Astronics Corp (ATRO) 2015 Q1 法說會逐字稿

Greetings and welcome to the Astronics Corporation first quarter 2015 financial results conference call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to Deborah Pawlowski. Thank you, please go ahead.

Thanks Brenda and good morning everyone. We certainly appreciate your time and interest in Astronics. On the call today we have Peter Gundermann, our President and CEO; and Dave Burney, our Chief Financial Officer. Pete is going to cover the results of the quarter and then we will open up the call for questions and answers.

You should have the news release that went out this morning. It's also available on our website at www.Astronics.com. As you are aware, we may make some forward-looking statements during the formal presentation and Q&A portion of this teleconference. These statements apply to future events and are subject to risks and uncertainties as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in the earnings release as well as in documents filed by the Company with the Securities and Exchange Commission. These documents can be found at our website or at SEC.gov.

So, with that I'll turn the call over to Pete. Peter?

Thanks, Debbie, and good morning everybody. It is nice to have you with us. We're going to talk through our first quarter results and what our expectations are in a little bit more detail than we normally do for the remainder of 2015.

Start with a brief review of the headlines as we see it. We feel that our first quarter was a solid start to the year. We've had a reasonable range of expectations. Our first quarter was in that range and we think sets us up well for the second quarter and the third quarter.

That being said, it's probably pretty apparent that our first quarter could be considered a tale of two quarters, almost. Our aerospace segment, the majority of our business, had a very, very strong start to the year. We set new records in sales, bookings, and backlog in that part of our business.

Our test system segment did not have what would appear to be as good a start to the year. We've been talking about how that part of our business is relatively lumpy in nature compared to our aerospace business, and as it has grown, affects our overall results more. And I think I look at the first quarter and I would say that we were on the tough side of lumpy in the first quarter. We had become somewhat accustomed to being on the positive side of lumpy through the second half of last year. So, this was a little bit of a different appearance on our consolidated results.

But, and we'll talk about this more specifically, our plan is that we should see a very strong recovery in our test business, effective almost immediately in the second quarter and especially in the third quarter this year. So, it's not as though first quarter results were a surprise to us. It's not as though the wheels are coming off the wagon. It's more just been kind of a predicted ebb and flow of our business in that nature, in that segment.

Consequently, kind of at the end of the day, we are leaving our 2015 revenue forecast in place; $680 million to $740 million. And again, we'll talk about how we expect that to play out in the coming quarters at the end of my little monologue here.

So, getting into some of the more specifics of the quarter, revenue was $161.6 million. That's up almost 15% over the comparator quarter a year ago at the beginning of 2014, and down marginally, 2.7% sequentially from the fourth quarter of 2014. There was some acquisition growth in there. The organic growth year-over-year as we calculate it was just shy of 10%.

Bottom-line results were as we would have expected on that revenue level. Net income was $10.7 million, 6.6% of sales, diluted earnings-per-share of 47% -- $0.47 per share, up from $0.33 in the first quarter of 2014.

Our net income was 5.3% of sales in our year ago period and 11.1% in the previous quarter, in the fourth quarter of last year. And the some of you may be inclined to compare our first quarter financial results to our fourth quarter, and it would look at first glance that our profitability was down substantially. But it's important to keep in mind some of the things we talked about in our fourth quarter last year in our last call.

Specifically, we had a substantially reduced tax burden due to the late passage of the R&D tax credit by our elected leaders in Washington which benefited us to the tune of $3.5 million almost in the fourth quarter. And we had what is called a write-down in fair value contingent consideration liability, which means that we had to adjust down some of the expected earnout payments on some of our previous acquisitions, which actually benefited us in the fourth quarter by a pretax level of about $4.5 million. So you add those two things together and they pretty much explain the difference in margins from the fourth quarter of 2014 to the first quarter of 2015 on comparable sales.

