CPI Aerostructures Inc (CVU) 2011 Q4 法說會逐字稿

Greetings and welcome to the CPI Aerostructures, Inc. fourth-quarter 2011 earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Edward Fred, Chief Executive Officer. Thank you, Mr. Fred. You may begin.

Thank you, Christine. Good morning and thank you all for joining us for our fourth-quarter and year-end 2011 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 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 certain 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 contract 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 with both government and subcontracting contracts. Our subcontracting 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 contract 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 2011 full-year results. I will then hand the call over to Vince Palazzolo, our CFO, so he can walk you through the financial statement details for the fourth quarter.

As reported earlier this morning, for the year ended December 31, 2011, revenue reached an all-time high of approximately $74,136,000 compared to approximately $43,991,000 for the year ended December 31, 2010. Pretax income was approximately $10,539,000 compared to pretax income of approximately $543,000 for the same period last year. Net income for the full year was approximately $7,417,000 or $1.04 per diluted share compared to net income of approximately $530,000 or $0.08 per diluted share for the 2010 full year.

Selling, general and administrative expenses for 2011 were approximately $7,932,000 or 10.7% of revenue compared to approximately $5,415,000 or 12.3% of revenue for the same period of 2010.

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. Then I will comment on the current business environment, our guidance for 2012 and then briefly wrap things up and open the call to questions.

Vince?

Thanks, Ed. As reported in this morning's press release comparing the fourth quarter of 2011 to the fourth quarter of 2010, revenue was $24,092,200 compared to $7,464,546. Gross margin was 27% as compared to a negative margin of 45% last year. Pretax income was $3,901,020 compared to a pretax net loss of $4,758,536. Net income was $2,673,020 or $0.37 per diluted share compared to a net loss of $2,965,536 or a negative $0.44 per diluted share last year.

Selling, general and administrative expenses were approximately $2,523,000 or 8.9% of revenue compared to approximately $1,364,000 or 18.3% of revenue for the prior year.

Now I'll pass the call back to Ed.

Thanks, Vince. New orders for 2011 were a record $83.6 million and well above our previous record of $61.7 million, which we hit in 2010. This award growth was driven in part by the fact that we received the expected follow-on releases on two of our major subcontracting programs, the E-2D and the G650. The G650 releases were for $24.5 million, while E-2D orders equaled $11.2 million.

In addition, we received a $2.9 million award from Sikorsky to provide structural assemblies for spares on the BLACK HAWK military helicopter, and we won two new programs to build inlet and flap assemblies for HondaJet and to manufacture various assemblies for Bell Helicopter for its AH-1Z ZULU attack helicopter.

There was also real business potential from the approximately $280 million of unawarded solicitations outstanding once these programs are funded and/or awarded. This potential is evidenced by the strong start we have had in 2012 with year-to-date new contract awards totaling $28.1 million compared to $22.3 million for the same period last year.

One of these new awards, which were received in February, was very exciting in a couple of ways. We received the purchase order from a new customer, Goodrich Corporation, and for the first time, CPI will have the authority to design modifications for the structure it is manufacturing.

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 in the important programs we're working on, and the exposure we've had and the contacts we've made at various aerospace and defense institutional investment conferences. This manifested itself in the expansion of our custom-made customer base in 2011 as we added two prestigious companies, Honda Aircraft and Bell Helicopter, to this list, in addition to adding Goodrich early in 2012.

We are now in the midst of establishing relationships with additional prime manufacturers, including other helicopter and business private jet companies who have come to recognize CPI Aero as a premier supplier of aircraft structure. Among the other 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 very near future.

We are reaffirming our guidance for 2012, projecting that revenue will be in the range of $95 million to $98 million with the resulting net income in the range of $12 million to $13 million. Also, we intend to provide our 2013 guidance in our first-quarter 2012 earnings release in May.

To support our expected growth in new orders, customers, programs, and, of course, revenue and profits over the coming years, November 2011 we increased our line of credit with Sovereign Bank to $18 million.

Additionally, in mid-December we completed the relocation to our 171,000 square foot facility, which is nearly 3 times the size of our former location. Pictures of the new facility are available on our website, www.cpiaero.com.

