Q1 2021 Astronics Corp Earnings Call
[music].
Greetings and welcome to the <unk> Corporation first quarter fiscal year, 2021 financial results call.
This time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
And it's now my pleasure to introduce Debra philosophy and fast.
Investor Relations. Thank you you may begin.
Thank you Daryl and good morning, everyone. We appreciate your time today and your interest in Australia and I.
I have here with me, Peter Gunderman, our chairman and President and CEO and Dave Burney, Our Chief Financial Officer.
You should have a copy of the first quarter financial results that were released this morning, and if not you can find them on our website and as strong as dot com.
Let me mention that we may make some forward looking statements during the formal discussion as well as during the Q&A session. These statements apply to future events. They are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These.
These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with the Securities and Exchange Commission each.
These documents can be found on our website or at SEC Gov.
During today's call. We will also discuss some non-GAAP financial measures. We believe that these will be useful in evaluating our performance you should not consider the presentation of this additional information in isolation or as a substitute for results in accordance with GAAP.
We have provided reconciliations of non-GAAP financial measures with comparable GAAP measures and the tables that accompany today's release with that I'll turn it over to Pete to begin Peter.
Thank you David and good morning, everybody, thanks for tuning into our call.
And we will open the conversation here with a high level summary of our first quarter and and outlook for our markets.
And I'll turn it over to Dave for a more detailed financial summary, and a review of our banking arrangements and then will close with questions and answer as usual.
And I look at the first quarter to either kind of two headlines one is that we had obviously low sales by historical norms.
Not a real surprise there given the ongoing effects of the pandemic and where we are.
And the recovery cycle.
The second headline on those more positive and that is that bookings have been showing steady and consistent improvements over the last few quarters and.
And we're going to dive into that and a little bit more detail.
Specifically.
The relationship and our company between bookings and shipments, which we think.
It tends to be pretty strong and pretty close, especially given the way that we measure bookings and we talk about them pretty regularly and.
And our quarterly reports and in these calls.
Okay.
And our business.
There is generally a two to three quarter lag between bookings and shipments and other words bookings today.
Influenced shipments two to three quarters out.
Or looked at the other way shipments today are heavily influenced by bookings two or three quarters ago.
We just finished a quarter with revenue of 105 million again very low by historical norms, you've got to go back to 2013 to find.
That level consistently.
And it's no coincidence and our view that bookings two to three quarters ago were anemic.
And highly influenced by the onset of the pandemic at that time and I'm talking about the second quarter of 2020, and the third quarter of 2020, specifically.
Our bookings and the second quarter, if you were to look back.
We're totaled about $61 million.
On a consolidated basis for the company and in Q3 last year $82 million. So on average of 72.
That compares to a quarterly average in 2019 of 176 to 176 million.
On average in 2019, which was actually not a very strong booking year for us for a number of other reasons.
About $176 million average dropping the $72 million and the second and third quarter average of last year and is obviously a substantial drop.
The good news is that bookings since then.
Have shown a pretty good comeback pretty solid comeback.
Our fourth quarter last year was $116 million and.
And our first quarter. The one just completed was $120 million, so and that too.
Two quarter period, or a six month period.
And we averaged $118 million and bookings per quarter. So we've bounced up from $72 million on.
On average and the second and third quarter last year to 118, and the fourth quarter and the first quarter. This year.
Really good progress.
Looking at the segments.
Of the improvement is on the aerospace side.
Yeah.
If you look at our quarters consecutively and these numbers are spelled out on the left on the table on the last page of our press release.
Since the second quarter last year, our bookings have gone from $43 million to 65 million to $74 million to $100 million, that's just aerospace bookings.
Now 100 million that progress if you look at added on percentage terms and can.
And look pretty good but of course and 2019.
Our aerospace quarterly average was about $160 million so even at the first quarter level of $100 million, we're still a pretty far ways off from where we were and pre pandemic times, when we were averaging about $160 million.
And aerospace bookings per quarter.
So what's driving the improvement.
If you look into our aerospace group most of you know this we have two smaller business units and one larger one.
