Anaren, Inc. F1Q10 (Qtr End 9/30/2009) Earnings Call Transcript

Anaren, Inc. (ANEN)

F1Q10 (Qtr End 9/30/2009) Earnings Call

October 29, 2009 5:00 pm ET

Executives

Lawrence A. Sala – Chairman, President, Chief Executive Officer

George A. Blanton – Senior Vice President and Chief Financial Officer

Analysts

Steve Ferranti – Stephens Incorporated

Charles John – Piper Jaffray

Richard Valera – Needham & Company

Chris McDonald – Kennedy Capital

Presentation

Operator

Thank you, for joining Larry Sala and George Blanton on Anaren Q1 earnings conference call. At this time I’ll turn to our host Mr. Larry Sala. Please go ahead sir.

Lawrence A. Sala

Thank you. Good afternoon and thank you for participating in the Anaren fiscal 2010 first quarter conference call. I am joined again today by George Blanton, our CFO and Joe Porcello, our VP of Accounting. I’ll provide a brief overview of the results of the quarter after which George will review the financial highlights. We’ll then take your questions.

Certain statements made during this conference call will be forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially from those discussed. You are encouraged to review Anaren's Securities and Exchange Commission filings to learn more about the various risks and uncertainties facing our business and their potential impact on our net sales, earnings and our stock price.

Net sales for the first quarter were $40.3 million, up 5.8% from the first quarter of last year and included $12.8 million of net sales from the M.S. Kennedy and Unicircuit acquisitions. The increase in net sales was driven by the Space and Defense Group.

Non-GAAP operating income for the quarter was $5.2 million or 12.9% of net sales, the increase in net sales of favorable sales mix and our continued cost reduction efforts positively impacted profitability for the quarter.

Wireless Group net sales for the quarter were $14.4 million down 27% from the first quarter of last year and down 5% sequentially from the fourth quarter of last year. Weaker demand for both custom and standard infrastructure components, was partially offset by an increase in shipments of consumer components the relatively weak demand for infrastructure products as well as pressure to reduce prices continued throughout the quarter.

Sales of consumer component products increased 54% from the first quarter of last year to $1.9 million as a result of increased demand for satellite television and cellular telephone applications. In addition the group captured several new design wins for handset applications during the quarter. Customers that exceeded 10% of Wireless Group net sales for the quarter were Nokia, Huawei, E.G. Components, who distributes Ericsson and Richardson.

For the Space and Defense Group net sales for the quarter were $25.9 million up 41% from the first quarter of last year and included $12.8 million in net sales from the M.S. Kennedy and Unicircuit acquisitions. During the quarter several programs transition from lower rate to volume production and are anticipated to drive increased net sales for the group for the reminder of the fiscal year.

Profit margins for the group continued to improve as a result of increased production yields and our continued cost reduction efforts. During the quarter we received orders and reinitiated production of counter-IED related components, we anticipate production of these components will continue to ramp throughout the second quarter and be at full rate production by the end of the calendar year.

New orders for the quarter were $25.2 million and included contracts components and assemblies were used in, satellite, radar, counter-IED and airborne jamming applications. Customers that generated greater than 10% of Space and Defense Group net sales for the quarter were Lockheed Martin, Raytheon and Northrop Grumman. Space and Defense order backlog at September 30th, 2009 was $86 million. George?

George A. Blanton

The highlight of the first quarter income statement and balance sheet at September 30, 2009 are presented on a non-GAAP basis These non-GAAP measures are each adjusted from GAAP results to exclude certain non-cash items, including equity-based compensation and acquisition-related inventory step-up and intangible amortization.

The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States. Please refer to our Q1 earnings release for a reconciliation of GAAP and non-GAAP measures.

Non-GAAP gross margin was 36.6% for the current quarter compared to 33.9% for the first quarter of last year. The increase in first quarter fiscal 2009 gross margins resulted from improved yield on new production programs, reduced operational costs and strong contributions from M.S. Kennedy and Unicircuit.

We expect non-GAAP gross margins to be between 35% and 37% for the second quarter of fiscal 2010. Investment in research and development was 9% of net sales in the first quarter compared to 8.1% of net sales for the first quarter of last year. Current R&D spending is supporting a number of Wireless infrastructure and consumer component product opportunities as well as the number of projects in the Space and Defense group and has not expected to decline in the near future.

R&D expenditures have increased in the first quarter of 2010 versus the first quarter of 2009 due to the higher level of opportunities in the Space and Defense Group, which resulted in approximately 500,000 in additional spending.

