IEC Electronics Corp.
Q1 2018 Earnings Call Transcript

Published: 7 Feb 2018

[Operator:]

Greetings. And welcome to IEC Electronics First Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Audra Gavelis, Director of Marketing and IR. Thank you. Please go ahead.

[Audra Gavelis:]

Thank you for calling in. On the call this morning, we have Jeff Schlarbaum, President and CEO; as well as Michael Williams, Chief Financial Officer. Before we get started, I would like to take a moment to read the Safe Harbor statement. This conference call contains certain statements that are or may be deemed to be forward-looking statements. These forward-looking statements, such as when the company describes what it believes, expects or anticipates, will occur and other similar statements include, but are not limited to statements regarding future sales and operating results, future prospects, strategic initiatives, turnaround and growth efforts, the capabilities and capacities of business operations, any financial or other guidance, and all statements that are not based on historical facts, but rather reflect the company’s current expectations concerning future results and events. The ultimate accuracy of these forward-looking statements is dependent upon a number of risks and uncertainties that may cause the company’s actual results or performance to be different than as expressed or implied by these statements. Specific risks and uncertainties include, but are not limited to, those set forth in the company’s earnings release issued immediately before this call and in the company’s most recent Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our other reports filed with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or correct any of the forward-looking statements contained herein whether as a result of new information, future events or otherwise, except as required by law. I will now turn the call over to Jeff Schlarbaum. Please go ahead, Jeff.

[Jeff Schlarbaum:]

Well, thank you, Audra, and good morning, everyone. During the first quarter of fiscal 2018, we experienced some anticipated challenges on our path to growth, as we work to on-board new programs and new customers, with approximately 30% of our backlog, representing these new projects, which can take longer to ramp, we unfortunately converted less backlog to revenue than anticipated during the first fiscal quarter due to a variety of factors, resulting in the shift of millions of dollars in customer order requirements from fiscal Q1 to fiscal Q2. One of the most significant factors we were confronted with is the current global supply chain constrains associated with the procurement of certain electronic components. While this challenge is not specific to IEC, it’s impacting our overall industry, with certain components becoming difficult to procure, having excessive lead times or on allocation due to limited global supplies. These shortages clearly affected our ability to assemble and ship product during the first quarter. While we don’t know for certain when this climate will improve, we are actively involved with our supply chain partners to minimize the impact for our customers, as well as working with these same customers to develop alternative plans to improve future sourcing efforts. In addition, as I mentioned last quarter, the on-boarding process of new products, especially the complex ones we work with, can always be fulfilled in a linear fashion. Scaling up new products and developing robust manufacturing processes often require time to optimize, to qualify and then do obtain customer acceptance. During this process, customer control changes can often emerge that require process or procurement modifications, which can add unexpected time to our manufacturing cycle times. These variations can also imposed downward margin pressure due to the high amount of resources being applied early on in the process versus the volume of product were being produced. We converted less of our backlog to revenue that expected during the quarter and as a result, revenue came in essentially flat to the same quarter last year, although, our outlook for fiscal 2018 remains positive. Throughout fiscal 2017, we have focused on rebuilding our sales funnel, which has resulted in a strong pipeline of opportunities and growing backlog of programs, with new and existing customers. Our backlog grew from $54 million in September of 2016 to -- I’m sorry to $72 million in September of 2017. On the December earnings call, I mentioned that our backlog had grown in the first 60 days of the fiscal 2018 by more than 25% since our September year end. And as of January of 2018, our backlog has now reached over $100 million, a level we have not seen in many years. We have essentially pivoted from a scarcity of orders and a non-existent sales pipeline in early 2017 to an abundance of orders with the robust pipeline that we are now in the process of growing. This is a very exciting time that does come with some challenges to which our organization is quickly adapting. Our financial results in Q1 were below expectation, but we believe we are transitioning into a much stronger company, which will be able to generate consistent organic growth above industry average and that will return to industry leading margins. As we look forward into the fiscal 2018, we expect revenue improvement and return to profitability as new programs are on-boarded and ramped up into production. As we have continue to rebuild our business, one of our core principles has been driving operational execution both for our efficiency, and more importantly, to drive towards exceeding our customer’s expectations. During the last few years, we have significantly improved our customer satisfaction levels. As you know, we work on high complexity programs for life saving and mission critical applications, largely for customers, for our Fortune 500 companies and highly-regulated markets. So our expertise, our flexibility and our responsiveness are critical to our partnerships. The heightened new program activity we have generated from existing customers and our success in attracting new customers, are a direct result of our improved operational execution. Additionally, our restructured sales and marketing platform is focused on identifying the right customers for our skill set and this focus has improved the quality and the quantity of the new opportunities in our sales funnel. Establishing and maintaining the strong pipeline of new customers is essential to our efforts around re-establishing consistent organic revenue growth. We have a solid backlog in place, which we believe positions us well to drive sustained growth throughout the balance of fiscal 2018. We also have a solid balance sheet, which we believe positions us well to win new business. During the first quarter, we saw slight increases in our debt position and inventory related to the number of new programs that are in the early stages of on-boarding and that we expect will continue to progress through the on-boarding phase over the next few fiscal quarters. The preliminary phase of our on-boarding processes include a variety of activities ranging from the setup and development of our supply chain structures to the development of robust manufacturing processes to build these complex products that were contracted to produce. We believe this extended on-boarding process will pay off over the long-haul as we drive efficient and reliable manufacturing practices that will result in sticky customer relationships. Looking at our business segments, in the first fiscal quarter of 2018, we saw the revenue distribution of 61% for Aerospace and Defense, 17% for Medical, 18% for Industrial and 4% for all other. The contribution of our Aerospace and Defense business continues to be strong. At a macro level, the sector has strengthened and we have marquee customers for which we are seeing an abundance of new projects positively impacting the backlog. However, as discussed earlier, these new projects also put pressure on our operational execution due to the lengthy on-boarding process. Revenue in the Medical business decreased during the quarter. Although, we continue to respond to our customers’ demand, we have discussed previously, we saw volume contractions from two customers in the first half of fiscal 2017 and we start to see resurgence from one customer in the second half of fiscal 2017. Recently, in the first quarter of fiscal 2018, we started to see increased demand signals from the second medical customer. While we are pleased to see an increase in demand signals from this medical customer, we also want to acknowledge that is not yet at historical levels. Our Industrial market revenues declined slightly in the first quarter, but we did see increased demand from one customer and we are optimistic about building momentum in this sector as we move through fiscal 2018. We believe IEC enjoys a solid and growing reputation as a leading U.S. provider of solutions, providing advanced engineering capabilities and vertical manufacturing services for highly complex electronics, while minimizing supply chain risk. Our brand recognition is a competitive advantage, as we work to grow our market share, by broadening our exposure to potential customers and expanding our involvement with existing customers. I will now turn the call over to Mike Williams to review the company’s financial performance. Mike?

