Brian Shore - Chairman and CEO Matt Farabaugh - CFO.

Sean Hannan - Needham.

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 total sales, in the 2017 fiscal year second quarter and $18.7 million, or 68% of total sales, in the 2018 fiscal year first quarter.

Gross Profit for the 2018 fiscal year second quarter was $7.2 million, or 24.1% of sales, compared to $7.2 million, or 24.9% of sales, for the 2017 fiscal year second quarter and $6.3 million, or 23.1% of sales, for the 2018 fiscal year first quarter.

Before special items, selling, general and administrative expenses for the 2018 fiscal year second quarter were $4.4 million, or 14.9% of sales, compared to $5.1 million, or 17.6% of sales, for the 2017 fiscal year second quarter and $4.4 million, or 15.9% of sales, for the 2018 fiscal year first quarter.

Investment income, net of interest expense for the 2018 fiscal year second quarter was $148,000 compared to $35,000 in the 2017 fiscal year second quarter and $239,000 in the 2018 fiscal year first quarter.

Before special items, earnings before income taxes for the 2018 fiscal year second quarter were $2.9 million, or 9.7% of sales, compared to $2.2 million, or 7.4% of sales, for the 2017 fiscal year second quarter and $2.2 million, or 8.1% of sales, for the 2018 fiscal year first quarter.

Before special items, net earnings for the 2018 fiscal year second quarter were $2.3 million, or 7.9% of sales, compared to $2.0 million, or 6.9% of sales, for the 2017 fiscal year second quarter and $2.5 million, or 9.1% of sales, for the 2018 fiscal year first quarter.

Depreciation and amortization expense in the 2018 fiscal year second quarter was $740,000 compared to $825,000 in the 2017 fiscal year second quarter and $807,000 in the 2018 fiscal year first quarter.

Capital expenditures in the 2018 fiscal year second quarter were $395,000 compared to $41,000 in the 2017 fiscal year second quarter and $105,000 in the 2018 fiscal year first quarter.

The effective tax rate before special items was 18.7% in the 2018 fiscal year second quarter compared to 7.6% in the 2017 fiscal year second quarter and negative 12.4% in the 2018 fiscal year first quarter. The first quarter tax rate included a reversal of a reserve for certain foreign tax deductions taken in prior years.

The tax rate excluding the reversal of the tax reserve would have been 18.7% in the first quarter. For the 2018 fiscal year second quarter, the top five customers were AAE Aerospace, Changzhou PC Specialties, GE (including its subcontractors), TTM, and Wus, in alphabetical order.

The top five customers totaled approximately 41% of total sales during the 2018 second quarter. Our top 10 customers totaled approximately 55% of total sales and the top 20 customers totaled approximately 69% of total sales for the 2018 fiscal year second quarter..

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 more or less between the tax paid and the corporate tax rate which is proposed to be 20%, that could result an even a lower repatriation tax.

It's complicated because foreign tax credits have to be computed but it could be less than 10%, that’s the approach which is taken. And who knows? Maybe it'll be up to the tax payer to decide. So if that happens, the first thing we would look at is paying off to short term loan.

There really would be no reason to maintain that loan to future and as you probably remember we took out that loan to pay special dividends. We have a couple of reasons for doing it but first of all we didn't want to repatriate money to pay the [huge] [ph] tax which is would be in - which was in place at that point and also now.

And the other reason is we wanted to provide to shareholders with return to capital treatment on the dividend to the extent that the shareholders were taxpayers anyway. But once the tax law goes through really whatever it is, it's hard for us to justify maintain that long keeping outstanding since we have so much cash overseas.

So the first thing we probably do is payoff the loan. We repatriate the money to pay off the loan. There is also covenants and restrictions in the loans which would prevent us from doing things without going to the bank, negotiating amendments for modification to the terms which we really don’t want to have to be doing that.

So then after we paid a loan off then there is question what we do, I know that’s what shareholders getting at. So we currently have about $245 million of cash and I think about $70 million loans, so we would have to repatriate it a little additional money to pay a tax.

So you do the math, so maybe we have then, after repatriating enough money to pay off loan $160 million or something, that’s based upon the current cash situation $160 million, $165 million or maybe something like that.

These are round numbers but again based upon the current cash situation, so then the question is what do we do? And the answer is it’s going to depend.

Obviously we’ll be looking at a return of capital to shareholders and we’ve discussed that in the past and that will be something that will be right on the front burner, would it be a dividend, would it be a buyback, we don’t know. We’ll confirm with our advisors at that time.

