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Edited Transcript of AIRI earnings conference call or presentation 12-Aug-19 8:30pm GMT

Q2 2019 Air Industries Group Earnings Call

BAY SHORE Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Air Industries Group earnings conference call or presentation Monday, August 12, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Luciano M. Melluzzo

Air Industries Group - President & CEO

* Michael E. Recca

Air Industries Group - CFO

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Conference Call Participants

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* John Nobile

Taglich Brothers, Inc., Research Division - Principal Equity Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Air Industries conference call. Today's conference is being recorded.

Air Industries Group's safe harbor statement. Except for the historical information contained herein, the matters discussed in this presentation contain forward-looking statements. The accuracy of these statements is subject to significant risks and uncertainties. Actual results could differ materially from those contained in the forward-looking statements. See the company's SEC filings on Form 10-K and 10-Q for important information about the company and related risks.

EBITDA is used as a supplemental liquidity measure because management finds it useful to understand and evaluate results, excluding the impact of noncash depreciation and amortization charges, stock-based compensation and expenses, and nonrecurring expenses and outlays prior to consideration of the impact of other potential sources and uses of cash, such as working capital items. This calculation may differ in method of calculation from similarly titled measures used by other companies.

At this time, I'd like to turn the conference over to Lou Melluzzo. Please go ahead, sir.

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Luciano M. Melluzzo, Air Industries Group - President & CEO [2]

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Thank you, Eduardo. Good afternoon, and thank you for joining us as we summarize Air Industries results for the second quarter and the first half of 2019.

Our results for the quarter are much improved over the second quarter of 2018. Net sales, gross profits are up. Operating expenses are well controlled. Although we had a net loss for the quarter in 6 months, the industry has recorded a positive net operating income for the first time in many years. For the first half of the year, sales increased by 19.1% over last year. Operating expenses decreased by 13.2%. Gross profit improved by 27.6% over last year.

These improvements resulted from the many changes we've made at the company. Some notable improvements here in the quarter are, we settled into a manufacturing rhythm with fewer disruptions. The consolidation and divestitures are behind us. We are streamlining operations through continuous improvement initiatives, reassignment of people, better cutting tool technologies, consistent engineering practice and better control of our supply base.

Our improved financial performance and increased financial stability has strengthened our relationship with our customers and suppliers. We are collaborating with our customers to prioritize requirements and accelerate deliveries.

With that, I would like to turn the call over to Mike Recca, our CFO, for a financial recap, then I'll return to close the call. Mike?

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Michael E. Recca, Air Industries Group - CFO [3]

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Thank you, Lou. As is our practice, I'm not going to reread the press release because I presume you all have read it. I'd like to focus on a couple of points: one is our gross profit, second is our operating income, and third is our debt.

Gross profit at our operations -- manufacturing operations is highly variable with sales. For the 6 months, our sales were 20%, but our gross profit was up 30%. And this illustrates our earnings leverage. We have at both locations a high percentage of fixed costs we call manufacturing overhead and sales increase. And we control those expenses. They get spread over a much larger [level] of sales.

For example, at our Long Island operation, which we call CMS, Complex Machining, our manufacturing overhead, each dollar of sale had to carry $0.39 of cost in 2018. And this fell to $0.32 per dollar in 2019, significantly increasing our gross profit. At Sterling Engineering, our Turbine and Engine segment is even more variable as each dollar of sales at Sterling had much lower material costs due to [customers supplying] material. So a dollar of sale at our machining, which may be 50% material, 50% labor, at Sterling, it's more like 80% to 90% labor and 10% to 20% material. So there, you have even greater earnings leverage than we'd have per dollar of sale.

And an example of that is for the 6 months, sales at Sterling are up by $575,000 over a year ago, and gross profit is up by $150,000, from a negligible amount in 2018, to $150,000 in 2019.

Even though our overall gross margin was only 5 percentage points at Sterling for the 6 months, the incremental increase in gross margin was 25%, 26%. So once you get above breakeven, you're adding to your margin [at] a much higher rate. So as sales continue to improve, which we believe they will, we should show significant -- more significant increases in gross profit as time goes on.

As Lou mentioned, we had a positive net income for the 6 months and for the quarter. And it is very significant. It's the first operating profit we've had in a long, long time. For the 6 months, we had a profit of $156,000, and that is measured on a GAAP basis. No add-backs, no pro formas, no nothing. So it's very satisfying to recognize that, particularly when you look in 2018, where we had an operating loss of $1.1 million.