On a separate note, CPI Aero will continue to tell its story as often as possible, and to that point we will be presenting at the ROTH Capital 24th Annual Growth stock Conference next Tuesday, March 13. We're also scheduled to present at the 13th Annual B. Riley Investor Conference held in Santa Monica on May 21st through the 23rd and the Stephens Annual Spring Conference held in New York City on June 5th and 6th. We look forward to the coming years with great anticipation and excitement as we execute on our current contracts, develop new customers, and deliver unprecedented financial results for our Company.

At this point I would like to open the floor to questions. Christine, can you allow callers to place questions now?

(Operator Instructions). Mark Jordan, Noble Financial.

Ed, I was wondering if you would talk a little bit about the A-10 program, where it stands with regards to billing activity and your accounts receivable. Secondly, talk about the funding for that program and what you think is the longer-term outlook for the A-10 project?

Okay. I am going to split this in half. I will talk to you about the funding issue, and Vince will talk to you about the receivable issue.

The funding issue is that there really isn't one. I think some people got a little concerned when the current budget had almost all of the money sliced out of it for A-10 to Boeing for the A-10 wing program and misinterpreted that there was going to be a problem with the program itself.

The only issue that existed there was that Boeing was later on its delivery for a variety of reasons, and the government was sitting on a pile of money that it was due to pay Boeing already and yet hadn't paid them because they hadn't completed their part of their contractual obligation. Therefore, the Congress and Pentagon and Defense and everybody else saw no reason to allocate more money in 2012 when they are sitting on a pile of money from 2011.

So this was more of a funding transfer than anything else. There has been no talk of this program going away. Even though there's been talk of retirement of some A-10s, it still doesn't reach the level of the 242 planes that the government had ordered re-winging on. We have now received our releases to build 117 of those 242 so far. Our work is not slowing up in any way, shape or form. We were not asked to slow down. In fact, we're turning out more landing gear pods than you can possibly believe when you look out into our shop.

So from that perspective, there is no funding issue. It was simply a delay of funding or a pushout of funding by the government to Boeing simply because they hadn't delivered yet. Vince, I'll let you take the receivable question.

Yes. The cash receivables from the Boeing job are on track to what we had projected, which was still negative in the fourth quarter, and a lot of the runup that you see in the cost and estimated earnings line is related to that job, but that was expected. That's one of the reasons that we expanded our line of credit near the end of the year.

The shippings through the first and second quarter are also on track to begin that turnaround, which we had talked about in the last quarter's conference call of when we expected our program to be able to begin to generate positive cash flows and have the receivables come down.

So I would say it is higher in the fourth quarter, and the fourth quarter was a bigger number than where we stood in third-quarter but within the range of what we expected and that we still project -- our projection is still on track for the turnaround to come in the next couple of months on the program.

Thank you. Second question, related to bids outstanding, at year-end you were at $282 million. I think at the end of the third quarter $399 million. Did you -- what did you kind of debook from that bids outstanding? Was that business that went away, or how do you account for that drawing down?

And secondly, you allude to some new customers that you're marketing to. Are those new customers in that outstanding bid portfolio?

Okay, first part of the question, the number came down basically through two avenues. One, we had a customer reduce scope on the job that they had originally put out as a bid. So we in turn reduced our bid, which eroded some of it.

And the second thing is -- and this happens all the time; it just happened to occur right at the end of the quarter and we don't want to mislead anyone into thinking we were -- we handle the situation the same way every single time, and in this case it caused the number to go down. And that is we had a customer ask for a resubmittal of bids, not just from us, from all of our competitors. Everybody had to do a resubmittal, and so the bids that were in are no longer valid. Therefore, we pull it out of our number and not leave it there knowing that is not going to be the number again. So we pull it out, which reduces the number a bit significantly I would say, and in the coming weeks, we will be resubmitting, and that number will jump way back up again. Had we not been announcing earnings right now, you never would have seen that flip-flop.

So, to answer I think what is the underlying question here, no, we didn't lose any major bids or proposals. We did not lose any major competitions. The number will be higher in the not-too-distant future. So we are not concerned that all of a sudden business is going away. In fact, the waters are churning with new business potentials, etc.

