Park Aerospace Corp (PKE) 2016 Q2 法說會逐字稿

Good morning. My name is Amanda, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Electrochemical Corporation second-quarter FY16 earnings release conference call.

(Operator Instructions)

At this time, I will turn today's call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, operator. This is Brian. Welcome everybody to our second-quarter conference call. As usual, I have with me Matt Farabaugh, our VP and CFO.

Matt and I will go ahead with some introductory remarks, and then we'll go to the questions. And I just want to remind you that Matt's remarks and comments, the transcript of those comments that are already posted on our website. There's some detail in there, so if you want to check on our website, feel free. 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 March 1, 2015, 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 second quarter ended August 30, 2015 P&L, which are not specifically addressed in the earnings release. During the FY16 second quarter, North American sales were 56% of total sales, European sales were 6% of total sales, and Asian sales were 38% of total sales, compared to 46%, 6%, and 48% respectively for the FY15 second quarter and 48%, 6%, and 46% respectively for the FY16 first quarter.

Sales of Park's high performance (non-FR-4) electronics materials were 93% of total electronics material sales in the FY16 second quarter, 92% in the FY15 second quarter, and 93% in the FY16 first quarter. Park's electronics sales were $26.2 million or 69% of total sales in the FY16 second quarter, compared to $33.8 million or 80% of total sales in the FY15 second quarter. And $28.1 million or 74% of total sales in the FY16 first quarter. Park's aerospace sales were $11.8 million or 31% of total sales in the FY16 second quarter, compared to $8.6 million or 20% of total sales in the FY15 second quarter, and $9.7 million or 26% of total sales in the FY16 first quarter.

Investment income, net of interest expense for the FY16 second quarter, was negative $39,000 compared to negative $134,000 in the FY15 second quarter and negative $104,000 in the FY16 first quarter. Depreciation and amortization expense for the FY16 second quarter was $840,000, compared to $865,000 in the FY15 second quarter and $837,000 in the FY16 first quarter. Capital expenditures for the FY16 second quarter were $52,000 compared to $179,000 in the FY15 second quarter, and $176,000 in the FY16 first quarter. The effective tax rate before special items was 12.7% in the FY16 second quarter, compared to 13.3% in the FY15 second quarter, and 10.9% in the FY16 first quarter.

Gross profit for the FY16 second quarter was $10.4 million or 27.3% of sales, compared to $12.2 million or 28.7% of sales for the FY15 second quarter, and $11.4 million or 30% of sales for the FY16 first quarter. Before special items, selling, general and administrative expenses for the FY16 second quarter were $5 million or 13.2% of sales, compared to $6.3 million or 14.7% of sales for the FY15 second quarter, and $5.8 million or 15.3% of sales for the FY16 first quarter.

Before special items, earnings before income taxes for the FY16 second quarter were $5.3 million, or 14% of sales, compared to $5.8 million or 13.7% of sales for the FY15 second quarter and $5.5 million or 14.4% of sales for the FY16 first quarter. Before special items, net earnings for the FY16 second quarter were $4.6 million, or 12.2% of sales, compared to $5 million or 11.8% of sales for the FY15 second quarter, and $4.9 million or 12.9% of sales for the FY16 first quarter.

For the FY16 second quarter, the top five customers were AAE, GE, Sanmina, TTM/Viasystems, and Wus, in alphabetical order. The top five customers totaled approximately 41% of total sales during the 2016 second quarter. Our Top 10 customers totaled approximately 57% of total sales and the top 20 customers totaled approximately 71% of total sales for the FY16 second quarter.

Since the share purchase authorization announced on January 8, 2015, the Company purchased an aggregate of 699,788 shares at a weighted average purchase price of $20.71, totaling $14.491million leaving 550,212 shares that may be purchased by the Company, pursuant to such authorization. The Company purchased an aggregate of 118,756 shares at a weighted average purchase price per share of $21.61, and an aggregate purchase price of $2.566 million during the FY15 fourth quarter, an aggregate of 444,834 shares at a weighted average purchase price per share of $21.32, and an aggregate purchase price of $9.484 million during the FY16 first quarter and an aggregate of 136,198 shares at a weighted average purchase price per share of $17.92, and an aggregate purchase price of $2.441 million during the FY16 second quarter.

Okay, thanks, Matt and we did decide to provide the detail on the stock repurchase plan for the last three quarters, so let me see if I can add a little more perspective. This is Brian, of course. So let's talk about the second quarter. Actually, things were going fairly well for us through June and July, and then things kind of fell apart in August, so it's really, and when it was really to look at the facts of the details for Park, it's an Asia story. It's a single story for us.

