CPI Aerostructures Inc (CVU) 2008 Q1 法說會逐字稿

Good day everyone and welcome to the CPI Aero First Quarter 2008 Conference Call. At this time, I would like to inform you that this conference call is being recorded and that all participants are currently in a listen-only mode. I will now turn the conference over to Mr. Ed Fred. Sir you may go ahead.

Thank you. Good morning and thank you all for joining us on our first quarter 2008 conference call. If you need a copy of the press release issued today, please contact Lena Cati of The Equity Group at 212-836-9611 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'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 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.

As has been the case in previous first quarter conference calls, I will provide our new listeners with a brief overview of CPI Aero and our activities. Based on Long Island, CPI Aero is a world-class manufacture of aerospace structural parts and assemblies. We are a prime contractor to the U.S. Department of Defense. We are also a subcontractor to some of the largest U.S. aerospace and defense contractors such Lockheed Martin, Northrop Grumman, Vought Aircraft Industries, Sikorsky, and more recently Spirit AeroSystems, a commercial aviation company.

Since its inception in 1980, CPI Aero has focused on the production of aerospace structural parts and assemblies and in developing the required skills and expertise to produce the highest quality products possible. We've carved out for ourselves a niche within the aerospace market and we've become one of the country's leading suppliers of structural spares of vintage and out-of-production aircraft such as the C-5, T-38, and A-10 and for new production planes such as the Gulfstream G650. Typical assemblies produced by CPI Aero are skin panels, leading edges, flight control surfaces, engine components, cowl doors, wingtips, nacelles and inlet assemblies for military aircraft such as the C-5A Galaxy, T-38 Talon, C-130 Hercules, A-10 Thunderbolt and the A-3 Sentry; and leading edges, trailing edges and flaps for commercial aircraft such as the Gulfstream G650.

Before I review our current business environment and the outlook for the remainder of 2008, I will hand the call over to Vince Palazzolo, our CFO, so he can walk you through the financial statement details. Then we will briefly wrap things up and open the call to questions. Vince?

Thank you Ed. As reported earlier this morning, revenue increased approximately 42% to $7,790,754 in the first quarter of 2008 from $5,471,968 in the first quarter of 2007. Gross margin was 24% as compared to 25% in the prior year's first quarter. Income before provision for income taxes increased to $636,965 compared to $435,189 in the prior year's first quarter, representing a 46% increase. And net income was $419,965 or $0.07 per diluted share compared to $268,189 or $0.05 per diluted share for the same period last year.

Selling, general and administrative expenses for the first quarter of 2008 were approximately $1,216,000 or 15.6% of revenue compared to approximately $923,000 or 16.8% of revenue for the same period in 2007.

New orders through April 30th, 2008, were approximately $14.5 million compared to $1.3 million in 2007. Un-awarded solicitations remained at a high level with open solicitations totaling a maximum realizable value of approximately $225 million.

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

Thanks Vince. As just reported, new orders through April 30, 2008, were approximately $14.5 million compared to $1.3 million during 2007. This award amount represents tremendous growth from the subcontracting arena. We anticipate that awards will remain strong as we continue to diversify our customer base as we recently did with our commercial subcontract awards from Spirit AeroSystems. 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 items. As announced last June, Boeing was awarded the contract to provide the Air Force with new wings for up to 242 A-10 Warthogs. This RFP involved a new wing design followed by production of up to 242 new wings for the 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. CPI Aero has vast experience with the A-10 aircraft including the manufacture of the current wings. In 1995, CPI was awarded a $3.5 million contract to re-outfit the entire fleet of A10 aircraft for the leading edges of the wing, which was necessitated by the Persian Gulf conflict of 1991. We also have at least six members of our staff who were employed by Fairchild Republic, the original manufacturer of the A10 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 Aero has exceeded in exploiting subcontracting opportunities with some of the leading U.S. prime aerospace and defense manufacturers. We've established solid working relationships with Lockheed Martin and Vought and we have now become key suppliers to Northrop Grumman, Sikorsky, and Spirit. 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.

