CPI Aerostructures Inc (CVU) 2007 Q4 法說會逐字稿

Good day, everyone and welcome to the CPI Aero fourth-quarter 2007 conference call. At this time, I would like to inform you the conference is being recorded and that all participants are currently in a listen-only mode. I will now turn the call over to Mr. Ed Fred, CEO and President. Please go ahead, sir.

Thank you, Luann. Good morning and thank you all for joining us on our fourth-quarter and year-end 2007 conference call. If you need a copy of the press release issued today, please contact Linda Latman of The Equity Group at 212-836-9609 and she will fax or e-mail a copy to you. Also if you would like to listen to this call again, you can hear a replay on our website 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 to fit the requirements or budgetary restraints change, the government's right to suspend or bar us from doing business with them, as well as competition in the bidding process for government contracts.

Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking statements contained in this conference call. Additional information concerning these risks can be found in our filings with the SEC.

This morning, I will give you a brief overview of our year-end 2007 results and then hand the call over to Vince Palazzolo, our CFO, so he can walk you through the financial statement details. I will then review our current business environment and the outlook for 2008. Then we'll briefly wrap things up and open the call to questions.

I also just want to make you aware, I am not in the office today, so Vince and I are not sitting with each other. So if there is a delay when you ask a question, it is not that you stumped us. It's that we are trying to determine who is going to answer it.

As reported earlier this morning, for the year ended December 31, 2007, revenue was approximately $28 million compared to approximately $17.9 million for the year ended December 31, 2006, an increase of approximately 56%. Pretax income was approximately $3 million compared to a loss before tax benefit of approximately $1.9 million for the same period last year. Net income for 2007 was approximately $1.9 million or $0.32 per diluted share compared to a net loss of approximately $1.265 million or a negative $0.23 per diluted share for the same period last year.

New orders received through December 31, 2007 were $37.7 million as compared to $30 million in 2006 making 2007 CPI Aero's greatest award year ever. Unawarded solicitations remain at a high level totaling a maximum realizable value of approximately $220 million. So with that prelude, let me introduce Vince Palazzolo so he can walk you through the details of the final quarter of 2007. When he is done, I will come back on and then open the floor to questions. Vince?

Thank you, Ed. As reported earlier this morning, fourth-quarter revenue increased by approximately 29% to approximately $7.8 million from approximately $6 million in the final quarter of 2006. This resulted in pretax income of $793,123 compared to a pretax loss of $12,011 and a net income of $528,123 or $0.09 per diluted share compared to a net loss of $12,011 or $0.00 per diluted share in 2006.

Gross profit margin for the fourth quarter of 2007 was 24% compared to 16% for the same quarter last year. The gross margin for the year was 26% compared to 9% last year. Selling, general and administrative expenses for the fourth quarter of 2007 was approximately $1,056,000 or 13.6% of revenue compared to approximately $945,000 or 15.7% of revenue for the fourth quarter of 2006. SG&A expenses for the year ended December 31, 2007 were approximately $4,355,000 or 15.6% of revenue compared to approximately $3,552,000 or 19.8% of revenue for 2006.

At this point, let me hand the call back over to Ed for an overview of the business.

Thanks, Vince. As I just reported, new orders for 2007 were $37.7 million compared to $30 million during 2006. This award number, the highest in our history, represents tremendous growth from the subcontracting arena. We anticipate that awards will remain strong as we continue to diversify our customer base as is evidenced by our recent award from Spirit AeroSystems and we expect that our future revenue mix will reflect a larger portion of work to be performed in our capacity as a subcontractor to major prime contractors.

As we reflect on our new business opportunities, let me update you on two of these. As announced in late June, Boeing was awarded the contract to provide the Air Force with new wings for up to 242 A-10 Warthogs. This RFP involves a new wing design, followed by production of up to 242 new wings for this aircraft. The value of this program is to be slightly in excess of $2 billion.

CPI Aero is currently exploring its opportunities to participate in this program with Boeing. CPI Aero has vast experience with the A-10 aircraft, including the manufacturer of the current wings. In 1995, CPI Aero was awarded a $3.5 million contract to reoutfit the entire fleet of A-10 aircraft with the leading edges of the wing, which was necessitated by the Persian Gulf conflict of 1991, so we are very familiar with the current design and its shortcomings.

Additionally, CPI Aero currently employs at least six people who were employed by Fairchild Republic, the original manufacturer of the A-10 and who participated in the engineering and manufacturer of the current wing configuration. Accordingly, we bring significant experience to this assembly as a manufacturer of critical subassemblies on the new design.