Non-GAAP operating income was 12.9% of net sales for the first quarter up 160 basis points from the first quarter of fiscal 2009. The increase was a result of higher yields on new production programs, reduced operating cost and higher sales levels for the Space and Defense Group.

Interest expense for the first quarter of fiscal 2010 was $183,000 compared to $266,000 for the fourth quarter. This decrease resulted from a further decline in the 90-day LIBOR at July 1st, 2009 compared to the rate and effect for the first quarter of fiscal 2009. The 90-day LIBOR has remained levels comparable for the first quarter and we expect interest expense for the second quarter to be approximately $175,000.

Non-GAAP net income was 8.7% of net sales or $0.24 per diluted share for the first quarter of 2010 compared to 7.8% of net sales or $0.21 per diluted share for the first quarter of last year.

The effective tax rate for the first quarter of fiscal 2010 was 31.3%, this compared to a tax rate of 35% for the first quarter of last year, the expected effective annual tax rate for fiscal 2010 and absent one-time events and given the scheduled exploration of the research and experimentation tax credit at December 31st, 2009 should be approximately 32%.

Balance sheet highlights include cash provided by operations was $5.6 million in the fiscal quarter of fiscal 2010. Capital expenditures were $1.2 million in the quarter. Cash, cash equivalents and investments were approximately $62 million at September 30, 2009 compared to approximately $64 million on June 30, 2008.

Anaren used $9.8 million to make the required July payment on its revolving line of credit in the quarter. During the first quarter we used 500,000 to purchase 29,000 shares of entering common stock treasury shares. There were approximately 1 million shares remaining under the current Board repurchase authorization at September 30, 2009.

Accounts Receivable were $26.3 million at September 30, 2009, up $1.8 million from June 30, 2009. Day’s sales outstanding, was 60 days down five days from September 30 last year. Inventories were 34.9 million at September 30, 2009 down 1% last quarter end down 12% compared to $39.2 million at September 30, 2008.

Lawrence A. Sala

Thanks George. For the second quarter of fiscal 2010 we expect a decline in sales for the Wireless group and an increase in sales for the Space and Defense Group from our just completed first quarter. As a result, we expect net sales to be in the range of $40 million to $44 million.

We expect GAAP net earnings per diluted share to be in the range of $0.18 to $0.22 using an anticipated tax rate of 32% and accounting for approximately $0.05 to $0.06 per share in charges related to expected stock-based compensation and amortization of acquired intangibles related to the acquisitions.

Non-GAAP net earnings per diluted share are expected to be in the range of $0.23 to $0.27 for the second quarter.

We will now take questions.

Question-and-Answer Session

Operator

Thank you Mr. Sala (Operator Instructions). We’ll go first this afternoon to Steve Ferranti with Stephens Incorporated.

Steve Ferranti – Stephens Incorporated

Hi guys, good afternoon nice job on the quarter. Want to see if you might you be able dig into little more until Wireless market, maybe talk a little bit about some of the dynamics you’re seeing there. Seems like if you could factor out the consumer business, kind of core Wireless market any ways, maybe a little bit softer then maybe we had been looking for. What kind of dynamics you see in there these days?

George A. Blanton

We have seen relatively slow demand and forecast through the end of this calendar year, the last couple of months now, when we had our call, a number of our larger OEMs were predicting things to be picking up right at this time and we had expectations that we will be ending this year on a stronger note and some of that might even come into last quarter but tendency seems to be a key pushing demand out. As far as overall insights, on component side of infrastructure we feel positively about the design wins we have the increasing content opportunities for amplifier and we are now negotiating next years forecast, which looked to up considerably from this current calendar yea. So our expectations are as we move into even early calendar 2010 we should see sequential growth in our standard component products of fair significance. First looks are demand being up double-digits over this current year even at expected negotiated prices. So but on the custom side of the business we‘ve challenge to find opportunities where we feel we can sustain reasonable margins long-term and our customers seemed to continue to focus on qualifying as many suppliers as possible and to diminishing our allocation as a result of just more people playing in the game. So we kind of refocussed on trying to find better higher differentiated opportunities, you think we are having some success but we don’t think it will have a big impact on this current fiscal year. The environment still seems like infrastructure spending in general has been relatively slower paced since we would say April, May timeframe as China slowdowns.

Steve Ferranti – Stephens Incorporated

And Larry some of the larger opportunity out there that you see in the standard business, is that predicated on the uptick in unit demand for base stations or is that a function of the increased content aspect of your growth in that business.