Our results for the first quarter of 2008 were as expected based upon the level of new and pending orders, reaffirming our prior 2008 guidance. We anticipate 2008 revenue to be approximately $35 million, a 25% increase over 2007. With 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.

You will continue to hear more from us in the upcoming months. We are sticking to our plan of increased IR efforts and we'll be meeting with institutional investors and analysts in one-on-one or group meeting. In fact, I just returned from a visit to see investors and potential investors in San Francisco and Los Angeles and I will be in New York City next week on Monday, May 19th and Boston on Thursday, May 29th. If you would like to schedule a meeting, please contact Lena Cati at the Equity Group at 212-836-9611. Additionally, Vince and I are available for conference calls and we would also welcome visits by institutional investors and analyst.

Our annual meeting is scheduled for June 10th in New York City and we hope to see some of you there.

Before closing, I would like to thank all our shareholders for your continued support of CPI Aero and I assure you that your management team and board of directors is working diligently to continue this profitable growth and reach our full potential as the world's premiere small business supplier of aircraft structure.

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

At this point, I'd like to open the floor to questions. Operator, can you allow callers to place questions now please?

Thank you. (OPERATOR INSTRUCTIONS) Your first question comes from the line of Michael Potter of Monarch Capital.

Hey guys.

How you doing Mike?

Great quarter.

Thank you.

Can you give me the depreciation and amortization and other non-cash expenses for the quarter? I'm trying to back into an EBITDA number.

Okay, Mike. If you don't mind, we don't have that right in front of us. If you want to give Vince a call right after this call, he'll gladly give you that information.

Okay and then on the Spirit award which was-- how much was that was $80 million from--

$86 million over a 7-year period of time.

$86 million over 7 years and that-- and we're going to start seeing revenue when?

This year.

It's going to start this year?

You'll see revenue in the tail end of this year as we incur costs for tooling, etc. You'll see low level production next year, basically what I'll call prototypes and then the real revenue will start to generate in 2010, 2011. I don't know if you noticed or if you read it, but Gulfstream has been overwhelmed with orders for this aircraft. Initial interest I guess is what they call it. When you generate initial interest you have to also send Gulfstream a $500,000 per aircraft. They've had over 500 people, companies, countries, organizations whatever you want to call them send that $500,000 in and ask for a Gulfstream G650, which right now they're pushing till they're expecting deliveries to go out to 2021 just to deliver those first 500.

So this $86 million over 7 years can probably expand?

It would seem to. Our order is for 134 shipped sets of structural parts. So obviously it has the potential to grow much larger.

Well if they currently have deposits for 500 planes, it would make sense that--

Yes, but not everybody that gives a deposit Mike in the end-- they are refundable. But I mean it's a tremendous sign that when a company announces a brand-new airplane within 5 weeks they have 500 orders for it.

Okay and what's the status-- can you give us a little bit more color on with what's going on with Boeing?

I can't give you too much information, obviously no information is public. But we have obviously since the moment they won the contract been in discussions with them about the things CPI could bring to the table as they look to offload some of the subcontracting work. As I stated in the script I just read to you, we are highly confident that we bring things to the table that no one else can as far as capability and past performance on it. So we're encouraged that there will be something for CPI. How soon remains to be seen. If it's definite, I guess remains to be seen. So when you talk to somebody for I guess we're up to ten months now, there has to be some level of optimism.

But we were on-- we were named in Boeing's winning bid, correct?

That's exactly correct.

Okay. I'll get back in queue. Thanks.

Okay Mike, take care.

Your next question comes from the line of John Kohler of (Oppenheimer and Close).

Hey good morning.

How are you John?

Good. How are you?

Good, thanks.

Quick question. I noticed that shareholder equity was up $2 million in the quarter. Just trying to back into how that got there. I was wondering if you had an explanation.

I can give you a broad explanation. If you want more details you can give me a call, but we had some stock warrants that were issued when the secondary offering was done in 2003. Those were exercised this quarter. That's part of it. Income is obviously part of it.

Right.

And then we had some additional paid-in capital charges which is related to the tax benefit we get on the warrant that option exercises during the quarter.

Okay, could you say the size of the exercise?

The warrants were 195,000 warrants at $4.40 per warrant. So I think it comes to $858,000.

