Q1 2021 AAR Corp Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the eight A. ours fiscal 2021 first quarter earnings call.

We are joined today by John Holmes, President and Chief Executive Officer, and Sean Guillen, Chief Financial Officer.

Before we begin I would like to remind you that the comments made during the call may include forward looking statements as defined in the private Securities Litigation Reform Act of 1995 as noted in the Companys news release and the risk factor section of the company's form 10-K for the fiscal year ended may 31st 2020.

In providing forward looking statements. The company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events. At this time I would like to turn the call over to a our president and CEO John Holmes.

Great. Thank you very much and good afternoon, everyone. I appreciate you joining us today to discuss our first quarter fiscal year 2021 resolved.

Before reviewing the quarter I would like to express my continued gratitude a ours employees.

We already have our people continue to come to work every day throughout pandemic to ensure a our uninterrupted supported its customers and I'm grateful for their dedication and commitment.

Out of our team's ability to continue to navigate the truly unprecedented decline in commercial passenger flying.

Turning to the results our sales for the quarter decreased 26% from 542 million to 401 million and our adjusted diluted earnings per share from continuing operations decreased 70% or 57 cents per share to 17 cents per share.

Our total sales to commercial customers decreased 48% from the prior year loss sales to government and defense customers increased 10%, reflecting new contract awards and significant shipments out of our mobility business against the previously announced 125 million dollar cargo pallets contract.

For the quarter sales to government defense customers were 56% of the total.

In response to the current environment, we have taken a number of actions to align our costs with the lower levels of demand. We've also got further positioned the company for improved margins as demand recovers over the last three years, we have consolidated three or three quarters. We've consolidated three facilities made permanent reductions to our fixed and variable cost.

Exited or restructured several underperforming contracts.

We have also taken steps to focus on our core aviation services offering by completing the divestitures of our airlift in composites businesses.

All of these actions have simplified our portfolio improved efficiency in our operations and set us up to drive higher returns on capital.

In addition to this progress we continued to win new business during the quarter, we announced a three year contract with Royal Netherlands Air Force to repair at 16 jet fuel starters, we also announced two new contracts one by our Airinmar.

Subsidiary, which provides component repair cycle management and aircraft warranty solutions, we were selected by both frontier Airlines and air methods. The world's largest civilian helicopter operator to provide a full suite of warranty and value engineering services.

In addition to the wins this quarter, we saw stabilization in certain of our businesses, our order volume and trading and distribution, what's consistent throughout the quarter at a level above what we saw on April and may well below pre coated levels.

Our Emerald business as we head into the fall we incurred we are encouraged by the loading we expect to see in our hangers well our customers continue to operate in an uncertain environment and their maintenance schedules can change. The early indications are positive relative to our earlier expectations.

We are in a constant contact with our commercial customers globally and are continuing to look for ways to support them. During this difficult time.

And our government business, where we saw growth during the quarter, we continued to pursue new opportunities in the pipeline remains full.

With that I'll turn it over to our CFO, Sean going back.

Thanks, John as John mentioned, we continue to take action to reduce our costs an exit underperforming activities in the quarter. These actions and other items resulted in predominantly noncash pretax charges of 37.3 million.

Also as previously disclosed we received financial aid under the cares Act in the quarter. The total amount received was 57.2 million of which 48.5 million was a gram and 8.7 million would they low interest prepayable alone.

In the quarter, we utilized 8 million to be carried that Graham and $3 million of other non U.S. government labor subsidies for a total of 11 million. This is.

This amount is included in the GAAP income statement, but excluded from adjusted earnings.

As of the quarter end the Unutilized portion of the grant was 40.8 million, which was recorded as a current liability. This amount will flow through the piano as it is utilized which we expect to be complete by mid Q4.

Turning some additional financial detail on the quarter.

<unk> expense was $45.3 million for the quarter on an adjusted basis as today was 39.7 million down 10.5 million from the prior year quarter, which reflects the reduction of our overhead cost structure.

In the quarter adjusted <unk> as a percentage of sales was 9.9%.

The interest expense for the quarter was 1.6 million compared to 2.1 million last year, which reflects the lower interest rate in the period.

During the quarter, we generated 39.8 million of cash in our operating activities from continuing operations.

This includes the 48.5 million grant portion of the cares Act funding and a net use of cash of 18.6 million as we reduce the level of our accounts receivable financing program.

