Pat Jermain: Yes, I think we will see improvement in the percentage as we get to the back half of the year. The dollars, I think we’ll stay relatively consistent, Matt. So, from a percentage standpoint, what I’m guiding Q2 at is about 4.9% of revenue and that is up from Q1. There’s really three main components to that. The seasonal compensation cost increases is about $1.5 million. We have got some higher stock-based compensation based on the roll-off of some prior awards. And then as I mentioned some IT system related investments and a host of things we’re doing there around collaboration tools, cyber security, upgrade to manufacturing systems. So, that’s driving the dollar increase and I do think that will stay pretty consistent throughout the rest of the year. But from a percentage standpoint, where we’re targeting is around 4.5% of revenue. So, some leverage improvement as we see top-line growth in the back half of the year.
Operator: And our next question coming from the line of Anja Soderstrom with Sidoti.
Anja Soderstrom: First of all, Pat, did you mention that you expect the CapEx to come down for the year than your prior projected?
Pat Jermain: Yes. Previously we had $110 million to $130 million. So, we brought it down $10 million and some of that’s just because of growth investments that are being delayed a bit. We’re being really mindful and prudent about the capital spending this year.
Anja Soderstrom: And in terms of the funnel, have you mentioned larger opportunities there coming in? And can you talk about how they relate to previous opportunities?
Pat Jermain: Yes. So, we are still seeing a larger number of large opportunities in our funnel than we had seen historically.
Anja Soderstrom: So, does that impose bigger risk then in case you don’t win this larger opportunities?
Pat Jermain: No, I think it actually creates more opportunity for us to have strong wins performance because of that.
Shawn Harrison: It’s Shawn. Just as maybe a little bit of clarification. When we go head-to-head on a program versus competitors, on average, we’re winning two-thirds of the time. And so our win ratio when we go into this qualified funnel of opportunities is quite high, whether that’s a small program or one of these larger programs.
Anja Soderstrom: And also lastly, the issues that had with some airplanes lately and Boeing having some issues. Is that any risk to you at all or?
Todd Kelsey: Yes. So, the answer from a risk standpoint is no. We do supply Boeing and we have, I would call it a reasonable, we don’t supply Boeing directly, but we do supply into Boeing and we do have content on the 737 and the 737 MAX. But – and I saw today that, the FAA announced that they’re going to allow Boeing to go back into production at the rate that they have been at historically, so that would have minimal impact to us. But even if production had been shut down, it’d be of, I’d call it, a negligible impact to our overall revenue. So it’s pretty insignificant to us.
Anja Soderstrom: Thank you. You also mentioned, communication seems to be a headwind for you now. But what are you hearing there in terms of the tone and when that could potentially come back?
Pat Jermain: Yes. I will offer this, as we went into a quarter ago, we thought that that technology upgrade and the bounce back there was going to be early to mid ’24. So we are now taking a more conservative view as it being a little bit further out, but the exact timeframe, I hesitate to call the ball for that.
Operator: Our next question coming from the line of Jim Ricchiuti with Needham and Company.
Jim Ricchiuti: Just wanted to go back to some of the commentary on the market sectors. If we look at where their biggest wildcards are in terms of the improvement that you are anticipating in the fiscal second half. Would you say, it’s more on the Healthcare/Life Science portion of the business?
Todd Kelsey: I would say, Jim, we are not looking at the markets improving to get the recovery or the growth in revenue that we’re projecting. It’s more based off of program ramps and activity that’s already underway. So any market improvement, whether that come from healthcare or further increase in SemiCap demand would be upside to what our projections are.
Jim Ricchiuti: And I guess, Todd, the way of thinking about it is, if there is some potential for negative surprises, where you don’t necessarily see progress overall in the second half. Which sector might carry the biggest risk? That’s why I was asking the question.
Todd Kelsey: I mean, it would probably have to think about industrial as further degradation of healthcare, but it seems that, that’s come down a pretty tremendous amount already that, it should be at a bottom are close to it.
Jim Ricchiuti: On the A&D side, seemed to be suggesting that, even with there’s been a little bit of it sounds like some program activity slipping on the defense space side, you still seem pretty confident that, that shows healthy growth for the year as a whole, with the continued growth that you are seeing in commercial air. Is that fair to say?
Oliver Mihm: That is fair to say. Specifically to hit that defense and space headwinds that I mentioned that we are experiencing in Q2, that is a short-term headwind, so that’s nothing systemic that we are talking about there. As an example, with one of the program ramps we are doing is actually a bit of a good story here. We were doing printed circuit board assemblies for a customer and we are performing so well on the ramp and say, ”We want you to do the whole higher level assembly. And so we took a pause where we could take over the rest of that business as well”. So temporary headwinds and we do not expect that to persist. Then, as we talked about previously, strong underlying commercial aerospace demand.
Pat Jermain: One of the things too I’d add, Jim, on our Aerospace and Defense sector, we break it down into four subsectors, Aerospace, Defense, Commercial Space and Security. And all of them are showing reasonable year-over-year growth in fiscal 2024.