Okay. That helps quite a bit. Okay and that's factored into the diluted share count I'm going to guess, right?

That is correct, yes.

Okay, great. Alright my next question then is historically the cash flow characteristics of the business was that you would take an order, go ahead assemble it, ship it out and then get paid. I'm wondering with the Spirit business you actually have some upfront costs you need. But if you could talk a little bit about how the cash flow characteristics of the business may or may not change as you go after more commercial business? That would be helpful for me.

Well we could do this in two different pieces. We-- that is true to the historical sense of the way the business has been run for costs of the nature of the fact that at some point if you get too big, you might run out of cash before you could actually make deliveries. We have been working some other methods of accelerating cash flow related to Spirit. Even though we haven't gotten anything with Boeing, part of the negotiations with Boeing have been related to how we're going to collect cash from them to try to help to fund the business on a going forward basis. And as we are doing more and more subcontracting work with these major primes, part of the negotiation is always is-- revolves around accelerating cash flow, electronic payments, milestone payments and the like. We have a different arrangement with Sikorsky on the way we get paid on some of our receivables. So, even though the history with the government on the smaller contracts was always related to build, deliver, and then collect, we understand the nature of accelerating our cash flow with these other contracts that we're working on to keep us on a positive level as that subcontracting business gets bigger.

Right. I know that with Sikorsky you have an ACH I guess it was in the Q's, I can't remember when. But you're actually able to get payment within 30 days or something--

Less than that.

Less than that. I was wondering if you had that option with some of these others and you've kind of touched on that?

No, it's done differently. We have different-- we're trying to set up different types of milestones with Boeing.

Okay.

And with Spirit. Ultimately if you saw what we said in the K that was filed in March, when it comes to Spirit we are probably going to have to fund a good amount of tooling in advance. And if that's the case, we may go for separate line to cover all of the tooling. So we're still working that out and haven't finalized it but we're working through that.

Okay great. And then I know this is a big step for the Company and all these awards while great I think increases the operational execution risk, if you want to call it that. I'm just wondering if you, either one wants to address what steps you're taking and why you think you can handle this?

Well John, this is Ed.

Yes.

When we moved to this facility in January 2005, it was in anticipation of experience the kind of growth we're apparently about to embark on.

Right.

Granted it was for a different program and from a different customer and a whole different venue, but we were prepared and ready to do that then. So if you want to look at it from the terribly optimistic standpoint, we've had three years to prepare for this. And hopefully we've done a heck of a good job at it. I think we have.

But we're doing and we plan on doing a lot of things. As we've been looking at these jobs and some of them have become closer to fruition, we've established new plant layouts and what things would look like. The extra cost we incurred in the fourth quarter of last year to lay out our plant was not just what I'll call very narrow sighted, that we didn't just do it for the Spirit award. We anticipate other things. So when we did the rearranging, we did it to account for that as well.

We will be launching a, what I'll call almost an employment search for high-level, top quality people in certain key positions within this company if these other items come through. And what's really nice about them is anything we're looking at right now that is big, kind of layers itself in. It's not we're going to get hit with five things all at once. We may announce five things all at once but we won't get hit with five things that have to be produced all at once. And it allows us the time to bite each one, digest it, and move on to the next one and bring good people in to help us do it as we go.

Back in '05 I guess when we anticipated much greater revenue from the C-5 top program, we had a lot of staff and we were prepared to work. When we didn't get that, we had to do the first layoff of my career here and hopefully the last layoff of my career here. And take us back to a level of people that was correct for an $18 million revenue company.

What we will be doing now and again because we get the chance to layer in, is if we receive a major award, we will go out and staff up specifically for that program where required, knowing that the revenue is going to come to support that increase in employees. So I think with the three years we've had to truly prepare for this kind of growth, the growth we anticipate over the next three to five years, with the fact that we have prepared the shop already for more growth than just the Spirit award. And the fact that we've already begun to take a look at the places we will need big time key employees, I think we're well equipped and well ready to handle any of the growth that is thrown our way right now.

