Astronics Corp (ATRO) 2018 Q3 法說會逐字稿

Greetings, and welcome to the Astronics Corporation Third Quarter 2018 Financial Results. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Ms. Deborah Pawlowski, Investor Relations for Astronics Corporation. Thank you. You may begin.

Thanks, Latonya, and good evening, everyone. We certainly appreciate your time and your interest in Astronics. I have with me here today Pete Gundermann, our President and CEO; and Dave Burney, our Chief Financial Officer. You should have in hand the news release that crossed the wires a little after the market closed, and if you don't, it is available on our website at astronics.com.

As you are aware, we may make some forward-looking statements during this teleconference including the Q&A portion. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause 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. You can find these documents both at our website and at sec.gov.

So with that, let me turn it over to Pete to begin. Peter?

Thank you, Debbie, and good evening, everybody. We'd first like to thank everybody for tuning in on a Monday night. It's not our favorite time to do it either, so we appreciate you making time.

So the headlines for our third quarter, which was a colorful quarter in many respects, first and foremost, we saw very strong top line performance across the company, setting a new sales record of $212.7 million. Second headline, bookings were strong also, exceeding shipments at $233.8 million, up 10% over shipments.

Our bottom line was solid, largely aided by a change in a state tax filing position, which we'll talk a little bit more about as we work our way through this call. On the negative side, we continue to see some poor results from 3 struggling businesses we own that we've talked about before and we'll talk about that also more as we work our way through the call.

And finally, we're narrowing and slightly adjusting our final 2018 top line forecast, which now calls for midpoint consolidated sales of $795 million. If we achieve that, we'll be up about 27% over where we were in 2017.

So we're going to jump through a summary of the third quarter, we're going to do a year-to-date summary, go through our segments. We're going to go with Dave on a couple of the finer points on the accounting side of life on our balance sheet and on this state tax situation. And then I will take it back for a forecast discussion and questions at the end.

So third quarter summary. Revenue, as I said, pretty strong at $212.7 million, that's a new all-time high and up 42% over the comparator period of a year ago. Acquisitions contributed about $21 million of the $63 million growth. Organic growth explained the remaining $42 million. That's up about 28% organically over where we were last year.

Our Aerospace segment had a particularly strong quarter, setting another record revenue at $170 million, up about 30%, 32% over our comparator period of a year ago. Test also had a strong quarter of $43 million, doubling the comparator quarter of a year ago and continuing the strong performance that it had in the second quarter.

Our bottom line net income ended up okay but was heavily influenced by some puts and takes. We ended up with net income of $17 million, about 8% of sales, up substantially from $6.1 million and 4% of sales in the comparator period of a year ago. The biggest take was the change in our state tax position which had the end effect of netting us a $4 million credit in the quarter. Our biggest put was the continuing losses of 3 of our struggling aerospace businesses. We've been talking about this for a few quarters now, companies that we refer to as CCC, AeroSat and Armstrong, which turned in a combined operating loss in the quarter of $11.2 million. That includes a $3.9 million program charge for an estimate to complete increase at CCC. These were a negative surprise to us and not what we expected. We'll talk about it a little more when we get into the Aerospace segment in a moment.

The bottom line, we ended up with a diluted earnings per share of $0.52 for the quarter, up substantially from $0.18 a quarter one year ago. And as I said earlier, bookings were very strong also at $234 million, our second highest quarter ever, just barely behind our fourth quarter of last year, a book to bill of 1.1. That booking total does not include a noticeable award, or a large letter of intent I should say, that we announced in early October on a pending order that we are in negotiations on in the transportation industry for Test that we expect, depending on options, could be an additional $30 million to $50 million. So if you factor that into the bookings, the firm hard bookings that we also reported, it was a very active quarter on the marketing front for our company.