Excluding the cares act and accounts receivable financing program impacts cash flow provided by operating activities from continuing operations was 9.9 million.

Additionally, as we are focused on lowering our working capital we were able to reduce inventory by $19 million during the quarter.

Also we repaid 355 million of our revolving credit facility during the quarter. We had previously drawn the full balance as a precautionary measure our net.

Our net debt at quarter end was 149.3 million and unrestricted cash was 107.7 million our balance sheet remained strong with net leverage of 1.1 times and availability under our revolver of approximately 355 million and we have no near term maturities. Thank you.

Thank you for your attention and I will now turn the call back over to John.

Great. Thank you Sean in light of the.

In light of the current macro environment. We are pleased with our Q1 performance. Our government business continues to be healthy our cargo end markets continued to generate demand and our balance sheet remains strong as this.

As discussed on the Q4 call given the uncertainty in the market at this stage, we're not providing guidance for the rest of the year.

Having said that looking forward more generally although the trajectory of the recovery remains uncertain, we expect the aftermarket to recover faster than the OEM end markets within the aftermarket we expect used serviceable material, which jr. As a global leader to be prioritized by operators over higher cost alternatives we.

We also expect to see more material become available to support this demand as aircraft are permanently retired and parted out.

This along with the maintenance deferrals occurring for both airframe and engine should drive an increased need for services out of our trading distribution and MRO businesses as the commercial market recovers.

While the timing of the recovery is unknown, we believe that the actions we have taken and are continuing to take to adjust our cost structure and reposition our portfolio combined with the strength of our team the airlines need for lower cost solutions, and our balance sheet uniquely position us to benefit from an eventual return of demand and to emerge and even stronger.

And more profitable company.

With that I'd like to turn it back over to the operator for questions.

Thank you.

As a reminder to ask the question you'll need to press star one on your telephone to withdraw your question press the pound key please stand by while we compile the Q and a roster.

And again that is star one if youd like to ask a question and our first question comes from Robert Spingarn from Credit Suisse.

Hey, good afternoon.

Rob how are you.

Good thanks.

Thanks, John and Sean.

Couple of questions. So.

You mentioned that you are encouraged and you're seeing some positives.

Could you talk a little bit John about the volumes as they progressed in the various businesses, but primarily just commercial overall through the quarter by month and should I interpret your comments you're more bullish now at this point than you were three three months ago.

Sure.

Yeah, Let me Oh I'll talk to the businesses you know thinking about the parts business is trading and distribution. We did see a relatively consistent performance from each of those businesses in terms of order volume each month during the quarter MRO.

Good improved through the quarter and August for example was a better month than a than June we expect them, our ROE to improve from the Q1 level as we head into a into Q2, yeah. What we meant by being encouraged as a yeah as we sat here three months ago.

We did.

Didn't have clear visibility and I would say had lower expectation of the MRO loading that we expected to see in the second quarter as we head into the fall and in the winter and so far the indications from our customers are better than we expected you know at the beginning of Q1.

Is there any way to quantify the loading and that MRO in terms of you know the.

The percentage of your utilization of your hangar capacity, let's say in the fiscal one versus what you're expecting in fiscal two and so on.

I would say that you know we.

Yeah, we certainly look at it in terms of labor hours that we produce.

Q2 will be a better quarter in that regard than Q1.

But still well below what we produced a year ago.

Beyond that at this point I wouldn't want to give any specifics what I would say is that you know is you're talking and seeing from all of the commercial airline there continues to be quite a bit of movement out there in terms of what they expect a in the way of demand and certainly headlines in the last few days would would indicate there's things going on in Europe et cetera.

Questions about working revenue or the U.S., but you know at this point, we've got pretty good.

Pretty good dialogue and reasonable visibility to what we expect to see in the second quarter.

And would MRO reflect the down I think it was 48% commercial volume decreases when we think about the number of hours and fiscal quarter. One is it is it similar to that or is there.

Yeah, I would say it in a row, yeah, I would say, it's consistent to that end in Q1.

And that and that improves a bit in Q2, our airlines positioning for a return in traffic in calendar 21 is that what drives your Q2, yes.

Yeah, there were seeing a some positioning for a holiday travel. So that's typically what drives the demand of the fall and then the demand that we see in that throughout the winter and the spring is getting credit for summer travel and we're seeing a lot of and a lot of movement inside the airlines as much as.