We discussed these things with the advisor in the past but it would be important at current on based on all the current considerations not just outside considerations but all of our business needs. We are looking at acquisitions for aerospace and that would be one of the things we would consider.

So, that's not a black-or-white answer but we don’t have a black-or-white answer, I pretty much told you everything we know in response to the question about what we would do if the 10% repatriation tax or some other tax went through effect which would significantly reduce the tax we pay on reparation of the foreign money.

Okay, so that's the answer we have to that question. Now let's talk about electronics and aerospace, my comments may be a little bit longer than usual, just a lot to cover here, so, please bear with me. So, U.S. electronics, the main story there is the restructuring, is we kind of messy, it wasn't really managed that well. We didn’t do a very good job.

It wouldn't give us more than a maybe D or C minus. But we did make the changes we need to make in the last let's say month. So I think we're in good shape now. We have the restructuring under proper control. It's moving forward well, so I feel pretty good about that.

We probably you know lost a couple few months, not getting our act together, that's nobody's fault, it's fine, but that's the truth of the matter. So, but I think the good news is, that's behind us and you know the economics that we talked about in the past which I'll go through with you again are still in place.

The charges in Q1 $1.2 million, in Q2 was about $2.8 million, remember the total is going to be about $5.3 million. Q3 maybe a couple of hundred thousand and then we don’t know, when the rest of it will go through the P&L, the charge. The total benefit when it's fully realized, remember was about $3.3 million a year that’s still the case.

Q1 zero, Q2 is actually negative because we got another benefit from restructuring, but we have lot of the negatives from the duplicative cost and things like that. We're still in the transition from two facilities to one facility and we just weren't really executing very well.

So we did lot of sillies and things like that to push money at the end of the day. But I would say, max number is 200,000 negative. I think that's an optimistic number. I would think if you really, everything probably more like double that in the second quarter in terms of the negatives from the restructuring.

In the third quarter, there is still some duplicative cost which you'll be, which will occur. For the third quarter, our net benefit including, due to benefit from restructuring offset by the duplicative cost, should be about $0.75 million or 700,000 or so, was I think any wise numbers by the way.

Those types of numbers for the quarter, so that's good because when we're on the path for that to happen at this point. The California facility, the one that was going to be closed was closed at the end of August and that's the main thing that had to occur in order for the benefit from the restructuring to start to leg in.

In the fourth quarter, the benefit should be fully realized and that's probably around $800,000 at that point per quarter and that would be the same thing going forward. In the U.S., I mentioned, last time, last call, I think we see it more of as a niche business in the U.S. it's quite different in Asia.

It's almost like two different businesses in electronics. But U.S. is looking more and more like a niche business, which is actually niche opportunity which is good for us. That's a good thing for us, because that's really the focus we want to have.

Lots of small things, but the good thing about the small things, is there is things we can protect and things that aren't take away from us so easily. With niche business, niche opportunities are hard to get to more work our fund, but much more difficult to take away from us and we like that. That's we look at that as building with brick in time.

We built something, we could add to it. We don’t put a brick down. But it's really, not a brick, it's papier-mache, we turn around and we've got to start all over again, that's kind of exhausting. We have some opportunities, which we are happy about with the Polyimide but also No Flow.

Remember we announced that No Flow product just I think a couple of months ago. That's a nice product and it's clearly as far as we're concerned a niche product and it's for rigid flex for military So we like military in the U.S., that's a good market for us.

I think there was an ITC reported recently saying that you know they expect the military business for circuit boards to improve in the U.S. in the near future, hopefully, that's true. Electronics in Asia, it's a completely different story, it's like two different stories.

Okay, so we've been talking for about a year now, with these OEM programs, OEM program pricing, OEM program arrangements. And from the perspective of getting qualified with these OEMs, I think has gone quite well.

Year ago, we're talking mostly of the new ways product, that's a new product where we have I guess about six different versions of it now, all the same UO, which is nice. But a year ago, we really kind of nobody.

It's just kind when the odds are looking in, knocking the doors with the OEMs and now, we're qualified, our products were qualified in all the major programs. We want to be qualified on, that's the good news. There is some Meteorwave quarter-over-quarter growth. You see that in the second quarter as compared to the first quarter.

But we still haven't seen the acceleration that we're looking for in the second half and that doesn’t happen. Also I should tell you that September was a weak month for Asia. We're not sure why that is. Some time on a short-term basis, things happen to market that aren't really so easy to understand. We expect that to recover.

But September, I think is off to a good start in Asia. And I just want to report that too, I know we always ask. We don't have a good explanation for it. The other thing is, it's our sense that the telecom infrastructure equipment market is weak at this point. But actually what we are getting from the customers and OEMs in Asia.

