Good morning. My name is Kevin and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Park Electrochemical Corp's Second Quarter Fiscal Year Earnings Results Conference Call. [Operator Instructions] At this time, I'd like to turn the call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, Operator. This is Brian. Good morning everybody and welcome to Park's second quarter conference call. I have with me as usual, Matt Farabaugh, our Senior Vice President and CFO, and I will begin with some introductory remarks, then we'll go to questions. So Matt, we'll start with his financial commentary. And I want to remind everybody that we always post a transcript of Matt's comments on our website, so there is a little bit of detail on Matt's comments. You may want to go to check it on website as well. Go ahead Matt.

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 February 26, 2017 various factors that could affect future results. Those factors are found in Item 1A and after Item 7 of that 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 2018 fiscal year second quarter ended August 27, 2017 P&L, which are not specifically addressed in the earnings release. During the 2018 fiscal year second quarter, North American sales were 60% of total sales, European sales were 7% of total sales and Asian sales were 33% of total sales, compared to 55%, 7% and 38%, respectively, for the 2017 fiscal year second quarter and 56%, 7% and 37%, respectively, for the 2018 fiscal year first quarter. Sales of Park’s high performance non-FR-4 electronics materials were 93% of total electronics materials sales in the 2018 fiscal year second quarter and the 2017 fiscal year second quarter and 92% in the 2018 fiscal year first quarter. Park's aerospace sales were $11.4 million, or 38% of total sales, in the 2018 fiscal year second quarter compared to $8.8 million, or 30% of total sales, in the 2017 fiscal year second quarter and $8.7 million, or 32% of total sales, in the 2018 fiscal year first quarter. Park’s electronics sales were $18.5 million, or 62% of total sales, in the 2018 fiscal year second quarter compared to $20.2 million, or 70% of…

Okay, Matt. Thanks for going through that for us. It's Brian here again. So now with my commentary. First of all let’s start a high level. So the sales were up about $2.4 million in Q2 as compared to Q1. That's all attributable to aerospace. Electronics were flat. Matt already went through the number, so you know I'm just making some high level comments. So the revenue increases in aerospace, story if you will. And the revenues drove the pretax earnings before the special items up about $700,000 again compared to the first quarter and that's all again attributable to aerospace and the additional contribution from the addition of aerospace revenue. Okay, so let's see a couple of other comments before we go into electronics and in aerospace individually. So the tax provision Matt mentioned was 18.7 and I think he said that would have been 18.7 in the first quarter as well except for that very large unusual item. We just want you to know that we think that is kind of the range where the tax rate will be going forward in the near term anyway and that's quite a bit from recent history. We're not saying exactly 2.7 but something that range of course. The other thing is we have a question from one of our big shareholders. He mailed it me this morning. He asked me to comment on what we would do if this repatriation tax, the 10% repatriation tax goes through. So, let me discuss that. It’s a little more – it’s not just yes or no answer, takes a little bit of discussion. First of all, it's not clear how the tax will play-out of course but one possibility is that we would be asked to pay tax repatriation tax and the difference…

[Operator Instructions] Our first question comes from Sean Hannan with Needham.

Thanks for all the color Brian and Matt. Brian just a follow-up on the general trends comment that you had made, it sounds like the - month of September starting off a little bit weaker just trying to get a little bit better context around that how it compares to this last quarter revenue run rate either the average or how we were exiting this past quarter any further color around that?

So Sean I think we’re not going to quantify at this time but like you could see it I mean look at the June, July, August, September it went down and - Tony and Chris have been in Asia for the last couple weeks trying to understand you know what's going on there and it’s not really clear. Like I said we expect that to recover in October and November. But I thought at least I’ll report it to you that for some reason and we haven't had that in quite a while the revenues dropped and it’s not something we understand. We know that case by case but we can't say okay there's one kind of common theme here. So I’m not sure what to say about it and at this point we don’t want to quantify it but like I said just to give you some perspective. If you look at June, July, August and September, you said yes something happened in September this is Asia electronics.

Okay. So just to make sure that I understand this correctly. On the average right now we are trending for a down quarter with the expectation in order to get back to parity quarter-on-quarter October, November will need to pickup that is what your expectation is but that’s we’ll have to look for?

So I don’t think we’re going to go that far in terms of our commentary that the quarter will be down, but you’re right I mean just the math obviously we’d have to kind of recover and then some little bit in October, November to get to a - what you call to parity are something like that, or a flat quarter as compared to the second quarter. But we’re not saying that at this point that we expect the third quarter to be down in electronics not going there. But we just wanted to report the facts that we know which we were asked to do and we often do that the expectation for the third quarter like I said we expect recovery based upon our internal forecasts. So we’ll have to see how that pans out what happens.