The reasons now, there are people that are probably smarter than I am, not probably, definitely smarter than I am, that might have more informed opinions, but to me, it's something about the global economy, and that's maybe a cop out explanation because you could say the global economy is responsible for just about everything, but if you want to focus a little bit more, I think it also relates to China. Two of our three largest electronics OEMs are Chinese, large Chinese electronic companies, and I think China's been affected even more so, and my feeling then is the rest of the world globally and the electronics industry anyway.

So that's not good for us, because Singapore is where we have better margins. All revenues of Park are not equal. We would rather have, if we have a total of $37 million of revenue, for instance, in the quarter, we want more of that in Singapore and less someplace else, because the margins out of Singapore are better than they are in the West. The pricing is not different, that's not the issue. We have pretty consistent pricing globally because most of our markets are global, but our costs may not be the same.

Another factor which you should be aware of which affects a number of things for the quarter, including the aerospace revenues, is that we had a one-time sale to a Company called AAE. Matt even mentioned them as a top five customer. They have never appeared as a top five customer before, but this is a special arrangement, under which we sold to them a very specialized fabric for ablative purposes. These programs are very -- these are for rocket programs, this happens to be mostly for Lockheed. These programs are very long term, and the contractors are very concerned about making sure they have a supply of this raw material, which is not easy to get actually, and this is the fabric. It's not prepreg.

So our arrangement with this Company is, we buy the fabric, we sell it to them the same day, so we turn it around in one day. We actually don't take the inventory risk, we don't use our cash. We sell it to them a small markup though, and then we hold it for the ultimate customer, and wait for them to call us and say okay, now we want this release, that release. And I think most of this product will be released in the next six, nine months, but some could take much longer than that, depending upon the program.

That's the arrangement we have, but it distorts a lot of things because we got $2.2 million of revenue with very little margin, so it's a one-time item, like I said. The real revenue and the real profit will come when we actually produce the product for them, and when we make the prepreg out of this product for the end customers. So what it does is it gives us $2.2 million of revenue. It also is aerospace revenue, but very little contribution to the bottom line.

So if you want to look at Q1 versus Q2 for instance, now we're talking about the whole Company, not just aerospace. The top lines were almost identical, weren't they? But in a way, you almost have to subtract that $2.2 million out of the second-quarter top line in order to understand the bottom line drivers, because that $2.2 million did contribute very little to the bottom line.

There's a small markup, just to make sure our costs are covered to hold the inventory, but like I said, the margins for us come when we produce the product, the prepreg product which is an ablative product, a highly specialized product for rocketry applications. So I just wanted to mention that.

So we talked about the top line, now let's talk about the bottom line. Two big negatives for the bottom line, it will be Q2 versus Q1, where again the revenues were similar, is that in August, things really came unglued in Asia, and then we have this other factor, this kind of special one-time factor related to that AAE sale of $2.2 million.

Now interestingly, the US electronic operations, which haven't been hitting any home runs for a long time, are just kind of going along. They haven't really been impacted so much. This is really an Asian story, so they are operating in the US electronic operations, already operating at a much lower level than they were, let's say, ten years ago, but it's really not a US story. It's an Asia story, it's a China story, and therefore, for Park, it's a Singapore story, and therefore, it's also a bottom line story.

Now the other thing that you might notice is that is SG&A was significantly lower in Q2 as compared to Q1, and that wasn't an accident. What we did was we reduced the FY15 accruals for profit-sharing and bonuses. We actually hadn't paid or decided, made a final decision on profit-sharing or bonuses for FY15 yet, and we decided to reduce the accruals for those programs significantly. So many of the people at Park, especially -- not just talking about officers, will share in that unfortunate event.

Participating in that event, but that's the offset. If you look at SG&A you'll see the SG&A is actually a benefit from P&L because it's quite a bit lower, but that's a one-time item. We made a one-time adjustment to that accrual. Now the bonuses and the profit-sharing will be paid, so it's not, that's not sustainable. That's a one-time item.

Okay, so let's continue here with some other comments. Q3, so we actually have five weeks in the books for Q3, which is basically the month of September, right? Five out of 13? And unfortunately, the news continues, at least for September in those first five weeks, and the news meaning that Asia is weak, China is weak and the rest of the BUs are just about the same, let's say. The same as before August, I mean, so not too much has changed for Park except Asia, and that all happened in August, and that continues in September.

