CVU - Earnings call transcript Q2 2020 | CPI Aerostructures, Inc.

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Operator

Good day and welcome to the Q2 2020 CPI Aerostructures 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. Please note this event is being recorded. I would now like to turn the conference over to Mr. Relations Investor LHA Burfening, Council. Jody Please go ahead.

Jody Burfening

President Sarah, Aerostructures’ market yesterday second you, on acting call Doug Chief and Tom The evening. Officer; call. was good CPI to the issued McCrosson, are morning press Welcome Financial everyone. this Chief quarter Powers, closed me Executive and morning, With Thank and earnings XXXX release Officer. conference earnings the after

of the will the prepared prepared For website today’s remarks management’s Investor call, Relations download for remarks, Q&A accompanying At section a www.cpiaero.com. is in company’s their at the hold PowerPoint available of session. presentation conclusion a management

any budgetary the in with controls, financial company’s economic company’s of and attention the due including in operates, conditions conditions financial COVID-XX the the period demand in the remediate legal these proceedings its will resulting markets of of uncertainties. constraints; required customers continues; of COVID-XX this As or impact contracts forward-looking can in that assurance to customers resources, suppliers; not risks rates the uncertainties including to defense programs; diversion effect and risk management outbreak costs changes competitive ability reminder, production that anticipated are of and certain company’s management new results outbreak the be and with will and government based spending, the shifts the will the the for the legal contain and funding terminate including current such cyclicality the military conference from allocation other spending to aerospace conditions; as weaknesses; programs; developments a – company substantial costs pandemic, Including the product or differ supply, and to the statements. forward-looking in and applicable indebtedness product market; of of the operations. impact and technology material requirements; of resulting new from defense government existing – pricing capabilities internal and industries condition financial material and or statements adverse the subject level uncertainties; the are that There political call company’s and anytime; actual development and affect will aircraft from the the at the which are results assumptions forward-looking sequestration; restatement no of statements initiation for changing proceedings; and or expectations commercial from performance the in that risks compliance of materially of costs on level associated of to market the cash start-up risks distribution to risks uncertain global pressures; where of changes funds regulatory not spending flow and responses consolidated on be the the statements of the weaknesses accuracy prior U.S. government programs; cuts including included the and to and

in the Chief The would that, Doug. Executive found results undue morning, filings cautioned to like of update or date place each differ outcomes I circumstances risks, expressed forward-looking in and Good to uncertainties no President or date the made. Commission. has turn Douglas the the any reliance only Officer. reflect those statements, With above Additional which are company such as be hereof. after Exchange call now listeners forward-looking events company’s any to to Because statements obligation risks forward-looking McCrosson, to the over of speaks to and to actual on information and not materially cause the other and referred these could with concerning from can Securities statements, assumptions any

Doug McCrosson

fundamentals We that quarter with sometime hope Good results XXXX reporting results of your remain your that are of quarter results we are morning. ago. And will as second families, up I all with requirements our only This fiscal filing third XXXX the healthy reporting for as five in hopeful you, late-December. first our quarter be SEC current in continue weeks the our morning, everyone. The three remains we well. friends short thank reporting strong, on finish well since XXXX fiscal a catch last improved, has and you, Jody, our our Today and your quarters passed a XXXX. we heading and first neighbors and our the for fiscal is liquidity this to our to call. of the XXXX high. XXXX reporting outlook restatement the good year still are time filing since strong of Form only has as financials, completing XX-K business It’s optimism into unchanged, our the of

you results a of with will a on for line We status are some loan. to then backlog to will comments I’ll second with this results, Paycheck our quarter second going brief Program recap quarter highlights. I Tom the of morning, recent XXXX. and provide of concluding detailed financial our keep outlook the And And start offer before for focused remarks XXXX and and questions. review Protection the our our opening figures

basis ago profit as increased the rebounded percentage the weakness expected. in for from aviation points the programs gross Sequentially, margin compared results year commercial Slide backlog. XXXX first points Revenue XXX with on to of business. We increases quarter offset our from to margin to the our second and from Turning second quarter X. period. defense continue and first posted from XXX defense Gross by basis quarter the execute we nearly funded business flat quarter nearly was solid as ongoing our by

the the higher gross quarter in that low XXXX. will to than point that XXXX, be margin was full expect be to of and continue it margin first prove We will XXXX percentage year

from we net generated addition quarter. and professional fees. last management, last restatement, operating second flow year’s by cash of capital narrowed non-recurring the quarter, $X.X to to year for non-recurring improving an despite outflows to flow the while of we for operations for quarter $XXX,XXX related improved on million absorbing fees cash for cash loss Our the approximately relative quarter, the focus professional intense relative Reflecting working the

