CPI Aerostructures Earnings Teleconference CVU US
2010-08-10 14:58:30.378 GMT
Event Date: 08/10/2010
Company Name: CPI Aerostructures
Event Description:Q2 2010 Earnings Call
Source: CPI Aerostructures
For more event information and transcripts,
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Q2 2010 Earnings Call
MANAGEMENT DISCUSSION SECTION
Operator:
Good day, everyone, and welcome to the CPI Aero's Second Quarter 2010
Conference Call. At this time, I would like to inform you that this
conference is being recorded and that all participants are currently in a
listen-only mode.
Thank you. I will now turn the conference over to Mr. Ed Fred.
Edward Fred, President and Chief Executive Officer:
Thank you, Christy. Good morning, and thank you all for joining us for our
Second quarter 2010 conference call. If you need a copy of the press release
issued this morning, please contact Lena Cati of The Equity Group at
212-836-9611 and she will fax or email a copy to you. Also, if you would like
to listen to this call again, you can hear a replay on our website's Investor
Relations section in about an hour at www.cpiaero.com.
Before we get started, I want to remind investors that this conference call
will contain forward-looking statements, which involve known and unknown
risks, uncertainties and other factors that may cause actual results to be
materially different from projected results. Included in these risks are the
government's ability to terminate their contracts with us at any time, the
government's ability to reduce or modify its contracts if its requirements or
budgetary constraints change, the government's right to suspend or bar us
from doing business with them, as well as in the competition - competition in
the bidding process of both government and sub-contracting contracts.
Our sub-contracting customers also have the ability to terminate their
contracts with us if we fail to meet the requirements of those contracts or
if their customer reduces or modifies its contracts to them due to budgetary
constraints.
Given these uncertainties, listeners are cautioned not to place undue
reliance on any forward-looking statement contained in this conference call.
Additional information concerning these and other risks can be found in our
filings with the SEC.
This morning I will give you a brief overview of our first half results. I
will then hand the call over to Vince Palazzolo, our CFO, so he can walk you
through the financial statement details. Then I will comment on the current
business environment, outlook for the remainder of 2010, and then briefly
wrap things up and open the call to questions.
As reported earlier this morning, for the first half of 2010, revenue was
approximately $23,550,000 compared to approximately $21,129,000 in the first
half of 2009, an increase of approximately 11%.
Pre-tax income, was approximately $3,130,000 compared to the pre-tax income
of approximately $2,216,000 for the same period last year.
Net income for the first half of 2010 was approximately $2,066,000 or $0.32
per diluted share, compared to net income of approximately $1,449,000 or
$0.23 per diluted share in the first half of 2009.
Selling, general and administrative expenses for the first half of 2010 were
approximately $2,870,000 or 12.2% of revenue compared to approximately
$2,575,000 or 12.3% of revenue for the same period of 2009.
So with that prelude, I will now hand the call over to Vince Palazzolo our
CFO, so he can walk you through the financial statement details.
Vincent Palazzolo, Chief Financial Officer:
Thank you, Ed. As reported in this morning's press release, comparing the
second quarter of 2010 to the second quarter of 2009, revenue increased 10%
to $12,544,625 from $11,437,691. Gross margin was 26.7% as compared to 24.8%.
Pre-tax income increased 31% to $1,826,254 compared to $1,389,489. Net income
increased 33% to $1,205,254 or $0.18 per diluted share, compared to $903,489
or $0.14 per diluted share.
Selling, general and administrative expenses were approximately $1,485,000 or
11.8% of revenue, compared to approximately $1,386,000 or 12.1% of revenue
At this point, let me hand the call back over to Ed for an overview of the
business
Edward Fred, President and Chief Executive Officer:
Thanks, Vince. As Vince just reported, the gross margin for the first half of
2010 was higher than that of the prior year's first-half. We expect that
there will continue to be normal quarterly ebbs and flows in our gross margin
as our new programs progress, but we arrived at our 2010 guidance based on a
24 to 26% gross margin range and expect to end up in that range.
New orders through June 30 of 2010 were approximately $31.1 million
significantly higher than the $4.9 million reported this time last year.
Additionally, during April we received a $10 million increase to our overall
order from Boeing on the A-10 re-winging program.