Next question here and they’re somewhat two parts to this because my suspicion is that these might be related but first looking to see if we can get a little bit more color on the nature of the softness that you're seeing in Asia. If there's some specificity that you could provide that would be helpful. And then the second part is when I observe the customer concentration metrics you guys provide, your top customers are outpacing the aggregate growth. So I think we can make some assumptions of what some of those smaller customers are doing or really not doing so trying to see if you could perhaps elaborate on what's going on there with some of the others within your customer base?

You’re talking about the percentages for the top customers remember that’s compliant with aerospace and I think it really [Indiscernible]. So I think the aerospace is skewing it or confusing it because there are two aerospace customers in top five and they are both quite a bit in the second quarter that other customer you probably don't know too well was an ablatives customer. So you’re asking a question that’s tough one for me to answer. I don't- can’t point any one thing but it seems like the market that we focus on, the market we serve which is the infrastructure market for some reason was a little quite for us in September. We didn’t see it coming, the forecast we had. Our total to forecast at the beginning of September do not predict this but with electronics it’s really not the first time that’s happened, sometimes the visibility is not so great. And look back and often it could be a short-term event that at least in the past our experience and you wonder what happened you scratch your head and maybe sometimes you never really know for sure there are theories but you don’t really know for sure what really happened. So I apologize for not being to help you more but I'm not sure what all information that I can provide that would be helpful.

The Meteorwave line you indicated that while you're still encouraged by the opportunities materialization and revenue uptake has been a bit slower. What's your sense at this point Brian is that something where you – in your active conversations with your customers you’d expect that we’re still on the cusp perhaps of that uptake or is the picture becoming a little bit more ambiguous whether we will truly realize the uptake that you are otherwise hoping for. How should we be thinking about this opportunity more tangibly materializing for you in some of the near quarters?

Sean first of all wasn’t just hope, what we’ve indicated in the past quarters is we’ve based upon lots of details specific information provided by our customers and OEMs in Asia particular. So that’s the first thing. Second thing is the Meteorwave revenues did move up in Q2 as compared to Q1, so we’re moving in the right direction, our prediction or forecast in terms of forecast is they will continue to move up in Q3, Q4 sequentially quarter-over-quarter. The question is when are we going to see that real acceleration that’s going to drive the topline of electronics as a whole and that’s where we’re thinking - if that’s not going to happen as quickly as we hoped and as quickly we were told. This is really kind of new information, new revelation, it’s nothing to do with the September number by the way it’s a totally different question and I think would be a mistake for you to combine those two in your thought process. But we’ve been back to our customers and OEMs in Asia especially in the last few weeks trying to understand and now we’re been given more of this discussion about well you know it's a 4.5 G is still off and things aren’t going to really start to ramp up for telecom infrastructure equipment until 4.5 G gets into a high gear or full swing. The reason it's a double whammy for us though is because we’re getting on these new programs qualified new programs but the new programs aren’t going to turn to revenue until those new programs go into production. And what we’ve been told is that some of these new programs aren’t going to go into production until there is sense that 4.5 G is picking up a little more…

I'll see if I can circle back on that topic. Last one for the moment here. The margins within the quarter were up a little bit up really a week first quarter they were little bit lower than our model I think - you had mentioned that there were still some duplicative costs as you're addressing some of those restructuring efforts underway. Can you provide any color either Brian or Matt around what may have suppressed the margin progression in order of magnitude whether if it was primarily attributed to duplicative costs was mixed you know a factor within their any other color around that would be helpful?

Well okay first of all Sean in terms of visibility your numbers are not our number as so we’re not saying we’re off from we saw was going to happen, but let’s talk about a few things. We want to make sure that you got the tax rate difference which is to be very confusing between the first quarter and second quarter. What we’re looking at when Matt referred to on his introductory remarks, after-tax before special items we think that’s the more valid comparison. And if you look at the difference in topline and we kind of explains the bottom line. Now as I said, all the additional contribution to the bottom line and then a little bit extra came from aerospace electronic topline was flat and actually electronic contribution was down a little bit but I think you hit it right it’s because of the U.S. situation not the Europe, not the Asia situation, the U.S. situation with restructuring costs we’re actually - the restructuring situation actually was negative in the second quarter right compared to the first quarter. We didn’t get the benefit of any restructuring but we got the penalty the negative from the duplicative costs which were running two facilities. And I was just very kind of practical problem but we had to hire a lot of people in Arizona ramp up Arizona but we couldn’t turn California off until those people will come onboard were trained and we’re ready to produce product for our customer. So we had duplicative cost and we also just kind of had a messy P&L. So I think if you look at electronics which is I think you’re focusing on is a standalone the topline was flat down to tiny, tiny bit but I think from the first quarter may be a couple hundred thousand dollars right. And the bottom line was off but it was driven by the restructuring kind of messiness that we talked about. Other not just really nothing in the margins no mix story nothing else apart from electronics like I said the improvement in bottom line is attributable to aerospace for the company as a whole.

