Park Aerospace Corp (PKE) 2017 Q1 法說會逐字稿

Good morning. My name is Chelsea and I will be your conference operator today. At this time I would like to welcome everyone to the Park Electrochemical Corp.'s first-quarter fiscal year 2017 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, everybody. Welcome to our first-quarter conference call. Of course I have with me Matt Farabaugh, our CFO and Senior Vice President. We'll start with some introductory remarks and then we'll go to the questions.

And, remember, a transcript of Matt's comments are already posted on our website. There's a lot of detail in those comments so you may want to confirm and check the information on the website.

Go ahead, Matt. Let's get started with the financial commentary.

Okay, 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've set forth in our most recent annual report on Form 10-K for the fiscal year ended February 28, 2016 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 fiscal year 2017 first quarter ended May 29, 2016 P&L which are not specifically addressed in the earnings release. During the fiscal year 2017 first quarter, North American sales were 53% of total sales, European sales were 8% of total sales, and Asian sales were 39% of total sales compared to 48%, 6% and 46%, respectively, for the 2016 fiscal year first quarter, and 49%, 7%, and 44%, respectively, for the 2016 fiscal year fourth quarter.

Sales of Park's high-performance non-FR-4 electronics materials were 94% of total electronics material sales in the 2017 fiscal year first quarter, and 93% and 94% in the 2016 fiscal year first and fourth quarters, respectively. Park's electronics sales were $23.8 million, or 76% of total sales, in the 2016 fiscal year first quarter compared to $28.1 million, or 74% of total sales, and $26.9 million, or 75% of total sales, in the 2016 fiscal year first and fourth quarters, respectively.

Park's aerospace sales were $7.7 million, or 24% of total sales, in the 2017 fiscal year first quarter, compared to $9.7 million, or 26% of total sales, and $8.8 million, or 25% of total sales, in the 2016 fiscal year first and fourth quarters, respectively. Gross profit for the 2017 fiscal year first quarter was $8.8 million, or 27.9% of sales, compared to $11.4 million, or 30% of sales, and $10.7 million, or 30% of sales, for the 2016 fiscal year first and fourth quarters, respectively. Before special items, selling, general and administrative expenses for the 2017 fiscal year first quarter were $5.3 million, or 16.9% of sales, compared to $5.8 million, or 15.3% of sales, and $5.1 million, or 14.4% of sales for the 2016 fiscal year first and fourth quarters, respectively.

Investment income, net of interest expense in the 2017 fiscal year first quarter was $45,000 compared to negative $104,000 and $55,000 in the 2016 fiscal year first and fourth quarters, respectively. Before special items, earnings before income taxes for the 2017 fiscal year first quarter were $3.5 million, or 11.1% of sales, compared to $5.5 million, or 14.4% of sales, and $5.6 million, or 15.8% of sales, for the 2016 fiscal year first and fourth quarters, respectively. Before special items, net earnings for the 2017 fiscal year first quarter were $3 million, or 9.5% of sales, compared to $4.9 million, or 12.9% of sales, and $4.9 million, or 13.6% of sales, for the 2016 fiscal year first and fourth quarters, respectively.

Depreciation and amortization expense in the 2017 fiscal year first quarter was $827,000 compared to $837,000 and $845,000 in the 2016 fiscal year first and fourth quarters, respectively. Capital expenditures for the 2017 fiscal year first quarter were $41,000 compared to $176,000 and $78,000 in the 2016 fiscal year first and fourth quarters, respectively. The effective tax rate before special items was 14.4% in the 2017 fiscal year fourth (sic -- "first") quarter compared to 10.9% in the 2016 fiscal year first quarter and 13.8% in the 2016 fiscal year fourth quarter.

For the 2017 fiscal year first quarter, the top five customers were Daeduck Electronics, GE, Sanmina, Shennan Circuits, and TTM, in alphabetical order. The top five customers totaled approximately 39% of total sales during the 2017 first quarter. Our top 10 customers totaled approximately 52% of total sales, and the top 20 customers totaled approximately 67% of total sales for the 2017 fiscal year first quarter.