The total award amount of all of our programs should increase significantly
over the next two quarters as we expect to receive follow-on releases on some
of our major programs. There is also a real business potential from the
approximately $288 million of unawarded solicitations outstanding, once these
programs are funded and/or awarded.
In the past several years, our reputation has been elevated in our industry,
thanks to our impressive list of customers, the success we've experienced on
the important programs that we're working on and the exposure we've had and
contacts we've made at various aerospace and defense institutional investment
conferences.
We are now in the midst of establishing relationships with additional prime
manufacturers, including other helicopter and business private jet companies
who've come to recognize CPI Aero as a premier supplier of aircraft
structure. Among the unawarded bids outstanding, are contract opportunities
with these potential customers. We look forward to reporting on our progress
of turning solicitations with these prospects into awards and contracts in
the future.
As previously announced, based on the visibility we currently have, we
project that 2010 revenue will be in the range of 48 to $51 million, with
resulting net income in the range of 4.3 to $4.8 million. It is our
expectation that our three major long-term production programs, the A-10, the
E-2D and the G650, will be in full scale production and generating consistent
revenue during 2011 and we therefore project that 2011 revenue will be in the
range of 78 million to $81 million, with resulting net income in the range of
8.9 to $9.5 million.
Additionally, using 2008 as the base line, our 2011 guidance affirms our
expectations for a three-year compounded annual growth rate for revenue, in
the range of 30 to 35%, with the resulting compound annual growth rate for
the net income in the range of 50 to 60%.
In early April, we completed a registered direct offering and raised 3.5
million in net proceeds through the sale of 500,000 shares of our common
stock. Through this offering, we strengthened our financial position in
preparation for continued growth and enhanced the potential liquidity of our
stock.
CPI's future has never been brighter and we'll continue to get that message
out to the investment community as often as possible. During the first half
of this year, CPI presented at the Roth, Cowen, B. Riley, Stephens and Noble
conferences with much success. And we are scheduled to present at the D.A.
Davidson Aerospace and Industrial Conference in November.
Through our ever continuing positive financial results, and the exposure we
received at these venues, the company's stock price which began the year at
$6.01 has seen a 52 week high of $11.12 just a week ago.
Additionally for the first time in CPI Aero's history, we now have
independent research coverage of the company, not just by one firm, but by
three firms. Roth Capital, initiated coverage on CPI in mid-July, followed
just days later by Stonegate Securities. And last week CapStone Investments
also initiated its report on us. So our efforts to get the message out and
increase investment community awareness of CPI, is obviously having a
significant impact.
Before closing, I would like to thank all of our shareholders for your
continued support of CPI Aero and I assure you that your management team and
your Board of Directors are working diligently to continue this profitable
growth and reach our full potential as the world's premier small business
supplier of aircraft structure.
And I would be remiss if I didn't once again thank the CPI management team
for sharing my vision of where we can take this company, but more importantly
for making it happen. I would also like to thank all of the employees of CPI
Aero for executing on that vision and being an integral part in winning such
impressive awards as the ones mentioned earlier. I look forward to the future
of this company with great eagerness and anticipation of now executing on
these contracts and then attaining new ones due to the quality of our work.
Now, before I open the floor to questions, we had two questions sent to us
previously, so I'll respond to those first.
Q&A
: The first one comes
from a Robert Urbanic. The question is, are there plans to list the shares of
CPI Aero on the New York Stock Exchange?
Currently, we are on the New York Stock Exchange, not the big board
obviously. We are on the NYSE Amex. When the American Stock Exchange was
purchased by the New York Stock Exchange, we moved over along with that
purchase. And a separate exchange has been created for companies that came
from the Amex, but we're two small to list on the big board. At this time, we
are still way too small to list on the big board, keep in mind that prior to
yesterday, our market cap was somewhere between 70 and $75 million, which is
way, way, way too small to be listed on that. But again, we are on the New
York Exchange. At this point there're only two major exchanges, the NYSE and
the NASDAQ. We are on the NYSE in a sub-division of that board.
And second question comes from a Kevin Stone. And he asks, please have Mr.
Fred update us on CPI, UTX, Sikorsky, Supplier Gold status. If I remember
correctly the expectation was for CPI to have already received this status.
