CPI Aerostructures (CVU) 9 Aug 192019 Q2 Earnings call transcript

Good morning, and welcome to the CPI Aerostructures Second Quarter 2019 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 now like to turn the conference over to Mr. Hurry. Sanjay ahead. go Please

to Good company’s XXXX and copy results press Relations PowerPoint company’s Ben. download available Aerostructures the at of to second earnings Investor presentation accompanying and quarter conference of release call morning, you, are welcome for the everyone, section CPI the this website. Thank call. A

prepared hold the this morning At Chief Q&A Vincent and Officer; Financial call are Officer. and will On Palazzolo, conclusion the remarks, session. their of Executive the Doug Crosson, management Chief President

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

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

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

be attendance in presenting call XXth Canaccord at and be management Conference the will that turn advised I Growth over the Annual to tomorrow. Boston management, Before in

to President Douglas With I’d Chief call Officer. Good over Doug. like to and morning, Executive McCrosson, that the said, hand

to good you, Thank morning. and for Sanjay, call. our you everyone. morning Thank Good joining

contract week, awarded T-XX trainer from valued Force Talon aware, million Aero at you aircraft. the As $XX CPI up the undoubtedly a Air all who on are to was last of U.S work for

Given the financial the will some after second of with call the for detailed this will our line which of the our opening I’ll Vince award, today’s I then the quarter, concluding remarks significance before provide review performance results recap I a for questions. quarter. start to before offer

T-XX As you announced since the last can our contract see largest almost represents the and history prime contract million, contract in the week Slide at with the $XX largest on X, prime DoD second company’s XXXX. we

valued first We $X.X delivery also million. at a contract the order announced receipt the under of

terms Phase and will and kits, Under of call contract, Classic this structural Aero modification in the of CPI provide X known support services Inspection Talon the Maintenance and III; logistics sustainment Repair program, Classic Pacer the of program, III Pacer fuselage T-XXC modification program kit by integration the TRIM. structural we other management, acronym

We to under Phase of history Force long we dating XXXX. U.S. the back won the of we sustainment supporting X of airframe, Pacer III have Air contract currently performing XXXX. for a a Classic And in are T-XX back

this on essential future military for in generations work platform, to continue which aviator. to honored We’re is training

will to plan assess at where Force clarity demand in future better host we month, Next this may order we the a get kickoff how meeting, on contract performance. our Air to financial impact

this and that quarter profit of program during year. on this the based estimate fourth will some know we contribute today, we But what revenue

have we progress to beyond, contributions as XXXX into positive and profit. will new and believe However, program we revenue this meaningful

program management strategy This on exceptional bear bringing possible success engineering believe during that multi-year and we Based to half world-class to of to opportunities, the contract first defense it the and focus Force’s is we know backlog. expertise more today, Air build our capabilities of the than ordered months. requirements our could what on be supply XX our market chain illustrates

It’s on a the Aero become work of also deserve prior tirelessly to T-XX. to known have is ensure especially for, employees of this best excellent always Wins thanks. CPI on execution diverse work succeed. group our work our testament hard a lot possible They the by of to who program magnitude we the position require a in

are prepare very Government bids attention and difficult they extraordinary require detail. to to

Proposal Aero. our So especially would efforts thank for CPI milestone to, and bringing their I like win and Bid team a home for

the to second Turning highlight.

during revenue year. in progression We are and second operational a again priorities year-on-year for reflects our to solid the income That the quarter. pleased deliver execution and on growth net continued strategic

the of this the pickup, a for lowering by of in the compared period. of up this But on net benefited the in income the his XXXX. year-ago have more remarks. excluding took reserve was quarter quarter income details XXXX second we quarter in fourth even XX% to approximately Net from prepared will Vince

compared was period of the Diluted higher unchanged to year-ago shares earnings per share on outstanding. a number

product the and a quarter. backlog for the six sales book-to-bill X.X:X. We’re first second XXXX quarter were of X.X:X of the bookings quarter and bookings again WMI’s with this was quarter of second reporting in book-to-bill Consolidated for another months strong standout X.X:X it’s new a

welded disclosed by during a manufactures for second Further required existing tube customer. assembly details the scope of the obtaining secured quarter an WMI upon approval. from the follow-on customer for be requirements included will million additional $X of this it work orders award New of on a currently