Our engineering and development expense, something a lot of people like to track, was $22.2 million in the first quarter. That comes out to about 13.7% of sales, which is a little higher than we've been seeing the last couple of quarters, but still below our historical longer-term norm of 15% to 18%. So we continue to say that model makers should budget that number somewhere in the 11% to 13% range going forward.

The highlight of the first quarter was our bookings level. We booked at $158 million, which is our second-best total ever, only below $235 million which was the previous quarter, the fourth quarter of last year. So, we think that the strong bookings in the fourth quarter and the strong bookings in the first quarter sets us up well for the rest of the year. Our ending backlog at the end of the first quarter was $378 million. That's our highest ever.

Going into the segments briefly, I talked about a tale of two quarters. The aerospace segment had record revenues of $142 million, up 16% from the comparator period a year ago and 88% of our total business. Our operating profit in the first quarter was $23.4 million or 16%.

Bookings were not quite at the level of revenues but really close, $141 million. That is a new record and we ended the quarter with an aerospace backlog of $234 million, which is also a new record. So record revenues, record bookings, record backlog; things seem to be well in this segment.

Looking at some of our sales channels, we continue to be heavily weighted towards commercial transports. I just said that 88% of our total business is in the aerospace segment. 74% of our total business is in commercial transports. That number has grown and continues to grow. We are relatively small in other parts of the aerospace industry; 5.7% in military aircraft at this point and 5% in business jets.

When you cut our business by product line, you can see that our electrical -- the electric power and motion is about $70 million in the quarter, up 5.7% over the comparator period a year ago and 43% of our total. In that number is our passenger power or in-seat power products. And we are not breaking these out separately anymore in our press release, but I know we are going to get questions, so I'm going to give you the numbers here.

We had in the first quarter in-seat power sales of about just shy of $60 million, $59.7 million. And if you go back and run the numbers, that's a 12.9% increase from the first quarter of last year, and impressively, a 9.7% increase in the sequential quarters from the fourth quarter last year.

In that total, that $59.7 million just to be clear, we include $1.1 million, a relatively modest amount, from our Armstrong acquisition of January. Armstrong sales are reported in three different areas in our product lines, but they do have some products related to in-seat power, or passenger power a guess I should call it more specifically. So we think it's appropriate to consider it -- to include that in this total going forward.

Moving on to other product lines, our lighting and safety was $42.1 million, up 20%, and 26% of total in avionics, $17.4 million, up 36% and 10.7% of total, so a lot of growth across our major product lines. And a new product grouping; you noticed if you looked at the table in the press release you'd see something called systems certification. This is a majority of where we are going to be reporting our Armstrong sales going forward, because a lot of what that organization specializes in is certifying systems for clients ranging from IFE systems to connectivity systems to feeding systems to the various things that suppliers want to put on the airlines. Those systems need to be certified. That's something that Armstrong helps with, and since it doesn't really fit into other product groupings that we normally report, we are creating a new one to capture that effort.

We have two significant aerospace customers in the quarter. Our practice as of this year or as of last year, I guess, is not to name significant customers in the Qs but name them in the Ks. But you can guess who they are if you followed us. One of them was 24% of sales and the other one was 15%. So our traditional two big aerospace customers continue to be our two big aerospace customers driving our results.

We had a couple announcements in the aerospace segment just in the last 24 hours. We announced participation in the Pilatus PC-24. That's a new twin-engine jet being developed by Pilatus in Switzerland. And what's exciting about it for us is that it just flew yesterday, and we've been working on it for quite a while now, putting a new what we call an EPDS system, electronic power distribution system, primarily on the secondary power system in that airplane, not the primaries. And also, for the first time putting on our starter generators.

So, we have been developing for some period of time as many of you know, a solid-state starter generator, which we think offers substantial performance and reliability improvements over traditional systems. This was the first paying customer, so to speak, to plan a system around this technology for us. So we are excited about that. Pilatus has not been a long-term customer of ours, but we've enjoyed working with them and we are excited to share in their success on their first flight just in the last few hours.