$X first million as cash are approximately has took the significantly from are For cash in year. revolver cash we by approximately last to to from million our unrestricted defining prioritize of of flow XXXX $X we starting Liquidity, strategic to steps also improved performance. which million XX, June XXXX. $X.X this flow show operations increased as of The on half XXXX, our that’s versus year hand availability, XX, financial June earlier as plus

receipt these during loan the quarter the sustain the Paycheck Protection us the our to of throughout which of pandemic. As a result Program COVID-XX second steps, enabled plus workforce

to are we for execute our We creating shareholders. in welcome been news in ultimately on have as workforce, stronger years growing backlog, our our customers our a position for and

then in call, program. $X.X Turkish orders. On Turkish highlighted work Utility on have for Since we $XX.X million in we new million orders from Helicopter the firm quarter the first announced aerospace industries our

F-XX Boeing since million Hawkeye, as Navy Grumman As also for support $XX.X have firm a the variant. the Advanced $XX for in orders the version from we for the the beginning year, E-XD from U.S. as in Northrop on of both well reminder, purchase received Thunderbolt work and orders international new We in million for order $X.X T-XX from of the $XX.X assemblies. for million a A-XX orders defense million modification rewinging with Force second aircraft the follow-on II Air effort, backlog. $XXX.X purchase kits, Martin Lockheed structural from quarter total million U.S. million and in backlog ended of the $XXX.X

unusually book-to-bill ratio was First high. quarter

of still XX This X.X than Aero of or the a a the longer higher book second XX, We business supports funded $XXX.X of a XXXX. June for XX-month the in very up trailing our backlog was X.XX. December ratio since quarter as and of $XX.X near-term defense ratio bill robust term. So over with CPI ended million expected. growth sustainable is the And XXXX million, we quarter XX% to

As the built Raytheon. the pod panel A-XX generation to we programs reminder, this are we program supplied and our Northrop we kits E-XD assemblies Boeing a Jammer in for for Grumman, performed the wing funded backlog largest next

Slide X. to Turning

it attractive see consistently growth as line programs military we You backlog the we the our performance defense strong deliver stable, the to continue contracts on is of chart side long-term support. the of on offering opportunities multi-year multiple Aero can from right slide, CPI

that election. In presidential the the the for believe defense spending future addition, we impacted recent by foreseeable will be not

and contains and backlog a legacy from high broad defense array to T-XX pod systems Jammer undisclosed missile value like Our and F-XX weapons other defense platforms the A-XX, Generation of like Next advanced the the F-XX, platforms. technologically aircraft

order cancellations headwinds spending global such, portion positioned the of deferred well The to we reduce COVID-XX deliveries. relative to priorities, come our due continues backlog regardless which believe As the to from commercial January. in and we’re pandemic from parties majority DoD’s and of

million aggregate backlog newer margin is backlog half the to we and on consisted second defense we June of to of accelerate at improvement our half $XXX.X and funded of current compared defense to is the million, $XXX.X first of programs, to the in As and production year. from the orders margins industry positive flow. XXXX, defense stood through XX, generate our up cash revenue of Near-term, ramp operating expected customers. which to of revenue the as The end expect for XXXX convert scheduled

the as our to who Now Tom acting through you I’ll over the Powers, status for of loan. call well turn Paycheck Protection on Tom? Program quarter, our the CFO, as walk the will results financial