[Michael Williams:]

Thanks, Jeff. Revenue for the first quarter of fiscal 2018 was $21.2 million, essentially flat as compared to the first quarter of fiscal 2017. The company experienced declines in its Medical and Industrial market sectors year-over-year, but had an increase in Aerospace and Defense sector. The Aerospace and Defense sector saw a net increase of $2.5 million, primarily related to increased demand in new programs from existing customers. In the Medical sector, we saw a decrease of $2.2 million. Two customers whose demand declined roughly $1.6 million have recently increased their orders, and therefore, we expect our revenue to increase with them. While two other customers declined roughly $1 million, due to a decline in their programs, we had one existing customer increased demand year-over-year by $400,000. The Industrial sector declined by $400,000 due to decreased demand from multiple customers, partly offset by a $1 million increase in demand from a long time existing customer. Gross profit for the first quarter of fiscal 2018 was $1.5 million or 7.2% of sales, compared to $1.8 million or 8.6% of sales in the first quarter of fiscal 2017. The decline in gross profit was due to customer mix and labor inefficiencies due to the supply chain delays and on-boarding of new programs. Selling and administrative expenses were $2.8 million and represented 13.2% of sales in the first quarter of fiscal 2018, compared to $2.4 million or 11.6% of sales in the prior fiscal year. The increase in selling and administrative expenses in the first quarter was primarily due to higher wage and related expenses. The company recorded a net loss in the first quarter of fiscal 2018 of $500,000 or a loss of $0.05 per share, compared to a net loss of $900,000 or $0.09 per share in the first quarter of fiscal 2017. In December of 2017, the U.S. Government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act, which significantly lowers the U.S. corporate income tax rate. As IEC has September 30th fiscal year end, the lower corporate income tax rate will be phased in, resulting in an expected U.S. statutory federal tax rate of approximately 24.5% for our fiscal year ended September 30, 2018, and approximately 21% for subsequent fiscal years. In addition, previously paid federal alternative minimum tax will now be fully refundable regardless of whether there is a future income tax liability before AMT credits. The company therefore recorded a net tax benefit of approximately $1 million, resulting from the release of the valuation allowance related to the company’s AMT credits. Now looking at our balance sheet, inventory as of December 29, 2017, was $20.9 million, compared to $15.6 million as of September 30, 2017. As we discussed previously, it’s important that we have inventory on hand for new projects and ramping programs. However, with the supply constraints, as Jeff mentioned, has made managing our inventory levels more difficult. This is a constant focus for us and we will be -- and will be a continued challenge as we ramp up for topline growth. We also recently entered into a $1.5 million Equipment Line Term Loan line of credit with M&T Bank to enables us to procure needed capital for the ramp up of new programs. With that, I’ll turn the call back over to Jeff.

