CVU - Earnings call transcript Q1 2019 | CPI Aerostructures, Inc.

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Operator

Good day, and welcome to the First Quarter 2019 CPI Aerostructures Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Sanjay Hurry, Investor Relations Counsel. Please go ahead.

Sanjay Hurry

Andrew. you, Thank and Financial everyone, CPI XXXX Aerostructures Good Conference welcome Call. Quarter Results First morning, to A the presentation this Investor morning are copy was for Relations and that of available CPI the company's section earnings of accompanying Aero on PowerPoint download to the call release this the press website. issued

session. Vincent management this Officer. After Financial morning call President will the Chief a Douglas McCrosson, and prepared Palazzolo, remarks, Chief On are Executive hold Q&A Officer; and their

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

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

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

details McCrosson, via please Executive a said, Douglas I'd available and Vince institutional follow-up morning, I that investors. Officer. turn call today's to Please With contact President the release. for management, follow-up note Doug the that and Good over listed press are Doug. Before turn like to call with over schedule the in to Chief

Douglas McCrosson

us our performance call will to the on Inc., Starting subsidiary, on I results CFO, our CPI trajectory XXXX financial begin all review our brief then quarter's acquired for on integrating Aero I or the Sanjay, detail. commentary several opportunities keep Slide in will conclude next request. a thank defense and and joining And with the Vince a beyond. in that growth and with call. us of quarter progress some then quarters our XXXX several X. results Metallurgy WMI. solid will implications the Palazzolo, our morning, key contract over the should Good you Welding recently first of highlight with review budget

Continued start operational quarter year us for the strong gave strategic execution and the advanced during priorities our a XXXX. to

year-over-year. We income report gross higher revenue, are pleased profit to net and

Our Aero firm X.X. pod revenue for generated a driven our also financials product CPI in We subsidiary. results and WMI rate for during only for Reporting strong bookings. tell predominantly increases WMI both and as Jammer book-to-bill of dollar delivery $X orders shipments quarter, of every the generated Raytheon new Generation were program Next on by the our production part from quarter's performance

end and WMI's of at sales approximately in did facilities. operations by even when stands X million. completed from Our March, quarter, that by approximately overhead we realize of consolidated as the the expected product absorption during the the the the planned. improved fully the faster observe into Obviously, some backlog to quarter, companies, first we We can the happy quicker facility increased our integrate synergies. operating XX% consolidation I'm $XXX we report now

and cooperation during of improvement pleased transition. So cost strong we expect But continued customers the from this by the point most in forward. I'm our support

quarter. million in saw And in we it's more in confidence WMI's during was gained secured closed, acquisition new the once orders $X future. million the at WMI customers quarter expected, end. we backlog a than As surge new $XX.X as orders

call, XXXX, the programs are, As the on secured additions to fourth F-XXV for in backlog half second XXXX. Lockheed notable X Martin markets. in They quarter which including first, we we international I our of reviewed are starting

undisclosed and unnamed third, our and Sikorsky first missile platform. helicopter an Second, And platform.

concentration term. starts ability execution to on foot report goals the critical that Given is imperative. ensure program in to to I with is to delivery new am starts this each the over customers the have grow is plan. long our we program to off it place the today that programs on of X our year, new also are These year. business meet program get Therefore, for these we the processes pleased right flawless our crucial and schedule right

We a developmental missile platform, Sikorsky we wing with underway on first deliveries have for the year. a later on and made imminent this the delivery first slated is F-XXV delivery are on

and Turning to backlog mostly end Slide were quarter backlog defense our on X. the at fourth quarter's Consolidated record levels. from unchanged

WMI's here here. of reported clarifying A backlog these note revenue backlog. As reminder, backlog. is a quick The are inclusive figures

recognized As contracts you we expected The remaining as potential is total revenue to know, work the revenue life performed. over be is existing of recognize backlog many on contracts.

