people around. But the bread and butter for biz jets is not the sheiks and the multijillionaires, it's small business people, middle sized businesses and especially in the Western markets, business hasn't been so good, and it's probably one of the last things that people were thinking about buying. So I don't know. We haven't given up, but we'll have to see how that works. What are the 2 other items?

Well, the Scorpion, Textron flight program?

Scorpion, yes, it's going well. I think the last time, they already finished the prototype, and I think they already had started test flight regime and are continuing with it. We stay in touch with it. We -- even our factory in Kansas is at an airport. So sometimes the airplane will fly it out of the new Kansas Airport to do its test flights, so we kind of wave and look at the parts that we know were produced by us. And I think at this point, I don't know, you probably got to ask Textron, if you want to know more but I think they publicly have stated they're looking to get some business for this aircraft.

Okay. Last January, I asked you a question and was really surprised with the answer. I said is there enough engineering available in Park for all these projects? So I guess I'm asking how's the staffing situation?

Yes, I think the answer is probably no. And it still is, because we're just kind of catch up. And we brought on some engineers. But the -- as we bring on 1 or 2 engineers then there seems to be more to be done. So I have a feeling we're always going to say we're not there, we're always trying to get there. I think I commented on this a number of times in the last few calls. But the opportunities of aerospace are -- it's an unlimited kind of a funny word, but they're significant. There's certainly more than we could ever take advantage of. The limitation is not capital. That's pretty obvious. Limitation is capability, and a lot of that relates to engineering. So okay, let's say, we brought on a few more people and we were -- we felt we could digest this program or that program. But there are other programs. Would we say, oh we don't want those other programs? Well, probably not. But that might be a function of more engineering. It's not just engineering, other talent, as well, of course. A lot of know how involved that isn't engineering kind of know-how in this -- in that part of our business. But I don't know if you get the gist of what I'm saying, is that the more -- no matter how much we do, we probably always would feel like we're not like we're not quite there talent-wise.

Yes, I understand that. A prominent word in the news these days is Russia. Does that affect Park directly?

Yes, in a negative way? Not really. We wish we had done more in Russia, but we haven't really gotten very far. And we don't have any raw material supply issues that are really important, related to Russia.

Is 3D printing impacting Park?

I don't think quite yet. I'm not -- I can't tell you absolutely not, but it would impact it only in terms of the need for more Internet infrastructure. I don't know much about 3D printing, but I -- but my guess is that there's an enormous amount of data involved in 3D printing, so that data has to be -- it has to be stored somewhere, it has to be transferred somewhere, it has to through servers and routers probably and I -- so that would be my answer on 3D printing.

Your next question comes from the line of Brad Evans with Heartland.

On the printed circuit material side, it sounds like the -- at least starting with your first quarter here, it sounds like what you've -- I guess reading -- I guess as you've interpreted the demand pull that you're feeling, one part of it is perhaps say cyclical recovery in your end markets. And the other piece of it is a greater penetration of some of the new products, the -20, -20 SI and the Meteorwave family. Is that -- so those new technologies are now being -- we're starting to see some of the fruits of your labor in terms of qualification of the new products?

Right, and some of the products are more impactful than others in terms of actual revenue. Meteorwave, no -- sorry, I always get these 2 mixed up. Mercurywave, I think, has been the most impactful new products. And that's an RF product. That would be used as a replacement for PTFE for base station antennas. So but I agree with your statement generally.

The -- you mentioned that the strength could last for a period of time. I mean, can you characterize -- that much imply your visibility is improving, can you amplify that a little bit?

You know what's funny is people like talking more when things feel a little bit better, but it doesn't mean they're more correct. So there's the risk, and I always have to be cautious because, having been in the industry for a while, there's been a lot of surprises. But it feels like it's not just like an inventory adjustment or something like that or inventory recovery. It feels like it's probably cyclical, but when I -- I think there's -- for quarter after quarter, we keep talking about, when is this going to happen? When is the infrastructure going to start -- get to be built out and it seemed like, boy, they're really holding off a long time. So maybe there's some kind of pent-up need as a result. But it seems like there's something going on, and it's not -- and there's also a regional impact, as I mentioned. It seems like it's much more Asia-centric than Western-centric, not just in manufacturing, but also end markets.

Okay. Well, encouraging to hear. Just shifting gears for a second to the aerospace side of the business. I know it's very delicate right now in terms of being able to talk explicitly about customers or programs. But as time marches forward here, can you just talk a little bit about how you view the opportunity set, of what your -- the projects you are working on today? And how does that translate into your confidence level of having a meaningful impact on Park's financial statements over the next 2, 3 or 4 years? Is that confidence factor growing or diminishing?

