Earnings Labs

Ducommun Incorporated (DCO)

Q1 2015 Earnings Call· Tue, May 12, 2015

$142.61

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Transcript

Operator

Operator

Good day ladies and gentlemen and welcome to the Q1 2015 Ducommun Earnings Conference Call. My name is Alex and I’ll be your operator for today. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to our moderator for today, Mr. Chris Witty. Please proceed, sir.

Chris Witty

Analyst

Thank you and welcome to Ducommun’s first quarter conference call. With me today is Tony Reardon, Chairman and CEO; and Joe Bellino, Vice President, CFO and Treasurer. I would now like to provide a brief Safe Harbor statement. This conference call may include forward-looking statements that represent the company’s expectations and beliefs concerning future events that involve risks and uncertainties and may cause the company’s actual performance to be materially different from the performance indicated or implied by such statements. All statements other than statements of historical facts include in this conference call are forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the company’s expectations are disclosed in this conference call and in the company’s Annual Report in Form 10-K for the fiscal year ended December 31, 2014. All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements. Unless otherwise required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this conference call. I’d like to turn it over now to Tony Reardon for a review of the operating results. Tony?

Anthony Reardon

Analyst

Thank you, Chris, and thank you everyone for joining us today on our fiscal first quarter conference call. I’ll begin by providing an overview of the quarter, including some market color after which I’ll turn the call over to Joe Bellino to go over our financial results in detail. Let me start off by saying that we are extremely disappointed with our financial and operational performance this quarter. While we continued to benefit from robust growth in our commercial aerospace operations and experienced modest decline in overall revenue year over year, this was accompanied by a significant decline in margins. The margin compression was particularly acute in our AeroStructures segment, primarily due to weak military and space demand which negatively impacted our operating leverage at a faster rate than we were able to counteract with our cost cost reduction efforts. Bottom line results were further impacted by production inefficiencies on certain legacy programs and one-time development costs of new technologies. But having said that, our performance for this quarter was simply unacceptable. We’ve talked in the past about the pressure on margins that would come from lower defense spending as some very attractive programs wind down or go through period of lower demand, these platforms like the C-17, F-15, Apache and the Blackhawk. During the quarter, total military shipments were down 22% year over year. While we expected a fall off in defense revenue, the actual decline was greater than anticipated due to scheduled softness on some ongoing programs and we’re not able to reduce costs as quickly as necessary to counteract the revenue decline. We’re taking aggressive actions to offset the lower profitability performance and bolster cost reduction initiatives already underway. We’ve identified the root causes of the inefficiencies and are working on specific plans to mitigate them. On…

Joseph Bellino

Analyst

Thanks, Tony, and good day everyone. After the market closed today, we reported our earnings and our net loss of $2 million, or $0.18 per share for the current quarter that compares to $5.2 million, or $0.46 per diluted share in last year’s first quarter. I’ll go into the details in a moment, but clearly we’re disappointed with our current quarter financial results. Net sales for the first quarter of 2015 were approximately $173 million, that’s 4% lower than last year’s first quarter. The revenue decline reflected a continuing shift in demand for our products, including a $20 million decrease in military and space sales, offset by a $11 million increase in commercial aerospace sales and a slight uptick of $2 million on our non-A&D revenue. In the military and space sector, we have seen reduced demand for both structural solutions and technology electronics platforms, reflecting lower aggregate government defense spending. Within the commercial aerospace arena by contrast, we have seen increases in both our AeroStructures commercial business as well as our electronic solutions as we continued to benefit from a combination of higher air frame build rates and increased content. We expect these mix shift trends to continue throughout the balance of 2015. We have previously indicated that in the first half of 2015 it would be a transition period and we will work through this mix shift and other short-term issues. During the quarter, in addition to the unfavorable product mix, we experienced a loss of efficiencies from lower manufacturing volumes as well as higher crude compensation and benefit costs along with higher professional services fees. Partially offsetting these factors were a 35% income tax rate benefit as compared to an income tax rate of 33% in last year's first quarter. We believe that while a portion of…