Next, CPI has succeeded in exploiting subcontracting opportunities with some of the leading U.S. prime aero base and defense manufacturers. We have established solid working relationships with Lockheed Martin and Vought and we have now become key suppliers to Northrop Grumman, Sikorsky and Spirit.

2007 subcontracting awards from primes were more than triple the value of subcontracting awards for all of 2006. Subcontracting work will play a significant role in CPI Aero's future as we continue to capitalize on these opportunities. We will continue to solicit new work from all of these manufacturers, as well as others in our industry and we will strive to continue to perform at the highest levels possible in our effort to support their initiatives.

During 2007, our net income and overall gross margin were slightly lower than -- was lower than originally projected as we incurred costs to reconfigure the physical layout of our facility to accommodate the increased activity that we anticipate from our recently awarded contracts.

While this initiative reduced our 2007 bottom line, we expect that it will enhance our ability to increase net income in future years. Based upon the level of new and pending orders, CPI Aero expects 2008 revenue to be approximately $35 million, a 25% increase over 2007 and resulting net income of approximately $2.6 million, an increase of 37% over last year. We anticipate that 2008 will be the best revenue year in CPI's history and we believe that this trend will continue into 2009.

As I have stated quite often, you will continue to hear more from us in the upcoming months. We are sticking to our plan of increased IR efforts and we will be meeting with institutional investors and analysts in one-on-one or group meetings. In fact, the current plan has us visiting the West Coast in April and the Boston area in May. We will also be visiting our New York shareholders during this period of time. Additionally, Vince and I are available for conference calls and we would also welcome visits by institutional investors and analysts.

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 is working diligently to continue this profitable growth and reach our full potential as the world's premier small-business supplier of aircraft structure.

I would also like to take this opportunity to publicly thank the CPI management team for sharing my vision of the Company's future and working so diligently to make it happen. I would also like to take all of the employees of CPI for executing on that vision and being an integral part of enabling us to win such impressive awards as the Sikorsky HIRRS contract any the Spirit AeroSystems Gulfstream G650 contract.

At this point, I would like to upon the floor to questions. Luann, can you allow callers to place questions now, please?

(OPERATOR INSTRUCTIONS) David Cohen, Midwood Capital.

Congrats on a solid finish to the year and the awards. Your patience was well-rewarded I guess. The contract you announced with Spirit, effectively you are saying -- (inaudible) saying in the press release, it is an $80 million contract. What kind of duration is there to the contract? What does the ramp look like at this point if you have a preliminary sense of that?

I can give you a generality. It should be about an $86 million contract over a seven-year deliverable period. There will be some consistent revenue the first two, a little higher in the third and then it should ramp up quite significantly. If you saw the Gulfstream release on this aircraft, they expect deliveries to begin in 2012, which means obviously our work would have to have ramped up significantly by 2010 or 2011.

With respect to the A-10 program that you mentioned, are you just sort of still in the throes of trying to negotiate a role for yourself or you feel like you are even ahead of that or are you too constrained in what you can say about the opportunity?

I can't get to specific with you on it obviously, but it is nine months in essence since they won it and I am still mentioning to you that we are in discussions with them. I think that should be some indication as to what our role appears it will be.

Okay. Any sense of the order potential around the C-5?

The C-5?

Yes, in terms of having won the huge [Topps] contract, you still have a ton of [unlent] work on it relative to the size of that contract. So I guess what is in the pipeline today from the Topps contract in terms of awards and are you seeing that loosen up at all?

We are not seeing awards loosen up. What we are getting from the government is need, if you will. Schedules that say, well, this is what we believe we're going to need; however, we don't have the funding. I think some important decisions were made, if you will, about the C-5 recently. As we all know, there was a giant battle between Senators, Congressman, states with a particular interest in having either the C-17 or the C-5 built and the latest turn of events was that they did not authorize more money for C-17s and they did not call for the retirement of the C-5 fleet or even of the C-5As, which was quite frankly my projection. I thought they would retire C-5As.

What they did say is they're not going to do engine upgrades and avionics upgrades on the C-5As; however, they do believe they still need them as part of the fleet. They will continue to go ahead with engine upgrades on the C-5Bs and the couple of Cs that are out there. So I think that decision in general bodes well for us getting some work on the C-5 top down the road. How high a level that will be remains to be seen.