The two smaller ones are military aircraft and what we call business jet or general aviation and both of those tend to be and pretty good shape.
Pandemic they were about each about 10% of our total business.
And we expect them to be a higher percentage this year.
And part or largely due to the lower expectations for commercial transports, which I'll get to in a minute.
I'm not going to take everybody through the different dynamics and military aircraft and general aviation and most of the people who follow our company followed the industry and you're probably well aware.
Military aircraft has been largely unaffected by COVID-19 certainly no.
<unk> effect.
And if anything business jet demand has bounced back strongly which we expect will result in increasing unit demand.
As time goes on here and that's important to us because most of our business jet.
Sales are line fit and not aftermarket.
So production rates are important.
So long story short if you looked at aerospace military aircraft and business jets or both and relatively good shape.
The commercial transport side is the big issue again, no real news here and the quarter. Just finished we had commercial transport sales of $38 million, which was down from 103 and.
In the first quarter of 2020, and Thats a significant drop.
We're encouraged however.
Bye.
The narrow body side, where domestic flying is increasing dramatically where and when the pandemic is under control.
Recognizing that wide body remains under significant pressure. So a reasonable question might be what is the split between narrow bodies and wide bodies historically and how are we positioned for today's world, where and narrow bodies are expected to recover relatively soon and why.
And bodies may lag quite a bit.
And these are numbers that we have not typically talked a whole lot about in the setting.
But we've done some analysis.
To nail this down and it might seem like an obvious thing, but actually the way our business and structure, it's not always obvious where our products and up.
So it's been a little bit of and effort, but the safe way to think about our business up to <unk>.
Day is that our commercial transport business.
Has almost a 50 50 split.
Tween narrow bodies and wide bodies.
And also if you cut it a different way.
Almost a 50 50 split between line fit on aftermarket I don't think I said that very very clearly.
On the narrow body and wide body revenues that we have the split on.
Almost 50 50 line fit and the aftermarket.
So you can almost think of our commercial transport business. If you picture a two by two matrix with <unk>.
Wide body on one axis and.
Wide body and narrow body on one axis and lines fit aftermarket on the other axis, it's almost 25% of our commercial transport volume.
And each box.
And again, our perspective not different from the conventional wisdom and Thats out there and the industry right now is that wide body line fit and aftermarket is under pressure and will remain under pressure until international travel picks up.
And we're hopeful for that to happen at least between.
And the rich countries on the world, where vaccines are likely to get pandemic under control.
And we hope to see some progress for that as 2021, whereas on but on the narrow body side things are looking more promising.
Everybody and North America is aware of the increasing flights and load factors and crowds generally gathering at airports every day for domestic flying.
Another example, how we.
And when and where the pandemic under control people want to fly.
The two geographies and the world where this was most evident.
And China and the U S.
And we hope and expect that Continental Europe.
<unk>.
B and that camp.
Sooner rather than later.
That supports the aftermarket.
Flying and supports the aftermarket.
And production rates also are trending up on the narrow body side as most people know and including especially for US the 737 Max.
We the Max back in 2019 was our biggest single aircraft production program.
And it is picking back up although still at a slow rate.
We're shipping at a <unk>.
Volume or a rate of about five or six aircraft per month and the first quarter.
And we expect that to rise to over 20.
In the fourth quarter based on the best understanding we have right now.
The production line expectations and Seattle.
So that talks a lot about aerospace again.
Pretty solid expectations for our military and business jet and <unk>.
Reason to be optimistic on the narrow side narrow body side for commercial transport.
That 50, 50 narrow body wide body split we would expect by the end of this year to look quite a bit different skewed.
Towards the side of the narrow body with increased flights that are happening now and increased production rates for the 737, Max and also potentially for the <unk> hundred 20 line.
And in Europe.
Flipping over to the test side, and <unk> say, a whole lot about test today.
But test has done well through the pandemic in terms of bookings and shipments shipments.
And the last four quarters were $91 million up about 15%.
And bookings for the last four quarters were $96 million for a positive book to Bill on.
1.06 so.
Our expectation for the test side of the business.