Anthony Reardon

Analyst

Thank you, Joe. I will make my closing comments brief so that we can get back to the Q&A. So let me just say once again that our shortfall this quarter was unacceptable. We knew that certain military programs are being dramatically scaled back and we anticipate the potential impact to margins. However, cost reduction efforts put in place last year were unable to offset the loss of operating leverage caused by the large drop in shipments. In addition, the change in mix across some of the legacy programs cause inefficiencies that were simply inexcusable. Having said that, we are working on specific plans to reduce costs, lower headcount where required, streamline operations, increase asset utilization and lower working capital. Some of these goals will take a little longer to achieve due to lower military volumes and the change in product mix, but we envision better results for the second half of 2015 based on cost savings initiatives already underway. As I said earlier, we anticipate that our cost reduction efforts will improve our operating profit by $4 million to $5 million this year. Our commercial aerospace operations will continue to benefit from strong demand and our industrial business is also expected to post further growth. And lastly, as Joe mentioned, we have an opportunity to realize lower interest expenses by refinancing our debt by Q3. Overall, we're taking the disciplined proactive approach to improve bottom-line results in the remainder of 2015 and we believe the company is still well positioned for long-term growth and higher returns for our investors. With that Alex, I’d like to open up the call for questions, please.

Operator

Operator

[Operator Instructions] Your first question comes from the line of Edward Marshall with Sidoti & Company.

Edward Marshall

Analyst

You delayed the fourth quarter call and that report was done in mid-April. And I'm just curious as to why, considering the first quarter was closed, what went into not actually alerting us at that time to the inefficiencies and the disruptions that occurred in Q1?

Joseph Bellino

Analyst

As you know, we spent considerable time in the first quarter with getting the year end closed. And as we always do, we true up the quarters similar to what we do year end. And for example, on the SG&A expenses that I spoke about, we had higher professional costs related to getting the books closed as well as we recognized some PSUs, performance share units, which is in our proxy, that contributed to some of them. Some of the others, we look at the closing, we look at in truing up our books, we looked at the amount of relative indirect costs and we expensed those and as well as the costs that went into our development during the quarter of new product technologies and we recognized all those costs, whereas you can make a case that some of those would be capitalizable but the – we are investing in those, but the way the accounting is we expensed those amounts. So those contributed probably to 30% to 40% of the delta between last year's first quarter and this year's first quarter. The balance of that was as we did see the changing mix and we analyzed, as I commented in my statements, the lower margins we generate from commercial aerospace and the higher margins from the declining military and space sales, those numbers did have an impact on our performance.

Edward Marshall

Analyst

So you’re saying you didn’t know in mid-April?

Anthony Reardon

Analyst

We didn’t know everything in mid-April and I think that the big issue was some of these outstanding areas that we were still running down. We clearly knew that we were short of expectations. But as – we don’t forecast earnings, right, we don’t give any guidance and it’s also difficult to be in that position. We knew that the quarter was going to be very hard and I think when we talked in the first – at the end of the year, in April, we talked about a soft first half of the year and a soft first quarter. So that’s about as much as that we could give without detailing the numbers which we did not have finalized as Joe just indicated.

Edward Marshall

Analyst

So when you look at, I guess the term indirect cost was used quite often, what are indirect costs, I’m not sure?

Joseph Bellino

Analyst

Indirect costs in the manufacturing operation as compared to direct costs. Those are non-direct labor related activities that remained throughout a manufacturing facility and as we’re in the process of reducing those non-direct labor hours within our manufacturing operations to right size the business. There’s a lag effect in that though, Ed, in terms of when the volume declines and we make a determination that the volume is not going to recover quickly, then we immediately go into headcount reductions and other layoffs. So there is a lag effect in terms of severance costs and other things that we incur that those cost show up in the current period but the benefits begin in the subsequent period.

Edward Marshall

Analyst

So can we talk about maybe some of the list of costs that you had there, because you mentioned quite a few. The professional fees which I assume with the audit, you talked about the higher indirect cost, the product inefficiencies and one-time development cost in new technology, so can we put numbers to this so I can have an idea maybe if you want to do as an EBIT number or if you want to do it as an EPS number, whatever is easier for you, but I’m assuming you have those numbers prepared?

Joseph Bellino

Analyst

We haven’t broken those out, we really don’t break those out. I think the best assistance I could give you is between 20-some million last year and the $10 million, about $4 million was related to some non-rate things and the other $6 million delta was in mix change and the delay in – not the delay, but the taking out of the indirect labors which we incurred the cost and they’re going away.