Our Aerospace bookings were $197 million, that's a book to bill of 1.16 even on a record shipping quarter. Test bookings were a little bit lighter at $37 million, a book to bill of 0.86, leaving us with a backlog of just shy of $400 million at the end of the quarter which was a record and very strong by historical norms.

Summarizing the first 3 quarters on a year-to-date basis, revenue year-to-date was just over $600 million, up 32.5% from where we were through 3 quarters in 2017. That's total growth of $147 million, roughly half of which came from acquisitions and half was organic. Net income, the bottom line, $34.3 million, 5.7% of sales, up again about 35% from where we were in 2017 through 3 quarters when we had net income of $25.3 million.

On a per diluted share basis, it's $1.04 this year versus $0.74 last year. Net income again was positively impacted by the change in tax position and negatively affected by the combined operating losses of what we're referring to in this call as our struggling 3 companies of cumulative, or a combined I should say, $28.3 million over the course of the year. And bookings through 3 quarters are strong, aided no doubt by the last couple of quarters in particular. 2018 bookings year-to-date are $617 million, a book to bill of 1.03. Aerospace book to bill is the better of the 2 at 1.07. Test book to bill was a little bit lighter through 3 quarters a 0.81.

Turning to the segments, Aerospace first. Revenues in the quarter were just shy of $170 million, up 32% over the comparator quarter of a year ago, and as I said, a new record for the company. Operating profit was $16.2 million or 9.6%, that's lighter than we would like to see, but it is after operating losses from our 3 struggling companies of $11.2 million. If you could consider the company's results if we could get those 3 companies to break even, our operating profit for Aerospace would have been up at over 16%. That doesn't assume any contribution from those 3 companies, all it does is eliminate the losses, that math.

Bookings for the quarter were our highest ever for Aerospace at $197 million. That's a book to bill of 1.16, year to date book to bill of 1.07, and our ending backlog for Aerospace of almost $326 million, our highest ever, setting us up we think very well for a strong close to the year and a strong expectation for 2019.

Year-to-date in Aerospace, revenues of $500 million is up 27% from last year and 83% of our total revenue. So we continue to be an Aerospace company first and foremost. Operating profit of $47.5 million or 9.5% of sales is up marginally from $46.7 million last year. Again, last year we started strong and our Aerospace results in particular weakened as the year went along. This year it's just the opposite, we are getting stronger and stronger as the year progresses on the Aerospace side in particular.

Bookings through 3 quarters are $536 million, so even on record revenues, that's a book to bill of 1.07. Just a couple of brief comments about our markets, and I'm referring in the press release to the 2 tables on page 10. The top table on page 10 of our press release is titled Sales by Market and the most significant thing there it seems to me is that commercial transport continues to be our dominant Aerospace market, 67% of total revenues and year to date revenues up 31%. Those are the 2 numbers on the top right corner of that table.

The 31% is best understood by recognizing that most of our acquired businesses revenues go into the commercial transport area, particularly at Telefonix, not so much at CCC.

The bottom table has a couple of relevant points I think, too. The first way, the bottom table is the one entitled Sales by Product Line. If you look way over on the right, one important thing to recognize the way the company is evolving is that we have pretty good balance among our major Aerospace products. 2018 year-to-date electrical power & motion is about 36%, 37% of our total revenues. Lighting & safety is about 21%, 22%, and avionics is 17%. So there was a time when we were much more heavily weighted towards electrical power & motion. I think the diversification serves us well in terms of stability and reach in the market.

You can see that electrical power & motion also for the year is up 10% and for the quarter up 22.9%. So we're having a strong second half as we expected in electrical power & motion. Electrical power & motion is mostly, but not exclusively, made up our on NC Power product line. The other number that jumps out of that page is the 219% growth in the avionics year-to-date. That again is mostly where the Telefonix products get categorized, so that explains the large growth of $31 million in sales last year to $100 million through 3 quarters this year.