All I will say to you without getting specific on the second part of the question is that there is some new customer solicitations in that number, but not a significant amount yet. A lot of the new customers that we are trying to cultivate are at the early stages of the bid process. We have not submitted things to those customers yet. But, again, that will also be a driver in the growth of that number as the year goes on.

Mark Tobin, ROTH Capital Partners.

First, just on housekeeping, can you give us the depreciation and amortization CapEx and operating cash flow for the quarter?

Depreciation and amortization for the quarter was $210,000. CapEx was higher than the last three years combined. It was $1 million in the quarter, all because of work related to the new building within the range of our projection, but a big number will stand out. And operating cash flow was a negative -- I don't have it for the quarter. I'm sorry.

Year is fine.

Year is [$13.7 million] negative.

Okay. Thank you. And then looking at the guidance for 2012, Ed, can you give us a sense of kind of how that breaks down and what your underlying assumptions are as far as how much of that revenue you already have booked and then any other, I guess, risks to it or potential upside to it?

At this point in any given fiscal year, we probably have in the vicinity of 85% of the revenue booked, and the balance is based on new contract wins that we anticipate based on historic win levels every single year. So that's where we stand on it right now. You know, if there were major wins that we had not anticipated, obviously those numbers could go up for 2012. By the same token, if the bidding on winning process went ice cold, we might not hit that guidance number. But, again, given basically seven years of history on what we win every single year, we are very, very confident on what that number will be, and keep in mind that number has been out there now for probably five or six quarters at least. So we are, again, pretty confident that we will land right in that range that we projected.

Understood. And how much cushion are you giving yourself schedule-wise specifically on the HondaJet program?

We don't need a lot of cushion schedule-wise because even if they get delays, we've already been tasked with building the early -- I won't call it prototypes, if you will -- but low rate production unit runs. We've already been given the go-ahead to build the tooling for these jobs, and that is how we generate revenue.

Keep in mind, when you use percentage of completion, it is not delivery. So, knowing that we've been given the go-ahead to build these things, I could build them all tomorrow in theory and record all of the revenue for Honda tomorrow.

Now, we're not going to do that. You build them just in time obviously, but there is no issue. If they get delayed or sped up, it might not necessarily change our revenue projections for jobs like that this year.

Got it. And then finally, looking ahead to again as we look at 2012 and kind of how it flows from a quarter to quarter basis, do you have a sense of whether it's going to be more front-end or back-end loaded from a revenue standpoint?

As you know, we don't give quarterly guidance. I will tell you that historically our quarters usually go first quarter lowest, second and third higher but not necessarily one more so than the other, and fourth, as always, tends to be the highest we have. The reason for that -- it is not seasonal, but I think our customers at the same time are always looking for a better year-end building up their numbers, and hence that gets passed down to us in the build schedule.

So I think you would see a first quarter this year that would be lower than the fourth quarter that we just reported and then each one stepping up a slight bit where the fourth quarter is always higher. And that, again, is an historic trend with us. So I don't see anything necessarily different in that.

If we see something different just as we did this year or this past year, 2011, when we thought the third quarter might be lower, we will apprise everyone of that situation. But, otherwise, I think you should look at a first quarter that's better than last year's first quarter, but not as good as this year's fourth quarter and then stepping up each quarter there on until the end of the year.

That's helpful. I appreciate the answers and also appreciate you guys hosting us yesterday at the facility. It was very good to see.

Well, thank you. We appreciate you guys all coming out and especially you traveling to be here.

Alex Hamilton, EarlyBirdCapital.

On the facility issue, I know this is a little bit of going backwards. But can you remind us on, great, you have a facility three times the size that you had. You are winning new awards, but can we talk about sort of, I guess, as quickly as we can, sort of the financing on the margins, what is that costing you?

Well, all I will say -- I'm not going to get into the detailed cost of moving into this facility. All I will say to you is that growing into this facility allowed us to win new jobs, which has allowed us to increase revenue in theory $20 million from 2012 over 2011.

So the increase in revenue basically offset the increase in cost to operate this new facility as evidenced by the fact that our projections show --- and you can do the math -- basically the same gross margin in 2012 that we had in 2011. Which goes to show that as we continue to grow from 2012 on, operationally and perhaps gross margin wise, we will get even more efficient.