cash. next value fourth Northrop the X March, highlight on over totaling books a account will our Slide award we sales our long E-XDs, the and in at of firm fall, As our what backlog. under to earlier I'll programs that are we product from valued two a years. reported generate XXXX our could which our backlog, I open E-XD Northrop as order In provides maximum call for key million. the see million. we expectations This lead-time majority quarter, X. $XX.X that mentioned received close these bottom contract million to orders the for is including the award of expand row, as the This in defense $XXX approach Collectively, multiyear the on XX of I the a Grumman U.S. X $XX.X refer $XXX our context for Navy our for backlog. awarded total million believe items quarter of $X.X defense a first multibillion-dollar military lists we shareholders additional Last today. After Grumman ability to assess full platforms program. to contract you supports the contract million our

current electronic assemblies Sea is contract WMI I'd row. We multiyear are Northrop to a structure welded the for supplier. This Sparrow is which discussions the are in the incumbent of multiyear Grumman like tube these and they to bottom also been is WMI the on significant also point and package third legacy Raytheon for negotiations out full with for hope E-XD important in quarter. a for the and program currently conclude cabinets. has years. securing to order, build Separately, WMI in X currently quoting an program

the of We final current in ship are stages quarter. the and these units expect during to production

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

Vincent Palazzolo

subsidiary. Thank the pod you, $XX.X Doug. Jammer Generation on contribution to WMI with million my from due for I'll increased the first review have $XX.X continued quarter Next XXXX, that Starting XX% of first begin of year-over-year quarter Slide on of and to activity the program Revenue million our Raytheon we the X, approximately results. production primarily

quarter, March push And certain CPI shipments the Aero in XX. some resulted did this and transfer by of WMI until During not technical June. outs to certifications May

in $X.X QX of jobs certifications last of to to Gross period the XX.X% approximately WMI for cost unfavorable and to from following in October prior first WMI of CPI compared end combination business to of SG&A EPS $X.XX XXXX on $X.X same margin for first $XXX,XXX million expanded Taking account gross equity million XX% transfer XXXX. year. first quarter $X XXXX. million compared first mix period Gross a share in in last accounting. reporting quarter for an to an income The due quarter million for the our approximately the year. quarter requirements. XX.X% for of result increased by reflects as WMI to was $X.X XXXX, the last of by to of balance year. increase into professional $XXX,XXX the associated for the as was and to contract same same income higher quarter the the to declined the first periods. increased XXXX with both count modestly the profit $X.X $X.X increase purchase incurred the as expect period of quarter low the offering the well from to audit We million margin for by compared fees million, jobs Net Pretax us increased related period

million, of assets an at the at the XX to Pacer XX, was Total which million increase we to WMI. Classic the The at design balance Jammer and our debt the restricted $X on T-XX a the begun have at Next of steady cash on to December pod million materials in $X.X on million $X.X of cash billing yet the held result March in HondaJet XX, new program. December with was processing and associated quarter $X.X $X.X rate were and the Cash escrow, and sheet Contract Raytheon assets inlet, cost end Generation long-term not XXXX. $XXX.X is acquisition Turning stood for to million X. contract compared at of Slide million. hand compared pursuant increase highlights XXXX.

million stood which leases. million. line was outstanding of quarter $XX at XXX, ASC on Our treatment quarter credit to accounting sets at the $XX.X XXXX. adopted our at revolving X, at January out December million Effective XX, XXXX, end at compared end $XX.X flat balance essentially equity Shareholders' we of

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

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

to in my prepared call XX% quarter on turn remarks. This rate the now the closing effective remarks. I expected tax Our XX%. additional is to range commentary of be Doug back the concludes will Doug? for to and

Douglas McCrosson

Thank you, Vince.

market's want set keeping to defense to significant and XXXX. growth spend government moves today's military World key point to consecutive II, the since in including call, autonomous great CPI programs fifth capabilities appears are proposed DOD for Looking surveillance, is military that provide on continued is on making us the and reconnaissance the intelligence and positive Aero height The missiles except to other some XXXX On the Aero. historic highs near to to has our sum, a and published budget budget to at the of indicates funding a year for budget timing pipeline. I In any request and bid retool levels for funding years rebuild around its more against growth. that path The that CPI systems. our the expected War programs The color at grow development military technologies Iraq been powers. this of XXXX in year electronic U.S. ahead, some budget also recently request than for War for competition a business priorities, includes handful defense for be advanced of warfare, the and strategic as

it Aerosystem right Within X% categories up in on mentioned. be development consistent Slide the our just with as the I will shown segment our its We and approval winds process. priorities chart side monitoring XX, sequentially as through the of business way pie budget is the product our actively