Edward Marshall

Analyst

So there are no numbers, I mean, can you tell me how much the audit cost?

Joseph Bellino

Analyst

Yes, the audit cost, it’s in the proxy, the audit fees excluding taxes were about $2.4 million versus last year’s cost, they were about $1.6 million. There were also legal expenses and there were income tax expenses. And so that was fairly significant and the PSUs again, the proxy shows that because of our strong performance in 2014, the PSUs, there were some that were made valuable and that’s probably another $500,000 to $600,000.

Edward Marshall

Analyst

And the indirect costs, what was the...

Anthony Reardon

Analyst

On the development side, look if you just take the pickup in the cost increase in SG&A and the development cost you’re talking about, like Joe said about 30% last year, it’s about $3 million is what those had. The inefficiencies in the product mix developed the rest of it, but there were scheduled slides in there that caused – and this is where it’s very difficult and this is why we don’t break these numbers down because it becomes – when you’re inefficient, you increase higher overhead costs, so you put yourself in a position where the overhead is driven higher because you’re not performing at the labor rate requirements that you need. And so with additional schedule slides on some major programs on the military side that were not anticipated, we were not able to catch up, trust me when I tell you that we had a pretty solid cost reduction program. We’ve taken out probably – suffice it to say, we’ve taken out a significant number of headcount at the end of the year last year, last two quarters last year and no one has anticipated that we had some early in this first quarter, but they did not come out fast enough in order to be able to offset the overhead cost that were impacted by the shift in revenue base and the product mix shift.

Edward Marshall

Analyst

So are you saying the $10 million delta from this year to last year EBITDA, roughly a third of that was your professional fees and the remainder was the inefficiencies, is that what you’re saying?

Joseph Bellino

Analyst

I’d put it in buckets, so some was the mix shift. As I commented earlier, we typically generated higher gross margin on the military business and more modest margins on the commercial business. So when you do a delta, if you work through the numbers of the loss in military business year over year at X margin and add back the delta increase in commercial aerospace with a lower margin, I think product mix can quantify that, X the labor inefficiencies. So I think you want to do your own modeling and make some assumptions.

Edward Marshall

Analyst

No, correct. But there are – you called the inefficiencies on the quarter, you called the professional fees and the indirect costs, and from the investment community, to the shareholders of – that own the stock, to give us some kind of understanding to how to look at the business on a go forward basis, that’s what I’m trying to get at, how much of this is actual water on to the bridge and how much, as we progress into future quarters that we can – and to the timing of that that we can see the step-off, that’s what I’m asking and trying to get to.

Joseph Bellino

Analyst

Okay, let me see if I can help you a little bit. When you look at product inefficiencies, you also have to take into consideration that in the first quarter last year there was a significant number of dollars in revenue in the Apache and the C-17, which generated pretty solid profit. Now that has gone and then remember, as we looked at it and anticipated over the year. So those programs second quarter was less than the first quarter. So we lost the revenue, but we also lost the margins that went with that, but then we tried to make up margins by the cost cutting, right. So we didn’t quite get back to all those cost cutting. So some of the profitability would have been down regardless just because of the loss of those two major programs. But when you look at the existing programs where we had lower inefficiency that was another factor and another 20% off those numbers if you look at it. So when you base these numbers together, you had the loss of C-17 and Apache that’s coming down and we should be picking up efficiency on those programs. We had inefficiency due to schedule slides, we had some non-recurring with regards to the SG&A, the expenses, the development cost for the new technology within the area of about $1 million. So those maybe about $1.8 million when you add in some of the other aspects of it. So those are areas where the adjustments would not return.

Edward Marshall

Analyst

I guess if we can move on to maybe cash flow, I mean, Joe, did I hear you say that you expect to return to normalized seasonal cash flow patterns on a go forward basis?

Joseph Bellino

Analyst

Yes.

Edward Marshall

Analyst

So as we look year over year, do you anticipate very similar numbers to what we’ve put up in the last two years maybe on average, is that accurate?