Just a few comments about our 3 businesses, AeroSat, CCC and Armstrong. We started talking about these businesses a few quarters ago, not necessarily to throw them under the bus, but to help the investor community in particular understand what our margin structure is in our Aerospace business and to help reassure or help people understand that it's not due to some -- our margin pressures are not due to some global price pressure or some kind of competitive threats or something like that. They're very much isolated and localized in these 3 business, and while we are not happy with the losses, we continue to believe that we've got pretty good opportunities in each of these 3 businesses. And despite the losses, I feel we're making pretty good progress in the development of the businesses and the execution of the opportunities in front of them.

It's a little early to talk about it, but I wanted to give one piece of data out that is evident from the budgeting exercises that we're going through right now internally trying to figure out what our expectations are for 2019. And the tidbit is this. Collectively, the revenues from those 3 operations we expect to pretty much double next year. So volume, as you can imagine, will go a long ways towards erasing or minimizing some of the losses we've got here. Collectively, it's not clear that these 3 companies are going to be strong profit contributors next year, but if the plans that we have in place come about, and we obviously believe they are going to come about, a doubling of revenues will certainly go a long ways towards minimizing the drag and we won't have to talk about this anymore, which I'm looking forward to in 2019.

Turning to our Test business. Revenues in the third quarter were $43 million, another strong quarter compared to last year, more than double where we were on the comparator period a year ago. An operating profit of $5.8 million for Test or 13.5% of sales, so they solidly contributed second quarter in a row. Revenue year-to-date is $100 million, up 72% from $58 million through 3 quarters in 2017. Our operating profit year-to-date is $10.1 million or 10.2% of sales. The improvement was largely driven by pick up in semiconductor demand in particular and bookings in late 2017. Our bookings this year have not kept up with shipments. We've got bookings through 3 quarters of $80 million versus shipments of $100 million. That $80 million booking number again does not include the LOI that we announced in early October. If and when we can close that, we'll close that gap pretty rapidly. And we have a number of other prospects in place that we think will buoy the business quite well in 2019. In fact, we think 2019 promises to be a pretty exciting year. We often talk about how shipments and revenues in our Test business are lumpy from period to period and can be a little bit unpredictable. Bookings are even more so. The bookings are even lumpier than the shipments. So we aren't panicked by any stretch at $80 million in bookings on $100 million of shipments. We still have a backlog at the end of the third quarter of $72 million. We think that's pretty good for what we're expecting or hoping to do with that business going forward.

So I'm going to turn it over to Dave now for a discussion of the balance sheet and the tax situation.

Thanks, Pete. Pretty quickly, the balance sheet remains pretty straightforward. We ended the quarter with about $4.8 million in cash, total debt of about $260 million, and net debt of about $255 million. In terms of cash flow, during the quarter it was a little weaker than we had expected. If you recall back in the previous quarters, we talked about the free cash flow improving as the year went on with the expectation that the fourth quarter would be our strongest. We still view it that way. We generated about $7.2 million in cash flow from operations during the third quarter. Could have been a little better. We saw a big pickup in our receivables during the quarter of about $20 million related to timing. We had again, a lot of our revenue was toward the latter half of the quarter, and additionally, it was with some customers that have longer payment terms. So we don't see any issues there with our receivable collectability. By and large, things are outstanding along with their terms.

Covenant leverage, in terms of our adjusted debt coverage ratio, we're going to be about 2.7x when all is done at the end of the third quarter here, so we're in really good shape there. Expect with free cash flow in the fourth quarter we'll be able to pay down about $10 million to $20 million in debt by the end of the year if things go as planned. So that's good. Things are picking up in terms of free cash flow. And our inventory growth has actually leveled out and declined a little bit during the quarter. Again, a positive thing.

I don't expect any significant changes to the balance sheet going forward here. Again, it's pretty straightforward and simple. I do expect cash flow to pick up toward the end of this quarter.