Mr. Stone, we are still in the process. Nothing CPI has done, to delay the
process. We're dealing with a very very large institution, obviously in
Sikorsky. I won't give you the exact date, because I don't think, I should be
giving out Sikorsky information, but we are being presented to the Supplier
Gold Board this month, the month of August. You are correct, it was supposed
to be both June and July. Again, nothing that we've done incorrectly. We have
met all the standards to be Supplier Gold, that's why we're being presented
later this month. And we fully anticipate getting approval. I cannot give you
a timeframe as to how long the approval will be after we present it. But
again, we're very very confident that we will be approved and in the very
near-term, we'll be able to announce the distinction of being one of the 15
or so Supplier Golds with Sikorsky.
Now at this point, I would like to open the floor to questions, Christy can
you allow callers to place questions now please?
Operator:
Your first question comes from the line of Rick Hoss of Roth Capital
Partners.
<Q - Richard Hoss>: Hi, good morning.
: Hi Rick. How are
you?
<Q - Richard Hoss>: Good thanks. Just on gross margin and I know the range is
24, 26. Is there anything you can give us and the reason why it was the
stronger than that range?
: Just the mix of
programs in this quarter put it slightly higher than what we're going to call
the average, does that mean we're going to have a significant drop off in the
quarter. No, not necessarily....
:
: Right, yeah. No,
the mix should still stay in the range. It will probably be in the higher end
of that range as we become more efficient on some of these newer programs,
much more quickly than anticipated but that's really the only reason Rick.
<Q - Richard Hoss>: Okay. So there is a component to process improvement than
within that number?
: Oh, absolutely,
always.
<Q - Richard Hoss>: Okay. And then on the SG&A, a little bit of a pick up
sequentially. Is that just a function of revenue, being that much higher or
is there a couple of things in that number?
: Well the quarter
was lower, the overall was higher, that's because with the stock price moving
as much as it did, we had tremendous stock volatility in the Black-Scholes
calculation. We pay all of our directors' fees or much of our director's fees
in stock options versus cash. We're not a company that wants to spend a lot
of cash on that kind of activity. And because of the volatility in the stock,
the stock option non-cash expense was very, very high which in general made
the overall SG&A much higher.
Other than that, I mean, I think you can see that growth in revenue for us is
not necessarily dependent on increased SG&A in a percentage basis certainly.
So, just - a couple of hundred thousand more at the half year but again,
we're not looking at for example, we have the projection out there for 2011
to take sales from almost 50 to almost 80, we don't anticipate a major gear
up or ratchet up in SG&A to accomplish that. It's not necessary.
<Q - Richard Hoss>: And the last question from me, the 288 million in
bids....
: Yes.
<Q - Richard Hoss>: I'm assuming none of this is in guidance?
: Minimal amounts,
Rick. We always have a piece of new business in our guidance.
<Q - Richard Hoss>: Okay.
: It's not usually a
significant piece. Major awards out of that $288 million would add to the
guidance we have out there.
<Q - Richard Hoss>: Okay. And so just thinking of historical performance
perspective, of the bids that you typically solicit or you place, what
percent do you think is just a reasonable expectation for a win?
: Rick, we can't give
you that anymore, because our business model has changed to some extend. When
we used to be 100% direct to the U.S. government, we could anticipate wining
13, 14, 15% of the bids outstanding, even though the industry average was in
the vicinity of five.
Now with the way we bid, the fact that we're bidding major large contracts to
major OEM's, it's not the same. For example with Spirit, we are one for two.
Now I can't sit there and tell you that in my package I'm going to win 50% of
my bids, kind of the same thing with Boeing. So it's not a percentage basis
anymore that we can go off of, skew - if I gave you that answer it could very
well skew. I can win one contract right now, in that number that would be 20%
of the overall outstanding at the moment. Now that might be the only one I
win and lose seven others. Am I really at 20% or am I at 12%? So that's not
as easy to quantify anymore.
<Q - Richard Hoss>: Okay. The point being that this 288 million is really -
if you're successful, it would be a descent upside potential for your outlook
for '10 and '11?
: 100% correct.
<Q - Richard Hoss>: Okay. Thank you, gentlemen.