To put this in some perspective, 2 years ago, the year end in 2017, we had an operating loss of $6 million. In 2018, we had cut that by 2/3 to $2 million. And in 2019, so far, we have an operating profit. And I know everybody is very desirous of our having net income after everything, but before we get to that, we had to get to net operating profit to be able to pay those additional expenses.

In terms of our debt, our total debt capital leases, about the same level as they were at the end of 2018. Our cash interest expense is paid about half in cash -- our interest expense, rather, paid half in cash and half [to crude]. But there's some -- within that, there's some very positive inclinations for our cash flow.

We are reducing our term loan with PNC Bank, and our capital lease is secured by equipment at the rate of about $3 million a year. So that's $250,000 a month that is a big crimp in our operating cash flow.

By the end of this year, the term loan is paid off. And by mid-2020, most of the capital leases are paid off. So beginning January, we're going to increase our flexibility by $1.5 million a year from the elimination of the term loan. For the first half of 2020, our amortization of our capital leases will not be $700,000, but rather like $400,000. And for the second half of 2020, the capital leases will be about $0.25 million.

So we'll be significantly adding to our cash flow each and every month, which we think will further enable us to ramp production to keep our accounts payable in line and increase our operating income and strive towards a net income.

Those are my comments. Lou, it's back to you.

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Luciano M. Melluzzo, Air Industries Group - President & CEO [4]

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Thank you, Mike. I'll close the call with a few thoughts on the remainder of the year. Our results for the quarter in the first half of 2019 demonstrate that we are succeeding at driving revenue, increasing gross margins and achieving operating profitability. We are dedicated to and remain confident about fulfilling our backlog of orders to our customers and continuously improving our operations.

This concludes our formal remarks this afternoon. I would like to open up the call to participant questions. Eduardo, please open up the line to participant questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question. Please state your name before [pausing] in.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [2]

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This is John Nobile at Taglich Brothers. First off, it was good to see a second sequential quarter of growth, averaging close to 20% now for the first half of the year. So I imagine you're starting to whittle away at your backlog, which is still pretty high, around $100 million backlog. So I was hoping you could give us an update on any progress that has been made in the effort to [ship] backlog.

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Luciano M. Melluzzo, Air Industries Group - President & CEO [3]

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Yes, I can do that, John. Obviously, we've been -- we were talking with our customers on a daily basis. Some product has been -- not reassigned but rescheduled. So we are working out new schedules to be able to allow us to -- you would think that with $100 million backlog we'd be late on everything. That's not the case. There's been a lot of communication and rescheduling product to where it needs to be. And we keep chipping away at it to the tune of about what's the first 2 quarters this year, averaging about 13 and change per quarter.

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Michael E. Recca, Air Industries Group - CFO [4]

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$13 million -- $13.6 million per quarter.

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Luciano M. Melluzzo, Air Industries Group - President & CEO [5]

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$13 million -- $13.6 million per quarter. So we're making progress towards that, John.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [6]

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Okay. That's great. I know on the previous call I worked it out. It was almost like $16.7 million per quarter to really push that out in about an 18-month period, so I just wanted to make sure we're progressing in that direction. And actually, recently there...

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Michael E. Recca, Air Industries Group - CFO [7]

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20% a year is a significant improvement. Backlog hasn't gone down because we've replaced it with new orders. But we are -- it's not going -- we are fulfilling our needs. We'd love to be at $15 million, and essentially, someday we will be.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [8]

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Keep doing this type of growth and it shouldn't take that much longer, 20% on 20%. But there was a recent increase in the [front] spending that was signed into law. I was curious if you knew what programs in particular would likely be favorably impacted by this that would actually benefit Air.

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Luciano M. Melluzzo, Air Industries Group - President & CEO [9]

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The spending is across the board. I mean, what we have line of sight to there's some additional spend on some E2D product. The F-35, we know that, that's been -- has been approved. And that's very viable, and that program is swinging into full gear. On the rotorcraft, they're still funding a lot of BlackHawk parts. The BlackHawk still has probably a 40- to 50-year run, so there's been some additional funding. That's on new programs. Heavy-lift chopper for Sikorsky and rotorcraft, that's got some additional funding. There's a lot of platforms they're still spending on. They had their budgets. Obviously, whatever comes out of Washington is not enough for the OEMs, so they're lobbying for more. In some cases, they have been successful into getting additional requirements.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [10]

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Great. That's great to hear. Thank you for that update. And just getting back to Sterling, I know actually for the first 2 quarters of the year, it was showing a gross profit. And I was curious as to your outlook for Sterling in the second half of this year and beyond and how great of an impact you believe an increase in sales at Sterling would have in your gross margins. I don't know -- I know you mentioned like a certain percentage increase in sales and it basically doubled your gross profit. So looking at this going forward, what is your outlook and how might, say, $1 million increase in sales might that impact your gross margins with Sterling?