Now under the tax rate for the quarter, Pete mentioned we have an unusually low tax rate. It's a onetime hit here. I'm going to try to distill down to a handful of sentences what is in 40 pages of memorandum on tax position. It relates to the relationship and sourcing of sales and income between states. We engaged some tax specialists to look into some opportunities that we felt we might have between some states and the way we were apportioning or allocating our income. It all relates to some very specific rules regarding specific state's throwback rules. It relates to, oddly enough, where the FAA, FAR21 inspection occurs and B&O taxes. So when all is said and done, what it means is we've identified an opportunity to change our previous position to reflect sales in a more beneficial state than what we had filed previously. The result of that is that the low tax rate we saw, the adjustment was pushed through in the third quarter of this year, and we're moving forward to file amended returns for those open years.

Tax rate going forward, we think we're going to still be in that 18% to 21% range in the -- for the fourth quarter and into 2019. I think that's as distilled down as I can make a 40-page memorandum referring to tax codes.

Thank you, Dave. So looking forward, we issued some revised guidance, we've narrowed the range and adjusted it just a little bit. We're expecting our fourth quarter to be a little bit lighter than the last couple of quarters, $190 million to $200 million total. And we're expecting it to be tilted much more heavily towards Aerospace. We published an Aerospace range of $170 million to $175 million, so obviously if we execute that and we're in that range, it will be yet another record Aerospace quarter. That obviously means that Test is going to be quite a bit lighter and that's just a function of schedules and the way the backlog is distributed. So our Test business is expected to have a much lighter fourth quarter than the second or the third quarter.

And that means that for the year, we are publishing revenue expectations of $790 million to $800 million total. The midpoint, $795 million, suggests growth of 27% over 2017. Looking at the segments, we're saying Aerospace is going to be $670 million to $675 million. The midpoint suggests growth of 26%. And Test will be $120 million to $125 million, the midpoint suggests growth of 36%. So with -- if we can get all that in the bag we will I think be pretty pleased with how 2018 turns out from a demand standpoint. Obviously, everybody wants to know what we're going to be doing in 2019. We're not prepared at this point to talk about that in too much detail, but we will as soon as we can. And we think a lot of the trends that you see in our business this year are going to continue. We don't see things turning to the worse. We see demand staying strong, we see customer enthusiasm staying strong and we expect at this point 2019 will be a very good year for the company. But we'll talk about that in more detail when we get there.

So I think that ends our prepared remarks. Latonya, if we want to take questions, now would be a good time for that.

(Operator Instructions) Our first question comes from Jon Tanwan (sic) [Tanwanteng] from CJS Securities.

You've tried to provide detailed forecasts of those 3 challenged businesses previously. How have those losses evolved over time? And kind of where do you see them going down? How much cushion are you giving yourself now given what's happened?