: Okay. Thanks Rick.
Operator:
Your next question comes from the line of Marco Rodriguez of Stonegate.
<Q - Marco Rodriquez>: Good morning, guys. Thanks for taking my question.
: No problem, Marco.
How are you?
<Q - Marco Rodriquez>: Doing well. I was wondering if you could talk a little
bit about your top line in the quarter. Did everything come in according to
your internal plan?
: Absolutely, right
on the money actually.
<Q - Marco Rodriquez>: Okay. And then kind of following up on a previous
question in regards to Sikorsky and the gold member supplier status, could
you provide a little more color in regard to this presentation that either
you are making or somebody is making to the...
: Sure. We obviously,
internally have had to prepare presentations to make to what I'll call the
Sikorsky team that comes out and does the analysis of whether or not you
qualify. We are done with that process. We obviously have a 100% on-time
delivery. We've had a 100% quality. Then the third element of this is a lean
manufacturing score. The last two times they've been in, to audit us, our
lean manufacturing score has exceeded their requirement, which now has us
eligible to be presented.
They will take - make a presentation that the Supplier Gold team that visits
the company, will now take CPI, put the presentation in their format and
present CPI to the Sikorsky Supplier Gold Board of Review if you will. And
present to them why they believe CPI is now deserving of Supplier Gold
status. Once that is done, then UTC is notified that Sikorsky is making us
Supplier Gold. What that does, is allow other divisions within the UTC family
to know that CPI is Supplier Gold. So if anything comes off in Hamilton
Sundstrand or Pratt & Whitney or any company like that, they can go to a list
and say, "huh, let me see, this company CPI makes structural parts, they do
assembly. Let me see if there is anything that can do with us, since they're
now Supplier Gold."
So, that's really the process. We're being been presented by the localized
committee to the Board of Review, in the coming weeks, in the month of August
and we'll see where it takes it us from there.
<Q - Marco Rodriquez>: Okay. So just represent, so you're not present at that
particular meeting?
: No, we are not.
<Q - Marco Rodriquez>: Okay, all right. And then I was wondering if you could
update what was your cash flow from operations and CapEx for the quarter? And
then kind of discuss the expectations of your cash flow for the second half
of this year?
: The full Q will probably be
filed tomorrow. Our cash flow for the quarter was slightly negative due to a
build up of some of those bigger programs. We anticipate that our cash flow
for the remainder of the year will come back around to the way it was in the
fourth quarter of last year and be positive again as we start delivering on
those orders. So, but it was slightly negative in the second quarter. Was
that the whole question?
<Q - Marco Rodriquez>: Yes. Okay, so...
: CapEx, you asked about
CapEx, that was the other part of the question. I knew it, I remembered
something else.
<Q - Marco Rodriquez>: Right.
: CapEx is - it was actually
fractionally lower this quarter than the - this previous six month quarter -
six month period.
<Q - Marco Rodriquez>: And then so given your expectations for cash flow for
the remainder of the year, is there any expectation that you'll be perhaps
passing your line of credit again or anything of that nature?
: Not in the current cash
flow projection, no.
<Q - Marco Rodriquez>: Okay. And then last question I have in regard to the
bids outstanding, if my memory is serving me correctly, I believe that
Sikorsky was or may be perhaps still is maybe 40 to 50% of that. Is that
still the status?
: Correct.
<Q - Marco Rodriquez>: Okay, great. Thanks a lot guys.
: You got it. Thank
you.
Operator:
Your next question comes from the line of Michael Callahan of CapStone
Investments.
<Q - Mike Callahan>: Good morning, guys and nice quarter.
: Thanks Mike.
<Q - Mike Callahan>: One question I had on the revenue going forward. It
looks like there's quite a bit of growth based on the - first of all, the
second half of the year and then obviously accelerating in the next year.
Well, I guess first on 2010, I know you expect to be on pretty much full
production on the major programs, but do you have any insight as to the
timing of how that might flow through, because obviously there's going to be
a big pick ups since this current quarter?
: The third quarter
will be up slightly from the second and then the fourth quarter is where
you'll see the biggest increase getting us up in to our revenue guidance
range, if that's what you're asking?