Joseph Bellino

Analyst

Yes, I think we can even improve upon that if we complete our financing in the third quarter, that will generate more cash flow. But we were pleased, we had record collections in the first quarter even though our sales from the fourth quarter were similar to the previous year. We generated cash, where last year we used historically since the acquisitions in 2012, we’ve used anywhere from $6 million to $10 million in the first quarter. We’re really diligent about collections. And yes, the seasonal patterns we expect will continue. Generally, the fourth quarter is the largest net generator, between quarters one, two and three, typically cumulatively we’re about slightly positive on cash flow through three quarters and I think with the projected lower interest expenses that will improve our cash flow even a little bit more.

Edward Marshall

Analyst

And on the refi, I’m assuming you’ve talked to your banks, is any of the actions that occurred in the fourth quarter or even the first quarter this year, have they impeded that or caused any kind of disruption to the timing or even the rates that you anticipate that you’ll receive on any refinancing that may occur?

Joseph Bellino

Analyst

We don’t see it till the third quarter events. So we’re just having discussions right now internally analyzing that, but we know that the markets are very favorable both in the term loan B markets and in the commercial banking markets, there is capacity there, there are many borrowers like us that are doing refis during this time and the climate is very good, especially with the looks like the Fed won’t increase rates till the second half of this year. So we feel pretty – we’re very positive about the whole project and our experience and our ability to generate cash flow and pay down debt. We feel we have very good support from the lending community.

Edward Marshall

Analyst

So you have or you have not spoke to the bank group?

Joseph Bellino

Analyst

Well, we have continuing dialog, Ed. We have had a dialog over probably last year in anticipation of this. We’re very proactive in looking at it.

Edward Marshall

Analyst

And so what kind of rate are you assuming for the debt?

Joseph Bellino

Analyst

As I said on our April 8 call, we’re looking at 5.25% to 5.75%, which would come down from 8.32% which is our blended average interest rate today.

Edward Marshall

Analyst

So there is no change that based on the hiccups that you had in Q1?

Joseph Bellino

Analyst

No, in fact, the markets got improved since April as interest rates have tightened. So perhaps we get to the lower end of that 5.25%.

Anthony Reardon

Analyst

Ed, I think the banks will look at us over a longer period in the quarter.

Edward Marshall

Analyst

Sure. I guess what I’m getting at is this is typically – Ducommun has some of these hiccups from time to time and I’m wondering if this is just one of those hiccups and as we move forward throughout 2015, your operations improve, the margins return maybe [indiscernible] potentially a lower mean than historically. But again, moving towards a mean, and this is just a blip on the screen, is that a fair assumption?

Anthony Reardon

Analyst

That’s a fair assumption, that’s the way that we’re looking at it. And like I said in my remarks, we have plans in place operationally, trust me when I tell you the operations are embarrassed by the performance and we’re going to put this thing back on track. So it is a hiccup, there are some one-time expenses in there that will not recur and we feel comfortable that we will be on track, second quarter we anticipate better results than the first quarter. And like I said in year-end comments, we anticipate that the second half will be stronger. We did say that this is a transition year, so we got a lot of moving parts going on and obviously we didn’t anticipate the issues that delayed the year-end results and unfortunately that took up a lot of resources in order to be able to get that accomplished. That’s not an excuse though, by the way. That’s not an excuse for the performance.

Operator

Operator

Your next question comes from the line of Mark Jordan with Noble Financial.

Mark Jordan

Analyst · Noble Financial.

Question about DAS in terms of what you might view, given the structural shift in mix towards commercial versus defense where historically you would have looked at a good quarter being in the 11% and 12% operating profit range. With the higher mix of commercial, are we looking at a business that when things are tuned appropriately should be a 9% to 10% operating margin business going forward?

Anthony Reardon

Analyst · Noble Financial.

At this stage in transition that seems reasonable, Mark.

Mark Jordan

Analyst · Noble Financial.

Secondly, do you look at the tax rate to be 35% for the balance of the year?

Joseph Bellino

Analyst · Noble Financial.

We look at it for being 33% to 35%, probably model 33%.

Mark Jordan

Analyst · Noble Financial.

DAS, also given the weakness in the first quarter and the push out, the slowness of orders you've seen on the military side, is it reasonable to assume that DAS revenue is down year over year 7% to 8%, I think I was looking at 3% to 4% type decline, but is it more reasonable to assume a little bit higher single digit decline?

Joseph Bellino

Analyst · Noble Financial.

If you’re looking at the full year business versus the next three quarters?

Mark Jordan

Analyst · Noble Financial.