dollar true Fully We direct customer. contractor believe are weapon to we where our aircraft the value XX% of value of a we also strategy, our for to the our X compelling by Tier bids prime or system. remain OEM represent

of in minutes and me of list intentionally on section, A-XX within pipeline. spend side awards Aerostructures, At first our placed bid that is XXXX the is of at a key you'll It slide, largest top the XX pipeline. the one potential illustrates bullet. the bid the Let few first our top programs see in is the Slide the this

request The to row. year budget budget the XXXX month in this X in is Air XXXX seeking obligated. has winner in the for funding A-XX of for rewinging program $XXX additional a selecting we to a The from been publication see the not funding support the effort. fiscal the is $XXX an request approximately million rewing third or competition. support the Force With budget that million away secured Prior yet

program honor for previously the uniquely which awarded to we've our working believe this continue vying discussed, contractors no contractor the the As history program matter this airframe will many on contract. A-XX for excellence the we're contract, positioned that us of come, rewinging on with years earn and to is prime

seeing are particular, reflected strategic other technologies our XXXX note the as we of that DOD opportunities capability, budget In by request. Aerosystems that of before and us. emerging for for will are manufacturing many many exciting support there You are the priorities the demand

For the pods months. be on that example, will within the warfare we opportunities electronic on as well is systems. next our generation have proposed missile next subassemblies newly new most of developed as awarded for belief XX for It page this work

Turning to Slide XX.

Our focus on gives visibility. defense revenue awards excellent long-term us multiyear

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

set Defense we but broader horizon, a contractors Jammer large Next programs of the a capabilities E-XD on balance the the have environment. budget managing companies arising revenue of request. As favor catalysts the XXXX, few out of with look experience to see being A-XX, pricing and that competitive we prime Generation and XXXX

WMI expanded provides for growth revenue and our for work new customers of with acquisition current content avenues new Our customers.

Aero of we that maximizing balance be into legacy drive cost continuing focused cash our the to the on CPI improve of will programs down manufacturing XXXX. year, will as of heading flow as acquired operations For WMI well the efficiency

please ask work since Aero to for acquisition. moved past also their women had nearly either these for and the I the that. arrival. The well positive and support recognize and closing better lives or my we members the attitude this had more open aerospace concludes cannot as extremely the we make their has publicly prepared from to operator the transition I professionals. thank to unavoidable hard-working and of WMI the team of disruptions thank for a their their This CPI Together, workplace questions. room former to to men and than they and to months for new to gone questions, are fine Andrew, moment line due lead proud were like daily separately. line endure open for I Before to support, They've group I'd be them at And and defense cooperation XXX take the remarks.

Operator

[Operator Instructions].

Herbert comes question first from Canaccord. of The Ken

Kenneth Herbert

quarter. Doug and Vince, really nice

Vincent Palazzolo

Thank you, Ken.

Douglas McCrosson

Ken. Thanks,

Kenneth Herbert

the or SG&A the gross associated quarter? wanted quantify, what the then on revenue the Can first And with off. WMI - to in you was some the cost start quarter? Doug, Just specifically, maybe what of contribution WMI what were for onetime the and impact the margin in

Douglas McCrosson

I'll answer let that. Vince

Vincent Palazzolo

came quarter. for WMI work nature price. it The sales XX% $X.X revalued was when because the to the their of is us at of is revenue in was margin, because which price purchase the closer the The million to only fair it is accounting, manufacturing WMI on over than to the inventory, value,

little kind a of it's margin So bit. by depressed the

another its equipment cost or We $XX,XXX one also on own. And just dollars' moving was related moving of to $XXX,XXX couple extra - invoice audit expand had thousand a for worth hundred then of the the of and heavy was that cost like that $XX,XXX.

Kenneth Herbert

to burdened Or fair that I inventory of to part for say going sales for was the is going mean it be cost Okay. this that's are it - higher year? But WMI to that...