And I think, they were a little bit coy about that. Maybe I am just speculating. They want to encourage us to really pursue the qualification seriously. But now the story is well, they really need to wait little bit until 4.5, with 4.5 GE takes home. I wish maybe Tony DiGaudio on this call will explain this to you, he is much more of an expert.

But there is a five GE specification, which hasn't really been, hasn't been finalized yet. My understanding is, that's still a couple of years off. But some of the big OEMs in Asia is once we deal with this, wait for 5G, they kind went to 4.5 G. I don’t think that's a real specification. I think it's something that's created.

But it's obviously somewhere between 4G, 5G in terms of the equipment technology. And we are saying yes, they kind of need to wait for 4.5 G to start taking hold. The best information we are getting is, that's probably next year. Of course they ask, what does that mean, is that mean, we are getting in the year, at the end of the year.

We're not been told. If I had to bet, I would bet to second half not the first half of the year, just because sometimes, we're given information that might be a little bit more class half full optimistic. So anyway, so, I guess note myself here, but I think will recover.

We may need to 4.5 G to get moving for these programs for qualified under ramp up and that's the thing, when we’re getting qualified normally on new programs, not existing programs, right. There is some existing program. But the real driver is the new programs.

Once we qualify, we can't force the OEM to move the product out more quickly than they otherwise would, and that's obviously ridiculous. But that's the situation. I mean it's a market, the overall market drivers that will impact when an OEM is going introduce a new product and also their own development cycle.

But I have a feeling that, some of the OEMs are slowing down a little bit more than we thought, maybe more than we were told, waiting for 4G and 4.5G to take hold. And their programs are qualified on, like I said, that's driver.

They are not going to deliver revenue, until those program go into full production and if the OEMs are holding back little bit, that's obviously going to affect us and obviously, I will say it again, it's got ridiculous, but no OEM is going to be interested and are telling them we want to introduce their new equipment, their new programs earlier to keep us happy.

So a couple of other like detail type things. We introduced M-Ply, recently that's used for as a PTFE Bond Ply for RF, that seem to be getting some nice reception. We also introduced a product called 350 recently and is news released in those products. In terms of what we are working on development wise, supply all to all electronics, not just Asia.

We have in development, just something that we have in our road map we presented to our customers and OEMs - halogen free material, which should be in the ultra low loss kind of Meteorwave from a category in terms of the loss properties.

We have also developed, working on two next generation high-speed products, which would be the next generation after Meteorwave. It was three different products that we have in R&D at this time. Okay, when we switch to aerospace, I suspect you have some questions about electronics, if I switch to aerospace. As I said, the news is quite good there.

So, the revenues were up in Q2, as I said by about 2.6 million or Matt said I guess, compared to Q1. Couple of things that drove one is GE. Remember we talked about this inventory overhang which was kind of driving us crazy. I think we said in the last call probably would be complete, if you will by June and I think it was complete by June.

So, we took that, got that monkey off our back. And then the other, the fundamentals are moving in the right direction which is mostly A320 starting to really ramp up. A320 needed with LEAP engine starting to ramp up. So, those two things combined drove our GE revenues in the right direction.

The removal of the overhang that’s one-time benefit but the ramping up of the A320 that we’re certainly not anywhere near the levels that are projected so that there's still quite a bit of room to move up. The other thing that drove the aerospace revenues was ablatives. We have pretty good ablatives revenues in the second quarter.

Ablatives' is a nice niche product for us that's for rocketry. And most of this feeds into the Atlas 5 and PAC-3 program PAC-3 is a next generation of the Patriot missile which you probably heard about. To think about ablatives, so it’s a little bit lumpy.

It's not like consistent across the year which you might expect more from a GE for instance, so we could have a strong second quarter not such a strong first quarter and third quarter may follow-up as well, that’s the nature of ablatives, that’s does not ever leading or losing market share it’s a nature how ablatives work.

So we had a good quarter the second quarter for ablatives and the third quarter won’t be as good. Like I said that's not surprised, it’s kind of how ablatives business works for us. After the call last time I realized it created some confusion. One of our shareholder called me and I better clear it up.

This relates to GE means two different things going on there is division of GE called MRAS, Middle River Aircraft Systems, that's where GE produces the cells and structures versus structures for the engine. These are core structures.

And that’s what we talk about mostly we’re sole-source of those programs, I’ll just tick the role in the 747, A320neo the combat 919, a combat ARJ the Embraer ERJ passport 20 for the Bombardier Global 7,000, 8,000. Those are programs that we talk about mostly that MRAS division of the GE Aviation.