The requirements or needs certainly number in the tens of millions of dollars. Whether or not that funding will come through, I think our elections in November will go a long way in deciding that. Right now, it looks as if Senator McCain will still keep a pretty healthy presence in Iraq and therefore, you still need to fund that effort quite significantly and that has been what has kept us from getting funding for the repair and maintenance that we normally do.

On the other side of the fence, both Senators Obama and Clinton seem to agree that they want this to end much, much sooner if they are elected. That would seem to free up money for things like C-5 and repair and maintenance of other aircraft. I can tell you that we know the requirements have gone higher. I can't predict for you, just like I haven't been able to for the last three years, that money is going to come to back that up.

Okay. Thanks, guys. Keep up the good work.

(OPERATOR INSTRUCTIONS) David Cohen, Midwood Capital.

My question has been answered.

[Michael Potter], Monarch Capital.

Hey, Ed. Congratulations. Okay, so we have the Spirit, which is seven years, which is terrific. Can you give us an update with regards to Sikorsky? Do you anticipate I guess increasing the amount of work that we are doing with them currently for 2008 and 2009? Is there a lot more work to be had with Sikorsky?

There is a tremendous amount of work to be had from Sikorsky. They are chock full of work. They continue to win new work. They are obviously the premier builder of helicopters. We are constantly pursuing new work. We are involved in bids and proposals. Basically every minute of every day somebody is working on a Sikorsky proposal.

Our record of performance would like to let me believe we are going to win much more work from them. We have attended two supplier conferences that they gave within the last six weeks. I think CPI is very highly thought of by the procurement people, the buyers, mid to upper levels of management. So yes, we certainly, in our own mind and in our own eyes and based on the number of quotes that are coming out, certainly believe we are going to grow the Sikorsky business. They are a terrific customer and like I said, they seem to be extremely pleased with the work we have done for them as well. We are hoping that that is one of the facets of our business that grows even larger.

Okay, great. To go back to the C-5 a bit, I know it has been asked in prior calls, I think perhaps even by me with regards to Vought and they incurred some significant expense to ramp up for the C-5 releases that never materialized and have much higher carrying costs if you will. Are we any further along with talking to Vought about perhaps taking over more of the C-5 contract that they won?

Mike, the only answer I can give you is this. Vought is now completely totally fully aware of CPI's desire to take on any of the C-5 work they don't want to do or if they want to get out of the C-5 top contract altogether. The customer has been aware that CPI would gladly step in and pick up whatever work falls out from that.

But again, in a way, they are in the same boat we are in that they're not getting any releases on it anyway, so I think given Vought's overall situation, which has been pretty well-documented and [Carlisle's] situation, it is not high on their priority list to just put out something that says, okay, CPI, we are going to give you everything. Until something there materializes revenue-wise and they take a look and say do we really want this or not, I think it will stay pretty quiet. However, we are absolutely on their radar as far as the C-5 top contract goes and we are hoping to get some of the work that they don't want to do from that, but again, a little bit of nothing is still nothing.

Yes, but again, it is still -- I don't think things have changed or let me ask you. Have things changed? Is it still a matter of when, not if?

I would have to say yes. There is still three years left on the contract. Can they go another three years without doing any kind of structural work on these plans? I can't imagine how, especially if they are sticking by the idea that they're not going to retire C-5As. It takes the whole concept of cannibalism out, okay, which would have been a negative if you are a producer of structure because the answer would have been, okay, so if they take out all of these C-5As, maybe there are wing tips or spoilers or flaps or panels or this or that that I can take off that C-5A and put it on this C-5B. As long as they want to keep all of these in the fleet, that goes away too. So I still firmly do believe that, yes, it is a matter of when, not if.

And are the C-5As currently flying?

I'm sorry?

Are the C-5As flying?

Yes, not all of them though. A lot of them are sitting in hangars at the moment.

Okay. The expenses that we incurred in Q4, how much were they?

I am not sure we have got it -- I am sure Vince can quantitatively give you a number, but a lot of it was indirect labor. We actually had to reconfigure the entire shop from front to back and also do some building of some areas within the shop area for offices, for program managers, from, for example, a place for a Spirit person to come sit when we really start producing here. I don't know, Vince, if you have got that number readily available. If not, you could call Mike and give it to him.

It is between $200,000 and $300,000 roughly.

Okay. Will we incur any additional expenses in Q1 or were they all taken in Q4?

The overhead will absorb some expenses going for at least the first half of the year, which is why we project a slightly lower than normal gross margin in the 2008 overall year. We projected a margin of about 24% for all of 2008 because of absorbing some costs related to ramping up the new work.