Yes, you're right, they are definitely worse than we originally talked about a couple of quarters ago. And we've had some execution issues, no doubt about it. I think we've addressed those. I mean there have been substantial changes made in all of those 3 operations from a management leadership perspective. I think we're in pretty strong position now and I think -- the most recent of those changes was just a couple of weeks ago. But we're, I think, on the right course and I think kind of the drop-dead date, so to speak, of things changing next year remains in place. The CCC situation is, if I just go down the list, the CCC situation is a situation where we're struggling to execute on a contract that the company has in place, it had in place when we acquired the company. I don't think anybody at CCC, or certainly not on our side, realized the difficulties inherent in that contract. We aren't making the progress that we thought we would, so that's what the increase in the estimate to complete is about. We are -- it's an important enough contract that we are substantially investing in it in terms of bringing in outside resources from outside of Astronics, but also from other Astronics businesses to do whatever we can. And we are investing heavily in new leadership kind of across the business. It's a program that's hard for us to talk about at this point because we're not allowed to by the customer. But we think at the end of the day, it's going to be a worthwhile thing even though this is a pretty painful and expensive process. We also think that the DVIP market is evolving from a competitive standpoint and from a customer standpoint in such a way that this could very well turn the tables and be kind of a point of pride, maybe not in 2019 right away, but in 2020 and beyond. The writing is kind of on the wall that we think we can do pretty well in this market and that kind of justifies our continued investment and our continued patience with that business. The AeroSat situation is largely a situation where we've had, we have some substantial revenue opportunities in the market that have been beset by scheduling problems which truthfully are largely beyond AeroSat's control. They have been driven by other partners we've been trying to work with and by engineering efforts that need to get completed, in some cases even by our customers. But we've made some significant progress there. We've talked in the past for example about a big tail mount opportunity to bring broadband worldwide connectivity to big business jets. This is program that we've worked with a couple of partners on. There's been a little bit of a shuffling of the team there. One former partner got off, another new one is on, and that program was kind of restarted in earnest at NBAA which is the National Business Aircraft Association, it's kind of a worldwide body of business jets which had a big show in Orlando a few weeks ago. And we're optimistic. And I will be very straightforward that a big part of our goal for next year, for AeroSat in particular, is heavily wrapped up in that program. So there are a couple of others of note, but that's the one I think has the big coverage and has the really big, long-term opportunity. We think there are -- the target universe of 4,000 airplanes, total universe of 5,000, but the addressable market is smaller than that and of course nobody knows exactly how small it is, but it's reasonable to assume that the average big business jet guy flying them back, people flying them back, they're going to want connectivity when they go over the ocean. And the options up to today are not that great. So if we can sell an antenna for $200,000 or $250,000 to a universal 4,000 airplanes, it potentially is an exciting opportunity for us. We're certainly not the only ones, there are other companies addressing this market. But we're taking a serious swing at it and that's part of the reason, a big part of the reason why we're hanging in there. And then Armstrong is the third one. Armstrong, as we prepared for this call, we debated about bringing Armstrong off the list. Armstrong has had some difficult times. It's straightening itself out and it's got a reasonable book of business. And frankly, it's not a major driver of the $11.2 million in losses in the last quarter and we don't expect it will be going forward. It's certainly not a big profit contributor, but if all 3 businesses were operating at that bottom line, we wouldn't even be having this conversation. So for practical purposes, at the turn of the year it's going to be a challenge at CCC and AeroSat. It's not going to be a challenge at Armstrong. And we think based on completing the program of record, the program of interest at CCC, which should happen early next year, and getting the couple of programs off the dime at AeroSat, again collectively, we think revenues at those 3 businesses will double next year. Not for each and every one, but collectively. And that will go a long way to solving the problems that we've been talking about. So short answer to a long question.

I was just going to ask, do you have any timeframe until those 3 businesses, or maybe the 2 that are in trouble, break even at all?

Not really. Our first priority is just to cut the bleeding frankly. It's not one of those deals where you can stop the bleeding by cutting costs. That's really not been our approach. We're trying to manage costs. Our real approach to stopping the bleeding is to kind of grow through it because we think in both those cases as I described, we've got opportunities. I would like to think that towards the end of next year, as a group, we're operating at a breakeven basis. We probably won't be absolutely breakeven for the group when you look at the end of the year, consolidated combined 2019 results. But we expect regular improvement quarter by quarter such that I would say, I would hope by the end of 2019 we're there.

Got it. Then just one more quick one. Dave, corporate expenses dipped a little bit sequentially. Is that the right runway to use or was it just more of a timing issue there?

No, it was just more of a timing. No significant change quarter to quarter.

Our next question comes from Michael Ciarmoli with SunTrust.

Pete, just staying on the topic of the 3 challenged companies, talking about revenues doubling next year, can you give us a sense of what the revenues are today for those collective businesses?

Yes, on a rough rule of thumb, those 3 will be about $50 million this year.

