AAR Corp.

Good afternoon, ladies and gentlemen, and welcome to AAR's fiscal 2021 first quarter earnings call. We are joined today by John Holmes, President and Chief Executive Officer, and Sean Gillen, Chief Financial Officer. Before we begin, I would like to remind you that the comments made during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 and As noted in the company's news release and the risk factor section of the company's Form 10-K for the fiscal year ended May 31, 2020. In providing the forward-looking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events. At this time, I would like to turn the call over to AAR's President and CEO, John Holmes.

Great. Thank you very much, and good afternoon, everyone. I appreciate you joining us today to discuss our first quarter fiscal year 2021 results. Before reviewing the quarter, I would like to express my continued gratitude to AAR's employees. The majority of our people have continued to come to work every day throughout the pandemic to ensure AAR's uninterrupted support of its customers, and I am grateful for their dedication and commitment and proud of our team's ability to continue to navigate the truly unprecedented decline in commercial passenger flying. Turning to the results, our sales for the quarter decreased 26% from $542 million to $401 million, and our adjusted diluted earnings per share from continuing operations decreased 70% from $0.57 per share to $0.17 per share. Our total sales to commercial customers decreased 48% from the prior year, while sales to government and defense customers increased 10%, reflecting new contract awards and significant shipments out of our mobility business against the previously announced $125 million cargo pallets contract. For the quarter, sales to government and defense customers were 56% of the total. In response to the current environment, we have taken a number of actions to align our costs with the lower levels of demand, but we've also gone further to position the company for improved margins as demand recovers. Over the last three quarters, we have consolidated three facilities, made permanent reductions to our fixed and variable costs, and exited or restructured several underperforming contracts. We have also taken steps to focus on our core aviation services offering by completing the divestitures of our airlift and composites businesses. All of these actions have simplified our portfolio, improved efficiency in our operations, and set us up to drive higher returns on capital. In addition to this progress, we continue to win new business during the quarter. We announced a three-year contract with the Royal Netherlands Air Force to repair F-16 jet fuel starters. We also announced two new contracts, one by our Air and Mars subsidiary, which provides component repair cycle management and aircraft warranty solutions. We were selected by both Frontier Airlines and Air Methods, the world's largest civilian helicopter operator, to provide a full suite of warranty and value engineering services. In addition to the wins this quarter, we saw stabilization in certain of our businesses. Our order volume and trading and distribution was consistent throughout the quarter at a level above what we saw in April and May, but well below pre-COVID levels. In our MRO business, as we head into the fall, we are encouraged by the loading we expect to see in our hangars. While our customers continue to operate in an uncertain environment and their maintenance schedules could change, the early indications are positive relative to our earlier expectations. We are in a constant contact with our commercial customers globally and are continuing to look for ways to support them during this difficult time. In our government business, where we saw growth during the quarter, we continue to pursue new opportunities and the pipeline remains full. With that, I'll turn it over to our CFO, Sean Gillen.

Thanks, John. As John mentioned, we continued to take action to reduce our costs and exit underperforming activities in the quarter. These actions and other items resulted in predominantly non-cash pre-tax charges of $37.3 million. Also, as previously disclosed, we received financial aid under the CARES Act in the quarter. The total amount received was $57.2 million, of which $48.5 million was a grant and $8.7 million was a low-interest prepayable loan. In the quarter, we utilized $8 million of the CARES Act grant and $3 million of other non-U.S. government labor subsidies for a total of $11 million. This amount is included in the GAAP income statement, but excluded from adjusted earnings. As of the quarter end, the unutilized portion of the grant was $40.8 million, which was recorded as a current liability. This amount will flow through the P&L as it is utilized, which we expect to be complete by mid-Q4. Turning to some additional financial detail in the quarter. SG&A expense was $45.3 million for the quarter. On an adjusted basis, SG&A was $39.7 million, down $10.5 million from the prior year quarter, which reflects the reduction of our overhead cost structure. In the quarter, adjusted SG&A as a percentage of sales was 9.9%. Net interest expense for the quarter was $1.6 million compared to $2.1 million last year, which reflects the lower interest rate in the periods. During the quarter, we generated $39.8 million of cash in our operating activities from continuing operations. This includes the $48.5 million grant portion of the CARES Act funding and a net use of cash of $18.6 million as we reduce the level of our accounts receivable financing program. Excluding the CARES Act and accounts receivable financing program impacts, cash flow provided by operating activities from continuing operations was $9.9 million. Additionally, as we have focused on lowering our working capital, we were able to reduce inventory by 19 million during the quarter. Also, we repaid 355 million of our revolving credit facility during the quarter. We had previously drawn the full balance as a precautionary measure. Our net debt at quarter end was 149.3 million and unrestricted cash was 107.7 million. Our balance sheet remained strong with net leverage of 1.1 times. and availability under our revolver of approximately 355 million, and we have no near-term maturities. Thank you for your attention, and I will now turn the call back over to John.