Full year

Joseph Bellino

Analyst · Noble Financial.

You’re looking for next three quarters, the phenomena that occurred in the first quarter was both the exit of the C-17 completely and a reduction in requirements for the Apache, but our other military helicopters programs declined too, in the Chinook and the Blackhawk and it’s a trickledown effect from a couple of years before, less troop support, and outcall, and those kind of things. So from a number standpoint, when we look at our first quarter $81 million versus $72 million, that bridge, our structures, defense structures shrunk from $34 million to $20 million and our commercial aerospace expanded from $48 million to $53 million. So we continue to expect, as I mentioned, 3% to 5%, maybe even 6% on the top side of commercial. But it does look like overall we’re going to be down 10% in the defense structures through the year and then it will level off sequentially because we look like we’ve hit the trough area by the end of the second half of this year of the defense structure business. And we expect to start seeing year over year growth in 2016 in the DAS segment driven by the commercial aerospace, which should be almost 50% of our business going forward.

Mark Jordan

Analyst · Noble Financial.

Finally, what would you tie to – what is the drivers for the strength of the industrial side of DLT?

Joseph Bellino

Analyst · Noble Financial.

I think what we found is we’ve taken a segmented marketing approach through an SBU analysis that Joel Benkie headed up and we’ve looked on the electronics side is where the industrials are, as you know, some focused market development areas in customers in the farm equipment, electronic controls is one area. There are some other industrial market application customers that we have been working on that are ready to roll out some products. And so I think it’s been just a focus that we saw after a lot of research and analysis that that was longer term a really attractive market niche for us.

Anthony Reardon

Analyst · Noble Financial.

Specifically, Mark, we’re seeing some growth in the heavy industrial. We’re also seeing some nice pickup on the medical side. But I think that the real growth area, as we’ve done some new product development and we’re on some new applications there, so I think that from our prototyping capability, it’s opened up new markets for us. Along with that Joe said, I mean, we’re very – rightful approach in terms of the growth in that business and we have an excellent marketing strategy, so we’re getting to more customers, we’ve got new customer development that’s happening in that business, but the heavy industrial, some pickup in the medical and a lot of new development for new customers.

Operator

Operator

[Operator Instructions] Your next question comes from the line of Ken Herbert with Canaccord.

Ken Herbert

Analyst · Canaccord.

Just to maybe to look at it from a different perspective and make sure I understand your commentary, so is it fair to say that in the second quarter, gross margins are similar to first quarter levels and then in the second half of the year sort of get up to similar levels as we saw in the second half of 2014?

Joseph Bellino

Analyst · Canaccord.

We believe the gross margins will expand sequentially in the second quarter from the unacceptable 15.5%. As I talked about it, alluded to it, I think last year’s second half, Ken, we had 17.9% margins. So we’re moving from that 15.5% to 17.9%. Where they shake out, it’s still preliminary, but we’re headed in the northeast direction, as I call it.

Ken Herbert

Analyst · Canaccord.

And I think based on your comments, probably second half this year gets to sort of those 17.9% or second half 2014 levels?

Joseph Bellino

Analyst · Canaccord.

That’s right, we’ll run them a little bit to get there.

Ken Herbert

Analyst · Canaccord.

And you talked about supply chain a little bit, is that part of the $4 million to $5 million incremental in operating profit you expect to see or is that maybe above and beyond what you’ve talked about?

Joseph Bellino

Analyst · Canaccord.

It’s actually in our existing programs. So we brought it up and we think that there is potential for above and beyond the $4 million to $5 million there. And it’s been a program that was initiated last year, Joel is driving the supply chain to reduce our number of suppliers in all areas and we’ve had some success. We’re moving in that direction right now, just for an example, I think we deal with like 65 different machine jobs out there and we’re going to take that down to low double digit number. So we’ve got a lot of things that are in play there and some of those are already been forecasted, but in addition to that $4 million to $5 million, we think there’ll be some pickup from the supply chain, yes.

Ken Herbert

Analyst · Canaccord.

And I can appreciate the philosophy that you don’t want to give annual guidance, but over the last year to two, you’ve had a lot of volatility around some of the quarters with some programs and with issues like this, is that something you might ever start to think differently about, you might ever start to think you might get to a point where you have confidence to start to maybe put some numbers out there or think about guidance in a more structured way?