$50 million this year. And so just to calibrate, we should expect $100 million then, close to it, and just keeping things conservative, running at sort of a zero margin business next year. That's kind of -- showing improvements along the way, but grinding towards that breakeven towards the end of next year.

We'll obviously update as we go, but I would expect that 2 of the 3, I'd be surprised if 2 out of the 3 weren't essentially kind of a breakeven by the end of the year.

Okay. What should we be thinking for a normalized margin for these businesses? And I know it sounds like with CCC, I mean each program or project could have its own nuances and own uniqueness. But is there any sort of normalized margin level? I mean when you guys bought the businesses, was it a profile in line with sort of the Astronics average? Or how are we thinking about normalized margins going forward for them once you sort of correct the challenges?

We're dipping into lessons learned here which is probably a dangerous place to go on this call. But clearly these 3 haven't done what we expected when we bought them. And there are different reasons and I think we have learned lessons. But I'd tell you that the potential profile of all 3 of them is very consistent with the rest of the business. There's no inherent reason why these companies, if they are hitting their stride and executing well, can't be contributors like the rest of the Aerospace business collectively. Our goal is to get there. I mean, there are different issues in different places, but individually and as a group, there's nothing preventing them from operating in that 15% range that we think we should be at as a group.

Okay. And then maybe I'll just do one more here on Test and then get out of the way. But on the Test system, so we've got the guidance. Should we be concerned at all with the Test margins next quarter considering it's going to be a pretty big sequential downtick in revenue? I mean, do you have a lot of fixed costs? Should we be thinking about overhead absorption issues just given that quarter to quarter volatility? And then I guess maybe just on the bookings side of it, can you maybe parse out any color between semiconductor and aero defense? I mean, there's a lot out there in the market about a semi slowdown and just trying to put the pieces together and wonder if the bookings you're not seeing or the bookings weakness is related to what's happening in the broader market there.

We -- okay, a lot of questions there, so jump back on if I don't answer them all. But yes, we would expect in the fourth quarter with our Test business volume being down, that its contribution will be down also. But I would tell you that I think we expect that we're going to have another record Aerospace quarter. We expect, we hope, not to have another increase in the estimate to complete. That kind of jolted our numbers there. So it could well be that collectively Aerospace is able to compensate for Test in Q4. We'll have to wait and see, but I expect it should be a strong Aerospace quarter. I expect it will be a weaker Test quarter, but I do not expect it to be as weak as Q1. So that's that. In terms of Test bookings, most of the bookings in Q3 were on the A&D side. So it was a very solid A&D, Aerospace & Defense, booking quarter for Test. And again, that doesn't include that transportation job that I'm looking forward to being able to talk about. But sometimes these things drag out a little bit. If you add those two together, it's a very, very strong booking for the A&D side of the business. Our semiconductor side has been quiet no doubt. And we read the paper and we understand the industry trends. But I think our -- we actually have quite an optimistic feeling about our specific positioning in the semiconductor business. And it's a little bit of timing and we've got multiple issues going on with multiple customers. And certainly, we need to get bookings over the next 1.5 quarter really to have it meaningfully impact 2019. But our intention is to have a very strong 2019 both on A&D and semi. I'm kind of laying the groundwork here. If it was in backlog, we might be coming out with revenue guidance now. It's not in backlog as much as we expect it to be, so we're going to try to hold off there as long as we need to. But no, I would say we're not expecting a drop in semiconductor next year.

(Operator Instructions) Our next question comes from George Godfrey with CL King.

Just wanted to normalize the EPS results here. If I take -- if I add back $3.9 million for the one platform right now to normalize the tax rate, I get about a $0.47 EPS number and a 10.5 EBIT margin versus 9.6 in Q2. Do you think that's a fair way to look at the ongoing business inclusive of the operating losses at the 3 troubled businesses?

Say what you did again there?

I'm just trying to normalize the EPS results here, $0.52 with your tax credits, but I'm thinking there was a $3.9 million charge on one platform, so if I add that back and I'm guessing the normalized tax rate should be around 21%?