Since the share repurchase authorization announced by the Company on January 8, 2015, the Company has purchased an aggregate of 718,588 shares at an average purchase price of $20.53 per share totaling $14,753,256, leaving 531,412 shares that may be purchased by the Company pursuant to such authorization, and an additional 1 million shares that may be purchased by the Company pursuant to the share repurchase authorization announced by the Company on March 10, 2016.

Okay, thanks, Matt. This is Brian here. I will try to give a little perspective on the quarter, the top line in particular, and then we'll talk about some other updates and events.

I just want to remind you that our last call was probably less than two months ago. Our fourth quarter call would have been, I think, the beginning of May. So, there isn't a lot of new news for you in terms of the updates, but I will do what I think is warranted in terms of updates.

First of all, let's talk about Q1 in terms of revenues. Electronics, weak and mostly in Asia. For us electronics is really an Asia story, a big driver for Park.

And when we talk Asia, we're really talking very much China. Now, not all of China but we're very Asia-centric, very China-centric in terms of electronics, not only in terms of circuit board manufacturing, board shops, but also OEMs.

The OEMs are starting to dominate in Asia. When the industry transitioned from Western -- I'm talking about electronics manufacturing -- Western market to an Asian market, the first step was circuit boards and assemblies were produced in Asia for Western OEMs. Now the OEMs also tend to be Asian.

The China economy isn't so great. I'm sure I'm not giving you any news flashes there. There are some trade skirmishes that haven't helped, either, specific items that have become difficult for some of these Asian companies to get for their manufacturing. So, that hasn't been a real plus either.

For us, though, in terms of electronics top line, we really need to think Asia. And, again, a big portion of Asia is going to be China in terms of the market.

Aerospace, it's really a GE story. Matt indicated that aerospace revenues are down, as well. GE story, we talked about this in detail at the last conference call, the inventory burn down. That's going to impact our revenues to GE in 2016 and 2017 calendar years. So, we are in that now, in the middle of it.

Our revenues at this point are about half what they were to GE about a year ago. Now, of course, we haven't really ramped up to the big revenues yet but it still hurts. So, we're running currently this quarter, first quarter, about half the level we were about a year ago GE, and that's because of the inventory burn down, which we discussed in detail last conference call. Again that's a 2016 and 2017 event. Starting in 2018, that's when things will start to move back up, and actually pretty quickly I think.

So Q2, let's talk about that. I know you're always interested in Q2. We believe it'll be somewhat better than Q1. Electronics is always a big question mark because there's very little visibility.

What do we base that upon? Based upon talking to our customers and the OEMs, talking to them often, frequently, as much as we can to get as much insight as possible as to what's going on and what they see for the near term. Long term probably isn't that relevant because the comments could really be anything but maybe less meaningful.

Aerospace, we have more visibility in aerospace and we expect aerospace top line to be improved in the second quarter as compared to the first quarter, as well, but not based on GE. It's not a GE story. That's an everything else story and there's a lot of other things that are going on in aerospace.

So, that's the brief update on the quarter in terms of top line, quarter one, quarter two. Let's talk about GE again.

Like I said, there aren't going to be a lot of new news items since our last-quarter conference call, but we did respond to that 10-year RFQ that we received probably a couple months, and now the ball's back in GE's court. There are hundreds of millions of dollars of revenue that are represented in that 10-year RFQ based upon their forecast. Those are not our numbers, those are GE numbers.

GE -- again, I want to remind you, the A320neo is the biggest program, but we're also dealing with 747, Comac 919, Passport 20 -- that's for our Bombardier program -- and a number of other Boeing -- well, actually GE engines for Boeing airplanes. As I say, after 2016 and 2017, after the burn down is over, it will ramp really quickly because two things are going to happen, which will both accelerate the revenues.

One is the burn down will be done, and the second is that some of the big programs, particularly the A320, are going to start to really move up. So, when we get to 2018 that is when things are going to start to move up pretty quickly, and beyond. We will be at our maximum revenue level probably by about year 2020, maybe 2021, based upon the forecast we have.