On the one hand, they want to conserve cash and be conservative on the other hand, they don't want to Miss out to the extent that there is an increase in bookings and they have the ability to add more routes.

Okay and then just lastly, you touched on this at the end before just you mentioned the significance of U.S., Sam and the recovery. So just can we get a little bit more specific about the trends that you've been seeing have owners and operators started to make decisions about parting out I think last time, we we convened here.

They hadn't gotten to that point yet.

Our our new customer surfacing for U.S.M., who previously prefer not to purchase you service serviceable material.

Yeah I'll answer the second part first yes, we are seeing indications from customers that previously wouldn't have been interested in aftermarket material specifically over in Asia that are now appear to be more receptive to that and we we do expect that to be a trend I'm going back.

So the first part of the question there there does seem to be a disconnect out there between.

Announced fleet reduction and actual retirements.

You know we haven't seen as many actual retirements as we would expect at this point and therefore, we actually haven't seen as many aircraft go to part out as we would expect at this point, but we do anticipate that you know we are.

We are Oh, you know what a very fortunate position with our balance sheet that once we do start to see aircraft that are appealing to us come available. We're in a position to make those investments once we have a clear sense of what the market's going to look like.

Okay. Thank you John.

Thanks, Rob and.

And thank you.

And our next question comes from Joseph Denardi from Stifel.

Your line is now open.

Yes, good afternoon.

Hi, Joe how are you John yes doing well.

I appreciate kind of the lack of confidence I guess in terms of providing guidance on that.

Parcel business, but you guys highlight how much of the business comes from the defense side and one of the strengths. There obviously is the visibility so could you provide some.

Framework around what you're expecting from terms of revenue and gross profit for the defense side.

For the year.

Yeah, you know at this point, we expect relatively consistent performance throughout the year. Our defense businesses has held up well both on the transactional side, meaning the defence element of our distribution and certainly the out of the program activity you did see some movement. This quarter, we saw really nice improvement out of no build.

As we mentioned I would characterize that as elevated activity. This quarter, we would expect to see that returned to more normal levels in subsequent quarters, but overall the government business is it's been fairly consistent throughout this period and we would expect that to remain the case having said.

Having said all that we do have a a as I mentioned a robust pipeline of bids.

Bids as well as RFP.

RFP that we're responding to so there's still quite a lot of activity out there in the government space everything is moving very slowly right now covance, it's slow to begin with and we've talked a lot about obviously the protests complications when we go after these new idea of your contracts, but cobot has definitely slowed things down and the acquisition.

World in the government so.

So that's a that's slowing things, but there are wins that are that.

That that could convert and contribute to the this fiscal year and to the extent that were successful in any of those we we'll certainly announce it and and discuss how it might improve.

Improved the results further.

Okay, that's helpful and.

And then Sean could you maybe just help in terms of maybe providing gross margin between commercial and defense and given the size of expeditionary it's going.

In a challenging that's the model that so he could you provide a little bit of visibility in terms of gross margins between the two businesses.

Commercial and defense and then is the kind of the 12% gross margin sustainable at these volumes and as volumes get better gross margin should get better as well is that a fair way to think about it.

Yeah. So just on the gross margin you know you did see that uptick in Expeditionary services, you know the majority of which came from the mobility business within aviation services, we saw margin degradation down to 12%, 15% in the previous year. You know government really Gotta was was was relatively flat to a.

A lot of that degradation came from the weakness in the commercial topline that give you a bit of a picture of kind of margin year over year between between commercial activities, a pen and government and I would expect that a government excluding that mobility piece should largely be consistent for the year.

Okay, and then John could could you maybe just talk about the frontier.

Award and maybe when that conversation.

Started and.

Just maybe more about kind of in general the conversations that airlines are having have they shifted from pure survival mode to let's try and plan for what we actually think things should look like on the other side of it. Thank you.

Yeah sure I got two thoughts there that it it really depends on the customer in terms of where they are with certain customers that we speak to and this is these are global comment.

It's very much a a survival conversation.

With other costs.

With other customers, though we are having a I would say very progressive conversations about how our solutions can help them and that certainly with existing customers and relatively new customers like a frontier we've had a relationship with frontier to varying degrees over the years, but it's been largely transactional and thus a contract it's not a huge contract.

Our lives, but we were very happy to get something signed up on a multiyear basis with frontier and I would say this is it's emblematic of how airlines will look towards solutions, whether that's you asked them are outsourcing maintenance that they had an outsourced before et cetera.