Lawrence A. Sala

Definitely driven from both we’re definitely seeing the new designs that we might speaking too for probably the last six months, increased unit per opportunity for us, those are rolling into production, so those designs are transitioning to production now and should be material drivers of revenue early in calendar 2010, which is pretty much I think the timeframe we predicted all along. But also I think expectations in the forecast that overall demand will be stronger next year that what its been this year.

Steve Ferranti – Stephens Incorporated,

Okay and can you give us an idea what the split was between standard and custom of the Wireless business.

Lawrence A. Sala

Yeah

Steve Ferranti – Stephens Incorporated

In the first quarter.

Lawrence A. Sala

Yeah in general it was roughly that kind of 60, 40 split that we seen, maybe a little more standard that that.

Steve Ferranti – Stephens Incorporated

Okay, but sounds to me like if we would kind of think about the business rolling forward here over the reminder of fiscal year, sounds like maybe the custom business flattish with growth coming from around the standard side. Is that kind of a good way for us to look at that?

Lawrence A. Sala

Yeah I think that’s reasonable and I think that mix was actually as much as 70, 30, about 70%, standard component about 30% custom last quarter.

Steve Ferranti – Stephens Incorporated

Okay and then last one for me, to extend that you can I realize that there are competitive issues at play here, but it sounded like you know you have some other opportunities in the custom business that maybe offer a little bit more differentiation for you guys that might be developing. Is there anything that you can tell us on where that business going?

Lawrence A. Sala

We have three or four projects I’d say in total. So I would say incrementally, annually maybe $5 to $7 million of opportunity would certainly fill in the kind of shortfall we seen in the last couple of quarters in our custom assembly growth where we’re delivering product trying to be qualified right now, but our history of being to able to predict the timeline to get qualified and get into productions its not stelar so, I don’t think we’d say much more than that.

Steve Ferranti – Stephens Incorporated

Fair enough. Thanks for taking my question guys.

Operator

Next now to Mike Walkley with Piper Jaffray

Charles John – Piper Jaffray

This is Charles John setting in Mike Walkley, hi Larry and Joe

Lawrence A. Sala

How are you

George A. Blanton

Hi

Charles John – Piper Jaffray

I am so fine. Maybe just building on some of questions, Larry you sound slightly more cautious just one the longer-term prospects for the custom, has anything fundamentally changed. Have you had just even more fierce pricing that the larger guys coming in and beating you guys down in pricing even more or is just you guys into the recovery that you expecting for Q4 and then its you guys just being more cautious for 2010?

Lawrence A. Sala

Yeah I guess most of it, I think just our caution. The fact that we just don’t have that kind of visibility we like to have and the other side of it is, we just continue to see the bigger players getting stronger and those players have not historically been big custom assembly customers of ours. They tend to do more themselves as well as increasing integration in the platform reducing the opportunity of custom products. So we said all year long that our R&D focus has been on our standard component product lines that’s where see differentiation, that’s were see growth and that’s where we see margin. So some of its inflicted and some of it just trends we see in the marketplace. Our bigger customers Ericsson and Huawei seem to getting bigger to us in terms of market share and tend to keep more inside then lot of the folks that have been bigger customer assembly customers for us over the years.

Charles John – Piper Jaffray

And then maybe just digging a bit into the China aspect, talking to some of the guys it sounds like CapEx is definitely slowing down Q4 and its going to be flat to slightly down in 2010, but positive side I guess there is a mix shift towards improving coverage in the capacity in related equipment and some of the urban areas. Maybe you can just talk about your expectations for China in 2010 and if this is even incrementally positively for you guys or not?

Lawrence A. Sala

Yeah you know its very difficult for us to speak to these particular geographies like I said we’re right now in the process of negotiating our annual purchase agreements with our biggest customers and its more driven by our standard component product line than it is custom assembly product. From a standard component product line, our customers is definitely looking at fairly substantial increase in expected volumes and their history of accuracy that they can predict to is been very good for us. So in our history for the last ten years is our bigger customers tend to achieve their forecast for the year or exceed them, so we’re reasonably confident about overall demand for our standard infrastructure components next year. We really don’t get the inside into even particular platforms or geographies to be able to desern whether we think Asia or Europe or the Americas are going to be particularly stronger or weaker.

Charles John – Piper Jaffray

Okay great and then some nice numbers in the consumer division, can you just help us think division going forward, maybe give some more color on just the satellite and the smart-phone apps. Is this a one or two quarter event or should we think of this maybe as a sustainable long-term driver for the business.