So, that's what we're expecting from GE Aviation. And this is based upon the forecast we have, based upon known programs. I always have to remind you about that, because we work with GE, and do a lot of development work with GE, as well. So, we're just talking about the base number. There's a lot of opportunity to do better than that.

And I don't think that opportunity is just theoretical. I think some of those opportunities will turn into reality. Not all of them but some of them. That's how it is. We work on 10 opportunities, maybe 2 or 3 actually come to fruition.

GE's also giving us quite a bit of lab work, actually, testing work, just to help us out while we're going through this burn down difficulty. And that doesn't produce a lot of top line but it produces a lot of bottom line. The contribution from the lab work is quite good, and that's something that they're giving us now just to -- I guess it's a win-win -- to help them out but also to help us out, of course, as well.

I want to remind you, we talked about this a number of times, once we've signed the 10-year agreement with GE, which we do expect to do, we've committed to build this redundant factory in Kansas. It's about a $12 million investment. That's for redundancy for GE and GE's customers, the big ones like Boeing and Airbus, which would not be comfortable sole-sourcing us with just one line for all these key programs that we're on. And that's the situation we're in right now and it's not sustainable to be sole source with just one line.

Last time we talked about a joint development agreement that we're doing with GE, and that is going well. This is for a large volume product that we're working on together. We've done a number of development projects with GE. I think we mentioned the AFP project which also relates to our 752-LT product.

So, let's change gears. Scorpion -- we've talked about that in the past, but actually there's news because Textron is building a number of other production -- conforming, early production units and test articles, and they've turned to us to do a lot of the work, especially the harder work. They have other suppliers that do easier parts, but they've asked us to do the harder work. And I think you know our forte is to move very quickly and to be very responsive, particularly with difficult parts and parts which require short lead times, which are most of the parts, actually, for the Scorpion program.

We're also doing a lot of large parts, assemblies, bonded, co-cured parts, and tools. So, this is not just straightforward work. And we're also doing quite a bit of NRE -- non-recurring engineering -- for this program and others. And that's all very good for Park. The NRE is good for Park in terms of it positions us well in terms of our business but it also is good contribution to the bottom line.

We talked, I think once or twice, about another very large opportunity with an aerospace company -- sorry a large opportunity with a large aerospace company I should say. We haven't named that company. We're not willing to do that yet. We've been going through screening. It continues to go well. We have a meeting next week with this large company and we will talk about next step.

I think I told you already that we've already responded to a 12-year RFQ. And based upon certain business levels we committed to build a factory. This is different than GE, in a sense. It's not a sole-source situation. We would share the business if we get it with one other supplier.

So there's a question mark as to what percentage we get, and at certain percentage levels we've committed to build a factory for them, as well. That's a very, very large opportunity for us, though. So, we're hoping it continues to go well.

Switching over to electronics for a second, I think we talked about a joint development agreement with a large electronics company in Asia. This is to develop a niche product. I don't believe -- I think I forgot to mention last time, we actually signed an agreement.

I think in a prior conference call, maybe the third-quarter call, we said we were about to sign an agreement. Well, that agreement is signed and the development agreement, sorry, the development activities, are proceeding and so forth. So, good.

One other comment I want to make regarding our Meteorwave 4000 product, that's the top of the Park line. There is a large Asian electronics company which decided to do testing of all the leading electronic materials products for advanced circuit boards from Park and our competitors. And there's something called CAF testing. CAF stands for conductive anodic filament.

This is a very important reliability test that is an industry standard. And Park's material is the only material that got to 1,000 hours without a failure. That's, I think, quite significant. And that's not being kept a secret. The word is out about that.

It is really important that those kind of things happen for Park because there are a lot of entries into the very high end area of the market now. So, it's important that we are able to distinguish ourselves technically. And I think we have in that one case.

Okay, operator, that concludes our introductory comments. Why don't we go to the questions at this time?

(Operator Instructions)

Sean Hannan, Needham & Company.