Vincent Palazzolo

acquisition away we further the doing and inventory gain CPI, are margin. and the on and more benefit as Further more of work the that from we here, date,

the by So the XX%, it XX% first at margin XX%, rate in quarter, quarter. be to them. the second you And almost XX% normal get to time in go the quarter, XX%, then for third we're expect should a only we

Kenneth Herbert

strong then more of and just out maybe from what commentary the Doug, hearing Okay. continued really in quarter? provide we onetime XXXX really Can the on quarter you programs. a the do think of and That's little visibility bookings of on bookings look? you've called obviously in great. could could sort rest you're customers? of bit really anything a see I Or sort ratio the And there was if number that strong just, could in And book-to-bill across you how

Douglas McCrosson

quarter a was quarter on the lagging while basis. optimistic kind - strong XX-month of Yes. very No, that the a we're particularly

continue our the not And Honda strong, of work no were of there. real still No, Next this very of kind that is out balance as of There expect book Raytheon some Jammer, but down. of programs the weighted other the see don't as we more - well rates in We're in than seeing Generation slow increasing quarter. and the just any some book-to-build of monster expect higher also year. big, X.XX. particularly for trend bill production Our say, activity, we proposal the programs, we kind that to real to

we're to consistent the the a for rest going fairly booking think year. I and strong of see

Kenneth Herbert

finally, bit? execute And an missile for on obviously But size that maintain, for standpoint? you you be pieces quarter. F-XXV, just Sikorsky guess of? to in place little us the a if important can could, from That's obviously, those highlighted how ensure you're - the we execution levels of these X on for course, up the any starts opportunities with I new Sikorsky, more The are helpful. of on specifically wing you and aware are undisclosed just or you and, able risk starts in, the obviously, these, and Okay. bringing a as Lockheed an expectations helicopter X Great. timeliness three programs you're look you how these program. program you that - to I importantly should to margin in the maybe Or

Douglas McCrosson

every on in we the the engineering, nonrecurring underway. the the now nonrecurring work with So stage - we for on received is And program associated early are effort the have of expectation we're start. have target terms just our F-XXV, engineering we new that

negotiating out of very be community this prepared that suppliers, going the individually of now deliver with in so at year. supply to that We can end are later the in to the contracts we process chain

there But deliver X we're stages, on the far importantly and month - or equally on happy margin X only unit was it, The assembly not a did the schedule. we're is we to track work time we X with in. of a early helicopter, for assumptions. was Sikorsky the in particular into and to the be seem more but delivery that on or budget units So, hit this already essence so on undisclosed of say to first

has efforts, with product. - that end have and in the exceedingly on inspection team early anticipate the So gone the in had week Lockheed, extremely missile both important this And those customer customer the month. we we final And for well. undisclosed our from program customer as an as undisclosed of this shipping

So more even work excited the X And be second now, to couldn't good XXXX. that all half of did the the programs collectively, are particular, get - shape. about the for these three programs, team half, in of second for in but meaningful these here

Kenneth Herbert

Great. in the I how And one does could any? much revenue question. A-XX year, factored Can just you around contribution the if How just that? if final guidance some provide is - much for full color

Douglas McCrosson

Yes.

recognition, Our say, hopefully - a million frame after that million that or a this maybe happen assumption negotiated recognition the get budgeting would revenue calendar would win in revenue - an we contractor a but we're able June that. to months year. contractor within winning is $X about in X award shipments prime with $X.X to And time no in the contract

Operator

Art Advisors. [Operator of Instructions]. comes Pilot The next Winston question from

Arthur Winston

could up months. the annualized if those didn't A-XX contribution revenue contribution through, goes number for XXXX? of be I pick contract for the And the what for Great in guys. quarter, the a

Douglas McCrosson

Okay.

million be year it's of to that about I $X million, per can there first aircraft a mentioned by August, opportunity $X.X years. September - that bit if But type is in it be I was time So full contract a proposal. run say, would the the, little rate bound not, still the, $XX say, timing million in rewinged. for I higher the could are of than into XXX it - I'll of it talk rather goes Art, annual left our couple frame. competitive to about because probably to assuming million $X It

Arthur Winston

who man is to doing Excellent. middle help But like I us in, our new marketing last year sounds job. don't in have with a a came the it question. of great

wanted thank I So to just him.

Douglas McCrosson

him I'll thank too.

Operator

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

Douglas McCrosson

our and Vince early speaking Thank you we Thank thank second you, great look listening Andrew, results. you, to today's have with day. quarter in and I for you forward and August, call. again all a all when announce

Operator

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

You may now disconnect.

CPI Aerostructures (CVU) 11 May 192019 Q1 Earnings call transcript