Product $XX.X stood orders, which since by end at of the XX% up million, first quarter. from standalone is end up of from and XX% of up firm now WMI, purchase beginning value including WMI the open XXXX. of a the stands sales at million, XX% backlog QX the quarter-end $XXX.X backlog, the On at basis, and

personnel Relocating was before headquarters a complete. and of equipment priority is end WMI March facility now the integrating our to and its strategic and

full with operating The under second CPI quarter was Aero roof. the first WMI one quarter and

plan received WMI sales. quarter $X.X welded certifications internal QX As WMI a about our full-year we WMI CPI shipments welding We and those shipping manner, call, XX. did the certain had for commencing, the forecast we transfer our certifications product. is to second timely through in in process maintaining certain delayed are not deliveries strong are discussed on internal in a month which June July, of but million behind still and

And this we growth newer on to to our finally, on and key over three pleased our new ability on remain these as year the each expectations execute on to grow the we business both we programs continue customers plan long-term. program. this slide, I’m with identified report that to our

aircraft. we delivery met the On delivered production and helicopter into chipsets the program, have multiple first commitment, shifted for mode our of assemblies already Sikorsky

we year. wings later tests scheduled this for complete On are the delivered to customers’ spike two wing have program, missile support that the

the imminent rudder Lockheed program, production the being combat-proven orders expecting assembly in and anticipated canister chute Martin island International F-XXV multi-role tooling the drag quarter. begin generation On fourth is nations. fighter foremost momentum, demand or is receiving multiple for to the fourth world’s with strong orders aircraft, gaining installed F-XX, the for and with

to at the last backlog Turning quarter-end are announced million defense was These inclusive Consolidated $XXX $XXX T-XX revenue our week. respectively. do of backlog million, figures X. contract WMI’s approximately on and not include Slide we but and backlog,

Consolidated over as [Technical is Difficulty] recognize revenue potential contract. be revenue the this of on recognized existing slide contracts, work to backlog is performed. depicted life expected remaining we

on for are two these to backlog. in the programs backlog. our defense I’d our account key lists programs like X platforms military bottom highlight There Collectively, of most $XXX Slide row. defense million

deliveries order the of for XXXX. HIRSS orders, $XX HIRSS, from $XX Infrared use in middle on is of than million Combined older between end The XXXX million first approximate Sikorsky the prior Suppression the Black Hawk Hover as the to more are of helicopter. or and spares Systems, variants UH-XX with planned

Second is T-XX. contract with the contract. We’ve $XX this performing a potential million. started value under already new of

separate efforts conducted U.S. earlier, Air Force. the mentioned by As structural will supporting we be being modification two

after And Classic one one year delivery For ordering TRIM the the an a with period, of period an the the the of III additional XX-year for as Phase is is Pacer is for at anticipated year order is placed. with performance requirement, placed. after anticipated performance additional ordering requirement, order for period period an X an three-year delivery

for Vince our to who now quarter Let call financial financial the will guidance CFO, for year. me take Palazzolo, results and the our through you the turn our over Vince?

the begin Revenue second and year-over-year quarter from our approximately of the WMI program of Slide increased XX% production the for contributions Raytheon. I’ll Pod due Jammer have XXXX subsidiary Doug. million much quarter on Thank million $XX.X review activity we X, Starting results. you, on $XX.X from with to my greater second to next-generation

for $X XX%. the the profit quarter the second million from Gross increased compared due to margin XXXX. margin XX.X% jobs, in on million XX.X%, the $X.X of declined gross quarter low WMI to prior Gross to of period, to XXXX approximately second in

mix accounting and result a Aero combination As purchase jobs. an on contract CPI of unfavorable business

the The offset lower XXX,XXX $XXX,XXX by second period increased contract to and addition work. of expenses Selling, approximately WMI to compared by year. fees, general and associated reflects same salaries, last new administrative and the quarter WMI’s were acquisition for which the increase professional in

second Pre-tax the approximately income in $X.X for million. same income quarter to million $X $X.X from in last year. $XX,XXX a We approximately recorded increased period million quarter from the tax the benefit of

net IRS As information be February the XXXX you and and utilized disallowed. back in from under operating that examination earnings loss to back quarter could and fourth received the was carry XXXX XXXX may recall was last carried that call, from we our possibly