[Jeff Schlarbaum:]

Great. Thanks Mike. As we move through fiscal 2018, we have identified three key elements to drive our future growth. Renewing focus on our target markets and customers, driving sales conversions and continuing to deliver operational excellence. Our sales team is focused exclusively on customers that embraced in whole or in part, a strategy of domestic sourcing, many are global, but they have a deliberate domestic sourcing strategy for their complex products in order to secure IP protection and to collapse lead times. Being solely U.S. based gives us the ability to react quickly for our customers as their needs evolve, which we believe is a competitive advantage for IEC. In terms of driving sales conversions, it’s important to note, many of our customers are outsourcing hundreds of millions of dollars of business. Now that we have rebuilt and solidified our relationships, we can further grow our business with them by continuing to demonstrate superior operational execution and greater flexibility than our competitors. We are starting to see new programs and being introduced into new divisions with existing customers which makes it very exciting time for us. We rebuilt the new business pipeline to better resemble our sales activity in the 2005 through 2012 timeframe. And as a result, we are starting to see on-boarding of a volume of brand new strategic projects for the company for the first time in a long time. Operational execution and excellence is the other area that must be deliberately demonstrated to new and existing customers. IEC is moving from a turnaround situation into a growth phase. This growth includes challenges, both internal and external, that our organization is responding to and learning from to become a more attractive EMS company as time progresses. We are highly focused on reestablishing growth in the coming quarters and years. We have demonstrated our ability to create growth in the past, and I’m confident, we can demonstrate improved momentum as we move forward. Our margins, which compressed a bit this quarter, remain better than most in the industry. Our asset management has been improved with 57% debt reduction since the change of control and we believe customer confidence in IEC has returned as evidenced by their alignment of more of their work with us. We are honored to be named Supplier of the Year for ViaSat in 2017, particularly as we know the competitive set of companies also considered for that award. That award acknowledges our ability to execute with our proven industry know-how and we believe IEC’s value proposition resonates in our industry and our performance delivers. We are looking forward to continuing to convert our backlog for the remainder of fiscal 2018 and advancing our path to growth. With that, I will now turn the call over to questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Ben Klieve with Noble Capital Markets. Please go ahead with your question.

[Ben Klieve:]

Excuse me. All right. Thank you. So few questions here, first, I want to be clear that the sequential declines in revenue from the fourth quarter, you didn’t have any lost customers or contracts, that -- this decline from the fourth quarter was purely related to the random -- the miscellaneous delays that you discussed. There are no lost contracts or customers, is that correct?

[Jeff Schlarbaum:]

Ben, yeah, so nice talking to you and thanks for the question. Correct, there absolutely was no lost customers in the fiscal quarter. It was solely related to the fact that we had 30% of our planned revenue tied to the new projects we were on-boarding. And we, frankly, had far more order commitments from our customers than required to fulfill our planned revenue, but with the broad-based supply constraints that we experienced, it slowed down a tremendous number of the projects that we are able to produce. So it didn’t have the same effect on the legacy products we produce. Most of our planned revenue in the legacy products were able to shift. It was universally though affecting the new programs that we are on-boarding.

[Ben Klieve:]

Got you. Okay. And then, so in your closing remarks and also in the press release you noted internal challenges, but what you described throughout the call seemed to be more external. What were the internal challenges that inhibited your ability to execute and what’s being done about those internal challenges?