<Q - Mike Callahan>: Yeah.
: And then 2011
should, again, as it happens every year with CPI, 2011's first quarter will
be much better than 2010's first quarter and then going forward the build-up
will be steady and consistent quarter-to-quarter throughout 2011. We're now
hitting stages with our delivery schedules that we'll be building two versus
- build three of these and then wait, because we have to test them and do
this and do that, with them all getting into production phase, the quarterly
revenue stream will be even more predictable than it is today.
<Q - Mike Callahan>: Okay, thanks. And then I guess, with fourth quarter
increase where really - that's where you see a substantial amount of the
growth, is that - going to be consistent year-on-year pretty much?
: Well, what is it
going to be - it's going to be consistent with previous years, for whatever
reason, and I guess the reason's probably obvious, is - other companies our
other customers. First it was the U.S. Government, who would let out a whole
bunch of new contracts in early October each year and you'd go ahead and
start working on them very rapidly and that's what boosted the fourth quarter
prior to what's going to sub-contractors. Now obviously they want to deliver
as much to the U.S. Government as they can, or to their - if it's a
commercial program to their customers. And so the fourth quarter just seems
to have a big push put in it. I think what's going to happen though now with
the production in 2011 timeframe and with the clearly defined delivery
schedules, is it will be much more predictable and I'll call it much more of
a steady growth versus a big push into the fourth quarter that we've seen
every other year. So '10 will have the big push in the fourth quarter again,
and then I think '11 will be a much smoother increase from first through
fourth on a much more linear basis.
<Q - Mike Callahan>: Okay. Thank you.
: Okay.
<Q - Mike Callahan>: And then just maybe one more thing on your bids
outstanding. Are you guys looking to maybe change the mix of your business,
heavier weighted towards commercial with the current business you're going
after or are you still to seeing a lot of opportunity on the military side?
<A - Edward Fred, President and Chief Executive Officer>: Right now, a lot of
it's still on the military side as a subcontractor. Commercial, I think will
start to pick up -- the ability I should say to bid on commercial things.
It'll start to pick up I think as 787 starts to define itself before over the
worries of whether or not they can be produced on time, the delays that
Boeing has experienced.
I think once that happens you'll either see - we'll either see us have the
opportunity to bid on 787 work or bid on other commercial work as a
subcontractor because those companies are taking on 787 work. So to me that's
the big driver right now in commercial at least for us. Is 787 getting it on
schedule, getting it start to - into production and again we'll see, either
the ability to directly bid on 787, or we will get indirect opportunities,
because the other companies are gearing up for 787.
<Q - Mike Callahan>: Okay, great. Thank you. That's all from me.
: Thanks Mike.
Operator:
Your next question comes from the line of Russ Silvestri of SKIRITAI Capital.
<Q - Russell Silvestri>: Hey good morning, can you hear me?
: Yes, sir. Russ, how
are you?
<Q - Russell Silvestri>: Fine, thanks. A couple of things, one, you didn't
mention Spirit at all, I was curious about that. Second, I was - the other
questions I have related to the SG&A in particular, how much of the SG&A
component was stock-based compensation? And also just a little bit
depreciation as well on the cash flow?
: I will start with
stock-based compensation. In the six months period, half a million dollars in
round number or 97, if you want the exact number.
<Q - Russell Silvestri>: Depreciation?
: Depreciation for the six
month number is 174. Okay?
<Q - Russell Silvestri>: The third question relates to Spirit Aero. It wasn't
mentioned anywhere in the press releases, and I was just curious what's going
on there.
: Simply, because
right now, we're not in a high level of production; we're in a bit of a dip
with them, as planned nothing surprising. Because they're in their test
flight mode, if you've been following General Dynamics conference calls and
press releases. They've flown I believe three or four planes now, one set
that we're - one set of leading edges that we've worked on is now going
through bird strike. We're slowly building units six, seven and eight. And so
we're in the expected lull on the 650 program. Once they get flight
certification, which they're expecting by the end of the year, we go back
right on to the schedule that they'd given us previously, which will generate
a bunch of revenue in '11 and certainly in '12.