And we have a 13 year agreement with the MRAS division of the GE Aviation for these - the cells and TRs, thrust reversers. It’s a 3, plus 5, plus 5 and the pricing is adjusted at three years and after five years 13-year agreement.

But then last time I talked about now true GE Aviation and its true but that doesn’t relate to MRS, that relates to the other part of GE Aviation which is internal structure. The cells and TRs and more like external to the engine tenders composite structure inside the engine internal structure.

And that’s where we’re doing the RFQ about and that's still ongoing, we respond to RFQ there is a meeting on Friday, I can set tropical negotiation or something like that. But what we already qualified on a number of programs with three different products launch for getting a higher look at our product forms which is good.

There has been a big investment to qualify some of those programs you know we didn't have any kind of long-term agreement.

So we’ve given proposals on a number product launch but those three four that we’re already qualified on might – I’ll say my opinion is that the chances are in fact high likelihood that we’ll get those programs in your RFQ process.

So just because there is a big expense in qualifying a supplier and we were qualified recently there was a shipping and the most of those programs are ready. So to start all over again now would be a highly unusual thing. I can guarantee it but I think it would highly unusual for that to be changed.

So those internal structures for the engines for the 747, 787, 777X we’re shipping into those programs in most cases. We also - this is still a GE there is a new project we’re just working on now for the 777X. We don’t if we getting or not but it's quite a big project. So we’re hoping on that one.

We also have a large part that we’re working on and that’s now gone to Phase 2, so we're already shipping in for the prototypes and development work so Phase 2 is going to prove that’s really pretty exciting program to materials and parts.

So like I said two exciting program and it's little surprising that GE Aviation is working on it, but it is very nice program and going well and we feel good about that. I think that if it really goes into production, it’s probably end of next year. It will start ramping in production.

The potential is quite large so let’s cross our fingers on that but so far so good. That’s not a competitive situation not RFQ and something that we've been working with GE Aviation and we’re happy about it. Remember we talk about the joint development agreement project that's going well.

We’re hoping to go into production with that new product that’s under development quite soon in the beginning of next year.

There is another project another new product that we’re working on with GE that actually wasn't part of a formal agreement but nevertheless it just good to watch and that looks like it's moving into production we hope and near future as well that would require fairly light qualification that second one.

The first one probably a little bit more of a qualification but nothing near the qualification that we go through for our materials for structures. Okay that's GE. There is another major aircraft company we spoken about we just quickly update you.

There's a number of material specifications that we’re working on, one we’re currently in qualification on the others were under review. There’re big dollars associated with them so we feel good about that. There’s also interesting opportunity as you can material in part large part for a civilian aircraft and that's going well.

We’re still doing some development work and still going through the qualification but that's also exciting for us.

And then there is a lot of these legacy military aircraft we’re talking about the same company, its huge company right legacy military aircraft and we’ve done many, many, many codes for parts and spares for lot of legacy military aircraft F-18, F-15 and others.

And that looks like it’s just about to get started now in other words we expect that we’ll actually begin to get orders and that’s potentially is very large we'll see what happens but it's really exciting to be getting on the inside with our program. So I guess I leave at that.

I think we already 11:30, so sorry about the very long introductory remarks. Operator, we're done with our introductory remarks and we like to take questions now if there are any..

[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 momentum. We ask when that’s going to be and the answer is next year. When next year, the answers we don’t know.

So I think that we’ll get a little gun shy because these OEMs I think they told us things in the past that they know ended up being optimistic at least in terms of timing. So maybe not a little bit reluctant to be pinned down as much as they were in the past.

So I agree and that’s the purpose of my introductory remarks is to explain that what we thought a year ago and nine months ago and six months ago looks like the opportunities aren’t any different but the timing is pushed out.

And maybe you know a year, I don't know because if we went back a year ago I think by now more or less I have to think about that but I think if we went back a year ago Sean but now more or less sometime this fall we were expecting to see the revenues really ramp up on Meteorwave and our new programs and now we’re certainly told well it maybe a next year event not a this year event.

So I’m trying to do best I can to tell you what we know without speculating too much as to we don't know, but I agree and that's what I think I'm trying to get out is that there is something different here. My opinion, our opinion based on what we’re being told it’s not a question of if, it's a question of when.

We’re not aware of any programs that we lost that were still to get on, but there's a timing question here and we keep hearing about this discussion about 4.5 G that seems to be an important driver and the timing..

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..