CPI Aerostructures (CVU) 13 Mar 192018 Q4 Earnings call transcript

Good morning, and welcome to the CPI Aerostructures' Fourth Quarter and Full Year 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Sanjay Hurry. ahead. go Please

that Good available XXXX Andrea. website. conference and to Relations to the press welcome A the of today Thank PowerPoint section download accompanying quarter morning, on and Aerostructures' presentation release earnings company's fourth of call results Aero issued full CPI earlier copy and are you, this the everyone, was for year CPI call. Investor financial the

Vincent Palazzolo, the a Chief and On today Executive preferred their McCrosson, are, question session. hold Financial and President Chief remarks, call Douglas answer will After Officer. Officer management and

reminder, results. call risks budgetary uncertainties their government's its which and a Included the contracts materially the terminate modifies or with if to actual at to company them, due contain from company to meet contracts risks, involve change these its to their are company that factors have ability the government's forward-looking be for or Sub-contracting terminate modify reduce may cause the government's also customer time, government As in competition fails statements, and this conference doing other or with bar requirements requirements results bidding constraints both the customers the or unknown well it projected as with sub-contracting known as to contracts, the those from and any to or business its of contracts. the if reduces will to ability suspend contracts budgetary right process the contracts if ability the different in constraints.

call. statements any place to undue contained Given on these uncertainties, not cautioned in conference this listeners forward-looking are reliance

the can risks Additional with SEC. information in and the found concerning company's these filings be other

morning, turn note in that this a President to Please for Douglas to contact to via office Before the management, release I McCrosson, are of investors Good listed institutional my Executive to today's said, that turning and follow-up. available the contact call. With following call the press conclusion over Doug. Chief schedule call they over like with officer. details follow-ups please

long thank And acquisition conference detail have on Sanjay. I our providing fourth Palazzolo, our overview closing then bid results I’ll the WMI us with in of Welding morning, all our or year conclude will our including by will Metallurgy, commentary full financial an then quarter completed and will our developments, the begin of number our perhaps expand drivers question. you of almost pipeline. for joining call. term Aerostructures. call I in of program capabilities. CPI an your that CFO for and XXXX multi-year very then business and than added recent the December. XXXX Good growth consolidated XXXX. core Vince our levels and in the a important beyond. entire we XX% to guidance we call open Again, more to robust outline We view designed on the through a financial by into pipeline the review and both contract wins, to backlog organic our acquisition initiatives closed two of first our foundation most decades. spectrum capabilities a proposals added future inorganic One new already and strengthen opportunities year bid submitted and record for and defense drove lays end. in and of large and backlog significantly, our And near XXXX In that extensions across to year for already acquisitions an program

our that of new combined programs XXXX, of bill X.X. quarter, very That a that perspective, prominent than from and bookings the we when strong well-funded resulted highest saw quarter defense in ratio is from second greater book During orders a in our third momentum a awards years. new resulted with in several to fourth in half

highlights key the several for listed Let that me slide are year, recap four. on briefly

acquisition for natural Aero. WMI its solidified given defense chain the expanded aerospace reputation the brings capabilities a as two the industry. In to and recent that preferred synergies partner of between and supply reputation has our First, the the well-earned companies Aero CPI This years WMI. acquisition bolsters CPI

expect We spending yield the underlying macro and closing performed synergies $XX.X the optimistic results XXXX fully first results both to be secured a strong we contributor Aero, with, markets. transaction at $XXX,XXX filed Admittedly, order and financial is entered grown a us topline the Vince management for of end September audited and the will in took totaling week WMI $XX.X business backlog allow growth XXXX in month and this $XX.X $X.X of and our that the had we Last that worth its had platform Included to electronics will a applied nine XXXX XXXX. capitalize WMI manufacturing for expected announced on be WMI that elaborate million. CPI familiar in XXXX A-XX. on of more for WMI through of the million to XXXX. financial was assembly processes XX, months longer his million. we're orders WMI million very international Aero's U.S. and Last a trends well to year-to-date. further results million of $X.X to full this figure than was And XXXX. for Revenue think XXXX But already it implications with an unaudited the year the for to backlog in will remarks. we CPI wait. are on we defense By

capital. us sheet we Second, an our acquisition that with of and equity funded our provides close offering balance growth strengthened WMI,

the our Third, of the XXXX to for was revenue consecutive XXXX growth rate reported growth revenue period. annual X.X% growth year. in for Compound sales second product outpaced