Okay. Ed, do you still think that we are on track to get back to those 30% plus gross margin levels?

Absolutely, absolutely. Now this is one of those good point, bad point things. When you win something likely we won from Spirit, you look at what this will do for the Company long term and it is a windfall. It's huge, it is something I never mentioned to anyone of you because it wasn't public. It was obviously company to company and not a governmental proposal where it was something you could find that we had bid on or whatever. So in the long term, the Spirit award is absolutely fantastic. However, whenever you get an award this big and for a type of product like this, your profitability will not be as high early on as it is later in the program and so that is impacting us.

Without the program, yes, we probably would have been close to the 30% range this year. So it depends on how you want to look at it. Would you have rather been 30% this year and not had the Spirit award or would you like to be 33% for 34% or 35% three or four years from now when Spirit is flowing and some of these other things that we are chasing also comes to fruition? So yes, Mike, I absolutely expect us to get back to the historic rates. The big jobs that we have won, the big jobs we are pursuing will do a tremendous amount to eat up all of the overhead that we have in the Company and take our profit margins up where they belong or where they have been historically.

'09, '10, you think we could see mid 30% gross margin rates?

I think it would be closer -- and this is strictly a guess, but given the work that we have, the work that I foresee us getting, I think you're probably talking more '10, '11 than '09 or '10 to get to the mid 30%s.

Okay. And then just one last quick question on the Boeing. I guess we were third in line as far as negotiating the final terms on the contract. I guess a Korean supplier or sub was number two.

Korean Air was named in their proposal as one of the providers of surface materials for the wing. There were also a couple of other companies named in their proposal. One of which was CPI as I told everyone. In the universal order of things, yes, we were the third one they were talking to. Third in the food chain if you will. Okay?

If you did not see a release publicly, Korean Air did announce their piece of a Boeing A-10 contract probably a month or so ago I think and so they are done. They have negotiated and they have determined what their role is in the program. We are still in the process of doing that. So is the company that was number two in the food chain.

That is not to mean that they're going to be finished before we are or that they will get something and we won't or we will get something and they won't. This is a long process with the 800 pound gorilla of all companies. We continue to forge ahead. I am optimistic about our prospects because of what we bring to the table, but also because Boeing did name us in their proposal as a subcontractor. So it has been their intentional along to give CPI a piece of work.

So we are hopefully talking weeks, not months?

Mike, I'm always hopefully talking weeks, not months.

All right. Thanks, guys.

[Kevin Fox], Skiritai Capital.

This is actually Russ Silvestri. In your guidance of $37 million for the year, do you have any Boeing revenues included in that number?

First off, the guidance is $35 million, not $37 million.

Okay, sorry. I was thinking new orders, sorry.

And no, we do not specifically have Boeing in there. Obviously in our guidance, we have some new revenue, some -- as of yet -- unallocated revenue if you will.

So something that has not been, so to speak, booked?

Exactly, which is always the case.

If you look out into '09, given what you have this year with Spirit and Sikorsky, what would cause orders to been down versus '08?

If I look out at what I have now for Sikorsky and Spirit, you are asking me what would cause orders to be down next year?

It seems like your backlog will build in '09 as opposed to where it is in '08. I am just curious, is there anything out there that would cause your new orders for '09 to shrink or the orders that you have on the book for '08 large enough that '09 should be an up year from '08?

Well, at this current stage of the year, March, normally I could not stand on a pedestal and tell you '09 will be better. However, as I said in the press release, what we have on board and the fact that we have got some long-term stuff now between Sikorsky and Spirit and potentially some others, we expect the revenue increases that you're seeing, the net income increases that you're seeing to continue into '09. So as of right now, yes, I'm saying to you '09 does look better than '08 and I don't really have something on the horizon that should change that philosophy.

Okay, thank you.

Okay.

[John Kohler], Oppenheimer.

Good morning, guys. I guess just a quick question. The $200,000 to $300,000 in costs to reconfigure the facility, I guess in earlier expectations, net profit was $2.3 million to $2.5 million. The actual figure was $1.9 million. What other costs were they that caused some of the shortfall from the guidance?