Great. Thank you, Sean. In light of the current macro environment, we are pleased with our Q1 performance. Our government business continues to be healthy, our cargo end markets continue to generate demand, and our balance sheet remains strong. As discussed on the Q4 call, given the uncertainty in the market, at this stage, we are not providing guidance for the rest of the year. Having said that, looking forward more generally, although the trajectory of the recovery remains uncertain, we expect the aftermarket to recover faster than the OEN market. Within the aftermarket, we expect used serviceable material, in which AAR is a global leader, to be prioritized by operators over higher cost alternatives. We also expect to see more material become available to support this demand as aircraft are permanently retired and parted out. This, along with the maintenance deferrals occurring for both airframe and engines, should drive an increased need for services out of our trading, distribution, and MRO businesses as the commercial market recovers. While the timing of the recovery is unknown, we believe that the actions we have taken and are continuing to take to adjust our cost structure and reposition our portfolio, combined with the strength of our team, the airline's need for lower-cost solutions, and our balance sheet uniquely position us to benefit from an eventual return of demand, and to emerge an even stronger and more profitable company. With that, I'd like to turn it back over to the operator for questions.

Thank you. As a reminder to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And again, that is star 1 if you'd like to ask a question. And our first question comes from Robert Spingarn from Credit Suisse.

Hey, good afternoon.

Hey, Rob, how are you?

Good, thanks. Thanks, John and Sean. A couple questions. So you mentioned that you are encouraged and you're seeing some positives. Could you talk a little bit, John, about the volumes as they progressed in the various businesses, but primarily just commercial overall through the quarter by month? And should I interpret your comments? You're more bullish now. at this point than you were three months ago?

Sure. You know, let me talk to the businesses. You know, thinking about the parts businesses, trading and distribution, we did see relatively consistent performance from each of those businesses in terms of order volume each month during the quarter. MRO did improve through the quarter. And August, for example, was a better month than June. We expect MRO to improve from the Q1 levels as we head into Q2. You know, what we meant by being encouraged is, yeah, as we sat here three months ago, we, you know, didn't have clear visibility and I would say had lower expectations of the MRO loading that we expected to see in the second quarter as we head into the fall and in the winter. And so far, the indications from our customers are better than we expected, you know, at the beginning of Q1.

Is there any way to quantify the loading in MRO in terms of, you know, the percentage, your utilization of your hangar capacity, let's say in fiscal one versus what you're expecting in fiscal two and so on?

I would say that we certainly look at it in terms of labor hours that we produce. Q2 will be a better quarter in that regard than Q1, but still well below what we produced a year ago. Beyond that, at this point, I wouldn't want to give any specifics. What I would say is that, as you're talking and seeing from all of the commercial airlines, there continues to be quite a bit of movement out there in terms of what they expect in the way of demand. And, you know, certainly headlines in the last few days would indicate there's things going on in Europe, et cetera, and questions about what could happen here in the U.S. But, you know, at this point, we've got, you know, pretty good dialogue and, you know, reasonable visibility to what we expect to see in the second quarter.

And would MRO reflect the down? I think it was 48% commercial volume decrease. You know, when we think about the number of hours in fiscal quarter one,

Is it similar to that or is there – Yeah, I would say at MRO, yeah, I would say it's consistent to that in Q1.

And that improves a bit in Q2. Are airlines positioning for a return in traffic in calendar 21? Is that what drives your Q2?

Yeah, we're seeing some positioning for holiday travel. So that's typically what drives the demand in the fall. And then the demand that we see throughout the winter and the spring is getting ready for summer travel. And we're seeing a lot of movement inside the airlines as much as, on the one hand, they want to conserve cash and be conservative. On the other hand, they don't want to miss out to the extent that there is an increase in bookings. and they have the ability to add more routes.