Aerospace, we know, because Matt already told you the aerospace number. Even if we back out the $2.2 million it's still not a bad number, I think a little bit better than Q1. So that's not part of the story, and the France and California and Arizona operations not really part of the story.

They haven't been contributing significantly for awhile. They are operating at lower level, but that's not news. That's just a status quo situation. You're looking for explanations and insight into Q1 versus Q2, or vice versa, I guess.

Let's see. So when will the Asia economy and China economy get better? Okay, so that's where I will -- that's way beyond over my pay scale. Seriously, you could watch CNBC or whatever you want, and there could be plenty of brilliant people that will give you opinions on it. Unfortunately, none of them will agree on anything.

What we're told by customers and OEMs is really all over the lot, and maybe it's wishful thinking, I don't know. But some of them say, yes, maybe by the end of the year things will sort out and settle down, meaning get better. I'm talking again in Asia, electronics. So aerospace is not really part of the story as we already commented, but you know that piece. Matt already gave you the aerospace revenues for the quarter.

So let's see. Buyback. Matt gave you the buyback information, as I already commented, and I just want you to know that at this point, we're pretty restricted in terms of any additional buybacks by the bank covenants. We took out these bank loans as you remember, so we could pay the dividends, the special dividends that we paid without having to pay the big tax bill to repatriate funds.

We could have done that, but we thought well, maybe there would be some kind of breakthrough where the government would get on the same page and there would be a tax bill that would be approved, which would lower the tax penalty, reduce the tax penalty of bringing the money back. Now I know that with all of the politics, there's a lot of candidates are talking about that, but that's still quite a ways off, and we don't know what we're going to do. Everything is always on the table every day, including just repatriating the funds, paying the taxes and paying the loans off and getting those loans off our balance sheet.

The Company has, just so you know, net cash of what is it? About $165 million. So the Company has a very, very strong cash position, extremely strong balance sheet, but nevertheless, we still deal with these covenants. I guess I won't comment on them except these covenants restrict us from doing very much more stock buyback activity even at these very low prices that the stock is trading at right now.

So let's see. Oh, we'll go to the questions in a second, but I wanted to just mention that we just declared a dividend a few weeks ago, which will be 30 years in a row of regular quarterly dividends, without ever skipping a dividend or reducing a dividend, that's 30 years in a row. I'm not sure how many other investments would be able to talk about that, but at least that's what Park's record. And I think you know this, but since FY05, $333 million of cash dividends paid since then.

I feel like it's a little bit of a broken record talking about our big aerospace customer, and what's happening, because it's is such a big part of our life, but we did receive a 10-year forecast yesterday, and it's quite, that's supposed to lead to a 10-year agreement, but that is -- and the numbers are quite large. I'm not going to give any kind of color on what, other than to say they're quite large, so I guess that's progress. I've commented in the past that things will move more slowly than we would like, but that is some progress.

I don't know. I think why don't we leave it at that, and maybe some other items will come up in the questions. So, operator, I think we're ready for questions at this time.

(Operator Instructions)

We do have a question from the line of Leonard Cooper, who is a private investor.

Somehow in all this bit about buying back shares, could you tell me what the number of shares currently outstanding is?

Matt, I don't know if you can help us with that. I think it's actually in the news release. An average number?

It's roughly 20 million. It is, but it's roughly 20 million.

Still around 20 million.

Hold on a second, Len. What's the number, Matt?

Roughly 20,000,300.

You get that 20,000,300. See the number in the news release is an average for the quarter. I don't think it's the end of the quarter, but Matt did indicate in his comments that we purchased the stock buyback with authorized just about 700,000 shares, 699,788, shares so about as close as 700,000 as could get but I guess we have 21 million in the rough math, and this number would, I think, also be in the 10-Q.

Is there a buyer of shares?

We're just under 20,000,300 at this point.

Just under 20,000,300, go ahead, Len.

I see that you've made several personal purchases of shares.

Yes?

Well I look at that as an optimistic sign.

Either it's optimistic, or I have a very bad investment advisor, I don't know.

I thought you did that on your own.

Yes.

In prior discussions, you spoke of sea change and redundancies on supplies for GE. Any comments on those?

Yes, my comment is it's a little bit frustrating for me, because I think on our last call, I said by now, we would have more news for you, and the ball is in their court. I mentioned that we just got this forecast, which is something which is important and that is intended to lead in the very near future, was actually supposed to be last month to the proposed 10-year agreement, and once that is put to bed, then our understanding is that's when we would proceed with the redundant facility.