George A. Blanton

Well you know it’s a bit seasonal for us, especially on the satellite TV side. So it tends to be little stronger in the September and December quarter and little softer in the spring time. But we are definitely expecting sequential growth in shipments in the growth. We had very strong order flow and had a strong book to bill in the business even though it is really a book and ship business. Order flow was strong, our expectations are for higher shipments this quarter then last. Visibility longer-term, I think we said we had optimistic expectations of achieving 7, 8 million in revenue this year for that product line and I think we’re well on pace to do that and don’t have any significant expectations of loss of significant portions of that revenue stream. We you know quarterly are achieving a number of new design wins for various multifunction Wireless modules used predominately in high-end phone so we are optimistic that this is base of revenue should continue to build for us.

Charles John – Piper Jaffray

Okay and then last one for me. The Space and Defense seems to be tracking along very nicely you talked about some of the newer projects gaining volume. Is backlog the best way that looking at this is if look this for the last several quarters organic and the overall backlog have been in the both 60 and 25 million mark, I am guessing this should change with some of the new projects you referenced in the call, is that a good way to think about it?

Lawrence A. Sala

Yeah I mean we’re expecting the tier revenue continue to grow throughout the reminder of the year and we expect to have good book-to-bill ratio for the year. its very lumpy business I any particular quarter and even in more extended periods because we get these kind of annual buys and take in shifts that get delayed. Sometimes we can get multi year on buys as well. So yeah I mean our backlog has skewed a bit with the acquisitions that we made. Our Unicircuit aquisition is very much of booking shift business its not a long backlog carrying business as would be our on Space and Defense business as well as MSK is more of a backlog longer lead time driven business. So our average lead time we said as about nine months you know our backlog is probably going to hopefully stay around that sort of timeline or maybe even be shorter because of the influence of Unicircuit. So we would expect that going forward we should have a relatively one to one or better book-to-bill ratio and beyond the lumpiness of the way orders flowed in that business.

Charles John – Piper Jaffray

Okay perfect thanks a lot guys

Operator

Next now to Richard Valera of Needham & Company

Richard Valera – Needham & Company

Thanks good afternoon guys Blair as one of who could give us a little color on that programs that are ramping into production you mentioned over I guess late this quarter into the next quarter

George A. Blanton

Sure I mean, we had discussed before content that we have in Phalanx radar upgrade program. That program for us it was something on the order about $5 million year $6 million year kind of program. We expect it to have multiple years of life and we should be in relatively full volume production this quarter. Last quarter we had probably about a month to a month and a half worth of volume production. So that’s just really getting started for us, we have dollar content on the B2 radar upgrade program, that’s probably again a $6 million a year contract for us. It’s not on that we expect to be multiple years, its probably more like a year and half. We ramped things up, got through some production challenges last quarter, we really didn’t recognize much of any revenue last quarter. We’ll probably be at about half rate this quarter, maybe a little better than that and full rate in the March quarter of next year. We got turned back on obviously on the ID program, its not brand new but its ramping up again for us. So last quarter we might of seen a $1 million of revenue this quarter we expect to see two. As we get into the march quarter we expect to be running at that kind of $2.5 to $3 million a quarter and so that program again, from a visibility of orders our customers has, we feel good for at least a good 12 months of production. We would expect it to go on even longer than that. We haven’t booked all those orders ourselves. We only booked $1 million so far of orders. But they are orders flowing now and getting finalized right now. Turned back on late last quarter for the global star contract. We were on a stop work. The whole program I believe was on a stop work for about seven months. So that got turned on late last quarter. I’m guessing that we still have probably $5 million of revenues to recognize on that program. We are about half way through. That’s the sort of order of magnitude. So there is a couple of others but we're in much stronger position as we entered the second quarter than we were coming into first quarter.

Richard Valera – Needham & Company

That’s very helpful color. Maybe discuss some of the longer-term opportunities in the airborne rate on market. I know you have been working heavily on the joint strike fighter. If there is any program there you could highlight particularly some of the milestones you look for and then in terms of winning content, knowing about winning content in that and when some of them might ramp into production if you were successful.