Symptomatic of how airlines are likely going to want to be a need to be a lot more creative about how they manage their cost out through this period and the airinmar offering around warranty management warranty claims as well as the repair cycle management is a is a creative offerings. So happy to see a frontier signed that.

Contracting.

You know what for more of that.

It's safe to say John that those conversations are as frequent or robust as you maybe hoped they will be six months from now once there's kind of a clear line of sight into.

What demand looks like for airlines on the other side of it.

Yeah, I would expect the conversations to become more.

More robust as time goes on and on that note. We have seen just in the last few weeks there were multiple projects in multiple initiatives that we had with various customers or pre co that many of those things were put on hold because it covered because it was just all hands on deck, we have seen certain customers expressing interest in restarting those conversations.

Now that they've got better.

Better stability, but again it really does vary by the customer.

Got it thank you.

Thank you.

And thank you and then.

And our next question comes from Ken Herbert from Canaccord. Your line is now open.

Yeah, Hi, good afternoon, John and Sean.

[noise] I can just wondering.

Just wanted to first ask on the MRO business I mean, if you do see the loading like the airlines are currently indicating are you fully staffed or is there any any risks that you know you you know you could see more demand than you can support it just where do you stand on the labor side to support the business and that.

That's a that's a great question.

We we are at this point in order to meet the demand we are calling back many of our employees to wear out on furlough and actually at a a couple of our sites. We are hiring beyond beyond that furloughed employees that were bringing back from furlough when we.

When we furloughed of course, but if we let people go or we did our very best to make sure that with our best people that we said in contact with them and obviously.

Obviously I treated them right as we were downsizing and so far in the markets were actually having reasonable success and in attracting talent. Yeah. This is something we've been very public about we are very focused on all of the initiatives that we had heading into co but our partnerships with schools are training everything that we could do to develop.

Proprietary pipeline of talent, we've done a very best through the last six months to keep those initiatives going on because we want to make sure that as demand recovers Weve got access to the very best talent in the industry. We are aware that there are some competitors out there that are hiring as well.

And we want to make sure that they are the employer of choice.

So sort of answer your question is we are in the market. We are bringing people back for a lot of it we are hiring net new people at a at certain sites.

And so far it's a it's going okay, but we're very aware of what full recovery could look like and the fact that you've had people potentially permanently leave the workforce. So we got to make sure that we're getting new talent out of the out of the school.

Okay. That's helpful. Then as you as you look at you know that the discussions you're having now can you provide any commentary on sort of labor rates and to the extent to maybe extend twitch, maybe you're having to make some.

To make some adjustments there to reflects just the financial position of the airlines or are you able to sort of maintain rates and ideally start to drive some increase on the MRO side.

Yes, sure so far.

Broadly we've been able to maintain rates again, you know there is individual negotiations that happen all the time, but broadly we've been able to maintain rate, we havent had meaningful discussions about raising rates at this point as it relates to our labor costs when we were.

When we were.

We had a very high reliance on 'em contract labor. After the two years up heading into co that that was a real source of labor for the contract labor or flat rate teams, which is another version of contract labor those definitely come at a higher cost than full time employees as we rebuild our labor force we are.

Very focused on rebuilding it with the full time employees contract labor makes sense to an extent as you're flexing up and down because invariably you have ups and downs inside a facility, but as a percentage we want to be more disciplined about the overall level of.

Level of contract labor that we employ in the hangers. So you know the cost of a full time employee hasn't changed but overall, we're working on managing the the costs.

The cost of our labor by managing the mix between full time and contract.

Okay. That's very helpful and if I could just one final question on the parts side and specifically.

The U.S. and potential there's been some speculation recently that in fact.

The balance sheets of airlines may limit. It does say as capacity comes back. So they may limit in fact, the number of retirements as they as they look to defer new deliveries I know credits very accommodative right now but.

How are you modeling sort of retirements and the availability of USM either from a timing standpoint, when do you might start to expect we see this pick up and then ultimately any comments on sort of how much you expect to see in and.

Is there any risk that it might come in lower than that maybe were thinking about.

When you say come in lower do you mean, the number of retirements or the level of demand.

The number of retirements I think demand will be pretty good if the aftermarket continues to improve but but the availability of material.

We do expect we would as you imagine we've got a number of scenarios that we look at and it's.