Okay. Thank you.

Thank you. Our next question comes from Sean Hannan of Needham & Company.

First question here, and I've got a number of them. If you can help me to understand the degree of the drop off that you saw in August, were you running June and July around $9 million to $10 million a month and then maybe August dropped off to $6 million to $7 million? Can you help me understand that magnitude? Thanks.

So I think we're going to decline to quantify it specifically, and I have to remind you that June is a five week month and July and August are four-week months, so we would always talk in weekly averages. The month of July actually was a month in which that one-time sale occurred, $2.2 million so that pushed July up a little bit. But I'm just looking at--

Great and I meant on the electronics side, Brian, just to clarify.

Right, okay, so I'm looking at it in total because the aerospace is flat across the quarter except for that one-time sale. Yes, I expected that question. I think we're going to decline to quantify it by percentage or anything like that, but it's meaningful, it's significant.

You could look at the numbers without getting your pocket calculator out, and saying the month of August was not like the prior months, and particularly if you look at the Singapore line item, that's where you see it. The rest of the lines are going sideways, maybe a little up, a little down, nothing to even speak about. But that Singapore number actually dropped to some extent in July, and dropped further to August.

Okay so then just to follow on those comments, as well as getting back to some of the earlier comments you had for the first five weeks of this current quarter that we're in, when you were talking about the softness continuing, is that a reference -- are you going to a reference point of August, meaning that we're running at a similar average to August, or that there's incremental softness that's materialized, a similar trend?

I think that it's similar to August. September is trending with August.

Okay, and then, if there's a way -- maybe if we can talk a little bit more or explore a little bit more on the electronics demand within China, so it looks like the region is down nearly 30% year-over-year. We've talked about some macro as well as perhaps some region-specific demands challenges. Didn't know if it's time perhaps to also revisit the topic of share losses.

Now I realize that the PCB space hasn't been great, share allocation can move around a little bit at times, but in the grand scheme of things, given we're offering higher technology prepregs and laminates, can we talk about whether there's potential we could be losing share, perhaps to some of the Taiwanese, maybe they're making enough product within the space that can be characterized as good enough? Can we talk a little bit about the share position and share dynamics competitively? Thanks.

Sure, so this is two answers to the question, I guess. One is, yes, there's an ongoing trend, the Taiwanese and even some Japanese company comes in quite aggressively, and that's maybe a longer story. If you want to look at the quarter, August and September, I think that's absolutely nothing to do with it at all. The good news is, I think we have developed some pretty solid positions with these two leading Chinese OEMs, and they are very significant companies. And like I said, two of the three largest electronics OEMs are now these two companies, and that's kind of a new development. So actually that's going in the positive direction.

But I think that -- I don't know, my sense is that the Chinese economy is really not very happy right now, and obviously these companies, are not just supplying into China. These are large companies, but I think they still are very much driven by the Chinese economy, not just in terms of the market, but also the psychological factors, which affects, I think, their way of looking at the markets. As aerospace is kind of much more steady as you go, electronics companies are very reactive, and they turn on a dime, so the story for August-September, I don't believe, and Asia, I don't believe that's a market share story. There's a longer-term trend where the lower end of our high performance product keeps getting picked off, and picked off, and picked off.

We basically sell very little non-high performance products, and almost none in Asia. I don't remember the percentage, but 7% or something like that is very significant. So it's being picked off, and the market share story is the lower end of high performance. Our job, of course, is to push hard with our new products, because there's very little we can do to protect the lower end of our product line, even though it's high performance, other than getting in the mud with the Asians, and I think that's what is the expression -- like a one way ticket to Palookaville, that's a real, real bad strategy, if you asked us.

Just one of those companies asked us to do joint development project with them, so I don't want to say anything more about that. But I feel, other than the fact that the market is really troubled, I think we are happy to be positioned well, we feel we're well-positioned in Asia. These are the up and comers, the names that we've been talking about for the last 20 years. I'm not saying they aren't a factor anymore, but these are the people that -- I mean these companies are very large also, so I don't know if up and comers is the right way to talk about it. Maybe not as well known by western people, but I think these are the companies that we really want to be aligned with, for the future.

Okay, as part of that, you would mention this new product momentum, it doesn't seem that the new products on the electronics side, perhaps, have had the degree of uptake in the aggregate thus far, that maybe you've been hoping for. Can you talk to that a little bit, and are there any signs of change or accelerated adoption, et cetera? Thanks.