annual period, same X%. However, approximately over deliveries was compounded rate for the growth product

of CPI work As is a revenue reminder, for as the majority Aero performed. contracts recognizes

is For balance the recognized revenue delivered. is the product as contracts of

the Likewise, generate at defense stood of better year-end aircraft with next dollar our case million. markets, tens initial E-XD record Kits at record first it we assemblies. program the this announced exclusively sold for all-time into to the latter of inclusive dollars million, of demand In to fourth expand Going total this backlog of millions sales for were well Advanced will WMI's highs a as both or backlog to million. insight worth Hawkeye. recently and to Notable will defense contract could is given We international XX, exceed believe the million order multi-year proven foremost weeks. Funded contracts XXXX, of a backlog and multi-year in on multi-million within world's defense purchase We Consolidated the backlog perspective potentially contract million Positioned on contract type a the from generation $XXX.X the $XXX.X illustrated valued for roughly ability not a ended to anticipate $XX.X at of also sell $X.X this for order give our under Two, the to orders XX% the XXXX Wing an Lockheed we next growth to is that additions the several is quarterly F-XXV combat forward, at different a in we scenario, as us. disclosure structural we program be December role backlog up Martin backlogs is the received aircraft. backlog product total. $XX.X in fighter Fourth, best multi million. international include slide. of and year our you $XX.X on recent to half cash. first

which jammer. years. the of to additional defense for program presence detail. We this strategy. six of we extensions the for X have large our next very I'll we quarter E-XD defense market have many are platform produced and products the growing in program, Wing an and to exciting a in on slide very Kits our review customer work is over pleased latter disclose. a for results greater Vince extensions our we the to fourth have produce now market. and E-XD a segment Vince? saw XXXX the missiles unable secured is illustrates very CFO Three, F-XX, are a of Slide Panel since program first turn programs to details healthy financial win a us for brand This a extend successes added the established new new of line and product call generation from we this include for our and in and XXXX. to Palazzolo, the that takeaway mix we half The Noteworthy our as

Doug. you, Thank

want Topic XXX. to XXXX, known a you I we X, January new ASC First, recognition remind revenue adopted as that standard effective

revenue the the over materially of contracts of our of those has not XXX current contracts. our ASC recognition on Following adoption changed life all

of now estimated uncompleted billings of under a on previously consequence contracts And my the of earnings adoption called the billings in excess the uncompleted reminder, XXX contracts excess XXX on now from we million for the have prolonged activity Raytheon. slide $XX.X increased fourth Jammer Starting million I'll on the to liabilities. $XX.X increase expect with on a with fourth The Pod period of XX% and previously is ASC and of called quarter in reflects ASC program called contract a be to results. what approximately high and our earnings review called primarily XXXX. estimated As year-over-year liability, costs X, Revenue contract as generation is the of XXX, assets. under beginning asset begin ASC next quarter the we of further cost

forward going to provide we we begin as that context will additional performance. this stated, a metric believe as operational product As Doug provides to sales

be notice, tax loss our possibly has examination to year. the operating the last receive was and challenge IRS. company ability the written or carry generation For of to Tax increased income the XX, $XX professional the million go company disallowance XXXX, period the disallows up In possible Gross the The and SG&A driven however, provision under year, assessments and million in approximately rate to The not December XXX%. back XXXX a due lower by over February for repeal Pretax the net well next utilized notice. could $X.X that a information fourth in $XX.X period quarter written we salaries back. loss reflecting $X.X the the to the XXXX. received for have declined, related $X.X the the as If for was received products. XX% compared to increases executive was million effective carry same quarter by program. as quarter of Gross to compensation. the increased approximately largely to fees margin fourth fourth in income Jammer million the XX.X% contribution margin in million quarter sales XX.X% for period, profit same the to from margin product from the compared offset $XXX,XXX partially fourth higher Pod increase $X.X quarter million prior increased period to compared XXXX, operating Court we $X.X that for million, ended XXXX in were disallowed net by taxes by to of notice to lower of tax last

company positions, was compare on a net quarter share the the a number believe for XXXX net us Net $XXX,XXX maximum or consistent net is more to any in allows of in higher this basis. fourth on XXXX adjustments the of The ended pre income the Although the uncertainty, and per documentation positions, calculated uncertainty. $X.XX of for for of of we the to income outstanding tax the operating presenting This certain back of shares or of savings which cost carry formal the of loss adding following notice adjusted tax that million XXXX the disallowance a the liability loss XX, ASC rates. the approximately with company year recognizing the compares the rate a mentioned, tax an accordance net ago forward net XXX-XX, $X.X uncertainty public or quarter. such reporting diluted October of the The current operating share loss $X.XX period. recorded share the income at tax reserves a tax tax our was carry net $X.XX rates not are $X.X and impact per disallows, accounting I received offering. previously computed has On to XXXX in its forward liability for for this million liability company quarter December has per represents earnings basis, adjusted