So 650 is right where we hoped it would to be. I don't know how much any of
you on the call follow them, but in their call, their CEO once again, General
Dynamics CEO once again reiterated they have over - they have - he's saying
200 firm orders on the G650. Any dropouts they've had have been back filled
with new customers and some of the articles that are being printed say
there's at least 250 orders now. I'm not going to speak for General Dynamics
certainly, but you can read from that what you will, whether it's 200 or 250.
Just keeping in mind that all of my projections are based on only 134, so if
we get to 200 somewhere along the way, that will be an increase to our
revenue in the out years or what have you. If its 250, if it's 500, if it's a
million, they will all be out year increases.
<Q - Russell Silvestri>: Got you. And what kind of revenue do you generate
per plane?
: I can't really
discus that Russ, because then that gives out, if you will to the general
public, the cost that Spirit is paying for certain parts and they would
really frown on me doing that.
<Q - Russell Silvestri>: Okay. And then last question I'll ask is that - as
it relates to 2012, in the past, I mean you've gone forward and given us, the
year out guidance, usually at this time of the year and I was wondering, are
you expecting to do that at the end of the third quarter or when do you -
would we expect to see or hear about 2012?
: I would think at
the end of third quarter when I make my third quarter conference call
announcement, it will be in the press release and in our public projections.
<Q - Russell Silvestri>: And what will cause you to change your target growth
on revenue and earnings particularly for 2012?
: What would cause me
to change 2012?
<Q - Russell Silvestri>: Just you - you come out with your revenue guidance
and your earnings growth of 50 to 60% with top line growing 30%, what would
cause 2012 to be different than 2011?
: Well, first off,
that that was done in 2008, for a three year period. But at this point, I'm
not sure it's going to be 30 to 35 or 50 to 60. We're still analyzing that.
If I knew that for sure, I would've announced it in this quarter, to be
honest with you. I'd like to give you folks as much information as I can.
We're still trying to put that together looking at some of the contracts that
might be close to award before I go - I don't want to put out a 2012 now and
revise it three months from now. It's a little silly. But, we're looking at
the company continuing to grow and we can get more specific about it probably
three months from now.
<Q - Russell Silvestri>: Thank you very much.
<A - Edward Fred, President and Chief Executive Officer>: Okay, Russ. Thanks.
Operator:
Your next question comes from the line John Kohler of Oppenheimer & Close.
<Q - John Kohler>: Good morning, gentlemen. How are you?
: Hey John, how are
you?
<Q - John Kohler>: Good, thanks. Thanks for the additional balance sheet
information. Thought it was pretty helpful.
: Yeah, we're glad. No
problem.
<Q - John Kohler>: I did get a question out of it. So, you're lucky.
: That's good.
<Q - John Kohler>: I noticed there was an increase in the treasury stock
shares?
: Yeah.
<Q - John Kohler>: And I was wondering, when those were purchased and what
was the reasoning behind that?
: It wasn't that they were
purchased. I traded in shares of stock, in order to exercise stock options,
so I bought, I used cash for a part of it and some of the shares I held as
part of it.
<Q - John Kohler>: Okay, great.
: So those shares go into
treasury stock.
<Q - John Kohler>: Got you. Okay. Next question, you sort of touched on it
before on the gross margin and the mix. I'm curious if I could get a little
more information on the improved time and product cycle efficiency that
you're seeing. Is that meeting your expectations or you still have some more
to go in meeting those and how much more improvement, do you think you can
bring out of them?
: Well, I think the way I
guess, I would characterize it is. We always expect to make improvements once
we're into a program. Have the improvements come a little bit quicker, than
we might have anticipated? Yes, absolutely, I think that's why you saw the
good margin.
<Q - John Kohler>: Right.
: This quarter. But again,
that's also involved in product mix. So, for example, part of the programs
that made up this mix, we're very - we're becoming more efficient more
quickly. That doesn't mean next quarter, if we work on some - another new
program and it has a high level of revenue that we're as efficient on that
one, yet.
<Q - John Kohler>: Right.
: In general, why you see the
tremendous growth, in everything in 2011, and '12 because we certainly expect
to be completely efficient on all of those jobs. How much more we can squeeze
out is very difficult to tell. I mean that's not necessarily predictable.