As a matter of fact, we're very, very anxious for it. I have a tendency to tell people the only thing worse than having your revenue decline is having it pick up so fast you can't keep up with it. And we have gone to great lengths here to make sure we were prepared for any and all growth that's thrown our way. And like I said, I believe we're sitting here positioned to take on anything and everything that's thrown at us right now. I don't imagine that anything we have in the pipeline right now if we got it all would create an issue for us. I mean and if it does, it'll be a very good issue.

Okay great. And then one last question and then I'll get back in. Is the airborne laser mine detection system--

Yes.

I guess you got a small contract award. Do you see that getting larger or is this still sort of going to be very small?

From what we understand this is the-- well this is the middle of the three-piece order if you will. The first one we made a prototype. We built one. This is the low rate production of three. The anticipation is that there'll be over 20 built for the government by Northrop Grumman that we will support. So we think that that is a program that yes, going into the future will generate very nice revenue for us.

Okay.

The customer's extremely pleased with the product we're putting out.

Okay great. Thank you.

You're very welcome.

Your next question comes from the line of Carter Newbold of Rutabaga Capital.

Morning Ed, Vince.

Hey Carter, how are you?

Fine, thanks.

Good.

You might have addressed this in passing in your last comment, but I just wondered in terms of setting the facility, what has that done to your ability to respond to what was your bread and butter order, 2, 3, 4 years ago, which I'm going to characterize as kind of couple hundred thousand dollar, 30+ gross margin point kind of piece of work?

Right.

Just still easy to stage and perform on that kind of business and what are the volume trends like in that part of your business?

Okay. It would be no effort whatsoever to continue to build on those types of programs. They don't take up a lot of shop floor space. They're not numerous parts. So it's a very, very easy concept. The problem is, is that there is no volume in that right now. That is still that piece of business that has not come back since the Gulf War started. The bidding activity from the U.S. government is way down and I'll say to you finally way down, because we received so much bidding activity over the last two to three years where there was a no funding to follow it. That in theory we were all being exercised in a way. Yes the government has a requirement. Yes they need these parts. Yes you're one of the people that has been building and we want you to continue to build, so please bid. And then just stop and nothing comes from it. And it's sitting in a hopper in the government, waiting for funding, which appears that it won't be coming in any great degree until something changes with the war effort.

So there is no volume to it at the moment or very minimal I would say to you. And-- but when I'm out on the road giving investor presentation, it is one of the things I point to as a growth driver at CPI. Because we have grown in the last 2 years from $18 million to $28 million to $35 million and if you read what we wrote, we expect 2009 to go even higher. And we're doing that without any of that core business that we were well known for and the second leading producer of in the country etc. So when that comes back, we expect that to be a tremendous growth driver because a lot of companies have moved away from it and chalked it up as something gone. And while we are not doing any, it's still fits right into our core competency.

Thanks. That's helpful.

Okay.

Your next question comes from the line of Adam Mizel of Aquifer Capital.

Hi Ed and Vince.

Hey Ed. How are you?

Could you give us a little bit more insight into the $225 million of open solicitations? The kinds of programs in there in terms of-- whatever you can talk about in terms of size, types of people, come as you're bidding like for, who your competitors are and the timing you think some of that plays out?

Okay I can't give you much to be honest with you Adam cause very little of it is public. Other than there's probably a good 50 to 60 million of Defense Supply Center Richmond bids and quotes that are out there that Carter just asked about. The things that range anywhere from 50, 75, 100,000 up to 250, 300,000 with maybe 1 or 2 big ones. Big I guess I have to reclassify big now with some of what we've won, but there might be 1 or 2 that are a million or 2 million. And that makes up a good $50 million worth of that category.

The rest of it tend to be larger bids to major primes on a variety of contracts. I can't list-- tell you who they are because they're not public information. Those companies don't put out proposals in a public format. And by the same token, I can't tell you who the competitors are necessarily because that would be again violating the same confidentiality in it.