So this was not -- this is certainly not just our desire to be in somewhere bigger or to have a pretty place. As a matter of fact, I did everything I could to avoid a move. We were just going to expand. But with the list of customers we have been pursuing, with the fact that we knew -- though we couldn't tell all of you, we knew that we were winning HondaJet, we were winning Goodridge, etc., and we're going to need the space to grow anyway, and that some of the things we're looking at for the future will require additional space. This just made the best goal strategic but also fiscal sense as a direction for the Company to take.

So, again, I guess to answer your question, the move here from a dollars to dollars or an apples to apples comparison is that moving here really hasn't cost us anything more in margin than it would have had we stayed in the other place. Because we wouldn't have been able to (Multiple Speakers) market.

Thank you. And then can you just update us -- and then I'll open it up to someone else -- on the Bell program and when that should be up and running?

I have Doug McCrosson here, my COO, so he's going to take that one. Doug?

The Bell program is now up and running. Tooling is being manufactured. We are preparing the floor space right now to accept tooling, and we are probably a month or a month and a half away from some of the major retail parts coming in to support that build.

Michael Callahan, Auriga Securities.

I guess the first question I wanted to ask relates to Sikorsky and where things stand with them. I guess as the one in an otherwise kind of great 2011, Sikorsky was the one customer that you just had one supplier goal in 2010 that will have quite a few bids outstanding, and it seems like that's not quite materializing as we had hoped. Do you have any updates with those programs?

Yes. The logjam there is breaking, and we've talked about Sikorsky many times and how long it takes to get something from them. But I will give them a pass here, if you will, in that there was a lot that we bid on and a lot of our competitors bid on and other programs that we didn't bid on just as an overall thing that was tied up in the multiyear ['08] negotiations they were having with the US government. They needed to get their funding before they could turn around and fund the programs that we are bidding on and other people are bidding on.

That finally occurred at the very, very end of 2010, so we are now seeing a lot of movement on those contracts. We've had a lot of discussions. We actually go to Sikorsky once a week to try to finish up negotiations on some of the bids that are in and some of the new stuff that may be coming down. So we are pretty confident that in the not-too-distant future, these things will work themselves out and hopefully and optimistically be reporting to you on a couple of award wins there that we've been expecting and still expecting to get.

Okay. Fair enough. Thank you. I guess the next thing that I want to talk for a minute about was your prime defense business was up -- showed approximately 51% in the year. Is this starting to finally improve? I know throughout the past five years it has all but gone away. Is this finally starting to improve on that end, and are you expecting additional growth into 2012?

Mike, I don't want to deceive people. 51% of almost nothing is not a big jump. You know?

So it's picking up slightly. Do we see it coming? Absolutely. Conflicts are winding down. Resources are being brought home. The word we've gotten is that fleets will be looked at. Meaning back in the old days when we used to be so much, 100% almost, direct to the US government, they would look at five planes and decide what was needed on those five planes. And then we'd get an order and then somebody else would go out and look at five planes somewhere else and so on and so on. We've been led to believe that it will be done very differently now. They will actually take a look at fleets, for example, a fleet of C-5s and see just how many cargo doors are required and wingtips are required and fuselage panels are required and on and on and on. And that will be true of all of the assets within the US government inventory. And that's not going to happen fast.

So I think it's our belief at this point that we'll win some indirect -- I mean some direct work in 2012 without a doubt, but we really see that kind of business picking back up again in 2013 when they've had a full year to evaluate their needs, get money into the next budget to fund the requirements that come from those needs, and then that's when we think we'll see -- we and others will see significant growth back into that arena.

So, okay, I guess just the last thing I wanted to ask is, on the SG&A line, it picked up pretty significantly sequentially. I assume that is related to the move to the new facility. But going forward, is there kind of an SG&A dollar amount or percentage, I guess, target that you guys have, or is this kind of a new runrate in an even bigger facility and presumably more costs?

I'm going to let Vince take that one.

Well, in dollars, a big portion of the uptick was related to the contractually computed bonuses that the executive management gets or that the management gets, not just the executives, get based on the profitability, which was severely depressed last year. So the computation yielded a small number. When you have a big year, that number goes up.