[Jeff Schlarbaum:]

Yeah. So the internal challenges, Ben, as we probably have talked about in the past, is as we learn to build these products for the very first time, we are going through a learning curve and that for a many of our legacy programs we have gone through in the past and once we get through the on-boarding of the initial qualification orders, we proceed into the low rate initial production. And once we get into volume production, we have developed a lot of lessons learned, we have refined our manufacturing processes and everything becomes much more efficient. So we are naturally going to be inefficient in the early phases of building many of these new programs the first time.

[Ben Klieve:]

Okay. So the internal challenges were just LRIP-related and not anything new during the quarter. It was just purely issues related to our production, okay. Next question, you talked about the second medical device customer, signaling increased demand, but you said that they certainly were not at full run rate yet. Did the revenue actually pick up during the quarter or did they merely signal that they are ready to accelerate their production?

[Jeff Schlarbaum:]

Yeah. It’s the latter. So we received signals from them that they’re going to be preparing for production resumption in the subsequent quarters. So, we didn’t have planned revenue in Q1. We didn’t expect revenue in Q1. But we now for the first time in a long time are expecting to start slowly ramping up production for them in the upcoming quarters.

[Ben Klieve:]

Okay. Okay. Perfect. And then, just two kind of bookkeeping question. What was depreciation and amortization for the quarter? I don’t think I caught that?

[Michael Williams:]

Yeah. The depreciation was around [ph] $550,000 and amortization is $10,000 (20

[Ben Klieve:]

Perfect. And then last, you noted $100 million backlog, you said that was in January. Was that $100 million figure then as of -- that’s as of month end January or was that as of the start of January, when was that $100 million figure as of?

[Michael Williams:]

Yeah. The end of January.

[Ben Klieve:]

The end of January. Okay. Perfect. Very good. That’s it from me. I will jump back in queue. Thank you.

[Michael Williams:]

Great. Thanks, Ben.

[Operator:]

Our next question comes from line of Nehal Chokshi with Maxim Group. Please go ahead with your question.

[Nehal Chokshi:]

All right. Thank you. The 540-basis-point Q-over-Q decline in gross margin, can you parse that between potentially four different drivers, one would be the volume and underabsorption of your fixed cost, increased component cost that maybe you may not have been able pass through or maybe you would have been able to comment on that as well? Third thing is, explicit price pressure, and then the fourth is, the ramp of new programs that initially carry lower GM. I just want -- I believe that you’ve been indicating it’s the fourth, but just want to make sure that that really is a case?

[Michael Williams:]

Yeah. Nehal, it really split between the first, which is volume and lack of absorption, when we are running at a much higher volume, we are absorbing the overhead and see much better flow to our margins. There is a portion of the margin pressure that is associated with the initial on-boarding. We had a significant number of new programs and so we are less efficient in the new programs than we are when we get to subsequent build. It really wasn’t component related increases that we couldn’t pass long with our customers or any other extraordinary costs. It was probably split half between the lower volume, sales and the other part was the inefficient up-bringing of the new programs.

[Nehal Chokshi:]

And just to be clear, when you say the inefficient bringing up of new programs, I mean, that’s not new relative to what you had experienced in the past or what other EMS providers are, that’s just the natural inefficiency that any EMS provider incurs, correct?

[Michael Williams:]

Yeah. Fair enough. But just remember, Nehal, what -- when you look at our history and when the company went through the change of control in 2015, the balance sheet and the P&L was a mess. And so we took really the first 24 months to turn the company around while time we were not selling new programs and converting any new project wins. So we are in an unusual time where, all of a sudden, we are on-boarding a tremendous amount of new programs all at once. I don’t expect over the course of time that the rate of new product introduction will continue at this pace, but since they are up sort of all converting at once, since we kind of turn the new business development just picked it on at one time, it’s a little bit extraordinary pressure on the overhead that we wouldn’t experience say three quarters or four quarters from now.

[Nehal Chokshi:]

Okay. Let me move to balance sheet, linearity of the quarter relative past December quarters, how would you describe that?

[Michael Williams:]

Say again, Nehal?

[Nehal Chokshi:]

Linearity of the quarter or the shipments for this past December quarter relative to prior December quarters, how would you describe that?

[Michael Williams:]

The quarter that we had in fiscal 2017 Q3 and Q4, where we saw increased demand, the linearity was probably pretty similar to what we experienced in Q1. But having said that, Q3 and Q4 weren’t very linear quarters, we -- as we started to see some new programs come to us, we really started to get a lot of the product issues related to supplier deliveries, manufacturing readiness issues that require customer support, a lot of those moved into the back half of the quarter in Q3 and Q4, and that wasn’t any different than Q1. So from linearity perspective they are pretty similar.