The other announcement we made recently in the last quarter was something that may have at first appeared to be a little bit out of our typical sweet spot, and that's the joint venture with a company called Smart Tray International. And if you read that release you might be a little puzzled. It's basically a modified tray table for commercial transport airplanes that is specifically designed to accommodate personal electronic devices, like tablets or phones.

And the simple situation here is that people are bringing more and more devices onto airplanes. I'm sure everybody on the call here has noticed that. And, in -- there comes a question as to where you are going to put this device on your allotted space in an airplane seat. And the idea with the Smart Tray development is to provide a standard or a mounting point where people can easily mount their devices in a kind of ergonomically friendly and convenient way.

And this -- we tend to be a Company that gravitates towards higher technology and kind of complex systems. So, this may appear at first not to be something that would be well-suited for us. But we've come to be convinced that this is an opportunity for us.

Because of our market presence, we are obviously involved in what people do with their personal electronic devices in airplanes. And we touch a big part of the potential market for this product. We are one of the unique companies that deals basically with all the OEMs who make airplanes. We deal with the vast majority of airlines around the world who fly and operate the airplanes and we also deal with the vast majority -- touch the vast majority of seat manufacturers who put tray tables on their seats.

So that combination of market presence and kind of product area interest we think suits us well and we think we are reasonably excited about how this product will be received in the industry. So, we'll talk about it more as appropriate. But that was one of the developments of our first quarter here.

So, system segment. Revenues in the first quarter were $19.3 million, up from $18.7 million in the first quarter of 2014. That would appear to be an 11.9% gain in sales. But you need to keep in mind that in the first quarter last year, the major acquisition we had in Irvine from EADS was with us only for four weeks in the quarter. So our first quarter sales look higher than the first quarter last year, but it's 13 weeks compared to four weeks and when you look at it that way, the Company was obviously operating at a much higher level in the first quarter of last year.

In the first quarter this year we recorded an operating loss of $2.2 million. We feel that was driven mostly by the low-volume and the adverse mix. Essentially the Company is sized for a breakeven of about $100 million, $110 million in revenue and when we take the revenue levels that we had in the first quarter, we wouldn't necessarily expect it to be profitable. But we have a backlog at the end of the quarter of $144 million and a majority of that tour much of that will ship in the second quarter and third quarter. So, we expect to be again on the positive side of lumpy going forward here in the second quarter and third quarter.

Bookings in the first quarter work $16.8 million. And again, if you talk about lumpy, fourth quarter bookings, the end of last year in our test systems segment was $105 million. That dropped to $17 million in the first quarter. So, it's just the nature of this business. It's the way things are going to work, and again, we don't view the first quarter as any indication of substantial problems in the business, but kind of a predictable result of how customers want their deliveries scheduled.

We did announce a couple new wins in our test systems segment. One is a VIPER/T -- some of you who have followed our business may recognize that term. That was something that was a part of our business for the US Marines a few years ago.

Saudi Arabia has decided that they want in on that technology and we are basically developing and delivering an upgraded and modified version of that test system for forward deployed situations. It is a relatively limited initial contract with a value of $3.6 million. We do think there's -- will be ongoing potential when the time comes. And we think that some of the insertion the technology we are putting into this new system will be desirable to other potential customers of the VIPER program. So, we are excited by that win.

The other win we announced was something called RFDACS, or RFDACS stands for radio frequency distribution and control system. This is not so much a test system as much as part of a digital communication system for modern submarines, the Virginia and Los Angeles class of submarines.

This is an IDIQ contract with the Navy. Stated value is $36 million. Performance period is five years and it's a continuation of a contract that we've been working on in the past. So it's kind of a new award for a continued project, which we of course are happy to get.

So, these are programs that we've been pursuing for some time. I think it's important to keep in mind that they didn't come out of the blue and we don't necessarily feel like this represents any substantial change in climate with our government and their funding priorities, as much as eventually the programs that they talk about actually come true. So these are two of those and we are happy to have them.