Okay. And then just lastly, and you touched on this at the end before, just you mentioned the significance of USM and the recovery. So just can we get a little bit more specific about the trends that you've been seeing? Have owners and operators started to make decisions about parting out? I think last time we convened here, they hadn't gotten to that point yet. Yeah. Are new customers surfacing for USM who previously preferred not to purchase used serviceable material?

Yeah, I'll answer the second part first. Yes, we are seeing indications from customers that previously wouldn't have been interested in aftermarket material, specifically over in Asia, that are now appear to be more receptive to that. And we do expect that to be a trend. going back to the first part of the question, there does seem to be a disconnect out there between announced fleet reductions and actual retirements. You know, we haven't seen as many actual retirements as we would expect at this point. And therefore, we actually haven't seen as many aircraft go to part out as we would expect at this point. But, you know, we do anticipate that. You know, we are, you know, in a very fortunate position with our balance sheet that once we do start to see aircraft that are appealing to us come available, we're in a position to make those investments once we have a clearer sense of what the market's going to look like.

Okay.

Thank you, John.

Thanks, Rob. And thank you. And our next question comes from Joseph Denardi from Stiefel. Your line is now open.

Yeah, good afternoon.

Hey, Joe, how are you?

John, yeah, doing well, doing well. I appreciate kind of the lack of confidence, I guess, in terms of providing guidance on the commercial business, but you guys highlight how much of the business comes from the defense side. And one of the strengths there obviously is the visibility. So could you provide some framework around what you're expecting from terms of revenue and gross profit for the defense side for the year?

Yeah, at this point, we expect relatively consistent performance throughout the year. Our defense business has held up well, both on the transactional side, meeting the defense element of our distribution, and certainly the program activity. You did see some movement this quarter. We saw a really nice improvement out of mobility, as we mentioned. I would characterize that as elevated activity this quarter. We would expect to see that return to more normal levels in subsequent quarters. But overall, the government business has been fairly consistent throughout this period, and we would expect that to remain the case. Having said all that, we do have, as I mentioned, a robust pipeline of bids as well as RFPs that we're responding to. So there's still quite a lot of activity out there in the government space. Everything is moving very slowly right now. COVID, it's slow to begin with. And we've talked a lot about, obviously, the protest complications when we go after these new contracts. But COVID has definitely slowed things down in the acquisition world in the government. So that's slowing things. But there are wins that could convert and contribute to this fiscal year. And to the extent that we're successful in any of those, we will certainly announce it and discuss how it might improve the results further.

Okay, that's helpful. And then Sean, could you maybe just help in terms of maybe providing gross margins between commercial and defense? I mean, given the size of expeditionary, it's kind of challenging to model that. So could you provide a little bit of visibility in terms of the gross margins between the two businesses, commercial and defense? And then is the kind of the 12% gross margin sustainable at these volumes? And if volumes get better, gross margins should get better as well. Is that a fair way to think about it?

Yeah. So just on the gross margin, you know, yeah, you did see that uptick in expeditionary services, you know, the majority of which came from the mobility business. Within aviation services, you know, you saw margin degradation down to 12% from 15% in the previous year. You know, government really kind of was relatively flat. So a lot of that degradation came from the weakness in the commercial top line. So I can give you a bit of a picture of kind of, you know, margin year over year between commercial activities and government. And would expect that, you know, government excluding that mobility piece, you know, should largely be consistent for the year.

Okay. And then, John, could you maybe just talk about the frontier piece? um, award and maybe when that conversation started and, um, to just maybe more about kind of in general, the conversations that airlines are having, have they shifted from pure survival mode to let's try and plan for what we actually think things could look like on the other side of this. Thank you.