[Nehal Chokshi:]

On year-over-year basis, it looks like DSO’s were up nine days year-over-year. So it seems like it’s a little bit more back load than the year ago quarter. Is that an accurate statement?

[Michael Williams:]

Yeah.

[Jeff Schlarbaum:]

Nehal, I would say that’s accurate.

[Nehal Chokshi:]

Okay. And then days of inventory that short up 28 days year-over-year. Can you just give a little bit more color on why that was?

[Michael Williams:]

Yeah. It’s a direct reflection of the inventory that we are bringing on to produce these new programs and we kind of classify this phenomenon as the golden screw, where we have 90% to 95% of the kit that we need to deliver, that have cleared, but we are writing on one to two do a handful of parts and it was very, very widespread this past quarter, where we had many, many, many kits that were short just a couple of parts that prevented us from converting them into a finished product. So we had a lot of material trapped in inventory both from raw material and work in progress standpoint that we haven’t seen in the past.

[Jeff Schlarbaum:]

Yeah. Just to add Nehal, always it’s up well over $2.3 million. So significant as a percentage standpoint where finished goods is up even a million dollars year-over-year. So there’s a lot that was trapped into always in finished goods.

[Nehal Chokshi:]

Okay. And the component shortages, I’m well aware of the DRAM component shortages, nano flash seems to be easing, are there other components that is also an issue?

[Jeff Schlarbaum:]

Yeah. When you look at the discretes and passives, Nehal, that marketplace, which has seen heavy consumption from the automotive industry, as well as the Internet of Things, IoT and automotive are consuming significant amount of passives and discretes. So we are looking at very low ASP components that are preventing large ASP deliveries for us and we are seeing that pretty widespread on those types of products.

[Nehal Chokshi:]

I see. Okay. And so what are you guys doing to try to address that issue?

[Jeff Schlarbaum:]

First of all, it’s better lead time forecasting with our customers. We need longer lead time forecast and we are working actively with our customers to get those placed in the supply chain. So we are not trying to play catch-up and fill -- fulfill demand within lead time, that’s number one. Number two, we are actively, myself along with my senior team has been working with our suppliers on these programs that are ramping. Demand that they have not seen from us in the past, making sure that they have adequate visibility to help us posture materials and it’s really just a lot of heightened communication interactions with the supply base to bring the parts in that are needed to convert for our customers. And frankly, the last piece is, some of our customers who designed in some of these components that do not have alternatives, we are collaborating with them and the supplier from a triad standpoint, from the three parties to work collectively to bring in parts. So it’s just a lot of heightened communication and collaboration with our customers in the supply chain.

[Nehal Chokshi:]

Okay. Very good. Few more questions. What are the sacrifices that were made in order to extend your days payable by 29 days year-over-year?

[Michael Williams:]

Say that again, Nehal.

[Nehal Chokshi:]

So I calculate that your days payable went up 29 days year-over-year, which naturally helps your cash conversion cycle. But usually there is some sort of sacrifices being made. So I would like to know what are those sacrifices?

[Michael Williams:]

Yeah. I think, when you’re doing that calculation, you are doing it off over cost of goods. So when we have a lower cost of goods and growth in inventory it distorts your days payable outstanding. So there’s nothing different that we have done with our vendors. But when your inventory grows and your gross -- your cost of goods is lower than expected, it artificially raises your days payable outstanding.

[Nehal Chokshi:]

Got you. Okay. All right. And then, SG&A increased 14% year-over-year, was that all sales related?

[Michael Williams:]

Not all sales related, a lot of it’s just our incorrect overhead wages and related costs. If you look the last three quarters, we were around $2.6 million average. So it’s not as dramatic of an increase versus a year ago.

[Nehal Chokshi:]

Okay. And where does your sales force stand relative to year ago now in terms of headcount?

[Jeff Schlarbaum:]

Similar size, Nehal, we don’t divulge the actual number of direct sales heads in our indirect sales channel, but it’s similar size. What we are seeing is the sale cycle is about an 18 month more or less start to finish and so what we are seeing is a significant amount of the seeds that we planted are now starting to sprout, and it’s really a byproduct of that sales team converting a lot of the awards that they’ve been working for the last year and half.

[Nehal Chokshi:]

Got you. All right. My last question is that you reported September quarter results on December 6th and you did reflect an expectation for revenue growth in fiscal year ‘18, and you’re reiterating that here today as well, but has the level of revenue growth change from where it was two months ago?