We're always looking for new ways. And whatever that is whether it's a better
assembling methodology, whether it's lowering the factory overheads that go
into the overall general rate of the entire company. We are always
consistently looking to keep SG&A down wherever possible, because quite
honestly it adds nothing to the bottom line of the company. So if we can keep
it down, we'd do it, and that's really the best answer I can give you right
now.
<Q - John Kohler>: Okay. How are you holding out on floor space?
: We're still good. We're
still good. We took I think 4,000 square feet next door, literally next door
building that has probably 25% usage now due to the bad economy and used it
for storage. So all of our shipping boxes that you had seen when you came to
visit us et cetera have been moved to that location which created more actual
production or assembly space within the company. So we're still in the
terrific shape there.
<Q - John Kohler>: Okay. Sounds like you can have a shift if you need to...
: As long as the things - the
kinds of things we're working on now. If we win a whole lot of these bids
that are out or we will win a variety, we may have to take more space but
that will be a pleasant problem to have.
<Q - John Kohler>: Okay. And then last question, I'll let someone else take
over. You mentioned in the press release the E-2D and the C-2A for wing panel
kits?
: Yep.
<Q - John Kohler>: Can you break that out, is it possible? What the split was
between the two on that $27.6 million award? Was it predominantly Hawkeye or
was there...?
: We actually can't
tell you that, because we don't know it necessarily. They told us they need X
number of wings. At this moment, we don't know what that breakout is but
we'll find out eventually, between C-2 and E-2. We don't know that answer.
<Q - John Kohler>: Okay, great. Thanks very much.
: Okay. Thanks John.
Operator:
Your next question comes from the line of Michael Potter of Monarch Capital.
<Q - Michael Potter>: Hey guys. Congratulations on...
: Hey, Mike. How are
you?
<Q - Michael Potter>: Another really good quarter.
: Thank you. And
before you ask your question, let me just tell everybody Mike's solely
responsible for the full balance sheet and income statement you see on our
press release folks so, thank him not me.
<Q - Michael Potter>: Yeah, please send me the gifts. Anyway, just a couple
of quick questions, on the Supplier Gold, if I heard right, you mentioned
that 50% of the bids outstanding were with Sikorsky?
: That was just about
right, about 130, 150 million, somewhere in that middle entity.
<Q - Michael Potter>: Will the Supplier Gold status will that help to break
the log jam that's been occurring there for a long time?
: We can only hope
so. Again I think I've said this a numerous times. Historically, when they've
given out Supplier Gold to a company, they've also accompanied it with a
decent sized award. So, yes we're hoping that we've got a $130 million worth
outstanding with them that we get a nice chunk of business to go along with
that Supplier Gold award. The log jam is constantly being - we constantly try
to break it even without Supplier Gold. We literally have a person up in
Sikorsky every single week of the year and sometimes two days of the week,
because A, they're that bigger a customer - that important a customer to us,
B, the general vicinity allows us to the up there within an hour and half,
ferry ride and we're trying to get as much of their business in this facility
as we can. So, I do believe it will help amazingly, if we're able to get the
Supplier Gold.
<Q - Michael Potter>: Okay. And then on the Boeing, on the A-10 opportunity,
want some additional work. Can you just review exactly, is there a further
opportunity for Boeing to offload more work and on the - I guess orders that
we received so far, does that cover all the wing sets that Boeing is
contracted to provide the Air Force?
: Okay. First answer,
the first contract that we got, basically 70, $71 million. We got another $10
million added to that, I'll call it unsolicited. We didn't put out a bid for
it. What we are doing is providing wing subassemblies, if you will, the wing
tip, the pylons, various either flaps or slats or panels or whatever. I think
they wanted to see how good we really were. To a lot of companies, CPI is
still a very small, very unknown entity.
Once they saw the quality of what we produced and how we went about our job,
they came back to us and said, when your stock gets here, we're putting in
light, we're putting in various tubing, we're doing this, we're doing that.
We think we'd like to give you that so that we don't have to do it here. You
can add more and more to your assembly. And that's what accounted for the $10
million worth of extra work that was added to that.
Now you ask is there more potential? Absolutely. We're discussing with them
now more of that same exact potential where they've said, "well you did this
really - now you've added the lights and they look terrific and we love what
you did on the flashing thing at the end of the wing tip; how about these
things too." So we're constantly talking to them about increasing the scope
of what it is we do, okay. So that's the answer to your first question.