Yes, thanks for taking my question, and good morning. Just to clarify, in terms of talking about aerospace getting beyond the inventory burn off, as well as starting to get some of the benefit of some of these other programs that have been won, when you talk, Brian, about 2018 starting to be a better year, are we talking on a calendar or a fiscal basis?

I'm talking GE now and we're talking calendar. So, in calendar 2016 and 2017, this year and next year calendar, the burn down will continue based upon the plan. But as that burn down tapers off at the end of next year, that's when some of these programs, especially A320, start to really ramp up. So, we will see a pretty steep ramp up -- we're talking GE -- at the end of next year.

Okay. So, if we, then, combine that with the other programs or business that you had within aerospace, how do we think about next year? Is it necessarily going to follow a similar pattern or should there be some other programs that start to come in a little bit earlier?

I guess fiscal year, calendar year probably doesn't matter. Either way we're talking about a similar period.

Calendar 2017.

Okay, calendar 2017, that's fine. I would think that we will see improvement in 2017. For one thing, I think that burn down would be tapering off toward the end of the year and we'll start to see some of -- this is now GE we're talking about -- some of those program start to move up toward the end of the year. So, maybe the second half of the year will be a better story.

But the other programs we're working on should have some impact, as well. Now this large program with this other large aerospace company that we're talking about, we're going through the screening. We gave them -- responded to the 12-year RFQ. I don't think that's going to be an impact revenue-wise in 2017. That's going to be a couple years out, I would think, anyway, maybe two or three years out.

But there are other programs we're working on, which aren't as significant. It's not like we're going to point to one program, Sean, and say -- look, this is what really caused the difference. But it's a number of programs that we're working on that should have a positive impact as we go, not only next year but even later on this year.

The Scorpion program is starting to be more significant revenue-wise, as well. If you remember, the first go-around there was just one flying prototype. It was a nonconforming prototype called a demo unit. This is quite different.

These are now conforming prototypes, which means that they have to be made the way that the airplane will be certified. A lot more engineering work is involved and a lot more units are involved. That's all good for us. And it seems like Textron is turning to us more and more for that work.

And there are many other programs we're not going to enumerate here, but these are the things we're working on, really every day. Let me answer the question this way, if I could. I'd be quite disappointed if we don't see some real movement in the top line later on this year and next year even though GE's going to not be a big contributor to that.

Interesting. So, at least on a sequential basis, we think there could be some stabilization where the GE revenues are today. Obviously they're down on a year-over-year basis, but perhaps some stabilization here with them. And then incrementally back end of this calendar year and then into 2017 calendar we could see incremental contributions from other players. Is that a fair characterization?

Yes. And if it doesn't end up coming true, I for one would be very disappointed. I just want to remind you, I think I mentioned that Q2 of this year we expect aerospace to be better than Q1, and that's based upon specific visibility we have into the quarter.

Okay. That's helpful. Now let me see if I can switch gears for a quick moment here on the electronics side. The weakness that you had seen, and particularly driven by China, or viewpoint that China was a big part of that, can you talk a little bit, any observations you can share of how you saw demand flow month to month and what you're seeing thus far in the current quarter? We've got about four weeks in now.

We have four weeks in. Good question. Maybe we should go back because, remember, we saw quite a big jump in demand and our revenues in January and February of this year. Our revenues and our bookings are tied very closely with electronics, as the lead times are very short. Quite a big jump in January and February. We didn't really see that coming. And then March, it fell off a cliff, it just went down. This is what we talked about during our last quarter call.

It came back a little bit in April but not nearly to the level of January and February. And during our last quarter call we were saying -- well, let's see what happens in May because it's going to be all about May for the first quarter. And May did not recover. May's just bumping along, and June is bumping along, as well.

Now, I just want to remind you that I mentioned earlier we expect electronics to be up somewhat in Q2 versus Q1. But that's not based upon the first four weeks we've had so far, Sean, That's based upon the frequent intimate discussions with our customers in Asia and the OEMs in Asia.