Yeah, sure. Um, I guess two thoughts there. It really depends on the customer in terms of where they are. You know, with certain customers that we speak to, and these are global comments, it's very much a survival conversation. With other customers, though, we are having, I would say, very progressive conversations about how our solutions can help them And that's certainly with existing customers and relatively new customers like Frontier. We've had a relationship with Frontier to varying degrees over the years, but it's been largely transactional in this contract. It's not a huge contract dollar-wise, but we were very happy to get something signed up on a multi-year basis with Frontier. And I would say this is emblematic of how airlines will look towards solutions, whether that's USM or outsourcing maintenance that they hadn't outsourced before, etc., it's emblematic of how airlines are likely going to want to be and need to be a lot more creative about how they manage their costs through this period. And the Aeronmar offering around warranty management and warranty claims, as well as repair cycle management, is a creative offering. So happy to see Frontier sign that contract, and we'll look for more of that.

But safe to say, John, that those conversations kind of aren't as, frequent or robust as you maybe hope they will be six months from now once there's kind of a clearer line of sight into what demand looks like for airlines on the other side of this?

Yeah, I would expect the conversations to become more robust as time goes on. And, you know, on that note, we have seen just in the last few weeks there were multiple projects and multiple initiatives that we had with various customers pre-COVID that Many of those things were put on hold because of COVID because it was just all hands on deck. We have seen certain customers expressing interest in restarting those conversations now that they've got better stability. But again, it really does vary by the customer.

Got it.

Thank you.

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

Yeah, good afternoon, John and Sean. I just wanted to first ask on the MRO business, I mean, if you do see the loading like the airlines are currently indicating, are you fully staffed or is there any risk that you could see more demand than you can support and just where do you stand on the labor side to support the business?

That's a great question. We are at this point, in order to meet the demand, we are calling back many of our employees who are out on furlough. And actually at a couple of our sites, we are hiring beyond that furlough, beyond the employees that we're bringing back from furlough. When we furloughed, of course, but if we let people go, we did our very best to make sure that with our best people that we stayed in contact with them and obviously treated them right as we were downsizing. And so far in the markets, we're actually having reasonable success in attracting talent. This is something we've been very public about. We are very focused on all of the initiatives that we had heading into COVID, our partnerships with schools, our training, everything that we could do to develop a proprietary pipeline of talent. We've done our very best through the last six months to keep those initiatives going because we want to make sure that as demand recovers, we've got access to the very best talent in the industry. We are aware that there are some competitors out there that they're hiring as well. And we want to make sure that AAR is the employer of choice. So, you know, the short answer to your question is we're in the market. We are bringing people back to furlough. We are hiring net new people at certain sites. And so far it's going okay. But we're very aware of, you know, what full recovery could look like and the fact that you've had people potentially permanently leave the workforce. So we've got to make sure that we're getting new talent out of the schools.

Okay, that's helpful. And as you look at the discussions you're having now, can you provide any commentary on sort of labor rates and to the extent to which maybe you're having to make some adjustments there to reflect just the financial position of the airlines? Or are you able to sort of maintain rates and ideally start to drive some increase on the MRO side?

Yeah. broadly, we've been able to maintain rates. Again, you know, there's individual negotiations that happen all the time, but broadly, we've been able to maintain rates. We haven't had meaningful discussions about raising rates at this point. As it relates to our labor costs, when we were, we had a very high reliance on contract labor for the two years heading into COVID. That was a real source of labor for us. The contract labor or flat rate teams, which is another version of contract labor, those definitely come at a higher cost than full-time employees. As we rebuild our labor force, we are very focused on rebuilding it with full-time employees. Contract labor makes sense to an extent as you're flexing up and down, because invariably you have ups and downs inside a facility. But as a percentage, we want to be more disciplined about the overall level of contract labor that we employ in the hangars. So, you know, the cost of a full-time employee hasn't changed, but overall we're working on managing the cost of our labor by managing the mix between full-time and contract.

Okay. That's very helpful. If I could, just one final question on the parts side and specifically the USM potential. There's been some speculation recently that, in fact, the balance sheets of airlines are may limit as they, as capacity comes back. So they may limit in fact, the number of retirements as they, as they look to defer new deliveries. Um, I know credit's very accommodative right now, but, um, how are you modeling sort of retirements and the availability of USM either from a timing standpoint, when you might start to expect, we see this pickup and then ultimately any comments on sort of how much you expect to see and, and, um, You know, is there any risk that it might come in lower than maybe we're thinking about?