The second part is as of right now we are under contract that the $81 million
that we have in contracts from them is for the 242 chipset orders they have
with the U.S. Government. Now, there's an awful lot of talk going on that
that 242 will go up somewhere over 300 chipsets. There are about 368 10s.
There's a discussion as to how many of them are sitting in the desert. It's
anywhere from 0 to 20 or 30. But they have asked the U.S Government to
re-outfit the entire fleet with the new wings. We'll see if that occurs. If
that occurs, obviously we would expect to be producing X number more units
over 242.
<Q - Michael Potter>: Okay.
: Okay.
<Q - Michael Potter>: That's perfect. Thanks guys.
: Thanks Mike.
Operator:
[Operator Instructions]. Your next question comes from the line of Scott
Hudson of MSI Fund
<Q>: Hey guys. Regarding the three major long-term production programs, can
you give me sort of a feel as to how those trend, post 2011, do they - I
mean, is it a drop-off - a significant drop-off or is it kind of a ramp down?
How does - how should I look at that?
: It's neither. It's
still an increase on all three major programs. 2011 is just the first year of
major production.
<Q>: Okay.
: If you do a little
core -- industry research and look at GD's delivery schedules for G650s, look
at Boeing's delivery schedule on A-10 wing sets. You'll see '12, '13, '14
should all increase on those three programs. There's nothing here - we don't
want you to have the impression that 2011 is our banner year, it's our banner
year compared to every year prior. It is not our banner year going forward.
We anticipate if we continue to bring new business into this company that
'12, '13 and '14 should all be better than '11 because the three major
programs are all going to be better than they were in 2011.
<Q>: Got you. Thanks so much.
: My pleasure.
Operator:
Your next question comes from the line of Paul Berger of TLA Associates
: Oh, no.
<Q>: Good morning guys.
: How are you Paul?
<Q>: Good. On the outstanding bids...
: Yeah.
<Q>: I'm interested separately the half that's with Sikorsky and the other
half. Can you give us any more color and has anything been added or dropped
out? And do you see any fruition?
: I can't give you
any more color. I really can't talk about who the customers are and what the
programs are et cetera. As far as drop out, it was a very quiet quarter.
There wasn't a lot of drop out. There wasn't a lot added, which is not
atypical for summer months quite honestly for whatever reason besides
vacations and the obvious. No major proposals tend to come out during this
period of time. So, there was - like I said little bit of dropping out, a
little bit of adding in some of the dropping out were in programs that went
away, but as we told you guys in the past, that number we give you is only
for things that are less than 12 months old. There are one or two that are
more than 12 that we've taken out, but are still very active, not going
anywhere, not going to be un-awarded in our opinion.
As far as fruition, yeah, we're hoping a lot of it comes to fruition. There's
a healthy chunk of it right now that we know is extremely active and will be
awarded. Now will it be us? I sure hope so, I can't guarantee that obviously.
We know - where we're highly competitive and where we may not be as
competitive and - we kind of figure that into our winning percentage and
possibility going forward, okay?
<Q>: Very good, yeah.
: I thought maybe
you'd fell asleep on this, Paul.
<Q>: I was thinking about it.
: Okay.
<Q>: Thanks Ed.
: Sure, thanks, Paul.
Operator:
There are no further questions. I will now turn the conference back to
management.
Edward Fred, President and Chief Executive Officer:
Thank you, Christine. Since, nobody has the question, I'll address it very
briefly and simply tell you, no, we have no idea why the stock price did what
it did yesterday. There was no news, there was no secretive news, there's no
anticipated bad news, whatever occurred yesterday occurred, again, completely
outside the realm of anything we said, did, or had control over. So again, I
assumed somebody would ask the question today, you didn't. So I just felt
that I would address it. But there is no knowledge on our part as to why the
stock performed the way it did yesterday, so.
With that I will thank you all for participating in the call, we'll talk to
you again in three months. And thanks for your support.
Operator:
Ladies and gentlemen, this concludes our conference for today. Thank you all
for participating, and have a nice day. All parties may now disconnect.
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