Remains strong it's a combination of municipal government spending potentially the beneficiary of some of the stimulus.
Efforts underway and D. C. These days and also a large element of defense spending which has been strong. We expect we will continue to be strong.
Over the coming year.
Yeah.
I'll pause here for now and turn it over to Dave to talk through our financial statements adjusted EBITDA levels Bank covenants et cetera.
Thanks Pete.
First quarter sales were as expected.
Soft and only about $105 million.
Down $51 million from the first quarter of 2020.
This was no surprise and was about where we forecast sales to be on our last earnings call, reflecting the low order intake that Pete had mentioned.
And particularly on commercial transport market.
Quarters.
Sales to the commercial transport market were $38 $2 million down $64 6 million or <unk> 62, 8% compared to the 2021st quarter.
Illustrating that debt drop.
Our GAAP loss net loss for the quarter was $11 9 million driven by the low sales level.
As expected this low sales level of sales.
We are not profitable at this low level of sales generating an operating loss of $9 $5 million on.
Slight.
Adjusted EBITDA loss of $500000.
<unk>.
As we have discussed on previous calls we do not expect debt. This will be our long term sales level.
And as such and not structured the company to be profitable at this low sales level.
If we did expect sales to continue at this level, we clearly would adjust our cost structure and investment strategy.
We've continued to invest and product development and win new programs requiring investment to ensure we are well positioned for the post pandemic world.
Turning to the segments sales continued to be low and the aerospace segment, resulting in segment operating loss of $5 6 million and.
And on sales of $59 7 million, which were down 42% from the first quarter.
2020.
And as has been the story for the past four quarters. The drop is primarily related to the effect. The pandemic has had on the commercial transport market.
Our test systems segment continues to operate steadily sales were $24 4 million up 64% from the 2021st quarter. If you exclude semi conductor test sales from the prior year.
Test segment operating margin was one two and we're operating income was $1 2 million or four 9% of sales.
Margins in this segment were compressed a bit by legal fees relating to an infringement claim.
Switching to cash flows our cash flow from operations was a negative $6 $9 million driven primarily by increased receivables and decrease in accounts payable.
Inventory levels were down slightly from the fourth quarter.
Yeah.
Also I should notice we mentioned and the press release that we were recently notified by the acquirer of our semiconductor business.
And they've recalculate the earn out due to us originally calculated the earn out to be $10 $7 million.
And subsequently revised the calculation, indicating that the and.
A new calculation of $7 1 million.
We're reviewing the calculations and underlying information and expect to record a gain when that review is complete and the issue resolved.
The cash we receive will count toward our adjusted EBITDA under our earn out agreement for covenant purposes.
And we expect to remain compliant with our debt covenants without the income that will be generated from this gain.
To recap our amended credit facility, we amended and it may of 2020, the credit facility matures.
February of 2023.
It's a $375 million revolving credit facility with a couple of key financial covenants.
Our maximum leverage covenant.
That was and the original.
Pre amendment.
Facility was waived until Q3 of 2021.
Referred to as the suspension period.
And then beginning in two and Q3 of 2021.
This begins phasing in starting at six times adjusted EBITDA as defined and the agreement.
And decreasing to five five times and the fourth quarter.
Followed by four five times and into Q1 of 2022, and then down to 375 times thereafter.
And it's important to note that adjusted EBITDA as it is defined and the credit agreement allows for add backs of non cash expenses are typically are shown as non cash items on the statement of cash flows.
Adjusted EBITDA as defined and the credit agreement was $2 4 million for the first quarter of 2021, and $22 8 million for the trailing four quarters.
There's two key financial covenant during the suspension period of minimum liquidity and our minimum interest coverage ratio, which were both compliant with and expect to continue to be compliant with.
Through the suspension period.
Other covenants include a temporary restriction on the acquisitions share repurchases and dividends.
And as far as the pricing of the revolver and the high end of the pricing grid is LIBOR plus 225 basis points.
And at leverage above four times adjusted EBITDA.
And with a LIBOR floor of 100 basis points. So currently the interest rate on the revolver is three 5%.