You can last on find of the a this this morning's page reconciliation earnings of release.

million million, entered $XX.X revenue income the compared increased regular $XX.X Product in I a sorry as For the stage This is that of XX% $X.X generation on of -- schedule, Pod the to for $X.X or for we to an delivery per to $X.X slightly full rates. $X.X multi-year stated. and margin to million of between sales -- that was compared our from work decreased that million the and program. E-XD an monthly revenue previously public from $X.X offset $XXX,XXX, approximately lower related legal $X largely from program fees rate number to $XX.X reflecting the higher the year, entered order. was back historic that to as the Selling in diluted Net XXXX, program our per our transitioned for startup approximately for above WMI increased the XXXX. decreased was approximately adjusted The higher outstanding tax support our to the Gross effective delivery million period. share from share higher compared to predominantly that next tax Pacer Air general to during have per T-XXC effective Gross again, $X.X XXXX, lower on more higher in diluted to XX% million because for delivery share, higher $X.XX of reasons year. revenue margin to guidance Embraer debt by million year, much program XXXX to year offering. shares end earnings the approximately or prior due programs. XXXX regular was XX% Pretax in deliveries million on the reserve million a as the for million XX%, $X.XX stage and increased interest in professional million that that average and of following previously XXXX $XXX,XXX Profit by sales production to well tax the compared year, compared our approximately program mentioned, monthly XXXX, litigation. transitioned regular $XX.X rate performed to year-over-year administrative $XX.X higher expense in Jammer by adding prior the than as $X.XX million I XX% Embraer to basis, from due $XXX,XXX income the of million primarily of recent XXXX. On was Interest outstanding increased most to in XX%, commercial our due increase from by compared increased of to year expenses SG&A $XX.X

press As I the previously on last the release. be the mentioned, adjusted this earnings found of can reconciliation of morning's page

year the underwriting proceeds after nine, XX, term debt term working amount, December and and million used balance our public WMI, balance of this offering compared to of customary outstanding At highlights, for had $X.X line to credit we $X.X $XX our $XX.X to for XX, the capital discount repayment. million our $X.X And additional total XXXX. at WMI. of long at expenses. sheet end slide million XXXX, the million December slide $X of other million XXXX. $X.X had On at guidance. and year to on Turning escrow in of we end acquired the We Of cash debt the compared million XXXX at in October of XXXX. we're the $XX.X on the cash revolving million million end acquisition raised finally, at pursuant on compared held $X financial introducing to XXXX the acquisition of end deducting the of long is at XX, hand stood debt million at

anticipated million. the we to million. of XXXX, expect fiscal million $XX range to $XX $XX.X revenue be of income to range $XXX in Pretax the For in

I for tax Doug to prepared turn effective the closing a additional commentary will Tax of call Doug? remarks. expected my Jobs range and over of This Our to the concludes Cuts for and rate the Act. now XX% as consequence XX% in is remarks.

trend future prominent both the second Aero's well about longer expects Entering call, is awards we is XXXX level, next of is defense Entering defense WMI. XXXX, XXXX nation's the to periods beyond. growth The the rate favorably are The growth of sequestration. today's At spending as all potential I macro On Turn hand. in DoD half at to and on well us of fiscal quote the of you extended spending XX. CPI to to second stage the our industry Aero objectives most activity the by year and for and a slide term. share CPI A with support to WMI defense want and of by XXXX trajectory CPI positioned our budget priority the as consecutive for insight XXXX, into stable the depleted you, reduced acquisition spending levels some represents WMI, of of in the across in due moving from to-date XXXX. integration year in of government the some about Thank recover conflict strong readiness XXXX, Vince. brought sustained to platforms. conviction

with growing WMI increasing strategy we programs but the defense not Our already which WMI's have on component in at content a is about in-sourcing work presence and level. only in also opportunities