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Michael E. Recca, Air Industries Group - CFO [11]

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If we got $1 million of increase in Sterling over the next 6 months compared to the first 6 months, I'd highly expect that would take our gross profit from $157,000 to $200,000 to somewhere in the $450,000 to $500,000 range.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [12]

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So then you're looking at like a 20% to 30% increase in gross margin from that?

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Michael E. Recca, Air Industries Group - CFO [13]

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That is correct. And again, that's because, what I try to -- the mantra used around here $1 of sales at Sterling in terms of gross margin benefit, is equal to $2 of CMS because $1 of sales at Sterling is essentially 100% labor, which shows our -- hopefully our markup on and not just trading material and buying it and then reselling it to -- raw material, just reselling it at cost in effect.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [14]

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Okay. I mean I know you had that $1.5 million, $1.6 million in actual sales for Sterling. So I mean that's a nice jump there to see the same $1 million in the quarter. But let's just say a lesser number, like incrementally you go up a couple of hundred thousand, at what level in Sterling do you think that you would get to that point of at least a 20% gross margin?

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Michael E. Recca, Air Industries Group - CFO [15]

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Okay. Well, the rule of thumb I'm using, John, is on the $600,000 of increase we had year-over-year for the 6 months, we generated $150,000 more of gross margin, or about 26%. So if you want to 20% gross margin, that's 15 points...

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [16]

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Okay. Well, I'm not saying 20% exactly, but just to get into that 20% range, so all right.

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Michael E. Recca, Air Industries Group - CFO [17]

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I probably need another -- on a 6-month basis, I would probably need another $1 million, $1.2 million.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [18]

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On a 6-month basis, so $0.5 million on a quarterly basis. So if you were to get to say about a $2 million sales run rate at Sterling, you can see gross margins in the 20% range, is what I'm trying to get to.

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Michael E. Recca, Air Industries Group - CFO [19]

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That's correct. That is correct.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [20]

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And how do you feel about that in the second...

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Michael E. Recca, Air Industries Group - CFO [21]

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It goes like the [top] here, John.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [22]

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But further on this...

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Michael E. Recca, Air Industries Group - CFO [23]

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Yes, it's not average, but it would be -- there would be healthy increase. It'd be [outer] limits of what we can expect.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [24]

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Do you have any visibility into the second half? I mean, we're already in the second half, but for Sterling, as far as seeing any incremental increases in revenue?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [25]

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That business is still dependent on customer-supplied material. So the cadence of the comps will put it out. We're working to change some of that to be more in line with -- we're looking to procure some material, so we have there better visibility. Right now, it's -- a lot of our materials is consigned up there.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [26]

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Okay. Just one final question, just to get an idea, because I see even in the press release, it's really talking strictly defense. But what would you say is your current defense/commercial sales mix? And where do you see this about a year from now just to get an idea of how the different sectors might be growing?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [27]

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Yes.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [28]

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Because I mean, Sterling, we're really looking at commercial sales correct? A lot of it?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [29]

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About half. But commercial -- they have a higher percentage of commercial, but they have some defense work also, and some of the contracts that we are negotiating up there are also defense work.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [30]

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Okay. So where do you currently stand if you had -- your best guess on the quarter or even the half year in defense and commercial sales? What percentage?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [31]

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About 75%-25%, military versus commercial.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [32]

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75%-25%, that's impressive given that defense sales have gone up. So obviously, commercial sales, I think, historically have been less than this. So it sounds like you're gaining some traction in the commercial area then?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [33]

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Yes. You know where -- our business development folks were looking ahead. I know the President we have in office right now. Don't know who it will be in 2 years and just got to kind of do your due diligence.

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Michael E. Recca, Air Industries Group - CFO [34]

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I remember the -- your favorite product, the thrust struts on commercial.

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [35]

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You remember that one, okay.