Yes.

Okay. So I'm coming up with -- I just wanted to get like what's an operating EPS number with the businesses and I'm getting out about $0.47. Does that sound reasonable?

Yes, I think if you do that math and you tax adjust the loss to get an after-tax number and then add back or actually subtract the $4 million adjustment we had going through the income tax line, that would get you to more of a normalized number.

Okay. And then the revenue progression for those 3 businesses, as it doubles next year from $50 million to $100 million, is that a more or less linear progression or evenly throughout the year? Or is there a step function in Q2 or Q3? Or how do those platform ramp that it goes to from the $50 million to $100 million? Just generally speaking?

Yes, it'll be a pretty gradual ramp, but weighted in the second half for sure.

Got it. Okay. And so for the full year, you think it can be about breakeven. And with that, to achieve that goal, would the Q4 of those 3 businesses have to be positive then, the cumulative?

No, let me recalibrate that a little bit. We would trend towards breakeven, but we're not going to be breakeven as a group for the year. But I'm hoping it's nothing like -- it should be, our plan at least from today's perspective is that the losses won't be anywhere near as noteworthy as they are right now.

(Operator Instructions) Our next question comes from [Edward Duke] with [Partners for Business].

Pete, I've just got a little clarification if you could on this earnings per share issue. What are you looking at with all of these adjustments for the fourth quarter?

Well -- but we don't have -- we have a standing practice of not doing bottom line guidance. We think that takes the fun out of it for the investor community.

So you want us to do our math I guess, correct?

Exactly. We try to give you enough color so we try not to surprise people too much.

Okay, I'll keep working on the numbers. I thought you would make it easier for us, but thanks again.

(Operator Instructions) Our next question comes from [John Dosselweine] with [Austin Street].

I just wanted to zero in on the 3 underperforming businesses. You mentioned that the revenues of approximately $50 million in revenue for the year. How much is that in EBIT loss that's going against the Aerospace segment?

Pretax through 3 quarters this year, it's about $28 million.

Okay, great. So if it's $28 million, and if that business gets back towards breakeven point, I mean we're talking about a pretty significant margin increase and that's not even assuming any additional growth that you're going to see in the rest of the business, correct?

Yes, that's correct.

When I look at the street model, they are not really factoring in any significant step up in EBIT for 2019. Where do you think the disconnect is? Is this more of a just wait and see type situation?

Well, I'm sure there is some of that. I wouldn't blame people for having that perspective at all. It does look like a big increase, but when you look at the opportunities that are out there in the market, I guess we feel it's pretty reasonable.

All right, great. And if (inaudible), what would prevent you from achieving that breakeven level? Or getting close to it for that matter?

Well, I mean the big thing is, if you go again through those companies, kind of one by one, the CCC business needs to wrap up and execute a pretty significant development effort that it's been struggling with for about 1.5 year, 2 years now. And we need to get that done. And there's pretty intense customer pressure to do so, so that's really got to get done through the first quarter of next year, as I understand the schedule. And the big, and obviously if that doesn't happen, then we could have -- then that prediction of doubling revenues and resolving losses gets very shaky. And on the AeroSat side, we've got a lot riding on a couple of programs. One in the commercial transport area, one in the business jet area. And we need to have those go. And both of those have been substantially delayed. When we started 2018, we thought by now we'd be in pretty serious delivery mode on both of those. And again, for reasons kind of largely outside of AeroSat's control, those just haven't happened yet. We have chosen to maintain the organization, we've chosen to continue to pursue those development efforts. And now we're to the point where we have to see the programs happen. So that's what we're planning for 2019.

Thank you. At this time, I would like to turn the call back to management for closing comments.

Well, we'd just again like to thank people for spending time with us on a Monday night. Enjoy the rest of your evening. Talk to you next quarter.

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