What I would take from the SG&A line is the percentage as compared to revenue. Historically we've run 10%, 11%. The percentage in the fourth quarter was 8.9%. I think that that type of trend is something that you should look at going forward. I think that that's probably going to be consistent that will keep the percentage as a percentage of revenue down in that 8%, 9% range.

Keep in mind, Mike, we also put something in earlier in the year. We announced that we put it out that our Board members had changed their -- well, we asked them to change their compensation methodology so that we were able to cap their expenses or the extent of the Board fees. And, again, it was nothing they were doing wrong. They were being paid mostly in stock options versus cash and because of the volatility in our stock, which was a good thing. It means the stock was going up dramatically, but the volatility caused us to have almost $1 million worth of expense simply because of a Black Scholes calculation.

Now we have tapped that at, I believe, $560,000 or cumulative $575,000, something like that, for the entire group by giving them a bigger cash component and limiting the amount of stock options they could get based on Black Scholes to a feeling for each individual shareholder or director shareholder.

So between that and as Vince said, the bonuses this year, which won't be high next year obviously just based on the fact that while we are growing beautifully, we are not growing in comparison to what we did last year because of the depressed bonus. So that said, next time I see you, I will buy the beers, okay?

That sounds good. I guess as one follow-up on that, do the bonuses always come in the fourth quarter, so should we always expect to see an uptick in the fourth quarter?

No. We compute them on a quarterly basis, but they are trued up in the fourth quarter because you can't exactly do the computation until you reach the end of the year. But we do take a portion of that in each of the quarters and then just do the trueup in the fall.

Okay. Fair enough. I'll jump back in the queue. Thanks, guys.

Steve Shaw, Sidoti & Co.

Do you guys have a number for outstanding bids related to helicopter work?

Steve, we don't give that out. We don't break it down that deeply for the general public. So I really can't answer that for you.

Okay. And then, Vince, was the CapEx number you gave previously for the quarter or the year?

$1,020,000 was for the quarter.

And, again, almost all of it relating to the move here, Steve.

Chris Sigala, B. Riley & Co.

So it's great to hear that you expect to work down the receivable overhang with Boeing over the next few months. I was just curious if this implies that you would expect that account that caused an excess of estimated earnings to come down throughout the rest of the year?

Well, the answer is that overall it may not come down, although it will be coming down on the Boeing job per se, so we do have the new work for Goodrich, which is going to start building up. So it may stay flat over the course of the year, and it will just be the components that are shifting. Certainly I would expect that even in the worst case that it would not be rising as rapidly as it did in the tail-end of 2011. I think that is a fair statement.

Okay. So you would expect to be cash flow positive from operations for the year?

By the end of the year, yes, I would say so.

Okay. Great. And then just last question was, I'm curious if you can talk a little bit about progress on the G650 program. That seemed to be one of your more exciting opportunities a while back and I'm just curious how that's tracking.

It is doing fantastic. We just, as I stated, we've got tremendous number of orders from them last year, but what unit are we up to now building?

27.

We are building number unit #27, and we have orders for (Multiple Speakers) up to unit #98 already. We are building -- we are literally building a set of leading edges of one per week. So, 10 edges, one ships at every single week, but their program is fantastic over at Gulfstream. They have announced an up-rate in production on the plane. It's been incredibly well-received by the public. As we've told you many times, they've got -- publicly they've said they have 200 orders of record.

So it is, it is a very exciting program for us. We are thrilled to be on it, and we're really enjoying watching an entire ship set turn out every single week. We have two crews on it now. We have a day crew and a night crew, which is the first time we've ever employed one consistently here. So it is a real great revenue generator for us.

Bhakti Pavani, C.K. Cooper & Co.

By the way, great quarter guys. I just wanted to know, if I'm correct, the revenues from the military and the nonmilitary came about to 86% to 14% this year from 2011.

That's about right.

That should be right.

That's about right, yes.

So do you think that going forward in 2012, do you think that kind of a revenue mix, or do you think that's going to change a little bit?

Based on what we know going forward, we see the rate shifting somewhat more towards nonmilitary than military. We're not getting to 50-50 anytime soon. That's certainly the case, but with the ramp-up in G650, with S-92, with HondaJet. All that should make the balance start to shift a little bit more towards nonmilitary. I wouldn't go crazy with it yet, but certainly head that direction.