But I think what I could say to you is we have a nice confidence level about that chunk of business because of the way our subcontracting has been going. And the fact that we have proven to be highly competitive in this arena and again for the same reasons we were in the government arena. We bring large company capability in but at small company responsiveness and pricing. Okay, that's why we've done so well with Sikorsky. It's why we've done so well with Northrop Grumman on their part program. It's why we've done so well with Vought. And the trend should continue. We're not reinventing something here at CPI. We just took what we did and did well and moved it into another venue. And that same pricing and responsiveness etc. or concept applies.

As you're competing, I mean I'm less concerned with specific competitors, but are typically you competing against other small firms like us, bigger or smaller or are we competing against big guys and offering that value proposition you described? I mean I'm trying to get a little bit more sense of what that looks like and how and why we should be differentiated and feel confident?

Okay I would think-- I think it's safe to say to you that for the most part, we're competing against much bigger companies. And the reason for that is very simple, smaller companies-- most smaller companies don't have the technical ability that CPI has. I mean if you go back to the first time you ever heard my investor presentation, and I brought to your attention how we were founded and that we were founded as a highly technical company, a large company but in a small suit if you will. We have maintained that. Even in my five or six years running the company, my goal has been to maintain that level of expertise that sets us apart from all the other small companies.

So when we go up against a larger company competitor in any of this big stuff, we're right there with them in our ability to write a technical proposal, our ability to understand the drawings and the requirements of that customer, and then we differentiate because hey we can do it a lot faster. We bring a whole lot of knowledge and usually some pretty good past performance since all of our people have come from major primes. And our pricing should be better than anything you're going to get from a large company. Because we don't have the kind of overhead structures they have. And we will continue to try to keep that as our advantage.

Last question would be to kind of fill out this view would be it's clear that the sales cycle is very unpredictable and long. Given that, is there anything that you guys are trying to do differently to break that log jam or give you a better ability to kind of see forward and manage the business? Because there are repercussions of that. And trying to understand how you guys are managing that and what you think that will look like in our business?

I'm not sure I understand the question fully.

Well let me try it again. I mean basically number one a little bit of-- is there anything we can do to influence sales cycle? Number two, if given we are more reactive to other big companies' schedules, how do we then keep control? Sort of some of the earlier questions to build out our floor the right way and manage our costs and our staffing so that we don't find ourselves whipsawed with hey we finally get something but by the time they make a decision it's actually a bad time for us to get it or it's more expensive and the contract doesn't reflect that, whatever it may be?

I don't necessarily see that as an issue with us, to be honest with you. Like I said, we're no where near our capacity yet as a company. I'm not even close. So there is nothing that should pop in that says we can't handle it at the moment. You're correct. If we landed four jobs all at the same time and they all wanted production at the same time, we'd be in the same boat everybody else would be in. However, none of what we're going after should do that. I mean if-- again if I announced three or four new jobs tomorrow that we're currently pursuing, they will not all drop in here at the same time. So that we do have a ramping plan, if you will, to handle whatever comes our way in the next six months to a year.

As far as speeding up the cycle, there isn't a darn thing we can do about it. If we could, we sure as heck would have done it already. And I guess to be blunt it's very frustrating for us here in CPI. We are a smaller company. We are very responsive. If somebody asked us for something, they can have it within 48 hours. That's what we're used to. And even with the U.S. government, though they didn't necessarily award fast, you had somebody you could talk to. You know where the thing was in the process. It was usually one or two people who you were dealing with and that was that. Now that we've gotten into the large company environment, we are dealing with bureaucracy on top of bureaucracy on top of bureaucracy. As a matter of fact, many of these companies have so many multiple locations that even if you're dealing with location A, an award needs to go through an approval cycle at locations A, B, C, D, and E. And there's truly nothing we can do about it to speed it up as much as we try. So we're all going for sensitivity training to learn a little bit of patience here because sometimes we go absolutely crazy about how long the process takes. But in the end though the awards aren't coming, delivery etc. has to be on a certain schedule because that's what those people have promised their customers. And so we can take a look into the future and still know when we're going to have to deliver; when we're going to have a turn up in build requirements etc.

Okay, thanks guys.

Okay.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Mike Sheik.

Hey Ed, hey Vince. How you guys doing?

Good Mike. How are you?

Alright. I missed last conference call but--

It was my best ever Mike. I'm sorry you missed it.