Our outstanding balance on on the facility at the end of the first quarter was $173 million.
Flat with the December 31 drawn balance.
On a net debt basis, which is what our debt covenants consider.
And are considered.
We were at $142 6 million compared with $132 3 million at the end of 2020, which was an increase in net debt of $10.6 million.
And that's all I had.
Thanks, Dave.
Looking ahead.
Normally we are and the practice of.
Providing and maintaining revenue guidance top line guidance over the current calendar year, but we suspended that like many companies as the pandemic took hold and we're still maintaining that approach.
We believe that.
Based on the conversation that I gave earlier second quarter bookings here will be material in terms of how we ended up the year and we obviously don't know exactly how second quarter bookings are going to turn out.
We're hoping that when we announced second quarter results, which will be on early August we'll have enough insight to give a window as to how we expect the year to shape out but in generally and in general we are.
And we have a picture of.
Building revenue sequentially.
As the year progresses.
Assuming bookings cooperate and kind of come in as we expect or hope.
And that being said.
We do believe that second quarter revenues will be in the neighborhood of $115 million.
There is upside potential to that number and of course, I suppose downside potential too, but we think that's a safe number to look at from today's perspective, given that we're one third of the way through the second quarter.
Okay.
So I think that concludes our prepared remarks, Daryl if there are questions.
Have those now.
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Our first questions come from the line of Ken Herbert with Canaccord Genuity. Please proceed with your questions.
Hey, good morning, Pete and David Deb.
Good morning.
Okay.
Sure and on the aerospace sales in the quarter.
You had a sequential step down from the fourth quarter about roughly $10 million, but it looks like the guidance implies roughly sort of that 10.
$10 million sequential step up from the first and the second quarter and aerospace sales.
Can you just provide a little bit more color on on the on.
On the first quarter and and the step down and then.
Expectations for that roughly sort of $10 million sequential step up into the second quarter or is that is that in line with what youre thinking as we think about the guidance for the second quarter.
That is in line for us to have.
Our revenue growth over the next three quarters and then most of it is going to come from commercial transport sales, so our aerospace sales, but commercial transports specifically.
As for the step down from the fourth quarter to the first quarter. There are a couple of things going on there.
One thing that's going on is that you book, a bunch of orders and Theyre not always.
Tie and smooth.
Smoothly. So you can add just lump sum expected delivery schedules.
But the other thing that is a realistic factor and the fourth quarter.
We're holding customers to previously established delivery dates even maybe when they wanted a slight amount and some cases.
We had the inventory we had and built we had a schedule, which we've agreed to so.
And that's one of the things that was kind of going on through the whole industry in terms of the whole destocking phase.
We took inventory that we would probably have preferred not to and so did our customers. So that made the fourth quarter, perhaps look a little bit stronger than it would have been.
Under different circumstances.
Yes.
Okay, that's helpful and.
Bookings strength and aerospace sequentially from the fourth quarter with first quarter.
Can you provide any more detail around that was it was it aftermarket I think of your aftermarket business is maybe a little bit more book and ship and the OE business, but but how would you can you provide any more color on the sequential growth and the bookings and the first quarter and aerospace.
I would I would say it was kind of across the board not so much on the wide body side, but on the narrow body side.
Business Jets are relatively steady, although we do tend to get some debt.
Would have been more of a fourth quarter phenomenon, where.
Major customers like Textron will load their production rates and issue orders accordingly.
As the year begins.
A big part of the improvement has been narrow body.
On both line fit and and aftermarket I mean, our sales guys are consistently saying that the level of activity and interest.
Not only in North America, but around the world has picked up dramatically, whereas things were kind of debt as the door now in terms of.
Discussions that typically.
Lead to orders and the last summer and even into the fall that picked up pretty dramatically as the year turned and as vaccines got closer so.
So.
A lot of the increase in bookings.
Has been commercial transport.
Related hasnt been narrow body related and we're hopeful that that continues.
Okay.
And then just one final question.
Dave I mean, I think when you put day.
Agreement in place.