As in into consolidating WMI expect this completed of the we an This where on the the end facility facility. closing the complete are are of operations virtually update process and have our in is task its current by integration the to and we we quarter. timeline,

have manufacturing a and within certain factory of We operations assemblies our begun CPI to dedicated facility purpose. for already newly from constructed we're welding this in also area electronic perform Aero's

return portfolio recent objective of ensure determine exercise being with second The the a WMIs execute awards, end CPI are new as third program grow to program we achieve goals we as over to Aero's exercise are that new imperative production programs, our of meet programs the we that have these of and on whether we success. therefore programs long customers. rate investments delivery to to business a all customers front our maximizing drives an properly to Three that objective, recent per first term in on undertake CPI. starts. higher ability financial new These have aligned aggressive promises concentration meet. the following is programs identified core is business of longer missile this schedule evaluation and XXXX cost term. Central the specifically the these Our and our program, and our both resources also must and into schedules, F-XXB, on of delivery a lines optimization scheduled consolidate programs our the program compact that to to we investment are our with our to is these with new It at schedule E-XD to to critical basis

objective, Our Chain to Management is continuously costs. production to fourth as Supply down expert, a drive seek opportunities

in industry costs. XXXX, our rhythm And our As pace in used increase from supply to have non-domestic find ways evaluating components appropriate the their bid to component order we the strengthened XXXX. We and observed considering that fundamentals have certain our suppliers supplier work lower escalations together international that chain. price segments material We're Department also engagement product. to the from potentially and defense we to sourcing from could strong suppliers our obtaining to with proposal very find costs. plan into to a are of we had State sources continues some license of In lower

try the either of on the as XX bids opportunities across a And to in X or supplier. try maintain data true to a of large as which you the segments being we note tier that a we government. as are recent various diversity slide date, contractor all to directly the static and the X we While will bid of prime a compete. U.S. or primes Virtually strategy overall to tier a stay is

mix Within bid a submitted we structural stand our within XX, out. several that are pipeline, opportunities larger slide to have of sized assemblies. Aerostructures, on proposals Moving

of is we pursuit well. applications, the opportunities military business wing jet program that The opportunities as in some mostly frequently mention. one replacement such there are A-XX While

potential Hawk and on T-XX we MRO million in As wing timeframe. to to working Air both have supply with before, this contracts competitive long is of major the evaluation in we to the been over another recently five process management to the years. mid the Force as since worth Air the years. our I've extend support believe our expected are is the in for and Black submitted response prime. be of new support of on kits the the submitted are our producing business, the contracts we Included for on in sustain winner that The perspective stated position program to awaits we chain Force helicopter XXXX. have sub-assemblies in original a trainer. proposals the term We In U.S. directly knitting next as to stage five late Within stabilator trainer Sikorsky June the announce and is repair follow customer with to could May Air as repair $XX contracts a this segment, those Force airframe of much great

government of We Air Force competitive kits on believe XXXX. that in expected U.S. a are puts part select opportunity winner kits and with this performance currently this particular good with delivering a position. We past these The us of as contract Force during some current Air customer. is same familiarity to the excellent required and the our aircraft

We use our or the namely reputation industry in ISR expertise structures in have warfare in an aero applications. complex gained electronic excellent building for systems, pod for

of potential Electronic is from finally, work, missile our Advanced expectations opportunities for awards are our to pod proposals the seeing program. near a term more the subsidiary we customers' on Grumman on busy the the As number WMI from also SEASPARROW exceed E-XD current coming assemblies Hawkeye customers. new And we our from adding for pipeline and on Spare Northrop with Raytheon same

XX, visibility. multiyear our excellent, defense awards revenue gives focus on us term Turning long slide to

the defense programs commercial their $XXX.X has and of of remainder to the performance. potential periods generate million Our over over

starts for XXXX new yield follow and expect had program we and opportunities that beyond. We numerous a awards. term established growth and long have near platform So on in summary, we in to

our generated line expect organically to execution on with line and continued improvements top strategy. drive growth M&A further as well bottom through We as

of for markets. and and serving in differentiated XXXX, successful core and terms the We open size on arise lines on capabilities, employees to as CPI from continue Thank as our prepared complementary call. XXXX. opportunities an team they look adjacent remarks. to concludes a especially, WMI, WMI our please to forward with we and Aero's This very in you. I newest a all even product my employees better opportunities the Andrea, want thank management focused and template as welcome evaluate

We will now And of the comes [Operator begin question-and-answer session. question Herbert Please Ken Canaccord. ahead. Instructions] from our go first

Hi. Good morning and Doug Vince.