So, in other words, in four weeks you're not necessarily tracking that way but you're having robust conversations with clients that suggest we should see some acceleration in the quarter.

Yes, that's right. I would say some growth in the quarter. We spent a lot of time talking to, discussing with our clients and OEMs in the last couple of weeks, especially in Asia, what they think would happen. I shouldn't say that -- it's in North America, as well. And partly in anticipation for this call because we knew you'd be interested. Obviously we're interested, as well.

But for us, we're very flexible. We can make adjustments pretty quickly in terms of our manufacturing plans and manufacturing capability. But I thought that you and others would be interested in our perspective on the second quarter. So, we spent a little more time, I think, talking to our OEMs and customers about the second quarter over the last couple of weeks.

Okay, that's helpful. Last question here and I'll hop back into the queue. Meteorwave, it sounds like you've got some good data points within the industry in terms of perhaps getting some reinvigorated sales on the electronics end. Can you talk a little bit more to your hope or expectations for that as we move forward, and how that can potentially contribute to the electronics side of the portfolio? Thanks.

Okay. We talked about this very well-known test that was done by one of the major Asian electronic companies where this Meteorwave 4000 product fared better than anybody else's product. And that is quite widely known. We been congratulated by others that we didn't know that they were aware of this test. Those things make a difference because not only is it well-known generally, it's also well-known by the people making decisions within the OEM community.

I think we mentioned last time that Meteorwave has been approved on some large next-generation Huawei programs, and those should ramp up later on this year. So, I think we'd like to see a little more traction with Meteorwave in the US but I think it's going pretty well in Asia. There's a lot of Meteorwave activity in Asia. A very competitive market, of course.

That's where everybody's really focused -- our competitors, I'm talking about -- so we really have to offer something unusual, something different in our performance in order to really play in that market. It's clear that if we're just like everybody else it's going to be very difficult for us to have a meaningful business because then we will just end up competing on price and that really doesn't provide much of a future for our company.

Sean, I don't know if that helps with color. If there's something else you want me to comment on, please let me know.

Okay, that's fine. We can take it offline. Thank you.

Morris Ajzenman, Griffin Securities.

Good morning, guys. Just to follow up to the previous question here on the electronics side, you have Asia approximately 39% of sales, and you spoke about the weakness in this quarter and particularly emanating from China. Those comments, how would that relate to North America with 53% of sales? How would you put that in context if you want to put some sort of verbiage on that for the past quarter, how they progressed?

Morris, so North America has become less of a driver for Park for electronics. The reason you see a bigger percentage of revenues in North America is really aerospace related because a large majority of our aerospace revenues are from North America. North America has been more or less stable electronics, from an electronics perspective. But it's not the big story for Park. Electronics in North America are not going to be the big contributor in the future.

There aren't that many competitors left in North America. I think Park is -- I think it's very safe, well-regarded in North America, thought highly of. But it's not the growth market, it's not the big market for us. It's probably more of a niche story.

North America really isn't moving up and down very much. You see these swings in our top line and our P&L, it's going to be Asian electronics that's driving it.

All right. Then back to Asia, again you've had some weakness that's gone on for a while here. Then you talked about some trade skirmishes. Are these issues going to be continuing into the second quarter? Or is that part of what you might see of an improvement in the trends going --?

The trade skirmishes -- I don't really know about that. It seems like the environment or the climate is a little bit tense between China and the US right now in terms of trade activities, trade issues. The election probably doesn't soften the environment very much. It probably does the opposite.

But there have been some embargoes. And we hear that some of the Asian OEMs have had some difficulty getting Western components which they need to build product. So, that hasn't helped very much.

I'm not saying that's the major issue. I'm not saying that. I think that just the economy is not really what we'd like, not really what the Asians would like. And it's affecting different OEMs differently. Some OEMs are just going to bull right through it, they're just going to keep going. But some do not. Some decide to adjust their business levels and take more of a short-term orientation as compared to long-term.