Lawrence A. Sala

Sure I mean its really two areas of opportunities for us that I would say significant incremental addressable market for us. It’s both in the ground mobile radar market where we much higher volumes then the kind of fixed ballistic missile type of radar we participated on in the past. And then the airborne radar market which include a number of different programs from a joint strike fighter to upgrades for existing platforms like the F-16 and F-15, F-18 and we are we really cant speak specifically to what technology we are applying to what program. So we can talk more in general on what to look for and we have opportunities to produce beam forming networks. We announced our beam forming content on EQ-36, there is other mobile and ship born radar’s fairly significant volume that we pursue those types of and airborne opportunities. And those are typically content opportunities for us of something between say 50,000 and $150,000 for opportunity. The ground based radars are typically something on the order of 75 to a few hundred systems and the airborne opportunities are typically on the order of 1000 to a couple of thousand systems. We also produce LPCC module substrates. So these are packages, microwave packages for building active electronic modules for either the radar signal processing or the actual phased array antenna portion of the radar. And our content can very greatly there but we would say in these mobile ground radar applications and our content opportunity for just packaged technology is something on the order probably a quarter of a million to $0.5 million per array. And in the airborne opportunity it's probably something on the order of 60, 70% of that. And then lastly through our MS Kennedy acquisition, we are starting to pursue populating those modules and suppling 100% populated and tested RF modules for both radar signal processing and the active array. And that doubles and triples our dollar content, from just selling the package itself, so it's a very substantial adjustable opportunity for us, we would announce and we'd hopefully that over the course of the next six month we're announcing contracts for both building packages, building beam forming types of networks as well as some total RF module supply contracts. And that we would see that ramp up over the next 24 months kind of time frame. So we would expect like I said contract towards the next six months, a good 12 months to build and qualify ourselves as a supplier and then the following 12 months be ramping kind of volume production. But in general we feel like this marketplace you know, is a good 4, $5 billion adjustable market for us or better. There are alot of opportunities some of its captured with our OEMs and how addressable it is and still yet to be seen and then there is various people who compete in any one of those areas. But we think we are pretty unique in our manufacturing capability coupled with our RF testing and design capabilities. That was the opportunity that we were interested in when we made these two acquisitions.

Richard Valera – Needham & Company

Sure. That make sense. Just switching gears back to the wireless business you mentioned I guess the standard components were around 70% on the last quarter versus the 30 for custom. And it sounds like as you move into the second half of the fiscal year you are going to have growth with standard and say not growth with custom. So it sounds like that percentage could shift even more towards standard I mean is there a thought that you kind of continue to de-emphasizes the custom which seems like frankly less attractive business from a lot of aspects and that sort of becomes a much smaller part of your business overtime.

Lawrence A. Sala

I think we still see opportunities where we can build a reasonable business on the custom side. Is it something we see as a growth engine for us, not today? But we see ability to kind of sustain the business where was may be two quarters ago, we think there is opportunities where there is enough differentiation in the reasonable addressable market. I think like our standard project, we may be focusing lower in the food chain and when we have in the past so what it may mean is more different projects that were in production on of lower dollar content which we think is probably a good thing as well where we are not captive to one or two customers driving a significant percentage of our revenue. But that something that we're analyzing today, we certainly see system architectures changing a lot of complexity in the antenna and putting a lot of technology closer to the antenna. And we think that opens up an opportunity for some of our capabilities. But we are definitely not interested in pursuing those revenue dollars soley only for revenue dollars. It doesn’t make sense to us from our margin and differentiation standpoint, we're not going to get in and do it.

Richard Valera – Needham & Company

And its helpful. Finally for George the gross margin trajectory beyond the second quarter I mean pretty impressive levels here but it sounds like you're actually seeing an improving mix as you ramp into the production phase of some of these programs. I was just wondering how you should think about gross margin as you move into the back half of your fiscal year?

George A. Blanton

We are happy with the gross profit results for the first quarter, and in fact we stated fairly a strong level there. And we did have some cost reductions that continued to contribute to that. Of course year-over-year we were moving to China with our resisted product line and that’s completed so that obviously was part of the benefit in addition to lower operating cost. And as the volume increases I would expect the gross profit to continue to improve if the volume is that significant and we'll continue focusing on these cost reduction opportunities I think that the trajectory is good right now.

Richard Valera – Needham & Company

You could actually see improvement beyond the second quarter section. Some level of sequential improvement?

George A. Blanton

Yeah of course mix in the wireless side has lot to do with that, but given the same mix and even more components for shipments, that certainly is possible.

Richard Valera – Needham & Company

Okay. That’s helpful. Thank you.

Operator

(Operator Instructions) We would move now to Chris McDonald with Kennedy Capital

Chris McDonald – Kennedy Capital

Hi guys. Thanks for taking my questions. Just one follow up on Richards last question. You know, the whole thought process around this mix shift towards more component on the wireless side. That ought to be favorable from the margin perspective as that mix used to gravitate towards standard, correct.