Our balance sheet at the end of the first quarter we think continues to be healthy. Cash at $22 million, total debt of $216 million, which is up a little from the fourth quarter, primarily driven by the Armstrong acquisition. So net debt of $194 million, we think that's comfortably within our covenants and adequate for the task we have ahead of us as a Company.

So, looking forward, our 2015 beginning backlog was $371 million. I mentioned a few minutes ago that at the end of Q1 it had risen a little bit to $378 million. We are maintaining our revenue guidance of $680 million to $740 million for the year. The midpoint of that range would put us at about a 7.5% growth over 2014.

We continue to believe that aerospace will be in the $550 million to $580 million and test systems will be in the $130 million to $160 million range. Given the lumpiness of our test business, we are going to deviate from our traditional pattern of being somewhat vague about our quarterly revenue expectations and be a little bit more specific. We expect second quarter revenues to be modestly up from the first quarter.

There's going to be some mix changes going on underneath the surface. But we are expecting Q2 to be somewhere in the $165 million to $170 million range. We are expecting Q3 to be for our Company a blockbuster. We are expecting revenues in excess of $200 million in Q3, which will be a new record by far. Our previous record or current record is $179 million. And that was achieved in the third quarter of 2014.

So, we are expecting increases in revenue in Q2, a big increase in Q3. Q4 is a little bit fuzzier, but obviously with the guidance I just gave, it's easier to kind of zero in on where we think Q4 is going to be also.

So, I guess that's it for my prepared comments and we'll take questions at this point.

(Operator Instructions) Kevin Ciabattoni, KeyBanc.

Just looking at, you know, we last -- or last quarterly call kind of late, mid-February, it sounds like the deliveries in test completed in 2014. And obviously I understand the timing of it. I guess I'm just trying to understand; did something change between, you know, that February conference call and the end of the quarter? Because obviously you were a little bit more than halfway through the quarter there at that point and it seems like you should of had a good grip on the shipment in 1Q at that point versus what they've been in 4Q in test. Just kind of wondering if the cadence changed part way through the quarter or if it just wasn't maybe communicated well.

Well, I was hoping to get it to at least the second or third question before we got to this topic, but we basically didn't communicate it well. And to be honest, when we come to a year-end, we are pretty much all hands on deck trying to close the previous year, especially a year like we had last year.

And we gave some indication that we thought the first quarter was going to be lighter and we were going to build later in the year. But we weren't as specific as I think we need to be. So that's why we're changing our tune a little bit in terms of how we are going to give quarterly guidance going forward. I think it's fair to model makers out there who are otherwise kind of left guessing, how lumpy is lumpy. So we are going to try to do a better job communicating that going forward.

Okay understood. I appreciate the quarterly revenue guidance. I think that will help significantly just given the lumpiness of that business obviously.

Looking at the E&D line, if you look back 12 or 18 months or even further, you know the majority of that seems to be focused on EPDS, the starter generator and now a lot of those opportunities are coming to market. I'm just curious where most of the E&D effort is focused today. Is it still on the same systems and just developing them further? Or are there new projects that you are working on?

We certainly have not discontinued any of our major initiatives. So, to the extent that they were major initiatives, they continue to be. I think the best way to answer it is that our universe of investment options has increased as our business has unfolded and as we have expanded.

So, the absolute number in terms of the dollars being spent continues to go up. But the percentage of revenues is coming more in line with that kind of the 11% to 13% range or 10% to 12%. I think it's going to settle somewhere in that area.

But we continue to be a Company that looks hard at where the opportunities are. And we're not afraid to stick our neck out. And we do have a range of initiatives underway which will bring us new opportunities and new obligations. So, that number could go up depending on how successful we are with those new programs. But it continues to be kind of a core principle of how we want to run the business.