Okay. On a different front, the Journal picked up a story today that China put into its first flight its new ARJ21 regional jet. They had that first flight, I think, yesterday or the day before. How does this bode as far as orders going into the remainder of the year as it relates to the engine orders from GE?

That's a GE program, that's a Park program. I saw that, as well. That's good news. I think the flight was quite delayed. I don't think it's going to have an impact this year, though, because I believe that GE has some inventory. I think the ramp will be quite slow.

The Comac program that's really more significant for Park is the C919. That's the major program the Chinese are working on, single aisle, to compete against Boeing and Airbus, the 737, the A320. That's a big deal but that's still several years out.

We're doing some NPI work -- new product introduction work -- but that won't go into production, if the Chinese are successful, for a few years. That ARJ, I think, is small volume and will not impact us this year. And even when it gets into a little bit ramps up, it's still a smaller program. It's nowhere near like a 747 program for Park or the A320 program, or some of the other building programs we're working on.

One last question. This one's for Matt. SG&A as a percent of sales, 16.9%, that's the highest it's been for a couple of years running here, as I'm looking here. I presume it's partially a reflection of revenues being weak, but any comment to that?

Yes, a large part of that is that the revenues are down. And a lot of our SG&A is more fixed in nature. We had a few things that were up a little bit this quarter versus last quarter. And a couple other things.

Thank you.

(Operator instructions)

Adam Mielnik, Royce & Associates.

Hey, guys, good morning. Just on the inventory, the customer destocking, you mentioned that you can make quick changes to manufacturing plans. And I know you've talked about this a little bit before but could you talk about what impact that's had on your supply chain, if any?

Are you referring to electronics or aerospace?

You could talk maybe on the GE volumes, for instance, what kind of impacts that's had on your supply chain. But you could talk in other areas, as well.

Okay, good question. The mentality between aerospace and electronics is quite different. Aerospace people think long term, electronics people think very short term. And, of course, that includes the supply chain.

Our supply chain isn't concerned about the fact that business is down now. They're really excited about being able to participate in the 10-year RFQ. When we respond to the 10-year RFQ, we have all our supply chain lined up, everybody's lined up. These responses take a lot of effort. So, every supplier of every component is already lined up.

And that's what they're looking at. They're looking at the significant volume that they're going to see -- they'd expect to see, anyway -- through the 10-year RFQ over the next 10.5 years. Also, they've been around long enough to know that business goes up and down but, again, their attitude is going to be more long term.

Electronics, that's different. It's much of a short-term orientation. But, like us in electronics, we're used to ups and downs and adjusting our manufacturing plans to accommodate so we can be very responsive. Our supply chain is good at that, as well, because they're used to that, as well.

So, I don't know if this is what you were really getting at, but I think we're doing pretty well with our supply chain. I think we have good relations and they are there to support what we're trying to do.

Just in terms of commenting on that, could you have, then, an impact on profitability in terms of managing supply chain?

I didn't follow that last question sorry?

Just tie that into profitability a little bit just in terms of how you are managing those changes.

Our profitability you mean? -- Park's profitability?

Yes.

Okay. If you're asking whether our prices are going up in connection with lower revenue, lower volume, lower purchase amounts with our suppliers, the answer is no.

Okay. All right. And moving on specifically to the electronics business, you've been dealing with commoditization in some areas, and you've been moving away from some lower-margin business, which you talked about in the annual report. And that has potential for a negative top-line impact but should improve profitability going forward. Could you talk about what you've seen in that so far and how that's been progressing?

This has been a long process, the commoditization, to use your term. If you go back many years, Matt talked about a high performance percentage, at one point it would have been zero, but even 15 years ago it probably would have been, I don't know, 20%, maybe less.

I think Park has always been way ahead of our competitors in that area. Now we're at 94%, so it's essentially everything. The rest of it, the non-high-performance is basically done as an accommodation to customers.

We've talked about this, I think, on a number of calls now, that within that high performance there's segmentation. There's the lower aspect of high performance and the higher-end aspect of high performance. We keep getting pushed or driven toward the very highest end of high performance because that's where we're able to compete.