I will answer this one. I'm not going to put Vince on the spot on this one. Our bonuses were exceedingly high, quite honestly. We have reconfigured them a couple of times, always in the spirit that we got when the Company produced and if it wasn't producing or wasn't producing as high as we expected or hoped for, the bonuses wouldn't be as high as they were. This was an exceptionally high year. You saw the kind of increase we had over the previous year. If you annualize that and say, well, they didn't get bonuses for three years, it wasn't off the charts crazy, but they were very, very high numbers and that certainly impacted the bottom line of the Company, no doubt about it.

Are there any additional costs that you will have to take on for the Gulfstream business? Like new tools or anything like that that you will have to spend money on?

Tooling is included in the proposal. It becomes a part of cost of sales, so nothing like that. As you know, we don't have machines out there, so it's not like we have to go out and buy another machine, so there will be nothing like that. At some point as it starts to gear up, if you will, we will have to incur more direct labor, but that is obviously included in cost of sales and in our proposal also.

Okay. I did know if there was a fee you had to pay to get into the program or anything like that?

No, no, no.

Okay. Thanks for that. I also noticed that in the Newsday article there was talk about hiring a couple of more people, 5 to 10 new employees.

Right.

When will that actually take place? Is that ongoing now?

No, no, no. That is probably in the -- in the period -- it won't start -- it won't be in the beginning of the Spirit program, but I would think a year or two down the line. That was one of the questions the interviewer asked me. Will this mean new jobs at CPI? Well, yes, it will and as we gear up for the program and start to get more into it, that is when I think we will start adding more people.

In the reconfiguration of the facility, does that increase at all or change I guess in any way your expectations of what you're one shift throughput might be in dollar terms?

It could possibly bring it higher. Again, it is going to depend on what the mix of additional work we get besides Spirit, but we reconfigured it in order to be able to handle the Spirit job and perhaps one or two others that we hopefully see as potential programs for us. All of them large and when I say large, I don't just mean in dollars, but also in configuration of tooling arrangements and the size of the parts themselves. So the whole concept here was to make sure we had enough room to meet what we think our capacity needs to be to be able to generate the kind of revenue we have talked about on a one shift basis.

Okay. That is good. I guess the next question is the win with Spirit obviously changes the Company's configuration somewhat from strictly military to commercial, but beyond that, having Spirit in a relationship with CPI, does that seriously give you entree to other manufacturers like maybe Bell Helicopter or something like that?

Well, Spirit wouldn't necessarily give us the intro to Bell. We have people that know a lot of the primes. We can get in to see them all, etc. What will give us an intro to Bell and quite honestly I can readily say publicly that we pursue Bell just like we pursue a bunch of companies, is the fact that we have now done helicopter work at Sikorsky.

Prior to working with Sikorsky, we could not have walked into Bell's door and say, don't worry, we can make helicopter parts. Now we can. Sikorsky gave us that opportunity. So yes, it is an entree into that. How I look at Spirit is more -- we start to perform on this program and they are pleased with what we do. They do a tremendous -- they are the largest producer of structure, subcontractor of structure in the world. They do $5 billion. They do a tremendous amount of work on the 787. Somewhere along the line I would like to be the guy they offload 787 structural work to.

So I want to leverage that within Spirit. To understand how we got Spirit, and maybe this is important to point out to everybody, Spirit had no idea who we were. When we went to the bidders' conference on the A-10 wing, Boeing was there, Northrop Grumman, Lockheed team was there, Spirit was there, IAI were there, and we understood that Spirit was bidding as a prime. Just like we went to Boeing and said, we're giving you an unsolicited bid, here is what we can build for you, here is what we would like to do, are you interested?

We did the same thing with Spirit. Spirit also included us, having never met us before, in this proposal. Came out, saw us, loved what we did at CPI and included us in their proposal as well as a critical subcontractor to them. Now they did not win the A-10; Boeing did. We were a critical subcontractor to them. Hopefully that is leading to a bunch of business from Boeing. But that entree into Spirit is what has brought us here now to doing the Gulfstream 650. So we leveraged that one proposal into hopefully two major jobs.

That is helpful. One last question and I'll let somebody else ask then. I know this is really hard because you have no idea what the awards are going to be, but in three or four years time if you looked at the composition of business that you had, could you make an estimate now or would you feel comfortable towards what percent of that would be non-defense?

Impossible to do, John. Really don't know; it is just that simple. If Spirit wants to give us a lot more work, that would certainly up the commercial aspects of it. If we land the Boeing A-10 work does that mean we get some Boeing commercial work as well somewhere down the road as they start to offload? Possibly, but today, I couldn't answer that for you at all.

Okay. You are going to pursue more commercial though, is that a fair assessment?