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Michael E. Recca, Air Industries Group - CFO [36]

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I remember. How could I forget? They have commercial and they have a big component there. And finally -- probably...

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John Nobile, Taglich Brothers, Inc., Research Division - Principal Equity Analyst [37]

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Because I remember -- I mean I brought that up years ago, and there was supposed to be a pretty significant ramp in those sales. How are we looking today? Because I mean, it's been maybe a year since I've really looked into that. How does it look right now as far as those sales are concerned?

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Michael E. Recca, Air Industries Group - CFO [38]

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We are producing quickly, and we're selling every one we -- we've taken every one we can. And the ramp up in the sales was all based on Geared Turbo-Fan deliveries. And as you can see -- as you confirm in the papers that [Airbus] is annoyed with Pratt & Whitney because they're behind in engine deliveries. So as they're delivering the engines and getting those problems behind them with their supply chain, we are delivering the thrust struts.

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Operator [39]

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(Operator Instructions) We'll now take our next question.

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Unidentified Analyst, [40]

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Congratulations on your sales growth. And I have about 6 questions, some pretty quick, like the first one. Is the new boring mill in full operation?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [41]

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The boring mill is set up and waiting for a part that we're transferring into it. Tooling has been done. It's fired up. The part will be hitting that probably in the next 2 days. We've done some test runs on it. We've made some small parts on it, but we really bought it for a big commercial part that we're doing for one of our OEMs.

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Unidentified Analyst, [42]

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Okay. So you -- so in this quarter, then?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [43]

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Oh, yes.

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Unidentified Analyst, [44]

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Okay. Great. In a previous call you mentioned looking to hire 5 additional machinists. Was that done? Were you able to do that?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [45]

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We hired personnel on both first and second shift, and we probably hired more than 5. I mean, as an aggregate, we brought some in. We brought a couple. We're still ahead of the numbers.

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Unidentified Analyst, [46]

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I was wondering if you could provide some color on the greater than $2 million increase in work in progress. Something like is it for shipping this quarter, next quarter, next year?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [47]

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As you may know, increase in work in [process] is largely attributed to the increase in sales. Of course, from my position, any increase in inventory is a horrible thing, but I get talked out of that by the manufacturing people. It is entirely due to growth in sales, not really any kind of bottleneck or backlog.

One thing to keep in mind, you see raw material, finished goods in work in process, our finished goods are really a misnomer. We build to customer orders only. That's an absolute statement, which is not absolutely true. Sometimes we build to speculate. An order for 3 and you make up 2 at a time, you just might as well make 4 and have 1 left over. But generally, we try to manufacture to customer orders, and that's all.

Now during the manufacturing process, any of our products have multiple, sometimes, hundreds of individual components. And at any point in time, a percentage -- half of them or some percentage of those components are finished. But they're not -- [they're sellable] to a customer and we have no order for them. We made them for the next higher level to be incorporated into a larger component, and that's -- for which we do have a customer order.

So a product begins its life as raw material. It becomes a work in process. Then it may be finished. It goes into finished goods. And then reenters work in process to be incorporated into another product and go through the same cycle until you finally have a pull-up landing gear that may have 200 or 300 components in it and it sells for a couple hundred thousand dollars. So almost everything we have beyond raw material is WIP.

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Unidentified Analyst, [48]

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Okay. Okay. I think I could be mistaken, but I vaguely remember from a previous conference call that landing gear stake is at 6 months?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [49]

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Usually 6 months. Usually 6 months, and what's happening is with the supply base, the secondary process house, the staff are so busy that where we would typically run, say, 10 -- to the cadence of 10 a month and make our commitment to our customers, that's becoming very difficult to do that because everything on the outside is taking longer than it should. So in some cases, we're deciding to run a few more to be able to keep up with the demand or be able to deliver to our customers when they need it.

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Unidentified Analyst, [50]

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Okay. And so the work in [progress] would go up because....

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Luciano M. Melluzzo, Air Industries Group - President & CEO [51]

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That's correct.

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Unidentified Analyst, [52]

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Yes. Okay. I believe it was in the last -- I believe it was in the last conference call that you stated that you were incurring some expediting costs. Is that still happening?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [53]

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That's still the case, but it's well controlled now. The expediting costs is being shared with the OEMs.