Well, I think it's growing. That doesn't mean, on a day-to-day basis, there aren't some ups and downs, some good things and disappointments. But I think it's pretty clearly growing. We've been talking about it for a while, but there hasn't been any change in that perspective from -- at least as far as I'm concerned. Every month that goes by, we see more opportunities. Some are real, put in front of us, in terms of global RFQs, and some haven't materialized into an actual RFQ yet, but there are things that are being very actively worked on and discussed. But not only discussed just casually, either. I don't want to -- I mean, things we're talking about are quite serious and real. And then the other question that I guess we have to ask ourselves, Brad, is we're just talking about one company here. And that's big time, big situation, big opportunity. But we're trying to do -- and this goes back to Len's question about resources. We're trying to also find a way to leverage ourselves into other opportunities, similar opportunities. Maybe not the same exact size, but significant opportunities. We're trying to discipline ourselves to have resources to be able to do that and not get totally consumed with just one large OEM. So -- but I would say that it continues to be positive. I don't think we mentioned this, but I will. That for that one big jet company, we actually had our first production shipment the last week of February. All the prior shipments were called MPI for qualification on multiple programs. We still have some MPI shipments, but now we're -- the scale is much more tilted toward production shipments. And other programs haven't legged [ph] in yet. There's one major program that leg [ph] didn't cut over, other programs still [indiscernible] to leg [ph] in. And when I mention things are moving around, it's kind of confusing to us. We're trying to sort it out, because some are being moved up, some are moved back in terms of cutovers, but we're trying to get our bearings. But that's really a function of short term, 3 months here, 2 months there. Long term, I would say, Brad, the feeling continues -- is still positive and increasingly positive.

Encouraging. I guess, we all understand the limitations on engineering resources and human capital, so you obviously have to manage through that. Is the -- from a physical plant perspective, are capacity constraints near on the horizon there as well, where you might have to make a decision to expand the roofline at Newton?

Yes, yes, the answer is yes. And it's really a function, again, of our discussions with this jet company. Because right now, we're okay, but based upon what they want us to do, we're definitely not okay. But we're working through that. We have had many detailed discussions. There's a clear understanding about what kind of runway is required, under [ph] how much lead time between the day we say go to the day we're actually shipping product that's qualified and everything else. So we're trying to work together on our timelines. I think I've also mentioned before that there's capacity, but also redundancy concerns on the part of this company, as well as on the part of the big aircraft manufacturers, because the idea of being sole source with one factory is quite concerning. But when you think about the lead times to qualify somebody else, it's always understandable. So there's 2 drivers to capital-type projects. One is just capacity like you mentioned and that's, again, mostly a function of our discussions with this big company. And the other one is redundancy that is required, I guess, in order to make these companies comfortable enough to put all their eggs in one basket. I want to add -- sorry, that we still haven't gone forward with the capital plan because we're -- I mean, we're ready to do it, we just need to get some more information nailed down as to what is needed, not only in terms of the quantities, but also what types of products. And it's all the same kind of product, generally speaking, but there are different type of machines that are required for different subcategories, let's call them, of these products. So -- and we're kind of -- yes, the ball is on their court, basically.

Your next question comes from the line of Morris Ajzenman with Griffin Securities.

My question was touched on by the previous investor's question there, but let me dig a little further anyhow. 10 weeks obviously doesn't make a long-term trend, but nonetheless it could change in the previous long lead [ph] trends. But when you reach out to your OEMs that I guess can give you a much better feedback on what they're going through [ph] in this recovery. Do they give you any opinion that this is -- appears to be a macro-led recovery, coupled with [indiscernible] in share? Or you get any different [ph] sort of feedback from them from that perspective, from the OEMs?

All the answers to the question are based upon those discussions. I'd also say that 10 weeks is kind of a long time or kind of a blip, a distraction. But no, nobody's telling us that, that we've -- yes, we're speaking I think I said daily to the key OEMs, key customers, Latin and Asia, and nobody's told us, "Oh, this is just an inventory adjustment. We're just kind of catching up a little bit here. It's only going to last another few weeks." Nobody's telling us that. But we've been around long enough to be careful when we talk to you because we know that the industry's been faked out in the past.

At this time, there are no questions.

No more questions? Operator, no more questions?

There are no questions at this time.

Okay, good. Okay, thank you very much, operator. All right. So this is Brian again. Thank you, everybody, for joining our fourth quarter call. We'll have our first quarter call probably toward the end of June, so then we can give you an update on the rest of the first quarter, and we'll talk further at that time. Matt and I are in the office. If you have any follow-up questions, feel free to give us a call. Thank you, and have a great day. Goodbye.

Thank you. Ladies and gentlemen, that does conclude the conference today. You may now disconnect.