Great guys. I love the sensitivity training-- pretty good. I'm going to pick on you for a second Ed.

That's a shock Mike.

A number of times you said we're running a marathon and to be patient. Alright. I've never asked you what mile mark you're at, but I'm going to ask this time. Where are we at right now because it sounds like we're at a pretty exciting inflection point? So what mile marker are we at proverbially speaking?

If we're looking at a 26-mile run, we're at about mile 5 but the pace is picking up.

I was hoping for a little bit more than that.

No you don't want to be more than that cause that means you're getting close to the end and I don't think we've even scratched the surface.

Alright, good, good. Alright I want to ask you about your unfunded backlog. Normally you characterize it by win ratio. Alright, but I think that's when a lot more of it was government contracting or government bids--

Correct.

And solicitations. So where-- what's the win ratio and what's the metric that we can use to kind of munch the 225 down into X dollar amount like we've done in the past?

I'm going to be honest with you Mike I don't think you can do that this time. Only because like I said there are some major awards in there. Our win ratio right now is absolutely absurd. I'm not even going to give it to you but it's well over 50%. And the reason for that is there isn't a lot of government work going on. And things like ALMDS pod, the Spirit award, they would skew-- I'm going to say to you they would skew our success level if you're going to look at it only as a percentage of wins.

Okay.

It's-- I don't know that you can take our 225 and say hey, the company used to win 15% so if I take 225 times 15, there's your answer. I'm not suggesting you do this but if you want to be led to this, I'll take you there.

Yes take me.

You could say the 50 million, 55, 60 million of U.S. government awards, if and when, not if but when they eventually get led out if you will, if CPI did 14%, I could take that number times 14 and there's my answer. I'm not sure that's the greatest methodology because I think once the effort ends, there'll be tremendous, tremendous number of bids and proposals released on that kind of work. So that number will go up quickly.

But by the same token, I could say to you, now just take one of the jobs that fill up the remainder of that 225 and that might be 6 times larger than the percentage you just came up with. For example, back when the Spirit award was in our backlog or un-awarded backlog, if I had said to you well there's one job in there that's worth $86 million that's worth more than we got from the government in any 3 years in a row, you might have thought I was crazy or you might not have believed it or you might have thought it was pie in the sky for me to think we could get it. And yet that's exactly what happened and it did result in more award dollars in general than we received in three straight years from the U.S. government. So it's not as clean if you will. Yet when these awards come through they'll provide even greater insight on the long-term for what our revenues will look like going forward.

Alright, you have a great story to tell. And now I always bang on you on the IR so here I am going again. It sounds to me like you got the road shows. I mean what's your-- you're going after the institutions, is it the market environment? Why are they not biting because I'm not seeing the results in regards to trading volume?

Right.

So maybe you can characterize what your goal is because I don't-- have you hit the road show? Or have you done a road show before this? I mean that was recent or is this like one of your number one objectives? Okay the company's firing on all cylinders. We need to do some PR.

Both.

Where are we at in this stage?

Whole thing. We are firing on all cylinders. I think we have a tremendous story to tell. I love going out and telling it. I just, as I stated earlier, just got back from San Francisco and Los Angeles where San Francisco's been one of our most successful places historically since 2003. The meetings that I had were excellent. They were very well received. I think there's a general malaise in the market quite honestly. I think there are some investors out there who want to see some execution first. I think there are some investors out there who want to see a little bit of the 225 come down, hopefully with successful awards obviously. And I think Mike and this is always the case, I think a lack of coverage at the moment hurts. And there isn't a lot we can do about it. We look for coverage all the time. But quite honestly with a $48 million market cap, it's very, very difficult to get someone interested.

Is that a hint, stomp, stomp, to some of the guys on the line?

I'm sorry?

Is that a hint, hint, stomp, stomp, to some of the guys on the line?

Absolutely not. Most of the guys on the line are investors not analysts.

Alright.

And very good investors at that. They've been good friends to the company and stood by us all along. And they are going to reap the benefits of that. But no, as part of our road show (inaudible) if you will over the next few months, we are trying to get in front of more analysts because somewhere along the line we're going to find the analyst who says, well you know what we really don't usually cover a company under $50 million but your story is so compelling we might make an exception.