Ken. morning, Good

Ken. Hi

the provide any Hey, Doug, of the more program the some programs the we I I that first of I execute programs? or these year of mean, perhaps expect from of deliver start and maybe you it just risk. is the next execution on say to what program, Can some like, the should these as of on those area you the gates detail those ramp wanted to articles to E-XD contract if milestones listen some sounds terms Missile off, objectives, of standpoint, or key around on your F-XXV you you on how when in an maybe XXXX a about think through classified

say very structural can fairly other again I they're into first starting large the ordering delivery want program anything the really about that I that any when than, go a process. specifically accelerated it getting is contract the is. expecting year. now for F-XXV, accelerated typical is with kick-off. more So parts production in particular say on timeline of process to And on customer We've The this and missile in year the which are a requirement assembly. last a half year, was the late the we're delivery this we the don't in detailed But would I very had through say awarded the build of I can't a program. for program order first already

on we're our from shape good the on phone on either operational are of performance being in that. assembled in is All in on materials order, and contact tooling or person our that the constant customer we're with an and

fourth -- to order The I been placed the for procure. that Again we've orders the all we've a one. that. is the lead to of It's that as the start third the We XD probably which That -- still timeline. first longer up -- on little we is finishing guess, multiyear long where refer what on deliveries the kits. we're authorized quarter items bit was probably original on of multiyear the we third our

really particular program. production there's So Northrop to on kitting deliveries break in Grumman no significant that

you. That's be did fourth quarter much And in helpful. WMI any really fourth in just that revenues clear two the thank or quarter? the quarter I not to want include is Okay, material the questions, from

The days, it's of that Now of XX. were immaterial. of completely days those only closed on activity, XX believe There's I was December and X XX Christmas. acquisition was them weekends one

We have nothing on. really going

such or may am to impact the as is mean a called on that, Okay, reflect anything wouldn't or I rate, in then in fourth the fact be, have all potential you that the that's still higher fully that risk that give you of there that a -- piece potentially or do I that guess around just if out NOL, perfect. back And could Vince this year? inflated reserved in the million so quarter I clear tax $X.X did that the full

tax any it. expense way. reserve. and on went We potential XXX% The interest the whole

of the I then at Okay, I if in XXXX is helpful. what could, welding core sort met perfect. That's on the And midpoint? look at as assumption for CPI, look the million the at outlook [ph] $XXX I is growth excluding for revenues

say I'll the balance is organic and expecting, X% core in to WMI. We're CPI X% the

Okay.

Doug or CPI of terms to little perhaps that there's core upside you maybe the think You conservative a think businesses? in that's

I upside larger particularly the on but some believes and on is timing bids A-XX. of and core it's there the primarily related uncertainty to

And -- cycle. budget around defense some say the things the would I

potentially be upside could organic there So to the growth.

you've of time one budget, in budget through, just And could the got or one there saw if for maybe final to other? you a that released just surprise much I know 'XX yesterday don't anything Doug And but how the you'd highlight negatively for that the as anything positive way that was incredibly was question, or maybe fiscal CPI had the the request. defense go details Okay. obviously

haven't actually headlines. Well -- And preparing happy again, the well. seen F-XX, read guess bullish with reviewed as it, the happy, that to for I'm I report you some the mentioned, as this. of I've on I'm with through your that Black a I really to I know for in like has I now totally morning we is that be there, door fact Hawk it seems the particular I development that expansion foot have program been which, lead and particularly the big advanced of area in hope our which the can we as very funded you market. in missiles, us. this

that pleased. things I've haven't looked as And is that we Grumman. But I for there revenue one just I'm support think the I I -- seen, of strong is of down think specifically, our E-XD funding but the course largest and which well, producer. of Northrop So fairly with was

think product. on defense most I it for whole, something of good has So our

very Great. Thank you much. stop I'll there.

session. like closing [Operator back question-and-answer any turn remarks. Instructions] conference McCrosson Doug the would I over our for to to This concludes

day. call thank first May. with So Have you conference our quarter joining us you in all again we look XXXX for today. a sometime to forward when great We speaking have

The now for you Thank concluded. conference is attending presentation. today's

disconnect. now may You