Okay that's helpful. You know, the next one, just looking at out a month ago or three weeks ago, whatever it was, around the Hamburg show we typically see a lot of announcements about new aircraft interior product. It seems like there is an increasing number of competitors out there with IFE systems that are either wireless content delivery on the aircraft or fiber-optic delivery in some cases, a lot of which is narrowbody-focused, obviously, just given the weight constraints. And a lot of those seem to include USB charging.

I'm just when and if there's any color you can give on whether or not you are working with any of these providers outside of your typical Panasonic and Talus, and whether you think there is any potential for growth from your end on some of these new lightweight systems.

That's a good question. And there's no doubt that on the one hand the world is getting more competitive in the sense that we are showing some success and we've kind of created a niche. And it's a niche that's proved for a popular with airlines, and a lot of other companies in the industry have noticed. So, it's relatively easy to put together a mockup.

But I guess I'd tell you at the same time that we are -- we've done a good job, I think, of staying pretty neutral in the industry and earning a high level of integrity in terms of being able to work efficiently and effectively and creatively when needed with our customers. So you named Panasonic and Talus. They are certainly two of the more established IFE guys that we have worked with and continue to work with.

But we -- we work with a wide range of airlines and other systems providers, I guess I'd call them. So we maintain good relationships and we take very much an interest in developments in our industry. And, the range of potential customers that you have described certainly have not gone unnoticed by us. So, we are continuing to work hard to maintain our position in the industry.

J.B. Groh, D.A. Davidson.

I noticed on the military test systems was really strong this quarter. And what's embedded in the outlook there for military? I don't know if you want to get that granular, but that really popped out in terms of a number.

Yes, that is the core of our test business traditionally, and it's certainly one that we are looking to adapt to and to adjust to. I'm not sure I have a whole lot of granular detail for you, other than the two winnings that I mentioned are certainly in that side of our business, the RFDACS and the VIPER/T. So those are the kind of programs we need to win to maintain our presence in that area.

We also have -- we have an instrument capability that came with our EADS acquisition in Irvine that we haven't talked a whole lot about subsequent to the acquisition. But it's an important capability and there are certain, I guess I'd call them next generation instruments that we are working to introduce, and in due course may have something to talk about there. But we think that's an important market to us.

And even though the current administration has maybe not funded it the way we would like or what we have grown accustomed to in the past, it's a presence that we are looking to fine-tune and capitalize going forward. So we are hoping that we can continue to do a good job in that area and show some good numbers.

But the big driver of the Q2 and Q3 is going to be on the commercial side, correct?

That is correct.

This is Dave. I would add that with regard to the military part of the test business, a fair amount of that has to do with we had three full months of that business reported in 2015 Q1. We only had about four weeks in last year's. Much of this year's was military compared to the four weeks of last year, which much of it was commercial.

Okay. And then moving over to the electric power site, could you give us a sense of what you think the -- on the OEM front on narrowbody what the penetration is there currently, and maybe what you kind of expect it to go to in the conversations you had with customers?

Well, I guess in general our sense is that the vast majority of customers want it. There are some who clearly won't do it. Kind of the most economic -- the most economical of the economy carriers are probably the ones that are less likely to do it. But pretty much everyone else, the vast majority of operators, including especially the fleet, the larger hub and spoke fleet operators that offer multiple classes of aircraft view it as something that definitely want to do.

And the heart of your question is, what's the rate of change going to be and where is it going to end? And we can't pretend to know that. But we don't see a limit we still think we are at the -- we don't see a limit yet and we don't think -- we are still at the early stages of that game. We typically say we are in the 10% to 15% range in terms of penetration in narrowbody aircraft. And I think we'd hold with that view at this point.

But in terms of the OE, when you say 10% or 15% you're talking total fleet, correct?

Right. That's correct. Oh, you mean new airplanes coming off production?

Yes, new airplanes coming off the line and what's the penetration there (multiple speakers) a little bit higher, yes.

No, no, very few I'd say.

Oh, really, okay.