So I think that's a correct statement but you're comparing it to what I was hoping for, of course, and I was hoping for better. But the reason that the electronics top line is what it is, is because of the adoption of the new products. If we're just continuing to sell the legacy products it wouldn't be a good thing at all, not just in terms of the current P&L, but also in terms of our position strategically. So you have to ask -- what you asked me really, because electronics moves so quickly, but -- and there are a lot of pretty hot issues we're working on. However, in terms of new products, I have to be a little careful here because some of these things are highly confidential, and we are working with a large circuit board, a very large circuit board company and also OEMs on accelerated development work and commercialization of our new products, and that's something new.

Those are not just ongoing things that there's special activities, so it's not just more of the same. We still have to make these things work. We still have to bring home the bacon, if you will, so these things are not in the bank, but these activities are different. They're significant, they are consuming, and they are not just showing the ongoing kind of development activities that we've been involved with, or commercialization activities we've been involved with for the last three to four years, with the new products. This is, in the last three months I would say, the activity has become heightened.

The activity, the interest level activity has become heightened?

Not interest, no, no. It's a lot more than interest. It's putting a lot of work and effort into being qualified on programs, and with large OEMs and customers.

Okay, so some cautious optimism?

Yes, it's not interest. We're exhausted actually from how demanding this work is. At least I am, and I'm old, so I get exhausted easily.

Okay. So I'm going to ask one question now on the aerospace side, and then I'll jump back in the queue. What should we now expect for aerospace in the back end of the year? So it looks like you're -- if I pull out AAE, you would have been very marginally down, effectively flattish quarter-over-quarter. Now, I realize we're a few years away from the bigger ramps, but I had at the least expectation there should be some incremental business working in the back half of this year. Is that still relevant, and what should we be thinking about aerospace now at this point, in FY16?

I think FY16, aerospace is a lot more predictable than electronics, of course. I think that we should look for more or less flat over the first and second quarter, over the third and fourth quarter. I mean, the opportunities are very palpable, present, but they don't have months involved with them, they have years and decades. So I'm not aware of anything that would significantly impact up or down the aerospace situation in the short-term.

Okay, well for example, I saw that the -- and correct me if I'm wrong, but I saw that Comac ARJ21 aircraft did its final demonstration flight, and I think customers are going to start taking orders at the end of this year. I didn't know if there's any impact to you based, on I think you're in on the GE engine on that aircraft platform?

That's correct.

It wasn't clear to me if that perhaps starts to provide a little bit more momentum, or what have you. Thanks.

The big drivers for us with GE are the 747, which is kind of flat, and the real big driver is the A320neo with the LEAP engine. Now, Comac, you mentioned, the bigger story for Park is C919, which has the LEAP engine, as well. That's another big program for Park, but that's still a couple years out.

The ARJ which is CF34-10 A engine, that's our program, you're right, but it's smaller. So the big drivers for at least GE, we're talking GE, 747, which doesn't seem to be much more than flat based upon the forecasts that we're receiving, and the big one is going to be -- that has a more immediate impact, will be the A320neo, the LEAP engine the C1919, like I said, is also a LEAP engine, but that's a little bit further in the future. That also has some big potential revenue associated with it.

Great, thanks very much.

Thank you.

Our next question comes from Morris Ajzenman of Griffin Securities.

Just a follow-up from the last previous question. You started touching on it, but I know there's not much more you can say about GE. But I was going to ask other programs you are on, if you'd give us any color. And you started to, but is there any more color you can give us? Is there any programs that would be a jump start to FY17? Anything you can help us along that line, we'll be appreciative.

The forecast we talked about this, and like I said, aerospace doesn't change every three minutes like electronics does. Let's talk calendar years, because that's where the forecast is structured. It more of a jump in FY17 and FY18 than in FAY16. The programs, there's also Embraer, they have a CF34-10E engine, and I believe that we haven't switched over to that program yet. Once we do, then it will be our program, meaning that there might be legacy inventories being worked down. I have got to be careful about saying too much there.

The other, we talked about both the Chinese programs, which are good programs to be on. And then there's the Passport 20 program, and that's not only the thrust reversers and cowling to nacelles, but it's also some internal structure of the engine, which is an exciting thing for Park. That's a new area for Park. And we're working on a number of other engine platforms for GE and Boeing aircraft, for different parts of the aircraft which would not be -- sorry different parts of the engine, which would not be as significant as these numbers we're talking about, which are mostly for thrust reversers and cowlings and very large parts, but we're looking at other parts of the engine. A number of them, and a number of different engine platforms.