And I’m not showing any further question at this time. Would you like me to repeat the instructions?

Sure.

[Operator Instructions] We have a follow-up question from Sean Hannan with Needham.

Okay surprise.

Nobody is out here, nobody else wants to ask any questions maybe everybody just broke down by the introductory remarks, I don’t what they ask. Go ahead Sean.

So just coming back to the Meteorwave 4G, 5G topic I'm a little confused Brian because there are other supply chain players were in materials players that are ultimately being designed to or feeding into some of the next-gen common infrastructure and going into these technologies that have - in recent months the quarters given some expectation that the transition of these technologies in some manner are suddenly accelerating versus stepping back. What do you mean by that? If I were to retrench about nine months ago there was a more common thought and I’ll use 5G as a reference point there is more common thought that this would be more of a 2019 to 2020 type of OEM deployment - scenario timeframe. And that there are more indicators suggesting that this is going forward into later 2018 and then 2019. So and again that's been more focused around 5G what I’m hearing what I believe I’m hearing from you is that we have more of a focused right now on 4.5G which then would be more of a second half of calendar 2018 perhaps uptake. And so I'm not getting consistency here for what's being suggested in kind of the market uptake and so I’m just trying to understand this a little bit better and perhaps why this feedback or commentary providing today's a little bit different?

Well I don’t know really what to say about and I’m little surprised to hear is that people are telling you that 5G is actually we’ll start ramping up in 2018, I had no doubt before I’m not saying it’s not true but it’s…?

More initial activity versus in a true ramp stage but at least the activity?

That sounds like development of the product for 5G that something else the difference is just not a lot of revenue when you’re in development. I think that’s what you’re talking about anyway. So we've already had gone through a lot of development cycles for the next-generation equipment what drives our revenue is one of those when that equipment goes into production I think that probably we’re thinking about. So it's hard for me to understand those comments. What I can tell you with confidence is that this will be told by our key OEMs which other kind of who similar OEMs and agent, and customers as well maybe people are getting different information I’m just speculating here may be referring to the new programs that we’re on, I don't know but this will be information note we’re being provided and it’s not just one data point, it’s a mosaic of data points here that are painting this story for us. So I wish I could up you more I don't know obviously what other information you're referring to and what customers you’re talking - sorry what other companies you’re talking about what programs you’re on, so it’s hard to me to really respond in a meaningful way except to emphasize. I’ll stay two things I’m little surprised if 5G was actually going to start ramping your production next year before we’ve been told you by the end of the year. But secondly I think this is the key thing, I can speak best and most intelligently to what we know and what we've been told about our business it is always good to have these kind of sandy checks and I understand what other people are being told to make sure that we’re not being told something which is in consistent or inaccurate. But I can’t really respond very effectively to these other data points you received at this point Sean.

Let me see if I can ask question in a different manner. Have you received, observed, heard any changes in timeframe expectations for what you're hearing today versus what you were perhaps hearing a few months or quarters ago?

Yes absolutely okay.

And so those changes would be that it would be pushing further out to the right?

Absolutely.

Okay.

Black and white answer but that’s yes we’re being told and I think kind of alluded to this but maybe I should just touch on it again. It is little bit awkward because you know it’s kind of now it's little embarrassing for these companies to have to tell us these things as they know what they told before. So maybe they’re a little bit shy initially about coming clean but at some point they do. And so the answer to your question is an absolute yes.

Okay, that's helpful. Thank you very much.

Okay, thank you. Thank you for keeping our call going. Operator do we have any other questions at this time.

There is one other question from [indiscernible].

I have one question related to - have you begun to see a pickup in production of the LEAP 1A engines yet? Has that started to impact your aerospace revenue?

The LEAP engines I should just maybe explain you probably know but the LEAP engines are in three different programs. One is the 737 we’re not involved with that program the other is the A320neo and the other is the C919. The program that’s picking up by now and is starting to accelerate is the A320neo with the LEAP engine, the C919 we’re still doing more development work so there's some revenue of the C919 but the driver right now is for the LEAP engine is the A320neo.

And that is starting to impact your revenue now?

Yes.

Again I'm not showing any further questions at this time.

Okay, thank you very much operator, and thank you everybody for listening in. So Matt and I we're in the office, if you have any follow-up questions feel free to give us a call. Thank you again for your time. Have a good day, good-bye.

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.