Joseph Bellino

Analyst · Canaccord.

Yes, we have talked about it, Ken, and it’s on our radar screen. We certainly would like to get to where we’re more steady state performance and our forecasting has really improved significantly. So we are looking at that as being something that we hopefully would initiate next year, we can start giving you some annual guidance. As we feel very comfortable about where we are taking the programs, we had a terrible first quarter. I think we will regroup on that and then climb out of this one. So Ken, we dug a big hole for ourselves.

Ken Herbert

Analyst · Canaccord.

And then just finally, I mean, obviously really nice growth on the commercial aerospace side within each of the segments, but when I specifically look with AeroStructures on commercial aero, backlog was down a little bit sequentially and sort of down year over year, is there any concern there or is that just for the timing on some of these programs?

Anthony Reardon

Analyst · Canaccord.

That’s essentially timing. So it’s about the way that the quarter releases are coming out. So we’re very comfortable. I think that we will see some comparative changes as we go through the year, so even on the military and the Blackhawk side, that’s being released quarter over quarter. So all the commercial aircraft programs are quarter over quarter. So this is the lag there, but we’re comfortable on that side of defense.

Joseph Bellino

Analyst · Canaccord.

Just to add to that, Ken, we track what both Boeing and Airbus do. And in Boeing’s report, they showed modest growth, 5% or 6%, in their first quarter deliveries of 737s and a nice growth in Dreamliners from 17% to 30%. And we parallel that pretty much, there was a little extra 767 shipment. So those 8% to 10% growth rates that we experienced between 2008 and 2014 in the industry are going to slow down to 3% to 5% and we feel real comfortable that we could hit the top end of that range on a sustainable basis with growing with the market and increase content for some of the contracts announcement we’ve released recently.

Ken Herbert

Analyst · Canaccord.

And then just finally within DLT, on the margin, I mean, it sounds like the comments you sort of step up again to high single digits second quarter for the rest of the year, is that the right way to think about this business now?

Anthony Reardon

Analyst · Canaccord.

Probably in the second half, we’re still transitioning. There are some relatively higher indirect costs there that we’re addressing. And we believe that supply chain initiatives which we’re completing a lot of this consolidation during the quarter will start to flow through in the third quarter. So we’re probably looking at a similar GP in OI in this quarter and there is certainly improvement, sequential improvement in the second half of next year in DLT margins.

Operator

Operator

Your next question comes from the line of J.B. Groh with D.A. Davidson.

J.B. Groh

Analyst · D.A. Davidson.

Just sort of a housekeeping issue on the gross margin goal for the second half, that includes the $4 million to $5 million cost savings, correct?

Joseph Bellino

Analyst · D.A. Davidson.

Yes.

J.B. Groh

Analyst · D.A. Davidson.

So that would show up in gross margin and not so much in G&A?

Joseph Bellino

Analyst · D.A. Davidson.

Correct.

J.B. Groh

Analyst · D.A. Davidson.

And then just my last question, can you give us an indication of how much content gain you’re going to have on NEO or MAX versus current generation, if that’s been established?

Anthony Reardon

Analyst · D.A. Davidson.

On the MAX, I think the pickup is going to be 4% to 5%, somewhere in that range, might be higher. We’re working on some stuff right now, but from our current base. And on the NEO, of course, we’re just getting into the A320, so lot of the programs we’re working on and some of the new technology that we invested in in the first quarter is gaining us wins on the NEO. So I think that it’s kind of difficult to say what that growth is going to be, but let’s put it this way, anything we pickup there is incremental.

J.B. Groh

Analyst · D.A. Davidson.

So I’m just trying to establish maybe that once we transition to these new aircraft, you have the ability to grow little bit faster than just the production rate would indicate?

Anthony Reardon

Analyst · D.A. Davidson.

I think we do, yes. And on both of them, specifically, so when you look at the growth rate, we’d look at the 737 MAX and that will not be – that maybe 4% to 5%. The A320 I think will be higher than that, just based on the fact that where our base line is right now.

Operator

Operator

At this time, there appears to be no further questions in queue. I would now like to turn the call over to Tony Reardon for closing remarks.

Anthony Reardon

Analyst

Again, we’d like to thank everybody for joining us and we look forward to having a much stronger second quarter. So we’ll talk to you then. Thank you very much.