Even the lower aspect of high performance has become commoditized and very price sensitive, and that's where we have lost market share because we're just not going to chase an all product based on price. We just don't see any future in doing that. We'd rather move to the new products where we have a future and what we get we can protect.

So, it's been really a long process, I think maybe 15 years now. For us, what we need to do to be successful is, it would be nice to get a little wind in our sails, but that is not something we can control. We need to see our new products get more and more introduced and more and more adopted into the market with the highest-end applications. That's what we need to do, that's what we're focused on, that's what our mission is.

You haven't asked, I don't think, but if you did ask, how are we doing, I would say we're doing okay but we need to do better. Maybe give us a B or B-minus and we need an A-plus. Electronics is a very, very difficult, very competitive market. Park, I think, has a reputation. We've been in this market for a long time so we're thought of very highly as a high-end technology company -- I believe. You can ask others what they think. I think that's what they would tell you.

But the reputation is nice. Now we have to actually turn that reputation into realities. And we are, to some extent. I think we need to do more and do better to be successful.

Okay. And just on your part, maybe on the lower end of the high-performance business in electronics, have you guys been stepping away from some of that business more aggressively, I guess you can say, in recent quarters? Or is that where it's been for a little while over year -- you have some attrition and you're getting rid of some of that business but it's not accelerating?

Okay, so let me clarify. First of all, let me answer the last part of your question first, I think it's been more of a long process. But we don't really step away from any business. We never say to a customer we're going to discontinue their product. It's a self actuating strategy which we also don't reduce our prices.

So, when a product at the lower end becomes commoditized, there are a lot of other alternatives that a customer will have and at some point they'll select the alternative, and then we lose the market share. But we don't go to a customer and say -- look, we're not interested in this anymore. It's not part of our culture. Our culture is not to do that. Our culture is we have a customer, we're here to serve you, and we will do whatever you need.

So, it's not that we turn away from a customer or turn away from a product, it's more the customer will move on to more commoditized products when that lower end of the high-performance product line for Park becomes more commoditized.

So, you're not stepping away, it's that business goes away on its own.

Exactly right. Let's call it a self actuating strategy based upon our policy about pricing. We don't chase price down into the gutter, if you will.

Okay. All right. That makes sense. Thank you.

Okay. I just wanted to add in response to Morris' question about SG&A. SG&A is going to move up and down from quarter to quarter. I think in the first quarter we had some trade shows which drive SG&A up.

So, these things move up and down. It's not going to be exactly the same quarter to quarter. But I think we're in a range that we'll probably continue to see for the next few quarters.

Sean Hannan, Needham & Company.

Brian, thanks for taking the follow-up here. Just quick for a sanity check here. Can you remind us or update us on what you view your rough mix today in terms of the end-market exposure? Obviously you don't get the explicit insight in terms of where your product ultimately ends up in the OEM. But I know that there's a lot of datacom, telecom concentration. Don't know if there's anything that's changed there. Just looking to see if we can get a sanity check update. Thanks.

No, I think it's pretty much the same. Our biggest component is going to be infrastructure -- telecom, Internet infrastructure. These are the big boxes -- servers, routers, storage, switching. Also wireless is going to be important for us, both the wired and wireless portion of wireless.

And then after that enterprise, I guess I would say, military is significant, probably mostly North America. I think that's probably, for North America anyway, Sean, since North American electronics is smaller, that's a significant component of what we do, military aerospace. I'm talking electronics products, not our aerospace product line.

We talk electronics versus aerospace. I hope this is understood. The electronics materials we sell into military, that's considered electronics, not aerospace, in terms of how we break down our revenues. Anyway, maybe I'm just rambling here a little bit, Sean, but I think not really a big change.

Okay, thank you.

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back to Mr. Brian Shore for closing remarks.

Okay, thank you, operator. This is Brian again. Thank you, everybody, for listening in on our first-quarter call. Matt and I are here in the Park office today so if you have any follow-up questions please feel free to give us a call. Thank you again, and have a nice summer, everybody. Take care.

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