With the credit agreement last year, you probably didn't expect to be maybe as cutting edge as close on the six X leverage and the third quarter as you could be I mean, you should be.
Well on the range, assuming a nice sequential increase and the EBITDA and to the second and third quarter, but do you feel the need or should we expect maybe some some changes to the agreements just to give yourself a little bit more breathing room or or is that something that youre not contemplating.
We got to keep our eye on that you're right. When we put the agreement in place back in and.
First quarter, largely and the first quarter of last year I think it was finalized and may.
We certainly expected a quicker recovery.
Just on the information we had back then and.
The recoveries dragged.
3456 quarters longer.
If you look at the global.
Commercial transport business and the wide body business. So yes, we are cutting it closer than what we expected when.
And when we put it in place and it's something we have to have to keep our eye on and.
We have ongoing dialogue with our bank group and.
We will keep our eye on that and.
And Thats something we need to go too low.
We'll take a look at that but right now we're not we're not forecasting to be in violation of the covenants.
Okay, I'll stop there and pass it back thanks Ahmad.
Okay.
Thank you. Our next question is coming from the line of micro Charlie with true Securities. Please proceed with your question.
Hey, good morning, guys. Thanks for taking the questions.
Maybe just to stay on Ken's questioning there with the leverage and the credit.
And $115 million and.
Revenue and <unk> doesn't seem like you'll be able to be profitable.
<unk> said previously 125 was sort of the breakeven point.
And if I think about that that six times leverage is there is there going to be any cash generation or anything else that changes that net debt and it would seem like that that third quarter EBITDA generation would have to be.
Materially strong.
Yes, if you look and just are.
The traditional EBIT.
Numbers Q1.
We had a 500000 dollar and EBITDA loss on <unk>.
$5 million and sales.
Incremental.
And <unk> that we typically get from sales growth.
40% ish.
Depending on the mix.
And so we are expecting to generate positive cash flow over the next three quarters.
Our capex expectation is around $10 million this year, 10% to $11 million. So we are expecting to generate positive cash flow to to continue to pay down debt.
And also not included and there is any gain relating to the advanced test earn out on the sales semi business.
And so and there are.
Are there other levers that could be pulled and the credit agreement.
For example.
And there is there is an opportunity if we decide to exclude.
A certain level of legal related costs on.
On a onetime basis, we haven't pulled that lever.
So I.
And I think.
We are again, we are forecasting it is going to be closer than we expected.
But.
There is some potential upside too I think.
Depending on which direction the commercial.
Transport business goes over the next.
On a couple of quarters.
Got it got it okay.
What are you what are you hearing.
From airline customers and I know you kind of said the bookings were.
Pretty.
Pretty diversified across the board, but are you seeing the restart of retrofits campaigns I think we I think it was United maybe said, they're kind of proceeding, but what's sort of the budget you are hearing from the airlines as they look to.
Modernize and comment on those cabins.
And it's positive Michael.
And especially in North America, and China, and Theres, a lot of interest and updating.
<unk> and interiors.
And adding new amenities interestingly enough one of the interesting phenomenon also is that.
Whereas we have viewed the narrow body world and primarily as a.
As a wireless Wi Fi kind of world. There is renewed interest it seems among airlines or seatback display and we'll see how that plays out but that's that's a higher level of investment and.
And then we might have expected.
Today.
In North America and China.
Very solid very mature discussions and in some cases airlines deciding to pull things in because they see heavy level heavy levels of demand.
Right around the corner.
And other parts of the world, it's usually a step behind and it's remarkable but.
Maybe not too surprising I guess.
And those areas, where the pandemic under control or where it is expected to be under control. The airlines are moving ahead.
And with customer amenities, especially on the narrow body and side and if and when we get travel bubbles or something of that sort between say U S and Europe or Europe and China.
We think theres going to be a bit of a pickup in wide body also so okay.
Yes, it is going on in the right direction for share.
Okay got it got it last one for me.
Can you just talk maybe about.
Your supply chain are you seeing any.
And on the electronics side.
That are that are critical to your product offerings and then <unk>.