for such uncertain adjustment million disallowance, net back. operating of or in the not tax positions, ended we liability tax had be $X.X documentation and XX, XXXX, the disallowance opted we accounting for quarter net representing accordance with conservative Although received the record the any XXX-XX approximately of of to loss for December carry a ASC maximum formal notice

quarter, the taxes of by compared further to provision a the our possible a position loss for we on In of This uncertain tax carry the in related the resulted information, the $XXX,XXX this quarter operating to the year-ago reduced this million quarter. the Based to income approximately in $X,XXX,XXX we back. from of second related for for income benefit second IRS taxes liability disallowance period. net information second $X.X of to XXXX, received

of XXXX a or of $X.XX following Net liability. diluted second This the quarter XXXX share, from $X.XX public diluted reversal in tax per of period. share $X.X our per XXXX was or million, includes for offering. a outstanding, per higher for income October of of on approximately year-ago number the the arising income second to $X.X income million, a compares shares $X.XX Net net quarter share the

to and million, was balance Turning hand on WMI. pursuant $X Slide the at the June on is of quarter-end restricted cash sheet escrow our at million acquisition Cash cash of stock in X. – XX held $X.X to highlights

XX, $XXX.X increase the to December assets since contract March increased March XXXX mid-range was on million, quarter the XX, Jammer XX, an work the were in of decrease year-end XXXX, increases million result XXX,XXX as The in in the Pod of contract a approximately but decrease of assets was since XXXX, $X.X Contract second of quarter. the of compared performed compared The at next-generation to compared to program. first XXXX. result assets shipping

stoat million, million XXXX. debt compared Total to long-term $X.X XX, at $X.X December

line December XX, marginally million outstanding revolving XX, on to at Our of compared XXXX. Shareholders’ $XX.X million stood balance quarter-end XXXX. at from at to at million, our $XX.X million $XX.X quarter-end December increased $XX credit equity

X, of XXXX, treatment accounting XXX, adopted January we Effective ASC which leases. the out sets

As elected balance XXX a income leases standard, of not prior adoption impact not liabilities the XXXX, result, comparative operating we lease The million X, January our have million. does and a In on we $X.X periods. recast statement. $X.X material ASC accordance totaling of with operating on to sheet recognized accounting

reaffirming our we Slide guidance. On are financial XXXX XX,

$X.X We $XX Cash in be is $XX in the $XXX expected anticipated of to income in range range to be expect from million is million. to revenue of million. Pre-tax flow million of operations $XX.X to excess million. the

operations as increase noted. catching year, We expect Pod WMI from in increase shipments, mid-band of in the a by as to shipments, up second-half well cash driven next-generation flow of significant Jammer the as Doug

visibility of our are tax on we lack year. carry the NOL withdrawing guidance back, our the Given effective for

quarter will closing the my concludes additional prepared back remarks. to remarks. turn This commentary call and I the now Dou? on Doug for

Vince. you, Thank

law, increase XXXX. and billion recent in defense to new from two-year federal of passed and in the into spending agreement billion in $XXX passage increases XXXX is XXXX $XXX expected defense to spending Looking in ahead, budget Once in XXXX $XXX XXXX. the billion authorizes

will very the the of Getting September prior for Congress that bills should that year. the fund fiscal at XX, enacted event so government We appropriations these spending bill levels CPI on defense do optimistic will defense a DoD and time be end XXXX to are XXXX Aero. pass positive

development we budget and appears surveillance, autonomous to strategic intelligence, priorities, capabilities programs to also the Significantly, including systems. proposed have reconnaissance in growth funding technologies for missiles for call XXXX bid our includes electronic funding pipeline. and making key and business been It advanced and levels warfare,

bids the weighted quarter, competitor. bid Slide pipeline the not the Tier from As by bids see heavily awarded We at with X during commercial decided the removed moment, the customers the on because can it level. aerospace contract to defense proceed pipeline is some the subcontract you XX, the either a or to at

we want the should we more preparing expect Ideally, August end, that of bring opportunity and the portion commercial proposals set, are percentage in commercial that norms. bid back pipeline aerostructure that a balanced historical to of to submit our to we