Yes, because most -- the way it works, most airlines don't adapt it first on their incremental new airplanes. They actually will put it on their fleet and then promote it, and then take it on new airplanes also. But a lot of times when they make a fleet decision like that, it's almost too late to get it on the new production airplanes because that's I guess a particularly complicated and expensive process.

But -- so it's not uncommon for some of our newer customers with narrowbody airplanes to fly their airplanes immediately to a mod center, have it put on afterwards, after delivery. And so actually, the new aircraft penetration rate lags substantially what we see happening in the industry and that's kind of a normal sequence of events.

Okay, thank you very much.

Dick Ryan, Dougherty & Company.

Pete, a few on the financial side. Was there any FX impact in Q1 and are you kind of factoring anything in for Q2 or Q3?

You mean foreign exchange effect?

Yes.

Yes I think there were. Dave, do you want to answer that?

Yes. Particularly with regard to the business in France, which is all denominated for the most part in euros, it's been a headwind. I can't quantify what the exact impact was because I don't have it at my fingertips right here where I'm sitting. But it was more of a headwind than anything else in the first quarter.

It will be a headwind on our earnings in that facility, which -- in our sales in the France operation, too. But single percentage point effect, not huge when you look at the revenue forecast we have. The revenue that's denominated in foreign currency is probably in the neighborhood of $40 million to $50 million.

Okay, okay. Thanks Dave. Looking at a couple of other line items, OpEx, is there any non-cash items in there? Any kind of one-timers that we need to pay attention to and maybe take tax rate as well? How should we look at that going forward?

The tax rate, as Pete had mentioned when was talking about the fourth quarter of last year, we are in the same situation again this year where Congress has not passed the R&D tax credit for this year. So, we are accruing at a rate that's a little bit higher than what we hope it will be. It's -- we expect if they pass the R&D tax credit later this year that we'll be in the -- back to the 32% -- 31%, 32%, 33% range. So we are a little bit higher because of that. And your other question any other non-cash type of things that we should be thinking about, there wasn't anything really in the first quarter at all.

Okay. And then just trying to just kind of look at gross margin, if I strip out some of the step up factors from last year and a little bit this year, if you just -- just trying to take out a look at raw gross margin, it looks like it was maybe 27.5% last year, a little over 25% this year. Is there anything to read in your gross margin ex-ing out those acquisition-related charges or is it just kind of normal ebbs and flows?

I think it's normal ebbs and flows, when you make the adjustments that you are mentioning there, backing out the inventory step up type things, pretty much is business as usual on the margin side of things.

Okay. Great. Say Pete, on AeroSat, your main customer there is talking, migrating to a next-generation technology. They have a pretty healthy backlog with your Ku antenna. Can you give us a sense of kind of what you are spending on in new technology there and if you've got other market opportunities just beyond that main customer?

Sure. I would say we have a two-level focus there. We are of course trying to satisfy and execute for that main customer and I think we're making good progress there, and we think we are through a lot of the startup hurdles and revenues growing and production is getting much more regular. We are, at the same time, as you suggest, working on kind of the next generation.

I guess we continue to feel like we are early on in the ballgame here and there's a lot of runway to go. And we've had a couple of sidestep maneuvers where things didn't go exactly as we thought that they would. But we also continue to be pretty excited about the long-term potential and our place in it.

So beyond that, I don't know if I can get real specific. But we are continuing to work on next generation programs, including with our big customers. So, I think we are -- (multiple speakers)

Would you see that opportunity more in the commercial transport side or in the business jet side of IFE?

Could be both. We're working on both.

Okay, okay. And on system certification, how many customers roughly do you kind of work in with that group?

The total cumulative number is quite large. But there is a -- it's like most businesses. There are probably five major companies, including IFE service providers and airlines that drive a majority of revenues. But they basically market both the systems companies and to airlines, mostly in the commercial transport world.

Jonathan Morales, Canaccord Genuity.

Regarding the Smart Tray partnership, do you see -- do you expect more of these sorts of partnerships? And I guess on top of that, do you see discretionary spending at some of your customers improving?