At this stage, yes, because as I said many times, depending on how the commercial work comes to us, I am more than happy to do it. As long as I'm not going to get stuck out there for $5 million or $6 million or $10 million that goes away if a program goes away, I'm always willing to doing commercial work. It is the same exact structure just painted differently.

Right. Okay, great. Thank you.

[Adam Meisl], Aquifer Capital.

Good morning, guys. How are you? I'm just trying to understand a little better the 2008 gross margin estimate. You said that without Spirit, we would have been approaching a 30% gross margin in 2008.

Between 27% and 30%, yes.

You said that the $3.5 million of Spirit revenue was no gross margin, 0, that would take 30% to 27% and you have 10% of your revenues approximately, take 10% off your gross margin. So what else is going on that is driving our gross margin down in 2008?

I'm not trying to dodge the question. There is new business in our projections as I stated to a caller earlier. Some of that new business is very much like Spirit in that it is rather large and it will not be as profitable early on. Okay? If that were not to occur, then we would probably have a higher profit margin and not increase revenue as much as I would think we will before the year is over. So while I can't mention what those things are, there is a whole -- this is like a puzzle and there are pieces you don't have that I can't give you at the moment, but that have gone into our thought process as to what the year would look like if such and such occurs. Again, I'm not trying to dodge your question, but there is only so much I can talk about.

That is fair. Is it a reasonable assumption then to think about both the Spirit program you just won and any other large ones? In those initial first 12 to 24 -- at least 12 months, if net revenue really is almost (inaudible) gross margins at zero? I mean is that the right way to think about it?

I am not sure about zero. I would say to you it is much lower because you are incurring all of your upfront costs, the development and if you want to do a very simple one. Think about how many hours it will take you to make the part the first time versus it will take you to make the 150 at a time. All of those kind of things have to go into the beginning of the job. Make sense?

Yes, makes total sense. Other question would be when you look at 2008, (technical difficulty), what do you expect to see in new government-related work. (inaudible) Topps program but new programs in just the normal course of what your business has been historically?

Actually we're projecting very, very little. The simple reason is that it has been very little for the last three years. In my opinion, if we had any kind of major governmental money flowing out into repair and maintenance or replacement parts, etc. that will be windfall and that would probably somewhere along the line increase our guidance because our guidance is very, very conservative when it comes to new military business just based on the fact that for three years, we haven't seen much and there is nothing other than rhetoric giving us an indication that that is going to change anytime soon.

If it did, do we have the capacity given the way you are reconfiguring and hopefully winning a lot of new prime business?

Without doubt, without doubt. Wouldn't be an issue at all.

Great. Okay, thanks, guys.

You're welcome, Adam.

[Paul Berger], [PLA Associates].

Good morning. Can you give us a little more color on the backlog? Has it moved, anything gone in, come out? I'm sorry -- the backlog of the old orders, the $200 million that you were talking about?

Not a whole lot has gone in, not a whole lot has come out. It has been very, very stagnant. Obviously Spirit came out, but that was a good thing. Not too much else has gone in, nothing significant in a big way. There will be -- as I said to you, we're bidding a tremendous amount of work for Sikorsky at the moment. That will start to fill that backlog up, make it even larger. There have been very few governmental awards once again, but there are also finally -- and that almost sounds negative -- there have been a whole lot less RFPs and RFQs from the government as well because I think they finally got tired of sending out RFPs when they couldn't fund them to begin.

So the requirements still exist, but now they have stopped the process of sending them out to where we use to do 25 to 50 a day, we're only seeing a half dozen a day perhaps come in the door at the moment and again, that is a systemic issue. That's not -- CPI is not seeing them. That is anybody who wants to see them is not seeing them because they are just not putting them out. That is true for our competitors and everyone else.

Okay. Now with some of these deals that you're getting into that are long term, are you comfortable that you are protected on inflation?

Absolutely. Yes, there are escalation factors in some of the things we are looking at or have received so far. We piggyback onto the purchase deals that the prime manufacturers have with their suppliers. So we are covered in that regard and that goes into the pricing accordingly. So yes, we're not too concerned with that at all.

Okay, great. Thanks.

(OPERATOR INSTRUCTIONS). There are no further questions. I'll now turn the conference back to management.

Okay. Thank you, Luann and I just want to thank all of you for participating in the call. I look forward to seeing a bunch of you when I am out on the road and we will talk to you again in about six weeks. Thank you very much.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice say. All parties may now disconnect.