proposition. trade CPI WMI’s Air of WMI since Paris prospective and CPI capabilities and acquisition, spent we time Aero and with the recently closed current we the were a these how Aero’s customers show value in interested attended increased first major Show, lot that

that pod WMI’s activity. structure. offerings has product We’ve strong in converting with in aero held express significant For our never experience higher. large meetings, integrated systems interest productive CPI is capability been interest defense example, service we And manufacturing already Aero’s in welding in capabilities, as two core pending interest quote and who such into companies fully and saw particular, in our

the attention from convert a an opportunities into for development team seeking into chain OEM, a to meetings of establish Department Business also drew these to expects want to platform existing aerospace bid supply U.S. Defense. they of We actionable during XXXX. many European sell

are program specific the us, a the significant expecting award end minutes Let pipeline, a on we of Air few make me before opportunity The XX. Slide that within spend our Force an for shown bid as just September. and program will on opportunities decision A-XX is

award. are of the in believe the We competitive both meetings with good very the recently We position understand only them. held a we contractors very two prime with competing we good are ones for

yet $XXX million to be re-winging a million The the XXXX support obligated. program and the to budget effort. $XXX re-winging an funding for secured reminder, is is budgets seeking approximately XXXX the As XXXX in that additional

required Management In authorization Northrop our on Chain items begin Supply to the variant the Japanese E-XD for Hawkeye. Kitting work from we received segment, and the Advanced lead Grumman of long

be multi-year Northrop aircraft As we for we by I mentioned $XX.X E-XD call, first the receive the later currently quarter two U.S. two, additive discussions on in Multi-year million two to the last potential announced orders are Grumman finalize in our order are with Navy of the version aircraft aircraft for October. nine expect covered additional the and to Japanese E-XD this an we The would to to multi-year year. orders up only. Japanese the

is for during selected Staying quarter E-XD, totaling WMI the the an million two multi-year WMI hear pursuing with I two $XX quarter. if RFPs. last work has three for to different order expects the that it been across noted program separately current approximately multi-year

earned couple our expect the the few new a contracts for activity end the months provide next hope in a the noteworthy, within current build quite and success. new across Also next first-half that Aerosystems our heading months. we all we competition of of remains will government to customer segment, fiscal award of year current pod decision Bidding to we bring upon segments structure our and bookings strong, into an

to long-term XX, defense awards visibility. excellent us Turning revenue Slide gives multi-year

Our defense the of the to periods have generate million and programs cumulatively approximately commercial of potential their over performance. $XXX remainder

announcement. June reminder, week’s as of such, not this figure does include a T-XX last As XX, and, is as

on the to income we and key achieve track to on start priorities net we’re at conclusion, goals our In our and the year. deliver revenue established strategic of

as backlog valued And pipeline with on supply new reputation and chain growth the platform for a and follow-on in as into head the program and well as our supports of that starts, us a puts XXXX established drive we orders. the future momentum mix have that As a second-half partner we systems business proposal year, into firm opportunities should our beyond.

Thank I remarks. for This CPI Ben, prepared to can and concludes support call open my you. thank all continuing questions. with your the to you Aero. want you attendance

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

Doug Vince. Hi. and Good morning,

morning, Good Ken.

like the should possible if you the of million or period, is on sounds four, potentially cadence It or three XXXX next in XXXX to Do revenue the we maybe detail so expect fourth to $X.X Doug, maybe XXXX things how could in little we it $XX the the the ramp should the an about according T-XX? or sounds incremental so this see understood to wondered step-up correctly, plan, relatively a few linear? in I revenues. years But on at on more I we XXXX, year, move that or to think in just is T-XX. if if quarter a provide million like

Okay.

after So up first the so the estimated the the ordering during of better be have that the proposal million information. we of three meeting documents the contracts, $XX month, we believe contract. should But or by about ordered we going to next host periods quantities and years various could within

and reason The is that is of needed portion a Classic a contract only three-year III requirements the over there that that were ordering for period, Pacer of lot program. for

order XXXX, Classic the an revenue, than to in year double see go our been we III probably somewhere contract, XXXX magnitude, $X years, would Hope million current on averaging not, more on first and and that if Pacer for be So double, a three that between looking and XXXX. annualized of helps. maybe million $X figure they’ll we’ve

helpful. Thanks. that’s Yes,

from in in the we the incremental contract should XXXX or quarter? or fourth So something the expect or you’re there minimal, expecting is part new the is

minimal. be should It

We’re Pacer still X III. is running Classic Phase the – of what

real in happen done revenue is XXXX. until definitely in, the including fourth for labor the as will – And There The and third work we quarter. till costs recognition needed won’t which material comes kits, come T-XX the just the have which bigger the fourth year, is the revenue so throughout quarter. that be