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

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

We do expect – as you imagine, we've got a number of scenarios that we look at, and it's – as you know better than anybody, it's a very dynamic situation right now – In general, we absolutely expect more material availability than we saw pre-COVID. And our limit to growth pre-COVID was really that material availability. But we became, in our view, the best of the market at sourcing and getting our hands on the very best material. From that pre-COVID baseline, it's difficult to calculate exactly how much more will be, you know, will be available. But we do expect net new availability of aftermarket material, you know, headed into a recovery. How you reconcile that against elevated demand, again, is another question. But net-net, we would expect all of that to be a positive for our aftermarket trading businesses. Great. Well, thank you very much. And the only other additional comment I would say is that if you overlay that, and we mentioned this in our remarks, we do expect elevated demand coming out as we go into the recovery because there's been so much deferred maintenance, particularly on engines, and that's going to drive a great deal of USM requirements.

Great. Thank you. Thank you. And our next question comes from Michael Somoli from Truist. Your line is now open.

Hey, good evening, guys. Thanks for taking the questions. John, maybe just to stay on Ken's, that material availability, I mean, how much are you guys, you know, getting out there and, you know, sort of speculating in a marketplace? I know, you know, parts were extremely tight uh i'm just thinking about the pricing environment and you know i mean i think you said you use the term everything's pretty dynamic now but if if the mro overall market you know kind of stays pretty sluggish you know into next year i mean are you are you comfortable going out there sourcing all that that material potentially

Our focus right now, as we mentioned, is really on working capital. And we're very pleased with the fact that we were able to reduce our inventory by $19 million during the quarter. As we mentioned, after you adjust for the accounts receivable and the CARES money, the $10 million cash flow positive. So we think in this environment, that's a great accomplishment. And generating cash is the main focus of ours going forward. We want to make sure that that we do those things so that we have the balance sheet and the confidence so that when we see the right material come on the market, we've got first mover advantage and have the capital to outmaneuver our competitors to pick it up at the best price.

Got it. And what about – oh, God, the name's just – Napier. You had the partnership with them. You know, what's the thought process there? I mean, it seems, you know, that might be –

That's a great point. You know, that is a joint venture that's still in place. There's a great deal of dry powder associated with that joint venture. We are in very regular dialogue with our partners who are very aware of all the dynamics in the market right now. And that also could be a source of capital to acquire aircraft that are on lease and how to keep them on lease for a period of time. or acquire aircraft that unstublies that could ultimately be used for the trading business. But again, there's still so many moving parts right now that are focused on building up our own cash position so that we can make moves when we feel confident in the pricing.

Got it. Just shifting gears, you know, some of the charges, I think 18 cents tied to a rotable asset impairment and customer contract. Can you give us a little more detail? Were those, you know, I guess the customer contracts, were those underperforming bad contracts? And same thing with the assets, were they tied to legacy aircraft or just a little bit more color on those charges?

Yeah, and you're right there, you know, on the – exited contract. That was an underperforming contract, a bit in the same vein of some actions we've taken over the past couple quarters of trying to take this opportunity to exit underperforming contracts where it makes sense. So that's what the exited contract is. And then the rotable asset impairment, as you recall, the rotable assets support the program's activities. And as the flight hours have come down and as we've exited certain programs, we took a look at the assets we had in place and ones that were no longer supporting the programs, marked them to fair value. So that's what the impairment charges in the quarter.

Got it. And maybe a good segue on the programs. I mean, I don't remember the exact number of you know, planes you guys had under the integrated programs, but is there any other residual financial impact we should be aware of, you know, dramatically reduced flying hours, you know, potentially some airlines, you know, calling their fleets, you know, potential bankruptcies, you know, how are you guys thinking about or handicapping that risk on the integrated programs?

Yeah, I, it'd be fair to say that we are very actively managing that portfolio. And, you know, as Sean mentioned over the last couple of quarters, we've taken action to either restructure or in the cases related to the charges, completely exit underperforming contracts. Many of the program customers, their fleets are still in flux. It's not completely clear how they will come back and the complexion of those fleets. And we're working very closely with those customers to, You know, if it makes sense to restructure the contract and keep it in place to support wherever they land on the new fleet composition and their expected flying hours, we'll work with them to do that. However, if it's going to be too far out of bounds from what we contemplated when we signed the agreement, we're going to exit. I'd say the majority of heavy lifting in that portfolio has been done, but there still are some customers that we are in dialogue with right now.