As you know better than anybody that is a very dynamic situation right now in general we absolutely expect more material availability than we thought pretty confident and our limited growth pre covered was was really that commentary, but availability, but we became the.

He you know that in our view the best of the market at a sourcing and getting our hands on the very best of material.

From that pre covered baseline it's difficult to calculate exactly how much more will be will be available, but we do expect net.

Net new availability of aftermarket material.

Headed into a a recovery how you reconcile that against elevated demand again is another question, but net net we would expect all of that to be a positive for our aftermarket training business.

Great well, thank you very much.

And the only other additional comment I would say that if you if you overlay that on it and we mentioned that and and our remarks, we do expect elevated demand coming out of the Uh huh.

As we go into the recovery because there's been so much deferred maintenance, particularly on engines and that's going to drive a great deal of of U.S.M. requirements.

Great. Thank you.

Yes.

Thank you and our next question comes from Michael Some Moly from Trust. Your line is now open.

Hey, good evening guys. Thanks for taking the questions.

John maybe just to stay on Ken that that material availability I mean, how much you guys you know getting out there and sort of speculating in a market place I know you know.

Parts were extremely clay.

I'm, just thinking about the pricing environment.

I mean, I think you said use the term everything's pretty dynamic now, but if the MRO overall market kind of stays pretty sluggish into next year I mean.

Are you comfortable going out there sourcing all that that material potentially.

Our our focus right now is as we mentioned is really on working capital and Oh, We're very yeah. We're very pleased with the fact that we were able to reduce our inventory by 90.

Reduced our inventory by 19 million during the quarter and as we mentioned after you adjust for the accounts receivable and the care as money be 10 million cash flow positive. So we think in this environment that say, a that's a great accomplishment and generating cash as it is.

The main focus of ours going forward.

We want to make sure that.

That we do those things so that we have the balance sheet and the confidence so that when we see the right material come on the market. We've got first mover advantage and have the capital to out many of our competitors to pick it up at the best price.

Got it and what about.

Got the names to Scott Napier you had the the partners with them whats the thought process. There I mean, it seems you know yet.

Yeah, I think that's a great point, you know that is a joint venture that still in place. There's a great deal of dry powder associated with that joint venture.

We are and I'm very regular dialogue with our partners, who are very aware of all the dynamics in the market right now and that also could be a source of a capital to acquire aircraft that are on lease and not to keep them on various for a period of time or a acquire aircraft than on sublease the cut off that ultimately be.

Used for the trading business, but again, there's still so moving so many moving parts right now our focus on building up our own cash position. So that Ah. So that we can make moves when we feel confident in the pricing.

Got it.

Shifting gears you know some of the charges.

I think 18 cents tied to a rotable asset impairment and customer contract can you give us a little more detail where those.

I guess, the customer contracts, where those underperforming bad contracts or and same thing with the assets, where they tied to legacy aircraft or just a little bit more color on those charges.

Yeah the.

And you're right there you know that on the exited.

Contract that was an underperforming contract a bit in the same vein of some actions we've taken over the past couple of quarters of trying to take this opportunity to exit underperforming contracts, where it makes sense. So so that's a that's that's what the exited contracted and then the rotable asset impairment as you recall the rotable asset support the programs.

Derivatives and as Weve the flight hours have come down and as we've exited certain programs. We took a look at the assets we had in place and ones that were no longer supporting the programs mark them to fair value. So thats.

So thats what that.

The impairment charges in the quarter.

Got it and then maybe a good segue on the on the programs I mean, I I don't remember the exact number of planes.

Planes, you guys had under the integrated programs, but is there any other residual financial impact we should be aware of dramatically reduced flying hours, you know potentially some airlines, calling their fleets potential bankruptcies. You know how are you guys thinking about are handicapping that risk on the integrated program.

<unk>.

Yeah.

Good to be fair to say that we are very actively managing that portal portfolio and Sean mentioned over the last couple of quarters, we've taken action to either restructure or in the case is related to the charges I'm completely exit underperforming contracts up many of the program customers. There we are still in flux.

Not completely clear how they will come back in the complexion of those fleet.

And we're working very closely with those customers to you know if it makes sense to restructure the contract and keep it in place to support wherever they land on the new fleet composition and their expected flying hours will work with them to do that however, if it's going to be too far out of bounds from what we contemplated when we signed the agreement or we're going to exit.

I'd say the majority of lift the heavy lifting in that in that portfolio has had been done but there still are some customers that we are in a in dialogue with right now.