[Jeff Schlarbaum:]

No.

[Nehal Chokshi:]

Okay. Excellent. Thank you very much.

[Jeff Schlarbaum:]

Okay. Thanks, Nehal.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Alex Gates with Clayton Partners. Please go ahead with your question

[Alex Gates:]

Good morning, guys. Obviously, this wasn’t where you expected to be with the quarter. But, Jeff, I was just wondering, is -- was this just sort of a timing issue like you have some orders that were obviously missing maybe one or two parts, but you thought were going to be ready to ship and so it gets pushed into the next quarter or two. Just trying to reconcile kind of your comments on the last call, which seemed pretty bullish for the quarter and going forward with the number you guys put up, I guess?

[Jeff Schlarbaum:]

Yeah. When you look at it, Alex, and you look at Q4, and then us going into Q1, and where we thought we were on the call in December, we had far more orders to fulfill in Q1 than we had planned revenue. So in my comments earlier, my prepared comments, I said that, we have millions of dollars in orders that spilled over from Q1 into Q2. I’m not going to tell you precisely the number, but it was a significant number of orders that went unfulfilled. So we had the backlog. We had sufficient customer commitments to deliver. And we had broad-based supply constraints that was, frankly, the unexpected piece for us, because we did have such an abundance of orders to fulfill beyond the revenue -- the planned revenue that we had envisioned, we believe that while we might have experienced some supply delays that we would be able to convert a much greater number the orders and the supply constraints were more pervasive than we anticipated, impacting a much greater number of orders and so those spill into Q2.

[Alex Gates:]

Okay. And that can transpire, I guess, over a handful of weeks, just to move your numbers around that meaningfully?

[Jeff Schlarbaum:]

Not usually. I mean, candidly, we have had very, very high forecast accuracy numbers. Our internal revenue planning and forecasting process has yielded very, very high. Mid to high 90s forecast accuracy. This is the first quarter since the change of control, where we were really caught off guard with the number of supply constraints that impacted all these new programs and with the new programs, we are building them for the first time. We haven’t had forecast and long lead orders with our customers that span, six months, nine months, 12 months like we do on the legacy programs. So our suppliers are seeing them for the first time. We are both collaborating together to try to collapse the gaps. And we had a third, one-third of our planned revenue tied to these new programs. We converted virtually all the legacy product, but of the one -third of the new programs that were in our planned revenue, we probably only converted about 10% to 20% of it.

[Alex Gates:]

Got it. Okay. I think that kind of bridges most of the gap. And then, on the backlog side, it’s great that you guys are continuing to grow and $100 million, like you said, it’s -- we haven’t seen that in a while from IEC. But just as you guys are going through these things, and obviously, like you said, you had very high forecast accuracy in the past. Is it now getting much harder to forecast your business on say a 12-month basis, because obviously, you guys expect to return to growth some profitability?

[Jeff Schlarbaum:]

Yeah. No. On the 12-month basis, Alex, I still feel like, based on where we were on the December quarter and based on where we are at today, our outlook doesn’t change, remains unchanged for the fiscal 2018 period. So we still see solid year-over-year growth and it’s no different than what we planned going into the first year -- first of the year. Yeah, we had these orders get sort of gummed up in the first quarter with the supply constraints. But we are seeing a tremendous amount of customer demand that it’s not as though we have to convert 99% of the orders on our backlog. Our customers have issued us a considerable amount of demand that they understand exceeds our ability to produce, because in some cases they are giving the orders to us with these supply constrained parts, some within lead time, some outside the lead time. But the fact of the matter is, we have a much greater pool of orders to pull from. So I see in Q2, while we will have some supply constraints, the number of orders with the spillover from Q1 plus the backlog that we had already in place, should drive obviously improved volumes in Q2 and I see that improving as we get on to Q3 into Q4.

[Alex Gates:]

Excellent. All right. Well, good luck with the growth. Look forward to see in the future quarters and that does it for me.

[Jeff Schlarbaum:]

Okay. Great. Thanks, Alex.

[Operator:]

Thank you. We have no further questions at this time. I’d like to turn the floor back to Jeffrey Schlarbaum for closing comments.

[Jeff Schlarbaum:]

Okay. Well, great, we appreciate everybody calling in, it was nice talking to everyone and we look forward to speaking again next quarter.

[Operator:]

Thank you, ladies and gentlemen. This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.