My next question is about your line of credit. You extended your line of credit to $18 million, and if I'm correct, you withdrew up to $16 million, if I'm correct, for the year 2011?

Right.

So how are you using that, and do you have any plans of extending that next year?

Most of that -- as I mentioned in one of the other questions, a lot of that cash has gone into the funding during the negative cash flow portion on the Boeing contracts. So a lot of that has been on inventory, work-in-process and the labor going into the Boeing program. That's a big bulk of it.

As for, do we plan on increasing it in 2012? We're always looking at what we would need to fund our cash flow and growth and potential new business that Ed had mentioned earlier in the conversation that would require new tooling. So everything is sort of open, and as we go along, we alter our plans to accommodate what we need.

Right. I mean I would say to you, I hope I have to go back for more money to the bank this year. That just means we're doing better and better. It's a good problem to have.

Okay. Thank you very much. The other question is, Ed could you talk a little bit more about what's going on the E-2D front with the E-2D contract?

The E-2D is operating exactly as we had hoped it would. A lot of people, again, worried in the defense budget that there would be a slowdown in it or delay in it, and there were some cuts in it that people saw, but it did not impact us at all because we were not expecting that many orders, nor was, I believe, Northrop Grumman at the time.

So our program is exactly where it was supposed to be. We've got a build right now right through the year 2012. Nothing changing there into 2013, I believe, or well into 2013. Right. We have 18 aircraft on order at this moment. So, even if there were to be a slowdown in that program, that's not going to hit us until late 2013 or 2014 from a revenue impact standpoint.

So, again, people talk all the time about the shrinking defense budget, etc., and we obviously completely understand it. And we are not silly enough to think it can't ever impact us. But we happen to be on some very, very good programs right now that don't seem to be getting impacted as much as other programs are in the military budget -- E-2D, A-10, C-5, things like that. Yes, C-5, they're going to retire 30 or 40 planes. That still leaves 60. So we think we are positioned extremely well.

Okay. Sounds great. My last question is for Vince. What was the CapEx for 2011 for the whole year?

For the whole year, it was $2.3 million.

And do you see that continuing -- going into 2012, do you see that, or do you plan to, you know, increase?

Oh no. I would say that it would be severely less than that in 2012, maybe $300,000. Most of that increase -- the big bulk of that increase was all related to this new building. And now that that is in place, I mean CapEx obviously is a long-term. So I would say it's significantly less than that.

Okay. And, lastly, what was the headcount of -- what was the headcount of the Company?

152 at the year end. I think that was the number. 152 employees at year-end.

Michael Callahan, Auriga Securities.

I just had one follow-up on the defense business we talked about earlier in the call, I guess the prime defense business to the government. Can you tell us what the peak was in the past, how high that piece of the business can get, and then also just how you guys think about prime contracts with the US government in comparison to overall defense budgets. Meaning, if defense budgets are cut, I would think that piece would still be safe, just as bringing aircraft back would be a lot easier to repair them than build new ones.

Okay. First of all, at its peak I think it was 2004-ish, we did $30.3 million in revenue. The entire amount was direct to the US government. That was our peak.

At that point in time, we were the second largest supplier of structural aircraft parts, replacement parts, behind only Lockheed Martin. Obviously Lockheed Martin was the OEM on a lot of those aircraft. So, it wasn't weird to be behind them. So we were a $30 million company that was number two in the world in providing those parts.

We had a lot of competition from a lot of small companies, most of them private. Since the downturn in that business, a lot of those companies have either gone by the wayside because they couldn't adjust. We got very lucky. I will admit that. We went from $30 million to $18 million in two years from that business. So it was quite a downturn. A lot of companies could not withstand that and went out of business.

Others changed their direction. We went in the subcontracting group. One of the competitors I'm thinking about switched from the Air Force to the Army and has a wonderful business running now but isn't a competitor anymore and we talk all the time.

So I think what you have to look at is, in that period of time before planes got shot up and went to war for the last eight, nine years, we were doing an amount of $30 million with a pool of, say, 50 competitors. Today, when this comes back up, I think you'll see a pool, first of all, that starts at a lot higher dollar amount because it's not modifying five or six or seven planes. It's modifying fleets of planes. The pool of competitors will be down significantly because of the attrition of the ones we competed against then.