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Unidentified Analyst, [54]

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Okay. Okay. Two more questions. I have a question on your sales guidance. Sales have increased really nicely to $27.2 million for the first 6 months of this year. And if you maintain that level for the next 6 months, that would bring your sales to $54.4 million for 2019. And in general, last estimate which I read off the website, you estimated $55.1 million for 2019. Can you provide some color about your 2019 sales from continuing operations to exceed 50 point -- $50 million?

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Michael E. Recca, Air Industries Group - CFO [55]

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So if you look back at 2018, we ended the year on continuing operations at $44.5 million. And so when we gave guidance in the first quarter, we upped that. We said we would beat that number. And then now with results of the 6 months, we really want to say we're going to do better than $50 million. This is something of a turnaround situation, as you're all aware.

My experience of turnarounds is that they're -- it's rare when they are a straight line. Now we were able to have a very good first half, in my opinion. And so to repeat that, you're correct. We'll be doing $55 million. But in terms of our guidance, we left a little bit of a cushion and that we may have a hiccup quarter.

Another thing to keep in mind is when you're selling pieces that cost [$200, $300] a piece, having 1 piece slip from September to October can dramatically hurt your quarter. And so if it doesn't come back from the chrome shop, it doesn't back via the other place, and so it flips from September 30 delivery to October 10 delivery. And then the third quarter has a blemish. So we're still cognizant of that, and we're constantly...

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Unidentified Analyst, [56]

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So I guess -- yes, you're being conservative, but okay.

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Michael E. Recca, Air Industries Group - CFO [57]

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EBITDA guidance. In the press release, we said our EBITDA was $2.5 million. Or extrapolating that out, it should be $5 million. We've said $4 million to $4.5 million. And the reason is that in the $2.5 million is about $600,000 of lease abandonment expense and stock compensation. Lease abandonment is a onetime thing, will be not repeated. And the big charge for stock compensation was in Q1. Much, much smaller amount in Q2.

So the way I look at it is about 2 -- about $1.8 million to $2 million of operating EBITDA, total $2.5 million. So if I repeat the $1.8 million and the $2.5 million, that's $4.3 million. So $4 million to $4.5 million is the guidance.

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Unidentified Analyst, [58]

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Okay. Okay. And my last question is really an outlier, but since it's made big news, I figured I would ask. Lockheed Martin, in the last conference call, was reported to have said that it is working to establish ultimate supply sources for F-35 parts in the U.S. after the Pentagon decided to remove Turkey from the fighter jet program. I'll just ask it, have you all been in contact with Lockheed Martin about this?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [59]

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We have, we have very close ties with Lockheed Martin, NGC, Boeing and everybody. And we're in the supply chain. We're in the [food up] . If things come down -- when they determine, yes, we have. When it comes down, we will probably see our share of it.

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Michael E. Recca, Air Industries Group - CFO [60]

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And in fact, in the old days, when the F-35 was just beginning its low-rate initial production, we lost a product to a Turkish company. Before this, the Russian anti-aircraft missile program started, we already won it back.

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Unidentified Analyst, [61]

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Okay. All right. Congratulations on the progress again.

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Operator [62]

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We'll now take our next question.

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Unidentified Analyst, [63]

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Congratulations on the good quarter. Could you give us some color on -- you said new business awards were nearly 150% ahead of the prior year. So like, would that mean if you had $1 million prior year, you have $2.5 million this year? That much ahead?

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Michael E. Recca, Air Industries Group - CFO [64]

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If we had $1 million last year, we would have $1.5 million this year. I don't have the exact number what we had last year, but it is significantly ahead of last year.

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Unidentified Analyst, [65]

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Okay. And I noticed you, in the beginning of the year, had announced substantial contract awards. We don't get much information between quarterly conference calls. I mean, if there are big awards, do you expect any kind of press release?

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Michael E. Recca, Air Industries Group - CFO [66]

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Yes, we do, and we are negotiating some as we speak. They're not at the point where they're announceable.

But remember, we get awards every day because let me explain how the business works. We have what we call long-term agreements with our customers that can extend for 2, 3, 4, 5 years. So we win that award, and then every month, they will issue what are called releases against those long-term agreements.

So Sikorsky, to use an example, has the right to buy 500 of a certain product from us over the next 5 years, 100 a year. Every month, they may order 10, 20 or 30 against that 500. We don't announce each one of those. They're just -- those are just regular purchase orders.

Our long-term agreements, which we do announce, they're infrequent but they're substantial. But that drove up backlog also. And remember, our backlog is only what has been released. We have been ordered to make this product by our customer. We have not said we expect, we hope, we pray that the Congress will fund the money and that customers will make the orders because our long-term agreements say it's up to 500, not 500, to my example.