So I think it's a lot of things. I really do. I think it's the market. And I think a lot of people want to see us execute on the plan. I think a lot of people are gun shy about us a little bit because we had that two-year dip and until they understand why we had it and that we really didn't control it any way, it wasn't bad management. It wasn't we targeted the wrong audience. Until that gets fully entrenched in the investment community, we'll struggle a little bit. But that's not going to stop me from telling the story. Because quite candidly I don't go tell the story to get the stock price up. I go tell the story because I think it's a fantastic story and I want really, really, really good investors like I have in this stock. And I think when that occurs, the stock price is going to take care of itself.

Okay well keep doing-- keep running the marathon.

Thanks Mike.

Alright.

Your next question comes from the line of Paul Berger of PLA Associates.

Hi Paul.

On the backlog that seems a big talk this morning, is Boeing included in there at all?

They might be.

Okay. And as far as what you're projecting out as revenues for this year, is this pretty much talking about what you know about as opposed to any new awards that may come out?

It's a little of both Paul. It's what I do know about and it's what we anticipate or anticipated when we made this projection. There could be something that pushes it higher. I doubt very much anything will keep us from reaching it otherwise we would have adjusted downward already and we don't see that happening at all. We are, as we said, like one of the first things I said, in fact we are right on target for what we expected this year.

Okay. And also with the rapid rise of pricing, especially steel etc., do you feel that you're adequately protected for inflation since a lot of these contracts are certainly out in years?

Yes, any of the contracts that are long term have escalation factors built in based on indices etc. where we should be and will be protected. I mean T-38 we were protected against when the metal costs went up these last two years. The escalation factors kicked in. We get much more for the unit now than we did when we first delivered it. And so that's protection. That's true in every long-term contract we're going to-- we either have or are going to get into. And again if we get any of the smaller contracts, that's built in at today's prices and it's usually delivered fast enough where there is no impact at all.

Okay great. Thanks a lot.

You're welcome.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Michael Potter of Monarch Capital.

That's not allowed. He already asked a question.

Just a quick follow-up Ed.

Yes.

I think I asked this on the year-end call as well, our gross margins are being I guess kept down due to some of the ramp up and the upfront costs that we have on some of the big contracts that we've won. Do you still anticipate that our gross margins will get back up to those low to mid 30% range for 2009?

2009 yes, we should. That's a great time period to say. Yes, I believe that will occur.

Okay.

We think that when we start to hit that $35 million range, we start to cover all our overhead costs etc. Also again with the new contracts. And Mike I'm not going to tell you that couldn't change. So don't hold me to that because--

Right.

If were to win a couple of new contracts now that kick in for 2009, I might have still a lower gross margin in 2009 because we're in the front end of those contracts. But again if we're adding $10 or $15 or $20 or $30 million worth of revenue and it's only at 25% for the first 2 years, I'll take they every time.

Okay so even-- so we're going to do $35 million in revenue this year as far as your guidance goes. For '09 even if that revenue was flat, we would still have a significant increase in our net due to the improvement in our gross margins I would assume.

We certainly could, yes.

Okay, alright. Terrific guys. Thanks.

Sure thing.

Your next question comes from the line of C.J. Karthauser of SKIRITAI Capital.

Hello guys.

Hey C.J., how are you?

It's actually Lyron here as kind of a--

Okay Lyron.

The liberty of putting his name on the call.

Okay.

Anyway I wanted to ask you guys kind of given everything that's going and kind of given how excited you are about the future, is the window open? Are you guys allowed to buy stock?

No we are not.

Understood.

Actually I guess the market that the window reopens two days from today, three days from today?

Right.

Three days from today.

So the window does open three days from today?

Yes.

So are you guys or the board guys expected to kind of buy more stock?

It was discussed at the board meeting we had on Friday. I'm not at liberty to answer that at the moment.

Hopefully we'll see action. Thank you guys.

Okay.

There are no further questions. I will now turn the call back to management.

Okay, well thank you all for joining us for this call and I look forward to speaking to you again in August for our second quarter results. Thank you.

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