Okay. Okay.

Got it and then.

Just the last one I guess you know with.

With the commercial revenues declining 40% you know I know you're not going to give guidance, but do you think we've we've sort of bottomed here on aviation or do you think we see a sequential decline as we go into the next quarter.

We feel we feel good about the fact that that Q that the bookings in Q1, where we're above and were stable at a level above where they were in Q4.

And you know, we it's difficult to predict whether or not that's the bottom you know certain.

Certainly there is it all depends on people's confidence, implying a virus in the vaccine et cetera et cetera, but the last several months have been consistent in.

In our in our parts business as we talked a lot about the maintenance business.

So at this point.

Unless theres a.

The second wave that throw things off.

I would expect that that we've seen.

That we've seen we saw the bottom in Q4.

Okay, and that's still consistent even though we're seeing carriers kind of reduced their planned capacity.

Nothing is it still seems like things are progressing and improving despite kind of the messaging, we're seeing whether its ryanair or you know some of the jetblue. The other day as their third dialing down their capacity.

Yeah from the the.

The order volume that we see and particularly the loading in the hangers from our larger customers reflects their current view on the fleet, but as we've said you know over and over again that could change I'm seeing what movement in a maintenance schedules et cetera than we did a quarter ago, but still.

But still it's very dynamic.

Got it all right perfect. Thanks, guys.

Thank you.

And our next question comes from Josh Sullivan from the benchmark company.

Hey, good afternoon, John John.

Yes.

I, just don't need that to the freighter conversion market. What do you think that that cycle looks like it's still pretty strong he thought the markets over shooting itself at some point.

I think it's still pretty strong.

I think thats, a great point or that you might be getting to the stage, where it could be a overshooting itself. Obviously they've been on some deals announced in recently where aircraft to the fleet of aircraft have been acquired that are going to go to a greater but you know I think at this point, it's still pretty strong but there is a there is a lot of interest there and that.

Very quickly can get profit.

Okay.

And then I guess, just just switching over to you know some of the digital offerings you guys had put together before co that it has the disruption helps with adoption of those products opened up and any opportunities for you guys.

That's a great question, we continued to see albeit at depressed levels.

Traffic through our digital channels.

There are a number of initiatives that are that we had begun pre coated.

We we paused a couple of those but we've restarted them to bring new.

To bring new digital services the market and have really use this time to reflect on what we think will be successful going forward I'm encouraged by the continued interest from our customers and all sorts of digital solutions and we're fortunate to be in a position where we've got the capital to continue to make up to continue to make the investments but.

Digital and the development around it remains a core part of the strategy.

Got it thank you.

Thank you.

And thank you when we have a follow up question from Joseph Denardi from Stifel. Your line is now open.

Yes, Thanks, John just along the lines of how many additional airlines could have to use your.

Now you oriented services on the other side of that that maybe didnt need it.

Before this is there anyway to quantify that.

Maybe just in the U.S.

And how many airlines.

Advantage that maybe how many airlines did need to because of their financial strength and then maybe different six months from now thanks.

Yes sure.

In the U.S. there are still a number of large carriers most number of large carriers, where we do a little bit of business with but we we see a lot of opportunity. For example, we could have one major airline where we feel weve done a great job penetrating that account and we're doing over 100 million we have.

Another airline, but a very similar fleet, where we do less than 10, and so I do.

So I do see a reasonable amount of opportunity here in the U.S., both with caught the major carriers as well as a as well as the lower cost carriers by market. You know Asia, We've had a great run in Asia over the last several years, but still there's an enormous amount of opportunity with the larger Asian carrier.

As they look to adopt a non OEM solutions and look for aftermarket solutions like ours and that some of the real.

Some of the real bright spots, we've seen in the last several months and then in particular, Inc.

Inquiries from our Asian customers, where we might do a little bit of business, but.

How can we do more how can we do more together and its early days, but those conversations wouldn't have happened or were not happening a year ago. So that's a that's encouraging.

Also a beyond age I would also.

But the middle east in that category as well and as much as historically those operators have been very focused on OEM based solutions and well we haven't had that kind of dialogue yet that we had with some of our Asia customers I would expect and hope that we would see more opportunity coming out of the middle East for us.

Helpful. Thank you.

Thank you.

And I'm showing no further questions.

All right everybody, we really appreciate your time and your interest thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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