Tom Powers

morning, Thank Good X. on start remarks I’ll Doug. you, everyone. my Slide

million. restated and reminder, last was increased award and business, on performed results $XX.X XX. filed period program, related Pacer offset million to of the while with the on $X Overall, the our programs in decreased to on of which E-XD Raytheon quarter second from were Form the decreases on million our same contracts for the work million are quarter values announced our by compared from SEC contracts the revenue defense XXXX program aviation the increases August revenue XX-Q/A As $XX.X previously primarily XXXX T-XX multi-year program. for military Revenue second $X.X the commercial for found from commercial year. revenue Northrop pod a as Within the Grumman

non-recurring $X.X the first Raytheon the reflecting differences $X.X our the the $XXX,XXX fees, increase expected gross development and million program Gross and in million mix. revenue accounting resulted compared included revenue increase program. quarter second in the profit of the related net $X.XX SG&A one transitions compared and $X.X narrowing expenses the the to revenue to to or was million from share Embraer expenses compared next. Finding from share the professional in lower timing legal XXXX. from ongoing was in were for the loss the a from resulting Despite for in litigation commercial quarter, from per it reflects a million a of program $X.XX restatement GXXX and approximately restatement. million $X.X phase million product the profit programs and to to reflects $X.X favorable as As lower to $X.X

XX, to X our forgiveness The Cash under $X.X our revolver reflects XX.X XX.X Total has December our outstanding loan XX, contract and Slide March December, of is as million to PPP of compared presents of Paycheck as With XX, October The due XX, received respect provision applied the X.X XXXX. was revolver under XX, Act. million contract to for submitted highlights. from we XX.X we Program liabilities compared stood balance to liabilities December XX. full Doug. million cash loan in the review Net million and increased Upon XXXX. CARES to Protection Slide received the forgiveness unchanged contract final under loan will XX, and SBA customers. the outstanding X.X on debt application I’ll lender approval. and our as the higher loan, approvals, and our XX.X balance sheet including restricted at Turning million accordingly. for And in on decrease compared reduced will April Debt the turn included assets financing sheet income back X. other and call at to the of statement. to receipt of be balance were the June to the be of XX, income proper in million June million

Doug McCrosson

you, Tom. Thank

the XX. presentation. as now these as can shared Collectively, backlog expected that add expansion. I within contracts a you opportunities And first None is with next the on have to opportunities near-term favor. and focus of of priorities our than June we our we that This details Slide margin on three reported XX will as our quarter more were Customer decisions XX. supplier see, are the of quarter including slide sheet from now in four we first provided to in a bidding in total $XX XXXX our and million estimate will once we the liquidity, permission incumbent on days. More be this receive on backlog. Turning Slide included slide of the you XXXX balance new the these XX, call on most customer. other our for the decided are sharpened been

improvement continuing capital time the are the cash compress into for materials by to working shortening initiatives closely that each designed implement managing We and operations. of more flow are bill program cycle to flow

us of we debt. quarter, examine continuing XXXX. inventory generate efficiency $X.X flow by first cash long-term Using us also along operating with half manufacturing are approximately to slightly to processes. approximately if million cash and the meet, internal the management We to the operations to which repayment our not production $X.X Already, second for enhance capital are new to objectives of of initiatives re-engineering control of plan flow enabled these our allowing also applied key careful million exceed tools these operating for

down through new XXXX, respect priorities margins continue will margin are compared revenue, committed measures. disciplined programs our lower expansion, part Longer-term, profit over of XXXX. operational profitability across adherence for to to latter defense liquidity to opportunities XXXX position up We the improve products. to cash to bill production paying of debt and ramp Collectively costs. our higher enhancement still to portfolio of see flow expect of for material With improved CPI we Aero our these we

have recent positive at Our cash more operating is – are than our flow. goal, in which consistently to point to now history we closer now any

of expect solid with to XX% accounted a for XXXX-XXXX use flow recap to want A-XX at us the our F-XX more quick areas a for to in business for sheet XXXX. path the a which increased period, places on our XXXX and balance this baseline. XXXX new of even through XX% to range give using XXXX We Boeing of any total as cash the of each assemblies restated XX, On beyond. for business In backlog the June Aerostructures and Lockheed with to contracts grow three-year give you growth to XX, for in delever foundation I outlook our in XX% Slide

rate driven pods we that bulk generate warfare three-year the a programs, area. the this growth increased at in as our by XX% backlog surveillance This various of growing all electronic revenue compound electronic commercial systems increased business Grumman reconnaissance pods, As orders Raytheon has and are indicated expected a across of annual reminder, our remains Sikorsky. range the programs production total XX% Aerosystems, warfare as continued in total annual a in our well execution Kitting hard of certain will of aerostructures growth management, for XX%. and defense In such take from funded like backlog systems recognize business our high-quality and XX% HAWK and of platforms of BLACK been is X% times. what demonstrate to workforce growth produce summary, during T-XX talent key the to the stability compound I’d backlog XX%. chain our F-XX of and results affords led solid the supply and of work our which has by E-XD, us. backlog opportunity our can Northrop fastest rate intelligence we to electronic for ones the area and the largely driven quarter range off and as the unprecedented believe second to built