George A. Blanton

We have said in many time our standard component gross margin is probably 10 points better than our custom product gross margin. So yes it is a definitely a favorable shift for us.

Chris McDonald – Kennedy Capital

In the visibility that you are seeing Larry you talked about how historically those customers have been provided pretty good forecast on the component side. You are at the point now where you know you’ve been designed in, you know the drivers behind that and its just kind of calibrating the overall volume in the market? Right.

Lawrence A. Sala

Yeah I mean just whether or not their expectations are accurate. What you said their history has been accurate. We negotiate pricing for the year and they provide us with our allocation and we know if the business happens we will get our percentage of the business and the price is established. So there is a not a lot of variables other than the demand actually being up to their expectations.

Chris McDonald – Kennedy Capital

Can you be anymore granular around the growth that you might expect next year, or are we to early for that?

Lawrence A. Sala

You know, all I can say is definitely in the standard component side, from the first looks we have and it's only the handful of our bigger customers but as you can imagine two or three customers and the infrastructure spacing standard components probably drive 60% of our business. The early looks we have , they are projections, dollar wise and sales wise our shipment should be up more than 10% next year from where they were this year.

Chris McDonald – Kennedy Capital

Okay great. Before we leave wireless just one more in consumer, the satellite TV area in years passed at least was a pretty big contributor. I am just wondering do you foresee that getting back to the $1 million a quarter type run rate that I think the company had, I guess we are going back a couple of years now?

George A. Blanton

You know I don’t have that data right in front me, but I assume as we shipped close to 2 million last quarter that probably close to half of that driven by satellite applications. The difference today is not highly concentrated with one customer and it's not also highly concentrated in just dish network applications. We've gotten designed in across both direct TV and dish network applications as well as a number of different suppliers as opposed to the very concentrated business that we had a couple of years ago.

Chris McDonald – Kennedy Capital

Okay, okay. Thanks. On the defense side, with the all the programs ramping up this quarter, pretty good margin performance there certainly in light of fact that a lot of that was new. Where all the new ramp up significantly lower gross margins or they come out of the gate pretty strong right away here, I'm just trying to sense for maybe how much that actually held back to margin percentage the fact that you had these new .

George A. Blanton

I don’t know that we can give you that the precession of actual points to margin impact but certainly all of those programs that we spoke to probably excluding Globalstar for us were running at lower yields and less efficient last quarter than we would expect them to run going forward. Globalstar is on hold for us. We were producing it efficiently and we just turned that switch back on for it. But the other programs we were definitely ramping, improving production efficiencies yields throughout the quarter.

Chris McDonald – Kennedy Capital

Okay. And then on the IT area. Once I want to make sure I got my timing nailed down there. Once you hit the full production rate, which sounds like its probably the March quarter. You see the program that running off them for maybe 12 or 15 months at that rate or has the clock started ticking already I guess.

Lawrence A. Sala

That is pretty accurate. We better be in range in March quarter or I think we're going to have some visitors that we don’t want to have. So that’s definitely the plan. And we shouldn’t have any significant issues achieving that. From that time floor we would expect at least another 12 to 15 months of production at those kind of rates. Assuming the program doesn’t get accelerated from there and there is no cancellations from there. But that’s our expectation that that will be kind of a steady state production rate for at least a year to year-and-half or more.

Chris McDonald – Kennedy Capital

Okay. and then last one from me. Forgive me if you mentioned this when you are running through some of the new programs, but just an update on the EQ-36 would be great.

Lawrence A. Sala

Well EQ-36 is another one those we spoken to a bi so I didn’t mention a lot. But it to continuous to ramp up in production and we’re improving our production efficiencies. And so our expectations are that we’ll see some material bookings for that program over the next three quarters. And it will be a significant new order program for us this year. I would say we probably expect to book another $6 or $7 million of orders on that program this year. And expect it to be a kind of a main stay, $5 to $10 million year program for us for the foreseeable future.

Chris McDonald – Kennedy Capital

Okay. Thanks a lot. Nice Result

Operator

And gentlemen it does appear we have no further questions, I’ll turn the conference back to you sir.

Lawrence A. Sala

We kindly appreciate your participation and we look forward to speaking with you again next quarter.

Operator

Thank you sir. Ladies and gentlemen this concludes your conference call. I'd like to thank you all for joining us and wish you all a great day. Good Bye.

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