Well, I guess we don't have a stated objective of these kinds of partnerships where we definitely have noticed as we get bigger and as we carve out more of a market for ourselves that we have more opportunities to consider things. That's a definite truth and -- but it's not a -- and initiative in and of itself. This is one that we thought made a lot of sense.

We had a pretty major tradeshow just last month. It was mentioned earlier in Hamburg, Germany, Aircraft Interiors it's called. And we had the Smart Tray relationship announced shortly before the show. And we have a pretty big booth at this show and we have a lot of interesting technologies and opportunities for customers to come look at and review. And I think we were all pleasantly surprised at just how much positive attention the Smart Tray demonstration in our booth received from airlines.

So, I think the airlines are definitely doing better than they -- as a group around the world than they have historically. And I think they are differentiating themselves. They are focusing maybe much more on the customer than they used to, collectively as a group, and that happens to be kind of where we play. That's our sweet spot.

So we are not the only ones by any means who are trying to figure out how to attach a laptop to a -- to the infrastructure on the airplane. But we think that the design that the guys at Smart Tray have come up with is very elegant, and I was very impressed with how much enthusiasm was demonstrated by the various airlines who came through our booth at the show. So I guess, we continue to think that it's a good market for us in that sense.

Okay, and one other question on the test segment. Is the ramp and the cadence you outlined, is that inclusive of the VIPER/T and RFDACS contract wins? And if so -- and then on top of that (multiple speakers)

You mean for the test side?

Yes, yes, sorry, the test side; and then does it help correct any of that lumpiness that we see?

Yes, more business will definitely help lumpiness we think.

Right.

The RFDACS is kind of a continuation of something we've already been doing. In fact I think when we won that program we had $3 million or $4 million outstanding on the current or the previous program. So that's more a continuation; shouldn't individually affect our ramp or do much even to level out lumpiness.

The VIPER/T is something that we think right now it's a little bit of a modest program. It's -- you might think of it as a low rate initial production kind of program, but it's one that we think could grow into a substantial award down the road.

And again, I've kind of alluded to it in my monologue. We have some technology insertion that we are putting in there that we think could be of interest to other customers on other programs that in and of itself could be more valuable to us in the long run than VIPER/T. So, we think it's an important win, but I'm not sure it's going to fundamentally change our trajectory on the tough side at this point.

Okay, thanks. That's all I had.

Kevin Ciabattoni, KeyBanc.

I just want to follow-up on the AeroSat question. Any color you can give with kind of how much more runway you have there in terms of deliveries to Gogo? I think Dave said they did -- they had 31 installs during the quarter with, I think, 177 left to go. I mean, any color you can give in terms of -- are you kind of shipping in line with their quarterly installs?

I don't know if I can give you any color. We do what they tell us to do. So I think in general we are doing a good job keeping up with them, I think, at this point, and I think they are generally pleased with us. But I can't speak for them and their business. So I can't really help you with that one, I don't think.

You are still shipping product to them, though, kind of quarter over quarter.

Yes, absolutely.

Okay. And then the last one for me, Pete, corporate expense looked like it was up a little bit kind of versus where it's been historically, even looking at last quarter and adding back some of the one-time items. Anything outside of the Armstrong acquisition that drove that up?

Dave, you want to mention that?

Yes, a little bit of it was driven up by just the timing of some of our ancillary services and procurement of legal, accounting, outsourced services. I expect that that will moderate over the next three quarters.

It was a bit of an active first quarter in terms of settling 2014 financials and fundamentally being at a level in terms of volume and velocity that we have not been at before. We survived it fine, but there was certainly some expenses along the way.

Okay, thanks. That's all I had.

Thank you. And it seems that we have no further questions at this time. I'd like to turn the floor back to management for any additional remarks.

No more remarks. Thanks for attending. And we look forward to talking to you again at the end of the second quarter. Have a good day.

Thank you ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.