group my others production they While no us professionals the have some fuel XXXX. in thanks. half to my respect of programs circumstances defense extremely the end home, operating of There’s results our worked yours. their revenue newer and industry each my had The and higher with from expectations. and have and our expectation worked stronger position challenging sure exceeded aerospace group the a endure office also and from and in support that will of and year backlog I’m ramping results they XXXX income to finite

income compared and growth flow for revenue, for to in cash XXXX. preliminary is XXXX outlook operating Our operating

into you. results Thank sometime now. third late We we line can insights when the expect December. questions share open announce our Harry, XXXX, more quarter for to you in

Operator

Instructions] ahead. question from Thank [Operator Please with first you. Ken Canaccord. go Herbert Our comes

Ken Herbert

Yes. morning. Hi, good

Doug McCrosson

morning, Good Ken.

Ken Herbert

Doug. Hey,

your provide detail see the of of better pace the more it the do the to about on for we for if you you know the second and the nice year, I you gross third half expectation full be year but than a wanted How sort into first expect Just improvement into – last margin to can improvement second quarter. any you improvement put the of year, very sequential up the the fourth of quarters? think from indicated

Doug McCrosson

preparing all be the third gross that that and of but doing estimates quarter margin the sense the quarter my still quarter second we’re third higher is will year. and the the again, percentage we end Well, results, will than

obviously Second will it be would year our again second in I on was margin percentage ongoing are much estimates the will right gross sequentially what How now, half than the much that on now, the based I’m third quarter. higher of in quarter, they than half. quarter are to first program higher second depend but in the say compared the seeing higher

Ken Herbert

or earnings of, have XXXX? – do this you that more does infect year And you like Okay. look a sort positive it’s into do quarter

Doug McCrosson

earnings this Yes, positive year. we have quarters do

Ken Herbert

Next on moving how anything you’re Gen think you revenues think if and unusual maybe the And Jammer in was us it I – the you remember the should can if in program, on year I about pod, on that quarter on just and I Okay. that out this slightly forward? called we the just transitioning while the level there think quarter, set down program

Doug McCrosson

Yes.

that is through much job. on a and phase. It lot annual in is what on development least test phase. called activity swing the full previous program, third pretty if continues greater equal run in of phase an XXXX. now was to that The not the the rate on quarter system at basis are of we There than So SDTA

expect once So key contributors of to revenue forward. going be of that we our would again, one

Ken Herbert

the if sort defense Okay. finally, in from of any about pricing or dynamics the or standpoint been your of And that? and a you customers of on from any talk you growth risk and more are seeing how just any sort really pricing general, side good in the there reflects backlog, pressure pressure increased there’s backlog can

Doug McCrosson

fixed mostly be Well, at contract. the backlog would priced price

to as price not those all going So remind are Tom, contracts. fixed me

So defense to some in able in we a at on industry that, value say the were margin. has been, dollars cases our go price negotiated think selling those run time delivered new get get to on good margin budget much we we’ve a second, and wants of no And lower customers getting. could on they’re put we And, efficiencies so on prices mean, And way that. without side. I’ll seeing normal standard system, there’s the not we’ve maybe right. we price I course the show for that giving when defense job. we at a our cases, pressure and we some any only that. we of everything, had for, next the time wasn’t we better to already, And and pricing, last bid it bid least the government sensitivity really price always for for the what there’s always the There’s to good I’m

the over commercial the board. pricing there’s it’s So is aviation of known say the extent to business wouldn’t pricing to I pressure have that all pressure. kind that

Ken Herbert

much. Thank back I’ll it very you there. Great. pass

Doug McCrosson

you, Ken. Thank

Operator

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

Doug McCrosson

third everyone report I in today’s Thank Okay. and you the speaking Tom late-December we results. to in And look quarter for forward on you. when Thank you, participating call. to

Operator

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

now You disconnect. may

CPI Aerostructures (CVU) 12 Nov 202020 Q2 Earnings call transcript