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Luciano M. Melluzzo, Air Industries Group - President & CEO [67]

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The way we report backlog is not traditionally the way a lot of companies do it. Typically, they will -- if there's a $500 million-a-year deal, they'll take the medium line for the 5 years and report a backlog of $500 million. And we're very conservative of what we say. We're going on 18 months what we really have hard, firm orders for, and that's what we record.

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Michael E. Recca, Air Industries Group - CFO [68]

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Think of it another way, if we have no new orders, we would have to produce a backlog of $100 million, whatever it is, over the next 18 months, period.

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Unidentified Analyst, [69]

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That's understood, but wouldn't we have to get up to about $16.7 million per quarter to sell those orders, that $100 million orders in 18 months at some point?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [70]

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Yes. Yes, we would.

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Unidentified Analyst, [71]

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And what's holding us back? Is it because we can't buy enough inventory? Or is it just timing? Or is it -- what rate are we pushing out the door in our orders? I mean, like timeliness, I think that's what the term is, but you did mention like 70% last quarter that the orders were sent out on time?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [72]

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We're rescheduling to our customers' requirements. Basically, where it goes down to, there is a bottleneck across the industry because of the floodgates opening up. And it's not just an Air Industries problem, it's across the board. People can't hire fast enough, they can't get materials fast enough, they can't get the secondary services fast enough. We've got people that all they do here is expedite products to the outside supply base. That's all they do. Where 4, 5, 6 years ago, those people were not even heard of. They weren't on a payroll. They were -- they did the internal expedite, and this outside supply base did what needed to be done.

Now that's when a bottleneck's mostly created because for every machine shop, you might get -- you might have -- for 10 machine shops, you might have one heat treater or one guy that does anodizing or any other secondary. And when you've got everybody using them, they just can't fill the orders as quickly. So it's a matter of getting -- on an earlier question was on the expedite, it becomes now necessary to get first in line with everything. So we've got people trying to get us first in line across the board.

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Michael E. Recca, Air Industries Group - CFO [73]

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That segment of the industry has shrunk from, say, 2010 to 2017 or so. So not many people going in the chrome plating business this year. If you started to try and get the permits to do so, you have to start at a very young age so that you'd be alive by the time you got them. So those companies are -- have not expanded. They have actually -- the numbers have shrunk down when the demand for their services as a result of the OEMs' orders have dramatically increased. So that is the bottleneck that everyone is facing.

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Luciano M. Melluzzo, Air Industries Group - President & CEO [74]

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So the things that we can take control of, we are. But we can't take control of everything. We're never going to be a heat treat house. It's got too many environmental impacts. Or a plater. We're never going to be a plater. It's got too much EPA requirements. We'll never get it.

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Unidentified Analyst, [75]

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Okay. So the $100 million that we need to theoretically push out the door in 18 months, if we do have the $27.2 million every 6 months, we're only up $81.6 million. What would happen with the other $19 million or $18.4 million that we didn't get out in the 18 months?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [76]

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They would be pushed back by the customers when we can't get it out. That's what the rescheduling is all about. And understand, they're part of the problem, too. Frequently, they'll place an order with us for something that takes 4 months to manufacture and they'll place it today and they want it in September. So obviously, it's late that they got here.

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Unidentified Analyst, [77]

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So does some of this prevent you from taking on other contracts or other work?

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Luciano M. Melluzzo, Air Industries Group - President & CEO [78]

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No. We've got work full gear into business development right now. So we are looking to diversify across our platform. Like I said, we're 75% military, 25% roughly commercial. I'm looking to even the playing field where I can, so...

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Michael E. Recca, Air Industries Group - CFO [79]

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And right now, we're negotiating contracts that are going to begin maybe in 2020, probably closer to 2021. So it is a long lead time involved in this.

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Operator [80]

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It appears there are no further questions at this time. I'd like to turn the conference back for the presenters for any additional or closing remarks.

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Luciano M. Melluzzo, Air Industries Group - President & CEO [81]

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So with that, once again, thank you, everyone, for taking time to be on our call today and for your attention and questions.

The management and employees of Air Industries look forward to building on the promising results of this year's first 6 months.

With that, I'd like to turn it over to you, Eduardo, for the conclusion.

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Operator [82]

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This now concludes today's call. Thank you for your participation. You may now disconnect.