Okay. Okay. Got it. And then just the last one, I guess, you know, with the commercial revenues declining 48%, you know, I know you're not going to get guidance, but do you think we've sort of bottomed here on aviation or do you think we see a sequential decline as we go into the next quarter? Sure.

We feel good about the fact that the bookings in Q1 were above and were stable at a level above where they were in Q4. And it's difficult to predict whether or not that's the bottom. Certainly, it all depends on people's confidence in flying and the virus and the vaccine, et cetera, et cetera. But the last several months have been consistent In our parts businesses, we talked a lot about the maintenance business. So at this point, you know, unless there's a second wave that throws things off, I would expect that we've seen, we saw the bottom in Q4.

Okay. And that's still consistent, even though we're seeing carriers kind of reduce their planned capacity and, you know, nothing, it still seems like things are progressing and improving despite, you know, kind of the messaging we're seeing, whether it's Ryanair or, you know, some of JetBlue the other day as they're dialing down their capacity.

Yeah, from the order volume that we see, and particularly the loading and the hangers from our larger customers, reflects their current view on the fleet. But as we've said, you know, over and over again, that could change. We're seeing less movement in maintenance schedules, et cetera, than we did a quarter ago. But still, you know, but still it's very dynamic. Got it.

All right. Perfect. Thanks, guys.

Thank you. And our next question comes from Josh Sullivan from the Benchmark Company.

Hey, good afternoon, John, Sean. on the freighter conversion market. What do you think that cycle looks like? Is it still pretty strong? Any thought that the market's overshooting itself at some point?

I think it's still pretty strong. I think that's a great point. I think you might be getting to the stage where it could be overshooting itself. Obviously, there have been some deals announced recently where fleets of aircraft have been acquired that are going to go to freighter, but You know, I think at this point it's still pretty strong. But there is a lot of interest there, and that very quickly can get frothy.

Got it. And then I guess just switching over to, you know, some of the digital offerings you guys had put together before COVID hit. Has the disruption helped with adoption of those products, you know, opened up any opportunities for you guys?

That's a great question. We've continued to see, albeit at depressed levels, you know, traffic through our digital channels. There are a number of initiatives that we had begun pre-COVID. We paused a couple of those, but we've restarted them to bring new digital services to market and have really used this time to reflect on, you know, what we think will be successful going forward. I'm encouraged by the continued interest from our customers in all sorts of digital solutions And we're fortunate to be in a position where we've got the capital to continue to make the investments. But digital and the development around it remains a core part of the strategy. Thank you. Thank you.

And thank you. And we have a follow-up question from Joseph Donardi from Stiefel. Your line is now open.

Yeah, thanks. John, just along the lines of how many additional airlines could maybe use your value-oriented services on the other side of this that maybe didn't need it before this. Is there any way to quantify that, like maybe just in the U.S.? How many airlines took advantage of that? Maybe how many airlines did need to because of their financial strength? And that may be different six months from now. Thanks.

Yeah, sure. You know, in the U.S., there are still a number of large carriers where we do a little bit of business with, but we see a lot of opportunity. For example, we could have one major airline where we feel we've done a great job penetrating the account, and we're doing over $100 million. We have another airline with a very similar fleet where we do less than $10 million. And so I do see a reasonable amount of opportunity here in the U.S., both with the major carriers as well as the lower-cost carriers. By market, Asia, we've had a great run in Asia over the last several years, but still there's an enormous amount of opportunity with the larger Asian carriers as they look to adopt non-OEM solutions and look for aftermarket solutions like ours. And that's, you know, some of the real bright spots we've seen in the last several months have been, you know, in particular inquiries from our Asian customers where we might do a little bit of business, but, you know, how can we do more? How can we do more together? And it's early days, but those conversations wouldn't have happened or were not happening a year ago. So that's encouraging. I'd also, beyond Asia, I would also put the Middle East in that category as well. in as much as historically those operators have been very focused on OEM-based solutions. And while we haven't had the kind of dialogue yet that we've had with some of our Asia customers, I would expect and hope that we would see more opportunity coming out of the Middle East for us.

Helpful. Thank you.

Thank you. And I'm showing no further questions. All right, everybody, we really appreciate your time and your interest. Thank you. ladies and gentlemen this concludes today's conference call thank you for participating you may now disconnect