Okay, WMI, was terms right, in I delays of revenues the And welding there the out could called the or that delays? million that great. the is that the of of timing if of the the the anything $X.X was those of certifications, on some result in contributed to some – pushed you were all else to

a tried isn’t then And obvious those buy to to large specifications. schedule question. of that’s only the because kind shop, there And bled as off There I the good best workflows. meaning, would physical movement caused delays of we No, and the some of manage say, to in was, here get It is to that welding as – it delays, a of in were some of customer as well. product as customer-generated going amount into June, July. anticipated, disruption

timing for missed was and July first-half is just in – customer were the strong of customer WMI, gone, the meaning, are of none year the strong. sales the matter the And year of a that month back-half now. cancellations, they very of real a it’s weren’t the

that’s reasonable as or of And in some coming WMI guessing of margins WMI Okay, second-half out this for expectation quarter. for And in a I’m the great. explains gross part margin gross that, the year of business on second the what’s that lower the XXXX? then of

The say, margin. WMI – CPI’s higher our for would than I the expectation are second-half margins for are, core

– contributor in they leave should shipments gross profit, big to our increase be WMI, second-half that. second-half. think it much increased probably product between overall I’d increase But be they a of margin of combined in I should the the just at in a a with dramatic the

pass much. you thank very All there. it Great. back Well, I’ll right.

question comes Please Advisors. Arthur go from next with Winston ahead. Our Pilot

Doug you. and morning, Good Thank Vince.

morning. Good

your hit – income as effect, it Two in begin components, the of and to forward, would to terms and when questions. profits? you, When in expected. supply go sales the statement A-XX were If

to the be, be at winner. – timing six we – and probably We to in holds is to awarded quickly you the the would will real with September, would look contractor if real to have us. a But from months nine on fairly contract a prime post expect – award to contribution say,

We’re planning.

contribution a figure next the of with XXXX. So of meaningful contribution be first-half slight third starting to year a just and quarter

correct? nothing like effect, these less this it you the bought more WMI, natural Okay, you on delays it come terms in other sounds than in And out good. when and, business has what it, or of of thought everything said you closet would is be

thought it Yes. synergies bought It’s there. and we been what we have definitely when the

than a startup. that. with were on a We’re we system. single working the thank them able came of the been I’ve out The $XX been XX bookings already towards And to has reaction as and exceptional. backlog that the operating – I moving customer evidenced kinks with the employees kind company cooperation for a kind really responsiveness as matter new again get over under single of operating some and of And by that the it’s from just of the and of over million. impressed more

of of businesses labor, in terms And around the going enough get I going next real you bottlenecks? just what in have hopefully on XX some to produce come mean, come expected, to effect, quickly, in the skilled do may you months? as – on to can

here. terms Yes. of labor of I’m curve We’ve out tight when in overhead to been too – they’re the But we’ve to rate many – problem not it but date a bodies demand, is your much. so where It’s sugarcoat the goes going getting manpower not to to contract had we’re the market. pretty that a of a up not out not where we’ve hiring, come. waiting of get ahead ahead matter having of in trying for this

planned of we’ll we’ve I it. So but we And strike kind think the – right balance. ��

some in and is actively of people. is We the out visibility these of HR timing there of department our some have looking for terms awards that

now We reps started people another XX open program. we’ve right and for have training apprentice about

in get of that doing make that we’re So that. do things to need sure to front we the we

Doug. you, Thank

question-and-answer remarks. the closing I’d turn for to to like Instructions] call our over back McCrosson concludes Doug That [Operator session. any

day. announce thanks our to much. to to and you quarter I call. great forward look Thank listening Have you, when we everybody Vince And Thank and results. right. again third very a today’s for All speaking again with Ben, you

has today’s conference for attending Thank presentation. now concluded. The you

You disconnect. may now