So I think the potential is something beyond $30 million a year. I would expect us to be able to reassume our position as one of the leading suppliers of these parts in the entire world.

That said, I don't bake any of that into my projections ever right now until I see it start to come back. But if you're asking, is there a hidden gem in here somewhere? Yes, that is a hidden gem. That could be $30 million to $50 million that could go into a revenue number at some point where we've never planned on it and was work we always did and know how to do better than anybody else.

As far as the shrinking defense budget, I think it plays into our hands very well in that how we got to that $30 million number was, we were one of the few companies that actually understood how to build parts for out of production aircraft. It's not the same as building a brand-new part. The parts don't fit on a plane the same way if the plane is 30-years-old and you build a part today exactly new. You have to understand how to modify that part that allows for the shifting of the plane over 30 years of flying, etc.

All of that said, we feel that being in that arena, having that kind of knowledge in a shrinking defense budget only helps because it is logical that if the defense budget is shrinking so much, you're not going to go out and buy new aircraft. You're going to refurbish and maintain what you already have because you might be able to do four or five planes for the same exact price it would cost you to buy one brand-new one.

So, again, when this comes back, we believe -- and this is not just a belief. It's historically accurate that we are in the prime position to be able to grab a whole lot of that business when it finally comes.

Our only question, our only issue and why we don't pound our chest about this potential business is, no one knows when it's going to come yet. And so we sit back quietly, and we wait for it. We've developed a beautiful business without it, and when it comes back, we'll be right there to go get it again.

Okay. I guess when the orders come in, how short is the lead time until you would see the revenue impact?

Those are very interesting. It will depend on how they do them. If they do them exactly like they used to do them in the past, you would bid on a contract, it would be awarded within three months, and then it would be completed within six to 18 months because it was -- here's a part, here is the number of parts and the quantity of those parts we want, go.

So you could actually win a job in January and have it done by July or August or September or December, the full revenue booking in. And if you go back and look at -- if you remember and I believe there's a presentation on our website, if you look at the slideshow we have, there's a page that talks about contract awards and the next page does revenue. If you go to that contracts page and look at what we won and the year we won it and then move forward one slide to the revenue page, you'll see that revenue tracked almost one year to the day from when we won contracts. So if we won $30 million of contract in year one, it generated $30 million worth of revenue in year two. If we won $7 million worth of contracts in year two, we would've recorded a $7 million worth of revenue in year three. So there is about a one-year lag, which tells you everything was produced on average within a 12-month period of time.

I guess just a few last things on that topic. One is I assume you've not seen a big uptick in available bids on these types of projects so far. And, two, if they do go by fleet instead of by aircraft in the future, is that going to significantly increase competition from bigger players as obviously the contract value increased significantly as well?

I'm going to say I guess (inaudible) logically that would seem to be the case. However, by doing it via fleet versus planes, it might take a contract that was $2 million back in the day, back in the 2003/2004 timeframe and make it $12 million now as opposed to a $2 million contract.

That is still very, very small for a lot of the people we compete against today. Don't forget, we're competing against companies nowadays that are anywhere from $300 million to $1.7 billion. We compete against divisions of Triumph, which is a $3 billion company now. A $12 million contract is not necessarily something they're going to go hog wild over. For us, that's a significant piece of work. For them, it might not necessarily be.

I won't use names, but to some of those companies I just mentioned, over $0.5 billion -- approaching $1 billion or slightly over, that would not interest them all that much. We don't see them on the contracts that we are winning now. We just announced a Goodrich contract that was what, $11 million basically. There wasn't a lot of those people out there competing on that either.

So while there will be some additional competition, I like our chances just based on our track record and being able to go back in and say, hey, remember us? We were the best you had, and we're back, and we're still here, and let's go.

Okay. Thank you. That was helpful.

That's too many questions, too, and now the bee is on you.

(Operator Instructions). Mr. Fred, it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Okay. Thank you, Christine. Well, I would like to thank all of you for participating in this call. We look forward to speaking to you again in early May for our first-quarter earnings call, and perhaps I'll see some of you out at ROTH next week. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Thank you, Christine.