And what about input costs raw materials, what are you seeing there and are you able to pass those through to your customers.
Yeah, very good questions and its an emerging picture.
Over the last month, or so I guess, we would say that we've become more and more.
No.
Confronted by parts shortages or lead time stretches.
Not so much pricing differences at this point.
But and.
And no shortages or lead time effects that are materially affecting our outlook and is not factored into our.
No.
Revenue expectations at this point, but it's definitely something we're watching.
It seems like the world shrunk down a little bit and certain parts of the economy and the demand picture got really hot really quickly and suppliers on prepared so.
And we'll see if that demand persists and what the responses among the supply chains, but.
I would call it a watch item right now and I wouldn't call and a crisis necessarily not yet got it got it perfect I'll jump back in the queue. Thanks guys.
Thank you.
Thank you. Our next question comes from the line of John and Ken One thing with CJS Securities. Please proceed with your question.
Hey, good morning, guys. Thank you for taking the questions and it's nice to see the order improvement.
Continuing on that try and I'm just wondering what the.
And what the orders it looks like in April and May and if you saw an improvement sequentially month by month or <unk>.
Similar to just how you're seeing the debt the early progress in Q2.
Q2, so far.
Essentially maintaining that pace of Q1.
But.
And one month, we don't get too excited about plus or minus so we certainly aren't seeing a drop off we're happy about that.
But it's too early to draw big conclusions about the second quarter was a long ways to go.
But so far so good.
Okay Fair enough and then just on a $1 15 guidance for Q2.
Do you have a breakdown how much do you think test will be vs aerospace.
Yes.
And just looking something up.
And with a faulty computer today I don't have a number for you, but and it's about 24 million test.
Okay, Great that's helpful and then.
David just for you on the on the incremental EBITDA you mentioned, 40% is a good bogey.
But are there any puts and takes to that as we.
And as these revenue increases and then you start layering that cost and maybe you've cut and the past year and how should we think about it.
And what breakpoints to those to those come back in place.
Okay.
Well.
And.
I'd say, it's probably the most significant one is as we have.
Already.
Provided.
Right annual raises.
To most employees here. So this is this is.
This is happening.
And I think I think kind of the big thing and many of our employees are asking about is our 401 K match.
And that's at the highest and of our priority to reinstate.
Our 401 K company contribution there.
And.
We're going to watch the development of the cash flow generation and the bottom line and <unk>.
Probably make our fourth quarter call on that.
In terms of 400 and K match.
And Thats roughly a.
I'm going to say could be up to a $5 6 million dollar number.
If we go back to the to the match that we had prior to the pandemic, but right now we're not anticipating any kind of layering in.
Much and delay of adding head count or anything like that.
Okay, Great. That's helpful. Pete you didn't spend much time on test, but theres been you've talked on the past about the potential for several more large rail projects and the future and.
Obviously the environment just for the A&D side of it is has been positive.
Just talk about your outlook for that if there's maybe something in the pipeline that's attractive.
And any changes and the environment from the government side.
Yes, I didn't talk about and much John because it hasnt changed much since the last quarter, we do have some high value targets and in front of US we think on the rail side on the transit side that we're pursuing.
<unk>.
Some of those efforts have been slowed by COVID-19, not necessarily because of funding constraints, but because people simply arent and the office.
And and Thats slowed some of those things down, but they're still out there the funding remains in place and fact.
If anything the funding picture has perhaps improved based on the.
The investment priorities of the buy and the administration and DC.
And Thats true also of some of the radio test markets that we serve especially for our municipalities and.
Police forces first responders things like that.
Municipalities have been stressed.
During the pandemic and that's one area, where we think theres been a little bit of a pullback in terms of expenditures. So we're hoping that that market turns a little more profitable and we do have some.
And continued.
Positive prospects and our traditional defense.
And aerospace markets and so together.
Our test business is more subject to big Gulp, Stillwater Big Gulps of orders.
Relative to our aerospace business.
Especially for its size and relation to its size so.
We're optimistic that our revenue performance from last year in terms of growth can be continued this year and there is a potential for David.
A very strong booking year.