But you're asking about big revenue drivers, that really hasn't changed. The biggest one of all is going to be the A320neo, I think, and that's happening now, and then I would think the next big driver might be even the Comac 919 because that could be significant, if the Chinese are successful in introducing that aircraft. That aircraft is a single aisle aircraft to compete against the single aisle Boeing and Airbus airplanes. That's a lot different than the ARJ, which is a regional jet, which doesn't really go into Boeing and Airbus' turf so much.

Thank you.

Thank you. Our next question comes from Leonard Cooper, Private Investor.

While sitting here, I noticed an absence of mention of many countries like India, Pakistan, Brazil, Russia, Mexico, Indonesia, Australia. Do those mean anything to Park presently?

Well, could you explain a little bit more what you're asking?

Are you trying to develop markets in those contracts?

Oh, I see, yes. India we do some aerospace work and electronic work already. Pakistan, I don't think so. What were the other countries, I forgot?

Mexico, Russia.

Yes, Russia, we have not been successful in Russia. We tried in aerospace, haven't gotten anywhere, electronics, there was nothing there for us. Brazil, oh, Mexico not too much. So I think India's probably the only country on that list where we have some meaningful presence at this time. Some of these are through like GE, may use contractors in these countries, but that's really not our work. That's just being qualified on programs, so we can't really take too much credit for that.

Okay, thank you.

Our next question comes from Sean Hannan of Needham & Company.

Yes, thanks for the follow-up here. So, want to see if I could ask, first, were there any 10% customers in the quarter, and how does that compare to last quarter? Obviously we have the data on the top five, but didn't know if anybody individually was over 10%.

We stopped disclosing that, but maybe Matt can take a look.

Okay well--

There was one. TTM.

Our largest customer, I thought that what's Matt was going to say. Of course TTM acquired Viasystems, so that's our largest customer, and I think we might have even told you our second largest customer is in our annual report, which is generally GE.

Sure. And then in terms of, when I look at copper commodity prices, did you realize an effective benefit in gross margins based on declining prices in the quarter, and does that present a little bit of a scenario next quarter where you don't get that benefit to help gross margins, or how should we think about copper impacts in the quarter and next?

I think that there's a little benefit in the second quarter and I think the third quarter will be similar to the second quarter, in terms of the copper impact. We are not talking about significant dollars here. This is a sensitive topic because I think in our policies we passed these changes on to the customers, but there's some time a lag effect. So again, a little benefit in Q2 as compared to Q1. Q3 probably neutral of Q2 but little -- let's keep it in perspective, small.

Sure, okay. And then in terms of the SG&A levels in bringing those down this quarter, are you able to sustain around this $5 million type of spend, particularly given where the revenue outlook or general demand outlook might be? Can you talk about SG&A expectations?

Yes, I think that I tried to cover it, but obviously I didn't do a good job. The answer is no, because it was really a one-time item. These are 2015 accruals that we -- for bonuses and profit sharing, which had not been paid yet, but we could only do that once, obviously. Now it's kind of late in the year. FY15, in other words the year that ended February 2015, so it's getting kind of late, we need to pay these things. So that's a one-time item.

So it was a one-time true-up?

It's a one-time adjustment. We reduced our accrual, which actually has real impacts to the people at Park, in the Company in terms of their profit-sharing and bonuses, but it only can be done once for 2015. And like I said, it has to be paid. So it's not, that adjustment is not -- is a one-time thing, and it's not sustainable. So it isn't really a true-up. I guess you could say it's a true-up but it's a real adjustment in what we plan to pay. The bonuses and profit-sharing, based upon the quarterly performance and other things.

Okay so outside of that adjustment would we be sustaining then the remainder of our SG&A spend, and can you give us some context of what the adjustment level was? I mean, what should we be going back to? Are we getting back to a high $5 million number, approaching $6 million.

Look, why don't we look at the first quarter's $5.8 million, looks like the fourth quarter is $5.6 million, the third quarter is 5.7 million. I think we're talking about those kind of numbers. And I can't give you that kind of resolution down to the last dollar, but we're probably talking more in the $5.5 million range I think, Sean, not the $5 million range.

Okay, that's great. And I think that addresses all of my questions here.

(Operator Instructions)

I'm showing no additional questions. I'd like to hand the call back to Brian Shore for closing remarks.

Thank you. This is Brian again. Thank you, everybody, for listening in on our second-quarter call. Matt and I are at the Melville office, so please feel free to give us a call if you have any follow-up questions. Again, thank you and have a good day. We'll talk to you soon. Goodbye, now.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.