As we get more and more into the year, it's unclear how those strong bookings might affect short term revenue those take time to.
To convert but.
Overall, it's a pretty optimistic picture.
Great. Thanks for that and if I could slip and one more just any update on the talent on to tenant business and Todd.
And there is trending given the business jets and have been doing well.
We hear good things as you know we're teams at this point with Collins Aerospace.
And they seem to have done a really good job putting together.
A team of partners of which we're one and.
And.
I don't have specific numbers in front of me, but I can tell you that they are trying to pull things in.
And they originally had stuff scheduled out into 2022 with us and other trying to pull it in and we're trying to accommodate them and.
And theyre talking about a substantially larger order.
And the next one.
Five months six months for that for this year and necessarily but for 2022 so.
And I'll have.
With a little luck Youll see a press release on that before we talk again.
Great. Thanks, guys.
Sure.
Yes.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question is coming from the line of <expletive> Ryan with hires. Please proceed with your question.
Thank you.
So Pete on the earn out that was the expectation.
And it is under review and it looks like it moved from 10 and seven two potentially seven one are there any particular reasons behind that variance and is there any kind of sense of timing when you might be expecting net.
Debt to conclude.
Oh.
We're a little confused but frankly.
<unk>.
We got a number with a printout and we basically agreed to it and ask some questions and then we got a lower number and response so.
And.
We don't think its an accounting issue and gets a numbers issue, but we are asking those questions and I guess I would say that.
And there is too.
General possible routes here, one as we discussed it and resolve it and there are efforts underway to do that and if we do I would expect it to be resolved over the next and we'll certainly over the next quarter.
But there is the potential that it turns into a bigger conflict and and I don't know what kind of orbit expense into.
And it's just too early to say at this point Unfortunately.
Okay. Thank you.
Sure.
Okay.
Thank you. Our next question is come from the line of Ken Herbert with Canaccord Genuity. Please proceed with your question.
Hey, Pete on the Max you talked in prior quarters about sort of heading into this year with with give or take sort of 40% to 45 ish or so chipsets and inventory and expecting to sort of have that worked down coming out of the second quarter approximately or mid 'twenty. One can you just update us on where you are with.
With sort of the excess inventory and the channel on the Max and and the timing of when you expect to be sort of share.
Shipping in accordance with production rates at Boeing.
It's a good question and I don't think we really firmly know the answer Ken but I guess I would give you the observation that.
The schedule and they've got a shipping two seems to line up pretty well with what other suppliers are saying.
So whatever's happened to the inventory that we had built up when we went into 2019.
Either they are at a level that they are happy with and they are going to maintain that inventory or are they a little bit down.
Honestly, we don't know what the answer is.
And it's a little bit of a confusing picture because we put things on the 737 Max.
Both by direct shipment to Boeing but also by shipments to wing manufacturers and.
Avionics companies and and the rates are.
And not consistent necessarily.
Between those companies so it's a little hard to keep track of Who's got what inventory.
But I guess I would say that.
We were at five or six ship sets a month for the first quarter.
And we have a pretty firm plans at this point, we believe that will have us at about 'twenty, one 'twenty, two a quarter or a month and the fourth quarter and that seems to be pretty consistent with what the world is experiencing so we're okay with it.
Okay. That's very helpful and if I could just one final follow up have you seen any incremental softness and the last few months on either your 77% or $3 50.
Expected shipments here and schedules for the rest of this year are those still sort of running steady with where they were.
I know we've had some step down on those programs, but have you seen recently any incremental changes to those schedules.
No we haven't seen anything other than whats kind of out there and.
And the ether 787, and particular stepping down to five a month and the summer.
$3 50 is making a similar kind of move but it's consistent with what with what the.
General News is.
Great Alright, thank you.
Sure.
Thank you there are no further questions at this time I would like to turn the call back over to management for any closing remarks.
No closing remarks, thank you for your interest and a strong <unk>, we look forward to talking to you again and the second quarter hopefully.
With the continuing turnaround on the booking side.
Thanks for your interest have a good day.
Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.
Thanks.
Okay.